Amendment #6 and Waiver to the Credit Agreement



 


Exhibit 10.26


		
	 	AMENDMENT NO. 6 AND WAIVER dated as of May 28, 2003 (this
“Amendment”), to the Credit Agreement dated as of June 28, 1999,
as amended and restated as of July 21, 1999, as amended (the
“Credit Agreement”), among Knowles Electronics Holdings, Inc.,
formerly known as Knowles Electronics, Inc., a Delaware
corporation (the “Parent Borrower”); the financial institutions
party thereto as Lenders (the “Lenders”); JPMorgan Chase Bank, as
successor to The Chase Manhattan Bank, as administrative agent
(in such capacity, the “Administrative Agent”) and Morgan Stanley
Senior Funding, Inc., as Syndication Agent.



               A.     The Lenders and the Issuing Bank have extended credit to the Parent
Borrower, and have agreed to extend credit to the Parent Borrower, in each case
pursuant to the terms and subject to the conditions set forth in the Credit
Agreement.



               B.     The Parent Borrower and Knowles Intermediate Holding, Inc.
(“Intermediate Holdings”) have entered into an agreement dated May 20, 2003 in
the form of attached hereto as Exhibit A (the “SSPI Sale Agreement”) with
Woodward Governor Company (the “Purchaser”), pursuant to which Intermediate
Holdings and the Parent Borrower will agree, subject to the terms and
conditions set forth therein, to sell, transfer and assign the Shares (as
defined in the SSPI Sale Agreement) to the Purchaser (the “SSPI Sale”).



               C.     The Parent Borrower may wish to sell all the capital stock of and any
other investments in Ruwido Austria GmbH (“Ruwido”, such capital stock and any
other investments, the “Ruwido Securities”) and its Subsidiaries (the “Ruwido
Sale”).



               D.     The Parent Borrower has requested that the Required Lenders agree to
amend and waive certain provisions of the Credit Agreement and consent to the
release of (i) certain Subsidiary Loan Parties from the Guarantee of the
Subsidiary Guarantee Agreement and (ii) the security interests pursuant to the
Security Documents in the Shares and the assets of the Subsidiaries proposed to
be transferred pursuant to the SSPI Sale Agreement, and in the Ruwido
Securities and the assets of the Subsidiaries that would be transferred
pursuant to a Ruwido Sale as set forth herein. The Required Lenders are
willing to agree to such amendments, waivers and consents pursuant to the terms
and subject to the conditions set forth herein.



               E.     Capitalized terms used but not defined herein have the meanings
assigned to them in the Credit Agreement as amended and waived hereby.



     Accordingly, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the parties hereto agree as follows:


Amendments. The Credit Agreement is hereby amended as follows:


Section 1.01 of the Credit Agreement is hereby amended by deleting the
definition of the term “Consolidated EBITDA” and substituting in lieu thereof
the following:



		
	 	     “Consolidated EBITDA” means, for any period, Consolidated Net Income
for such period plus (a) without duplication and to the extent deducted
in determining such



1






 





		
	 	Consolidated Net Income, the sum of (i) consolidated interest
expense for such period, (ii) consolidated tax expenses for income taxes
and taxes in the nature of income taxes for such period, (iii) all
amounts attributable to depreciation and amortization for such period,
(iv) any extraordinary non-cash charges for such period, (v) one time
cash costs incurred in connection with the Transactions in an aggregate
amount not to exceed $10,674,000, (vi) the 1999 Balance Sheet
Adjustments, (vii) cash restructuring charges taken in 2000, 2001 and/or
2002 in connection with the Manufacturing Restructuring Program in an
aggregate amount not to exceed $20,000,000, (viii) non-cash charges
relating to the sale of Ruf Electronics Gmbh, (ix) for all purposes other
than the calculation of the Leverage Ratio for purposes of determining
the Applicable Rate, cash restructuring charges taken in 2003, 2004 and
2005 in an aggregate amount not to exceed $7,500,000 in connection with
nonrecurring restructuring of overhead costs and (x) non-cash charges
relating to the SSPI Sale and the Ruwido Sale (including any loss
relating to the Ruwido Sale), and minus (b) without duplication and to
the extent included in determining such Consolidated Net Income, any
extraordinary gains for such period including gains (net of any and all
fees and expenses) relating to the SSPI Sale, all determined on a
consolidated basis in accordance with GAAP.



