Document:

Exhibit

10.5

 

STOCK

PLEDGE AGREEMENT

 

This STOCK PLEDGE AGREEMENT (this

“Stock Pledge Agreement”), dated as of June 26, 2002, is entered into by

and among ELGAR

HOLDINGS, INC., a Delaware corporation (“Parent”), and ELGAR

ELECTRONICS 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, a

Delaware limited liability company, as collateral agent for the Lenders

(defined below) (“Secured Party”), with reference to the following:

 

WHEREAS, each

Pledgor beneficially owns the specified Equity Interests identified as Pledged

Interests in the Persons identified as Issuers on Schedule A attached

hereto (or any addendum thereto);

 

WHEREAS, Pledgors,

the Lenders, Ableco Finance LLC, a Delaware limited liability company, as

administrative agent for the Lenders (“Administrative Agent”), and the

Secured Party, as the collateral agent (Secured Party, Administrative Agent,

and the Lenders are collectively referred to as the “Lender Group”), are

contemporaneously herewith entering into that certain Financing Agreement dated

as of the date hereof (as amended, restated, modified, renewed or extended from

time to time, the “Financing Agreement”), pursuant to which (i) the

Lender Group has agreed to make certain financial accommodations to Borrower,

and (ii) Parent has agreed to guarantee the obligations of Borrower to the

Lender Group; and

 

WHEREAS,

to induce the Lender Group to enter into the Financing Agreement and as one of

the conditions thereof, each Pledgor desires to pledge, grant, transfer, and

assign to Secured Party a security interest in the Pledged Collateral (as

hereinafter defined) to secure the Secured Obligations (as hereinafter

defined), as provided herein.

 

NOW, THEREFORE, in

consideration of the mutual promises, covenants, representations, and

warranties set forth herein and for other good and valuable consideration, the

parties hereto agree as follows:

 

(a)   Definitions.

 

All initially capitalized

terms used herein and not otherwise defined herein shall have the meaning

ascribed 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 Pledge

Agreement.

 

 

“Chief

Executive Office” shall mean where a Pledgor is deemed located pursuant to

the Code.

 

“Equity

Interests” shall mean all shares, units, options, warrants, interests,

participations, or other equivalents (regardless of how designated) of or in a

corporation, 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 any

other “equity security” (as such term is defined in Rule 3a11-1 of the

General 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 successor

statute.

 

“Financing Agreement”

shall have the meaning ascribed thereto in the recitals to this Stock Pledge

Agreement.

 

“Future Rights”

shall mean:  (a) all Equity Interests

(other than Pledged Interests) of such Issuer, and all securities convertible

or exchangeable into, and all warrants, options, or other rights to purchase,

Equity Interests of such Issuer; (b) to the extent of a Pledgor’s interest

therein, all shares of, all securities convertible or exchangeable into, and

all warrants, options, or other rights of such Issuer to purchase Equity

Interests of any Person in which a Pledgor, after the date of this Agreement,

acquires a direct equity interest, irrespective of whether such Person is or

becomes a Subsidiary of such Pledgor; and (c) the certificates or instruments

representing such additional Equity Interests, convertible or exchangeable

securities, warrants, and other rights and all dividends, cash, options,

warrants, rights, instruments, and other property or proceeds from time to time

received, receivable, or otherwise distributed in respect of or in exchange for

any or all of such Equity Interests.

 

“Holder”

and “Holders” shall have the meanings ascribed thereto in Section 3

of this Stock Pledge Agreement.

 

“Issuers”

shall mean each of the Persons identified as an Issuer on Schedule A

attached hereto (or any addendum thereto), and any successors thereto, whether

by merger or otherwise.

 

“Lender Group”

shall have the meaning set forth in the recitals to this Stock Pledge

Agreement.

 

“Lenders”

means, individually and collectively, each of the financial institutions listed

on the signature pages of the Financing Agreement and any other Person made a

party thereto in accordance with the provisions of Section 12.07 thereof

(together with their respective successors and assigns).

 

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“Pledged

Collateral” shall mean the Pledged Interests, the Future Rights, and the

Proceeds, collectively.

 

“Pledged

Interests” shall mean all of the Equity Interests identified as Pledged

Interests of an Issuer on Schedule A attached hereto (or any addendum

thereto).

 

“Pledgor”

and “Pledgors” shall have the respective meanings set forth in the

preamble to this Stock Pledge Agreement.

 

“Proceeds”

shall mean all proceeds (including proceeds of proceeds) of the Pledged

Interests 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, deposit

accounts, chattel paper, and other property from time to time received,

receivable, or otherwise distributed in respect of or in exchange for, or as a

replacement of or a substitution for, any of the Pledged Interests, Future

Rights, or proceeds thereof (including any cash, Equity Interests, or other

securities or instruments issued after any recapitalization, readjustment,

reclassification, merger or consolidation with respect to the Issuers and any

security entitlements, as defined in §8102(a)(17) of the Code, with respect

thereto); (b) ”proceeds,” as such term is defined in the Code;

(c) proceeds of any insurance, indemnity, warranty, or guaranty (including

guaranties of delivery) payable from time to time with respect to any of the Pledged

Interests, Future Rights, or proceeds thereof; (d) payments (in any form

whatsoever) made or due and payable to a Pledgor from time to time in

connection with any requisition, confiscation, condemnation, seizure or

forfeiture of all or any part of the Pledged Interests, Future Rights, or

proceeds thereof; and (e) other amounts from time to time paid or payable

under or in connection with any of the Pledged Interests, Future Rights, or

proceeds thereof.

 

“SEC” shall

mean the United States Securities and Exchange Commission and any successor

thereto.

 

“Secured

Obligations” shall mean, with respect to each Pledgor, all liabilities,

obligations, or undertakings owing by such Pledgor to the Lender Group of any

kind or description arising out of or outstanding under, advanced or issued

pursuant to, or evidenced by the Financing Agreement, this Stock Pledge

Agreement, or any of the other Loan Documents, irrespective of whether for the

payment of money, whether direct or indirect, absolute or contingent, due or to

become due, voluntary or involuntary, whether now existing or hereafter

arising, and including all interest (including interest that accrues after the

filing of a case under the Bankruptcy Code) and any and all costs, fees

(including attorneys fees), and expenses which such Pledgor is required to pay

pursuant to any of the foregoing.

 

“Secured Party”

shall have the meaning ascribed thereto in the preamble to this Stock Pledge

Agreement, together with its successors or assigns.

 

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“Securities Act”

shall have the meaning ascribed thereto in Section 9(c) of this Stock

Pledge Agreement.

 

“Stock Pledge

Agreement” shall have the meaning set forth in the preamble to this Stock

Pledge Agreement.

 

(b)   Construction.

 

(i)            Unless

the context of this Stock Pledge Agreement clearly requires otherwise,

references to the plural include the singular and to the singular include the

plural, the part includes the whole, the term “including” is not limiting, and

the term “or” has, except where otherwise indicated, the inclusive meaning

represented by the phrase “and/or.”  The

words “hereof,” “herein,” “hereby,” “hereunder,” and other similar terms in

this Stock Pledge Agreement refer to this Stock Pledge Agreement as a whole and

not exclusively to any particular provision of this Stock Pledge

Agreement.  Article, section,

subsection, exhibit, and schedule references are to this Stock Pledge Agreement

unless otherwise specified.  All of the

exhibits or schedules attached to this Stock Pledge Agreement shall be deemed

incorporated herein by reference.  Any

reference to any of the following documents includes any and all alterations,

amendments, restatements, extensions, modifications, renewals, or supplements

thereto or thereof, as applicable: this Stock Pledge Agreement, the Financing

Agreement or any of the other Loan Documents.

