**Exhibit 10.42**

** **

**CHANGE IN CONTROL AGREEMENT**

** **

THIS CHANGE IN CONTROL AGREEMENT (the “***Agreement***”) is entered into as of June 11,2008 (the “***EffectiveDate***”), by and between James S. Miele (the “***Employee***”) and Iteris, Inc.,a Delaware corporation (the “***Corporation***”).

 

Section 1.                                            Term ofAgreement.

 

This Agreement shall take effect on the Effective Date and shall expireon the earlier of (i) the fifth anniversary of the Effective Date, or (ii) thedate Employee’s employment with the Corporation terminates for any reason otherthan an Involuntary Termination (as defined herein) that is in connection withor within twelve (12) months following a Change in Control.

 

Section 2.                                            Definitions.

 

                                                                                                (a)                                  **“*Change in Control*”**shall mean any of the following transactions effecting a change in ownership orcontrol of this Corporation:

 

                                                                                                                                                (i)                                     amerger or consolidation of the Corporation with or into another entity or anyother corporate reorganization, if persons who were not stockholders of theCorporation immediately prior to such merger, consolidation or otherreorganization own immediately after such merger, consolidation or otherreorganization 50% or more of the voting power of the outstanding securities ofeach of (i) the continuing or surviving entity and (ii) any direct orindirect parent corporation of such continuing or surviving entity.

 

                                                                                                                                                (ii)                                  Thesale, transfer or other disposition of all or substantially all of theCorporation’s assets;

 

                                                                                                                                                (iii)                               theacquisition, directly or indirectly, by any person or related group of persons(other than the Corporation or a person that directly or indirectly controls,is controlled by or in under common control with, the Corporation), of “beneficialownership” as defined in Rule 13d-3 under the Securities Exchange Act of1934, as amended (the “***ExchangeAct***”), of securities of the Corporation representing at least50% of the total combined voting power represented by the Corporation’s thenoutstanding voting securities.  Forpurposes of this subsection, the term “***person***” shall have the same meaning as whenused in Sections 13(d) and 14(d) of the Exchange Act but shallexclude (i) a trustee or other fiduciary holding securities under anassociate benefit plan of the Corporation or of a Parent or Subsidiary and (ii) acorporation owned directly or indirectly by the stockholders of the Corporationin substantially the same proportions as their ownership of the common stock ofthe Corporation.

 

                                                Notwithstandinganything to the contrary contained herein, a Change in Control be not be deemedto occur in connection with any underwritten public offering of the Corporation’ssecurities.

 

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                                                                                                (b)                                 **“*Involuntary Termination*”**shall mean the termination of the Service of any individual which occurs byreason of:

 

                                                                                                                                                (i)                                     Employee’sinvoluntary dismissal or discharge by the Corporation for reasons other thanMisconduct, or

 

                                                                                                                                                (ii)                                  Employee’svoluntary resignation following (A) a change in his position with theCorporation which materially reduces his level of responsibility, (B) amaterial reduction in his level of compensation (including base salary, fringebenefits and participation in bonus or incentive programs) or (C) arelocation of Employee’s place of employment by more than fifty (50) miles, providedand only if such change, reduction or relocation is effected by the Corporationwithout the Employee’s consent. Notwithstanding the foregoing, an Involuntary Termination shall only befound to exist if Employee has provided written notice to the Corporationwithin 90 days of the existence of an event under (A), (B) or (C), and theCorporation does not cure such event within 30 days following the receipt ofsuch notice from Employee.  For avoidanceof doubt, a 5% reduction in the combined level of base salary and annual targetbonus opportunity shall constitute a material reduction for purposes of (A) above.

