Document:

Exhibit 10.22

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (the “Agreement”), dated as of December 20,
2006 (the “Effective Date”), is
entered into by and between HICKORYTECH CORPORATION, a Minnesota corporation
(the “Company”), and JOHN MORTON (“Executive”).

 

WHEREAS, Executive possesses certain
skills, experience and expertise which will be of use to the Company; and

 

WHEREAS, in light of the foregoing,
the Company has offered to employ Executive as the President of its Business
Solutions Division and Executive has accepted such employment;

 

NOW, THEREFORE, in consideration of the
promises and the mutual covenants and agreements herein contained, the Company
and Executive hereby agree as follows:

 

Section 1. Employment Agreement

 

1.1 Employment and Duties. The
Company hereby employs Executive as the President of its Business Solutions
Division. In this capacity, Executive will report to and perform such duties as
shall reasonably be assigned by the Company’s Chief Executive Officer or his
delegate. Executive shall perform such duties and carry out Executive’s
responsibilities hereunder faithfully and to the best of Executive’s ability.
Executive hereby confirms that he is under no contractual obligations which
would preclude or restrict his performance of his duties and responsibilities
in his position with the Company.

 

Section 2. Compensation and Benefits

 

2.1 Compensation.

 

(a) Base Salary. The Company
shall pay Executive a salary at an annual rate of One Hundred Fifty-five
Thousand and no/100 Dollars ($155,000.00) to be paid in bi-weekly installments,
in arrears (the “Base Salary”).
The Base Salary shall be subject to periodic review and adjustment.

 

(b) Annual Incentive Compensation.
Executive shall be a participant in the HickoryTech Executive Incentive Plan
(the “EIP”) and shall be eligible
to receive an annual cash incentive award pursuant to the EIP in accordance
with its terms, as they may be amended or modified from time to time. Executive
shall be eligible to receive an annual cash incentive award of 52.5% of his
Base Salary for “at target” performance, subject to the terms of the EIP.
Executive’s incentive award eligibility is subject to periodic review and
adjustment.

 

c) Stock Compensation.
Executive shall be a participant in the HickoryTech Corporation Long-Term
Executive Incentive Program (the “Incentive
Program”) and shall be eligible to receive stock awards granted
under the 1993 Stock Award Plan, as amended, in accordance with the terms of
the Incentive Program, as they may be amended or modified from time to time.

 

2.2 Participation in Company Benefit Plans. Executive
shall be entitled to participate in all employee benefit plans or programs of
the Company offered to other employees to the extent that Executive’s position,
tenure, salary, and other qualifications make Executive eligible to participate
in accordance with the terms of such plans, except as otherwise expressly
provided in this Agreement. The Company does not guarantee the continuance of
any particular employee benefit plan or program except as expressly provided in
this Agreement, and Executive’s participation in any such plan or program shall
be subject to all terms, provisions, rules and regulations applicable
thereto. Executive will be entitled to 232 hours of earned paid time off per
year, to be used and administered in accordance with the Company’s paid time
off policy as it may change from time to time.

 

1

 

2.3 Expenses. The Company will pay or reimburse
Executive for all reasonable and necessary out-of-pocket expenses incurred by
Executive in the performance of his duties under this Agreement. Executive
shall provide to the Company detailed and accurate records of such expenses for
which payment or reimbursement is sought, and Company payments shall be in
accordance with the regular expense reimbursement guidelines maintained by the
Company from time to time, all subject to the Board’s right of review.

 

2.4 Executive Perquisites. During the term of his
employment under this Agreement, the Company shall:

 

(a) Provide to Executive the gross sum
of Forty Thousand and no/100 Dollars ($40,000.00) in a single, lump sum payment
for miscellaneous costs incurred by Executive in relocating to the metropolitan
area of Minneapolis, Minnesota.

 

(b) Pay directly to the moving company
of Executive’s choice an amount not to exceed Ten Thousand and no/100 Dollars
($10,000) to reimburse the actual cost of moving Executive’s household goods to
the metropolitan area of Minneapolis, Minnesota.

