Exhibit 10.5


 


EMPLOYMENT
AGREEMENT


 


This EMPLOYMENT
AGREEMENT (“Agreement”), effective August 24, 2004, is entered into by and
between SYS Technologies, a California corporation, with its principal office
at 5050 Murphy Canyon Road, Suite 200, San Diego, California
92123 (“Company”), and Ed Lake, 
(“Employee”), collectively the “Parties.”  The Parties hereto desire to enter into an employment arrangement
and in order to accomplish that purpose and in consideration of the terms,
covenants and conditions hereinafter set forth, the Parties hereby enter into
this Agreement.


 


SECTION 1


 


EMPLOYMENT;
TERM; DUTIES


 


1.1                                 Employment. 
Upon the terms and conditions hereinafter set forth, the Company employs
Employee, and Employee hereby accepts employment, as Chief Financial Officer
(CFO).


 


1.2                                 Term.  Unless
sooner terminated as hereinafter provided, Employee’s employment hereunder
shall be for a term (the “Term”) commencing on the date this Agreement is
effective and ending on June 30, 2006. 
If the Company elects not to renew this Agreement at the conclusion of
the Term, Employee will be eligible for severance benefits pursuant to and in
accordance with subsections 4.2 or 4.4.


 


1.3                                 Duties.  During the
Term, Employee shall perform such duties for the Company as are prescribed by
applicable job specifications, the Bylaws of the Company and such other or
additional duties, consistent with such Bylaws, as may be assigned to him/her
from time to time by the Chief Executive Officer (“CEO”), or the Board of
Directors of the Company.  Employee
shall devote his/her best efforts, attention and energies to the performance of
his/her duties hereunder.  This
employment is full-time and exclusive. 
Employee may not work for any other company or enterprise during the
Term of this Agreement such that such employment would conflict or interfere
with his/her obligations to the Company under this Agreement.  Employee must advise the CEO in writing
prior to undertaking any employment in addition to his/her employment with the
Company.


 


SECTION 2


 


COMPENSATION


 


2.1                                 Base Salary. 
For all services rendered by Employee hereunder and all covenants and
conditions undertaken by both Parties pursuant to this Agreement, the Company
shall pay, and Employee shall accept, as compensation, an annual base salary
(“Base Salary”) of One Ninety Thousand Nine Hundred and Twenty Three Dollars
($190,923).  This Base Salary shall be
payable in accordance with the normal payroll practices of Company, less
required deductions pursuant to state and federal law, and less any amounts to
be deducted pursuant to agreement between the Parties.


 

















 


2.2                                 Incentive Compensation. 
The Employee shall also be paid such bonuses and/or other compensation
as may be determined from time to time by the CEO, or the Board of Directors as
they, in their sole discretion, may determine based upon the performance of the
employee and/or of the Company.


 


2.3                                 Performance and Salary Review. 
Employee’s performance will be reviewed on no less than an annual
basis.  Adjustments to salary or other compensation,
if any, will be made by the CEO, or the Board of Directors as is then
appropriate.


 


SECTION 3


 


BENEFITS/BUSINESS
EXPENSES


 


3.1                                 Benefits.  During the
Term, Employee shall be entitled to participate in such life, health, accident,
disability and hospitalization insurance plans, pension plans and retirement
plans as the Company makes available to the employees of the Company as a
group.


 


3.2                                 Business Expenses. 
Employee will be reimbursed for all reasonable, out-of-pocket business
expenses incurred in the performance of his/her duties on behalf of
Company.  To obtain reimbursement,
expenses must be submitted promptly with appropriate supporting documentation
in accordance with Company’s policies and procedures.


