EXECUTIVE EMPLOYMENT AGREEMENT

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Exhibit 10.3

EXECUTIVE EMPLOYMENT AGREEMENT

Amended and Restated as of August 4, 2008

        This Executive Employment Agreement ("Agreement") is made effective November 14, 2003 ("Effective Date"), by and between Kratos Defense & Security Solutions, Inc. ("Company") and Eric DeMarco ("Executive"), and as amended and restated as of August 4, 2008.

        The parties agree as follows:

        1.     Employment .    Company hereby employs Executive, and Executive hereby accepts such employment, upon the terms and conditions set forth herein.

        2.     Duties.     

        2.1     Position .    Executive shall initially be employed as a non-officer regular, full-time employee but will become Company's President and Chief Operating Officer ("COO") within two (2) weeks of the Effective Date. Immediately upon the announcement of Executive's assumption of the President and COO roles, Company shall announce a 3 to 6 month succession plan for Executive to transfer into Company's Chief Executive Officer ("CEO") role. Executive shall have the duties and responsibilities assigned by Company's Board of Directors ("Board of Directors") both upon initial hire and as may be reasonably assigned from time to time. Executive will also be offered a seat on Company's Board of Directors.

        2.2     Best Efforts/Full-time .    Executive will expend his best efforts on behalf of Company, and will abide by all policies and decisions made by Company, as well as all applicable federal, state and local laws, regulations or ordinances. Executive will act in the best interest of Company at all times. Executive shall devote his full business time and efforts to the performance of his assigned duties for Company, unless Executive notifies the Board of Directors in advance of his intent to engage in other paid work and receives the Board of Directors' express written consent to do so.

        3.     At-will Employment Relationship .    Executive's employment with Company is at-will and not for any specified period and may be terminated by either Executive or Company at any time, with or without cause. In addition, Company reserves the right to modify Executive's position or duties to meet business needs and to use discretion in deciding on appropriate discipline. No representative of Company, other than the Board of Directors, has the authority to alter the at-will employment relationship between Executive and Company. Any change to the at-will employment relationship must be by specific, written agreement signed by Executive and the Board of Directors. Nothing in this Agreement is intended to or should be construed to contradict, modify or alter this at-will relationship.

        4.     Compensation.     

        4.1     Base Salary .    As compensation for Executive's performance of his duties hereunder, Company shall pay to Executive an initial base salary of $275,000 per year (the "Base Salary"), payable in accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions. In the event Executive's employment under this Agreement is terminated by either party, for any reason, Executive will earn the Base Salary prorated to the date of termination.

        4.2     Incentive Compensation .    Executive will be eligible to earn an annual performance bonus, up to a maximum amount of 100% of his Base Salary, based upon the achievement of certain goals and objectives to be mutually determined by Executive and Company.

        4.3     Stock Options .    Subject to the Board of Directors' approval, Executive will be granted a nonqualified stock option to purchase 1,250,000 shares of Company's Common Stock under Company's 1999 Equity Incentive Plan (the "Plan") at an exercise price equal to $12.80 (the "Option"). The Option will vest in accordance with the following schedule: 20% of the Option will vest on the first anniversary of the Effective Date and the remaining 80% will vest in equal

monthly increments over the following 48 months. The Option will be subject to the terms and conditions of the Plan and the standard stock option agreement provided pursuant to the Plan, which Executive will be required to sign as a condition of receiving the Option. Executive will also be eligible to receive additional stock options based upon his performance as determined by Company in its sole and absolute discretion.

        4.4     Performance and Salary Review .    The Board of Directors will periodically review Executive's performance on no less than an annual basis. Adjustments to Base Salary or other compensation, if any, will be made by the Board of Directors in its sole and absolute discretion.

        5.     Customary Fringe Benefits .    Executive will be eligible for all customary and usual fringe benefits generally available to executives of Company subject to the terms and conditions of Company's benefit plan documents. Company reserves the right to change or eliminate the fringe benefits on a prospective, company-wide basis, at any time, effective upon notice to Executive.

        6.     Business Expenses .    Executive will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance of his duties on behalf of Company. To obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation in accordance with Company's policies.

        7.     Termination of Executive's Employment.     

        7.1     Termination for Cause by Company .    Although Company anticipates a mutually rewarding employment relationship with Executive, Company may terminate Executive's employment immediately at any time for Cause. For purposes of this Agreement, "Cause" is defined as: (a) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Executive with respect to Executive's obligations or otherwise relating to the business of Company; (b) Executive's material breach of this Agreement or Company's standard form of confidentiality agreement; (c) Executive's conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; or (d) Executive's willful neglect of duties or poor performance. Notwithstanding the foregoing, a termination under subsection 7.1(d) above shall not constitute a termination for "Cause" unless Company has first given Executive written notice of the offending conduct (such notice shall include a description of remedial actions that Company reasonably deems appropriate to cure such offending conduct) and a thirty (30) opportunity to cure such offending conduct. In the event Company terminates Executive's employment under subsection 7.1(d) above, Company agrees to participate in binding arbitration, if requested by Executive, to determine whether the cause for termination was willful neglect of duties or poor performance as opposed to some other reason that does not constitute Cause under this Agreement. In the event Executive's employment is terminated in accordance with this subsection 7.1, Executive shall be entitled to receive only the Base Salary then in effect, prorated to the date of termination and any accrued but unpaid vacation (the "Standard Entitlements"). All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished. In addition, Executive will not be entitled to receive the Severance Package described in subsection 7.2 below.

