ELGAR HOLDINGS, INC.
FORM OF INCENTIVE STOCK OPTION AGREEMENT
No. of Shares subject to Option: _________. Option No.: ___________.
This Agreement dated as of __________, 1998 between Elgar Holdings, Inc., a
Delaware corporation (the "Company"), and _____________ (the "Optionee").
W I T N E S S E T H :
1. GRANT OF OPTION.
Pursuant to the provisions of the Elgar Holdings, Inc. 1998 Stock Option
Plan (the "Plan"), the Company hereby grants to the Optionee, subject to the
terms and conditions of the Plan and subject further to the terms and
conditions herein set forth, the right and option to purchase from the
Company all or any part of an aggregate of < < Shares > > (< < ShareNo > >)
shares of common stock, par value one cent ($0.01) per share, of the Company
(the "Shares"), at the purchase price of Fifteen Dollars ($15.00) per Share,
such Option to be exercised as hereinafter provided. This is an Incentive
Stock Option, and shall be so construed. All terms defined in the Plan are
used herein as so defined.
2. TERMS AND CONDITIONS.
It is understood and agreed that the Option evidenced hereby is subject to
the following terms and conditions:
2.1 TIME OF EXERCISE OF OPTION.
2.1.1 INSTALLMENT SCHEDULE. This Option may be exercised as to
(a) twenty-five percent (25%) of the Shares beginning one (1)
year from the Commencement Date;
(b) an additional twenty-five percent (25%) of the Shares
beginning two (2) years from the Commencement Date;
(c) an additional twenty-five percent (25%) of the Shares
beginning three (3) years from the Commencement Date; and
(d) in full, to the extent not theretofore exercised, beginning
on the earlier of the Change in Control Date or four (4) years from
the Commencement Date.
For purposes of this Option, the Commencement Date is agreed to be
_________, 1998.
2.1.2 EXPIRATION DATE. This Option shall expire absolutely ten
(10) years from the date hereof.
2.1.3 EXERCISE UPON TERMINATION OF EMPLOYMENT. If the Optionee
shall cease to be employed by the Company or a Parent or Subsidiary for any
reason other than the Optionee's death or disability (within the meaning of
Section 105(d)(4) of the Code), this Option, to the extent not then exercisable
in accordance with its terms, shall terminate and be without further effect. To
the extent this Option is exercisable on the date of termination of employment,
it may be exercised at any time within thirty (30) days after such date by the
Optionee or, in case of the subsequent death of the Optionee, then by the
executors or administrators of the Optionee's estate or by any person or persons
who shall have acquired the Option directly from the Optionee by bequest or
inheritance, and this Option, to the extent not exercised, shall in all events
terminate upon the expiration of such thirty (30) day period or, if earlier, ten
(10) years from the date hereof.
2.1.4 EXERCISE UPON LOSS OF PARENT OR SUBSIDIARY STATUS. If the
Optionee ceases to be employed by the Company or a Parent or Subsidiary by
reason of the employer of the Optionee ceasing to be a Parent or Subsidiary of
the Company, then this Option, to the extent not then exercisable in accordance
with its terms, shall terminate and be without further effect. Within a
reasonable time after such event (not to exceed thirty (30) days), the Company
shall provide written notice to the Optionee of such event (including specific
reference to the provisions of this section). To the extent this Option is
exercisable on the date of such event, it may be exercised at any time within
thirty (30) days after the later of the date of such event or the date of the
notice required by the preceding sentence by the Optionee, or, in case of the
subsequent death of the Optionee, then by the executors or administrators of the
Optionee's estate or by any person or persons who shall have acquired the Option
directly from the Optionee by bequest or inheritance, and this Option, to the
extent not exercised, shall in all events terminate upon the expiration of such
thirty (30) day period, or, if earlier, ten (10) years from the date hereof.
2.1.5 EXERCISE UPON DEATH OR DISABILITY. If the Optionee shall
cease to be employed by the Company or a Parent or Subsidiary by reason of the
Optionee's death or disability, this Option, to the extent not then exercisable
in accordance with its terms, shall terminate and be without further effect. To
the extent this Option is exercisable on the date of death or disability, it may
be exercised at any time within twelve (12) months after the date of death or
disability by the Optionee in case of disability, or in case of the death of the
Optionee, then by the executors or administrators of the Optionee's estate or by
any person or persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance, and this Option, to the extent not
exercised, shall in all events terminate upon the expiration of such twelve (12)
month period or, if earlier, ten (10) years from the date hereof.
2.1.6 ACCELERATION OF EXERCISE DATE. In its sole discretion, the
Board of Directors may accelerate the date or dates on which this Option may be
exercised in whole or in part.