 


SECTION 4


 


TERMINATION;
RESIGNATION; CHANGE OF CONTROL; DEATH; DISABILITY


 


4.1                                 Termination of Employment With Cause. 
If (a) Employee fails to meet the performance standards established
for his/her position and does not remedy such shortcomings within 30 days after
written notice from the Company of such failure; or (b) Employee breaches
any material provision of this Agreement; or (c) Employee has been
convicted of any felony; or (d) Employee commits any act of fraud,
misappropriation of funds or embezzlement; or (e) Employee fails to report
to work for three (3) consecutive business days without informing his/her
superior; or (f) Employee commits any act, or fails to take any action,
the effect of which is to bring the Company into disrepute with any of its
customers, including, but not limited to a material violation of the Company
Code of Ethics, the Company shall have the right, upon written notice to the
Employee, to immediately terminate his/her employment (“Termination With
Cause”) hereunder, without any further liability or obligation to him/her
hereunder or otherwise in respect of his/her employment, other than its
obligation to pay unpaid Base Salary and unused personal time accrued as of the
date of termination.


 


4.2                                 Termination of Employment Without Cause. 
Notwithstanding any provision to the contrary herein, the Company may at
any time, in its sole and absolute discretion and for any or no reason,
terminate the employment of the Employee hereunder; PROVIDED, that if such
termination is not a Termination With Cause, as defined by subsection 4.1,
and such termination is not caused by the death or Disability of the Employee,
the Company shall pay and/or provide the Employee as follows:


 


4.2.1                        All accrued but unpaid Base Salary.


 


2

















 


4.2.2                        Reimbursement of normal incidental
employee expenses as of the date of the termination as and when such amount is
due and payable hereunder in accordance with subsection 3.2.


 


4.2.3                        Company shall pay eighteen (18) severance
payments (“Severance Payments”) payable monthly to Employee equivalent to
one-twelfth (1/12) of the Base Salary in effect as of the date of such
termination (the “Termination Date”) for a period of eighteen months from
the Date of Termination (the “Severance Period”), provided that Employee and
the Company execute an appropriate mutual general release before Employee has
any entitlement to the Severance Payments. 
Company will also pay the premiums on the COBRA insurance coverages
during the Severance Period, provided that Employee qualifies for such
coverages and timely elects COBRA coverage. 
The Company may, at its option, pay for and acquire insurance which will
provide the Severance Payments and such benefits during the Severance Period.


 


4.2.4                        All stock options issued to Employee or
earned but not yet issued prior to the Termination Date shall immediately
become fully vested.


 


4.2.5                        Accrued but unused personal leave shall
be paid out in accordance with legal requirements.  No personal leave or other benefits shall continue to accrue
during the Severance Period.


 


4.2.6                        Notwithstanding the foregoing, if any
amounts due to Employee pursuant to this Agreement are determined to be
“Parachute Payments” as such term is defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the “Code”), and the regulations
promulgated thereunder, then the total compensation paid to Employee pursuant
to this Agreement, together with any other payment or the value of any benefit
received or to be received by Employee which is treated as a Parachute Payment
shall not exceed 2.99 times Employee’s Base Amount (as such term is defined in
Section 280G of the Code).  In the
event a reduction of the payments set forth in this Agreement is required pursuant
to this Section, Employee may select the compensation which will be reduced in
order to fall within the 2.99 times Base Amount limitation.


 


4.3                                 Resignation.


 


4.3.1                        If Employee resigns (except as set forth
in subsections 4.3.2 or 4.4 below), this Agreement shall immediately
terminate and the Company shall have no further liability or obligation to
Employee hereunder, including any severance payments, or otherwise in respect
of his/her employment, other than its obligation to pay unpaid Base Salary and
unused personal leave accrued as of the date of resignation.


 


4.3.2                        Resignation with Cause. 
If Employee resigns his/her employment because (a) his/her position
or duties are modified by the Company to such an extent that his/her duties are
substantially no longer consistent with the position for which he/she was
employed pursuant to this Agreement, or (b) there has been a material
breach by the Company of a material term of this Agreement which continues
uncured following fourteen (14) days after written notice by Employee to the
Company of such breach, then Employee will be entitled to the severance
benefits set forth in subsection 4.2, consistent with the terms of said
provision.


 


3

















 


 4.4                              Change In Control.  In the event
of a Change in Control (as that term is defined below), Company shall
immediately take all necessary measures, consistent with the Company’s Stock
Option Plans, to accelerate the vesting of any unvested options held by the
Employee under such Plans so that such options will be treated as vested
options during the Change in Control. 
In addition, employment separation, as provided in this section, that
occurs as a result of a Change in Control shall result in Severance Payments on
the same terms set forth in subsection 4.2 above, except that the
Severance Period shall be twenty four (24) months.  Such Change In Control Severance Payments will be made in the
event of:


 


(a)                                  Employee’s involuntary dismissal or
discharge by the Company, other than pursuant to subsections 4.1, 4.3.1, or
4.5, or


 


(b)                                 Employee’s voluntary resignation, other
than pursuant to subsection 4.3, following (i) a change in his/her
position with the Company (or Parent or Subsidiary employing Employee) which
materially reduces his/her duties and responsibilities or the level of
management to which he/she reports, (ii) a reduction in Employee’s level of
compensation as of the date of the Change in Control (including base salary and
fringe benefits), or (iii) a relocation of Employee’s place of employment by
more than fifty (50) miles, provided and only if such change, reduction, or
relocation is effected by the Company without Employee’s express consent.


 


(c)                                  For purposes of this Agreement, a “Change
in Control” shall mean (i) a sale of all or substantially all of the assets of
the Company to another corporation, less than 50% of the voting power for which
corporation is owned by shareholders of the Company or the Company immediately
following the transaction (a “Non-Affiliated Corporation”), (ii) an exchange of
more than 50% of the outstanding shares of the Company’s common stock for
shares of a Non-Affiliated Corporation, or (iii) a merger by the Company with
or into another corporation with the result that the surviving corporation is a
Non-Affiliated Corporation.  However, if
a transaction occurs in two steps and if, within 360 days following the close
there has not been the transfer of 50% or more of the voting control or shares
in the Company, then a Change of Control shall not have occurred.


 


4.5                                 Termination Due to Death or Disability. This Agreement will immediately
terminate upon Employee’s death.  This
Agreement will terminate upon Employee’s Disability (as defined below), when
consistent with state and federal law. 
In the event of Employee’s termination due to death or Disability,
Employee, or Employee’s heirs, personal representatives or estate, as the case
may be, will be entitled to receive only the standard entitlements and those
benefits available under any applicable Company plan or insurance policy,
subject to such plan or policy requirements, along with accrued unpaid Base
Salary and personal time.  All other
Company obligations to Employee pursuant to this Agreement will become
automatically terminated and completely extinguished.  In addition, neither Employee nor Employee’s heirs, personal
representatives or estate will be entitled to receive Severance Payments or
other benefits described in subsection 4.2 above.


 


4.5.1                        For the purpose of this Agreement only,
the Company will not deem this Agreement terminated due to Employee’s
Disability unless he/she has been unable to perform his/her duties hereunder
for three (3) consecutive months or ninety (90) days in any twelve (12)


 


4

















 


consecutive month period due to Employee’s medical or mental condition,
as determined in good faith by the Board of Directors of the Company.


 


SECTION 5


 


INVENTIONS;
CONFIDENTIAL/TRADE SECRET INFORMATION; NON-

DISCLOSURE; UNFAIR COMPETITION; CONFLICT OF INTEREST


 


5.1                                 Inventions. 
All processes, technologies and inventions relating to the business of
the Company (collectively, “Inventions”), including new contributions,
improvements, ideas, discoveries, trademarks and trade names, conceived,
developed, invented, made or found by the Employee, alone or with others,
during his/her employment by the Company, whether or not patentable and whether
or not conceived, developed, invented, made or found on the Company’s time or
with the use of the Company’s facilities or materials, shall be the property of
the Company and shall be promptly and fully disclosed by Employee to the
Company.  The Employee shall perform all
necessary acts (including, without limitation, executing and delivering any
confirmatory assignments, documents or instruments requested by the Company) to
assign or otherwise to vest title to any such Inventions in the Company and to
enable the Company, at its expense, to secure and maintain domestic and/or
foreign patents or any other rights for such Inventions.  This Agreement and this subsection does
not apply to an Invention which qualifies fully as a nonassignable Invention
under Section 2870 of the California Labor Code.


 


5.2                                 Confidential/Trade Secret
Information/Non-Disclosure.


 


5.2.1                        Confidential/Trade Secret Information
Defined.  During the course of Employee’s employment,
Employee will have access to various confidential/trade secret information of
the Company.  “Confidential/trade secret
information” is information that is not generally known to the public and, as a
result, is of economic benefit to the Company in the conduct of its
business.  Employee and the Company
agree that the term “confidential/trade secret” includes but is not limited to
all information developed or obtained by the Company, including its affiliates,
and predecessors, and comprising the following items, whether or not such items
have been reduced to tangible form (e.g., physical writing, computer hard
drive, disk, tape, etc.):  all methods,
techniques, processes, ideas, research and development, product designs,
engineering designs, plans, models, production plans, business plans, add-on
features, trade names, service marks, slogans, forms, pricing structures,
menus, business forms, marketing programs and plans, layouts and designs,
financial structures, operational methods and tactics, cost information, the
identity of and/or contractual arrangements with suppliers and/or vendors,
accounting procedures, and any document, record or other information of the
Company relating to the above. 
Confidential/trade secret information includes not only information
directly belonging to the Company which existed before the date of this
Agreement, but also information developed by Employee for the Company,
including its affiliates and its predecessors and/or their employees during the
term of Employee’s employment with the Company.  It does not include any information which (a) was in the
lawful and unrestricted possession of Employee prior to its disclosure to
Employee by the Company or its affiliates or predecessors, (b) is or
becomes generally available to the public by lawful acts other than those of
Employee after receiving it, or (c) has been received lawfully and in good
faith by Employee from a third party


 


5

















 


who is not and has never been an employee of the Company or its
affiliates or predecessors and who did not derive it from the Company or its
affiliates or predecessors.


 


5.2.2                        Restriction on Use of Confidential/Trade
Secret Information.  Employee agrees that his/her use of
confidential/trade secret information is subject to the following restrictions
for an indefinite period of time so long as the confidential/trade secret
information has not become generally known to the public:


 


(a)                                  Non-Disclosure. 
Employee agrees that he/she will not publish or disclose, or allow to be
published or disclosed, confidential/trade secret information to any person
without the prior written authorization of the Company unless pursuant to
Employee’s job duties to the Company under this Agreement.


 


(b)                                 Non-Removal/Surrender. 
Employee agrees that he/she will not remove any confidential/trade
secret information from the offices of the Company or the premises of any
facility in which the Company is performing services, except pursuant to his/her
duties under this Agreement.  Employee
further agrees that he/she shall surrender to the Company all documents and
materials in his/her possession or control which contain confidential/trade
secret information and which are the property of the Company upon the
termination of this Agreement, and that he/she shall not thereafter retain any
copies of any such materials.


 


5.2.3                        Non-Solicitation of Customers/Prohibition
Against Unfair Competition.  Employee
agrees that at no time after his/her employment with the Company will he/she
engage in competition with the Company while making any use of the Company’s
confidential/trade secret information. 
In addition, Employee agrees that, for the duration of the severance payments
as provided for in Section 4.2 or 4.4, he/she will not directly or
indirectly accept or solicit, whether as an employee, independent contractor or
in any other capacity, the business of any customer of the Company with whom
Employee worked or otherwise had access to the Company’s confidential/trade
secret information pertaining to its business with that customer during the
last two (2) years of his/her employment with the Company.


 


5.3                                 Conflict of Interest. During Employee’s employment with
Company, Employee must not engage in any work, paid or unpaid, that creates an
actual conflict of interest with Company. 
Such work shall include, but is not limited to, directly or indirectly
competing with Company in any way, or acting as an officer, director, employee,
consultant, controlling or 5% stockholder, volunteer, lender, or agent of any
business enterprise of the same nature as, or which is in direct competition
with the business in which Company is now engaged or in which Company becomes
engaged during Employee’s employment with Company, as may be determined by the
Board of Directors in its sole discretion. 
If the Board of Directors believes such a conflict exists during
Employee’s employment, the Board of Directors may ask Employee to choose to
discontinue the other work or resign employment with Company.  In addition, Employee agrees not to refer
any client or potential client of Company to competitors of Company without
obtaining the Company’s prior written consent during Employee’s employment.  Any termination of Employee’s employment due
to violation of this subsection is considered “With Cause” for the
purposes of section 4.1 above.


 


6

















 


5.4                                 Non-Solicitation During Employment. 
Employee shall not during his/her employment interfere with or disrupt
or attempt to disrupt Employer’s business relationship with its customers or
suppliers or solicit any of the employees of Employer to leave the employ of
Employer.


 


5.5                                 Non-Solicitation of Employees. 
Employee agrees that, for the duration of the severance payments as
provided for in Section 4.2 or 4.4, he/she shall not, directly or
indirectly, ask or encourage any of the Company’s employees to leave their
employment with the Company or solicit any of the Company’s employees for
employment.


 


5.6                                 Breach of Provisions. 
If the Employee breaches any of the provisions of this Section 5,
or in the event that any such breach is threatened by the Employee, in addition
to and without limiting or waiving any other remedies available to the Company
at law or in equity, the Company shall be entitled to immediate injunctive
relief in any court, domestic or foreign, having the capacity to grant such
relief, to restrain any such breach or threatened breach and to enforce the
provisions of this section 5.  The
Employee acknowledges and agrees that there is no adequate remedy at law for
any such breach or threatened breach and, in the event that any action or
proceeding is brought seeking injunctive relief, the Employee shall not use as
a defense thereto that there is an adequate remedy at law.  In addition, if the Employee breaches any of
the provisions of this section 5, any and all Severance Payments and
benefit obligations under this Agreement or otherwise will cease and be
extinguished in their entirety and the Company will have no further obligations
in that regard.


 


5.7                                 Reasonable Restrictions. 
The parties acknowledge that the foregoing restrictions, as well as the
duration and the territorial scope thereof as set forth in this section 5,
are under all of the circumstances reasonable and necessary for the protection
of the Company and its business.


 


5.8                                 Definition.  For purposes
of this section 5, the term “Company” shall be deemed to include any
subsidiary or affiliate of the Company.


 


SECTION 6


 


MISCELLANEOUS


 


6.1                                 Binding Effect. 
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, heirs, distributees,
successors and assigns; PROVIDED, that the rights and obligations of the
Employee hereunder shall not be assignable by him/her.


 


6.2                                 Notices.  Any notice
provided for herein shall be in writing and shall be deemed to have been given
or made (a) when personally delivered or (b) when sent by telecopier
and confirmed within forty-eight (48) hours by letter mailed or delivered to
the party to be notified at its or his/hers address set forth herein; or three
(3) days after being sent by registered or certified mail, return receipt
requested, (or by equivalent currier with delivery documentation such as FEDEX
or UPS) to the address of the other party set forth or to such other address as
may be specified by notice given in accordance with this section 6.2:


 


7

















 


	
  If to the
  Company:

  	
  SYS Technologies

  
	
   

  	
  5050 Murphy
  Canyon Road, Suite 200

  
	
   

  	
  San Diego,
  CA 92123

  
	
   

  	
  Tel:

  	
  (858) 715-5500

  
	
   

  	
  Fax:

  	
  (858) 715-5510

  
	
   

  	
  Attention:  Vice President, Human Resources

  
	
   

  	
   

  
	
  If to Employee:

  	
  Ed Lake

  
	
   

  	
  Address:

  
	
   

  	
                                           

  
	
   

  	
                              ,
  CA            

  
	
   

  	
  Tel:

  	
  (     )
        -        

  
	
   

  	
  Fax:

  	
  (     )
        -        

  



 


6.3                                 Severability. 
If any provision of this Agreement, or portion thereof, shall be held
invalid or unenforceable by a court of competent jurisdiction, such invalidity
or unenforceability shall attach only to such provision or portion thereof, and
shall not in any manner affect or render invalid or unenforceable any other
provision of this Agreement or portion thereof, and this Agreement shall be
carried out as if any such invalid or unenforceable provision or portion
thereof were not contained herein.  In
addition, any such invalid or unenforceable provision or portion thereof shall
be deemed, without further action on the part of the parties hereto, modified,
amended or limited to the extent necessary to render the same valid and
enforceable.


 


6.4                                 Waiver.  No waiver by
a party hereto of a breach or default hereunder by the other party shall be
considered valid, unless expressed in a writing signed by such first party, and
no such waiver shall be deemed a waiver of any subsequent breach or default of
the same or any other nature.


 


6.5                                 Entire Agreement. 
This Agreement sets forth the entire agreement between the Parties with
respect to the subject matter hereof, and supersedes any and all prior
agreements between the Company and Employee, whether written or oral, relating
to any or all matters covered by and contained or otherwise dealt with in this
Agreement.  This Agreement does not
constitute a commitment of the Company with regard to Employee’s employment,
express or implied, other than to the extent expressly provided for herein.


 


6.6                                 Amendment.  No
modification, change or amendment of this Agreement or any of its provisions
shall be valid, unless in writing and signed by the party against whom such
claimed modification, change or amendment is sought to be enforced.


 


6.7                                 Authority.  The Parties
each represent and warrant that it/he or she has the power, authority and right
to enter into this Agreement and to carry out and perform the terms, covenants
and conditions hereof.


 


6.8                                 Attorneys’ Fees. 
The Parties shall each be responsible for their own attorneys’ fees.


 


8

















 


6.9                                 Titles.  The titles
of the sections of this Agreement are inserted merely for convenience and
ease of reference and shall not affect or modify the meaning of any of the
terms, covenants or conditions of this Agreement.


 


6.10                           Applicable Law; Choice of Forum. 
Any proceeding between the parties arising out of or relating to this
Agreement shall be brought in the appropriate forum in San Diego County,
California.  This Agreement, and all of
the rights and obligations of the parties in connection with the employment
relationship established hereby, shall be governed by and construed in
accordance with the substantive laws of the State of California without giving
effect to principles relating to conflicts of law.


 


6.11                           Arbitration.


 


6.11.1                  Scope.  To the
fullest extent permitted by law, Employee and Company agree to the binding
arbitration of any and all controversies, claims or disputes between them
arising out of or in any way related to this Agreement, the employment
relationship between Company and Employee and any disputes upon termination of
employment, including but not limited to breach of contract, tort,
discrimination, harassment, wrongful termination, demotion, discipline, failure
to accommodate, family and medical leave, compensation or benefits claims,
constitutional claims; and any claims for violation of any local, state or
federal law, statute, regulation or ordinance or common law.  For the purpose of this agreement to
arbitrate, references to “Company” include all parent, subsidiary or related
entities and their employees, supervisors, officers, directors, agents, pension
or benefit plans, pension or benefit plan sponsors, fiduciaries,
administrators, affiliates and all successors and assigns of any of them, and
this agreement to arbitrate shall apply to them to the extent Employee’s claims
arise out of or relate to their actions on behalf of Company.


 


6.11.2                  Arbitration Procedure.  To commence
any such arbitration proceeding, the party commencing the arbitration must
provide the other party with written notice of any and all claims forming the
basis of such right in sufficient detail to inform the other party of the
substance of such claims.  In no event
shall this notice for arbitration be made after the date when institution of
legal or equitable proceedings based on such claims would be barred by the
applicable statute of limitations.  The
arbitration will be conducted in San Diego, California, by a single
neutral arbitrator and in accordance with the then-current rules for resolution
of employment disputes of the American Arbitration Association (“AAA”).  The parties are entitled to representation
by an attorney or other representative of their choosing. The arbitrator shall
have the power to enter any award that could be entered by a judge of the trial
court of the State of California, and only such power, and shall follow the
law.  The award shall be binding and the
Parties agree to abide by and perform any award rendered by the
arbitrator.  The arbitrator shall issue
the award in writing and therein state the essential findings and conclusions
on which the award is based.  Judgment
on the award may be entered in any court having jurisdiction thereof.  Company shall bear the costs of the
arbitration filing and hearing fees and the cost of the arbitrator.


 


IN WITNESS
WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.


 


9

















 


	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  Name: Ed Lake

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SYS
  Technologies, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
							



 


10