Document:

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                                                                 EXHIBIT 10.4*

                                  SECURITY AGREEMENT dated as of June 30, 1999,
                among KNOWLES ELECTRONICS, INC., a Delaware corporation (the
                "Parent Borrower"), each subsidiary of the Borrower listed on
                Schedule I hereto (each such subsidiary individually a
                "Subsidiary Guarantor" and collectively, the "Subsidiary
                Guarantors"; the Subsidiary Guarantors and the Parent Borrower
                are referred to collectively herein as the "Grantors") and THE
                CHASE MANHATTAN BANK, a New York banking corporation ("Chase"),
                as administrative agent (in such capacity, the "Administrative
                Agent") for the Secured Parties (as defined herein).

         Reference is made to (a) the Credit Agreement dated as of June 28,
1999 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among the Parent Borrower, the lenders from time to time
party thereto (the "Lenders"), Chase, as Administrative Agent for the Lenders,
Swingline Lender and as issuing bank (in such capacity, the "Issuing Bank") and
Morgan Stanley Senior Funding, Inc., as Syndication Agent,  (b) the Parent
Guarantee Agreement dated as of June 30, 1999 (as amended, supplemented or
otherwise modified from time to time, the "Parent Guarantee Agreement"),
between the Parent Borrower  and the Administrative Agent and (c) the
Subsidiary Guarantee Agreement dated as of June 30, 1999 (as amended,
supplemented or otherwise modified from time to time, the "Subsidiary Guarantee
Agreement"; and, collectively with the Parent Guarantee Agreement, the
"Guarantee Agreements"), among the Subsidiary Guarantors and the Administrative
Agent.

         The Lenders have agreed to make Loans to the Borrowers, and the
Issuing Bank has agreed to issue Letters of Credit for the account of the
Borrowers, pursuant to, and upon the terms and subject to the conditions
specified in, the Credit Agreement.  Each of the Subsidiary Guarantors has
agreed to guarantee, among other things, all the obligations of each Borrower
under the Credit Agreement.  The obligations of the Lenders to make Loans and
of the Issuing Bank to issue Letters of Credit are conditioned upon, among
other things, the execution and delivery by the Grantors of an agreement in the
form hereof to secure (a) the due and punctual payment by each Borrower of (i)
the principal of and premium, if any, and

* Confidential Information in this Exhibit 10.4 has been omitted and filed
  separately with the Securities and Exchange Commission.
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interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) on the Loans made to such Borrower,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (ii) each payment required to be made by such
Borrower under the Credit Agreement in respect of any Letter of Credit, when
and as due, including payments in respect of reimbursement of disbursements,
interest thereon and obligations to provide cash collateral and (iii) all other
monetary obligations, including fees, costs, expenses and indemnities, whether
primary, secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of such Borrower to the Secured Parties under
the Credit Agreement and the other Loan Documents, (b) the due and punctual
performance of all covenants, agreements, obligations and liabilities of each
Borrower under or pursuant to the Credit Agreement and the other Loan
Documents, (c) the due and punctual payment and performance of all the
covenants, agreements, obligations and liabilities of each other Loan Party
under or pursuant to this Agreement and the other Loan Documents and (d) the
due and punctual payment and performance of all obligations of  each Borrower
and any Loan Party under each Hedging Agreement entered into with any
counterparty that was a Lender (or an Affiliate of a Lender) at the time such
Hedging Agreement was entered into (all the monetary and other obligations
described in the preceding clauses (a) through (d) being collectively called
the "Obligations").
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         Accordingly, the Grantors and the Administrative Agent, on behalf of
itself and each Secured Party (and each of their respective successors or
assigns), hereby agree as follows:

                                   ARTICLE I

                                  Definitions

         SECTION 1.01. Definition of Terms Used Herein. Unless the context
otherwise requires, all capitalized terms used but not defined herein shall
have the meanings set forth in the Credit Agreement and all references to the
Uniform Commercial Code shall mean the Uniform Commercial Code in effect in the
State of New York as of the date hereof.

         SECTION 1.02. Definition of Certain Terms Used Herein. As used herein,
the following terms shall have the following meanings:

         "Account Debtor" shall mean any Person who is or who may become
obligated to any Grantor under, with respect to or on account of an Account.

         "Accounts" shall mean any and all right, title and interest of any
Grantor to payment for goods and services sold or leased, including any such
right evidenced by chattel paper, whether due or to become due, whether or not
it has been earned by performance, and whether now or hereafter acquired or
arising in the future, including Accounts Receivable from Affiliates of the
Grantors.

         "Accounts Receivable" shall mean all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities
and guarantees with respect thereto, including any rights to stoppage in
transit, replevin, reclamation and resales, and all related security interests,
liens and pledges, whether voluntary or involuntary, in each case whether now
existing or owned or hereafter arising or acquired.

         "Collateral" shall mean all (a) Accounts Receivable, (b) Documents,
(c) Equipment, (d) General Intangibles, (e) Inventory, (f) cash and cash
accounts (including the
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Notice Deposit Accounts and the Collection Deposit Accounts), (g) Investment
Property and (h) Proceeds.

         "Collection Deposit Account" shall mean a lockbox account of a Grantor
maintained for the benefit of the Secured Parties with the Administrative Agent
or with a Sub-Agent pursuant to a Lockbox and Depository Agreement.

         "Commodity Account" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.

         "Commodity Contract" shall mean a commodity futures contract, an
option on a commodity futures contract, a commodity option or any other
contract that, in each case, is (a) traded on or subject to the rules of a
board of trade that has been designated as a contract market for such a
contract pursuant to the Federal commodities laws or (b) traded on a foreign
commodity board of trade, exchange or market, and is carried on the books of a
Commodity Intermediary for a Commodity Customer.

         "Commodity Customer" shall mean a Person for whom a Commodity
Intermediary carries a Commodity Contract on its books.

         "Commodity Intermediary" shall mean (a) a Person who is registered as
a futures commission merchant under the Federal commodities laws or (b) a
Person who in the ordinary course of its business provides clearance or
settlement services for a board of trade that has been designated as a contract
market pursuant to Federal commodities laws.

         "Copyright License"  shall mean any written agreement, now or
hereafter in effect, granting any right to any third party under any Copyright
now or hereafter owned by any Grantor or which such Grantor otherwise has the
right to license, or granting any right to such Grantor under any Copyright now
or hereafter owned by any third party, and all rights of such Grantor under any
such agreement.

         "Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor:  (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee
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or otherwise, and (b) all registrations and applications for registration of
any such copyright in the United States or any other country, including
registrations, recordings, supplemental registrations and pending applications
for registration in the United States Copyright Office, including those listed
on Schedule II.

         "Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.

         "Documents" shall mean all instruments, files, records, ledger sheets
and documents covering or relating to any of the Collateral.

         "Entitlement Holder" shall mean a Person identified in the records of
a Securities Intermediary as the Person having a Security Entitlement against
the Securities Intermediary.  If a Person acquires a Security Entitlement by
virtue of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such
Person is the Entitlement Holder.

         "Equipment" shall mean all equipment, furniture and furnishings, and
all tangible personal property similar to any of the foregoing, including
tools, parts and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor.  The term Equipment shall include Fixtures.

         "Financial Asset"  shall mean (a) a Security, (b) an obligation of a
Person or a share, participation or other interest in a Person or in property
or an enterprise of a Person,  which is, or is of a type, dealt with in or
traded on financial markets, or which is recognized in any area in which it is
issued or dealt in as a medium for investment or (c) any property that is held
by a  Securities Intermediary for another Person in a Securities Account if the
Securities Intermediary has expressly agreed with the other Person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code.  As the context requires, the term Financial Asset shall mean
either the interest itself or the means by which a Person's claim to it is
evidenced, including a certificated or uncertificated Security, a certificate
representing a Security or a Security Entitlement.
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         "Fixtures" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.