Section 1.01 of the Credit Agreement is hereby amended by adding to paragraph
(a) of the definition of the term “Excess Cash Flow” immediately prior to the
semicolon at the end thereof the following:



		
	 	(treating the SSPI Sale and the Ruwido Sale as a Prepayment Event)



Section 1.01 of the Credit Agreement is hereby amended by adding to clause
(c)(i) of the definition of the term “Excess Cash Flow” immediately prior to
the word “plus” the following:



		
	 	(excluding any Net Working Capital decrease resulting from (x) the SSPI
Sale for the fiscal year of such sale and (y) the Ruwido Sale for the
fiscal year of such sale)



Section 1.01 of the Credit Agreement is hereby amended by adding to clause (f)
of the definition of the term “Excess Cash Flow” immediately prior to the first
comma thereof the following:



		
	 	(for purposes of this clause (f), scheduled repayments of the Loans
that are adjusted pursuant to the proviso in the first sentence of
Section 2.10(d) shall be deemed to be repaid (i) in the fiscal year
in which such scheduled repayments would be due but for such
proviso and (ii) in the amount of total scheduled repayments that
would be due in such fiscal year but for such proviso)



Section 1.01 of the Credit Agreement is hereby amended by (i) deleting the word
“and” appearing at the end of clause (i) of the definition of the term “Net
Working Capital” and substituting in lieu thereof a comma and (ii) adding
following the word “Program” the following:



		
	 	and (iii) accruals and reserves for or relating to nonrecurring
restructuring of overhead costs taken in 2003, 2004 and 2005 in an
aggregate amount not to exceed $7,500,000



2






 






Section 1.01 of the Credit Agreement is hereby amended by adding the following
defined terms in proper alphabetical order:



		
	 	          “Amendment Number 6” means Amendment No. 6 and Waiver dated as of
May 28, 2003, to this Agreement.




		
	 	          “Amendment No. 6 Effective Date” means the date Amendment No. 6
becomes effective in accordance with its terms.




		
	 	          “Ruwido Sale” has the meaning set forth in Amendment No. 6.




		
	 	          “SSPI Sale” has the meaning set forth in Amendment No. 6.



                 F.Section 2.10(d) of the Credit Agreement is hereby amended by adding prior
to the period at the end of the first sentence thereof the following:




		
	 	; provided that in the case of the SSPI Sale, the first $10,000,000 of
Net Proceeds shall be applied to reduce the subsequent scheduled
repayments of Tranche B Term Borrowings to be made pursuant to this
Section or pursuant to Section 2.11(d) in the direct order in which such
repayments are due, and the remainder of such Net Proceeds shall be
applied to reduce the subsequent scheduled repayments of Tranche B Term
Borrowings to be made pursuant to this Section ratably.



Section 6.04(k) of the Credit Agreement is hereby amended by adding before the
semicolon at the end thereof the following:



		
	 	(for purposes of the clause (k), the Ruwido Sale shall be considered as
if permitted by Section 6.05)



Section 6.05(d) of the Credit Agreement is hereby amended by adding immediately
prior to the semicolon at the end thereof the following:



		
	 	(it being understood that neither the SSPI Sale nor the Ruwido Sale shall
be considered as made in reliance upon this clause (d))



Section 6.12 of the Credit Agreement is hereby amended by adding immediately
before the colon before the table thereof the following:



		
	 	(for purposes of the foregoing proviso, the Ruwido Sale and the SSPI Sale
shall not be deemed a disposition permitted by Section 6.05)



3






 




Section 6.13 of the Credit Agreement is hereby amended by adding immediately
before the colon before the table thereof the following:



		
	 	(for purposes of the foregoing proviso, the Ruwido Sale and the SSPI Sale
shall not be deemed a disposition permitted by Section 6.05)



Waivers. The undersigned Lenders hereby waive compliance by the Parent
Borrower with the provisions of the Credit Agreement to the extent necessary
to permit the SSPI Sale on substantially the same terms and conditions set
forth in the SSPI Sale Agreement; provided that on the date of consummation of
the SSPI Sale, the entire amount of the Net Proceeds thereof (which shall
exclude amounts deposited in escrow in accordance with the SSPI Sale Agreement
and a reasonable reserve for a potential purchase price adjustment), which
shall not be less than $42,000,000 after excluding such escrowed amounts and
reserve, shall be delivered to the Administrative Agent and applied (on such
date or, if received too late on such date to be so applied, then on the next
Business Day) to prepay Tranche B Term Borrowings pursuant to Section 2.11(c)
of the Credit Agreement (and no election shall be permitted thereunder to
reinvest such Net Proceeds), and any Net Proceeds thereof received after the
date of consummation of the SSPI Sale (including pursuant to a release of
escrowed amounts) shall be delivered to the Administrative Agent by the Parent
Borrower on the date received and applied (on such date or, if received too
late on such date to be so applied, then on the next Business Day) to prepay
Term Borrowings pursuant to Section 2.11(c) of the Credit Agreement (and no
election shall be permitted thereunder to reinvest such Net Proceeds).


