Exhibit 10.7

 

CAPITAL CALL AGREEMENT

 

CAPITAL CALL AGREEMENT (this “Agreement”), dated as of June 26, 2002, made by
and among J.F. Lehman Equity Investors I, L.P. (“JFLEI”), and Ableco Finance LLC
(“Ableco”) as collateral agent and administrative agent for the benefit of the
various financial institutions (the “Lenders”) from time to time party to the
Financing Agreement referred to below.  Except as otherwise defined herein, all
capitalized terms used herein and defined in the Financing Agreement are used
herein as therein defined.

 

W I T N E S S E T H :

 

WHEREAS, Elgar Holdings, Inc. (“Holdings”), Elgar Electronics Corporation (the
“Borrower”), the Lenders and Ableco shall enter into a Financing Agreement of
even date herewith (the “Financing Agreement”);

 

WHEREAS, on the date hereof, JFLEI owns a substantial economic interest and
voting interest in Holdings’ capital stock, and Holdings owns 100% of the
economic and voting interest in the Borrower’s capital stock;

 

WHEREAS, JFLEI, Holdings and the Borrower will obtain benefits as a result of
the making of Loans to the Borrower under the Financing Agreement and,
accordingly, desire to execute and deliver this Agreement in order to induce
Ableco to enter into the Financing Agreement.

 

NOW, THEREFORE, it is agreed:

 

1.             CERTAIN DEFINED TERMS.  As used herein, the following terms shall
have the following meanings:

 

“Ableco” shall have the meaning provided in the first paragraph of this
Agreement.

 

“Agreement” shall have the meaning provided in the first paragraph of this
Agreement.

 

“Borrower” shall have the meaning provided in the first recital of this
Agreement.

 

“Capital Call Amount” shall mean $3,000,000.

 

“Capital Call Event” shall mean solely the failure of Holdings to achieve at
least $4,000,000 of Consolidated EBITDA for the Initial Test Period (defined
below) (determination of such achievement to be based on financial statements
delivered pursuant to Section 7.01(a)(ii) of the Financing Agreement).

 

“Financing Agreement” shall have the meaning provided in the first recital of
this Agreement.

 

“Holdings” shall have the meaning provided in the first recital of this
Agreement.

 

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“Initial Test Period” shall mean the period of two consecutive fiscal quarters
ending on December 31, 2002.

 

“JFLEI” shall have the meaning provided in the first paragraph of this
Agreement.

 

“Lenders” shall have the meaning provided in the first paragraph of this
Agreement.

 

“Participation” is defined in Section 2 of this Agreement.

 

“Test Period” shall mean the period of four consecutive fiscal quarters ending
on December 31, 2003.

 

2.             PURCHASE OF PARTICIPATION.  (a) JFLEI hereby absolutely,
irrevocably and unconditionally agrees that on the date the Capital Call Event
shall have occurred, JFLEI will, as soon as practicable, but in any event within
20 days thereafter, in an amount equal to the Capital Call Amount, purchase from
Ableco a pari passu participation (the “Participation”) in Ableco’s outstanding
Term Loan, with such participation to be evidenced by a pari passu participation
agreement (the “Participation Agreement”) in form and substance as attached
hereto as Annex I.  Upon such purchase by JFLEI of the Participation, JFLEI’s
interest in such Participation shall be governed by Section 12.07(c) of the
Financing Agreement and the terms of the Participation Agreement.  JFLEI shall
be entitled to its pro rata portion of such fees, interest and expense
reimbursements with respect to its Participation as would be payable to Ableco
pursuant to the Loan Documents if Ableco had not sold such Participation to
JFLEI.

 

3.             TERMINATION OF PARTICIPATION.  In the event Holdings achieves at
least $8,500,000 of Consolidated EBITDA for the Test Period, (determination of
such achievement to be based on audited financial statements delivered pursuant
to Section 7.01(a)(ii) of the Financing Agreement), as soon as practicable, but
in any event within 20 days thereafter, Ableco shall purchase such
Participation, and pay to JFLEI its pro rata portion of such fees, interest and
expense reimbursements as are owed to it at the time of such purchase.

 

4.             ACTIONS RELATING TO OBLIGATIONS UNDER FINANCING AGREEMENT. 
Ableco or the Lenders (or any of the Lenders) may (except as shall be required
by applicable statute and cannot be waived), at any time prior to the occurrence
of the Capital Call Event without the consent of, or notice to, JFLEI, without
incurring responsibility to JFLEI, without impairing or releasing the
obligations of JFLEI hereunder, upon or without any terms or conditions and in
whole or in part:

 

(a)           change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, alter or increase any of the Obligations,
any security therefor, or any liability incurred directly or indirectly in
respect thereof;

 

(b)            take and hold security for the payment of the Obligations and
sell, exchange, release, impair, surrender, realize upon or otherwise deal with
in any manner in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, the Obligations or any liabilities
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof, and/or any offset thereagainst;

 

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(c)            exercise or refrain from exercising any rights against the
Borrower, any other Loan Party or others or otherwise act or refrain from
acting;

 