2.2 METHOD OF EXERCISE. This Option may be exercised as follows:
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2.2.1 NOTICE OF EXERCISE. The Optionee shall deliver written
notice to the Company specifying the number of Shares as to which the Option is
being exercised.
2.2.2 PAYMENT OF PURCHASE PRICE. At the time of any exercise the
purchase price of the shares as to which this Option is being exercised shall be
paid to the Company in cash or good check, or if approved by the Board of
Directors, by the delivery of Shares previously owned by the Employee, 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 aggregate purchase
price of the Shares with respect to which the Option is being exercised, or by
the delivery of a recourse promissory note bearing interest at such rate, or 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, in its sole
discretion. Notation of any partial exercise shall be made by the Company on
Schedule I hereto.
2.2.3 RESTRICTIONS ON TRANSFER/RIGHT OF REPURCHASE; INVESTMENT
REPRESENTATION. Prior to the issuance of any shares upon the exercise of all or
any part of this Option, the Company may require the person exercising the
Option to execute, become a party to, and subject such shares to restrictions in
accordance with the terms of a Stockholders' Agreement dated as of August 20,
1997 among the Company and all or substantially all the persons who are
stockholders owning shares of Common Stock of the Company as of the date of this
Option, as such agreement may be amended and/or restated and in effect at the
time of each exercise of this Option. If the Company so requires, the
certificate or certificates evidencing the shares issued upon the exercise of
all or any part of this Option shall be legended in accordance with said
agreement.
2.3 NONTRANSFERABILITY. This Option shall not be transferable except by
will or by the laws of descent and distribution. During the lifetime of the
Optionee, this Option shall be exercisable only by the Optionee.
2.4 ADJUSTMENTS. In the event of any change in the Stock of the Company
by reason of any stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, combination or exchange of shares, or any similar
change affecting the Stock, then in any such event the number and kind of shares
subject to this Option and their purchase price per share may be adjusted
pursuant to Section 5.12 of the Plan, in such manner as the Board of Directors
may in its sole discretion deem equitable. Any adjustment so made shall be
final and binding upon the Optionee.
2.5 NO RIGHTS AS STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares of Stock subject to this Option prior to
the date of issuance to the Optionee of a certificate or certificates for such
shares.
2.6 COMPLIANCE WITH LAW AND REGULATIONS. This Option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall
not be required to issue or deliver any certificates for shares of Stock if the
Company determines that such issue or delivery would (a) require any
registration or qualification of such shares under any federal or state law, or
any rule or regulation of any government body which
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the Company shall, in its sole discretion, determine to be applicable; (b)
require the commencement of the filing by the Company of periodic reports
pursuant to the Securities Exchange Act of 1934, or (c) violate any law or
governmental regulation. If at any time the Board of Directors in its
discretion determines that the listing, registration of qualification of the
shares subject to this Option upon any securities exchange or under any law or
regulation, or the consent or approval of any government regulatory body is
necessary or desirable as a condition of, or in connection with, the issue or
purchase of shares hereunder, this 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.
2.7 WITHHOLDING TAXES. Whenever under this Option shares are to be issued
or cash is to be paid, 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.
2.8 MODIFICATION, EXTENSION AND RENEWAL. Subject to the terms and
conditions and within the limitations of the Plan, the Board of Directors may
modify, extend or renew this Option, or accept the surrender hereof (to the
extent not theretofore exercised) and authorize the granting of a new Option or
Options in substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, no modification of this Option shall, without the
consent of the Optionee, alter or impair any rights or obligations under any
Option theretofore granted under the Plan.
2.9 TERMINATION. The Company hereby reserves the right to terminate this
Option in connection with any 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.
2.10 PARACHUTE PAYMENTS. In the event that the aggregate present value of
the payments to the Employee under this Agreement, and any other plan, program,
or arrangement maintained by the Company or a Subsidiary, constitutes an "excess
parachute payment" (within the meaning of Section 280G(b)(1) of the Code) and
the excise tax on such payment would cause the net parachute payments (after
taking into account federal, state and local income and excise taxes) to which
the Employee otherwise would be entitled to be less than what the Employee would
have netted (after taking into account federal, state and local income taxes)
had the present value of the Employee's total parachute payments equaled One
Dollar ($1.00) less than three (3) times the Employee's "base amount" (within
the meaning of Code Section 280(G)(b)(3)(A)), the Employee's total "parachute
payments" (within the meaning of Code Section 280G(b)(2)(A)) shall be reduced
(by the minimum possible amount) so that their aggregate present value equals
One Dollar ($1.00) less than three (3) times such base amount. For purposes of
this calculation, it shall be assumed that the Employee's tax rate will be the
maximum marginal federal, state and local income tax rate on earned income, with
such maximum federal rate to be computed with regard to Code Section 1(g), if
applicable. In the event that the Employee and the Company are unable to agree
as to the amount of the reduction described above, if any, the Employee shall
select a law firm or accounting firm from among those regularly consulted
(during the twelve (12) month period immediately prior to the change in control
that resulted in the characterization of the
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payments as parachute payments) by the Company regarding federal income tax or
employee benefit matters, and such law firm or accounting firm shall determine
the amount of such reduction and such determination shall be final and binding
upon the Employee and the Company.
