exv10w27



 





Exhibit 10.27




KNOWLES ELECTRONICS HOLDINGS, INC.

SEVENTH AMENDMENT TO CREDIT AGREEMENT AND

SECOND AMENDMENT TO SECURITY AGREEMENT




     This SEVENTH AMENDMENT TO CREDIT AGREEMENT AND SECOND AMENDMENT TO
SECURITY AGREEMENT (this “Amendment”) is dated as of April 8, 2004 and entered
into by and among KNOWLES ELECTRONICS HOLDINGS, INC. (f/k/a Knowles
Electronics, Inc.), a Delaware corporation (“Parent Borrower”), THE FINANCIAL
INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (“Lenders”), JPMORGAN CHASE
BANK (successor to The Chase Manhattan Bank), as agent for Lenders
(“Administrative Agent”), and, for purposes of Sections 2, 5 and 6 hereof, the
Loan Parties (as defined in Section 5 hereof) listed on the signature pages
hereof, and is made with reference to that certain Credit Agreement dated as of
June 28, 1999, as amended and restated as of July 21, 1999 (as amended,
restated, supplemented or otherwise modified as of the date hereof, the “Credit
Agreement”), by and among Parent Borrower, Lenders, Administrative Agent, and
Morgan Stanley Senior Funding, Inc., as Syndication Agent. Capitalized terms
used herein without definition shall have the same meanings herein as set forth
in the Credit Agreement.



RECITALS




     WHEREAS, Parent Borrower and Lenders desire to amend the Credit Agreement
to (i) provide for Tranche D Term Loans in an aggregate principal amount of
$48,000,000 and refinance Tranche C Term Loans with Tranche D Term Loans, and
(ii) amend the Credit Agreement in certain other respects, all as more
specifically set forth below.



     NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:



Section 1. AMENDMENTS TO THE CREDIT AGREEMENT



1.1 Amendments to Article I: Definitions





     A. Section 1.01 of the Credit Agreement is hereby amended by adding
thereto the following definitions, which shall be inserted in proper
alphabetical order:




“Financing Fee Write-Offs” means non-cash charges relating to the
write-off of deferred financing fees in connection with the repayment of
the Tranche C Term Loans.




“Net Worth” means, as at any date of determination, the sum of the
capital stock and additional paid-in capital plus retained earnings (or
minus accumulated deficits) of any Foreign Subsidiary and its
subsidiaries on a consolidated basis determined in conformity with GAAP.



 









 






“Seventh Amendment” means the Seventh Amendment to Credit Agreement and
Second Amendment to Security Agreement, dated as of April 8, 2004, among
Parent Borrower, the Lenders, Administrative Agent and the other Loan
Parties party thereto.




“Seventh Amendment Effective Date” has the meaning set forth in the
Seventh Amendment.




“Tranche D Commitment” means, with respect to each Lender, the
commitment, if any, of such Lender to make a Tranche D Term Loan on the
Seventh Amendment Effective Date, expressed as an amount representing the
maximum principal amount of the Tranche D Term Loan to be held by such
Lender hereunder immediately after funding such amounts, as such
commitment may be (a) reduced from time to time pursuant to Section 2.08
and (b) reduced or increased from time to time pursuant to assignments by
or to such Lender pursuant to Section 9.04. The initial amount of each
Lender’s Tranche D Commitment is set forth on Schedule 2.01. The initial
aggregate amount of the Lenders’ Tranche D Commitments is $48,000,000.




“Tranche D Lender” means a Lender with a Tranche D Commitment or an
outstanding Tranche D Term Loan.




“Tranche D Maturity Date” means June 29, 2007, or if such day is not a
Business Day, the next preceding Business Day.




“Tranche D Term Loan” means a Loan made pursuant to clause (e) of Section
2.01.




     B. Section 1.01 of the Credit Agreement is hereby further amended by
deleting each of the definitions of “Class”, “Commitment”, “Consolidated
EBITDA”, “Intercreditor Agreement”, “Lenders”, “Term Borrowing”, and “Term
Loans” in their entirety and substituting therefor the following:




“Class”, when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Domestic
Revolving Loans, Multicurrency Revolving Loans, Tranche A Term Loans,
Tranche B Term Loans, Tranche C Term Loans, Tranche D Term Loans or
Swingline Loans and, when used in reference to any Commitment, refers to
whether such Commitment is a Domestic Revolving Commitment, Multicurrency
Revolving Commitment, Tranche A Commitment, Tranche B Commitment, Tranche
C Commitment or Tranche D Commitment.




“Commitment” means a Domestic Revolving Commitment, Multicurrency
Revolving Commitment, Tranche A Commitment, Tranche B Commitment, Tranche
C Commitment or Tranche D Commitment or any combination thereof (as the
context requires).




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



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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 and, (iv) any extraordinary
non-cash charges for such period, (v) 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, (vii) non-cash charges
relating to the sale of Ruf Electronics Gmbh, SSPI Sale and the Ruwido
Sale (including any loss relating to the Ruwido Sale), (vi) all
reasonable costs, fees and expenses in connection with the Seventh
Amendment (including without limitation, fees of counsel and any amounts
in the nature of a commitment fee or financing fee due and owing in
connection with the Seventh Amendment) and any prepayment penalties or
fees resulting from a repayment of the Tranche C Term Loans prior to the
Tranche C Maturity Date pursuant to Section 2.11(h) of the Credit
Agreement as in effect immediately prior to the Seventh Amendment
Effective Date, and (vii) any Financing Fee Write-Offs, 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.