 

(c) Provide Executive with an
automobile for his business and personal use. Such vehicle shall be replaced by
the Company at approximately 75,000 miles or three years in age. Executive
acknowledges that he remains solely responsible for the payment of all taxes
owed by reason of his personal use of that vehicle;

 

(d) Provide Executive with a cellular
telephone for his business and personal use.

 

(e) Provide for Executive’s periodic
executive physical examination in accordance with the Company’s guidelines for
executive physical examinations.

 

2.5 Withholding Taxes. All compensation, payments or
benefits provided to, or for the benefit of, Executive shall be made subject to
withholding and otherwise treated and reported by the Company as required to
ensure compliance with all applicable laws and regulations.

 

Section 3. Termination of Employment

 

3.1 Definitions. As used in Section 3 of this
Agreement, the following terms shall have the meaning set forth for each below:

 

(a) “Cause” shall mean any of
the following:

 

(i) the gross neglect or willful
failure or refusal of Executive to perform Executive’s duties hereunder (other
than as a result of Executive’s death or Disability) provided Executive has
failed to cure such deficiency after having been given written notice of such
deficiency and a period of twenty-one (21) days following written notice to
cure such deficiency;

 

(ii) perpetration of an intentional
and knowing fraud against or affecting the Company or any affiliate, customer,
supplier, agent or employee thereof;

 

(iii) any willful or intentional act
that could reasonably be expected to injure the reputation, financial
condition, business or business relationships of the Company or Executive’s
reputation or business relationships;

 

(iv) conviction (including conviction
on a plea of nolo contendere) of
a felony or any crime involving fraud, dishonesty or moral turpitude;

 

(v) the material breach by Executive
of this Agreement (including, without limitation, the Employment Covenants set
forth in Section 4 of this Agreement) which is not cured within twenty-one
(21) days after receipt of written notice from the Company specifying the
nature of the breach; or

 

2

 

(vi) the failure or continued refusal
to carry out the directives of the Chief Executive Officer or his delegate,
which is not cured within twenty-one (21) days after Executive has received
written notice specifying the nature of such failure or refusal.

 

(b) “Date of Termination” shall
mean the date specified in the Notice of Termination (as hereinafter defined)
except in the case of Executive’s death, in which case the Date of Termination
shall be the date of death.

 

(c) “Notice of Termination”
shall mean a written notice from the Company to Executive that indicates the
specific provision of Section 3 of this Agreement relied upon as the basis
for such termination and the Date of Termination.

 

(d) “Good Reason”
shall mean:

 

(i) Company, without Executive’s
consent, effects a material reduction of Executive’s title, position, total
compensation as specified in Sections 2.1 and 2.2 above, authority or duties;

 

(ii) any requirement that Executive,
without his consent, move his regular office to a location more than one
hundred (100) miles from Company’s current office location;

 

(iii) the material failure by
Company, or its successor, if any, to pay compensation or provide benefits or
perquisites to Executive as and when required by the terms of this Agreement;
or

 

(iv) any material breach
by Company of this Agreement.

 

The Executive shall have Good Reason to
terminate Executive’s employment if (i) within ten (10) days
following Executive’s actual knowledge of the event which Executive determines
constitutes Good Reason, Executive notifies the Company in writing that
Executive has determined a Good Reason exists and specifies the event creating
Good Reason, and (ii) following receipt of such notice, the Company fails
to remedy such event within twenty-one (21) days. If either condition is not
met, Executive shall not have a Good Reason to terminate Executive’s
employment.

 

3.2 Termination Upon Death or Disability. This
Agreement, and Executive’s employment hereunder, shall terminate automatically
and without the necessity of any action on the part of the Company upon the
death or Disability (as defined below) of Executive. For purposes of this
Section, “Disability” shall mean the inability of the Executive to perform the
duties and responsibilities of his or her employment, with or without
reasonable accommodation, by reasons of illness or other physical or mental
impairment or condition, if such inability continues for an uninterrupted
period of ninety (90) calendar days or more. A period of inability shall be “uninterrupted”
unless and until the Executive is no longer considered disabled by the Company’s
long term disability insurer.