 

                                                                                                (c)                                  **“*Misconduct*”**shallmean (i) the misappropriation of the Corporation’s funds or property, orany attempt by Employee to secure any personal profit related to the businessor business opportunities of the Corporation without the informed, writtenapproval of the Audit Committee of the Corporation’s Board of Directors; (ii) anyunauthorized use or disclosure by such person of confidential information ortrade secrets of the Corporation (or any Parent or Subsidiary); (iii) grossnegligence or reckless or willful misconduct in the performance of Employee’sduties; (iv) the failure to perform, or continuing neglect in theperformance of, duties assigned to Employee for at least ten (10) daysafter receipt by Employee from the Corporation of prior written notice of suchfailure or neglect; (v) the conviction of, or plea of *nolo contendre* to, any felony ormisdemeanor involving moral turpitude or fraud; or (vi) any othermisconduct by Employee that the Board determines in good faith has had amaterial adverse effect upon the business or reputation of the Corporation.

 

                                                                                                (d)                                 **“*Annual Base Pay*”**shallmean Employee’s base salary at the highest rate in effect at any regularlyscheduled payroll period preceding the occurrence of the Change in Control anddoes not include, for example, bonuses, overtime compensation, incentive pay,sales commissions or expense allowances.

 

                                                                                                (e)                                  **“*Target Bonus*”**shallmean the bonus potential established for the Employee by the Corporation forthe applicable fiscal year.

 

                                                Section 3.                                            SeverancePayment; Employment at Will.

 

                                                                                                                                                (a)                                  Entitlementto Payment.   Employee’s employmentwith the Corporation is at will, which means that it is not for a specific termand may be 

 

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terminated by either the Corporation or the Employee, at any time, foran reason, without advance notice. Similarly, the Corporation may change the terms and conditions ofEmployee’s employment at any time, for any reason, without notice.  Notwithstanding the foregoing, subject to Section 9,the Employee shall be entitled to receive a severance payment from theCorporation under this Agreement (the “***Severance Payment***”) if, the Employee isInvoluntarily Terminated in connection with or within twelve (12) months aftera Change in Control.  Employeeunderstands, agrees and acknowledges that as a condition precedent to receivingany of the Severance Payments and other benefits set forth in this Agreement,Employee agrees to sign a Release in accordance with Section 9 herein.

 

                                                                                                                                                (b)                                 Timeand Amount of Payment   The SeverancePayment shall be paid in one lump sum starting with the next normally scheduledpayroll date of the Corporation following the latest of the followingdates:  (i) Employee’s last day ofemployment, (ii) the date the Corporation receives Employee’s signedgeneral release of all claims pursuant to Section 9, or (iii) thedate the revocation period (if any) specified in the general release of allclaims expires.  The amount of theSeverance Payment shall be equal to the following:

 

·                  100% of theEmployee’s Annual Base Pay, plus

·                  50% of Employee’sTarget Bonus for the current fiscal year

 

Notwithstanding the foregoing, in the eventthe Involuntary Termination is the result of Employee’s voluntary terminationof employment with the Corporation and such termination does not occur withinthe first six months following the completion of the transaction giving rise tothe Change in Control, Employee shall only be entitled to 50% of Employee’sAnnual Base Pay and 25% of Employee’s Target Bonus.  Payments made under this Agreement shall notbe treated as “compensation” for purposes of the 401(k) ProfitSharing Plan.  Employee will also receivehis unpaid salary through his termination date and a lump sum payment for allaccrued and unused vacation (through the termination date) in a final paycheckprovided on his last day of work.  ThisSeverance Payment is intended to qualify as an involuntary separation payarrangement that is exempt from application of Section 409A of theInternal Revenue Code of 1986, as amended (the “***Code***”) because all severance paymentsare treated as paid on account of an involuntary separation (including avoluntary separation for good reason) and paid in a lump sum within the “short-termdeferral” period following the time the Employee obtains a vested right to suchpayments.

 

                                                                                                                                                (c)                                  Mitigationand Reemployment.   The Employeeshall not be required to mitigate the amount of any payment contemplated bythis Section 3 (whether by seeking new employment or in any other manner),nor shall any such payment be reduced by any earnings that the Employee mayreceive from any other source.

 

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                                                Section 4.                                            PaymentsUnfunded and Non-Assignable.

 

                                                                                                                                                (a)                                  NoFunding.   Any payments to be madeunder Section 4 shall represent an unfunded and unsecured obligation ofthe Corporation, which shall represent an unfunded and unsecured obligation ofthe Corporation’s general assets.  TheEmployee shall be considered a general creditor of the Corporation and shallhave no rights to any segregated funds or property of the Corporation.

