ELGAR HOLDINGS, INC.
1998 STOCK OPTION PLAN
1. PURPOSE. This Stock Option Plan (the "Plan") is intended as an incentive
to encourage stock ownership by officers and directors and executive and
professional employees of Elgar Holdings, Inc. (the "Company") and its Parent
and Subsidiary corporations so that they may acquire or increase their equity
interest in the success of the Company and its Parents and Subsidiaries, and to
encourage them to remain in the service of the Company or of its Parents or
Subsidiaries. Each option granted under this Plan will be designated as either
an "Incentive Stock Option" or a "Nonqualified Stock Option." It is intended
that each option designated as an Incentive Stock Option granted under this Plan
will qualify as an incentive stock option within the meaning of Section 422(b)
of the Code.
2. DEFINITIONS
2.1 "BOARD OF DIRECTORS" means the board of directors of the Company.
2.2 "CHANGE IN CONTROL" shall mean the happening of any of the following:
2.2.1 any person who is not a stockholder of the Company or of any
Parent on the date of adoption of this Plan (or group of such persons acting in
concert) acquires, during any period of twelve consecutive calendar months,
stock of the Company or of a Parent representing a majority of the voting power
of all stock of the Company or any Parent having the right to vote for the
election of directors;
2.2.2 the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (i) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than eighty percent (80%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (ii) a merger or consolidation
effected to implement a Recapitalization of the Company;
2.2.3 the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets or any transaction
having a similar effect; or
2.2.4 if the Company enters into an agreement with an unrelated
party for the sale of all or substantially all of the assets or outstanding
stock of a Subsidiary (or a transaction having a similar effect), or any other
event occurs by reason of which a Subsidiary ceases to be a Subsidiary of the
Company, a Change in Control shall be deemed to have occurred with respect to
those Employees who are then employed by such Subsidiary.
2.3 "CHANGE IN CONTROL DATE" shall mean the earliest date on which one of
the events described in the definition of "Change in Control" occurs, as
determined by the Board of Directors, in its sole discretion, provided that, if
Section 2.2.4 of the definition of "Change of Control" applies, the
Change in Control Date shall be deemed to be the date of the agreement, provided
that the transaction does close.
2.4 "CHANGE IN CONTROL PRICE" shall mean the highest fair market value, or
the highest price paid or offered in any bona fide transaction related to a
Change in Control of the Company, at any time during the sixty (60) days
preceding the Change in Control Date.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended.
2.6 "COMPANY" means Elgar Holdings, Inc., a Delaware corporation.
2.7 "EMPLOYEE" means any bona fide full or part time common law employee
of the Company or of any Parent or Subsidiary of the Company.
2.8 "INCENTIVE STOCK OPTION" means an Option granted pursuant to this Plan
intended to qualify and designated as an incentive stock option within the
meaning of Section 422 of the Code.
2.9 "NONQUALIFIED STOCK OPTION" means any Option granted pursuant to this
Plan other than an Incentive Stock Option.
2.10 "OPTION" or "STOCK OPTION" means any stock option granted pursuant to
this Plan.
2.11 "OPTIONEE" means any individual to whom an Option is granted pursuant
to this Plan.
2.12 "PARENT" means, at the time of granting any Option, any corporation
(other than the Company) in an unbroken chain of corporations ending with the
Company if each of the corporations other than the Company owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
2.13 "PLAN" means the Elgar Holdings, Inc. 1998 Stock Option Plan.
2.14 "RECAPITALIZATION" means any reorganization, merger or other
subdivision, consolidation, recapitalization, reclassification, stock split,
combination of shares, issuance of warrants, stock dividend or similar event
with respect to or affecting the common stock of the Company, par value one cent
($.01) per share.
2.15 "STOCK OPTION COMMITTEE" means the committee appointed to administer
the Plan pursuant to Article 7 herein, if such committee is appointed.
2.16 "SUBSIDIARY" means, at the time of granting any Option, any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
2.17 "TEN PERCENT SHAREHOLDER" means any person who owns (or is considered
by reason of Section 425(d) of the Code to own) stock possessing more than ten
percent (10%) of the total
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combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company.
3. ELIGIBILITY. The persons who shall be eligible to receive Options shall
be such officers, directors and executive and professional employees of the
Company or its Parent or Subsidiary corporations as the Board of Directors shall
select from time to time. An Optionee may hold more than one Option, but only
on the terms and subject to the restrictions hereafter set forth.