3. REPRESENTATIONS AND OBLIGATIONS OF OPTIONEE.
In consideration of the grant of this Option, the Optionee hereby
represents and agrees as follows:
3.1 OPTIONEE BOUND BY PLAN. Optionee hereby acknowledges receipt of a copy
of the Plan and agrees to be bound by all the terms and provisions thereof. Any
term used herein with the first letter of such term capitalized shall have the
same meaning as in the Plan.
3.2 INVESTMENT REPRESENTATION. Optionee hereby represents that any shares
purchased pursuant to this Option will be acquired for the Optionee's own
account for investment and not with a view to, or for the offer or sale in
connection with, the distribution of any such shares.
3.3 BEST EFFORTS. Optionee agrees to use his or her best efforts for the
benefit of the Company during his or her employment or other relationship with
the Company.
3.4 RESTRICTIONS. The Optionee agrees that any shares of Stock acquired
pursuant to exercise of this Option shall be subject to rights of repurchase and
other restrictions as contemplated by Section 2.2.3 of this Agreement.
3.5 NO RIGHTS TO CONTINUED EMPLOYMENT. The Optionee acknowledges that
neither any of the terms and provisions of the Plan or this Agreement nor the
grant of this option to the Optionee shall be construed to give to the Optionee
any rights to continued employment with the Company or a Parent or Subsidiary
thereof, or to give to the Optionee any rights whatsoever in connection with
such employment, except as expressly provided in the Plan or this Agreement.
Except as may otherwise be provided in a written agreement between the Optionee
and the Company or a Parent or Subsidiary, the Optionee is an employee at will,
and each party to the employment relation has a right to terminate such
employment at any time and for any reason, or for no reason at all.
4. NOTICES.
Notices delivered pursuant to this Agreement shall be in writing, and shall
be deemed to have been duly given when (a) delivered by hand; (b) sent by
facsimile (with receipt confirmed), provided that a copy is promptly thereafter
mailed by first-class prepaid certified mail, return receipt requested;
(c) received by the addressee, if sent with delivery receipt requested by
Express Mail, Federal Express, other express delivery service or first-class
prepaid certified mail, in each case to the appropriate addresses and facsimile
numbers set forth below, or to such other address(es) or facsimile number(s) as
a party may designate as to itself by notice to the other party.
(a) If to the Company:
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Elgar Holdings, Inc.
9250 Brown Deer Road
San Diego, CA 92121
Facsimile: (619) 458-0257
Attention: Kenneth R. Kilpatrick, President
with a copy sent by any of the foregoing methods simultaneously
to:
George A. Sawyer
c/o J.F. Lehman & Company
2001 Jefferson Davis Highway, Suite 607
Arlington, VA 22202
Facsimile: (703) 418-6099
(b) If to the Optionee:
To the latest home address as shown on the Company's personnel
records subject to the right of either party to designate at any time
hereafter in writing some other address.
5. COUNTERPARTS.
This Agreement has been executed in two counterparts each of which shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, Elgar Holdings, Inc. has caused this Agreement to be
executed by its President or a Vice President and Optionee has executed this
Agreement, both as of the day and year first above written.
ELGAR HOLDINGS, INC.
By:______________________________
OPTIONEE
____________________________________
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CONSENT OF SPOUSE
The undersigned spouse of __________ has read and hereby approves the terms
and conditions of this Incentive Stock Option Agreement (the "Option Agreement")
by and between Elgar Holdings, Inc. (the "Company") and the said ___________,
dated as of _____ __, 1998. In consideration of the Company's granting his/her
spouse the right to purchase Shares as set forth in the Option Agreement, the
undersigned hereby agrees to be irrevocably bound by the terms and conditions of
the Option Agreement and further agrees that any community property interest
shall be similarly bound. The undersigned hereby appoints the undersigned's
spouse as attorney-in-fact for the undersigned with respect to any amendment or
exercise of rights under the Option Agreement and agrees to be bound by the
provisions of the Option Agreement insofar as the undersigned may have any
rights thereunder or in any shares issued pursuant thereto under the community
property laws of the State of California or similar laws relating to marital
property in effect in the state of our residence as of the date of the signing
of the Option Agreement.
_____________________________________
Print Name:___________________________