        7.2     Termination Without Cause by Company/Severance .    Company may terminate Executive's employment under this Agreement without Cause at any time on thirty (30) days' advance written notice to Executive. In the event of such termination, Executive will receive the Standard Entitlements and the "Severance Package" described in subsection 7.2(a) below, provided that Executive agrees to comply with all of the conditions set forth in subsection 7.2(b) below. All other Company obligations to Executive pursuant to this Agreement will be automatically terminated and completely extinguished.

        (a)     Severance Package .    The Severance Package will consist of the following:

        (i)    a "Severance Payment" equivalent to the sum of three (3) years of Executive's Base Salary then in effect on the date of termination plus three (3) times Executive's bonus potential for the year in which Executive was terminated, less any bonus amounts

already received and applicable taxes and withholdings, payable in a lump sum within thirty (30) days of such termination;

        (ii)   accelerated vesting of any and all of Executive's stock options, restricted stock units and any other outstanding equity awards that remain unvested as of the date of termination; and

        (iii)  continuation of Executive's group health insurance benefits on the same terms as during his employment until the sooner of one (1) year following the Separation Date or Executive's procurement of health care coverage through another employer (the "Benefits Continuation Period"), provided Company's insurance carrier allows for such benefits continuation. In the event Company's insurance carrier does not allow for such coverage continuation, Company agrees to pay the premiums required to continue Executive's group health care coverage during the Benefits Continuation Period, under the applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), provided that Executive elects to continue and remains eligible for these benefits under COBRA.

        (b)     Conditions to Receive Severance Package .    Executive will receive the Severance Package described above only if he meets all of the following conditions:

        (i)    complies with all surviving provisions of this Agreement as specified in subsection 13.8 below; and

        (ii)   executes a full general release, in a form acceptable to Company, releasing all claims, known or unknown, that Executive may have against Company, and any parent, subsidiary or related entity, their officers, directors, employees and agents, arising out of or any way related to Employee's employment or termination of employment with Company.

        (c)   Notwithstanding any other provision of this Agreement to the contrary, if Executive is a "specified employee" within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and the related guidance ("Section 409A") at the time of Executive's separation from service, then only that portion of the Severance Package, together with any other severance payments or benefits, that may be considered deferred compensation under Section 409A, which (when considered together) do not exceed the Section 409A Limit (as defined below) and which qualify as separation pay under Treasury Regulation Section 1.409A-1(b)(9)(iii), may be paid within the first six (6) months following Executive's separation from service in accordance with Section 7.2(a) above or (for payments or benefits not provided under this Agreement) with the payment schedule applicable to each such other payment or benefit. Otherwise, the portion of the Severance Package, together with any other severance payments or benefits that may be considered deferred compensation under Section 409A, that would otherwise be payable within the six (6) month period following Executive's separation from service will be paid in a lump sum on the date six (6) months and one (1) day following the date of Executive's separation from service (or the next business day if such date is not business day). For purposes of this Agreement, "Section 409A Limit" means the lesser of two (2) times: (i) the sum of Executive's annualized compensation based upon the annual rate of pay for services provided to Company for the taxable year of Executive preceding the taxable year of Executive's separation from service from Company as determined under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A)(1) and any related Internal Revenue Service guidance; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which such separation from service occurs..

        7.3     Resignation by Executive Without Good Reason .    Executive may resign Executive's position with Company for any reason, at any time on thirty (30) days' advance written notice. In the event of Executive's resignation, Executive will be entitled to receive only the Standard

Entitlements and no other amount. All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished. In addition, Executive will not be entitled to receive the Severance Package described in subsection 7.2 above.

        7.4     Termination Upon A Change Of Control.     

        (a)     Accelerated Vesting Upon A Change Of Control .    Upon the close of a transaction that constitutes a Change of Control (as that term is defined below), Company shall immediately accelerate vesting of 50% of any portion of the Option and 50% of the portion of any other outstanding equity awards that remain unvested. On the one (1)-year anniversary of such Change of Control or upon a "Triggering Event" (as defined below), whichever occurs sooner, the remaining unvested portion of the Option and any other outstanding equity awards shall immediately vest. For purposes o