 

(ii)           Neither

this Stock Pledge Agreement nor any uncertainty or ambiguity herein shall be

construed or resolved against Secured Party or a Pledgor, whether under any

rule of construction or otherwise.  On

the contrary, this Stock Pledge Agreement has been reviewed by both of the

parties and their respective counsel and shall be construed and interpreted

according to the ordinary meaning of the words used so as to fairly accomplish

the purposes and intentions of the parties hereto.

 

(iii)          In

the event of any direct conflict between the express terms and provisions of

this Stock Pledge Agreement and of the Financing Agreement, the terms and

provisions of the Financing Agreement shall control.

 

2.     Pledge.  As security for the prompt payment and

performance of the Secured Obligations when due, whether at stated maturity, by

acceleration or otherwise (including amounts that would become due but for the

operation of the provisions of the Bankruptcy Code), each Pledgor hereby

pledges, grants, transfers, and assigns to Secured Party, for the benefit of

the Lender Group, a security interest in all of Pledgor’s right, title, and

interest in and to the Pledged Collateral.

 

3.     Delivery and

Registration of Pledged Collateral.

 

(a)   All

certificates or instruments representing or evidencing the Pledged Collateral

shall be promptly delivered by the Pledgors to Secured Party, for the benefit

of the 

 

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Lender Group, or Secured

Party’s designee pursuant hereto at a location designated by Secured Party and

shall be held by or on behalf of Secured Party pursuant hereto, and shall be in

suitable form for transfer by delivery, or shall be accompanied by duly

executed instruments of transfer or assignment in blank, all in form and

substance satisfactory to Secured Party.

 

(b)   Upon the

occurrence and during the continuance of an Event of Default, Secured Party

shall have the right, at any time in its discretion and without notice to a

Pledgor, to transfer to or to register on the books of the Issuers (or of any

other Person maintaining records with respect to the Pledged Collateral) in the

name of Secured Party or any of its nominees any or all of the Pledged

Collateral.  In addition, Secured Party

shall have the right at any time to exchange certificates or instruments

representing or evidencing Pledged Collateral for certificates or instruments

of smaller or larger denominations.

 

(c)   If, at any

time and from time to time, any Pledged Collateral (including any certificate

or instrument representing or evidencing any Pledged Collateral) is in the

possession 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’s

possession, or, provided such other Person is not a Pledgor or an agent or

representative thereof, execute and deliver to such Holder a written

notification/instruction, and take all other steps necessary to perfect the

security interest of Secured Party in such Pledged Collateral, including

obtaining from such Holder a written acknowledgement that such Holder holds such

Pledged Collateral for Secured Party, all pursuant to the Code or other

applicable law governing the perfection of Secured Party’s security interest in

the Pledged Collateral in the possession of such Holder.  Each such notification/instruction and

acknowledgement shall be in form and substance satisfactory to Secured Party.

 

(d)   Any and all

Pledged Collateral (including dividends, interest, and other cash

distributions) at any time received or held by a Pledgor shall be so received

or held in trust for Secured Party, shall be segregated from other funds and

property of the applicable Pledgor and shall be forthwith delivered to Secured

Party 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 to

the extent they are not prohibited by the Financing Agreement, may be retained

by the applicable Pledgor in accordance with Section 4 and used in the

ordinary course of such Pledgor’s business.

 

(e)   If at any

time and from time to time any Pledged Collateral consists of an uncertificated

security or a security in book entry form, then the applicable Pledgor shall

immediately cause such Pledged Collateral to be registered or entered, as the

case may be, in the name of Secured Party, for the benefit of the Lenders, or

otherwise cause the security interest held by Secured Party, for the benefit of

the Lenders, to be perfected in accordance with applicable law.

 

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4.     Voting Rights and

Dividends.

 

(a)   Except as

otherwise provided in Section 4(b), each Pledgor shall be entitled to

exercise any and all voting, management and other consensual rights pertaining

to the Pledged Collateral or any part thereof for any purpose not inconsistent

with the terms of the Loan Documents and shall be entitled to receive and

retain any cash dividends or distributions paid in respect of the Pledged

Collateral, if and to the extent they are not prohibited by the Financing

Agreement.

 

(b)   If an Event

of Default has occurred and is continuing and Secured Party has notified in

writing any Pledgor of its election to divest such Pledgor of the rights

described in Section 4(a), all rights of each such Pledgor to exercise

the voting and other consensual rights or receive and retain cash dividends or

distributions that it would otherwise be entitled to exercise or receive and

retain, as applicable pursuant to Section 4(a), shall cease, and all

such rights shall thereupon become vested in Secured Party, for the benefit of

the Lender Group, who shall thereupon have the sole right to exercise such

voting or other consensual rights and to receive and retain such cash dividends

and distributions with respect to such Pledgor.  Upon the receipt of such written notice, each such Pledgor shall

execute and deliver (or cause to be executed and delivered) to Secured Party

all such proxies and other instruments as Secured Party may reasonably request

for the purpose of enabling Secured Party to exercise the voting and other

rights which it is entitled to exercise and to receive the dividends and

distributions that it is entitled to receive and retain pursuant to the

preceding sentence.

 

5.     Representations and Warranties.  Each Pledgor represents, warrants, and

covenants as follows:

 

(a)   Such

Pledgor has taken all steps it deems necessary or appropriate to be informed on

a continuing basis of changes or potential changes affecting the Pledged

Collateral (including rights of conversion and exchange, rights to subscribe,

payment of dividends, reorganizations or recapitalization, tender offers and

voting rights), and each Pledgor agrees that no member of the Lender Group

shall have any responsibility or liability for informing any Pledgor of any

such changes or potential changes or for taking any action or omitting to take

any action with respect thereto;

 

(b)   All

information herein or hereafter supplied to Secured Party or any other member

of the Lender Group by or on behalf of such Pledgor in writing with respect to

the Pledged Collateral is, or in the case of information hereafter supplied

will be, accurate and complete in all material respects;

 

(c)   Such

Pledgor is and will be the sole legal and beneficial owner of the Pledged

Collateral (including the Pledged Interests and all other Pledged Collateral

acquired by such Pledgor after the date hereof) free and clear of any adverse

claim, 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 Lender

Group or (ii) any Lien (other than a United States federal tax Lien with

respect to which a notice of Lien has been filed) permitted under clause (b) of

the definition of Permitted Liens in the Financing Agreement that are junior

and subordinate to the Liens in favor of Secured Party;

 

(d)   This Stock

Pledge Agreement, and the delivery to Secured Party of the Pledged Interests

representing Pledged Collateral (or the delivery to all Holders of the Pledged

Interests representing Pledged Collateral of the notification/instruction

referred to in Section 3 of this Stock Pledge Agreement), creates a

valid, perfected, and first priority security interest in one hundred percent

(100%) of the Pledged Interests which are in certificated form in favor of

Secured Party, for the benefit of the Lender Group, securing payment of the

Secured Obligations, and all actions necessary to achieve such perfection have

been duly taken;

 

(e)   The

information related to each Pledgor set forth on Schedule A to this

Stock Pledge Agreement is true and correct and complete in all material

respects; without limiting the generality of the foregoing: (i) except as set

forth on Schedule A, all the Pledged Interests are in certificated form,

and, except to the extent registered in the name of Secured Party or its

nominee pursuant to the provisions of this Stock Pledge Agreement, are

registered in the name of the applicable Pledgor; and (ii) the Pledged

Interests as to each of the Issuers constitute at least the percentage of all

the fully diluted issued and outstanding Equity Interests of such Issuer as set

forth in Schedule A to this Stock Pledge Agreement;

 

(f)    the

Pledged Interests that are interests in general partnerships, limited

partnerships or limited liability companies (i) are not dealt in or traded on

securities exchanges or in securities markets, (ii) do not have terms expressly

providing 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;

 

(g)   On the

Closing Date, there are no presently existing Future Rights or Proceeds owned

by any Pledgor;

 

(h)   The Pledged

Interests have been duly authorized and validly issued and are fully paid and

nonassessable; and

 

(i)    Neither

the pledge of the Pledged Collateral pursuant to this Stock Pledge Agreement

nor the extensions of credit represented by the Secured Obligations violates

Regulation T, U or X of the Board of Governors of the Federal Reserve System.

