Document:

EXHIBIT

10.01

 

EXECUTION

COPY

AMENDMENT NO. 4 AND CONSENT TO CREDIT AGREEMENT

THIS AMENDMENT NO. 4 AND CONSENT TO CREDIT AGREEMENT

(“Agreement”) is being executed and delivered as of July 22, 2002, by

and among Great Lakes Dredge & Dock Corporation, a Delaware corporation

(the “Borrower”), the other “Loan Parties” from time to time party to

the Credit Agreement referred to and defined below (collectively, the “Loan

Parties”), the financial institutions from time to time party to such

Credit Agreement referred to and defined below (collectively, the “Lenders”)

and Bank of America, N.A. (as successor to Bank of America National Trust and

Savings Association), as representative of the Lenders (in such capacity, the “Issuing

Lender” and the “Administrative Agent”).  Undefined capitalized terms used herein shall have the meanings

ascribed to such terms in such Credit Agreement.

W I T N E S S E T H:

WHEREAS, the Borrower, the other Loan Parties, the

Lenders, the Administrative Agent and the Issuing Lender have entered into that

certain Credit Agreement dated as of August 19, 1998 (as heretofore amended and

restated by certain amendments dated as of October 8, 1999, October 23, 2000

and April 24, 2001, the “Credit Agreement”), pursuant to which, among

other things, the Lenders have agreed to provide, subject to the terms and

conditions contained therein, certain loans and other financial accommodations

to the Borrower;

WHEREAS, the Borrower has requested that the

Administrative Agent and the Lenders amend the Credit Agreement and, subject to

the terms and conditions of this Agreement, the Administrative Agent and the

Lenders’ hereby agree to amend the Credit Agreement to modify the existing

total leverage ratio and debt service coverage ratio covenants in the Credit Agreement;

WHEREAS, the Borrower has informed the Administrative

Agent and the Lenders that it desires to either: (i) acquire the outstanding

equity interests held by Ballast Nedam Group N.V. and its Affiliates

(collectively, “Ballast”) in North American Trailing Company, a Delaware

corporation (“Trailing”), and NATCO Dredging Limited Partnership, a

Delaware limited partnership (“NATCO”), or (ii) dissolve or liquidate

NATCO (which may include a contribution of NATCO’s equity interests to Great

Lakes, Trailing or another Loan Party) (in either case, collectively, the “NATCO

Transactions”);

WHEREAS, the Borrower and its Subsidiaries may be

prohibited under Sections 6.1(a),  6.2(a),  6.2(b), 6.2(g) or 6.3(a) of

the Credit Agreement from entering into or consummating the NATCO Transactions;

and

WHEREAS, the Borrower has requested that the

Administrative Agent and the Lenders, and subject to the terms and conditions

of this Agreement, the Administrative Agent and the Lenders hereby do, consent

to the NATCO Transactions and waive any non-compliance with the foregoing

provisions of the Credit Agreement with respect to such transactions.

 

NOW, THEREFORE, in consideration of the foregoing

premises, the terms and conditions stated herein and other valuable

consideration, the receipt and sufficiency of which are hereby acknowledged by

the Borrower, the other Loan Parties, the Lenders and the Administrative Agent,

such parties hereby agree as follows:

1.             Amendment

to Credit Agreement.  Subject to the

satisfaction of each of the conditions set forth in Section 3 of this

Agreement, the Credit Agreement is amended as follows (unless otherwise

specified, section and schedule references refer to sections and schedules of

the Credit Agreement):

 

(a)           The

table set forth in Section 6.3(b) is deleted and replaced in its

entirety with the following table:

 

	

  “Period

  	

   

  	

  Ratio

  
	

  June 30, 2002 through and including March 31, 2003 

  	

   

  	

  4.80 to 1.00

  
	

   

  	

   

  	

   

  
	

  April 1, 2003 through and including December 31,

  2003 

  	

   

  	

  4.60 to 1.00

  
	

   

  	

   

  	

   

  
	

  January 1, 2004 through and including December 31,

  2004 

  	