         "General Intangibles" shall mean all choses in action and causes of
action and all other assignable intangible personal property of any Grantor of
every kind and nature (other than Accounts Receivable) now owned or hereafter
acquired by any Grantor, including all rights and interests in  partnerships,
limited partnerships, limited liability companies and other unincorporated
entities, corporate or other business records, indemnification claims, contract
rights (including rights under leases, whether entered into as lessor or
lessee, Hedging Agreements and other agreements), Intellectual Property,
goodwill, registrations, franchises, tax refund claims and any letter of
credit, guarantee, claim, security interest or other security held by or
granted to any Grantor to secure payment by an Account Debtor of any of the
Accounts Receivable (other than any item of the foregoing which by its terms
automatically terminates or is terminable by any Person other than such Grantor
or its Affiliates upon assignment or grant of a security interest by such
Grantor).

         "Intellectual Property" shall mean all intellectual and similar
property of any Grantor of every kind and nature now owned or hereafter
acquired by any Grantor, including inventions, designs, Patents, Copyrights,
Licenses, Trademarks, trade secrets, confidential or proprietary technical and
business information, know-how, show-how or other data or information, software
and databases and all embodiments or fixations thereof and related
documentation, registrations and franchises, and all additions, improvements
and accessions to, and books and records describing or used in connection with,
any of the foregoing.

         "Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packaging materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing
supplies and spare parts, and all such goods that have been returned to or
repossessed by or on behalf of any Grantor.
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         "Investment Property" shall mean all Securities (whether certificated
or uncertificated), Security Entitlements, Securities Accounts, Commodity
Contracts and Commodity Accounts of any Grantor,  whether now owned or
hereafter acquired by any Grantor.

         "License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party,
including those listed on Schedule III (other than those license agreements in
existence on the date hereof and listed on Schedule III and those license
agreements entered into after the date hereof, which by their terms prohibit,
or become terminable by any Person other than such Grantor or its Affiliates
upon, assignment or a grant of a security interest by such Grantor as licensee
thereunder).

         "Lockbox and Depository Agreement" shall mean a Lockbox and Depository
Agreement substantially in the form of Annex 1 hereto among the Parent
Borrower, the Administrative Agent and a Sub-Agent.

 "Lockbox System" shall have the meaning assigned to such term in Section 5.01.

         "Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.

         "Notice Deposit Account" shall have the meaning assigned to such term
in Section 4.13.

         "Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any
invention on which a Patent, now or hereafter owned by any Grantor or which any
Grantor otherwise has the right to license, is in existence, or granting to any
Grantor any right to make, use or sell any invention on which a Patent, now or
hereafter owned by any third party, is in existence, and all rights of any
Grantor under any such agreement.

         "Patents" shall mean all of the following now owned or hereafter
acquired by any Grantor:  (a) all letters patent of the United States or any
other country, all registrations and
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recordings thereof, and all applications for letters patent of the United
States or any other country, including registrations, recordings and pending
applications in the United States Patent and Trademark Office or any similar
offices in any other country, including those listed on Schedule IV, and (b)
all reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof, and the inventions disclosed or claimed therein, including
the right to make, use and/or sell the inventions disclosed or claimed therein.

         "Perfection Certificate" shall mean a certificate substantially in the
form of Annex 2 hereto, completed and supplemented with the schedules and
attachments contemplated thereby, and duly executed by a Financial Officer and
the chief legal officer of the Parent Borrower.

         "Proceeds" shall mean any consideration received from the sale,
exchange, license, lease or other disposition of any asset or property that
constitutes Collateral, any value received as a consequence of the possession
of any Collateral and any payment received from any insurer or other Person or
entity as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include (a) all cash and negotiable instruments received
by or held on behalf of the Administrative Agent pursuant to the Lockbox System,
(b) any claim of any Grantor against any third party for (and the right to
sue and recover for and the rights to damages or profits due or accrued arising
out of or in connection with) (i) past, present or future infringement of any
Patent now or hereafter owned by any Grantor, or licensed under a Patent
License, (ii) past, present or future infringement or dilution of any Trademark
now or hereafter owned by  any Grantor or licensed under a Trademark License or
injury to the goodwill associated with or symbolized by any Trademark now or
hereafter owned by any Grantor, (iii) past, present or future breach of any
License and (iv) past, present or future infringement of any Copyright now or
hereafter owned by any Grantor or licensed under a Copyright License and (c)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.

         "Quarterly Update" shall have the meaning set forth in Section 4.03.
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         "Secured Parties" shall mean (a) the Lenders, (b) the Administrative
Agent, (c) the Issuing Bank, (d) each counterparty to a Hedging Agreement
entered into with any Borrower or other Loan Party if such counterparty was a
Lender (or an Affiliate of a Lender) at the time the Hedging Agreement was
entered into, (e) the beneficiaries of each indemnification obligation
undertaken by any Grantor under any Loan Document and (f) the successors and
assigns of each of the foregoing.

         "Securities" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of
shares, participations, interests or obligations and (c)(i) are, or are of a
type, dealt with or trade on securities exchanges or securities markets or (ii)
are a medium for investment and by their terms expressly provide that they are
a security governed by Article 8 of the Uniform Commercial Code.

         "Securities Account" shall mean an account to which a Financial Asset
is or may be credited in accordance with an agreement under which the Person
maintaining the account undertakes to treat the Person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.

         "Security Entitlements" shall mean the rights and property interests
of an Entitlement Holder with respect to a Financial Asset.

         "Security Interest" shall have the meaning assigned to such term in
Section 2.01.

         "Securities Intermediary" shall mean (a) a clearing corporation or (b)
a Person, including a bank or broker, that in the ordinary course of its
business maintains securities accounts for others and is acting in that
capacity.
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         "Sub-Agent" shall mean a financial institution which shall have
delivered to the Administrative Agent an executed Lockbox and Depository
Agreement.

         "Trademark License" shall mean any written agreement, now or hereafter
in effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or which any Grantor otherwise has the right to
license, or granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any
such agreement.

         "Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor:  (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names,
trade styles, trade dress, logos, other source or business identifiers, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith (excluding intent-to-use
applications), including registrations and registration applications in the
United States Patent and Trademark Office, any State of the United States or
any similar offices in any other country or any political subdivision thereof,
and all extensions or renewals thereof, including those listed on Schedule V,
(b) all goodwill associated therewith or symbolized thereby and (c) all other
assets, rights and interests that uniquely reflect or embody such goodwill.

         SECTION 1.03.  Rules of Interpretation.  The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
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                                   ARTICLE II

                               Security Interest

         SECTION 2.01.  Security Interest.  As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor
hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges,
hypothecates and transfers to the Administrative Agent, its successors and
assigns, for the ratable benefit of the Secured Parties, and hereby grants to
the Administrative Agent, its successors and assigns, for the ratable benefit
of the Secured Parties, a security interest in, all of such Grantor's right,
title and interest in, to and under the Collateral (the "Security Interest").
Without limiting the foregoing, the Administrative Agent is hereby authorized
to file one or more financing statements (including fixture filings),
continuation statements, filings with the United States Patent and Trademark
Office or United States Copyright Office (or any successor office or any
similar office in any other country) or other documents for the purpose of
perfecting, confirming, continuing, enforcing or protecting the Security
Interest granted by each Grantor, without the signature of any Grantor, and
naming any Grantor or the Grantors as debtors and the Administrative Agent as
secured party.