“Intercreditor Agreement” means the Intercreditor Agreement, dated as of
April 8, 2004, among the Parent Borrower, the Subsidiaries of the Parent
Borrower listed on the signature pages thereto, JPMorgan Chase Bank, as
Administrative Agent and collateral agent, and the Tranche D Lenders.




“Lenders” means the Persons listed on Schedule 2.01 and any other Person
that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto
pursuant to an Assignment and Acceptance; provided, that on and after the
Seventh Amendment Effective Date, Tranche C Lenders shall cease to be a
“Lender” and a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17 and 9.03. Unless the context
otherwise requires, the term “Lenders” includes the Swingline Lender.




“Term Borrowing” means a Tranche A Term Loan Borrowing, a Tranche B Term
Loan Borrowing, a Tranche C Term Loan Borrowing or a Tranche D Term Loan
Borrowing.




“Term Loans” means (i) Tranche A Term Loans, (ii) Tranche B Term Loans,
(iii) after the Fifth Amendment Effective Date, Tranche C Term Loans and
(iv) after the Seventh Amendment Effective Date, Tranche D Term Loans.




     C. The definition of “Applicable Rate” is hereby amended by (i)
deleting the reference to “for any day with respect to any ABR Loan or
Eurodollar Loan” in the first sentence thereof; and (ii) substituting
therefor the following:



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“for any ABR Tranche D Term Loan, 6.25%, for any Eurodollar Tranche
D Term Loan, 7.25%, and for any day with respect to any other ABR
Loan or Eurodollar Loan”




     D. The definition of “Excess Cash Flow” is hereby amended by adding after
the word “charges” in clause (b) thereof:




“(excluding Financing Fee Write-Offs)”



1.2 Amendments to Article II: The Credits





     A. Section 2.01 of the Credit Agreement is hereby amended by (i)
deleting the “and” at the end of clause (c) thereof and substituting therefor
“,” and (ii) adding at the end of clause (d) thereof the following:




“and (e) to make a Tranche D Term Loans to the Parent
Borrower on the Seventh Amendment Effective Date in a
principal amount equal to its Tranche D Commitment.”




     B. Section 2.02(d) of the Credit Agreement is hereby amended by (i)
deleting the word “or” before the reference to “Tranche B Maturity Date” and
substituting therefor “,” and (ii) adding the following after the reference
to “Tranche B Maturity Date”:




“or the Tranche D Maturity Date”




     C. Section 2.03 of the Credit Agreement is hereby amended by (i)
deleting the word “or” before the reference to “(b)” thereof, and (ii) adding
the following new clause (c) immediately after the end of clause (b) thereof:




“or (c) in the case of Tranche D Term Loan Borrowing,
not later than noon, New York City time, the date of
the proposed Borrowing”




     D. Section 2.03 of the Credit Agreement is hereby further amended by
deleting clause (i) and substituting therefor the following:




“(i) whether the requested Borrowing is to be a
Domestic Revolving Borrowing, a Tranche A Term Loan
Borrowing, Tranche B Term Loan Borrowing, Tranche C
Term Loan Borrowing or Tranche D Term Loan Borrowing;”




     E. Section 2.06(b) of the Credit Agreement is hereby amended by (i)
uncapitalizing the word “Unless”, and (ii) adding the following prior to the
word “Unless”:




“Other than in the case of a Tranche D Term Loan
Borrowing,”



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     F. Section 2.08(a) of the Credit Agreement is hereby amended by (i)
deleting the word “and” at the end of clause (ii) thereof and substituting
therefor “,“and (ii) adding at the end of clause (iii) thereof the following:




“and (iv) the Tranche D Commitments shall terminate at
5:00 p.m., New York City time, on the Seventh
Amendment Effective Date”




     G. Section 2.10(c) of the Credit Agreement is hereby amended by (i)
deleting the word “and” at the end of clause (ii) thereof and substituting
therefor “,” and (ii) adding at the end of clause (iii) thereof the
following:




“and (iv) all Tranche D Term Loans shall be due and
payable on the Tranche D Maturity Date”




     H. Section 2.10(d) of the Credit Agreement is hereby amended by adding
the following at the end thereof:




“For the avoidance of doubt, immediately upon the
application of the proceeds of the Tranche D Term
Loans to prepay Tranche C Term Loans pursuant to
Section 2.11(e) and Section 5.11, the sole Term Loans
remaining outstanding shall be Tranche B Term Loans
and Tranche D Term Loans.”




     I. Section 2.11(e) of the Credit Agreement is hereby amended by deleting
it in its entirety and substituting therefor the following:




“(e) Prior to any optional or mandatory prepayment of
Borrowings hereunder, the applicable Borrower shall
select the Borrowing or Borrowings to be prepaid and
shall specify such selection in the notice of such
prepayment pursuant to paragraph (f) of this Section.
In the event of any optional or mandatory prepayment
of Term Borrowings made after the Seventh Amendment
Effective Date pursuant to Section 2.11 at a time when
Tranche B Term Loans and Tranche D Term Loans remain
outstanding, the aggregate amount of such prepayment
shall be applied first to the prepayment of Tranche B
Term Loans to the full extent thereof and second to
the prepayment of Tranche D Term Loans to the full
extent thereof, provided that any Tranche B Lender may
elect, by notice to the Administrative Agent by
telephone (confirmed by telecopy) at least one
Business Day prior to the prepayment date, to decline
all or any portion of any prepayment of its Tranche B
Term Loans pursuant to this Section (other than an
optional prepayment pursuant to paragraph (a) of this
Section, which may not be declined), in which case the
aggregate amount of the prepayment that would have
been applied to