   

  	

  4.40 to 1.00

  
	

   

  	

   

  	

   

  
	

  January 1, 2005 and thereafter

  	

   

  	

  4.25 to 1.00”

  

 

(b)           The

table set forth in Section 6.3(d) is deleted and replaced in its

entirety with the following table:

 

	

  “Period

  	

   

  	

  Ratio

  
	

  June 30, 2002 through and including December 31,

  2003 

  	

   

  	

  1.25 to 1.00

  
	

   

  	

   

  	

   

  
	

  January 1, 2004 through and including December 31,

  2004 

  	

   

  	

  1.50 to 1.00 

  
	

   

  	

   

  	

   

  
	

  January 1, 2005 and thereafter

  	

   

  	

  2.00 to 1.00”

  

 

                (c)           Schedule

I is amended to modify the definitions of “Applicable Base Rate Margin,”

“Applicable Commitment Fee Percentage,” “Applicable Eurodollar Rate

Margin,” “Applicable Financial Letter of Credit Fee Percentage,” and

“Applicable Performance Letter of Credit Fee Percentage” to delete and

replace the ratio “3.75 to 1.00” set forth at the end of clause (i)

thereof with the ratio “4.25 to 1.00” and to further amend such definition by

deleting and replacing in its entirety the table set forth therein with the

following table:

 

2

 

	

  Total

  Leverage Ratio

  	

   

  	

  Applicable

  Base Rate Margin

  	

   

  	

  Applicable

  Commitment Fee Percentage

  	

   

  	

  Applicable

  Eurodollar Rate Margin

  	

   

  	

  Applicable

  Financial Letter of Credit Fee Percentage

  	

   

  	

  Applicable

  Performance Letter of Credit Fee Percentage

  	

   

  
	

  Less than or

  equal to 2.25x

  	

   

  	

  0.00

  	

  %

  	

  0.30

  	

  %

  	

  1.25

  	

  %

  	

  1.25

  	

  %

  	

  0.625

  	

  %

  
	

  Greater than

  2.25x but less than or equal to 2.75x

  	

   

  	

  0.0

  	

  %

  	

  0.35

  	

  %

  	

  1.50

  	

  %

  	

  1.50

  	

  %

  	

  0.750

  	

  %

  
	

  Greater than

  2.75x but less than or equal to 3.25x

  	

   

  	

  0.25

  	

  %

  	

  0.40

  	

  %

  	

  1.75

  	

  %

  	

  1.75

  	

  %

  	

  0.875

  	

  %

  
	

  Greater than

  3.25x but less than or equal to 3.75x

  	

   

  	

  0.50

  	

  %

  	

  0.45

  	

  %

  	

  2.00

  	

  %

  	

  2.00

  	

  %

  	

  1.00

  	

  %

  
	

  Greater than

  3.75x but less than or equal to 4.25x

  	

   

  	

  0.75

  	

  %

  	

  0.50

  	

  %

  	

  2.25

  	

  %

  	

  2.25

  	

  %

  	

  1.125

  	

  %

  
	

  Greater than

  4.25x

  	

   

  	

  1.00

  	

  %

  	

  0.50

  	

  %

  	

  2.50

  	

  %

  	

  2.50

  	

  %

  	

  1.25

  	

  %

  

 

2.             Consent to Credit Agreement.   Subject to the satisfaction of the

conditions set forth in Section 3 of this Agreement, the Lenders hereby

(a) consent to the execution, delivery and the performance of the NATCO

Transactions by the Borrower and its Subsidiaries subject to the provisions of

the Credit Agreement other than those provisions expressly waived or excused

pursuant to clauses (b) and (c) of this Section, (b) waive any

noncompliance with Sections 6.1(a),  6.2(a),  6.2(b), 6.2(g) or 6.3(a) of

the Credit Agreement as a result of the consummation of the NATCO Transactions

and (c) agree that no amounts which are required to be expended by the Borrower

or any of its Subsidiaries in connection with the consummation of the NATCO

Transactions shall be considered to be usage of the amounts permitted under Sections