         SECTION 2.02.  No Assumption of Liability.  The Security Interest is
granted as security only and shall not subject the Administrative Agent or any
other Secured Party to, or in any way alter or modify, any obligation or
liability of any Grantor with respect to or arising out of the Collateral.
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                                  ARTICLE III

                         Representations and Warranties

         The Grantors jointly and severally represent and warrant to the
Administrative Agent and the Secured Parties that:

         SECTION 3.01.  Title and Authority.  Each Grantor has good and valid
rights in and title to the Collateral with respect to which it has purported to
grant a Security Interest hereunder and has full power and authority to grant
to the Administrative Agent the Security Interest in such Collateral pursuant
hereto and to execute, deliver and perform its obligations in accordance with
the terms of this Agreement, without the consent or approval of any other
Person other than any consent or approval which has been obtained.

         SECTION 3.02.  Filings.  (a)  The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete.  Fully executed Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations containing a description of the Collateral
have been delivered to the Administrative Agent for filing in each
governmental, municipal or other office specified in Schedule 6 to the
Perfection Certificate, which are all the filings, recordings and registrations
(other than filings required to be made in the United States Patent and
Trademark Office and the United States Copyright Office in order to perfect the
Security Interest in Collateral consisting of United States Patents, Trademarks
and Copyrights) that are necessary to publish notice of and protect the
validity of and to establish a legal, valid and perfected security interest in
favor of the Administrative Agent (for the ratable benefit of the Secured
Parties) in respect of all Collateral in which the Security Interest may be
perfected by filing, recording or registration in the United States (or any
political subdivision thereof) and its territories and possessions, and no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of continuation statements.
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         (b) Each Grantor represents and warrants that fully executed security
agreements in the form hereof and containing a description of all Collateral
consisting of Intellectual Property with respect to United States Patents and
United States registered Trademarks (and Trademarks for which United States
registration applications are pending) and United States registered Copyrights
have been delivered to the Administrative Agent for recording by the United
States Patent and Trademark Office and the United States Copyright Office
pursuant to 35 U.S.C. Section 261, 15 U.S.C. Section 1060 or 17 U.S.C. Section
205 and the regulations thereunder, as applicable, and otherwise as may be
required pursuant to the laws of any other necessary jurisdiction, to protect
the validity of and to establish a legal, valid and perfected security interest
in favor of the Administrative Agent (for the ratable benefit of the Secured
Parties) in respect of all Collateral consisting of Patents, Trademarks and
Copyrights in which a security interest may be perfected by filing, recording
or registration in the United States (or any political subdivision thereof) and
its territories and possessions, or in any other necessary jurisdiction, and no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to
perfect the Security Interest with respect to any Collateral consisting of
Patents, Trademarks and Copyrights (or registration or application for
registration thereof) acquired or developed after the date hereof).

         SECTION 3.03.  Validity of Security Interest.  The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording
or registering a financing statement or analogous document in the United States
(or any political subdivision thereof) and its territories and possessions
pursuant to the Uniform Commercial Code or other applicable law in such
jurisdictions and (c) a security interest that shall be perfected in all
Collateral in which a security interest may be perfected upon the receipt and
recording of this Agreement with the United States Patent and Trademark Office
and the United States Copyright Office, as applicable.  The Security Interest
is and shall be prior to any other Lien on any of the Collateral, other than
Liens
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expressly permitted to be prior to the Security Interest pursuant to Section
6.02 of the Credit Agreement.

         SECTION 3.04.  Absence of Other Liens.  The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement.  The Grantor has not filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office
or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which financing statement or
analogous document, assignment, security agreement or similar instrument is
still in effect, except, in each case, for Liens expressly permitted pursuant
to Section 6.02 of the Credit Agreement.
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                                   ARTICLE IV

                                   Covenants

         SECTION 4.01.  Change of Name; Location of Collateral; Records; Place
of Business.  (a)  Each Grantor agrees promptly to notify the Administrative
Agent in writing of any change (i) in its corporate name or in any trade name
used to identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating
to Collateral owned by it or any office or facility at which Collateral owned
by it is located (including the establishment of any such new office or
facility), (iii) in its identity or corporate structure or (iv) in its Federal
Taxpayer Identification Number.  Each Grantor agrees not to effect or permit
any change referred to in the preceding sentence unless all filings have been
made under the Uniform Commercial Code or otherwise that are required in order
for the Administrative Agent to continue at all times following such change to
have a valid, legal and perfected first priority security interest in all the
Collateral.  Each Grantor agrees promptly to notify the Administrative Agent if
any material portion of the Collateral owned or held by such Grantor is damaged
or destroyed.

         (b)  Each Grantor agrees to maintain, at its own cost and expense,
such complete and accurate records with respect to the Collateral owned by it
as is consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar to
those in which such Grantor is engaged, but in any event to include accounting
records sufficient to enable the preparation of financial statements  in
accordance with GAAP indicating all payments and proceeds received with respect
to any part of the Collateral, and, at such time or times as the Administrative
Agent may reasonably request, promptly to prepare and deliver to the
Administrative Agent a duly certified schedule or schedules in form and detail
satisfactory to the Administrative Agent showing the identity, amount and
location of any and all Collateral.

         SECTION 4.02.  Protection of Security.  Each Grantor shall, at its own
cost and expense, take any and all actions necessary to defend title to the
Collateral against all
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Persons and to defend the Security Interest of the Administrative Agent in the
Collateral and the priority thereof against any Lien not expressly permitted
pursuant to Section 6.02 of the Credit Agreement.

         SECTION 4.03.  Further Assurances.  Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the
Administrative Agent may from time to time reasonably request to better assure,
preserve, protect and perfect the Security Interest and the rights and remedies
created hereby, including the payment of any fees and taxes required in
connection with the execution and delivery of this Agreement, the granting of
the Security Interest and the filing of any financing statements (including
fixture filings) or other documents in connection herewith or therewith.  If
any amount payable under or in connection with any of the Collateral shall be
or become evidenced by any promissory note or other instrument, such note or
instrument shall be immediately pledged and delivered to the Administrative
Agent, duly endorsed in a manner satisfactory to the Administrative Agent.

         Without limiting the generality of the foregoing, each Grantor agrees
to supplement this Agreement by supplementing Schedules II, III, IV and V
hereto or adding additional schedules hereto to specifically identify any asset
or item that constitutes Copyrights, Licenses, Patents or Trademarks within 10
days after the expiration of each fiscal quarter of the Parent Borrower (a
"Quarterly Update").  Each Grantor agrees that it will use its best efforts to
take such action as shall be necessary in order that all representations and
warranties made by such Grantor hereunder shall be true and correct with
respect to such Collateral included in any Quarterly Update within 10 days
after the date of delivery of such Quarterly Update.  Upon the delivery  of
each Quarterly Update, each Grantor acknowledges that the Administrative Agent
may within 10 days of the delivery of such Quarterly Update, with the consent
of the relevant Grantor (such consent not to be unreasonably withheld),
supplement Schedules II, III, IV and V hereto or add additional schedules
hereto to specifically identify any asset or item that constitutes Copyrights,
Licenses, Patents or Trademarks.  Each Grantor agrees that it will use its best
efforts to take such action as shall be necessary in order that all
representations and
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warranties made by such Grantor hereunder shall be true and correct with
respect to such Collateral within 30 days after the date of delivery by the
Administrative Agent of any such supplement specifically identifying such
Collateral.

