EXHIBIT
      10.1

    


    


    AMENDMENT
      NO. 2 TO THE

    CREDIT
      AGREEMENT

    


    Dated
      as of December 13, 2005

     

    AMENDMENT
      NO. 2 TO THE CREDIT AGREEMENT
      (this
“Amendment”)
      among
      Ceradyne, Inc., a Delaware corporation (“Ceradyne”),
      Ceradyne ESK, LLC, a Delaware limited liability company (“ESK
      LLC”),
      ESK
      Ceramics GmbH & Co. KG (“ESK
      KG”;
      and
      collectively with Ceradyne and ESK LLC, the “Borrowers”),
      the
      banks, financial institutions and other lenders party hereto (collectively,
      the
“Lenders”) and Wachovia Bank, National Association, as collateral agent and
      administrative agent (in such capacity, the “Administrative
      Agent”)
      for
      the Lenders.

     

    PRELIMINARY
      STATEMENTS:

     

    (1)    The
      Borrowers, the Guarantors (as defined therein), the Administrative Agent and
      the
      Lenders have entered into a Credit Agreement dated as of August 18, 2004 (such
      Credit Agreement, as amended by Amendment No. 1 to the Credit Agreement dated
      as
      of December 22, 2004 and as otherwise amended, restated, supplemented or
      modified through the date hereof, the “Credit
      Agreement”).
      Capitalized terms not otherwise defined in this Amendment have the same meanings
      as specified in the Credit Agreement.

     

    (2)    The
      Borrower intends to issue (the “Convertible
      Notes Issuance”)
      up to
      $110 million in senior subordinated convertible notes due 2035 on or about
      December 19, 2005, the proceeds of which will be used to permanently prepay
      amounts owing under the Credit Agreement.

     

    (3)    The
      Borrower, the Administrative Agent and the Required Lenders have agreed to
      amend
      the Credit Agreement to permit the Convertible Notes Issuance and in certain
      other respects as set forth below.

     

    SECTION
      1. Amendments
      to Credit Agreement.
      The
      Credit Agreement is, effective as of the date hereof and subject to the
      satisfaction of the conditions precedent set forth in Section 2 hereof, hereby
      amended as follows:

     

    (a)    Section
      1.01 is amended by inserting the following new definitions in proper
      alphabetical order:

     

    “‘Convertible
      Notes”
      means
      the senior subordinated convertibles notes of the Borrower due 2035 to be issued
      on or about December 19, 2005 on substantially the terms set forth in the
      preliminary prospectus supplement with respect thereto dated December 1, 2005,
      without any amendment or other modification of the terms thereof that is adverse
      to the interests of the Administrative Agent and the Lender Parties that has
      not
      been consented to by the Required Lenders.”

     

    “‘Early
      Termination Date’
      means
      the earlier of (a) the date on which any holder of the Convertible Notes
      delivers a conversion notice or otherwise makes a demand for any payment (other
      than in common stock) in satisfaction of all or a portion of the principal
      amount of the Convertible Notes held by such holder and (b) the date on which
      the Borrower makes any payment (other than in common stock) to any holder of
      the
      Convertible Notes in satisfaction of all or a portion of the principal amount
      of
      the Convertible Notes held by such holder.”

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)    The
      definition of “Subordinated Debt” contained in Section 1.01 is hereby amended in
      its entirety to read as follows:

     

    “‘Subordinated
      Debt’
      means,
      collectively, (a) any Debt of any Loan Party subordinated in right and time
      of
      payment to the Obligations under the Loan Documents with a maturity no earlier
      than a date that is six (6) months after the Termination Date and containing
      such other terms and conditions (including, without limitation, subordination
      terms, covenants and defaults), in each case as are satisfactory to the
      Administrative Agent and (b) the Convertible Notes.”

     

    (c)    The
      definition of “Termination Date” contained in Section 1.01 is hereby amended in
      its entirety to read as follows:

     

    “‘Termination
      Date’
      means
      the earliest of (a) the date of termination in whole of the Revolving Credit
      Commitments, the Letter of Credit Commitment and the Term Commitments pursuant
      to Section 2.05 or 6.01, (b)(i) for purposes of the Revolving Credit Facility,
      the Swing Line Facility and the Letter of Credit Facility, August 18, 2009,
      and
      (ii) for purposes of the Term Facility, August 18, 2011 and (c) for purposes
      of
      each Facility, the Early Termination Date.”

     

    SECTION
      2. Conditions
      of Effectiveness.
      This
      Amendment shall become effective when, and only when, and as of the date (the
      “Amendment
      No. 2 Effective Date”)
      on
      which, (a) the Administrative Agent shall have received counterparts of this
      Amendment executed by the Borrowers, the Guarantors and the Required Lenders,
      and dated the date of receipt thereof by the Administrative Agent (unless
      otherwise specified), and (b) the Administrative Agent shall have received
      payment of all accrued expenses of the Administrative Agent (including all
      reasonable and accrued fees of counsel to the Administrative Agent invoiced
      on
      or prior to the date hereof).

     

    SECTION
      3. Reference
      to and Effect on the Loan Documents.
      (a) On
      and after the effectiveness of this Amendment, each reference in the Credit
      Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import
      referring to the Credit Agreement, and each reference in the Notes and each
      of
      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 Credit Agreement, as amended by this Amendment.

     

    (b)    The
      Credit Agreement, the Notes and each of the other Loan Documents, as
      specifically amended by this Amendment, are and shall continue to be in full
      force and effect and are hereby in all respects ratified and confirmed. Without
      limiting the generality of the foregoing, the Collateral Documents and all
      of
      the Collateral described therein do and shall continue to secure the payment
      of
      all Obligations of the Loan Parties under the Loan Documents, in each case
      as
      amended by this Amendment.

     

    (c)    The
      execution, delivery and effectiveness of this Amendment shall not, except as
      expressly provided herein, operate as a waiver of any right, power or remedy
      of
      any Lender or the Administrative Agent under any of the Loan Documents, nor
      constitute a waiver of any provision of any of the Loan Documents.

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    SECTION
      4. Consent.
      Each of
      Ceradyne, ESK LLC and ESK KG, as Guarantors under the Credit Agreement (the
      “Guaranty”)
      in
      favor of the Administrative Agent and the Lenders party to the Credit Agreement,
      hereby consents to this Amendment and hereby confirms and agrees that (a)
      notwithstanding the effectiveness of such Amendment, the Guaranty is, and shall
      continue to be, in full force and effect and is hereby ratified and confirmed
      in
      all respects, except that, on and after the effectiveness of such Amendment,
      each reference in the Guaranty to the “Credit Agreement”, “thereunder”,
“thereof” or words of like import shall mean and be a reference to the Credit
      Agreement, as amended by such Amendment, and (b) each of the Collateral
      Documents to which such Guarantor is a party and all of the Collateral described
      therein do, and shall continue to, secure the payment of all of the obligations
      to be secured thereunder.

     

    SECTION
      5. Costs,
      Expenses.
      The
      Borrower agrees to pay on demand all reasonable costs and expenses of the
      Administrative Agent in connection with the preparation, execution, delivery
      and
      administration, modification and amendment of this Amendment and the other
      instruments and documents to be delivered hereunder and all other accrued fees
      and expenses of the Administrative Agent (including, without limitation, the
      reasonable fees and expenses of counsel for the Administrative Agent) in
      accordance with the terms of Section 9.04 of the Credit Agreement. 

     

    SECTION
      6. Execution
      in Counterparts.
      This
      Amendment 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 a signature page
      to
      this Amendment by telecopier shall be effective as delivery of a manually
      executed counterpart of this Amendment.

     

    SECTION
      7. Governing
      Law.
      This
      Amendment shall be governed by, and construed in accordance with, the laws
      of
      the State of New York.

     

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

       

    

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

     

    
      	 	 	 
	 	CERADYNE,
              INC.
	 
 	 
 	 
 
	 	By:  	/s/ JERROLD
              J. PELLIZZON
	 	
              

            
	 	
              Name:  
                Jerrold J. Pellizzon

              Title:   
                Chief Financial Officer

            


    

     

    
      
        	 	 	 
	 	CERADYNE
                ESK, LLC.
	 
 	 
 	 
 
	 	By:  	/s/ JERROLD
                J. PELLIZZON
	 	
                

              
	 	
                Name:  
                  Jerrold J. Pellizzon

                Title:   
                  Chief Financial Officer

              


      

       

      
        	 	 	 
	 	ESK
                CERAMICS GMBH & CO. KG
	 
 	 
 	 
 
	 	By:  	/s/ JERROLD
                J. PELLIZZON
	 	
                

              
	 	
                Name:  
                  Jerrold J. Pellizzon

                Title:   
                  Chief Financial
                  Officer

              


      




    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    
       

      
        	 	 	 
	 	
                WACHOVIA
                  BANK, NATIONAL ASSOCIATION, 
as Administrative Agent and as a
                  Lender

              
	 
 	 
 	 
 
	 	By:  	/s/ WILLIAM
                F. FOX
	 	
                

              
	 	
                Name:  
                  William F. Fox

                Title:    
                  Director

              


      



    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    


     

    ARES
      ENHANCED LOAN INVESTMENT STRATEGY, LTD.

    
      
        	 	
              	 


      

      
        	 	 	 


      

      
        	 	
                By:

              	
                Ares
                  Enhanced Loan Management, L.P., Investment
                  Manager

              


      

    

     

     

    
      	 	
              By:
                

            	
              Ares
                Enhanced Loan GP, LLC,

            


    

    Its
      General Partner

     

    By:
       /s/
      Americo Cascella

    
      

    

    Name: 
      Americo Cascella

    Title:  
       Vice
      President

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    Ares
      VII
      CLO Ltd.

    
      
        	 	 	 


      

      
        	 	
                By:

              	
                Ares
                  CLO Management VII, L.P., 

              


      

    

    Investment
      Manager

     

     

    
      	 	
              By:
                

            	
              Ares
                CLO GP VII, LLC,

            


    

    Its
      General Partner

     

    By:
       /s/
      Americo Cascella

    
      

    

    Name:
      Americo Cascella

    Title:  
Vice
      President

     

    
 

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    Ares
      VIII
      CLO Ltd.

    
      
        	 	 	 


      

      
        	 	
                By:

              	
                Ares
                  CLO Management VIII, L.P., 

              


      

    

    Investment
      Manager

     

     

    
      	 	
              By:
                

            	
              Ares
                CLO GP VIII, LLC

            


    

    Its
      General Partner

     

    By:
       /s/
      Americo Cascella

    
      

    

    Name: 
      Americo Cascella

    Title:   
Vice
      President

     

    
 

    
 

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    Ares
      IX
      CLO Ltd.

    
      
        	 	 	 


      

      
        	 	
                By:

              	
                Ares
                  CLO Management IX, L.P.,

              


      

    

    Investment
      Manager

     

     

    
      	 	
              By:
                

            	
              Ares
                CLO GP IX, LLC,

            


    

    Its
      General Partner

     

    By:
       /s/
      Americo Cascella

    
      

    

    Name:  
      Americo Cascella

    Title:    
      Vice President

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    



     

    280
      Funding I

     

     

    By:
      GSO
      Capital Partners LP

     

     

    By:
       /s/
      George Pan

    
      

    

    Name:  
      George Pan

    Title:    
      MD

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     



     

    BABSON
      CLO LTD. 2004-1

    BABSON
      CLO LTD. 2004-II

    BABSON
      CLO LTD. 2005-I

    SUFFIELD
      CLO, LIMITED

    By
      Babson
      Capital Management LLC as Collateral Manager

     

    By:
      
      
        

      

    

    Name:

    Title:

     

     

    MAPLEWOOD
      (CAYMAN) LIMITED

    By
      Babson
      Capital Management LLC as Investment Manager

     

    By:
      
      
        

      

    

    Name:

    Title:

     

     

    MASSACHUSETTS
      MUTUAL LIFE INSURANCE COMPANY

    By
      Babson
      Capital Management LLC as Collateral Manager

     

    By:

    
      

    

    Name:

    Title:

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    Gale
      Force 1 CLO, Ltd.

    By:  
      GSO Capital Partners LP as Collateral Manager

     

     

    By:
       /s/
      Lee
      M. Susman

    
      

    

    Name:   
      Lee M. Susman

    Title:    
      Authorized Signatory

     

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    GENERAL
      ELECTRIC CAPITAL CORPORATION

     

     

    By: 
      /s/
      Brian
      P. Schwimm

    
      

    

    Name:  
      Brian P. Schwimm

    Title:    
      Duly Authorized Signatory

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    HUDSON
      STRAITS CLO 2004, LTD.

    By:  
      GSO Capital Partners LP

     

    By:  
      /s/
      Lee
      M. Shaiman

    
      

    

    Name:  
      Lee M. Shaiman

    Title:   
      Authorized Signatory

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    ING
      PRIME
      RATE TRUST

    By:  
      ING
      Investment Management Co.

    as
      its
      Investment Manager

     

     

    By: 
      /s/
      Mark
      F. Haak

    
      

    

    Name: 
      Mark F. Haak

    Title:   
      Vice President

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

     

    ING
      SENIOR INCOME FUND

    By: 
      ING
      Investment Management Co.

    as
      its
      Investment Manager

     

    By:  
      Mark
      F.
      Haak 
      
        

      

    

    Name:  
      Mark F. Haak

    Title:    
      Vice President

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

     

     

    LightPoint
      CLO 2004-1, Ltd.

    Premium
      Loan Trust I, Ltd.

     

    By:  
      /s/
      Thomas A. Kramer

    
      

    

    Name:  
      Thomas A. Kramer

    Title:    
      Senior Managing Director &Chief
      Executive Officer

     

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

    MORGAN
      STANLEY PRIME INCOME TRUST

     

    By:  
      /s/
      Jinny
      K. Kim

    
      

    

    Name:  
      Jinny K. Kim

    Title:   
      Vice President

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    THE
      NORTHERN TRUST COMPANY

     

    By:  
      /s/
      John
      E. Burda 
      
        

      

    

    Name:  
      John E. Burda

    Title:    
      Vice President

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    U.S.
      BANK
      NATIONAL ASSOCIATION

     

    By: 
      /s/
      Janet
      E. Jordan

    
      

    

    Name:  
      Janet E. Jordan

    Title:   
      Vice President

     

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

     

    VAN
      KAMPEN

    SENIOR
      LOAN FUND

    By:  
      Van Kampen Asset Management

     

    By:  
      /s/
      Robert P. Drobny

    
      

    

    Name:  
      Robert P. Drobny

    Title:    
      Vice President

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

     

    VAN
      KAMPEN

    SENIOR
      INCOME TRUST

    By:
      Van
      Kampen Asset Management

     

     

    By:   
      /s/
      Robert P. Drobny

    
      

    

    Name:  
      Robert P. Drobny

    Title:    
      Vice President

    
      	 	 	 	 
	 	 	 	 
	
              -22-