6.2(b)(viii)(B), 6.2(b)(x), 6.2(b)(xii) or 6.3(a) of

the Credit Agreement, in each case under this Section 2 subject to the

following provisions:

(a)   promptly following the

execution and delivery thereof, Borrower shall deliver, or cause to be

delivered, all material documentation pursuant to which the NATCO Transactions

are consummated, including, without limitation, all purchase agreements and

other liquidation or dissolution documents and certificates;

(b)   in the event the NATCO

Transactions consist of an acquisition by the Borrower or any existing

wholly-owned Subsidiary of the Borrower of all of the outstanding equity

interests held by Ballast in Trailing and NATCO, then, promptly after the

consummation thereof, the Borrower shall (i) cause each of NATCO and Trailing

to execute and deliver to the Administrative Agent the Collateral Documents and

related documents, certificates and opinions that would be required by Sections

6.1(p) and 6.1(q) of the Credit Agreement if NATCO and Trailing were

each then first acquired by the Borrower as new Subsidiaries, including,

without 

3

 

limitation,

a Subsidiary Guaranty,  Contribution

Agreement, Receivables Security Agreement, Master Intercompany Demand Note, and

Note Pledge Agreement or (ii) cause each of NATCO and Trailing to merge or

consolidate with and into one or more of the Guarantors and provide the

Administrative Agent with evidence reasonably satisfactory to it of such

mergers or consolidations;

(c)   the cash purchase price paid

by the Borrower and its Subsidiaries for the equity interests in Trailing and

NATCO held by Ballast shall not exceed $5,500,000 in the aggregate; and

(d)   the NATCO Transactions shall

only be consummated pursuant to documentation in form and substance reasonably

acceptable to the Administrative Agent.

Subject to the

satisfaction of the conditions set forth in Section 3 of this Agreement,

the Lenders hereby additionally authorize the Administrative Agent to execute

and deliver, and the Administrative Agent hereby agrees to execute and deliver,

an amendment to the Intercreditor Agreement, in form and substance acceptable

to the Administrative Agent, permitting the “Sureties” party to and as defined

in the Intercreditor Agreement to release their liens on and security interests

in all or any part of the property 

constituting “Solely Reliance Collateral” (as defined in the

Intercreditor Agreement) notwithstanding the provisions of Section 4.9

of the Intercreditor Agreement.

3.             Effectiveness of this Agreement;

Conditions Precedent.  The

provisions of Sections 1 and 2 of this Agreement shall be deemed

to have become effective as of the date of this Agreement, but such

effectiveness shall be expressly conditioned upon the Administrative Agent’s

receipt of each of the following:

(a)           originally-executed counterparts of

this Agreement executed by Authorized Officers of the Borrower, the other Loan

Parties and by duly authorized officers of the Majority Lenders; and

(b)           payment in full from the Borrower, in

immediately available funds, of the fees required under that certain fee letter

dated as of  July 10, 2002 by and among

Bank of America, N.A., Banc of America Securities LLC and the Borrower,

including, without limitation, the Lenders’ amendment fee provided for therein

in the amount of $65,250, which amendment fee shall be allocated by the

Administrative Agent among the Lenders in accordance with their respective

Percentages and shall be fully earned and non-refundable when paid.

4.             Representations

and Warranties.

(a)           The

Borrower and each other Loan Party hereby represents and warrants that this

Agreement and the Credit Agreement as amended hereby (collectively, the “Amendment

Documents”) constitute legal, valid and binding obligations of the Borrower

and the other Loan Parties enforceable against the Borrower and the other Loan

Parties in accordance with their terms.

4

 

(b)           The

Borrower and each other Loan Party hereby represents and warrants that its execution,

delivery and performance of this Agreement and the other Amendment Documents

have been duly authorized by all proper corporate action, do not violate any

provision of its articles or certificate of incorporation or bylaws, will not

violate any law, regulation, court order or writ applicable to it, and will not

require the approval or consent of any governmental agency, or of any other

third party under the terms of any contract or agreement to which it or any of

its Affiliates is bound (which has not been previously obtained), including

without limitation, the Note Indenture and the Reliance Agreement.