         SECTION 4.04.  Inspection and Verification.  The Administrative Agent
and such Persons as the Administrative Agent may reasonably designate shall
have the right  (provided that such right will not be exercised in a manner
that could reasonably be expected to impair, harm or invalidate any trade
secrets or similar items of Intellectual Property), upon reasonable prior
notice, at the Grantors' own cost and expense, to inspect the Collateral, all
records related thereto (and to make extracts and copies from such records) and
the premises upon which any of the Collateral is located, to discuss the
Grantors' affairs with the officers of the Grantors and their independent
accountants and to verify under reasonable procedures, in accordance with
Section 5.13 of the Credit Agreement, the validity, amount, quality, quantity,
value, condition and status of, or any other matter relating to, the
Collateral, including if a Default shall have occurred and shall be continuing,
in the case of Accounts or Collateral in the possession of any third Person, by
contacting Account Debtors or the third Person possessing such Collateral for
the purpose of making such a verification.  The Administrative Agent shall have
the absolute right to share any information it gains from such inspection or
verification with any Secured Party (it being understood that any such
information shall be deemed to be "Information" subject to the provisions of
Section 9.12 of the Credit Agreement and that each Secured Party shall be bound
by the confidentiality obligations of Section 9.12 of the Credit Agreement).
Notwithstanding the foregoing, unless a Default shall have occurred and shall
be continuing, the Grantors will not have any obligation to permit any visit or
inspection in any fiscal year of the Parent Borrower by the Administrative
Agent or Persons designated by the Administrative Agent if two visits or
inspections in such fiscal year have been previously conducted by the
Administrative Agent or Persons designated by the Administrative Agent.

         SECTION 4.05.  Taxes; Encumbrances.  At its option, the Administrative
Agent may discharge past due taxes, assessments, charges, fees, Liens, security
interests or other encumbrances at any time levied or placed on the Collateral
<PAGE>   18

                                                                              18

and not permitted pursuant to Section 5.05 or Section 6.02 of the Credit
Agreement, and may pay for the maintenance and preservation of the Collateral
to the extent any Grantor fails to do so as required by the Credit Agreement or
this Agreement, and each Grantor jointly and severally agrees to reimburse the
Administrative Agent on demand for any payment made or any expense incurred by
the Administrative Agent pursuant to the foregoing authorization; provided,
however, that nothing in this Section 4.05 shall be interpreted as excusing any
Grantor from the performance of, or imposing any obligation on the
Administrative Agent or any Secured Party to cure or perform, any covenants or
other promises of any Grantor with respect to taxes, assessments, charges,
fees, liens, security interests or other encumbrances and maintenance as set
forth herein or in the other Loan Documents.

         SECTION 4.06.  Assignment of Security Interest.  If at any time any
Grantor shall take a security interest in any property of an Account Debtor or
any other Person to secure payment and performance of an Account, such Grantor
shall promptly assign such security interest to the Administrative Agent.  Such
assignment need not be filed of public record unless necessary to continue the
perfected status of the security interest against creditors of and transferees
from the Account Debtor or other Person granting the security interest.

         SECTION 4.07.  Continuing Obligations of the Grantors.  Each Grantor
shall remain liable to observe and perform all the conditions and obligations
to be observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Administrative Agent and the Secured Parties from and against any
and all liability for such performance.

         SECTION 4.08.  Use and Disposition of Collateral.  None of the
Grantors shall make or permit to be made an assignment, pledge or hypothecation
of the Collateral or shall grant any other Lien in respect of the Collateral,
except as expressly permitted by Section 6.02 of the Credit Agreement, provided
that the foregoing shall not be deemed to prohibit any license of Intellectual
Property granted by a Grantor to third parties
<PAGE>   19

                                                                              19

in the ordinary course of business.  None of the Grantors shall make or permit
to be made any transfer of the Collateral and each Grantor shall remain at all
times in possession of the Collateral owned by it, except that (a) Inventory
may be sold in the ordinary course of business and (b) unless and until the
Administrative Agent shall notify the Grantors that an Event of Default shall
have occurred and be continuing and that during the continuance thereof the
Grantors shall not sell, convey, lease, assign, transfer or otherwise dispose
of any Collateral (which notice may be given by telephone if promptly confirmed
in writing), the Grantors may use, transfer and dispose of the Collateral in
any lawful manner not inconsistent with the provisions of this Agreement, the
Credit Agreement (including, without limitation, Section 6.05 of the Credit
Agreement) or any other Loan Document.  Without limiting the generality of the
foregoing, each Grantor agrees that it shall not permit any Inventory to be in
the possession or control of any warehouseman, bailee, agent or processor at
any time unless such warehouseman, bailee, agent or processor shall have been
notified of the Security Interest and shall have agreed in writing to hold the
Inventory subject to the Security Interest and the instructions of the
Administrative Agent and to waive and release any Lien held by it with respect
to such Inventory, whether arising by operation of law or otherwise.

         SECTION 4.09.  Limitation on Modification of Accounts.  None of the
Grantors will, without the Administrative Agent's prior written consent, grant
any extension of the time of payment of any of the Accounts Receivable,
compromise, compound or settle the same for less than the full amount thereof,
release, wholly or partly, any Person liable for the payment thereof or allow
any credit or discount whatsoever thereon, other than extensions, credits,
discounts, compromises or settlements granted or made in the ordinary course of
business and consistent with its current practices and in accordance with such
prudent and standard practices used in industries that are the same as or
similar to those in which such Grantor is engaged.

         SECTION 4.10.  Insurance.  The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage
to the Inventory and Equipment in accordance with Section 5.07 of the Credit
Agreement.  Each Grantor irrevocably makes, constitutes and appoints the
Administrative Agent (and all officers, employees
<PAGE>   20

                                                                              20

or agents designated by the Administrative Agent) as such Grantor's true and
lawful agent (and attorney-in- fact) for the purpose, during the continuance of
an Event of Default, of making, settling and adjusting claims in respect of
Collateral under policies of insurance, endorsing the name of such Grantor on
any check, draft, instrument or other item of payment for the proceeds of such
policies of insurance and for making all determinations and decisions with
respect thereto.  In the event that any Grantor at any time or times shall fail
to obtain or maintain any of the policies of insurance required hereby or to
pay any premium in whole or part relating thereto, the Administrative Agent
may, without waiving or releasing any obligation or liability of the Grantors
hereunder or any Event of Default, in its sole discretion, obtain and maintain
such policies of insurance and pay such premium and take any other actions with
respect thereto as the Administrative Agent deems advisable.  All sums
disbursed by the Administrative Agent in connection with this Section 4.10,
including reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall be payable, upon demand, by the Grantors to the
Administrative Agent and shall be additional Obligations secured hereby.

         SECTION 4.11.  Legend.  Each Grantor shall legend, in form and manner
satisfactory to the Administrative Agent, its Accounts Receivable and its
books, records and documents evidencing or pertaining thereto with an
appropriate reference to the fact that such Accounts Receivable have been
assigned to the Administrative Agent for the benefit of the Secured Parties and
that the Administrative Agent has a security interest therein.

         SECTION 4.12.  Covenants Regarding Patent, Trademark and Copyright
Collateral.  (a)  To the extent commercially reasonable, each Grantor agrees
that it will use reasonable efforts not to, and will use reasonable efforts not
to permit any of its licensees to, do any act, or omit to do any act, whereby
any Patent of such Grantor's business may become invalidated or dedicated to
the public, and agrees that it shall continue to mark any products covered by a
Patent with the relevant patent number as necessary and sufficient to establish
and preserve its maximum rights under applicable patent laws.
<PAGE>   21

                                                                              21

         (b)  To the extent commercially reasonable, each Grantor (either
itself or through its licensees or its sublicensees) will use reasonable
efforts, for each Trademark, (i) to maintain such Trademark in full force free
from any claim of abandonment or invalidity for non-use, (ii) to maintain the
quality of products and services offered under such Trademark, (iii) to display
such Trademark with notice of Federal or foreign registration to the extent
necessary and sufficient to establish and preserve its maximum rights under
applicable law and (iv) not to knowingly use or knowingly permit the use of
such Trademark in violation of any third party rights.

