Exhibit
10.17


 


EMPLOYMENT
AGREEMENT


 


This EMPLOYMENT AGREEMENT
(“Agreement”), entered into
on December 30, 2002 but effective as of September 16, 2002, is by
and among Elgar Holdings, Inc., a Delaware corporation (“Holdings”), Elgar Electronics
Corporation, a California corporation and a wholly owned subsidiary of Holdings
(“EEC”), and John Mei (“Executive”).


 


RECITALS


 


WHEREAS, Executive,
Holdings and EEC wish to provide for the terms and conditions of Executive’s
employment as Chief Financial Officer of each of Holdings and EEC.


 


AGREEMENT


 


NOW THEREFORE, in
consideration 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 hereby
employs Executive to serve as Chief Financial Officer of each of Holdings and
EEC, with the powers and duties customarily accorded to such position, and such
other duties consistent therewith as may be assigned to Executive from time to
time by the Chief Executive Officer of Holdings or EEC, as the case may be.


 


(b)           Executive will devote his full
business time, utmost knowledge and best skill to the performance of the duties
and responsibilities as Chief Financial Officer.  Executive will not engage in any other gainful occupation that
requires his personal attention 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 this
Agreement shall commence upon the date hereof and shall continue until
terminated in accordance with Section 3 herein.


 


3.             Termination.


 


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


 


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


 


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


 

















 


(c)           Executive’s material breach of or
failure to perform his obligations hereunder, failure by Executive to abide by,
conform with or otherwise observe any material written policy of Holdings or
EEC, as the case may be, or the continuing failure to conform to the reasonable
directives of the Chief Executive Officer of Holdings or EEC, as the case may
be, while serving as Chief Financial Officer; provided,
however, that this Agreement may not be terminated under this
subclause (c) unless Executive shall have first received written notice
advising Executive of the specific acts or omissions alleged to constitute a
failure or refusal to perform and, if capable of being cured, such failure or
refusal to perform continues uncured for a period of 30 days after the
date Executive received such notice;


 


(d)           The death of Executive; or


 


(e)           The total and permanent disability of
Executive.  Executive shall be deemed
totally and permanently disabled if Executive shall become incapacitated by
reason of sickness, accident or other physical or mental disability and shall
for a period of 60 consecutive days be unable to perform his normal duties
hereunder, with or without reasonable accommodation by Holdings.


 


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


 


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


 


3.3.         Severance Compensation.  If Holdings and EEC terminate this Agreement
and such termination is (1) for reasons other than pursuant to
Sections 3.1(a), 3.1(b), 3.1(c) or 3.1(d) hereof, (2) for no reason
or (3) due to Executive’s termination of this Agreement for Good Reason
(as defined below), Holdings and EEC shall continue to pay to Executive his
annual base salary in the same periodic installments provided for in
Section 4.1 hereof for a period of 12 consecutive months following the
date of such termination (the “Severance
Period”); provided, however,
that the severance compensation to be paid to Executive in respect of a
termination for the reason specified in Section 3.1(e) shall be integrated
with any disability insurance proceeds paid to Executive during the Severance
Period so that Executive receives no more than an amount equal to 100% of his
annual 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 medical
and dental and life insurance premiums for all Holdings or EEC maintained plans
under which Executive is an insured or covered as of the commencement of the
Severance Period.


 


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“Good Reason”
as used herein means either: (1) any reduction of Executive’s annual
salary; (2) any reduction in Executive’s eligibility to participate in
incentive plans, employee benefits, employee benefit plans, programs or
practices applicable from time to time to senior executives of EEC (other than
(A) an isolated, insubstantial and inadvertent failure occurring in good
faith and which EEC remedies promptly after receipt from Executive of notice
thereof or (B) an adverse change in incentive plans, employee benefits,
employee benefit plans, programs or practices applicable to other senior
executives or eligible employees generally or which is required by law);
(3) any failure by Holdings and EEC to obtain the written agreement of any
successor or assign to assume Holdings’ and EEC’s responsibilities and
obligations under this Agreement; (4) a relocation of Executive or the
Company’s principal offices to a location more than 50 miles from the location
at which Executive is then performing his duties, except when accepted by
Executive in writing; and (5) a material breach by Holdings or EEC of any
provision in this Agreement, provided that Holdings or EEC first receives
written notice advising it of the specific acts or omissions alleged to
constitute a failure or refusal to perform and, if capable of being cured, such
failure or refusal to perform continues uncured for a period of 30 days after
the date Holdings or EEC received such notice.