The undersigned Lenders hereby waive compliance by the Parent Borrower with (x)
Sections 6.03 and 6.05 of the Credit Agreement to the extent necessary to
permit the Ruwido Sale and (y) Section 6.08 of the Credit Agreement to the
extent necessary to allow for up to the full repayment of any Indebtedness of
Ruwido and its Subsidiaries in connection with the Ruwido Sale (any such repaid
Indebtedness being deemed to be required to be repaid for the purpose of the
calculation of Net Proceeds, whether or not so required); provided that in the
case of each of clauses (x) and (y), (i) there shall not be any significant
additional investments in or other transfers of assets to Ruwido and its
Subsidiaries by the Parent Borrower and its other Subsidiaries, or other
unusual intercompany transactions between Ruwido and its Subsidiaries, on the
one hand, and the Parent Borrower and its other Subsidiaries, on the other
hand, prior to consummation of the Ruwido Sale, (ii) no Default shall have
occurred and be continuing at the time of and after giving effect to the Ruwido
Sale, (iii) the Ruwido Sale shall be consummated prior to December 31, 2004,
(iv) the Parent Borrower and its other Subsidiaries shall not have any
investment commitments or other contingent liabilities to or for the account of
Ruwido or any of its Subsidiaries (or for the purchaser thereof) after giving
effect to the Ruwido Sale, other than pursuant to customary indemnities and
purchase price adjustments, (v) the sum of (A) the Net Proceeds received on
the date of consummation of the Ruwido Sale and (B) the amount of any optional
prepayments of Tranche B Term Loans on such date shall not be less than
$1,000,000, (vi) all Net Proceeds from the Ruwido Sale shall be delivered to
the Administrative Agent not later than one Business Day after the date of
receipt and applied (on such date or, if received too late on such date to be
so applied, then on the next Business Day) to prepay Term Borrowings pursuant
to Section 2.11(c) of the Credit Agreement (and no election shall be permitted
thereunder to reinvest such Net Proceeds) and (vii) the Parent Borrower shall
deliver to the Administrative Agent, on or prior to the date of consummation of
the Ruwido Sale, a


4






 


certificate of a Financial Officer certifying compliance with the requirements
set forth in clause (i), (ii) and (iv) of this paragraph and setting forth a
reasonably detailed computation of the Net Proceeds of the Ruwido Sale.


               H. The undersigned Lenders hereby waive compliance with Section 6.09 of the
Credit Agreement to the extent necessary to permit the payment of the Parent
Borrower or its Subsidiaries to one or more of the Sponsors or their
Affiliates of fees in respect of the SSPI Sale in an aggregate amount not
exceeding 2.0% of the gross proceeds of the SSPI Sale; provided that such fees
shall not be paid prior to consummation of the SSPI Sale.



Acknowledgement. The undersigned Lenders acknowledge that upon consummation of
any sale, transfer or other disposition of all the capital stock of a
Subsidiary to a Person that is not an Affiliate of the Parent Borrower in
accordance with the Credit Agreement (including pursuant to any amendment,
waiver or consent in respect thereof), such Subsidiary and its capital stock
and assets shall be released from the Loan Documents and the Liens granted
thereunder and, accordingly, upon consummation of the SSPI Sale or the Ruwido
Sale, the Administrative Agent is authorized to execute and deliver any
documents and other instruments necessary or appropriate to confirm or effect
such release in respect of the affected Subsidiaries.


The undersigned Lenders acknowledge that, upon payment of all amounts owing
pursuant to Section 5 hereof on the Amendment Effective Date, the Success Fee
Principal Amount shall have been paid in full and no further payment shall
accrue with respect thereto.


Representations and Warranties. The Parent Borrower represents and warrants to
the Administrative Agent and to each of the Lenders that:


This Amendment has been duly authorized, executed and delivered by it and
constitutes the legal, valid and binding obligation of the Parent Borrower,
enforceable against the Parent Borrower in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors’ rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.