         (c)  To the extent commercially reasonable, each Grantor (either
itself or through licensees) will use reasonable efforts, for each work covered
by a Copyright, to continue to publish, reproduce, display, adopt and
distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws.

         (d)  Each Grantor shall notify the Administrative Agent promptly if it
knows that any Patent, Trademark or Copyright material to the conduct of its
business may become abandoned, lost or dedicated to the public, or of any
adverse determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, United States Copyright Office or any court or similar office
of any country) regarding such Grantor's ownership of any Patent, Trademark or
Copyright, its right to register the same, or to keep and maintain the same.

         (e)  If any Grantor, either itself or through any agent, employee,
licensee or designee, files an application for any Patent, Trademark or
Copyright (or for the registration of any Trademark or Copyright) with the
United States Patent and Trademark Office, United States Copyright Office or
any office or agency in any political subdivision of the United States or in
any other country or any political subdivision thereof, such Grantor shall give
notice of any such action to the Administrative Agent on or prior to the date
that is 10 days after the last day of the calendar month in which such action
is taken.  Upon request of the Administrative Agent, such Grantor shall execute
and deliver any and all agreements, instruments, documents and papers as the
Administrative Agent
<PAGE>   22

                                                                              22

may reasonably request to evidence the Administrative Agent's security interest
in such Patent, Trademark or Copyright, and each Grantor hereby appoints the
Administrative Agent as its attorney-in-fact to execute and file such writings
for the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed; such power, being coupled with an interest, is irrevocable.

         (f)  To the extent commercially reasonable, each Grantor will take all
necessary steps that are consistent with the practice in any proceeding before
the United States Patent and Trademark Office, United States Copyright Office
or any office or agency in any political subdivision of the United States or in
any other country or any political subdivision thereof, to maintain and pursue
each material application relating to the Patents, Trademarks and/or Copyrights
(and to obtain the relevant grant or registration) and to maintain each issued
Patent and each registration of the Trademarks and Copyrights that is material
to the conduct of any Grantor's business, including timely filings of
applications for renewal, affidavits of use, affidavits of incontestability and
payment of maintenance fees, and, if consistent with good business judgment, to
initiate opposition, interference and cancelation proceedings against third
parties.

         (g)  In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor's business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Administrative Agent and shall, if  commercially reasonable, sue, within a
commercially reasonable time period, for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and take such other actions as are appropriate
under the circumstances to protect such Collateral.

         (h)  Upon and during the continuance of an Event of Default, each
Grantor shall use its best efforts to obtain all requisite consents or
approvals by the licensor of each Copyright License, Patent License or
Trademark License to effect the assignment of all of such Grantor's right,
title and interest thereunder to the Administrative Agent or its designee.
<PAGE>   23

                                                                              23

          SECTION 4.13 Certain Deposit Accounts.  With respect to any deposit
account located in California, Hawaii, Idaho, Illinois, or Indiana or any other
state in which on the date hereof or hereafter a security interest in a deposit
account may be perfected by notifying the bank maintaining such deposit account
of a secured party's security interest in such deposit account (each,
individually, a "Notice Deposit Account"), the Grantors shall provide to each
bank maintaining such a Notice Deposit Account the notice necessary under the
laws of the applicable state to perfect the Security Interest in such deposit
account.

                                   ARTICLE V

                                  Collections

         SECTION 5.01.  Lockbox System.  (a)  The Grantors will establish in
the name of the Administrative Agent, and subject to the control of the
Administrative Agent pursuant to the Lockbox and Depository Agreements, for the
ratable benefit of the Administrative Agent and the other Secured Parties, a
system of lockboxes and related Collection Deposit Accounts (the "Lockbox
System") with one or more financial institutions that are reasonably
satisfactory to the Administrative Agent into which the Proceeds of Accounts
Receivable and Inventory shall be deposited.

         (b)  Effective upon notice to the Grantors from the Administrative
Agent after the occurrence and during the continuance of an Event of Default
(which notice may be given by telephone if promptly confirmed in writing), the
Collection Deposit Accounts will after notice to the applicable Sub-Agent,
without any further action on the part of any Grantor, the Administrative Agent
or any Sub-Agent, convert into a closed lockbox account under the exclusive
dominion and control of the Administrative Agent in which funds are held
subject to the rights of the Administrative Agent hereunder.  Each Grantor
irrevocably authorizes the Administrative Agent to notify each Sub-Agent (i) of
the occurrence of an Event of Default and (ii) of the matters referred to in
this paragraph (b).

         SECTION 5.02.  Collections.  (a)  Each Grantor agrees (i) to notify
and direct promptly each Account Debtor and
<PAGE>   24

                                                                              24

every other Person obligated to make payments on Accounts Receivable or in
respect of any Inventory to make all such payments directly to the Lockbox
System established in accordance with Section 5.01, (ii) to use all reasonable
efforts to cause each Account Debtor and every other Person identified in
clause (i) above to make all payments with respect to Accounts Receivable and
Inventory directly to such Lockbox System and (iii) promptly to deposit all
payments received by it on account of Accounts Receivable and Inventory,
whether in the form of cash, checks, notes, drafts, bills of exchange, money
orders or otherwise, in the Lockbox System in precisely the form in which
received (but with any endorsements of such Grantor necessary for deposit or
collection), and until they are so deposited such payments shall be held in
trust by such Grantor for and as the property of the Administrative Agent.

         (b)  Without the prior written consent of the Administrative Agent, no
Grantor shall, in a manner adverse to the Lenders, change the general
instructions given to Account Debtors in respect of payment on Accounts to be
deposited in the Lockbox System.  Until the Administrative Agent shall have
advised the Grantors to the contrary, each Grantor shall, and the
Administrative Agent hereby authorizes each Grantor to, enforce and collect all
amounts owing on the Inventory and Accounts Receivable, for the benefit and on
behalf of the Administrative Agent and the other Secured Parties; provided,
however, that such privilege may at the option of the Administrative Agent be
terminated upon the occurrence and during the continuance of any Event of
Default.

         SECTION 5.03.  Power of Attorney.  Each Grantor irrevocably makes,
constitutes and appoints the Administrative Agent (and all officers, employees
or agents designated by the Administrative Agent) as such Grantor's true and
lawful agent and attorney-in-fact, and in such capacity the Administrative
Agent shall have the right, with power of substitution for each Grantor and in
each Grantor's name or otherwise, for the use and benefit of the Administrative
Agent and the Secured Parties, upon the occurrence and during the continuance
of an Event of Default (a) to receive, endorse, assign and/or deliver any and
all notes, acceptances, checks, drafts, money orders or other evidences of
payment relating to the Collateral or any part thereof; (b) to demand, collect,
receive payment of, give receipt for and give discharges and
<PAGE>   25