(d)            settle or compromise any of the Obligations, any security
therefor or any liability (including any of those hereunder) incurred directly
or indirectly in respect thereof or hereof, and may subordinate the payment of
all or any part thereof to the payment of any liability (whether due or not) of
the Borrower to creditors of the Borrower other than the Secured Party, (as
defined in the Security Agreement of even date herewith, by and among Borrower,
Holdings and Ableco, as collateral agent for the Lender Group);

 

(e)            except as otherwise expressly provided herein, apply any sums by
whomsoever paid or howsoever realized to any liability or liabilities of the
Borrower to Ableco or the Lenders regardless of what liabilities of the Borrower
remain unpaid;

 

(f)            release or substitute any one or more endorsers, guarantors, Loan
Parties or other obligors;

 

(g)            consent to or waive any breach of, or any act, omission or
default under, any of the Loan Documents or any of the instruments or agreements
referred to therein, or otherwise amend, modify or supplement any of the Loan
Documents or any of such other instruments or agreements;

 

(h)            pursue its rights and remedies under this Agreement and/or under
any guaranty of all or any part of the Obligations in whatever order, or
collectively, and Ableco shall be entitled to JFLEI’s performance hereunder,
notwithstanding any action taken (or not taken) by Ableco to enforce any of its
rights or remedies against JFLEI or any other Person, for all or any part of the
Obligations or any payment received under this Agreement or any other such
guaranty; and/or

 

(i)             take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of JFLEI
from its liabilities under this Agreement.

 

5.             OBLIGATION UNCONDITIONAL UPON OCCURRENCE OF CAPITAL CALL EVENT. 
Without limiting the generality of the terms of Section 4 hereof, upon the
occurrence of the Capital Call Event, the obligation of JFLEI under Section 2 of
this Agreement to purchase the Participation is absolute and unconditional and
shall not be affected by the occurrence of any of the following events that may
occur before or after December 31, 2002: (a) any default by Borrower in the
performance or observance of any of its agreements or covenants in the Financing
Agreement or any of the other Loan Documents, (b) any waivers granted by the
Lenders with respect to defaults under the Loan Documents or any amendments or
modifications of the Loan Documents agreed to by the Lenders and Borrower, or
(c) the filing of a case under the United States Bankruptcy Code or any other
insolvency proceeding by or against Borrower, Holdings or any other Person.

 

6.             REPRESENTATIONS, WARRANTIES AND AGREEMENTS.  In order to induce
the Lenders to enter into the Financing Agreement, JFLEI makes the following
representations, warranties and agreements:

 

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(i)             JFLEI is a duly organized and validly existing limited
partnership in good standing under the laws of the State of Delaware and has the
power and authority to own its property and assets and to transact the business
in which it is engaged and presently proposes to engage.

 

(ii)            JFLEI has the power and authority to execute, deliver and
perform the terms and provisions of this Agreement and has taken all necessary
action to authorize the execution, delivery and performance by it of this
Agreement.  JFLEI has duly executed and delivered this Agreement, and this
Agreement constitutes its legal, valid and binding obligation enforceable
against it in accordance with its terms, except to the extent that the
enforceability hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors’
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).

 

(iii)           Neither the execution, delivery or performance by JFLEI of this
Agreement, nor compliance by it with the terms and provisions hereof, nor the
consummation of the transactions contemplated herein, (x) will contravene any
provision of any applicable law, statute, rule or regulation or any applicable
order, writ, injunction or decree of any court of governmental instrumentality,
(y) will conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of JFLEI pursuant to the terms of any indenture,
mortgage, deed of trust, credit agreement, loan agreement or any other material
agreement, contract or instrument to which JFLEI is a party or by which it or
any of its property or assets is bound or to which it may be subject or (z) will
violate any provision of any of the organizational documents of JFLEI.

 

(iv)           No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with, or exemption by, any governmental
or public body or authority, or any subdivision thereof, is required to
authorize, or is required in connection with, (x) the execution, delivery and
performance of this Agreement or (y) the legality, validity, binding effect or
enforceability of this Agreement.

 

(v)            There are no actions, suits or proceedings pending or, to the
knowledge of JFLEI, threatened (x) with respect to this Agreement or (y) that
could reasonably be expected to (I) materially and adversely affect the
business, operations, property, assets, liabilities or condition (financial or
otherwise) of JFLEI or (II) have a material adverse effect on the rights or
remedies of Ableco hereunder or on the ability of JFLEI to perform its
obligations to Ableco hereunder.

 

(vi)           JFLEI is in compliance with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property.

 

(vii)          JFLEI or the general partner thereof has available cash capital
sufficient to fund in a timely manner all obligations of JFLEI under this
Agreement.

 

7.             MAINTAIN ABILITY TO FUND OBLIGATIONS.  Each of JFLEI and the
general partner thereof agrees to take all action as may be necessary so that,
at all times prior to

 

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the earlier to occur of (i) the end of the Initial Test Period, if at the end of
such period Holdings achieves a Consolidated EBITDA of at least $4,000,000 for
such period (such determination to be based upon financial statements delivered
pursuant to Section 7.01(a)(ii) of the Financing Agreement), or (ii) such time
as JFLEI purchases the Participation in accordance with Section 2 hereof, JFLEI
and/or the general partner thereof shall have available cash capital sufficient
to fund in a timely manner all obligations of JFLEI under this Agreement.