 

                                                                                                                                                (b)                                 NoAssignment.   The Employee’s right topayments under this Agreement shall not be made subject to option orassignment, either by voluntary or involuntary assignment or by operation oflaw, including (without limitation) bankruptcy, garnishment, attachment orother creditor’s process, and any action in violation of this Section 4(b) shallbe void.

 

                                                Section 5.                                            GroupInsurance Coverage.   If the Employeebecomes entitled to a Severance Payment under this Agreement, then theCorporation shall continue to provide continued group health coverage, asotherwise required under applicable stated continuation law and theConsolidated Omnibus Budget Reconciliation Act of 1986, as amended and allapplicable regulations (“***COBRA***”).  Provided that the Employee makes thenecessary COBRA elections and payments, the Corporation shall reimburseEmployee for the total applicable premium costs paid by Employee for suchhealth COBRA continuation coverage for Employee (and if applicable Employee’sdependents) until the earlier of (i) twelve months after the terminationof Employee’s employment, or (ii) the maximum COBRA period.  The Corporation’s obligation to reimbursepremiums under this Section shall cease when the Employee obtains newemployment offering healthcare benefits.

 

                                                Section 6.                                            TaxEffect of Payments.

 

                                                                                                                                                (a)                                  Theamount of any cash payment to be received by Employee pursuant to Section 2of this Agreement shall be reduced (but not below zero) to the extent requiredso that no portion of any payment or benefit in the nature of compensationreceived or to be received by Employee (whether payable pursuant to the termsof this Agreement or pursuant to any other plan, contract, agreement orarrangement with the Corporation or any other person) (Such payments orbenefits are referred to collectively as the “***Total Payments***”) shall be treated as an “excessparachute payment” within the meaning of Section 280G(b)(1) of theCode.

 

                                                                                                                                                (b)                                 Thedetermination of whether any reduction in payments is required pursuant to Section 6(a) ofthis Agreement shall be made in writing by the Corporation’s independent publicaccountants, or such other independent accounting firm or tax advisors selectedby the Corporation in its sole discretion (the “***Accounting Firm***”), whose determinationshall be conclusive and binding upon Employee and the Corporation for allpurposes under this Agreement.  Forthe  purposes of making the calculationsrequired by this Section 6, the Accounting Firm may make reasonableassumptions and approximations and may rely on reasonable, good faithinterpretations concerning the application of Section 280G and 4999 of theCode, applicable regulations and other authority.  The Corporation and the Employee shallfurnish to the Accounting 

 

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Firm such information and documents as the Accounting Firm mayreasonably request in order to make a determination under this Section.  The Accounting Firm shall provide detailedsupporting calculations, in writing, to both the Corporation and the Employeeof determinations made pursuant to this Section 6.  The Corporation shall bear all of the coststhat the Accounting Firm may reasonably incur in connection with anycalculations contemplated by this section.

 

                                                                                                                                                (c) In the event of any uncertainty as to whether a reduction in payments toEmployee is required pursuant to Section 6(a) of this Agreement, theCorporation shall initially make the payment to Employee, and Employee shall berequired to refund to the Corporation any amounts ultimately determined not tohave been payable under the terms of this Agreement.

 

                                                Section 7.                                            Successors.

 

                                                                                                                                                (a)                                  Corporation’sSuccessors.   The Corporation shallrequire any successor (whether direct or indirect and whether by purchase,lease, merger, consolidation, liquidation or otherwise) to all or substantiallyall of the Corporation’s business and/or assets or, any successor as a resultof a “Change in Control” as defined by Section 2 (a) to assume thisAgreement and to agree expressly and in writing to perform this Agreement inthe same manner and to the same extent as the Corporation would have beenrequired to perform it in the absence of a succession.  The Corporation’s failure to obtain such anassumption prior to the effectiveness of a succession shall be a breach of thisAgreement and shall result in Employee’s Involuntary Terminationhereunder.  For all purposes under thisAgreement, the term “***Corporation***”shall include any successor to the Corporation’s business and/or assets thatexecutes and delivers the assumption agreement described in this Section 7(a) orthat becomes bound by this Agreement by operation of law.

