**Exhibit 10.7**

 

**CAPITAL CALL AGREEMENT**

 

CAPITAL CALLAGREEMENT (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”) ascollateral agent and administrative agent for the benefit of the variousfinancial institutions (the “Lenders”) from time to time party to the FinancingAgreement referred to below.  Except asotherwise defined herein, all capitalized terms used herein and defined in theFinancing Agreement are used herein as therein defined.

 

W I T N E S S E T H :

 

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

 

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

 

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

 

NOW,THEREFORE, it is agreed:

 

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

 

“Ableco” shallhave 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 CallAmount” shall mean $3,000,000.

 

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

 

“FinancingAgreement” shall have the meaning provided in the first recital of thisAgreement.

 

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

 

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“Initial TestPeriod” shall mean the period of two consecutive fiscal quarters ending onDecember 31, 2002.

 

“JFLEI” shallhave 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 December31, 2003.

 

2.             PURCHASE OF PARTICIPATION.  (a) JFLEI hereby absolutely, irrevocably andunconditionally agrees that on the date the Capital Call Event shall haveoccurred, JFLEI will, as soon as practicable, but in any event within 20 daysthereafter, in an amount equal to the Capital Call Amount, purchase from Ablecoa *pari passu*participation (the“Participation”) in Ableco’s outstanding Term Loan, with such participation tobe evidenced by a *pari passu*participation agreement (the “Participation Agreement”) in form and substanceas attached hereto as Annex I.  Uponsuch purchase by JFLEI of the Participation, JFLEI’s interest in suchParticipation shall be governed by Section 12.07(c) of the Financing Agreementand the terms of the Participation Agreement. JFLEI shall be entitled to its pro rata portion of such fees, interestand expense reimbursements with respect to its Participation as would bepayable to Ableco pursuant to the Loan Documents if Ableco had not sold suchParticipation 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 suchachievement to be based on audited financial statements delivered pursuant toSection 7.01(a)(ii) of the Financing Agreement), as soon as practicable, but inany event within 20 days thereafter, Ableco shall purchase such Participation,and pay to JFLEI its pro rata portion of such fees, interest and expensereimbursements as are owed to it at the time of such purchase.

 

4.             ACTIONS RELATING TO OBLIGATIONSUNDER FINANCING AGREEMENT.  Ableco orthe Lenders (or any of the Lenders) may (except as shall be required byapplicable statute and cannot be waived), at any time prior to the occurrenceof the Capital Call Event without the consent of, or notice to, JFLEI, withoutincurring responsibility to JFLEI, without impairing or releasing theobligations of JFLEI hereunder, upon or without any terms or conditions and inwhole 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 anyliability incurred directly or indirectly in respect thereof;

 

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

 

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

 

(d)            settle orcompromise any of the Obligations, any security therefor or any liability(including any of those hereunder) incurred directly or indirectly in respectthereof or hereof, and may subordinate the payment of all or any part thereofto the payment of any liability (whether due or not) of the Borrower tocreditors of the Borrower other than the Secured Party, (as defined in theSecurity Agreement of even date herewith, by and among Borrower, Holdings andAbleco, as collateral agent for the Lender Group);

 

(e)            except as otherwiseexpressly provided herein, apply any sums by whomsoever paid or howsoeverrealized to any liability or liabilities of the Borrower to Ableco or theLenders regardless of what liabilities of the Borrower remain unpaid;

 

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

 

(g)            consent to or waiveany breach of, or any act, omission or default under, any of the Loan Documentsor any of the instruments or agreements referred to therein, or otherwiseamend, modify or supplement any of the Loan Documents or any of such otherinstruments or agreements;

 

(h)            pursue its rightsand remedies under this Agreement and/or under any guaranty of all or any partof the Obligations in whatever order, or collectively, and Ableco shall beentitled to JFLEI’s performance hereunder, notwithstanding any action taken (ornot taken) by Ableco to enforce any of its rights or remedies against JFLEI orany other Person, for all or any part of the Obligations or any paymentreceived under this Agreement or any other such guaranty; and/or

 

(i)             take any otheraction which would, under otherwise applicable principles of common law, giverise to a legal or equitable discharge of JFLEI from its liabilities under thisAgreement.

 

5.             OBLIGATION UNCONDITIONAL UPONOCCURRENCE OF CAPITAL CALL EVENT. Without limiting the generality of the terms of Section 4 hereof, uponthe occurrence of the Capital Call Event, the obligation of JFLEI under Section2 of this Agreement to purchase the Participation is absolute and unconditionaland shall not be affected by the occurrence of any of the following events thatmay occur before or after December 31, 2002: (a) any default by Borrower in theperformance or observance of any of its agreements or covenants in theFinancing Agreement or any of the other Loan Documents, (b) any waivers grantedby the Lenders with respect to defaults under the Loan Documents or anyamendments or modifications of the Loan Documents agreed to by the Lenders andBorrower, or (c) the filing of a case under the United States Bankruptcy Codeor any other insolvency proceeding by or against Borrower, Holdings or anyother Person.

 

6.             REPRESENTATIONS, WARRANTIES ANDAGREEMENTS.  In order to induce theLenders to enter into the Financing Agreement, JFLEI makes the followingrepresentations, warranties and agreements:

 

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(i)             JFLEI is a dulyorganized and validly existing limited partnership in good standing under thelaws of the State of Delaware and has the power and authority to own itsproperty and assets and to transact the business in which it is engaged andpresently proposes to engage.

 

(ii)            JFLEI has thepower and authority to execute, deliver and perform the terms and provisions ofthis 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 thisAgreement constitutes its legal, valid and binding obligation enforceableagainst it in accordance with its terms, except to the extent that theenforceability 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 soughtin equity or at law).