 

6.     Further

Assurances.

 

(a)   Each

Pledgor agrees that from time to time, at the expense of such Pledgor, it will

promptly execute and deliver all further instruments and documents, and take

all further action that may be necessary or reasonably desirable, or that

Secured Party, on behalf 

 

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of the Lender Group, may

request, in order to perfect and protect any security interest granted or

purported to be granted hereby or to enable Secured Party, on behalf of the

Lender Group, to exercise and enforce its rights and remedies hereunder with

respect 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 records

pertaining to the Pledged Collateral with a legend, in form and substance

reasonably satisfactory to Secured Party, indicating that such Pledged

Collateral is subject to the security interest granted hereby; (ii) authorize

such financing or continuation statements, or amendments thereto, and such

other instruments or notices, as may be necessary or reasonably desirable, or

as Secured Party may request, in order to perfect and preserve the security

interests granted or purported to be granted hereby; (iii) allow inspection of

the Pledged Collateral by Secured Party or Persons designated by Secured Party;

and (iv) appear in and defend any action or proceeding that may affect such

Pledgor’s title to or Secured Party’s security interest in the Pledged

Collateral.

 

(b)   Each

Pledgor hereby authorizes Secured Party, on behalf of the Lender Group, to file

one or more financing or continuation statements, and amendments thereto,

relative to all or any part of the Pledged Collateral without the signature of

such Pledgor where permitted by law.  A

carbon, photographic, or other reproduction of this Stock Pledge Agreement or

any financing statement covering the Pledged Collateral or any part thereof

shall be sufficient as a financing statement where permitted by law.

 

(c)   Each

Pledgor will furnish to Secured Party, upon the request of Secured Party: (i) a

certificate executed by an authorized officer of such Pledgor, and dated as of

the date of delivery to Secured Party, itemizing in such detail as Secured

Party may request, the Pledged Collateral which, as of the date of such

certificate, has been delivered to Secured Party by such Pledgor pursuant to

the provisions of this Stock Pledge Agreement; and (ii) such statements and schedules

further identifying and describing the Pledged Collateral as Secured Party may

request.

 

7.     Covenants of Each Pledgor.  Each Pledgor shall:

 

(a)   Perform

each and every covenant in any of the Loan Documents applicable to such

Pledgor;

 

(b)   At all times

keep at least one complete set of its records concerning substantially all of

the Pledged Collateral at its Chief Executive Office as set forth in Schedule

6.01(dd) to the Financing Agreement;

 

(c)   To the

extent it may lawfully do so, use its reasonable best efforts to prevent the

Issuers from issuing Future Rights or Proceeds, except for cash dividends and

other distributions, if any, that are not prohibited by the terms of the

Financing Agreement to be paid by any Issuer to such Pledgor; and

 

8

 

(d)   Upon

receipt by such Pledgor of any material notice or report from any of the

Issuers 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 no

event later than five (5) days following the receipt thereof by such Pledgor

 

(e)   Not permit

any of the Issuers to:  (i) authorize

the amendment of or amend the Governing Documents of such Issuer that is a

general partnership, limited partnership or limited liability company to

provide 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 of

such Issuer that is a general partnership, limited partnership or limited

liability company.

 

8.     Secured Party as

Each Pledgor’s Attorney-in-Fact.

 

(a)   Upon the

occurrence and during the continuance of an Event of Default, each Pledgor

hereby 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 stead

of 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 to

execute any instrument that Secured Party, on behalf of the Lender Group, may

reasonably deem necessary or advisable to accomplish the purposes of this Stock

Pledge Agreement, including: (i) to receive, endorse, and collect all

instruments made payable to such Pledgor representing any dividend, interest

payment or other distribution in respect of the Pledged Collateral or any part

thereof to the extent permitted hereunder and to give full discharge for the

same and to execute and file governmental notifications and reporting forms;

(ii) to issue any notifications/instructions Secured Party deems necessary

pursuant to Section 3 of this Stock Pledge Agreement; or (iii) to

arrange for the transfer of the Pledged Collateral on the books of any of the

Issuers or any other Person to the name of Secured Party or to the name of

Secured Party’s nominee.

 

(b)   In addition

to 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, each

Pledgor hereby irrevocably appoints Secured Party, on behalf of the Lender

Group, as such Pledgor’s agent and attorney-in-fact to make, execute and

deliver any and all documents and writings which may be necessary or

appropriate for approval of, or be required by, any regulatory authority

located in any city, county, state or country where such Pledgor or any of the

Issuers engage in business, in order to transfer or to more effectively

transfer any of the Pledged Interests or otherwise enforce Secured Party’s rights

hereunder.

 

9.     Remedies upon Default.  Upon the occurrence and during the

continuance of an Event of Default:

 

(a)   Secured

Party, on behalf of the Lender Group, may exercise in respect of the Pledged

Collateral, in addition to other rights and remedies provided for herein or

otherwise available to it, all the rights and remedies of a secured party on

default under the Code (irrespective of whether the Code applies to the

affected items of Pledged Collateral), 

 

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and Secured Party may

also without notice (except as specified below) sell the Pledged Collateral or

any part thereof in one or more parcels at public or private sale, at any

exchange, broker’s board or at any of Secured Party’s offices or elsewhere, for

cash, on credit or for future delivery, at such time or times and at such price

or prices and upon such other terms as Secured Party may deem commercially

reasonable, irrespective of the impact of any such sales on the market price of

the Pledged Collateral.  To the maximum

extent permitted by applicable law, Secured Party may be the purchaser of any

or all of the Pledged Collateral at any such sale and shall be entitled, for

the purpose of bidding and making settlement or payment of the purchase price

for 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 on

account of the purchase price of any Pledged Collateral payable at such sale.  Each purchaser at any such sale shall hold

the property sold absolutely free from any claim or right on the part of the

applicable Pledgor, and each Pledgor hereby waives (to the extent permitted by

law) all rights of redemption, stay, or appraisal that it now has or may at any

time in the future have under any rule of law or statute now existing or

hereafter enacted.  Each Pledgor agrees

that, 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 sale

or the time after which a private sale is to be made shall constitute

reasonable notification.  Secured Party

shall not be obligated to make any sale of Pledged Collateral regardless of

notice of sale having been given. 

Secured Party may adjourn any public or private sale from time to time

by 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 so

adjourned.  To the maximum extent

permitted by law, each Pledgor hereby waives any claims against Secured Party

arising because the price at which any Pledged Collateral may have been sold at

such a private sale was less than the price that might have been obtained at a

public sale, even if Secured Party accepts the first offer received and does

not offer such Pledged Collateral to more than one offeree.

