SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of February 3, 1998, among ELGAR
HOLDINGS, INC., a Delaware corporation (the "Company"), JFL-EEC LLC, a Delaware
limited liability company ("JFL"), JACKSON NATIONAL LIFE INSURANCE COMPANY
("Purchaser I"), INDOSUEZ ELECTRONICS PARTNERS, a Delaware general partnership
("Purchaser II") and OLD HICKORY FUND I, L.L.C. ("Purchaser III") (such holders,
in their capacity as holders of the Warrants or the Warrant Shares (each, as
defined below), the "Warrantholders"), and each of the persons whose names are
listed on SCHEDULE A hereto (the "Continuing Shareholders"). JFL, the
Warrantholders and the Continuing Shareholders are hereinafter sometimes
referred to collectively as the "Shareholders" and individually as a
"Shareholder."
R E C I T A L S
WHEREAS, as of the date hereof, the Shareholders, other than the
Warrantholders, own all of the issued and outstanding shares of the Company's
Common Stock, par value $.01 per share (the "Common Stock");
WHEREAS, the Shareholders desire to enter into this Agreement setting
forth rights and obligations with respect to all shares of Common Stock owned
and hereafter acquired by them.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. CORPORATE GOVERNANCE.
(a) COMPOSITION AND ELECTION OF BOARD OF DIRECTORS.
(i) So long as, together with its Related Transferees,
Purchaser I holds in the aggregate Warrants and shares obtained upon exercise of
the Warrants representing at least seventy-five percent (75%) of the Warrants
initially issued to Purchaser I, Purchaser I shall have the right to designate
one member of the Board of Directors of the Company (collectively, the
"Directors" and, each individually, a "Director").
(ii) So long as the Common Stock held by the Continuing
Shareholders designated on SCHEDULE A as "Non-Management Shareholders" (the
"Non-Management Shareholders") constitutes in the aggregate at least five
percent (5%) of the issued and outstanding Common Stock, then the Non-Management
Shareholders collectively shall have the right to designate one Director.
(iii) Subject to the rights of the holders of the Series A
10% Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock") to
elect Directors upon the occurrence of certain events pursuant to the terms of
the Certificate of Designations, Preferences
and Relative Participating, Optional and Other Special Rights of the Series A
Preferred Stock (the "Certificate of Designation"), JFL shall be entitled to
designate all Directors of the Company not designated by Purchaser I or the
Non-Management Shareholders.
(iv) Each Shareholder agrees to vote all shares of Common
Stock now or hereafter owned by it, to cause each of its Related Transferees to
vote all shares of Common Stock now or hereafter owned by it and otherwise to
use its reasonable best efforts, to:
(A) elect as Directors the persons designated by
JFL, by Purchaser I and by the Non-Management Shareholders in
accordance with Section 1(a)(i), (ii) and (iii);
(B) remove, with or without cause, (x) any Director
designated by JFL in accordance with Section 1(a)(iii), if
requested by JFL, (y) any Director designated by Purchaser I in
accordance with Section 1(a)(i), if requested by Purchaser I; and
(z) any Director designated by the Non-Management Shareholders in
accordance with Section 1(a)(ii), if requested by the
Non-Management Shareholders;
(C) cause any vacancy on the Board of Directors of
the Company created by the death, resignation, incapacity or
removal of (x) any Director designated by JFL in accordance with
Section 1(a)(iii) to be filled by a replacement Director
designated by JFL, (y) any Director designated by Purchaser I in
accordance with Section 1(a)(i) to be filled by a replacement
Director designated by Purchaser I, and (z) any Director
designated by the Non-Management Shareholders in accordance with
Section 1(a)(ii) to be filled by a replacement Director
designated by the Non-Management Shareholders.
(b) INFORMATION RIGHTS OF SHAREHOLDERS.
(i) Until such time as the Company shall have become
subject to the reporting requirements of Section 13 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Company shall (A) provide each
Shareholder with quarterly financial statements and reports of and any other
regularly prepared monthly financial data related to the Company's and its
subsidiaries' performance, (B) use reasonable efforts to deliver all other
financial information distributed by the Company to any Shareholder (in its
capacity as such) to each other Shareholder and (C) cause members of senior
management of the Company to be available to each Shareholder from time to time
to review the Company's performance.
(ii) So long as, together with its Related Transferees,
Purchaser I holds in the aggregate Warrants and shares obtained upon exercise of
the Warrants representing at least five percent (5%) of the issued and
outstanding Common Stock, Purchaser I shall have the right to designate two
representatives (less the number of Directors Purchaser I, in its capacity as a
Warrantholder or in its capacity as a holder of the Series A 10.0% Cumulative
Redeemable Preferred Stock of the Company, has designated or elected) to attend
all meetings of the Board of Directors of the Company and all committees thereof
as non-voting observers.
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The Company shall deliver to Purchaser I, concurrently with the delivery to the
directors of the Company, all notices of meetings of the Board of Directors of
the Company or committees thereof, and copies of all written reports and other
material given to the Board of Directors or committees thereof in connection
with such meetings (whether or not its observers attend) or actions by consent
in lieu thereof. Notwithstanding any provision of this Agreement to the
contrary, the rights of Purchaser I pursuant to this Section 1(b)(ii) may not be
assigned without the consent of the Company, other than to a Related Transferee.
