**Exhibit10.5**

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**STOCKPLEDGE AGREEMENT**

 

This **STOCK PLEDGE AGREEMENT** (this“Stock Pledge Agreement”), dated as of June 26, 2002, is entered into byand among **ELGARHOLDINGS, INC.,** a Delaware corporation (“Parent”), and **ELGARELECTRONICS CORPORATION**,****a California corporation (“Borrower”;Parent and Borrower are referred to hereinafter each individually as a “Pledgor”,and collectively, as the “Pledgors”), and **ABLECO FINANCE LLC**, aDelaware limited liability company, as collateral agent for the Lenders(defined below) (“Secured Party”), with reference to the following:

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**WHEREAS**, eachPledgor beneficially owns the specified Equity Interests identified as PledgedInterests in the Persons identified as Issuers on Schedule A attachedhereto (or any addendum thereto);

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**WHEREAS**, Pledgors,the Lenders, Ableco Finance LLC, a Delaware limited liability company, asadministrative agent for the Lenders (“Administrative Agent”), and theSecured Party, as the collateral agent (Secured Party, Administrative Agent,and the Lenders are collectively referred to as the “Lender Group”), arecontemporaneously herewith entering into that certain Financing Agreement datedas of the date hereof (as amended, restated, modified, renewed or extended fromtime to time, the “Financing Agreement”), pursuant to which (i) theLender Group has agreed to make certain financial accommodations to Borrower,and (ii) Parent has agreed to guarantee the obligations of Borrower to theLender Group; and

 

**WHEREAS,**to induce the Lender Group to enter into the Financing Agreement and as one ofthe conditions thereof, each Pledgor desires to pledge, grant, transfer, andassign to Secured Party a security interest in the Pledged Collateral (ashereinafter defined) to secure the Secured Obligations (as hereinafterdefined), as provided herein.

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**NOW, THEREFORE**, inconsideration of the mutual promises, covenants, representations, andwarranties set forth herein and for other good and valuable consideration, theparties hereto agree as follows:

 

(a)   Definitions.

 

All initially capitalizedterms used herein and not otherwise defined herein shall have the meaningascribed thereto in the Financing Agreement. As used in this Stock Pledge Agreement:

 

“Administrative Agent”shall have the meaning set forth in the recitals to this Stock PledgeAgreement.

 

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“ChiefExecutive Office” shall mean where a Pledgor is deemed located pursuant tothe Code.

 

“EquityInterests” shall mean all shares, units, options, warrants, interests,participations, or other equivalents (regardless of how designated) of or in acorporation, partnership, limited liability company, or equivalent entity,whether voting or nonvoting, including general partner partnership interests,limited partner partnership interests, common stock, preferred stock, or anyother “equity security” (as such term is defined in Rule 3a11-1 of theGeneral Rules and Regulations promulgated by the SEC under the Exchange Act).

 

“Exchange Act”shall mean the Securities Exchange Act of 1934, as amended, and any successorstatute.

 

“Financing Agreement”shall have the meaning ascribed thereto in the recitals to this Stock PledgeAgreement.

 

“Future Rights”shall mean:  (a) all Equity Interests(other than Pledged Interests) of such Issuer, and all securities convertibleor exchangeable into, and all warrants, options, or other rights to purchase,Equity Interests of such Issuer; (b) to the extent of a Pledgor’s interesttherein, all shares of, all securities convertible or exchangeable into, andall warrants, options, or other rights of such Issuer to purchase EquityInterests of any Person in which a Pledgor, after the date of this Agreement,acquires a direct equity interest, irrespective of whether such Person is orbecomes a Subsidiary of such Pledgor; and (c) the certificates or instrumentsrepresenting such additional Equity Interests, convertible or exchangeablesecurities, warrants, and other rights and all dividends, cash, options,warrants, rights, instruments, and other property or proceeds from time to timereceived, receivable, or otherwise distributed in respect of or in exchange forany or all of such Equity Interests.

 

“Holder”and “Holders” shall have the meanings ascribed thereto in Section 3of this Stock Pledge Agreement.

 

“Issuers”shall mean each of the Persons identified as an Issuer on Schedule Aattached hereto (or any addendum thereto), and any successors thereto, whetherby merger or otherwise.

 

“Lender Group”shall have the meaning set forth in the recitals to this Stock PledgeAgreement.

 

“Lenders”means, individually and collectively, each of the financial institutions listedon the signature pages of the Financing Agreement and any other Person made aparty thereto in accordance with the provisions of Section 12.07 thereof(together with their respective successors and assigns).

 

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“PledgedCollateral” shall mean the Pledged Interests, the Future Rights, and theProceeds, collectively.

 

“PledgedInterests” shall mean all of the Equity Interests identified as PledgedInterests of an Issuer on Schedule A attached hereto (or any addendumthereto).

 

“Pledgor”and “Pledgors” shall have the respective meanings set forth in thepreamble to this Stock Pledge Agreement.

 

“Proceeds”shall mean all proceeds (including proceeds of proceeds) of the PledgedInterests and Future Rights including all: (a) rights, benefits, distributions,premiums, profits, dividends, interest, cash, instruments, documents of title,accounts, contract rights, inventory, equipment, general intangibles, depositaccounts, chattel paper, and other property from time to time received,receivable, or otherwise distributed in respect of or in exchange for, or as areplacement of or a substitution for, any of the Pledged Interests, FutureRights, or proceeds thereof (including any cash, Equity Interests, or othersecurities or instruments issued after any recapitalization, readjustment,reclassification, merger or consolidation with respect to the Issuers and anysecurity entitlements, as defined in §8102(a)(17) of the Code, with respectthereto); (b) ”proceeds,” as such term is defined in the Code;(c) proceeds of any insurance, indemnity, warranty, or guaranty (includingguaranties of delivery) payable from time to time with respect to any of the PledgedInterests, Future Rights, or proceeds thereof; (d) payments (in any formwhatsoever) made or due and payable to a Pledgor from time to time inconnection with any requisition, confiscation, condemnation, seizure orforfeiture of all or any part of the Pledged Interests, Future Rights, orproceeds thereof; and (e) other amounts from time to time paid or payableunder or in connection with any of the Pledged Interests, Future Rights, orproceeds thereof.

 

“SEC” shallmean the United States Securities and Exchange Commission and any successorthereto.

 

“SecuredObligations” shall mean, with respect to each Pledgor, all liabilities,obligations, or undertakings owing by such Pledgor to the Lender Group of anykind or description arising out of or outstanding under, advanced or issuedpursuant to, or evidenced by the Financing Agreement, this Stock PledgeAgreement, or any of the other Loan Documents, irrespective of whether for thepayment of money, whether direct or indirect, absolute or contingent, due or tobecome due, voluntary or involuntary, whether now existing or hereafterarising, and including all interest (including interest that accrues after thefiling of a case under the Bankruptcy Code) and any and all costs, fees(including attorneys fees), and expenses which such Pledgor is required to paypursuant to any of the foregoing.

 

“Secured Party”shall have the meaning ascribed thereto in the preamble to this Stock PledgeAgreement, together with its successors or assigns.

 

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“Securities Act”shall have the meaning ascribed thereto in Section 9(c) of this StockPledge Agreement.

 

“Stock PledgeAgreement” shall have the meaning set forth in the preamble to this StockPledge Agreement.

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## (b)   Construction.

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### (i)            Unlessthe context of this Stock Pledge Agreement clearly requires otherwise,references to the plural include the singular and to the singular include theplural, the part includes the whole, the term “including” is not limiting, andthe term “or” has, except where otherwise indicated, the inclusive meaningrepresented by the phrase “and/or.”  Thewords “hereof,” “herein,” “hereby,” “hereunder,” and other similar terms inthis Stock Pledge Agreement refer to this Stock Pledge Agreement as a whole andnot exclusively to any particular provision of this Stock PledgeAgreement.  Article, section,subsection, exhibit, and schedule references are to this Stock Pledge Agreementunless otherwise specified.  All of theexhibits or schedules attached to this Stock Pledge Agreement shall be deemedincorporated herein by reference.  Anyreference to any of the following documents includes any and all alterations,amendments, restatements, extensions, modifications, renewals, or supplementsthereto or thereof, as applicable: this Stock Pledge Agreement, the FinancingAgreement or any of the other Loan Documents.

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### (ii)           Neitherthis Stock Pledge Agreement nor any uncertainty or ambiguity herein shall beconstrued or resolved against Secured Party or a Pledgor, whether under anyrule of construction or otherwise.  Onthe contrary, this Stock Pledge Agreement has been reviewed by both of theparties and their respective counsel and shall be construed and interpretedaccording to the ordinary meaning of the words used so as to fairly accomplishthe purposes and intentions of the parties hereto.

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### (iii)          Inthe event of any direct conflict between the express terms and provisions ofthis Stock Pledge Agreement and of the Financing Agreement, the terms andprovisions of the Financing Agreement shall control.

 

**2.     Pledge**.  As security for the prompt payment andperformance of the Secured Obligations when due, whether at stated maturity, byacceleration or otherwise (including amounts that would become due but for theoperation of the provisions of the Bankruptcy Code), each Pledgor herebypledges, grants, transfers, and assigns to Secured Party, for the benefit ofthe Lender Group, a security interest in all of Pledgor’s right, title, andinterest in and to the Pledged Collateral.

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# **3.     Delivery andRegistration of Pledged Collateral.**

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### (a)   Allcertificates or instruments representing or evidencing the Pledged Collateralshall be promptly delivered by the Pledgors to Secured Party, for the benefitof the 

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### Lender Group, or SecuredParty’s designee pursuant hereto at a location designated by Secured Party andshall be held by or on behalf of Secured Party pursuant hereto, and shall be insuitable form for transfer by delivery, or shall be accompanied by dulyexecuted instruments of transfer or assignment in blank, all in form andsubstance satisfactory to Secured Party.

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## (b)   Upon theoccurrence and during the continuance of an Event of Default, Secured Partyshall have the right, at any time in its discretion and without notice to aPledgor, to transfer to or to register on the books of the Issuers (or of anyother Person maintaining records with respect to the Pledged Collateral) in thename of Secured Party or any of its nominees any or all of the PledgedCollateral.  In addition, Secured Partyshall have the right at any time to exchange certificates or instrumentsrepresenting or evidencing Pledged Collateral for certificates or instrumentsof smaller or larger denominations.

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## (c)   If, at anytime and from time to time, any Pledged Collateral (including any certificateor instrument representing or evidencing any Pledged Collateral) is in thepossession of a Person other than Secured Party or the applicable Pledgor (a“Holder”), then such Pledgor shall immediately, at Secured Party’s option,either cause such Pledged Collateral to be delivered into Secured Party’spossession, or, provided such other Person is not a Pledgor or an agent orrepresentative thereof, execute and deliver to such Holder a writtennotification/instruction, and take all other steps necessary to perfect thesecurity interest of Secured Party in such Pledged Collateral, includingobtaining from such Holder a written acknowledgement that such Holder holds suchPledged Collateral for Secured Party, all pursuant to the Code or otherapplicable law governing the perfection of Secured Party’s security interest inthe Pledged Collateral in the possession of such Holder.  Each such notification/instruction andacknowledgement shall be in form and substance satisfactory to Secured Party.

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## (d)   Any and allPledged Collateral (including dividends, interest, and other cashdistributions) at any time received or held by a Pledgor shall be so receivedor held in trust for Secured Party, shall be segregated from other funds andproperty of the applicable Pledgor and shall be forthwith delivered to SecuredParty in the same form as so received or held, with any necessary endorsements,provided that cash dividends or distributions received by a Pledgor, if and tothe extent they are not prohibited by the Financing Agreement, may be retainedby the applicable Pledgor in accordance with Section 4 and used in theordinary course of such Pledgor’s business.

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## (e)   If at anytime and from time to time any Pledged Collateral consists of an uncertificatedsecurity or a security in book entry form, then the applicable Pledgor shallimmediately cause such Pledged Collateral to be registered or entered, as thecase may be, in the name of Secured Party, for the benefit of the Lenders, orotherwise cause the security interest held by Secured Party, for the benefit ofthe Lenders, to be perfected in accordance with applicable law.

 

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# **4.     Voting Rights andDividends.**

 

## (a)   Except asotherwise provided in Section 4(b), each Pledgor shall be entitled toexercise any and all voting, management and other consensual rights pertainingto the Pledged Collateral or any part thereof for any purpose not inconsistentwith the terms of the Loan Documents and shall be entitled to receive andretain any cash dividends or distributions paid in respect of the PledgedCollateral, if and to the extent they are not prohibited by the FinancingAgreement.

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## (b)   If an Eventof Default has occurred and is continuing and Secured Party has notified inwriting any Pledgor of its election to divest such Pledgor of the rightsdescribed in Section 4(a), all rights of each such Pledgor to exercisethe voting and other consensual rights or receive and retain cash dividends ordistributions that it would otherwise be entitled to exercise or receive andretain, as applicable pursuant to Section 4(a), shall cease, and allsuch rights shall thereupon become vested in Secured Party, for the benefit ofthe Lender Group, who shall thereupon have the sole right to exercise suchvoting or other consensual rights and to receive and retain such cash dividendsand distributions with respect to such Pledgor.  Upon the receipt of such written notice, each such Pledgor shallexecute and deliver (or cause to be executed and delivered) to Secured Partyall such proxies and other instruments as Secured Party may reasonably requestfor the purpose of enabling Secured Party to exercise the voting and otherrights which it is entitled to exercise and to receive the dividends anddistributions that it is entitled to receive and retain pursuant to thepreceding sentence.