 


4.             Compensation and Benefits.


 


4.1          Base Salary.  As compensation for all services rendered by
Executive under this Agreement, Executive shall receive an annual base salary
of One Hundred Forty Thousand Dollars ($140,000), payable bi-weekly in arrears
or otherwise in accordance with the standard payroll practices of EEC (which
shall be the entity that makes payments to Executive).  This annual base salary may be augmented by
salary increases as determined by the Board of Directors of Holdings from time
to time.  All regular compensation shall
be paid in accordance with EEC’s standard payroll procedures.


 


4.2          Commencement Bonus.  On Executive’s first day of employment with
Holdings and EEC, he shall receive a commencement bonus of $10,000 in cash.


 


4.3          Relocation Loan.  Seven (7) days before the scheduled closing
on Executive’s home in the San Diego area, he shall receive a relocation loan
in the sum of $60,000 in cash.  In the
event the closing does not occur within ten (10) days of receiving the loan
proceeds, Executive will return the monies to EEC until seven days prior to the
re-scheduled closing date, provided
that such subsequent closing date occurs on or prior to September 16,
2003.  This loan will accrue interest at
an annual rate of 7% simple interest. 
Upon the Executive’s first anniversary of employment, one third, or
$20,000 of this loan’s principal, shall be forgiven.  Upon the Executive’s second anniversary of employment, half of
the remaining balance, or $20,000 of this loan’s principal, shall be
forgiven.  Upon the Executive’s third
anniversary of employment, the remainder of the loan principal and all accrued
interest on the loan shall be forgiven. 
If, on the other hand, EEC and Holdings terminate this Agreement
pursuant to Section 3.1(a), (b) or (c), or Executive terminates this
Agreement without Good Reason, in either case prior to September 16, 2005,
then Executive shall repay in full, within 10 days of the date of such
termination, all outstanding principal and accrued interest on the relocation
loan.  If, prior to September 16,
2005, EEC and Holdings terminate this Agreement other than pursuant to
Section 3.1(a), (b) or (c), or Executive terminates this Agreement for
Good Reason, then, as of the date of termination, the outstanding principal
balance on the relocation 


 


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loan and accrued interest
thereon shall be forgiven.  Executive
will be responsible for all applicable taxes due as a result of the loan and
the loan forgiveness.  EEC and Holdings
shall be entitled to set-off against any amounts owing to Executive under this
Agreement or any other arrangement any or all of the relocation loan that
Executive is obligated to repay to EEC under this Section 4.3.


 


4.4          Annual
Performance Bonus. 
Executive shall be eligible for additional bonus compensation as may be
determined by the Board of Directors of Holdings.  For the year ending December 31, 2002, however, Executive’s
bonus shall be calculated in accordance with the formula set forth on Exhibit A
hereto.


 


4.5          Common
Stock Purchase; Sale Amount.


On or about
February 28, 2003, but subject to Holdings’ compliance with Section 6
of the Shareholders Agreement, dated as of February 3, 1998, among
Holdings and the stockholders party thereto (the “Shareholders Agreement”),
Executive shall purchase from Holdings, for cash, 150,000 shares of the common
stock of Holdings, par value $0.01 per share, at a purchase price of $0.05 per
share, by delivery to Holdings of payment of $7,500 in exchange for a stock
certificate representing 150,000 shares of the common stock of Holdings.  In connection with and as a condition to
such purchase, Executive will sign a counterpart signature page to the
Shareholders Agreement, becoming a party thereto for all purposes of the
Shareholders Agreement.


 


4.6          Relocation Expenses.  Holdings will reimburse Executive for
relocation expenses incurred by Executive in connection with relocation to the
San Diego area as described in Exhibit B.  Holdings assumes full responsibility for taxes, if any, found to
be owed or that may ultimately be assessed upon the reimbursement of relocation
expenses, or that may be imposed as a result of Executive’s receipt thereof,
provided that Executive will use his reasonable best efforts to minimize any
such taxes.  If, prior to September 16,
2003, EEC and Holdings terminate this Agreement pursuant to Section 3.1(a), (b)
or (c), or Executive terminates this Agreement without Good Reason, Executive
will return a certain percentage of any expenses paid on behalf of or
reimbursed to Executive in connection with his relocation, with such percentage
determined by a fraction, with the numerator equal to 365 minus the number of
days from September 16, 2002 to Executive’s termination date, and the
denominator equal to 365.  EEC and
Holdings shall be entitled to set-off against any amounts owing to Executive
under this Agreement or any other arrangement any or all of the relocation
expenses reimbursable by Executive under this Section 4.6.


 


4.7          Withholding.  All compensation paid to Executive under
this Agreement shall be subject to customary withholding and employment taxes
as required by federal and state law.


 


4.8          Other Benefits.  Executive shall be entitled to such other
benefits, including retirement benefits, as are provided to other executive
officers of Holdings and EEC, subject to any terms, conditions or restrictions
associated with such benefits, all as determined by written company policy in
effect from time to time during the term of this Agreement.