4. STOCK. The stock subject to the Options shall be shares of the Company's
authorized but unissued or reacquired common stock, par value one cent ($.01)
per share, hereafter sometimes called Stock. The aggregate number of shares
which may be issued under Options shall not exceed two hundred sixty five
thousand three hundred and seventy four (265,374) shares of Stock. The
limitation established by the preceding sentence shall be subject to adjustment
as provided in Section 5.12 of the Plan. If any outstanding Option for any
reason expires or is terminated, the shares of Stock allocable to the
unexercised portion of such Option may again be subjected to an Option under the
Plan.
5. TERMS AND CONDITIONS
5.1 OPTION AGREEMENT. Stock Options granted pursuant to the Plan shall be
authorized by the Board of Directors and shall be evidenced by agreements in
such form as the Board of Directors shall from time to time approve, which
agreements shall comply with and be subject to the terms and conditions set
forth in this Article 5. The agreements shall not impose upon the Company or
its Parents or Subsidiaries any obligation to retain the Optionee in their
employ for any period.
5.2 NUMBER OF SHARES. Each Option shall state the number of shares of
Stock to which it pertains.
5.3 OPTION PRICE. Each Option shall state the option price, which in the
case of an Incentive Stock Option shall be not less than (i) one hundred percent
(100%) of the fair market value of the shares of Stock on the date of the
granting of the Option if the Optionee is not a Ten Percent Shareholder, or (ii)
one hundred ten percent (110%) of the fair market value of the shares of Stock
on the date of the granting of the Option if the Optionee is a Ten Percent
Shareholder. The fair market value of the shares of Stock shall be determined
pursuant to Section 7.2.
5.4 MEDIUM AND TIME OF PAYMENT. The option price shall be payable upon
the exercise of the Option and may be paid in cash or by good check. At the
sole option of the Company, if approved by the Board of Directors, a portion of
the purchase price may be paid by delivery of shares of Stock previously owned
by the Optionee, duly endorsed for transfer to the Company, with a fair market
value (as determined by the Board of Directors) on the date of delivery equal to
the option price, or by delivery of a recourse promissory note bearing interest
at such rate, on such other terms and in form and with security satisfactory to
the Company, or any combination of the foregoing approved by the Board of
Directors. Exercise of an Option shall not be effective until the Company has
received written notice of exercise, specifying the number of whole and
fractional shares of Stock to be purchased, accompanied by payment in full of
the aggregate option price of the number of shares purchased.
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5.5 TERM OF OPTIONS. Each Option, by its terms, shall not be exercisable
after the expiration of ten years from the date the Option is granted, provided,
however, that any Incentive Stock Option granted to a Ten Percent Shareholder,
by its terms, shall not be exercisable after the expiration of five years from
the date the Option is granted. Any Option may provide that it will expire
within a shorter period than the maximum permitted hereby.
5.6 INSTALLMENTS. Each Option shall be exercisable on such dates and in
such amounts (subject to the other provisions hereof) as shall be determined by
the Board of Directors. It is not required that each Option have the same
installment provisions. In its sole discretion, the Board of Directors may
accelerate the exercise date of part or all of any Option.
5.7 TRANSFERABILITY. Each Option, by its terms, shall not be transferable
by the individual to whom granted otherwise than by will or the laws of descent
and distribution, and shall be exercisable, during the Optionee's lifetime, only
by the Optionee.
5.8 LIMITS ON EXERCISE. Each Option shall be subject to the requirement
that, if at any time the Board of Directors, in its discretion, shall determine
that the listing, registration, or qualification of the shares subject to such
Option upon any securities exchange or under any state or federal law, or the
consent or approval of any government regulatory body, is necessary or desirable
as a condition of, or in connection with, the granting of such Option, or the
issue or purchase of shares thereunder, such Option may not be exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board of Directors.
5.9 LIMIT ON OPTIONS. An Option shall not be an Incentive Stock Option to
the extent that the aggregate fair market value of stock with respect to which
such Option is exercisable for the first time by any individual during any
calendar year (taking into account all Incentive Stock Options simultaneously or
previously granted under all stock option plans of the Company and its Parents
and Subsidiaries) exceeds One Hundred Thousand Dollars ($100,000).
5.10 TERMINATION OF EMPLOYMENT. Each Option by its terms shall not be
exercisable after thirty (30) days after the termination of employment of the
individual to whom the Option was granted, unless such termination was a result
of the death or disability of the employee, and may provide that it shall not be
exercisable after the date of termination of employment of the individual to
whom the Option was granted.