 

**5.     Representations and Warranties**.  Each Pledgor represents, warrants, andcovenants as follows:

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## (a)   SuchPledgor has taken all steps it deems necessary or appropriate to be informed ona continuing basis of changes or potential changes affecting the PledgedCollateral (including rights of conversion and exchange, rights to subscribe,payment of dividends, reorganizations or recapitalization, tender offers andvoting rights), and each Pledgor agrees that no member of the Lender Groupshall have any responsibility or liability for informing any Pledgor of anysuch changes or potential changes or for taking any action or omitting to takeany action with respect thereto;

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## (b)   Allinformation herein or hereafter supplied to Secured Party or any other memberof the Lender Group by or on behalf of such Pledgor in writing with respect tothe Pledged Collateral is, or in the case of information hereafter suppliedwill be, accurate and complete in all material respects;

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## (c)   SuchPledgor is and will be the sole legal and beneficial owner of the PledgedCollateral (including the Pledged Interests and all other Pledged Collateralacquired by such Pledgor after the date hereof) free and clear of any adverseclaim, Lien, or other right, title, or interest of any party, other than (i)the Liens in favor of Secured Party, for the 

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## benefit of the LenderGroup or (ii) any Lien (other than a United States federal tax Lien withrespect to which a notice of Lien has been filed) permitted under clause (b) ofthe definition of Permitted Liens in the Financing Agreement that are juniorand subordinate to the Liens in favor of Secured Party;

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## (d)   This StockPledge Agreement, and the delivery to Secured Party of the Pledged Interestsrepresenting Pledged Collateral (or the delivery to all Holders of the PledgedInterests representing Pledged Collateral of the notification/instructionreferred to in Section 3 of this Stock Pledge Agreement), creates avalid, perfected, and first priority security interest in one hundred percent(100%) of the Pledged Interests which are in certificated form in favor ofSecured Party, for the benefit of the Lender Group, securing payment of theSecured Obligations, and all actions necessary to achieve such perfection havebeen duly taken;

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## (e)   Theinformation related to each Pledgor set forth on Schedule A to thisStock Pledge Agreement is true and correct and complete in all materialrespects; without limiting the generality of the foregoing: (i) except as setforth on Schedule A, all the Pledged Interests are in certificated form,and, except to the extent registered in the name of Secured Party or itsnominee pursuant to the provisions of this Stock Pledge Agreement, areregistered in the name of the applicable Pledgor; and (ii) the PledgedInterests as to each of the Issuers constitute at least the percentage of allthe fully diluted issued and outstanding Equity Interests of such Issuer as setforth in Schedule A to this Stock Pledge Agreement;

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## (f)    thePledged Interests that are interests in general partnerships, limitedpartnerships or limited liability companies (i) are not dealt in or traded onsecurities exchanges or in securities markets, (ii) do not have terms expresslyproviding that they are securities governed by Article 8 of the Code, and (iii)are not investment company securities, and are not, therefore, “securities”governed by Article 8 of the Code;

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## (g)   On theClosing Date, there are no presently existing Future Rights or Proceeds ownedby any Pledgor;

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## (h)   The PledgedInterests have been duly authorized and validly issued and are fully paid andnonassessable; and

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## (i)    Neitherthe pledge of the Pledged Collateral pursuant to this Stock Pledge Agreementnor the extensions of credit represented by the Secured Obligations violatesRegulation T, U or X of the Board of Governors of the Federal Reserve System.

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# **6.     FurtherAssurances.**

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## (a)   EachPledgor agrees that from time to time, at the expense of such Pledgor, it willpromptly execute and deliver all further instruments and documents, and takeall further action that may be necessary or reasonably desirable, or thatSecured Party, on behalf 

 

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## of the Lender Group, mayrequest, in order to perfect and protect any security interest granted orpurported to be granted hereby or to enable Secured Party, on behalf of theLender Group, to exercise and enforce its rights and remedies hereunder withrespect to any Pledged Collateral. Without limiting the generality of the foregoing, each Pledgor will: (i)at the request of Secured Party, mark conspicuously each of its recordspertaining to the Pledged Collateral with a legend, in form and substancereasonably satisfactory to Secured Party, indicating that such PledgedCollateral is subject to the security interest granted hereby; (ii) authorizesuch financing or continuation statements, or amendments thereto, and suchother instruments or notices, as may be necessary or reasonably desirable, oras Secured Party may request, in order to perfect and preserve the securityinterests granted or purported to be granted hereby; (iii) allow inspection ofthe Pledged Collateral by Secured Party or Persons designated by Secured Party;and (iv) appear in and defend any action or proceeding that may affect suchPledgor’s title to or Secured Party’s security interest in the PledgedCollateral.

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## (b)   EachPledgor hereby authorizes Secured Party, on behalf of the Lender Group, to fileone or more financing or continuation statements, and amendments thereto,relative to all or any part of the Pledged Collateral without the signature ofsuch Pledgor where permitted by law.  Acarbon, photographic, or other reproduction of this Stock Pledge Agreement orany financing statement covering the Pledged Collateral or any part thereofshall be sufficient as a financing statement where permitted by law.

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## (c)   EachPledgor will furnish to Secured Party, upon the request of Secured Party: (i) acertificate executed by an authorized officer of such Pledgor, and dated as ofthe date of delivery to Secured Party, itemizing in such detail as SecuredParty may request, the Pledged Collateral which, as of the date of suchcertificate, has been delivered to Secured Party by such Pledgor pursuant tothe provisions of this Stock Pledge Agreement; and (ii) such statements and schedulesfurther identifying and describing the Pledged Collateral as Secured Party mayrequest.

 

**7.     Covenants of Each Pledgor.**  Each Pledgor shall:

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## (a)   Performeach and every covenant in any of the Loan Documents applicable to suchPledgor;

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## (b)   At all timeskeep at least one complete set of its records concerning substantially all ofthe Pledged Collateral at its Chief Executive Office as set forth in Schedule6.01(dd) to the Financing Agreement;

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## (c)   To theextent it may lawfully do so, use its reasonable best efforts to prevent theIssuers from issuing Future Rights or Proceeds, except for cash dividends andother distributions, if any, that are not prohibited by the terms of theFinancing Agreement to be paid by any Issuer to such Pledgor; and

 

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## (d)   Uponreceipt by such Pledgor of any material notice or report from any of theIssuers or any Holder relating to all or any part of the Pledged Collateral,deliver such notice or report to Secured Party as soon as possible, but in noevent later than five (5) days following the receipt thereof by such Pledgor

 

## (e)   Not permitany of the Issuers to:  (i) authorizethe amendment of or amend the Governing Documents of such Issuer that is ageneral partnership, limited partnership or limited liability company toprovide that the Stock of such Issuer is governed by Article 8 of the Code, or(ii) authorize the issuance of or issue certificates evidencing the Stock ofsuch Issuer that is a general partnership, limited partnership or limitedliability company.

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# **8.     Secured Party asEach Pledgor’s Attorney-in-Fact.**

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## (a)   Upon theoccurrence and during the continuance of an Event of Default, each Pledgorhereby irrevocably appoints Secured Party, for the benefit of the Lender Group,as such Pledgor’s attorney-in-fact, with full authority in the place and steadof such Pledgor and in the name of such Pledgor, Secured Party or otherwise,from time to time at Secured Party’s discretion, to take any action and toexecute any instrument that Secured Party, on behalf of the Lender Group, mayreasonably deem necessary or advisable to accomplish the purposes of this StockPledge Agreement, including: (i) to receive, endorse, and collect allinstruments made payable to such Pledgor representing any dividend, interestpayment or other distribution in respect of the Pledged Collateral or any partthereof to the extent permitted hereunder and to give full discharge for thesame and to execute and file governmental notifications and reporting forms;(ii) to issue any notifications/instructions Secured Party deems necessarypursuant to Section 3 of this Stock Pledge Agreement; or (iii) toarrange for the transfer of the Pledged Collateral on the books of any of theIssuers or any other Person to the name of Secured Party or to the name ofSecured Party’s nominee.

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## (b)   In additionto the designation of Secured Party as Pledgor’s attorney-in-fact in subsection (a),upon the occurrence and during the continuance of an Event of Default, eachPledgor hereby irrevocably appoints Secured Party, on behalf of the LenderGroup, as such Pledgor’s agent and attorney-in-fact to make, execute anddeliver any and all documents and writings which may be necessary orappropriate for approval of, or be required by, any regulatory authoritylocated in any city, county, state or country where such Pledgor or any of theIssuers engage in business, in order to transfer or to more effectivelytransfer any of the Pledged Interests or otherwise enforce Secured Party’s rightshereunder.

 

**9.     Remedies upon Default.**  Upon the occurrence and during thecontinuance of an Event of Default:

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## (a)   SecuredParty, on behalf of the Lender Group, may exercise in respect of the PledgedCollateral, in addition to other rights and remedies provided for herein orotherwise available to it, all the rights and remedies of a secured party ondefault under the Code (irrespective of whether the Code applies to theaffected items of Pledged Collateral), 

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## and Secured Party mayalso without notice (except as specified below) sell the Pledged Collateral orany part thereof in one or more parcels at public or private sale, at anyexchange, broker’s board or at any of Secured Party’s offices or elsewhere, forcash, on credit or for future delivery, at such time or times and at such priceor prices and upon such other terms as Secured Party may deem commerciallyreasonable, irrespective of the impact of any such sales on the market price ofthe Pledged Collateral.  To the maximumextent permitted by applicable law, Secured Party may be the purchaser of anyor all of the Pledged Collateral at any such sale and shall be entitled, forthe purpose of bidding and making settlement or payment of the purchase pricefor all or any portion of the Pledged Collateral sold at any such public sale,to use and apply all or any part of the Secured Obligations as a credit onaccount of the purchase price of any Pledged Collateral payable at such sale.  Each purchaser at any such sale shall holdthe property sold absolutely free from any claim or right on the part of theapplicable Pledgor, and each Pledgor hereby waives (to the extent permitted bylaw) all rights of redemption, stay, or appraisal that it now has or may at anytime in the future have under any rule of law or statute now existing orhereafter enacted.  Each Pledgor agreesthat, to the extent notice of sale shall be required by law, at least ten (10)calendar days notice to such Pledgor of the time and place of any public saleor the time after which a private sale is to be made shall constitutereasonable notification.  Secured Partyshall not be obligated to make any sale of Pledged Collateral regardless ofnotice of sale having been given. Secured Party may adjourn any public or private sale from time to timeby announcement at the time and place fixed therefor, and such sale may,without further notice, be made at the time and place to which it was soadjourned.  To the maximum extentpermitted by law, each Pledgor hereby waives any claims against Secured Partyarising because the price at which any Pledged Collateral may have been sold atsuch a private sale was less than the price that might have been obtained at apublic sale, even if Secured Party accepts the first offer received and doesnot offer such Pledged Collateral to more than one offeree.

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## (b)   EachPledgor hereby agrees that any sale or other disposition of the PledgedCollateral conducted in conformity with reasonable commercial practices ofbanks, insurance companies, or other financial institutions in the Borough ofManhattan, New York in disposing of property similar to the Pledged Collateralshall be deemed to be commercially reasonable.

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## (c)   EachPledgor hereby acknowledges that the sale by Secured Party of any PledgedCollateral pursuant to the terms hereof in compliance with the Securities Actof 1933 as now in effect or as hereafter amended, or any similar statutehereafter adopted with similar purpose or effect (the “Securities Act”),as well as applicable “Blue Sky” or other state securities laws, may requirestrict limitations as to the manner in which Secured Party or any subsequenttransferee of the Pledged Collateral may dispose thereof.  Each Pledgor acknowledges and agrees that inorder to protect Secured Party’s interest it may be necessary to sell thePledged Collateral at a price less than the maximum price attainable if a salewere delayed or were made in another manner, such as a public offering underthe Securities Act.

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## Each Pledgor has noobjection to sale in such a manner and agrees that Secured Party shall have noobligation to obtain the maximum possible price for the PledgedCollateral.  Without limiting the generalityof the foregoing, each Pledgor agrees that, upon the occurrence and during thecontinuation of an Event of Default, Secured Party may, subject to applicablelaw, from time to time attempt to sell all or any part of the PledgedCollateral by a private placement, restricting the bidders and prospectivepurchasers to those who will represent and agree that they are purchasing forinvestment only and not for distribution. In so doing, Secured Party may solicit offers to buy the PledgedCollateral or any part thereof for cash, from a limited number of investorsdeemed by Secured Party, in its reasonable judgment, to be institutionalinvestors or other responsible parties who might be interested in purchasingthe Pledged Collateral.  If SecuredParty shall solicit such offers, then the acceptance by Secured Party of one ofthe offers shall be deemed to be a commercially reasonable method ofdisposition of the Pledged Collateral.

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## (d)   If SecuredParty shall determine to exercise its right to sell all or any portion of thePledged Collateral pursuant to this Section, each Pledgor agrees that, uponrequest of Secured Party, such Pledgor will, at its own expense:

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### (i)            useits reasonable best efforts to execute and deliver, and cause the Issuers andthe directors and officers thereof to execute and deliver, all such instrumentsand documents, and to do or cause to be done all such other acts and things, asmay be necessary or, in the opinion of Secured Party, advisable to registersuch Pledged Collateral under the provisions of the Securities Act, and tocause the registration statement relating thereto to become effective and toremain effective for such period as prospectuses are required by law to befurnished, and to make all amendments and supplements thereto and to therelated prospectuses which, in the opinion of Secured Party, are necessary oradvisable, all in conformity with the requirements of the Securities Act andthe rules and regulations of the SEC applicable thereto;

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### (ii)           useits reasonable best efforts to qualify the Pledged Collateral under the statesecurities laws or “Blue Sky” laws and to obtain all necessary governmentalapprovals for the sale of the Pledged Collateral, as reasonably requested bySecured Party;

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### (iii)          causethe Issuers to make available to their respective security holders, as soon aspracticable, an earnings statement which will satisfy the provisions ofSection 11(a) of the Securities Act;

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### (iv)          executeand deliver, or cause the officers and directors of the Issuers to execute anddeliver, to any person, entity or governmental authority as Secured Party maychoose, any and all documents and writings which, in Secured Party’s reasonablejudgment, may be necessary or appropriate for approval, or be required by, anyregulatory authority located in any city, county, state, or country where suchPledgor or the Issuers 

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### engage in business, inorder to transfer or to more effectively transfer the Pledged Interests orotherwise enforce Secured Party’s rights hereunder; and

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### (v)           door cause to be done all such other acts and things as may be necessary to makesuch sale of the Pledged Collateral or any part thereof valid and binding andin compliance with applicable law.

 

Each Pledgor acknowledgesthat there is no adequate remedy at law for failure by it to comply with theprovisions of this Section and that such failure would not be adequatelycompensable in damages, and therefore agrees that its agreements contained inthis Section may be specifically enforced.

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## **(e)   EACH PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUMEXTENT PERMITTED BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIALHEARING PRIOR TO THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THECOLLATERAL AS PROVIDED IN THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, ORAPPRAISAL THAT IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULEOF LAW OR STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT AS SETFORTH IN SUBSECTION (a) OF THIS SECTION, ANY REQUIREMENT OF NOTICE,DEMAND, OR ADVERTISEMENT FOR SALE.**

 

**10.  Application of Proceeds.**  Upon the occurrence and during thecontinuance of an Event of Default, any cash held by Secured Party as PledgedCollateral and all cash proceeds received by Secured Party in respect of anysale of, collection from, or other realization upon all or any part of thePledged Collateral pursuant to the exercise by Secured Party of its remedies asa secured creditor as provided in Section 9 shall be applied from timeto time by Secured Party as provided in the Financing Agreement.

 

**11.  Duties of Secured Party.**  The powers conferred on Secured Partyhereunder are solely to protect its interests in the Pledged Collateral andshall not impose on it any duty to exercise such powers.  Except as provided in the Code, SecuredParty shall have no duty with respect to the Pledged Collateral or anyresponsibility for taking any necessary steps to preserve rights against anyPersons with respect to any Pledged Collateral.

 

**12.  Amendments; Etc.**  No amendment or waiver of any provision ofthis Stock Pledge Agreement nor consent to any departure by any Pledgorherefrom shall in any event be effective unless the same shall be in writingand signed by Secured Party, and then such waiver or consent shall be effectiveonly in the specific instance and for the specific purpose for whichgiven.  No failure on the part ofSecured Party to exercise, and no delay in exercising any right under thisStock Pledge Agreement, any other Loan Document, or otherwise with respect toany of the Secured Obligations, shall operate as a waiver thereof; nor shallany single or partial exercise of any right under this Stock Pledge Agreement,any other Loan Document, or otherwise with respect to any of the SecuredObligations preclude 

 

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any other or furtherexercise thereof or the exercise of any other right.  The remedies provided for in this Stock Pledge Agreement orotherwise with respect to any of the Secured Obligations are cumulative and notexclusive of any remedies provided by law.

 

**13.  Notices.**  Unless otherwise specifically providedherein, any notice or other communication herein required or permitted to begiven shall be in writing and shall be delivered in the manner set forth in theFinancing Agreement.

 

**14.  Continuing Security Interest.**  This Stock Pledge Agreement shall create acontinuing security interest in the Pledged Collateral and shall: (i) remain infull force and effect until the payment in full in cash of the SecuredObligations, including the cash collateralization, expiration, or cancellationof all Secured Obligations, if any, consisting of letters of credit, and thefull and final termination of any commitment to extend any financialaccommodations under the Financing Agreement; (ii) be binding upon each Pledgorand its successors and assigns; and (iii) inure to the benefit of Secured Partyand its successors, transferees, and assigns. Upon the payment in full in cash of the Secured Obligations, includingthe cash collateralization, expiration, or cancellation of all SecuredObligations, if any, consisting of letters of credit, and the full and finaltermination of any commitment to extend any financial accommodations under theFinancing Agreement, the security interests granted herein shall automaticallyterminate and all rights to the Pledged Collateral shall revert toPledgor.  Upon any such termination,Secured Party will, at the Pledgors’ expense, execute and deliver to the applicablePledgor such documents as Pledgor shall reasonably request to evidence suchtermination and will duly assign, transfer and deliver to such Pledgor such ofthe Pledged Collateral as has not theretofore been sold or otherwise applied orreleased pursuant to this Stock Pledge Agreement.  Such documents shall be prepared by the Pledgors and shall be inform and substance reasonably satisfactory to Secured Party.

 

**15.  Security Interest Absolute.**  To the maximum extent permitted by law, allrights of Secured Party, all security interests hereunder, and all obligationsof the Pledgors hereunder, shall be absolute and unconditional irrespective of:

##  

## (a)   any lack ofvalidity or enforceability of any of the Secured Obligations or any otheragreement or instrument relating thereto, including any of the Loan Documents;

##  

## (b)   any changein the time, manner, or place of payment of, or in any other term of, all orany of the Secured Obligations, or any other amendment or waiver of or anyconsent to any departure from any of the Loan Documents, or any other agreementor instrument relating thereto;

##  

## (c)   anyexchange, release, or non-perfection of any other collateral, or any release oramendment or waiver of or consent to departure from any guaranty for all or anyof the Secured Obligations; or

##  

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## (d)   any other circumstances that might otherwiseconstitute a defense available to, or a discharge of, a Pledgor.

 

To the maximum extentpermitted by law, each Pledgor hereby waives any right to require Secured Partyto: (A) proceed against or exhaust any security held from such Pledgor; or (B)pursue any other remedy in Secured Party’s power whatsoever.

 

**16.  Headings.**  Section and subsection headings in thisStock Pledge Agreement are included herein for convenience of reference onlyand shall not constitute a part of this Stock Pledge Agreement or be given anysubstantive effect.

 

**17.  Severability.**  In case any provision in or obligation underthis Stock Pledge Agreement shall be invalid, illegal or unenforceable in anyjurisdiction, the validity, legality and enforceability of the remainingprovisions or obligations, or of such provision or obligation in any otherjurisdiction, shall not in any way be affected or impaired thereby.

 

**18.  Counterparts; Telefacsimile Execution.**  This Stock Pledge Agreement may be executedin one or more counterparts, each of which shall be deemed an original and allof which together shall constitute one and the same Stock Pledge Agreement.  Delivery of an executed counterpart of thisStock Pledge Agreement by telefacsimile shall be equally as effective asdelivery of an original executed counterpart of this Stock PledgeAgreement.  Any party delivering anexecuted counterpart of this Stock Pledge Agreement by telefacsimile also shalldeliver an original executed counterpart of this Stock Pledge Agreement but thefailure to deliver an original executed counterpart shall not affect thevalidity, enforceability, or binding effect hereof.

 

**19.  Waiver of Marshaling.**  Each of Pledgor and Secured Partyacknowledges and agrees that in exercising any rights under or with respect tothe Pledged Collateral: (i) Secured Party is under no obligation to marshal anyPledged Collateral; (ii) may, in its absolute discretion, realize upon thePledged Collateral in any order and in any manner it so elects; and (iii) may,in its absolute discretion, apply the proceeds of any or all of the PledgedCollateral to the Secured Obligations in any order and in any manner it soelects.  Each Pledgor and Secured Partywaive any right to require the marshaling of any of the Pledged Collateral.

# ** **

# **20.  Choice of Law.**

** **

THE VALIDITY OF THISSTOCK PLEDGE AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, ANDTHE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

[Signature page tofollow.]

 

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IN WITNESS WHEREOF, eachPledgor and Secured Party have caused this Stock Pledge Agreement to be dulyexecuted and delivered by their officers thereunto duly authorized as of thedate first written above. 

 
|   | **ELGAR ELECTRONICS CORPORATION,**               |
|--------|--------------------------------------------------|
|   | a California  corporation                        |
|   |                                             |
|   |                                             |
|   | By:                                              | /s/ Joseph A.  Stroud |   |
|   | Name:  Joseph A. Stroud                     |
|   | Title:    Chief Financial Officer |
|   |                                             |
|   | **ELGAR HOLDINGS, INC.,**                        |
|   | a Delaware  corporation                     |
|   |                                             |
|   |                                             |
|   | By:                                              | /s/ Joseph A.  Stroud |   |
|   | Name:  Joseph A. Stroud                     |
|   | Title:    Chief Financial Officer |
|        |                                                  |  |  |  |  |

 

S-1

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|   | **ABLECO FINANCE LLC,**                                 |
|--------|---------------------------------------------------------|
|   | a Delaware limited  liability company, as Secured Party |
|   |                                                    |   |
|   |                                                    |   |
|   | By:                                                     | /s/ Kevin Genda |   |
|   | Name:                                                   | Kevin Genda |
|   | Title:                                                  | Senior Vice President |

 

S-2

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SCHEDULE A

 

TO

STOCK PLEDGE AGREEMENT

 

Pledgor:  ELGAR HOLDINGS, INC.

 

Pledged Interests

 
| **Issuer**                    |   | **Number of  Shares** |   | **Class** |   | **Certificate  Number(s)** |   | **Pledgor’s  Percentage  Ownership** |   | **Jurisdiction of  Formation of  Issuer** |   |
|-------------------------------|--------|-----------------------|--------|-----------|--------|----------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|
| Elgar Electronics Corporation |   | 200                   |   | Common    |   | 5                          |   | 100                                       | %      | California                                |   |

 

Pledgor:  ELGAR ELECTRONICSCORPORATION

 

Pledged Interests

 
| **Issuer** |   | **Number of  Shares** |   | **Class** |   | **Certificate  Number(s)** |   | **Pledgor’s  Percentage**

**Ownership** |   | **Jurisdiction of  Formation** |   |
|------------|--------|-----------------------|--------|-----------|--------|----------------------------|--------|-----------------------------------------------|--------|--------------------------------|--------|
| NONE.      |   |                  |   |      |   |                       |   |                                          |   |                           |   |

 

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