 

(a) The determination of whether the
Executive is suffering from a Disability shall be made on the same basis as the
Company provided long-term disability benefit, which is a fully insured benefit
provided by an independent third party. If the Executive meets the disability
criteria for long term disability benefits under this Company provided benefit,
the Executive will also be considered to have a Disability under this
Agreement.

 

(b) The Executive agrees to make
himself available for and to submit to examinations by such physicians as may
be requested by the Company or the Company’s long term disability insurer. The
Executive’s failure to submit to examinations by such physicians as may be
requested shall result in a conclusive determination that Executive does, in
fact, have a Disability.

 

3

 

3.3 Company’s and Executive’s Right to Terminate. This
Agreement and Executive’s employment hereunder may be terminated at any time by
the Company for Cause or, if without Cause, upon thirty (30) days prior written
notice to Executive, subject to the provisions of Section 3.4(b) below.
In the event the Company should give Executive a Notice of Termination without
Cause, the Company may, at its option, elect to provide Executive with salary
in lieu of Executive’s continued active employment during the notice period.
This Agreement and Executive’s employment hereunder may be terminated by
Executive at any time for Good Reason and, if without Good Reason, upon thirty
(30) days prior written notice to the Company.

 

3.4 Compensation Upon Termination.

 

(a) Severance. In the event the
Company terminates this Agreement without Cause, or in the event Executive terminates
this Agreement for Good Reason, Executive shall be entitled to receive: (i) Executive’s
then current Base Salary through the Date of Termination, and (ii) a
severance payment equal to twelve (12) months of Executive’s then current Base
Salary to be made in regular payroll installments commencing upon the next
regular payday following the expiration of the revocation period in Executive’s
Release (as provided in Section 3.4(b) below) without any revocation
having occurred. Notwithstanding the foregoing, the Company shall, to the
extent necessary and only to the extent necessary, modify the timing of
delivery of severance benefits to Executive if the Company reasonably
determines that the timing would subject the severance benefits to any
additional tax or interest assessed under Section 409A of the Code. In
such event, the delayed payments will be made in a lump sum as soon as
practicable without causing the severance benefits to trigger such additional
tax or interest under Section 409A of the Code. In the event this
Agreement is terminated for any reason other than by the Company without Cause,
or by Executive for Good Reason, Executive shall not be entitled to the
continuation of any compensation, bonuses or benefits provided hereunder, or
any other payments following the Date of Termination, other than the then
current Base Salary earned through such Date of Termination.

 

(b) Release. Anything to the
contrary contained herein notwithstanding, as a condition to Executive
receiving any severance benefits to be paid pursuant to this Agreement,
Executive shall execute and deliver to the Company a general release of
employment related claims in terms satisfactory to the Company. The Company
shall have no obligation to provide any severance benefits to Executive until
it has received the general release from Executive and any revocation or
rescission period applicable to the release shall have expired without
revocation or rescission.

 

Section 4. Employment Covenants

 

4.1 Restrictive Covenants. As an essential inducement
to the Company to enter into this Agreement, and as consideration for the
foregoing promises of the Company, and the severance payment to be provided
subject to the limitations of Section 3.4(a), Executive agrees as follows:

 

4

 