2. RESTRICTIONS ON TRANSFER OF SECURITIES.
(a) GENERAL. No Shareholder shall, directly or indirectly,
transfer or otherwise dispose of any shares of Common Stock or Warrants owned by
such Shareholder, or any interest therein, except pursuant to a Permitted
Transfer described in Section 2(b), unless such transfer or disposition is made
in accordance with the applicable provisions of Sections 3, 4 and 5 of this
Agreement. Any attempt by a Shareholder to effect a transfer or disposition in
violation of this Agreement shall be void and ineffective for all purposes. The
words "transfer" and "dispose" mean the making of any sale, exchange,
assignment, gift, security interest, pledge or other encumbrance, or any
contract therefor, any voting trust or other agreement or arrangement with
respect to the transfer or voting rights or any other beneficial interests, the
creation of any other claim thereto or any other transfer or disposition
whatsoever, whether voluntary or involuntary, affecting the right, title,
interest or possession in or to the Common Stock or Warrants; PROVIDED, HOWEVER,
that in the case of any Warrantholder, neither a pledge of the Warrants, the
shares obtained upon exercise of the Warrants or any shares obtained pursuant to
Section 3 in connection with a financing transaction nor foreclosure of such
pledge shall constitute a transfer or disposition prohibited by this Section 2
if the person acquiring such Warrants or shares pursuant to such foreclosure
executes an instrument acknowledging that it shall thereafter be bound by the
terms of this Agreement.
(b) PERMITTED TRANSFERS. None of the restrictions contained in
this Agreement with respect to transfers of Common Stock or Warrants (other than
those set forth in this Section 2(b) and Section 2(c)) shall apply:
(i) to any transfer (including any gift) by any
Shareholder who is an individual to:
(A) such Shareholder's spouse or children
(collectively, "relatives");
(B) a trust of which there are no beneficiaries
other than one or more of such Shareholder and the relatives of
such Shareholder;
(C) a partnership of which there are no partners
other than one or more of such Shareholder and the relatives of
such Shareholder;
(D) a corporation of which there are no Shareholders
other than one or more of such Shareholder and the relatives of
such Shareholder;
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(E) a legal representative or guardian of such
Shareholder or a relative of such Shareholder if such Shareholder
or relative becomes mentally incompetent; or
(F) any person by will or by the laws of descent;
(ii) (A) to any transfer by any Shareholder (other than
JFL or an Affiliate of JFL) that is not an individual to any Affiliate
thereof, as such term is defined in Rule 12b-2 of the Exchange Act
("Affiliate"), (B) to any transfer by any Shareholder (other than JFL or
an Affiliate of JFL) to any Qualified Institutional Buyer, as such term
is defined in Rule 144A of the Securities Act of 1933, as amended (the
"Securities Act"); (C) to any transfer by JFL or an Affiliate of JFL to
(1) an entity in which 100% of the equity interests are, in the case of
a transfer by JFL, owned by JFL or, in the case of a transfer by an
Affiliate of JFL, by such Affiliate or (2) an entity which owns 100% of
the equity interests in JFL or the Affiliate of JFL making such transfer
(other than a transfer to the limited partners of J.F. Lehman Equity
Investors I, L.P. by J.F. Lehman Equity Investors I, L.P.), or (D) to
any transfer by JFL or an Affiliate of JFL for no consideration.
(iii) other than by JFL or an Affiliate of JFL, (A) to any
transfer by any Shareholder that is a corporation to a shareholder in
such corporation, (B) to any transfer by any Shareholder that is a
partnership to the general and/or limited partners of such partnership
and (C) to any transfer by any Shareholder that is a limited liability
company to any member of such limited liability company;
(iv) to any transfer by a Selling Shareholder (as
hereinafter defined) made in accordance with the applicable provisions
of Section 3 and, unless such transfer is to an Offeree Shareholder (as
hereinafter defined), the applicable provisions of Section 4;
(v) to any transfer by a Tag-Along Shareholder (as
hereinafter defined) pursuant to the Tag-Along Right (as hereinafter
defined); and
(vi) to any transfer by a Drag-Along Shareholder (as
hereinafter defined) made pursuant to the Drag-Along Right (as
hereinafter defined); and
(vii) to any transfer by a Shareholder for cash in a bona
fide public offering (a "Registered Offering") pursuant to an effective
registration statement under the Securities Act.
Transfers made pursuant to this Section 2(b) are referred to herein as
"Permitted Transfers" and transferees taking under a Permitted Transfer are
referred to herein as "Permitted Transferees." Transferees taking under a
Permitted Transfer described in Sections 2(b)(i) through (iii) are referred to
herein as "Related Transferees."
(c) REGISTRATION OF TRANSFER BY COMPANY. No transfer of Common
Stock or Warrants by any Shareholder (other than transfers pursuant to a
Registered Offering) shall be effective (and the Company shall not transfer on
its books any such shares) unless (i) the certificates representing such Common
Stock or Warrants issued to the Permitted Transferee shall
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bear any legends required by Section 10, (ii) the Permitted Transferee (if not
already a party hereto) shall have executed and delivered to the Company, as a
condition precedent to such transfer, an instrument or instruments in form and
substance reasonably satisfactory to the Company confirming that the Permitted
Transferee agrees to be bound by the terms of this Agreement to the same extent
as its transferor. In addition, no transfer of Common Stock or Warrants shall
be made by any Shareholder unless such transfer is effected in connection with a
Registered Offering or is exempt from registration under the Securities Act and,
in the case of any such transfer by any Shareholder to any person that is not an
Affiliate of such Shareholder, the Company, should it so request, has received a
written legal opinion (which may be rendered by in-house legal counsel of any
Shareholder that is not an individual) satisfactory to its counsel that the
proposed transfer is exempt from such registration.