 


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


 


6.             Business Expenses.  EEC will pay or reimburse Executive for any
reasonable out-of-pocket expenses incurred by Executive in the course of
providing his services hereunder, which comply with EEC’s travel and expense
policies adopted from time to time.  EEC
shall make such reimbursement in the same manner and within the 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 of
this Agreement and thereafter, he will not disclose to any person or otherwise
use or exploit any proprietary or confidential information, including, without
limitation, trade secrets, processes, records of research, proposals, reports,
methods, techniques, computer software or programming, or budgets or other
financial information, regarding Holdings, EEC or their businesses, properties,
customers or affairs (collectively, “Confidential
Information”) obtained by him at any time during the term of
this Agreement, except to the extent required by Executive’s performance of
assigned duties for Holdings or EEC. 
Notwithstanding anything herein to the contrary, the term “Confidential
Information” shall not include information which (i) is or becomes
generally available to the public other than as a result of disclosure by
Executive in violation of this Agreement or (ii) is or becomes available
to Executive on a non-confidential basis from a source other than Holdings or
EEC, provided that such source is not known by Executive to be furnishing such
information in violation of a confidentiality agreement with or other
obligation of secrecy to Holdings or EEC. 
Executive may use and disclose Confidential Information to the extent
necessary if Executive receives a request to disclose all or any part of the
information contained in the Confidential Information under the terms of a
subpoena, order, civil investigative demand or similar process issued by a
court of competent jurisdiction or by a governmental body or agency, whether of
the United States or any state thereof or any other jurisdiction applicable to
Executive.


 


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


 


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


 


(ii)           recruit, hire, assist others in the
soliciting, recruiting or hiring, or discuss other employment with, any person
who is at the time of termination of the employment of Executive with Holdings
or EEC, or was at anytime during the employment of Executive with Holdings or
EEC, an employee of Holdings or EEC, or


 


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induce or attempt to
induce any such employee to terminate his or her employment with Employer.


 


(c)           Non-Compete.  During the term of employment of Executive
and until the expiration of 12 months following the termination of this
Agreement, Executive shall not, directly or indirectly, engage in or carry on,
or have any interest in any person, firm, corporation, or business (whether as
an employee, officer, director, agent, partner, security holder, creditor,
consultant, or otherwise) that engages in or carries on, any business which is
the same as, similar to, or a Competitive Business (as defined below) within
the Area (as defined below); provided,
however, Executive may purchase or otherwise acquire up to two
percent of any class of securities of any person (but without participating in
the activities of such person) if such securities are listed on any national or
regional securities exchange, or have been registered under Section 12(g) of
1934 Act.  A “Competitive Business” shall mean
(i) the design, manufacture or sale of AC and DC programmable power
products, system integration products, and power conditioning and simulation
products, (ii) related services and (iii) activities related to the
foregoing.  The “Area” shall include the county of San
Diego, California and all other counties within the United States in which
Holdings or EEC now engages or ever has engaged in or conducted business or
elects in the future to conduct business prior to the termination of this
Agreement.  Executive acknowledges that
this covenant is reasonable with respect to its duration, geographical area and
scope.  It is the intention of
Executive, Holdings and EEC that this covenant shall be enforceable to the
maximum extent, and if a court is called upon to interpret this covenant, it is
agreed and stipulated by Executive, Holdings and EEC that such court shall so
interpret this covenant to provide that it shall cover the greatest
geographical area for the greatest period of time not to exceed the expiration
of 12 months following the termination of this Agreement.


 


(d)           Injunctive Relief.  Executive agrees that the remedy at law for
any breach by him of the covenants and agreements set forth in this
Section 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 to
them at law, seek injunctive relief prohibiting him (together with all those
persons associated with him) from the breach of such covenants and
agreements.  Executive agrees that such
relief shall be available in a court of law regardless of the arbitration
provisions contained in Section 14 of this Agreement.


 


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


 


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


 


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


 


11.          Severability.  Each term, condition, covenant or provision
of this Agreement shall be viewed as separate and distinct, and in the event
that any such term, covenant or 


 


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provision shall be held
by a court of competent jurisdiction to be invalid, the remaining provisions
shall continue in full force and effect.