(a) Executive acknowledges that during
his employment with the Company, he will be exposed to and entrusted with
Confidential Information as defined hereafter in this subparagraph. Executive
understands and agrees that such Confidential Information will be disclosed to
him in confidence and for the sole benefit of the Company. Executive agrees
that commencing on the date of this Agreement he (i) will diligently
protect the confidentiality of all Confidential Information, (ii) will not
disclose or communicate any Confidential Information to any third party without
the consent of the Company or as may be required by law, and (iii) will
not make use of Confidential Information on his own behalf or on behalf of any
third party. In view of the nature of Executive’s employment and the nature of
the Confidential Information which Executive will receive during such
employment, Executive agrees that any unauthorized disclosure or use of such
information to or on behalf of third parties would cause irreparable harm to
the confidential status of such information and to the Company and that,
therefore, the Company shall be entitled to an injunction prohibiting Executive
from any such disclosure, use, or threatened disclosure or use. When
Confidential Information becomes generally available to the public by means
other than Executive’s acts or omissions, it is no longer subject to this
Agreement. Executive expressly acknowledges that the undertakings set forth in
this subparagraph shall survive the expiration or termination of other
agreements or duties in this Agreement. As used in this Agreement, “Confidential Information” means
information, whether in written, oral, electronic or other form, not generally
available to the public concerning (i) the Company’s trade secrets, (ii) the
contents or duration of the Company’s agreements with third parties, (iii) the
Company’s financial results or other financial matters, (iv) the sales,
pricing and marketing methods, practices and strategies of the Company, or (v) its
business plans.

 

(b) During the period ending on a date
that is eighteen (18) months following the Date of Termination, regardless of
the reason for termination, Executive agrees:

 

(i) that he will not, directly or
indirectly, render services to any Conflicting Organization (as defined below)
or otherwise engage in competition with the Company in any manner or capacity
within the Territory (as defined below), nor direct any other individual or
business enterprise to engage in competition with the Company, e.g., as an
advisor, principal, agent, partner, employee, officer, director or shareholder
(except by ownership of less than five percent of the outstanding stock of a
publicly held corporation), on any products or services competitive with the
Company’s existing or announced products or services or any products or
services which have not yet been offered or announced but which were under
active development by the Company as of the Date of Termination. For purposes
of this Section, “Conflicting Organization”
shall be defined as any person, corporation, partnership or other entity that
develops or provides products, services or equipment that competes with or
replaces products, services or equipment provided by the Company. For the purposes
of this Agreement, “Territory”
shall be defined as: (i) the states of Minnesota and Iowa, and (ii) any
other location within a one hundred (100) mile radius surrounding any existing
or planned office of the Company (including administrative, executive, sales,
and service offices) in which the Company, as of the Date of Termination, is
engaged in or actively planning to engage in the provision of services or sale
of equipment;

 

(ii) that he will not, directly or
indirectly, assist, solicit, entice, or induce (or assist any other person or
entity in soliciting, enticing, or inducing) any customer doing business with
the Company or any potential customer that has been or is being actively
solicited for business by the Company (or agent, employee, or consultant of any
customer or potential customer) during the period of Executive’s employment
with the Company, to deal with any competitor of the Company;

 

(iii) that he will not, directly or
indirectly, in any manner, solicit, assist or encourage (or assist any other
person or entity in soliciting or encouraging) any other officer or employee of
the Company to work or otherwise provide services for the Executive or for any
entity in which the Executive participates in the ownership, management,
operation, or control of, or is connected with in any manner as an employee,
independent contractor, consultant, or otherwise.

 

5

 

4.2 Other Confidentiality Obligations. Executive
acknowledges that the Company may, from time to time, have agreements with
other persons or entities which impose confidentiality obligations or other
restrictions on the Company. Executive hereby agrees to be bound by all such
obligations and restrictions and shall take all actions necessary to discharge
the obligations of the Company there under, including, without limitation,
signing any confidentiality or other agreements required by such third parties.

 

4.3 Return of Confidential Information. At any time
during Executive’s employment with the Company, upon the Company’s request, and
in the event of Executive’s termination of employment with the Company for any
reason whatsoever, Executive shall immediately surrender and deliver to the
Company all records, materials, notes, equipment, drawings, documents and data
of any nature or medium, and all copies thereof, relating to any Confidential
Information (collectively the “Company
Materials”) which is in Executive’s possession or under Executive’s
control. Executive shall not remove any of the Company Materials from the
Company’s business premises or deliver any of the Company Materials to any
person or entity outside of the Company, except as required in connection with
Executive’s duties of employment.