(c)  The Borrower and each other Loan Party

hereby represents and warrants that, both before and after giving effect to the

provisions of this Agreement, (i) no Default or Event of Default has occurred

and is continuing or will have occurred and be continuing and (ii) all of the

representations and warranties of the Borrower and each other Loan Party

contained in the Credit Agreement and in each other Loan Document (other than

representations and warranties which, in accordance with their express terms,

are made only as of an earlier specified date) are, and will be, true and

correct as of the date of its execution and delivery hereof or thereof in all

material respects as though made on and as of such date.

5.             Reaffirmation,

Ratification and Acknowledgment. 

The Borrower and each other Loan Party hereby (a) ratifies and reaffirms

all of its payment and performance obligations, contingent or otherwise, and

each grant of security interests and liens in favor of the Administrative

Agent, under each Loan Document to which it is a party, (b) agrees and

acknowledges that such ratification and reaffirmation is not a condition to the

continued effectiveness of such Loan Documents and (c) agrees that neither such

ratification and reaffirmation, nor the Administrative Agent’s, or any Lender’s

solicitation of such ratification and reaffirmation, constitutes a course of

dealing giving rise to any obligation or condition requiring a similar or any

other ratification or reaffirmation from the Borrower or such other Loan

Parties with respect to any subsequent modifications to the Credit Agreement or

the other Loan Documents.  As modified

hereby, the Credit Agreement is in all respects ratified and confirmed, and the

Credit Agreement as so modified by this Amendment shall be read, taken and so

construed as one and the same instrument. 

Each of the Loan Documents shall remain in full force and effect and are

hereby ratified and confirmed.  Except

as is expressly described in Section 2 of this Agreement, neither the

execution, delivery nor effectiveness of this Agreement shall operate as a

waiver of any right, power or remedy of the Administrative Agent or the

Lenders, or of any Default or Event of Default (whether or not known to the

Administrative Agent or the Lenders), under any of the Loan Documents.  This Agreement and each of the other

Amendment Documents shall constitute Loan Documents for purposes of the Credit

Agreement.

6.             Governing

Law.   This Agreement shall be

governed by and construed in accordance with the laws and decisions of the

State of Illinois (including S.H.A. 735 ILCS 105/5-1, et. seq.,

but without giving effect to any other conflicts of law provisions).

7.             Administrative

Agent’s Expenses.   The Borrower

hereby agrees to promptly reimburse the Administrative Agent for all of the

reasonable out-of-pocket expenses, including, without limitation, attorneys’

and paralegals’ fees, it has heretofore or hereafter incurred or incurs in

connection with the preparation, negotiation and execution of this Agreement

and the other documents, agreements and instruments contemplated hereby.

5

 

8.             Counterparts.  This Agreement may be executed in

counterparts, each of which shall be an original and all of which together

shall constitute one and the same agreement among the parties.

* * * *

6

IN

WITNESS WHEREOF, this Agreement has been duly executed as of the day and year

first above written.

	

  GREAT LAKES DREDGE

  & DOCK CORPORATION

  

  
	

  By:

  	

  /s/Deborah A. Wensel

  
	

  Name:

  	

  Deborah A. Wensel

  
	

  Title: 

  	

  Vice President and CFO

  
	

  

  

  GREAT LAKES DREDGE & DOCK COMPANY

  

  
	

  By:

  	

  /s/Deborah A. Wensel

  
	

  Name:

  	

  Deborah A. Wensel

  
	

  Title:

  	

  Vice President and CFO

  
	

  

  

  DAWSON MARINE SERVICES COMPANY

  (formerly, Dawson Dredging Company)

  

  
	

   

  	

   

  
	

  By:

  	

  /s/Deborah A. Wensel

  
	

  Name:

  	

  Deborah A. Wensel

  
	

  Title:

  	

  Vice President and CFO

  
	

  

  

  FIFTY-THREE DREDGING CORPORATION

  

  
	

  By:

  	

  /s/Deborah A. Wensel

  
	

  Name:

  	

  Deborah A. Wensel

  
	

  Title:

  	

  Vice President and CFO

  
	

  

  

  GREAT LAKES CARRIBEAN DREDGING, INC.

