EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (“Agreement”), effective July 1, 2006, 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 Ken Regan, (“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.

1.1    Employment . Upon the terms and conditions hereinafter set forth, the Company employs Employee, and Employee hereby accepts employment, as President & Chief Operating Officer, Defense Solutions Group.

1.2    Term . Employee’s employment hereunder shall be for a term (the “Term”) commencing on the date this Agreement is effective and ending on June 30, 2008, unless the Agreement terminates sooner pursuant to Section 4 below; provided, however, that the Agreement shall renew automatically for successive periods of one (1) year unless the Company or Employee provides written notice to the other Party of a desire to change, modify, amend or terminate the Agreement at least thirty (30) days prior to the then-current expiration date of the Agreement. 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.

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 Two Hundred and Ten Thousand Dollars ($210,000). 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 periodically, usually on 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.

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.

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.

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 twelve (12) 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 twelve 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.

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 eighteen (18) 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.

4.4.1    For purposes of this Agreement, a “Change in Control” shall mean: (i) the acquisition, by one person or a group, of stock of the Company that causes such person or group to own more than 50% of the total fair market value or total voting power of the stock of such Company; (ii) either: (1) the acquisition, by one person or a group, of ownership of 35% or more of the total voting power of the stock of the Company; or (2) the replacement of a majority of the members of the Board with directors whose appointment or election is not endorsed by the existing Board; AND (iii) the acquisition of assets from the Company that have a total gross fair market value of 40% or more of the total gross fair market value of all assets of the Company prior to the acquisition.

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