                                                                              25

releases of all or any of the Collateral; (c) to sign the name of any Grantor
on any invoice or bill of lading relating to any of the Collateral; (d) to send
verifications of Accounts Receivable to any Account Debtor; (e) to commence and
prosecute any and all suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any
of the Collateral or to enforce any rights in respect of any Collateral; (f) to
settle, compromise, compound, adjust or defend any actions, suits or
proceedings relating to all or any of the Collateral; (g) to notify, or to
require any Grantor to notify, Account Debtors to make payment directly to the
Administrative Agent; and (h) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with all or any of the Collateral,
and to do all other acts and things necessary to carry out the purposes of this
Agreement, as fully and completely as though the Administrative Agent were the
absolute owner of the Collateral for all purposes; provided, however, that
nothing herein contained shall be construed as requiring or obligating the
Administrative Agent or any Secured Party to make any commitment or to make any
inquiry as to the nature or sufficiency of any payment received by the
Administrative Agent or any Secured Party, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part
thereof or the moneys due or to become due in respect thereof or any property
covered thereby, and no action taken or omitted to be taken by the
Administrative Agent or any Secured Party with respect to the Collateral or any
part thereof shall give rise to any defense, counterclaim or offset in favor of
any Grantor or to any claim or action against the Administrative Agent or any
Secured Party.  It is understood and agreed that the appointment of the
Administrative Agent as the agent and attorney-in-fact of the Grantors for the
purposes set forth above is coupled with an interest and is irrevocable.  The
provisions of this Section shall in no event relieve any Grantor of any of its
obligations hereunder or under any other Loan Document with respect to the
Collateral or any part thereof or impose any obligation on the Administrative
Agent or any Secured Party to proceed in any particular manner with respect to
the Collateral or any part thereof, or in any way limit the exercise by the
Administrative Agent or any Secured Party of any other or further right which
it may have on the date of this Agreement or hereafter, whether hereunder,
under any other Loan Document, by law or otherwise.
<PAGE>   26

                                                                              27

                                   ARTICLE VI

                                    Remedies
<PAGE>   27

                                                                              28

         SECTION 6.01.  Remedies upon Default.  Upon the occurrence and during
the continuance of an Event of Default, each Grantor agrees to deliver each
item of Collateral to the Administrative Agent on demand, and it is agreed that
the Administrative Agent shall have the right to take any of or all the
following actions at the same or different times:  (a) with respect to any
Collateral consisting of Intellectual Property, on demand, to cause the
Security Interest to become an assignment, transfer and conveyance of any of or
all such Collateral by the applicable Grantors to the Administrative Agent, or
to license or sublicense, whether general, special or otherwise, and whether on
an exclusive or non-exclusive basis, any such Collateral throughout the world
on such terms and conditions and in such manner as the Administrative Agent
shall determine (other than in violation of any then-existing licensing
arrangements to the extent that waivers cannot be obtained), and (b) with or
without legal process and with or without prior notice or demand for
performance, to take possession of the Collateral and without liability for
trespass to enter any premises where the Collateral may be located for the
purpose of taking possession of or removing the Collateral and, generally, to
exercise any and all rights afforded to a secured party under the Uniform
Commercial Code or other applicable law.  Without limiting the generality of
the foregoing, each Grantor agrees that the Administrative Agent shall have the
right, subject to the mandatory requirements of applicable law, to sell or
otherwise dispose of all or any part of the Collateral, at public or private
sale or at any broker's board or on any securities exchange, for cash, upon
credit or for future delivery as the Administrative Agent shall deem
appropriate.  The Administrative Agent shall be authorized at any such sale (if
it deems it advisable to do so) to restrict the prospective bidders or
purchasers to Persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Administrative Agent shall have the right to assign, transfer and deliver to
the purchaser or purchasers thereof the Collateral so sold.  Each such
purchaser at any such sale shall hold the property sold absolutely, free from
any claim or right on the part of any Grantor, and each Grantor hereby waives
(to the extent permitted by law) all rights of redemption, stay and appraisal
which such Grantor now has or may at any time in the future
<PAGE>   28

                                                                              29

have under any rule of law or statute now existing or hereafter enacted.

         The Administrative Agent shall give the Grantors 10 days' written
notice (which each Grantor agrees is reasonable notice within the meaning of
Section 9-504(3) of the Uniform Commercial Code as in effect in the State of
New York or its equivalent in other jurisdictions) of the Administrative
Agent's intention to make any sale of Collateral.  Such notice, in the case of
a public sale, shall state the time and place for such sale and, in the case of
a sale at a broker's board or on a securities exchange, shall state the board
or exchange at which such sale is to be made and the day on which the
Collateral, or portion thereof, will first be offered for sale at such board or
exchange.  Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Administrative Agent
may fix and state in the notice (if any) of such sale.  At any such sale, the
Collateral, or portion thereof, to be sold may be sold in one lot as an
entirety or in separate parcels, as the Administrative Agent may (in its sole
and absolute discretion) determine.  The Administrative Agent shall not be
obligated to make any sale of any Collateral if it shall determine not to do
so, regardless of the fact that notice of sale of such Collateral shall have
been given.  The Administrative Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale
may, without further notice, be made at the time and place to which the same
was so adjourned.  In case any sale of all or any part of the Collateral is
made on credit or for future delivery, the Collateral so sold may be retained
by the Administrative Agent until the sale price is paid by the purchaser or
purchasers thereof, but the Administrative Agent shall not incur any liability
in case any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may be
sold again upon like notice.  At any public (or, to the extent permitted by
law, private) sale made pursuant to this Section, any Secured Party may bid for
or purchase, free (to the extent permitted by law) from any right of
redemption, stay, valuation or appraisal on the part of any Grantor (all said
rights being also hereby waived and released to the extent permitted by law),
the Collateral or any part thereof offered
<PAGE>   29

                                                                              30

for sale and may make payment on account thereof by using any claim then due
and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor.  For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Administrative Agent shall be free to carry out such sale pursuant to such
agreement and no Grantor shall be entitled to the return of the Collateral or
any portion thereof subject thereto, notwithstanding the fact that after the
Administrative Agent shall have entered into such an agreement all Events of
Default shall have been remedied and the Obligations paid in full.  As an
alternative to exercising the power of sale herein conferred upon it, the
Administrative Agent may proceed by a suit or suits at law or in equity to
foreclose this Agreement and to sell the Collateral or any portion thereof
pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.

         SECTION 6.02.  Application of Proceeds.  The Administrative Agent
shall apply the proceeds of any collection or sale of the Collateral, as well
as any Collateral consisting of cash, as follows:

                 FIRST, to the payment of all costs and expenses incurred by
         the Administrative Agent or the Administrative Agent (in its capacity
         as such hereunder or under any other Loan Document) in connection with
         such collection or sale or otherwise in connection with this Agreement
         or any of the Obligations, including all court costs and the fees and
         expenses of its agents and legal counsel, the repayment of all
         advances made by the Administrative Agent hereunder or under any other
         Loan Document on behalf of any Grantor and any other costs or expenses
         incurred in connection with the exercise of any right or remedy
         hereunder or under any other Loan Document;

                 SECOND, to the payment in full of the Obligations (the amounts
         so applied to be distributed among the Secured Parties pro rata in
         accordance with the amounts
<PAGE>   30

                                                                              31

         of the Obligations owed to them on the date of any such distribution);
         and

                 THIRD, to the Grantors, their successors or assigns, or as a
         court of competent jurisdiction may otherwise direct.

The Administrative Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement.  Upon any sale of the Collateral by the Administrative Agent
(including pursuant to a power of sale granted by statute or under a judicial
proceeding), the receipt of the Administrative Agent or of the officer making
the sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall not be obligated to
see to the application of any part of the purchase money paid over to the
Administrative Agent or such officer or be answerable in any way for the
misapplication thereof.

         SECTION 6.03.  Grant of License to Use Intellectual Property.  For the
purpose of enabling the Administrative Agent to exercise rights and remedies
under this Article at such time as the Administrative Agent shall be lawfully
entitled to exercise such rights and remedies, each Grantor hereby grants to
the Administrative Agent an irrevocable, non-exclusive license (exercisable
without payment of royalty or other compensation to the Grantors) to use,
license or sub-license any of the Collateral consisting of Intellectual
Property now owned or hereafter acquired by such Grantor, and wherever the same
may be located, and including in such license reasonable access to all media in
which any of the licensed items may be recorded or stored and to all computer
software and programs used for the compilation or printout thereof.  Such
license shall include customary terms and conditions (as reasonably determined
by the Administrative Agent) with respect to the maintaining and monitoring of
the quality of goods  and services advertised, marketed, made or sold using,
incorporating or in connection with such Intellectual Property.  The use of
such license by the Administrative Agent shall be exercised, at the option of
the Administrative Agent, upon the occurrence and during the continuation of an
Event of Default; provided that any license, sub-license or other transaction
entered into by the Administrative Agent in accordance herewith shall be
binding
<PAGE>   31

                                                                              32

upon the Grantors notwithstanding any subsequent cure of an Event of Default.