(d) LEGEND. In the event that any shares of Common Stock or
Warrants become free of the rights and restrictions imposed by this Agreement,
including without limitation under the provisions of the Securities Act, the
Shareholders holding such securities shall be entitled to receive, promptly upon
presentment to the Company of the certificate or certificates evidencing the
same, a new certificate or certificates not bearing the restrictive legend
provided for in the second paragraph of Section 10. In the event that any
shares of Common Stock or Warrants bearing a legend are (i) transferred in
connection with a Registered Offering or (ii) transferred pursuant to an
exemption from registration under the Securities Act and the Company has
received a written legal opinion (which may be rendered by in-house legal
counsel of any Shareholder that is not an individual) satisfactory to its
counsel (A) as to the availability of and the compliance with such exemption and
(B) that such shares need not bear the restrictive legend set forth in the first
paragraph of Section 9 hereof, Company shall issue a new certificate or
certificates representing such securities not bearing such legend.
3. RIGHT OF FIRST OFFER.
(a) FIRST OFFER NOTICE. If a Shareholder (the "Selling
Shareholder") desires to transfer any shares of Common Stock or Warrants other
than (i) to a Related Transferee, (ii) as a Tag-Along Shareholder (as
hereinafter defined) or (iii) as a Drag-Along Shareholder, such Selling
Shareholder shall, prior to soliciting a BONA FIDE written offer from an
independent third-party (the "Third-Party Offer"), deliver to each remaining
Shareholder (collectively, the "Offeree Shareholders") and the Company a written
notice (the "First Offer Notice") offering to sell the Common Stock or Warrants
proposed to be sold ("Offered Securities") to the Offeree Shareholders, and,
under the circumstances set forth herein, to the Company. The First Offer
Notice shall state (i) that the Selling Shareholder desires to sell the Offered
Securities and (ii) the purchase price per share and other material terms on
which and the material conditions subject to which the Offered Securities are
offered.
(b) EXERCISE OF RIGHT OF FIRST OFFER.
(i) Upon receipt of the First Offer Notice, each Offeree
Shareholder shall have the option (the "Shareholders' Right of First Offer"),
which shall be exercisable by written notice (the "Notice of Election")
delivered to the Selling Shareholder within ten (10) days after the date of the
First Offer Notice (the "Shareholders' First Offer Option Period"), to
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purchase from the Selling Shareholder, at the price and upon the terms specified
in the First Offer Notice, a number of shares of Common Stock and a number of
Warrants up to the sum of (A) the number of shares of Common Stock and Warrants
included in the Offered Securities multiplied by a fraction, the numerator of
which is the number of shares of Common Stock and shares of Common Stock
issuable upon exercise of Warrants ("Common Stock Equivalents") owned by such
Offeree Shareholder and the denominator of which is the number of shares of
Common Stock and Common Stock Equivalents held by all Offeree Shareholders and
(B) the number of shares of Common Stock and Warrants that, under the formula in
clause (A), all Offeree Shareholders could have elected to purchase but did not
so elect, multiplied by a fraction, the numerator of which is the number of
shares of Common Stock and Common Stock Equivalents owned by such Offeree
Shareholder and the denominator of which is the total number of shares of Common
Stock and Common Stock Equivalents owned by the Offeree Shareholders (including
such Offeree Shareholder) that exercised the option provided herein. Each
Offeree Shareholder who desires to exercise its option to purchase Offered
Securities shall state in its Notice of Election the number of shares of Common
Stock and Warrants that such Offeree Shareholder proposes to purchase determined
in accordance with clause (b)(i)(A) plus an amount of additional shares and
Warrants, if any, that such Offeree Shareholder would be willing to purchase
from the Selling Shareholder in the event that one or more Offeree Shareholders
(other than such Offeree Shareholder) elect not to exercise their Shareholders'
Right of First Offer, in whole or in part. If any Offeree Shareholder shall
fail to deliver the Notice of Election within the Shareholders' First Offer
Option Period, such failure shall be deemed an election not to purchase any
Offered Securities subject to the Shareholders' Right of First Offer and such
Shareholders' Right of First Offer shall thereupon expire with respect to the
Offered Securities only.
(ii) If the number of shares of Common Stock with respect
to which the Shareholders' Right of First Offer has been exercised is less than
the number of Offered Securities, the Company shall have the option (the
"Company's Right of First Offer"), which shall be exercisable by written notice
delivered to the Selling Shareholder within five (5) days after the expiration
of the Shareholders' First Offer Option Period (the "Company's First Offer
Option Period"), to purchase any or all of the Offered Securities not purchased
by the Offeree Shareholders at the price and upon the terms specified in the
First Offer Notice. If the Company shall fail to deliver a notice (the "Company
Notice") of its election to exercise the Company's Right of First Offer within
the Company First Offer Option Period, such failure shall be deemed an election
not to purchase any Offered Securities subject to the Company's Right of First
Offer and the Company's Right of First Offer shall thereupon expire with respect
to the Offered Securities only.
(iii) The Shareholders' Right of First Offer and the
Company's Right of First Offer shall be exercisable only if the Offeree
Shareholders and/or the Company, in the aggregate, elect to purchase all, and
not less than all, of the Offered Securities. Each Notice of Election and
Company Notice shall recite that such Notice of Election or Company Notice, as
the case may be, constitutes a binding obligation of the Offeree Shareholder or
the Company, as the case may be, submitting same to purchase, upon the same
terms and subject to the same conditions as the Third-Party Offer, up to the
number of shares set forth in the Notice of Election or the Company Notice, as
the case may be.
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(iv) The closing of the purchase of the Offered
Securities subscribed to by the Offeree Shareholders and the Company pursuant to
this Section 3 shall be held at the principal office of the Company at 10:00
a.m., local time not later than the thirtieth (30th) day after the Company First
Offer Option Period shall have expired.