 

(b)   Each

Pledgor hereby agrees that any sale or other disposition of the Pledged

Collateral conducted in conformity with reasonable commercial practices of

banks, insurance companies, or other financial institutions in the Borough of

Manhattan, New York in disposing of property similar to the Pledged Collateral

shall be deemed to be commercially reasonable.

 

(c)   Each

Pledgor hereby acknowledges that the sale by Secured Party of any Pledged

Collateral pursuant to the terms hereof in compliance with the Securities Act

of 1933 as now in effect or as hereafter amended, or any similar statute

hereafter adopted with similar purpose or effect (the “Securities Act”),

as well as applicable “Blue Sky” or other state securities laws, may require

strict limitations as to the manner in which Secured Party or any subsequent

transferee of the Pledged Collateral may dispose thereof.  Each Pledgor acknowledges and agrees that in

order to protect Secured Party’s interest it may be necessary to sell the

Pledged Collateral at a price less than the maximum price attainable if a sale

were delayed or were made in another manner, such as a public offering under

the Securities Act.

 

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Each Pledgor has no

objection to sale in such a manner and agrees that Secured Party shall have no

obligation to obtain the maximum possible price for the Pledged

Collateral.  Without limiting the generality

of the foregoing, each Pledgor agrees that, upon the occurrence and during the

continuation of an Event of Default, Secured Party may, subject to applicable

law, from time to time attempt to sell all or any part of the Pledged

Collateral by a private placement, restricting the bidders and prospective

purchasers to those who will represent and agree that they are purchasing for

investment only and not for distribution. 

In so doing, Secured Party may solicit offers to buy the Pledged

Collateral or any part thereof for cash, from a limited number of investors

deemed by Secured Party, in its reasonable judgment, to be institutional

investors or other responsible parties who might be interested in purchasing

the Pledged Collateral.  If Secured

Party shall solicit such offers, then the acceptance by Secured Party of one of

the offers shall be deemed to be a commercially reasonable method of

disposition of the Pledged Collateral.

 

(d)   If Secured

Party shall determine to exercise its right to sell all or any portion of the

Pledged Collateral pursuant to this Section, each Pledgor agrees that, upon

request of Secured Party, such Pledgor will, at its own expense:

 

(i)            use

its reasonable best efforts to execute and deliver, and cause the Issuers and

the directors and officers thereof to execute and deliver, all such instruments

and documents, and to do or cause to be done all such other acts and things, as

may be necessary or, in the opinion of Secured Party, advisable to register

such Pledged Collateral under the provisions of the Securities Act, and to

cause the registration statement relating thereto to become effective and to

remain effective for such period as prospectuses are required by law to be

furnished, and to make all amendments and supplements thereto and to the

related prospectuses which, in the opinion of Secured Party, are necessary or

advisable, all in conformity with the requirements of the Securities Act and

the rules and regulations of the SEC applicable thereto;

 

(ii)           use

its reasonable best efforts to qualify the Pledged Collateral under the state

securities laws or “Blue Sky” laws and to obtain all necessary governmental

approvals for the sale of the Pledged Collateral, as reasonably requested by

Secured Party;

 

(iii)          cause

the Issuers to make available to their respective security holders, as soon as

practicable, an earnings statement which will satisfy the provisions of

Section 11(a) of the Securities Act;

 

(iv)          execute

and deliver, or cause the officers and directors of the Issuers to execute and

deliver, to any person, entity or governmental authority as Secured Party may

choose, any and all documents and writings which, in Secured Party’s reasonable

judgment, may be necessary or appropriate for approval, or be required by, any

regulatory authority located in any city, county, state, or country where such

Pledgor or the Issuers 

 

11

 

engage in business, in

order to transfer or to more effectively transfer the Pledged Interests or

otherwise enforce Secured Party’s rights hereunder; and

 

(v)           do

or cause to be done all such other acts and things as may be necessary to make

such sale of the Pledged Collateral or any part thereof valid and binding and

in compliance with applicable law.

 

Each Pledgor acknowledges

that there is no adequate remedy at law for failure by it to comply with the

provisions of this Section and that such failure would not be adequately

compensable in damages, and therefore agrees that its agreements contained in

this Section may be specifically enforced.

 

(e)   EACH PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM

EXTENT PERMITTED BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL

HEARING PRIOR TO THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE

COLLATERAL AS PROVIDED IN THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, OR

APPRAISAL THAT IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE

OF LAW OR STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT AS SET

FORTH IN SUBSECTION (a) OF THIS SECTION, ANY REQUIREMENT OF NOTICE,

DEMAND, OR ADVERTISEMENT FOR SALE.

 

10.  Application of Proceeds.  Upon the occurrence and during the

continuance of an Event of Default, any cash held by Secured Party as Pledged

Collateral and all cash proceeds received by Secured Party in respect of any

sale of, collection from, or other realization upon all or any part of the

Pledged Collateral pursuant to the exercise by Secured Party of its remedies as

a secured creditor as provided in Section 9 shall be applied from time

to time by Secured Party as provided in the Financing Agreement.

 

11.  Duties of Secured Party.  The powers conferred on Secured Party

hereunder are solely to protect its interests in the Pledged Collateral and

shall not impose on it any duty to exercise such powers.  Except as provided in the Code, Secured

Party shall have no duty with respect to the Pledged Collateral or any

responsibility for taking any necessary steps to preserve rights against any

Persons with respect to any Pledged Collateral.

 

12.  Amendments; Etc.  No amendment or waiver of any provision of

this Stock Pledge Agreement nor consent to any departure by any Pledgor

herefrom shall in any event be effective unless the same shall be in writing

and signed by Secured Party, and then such waiver or consent shall be effective

only in the specific instance and for the specific purpose for which

given.  No failure on the part of

Secured Party to exercise, and no delay in exercising any right under this

Stock Pledge Agreement, any other Loan Document, or otherwise with respect to

any of the Secured Obligations, shall operate as a waiver thereof; nor shall

any single or partial exercise of any right under this Stock Pledge Agreement,

any other Loan Document, or otherwise with respect to any of the Secured

Obligations preclude 

 

12

 

any other or further

exercise thereof or the exercise of any other right.  The remedies provided for in this Stock Pledge Agreement or

otherwise with respect to any of the Secured Obligations are cumulative and not

exclusive of any remedies provided by law.

 

13.  Notices.  Unless otherwise specifically provided

herein, any notice or other communication herein required or permitted to be

given shall be in writing and shall be delivered in the manner set forth in the

Financing Agreement.

 

14.  Continuing Security Interest.  This Stock Pledge Agreement shall create a

continuing security interest in the Pledged Collateral and shall: (i) remain in

full force and effect until the payment in full in cash of the Secured

Obligations, including the cash collateralization, expiration, or cancellation

of all Secured Obligations, if any, consisting of letters of credit, and the

full and final termination of any commitment to extend any financial

accommodations under the Financing Agreement; (ii) be binding upon each Pledgor

and its successors and assigns; and (iii) inure to the benefit of Secured Party

and its successors, transferees, and assigns. 

Upon the payment in full in cash of the Secured Obligations, including

the cash collateralization, expiration, or cancellation of all Secured

Obligations, if any, consisting of letters of credit, and the full and final

termination of any commitment to extend any financial accommodations under the

Financing Agreement, the security interests granted herein shall automatically

terminate and all rights to the Pledged Collateral shall revert to

Pledgor.  Upon any such termination,

Secured Party will, at the Pledgors’ expense, execute and deliver to the applicable

Pledgor such documents as Pledgor shall reasonably request to evidence such

termination and will duly assign, transfer and deliver to such Pledgor such of

the Pledged Collateral as has not theretofore been sold or otherwise applied or

released pursuant to this Stock Pledge Agreement.  Such documents shall be prepared by the Pledgors and shall be in

form and substance reasonably satisfactory to Secured Party.