  

  
	

  By:

  	

  /s/Deborah A. Wensel

  
	

  Name:

  	

  Deborah A. Wensel

  
	

  Title: 

  	

  Vice President and CFO

  

 

 

 

	

  NORTH AMERICAN SITE

  DEVELOPERS, INC.

  

  
	

  By:

  	

  /s/Deborah A. Wensel

  	 

	

  Name:

  	

  Deborah A. Wensel

  	 

	

  Title: 

  	

  Vice President and CFO

  	 

 

2

 

	

  BANK OF AMERICA, N.A.

  (as successor to Bank of America National Trust and Savings Association), as

  Administrative Agent

  
	

  

  	

   

  
	

  By:

  	

  /s/Kristine Thennes

  
	

  Name:

  	

  Kristine Thennes

  
	

  Title:

  	

  Vice President

  
	

  

  	

   

  
	

  BANK OF AMERICA, N.A.

  (as successor to Bank of America National Trust and Savings Association), as

  a Lender

  
	

  

  	

   

  
	

  By:

  	

  /s/Steven R. Arentsen

  
	

  Name:

  	

  Steven R. Arentsen

  
	

  Title:

  	

  Senior Vice President

  
	

  

  	

   

  
	

  FLEET NATIONAL BANK (as

  successor to Summit Bank)

  
	

  

  	

   

  
	

  By:

  	

  /s/Rick Debel (for

  Bonnie Gershon)

  
	

  Name:

  	

  Rick Debel

  
	

  Title:

  	

  Senior Vice President

  
	

  

  	

   

  
	

  LASALLE BANK NATIONAL

  ASSOCIATION

  

  
	

  By:

  	

  /s/Drew E. Buriak

  
	

  Name:

  	

  Drew E. Buriak

  
	

  Title:

  	

  Vice President

  
	

  

  	

   

  
	

  COMERICA BANK-DETROIT

  
	

  

  	

   

  
	

  By:

  	

  /s/Alan S. Carlyle

  
	

  Name:

  	

  Alan S. Carlyle

  
	

  Title:

  	

  AVP

  

 

 

 

 

	

  THE NORTHERN TRUST

  COMPANY

  
	

   

  	

   

  
	

  By:

  	

  /s/M. Alejandra Dukes

  
	

  Name:

  	

  M. Alejandra Dukes

  
	

  Title:

  	

  Officer

  
	

  

  	

   

  
	

  FIRSTAR BANK, N.A.

  
	

   

  	

   

  
	

  By:

  	

   

  
	

  Name:

  	

   

  
	

  Title:

  	

   

  
	

  

  	

   

  
	

  NATIONAL CITY

  BANK OF MICHIGAN/ILLINOIS

  
	

  

  	

   

  
	

  By:

  	

  /s/Mark R. Long

  
	

  Name:

  	

  Mark R. Long

  
	

  Title:

  	

  Senior Vice President

  
	

  

  	

   

  
	

  OAK BROOK BANK- OAK

  BROOK

  
	

  

  	

   

  
	

  By:

  	

  /s/Henry Wessel

  
	

  Name:

  	

  Henry Wessel

  
	

  Title:

  	

  Vice President

  
	

  

  	

   

  
	

  WELLS FARGO BANK, NA

  
	

  

  	

   

  
	

  By:

  	

  /s/R. Duncan Sinclair

  
	

  Name:

  	

  R. Duncan Sinclair

  
	

  Title:

  	

  Vice President

  

 

 

2Exhibit

  10.1

  

 

 

EMPLOYMENT

AGREEMENT

This EMPLOYMENT

AGREEMENT (“Agreement”),

dated as of July 17, 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

Joseph Budano (“Executive”).