(c) SALE TO THIRD-PARTY PURCHASER.
(i) If the First Offer Notice shall have been duly
delivered, and the Offeree Shareholders and the Company together shall not have
exercised the Shareholders' Right of First Offer and the Company's Right of
First Offer to purchase all of the Offered Securities, the Selling Shareholder
may solicit Third-Party Offers to purchase all (but not less than all) of the
Offered Securities and, so long as any sale of the Offered Securities made
pursuant to a Third-Party Offer that is (A) upon such terms, including price,
and subject to such conditions as are, in the aggregate, no less favorable to
the Selling Shareholder than those set forth in the First Offer Notice;
PROVIDED, HOWEVER, that the price may be not less than 90% of the price set
forth in the First Offer Notice, (B) BONA FIDE, (C) consummated within one
hundred eighty (180) days from the expiration date of the Company First Offer
Option Period, (D) if applicable, subject to any Tag-Along Right and (E) in
accordance with clause (ii) below, such transfer may be consummated without
further restriction under this Section 3 and shall be a Permitted Transfer under
this Agreement.
(ii) All Offered Securities transferred by the Selling
Shareholder in accordance with clause (i) above shall remain, and the
third-party purchaser shall agree to take and hold such Offered Securities,
subject to all of the obligations and restrictions imposed upon the Selling
Shareholder by this Agreement. No transfer of Offered Securities to which the
preceding sentence applies shall be effective unless and until the third-party
purchaser shall have executed and delivered to the Company an appropriate
instrument to the foregoing effect.
4. TAG-ALONG RIGHTS.
(a) THE RIGHT. If JFL and/or any of its Affiliates
(collectively, the "JFL Group") proposes to transfer any shares of Common Stock
owned by it on the date hereof to an independent third party (a "Prospective
Purchaser") other than in a Permitted Transfer (a "Tag-Along Sale"), then each
of the remaining Shareholders shall have the right to participate in any such
sale of Common Stock by the JFL Group in accordance with the procedures set
forth below; PROVIDED that such right may not be exercised with respect to any
shares acquired by any such remaining Shareholder pursuant to the exercise of a
Right of First Offer within One Hundred Eighty (180) days prior to the proposed
date of consummation of the Tag-Along Sale; PROVIDED FURTHER, HOWEVER, that such
participation shall be on the same terms and subject to the same conditions as
those on which the JFL Group proposes to transfer its shares; and PROVIDED STILL
FURTHER, HOWEVER, that, in addition to receiving their ratable portion of any
consideration paid in respect of the Common Stock or Warrants, the Shareholders
shall be entitled to receive a ratable portion of any consideration to be paid
to the JFL Group other than in respect of the Common Stock or Warrants, to the
extent that such consideration exceeds (i) the fair market value of any tangible
property transferred by the JFL Group in exchange for such consideration or
(ii) an
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amount that is customary and reasonable for any intangible property rights or
transferred or granted in exchange for such consideration.
(b) ELECTION TO PARTICIPATE. Shareholders shall have the right
(the "Tag-Along Right") for thirty (30) days from receipt of the First Offer
Notice described in Section 3(a) (the "Tag-Along Option Period") to elect to
participate in the Tag-Along Sale. Any remaining Shareholder electing to
participate in the Tag-Along Sale (a "Tag-Along Shareholder") shall give all
other Shareholders and Company written notice thereof (the "Election Notice")
within the Tag-Along Option Period. The Election Notice shall specify the
number of shares of Common Stock that such Tag-Along Shareholder desires to sell
to the Prospective Purchaser, which amount shall be equal to or less than the
total number of shares of Common Stock held by such Shareholder multiplied by a
fraction, the numerator of which is the total number of shares of Common Stock
proposed to be sold by the JFL Group and the denominator of which is the total
number of shares of Common Stock then owned by the JFL Group. The failure of
any remaining Shareholder to submit an Election Notice within the Tag-Along
Option Period shall constitute an election by such remaining Shareholder not to
participate in such Tag-Along Sale, PROVIDED such Tag-Along Sale is consummated
within forty-five (45) days of the expiration of the Tag-Along Option Period.
By delivering an Election Notice to JFL within the Tag-Along Option Period, a
Tag-Along Shareholder shall have the right to sell to the Prospective Purchaser
that number of shares of Common Stock specified in the Election Notice;
PROVIDED, HOWEVER, that, to the extent the Prospective Purchaser is unwilling or
unable to purchase all of the shares proposed to be sold by the JFL Group and
the Tag-Along Shareholders, the number of shares to be sold by each of the JFL
Group and each of the Tag-Along Shareholders shall be ratably reduced so that
the number of shares to be sold by the JFL Group and each of the Tag-Along
Shareholders equals the number of shares that the Prospective Purchaser is
willing or able to purchase. The only representations, warranties or
indemnities that a Tag-Along Shareholder shall be required to give in connection
with a Tag-Along Sale shall be as to due authority and execution, validity and
marketability of title and the absence of liens or other encumbrances with
respect to such Tag-Along Shareholder's shares of Common Stock.