 


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


 


13.          Notices.  Any notice required or permitted to be given
under this Agreement shall be sufficient, if in writing, sent by certified mail
to 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), any
dispute or claim that may arise out of the provisions of this Agreement which
cannot be resolved by agreement of the parties acting in good faith within a
reasonable time, including any interpretation or alleged breach hereof, shall
be resolved by arbitration in accordance with the then-effective employment
arbitration rules of the San Diego, California, Chapter of the American
Arbitration Association.  Except as otherwise
set forth in Section 7(d) hereof, the parties intend that litigation not
be used to settle any dispute or claim arising out of this Agreement.  The written determination and award of the
arbitrator or arbitrators, as applicable, shall be final, binding and
conclusive, and such determination may be entered in any court of competent
jurisdiction with each side to pay their own attorneys’ fees and costs.  In any arbitration hereunder, the arbitrator
shall allow the discovery authorized by California
Code of Civil Procedure section 1282, et seq, or any other discovery required by
applicable laws in arbitration proceedings, including but not limited to
discovery available under the applicable state and/or federal arbitration
statutes.


 


15.          Entire Agreement.  Executive acknowledges receipt of this Agreement
and agrees that this Agreement and Exhibit A attached hereto  represent the entire Agreement with
Employer concerning the subject matter hereof, and supersedes any previous oral
or written communications, representations, understandings or Agreements with
Holdings and EEC or any officer or agent thereof.  Executive understands that no representative of Holdings or EEC
has been authorized to enter into any Agreement or commitment with Executive
that is inconsistent in any way with the terms of this Agreement.


 


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


 


17.          Acknowledgment.   Executive acknowledges that he has had the
opportunity to consult with independent counsel of his own choice concerning
this Agreement, and that he has taken advantage of that opportunity to the
extent that he desires.  Executive
further acknowledges that he has read and understands this Agreement, is fully
aware of its legal effect, and has entered into it voluntarily based on his own
judgment.


 


18.          Survivorship.  The respective rights and obligations of
Executive and Employer hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.


 


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19.          Counterparts.  This Agreement may be
executed in one or more counterpart copies, each of which shall be deemed to be
an original and all of which taken together shall be deemed one and the same
instrument.


 


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


 


	
   

  	
  ELGAR
  HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Joseph Budano

  	
   

  
	
   

  	
  Joseph Budano

  
	
   

  	
  President & CEO

  
	
   

  	
   

  
	
   

  	
  ELGAR
  ELECTRONICS CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Joseph Budano

  	
   

  
	
   

  	
  Joseph Budano

  
	
   

  	
  President & CEO

  
	
   

  	
   

  
	
   

  	
  /s/ John Mei

  	
   

  
	
   

  	
  John Mei

  	
   

  



 


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EXHIBIT A


 


PERFORMANCE BONUS
FOR 2002


 


Executive’s performance
bonus for the year ending December 31, 2002 will be based on the
achievement of certain EBITDA levels for the year then ended, as reflected in
the audited financial statements of Holdings. 
For purposes of Executive’s bonus, EBITDA shall be defined to mean
earnings before interest, taxes, depreciation and amortization and, for the
avoidance of doubt, shall be calculated net of the aggregate bonus expense for
all senior managers.


 


If EBITDA for 2002 is
less than $6,650,000, Executive will not receive a performance bonus for 2002.


 


If EBITDA for 2002 is at
least $6,650,000, Executive will receive a performance bonus equal to 30% of
his annual salary for 2002, pro rated accordingly (by multiplying such
resulting amount by a fraction, with the numerator equal to the number of days
in 2002 that Executive is employed by Holdings and EEC (with Executive’s start
date being September 16, 2002) and the denominator being 365) (the “Pro
Ration Factor”).


 


The performance bonus
owing to Executive for 2002 shall be paid to him within 15 days of final
determination of EBITDA and receipt of audited financial statements.


 

















 


EXHIBIT
B


 


Relocation
Expense Reimbursement


 


 


EEC will assist in
Executive’s relocation by providing the following benefits:


 


Sale of
existing house in Indiana:


•                  Real estate
selling fee not to exceed 7% of the selling price, as documented


•                  Closing
costs not to exceed 2% of the selling price, as documented


 


Moving
expenses:


•                  Costs
for packing and moving Executive’s household goods using a vendor identified by
EEC


•                  Costs
for Executive’s personal move:  mileage
at $0.365 per mile; lodging and meals expenses not to exceed two nights and
three days (with receipts), in each case as documented


•                  In
the event that Executive sells both of the cars, Elgar will reimburse Executive
for his air fare to San Diego


 


Temporary
living in San Diego as appropriate:


•                  If
Executive encounters difficulty selling his house in Indiana, we will provide
temporary housing in the San Diego area for not longer than 30 days


 


Transition work schedule:


•                  As
appropriate, two or three weeks in San Diego then a week in Indianapolis


 


Purchase
of house in San Diego:


•                  Reasonable
and customary closing costs up to 2% of the house purchase price, as documented


•                  This
offer to assist with the purchase of a house is valid until September 16,
2003