RECITALS

WHEREAS,

Executive, Holdings and EEC wish to provide for the terms and conditions of

Executive’s employment initially as Chief Operating Officer of each of Holdings

and EEC and, subsequently, upon Kenneth R. Kilpatrick ceasing to be the

President and Chief Executive Officer of Holdings and EEC, the President and

Chief Executive 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 initially to serve as Chief Operating 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)           Upon Kenneth R. Kilpatrick ceasing to

be the President and Chief Executive Officer of each of Holdings and EEC, which

is anticipated to occur around August 15, 2002, Executive will assume the

title of President and Chief Executive Officer of each of Holdings and EEC, and

will no longer serve as the Chief Operating Officer of either Holdings or

EEC.  As the President and Chief

Executive Officer, Executive shall have 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 Board of Directors of Holdings

or EEC, as the case may be.

(c)           Executive will devote his full

business time, utmost knowledge and best skill to the performance of the duties

and responsibilities as Chief Operating Officer and, subsequently, President

and Chief Executive Officer.  Executive

will not engage in any other gainful occupation which 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.

1

 

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 (i) the Chief Executive Officer of Holdings or EEC, as the

case may be, while serving as Chief Operating Officer or (ii) the Board of

Directors of Holdings or EEC, as the case may be, while serving as President

and Chief Executive 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.  Subject to Section 3.4 below, which

shall govern Executive’s severance compensation and benefits in the event of

termination within 12 

2

 

months following a

Change of Control (as defined below), 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.

“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,

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 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.

3.4.         Termination

Upon a Change of Control.  If, during the term of this Agreement, Holdings and EEC terminate

this Agreement within 12 months following a Change of Control and such

termination is other than pursuant to Sections 3.1(a), 3.1(b), 3.1(c) or

3.1(d), Executive shall be entitled to the following severance benefits:

(a)           If the Change of Control occurs on or

prior to the first anniversary of this Agreement, Executive shall be entitled

to receive his annual base salary in the same periodic installments provided

for in Section 4.1 hereof for a period of six consecutive months following

the date of his termination; 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

such six-month period so that Executive receives no more than an amount equal

to 100% of his base salary under Section 4.1 for such six-month

period.  In addition, during such

six-month period, Holdings and EEC shall continue to make all 

3

 

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 such six-month

period; and

(b)           If the Change of Control occurs after

the first anniversary of this Agreement but on or prior to the second

anniversary of this Agreement, Executive shall be entitled to receive his

annual base salary in the same periodic installments provided for in

Section 4.1 hereof for a period of nine consecutive months following the

date of his termination; 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 such nine-month

period so that Executive receives no more than an amount equal to 100% of his

base 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 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 such

nine-month period; and

(c)           If the Change of Control occurs after

the second anniversary of this Agreement, Executive shall be entitled to receive

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 his termination; 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 such 12-month

period so that Executive receives no more than an amount equal to 100% of his

base 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 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 such

12-month period.

(d)           For purposes of this Agreement, a “Change of

Control” shall mean any of the following events:

(i)            an acquisition (other than directly

from Holdings) of any voting securities of Holdings (the “Voting Securities”) by

any “Person” (as the term person is used for purposes of

Section 13(d) or 14(d) of the Securities Exchange Act of 1934,

as amended (the “1934 Act”)) other than a stockholder of

Holdings on the date hereof, immediately after which such Person has

“Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the

1934 Act) of at least 50% of the combined voting power of Holdings then

outstanding Voting Securities; provided,

however, that a Change of Control shall not be deemed to occur as a

result of holders of Holdings debt securities converting such securities into

Voting Securities in connection with a restructuring; or

4

 

(ii)           approval

by Holdings’ stockholders of:

(A)          a

merger, consolidation or reorganization involving Holdings, unless the

stockholders of Holdings, immediately before such merger, consolidation or

reorganization, own, directly or indirectly, immediately following such merger,

consolidation or reorganization, at least 50% of the combined voting power of

the outstanding Voting Securities of the corporation resulting from such merger

or consolidation or reorganization (the “Surviving Corporation”); provided, however, that a Change of

Control shall not be deemed to occur as a result of holders of Holdings debt

securities converting such securities into Voting Securities in connection with

a restructuring; or

(B)           an agreement for the sale or other

disposition of all or substantially all of the assets of Holdings and EEC to

any 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 by

Executive under this Agreement, Executive shall receive an annual base salary

of Two Hundred Fifty Thousand Dollars ($250,000), 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 $25,000 in cash.