5. DRAG-ALONG RIGHTS.
(a) THE RIGHT. If one or more Shareholders holding, in the
aggregate, a majority of the issued and outstanding Common Stock (the "Majority
Shareholders") propose to sell all the Common Stock owned by such Majority
Shareholders (whether owned by such Shareholders on the date hereof or hereafter
acquired in a manner consistent with this Agreement) to a Prospective Purchaser,
other than a Related Transferee, then such Majority Shareholders shall have the
right (the "Drag-Along Right") to compel the remaining Shareholders (the
"Drag-Along Shareholders") to sell all of the shares of Common Stock and
Warrants owned by them to the Prospective Purchaser for such consideration per
share (reduced by the exercise price of the Warrants, in the case of the
Warrants), and on the same terms and subject to the same conditions, as the
Majority Shareholders are able to obtain; provided, however, that any such sale
by a remaining Shareholder does not violate applicable law. The Majority
Shareholders shall exercise the Drag-Along Right by giving written notice (the
"Drag-Along Notice") to the Company and the Drag-Along Shareholders stating
(i) that they propose to effect such transaction, (ii) the name and address of
the Prospective Purchaser, (iii) the proposed purchase price per share and other
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terms and conditions of the proposed sale (including any consideration proposed
to be paid other than in respect of the Common Stock or Warrants) and (iv) that
all the Shareholders shall be obligated to sell their shares of Common Stock and
Warrants upon the same terms and subject to the same conditions (subject to
applicable law); PROVIDED, HOWEVER, that, in addition to receiving their ratable
portion of any consideration paid in respect of the Common Stock or Warrants,
the Shareholders shall be entitled to receive a ratable portion of any
consideration paid other than in respect of the Common Stock or Warrants, to the
extent that such consideration exceeds (i) the fair market value of any tangible
property transferred by the Majority Shareholders in exchange for such
consideration or (ii) an amount that is customary and reasonable for any
intangible property or rights transferred or granted in exchange for such
consideration.
(b) PROCEDURE. Not later than twenty (20) days following the
date of receipt of the Drag-Along Notice, each of the other Shareholders shall
deliver to the Majority Shareholders certificates representing all shares of
Common Stock held by a Drag-Along Shareholder, accompanied by duly executed
stock powers, and all Warrants held by such Drag-Along Shareholder with duly
executed assignments thereof. If any Drag-Along Shareholder fails to deliver
such certificates and Warrants to the Majority Shareholders, the Company shall
cause the books and records of the Company to show that the shares represented
by such certificates and Warrants of such Drag-Along Shareholder are bound by
the provisions of this Section 5 and are transferable only to the Prospective
Purchaser or a Related Transferee of such Prospective Purchaser upon surrender
for transfer by the holder thereof. Upon the consummation of the sale of the
Common Stock of the Majority Shareholders and the Drag-Along Shareholders
pursuant to this Section 5, the Majority Shareholders shall give notice thereof
to the Drag-Along Shareholders and shall remit to each of the Drag-Along
Shareholders the total sales price received for the shares of Common Stock of
such Drag-Along Shareholder sold pursuant hereto. Notwithstanding anything
herein to the contrary, no Shareholder shall be obligated to receive as
consideration for any Drag-Along Sale any property or securities the holding of
which by such Shareholder would be prohibited by any law, rule or regulation of
any governmental entity or insurance industry regulatory body.
6. SUBSCRIPTION OFFER WITH RESPECT TO PRIMARY ISSUANCES.
(a) SUBSCRIPTION OFFER. The Company shall not issue (a "Primary
Issuance") equity securities, or securities convertible into equity securities,
of the Company to any person (in such capacity, a "Primary Purchaser") unless
the Company has offered to issue to each of the other Shareholders, on a pro
rata basis, an opportunity to purchase such securities on the same terms,
including price, and subject to the same conditions as those applicable to the
Primary Purchaser. Notwithstanding the foregoing, this Section 6 shall not
apply to the issuance of options, warrants or rights to subscribe for shares of
Common Stock to officers, directors, employees, consultants or agents of the
Company pursuant to the terms of any stock option plan or arrangement approved
by the Board of Directors, or the issuance of shares of its Common Stock upon
the exercise of any such stock options, warrants or rights; PROVIDED, HOWEVER,
that the aggregate number of shares of Common Stock that may be issued under
such stock option plan or arrangement without application of this Section 6 to
such issuance shall not exceed, in the aggregate, 300,000 shares (appropriately
adjusted for stock splits, dividends and/or combinations).
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(b) PROCEDURE. Not less than ten (10) days prior to the date
described in clause (i) of this paragraph, the Company shall make to each
Shareholder an offer (the "Subscription Offer") to purchase any securities that
are the subject of a Primary Issuance, which offer shall specify (i) the date on
which the Company and the Primary Purchaser intend to consummate the Primary
Issuance, (ii) the material rights, preferences, privileges and restrictions
granted to or imposed upon the securities, including, if applicable, the
certificate of determination or indenture governing such securities, (iii) the
principal terms of and conditions applicable to the Primary Issuance, including,
without limitation, the price at which such securities are being offered to the
Primary Purchaser and (iv) the number of securities proposed to be issued to the
Primary Purchaser pursuant to the Primary Issuance multiplied by a fraction, the
numerator of which is the number of shares of Common Stock held by such
Shareholder and the denominator of which is the total number of shares of Common
Stock outstanding, on a fully diluted basis. Each Shareholder electing to
participate in the Primary Issuance (a "Subscribing Shareholder") shall give the
Primary Purchaser, the Company and each other Shareholder written notice (the
"Subscription Notice") of such election not less than five (5) days after
receipt of the Subscription Offer (the "Subscription Period"). The Subscription
Notice shall specify the number of securities with respect to which such
Shareholder desires to subscribe, which amount shall be equal to or less than
the total number of securities set forth in the Subscription Offer. The failure
of any Shareholder to submit a Subscription Notice within the Subscription
Period shall constitute an election by such Shareholder not to accept such
Subscription Offer, PROVIDED that the Primary Issuance is consummated not later
than the date described in clause (i) of this paragraph.