 

4.4 Other Obligations. The terms of this Section 4
are in addition to, and not in lieu of, any statutory or other contractual or
legal obligation to which Executive may be subject relating to the protection
of Confidential Information.

 

4.5 Exclusivity of Employment. Executive shall not
directly or indirectly, without prior approval of the Board, engage in any
activity competitive with or adverse to the Company’s business or welfare or
render a material level of services of a business, professional or commercial
nature to any other person or firm, whether for compensation or otherwise;
provided, however, that Executive may serve on various trade or industry boards
or, with the prior approval of the Chief Executive Officer, serve on the boards
of other unrelated corporations, as well as participate in charitable and civic
activities, provided that such activities do not in any way interfere with the
performance of Executive’s duties to the Company.

 

4.6 Judicial Enforcement.

 

(a) Executive acknowledges that a
breach or threatened breach of any portion of this Section 4 will cause
irreparable harm to the Company and could not be compensated by money damages.
Accordingly, the Executive specifically agrees that the Company shall be
entitled to injunctive relief to enforce the provisions of this Section 4
and that such relief may be granted without the necessity of proving actual
damages. The Company’s rights with respect to obtaining injunctive relief,
however, will not diminish its rights to pursue any other available remedies
for such breach or threatened breach, including the recovery of actual damages.

 

(b) Should any court of competent
jurisdiction determine that any of the covenants set forth in this Section 4
are overbroad or otherwise invalid in any respect, the parties agree that the
court so holding shall revise such covenant in duration or in scope, or in
both, or in any other manner which the court determines sufficient to render
the covenant enforceable against the Executive, and shall then enforce the same
to that more limited extent.

 

6

 

Section 5. Miscellaneous

 

5.1 Notices. All notices or other communications which
are required or permitted hereunder shall be deemed to be sufficient if
contained in a written instrument given by personal delivery or registered or
certified mail, postage prepaid, return receipt requested, addressed to such
party at the address set forth below or such other address as may thereafter be
designated in a written notice from such party to the other party:

 

	
   

  	
  To Company:

  	
  Hickory Tech Corporation

  
	
   

  	
   

  	
  221 East Hickory Street

  
	
   

  	
   

  	
  P.O. Box 3248

  
	
   

  	
   

  	
  Mankato, Minnesota 56002-3248

  
	
   

  	
   

  	
  Attention: Vice President of Human Resources

  
	
   

  	
   

  	
   

  
	
   

  	
  To Executive:

  	
  John Morton

  
	
   

  	
   

  	
  2950 Xenium Lane North

  
	
   

  	
   

  	
  Suite 183

  
	
   

  	
   

  	
  Plymouth, Minnesota 55441

  

 

All such notices and communications shall be deemed to have
been delivered and received (i) in the case of personal delivery, on the
date of such delivery, and (ii) in the case of mailing, on the third
business day following such mailing.

 

5.2 Headings. The headings of the sections of this
Agreement are inserted for convenience only and shall not be deemed a part of
or affect the construction or interpretation of any provision hereof.

 

5.3 Modifications; Waiver. No modification of any
provision of this Agreement or waiver of any right or remedy herein provided
shall be effective for any purpose unless specifically set forth in a writing
signed by the party to be bound thereby. No waiver of any right or remedy in
respect of any occurrence or event on one occasion shall be deemed a waiver of
such right or remedy in respect of such occurrence or event on any other
occasion.

 

5.4 Entire Agreement. This Agreement, together with
the various plans, programs and policies expressly referenced herein, contains
the entire agreement of the parties with respect to the subject matter hereof
and supersedes all other agreements, oral or written, heretofore made with
respect thereto.