 

15.  Security Interest Absolute.  To the maximum extent permitted by law, all

rights of Secured Party, all security interests hereunder, and all obligations

of the Pledgors hereunder, shall be absolute and unconditional irrespective of:

 

(a)   any lack of

validity or enforceability of any of the Secured Obligations or any other

agreement or instrument relating thereto, including any of the Loan Documents;

 

(b)   any change

in the time, manner, or place of payment of, or in any other term of, all or

any of the Secured Obligations, or any other amendment or waiver of or any

consent to any departure from any of the Loan Documents, or any other agreement

or instrument relating thereto;

 

(c)   any

exchange, release, or non-perfection of any other collateral, or any release or

amendment or waiver of or consent to departure from any guaranty for all or any

of the Secured Obligations; or

 

13

 

(d)   any other circumstances that might otherwise

constitute a defense available to, or a discharge of, a Pledgor.

 

To the maximum extent

permitted by law, each Pledgor hereby waives any right to require Secured Party

to: (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 this

Stock Pledge Agreement are included herein for convenience of reference only

and shall not constitute a part of this Stock Pledge Agreement or be given any

substantive effect.

 

17.  Severability.  In case any provision in or obligation under

this Stock Pledge Agreement shall be invalid, illegal or unenforceable in any

jurisdiction, the validity, legality and enforceability of the remaining

provisions or obligations, or of such provision or obligation in any other

jurisdiction, shall not in any way be affected or impaired thereby.

 

18.  Counterparts; Telefacsimile Execution.  This Stock Pledge Agreement may be executed

in one or more counterparts, each of which shall be deemed an original and all

of which together shall constitute one and the same Stock Pledge Agreement.  Delivery of an executed counterpart of this

Stock Pledge Agreement by telefacsimile shall be equally as effective as

delivery of an original executed counterpart of this Stock Pledge

Agreement.  Any party delivering an

executed counterpart of this Stock Pledge Agreement by telefacsimile also shall

deliver an original executed counterpart of this Stock Pledge Agreement but the

failure to deliver an original executed counterpart shall not affect the

validity, enforceability, or binding effect hereof.

 

19.  Waiver of Marshaling.  Each of Pledgor and Secured Party

acknowledges and agrees that in exercising any rights under or with respect to

the Pledged Collateral: (i) Secured Party is under no obligation to marshal any

Pledged Collateral; (ii) may, in its absolute discretion, realize upon the

Pledged 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 Pledged

Collateral to the Secured Obligations in any order and in any manner it so

elects.  Each Pledgor and Secured Party

waive any right to require the marshaling of any of the Pledged Collateral.

 

20.  Choice of Law.

 

THE VALIDITY OF THIS

STOCK PLEDGE AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND

THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND

CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

[Signature page to

follow.]

 

14

 

IN WITNESS WHEREOF, each

Pledgor and Secured Party have caused this Stock Pledge Agreement to be duly

executed and delivered by their officers thereunto duly authorized as of the

date 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

 

	

   

  	

  ABLECO FINANCE LLC,

  
	

   

  	

  a Delaware limited

  liability company, as Secured Party

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ Kevin Genda

  	

   

  
	

   

  	

  Name:

  	

  Kevin Genda

  
	

   

  	

  Title:

  	

  Senior Vice President

  

 

S-2

 

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 ELECTRONICS

CORPORATION

 

Pledged Interests

 

	

  Issuer

  	

   

  	

  Number of

  Shares

  	

   

  	

  Class

  	

   

  	

  Certificate

  Number(s)

  	

   

  	

  Pledgor’s

  Percentage

  Ownership

  	

   

  	

  Jurisdiction of

  Formation

  	

   

  
	

  NONE.Exhibit

10.6

 

INTERCOMPANY

SUBORDINATION AGREEMENT

 

THIS INTERCOMPANY SUBORDINATION AGREEMENT

(this “Agreement”), dated as of June 26, 2002, is made by and among ELGAR

HOLDINGS, INC., a Delaware corporation (“Parent”), and ELGAR

ELECTRONICS CORPORATION,  a California corporation (“Borrower”;

Parent and Borrower are referred to hereinafter each individually as an “Obligor”,

and collectively, as the “Obligors”), in favor of ABLECO FINANCE LLC, a

Delaware limited liability company, as the collateral agent for the

below-defined Lender Group (in such capacity, together with its successors, if

any, in such capacity, “Collateral Agent”).

 

WHEREAS, the Obligors and the Lender Group have

entered into that certain Financing Agreement, of even date herewith (as

amended, restated, modified, renewed or extended from time to time, the “Financing

Agreement”), pursuant to which (i) the Lender Group has agreed to make

certain financial accommodations to Borrower, and (ii) Parent has agreed to

guarantee the obligations of Borrower to the Lender Group.

 

WHEREAS, each Obligor has made or may make certain

loans or advances from time to time to one or more other Obligors; and

 

WHEREAS, each Obligor has agreed to the subordination

of such indebtedness of each other Obligor to such Obligor, upon the terms and

subject to the conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual

promises, covenants, conditions, representations, and warranties set forth

herein and for other good and valuable consideration, the parties hereto agree

as follows:

 

SECTION

1            Definitions;

Interpretation.

 

(a)           Terms Defined in Financing

Agreement.  All capitalized terms

used in this Agreement and not otherwise defined herein shall have the meanings

assigned to them in the Financing Agreement.

 

(b)           Certain Defined Terms.  As used in this Agreement, the following

terms shall have the following meanings:

 

“Administrative Agent” means Ableco Finance

LLC, a Delaware limited liability company, solely in its capacity as

administrative agent for the Lender Group, and shall include any successor

administrative agent.

 

“Agreement” has the meaning set forth in the

preamble hereto.

 

“Collateral Agent” has the meaning set forth in

the preamble hereto.

 

 

“Financing Agreement” has the meaning set forth

in the recitals hereto.

 

“Insolvency Event” has the meaning set forth in

Section 3.

 

“Lender Group” means, individually and

collectively, Collateral Agent, Administrative Agent and each of the Lenders.

 

“Lenders” means, individually and collectively,

each of the financial institutions listed on the signature pages of the

Financing Agreement and any other Person made a party thereto in accordance

with the provisions of Section 12.07 thereof (together with their respective

successors and assigns).

 

“Obligors” has the meaning set forth in the

preamble hereto.

 

“Parent” has the meaning set forth in the

preamble hereto.

 

“Senior Debt” means the Obligations and other

indebtedness and liabilities of the Obligors to the Lender Group under or in

connection with the Financing Agreement, the Security Agreement and the other

Loan Documents, including all unpaid principal of the Loans, all interest

accrued thereon, all fees due under the Financing Agreement and the other Loan

Documents, and all other amounts payable by the Obligors to the Lender Group

thereunder or in connection therewith, whether now existing or hereafter

arising, and whether due or to become due, absolute or contingent, liquidated

or unliquidated, determined or undetermined, and including without limitation

interest, fees, and other such amounts, which would accrue and become due but

for the commencement of an Insolvency Event, whether or not such interest,

fees, and other amounts are allowed or allowable in whole or in part in any

such Insolvency Event.

 

“Subordinated Debt” means, with respect to each

Obligor, all indebtedness, liabilities, and other obligations of any other

Obligor owing to such Obligor in respect of any and all loans or advances made

by such Obligor to such other Obligor whether now existing or hereafter

arising, and whether due or to become due, absolute or contingent, liquidated

or unliquidated, determined or undetermined, including all fees and all other

amounts payable by any other Obligor to such Obligor under or in connection

with any documents or instruments related thereto.

 

“Subordinated Debt Payment” means any payment

or distribution by or on behalf of the Obligors, directly or indirectly, of

assets of the Obligors of any kind or character, whether in cash, property, or

securities, including on account of the purchase, redemption, or other

acquisition of Subordinated Debt, as a result of any collection, sale, or other

disposition of collateral, or by setoff, exchange, or in any other manner, for

or on account of the Subordinated Debt.

 

(c)           Interpretation.  Unless the context of this Agreement clearly

requires otherwise, references to the plural include the singular, references

to the singular include the plural, the term “including” is not limiting, and

the term “or” has, except where otherwise indicated, the inclusive meaning

represented by the phrase “and/or.”  The

words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this

Agreement refer to this Agreement as a 

 

2

 

whole and not to any particular

provision of this Agreement.  Section,

subsection, clause, schedule, and exhibit references are to this Agreement

unless otherwise specified.  References

to agreements and other contractual instruments shall be deemed to include all

subsequent amendments and other modifications thereto.  References to statutes or regulations are to

be construed as including all statutory and regulatory provisions

consolidating, amending, or replacing the statute or regulation referred

to.  The captions and headings are for

convenience of reference only and shall not affect the construction of this

Agreement.

 

SECTION

2            Subordination to Payment

of Senior Debt.  As to each Obligor,

all payments on account of the Subordinated Debt shall be subject, subordinate,

and junior, in right of payment and exercise of remedies, to the extent and in

the manner set forth herein, to the prior payment, in full, in cash or cash

equivalents of the Senior Debt (or the collateralization thereof in a manner

reasonably satisfactory to Collateral Agent).

 

SECTION

3            Subordination Upon Any

Distribution of Assets of the Obligors. 

As to each Obligor, in the event of any payment or distribution of

assets of any other Obligor of any kind or character, whether in cash,

property, or securities, upon the dissolution, winding up, or total or partial

liquidation or reorganization, readjustment, arrangement, or similar proceeding

relating to such other Obligor or its property, whether voluntary or

involuntary, or in bankruptcy, insolvency, receivership, arrangement, or

similar proceedings or upon an assignment for the benefit of creditors, or upon

any other marshaling or composition of the assets and liabilities of such other

Obligor, or otherwise (such events, collectively, the “Insolvency Events”):  (i) all amounts owing on account of the

Senior Debt shall first be paid, in full, in cash, or payment provided for in

cash or in cash equivalents, before any Subordinated Debt Payment is made; and

(ii) to the extent permitted by applicable law, any Subordinated Debt Payment

to which such Obligor would be entitled except for the provisions hereof, shall

be paid or delivered by the trustee in bankruptcy, receiver, assignee for the

benefit of creditors, or other liquidating agent making such payment or

distribution directly to Collateral Agent for the benefit of the Lender Group

for application to the payment of the Senior Debt in accordance with clause

(i), after giving effect to any concurrent payment or distribution or provision

therefor to the Lender Group, or Collateral Agent for the benefit thereof, in

respect of such Senior Debt.

 

SECTION

4            Payments on Subordinated

Debt.

 

(a)           Permitted Payments.  So long as no Event of Default has occurred

and is continuing, each Obligor may make, and each other Obligor shall be

entitled to accept and receive, payments on account of the Subordinated Debt in

the ordinary course of business.

 

(b)           No Payment Upon Senior Debt

Defaults.  Upon the occurrence of

any Event of Default, and until such Event of Default is cured or waived, each

Obligor shall not make, and each other Obligor shall not accept or receive, any

Subordinated Debt Payment.

 

SECTION

5            Subordination of Remedies.  As long as any Senior Debt shall remain

outstanding and unpaid, following the occurrence of any Event of Default and

until such Event of Default is cured or waived, each Obligor shall not, without

the prior written consent of Collateral Agent:

 

3

 

(a)           accelerate, make demand, or otherwise

make due and payable prior to the original due date thereof any Subordinated

Debt or bring suit or institute any other actions or proceedings to enforce its

rights or interests in respect of the obligations of any other Obligor owing to

such Obligor;

 

(b)           exercise any rights under or with

respect to guaranties of the Subordinated Debt, if any;

 

(c)           exercise any rights to set-offs and

counterclaims in respect of any indebtedness, liabilities, or obligations of

such Obligor to any other Obligor against any of the Subordinated Debt; or

 

(d)           commence, or cause to be commenced,

or join with any creditor other than the Lender Group, or Collateral Agent on

behalf thereof, in commencing, any bankruptcy, insolvency, or receivership

proceeding against the other Obligor.

 

SECTION

6            Payment Over to Collateral

Agent.  In the event that,

notwithstanding the provisions of Sections 3, 4, and 5, any Subordinated Debt

Payments shall be received in contravention of such Sections 3, 4, and 5 by any

Obligor before all Senior Debt is paid, in full, in cash or cash equivalents,

such Subordinated Debt Payments shall be held in trust for the benefit of the

Lender Group and shall be paid over or delivered to Collateral Agent for the

benefit of the Lender Group for application to the payment, in full, in cash or

cash equivalents of all Senior Debt remaining unpaid to the extent necessary to

give effect to such Sections 3, 4, and 5, after giving effect to any concurrent

payments or distributions to the Lender Group in respect of the Senior Debt.

 

SECTION

7            Authorization to

Collateral Agent.  If, while any

Subordinated Debt is outstanding, any Insolvency Event shall occur and be

continuing with respect to the other Obligor or its property:  (i) Collateral Agent, on behalf of the

Lender Group, hereby is irrevocably authorized and empowered (in the name of

each Obligor or otherwise), but shall have no obligation, to demand, sue for,

collect, and receive every payment or distribution in respect of the

Subordinated Debt and give acquittance therefor and to file claims and proofs

of claim and take such other action (including voting the Subordinated Debt) as

it may deem necessary or advisable for the exercise or enforcement of any of

the rights or interests of the Lender Group; and (ii) each Obligor shall

promptly take such action as Collateral Agent reasonably may request (A) to

collect the Subordinated Debt for the account of the Lender Group and to file

appropriate claims or proofs of claim in respect of the Subordinated Debt, (B)

to execute and deliver to Collateral Agent such powers of attorney,

assignments, and other instruments as it may request to enable it to enforce

any and all claims with respect to the Subordinated Debt, and (C) to collect

and receive any and all Subordinated Debt Payments.

 

SECTION

8            Certain Agreements of Each

Obligor.

 

(a)           No Benefits.  Each Obligor understands that there may be

various agreements between the Lender Group and any other Obligor evidencing

and governing the Senior Debt, and each Obligor acknowledges and agrees that

such agreements are not intended to confer any benefits on such Obligor and

that the Lender Group and Collateral Agent on behalf 

 

4

 

thereof shall have no obligation to such

Obligor or any other Person to exercise any rights, enforce any remedies, or

take any actions which may be available to them under such agreements.

 

(b)           No Interference.  Each Obligor acknowledges that each other

Obligor has granted to Collateral Agent for the benefit of the Lender Group

security interests in all of such other Obligor’s assets, and agrees not to

interfere with or in any manner oppose a disposition of any Collateral by the

Lender Group, or Collateral Agent on behalf thereof, in accordance with

applicable law.

 

(c)           Reliance by the Lender Group.  Each Obligor acknowledges and agrees that

the Lender Group will have relied upon and will continue to rely upon the

subordination provisions provided for herein and the other provisions hereof in

entering into the Loan Documents and making or issuing the Loans, or other

financial accommodations thereunder.

 

(d)           Waivers.  Except as provided under the Financing

Agreement, each Obligor hereby waives any and all notice of the incurrence of

the Senior Debt or any part thereof and any right to require marshaling of

assets.

 

(e)           Obligations of Each Obligor Not

Affected.  Each Obligor hereby

agrees that at any time and from time to time, without notice to or the consent

of such Obligor, without incurring responsibility to such Obligor, and without

impairing or releasing the subordination provided for herein or otherwise

impairing the rights of the Lender Group hereunder: (i) the time for any other

Obligor’s performance of or compliance with any of its agreements contained in

the Loan Documents may be extended or such performance or compliance may be

waived by the Lender Group or Collateral Agent on behalf thereof; (ii) the

agreements of any other Obligor with respect to the Loan Documents may from

time to time be modified by such other Obligor and the Lender Group or

Collateral Agent on behalf thereof for the purpose of adding any requirements

thereto or changing in any manner the rights and obligations of such other

Obligor or the Lender Group thereunder; (iii) the manner, place, or terms for

payment of Senior Debt or any portion thereof may be altered or the terms for

payment extended, or the Senior Debt may be renewed in whole or in part; (iv)

the maturity of the Senior Debt may be accelerated in accordance with the terms

of any present or future agreement by any other Obligor and the Lender Group or

Collateral Agent on behalf thereof; (v) any Collateral may be sold, exchanged,

released, or substituted and any Lien in favor of Collateral Agent for the

benefit of the Lender Group may be terminated, subordinated, or fail to be

perfected or become unperfected; (vi) any Person liable in any manner for

Senior Debt may be discharged, released, or substituted; and (vii) all other

rights against the other Obligor, any other Person, or with respect to any

Collateral may be exercised (or the Lender Group or Collateral Agent on behalf

thereof may waive or refrain from exercising such rights).

 

(f)            Rights of the Lender Group Not to

Be Impaired.  No right of the Lender

Group or Collateral Agent on behalf thereof to enforce the subordination

provided for herein or to exercise its other rights hereunder shall at any time

in any way be prejudiced or impaired by any act or failure to act by any other

Obligor, the Lender Group, or Collateral Agent hereunder or under or in

connection with the other Loan Documents or by any noncompliance by the other

Obligor with the terms and provisions and covenants herein or in any other Loan

Document,

 

5

 

regardless of any knowledge thereof

the Lender Group or Collateral Agent on behalf thereof may have or otherwise be

charged with.

 

(g)           Financial Condition of the

Obligors.  Except as provided under

the Financing Agreement, each Obligor shall not have any right to require the

Lender Group to obtain or disclose any information with respect to:  (i) the financial condition or character of

any other Obligor or the ability of the other Obligor to pay and perform Senior

Debt; (ii) the Senior Debt; (iii) the Collateral or other security for any or

all of the Senior Debt; (iv) the existence or nonexistence of any guarantees

of, or any other subordination agreements with respect to, all or any part of

the Senior Debt; (v) any action or inaction on the part of the Lender Group or

any other Person; or (vi) any other matter, fact, or occurrence whatsoever.

 

(h)           Acquisition of Liens or Guaranties.  Except as permitted under the Financing

Agreement, each Obligor shall not, without the prior consent of Collateral

Agent (such consent not to be withheld unreasonably), acquire any right or

interest in or to any Collateral not owned by such Obligor or accept any

guaranties for the Subordinated Debt.

 

SECTION

9            Subrogation.

 

(a)           Subrogation.  Until the payment and performance in full in

cash of all Senior Debt (or the collateralization thereof in a manner

reasonably satisfactory to Collateral Agent), each Obligor shall not have, and

shall not directly or indirectly exercise, any rights that it may acquire by

way of subrogation under this Agreement, by any payment or distribution to the

Lender Group hereunder or otherwise. 

Upon the payment and performance in full in cash of all Senior Debt,

each Obligor shall be subrogated to the rights of the Lender Group to receive

payments or distributions applicable to the Senior Debt until the Subordinated

Debt shall be paid in full.  For the

purposes of the foregoing subrogation, no payments or distributions to the

Lender Group of any cash, property, or securities to which any Obligor would be

entitled except for the provisions of Section 3, 4, or 5 shall, as among such

Obligor, its creditors (other than the Lender Group), and the other Obligor, be

deemed to be a payment by the other Obligors to or on account of the Senior

Debt.

 

(b)           Payments Over to the Obligors.  If any payment or distribution to which any

Obligor would otherwise have been entitled but for the provisions of Section 3,

4, or 5 shall have been applied pursuant to the provisions of Section 3, 4, or

5 to the payment of all amounts payable under the Senior Debt, such Obligor

shall be entitled to receive from the Lender Group any payments or

distributions received by the Lender Group in excess of the amount sufficient

to pay in full in cash all amounts payable under or in respect of the Senior

Debt.  If any such excess payment is

made to the Lender Group, the Lender Group shall promptly remit such excess to

such Obligor and until so remitted shall hold such excess payment for the benefit

of such Obligor.

 

SECTION

10          Continuing Agreement;

Reinstatement.

 

(a)           Continuing Agreement.  This Agreement is a continuing agreement of

subordination and shall continue in effect and be binding upon each Obligor

until payment and performance in full in cash of the Senior Debt (or the collateralization

thereof in a manner 

 

6

 

reasonably satisfactory to Collateral

Agent).  The subordinations, agreements,

and priorities set forth herein shall remain in full force and effect

regardless of whether any party hereto in the future seeks to rescind, amend,

terminate, or reform, by litigation or otherwise, its respective agreements

with the other Obligor.

 

(b)           Reinstatement.  This Agreement shall continue to be

effective or shall be reinstated, as the case may be, if, for any reason, any

payment of the Senior Debt by or on behalf of any other Obligor shall be

rescinded or must otherwise be restored by the Lender Group, whether as a

result of an Insolvency Event or otherwise.

 

SECTION

11          Transfer of Subordinated

Debt.  Each Obligor may not assign

or transfer its rights and obligations in respect of the Subordinated Debt

without the prior written consent of Collateral Agent (such consent not to be

withheld unreasonably), and any such transferee or assignee, as a condition to

acquiring an interest in the Subordinated Debt shall agree to be bound hereby,

in form reasonably satisfactory to Collateral Agent.

 

SECTION

12          Obligations of the Obligors

Not Affected.  The provisions of

this Agreement are intended solely for the purpose of defining the relative

rights of each Obligor against the other Obligors, on the one hand, and of the

Lender Group against the Obligors, on the other hand.  Nothing contained in this Agreement shall (i) impair, as between

each Obligor and the other Obligors, the obligation of the other Obligors to

pay their respective obligations with respect to the Subordinated Debt as and

when the same shall become due and payable, or (ii) otherwise affect the

relative rights of each Obligor against the other Obligors, on the one hand,

and of the creditors (other than the Lender Group) of the other Obligors

against the other Obligors, on the other hand.

 

SECTION

13          Endorsement of Obligor

Documents; Further Assurances and Additional Acts.

 

(a)           Endorsement of Obligor Documents.  At the reasonable request of Collateral

Agent, all documents and instruments evidencing any of the Subordinated Debt,

if any, shall be endorsed with a legend noting that such documents and

instruments are subject to this Agreement, and each Obligor shall promptly

deliver to Collateral Agent evidence of the same.