7. REGISTRATION RIGHTS. Each of the Shareholders shall have the
rights, if any, with respect to registration of the shares of Common Stock held
by them as are set forth in the Shareholders Registration Rights Agreement, the
form of which is attached hereto as EXHIBIT C. Each of the Warrantholders shall
have the rights, if any, with respect to registration of the shares of Common
Stock held or to be held by them as are set forth in the Warrantholders
Registration Rights Agreement, the form of which is attached hereto
as EXHIBIT D.
8. CERTAIN CLOSING CONDITIONS. At the closing of any transfer or
disposition of Common Stock or Warrants pursuant to this Agreement, in addition
to any other conditions specifically set out herein concerning such transfer or
disposition, the transferor shall (i) deliver the certificates representing the
Common Stock and the Warrants that are the subject of the transfer, duly
endorsed for transfer and bearing any necessary tax stamps; (ii) by delivering
such certificates and Warrants, be deemed to have represented and warranted that
the transferor has valid and marketable title to the Common Stock represented by
such certificates and the Warrants free of all encumbrances and (iii) deliver
such certificates of authority, tax releases, consents to transfer and evidences
of title as may reasonably be required by the transferee. The transferor shall
be responsible for the payment of all transfer taxes unless otherwise specified.
9. LEGENDS. Each stock certificate representing shares of Common
Stock and each Warrant certificate now held or hereafter acquired by any
Shareholder shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES
10
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS, AND MAY BE OFFERED, PLEDGED, SOLD, ASSIGNED,
TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IF REGISTERED PURSUANT
TO THE PROVISIONS OF THE ACT AND SUCH LAWS, OR IF AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
A SHAREHOLDERS AGREEMENT DATED AS OF FEBRUARY 4, 1998 (THE
"AGREEMENT"), WHICH CONTAINS PROVISIONS REGARDING (I) CERTAIN
RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES, (II) CERTAIN
RIGHTS OF FIRST OFFER, TAG-ALONG RIGHTS AND DRAG-ALONG RIGHTS
APPLICABLE TO THIS SECURITY AND (III) CERTAIN OTHER MATTERS. A
COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE COMPANY. ANY TRANSFER OF THE SECURITIES
EVIDENCED BY THIS CERTIFICATE IN VIOLATION OF THE AGREEMENT IS
NULL AND VOID."
10. TERMINATION.
(a) TERMINATION AS TO SHAREHOLDER. This Agreement shall
terminate with respect to any Shareholder at such time as the Shareholder ceases
to hold any shares of Common Stock or Warrants; PROVIDED, HOWEVER, that the
provisions of this Agreement shall continue in effect for the purpose of
enforcing against such Shareholder all obligations and undertakings that shall
have theretofore become operative; PROVIDED, FURTHER, HOWEVER, that the
provisions of this Agreement shall be binding upon any transferee of any
Shareholder, whether such transfer was pursuant to a Permitted Transfer (other
than a Registered Offering) or otherwise. Notwithstanding the foregoing, the
benefits of this Agreement shall inure only to a Permitted Transferee of a
Shareholder.
(b) TERMINATION AS TO SHARES. This Agreement shall terminate
with respect to any particular shares of Common Stock or Warrants when such
shares or Warrants shall have been sold in a Registered Offering or distributed
to the public pursuant to Rule 144 under the Securities Act.
(c) TERMINATION AS TO CERTAIN SHAREHOLDERS. Upon any Registered
Offering, this Agreement shall terminate with respect to each Non-Management
Shareholder.
(d) TERMINATION OF AGREEMENT. This Agreement shall terminate
upon the earliest to occur of (i) the Agreement having been terminated as to all
Shareholders and all transferees of all Shareholders pursuant to paragraph
(a) hereof; (ii) the Agreement having been terminated as to all shares of Common
Stock and Warrants pursuant to paragraph (b) hereof;
11
(iii) the sale of shares of Common Stock at an aggregate offering price of at
least $25,000,000 in a Registered Offering and (iv) the tenth anniversary of
this Agreement.
11. MISCELLANEOUS PROVISIONS.
(a) FURTHER ACTION. Each party hereto agrees to execute and
deliver any instrument and take any action that may reasonably be requested by
any other party for the purpose of effectuating the provisions of this
Agreement.
(b) INCORPORATION OF SCHEDULE AND EXHIBITS. The schedule and
exhibits attached hereto are incorporated into this Agreement and shall be
deemed a part hereof as if set forth herein in full. References herein to "this
Agreement" and the words "herein," "hereof" and words of similar import refer to
this Agreement (including its schedules and exhibits) as an entirety. In the
event of any conflict between the provisions of this Agreement and any such
schedule or exhibit, the provisions of this Agreement shall control.
(c) ASSIGNMENT. Except as otherwise provided in this
Section 11(c) or in Sections 2, 3, 4 and 5 hereof, no right under this Agreement
shall be assignable and any attempted assignment, in violation of this provision
shall be void. The Company shall have the right to assign its rights and
obligations hereunder to any successor entity (including any entity acquiring
substantially all of the assets of the Company), whereupon references herein to
the Company shall be deemed to be to such successor. Except as expressly
otherwise provided herein, this Agreement, and the rights and obligations of the
parties hereunder, shall be binding upon and inure to the benefit of any and all
transferees of the Common Stock or Warrants subject hereto, in each case with
the same force and effect as if such transferees were named herein as parties
hereto.
(d) ENFORCEMENT. The parties recognize that irreparable damage
will result in the event that this Agreement shall not be specifically
performed. Should any dispute arise concerning the disposition of any Common
Stock or Warrants hereunder, the parties hereto agree that an injunction may be
issued restraining such disposition pending determination of such controversy
and that no bond or other security may be required in connection therewith.