5.11 EXPIRATION OF PLAN. No Option shall be granted under this Plan more
than ten years from the date on which this Plan was adopted or approved by the
stockholders of the Company, whichever is earlier. No Option granted under this
Plan shall be valid unless the Plan is approved by the stockholders of the
Company within twelve (12) months before or after its adoption by the Board of
Directors.
5.12 RECAPITALIZATION. Upon any Recapitalization, the Board of Directors
shall make an appropriate and equitable adjustment in the number and kind of
securities with respect to which rights may be granted under this Plan and the
price at which such securities may be purchased, and an
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appropriate and equitable adjustment in the number and kind of securities that
may be purchased under each outstanding Option and the price at which shares may
be purchased under each such Option.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make or authorize any adjustments,
recapitalizations, reorganizations, or other changes in the Company's capital
structure or business, any merger or consolidation, any issuance of bonds,
debentures, preferred shares or common shares, the dissolution or liquidation of
the Company, any sale or transfer of all or any part of the Company's assets or
business, or any other act, whether or not similar to the events described
above.
5.13 RIGHTS AS A STOCKHOLDER. An Optionee or a transferee of an Option
shall have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a stock certificate for such shares.
No adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
provided in Section 5.12 hereof.
5.14 MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms
and conditions and within the limitations of the Plan, the Board of Directors
may modify, extend or renew outstanding Options granted under the Plan, or
accept the surrender of outstanding Options (to the extent not theretofore
exercised) and authorize the granting of new Options in substitution therefor
(to the extent not theretofore exercised). Notwithstanding the foregoing, no
modification of an Option shall, without the consent of the Optionee, alter or
impair any rights or obligations under any Option theretofore granted under the
Plan.
5.15 INVESTMENT PURPOSE. Each Option under the Plan shall be granted on
the condition that the purchases of stock thereunder shall be for investment
purposes, and not with a view to resale or distribution unless the stock subject
to such Option is registered under the Securities Act of 1933, as amended, and
any applicable state securities laws, or a resale of such stock without such
registration would otherwise be permissible. Each person exercising an Option
must represent that such condition is fulfilled, unless in the opinion of
counsel for the Company such condition is not required under the Securities Act
of 1933 or any other applicable law, regulation, or rule of any governmental
agency.
5.16 WITHHOLDING TAXES. Whenever under the Plan shares are to be issued or
cash is to be paid in satisfaction of Options, the Company shall have the right
to require the recipient to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares or payment of such cash.
5.17 TERMINATION OF OPTIONS. Each Option, by its terms, shall reserve to
the Company the right to terminate the Option, in connection with a Change in
Control for a payment in cash equal to the difference between the exercise price
for the shares of Stock subject to the Option and the Change in Control Price of
such Stock.
5.18 OTHER PROVISIONS. The Option agreements authorized under the Plan
shall contain such other provisions, including, without limitation, such rights
of redemption, purchase and first refusal, and such other restrictions upon the
exercise of Options or the transfer of the Stock issued
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upon exercise, as the Board of Directors of the Company shall deem advisable.
Any Incentive Stock Option agreement shall contain such limitations and
restrictions upon the exercise of the Option as shall be necessary in order that
such Option will be an "Incentive Stock Option" as defined in Section 422 of the
Code.
6. EXERCISE OF OPTIONS
6.1 STOCK TRANSFER BOOKS. Notwithstanding any other provision of this
Plan or of any Option, no stock shall be issued by the Company while its stock
transfer books are closed.
6.2 SECURITIES LAWS. Notwithstanding any other provision of this Plan or
of any Option, no Option shall be exercisable, and no stock shall be issued upon
the exercise of any Option, if such exercise or such issuance of stock would
result in any violation of law or the imposition on the Company of a requirement
that it commence filing periodic reports under the Securities Exchange Act of
1934 or any similar provision of law.
7. ADMINISTRATION
7.1 ADMINISTRATION BY BOARD OF DIRECTORS. The Plan shall be administered
by the Board of Directors. The interpretation and construction by the Board of
Directors of any provisions of the Plan or of any Option granted under it shall
be final. The Board of Directors shall have the authority to appoint a Stock
Option Committee to assume the duties and responsibilities of administering the
Plan. The Stock Option Committee, if such be established by the Board of
Directors, shall be composed of no less than three (3) persons (who shall be
members of the Board of Directors), each of whom shall be a "disinterested
person" as defined herein, and such Stock Option Committee shall have the same
power, authority and rights in the administration of the Plan as the Board of
Directors. No director shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under it.
The Board of Directors shall determine from time to time the persons who
shall receive Options hereunder; provided, however, Options may be granted
hereunder only to persons who, at the time of the grant thereof, are officers,
directors or key employees of the Company and its Parents and Subsidiaries,
except as otherwise provided in this Plan; provided, further, that any decision
to award Options hereunder to any person or the determination of the maximum
number of shares of Stock (as hereinafter defined) which may be subject to
Options granted to any such director, employee or officer shall be made by
either (i) the Board of Directors, all of the directors of which and all of the
directors acting in such matter shall be disinterested persons as defined
herein, or (ii) the Stock Option Committee appointed by the Board of Directors
pursuant to this section. For purposes of this Plan, "disinterested person"
shall mean a director who is not, during the one year prior to service as an
administrator of the Plan, or during such service, granted or awarded equity
securities pursuant to the Plan or any other plan of the Company or any of its
Parents or Subsidiaries entitling the participants therein to acquire stock,
stock options or stock appreciation rights of the Company or any of its Parents
or Subsidiaries.
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7.2 DETERMINATION OF FAIR MARKET VALUE. For the purpose of granting
Incentive Stock Options, the Board of Directors shall determine the fair market
value of the Stock of the Company as follows:
7.2.1 If the Company's Stock is traded on any recognized stock
exchange or exchanges, such fair market value shall be deemed to be the highest
closing price of the Stock on such stock exchange or exchanges on the day the
Option is granted or if no sale of the Company's Stock shall have been made on
any stock exchange on that day, on the next preceding day on which there was a
sale of such stock.
7.2.2 During such time as the Stock is not listed on an
established exchange, but is actively traded on the over-the-counter market, the
fair market value per share shall be the mean between dealer "bid" and "ask"
prices of the Stock in the over-the-counter market on the day the Option is
granted, as reported by the National Association of Securities Dealers, Inc.
7.2.3 During such time as the Company's Stock is neither listed on
any recognized exchange nor actively traded over-the-counter, the fair market
value shall be determined in good faith by the Board of Directors. In making
such determination, the Board of Directors may (but shall not be required to)
rely on the opinions of one or more qualified, independent appraisers.
7.3 INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as directors or as members of the Stock Option Committee, the
members of the Board of Directors shall be indemnified by the Company against
the reasonable expenses, including attorneys' fees actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such Board or
Stock Option Committee member is liable for negligence or misconduct in the
performance of his duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding a Board or Stock Option
Committee member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
8. AMENDMENT AND TERMINATION
8.1 AMENDMENT. The Board of Directors of the Company may, insofar as
permitted by law, from time to time, with respect to any shares at the time not
subject to Options, suspend or discontinue the Plan or revise or amend it in any
respect whatsoever except that, without approval of the stockholders, no such
revision or amendment shall change the number of shares subject to the Plan,
change the designation of the class of employees eligible to receive Options or
decrease the price at which Incentive Stock Options may be granted, materially
increase the benefits accruing to participants under the Plan, materially
increase the number of securities which may be issued under the Plan, or
materially modify the requirements as to eligibility for participation in the
Plan.
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9. MISCELLANEOUS
9.1 GOVERNING LAW. This Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
9.2 CONSTRUCTION. In the event any parts of this Plan are found to be
void, the remaining provisions of this Plan shall nevertheless be binding with
the same effect as though the void parts were deleted.
9.3 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Stock pursuant to Options will be used for general corporate purposes.
9.4 NO OBLIGATION TO EXERCISE OPTION. The grant of an Option shall impose
no obligation upon the Optionee to exercise such Option.
9.5 APPROVAL OF STOCKHOLDERS. The Plan shall take effect immediately upon
adoption by the Board of Directors. However, if this Plan is not approved by
the stockholders of the Company within the period beginning twelve (12) months
before and ending twelve (12) months after the date the Plan is adopted by the
Board of Directors, no Options granted hereunder shall constitute Incentive
Stock Options.
9.6 COMPLIANCE WITH RULE 16B-3. With respect to persons subject to
Section 16 of the Securities Exchange Act of 1934 ("1934 Act"), transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
Plan or action by the Plan administrators fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the plan
administrators.
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