 

                                                                                                                                                (b)                                 Employee’sSuccessors.   This Agreement and allrights of the Employee hereunder shall inure to the benefit of, and beenforceable by, the Employee’s personal or legal representatives, executors,administrators, successors, heirs, distributees, devisees and legatees.

 

                                                Section 8.                                            MiscellaneousPrevisions

 

                                                                                                                                                (a)                                  NoWaivers.   No provision of thisAgreement shall be modified, waived or discharged unless the modification,waiver or discharge is agreed to in writing and signed by the Employee and byan authorized officer of the Corporation (other than the Employee).  No waiver by either party of any breach of,or of compliance with, any condition or provision or of the same condition orprovision at another time.

 

                                                                                                                                                (b)                                 Choiceof Law.   The validity,interpretation, construction and performance of this Agreement shall begoverned by the laws of the State of California.

 

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                                                                                                                                                (c)                                  Severability.   The invalidity or unenforceability of anyprovision or provisions of this Agreement shall not affect the validity orenforceability of any other provision hereof, which shall remain in full forceand effect.

 

                                                                                                                                                (d)                                 Arbitration.   Except for responsibilities assigned to theAccounting Firm under Section 6, and except for the right of theCorporation and the Employee to seek injunctive relief in court, anycontroversy, claim or dispute of any type arising under or relating to Employee’semployment or the provisions of this Agreement shall be resolved in accordancewith this Section 8(d) of this Agreement, regarding resolution ofdisputes, which will be the sole and exclusive procedure for the resolution ofany such disputes.  This Agreement shallbe enforced in accordance with the Federal Arbitration Act, the enforcementprovisions of which are incorporated by this reference.  Matters subject to those provisions include,without limitation, claims or disputes based on statute, contract, common lawand tort and will include, for example, matters pertaining to termination,discrimination, harassment, compensation and benefits.  Matters to be resolved under these proceduresalso include claims and disputes arising out of statues such as the Fair LaborStandards Act, Title VII of the Civil Rights Act, the Age Discrimination inEmployment Act, the California Labor Code, and the California Fair Employmentand Housing Act.  Nothing contained inthis provision is intended to restrict Employee from submitting any matter toan administrative agency with jurisdiction over such matter.

 

                                                                                                                                                                                                (1)                                  Mediation.  The Corporation and Employee will make a goodfaith attempt to resolve any and all claims and disputes relating to thesubject matter of this Agreement through good faith negotiations. If suchclaims and disputes cannot be settled through negotiation, the Corporation and Employeeagree to submit them to mediation in Orange County, California before resortingto arbitration or any other dispute resolution procedure.  The mediation of any such claim or disputemust be conducted in accordance with the then current JAMS procedures for theresolution of employment disputes by mediation, by a mediator who has bothtraining and experience as a mediator of general employment and commercialmatters.  If the parties to thisAgreement cannot agree on a mediator, then the mediator will be selected byJAMS in accordance with JAMS’ strike list method.  Within thirty (30) days after the selectionof the mediator for one mediation session of at least four (4) hours.  If the claim or dispute cannot be settledduring such mediation session or mutually agreed continuation of the session,either the Corporation or Employee may give the mediator and the other party tothe claim or dispute written notice declaring the end of the mediationprocess.  All discussion connection withthis mediation provision will be confidential and treated as compromise andsettlement discussions.  Nothingdisclosed in any such discussion, which is not independently discoverable, maybe used for any purpose in any later proceeding.  The mediator’s fees will be paid in equalportions by the Corporation and the Employee, unless the Corporation agrees topay all such fees.