 

5.5 Severability. Any provision of this Agreement that
may be prohibited by, or unlawful or unenforceable under, any applicable law of
any jurisdiction shall, as to such jurisdiction, be ineffective without
affecting any other provision hereof. To the full extent, however, that the
provisions of such applicable law may be waived, they are hereby waived, to the
end that this Agreement be deemed to be a valid and binding agreement
enforceable in accordance with its terms.

 

5.6 Controlling Law. This Agreement has been entered
into by the parties in the State of Minnesota and shall be enforced in
accordance with the laws of Minnesota.

 

5.7 Arbitration. Any controversy, claim, or breach
arising out of or relating to this Agreement or the breach thereof shall be
settled by arbitration in the State of Minnesota in accordance with the rules of
the American Arbitration Association for employment / commercial disputes and
the judgment upon the award rendered shall be entered by consent in any court
having jurisdiction thereof; provided, however, that this provision shall not
preclude the Company from seeking injunctive or similar relief from the courts
to enforce its rights under the Employment Covenants set forth in Section 4
of this Agreement. It is understood and agreed that, in the event the Company
provides a Notice of Termination to Executive for Cause, and it should be
finally determined in a subsequent arbitration that Executive’s termination was
not for Cause as defined in this Agreement, then the remedy awarded to
Executive shall be limited to such compensation and benefits as Executive would
have received in the event of Executive’s termination other than for Cause at
the same time as the original termination.

 

7

 

5.8 Assignments. Subject to obtaining Executive’s
prior approval, which shall not be unreasonably withheld or delayed, and
provided the assignee assumes all of the Company’s obligations hereunder, the
Company shall have the right to assign this Agreement and to delegate all
rights, duties and obligations hereunder to any entity that controls the
Company, that the Company controls or that may be the result of the merger,
consolidation, acquisition or reorganization of the Company and another entity.
Executive agrees that this Agreement is personal to Executive and Executive’s
rights and interest hereunder may not be assigned, nor may Executive’s
obligations and duties hereunder be delegated (except as to delegation in the
normal course of operation of the Company), and any attempted assignment or
delegation in violation of this provision shall be void.

 

5.9 Read and Understood. Executive has read this
Agreement carefully and understands each of its terms and conditions. Executive
has sought independent legal counsel of Executive’s choice to the extent
Executive deemed such advice necessary in connection with the review and
execution of this Agreement.

 

IN WITNESS WHEREOF, the parties have
executed this Agreement as of the Effective Date.

 

	
   

  	
  HICKORYTECH
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John W. Finke

  
	
   

  	
   

  	
  John Finke

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  President and Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   /s/ John P. Morton

  
	
   

  	
  JOHN
  MORTON

  

 

8

 

Amendment to

John Morton Employment Agreement of December 20,
2006

 

On December 20, 2006
HickoryTech Corporation and John Morton entered into an Employment Agreement (“Agreement”).  This letter serves as an Amendment to that December 20,
2006 Agreement.

 

The following Amendment
will become effective November 29, 2007. 
Section 3.4 of the Agreement will be modified to read:

 

3.5                                 Compensation
Upon Termination.

 

b.)          Severance. In the
event the Company terminates this Agreement without Cause, or in the event
Executive terminates this Agreement for Good Reason, Executive shall be
entitled to receive: (i) Executive’s then current Base Salary through the
Date of Termination, and (ii) a severance payment equal to twelve (12)
months of Executive’s then current Base Salary to be made in a lump sum payment
in the next regular payday following the expiration of the revocation period in
Executive’s Release (as provided in Section 3.4(b) below) without any
revocation having occurred. For purposes of this Section 3.4(a) a
termination of employment shall mean a separation from services as that term is
defined under Section 409A of the Code. In the event this Agreement is
terminated for any reason other than by the Company without Cause, or by
Executive for Good Reason, Executive shall not be entitled to the continuation
of any compensation, bonuses or benefits provided hereunder, or any other
payments following the Date of Termination, other than the then current Base
Salary earned through such Date of Termination.