                                  ARTICLE VII

                                 Miscellaneous

         SECTION 7.01.  Notices.  All communications and notices hereunder
shall (except as otherwise expressly permitted herein) be in writing and given
as provided in Section 9.01 of the Credit Agreement.  All communications and
notices hereunder to any Subsidiary Guarantor shall be given to it at its
address or telecopy number set forth on Schedule I, with a copy to the Parent
Borrower.

         SECTION 7.02.  Security Interest Absolute.  All rights of the
Administrative Agent hereunder, the Security Interest and all obligations of
the Grantors hereunder shall be absolute and unconditional irrespective of (a)
any lack of validity or enforceability of the Credit Agreement, any other Loan
Document, any agreement with respect to any of the Obligations or any other
agreement or instrument relating to any of the foregoing, (b) any change in the
time, manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any
departure from the Credit Agreement, any other Loan Document or any other
agreement or instrument, (c) any exchange, release or non-perfection of any
Lien on other collateral, or any release or amendment or waiver of or consent
under or departure from any guarantee, securing or guaranteeing all or any of
the Obligations, or (d) any other circumstance that might otherwise constitute
a defense available to, or a discharge of, any Grantor in respect of the
Obligations or this Agreement.

         SECTION 7.03.  Survival of Agreement.  All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation
<PAGE>   32

                                                                              33

made by the Lenders or on their behalf, and shall continue in full force and
effect until this Agreement shall terminate.

         SECTION 7.04.  Binding Effect; Several Agreement.  This Agreement
shall become effective as to any Grantor when a counterpart hereof executed on
behalf of such Grantor shall have been delivered to the Administrative Agent
and a counterpart hereof shall have been executed on behalf of the
Administrative Agent, and thereafter shall be binding upon such Grantor and the
Administrative Agent and their respective successors and assigns, and shall
inure to the benefit of such Grantor, the Administrative Agent and the other
Secured Parties and their respective successors and assigns, except that no
Grantor shall have the right to assign or transfer its rights or obligations
hereunder or any interest herein or in the Collateral (and any such assignment
or transfer shall be void) except as expressly contemplated by this Agreement
or the Credit Agreement.  This Agreement shall be construed as a separate
agreement with respect to each Grantor and may be amended, modified,
supplemented, waived or released with respect to any Grantor without the
approval of any other Grantor and without affecting the obligations of any
other Grantor hereunder.

         SECTION 7.05.  Successors and Assigns.  Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of any Grantor or the Administrative Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns.

         SECTION 7.06.  Administrative Agent's Fees and Expenses;
Indemnification.  (a)  Each Grantor jointly and severally agrees to pay upon
demand to the Administrative Agent the amount of any and all reasonable
expenses, including the reasonable fees, disbursements and other charges of its
counsel and of any experts or agents, which the Administrative Agent may incur
in connection with (i) the administration of this Agreement (including the
customary fees and charges of the Administrative Agent for any audits conducted
by it or on its behalf with respect to the Accounts Receivable or Inventory),
(ii) the custody or preservation of, or the sale of, collection from or other
realization upon any of the
<PAGE>   33

                                                                              34

Collateral, (iii) the exercise, enforcement or protection of any of the rights
of the Administrative Agent hereunder or (iv) the failure of any Grantor to
perform or observe any of the provisions hereof.

         (b)  Without limitation of its indemnification obligations under the
other Loan Documents, each Grantor jointly and severally agrees to indemnify
the Administrative Agent and the other Indemnitees against, and hold each of
them harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable fees, disbursements and other charges of
counsel, incurred by or asserted against any of them arising out of, in any way
connected with, or as a result of, the execution, delivery or performance of
this Agreement or any claim, litigation, investigation or proceeding relating
hereto or to the Collateral, whether or not any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.

         (c)  Any such amounts payable as provided hereunder shall be
additional Obligations secured hereby and by the other Security Documents.  The
provisions of this Section 7.06 shall remain operative and in full force and
effect regardless of the termination of this Agreement or any other Loan
Document, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term
or provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Administrative Agent or any Lender.  All amounts
due under this Section 7.06 shall be payable on written demand therefor.

         SECTION 7.07.  GOVERNING LAW.  THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
NOTWITHSTANDING  THE FOREGOING, ALL PROVISIONS OF THIS AGREEMENT RELATING TO
THE VALIDITY, CREATION AND PERFECTION OF THE SECURITY INTEREST IN ANY NOTICE
DEPOSIT ACCOUNTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE IN WHICH SUCH NOTICE DEPOSIT ACCOUNT IS LOCATED
WITHOUT REGARD TO CONFLICTS OF LAWS
<PAGE>   34

                                                                              35

PRINCIPLES TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.

         SECTION 7.08.  Waivers; Amendment.  (a)  No failure or delay of the
Administrative Agent in exercising any power or right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right
or power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or the exercise of any
other right or power.  The rights and remedies of the Administrative Agent
hereunder and of the Administrative Agent, the Issuing Bank, the Administrative
Agent and the Lenders under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have.  No waiver
of any provisions of this Agreement or any other Loan Document or consent to
any departure by any Grantor therefrom shall in any event be effective unless
the same shall be permitted by paragraph (b) below, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
for which given.  No notice to or demand on any Grantor in any case shall
entitle such Grantor or any other Grantor to any other or further notice or
demand in similar or other circumstances.

         (b)  Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Administrative Agent and the Grantor or Grantors with
respect to which such waiver, amendment or modification is to apply, with the
prior written consent of the Required Lenders (and such other consent as may be
required by Section 9.02 of the Credit Agreement).

         SECTION 7.09.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS
APPLICABLE, BY, AMONG OTHER
<PAGE>   35

                                                                              36

THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09.

         SECTION 7.10.  Severability.  In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction).  The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

         SECTION 7.11  Counterparts.  This Agreement 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 contract (subject to Section
7.04), and shall become effective as provided in Section 7.04.  Delivery of an
executed signature page to this Agreement by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.

         SECTION 7.12.  Headings.  Article and Section headings used herein are
for the purpose of reference only, are not part of this Agreement and are not
to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.

         SECTION 7.13.  Jurisdiction; Consent to Service of Process.  (a)  Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court.  Each of the parties hereto
<PAGE>   36

                                                                              37

agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.  Nothing in this Agreement shall affect
any right that the Administrative Agent, the Administrative Agent, the Issuing
Bank or any Lender may otherwise have to bring any action or proceeding
relating to this Agreement or the other Loan Documents against any Grantor or
its properties in the courts of any jurisdiction.

         (b)  Each Grantor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court.  Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.

         (c)  Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01.  Nothing in this
Agreement will affected the right of any party to this Agreement to serve
process in any other manner permitted by law.

