**Exhibit10.17**

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**EMPLOYMENTAGREEMENT**

 

This EMPLOYMENT AGREEMENT(“**Agreement**”), entered intoon December 30, 2002 but effective as of September 16, 2002, is byand among Elgar Holdings, Inc., a Delaware corporation (“**Holdings**”), Elgar ElectronicsCorporation, 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’semployment as Chief Financial 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:

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**1.             Employment; Duties.**

 

(a)           Each of Holdings and EEC herebyemploys Executive to serve as Chief Financial Officer of each of Holdings andEEC, with the powers and duties customarily accorded to such position, and suchother duties consistent therewith as may be assigned to Executive from time totime by the Chief Executive Officer of Holdings or EEC, as the case may be.

 

(b)           Executive will devote his fullbusiness time, utmost knowledge and best skill to the performance of the dutiesand responsibilities as Chief Financial Officer.  Executive will not engage in any other gainful occupation thatrequires his personal attention without prior written consent of the Board ofDirectors 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.

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**3.             Termination.**

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**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 orsimilar conduct by Executive involving Holdings or EEC;

 

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(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 the Chief Executive Officer of Holdings or EEC, as the case maybe, while serving as Chief Financial 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.**  If Holdings and EEC terminate this Agreementand 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.

 

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

 

**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 One Hundred Forty Thousand Dollars ($140,000), 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 $10,000 in cash.

 

**4.3          Relocation Loan.**  Seven (7) days before the scheduled closingon Executive’s home in the San Diego area, he shall receive a relocation loanin the sum of $60,000 in cash.  In theevent the closing does not occur within ten (10) days of receiving the loanproceeds, Executive will return the monies to EEC until seven days prior to there-scheduled closing date, *provided*that such subsequent closing date occurs on or prior to September 16,2003.  This loan will accrue interest atan 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 ofthe remaining balance, or $20,000 of this loan’s principal, shall beforgiven.  Upon the Executive’s thirdanniversary of employment, the remainder of the loan principal and all accruedinterest on the loan shall be forgiven. If, on the other hand, EEC and Holdings terminate this Agreementpursuant to Section 3.1(a), (b) or (c), or Executive terminates thisAgreement without Good Reason, in either case prior to September 16, 2005,then Executive shall repay in full, within 10 days of the date of suchtermination, all outstanding principal and accrued interest on the relocationloan.  If, prior to September 16,2005, EEC and Holdings terminate this Agreement other than pursuant toSection 3.1(a), (b) or (c), or Executive terminates this Agreement forGood Reason, then, as of the date of termination, the outstanding principalbalance on the relocation 

 

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loan and accrued interestthereon shall be forgiven.  Executivewill be responsible for all applicable taxes due as a result of the loan andthe loan forgiveness.  EEC and Holdingsshall be entitled to set-off against any amounts owing to Executive under thisAgreement or any other arrangement any or all of the relocation loan thatExecutive is obligated to repay to EEC under this Section 4.3.

 

**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.

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

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

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**4.6          Relocation Expenses.**  Holdings will reimburse Executive forrelocation expenses incurred by Executive in connection with relocation to theSan Diego area as described in Exhibit B.  Holdings assumes full responsibility for taxes, if any, found tobe owed or that may ultimately be assessed upon the reimbursement of relocationexpenses, or that may be imposed as a result of Executive’s receipt thereof,provided that Executive will use his reasonable best efforts to minimize anysuch 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, Executivewill return a certain percentage of any expenses paid on behalf of orreimbursed to Executive in connection with his relocation, with such percentagedetermined by a fraction, with the numerator equal to 365 minus the number ofdays from September 16, 2002 to Executive’s termination date, and thedenominator equal to 365.  EEC andHoldings shall be entitled to set-off against any amounts owing to Executiveunder this Agreement or any other arrangement any or all of the relocationexpenses reimbursable by Executive under this Section 4.6.

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

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**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.

 

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**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 that 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.  EECshall make such reimbursement in the same manner and within the same timeperiod as applicable to the other executive officers of EEC.

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**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 withHoldings or EEC, a customer or client of Holdings or EEC, to breach anycontract with Holdings or EEC; or

 

(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

 

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induce or attempt toinduce any such employee to 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.             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 

 

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provision shall be heldby a court of competent jurisdiction to be invalid, the remaining provisionsshall continue in full force 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.

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**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.

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**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 as otherwiseset forth in Section 7(d) hereof, the parties intend that litigation notbe used to settle any dispute or claim arising out of this Agreement.  The written determination and award of thearbitrator or arbitrators, as applicable, shall be final, binding andconclusive, and such determination may be entered in any court of competentjurisdiction with each side to pay their own attorneys’ fees and costs.  In any arbitration hereunder, the arbitratorshall allow the discovery authorized by *CaliforniaCode of Civil Procedure* section 1282, *et seq*, or any other discovery required byapplicable laws in arbitration proceedings, including but not limited todiscovery available under the applicable state and/or federal arbitrationstatutes.

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

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

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**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.

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**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.

 

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**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.

 

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IN WITNESS WHEREOF,Holdings and EEC have caused this Agreement to be executed on their behalf bytheir duly authorized officers and Executive has executed the same as of theday 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 BONUSFOR 2002

 

Executive’s performancebonus for the year ending December 31, 2002 will be based on theachievement of certain EBITDA levels for the year then ended, as reflected inthe 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 2002 isless than $6,650,000, Executive will not receive a performance bonus for 2002.

 

If EBITDA for 2002 is atleast $6,650,000, Executive will receive a performance bonus equal to 30% ofhis annual salary for 2002, pro rated accordingly (by multiplying suchresulting amount by a fraction, with the numerator equal to the number of daysin 2002 that Executive is employed by Holdings and EEC (with Executive’s startdate being September 16, 2002) and the denominator being 365) (the “ProRation Factor”).

 

The performance bonusowing to Executive for 2002 shall be paid to him within 15 days of finaldetermination of EBITDA and receipt of audited financial statements.

 

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**EXHIBITB**

 

**RelocationExpense Reimbursement**

 

 

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

 

**Sale ofexisting house in Indiana:**

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

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

 

**Movingexpenses:**

•                  Costsfor packing and moving Executive’s household goods using a vendor identified byEEC

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

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

 

**Temporaryliving in San Diego as appropriate:**

•                  IfExecutive encounters difficulty selling his house in Indiana, we will providetemporary housing in the San Diego area for not longer than 30 days

 

**Transition work schedule:**

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

 

**Purchaseof house in San Diego:**

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

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

 

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