4.3          Promotion Bonus.  On Executive’s first day as the President

and Chief Executive Officer of Holdings and EEC, he shall receive a promotion

bonus of $25,000 in cash.

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.

(a)           Upon the execution hereof, and

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, 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 to

Holdings of payment of $50,000 in exchange for a stock certificate representing

500,000 shares of the common stock of Holdings.  In connection with and as a condition to such purchase, Executive

will sign a counterpart 

 

5

 

signature page to

the Shareholders Agreement, becoming a party thereto for all purposes of the

Shareholders Agreement.

(b)           If, on or before the first

anniversary of the date of this Agreement, a Sale Event (as defined below)

occurs and the gross consideration Executive receives for each of the 500,000

shares of common stock he acquired pursuant to subclause (a) immediately above

is 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 days

of the closing of the Sale Event, an amount equal to the positive difference

between (x) $1.10 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 previously disposed of some of those shares).

(c)           If, a Sale Event did not occur on or

before the first anniversary of the date of this Agreement and after the first

anniversary of the date of this Agreement but on or prior to the second

anniversary of this Agreement, a Sale Event occurs and the gross consideration

Executive receives for each of the 500,000 shares of Common Stock he acquired

pursuant to subclause (a) immediately above is less than $0.60 per share (as

adjusted for any subsequent stock splits, combinations or the like), then

Holdings shall pay to Executive, within 15 days of the closing of the Sale

Event, 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 previously

disposed of some of those shares).  For

the avoidance of doubt, if Executive receives compensation pursuant to

Section 4.5(b) as a result of a Sale Event, he shall not be entitled to

receive compensation pursuant to this Section 4.5(c).

(d)           For

purposes of this Section 4.5, a “Sale Event” shall mean the closing of

the sale of all or substantially all of the capital stock or assets of Holdings

in which the stockholders of Holdings receive consideration, in cash,

securities or some combination thereof, for their shares, whether directly from

a third party in the event of a stock sale or merger or as a distribution from

Holdings in the event of an asset sale; provided,

however, that a Sale Event shall not be deemed to occur as a result

of holders of Holdings debt securities converting such securities into Voting

Securities in connection with a restructuring. 

For the avoidance of doubt, in no event shall there be more than one

Sale 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 with

relocation to and within the San Diego area, provided that such expenses shall

be limited to (i) no more than one point on a mortgage obtained on a new

home, (ii) closing costs on a new mortgage and (iii) the movement of

household goods from Executive’s prior residence to his new residence, but in

any event, the aggregate of such costs to be reimbursed by Holdings to

Executive shall not exceed $20,000. 

Holdings assumes full responsibility for taxes, if any, found to be owed

or that may ultimately be assessed upon the relocation reimbursement, 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.

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.

6

 

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.

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 which 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. 

Such reimbursement shall be made by EEC 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

7

 

(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 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

 

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 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 which is inconsistent in any way with the terms of

this Agreement.

9

 

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.

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.

10

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/ 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 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 $8,650,000, Executive will not receive a performance bonus for

2002.

If EBITDA for 2002

is $8,650,000, Executive will receive a performance bonus equal to 60% 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 and the denominator being 365)

(the “Pro Ration Factor”).

If EBITDA for 2002

is at least $9,515,000, Executive will receive a performance bonus equal to

100% of his annual salary, with the resulting amount multiplied by the Pro

Ration Factor.

If EBITDA for 2002

is between $8,650,000 and $9,515,000, Executive’s performance bonus will be

calculated on a linear sliding scale between 60% and 100% of his annual salary,

with the resulting amount multiplied by 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.

 

12

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