Should any dispute arise concerning the right or obligation of the Shareholders
or the Company to purchase or sell any of the Common Stock or Warrants subject
hereto, such right or obligation shall be enforceable by a decree of specific
performance. Such remedies shall, however, not be exclusive and shall be in
addition to any other remedy which the parties may have.
(e) NOTICES. Any notice or other communication required or
which may be given hereunder shall be in writing by hand delivery, registered or
certified first class mail, telecopier or air courier guaranteeing overnight
delivery:
(i) if to the Company, to:
c/o Elgar Electronics Corporation
9250 Brown Deer Road
San Diego, CA 02121
12
Attention: Chief Executive Officer
Fax: (619) 458-0257
WITH A COURTESY COPY TO:
C/O J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
(ii) if to JFL, to:
C/O J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
IN EITHER CASE, WITH A COURTESY COPY TO:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Fax: (213) 229-7520
13
(iii) if to Purchaser I, to:
Jackson National Life Insurance Company
c/o PPM America, Inc.
225 West Wacker Drive, Suite 1200
Chicago, IL 60606
Attention: Debbie Ackerman
Fax: (312) 634-0054
(iv) if to Purchaser II, to:
Indosuez Capital
1211 Avenue of the Americas
New York, NY 10036-8701
Attention: Ken Kencel, Thierry de Vergnes
WITH A COURTESY COPY TO:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Daniel Evans, Esq.
(v) if to Purchaser III, to
c/o Jackson National Life Insurance Company
c/o PPM America, Inc.
225 West Wacker Drive, Suite 1200
Chicago, IL 60606
Attention: Debbie Ackerman
Fax: (312) 634-0054
IN THE CASE OF ANY WARRANTHOLDER OR PREFERRED
STOCKHOLDER, WITH A COURTESY COPY TO:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street
Suite 2700
Chicago, Illinois 60601
Attention: Brian O'Neil, Esq.
Fax: (312) 782-8416
(vi) if to any other Shareholder, to his or its address
set forth on SCHEDULE A attached hereto,
14
WITH A COURTESY COPY TO:
Latham & Watkins
1001 Pennsylvania Ave., N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: Scott Herlihy, Esq.
Fax: 202-637-2201
or at such other address, notice of which is given in accordance with the
provisions of this Section 10(e). All such notices shall be deemed to have been
duly given when delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
(g) APPLICABLE LAW. This Agreement shall be governed by, and
construed and enforced in accordance with and subject to, the laws of California
applicable to agreements made and to be performed entirely within such State,
without giving effect to the conflicts-of-law principles thereof.
(h) ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement
sets forth the entire understanding of the parties with respect to the subject
matter hereof. The failure of any party to seek redress for the violation of or
to insist upon the strict performance of any term of this Agreement shall not
constitute a waiver of such term and such party shall be entitled to enforce
such term without regard to such forbearance. This Agreement may be amended,
each party hereto may take any action herein prohibited or omit to take action
herein required to be performed by it, and any breach of or compliance with any
covenant, agreement, warranty or representation may be waived, only by the prior
written consent or written waiver of Shareholders holding (i) a majority of all
shares of Common Stock, on a fully diluted basis and (ii) 95% of the shares of
Common Stock, on a fully diluted basis, adversely affected by any such
amendment, action, omission or waiver; PROVIDED that such Shareholder shall be
given five (5) days advance notice of any such proposed amendment, action,
omission or waiver; and PROVIDED, FURTHER, that such consent or waiver shall be
effective only in the specific instance and for the specific purpose for which
given. Without limiting the foregoing, (i) any amendment to Section 1(a)(i)
shall require the consent of Purchaser I, (ii) any amendment to Section 1(a)(ii)
shall require the consent of a majority of the shares of Common Stock, on a
fully diluted basis, owned by the Non-Management Shareholders, and (iii) any
amendment to this Section 11(h) shall require the consent of 95% of the shares
of Common Stock, on a fully diluted basis
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15
IN WITNESS WHEREOF, the undersigned have executed this Shareholders
Agreement as of the date first set forth above.
ELGAR HOLDINGS, INC.
By: /s/ Donald Glickman
-------------------------------
Name: Donald Glickman
Title: President
JFL-EEC LLC,
a Delaware limited liability company
By: /s/ Donald Glickman
-------------------------------
Name: Donald Glickman
Title: Manager
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM America, Inc., its agent
By: /s/ Debbie Ackerman
-------------------------------
Name: Debbie Ackerman
Title: Managing Director
INDOSUEZ ELECTRONICS PARTNERS
By: Indosuez CM II, Inc., its Managing
General Partner
By: /s/ Michael Walsh
-------------------------------
Name: Michael Walsh
Title: Vice President
By: /s/ Allen Gruenhut
-------------------------------
Name: Allen Gruenhut
Title: Vice President
16
OLD HICKORY FUND I, L.L.C.
By: PPM America, Inc., as Manager
By: /s/ Debbie Ackerman
-------------------------------
Name: Debbie Ackerman
Title: Managing Director
CARLYLE-ELGAR INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.,
its General Partner
By: TCG Holdings, L.L.C.,
its Managing Member
By: /s/ Daniel A. D'Aniello
-------------------------------
Daniel A. D'Aniello
Managing Director
CARLYLE-ELGAR PARTNERS, L.P.
By: TC Group, L.L.C.,
its General Partner
By: TCG Holdings, L.L.C.,
its Managing Member
By: /s/ Daniel A. D'Aniello
-------------------------------
Daniel A. D'Aniello
Managing Director
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.,
its General Partner
By: TCG Holdings, L.L.C.,
its Managing Member
By: /s/ Daniel A. D'Aniello
-------------------------------
Daniel A. D'Aniello
Managing Director
17
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.,
its General Partner
By: TCG Holdings, L.L.C.,
its Managing Member
By: /s/ Daniel A. D'Aniello
-------------------------------
Daniel A. D'Aniello
Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.,
its General Partner
By: TCG Holdings, L.L.C.,
its Managing Member
By: /s/ Daniel A. D'Aniello
-------------------------------
Daniel A. D'Aniello
Managing Director
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.,
its General Partner
By: TCG Holdings, L.L.C.,
its Managing Member
By: /s/ Daniel A. D'Aniello
-------------------------------
Daniel A. D'Aniello
Managing Director
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.,
its General Partner
By: TCG Holdings, L.L.C.,
its Managing Member
By: /s/ Daniel A. D'Aniello
-------------------------------
Daniel A. D'Aniello
Managing Director
18
SBC MASTER PENSION TRUST
By: /s/ Shannon Green
-------------------------------
Name: Shannon Green
-------------------------------
Title: Executive Vice President,
McGahan Green McHugh
Capital Management, LLC
-------------------------------
STATE STREET BANK AS TRUSTEE FOR THE CHAMPION
INTERNATIONAL RETIREMENT TRUST
By: /s/ Scott Kennedy
-------------------------------
Name: Scott Kennedy
-------------------------------
Title: Assistant Secretary
-------------------------------
DELAWARE STATE EMPLOYEES' RETIREMENT FUND
By: TC Group, L.L.C.,
its General Partner
By: TCG Holdings, L.L.C.,
its Managing Member
By: /s/ Daniel A. D'Aniello
-------------------------------
Name: Daniel A. D'Aniello
-------------------------------
Title: Managing Director
-------------------------------
MELLON BANK, N.A., solely in its capacity as
Trustee for FIRST PLAZA GROUP TRUST, (as
directed by General Motors Investment
Management Corporation), and not in its
individual capacity
By: /s/ Bernadette Rist
-------------------------------
Name: Bernadette Rist
-------------------------------
Title: Authorized Signatory
-------------------------------
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT
SYSTEM
By: TC Group, L.L.C.,
its General Partner
By: TCG Holdings, L.L.C.,
its Managing Member
By: /s/ Daniel A D'Aniello
-------------------------------
Name: Daniel A. D'Aniello
-------------------------------
Title: Managing Director
-------------------------------
INDOSUEZ ELGAR PARTNERS LP
By: Indosuez CM II, Inc, its Managing
General Partner
By: /s/ Michael Walsh
-------------------------------
Name: Michael Walsh
Title: Vice President
By: /s/ Allen Gruenhut
-------------------------------
Name: Allen Gruenhut
Title: Vice President
19
RIT CAPITAL PARTNERS plc
By: /s/ A. H. Bloom
-------------------------------
Name: A. H. Bloom
-------------------------------
Title: Authorized Signatory
-------------------------------
DURHAM ENTERPRISES LTD.
By: /s/ C. P. M. Harris
-------------------------------
Name: C. P. M. Harris
-------------------------------
Title: Director
-------------------------------
GFI PARTNERS L.L.C.
By: /s/ Ian Schapiro
-------------------------------
Name: Ian Schapiro
-------------------------------
Title: Chief Financial Officer
-------------------------------
GFI ONE L.L.C.
By: /s/ Ian Schapiro
-------------------------------
Name: Ian Schapiro
-------------------------------
Title: Chief Financial Officer
-------------------------------
/s/ Kenneth R. Kilpatrick
--------------------------------------
Kenneth R. Kilpatrick
/s/ Ronald Garrett
--------------------------------------
Ronald Garrett
/s/ Normand E. Precourt
--------------------------------------
Normand E. Precourt
/s/ Christopher W. Kelford
--------------------------------------
Christopher W. Kelford
/s/ Tom Erickson
--------------------------------------
Tom Erickson
Tom Erickson IRA
By: /s/ Dawn Phillips
-------------------------------
Name: Dawn Phillips
-------------------------------
Title: Assistant Vice President, Bank of
Commerce
-------------------------------
/s/ Samuel A. Lewis
--------------------------------------
Samuel A. Lewis
20
/s/ Raymond Daniel
--------------------------------------
Raymond Daniel
/s/ Daniel E. Donati
--------------------------------------
Daniel E. Donati
/s/ Grant A. Moore
--------------------------------------
Grant A. Moore
21
SCHEDULE A
MANAGEMENT SHAREHOLDERS NON-MANAGEMENT SHAREHOLDERS
Kenneth R. Kilpatrick Carlyle-Elgar International Partners, L.P.
Ronald Garrett Carlyle-Elgar Partners, L.P.
Normand E. Precourt Carlyle Partners II, L.P.
Christopher W. Kelford Carlyle Partners III, L.P.
Tom Erickson Carlyle International Partners II, L.P.
Tom Erickson IRA Carlyle International Partners III, L.P.
Samuel A. Lewis C/S International Partners
Raymond Daniel SBC Master Pension Trust
Daniel E. Donati State Street Bank as Trustee
for the Champion International Retirement
Trust
Grant A. Moore Delaware State Employees' Retirement Fund
Mellon Bank, NA as Trustee for First
Plaza Group Trust
California Public Employees' Retirement
System
Indosuez-Elgar Partners LP
RIT Capital Partners plc
Durham Enterprises Ltd.
GFI Partners LLC
GFI One LLC