 

(iii)           Neither theexecution, delivery or performance by JFLEI of this Agreement, nor complianceby it with the terms and provisions hereof, nor the consummation of thetransactions contemplated herein, (x) will contravene any provision of anyapplicable law, statute, rule or regulation or any applicable order, writ,injunction or decree of any court of governmental instrumentality, (y) willconflict with or result in any breach of any of the terms, covenants,conditions or provisions of, or constitute a default under, or result in thecreation or imposition of (or the obligation to create or impose) any Lien uponany 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 materialagreement, contract or instrument to which JFLEI is a party or by which it orany 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 orregistration with, or exemption by, any governmental or public body orauthority, or any subdivision thereof, is required to authorize, or is requiredin connection with, (x) the execution, delivery and performance of thisAgreement or (y) the legality, validity, binding effect or enforceability ofthis Agreement.

 

(v)            There are noactions, 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 amaterial adverse effect on the rights or remedies of Ableco hereunder or on theability of JFLEI to perform its obligations to Ableco hereunder.

 

(vi)           JFLEI is incompliance with all applicable statutes, regulations and orders of, and allapplicable restrictions imposed by, all governmental bodies, domestic orforeign, in respect of the conduct of its business and the ownership of itsproperty.

 

(vii)          JFLEI or thegeneral partner thereof has available cash capital sufficient to fund in atimely manner all obligations of JFLEI under this Agreement.

 

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

 

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

 

8.             WAIVERS OF FAILURES; DELAYS,ETC.  No failure or delay on the part ofAbleco or JFLEI in exercising any right, power or privilege hereunder and nocourse of dealing between JFLEI and Ableco shall operate as a waiver thereof; nor shall any singleor partial exercise of any right, power or privilege hereunder preclude anyother or further exercise thereof or the exercise of any other right, power orprivilege.  The rights, powers andremedies herein expressly provided are cumulative and not exclusive of anyrights, powers or remedies which Ableco would otherwise have.  No notice to or demand on JFLEI in any caseshall entitle JFLEI to any other further notice or demand in similar or othercircumstances or constitute a waiver of the rights of Ableco to any other orfurther 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 oradministrators) and shall inure to the benefit of Ableco its successors andassigns.  JFLEI acknowledges and agreesthat this Agreement is made for the benefit of Ableco and that Ableco mayenforce all of the obligations of JFLEI hereunder directly against it.  JFLEI may not assign any of its rights orobligations hereunder without the consent of Ableco.

 

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

 

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

 

12.           TERMINATION OF AGREEMENT.  This Agreement shall terminate and be of nofurther force and effect upon the earlier of (i) the end of the Initial TestPeriod, if at the end of such period Holdings achieves a Consolidated EBITDA ofat least $4,000,000 for such period (such determination to be based uponfinancial statements pursuant to Section 7.01(a)(ii) of the FinancingAgreement), (ii) such time as Ableco purchases the Participation from JFLEI inaccordance with Section 3 hereof, or (iii) such time as the Term LoanObligations have been paid in full.

 

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

 

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(b)           ANY LEGAL ACTION ORPROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THESTATE OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OFABLECO JFLEI HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THEJURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION ORPROCEEDING.  EACH OF ABLECO JFLEI HEREBYFURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTIONOVER SUCH PERSON, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION ORPROCEEDING WITH RESPECT TO THIS AGREEMENT BROUGHT IN ANY OF THE AFORESAIDCOURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER SUCH PERSON.  EACH OF ABLECO AND JFLEI IRREVOCABLYCONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THEMAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TOSUCH PERSON, AT ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 12.01 OF THE FINANCING AGREEMENT OR AS SET FORTHOPPOSITE ITS SIGNATURE BELOW, ASTHE CASE MAY BE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCHMAILING.  EACH OF ABLECO AND JFLEIHEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHERIRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDINGCOMMENCED HEREUNDER THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID ORINEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF EITHER JFLEI OR ABLECO TOSERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ABLECOOR JFLEI, AS APPLICABLE, IN ANY OTHER JURISDICTION.

 

(c)           EACH OF ABLECO AND JFLEI HEREBY IRREVOCABLY WAIVES ANYOBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THEAFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THISAGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (B) ABOVE AND HEREBYFURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURTTHAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHTIN AN INCONVENIENT FORUM.  EACH OFABLECO AND JFLEI FURTHER IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BYJURY IN ANY COURT OR JURISDICTION, INCLUDING, WITHOUT LIMITATION, THOSEREFERRED TO IN CLAUSE (B) ABOVE, IN RESPECT OF ANY MATTER ARISING OUT OF ORRELATING TO THIS AGREEMENT.

 

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

 

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

 

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shall at any time have actuallysustained by reason of the inaccuracy or breach of any of the foregoingrepresentations, warranties and covenants.

 

15.           COUNTERPARTS. This Agreement may beexecuted in any number of counterparts and by the different parties hereto onseparate counterparts, each of which when so executed and delivered shall be anoriginal, but all of which shall together constitute one and the sameinstrument.  A set of counterpartsexecuted by all the parties hereto shall be lodged with JFLEI and Ableco.

 

16.           HEADINGS DESCRIPTIVE.  The headings of the several sections andsubsections of this Agreement are inserted for convenience only and shall notin any way affect the meaning or construction of any provision of thisAgreement.

 

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IN WITNESSWHEREOF, each of the parties hereto has caused this Agreement to be executedand 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 FINANCELLC,

 
| By:                           | /s/ Kevin  Genda |   |
|-------------------------------|------------------|--------|
| Title:  Senior Vice President |

 

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