 

8.             WAIVERS OF FAILURES; DELAYS, ETC.  No failure or delay on the
part of Ableco or JFLEI in exercising any right, power or privilege hereunder
and no course of dealing between JFLEI and Ableco shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The rights, powers and
remedies herein expressly provided are cumulative and not exclusive of any
rights, powers or remedies which Ableco would otherwise have.  No notice to or
demand on JFLEI in any case shall entitle JFLEI to any other further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
Ableco to any other or further action in any circumstances without notice or
demand.

 

9.             BENEFIT OF AGREEMENT.  This Agreement shall be binding upon
JFLEI, its successors and assigns (including, without limitation, any executors
or administrators) and shall inure to the benefit of Ableco its successors and
assigns.  JFLEI acknowledges and agrees that this Agreement is made for the
benefit of Ableco and that Ableco may enforce all of the obligations of JFLEI
hereunder directly against it.  JFLEI may not assign any of its rights or
obligations hereunder without the consent of Ableco.

 

10.           AMENDMENTS; WAIVERS.  Neither this Agreement nor any provision
hereof may be changed, modified, amended or waived except with the written
consent of JFLEI and Ableco.

 

11.           NOTICES.  All notices and other communication hereunder shall be
made at the addresses, in the manner and with the effect provided in
Section 12.01 of the Financing Agreement, provided that, for this purpose, the
address of JFLEI shall be the address specified opposite its signature below.

 

12.           TERMINATION OF AGREEMENT.  This Agreement shall terminate and be
of no further force and effect upon the earlier of (i) the end of the Initial
Test Period, if at the end of such period Holdings achieves a Consolidated
EBITDA of at least $4,000,000 for such period (such determination to be based
upon financial statements pursuant to Section 7.01(a)(ii) of the Financing
Agreement), (ii) such time as Ableco purchases the Participation from JFLEI in
accordance with Section 3 hereof, or (iii) such time as the Term Loan
Obligations have been paid in full.

 

13.           GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY
TRIAL.  (a)  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF JFLEI AND ABLECO
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.

 

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(b)           ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK AND, BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, EACH OF ABLECO JFLEI HEREBY IRREVOCABLY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING.  EACH OF ABLECO
JFLEI HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK
JURISDICTION OVER SUCH PERSON, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT BROUGHT IN ANY OF THE
AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER SUCH PERSON.  EACH
OF ABLECO AND JFLEI IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO SUCH PERSON, AT ITS ADDRESS FOR NOTICES PURSUANT TO
SECTION 12.01 OF THE FINANCING AGREEMENT OR AS SET FORTH OPPOSITE ITS SIGNATURE
BELOW, AS THE CASE MAY BE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH
MAILING.  EACH OF ABLECO AND JFLEI HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO
SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER THAT SERVICE OF PROCESS
WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
EITHER JFLEI OR ABLECO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ABLECO OR JFLEI, AS
APPLICABLE, IN ANY OTHER JURISDICTION.

 

(c)           EACH OF ABLECO AND JFLEI HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (B) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.  EACH OF ABLECO AND JFLEI FURTHER IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY COURT OR JURISDICTION, INCLUDING,
WITHOUT LIMITATION, THOSE REFERRED TO IN CLAUSE (B) ABOVE, IN RESPECT OF ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT.

 

14.           COSTS OF ENFORCEMENT; INDEMNITY.  (a)  JFLEI hereby agrees to pay
all out-of-pocket costs and expenses of Ableco in connection with the
enforcement of this Agreement and JFLEI agrees to pay all out-of-pocket costs
and expenses of Ableco in connection with any amendment, waiver or consent
relating hereto (including, without limitation, in each case, the reasonable
fees and disbursements of counsel employed by Ableco).

 

(b)           JFLEI hereby agrees to indemnify and hold Ableco free and harmless
from and against all loss, cost, damage, and expense, by reason of the
inaccuracy costs, which it

 

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shall at any time have actually sustained by reason of the inaccuracy or breach
of any of the foregoing representations, warranties and covenants.

 

15.           COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.  A set of counterparts
executed by all the parties hereto shall be lodged with JFLEI and Ableco.

 

16.           HEADINGS DESCRIPTIVE.  The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed and delivered as of the date first above written.

 

Addresses:

 

 

 

 

 

 

 

450 Park Avenue

 

J.F. LEHMAN EQUITY INVESTORS I, L.P.

Sixth Floor

 

 

New York, New York 10022

 

By:

J.F.L. Investors, L.L.C., its general partner

Telephone:  (212) 634 - 0100

 

 

 

Telecopier:  (212) 634 - 1155

 

 

 

Attention: Donald Glickman

 

 

 

 

 

By:

/s/ Donald Glickman

 

 

 

 

Title:

 

 

 

 

 

Accepted and Agreed to:

 

ABLECO FINANCE LLC,

 

By:

/s/ Kevin Genda

 

Title: Senior Vice President

 

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