| **Exhibit  10.1** |
|-------------------|

** **

 

**EMPLOYMENTAGREEMENT**

This EMPLOYMENTAGREEMENT (“**Agreement**”),dated as of July 17, 2002, is by and among Elgar Holdings, Inc., aDelaware corporation (“**Holdings**”),Elgar Electronics Corporation, a California corporation and a wholly owned subsidiaryof Holdings (“**EEC**”), andJoseph Budano (“**Executive**”).

**RECITALS**

WHEREAS,Executive, Holdings and EEC wish to provide for the terms and conditions ofExecutive’s employment initially as Chief Operating Officer of each of Holdingsand EEC and, subsequently, upon Kenneth R. Kilpatrick ceasing to be thePresident and Chief Executive Officer of Holdings and EEC, the President andChief Executive Officer of each of Holdings and EEC.

**AGREEMENT**

NOW THEREFORE, inconsideration of the premises and the mutual agreements hereinafter set forth,the parties hereto hereby agree as follows:

**1.             Employment; Duties.**

(a)           Each of Holdings and EEC herebyemploys Executive initially to serve as Chief Operating Officer of each ofHoldings and EEC, with the powers and duties customarily accorded to suchposition, and such other duties consistent therewith as may be assigned toExecutive from time to time by the Chief Executive Officer of Holdings or EEC,as the case may be.

(b)           Upon Kenneth R. Kilpatrick ceasing tobe the President and Chief Executive Officer of each of Holdings and EEC, whichis anticipated to occur around August 15, 2002, Executive will assume thetitle of President and Chief Executive Officer of each of Holdings and EEC, andwill no longer serve as the Chief Operating Officer of either Holdings orEEC.  As the President and ChiefExecutive Officer, Executive shall have the powers and duties customarilyaccorded to such position, and such other duties consistent therewith as may beassigned to Executive from time to time by the Board of Directors of Holdingsor EEC, as the case may be.

(c)           Executive will devote his fullbusiness time, utmost knowledge and best skill to the performance of the dutiesand responsibilities as Chief Operating Officer and, subsequently, Presidentand Chief Executive Officer.  Executivewill not engage in any other gainful occupation which requires his personalattention without prior written consent of the Board of Directors of Holdings,which written consent will not be unreasonably withheld.

**2.             Term.**  Executive’s term of employment under thisAgreement shall commence upon the date hereof and shall continue untilterminated in accordance with Section 3 herein.

1

----

 

**3.             Termination.**

**3.1.         Events Triggering Termination.**  At the written election of Holdings in itssole discretion, this Agreement shall terminate immediately, effective upon theoccurrence of any one of the following events (although Holdings’ writtenelection shall not be required under subclauses (a), (d) or (f) below, theoccurrence of any of which shall automatically trigger termination of thisAgreement):

(a)           Executive’s conviction of a felony orother crime involving moral turpitude;

(b)           An act of fraud, embezzlement or similarconduct by Executive involving Holdings or EEC;

(c)           Executive’s material breach of orfailure to perform his obligations hereunder, failure by Executive to abide by,conform with or otherwise observe any material written policy of Holdings orEEC, as the case may be, or the continuing failure to conform to the reasonabledirectives of (i) the Chief Executive Officer of Holdings or EEC, as thecase may be, while serving as Chief Operating Officer or (ii) the Board ofDirectors of Holdings or EEC, as the case may be, while serving as Presidentand Chief Executive Officer; *provided,however*, that this Agreement may not be terminated under thissubclause (c) unless Executive shall have first received written noticeadvising Executive of the specific acts or omissions alleged to constitute afailure or refusal to perform and, if capable of being cured, such failure orrefusal to perform continues uncured for a period of 30 days after thedate Executive received such notice;

(d)           The death of Executive; or

(e)           The total and permanent disability ofExecutive.  Executive shall be deemedtotally and permanently disabled if Executive shall become incapacitated byreason of sickness, accident or other physical or mental disability and shallfor a period of 60 consecutive days be unable to perform his normal dutieshereunder, with or without reasonable accommodation by Holdings.