 

In witness whereof, the
parties have executed this Amendment on November 29, 2007.

 

IN WITNESS WHEREOF, the parties have executed this
Amendment on November 29, 2007.

 

	
   

  	
  HICKORYTECH CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John W. Finke

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  President and CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   /s/ John P. Morton

  
	
   

  	
  JOHN
  MORTON

  

 

9Exhibit 10.1

 

DEBENTURE REDEMPTION AGREEMENT

 

This Debenture Redemption
Agreement (“Agreement”) is entered into
as of February 27, 2008 by and between Gruber & McBaine
International (“Holder”) and Iteris, Inc.
(“Iteris” or the “Company”).

 

RECITALS

 

WHEREAS, Holder holds a 6%
Convertible Debenture dated July 1, 2005, originally issued by the Company
pursuant to that certain Debenture and Warrant Purchase Agreement dated May 19,
2004, in the principal amount of $148,571 (the “Debenture”);
and

 

WHEREAS, the parties hereto
have reached certain agreements with respect to the redemption of the
above-described debenture.

 

NOW, THEREFORE, in
consideration of the foregoing and the mutual promises and agreements contained
herein, the sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

 

1.                                      Debenture
Redemption.

 

1.1.                            The Company
agrees to redeem from Holder, and Holder agrees to sell back to the Company,
the Debenture for an aggregate payment of $126,285.35 (the “Aggregate Redemption Price”).  In addition to the payment of the Aggregate
Redemption Price, the Company shall pay at the Closing (as defined below) all
accrued but unpaid interest on the Debenture as of the date of Closing.

 

1.2.                            The redemption
of the Debenture (the “Redemption”)
shall take place at the offices of Dorsey & Whitney LLP, 38 Technology
Drive, Irvine, California 92618, at 1:00 P.M. Pacific Time on February 27,
2008, or at such other time and place as the Company and Holder mutually agree
orally or in writing (which time and place are designated as the “Closing”).  At the Closing, Holder shall deliver to the
Company the original of the Debenture against payment by the Company of the
amounts set forth in Section 1.1 by check, wire transfer or any
combination thereof.  Notwithstanding the
foregoing, Holder acknowledges and agrees that, upon and as of the payment by
the Company of the amounts set forth in Section 1.1, whether or not
Holder has delivered and surrendered the original of the Debenture to the
Company, the Debenture shall be deemed null and void and cancelled in its
entirety and Holder shall have no further rights with respect to or under the
Debenture, whether such rights shall have accrued prior to or after the date
hereof.

 

2.                                      Representations
and Warranties.  Holder
hereby represents, warrants and acknowledges as follows:

 

2.1.                            As of the date
hereof, the total outstanding under the Debenture (principal and accrued but
unpaid interest) is One Hundred Twenty-Seven Thousand Seven Hundred One Dollars
and Eighty-Six Cents ($127,701.86).

 

 

 

2.2.                            Holder is the sole record and beneficial
owner of the Debenture.  Upon payment of
the amounts set forth in Section 1.1, the Company will acquire good
and valid title to the Debenture, free and clear of all liens, security interests,
pledges, claims and encumbrances of every kind, nature and description incurred
or created by Holder.

 

2.3.                            Holder has the
full right and power to enter into this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.  The execution, delivery and performance of
this Agreement by Holder, and the consummation of the transactions contemplated
hereby, (i) have been duly authorized by all requisite organizational
action of Holder and (ii) do not and will not conflict with any law
applicable to Holder or any of its properties or assets or any provisions of
Holder’s organizational documents or contracts, agreements or other instrument
to which Holder is a party or by which any of its properties or assets may be
bound.

 

2.4.                            Holder is an
experienced and sophisticated investor, having such knowledge and experience in
business and financial matters and investing as to be able to protect its own
interests and assess the risks and merits of the Redemption.  Holder has independently determined the
advisability of entering into this Agreement and is entering into this
Agreement of its own volition, and is not relying on any representations or
statements of the Company or its officers, directors, shareholders, employees,
agents, attorneys and representatives except for those representations and
statements expressly set forth herein.