On and as of the Amendment Effective Date, the representations and warranties
set forth in Article III of the Credit Agreement are true and correct in all
material respects with the same effect as if made on the Amendment Effective
Date, except to the extent such representations and warranties expressly relate
to an earlier date.


At the time of and immediately after giving effect to this Amendment, no
Default has occurred and is continuing.


Conditions to Effectiveness. This Amendment and the waivers set forth herein
shall become effective on the date of consummation of the SSPI Sale subject to
prior or concurrent satisfaction of the following conditions (such date, the
“Amendment Effective Date”):


The Administrative Agent shall have received counterparts of this Amendment
that, when taken together, bear the signatures of the Parent Borrower, the
Required Lenders and Lenders holding a majority in interest of the outstanding
Tranche B Term Loans.


5






 


The representations and warranties set forth in Section 4 of this Amendment
shall be true and correct.


The Administrative Agent shall have received payment of all out-of-pocket
expenses (including fees and disbursements of counsel for the Administrative
Agent) required to be paid or reimbursed by the Parent Borrower under the
Credit Agreement, to the extent invoices therefor have been presented to the
Parent Borrower at least one Business Day prior to the Amendment Effective
Date.


The Administrative Agent shall have received (i) a copy of the SSPI Sale
Agreement, which shall have been executed and delivered by the parties thereto
and which shall be substantially in the form attached hereto as Exhibit A and
shall not have been modified from the version attached herein as Exhibit A (or
amended or waived) in any respect that is adverse to the interests of the
Parent Borrower or the Lenders in any material respect, and any other documents
executed and delivered in connection with the SSPI Sale reasonably requested by
the Administrative Agent and (ii) a certificate of a Financial Officer of the
Parent Borrower certifying compliance with clause (i) above and setting forth a
reasonably detailed computation of the Net Proceeds of the SSPI Sale


               (e)(i) The SSPI Sale shall be consummated on the Amendment Effective Date,
(ii) the Net Proceeds therefrom delivered to the Administrative Agent on such
date to be applied to prepay Tranche B Term Borrowings shall not be less than
$42,000,000 and (iii) the Parent Borrower shall have paid the full amount of
the success fee that has accrued in respect of the Success Fee Principal Amount
from the Fifth Amendment Effective Date through the Amendment Effective Date.



Notwithstanding the foregoing, this Amendment and the waivers set forth herein
shall not become effective unless the Amendment Effective Date occurs on or
prior to July 31, 2003.


Effect of Amendment. Except as expressly set forth herein, this Amendment
shall not by implication or otherwise limit, impair, constitute a waiver of, or
otherwise affect the rights or remedies of the Lenders under the Credit
Agreement or any other Loan Document, and shall not alter, modify, amend or in
any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement or any other Loan Document, all of
which are ratified and affirmed in all respects and shall continue in full
force and effect. Nothing herein shall be deemed to entitle the Parent
Borrower to a consent to, or a waiver, amendment, modification or other change
of, any of the terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement or any other Loan Document in similar or
different circumstances. This Amendment shall apply and be effective only with
respect to the provisions of the Credit Agreement set forth herein. This
Amendment shall constitute a Loan Document for all purposes under the Credit
Agreement.


Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.


Counterparts. This Amendment may be executed in two or more counterparts, each
of which shall constitute an original but all of which when taken together
shall constitute but one


6






 


agreement. Delivery of an executed signature page to this Amendment by
facsimile shall be effective as delivery of a manually executed counterpart
hereof.


Expenses. The Parent Borrower agrees to reimburse the Administrative Agent for
its out-of-pocket expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath, Swaine & Moore LLP
counsel for the Administrative Agent.


7






 


               IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first written above.




	 	 	 
	 	
KNOWLES ELECTRONICS HOLDINGS, INC.,
	 	
By
	 	 	


	 	 	
Name:
	 	 	
Title:
	 	 	 
	 	
JPMORGAN CHASE BANK, individually and as
Administrative Agent,
	 	 	 
	 	
By
	 	 	


	 	 	
Name:
	 	 	
Title:
	 	 	 
	 	
MORGAN STANLEY SENIOR FUNDING, INC.,

individually and as Syndication Agent,
	 	 	 
	 	
By
	 	 	


	 	 	
Name:
	 	 	
Title:



8






 



SIGNATURE PAGE TO

AMENDMENT NO. 6 DATED AS OF

May 28, 2003

To Approve the Amendment:

Name of Institution:



	 	 	 
	 	By
	 	 	

	 	 	Name:
	 	 	Title: