Exhibit 10.3
EXECUTIVE EMPLOYMENT
AGREEMENT
THIS EXECUTIVE
EMPLOYMENT AGREEMENT (the “Agreement” ) dated
effective as of November 1, 2007 ( “Effective
Date” ), is made and entered into by and between EMRISE
CORPORATION, a Delaware corporation ( “Employer”
), and D. JOHN DONOVAN ( “Executive”
).
R E C I T A L S
Employer desires
that Executive enter into an employment relationship with Employer
in order to provide the necessary leadership and senior management
skills that are important to the success of Employer. Employer
believes that obtaining Executive’s services as an employee
of Employer and the benefits of his business experience are of
material importance to Employer and Employer’s
stockholders.
NOW, THEREFORE, in
consideration of Executive’s employment by Employer and the
mutual promises and covenants contained herein, the receipt and
sufficiency of which is hereby acknowledged, Employer and Executive
intend by this Agreement to specify the terms and conditions of
Executive’s employment relationship with Employer.
1.
General Duties of Employer and
Executive .
(a)
Employer agrees to employ Executive and Executive agrees to accept
employment by Employer and to serve Employer in an executive
capacity upon the terms and conditions set forth herein. Employer
hereby employs Executive as Vice President Finance and
Administration, Secretary and Treasurer as of the Effective Date,
reporting to the President and Chief Executive Officer (the
“CEO” ).Executive shall serve as
Employer’s principal accounting and financial officer.
Executive’s duties and responsibilities shall be those
normally assumed by the principal accounting and financial officer,
Vice President Finance and Administration, Secretary and Treasurer
of a publicly-owned company similarly situated to Employer, as well
as such other or additional duties, as may from time-to-time be
assigned to Executive by the CEO, which Employer anticipates will
include, among other things, serving as an officer or director of
Employer’s domestic subsidiaries. Such other or
additional duties shall be consistent with the senior executive
functions set forth above.
(b)
While employed hereunder, Executive shall use his best efforts to
obey the lawful directions of the CEO. Executive shall also use his
best efforts to promote the interests of Employer and to maintain
and to promote the reputation of Employer. While employed
hereunder, Executive shall devote his full business time, efforts,
skills and attention to the affairs of Employer and faithfully
perform his duties and responsibilities hereunder.
(c)
While this Agreement is in effect, Executive may from time to time
engage in any activities that do not compete directly with
Employer, provided that such activities do not interfere with his
performance of his duties. Executive shall be permitted to (i)
invest his personal assets as a passive investor in such form or
manner as Executive may choose in his discretion, (ii) participate
in various charitable efforts, and (iii) serve as a member of the
Board of Directors of other corporations which are not competitors
of Employer.
2.
Compensation and Benefits
.
(a)
As compensation for his services to Employer, Employer shall pay to
Executive an annual base salary of $223,000 during the first
6-month period that this Agreement is in effect, payable in equal
semimonthly payments in accordance with Employer’s regular
payroll policy for salaried employees (the
“Salary” ). At the end of the first six (6)
months of employment the Executive shall receive an increase to his
annual base salary of 10% from $223,000 to $245,300. The
Compensation Committee (the “Compensation
Committee” ) of the Board of Directors of Employer (the
“Board” ) shall perform an annual review of the
Executive’s Salary based on a review of Executive’s
performance of his duties prepared by Employer’s CEO and
Employer’s other compensation policies. The Compensation
Committee may, at its sole discretion, increase (but not decrease)
the Salary at any time, and from time to time.
(b)
Executive shall be eligible for additional cash compensation in the
total amount of up to $20,000 during the first seven (7) months
after the Effective Date. If earned, the additional cash
compensation would be payable in increments of $10,000 on November
30, 2007 and May 1, 2008. The additional cash compensation
shall be earned and awarded based solely upon the CEO’s
determination, in his absolute discretion, whether Executive met
mutually agreed upon objectives.
(c)
In addition to the foregoing Salary, Executive shall be eligible
for an annual incentive bonus ( “Incentive
Bonus” ) based on criteria determined by the Compensation
Committee, at its sole discretion. The Incentive Bonus shall
be payable annually in cash, following the date on which
Employer’s Form 10-K for the previous fiscal year is filed
with the Securities and Exchange Commission, but in no event later
than the Short Term Deferral Date as defined in
Section 3.1 ; provided , however , that
Executive shall not be eligible for an Incentive Bonus for fiscal
years 2007 and 2008. Executive be eligible for a partial bonus in
2008 based solely upon the CEO’s determination in his
absolute discretion.
(d)
Upon Executive’s furnishing to Employer customary and
reasonable documentary support (such as receipts or paid bills)
evidencing costs and expenses incurred by him in the performance of
his services and duties hereunder (including, without limitation,
travel and entertainment and cellular telephone expenses) and
containing sufficient information to establish the amount, date,
place and essential character of the expenditure, Executive shall
be reimbursed for such costs and expenses in accordance with
Employer’s normal expense reimbursement policy.
(e)
In recognition of Executive’s intention to, and
Employer’s desire that Executive will, participate in 40
hours each year of continuing professional education and
certification requirements as a Certified Public Accountant,
Employer shall reimburse Executive for up to $5,000 per year for
reasonable and properly documented expenses incurred by Executive
for such continuing professional education.
(f)
Executive shall be entitled to participate in the medical
(including hospitalization) and dental insurance plans, to the
extent offered by Employer, and in amounts consistent with
Employer’s policy for other senior executive officers of
Employer, with
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premiums for
all such insurance for Executive and his dependents to be paid by
Employer. In lieu of participating in Employer’s group
life and long term disability insurance plans, Executive shall be
entitled to payment of $1,100 per year to be used by Executive to
maintain Executive’s existing life and long term disability
insurance plans. Such payment shall be made annually, within
sixty (60) days of any year-end on which Executive remains employed
by Employer, but in any event not later than the Short Term
Deferral Date.
(g)
Executive shall have the right to participate in any additional
compensation, benefit, bonus, pension, stock option, stock
purchase, 401(k) or other plan or arrangement of Employer now or
hereafter existing for the benefit of other senior executive
officers of Employer, to the extent offered by Employer, and in
amounts consistent with the Employer’s policy.
(h)
Executive shall be entitled to vacation (but in no event less than
three (3) weeks per year), holiday and other paid or unpaid leaves
of absence consistent with Employer’s normal policies for
other senior executive officers of Employer or as otherwise
approved by the Board.
(i)
Executive shall be provided a monthly car allowance in the amount
of at least $600.00.
(j)
Employer shall purchase and maintain in effect a directors’
and officers’ liability insurance policy with a minimum limit
of liability of $10,000,000 and shall enter into an indemnification
agreement with Executive upon terms and conditions mutually
acceptable to Employer and Executive.
3.
Deferred Compensation
.
(a)
This Agreement is not intended to provide for any deferral of
compensation payable during Executive’s employment pursuant
to Section 409A of the Internal Revenue Code (the
“Code” ) and, accordingly, any compensation paid
to Executive pursuant to this Agreement during Executive’s
employment is intended to be paid not later than the later
of: (i) the fifteenth (15 th ) day of the third (3
rd ) month following the Executive’s first (1
st ) taxable year in which such benefit is no longer
subject to a substantial risk of forfeiture, and (ii) the fifteenth
(15 th ) day of the third (3 rd ) month
following the first (1 st ) taxable year of Employer in
which such benefit is no longer subject to a substantial risk of
forfeiture, as determined in accordance with Section 409A of
the Code and any Treasury Regulations and other guidance issued
thereunder. The date determined under this subsection is
referred to as the “Short-Term Deferral Date.”
Notwithstanding anything to the contrary herein, in the
event that any compensation paid pursuant to this Agreement during
Executive’s employment is not actually or constructively
received by Executive on or before the Short-Term Deferral Date, to
the extent such compensation, or any portion thereof, constitutes a
deferral of compensation subject to Code Section 409A, then,
subject to Section 3(b) , such benefit shall be paid
upon Executive’s separation from service, with respect to
Employer and its affiliates within the meaning of Section 409A
of the Code.
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(b)
In the event that Executive is a “specified employee,”
as defined in Section 409A(a)(2)(B)(i) of the Code as of the
date of any separation from service with respect to Employer and
its affiliates, no payment of deferred compensation subject to Code
Section 409A may be made to Executive before the date that is
six (6) months after the date of separation from service (or, if
earlier, the date of death of the specified employee), and, in such
case, any payments shall be accumulated and paid on the first date
of the seventh (7 th ) month following separation from
service; provided , however , that any payment or
portion thereof which is subject to an exemption for separation pay
to specified employees as provided under Treasury Regulation §
1.409A, or is subject to any other exemption provided under
Treasury Regulation § 1.409A allowing for payment to a
specified employee prior to the date that is six (6) months after
the date of separation from service, may be paid to Executive upon
separation from service.
4.
Preservation of Business; Fiduciary
Responsibility .
Executive shall
use his best efforts to preserve the business and organization of
Employer and to preserve the business relations of Employer. So
long as Executive is employed by Employer, Executive shall observe
and fulfill proper standards of fiduciary responsibility attendant
upon his service and office.
5.
No Specified Term; Employment at
Will .
The employment
relationship between Employer and Executive pursuant to this
Agreement is not for any specific term, but may be terminated with
or without cause, by Employer or by Executive, at any time and for
any reason, subject to the rights and obligations of Employer and
Executive as set forth in this Agreement. Any modification to
the nature of the at-will employment relationship between Employer
and Executive must be made in writing, and must be signed by
Executive and by Employer.
6.
Termination .
Employer or
Executive may terminate Executive’s employment under this
Agreement at any time, but only on the following terms:
(a)
Employer may terminate Executive’s employment under this
Agreement at any time for “Due Cause” (as
defined in Appendix I attached hereto and incorporated
herein by this reference) upon the good faith determination by the
Board that Due Cause exists for the termination of the employment
relationship.
(b)
If Executive is incapacitated by accident, sickness or otherwise so
as to render Executive either: (i) unable to engage in
any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period
of not less than twelve (12) months; or (ii) by reason of any
medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months is receiving
income replacement benefits for a period of not less than three (3)
months under an accident and health plan covering employees of
Employer; and such incapacity is confirmed by the U.S. Social
Security Administration or in accordance with a disability
insurance program maintained by Employer, Employer may terminate
Executive’s employment
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under this
Agreement upon giving Executive or his legal representative written
notice at least 30 days prior to the termination date, subject to
the provisions of Section 7(b) . Notwithstanding
anything expressed or implied above to the contrary, Employer will
fully comply with its obligations under the Americans with
Disabilities Act as well as any other applicable federal, state, or
local law, regulation, or ordinance governing the protection of
qualified individuals with disabilities as well as Employer’s
obligation to provide reasonable accommodation
thereunder.
(c)
This Agreement shall terminate immediately upon Executive’s
death, subject to the provisions of Section 7(b)
.
(d)
Subject to the provisions of Section 7(c) , Employer
may terminate Executive’s employment under this Agreement at
any time for any reason whatsoever, even without Due Cause, by
giving a written notice of termination to Executive, in which case
the employment relationship shall terminate immediately upon the
giving of the notice. If Employer terminates the employment of
Executive other than (i) pursuant to Section 6(a) for
Due Cause, (ii) due to incapacity pursuant to
Section 6(b) or due to Executive’s death pursuant
to Section 6(c) , or (iii) Executive’s
retirement, then the action by Employer, unless consented to in
writing by Executive, shall be deemed to be a constructive
termination by Employer of Executive’s employment (a
“Constructive Termination” ), and, in that
event, Executive shall be entitled to receive the compensation set
forth in Section 7(c) .
(e)
Executive may terminate this Agreement at any time within ninety
(90) days of the occurrence of any event comprising “ Good
Reason ” (as defined in Appendix I attached
hereto and incorporated herein by this reference); provided
, however , that Executive provides Employer with written
notice of the event or condition constituting Good Reason within
thirty (30) days of the initial existence of such event or
condition, and that Employer shall have a period of thirty (30)
days to cure such event or condition and, in the event that
Employer fails to cure such event or condition, Executive shall be
entitled to receive the compensation set forth in
Section 7(c) .
7.
Effect of Termination
.
(a)
If the employment relationship is terminated (i) by Employer for
Due Cause pursuant to Section 6(a) , (ii) by Executive
breaching this Agreement by refusing to continue his employment, or
(iii) by Executive without Good Reason, then all compensation and
benefits shall cease as of the date of termination, other than:
(A) those benefits that are provided by retirement and benefit
plans and programs specifically adopted and approved by Employer
for Executive that are earned and vested by the date of
termination; (B) Executive’s pro rata annual Salary (as
in effect as of the date of termination, payable in the manner as
prescribed in the first sentence of Section 2(a)
through the date of termination; (C) any stock options which
have vested as of the date of termination pursuant to the terms of
the agreement granting the options; and (D) accrued vacation
as required by California law.
(b)
If Executive’s employment relationship is terminated due to
Executive’s incapacity pursuant to Section 6(b)
or due to Executive’s death pursuant to
Section 6(c) , Executive or Executive’s estate or
legal representative, shall, subject to Section 3 of
this Agreement, be entitled to (i) those benefits that are provided
by retirement and benefits plans and
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programs
specifically adopted and approved by Employer for Executive that
are earned and vested at the date of termination, (ii) a prorated
Incentive Bonus, payable in the manner as prescribed in the second
sentence of Section 2(b) (to the extent Executive would
otherwise be eligible) for the fiscal year in which incapacity or
death occurs, and (iii) a lump-sum cash payment, payable within ten
(10) business days of separation from service due to death or
disability, but in any event, not later than the Short-Term
Deferral Date, in an amount equal to one (1) year of
Executive’s then current annual Salary as set forth in
Section 2(a) , which amount shall be net of all then
applicable federal, state and local taxes payable by Executive
relating to such payment (said payment taking into consideration
the full gross-up effect of additional taxes payable with respect
to tax payments).
(c)
In the event of a termination of this Agreement as a result of
Constructive Termination, or by Executive for Good Reason, then
Employer shall, subject to Section 3 of this
Agreement:
(i)
pay to Executive on the date of termination his Salary in effect as
of the date of termination through the end of the month during
which the termination occurs plus credit for any vacation earned
but not taken;
(ii)
pay to Executive on the first business day following the expiration
of the revocation period described in Section 7(d) (provided
Executive has not tendered his revocation), but in any event, not
later than the Short-Term Deferral Date, as severance pay an amount
equal to one (1) times Executive’s then current annual
Salary, which amount shall be net of all then applicable federal,
state and local taxes payable by Executive relating to such payment
(said payment taking into consideration the full gross-up effect of
additional taxes payable with respect to tax payments);
(iii)
pay to Executive the prorated Incentive Bonus, to the extent
Executive would otherwise be eligible for any, for the fiscal year
during which termination occurs, payable as provided in
Section 2(a) ; and
(iv)
maintain, at Employer’s expense, in full force and effect,
for Executive’s continued benefit, all medical insurance to
which Executive was entitled immediately prior to the date of
termination until the earliest of (i) eighteen (18) months or (ii)
the date or dates that Executive’s continued participation in
Employer’s medical plan is not possible under the terms of
the plan (the earliest of (i) and (ii) is referred t
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