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prepay Tranche B Term Loans but was so declined shall,
subject to Section 2.11(h), be applied to the
prepayment of Tranche B Term Loans of those Tranche B
Lenders that have not declined their portion of such
prepayment pro rata based on the aggregate principal
amount of outstanding Tranche B Term Loans of each
such Tranche B Lender. To the extent that all Tranche
B Lenders elect to decline prepayment of the Tranche B
Term Loans, the aggregate amount of the prepayment
that would have been applied to prepay Tranche B Term
Loans but was so declined shall, subject to Section
2.11(h), be applied to the prepayment of Tranche D
Term Loans. Any optional or mandatory prepayment of
Tranche B Term Loans made pursuant to Section 2.11
shall be applied first to the prepayment of the
outstanding portion of the Success Fee Principal
Amount and second to the prepayment of the remaining
outstanding portion of Tranche B Term Loans (it being
understood by the parties that as of the effective
date of the SSPI Sale, the Success Fee Principal
Amount has been paid in full). Notwithstanding the
foregoing, (i) nothing in this provision shall be
construed to apply to the allocation of payments if
the Loans are accelerated pursuant to the terms of
this Agreement and (ii) the proceeds of Tranche D Term
Loans shall be applied by the Parent Borrower to
prepayment of all Tranche C Term Loans to the full
extent of such Tranche C Term Loans.”




     J. Section 2.11(h) of the Credit Agreement is hereby amended by deleting
it in its entirety and substituting therefor the following:




“(h) Notwithstanding the foregoing, Parent Borrower
shall not have the right or obligation to prepay any
Tranche D Term Loan from the Seventh Amendment
Effective Date through and including June 29, 2005.
The aggregate amount of any prepayment pursuant to
Section 2.11(a), (c) or (d) that, but for this Section
2.11(h), would be applied by Parent Borrower to prepay
Tranche D Term Loans, shall be applied instead to
prepay Tranche B Term Loans. If any Tranche B Lender
elects to decline all or any portion of any such
prepayment of its Tranche B Terms Loans in accordance
with Section 2.11(e), the aggregate amount of the
prepayment that would have been applied to prepay
Tranche B Term Loans but was so declined may be
applied by Parent Borrower to any other purpose
otherwise permitted under this Agreement. If any
portion of the Tranche D Term Loans is prepaid
pursuant to Section 2.11(a) or pursuant to Section
2.11(c) as a result of a Prepayment Event occurring
upon either of the events described in clause (c) of
the definition of “Prepayment Event”



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or any issuance of Equity Securities described in
clause (d) of the definition of “Prepayment Event” (i)
after June 29, 2005 but on or prior to June 29, 2006,
then Parent Borrower shall pay to Administrative
Agent, for ratable distribution to the Tranche D
Lenders, a fee equal to 2% of the Tranche D Term Loans
so prepaid, and (ii) after June 29, 2006 but prior to
June 29, 2007, then Parent Borrower shall pay to
Administrative Agent, for ratable distribution to the
Tranche D Lenders, a fee equal to 1% of the Tranche D
Term Loans so prepaid.”




     K. Clause (y) of the first sentence of Section 2.12(e) of the Credit
Agreement is hereby amended by inserting the following at the end of such
clause:




“(it being understood by the parties that as of the
effective date of the SSPI Sale, the Success Fee
Principal Amount has been paid in full)”




     L. Section 2.12(a) of the Credit Agreement is hereby amended by adding
the following at the end of the first sentence thereof:




“or any Tranche D Commitment”.




     M. Section 2.13(c) of the Credit Agreement is hereby amended by adding
at the end thereof the following new sentence:




“Upon the occurrence and during the continuance of an
Event of Default, (x) the provisions of the first
sentence of this Section 2.13(c) shall not apply with
respect to any overdue amounts in respect of the
Tranche D Term Loans, and (y) the per annum interest
rate otherwise applicable to the Tranche D Term Loans
shall increase by 3%”




     N. Section 2.13(d) of the Credit Agreement is hereby amended by (i)
deleting clause (iv) contained therein, and (ii) substituting therefor the
following:




“(iv) all interest payable pursuant to this Agreement on the
Revolving Loan Borrowings, Tranche B Term Loan Borrowings, Tranche
D Term Loan Borrowings shall be payable in cash, including interest
due pursuant to Section 2.13(c).”



1.3 Amendments to Article III: Representations and Warranties





     A. Section 3.04(d) of the Credit Agreement is hereby amended by deleting
the date “December 31, 2002” contained therein and substituting therefor the
date “December 31, 2003”.



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     B. Section 3.10 of the Credit Agreement is hereby amended by the
deleting each reference to “$12,000,000” contained therein and substituting
the figure “$15,000,000” therefor.



1.4 Amendment to Article IV: Conditions





     A. Section 4.01 of the Credit Agreement is hereby amended by adding in
the second parenthetical at the end of the first sentence thereof the
following:




“or the obligation of the Tranche D Lenders to make
Tranche D Term Loans”.




     B. Section 4.02 of the Credit Agreement is hereby amended by adding in
the parenthetical at the end of the first sentence thereof the following:




“or the obligation of the Tranche D Lenders to make
Tranche D Term Loans”.



1.5 Amendment to Article V: Affirmative Covenants





     A. Section 5.09 of the Credit Agreement is hereby amended by (i)
deleting the second proviso contained therein, and (ii) substituting it with
the following:




“; provided further, however, that with respect to the
initial Tranche D Lenders as of the Seventh Amendment
Effective Date, the foregoing limitation on the number
of visits or inspections in any fiscal year shall be
increased to an aggregate of twelve visits or
inspections for such initial Tranche D Lenders as a
whole”.




     B. Section 5.11 of the Credit Agreement is hereby amended by adding in
the parenthetical in the first sentence therefore the following:




“and Tranche D Term Loans”




     C. Section 5.11 of the Credit Agreement is hereby amended by adding
after the second sentence therefor the following:




“The proceeds of the Tranche D Term Loans will be used
to prepay the Tranche C Term Loans on the Seventh
Amendment Effective Date as set forth in Section
2.11(e) and the payment of fees and expenses payable
in connection therewith; provided, that in the event
the total proceeds of the Tranche D Term Loans exceed
those required for such prepayment and payment of such
fees and expenses, Parent Borrower may use such excess
proceeds for general corporate purposes.”



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     D. Section 5.12 of the Credit Agreement is hereby amended by adding
before the “.” at the end thereof the following:




“provided, that, in the event that either: (i) the Net
Worth of any Foreign Subsidiary formed or acquired
after the Effective Date exceeds $3,000,000 at any
time (the “Net Worth Threshold”), or (ii) any Loan
Party makes, after the Seventh Amendment Effective
Date, any loan or advance to or investment in Equity
Interests of any such Foreign Subsidiary or subsidiary
thereof which, together with all other such loans,
advances and investments made after the Seventh
Amendment Effective Date to such Foreign Subsidiary
and any subsidiary thereof exceeds $2,000,000 in the
aggregate (the “Investment Limit”), then (x) no later
than 5 Business Days after the date the Net Worth
Threshold or Investment Limit is exceeded, as
applicable, the Parent Borrower shall provide written
notice to Administrative Agent of the amount of such
excess and the names of the applicable subsidiaries,
and (y) unless waived by Administrative Agent in
writing in its sole discretion, no later than 90 days
(which date may be extended by the Administrative
Agent in writing in its sole and reasonable
discretion) after the date the Net Worth Threshold or
Investment is exceeded, as applicable, the Parent
Borrower shall, or shall cause such Loan Party to,
subject to Section 5.13, take all actions and execute
such documents and instruments (including pursuant to
the laws of the jurisdiction of formation of such
Foreign Subsidiary) to grant to the Administrative
Agent, for the benefit of the Lenders, subject to any
limitations under applicable law, a first priority
perfected security interest in the capital stock of
such Foreign Subsidiary held by such Loan Party and
Indebtedness owing to any Loan Party by such Foreign
Subsidiary and to obtain a legal opinion addressed to
Administrative Agent and Lenders as to the creation
and perfection of such security interest in the
jurisdiction of formation of such Foreign Subsidiary
and any other applicable jurisdiction in form and
substance reasonably satisfactory to Administrative
Agent (except that Parent Borrower and the Subsidiary
Loan Parties shall not be required to pledge more than
65% of the outstanding stock of any Foreign Subsidiary
that is not a Loan Party to the extent that the pledge
of any greater percentage could result in adverse tax
consequences to any Loan Party)”



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1.6 Amendment to Article VI: Negative Covenants





     A. Section 6.04(d)(ii) of the Credit Agreement is hereby amended by
adding (i) before the words “in the reasonable judgment of senior management”
a reference to “(A)”, and (ii) adding the following at the end thereof:




“, and (B) the Administrative Agent gives its prior
written consent if the amount of the proposed
investment in any Subsidiary that is not a Subsidiary
Loan Party, together with the aggregate amount of cash
invested by Parent Borrower and the other Loan Parties
in such Subsidiary after the Seventh Amendment
Effective Date, exceeds $500,000.”




     B. Section 6.12 of the Credit Agreement is hereby amended by deleting
the table contained therein in its entirety and substituting therefor the
following:



	 	 	 
	December 31, 2003 – September 30, 2004

	 	1.15:1.00
	December 31, 2004 — September 30, 2005

	 	1.25:1.00
	December 31, 2005 – September 30, 2006

	 	1.35:1.00
	December 31, 2006 and thereafter

	 	1.45:1.00








     C. Section 6.13 of the Credit Agreement is hereby amended by deleting
the table contained therein in its entirety and substituting therefor the
following:



	 	 	 
	December 31, 2003 – September 30, 2004

	 	6.75:1.00
	December 31, 2004 – September 30, 2005

	 	6.50:1.00
	December 31, 2005-September 30, 2006

	 	6.00:1.00
	December 31, 2006 and thereafter

	 	5.50:1.00







1.7 Modification and Substitution of Schedule





     A. Schedule 2.01 of the Credit Agreement is hereby amended by adding
thereto the column labeled “Tranche D Loan Commitment” from Annex A to this
Amendment.



Section 2. AMENDMENTS TO BORROWER SECURITY AGREEMENT





	2.1	 	Section 1.02 of the Security Agreement is hereby amended by adding
thereto the following definition, which shall be inserted in proper
alphabetical order:




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“Revised UCC” shall mean the revised Uniform
Commercial Code in effect in the State of New York as
of the Seventh Amendment Effective Date.




	2.2	 	Section 1.02 of the Security Agreement is herby further amended by (i)
deleting the word “and” at the end of clause (g) of the definition of
“Collateral” and substituting therefor “,”, and (ii) adding the following
after the end of clause (h) thereof:






“(i) all Records (as defined in the Revised UCC),




(j) all Documents (as defined in the Revised UCC),




(k) all Commercial Tort Claims, including those set
forth on Schedule VI (as defined in the Revised UCC),
and




(l) all Chattel Paper and Letter-of-Credit Rights and
other Supporting Obligations (as defined in the
Revised UCC).”




	2.3	 	Article III of the Security Agreement is hereby amended by inserting the
following new Section 3.05 at the end thereof:






“SECTION 3.05 Commercial Tort Claims. Grantor has no Commercial Tort
Claims (as defined in the Revised UCC) as of the Seventh Amendment
Effective Date, except as set forth on Schedule VI annexed hereto. In
the event that a Grantor shall at any time after the date hereof have any
Commercial Tort Claims, such Grantor shall promptly notify Administrative
Agent thereof in writing, which notice shall (i) set forth in reasonable
detail the basis for and nature of such Commercial Tort Claim (as defined
in the Revised UCC) and (ii) constitute an amendment to this Agreement by
which such Commercial Tort Claim (as defined in the Revised UCC) shall
constitute part of the Collateral.”




	2.4	 	The Security Agreement is hereby further amended by inserting a new
Schedule VI (Commercial Tort Claims) thereto in the form of Annex B
attached hereto.





Section 3. CONDITIONS TO EFFECTIVENESS




     Sections 1 and 2 of this Amendment shall become effective only upon the
prior or concurrent satisfaction of all of the following conditions precedent
(the date of satisfaction of such conditions being referred to herein as the
“Seventh Amendment Effective Date”); provided that the Seventh Amendment
Effective Date shall occur on or prior to April 15, 2004:




     A. On or before the Seventh Amendment Effective Date, each Loan Party
(as defined below) shall deliver to Tranche D Lenders and to the
Administrative Agent the following, each, unless otherwise noted, dated the
Seventh Amendment Effective Date:




	 	1.	 	Certified copies of its organizational documents, together
with a good standing certificate from the appropriate official of
its jurisdiction of




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	 	 	 	organization, each dated a recent date prior to the Seventh
Amendment Effective Date;
	 
	 	2.	 	Copies of its Bylaws, certified as of the Seventh Amendment
Effective Date by its corporate secretary or an assistant secretary;
	 
	 	3.	 	Resolutions of its Board of Directors or other governing
body, as applicable, approving and authorizing the execution,
delivery, and performance of this Amendment, certified as of the
Seventh Amendment Effective Date by its corporate secretary or an
assistant secretary as being in full force and effect without
modification or amendment;
	 
	 	4.	 	Signature and incumbency certificates of its officers
executing this Amendment; and
	 
	 	5.	 	Counterparts of this Amendment executed by the parties
referred to in Section 5 hereof.






     B. All fees and expenses due and owing to the Tranche D Lenders, as
agreed to by Parent Borrower in writing, and all other amounts due and owing
to the Administrative Agent or the Lenders under the Credit Agreement shall
have been paid in full to the extent invoiced to the Parent Borrower prior to
the Seventh Amendment Effective Date.




     C. Administrative Agent shall have received for the benefit of each
Lender under the Credit Agreement as in effect immediately prior to the
Seventh Amendment Effective Date that executes and delivers to Administrative
Agent a counterpart to this Amendment on or prior to 12:00 Noon (EST) April
8, 2004 an amendment fee equal to 0.25% of the sum of (a) the aggregate
principal amount of such approving Lender’s Tranche B Loans and (b) such
approving Lender’s aggregate Revolving Commitments.




     D. Administrative Agent, the Lenders party to the Amended Credit
Agreement (as hereinafter defined) and their respective counsel shall have
received one or more favorable written opinions of one or more, counsel for
Parent Borrower and the other Loan Parties signatory hereto, in form and
substance reasonably satisfactory to Administrative Agent, the Tranche D
Lenders and their respective counsel, dated as of the Seventh Amendment
Effective Date.




     E. The Tranche D Lenders shall have received a fully executed or
conformed copy of each of the Loan Documents and all amendments thereto, and
each Loan Document shall be in full force and effect and no provision thereof
shall have been modified or waived in any respect (except by this Amendment
and by such other amendments delivered by Parent Borrower hereunder or under
the Loan Documents), and the Tranche D Lenders shall have received a
certificate of a duly authorized officer of Parent Borrower to such effect.




     F. All governmental and third party consents, approvals or withholding
of objections, necessary to implement the transactions contemplated by this
Amendment and to establish the Tranche D Term Loan facility, shall have been
obtained and be in full



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force and effect, and the Tranche D Lenders shall have received any
available evidence thereof reasonably satisfactory to them.




     G. As of the Seventh Amendment Effective Date, since December 31, 2003,
there shall have been: (i) no material adverse change in the business,
operations, financial condition or prospects of the Loan Parties; (ii) no
litigation shall have been commenced which, if successful, would reasonably
be expected to have any such material adverse effect or would challenge any
of the transactions contemplated by this Amendment, (iii) no dividends or
other distributions to stockholders of the Parent Borrower, and (iv) no
material increase in liabilities, liquidated or contingent, and no material
decrease in assets, of the Loan Parties.




     H. Before and after giving effect to this Amendment, no Default or Event
of Default shall have occurred and be continuing and the Tranche D Lenders
shall have received a certificate of a duly authorized officer of Parent
Borrower to such effect;




     I. On or before the Seventh Amendment Effective Date, the Parent
Borrower shall provide to the Administrative Agent and the Tranche D Lenders
the results of a recent search by a person reasonably satisfactory to the
Tranche D Lenders, of all effective personal property financing statements,
fixture filings or other similar filings and all judgment and tax lien
filings which may have been made with respect to any personal or mixed
property of any Loan Party, together with copies of all such filings
disclosed by such search. The Parent Borrower will, and will cause each
Subsidiary to, execute any and all further documents, financing statements,
agreements and instruments, and take all such further actions (including
amendments to the Security Documents and the filing and recording of
financing statements, fixture filings, mortgages, deeds of trust and other
documents), which the Tranche D Lenders or their counsel may reasonably
request in writing in order to cause the Collateral and Guarantee Requirement
to be and remain satisfied, all at the expense of the Loan Parties.




     J. On or before the Seventh Amendment Effective Date, the Intercreditor
Agreement, dated as of the date hereof, substantially in the form attached
hereto as Annex C, shall have been executed by the parties thereto.




     K. On or before the Seventh Amendment Effective Date, all corporate and
other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
reasonably acceptable by Administrative Agent, acting on behalf of Lenders,
and its counsel shall be reasonably satisfactory in form and substance to
Administrative Agent, Tranche D Lenders and their respective counsel, and
Administrative Agent, Tranche D Lenders and such counsel shall have received
all such counterpart originals or certified copies of such documents as
Administrative Agent or Tranche D Lenders may reasonably request.




     L. Tranche D Lenders and the Administrative Agent shall have received a
copy of a fully-executed pay-off letter substantially in the form attached
hereto as Annex D (the “Payoff Letter”) among Administrative Agent, Parent
Borrower and Tranche C Lenders evidencing that the Tranche C Term Loans have
been paid in full and the Intercreditor



13









 






Agreement (as defined in the Credit Agreement in effect immediately
prior to the Seventh Amendment Effective Date) shall have been terminated,
which letter shall become effective concurrently with the Seventh Amendment
Effective Date.




     M. On or before the Seventh Amendment Effective Date, the Parent
Borrower shall have obtained a rating from Moody’s for the Tranche D Term
Loans.




     N. No later than five Business Days prior to the Seventh Amendment
Effective Date, the Tranche D Lenders shall have received, and as of the
Seventh Amendment Effective Date, the Tranche D Lenders shall have been
satisfied with (i) the audited financial statements of the Parent Borrower
and its Subsidiaries for the fiscal years 2002 and 2003, including balance
sheets, income and cash flow statements, audited by independent public
accountants of recognized national standing and prepared in conformity with
GAAP, together with such accountants’ report thereon (collectively,
“Financial Statements”), (ii) a pro forma balance sheet of the Loan Parties
as of the Closing Date after giving effect to the Seventh Amendment (“Pro
Forma Financial Statement”), and (iii) projected financial statements
(including balance sheets, income and cash flow statements) of the Loan
Parties for the period ending on December 31, 2006, with quarterly projected
financial statements through the period ending December 31, 2005 (the
“Projected Financial Statements”).


The parties hereto acknowledge and agree that, subject to the terms and
conditions of the Payoff Letter, on the Seventh Amendment Effective Date the
Intercreditor Agreement dated as of March 28, 2003 by and among the Parent
Borrower, the Subsidiaries of the Parent Borrower listed on the signature pages
thereto, the Tranche C Lenders and the Administrative Agent shall be terminated
and of no further force and effect.




Section 4. PARENT BORROWER’S REPRESENTATIONS AND WARRANTIES




     In order to induce Lenders to enter into this Amendment and to amend the
Credit Agreement in the manner provided herein, Parent Borrower represents and
warrants to each Lender that the following statements are true, correct and
complete as of the Seventh Amendment Effective Date:




     A. Corporate Power and Authority. Parent Borrower and each other Loan
Party has all requisite corporate power and authority to carry on its
business as now conducted, to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the “Amended Credit Agreement”) and
the Security Agreement, as amended by this Amendment (collectively, with the
Amended Credit Agreement, the “Amended Agreements”).




     B. Authorization of Agreements. The execution and delivery of this
Amendment, and the performance of the Amended Agreements have been duly
authorized by all necessary corporate and, if required, stockholder action on
the part of Parent Borrower and each other Loan Party signatory hereto.



14









 






     C. No Conflict. The execution and delivery by Parent Borrower and each
other Loan Party signatory hereto of this Amendment, the performance by
Parent Borrower and each other Loan Party signatory hereto of the Amended
Agreements and the consummation of the transactions contemplated thereby do
not and will not (i) violate any applicable law or regulation or the charter,
by-laws or other organizational documents of the Parent Borrower or any of
the Subsidiaries or any order of any Governmental Authority, (ii) conflict
with, result in a default under any material indenture, agreement or other
instrument binding upon the Parent Borrower or any of the Subsidiaries or any
of their assets, or give rise to a right thereunder to require any material
payment to be made by the Parent Borrower or any of the Subsidiaries, (iii)
result in or require the creation or imposition of any Lien upon any of the
properties or assets of Parent Borrower or any of its Subsidiaries (other
than Liens created under any of the Loan Documents), or (iv) require any
approval or consent of any Person under any contractual obligation of Parent
Borrower or any of the Subsidiaries, except for such approvals or consents
which have been obtained on or before the Seventh Amendment Effective Date
and disclosed in writing to Lenders.




     D. Governmental Consents. The execution and delivery by Parent Borrower
and each other Loan Party of this Amendment and the performance by Parent
Borrower and each other Loan Party of the Amended Agreements do not require
any consent or approval of, registration or filing with, or any other action
by or before, any Governmental Authority, except such as have been obtained
or made and are in full force and effect prior to the Seventh Amendment
Effective Date and disclosed in writing to the Lenders.




     E. Binding Obligation. This Amendment and the Amended Agreements have
been duly executed and delivered by Parent Borrower and each other Loan Party
signatory hereto and are the legally valid and binding obligations of Parent
Borrower and each other Loan Party signatory hereto, enforceable against
Parent Borrower and each other Loan Party signatory hereto in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors’
rights generally or by equitable principles relating to enforceability,
regardless of whether considered in a proceeding in equity or at law.




     F. Solvency. Immediately after the consummation of the transactions to
occur on the Seventh Amendment Effective Date and immediately following the
making of the Tranche D Term Loan on the Seventh Amendment Effective Date and
after giving effect to the application of the proceeds of such Loans, (a) the
fair value of the assets of each Loan Party, at a fair valuation, will exceed
its debts and liabilities, subordinated, contingent or otherwise; (b) the
present fair saleable value of the property of each Loan Party will be
greater than the amount that will be required to pay the probable liability
of its debts and other liabilities, subordinated, contingent or otherwise, as
such debts and other liabilities become absolute and matured; (c) each Loan
Party will be able to pay its debts and liabilities, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and matured; and
(d) no Loan Party will have unreasonably small capital with which to conduct
the business in which it is engaged as such business is now conducted and is
proposed to be conducted following the Seventh Amendment Effective Date.



15









 






     G. Incorporation of Representations and Warranties From Credit
Agreement. The representations and warranties contained in Article III of
the Credit Agreement (considered as if already amended by this Amendment) are
and will be true, correct and complete in all material respects on and as of
the Seventh Amendment Effective Date to the same extent as though made on and
as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier date.




     H. Annual Report and Financial Statements. The Financial Statements
and Pro Forma Financial Statements were prepared in accordance with GAAP
applied on a consistent basis, and on that basis, present fairly, in all
material respects, the financial position and results of operations and cash
flows of the Parent Borrower and its consolidated subsidiaries and other Loan
Parties as of such date and for such period. The Projected Financial
Statements have been prepared in good faith based upon assumptions believed
to be reasonable at the time (it being understood that such projections are
subject to significant uncertainties and contingencies, many of which are
beyond the Loan Parties’ control and that no assurance can be given that the
projections will be realized).




     I. No Material Adverse Change. Since December 31, 2003, nothing has
occurred which would have a Material Adverse Effect.




     J. Absence of Default. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this
Amendment that would constitute a Default or an Event of Default.




     K. Release and Affirmation. Parent Borrower on and as of the Seventh
Amendment Effective Date has no (and it permanently and irrevocably waives
and releases Administrative Agent and Lenders from any, to the extent arising
on or prior to the Seventh Amendment Effective Date) defense, set off, claim
or counterclaim against Administrative Agent or any Lender in regard to its
obligations in respect of the Tranche C Term Loans being repaid on such date.



Section 5. ACKNOWLEDGEMENT AND CONSENT



     Parent Borrower is a party to the Parent Guarantee Agreement, the Security
Agreement, the Pledge Agreement and certain Mortgages, each as amended through
the Seventh Amendment Effective Date, pursuant to which, and in accordance with
the terms of which, Parent Borrower has (i) guaranteed the Foreign Borrower
Obligations (as defined in the Parent Guarantee Agreement), (ii) granted Liens
in favor of Administrative Agent on certain Collateral to secure the
Obligations and (iii) mortgaged to the Administrative Agent certain real and
personal property to secure the Obligations. Each of Knowles Electronics, LLC
(“KE”), Knowles Intermediate Holding, Inc. (“KIH”), Emkay Innovative Products,
Inc. (“Emkay”) and Knowles Manufacturing Ltd. (“KML”) is a party to the
Subsidiary Guarantee Agreement, the Security Agreement and the Pledge
Agreement, each as amended through the Seventh Amendment Effective Date,
pursuant to which KE, KIH, Emkay and KML have (i) guaranteed the Obligations
and (ii) granted Liens in favor of Administrative



16









 




Agent on certain Collateral to secure the Obligations. Parent Borrower,
KE, KIH, Emkay, and KML are collectively referred to herein as the “Loan
Parties”, and the Parent Guarantee Agreement, the Subsidiary Guarantee
Agreement, the Security Agreement, the Pledge Agreement and the Mortgages are
collectively referred to herein as the “Credit Support Documents”.




     Each Loan Party hereby acknowledges that it has reviewed the terms and
provisions of the Credit Agreement, the Security Agreement and this Amendment
and consents to the amendment of the Credit Agreement and Security Agreement
effected pursuant to this Amendment. Each Loan Party hereby confirms that each
Credit Support Document to which it is a party or otherwise bound and all
Collateral encumbered thereby will continue to guaranty or secure, as the case
may be, to the fullest extent provided in the Credit Support Documents the
payment and performance of all Obligations and Foreign Borrower Obligations, as
applicable, including without limitation the payment and performance of all
such Obligations and Foreign Borrower Obligations in respect of the Obligations
of Parent Borrower and Foreign Borrower Obligations, as applicable, now or
hereafter existing under or in respect of the Amended Agreements.



     Each Loan Party acknowledges and agrees that any of the Credit Support
Documents to which it is a party or otherwise bound shall continue in full
force and effect and that all of its obligations thereunder shall be valid and
enforceable and shall not be impaired or limited by the execution or
effectiveness of this Amendment. Each Loan Party represents and warrants that
all representations and warranties contained in the Amended Agreements and the
Credit Support Documents (considered as if already amended by this Amendment)
to which it is a party or otherwise bound are true, correct and complete in all
material respects on and as of the Seventh Amendment Effective Date to the same
extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true, correct and complete in all material respects on and as of
such earlier date.



     Each Loan Party acknowledges and agrees that (i) notwithstanding the
conditions to effectiveness set forth in this Amendment, such Loan Party
(excluding the Parent Borrower) is not required by the terms of the Credit
Agreement or any other Loan Document to consent to the amendments to the Credit
Agreement effected pursuant to Section 1 of this Amendment and (ii) nothing in
the Credit Agreement, this Amendment or any other Loan Document shall be deemed
to require the consent of such Loan Party (excluding the Parent Borrower) to
any future amendments to the Credit Agreement, as amended by this Amendment.
Pursuant to Section 7.08 of the Security Agreement, the Loan Parties hereby
consent to amend the Security Agreement as set forth in Sections 2 and 6
hereof.



Section 6. MISCELLANEOUS





     A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.




(i) On and after the Seventh Amendment Effective Date, each reference in
the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”
or words of



17









 






like import referring to the Credit Agreement, and each reference in the
other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof”
or words of like import referring to the Credit Agreement shall mean and
be a reference to the Amended Credit Agreement. On and after the Seventh
Amendment Effective Date, each reference in the Security Agreement to
“this Agreement”, “hereunder”, “hereof”, “herein” or words of like import
referring to the Security Agreement, and each reference in the other Loan
Documents to the “Security Agreement”, “thereunder”, “thereof” or words
of like import referring to the Security Agreement shall mean and be a
reference to the Security Agreement as amended by this Amendment.




(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.




(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of
Administrative Agent or any Lender under, the Credit Agreement or any of
the other Loan Documents.




     B. Fees and Expenses. Parent Borrower acknowledges that all costs, fees
and expenses as described in subsection 9.03 of the Credit Agreement incurred
by Administrative Agent and its counsel with respect to this Amendment and
the documents and transactions contemplated hereby shall be for the account
of Parent Borrower.




     C. Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive
effect.




     D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE
OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.




     E. Counterparts; Effectiveness. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment (other than the
provisions of Sections 1 and 2 hereof, the effectiveness of which are
governed by Section 3 hereof) shall become effective upon the execution of a
counterpart hereof by Parent Borrower, Required Lenders, Tranche B Lenders
holding a majority of the outstanding Tranche B Loans, all Tranche D Lenders
and each of the Loan



18









 






Parties and receipt by Parent Borrower and Administrative Agent of
written notification of such execution and authorization of delivery thereof.




     F. Pursuant to Section 2.09(e) of the Credit Agreement, Company shall
execute and deliver to each Tranche D Lender, on the Seventh Amendment
Effective Date, a Note substantially in the form of Annex E annexed hereto to
evidence each Tranche D Lender’s Tranche D Term Loan, in the principal amount
of that Tranche D Lender’s Tranche D Term Loan and with other appropriate
insertions.



[Remainder of page intentionally left blank]




19









 








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



          BORROWER:



	 	 	 	 	 
	 	 	KNOWLES ELECTRONICS HOLDINGS, INC.
	 
	 	 	 	 
	

	 	By:	 	 
	 

	 	 	 	

	

	 	Name:	 	 
	

	 	Title:	 	 







S-1









 





	 	 	 	 	 
	LOAN

PARTIES:
	 	 	 	 
	 	 	KNOWLES ELECTRONICS, LLC, (for purposes of Sections 2, 5 and 6 only) as a Loan Party
	 
	 	 	 	 
	

	 	By:	 	 
	 

	 	 	 	

	

	 	Name:	 	 
	

	 	Title:	 	 
	 
	 	 	 	 
	 	 	KNOWLES INTERMEDIATE
	 	 	HOLDINGS, INC., (for purposes of Sections 2, 5 and 6 only) as a Loan Party
	 
	 	 	 	 
	

	 	By:	 	 
	 

	 	 	 	

	

	 	Name:	 	 
	

	 	Title:	 	 
	 
	 	 	 	 
	 	 	EMKAY INNOVATIVE PRODUCTS, INC., (for
purposes of Sections 2, 5 and 6) as a
Loan Party
	 
	 	 	 	 
	

	 	By:	 	 
	 

	 	 	 	

	

	 	Name:	 	 
	

	 	Title:	 	 
	 
	 	 	 	 
	 	 	KNOWLES MANUFACTURING LTD., (for purposes
of Sections 2, 5 and 6) as a Loan Party
	 
	 	 	 	 
	

	 	By:	 	 
	 

	 	 	 	

	

	 	Name:	 	 
	

	 	Title:	 	 







S-2









 






	 	 	 	 	 
	ADMINISTRATIVE

AGENT:
	 	 	 	 
	 	 	JPMORGAN CHASE BANK, Individually and as
Administrative Agent
	 
	 	 	 	 
	

	 	By:	 	 
	 

	 	 	 	

	

	 	Name:	 	 
	

	 	Title:	 	 







S-3









 






	 	 	 	 	 	 	 
	LENDERS:
	 	 	 	 	 	 
	 	 	SIGNATURE PAGE TO THE SEVENTH AMENDMENT

TO CREDIT AGREEMENT AND SECOND AMENDMENT

TO SECURITY AGREEMENT
	 
	 	 	 	 	 	 
	 	 	Name of Institution:	 	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	

	

	 	Name:	 	 	 	 
	

	 	Title:	 	 	 	 








S-4