In the event thatExecutive’s employment is terminated by Employer pursuant toSections 3.1(a), 3.1(b), 3.1(c) or 3.1(d) hereof, Employer shall promptlypay to Executive (or in the event that such termination is pursuant to Section3.1(d), to Executive’s estate or other legal representative) the base salaryprovided for in Section 4.1 accrued to the date of Executive’s terminationand not theretofore paid to Executive. Rights and benefits of Executive under the benefits plans and programsof Holdings and EEC shall be determined in accordance with the terms of suchplans and programs.

**3.2          Termination by Written Notice.**  This Agreement may also be terminated byeither party for any reason or for no reason upon 30 days prior writtennotice to the other.

**3.3.         Severance Compensation.**  Subject to Section 3.4 below, whichshall govern Executive’s severance compensation and benefits in the event oftermination within 12 

2

----

 

months following aChange of Control (as defined below), if Holdings and EEC terminate thisAgreement and such termination is (1) for reasons other than pursuant toSections 3.1(a), 3.1(b), 3.1(c) or 3.1(d) hereof, (2) for no reasonor (3) due to Executive’s termination of this Agreement for Good Reason(as defined below), Holdings and EEC shall continue to pay to Executive hisannual base salary in the same periodic installments provided for inSection 4.1 hereof for a period of 12 consecutive months following thedate of such termination (the “**SeverancePeriod**”); *provided, however*,that the severance compensation to be paid to Executive in respect of atermination for the reason specified in Section 3.1(e) shall be integratedwith any disability insurance proceeds paid to Executive during the SeverancePeriod so that Executive receives no more than an amount equal to 100% of hisannual base salary under Section 4.1 during the Severance Period.  In addition, during the Severance Period,Holdings and EEC shall continue to make all employer contributions to medicaland dental and life insurance premiums for all Holdings or EEC maintained plansunder which Executive is an insured or covered as of the commencement of theSeverance Period.

“**Good Reason**” as used herein meanseither: (1) any reduction of Executive’s annual salary; (2) anyreduction in Executive’s eligibility to participate in incentive plans,employee benefits, employee benefit plans, programs or practices applicablefrom time to time to senior executives of EEC (other than (A) an isolated,insubstantial and inadvertent failure occurring in good faith and which EECremedies promptly after receipt from Executive of notice thereof or (B) anadverse change in incentive plans, employee benefits, employee benefit plans,programs or practices applicable to other senior executives or eligibleemployees generally or which is required by law); (3) any failure by Holdingsand EEC to obtain the written agreement of any successor or assign to assumeHoldings’ and EEC’s responsibilities and obligations under this Agreement,excluding the provisions of Section 4.5(b) and Section 4.5(c);(4) a relocation of Executive or the Company’s principal offices to alocation more than 50 miles from the location at which Executive is thenperforming his duties, except when accepted by Executive in writing; and(5) a material breach by Holdings or EEC of any provision in thisAgreement, provided that Holdings or EEC first receives written notice advisingit of the specific acts or omissions alleged to constitute a failure or refusalto perform and, if capable of being cured, such failure or refusal to performcontinues uncured for a period of 30 days after the date Holdings or EECreceived such notice.

**3.4.         TerminationUpon a Change of Control.**  If, during the term of this Agreement, Holdings and EEC terminatethis Agreement within 12 months following a Change of Control and suchtermination is other than pursuant to Sections 3.1(a), 3.1(b), 3.1(c) or3.1(d), Executive shall be entitled to the following severance benefits:

(a)           If the Change of Control occurs on orprior to the first anniversary of this Agreement, Executive shall be entitledto receive his annual base salary in the same periodic installments providedfor in Section 4.1 hereof for a period of six consecutive months followingthe date of his termination; *provided,however*, that the severance compensation to be paid to Executive inrespect of a termination for the reason specified in Section 3.1(e) shallbe integrated with any disability insurance proceeds paid to Executive duringsuch six-month period so that Executive receives no more than an amount equalto 100% of his base salary under Section 4.1 for such six-monthperiod.  In addition, during suchsix-month period, Holdings and EEC shall continue to make all 

3

----

 

employer contributions to medical and dental and lifeinsurance premiums for all Holdings or EEC maintained plans under whichExecutive is an insured or covered as of the commencement of such six-monthperiod; and

(b)           If the Change of Control occurs afterthe first anniversary of this Agreement but on or prior to the secondanniversary of this Agreement, Executive shall be entitled to receive hisannual base salary in the same periodic installments provided for inSection 4.1 hereof for a period of nine consecutive months following thedate of his termination; *provided, however*,that the severance compensation to be paid to Executive in respect of atermination for the reason specified in Section 3.1(e) shall be integratedwith any disability insurance proceeds paid to Executive during such nine-monthperiod so that Executive receives no more than an amount equal to 100% of hisbase salary under Section 4.1 for such nine-month period.  In addition, during such nine-month period,Holdings and EEC shall continue to make all employer contributions to medicaland dental and life insurance premiums for all Holdings or EEC maintained plansunder which Executive is an insured or covered as of the commencement of suchnine-month period; and

(c)           If the Change of Control occurs afterthe second anniversary of this Agreement, Executive shall be entitled to receivehis annual base salary in the same periodic installments provided for inSection 4.1 hereof for a period of 12 consecutive months following thedate of his termination; *provided, however*,that the severance compensation to be paid to Executive in respect of atermination for the reason specified in Section 3.1(e) shall be integratedwith any disability insurance proceeds paid to Executive during such 12-monthperiod so that Executive receives no more than an amount equal to 100% of hisbase salary under Section 4.1 for such 12-month period.  In addition, during such 12-month period,Holdings and EEC shall continue to make all employer contributions to medicaland dental and life insurance premiums for all Holdings or EEC maintained plansunder which Executive is an insured or covered as of the commencement of such12-month period.

(d)           For purposes of this Agreement, a “**Change ofControl**” shall mean any of the following events:

(i)            an acquisition (other than directlyfrom Holdings) of any voting securities of Holdings (the “**Voting Securities**”) byany “Person” (as the term person is used for purposes ofSection 13(d) or 14(d) of the Securities Exchange Act of 1934,as amended (the “**1934 Act**”)) other than a stockholder ofHoldings on the date hereof, immediately after which such Person has“Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the1934 Act) of at least 50% of the combined voting power of Holdings thenoutstanding Voting Securities; *provided,however*, that a Change of Control shall not be deemed to occur as aresult of holders of Holdings debt securities converting such securities intoVoting Securities in connection with a restructuring; or

4

----

 

(ii)           approvalby Holdings’ stockholders of:

(A)          amerger, consolidation or reorganization involving Holdings, unless thestockholders of Holdings, immediately before such merger, consolidation orreorganization, own, directly or indirectly, immediately following such merger,consolidation or reorganization, at least 50% of the combined voting power ofthe outstanding Voting Securities of the corporation resulting from such mergeror consolidation or reorganization (the “**Surviving Corporation**”); *provided, however*, that a Change ofControl shall not be deemed to occur as a result of holders of Holdings debtsecurities converting such securities into Voting Securities in connection witha restructuring; or

(B)           an agreement for the sale or otherdisposition of all or substantially all of the assets of Holdings and EEC toany Person (other than a transfer to a subsidiary of Holdings or EEC).

**4.             Compensation and Benefits.**

**4.1          Base Salary.**  As compensation for all services rendered byExecutive under this Agreement, Executive shall receive an annual base salaryof Two Hundred Fifty Thousand Dollars ($250,000), payable bi-weekly in arrearsor otherwise in accordance with the standard payroll practices of EEC (whichshall be the entity that makes payments to Executive).  This annual base salary may be augmented bysalary increases as determined by the Board of Directors of Holdings from timeto time.  All regular compensation shallbe paid in accordance with EEC’s standard payroll procedures.

**4.2          Commencement Bonus.**  On Executive’s first day of employment withHoldings and EEC, he shall receive a commencement bonus of $25,000 in cash.

**4.3          Promotion Bonus.**  On Executive’s first day as the Presidentand Chief Executive Officer of Holdings and EEC, he shall receive a promotionbonus of $25,000 in cash.

**4.4**          **AnnualPerformance Bonus**. Executive shall be eligible for additional bonus compensation as may bedetermined by the Board of Directors of Holdings.  For the year ending December 31, 2002, however, Executive’sbonus shall be calculated in accordance with the formula set forth on Exhibit Ahereto.

**4.5**          **CommonStock Purchase; Sale Amount**.

(a)           Upon the execution hereof, andsubject to Holdings’ compliance with Section 6 of the ShareholdersAgreement, dated as of February 3, 1998, among Holdings and the stockholdersparty thereto (the “Shareholders Agreement”), Executive shall purchase fromHoldings, for cash, 500,000 shares of the common stock of Holdings, par value$0.01 per share, at a purchase price of $0.10 per share, by delivery toHoldings of payment of $50,000 in exchange for a stock certificate representing500,000 shares of the common stock of Holdings.  In connection with and as a condition to such purchase, Executivewill sign a counterpart 

 

5

----

 

signature page tothe Shareholders Agreement, becoming a party thereto for all purposes of theShareholders Agreement.

(b)           If, on or before the firstanniversary of the date of this Agreement, a Sale Event (as defined below)occurs and the gross consideration Executive receives for each of the 500,000shares of common stock he acquired pursuant to subclause (a) immediately aboveis less than $1.10 per share (as adjusted for any subsequent stock splits,combinations or the like), then Holdings shall pay to Executive, within 15 daysof the closing of the Sale Event, an amount equal to the positive differencebetween (x) $1.10 and (y) the gross amount per share Executivereceives, multiplied by 500,000 (or such lesser number of shares Executive maythen hold if he has previously disposed of some of those shares).

(c)           If, a Sale Event did not occur on orbefore the first anniversary of the date of this Agreement and after the firstanniversary of the date of this Agreement but on or prior to the secondanniversary of this Agreement, a Sale Event occurs and the gross considerationExecutive receives for each of the 500,000 shares of Common Stock he acquiredpursuant to subclause (a) immediately above is less than $0.60 per share (asadjusted for any subsequent stock splits, combinations or the like), thenHoldings shall pay to Executive, within 15 days of the closing of the SaleEvent, an amount equal to the positive difference between (x) $0.60 and(y) the gross amount per share Executive receives, multiplied by 500,000(or such lesser number of shares Executive may then hold if he has previouslydisposed of some of those shares).  Forthe avoidance of doubt, if Executive receives compensation pursuant toSection 4.5(b) as a result of a Sale Event, he shall not be entitled toreceive compensation pursuant to this Section 4.5(c).

(d)           Forpurposes of this Section 4.5, a “**Sale Event**” shall mean the closing ofthe sale of all or substantially all of the capital stock or assets of Holdingsin which the stockholders of Holdings receive consideration, in cash,securities or some combination thereof, for their shares, whether directly froma third party in the event of a stock sale or merger or as a distribution fromHoldings in the event of an asset sale; *provided,however*, that a Sale Event shall not be deemed to occur as a resultof holders of Holdings debt securities converting such securities into VotingSecurities in connection with a restructuring. For the avoidance of doubt, in no event shall there be more than oneSale Event for purposes of this Section 4.5.

**4.6          Relocation Expenses.**  Holdings will reimburse Executive for up to$20,000 of relocation expenses incurred by Executive in connection withrelocation to and within the San Diego area, provided that such expenses shallbe limited to (i) no more than one point on a mortgage obtained on a newhome, (ii) closing costs on a new mortgage and (iii) the movement ofhousehold goods from Executive’s prior residence to his new residence, but inany event, the aggregate of such costs to be reimbursed by Holdings toExecutive shall not exceed $20,000. Holdings assumes full responsibility for taxes, if any, found to be owedor that may ultimately be assessed upon the relocation reimbursement, or thatmay be imposed as a result of Executive’s receipt thereof, provided thatExecutive will use his reasonable best efforts to minimize any such taxes.

**4.7          Withholding.**  All compensation paid to Executive underthis Agreement shall be subject to customary withholding and employment taxes asrequired by federal and state law.

6

----

 

**4.8          Other Benefits.**  Executive shall be entitled to such otherbenefits, including retirement benefits, as are provided to other executiveofficers of Holdings and EEC, subject to any terms, conditions or restrictionsassociated with such benefits, all as determined by written company policy ineffect from time to time during the term of this Agreement.

**5.             Vacation.**  Executive shall be entitled to four weeksannual paid vacation per year (pro rated accordingly for 2002), subject toaccrual and use in accordance with written company policy in effect from timeto time during the term of this Agreement and applicable law.  Executive’s vacation will be scheduled atthose times which are mutually convenient to Holdings’ business and Executive.

**6.             Business Expenses.**  EEC will pay or reimburse Executive for anyreasonable out-of-pocket expenses incurred by Executive in the course ofproviding his services hereunder, which comply with EEC’s travel and expensepolicies adopted from time to time. Such reimbursement shall be made by EEC in the same manner and withinthe same time period as applicable to the other executive officers of EEC.

**7.             Confidential Information;Non-Solicitation; Non-Compete.**

(a)           Non-Disclosure.  Executive hereby agrees, during the term ofthis Agreement and thereafter, he will not disclose to any person or otherwiseuse or exploit any proprietary or confidential information, including, withoutlimitation, trade secrets, processes, records of research, proposals, reports,methods, techniques, computer software or programming, or budgets or otherfinancial information, regarding Holdings, EEC or their businesses, properties,customers or affairs (collectively, “**ConfidentialInformation**”) obtained by him at any time during the term ofthis Agreement, except to the extent required by Executive’s performance ofassigned duties for Holdings or EEC. Notwithstanding anything herein to the contrary, the term “ConfidentialInformation” shall not include information which (i) is or becomesgenerally available to the public other than as a result of disclosure byExecutive in violation of this Agreement or (ii) is or becomes availableto Executive on a non-confidential basis from a source other than Holdings orEEC, provided that such source is not known by Executive to be furnishing suchinformation in violation of a confidentiality agreement with or otherobligation of secrecy to Holdings or EEC. Executive may use and disclose Confidential Information to the extentnecessary if Executive receives a request to disclose all or any part of theinformation contained in the Confidential Information under the terms of asubpoena, order, civil investigative demand or similar process issued by acourt of competent jurisdiction or by a governmental body or agency, whether ofthe United States or any state thereof or any other jurisdiction applicable toExecutive.

(b)           Non Solicitation.  During the term of this Agreement and untilthe expiration of 12 months thereafter, Executive shall not:

(i)            advise or in any way encourage anyperson, firm or corporation who is, at the time of termination of employment ofExecutive, or was at any time during the term of employment of Executive with Holdingsor EEC, a customer or client of Holdings or EEC, to breach any contract withHoldings or EEC; or

7

----

 

(ii)           recruit, hire, assist others in thesoliciting, recruiting or hiring, or discuss other employment with, any personwho is at the time of termination of the employment of Executive with Holdingsor EEC, or was at anytime during the employment of Executive with Holdings orEEC, an employee of Holdings or EEC, or induce or attempt to induce any such employeeto terminate his or her employment with Employer.

(c)           Non-Compete.  During the term of employment of Executiveand until the expiration of 12 months following the termination of thisAgreement, Executive shall not, directly or indirectly, engage in or carry on,or have any interest in any person, firm, corporation, or business (whether asan employee, officer, director, agent, partner, security holder, creditor,consultant, or otherwise) that engages in or carries on, any business which isthe same as, similar to, or a Competitive Business (as defined below) withinthe Area (as defined below); *provided,however*, Executive may purchase or otherwise acquire up to twopercent of any class of securities of any person (but without participating inthe activities of such person) if such securities are listed on any national orregional securities exchange, or have been registered under Section 12(g) of1934 Act.  A “**Competitive Business**” shall mean(i) the design, manufacture or sale of AC and DC programmable powerproducts, system integration products, and power conditioning and simulationproducts, (ii) related services and (iii) activities related to theforegoing.  The “**Area**” shall include the county of SanDiego, California and all other counties within the United States in whichHoldings or EEC now engages or ever has engaged in or conducted business orelects in the future to conduct business prior to the termination of thisAgreement.  Executive acknowledges thatthis covenant is reasonable with respect to its duration, geographical area andscope.  It is the intention ofExecutive, Holdings and EEC that this covenant shall be enforceable to themaximum extent, and if a court is called upon to interpret this covenant, it isagreed and stipulated by Executive, Holdings and EEC that such court shall sointerpret this covenant to provide that it shall cover the greatestgeographical area for the greatest period of time not to exceed the expirationof 12 months following the termination of this Agreement.

(d)           Injunctive Relief.  Executive agrees that the remedy at law forany breach by him of the covenants and agreements set forth in thisSection 7 may be inadequate and that in the event of any such breach,Holdings or EEC may, in addition to the other remedies that may be available tothem at law, seek injunctive relief prohibiting him (together with all thosepersons associated with him) from the breach of such covenants andagreements.  Executive agrees that suchrelief shall be available in a court of law regardless of the arbitrationprovisions contained in Section 14 of this Agreement.

8

----

 

**8.             Successors and Assigns.**  The rights and obligations of Holdings andEEC under this Agreement shall inure to the benefit of and shall be bindingupon the successors and assigns of Holdings and EEC.  Executive shall not be entitled to assign any of his rights orobligations under this Agreement.

**9.             Governing Law.**  This Agreement shall be interpreted,construed, governed and enforced in accordance with the laws of the State ofDelaware.

**10.          Amendments.**  No amendment or modification of the terms orconditions of this Agreement shall be valid unless in writing and signed by theparties hereto.

**11.          Severability.**  Each term, condition, covenant or provisionof this Agreement shall be viewed as separate and distinct, and in the eventthat any such term, covenant or provision shall be held by a court of competentjurisdiction to be invalid, the remaining provisions shall continue in fullforce and effect.

**12.          Waiver.**  A waiver by either party of a breach ofprovision or provisions of this Agreement shall not constitute a generalwaiver, or prejudice the other party’s right otherwise to demand strictcompliance with that provision or any other provisions in this Agreement.

**13.          Notices.**  Any notice required or permitted to be givenunder this Agreement shall be sufficient, if in writing, sent by certified mailto his residence in the case of Executive, or hand delivered to the Executive,or to its principal office (corporate office) in the case of Holdings or EEC.

**14.          Arbitration.**  Except as provided in Section 7(d), anydispute or claim that may arise out of the provisions of this Agreement whichcannot be resolved by agreement of the parties acting in good faith within areasonable time, including any interpretation or alleged breach hereof, shallbe resolved by arbitration in accordance with the then-effective employmentarbitration rules of the San Diego, California, Chapter of the AmericanArbitration Association.  Except asotherwise set forth in Section 7(d) hereof, the parties intend thatlitigation not be used to settle any dispute or claim arising out of thisAgreement.  The written determinationand award of the arbitrator or arbitrators, as applicable, shall be final,binding and conclusive, and such determination may be entered in any court ofcompetent jurisdiction with each side to pay their own attorneys’ fees andcosts.  In any arbitration hereunder,the arbitrator shall allow the discovery authorized by *California Code of Civil Procedure*section 1282, *et seq*, or anyother discovery required by applicable laws in arbitration proceedings,including but not limited to discovery available under the applicable stateand/or federal arbitration statutes.

**15.          Entire Agreement.**  Executive acknowledges receipt of thisAgreement and agrees that this Agreement and Exhibit A attachedhereto****represent the entireAgreement with Employer concerning the subject matter hereof, and supersedesany previous oral or written communications, representations, understandings orAgreements with Holdings and EEC or any officer or agent thereof.  Executive understands that no representativeof Holdings or EEC has been authorized to enter into any Agreement orcommitment with Executive which is inconsistent in any way with the terms ofthis Agreement.

9

----

 

**16.          Construction.**  This Agreement shall not be construedagainst any party on the grounds that such party drafted the Agreement.

**17.          Acknowledgment.**   Executive acknowledges that he has had theopportunity to consult with independent counsel of his own choice concerningthis Agreement, and that he has taken advantage of that opportunity to theextent that he desires.  Executivefurther acknowledges that he has read and understands this Agreement, is fullyaware of its legal effect, and has entered into it voluntarily based on his ownjudgment.

**18.          Survivorship.**  The respective rights and obligations ofExecutive and Employer hereunder shall survive any termination of thisAgreement to the extent necessary to the intended preservation of such rightsand obligations.

**19.          Counterparts. **This Agreement may beexecuted in one or more counterpart copies, each of which shall be deemed to bean original and all of which taken together shall be deemed one and the sameinstrument.

10

----

IN WITNESS WHEREOF, Holdings and EEC have caused this Agreement to beexecuted on their behalf by their duly authorized officers and Executive hasexecuted the same as of the day and year first above written.

 
|   | **ELGAR HOLDINGS, INC.**

  |
|--------|----------------------------------|
|   | By:                              | /s/ Donald Glickman |
|   |                             | Donald Glickman |
|   |                             | Chairman of the Board and Vice President |

 
|   | **ELGAR ELECTRONICS CORPORATION**

  |
|--------|-------------------------------------------|
|   | By:                                       | /s/ Donald Glickman |
|   |                                      | Donald Glickman |
|   |                                      | Chairman of the Board and Vice President |
|   |                                      |   |
|   |                                      |   |
|   | /s/ Joseph Budano                         |
|   | Joseph Budano                             |

 

11

----

**EXHIBIT A**

PERFORMANCE BONUSFOR 2002

Executive’sperformance bonus for the year ending December 31, 2002 will be based onthe achievement of certain EBITDA levels for the year then ended, as reflectedin the audited financial statements of Holdings.  For purposes of Executive’s bonus, EBITDA shall be defined to meanearnings before interest, taxes, depreciation and amortization and, for theavoidance of doubt, shall be calculated net of the aggregate bonus expense forall senior managers.

If EBITDA for 2002is less than $8,650,000, Executive will not receive a performance bonus for2002.

If EBITDA for 2002is $8,650,000, Executive will receive a performance bonus equal to 60% of hisannual salary for 2002, pro rated accordingly (by multiplying such resultingamount by a fraction, with the numerator equal to the number of days in 2002that Executive is employed by Holdings and EEC and the denominator being 365)(the “Pro Ration Factor”).

If EBITDA for 2002is at least $9,515,000, Executive will receive a performance bonus equal to100% of his annual salary, with the resulting amount multiplied by the ProRation Factor.

If EBITDA for 2002is between $8,650,000 and $9,515,000, Executive’s performance bonus will becalculated on a linear sliding scale between 60% and 100% of his annual salary,with the resulting amount multiplied by the Pro Ration Factor.

The performancebonus owing to Executive for 2002 shall be paid to him within 15 days offinal determination of EBITDA.

 

12

----