 

2.5.                            Holder has had
the opportunity to consult with counsel of its choice regarding the meaning and
legal effect of this Agreement, and regarding the advisability of making the
agreements provided for herein, and fully understands the same.

 

3.                                      Release.  The following release shall be effective upon
the Company’s payment of the amounts set forth in Section 1.1.

 

3.1.                            Other than the
obligations, covenants, representations and warranties provided for in this
Agreement, Holder, for itself and its predecessors, successors, agents and
assigns (individually and collectively, the “Releasing
Parties”), hereby waives, releases, and forever discharges
Iteris and its predecessors, successors, assigns, officers, directors,
shareholders, employees, agents, attorneys and representatives, past and
present, (collectively, the “Iteris Released Parties”)
of and from any and all rights, claims, debts, liabilities, demands,
obligations, promises, damages, causes of action and claims for relief of any
kind, manner, nature and description, known or unknown, which any of the
Releasing Parties have, may have had, might have asserted, may now have or
assert, or may hereafter have or assert against the Iteris Released Parties, or
any of them, related to or arising under the Redemption and Holder’s purchase
and ownership of the Debenture.  Holder
represents and warrants that it has not filed any claims, charges, complaints
or actions against the Company and has not assigned or transferred to any
person or entity any of the claims Holder is releasing in this Agreement.

 

3.2.         The Releasing Parties acknowledge and agree that the
foregoing release includes in its effect all claims that they do not know or
suspect to exist in their favor as of the date hereof, and the Releasing
Parties expressly waive any statute, legal doctrine or other similar limitation
upon the effect of general releases.  In
particular, the Releasing Parties waive any and

 

 

2

 

all rights and benefits conferred upon them
by Section 1542 of the California Civil Code, which states as follows:

 

A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.

 

4.                                      Governing Law.  This Agreement shall in all
respects be interpreted, enforced, and governed by and under the internal laws
of the State of Delaware, without giving effect to any choice of law or
conflict of law principles.

 

5.                                      Entire
Agreement.  This
Agreement constitutes the entire agreement between the parties with respect to
the subject matter and supersedes all prior oral or written communications,
understandings and agreements with respect thereto.

 

6.                                      Headings.  The use of
headings in this Agreement is merely for convenience and such headings shall
not be used in construing any provisions of this Agreement.

 

7.                                      Interpretation.  Each party
has had the opportunity to negotiate modifications to the language of this
Agreement and agrees that, in any dispute regarding the interpretation or
construction of this Agreement, no presumption shall operate in favor of or
against any party by virtue of its role in drafting or not drafting the terms
and conditions set forth herein.

 

8.                                      Severability.  If any part, term or provision of this
Agreement is held by a court to be void or voidable, illegal, unenforceable,
invalid or otherwise in conflict with law, (i) the remaining provisions or
applications of this Agreement shall not be affected and the rights and
obligations of the parties shall be construed and enforced as if this Agreement
did not contain the particular term or provision held to be invalid and (ii) such
provision shall be amended to conform as nearly as possible, and only to the
extent required, to applicable law.

 

9.                                      Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all such
counterparts together shall constitute but one and the same instrument.  A photocopy or facsimile signature may be
used as an original.

 

[Signature Page Follows]

 

 

3

 

IN WITNESS WHEREOF, the
undersigned have executed this Agreement to be effective as of the date first
indicated above.

 

	
  Iteris, Inc.

  	
   

  	
  Gruber & McBaine
  International

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ James S. Miele

  	
   

  	
  By:

  	
  /s/ Eric Swergold

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  James S. Miele

  	
   

  	
  Name:

  	
  Gruber & McBaine
  Cap Mgmt

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  CFO

  	
   

  	
  Title:

  	
  Investment Advisor

  

 

 

4

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