 

(b)           Further Assurances and Additional

Acts.  Each Obligor shall execute,

acknowledge, deliver, file, notarize, and register at its own expense all such

further agreements, instruments, certificates, financing statements, documents,

and assurances, and perform such acts as Collateral Agent reasonably shall deem

necessary or appropriate to effectuate the purposes of this Agreement, and

promptly provide Collateral Agent with evidence of the foregoing reasonably

satisfactory in form and substance to Collateral Agent.

 

SECTION

14          Notices.  All notices and other communications

provided for hereunder shall, unless otherwise stated herein, be in writing

(including by facsimile transmission) and shall be mailed, sent, or delivered

in accordance with the notice provisions contained in the Financing Agreement.

 

7

 

SECTION

15          No Waiver; Cumulative

Remedies.  No failure on the part of

the Lender Group or Collateral Agent on behalf thereof to exercise, and no

delay in exercising, any right, remedy, power, or privilege hereunder shall

operate as a waiver thereof, nor shall any single or partial exercise of any

such right, remedy, power, or privilege preclude any other or further exercise

thereof or the exercise of any other right, remedy, power, or privilege.  The rights and remedies under this Agreement

are cumulative and not exclusive of any rights, remedies, powers, and

privileges that may otherwise be available to the Lender Group.

 

SECTION

16          Costs and Expenses.

 

(a)           Payments by the Obligors.  Each of the Obligors, jointly and severally,

agrees to pay to Collateral Agent, for the account of the Lender Group, on

demand, the reasonable out-of-pocket costs and expenses of the Lender Group,

and the reasonable fees and disbursements of counsel to the Lender Group, in

connection with the negotiation, preparation, execution, delivery, and

administration of this Agreement, and any amendments, modifications, or waivers

of the terms thereof.

 

(b)           Payments by the Obligors.  Each of the Obligors, jointly and severally,

agrees to pay to Collateral Agent for the account of the Lender Group on demand

all reasonable costs and expenses of the Lender Group, and the fees and

disbursements of counsel, in connection with the enforcement or attempted

enforcement of, and preservation of rights or interests under, this Agreement,

including any reasonable losses, costs and expenses sustained by the Lender Group

as a result of any failure by any Obligor to perform or observe its obligations

contained in this Agreement.

 

SECTION

17          Survival.  All covenants, agreements, representations

and warranties made in this Agreement shall, except to the extent otherwise

provided herein, survive the execution and delivery of this Agreement, and

shall continue in full force and effect so long as any Senior Debt remains

unpaid.  Without limiting the generality

of the foregoing, the obligations of each Obligor under Section 16 shall

survive the satisfaction of the Senior Debt.

 

SECTION

18          Benefits of Agreement.  This Agreement is entered into for the sole

protection and benefit of the parties hereto and their successors and assigns,

and no other Person shall be a direct or indirect beneficiary of, or shall have

any direct or indirect cause of action or claim in connection with, this

Agreement.

 

SECTION

19          Binding Effect.  This Agreement shall be binding upon, inure

to the benefit of and be enforceable by each Obligor and the Lender Group and

their respective successors and permitted assigns.

 

SECTION

20          GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND

CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

SECTION

21          SUBMISSION TO JURISDICTION.  EACH OBLIGOR HEREBY (i) SUBMITS TO THE

EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL

COURTS OF THE UNITED STATES SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW

YORK, FOR THE PURPOSE 

 

8

 

OF ANY ACTION OR PROCEEDING ARISING

OUT OF OR RELATING TO THIS AGREEMENT, (ii) AGREES THAT ALL CLAIMS IN RESPECT OF

ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURTS, OR AT

THE SOLE OPTION OF AGENT, IN ANY OTHER COURT IN WHICH AGENT SHALL INITIATE

LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER

THE MATTER IN CONTROVERSY (iii) IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED BY

APPLICABLE LAW) ANY OBJECTION WHICH IT NOW OR HEREAFTER MAY HAVE TO THE LAYING

OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING

COURTS, AND ANY OBJECTION ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN

ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND (iv) AGREES THAT A

FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE

ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER

PERMITTED BY LAW.

 

SECTION

22          Entire Agreement;

Amendments and Waivers.

 

(a)           Entire Agreement.  This Agreement constitutes the entire

agreement of each of the Obligors and the Lender Group with respect to the

matters set forth herein and supersedes any prior agreements, commitments,

drafts, communications, discussions, and understandings, oral or written, with

respect thereto.

 

(b)           Amendments and Waivers.  No amendment to any provision of this

Agreement shall in any event be effective unless the same shall be in writing

and signed by each of the Obligors and Collateral Agent; and no waiver of any

provision of this Agreement, or consent to any departure by any Obligor

therefrom, shall in any event be effective unless the same shall be in writing

and signed by Collateral Agent.  Any

such amendment, waiver, or consent shall be effective only in the specific

instance and for the specific purpose for which given.

 

SECTION

23          Conflicts.  In case of any conflict or inconsistency

between any terms of this Agreement, on the one hand, and any documents or

instruments in respect of the Subordinated Debt, on the other hand, then the

terms of this Agreement shall control.

 

SECTION

24          Severability.  Whenever possible, each provision of this

Agreement shall be interpreted in such manner as to be effective and valid

under all applicable laws and regulations. 

If, however, any provision of this Agreement shall be prohibited by or

invalid under any such law or regulation in any jurisdiction, it shall, as to

such jurisdiction, be deemed modified to conform to the minimum requirements of

such law or regulation, or, if for any reason it is not deemed so modified, it

shall be ineffective and invalid only to the extent of such prohibition or

invalidity without affecting the remaining provisions of this Agreement or the

validity or effectiveness of such provision in any other jurisdiction.

 

SECTION

25          Interpretation.  This Agreement is the result of negotiations

between, and have been reviewed by the respective counsel to, the Obligors and

the several members of the Lender Group and is the product of all parties

hereto.  Accordingly, this

 

9

 

Agreement shall not be construed

against the Lender Group merely because of the Lender Group’s involvement in

the preparation hereof.

 

SECTION

26          Counterparts; Telefacsimile

Execution.  This Agreement may be

executed in any number of counterparts and by different parties hereto in

separate counterparts, each of which when so executed shall be deemed to be an

original and all of which taken together shall constitute but one and the same

agreement.  Delivery of an executed

counterpart of this Agreement by telefacsimile shall be equally effective as

delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart

of this Agreement by telefacsimile also shall deliver an original executed counterpart

of this Agreement but the failure to deliver an original executed counterpart

shall not affect the validity, enforceability, and bind effect of this

Agreement.

 

SECTION

27          Termination of Agreement.  Upon payment and performance in full in cash

of the Senior Debt, this Agreement shall terminate and Collateral Agent on

behalf of the Lender Group shall promptly execute and deliver to each Obligor

such documents and instruments as shall be reasonably necessary to evidence

such termination; provided, however, that the obligations of each Obligor under

Section 16 shall survive such termination.

 

 

[Signature page follows.]

 

10

 

IN WITNESS WHEREOF, each of the undersigned has

executed and delivered this Agreement as of the date 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

 

	

   

  	

  ABLECO

  FINANCE LLC,

  
	

   

  	

  a Delaware limited liability company

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ Kevin Genda

  	

   

  
	

   

  	

  Name:

  	

  Kevin Genda

  	

   

  
	

   

  	

  Title:

  	

  Senior Vice President

  	

   

  

 

S-2

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