 

                                                                                                                                                                                                (2)                                  Arbitration.  If a claim or dispute relating to the subjectmatter of this Agreement has not been resolved in accordance with Section 8(d)(1) above,then the claim or dispute will be determined by arbitration in accordance withthe then 

 

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current JAMS employment arbitration rules and procedures, exceptas modified herein.  The arbitration willbe conducted in Orange County, California by a sole neutral arbitrator who hastraining and experience as an arbitrator of general employment and commercialmatters.  If the Corporation and Employeecannot agree on an arbitrator, then the arbitrator will be selected by JAMS inaccordance with Rule 12 of the JAMS employment arbitration rules andprocedures.  No person who has served asa mediator under the mediation provision above, however, may be selected as thearbitrator for the same claim or dispute. Reasonable discovery will be permitted and the arbitrator may decide anyissue as to discovery.  The arbitratormay decide any issue as to whether or as to the extent to which any dispute issubject to the dispute resolution provisions in Section 8, and the arbitratormay award any relief permitted by law. The arbitrator must base the arbitration award on the provisions of Section 8of this Agreement and applicable law and must render the award in writing,including an explanation of the reasons for the award.  Judgment upon the award may be entered by anycourt having jurisdiction of the matter, and the decision of the arbitratorwill be final and binding.  The partieshereto hereby waive to the fullest extent permitted by law any rights to appealor to review such award by any court. The statute of limitations applicable to the commencement of a lawsuitwill apply to the commencement of an arbitration under Section 8(d)(2) ofthe Agreement.  A the request of anyparty, the arbitrator, attorneys, parties to the arbitration, witnesses,experts, court reporters or other persons present at the arbitration shallagree in writing to maintain the strict confidentiality of the arbitrationproceedings.  The arbitrator’s fees willbe paid in full by the Corporation, unless Employee agrees in writing to paysome or all of such fees.

 

                                                Section 9.                                            Releaseand Waiver of Claims.  Inconsideration for Employee’s receipt of the Severance Payments or otherbenefits as specified in this Agreement, to which Employee is not otherwiseentitled, Employee agrees to sign and agree to the terms of a broad,confidential release of all claims, causes of action, judgments, damages,liabilities, demands or any other claims Employee or Employee’s heirs, assignsand agents may now or hereafter have against the Corporation, its subsidiariesand other related entities, and their respective employees, stockholders,directors, attorneys, accountants, successors and assigns or other agents inthe form and manner required by the Corporation (the “***Release***”).  Execution of the Release is a conditionprecedent for qualifying to receive any Severance Payments or other benefits asset forth in this Agreement.  Employeefurther understands and acknowledges that if Employee refuses to sign theRelease provided by the Corporation, or attempts to revoke such a Release, tothe extent permitted by its terms, Employee shall be disqualified fromreceiving Severance Payments or any other benefits provided by this Agreement.

 

                                                Section 10.                                      Notices.  All notices, demands and other communicationsrequired or permitted to be sent or given hereunder shall be in writing andwill be duly given and effective (i) if delivered in person or by areputable courier service, upon such deliver; (ii) if sent by first classUS mail, on the fourth business day following its mailing, certified mail,postage prepaid and return receipt requested; or (iii) if sent byovernight mail, on the business day following its mailing provided that thedelivery charges are prepaid.  Theaddresses of the parties for the purposes of notice are set forth below.  Each party 

 

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may change its address from time to time upon ten days prior noticegiven in accordance with this Section.

 

 
| Notice to the Corporation: |   | Iteris, Inc.                    |
|----------------------------|--------|--------------------------------------|
|                       |   | 1700 Carnegie Avenue, Suite 100 |
|                       |   | Santa Ana, CA 92705-5551             |
|                       |   | Attn: Chief Executive Officer        |
|                       |   |                                 |
| Notice to Employee:        |   | Jim Miele                            |
|                       |   |                                 |   |
|                       |   |                                 |   |

 

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                                                                                                INWITNESS WHEREOF, each of the parties has executed this Agreement, in the caseof the Corporation by its duly authorized officer, as of the day and year firstabove written.

 
|   | ITERIS, INC.   |
|--------|----------------|
|   |           |
|   |           |
|   | By:            |    /s/ABBAS MOHADDES |
|   |           |    Abbas Mohaddes, |
|   |           |    Chief Executive Officer |
|   |           |   |
|   |           |   |
|   |           |    /s/ JAMES S. MIELE |
|   | JAMES S. MIELE |

 

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