         SECTION 7.14.  Termination.  (a) This Agreement and the Security
Interest shall terminate when all the Obligations (other than any right to
indemnification of any Secured Party with respect to any matter in respect of
which no claim has been asserted and is outstanding) have been indefeasibly
paid in full, the Lenders have no further commitment to lend, each LC Exposure
has been reduced to zero and the Issuing Bank has no further commitment to
issue Letters of Credit under the Credit Agreement, at which time the
Administrative Agent shall execute and deliver to the Grantors, at the
Grantors' expense, all Uniform Commercial Code termination statements and
similar documents which the Grantors shall reasonably request to evidence such
termination.  Any execution and delivery of termination statements or documents
pursuant to this Section 7.14 shall be without recourse to or warranty by the
Administrative Agent.  A Subsidiary Guarantor shall automatically be released
from its obligations hereunder and the Security Interest in the Collateral of
such Subsidiary Guarantor shall be automatically released in the event that
<PAGE>   37

                                                                              38

all the capital stock of such Subsidiary Guarantor shall be sold, transferred
or otherwise disposed of to a Person that is not an Affiliate of the Parent
Borrower in accordance with the terms of the Credit Agreement; provided that
the Required Lenders shall have consented to such sale, transfer or other
disposition (to the extent required by the Credit Agreement) and the terms of
such consent did not provide otherwise.

         (b)  Upon any sale or other transfer by any Grantor of any Collateral
that is permitted under the Credit Agreement to any Person that is not a
Grantor, or, upon the effectiveness of any written consent to the release of
the security interest granted hereby in any Collateral pursuant to Section
9.02(b) of the Credit Agreement, the security interest in such Collateral shall
be automatically released.

         (c)  In connection with any termination or release pursuant to
paragraph (a) or (b), the Administrative Agent shall execute and deliver to any
Grantor, at such Grantor's expense, all documents that such Grantor shall
reasonably request to evidence such termination or release.  Any execution and
delivery of documents pursuant to this Section 7.14 shall be without recourse
to or warranty by the Administrative Agent.

         SECTION 7.15.  Additional Grantors.  Upon execution and delivery by
the Administrative Agent and a Subsidiary of an instrument in the form of Annex
3 hereto, such Subsidiary shall become a Grantor hereunder with the same force
and effect as if originally named as a Grantor herein.  The execution and
delivery of any such instrument shall not require the consent of any Grantor
hereunder.  The rights and obligations of each Grantor hereunder shall remain
in full force and effect notwithstanding the addition of any new Grantor as a
party to this Agreement.
<PAGE>   38

                                                                              39

         IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

                                   KNOWLES ELECTRONICS, INC,

                                      by /s/ REG GARRATT
                                        -------------------------------

                                        Name:  Reg Garratt
                                        Title: CHM/CEO

                                   EACH OF THE SUBSIDIARY
                                   GUARANTORS LISTED ON
                                   SCHEDULE I HERETO,

                                      by /s/ REG GARRATT
                                        -------------------------------

                                        Name:  Reg Garratt
                                        Title: Authorized Officer

                                   THE CHASE MANHATTAN BANK, as
                                   Administrative Agent,

                                      by /s/ DEBORAH DAVEY
                                        -------------------------------

                                        Name:  Deborah Davey
                                        Title: Vice President

<PAGE>   39
                                                              SCHEDULE I TO THE
                                                              SECURITY AGREEMENT

                             SUBSIDIARY GUARANTORS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
              GUARANTOR                             ADDRESS
              ---------                             -------
--------------------------------------------------------------------------------
<S>                                           <C>
Knowles Intermediate Holding, Inc.             1151 Maplewood Drive
                                               Itasca, IL 60143
--------------------------------------------------------------------------------
Emkay Innovative Products, Inc.                1151 Maplewood Drive
                                               Itasca, IL 60143
--------------------------------------------------------------------------------
Knowles Manufacturing Ltd.                     1151 Maplewood Drive
                                               Itasca, IL 60143
--------------------------------------------------------------------------------
Synchro-Start Products, Inc.                   6250 West Howard Street
                                               Niles, IL 60714
--------------------------------------------------------------------------------
</TABLE>

<PAGE>   40

                                  SCHEDULE II

                                   COPYRIGHTS

Synchro-Start Products, Inc. (1 listing)

<PAGE>   41

                                  SCHEDULE II

                          SYNCHRO-START PRODUCTS, INC.

                            COPYRIGHT REGISTRATIONS

<TABLE>
<CAPTION>
----------------------------------------------------------
COUNTRY                ITEM                 REG. NO.
----------------------------------------------------------
<S>                 <C>                    <C>
U.S.                 Catalog No. 7           A7328
----------------------------------------------------------
</TABLE>

<PAGE>   42

                                  SCHEDULE III

                                    LICENSES

License Agreement, dated 08/03/87. Between Synchro-Start Products, Inc. and
Melroe Company.

Agreement, dated 05/04/88. Between Knowles Electronics, Inc., as successor to
Industrial Research Products, Inc., and Etymotic Research, Inc.

Agreement, dated 05/29/90. Between Knowles Electronics, Inc., as successor to
Industrial Research Products, Inc., and Etymotic Research, Inc.

License, dated 07/08/92. Between Knowles Electronics, Inc. and Siemens
Audiological Technik, Erlangen.

Non-Exclusive Patent License Agreement, dated 01/15/93, amended 02/16/93.
Between Synchro-Start Products, Inc. and Trombetta Corporation.

Licensing Agreement, dated 06/04/93. Between Gas Research Institute and
Synchro-Start Products, Inc., successor to DAI Technologies, Inc.

License Agreement, dated 11/01/93. Between Claritas, Inc. and Knowles
Electronics, Inc.

Cross License Agreement, dated 04/06/94. Between Knowles Electronics, Inc. and
BML Limited Partnership.

License Agreement, dated 04/15/97. Between Phonic Ear and Knowles Electronics,
Inc.

Settlement Release and License Agreement, dated 07/07/97. Between Knowles
Electronics, Inc. and Exar Corporation.

Agreement, dated 12/05/97. Between Knowles Electronics, Inc. and Institute of
Microelectronics.

Software Development Agreement, dated 01/23/98. Between Knowles Electronics,
Inc. and Daystrom Software Ltd.

*

Joint Development Agreement, dated 06/24/98. Between Etymotic Research, Inc.
and Ruf North America, a division of Synchro-Start Products, Inc.

*Confidential Information omitted and filed separately with the Securities and
Exchange Commission.

                                  Page 1 of 2
<PAGE>   43

Consent to Use Agreement, dated 07/15/98. Between Deltek Systems. Inc. and
Knowles Electronics, Inc.

Pegasus Project Research Agreement, dated 01/14/99, and attachments thereto.
Between Knowles Electronics, Inc. and Nova Southeastern University

Agreement, dated 12/21/98. Between Knowles Electronics Inc. and Siemens Hearing
Instruments, Inc.

Pegasus Project Software Development Agreement. Between Knowles Electronics,
Inc. and Daystrom Software Ltd. [Pending]

Agreement, dated 06/30/90. Between Knowles Electronics, Inc. and Knowles
Electronics Co.

License Agreement, dated 01/0l/94. Between Knowles Electronics, Inc. and
Knowles Electronics (Malaysia) SDN. BHD.

Agreement, dated 06/30/90, amended 11/19/90. Between Knowles Electronics, Inc.
and Knowles Electronics Taiwan, Ltd.

License and Support Agreements with Ingres Corporation

IBM Lotus Software License

Ceridian (formerly Control Data Corporation) License Agreements

Novell Netware 5 License Agreement

Internet Services Agreement with KSI-Net56

Network Services Agreement with Infonet

Network Services Agreement with Equant (pending; will replace Infonet)

Microsoft License for Speech Recognition Engine Version 4.OA

Pro E

ISO Expert

Manman System

                                  Page 2 of 2

<PAGE>   44

                                  SCHEDULE IV

                         PATENTS & PATENT APPLICATIONS

Knowles Electronics, Inc. (pp. 2-6)
Knowles IC Group (pp. 7,8)
Synchro-Start Products, Inc. (p.9)

                                  Page 1 of 9
<PAGE>   45

                           KNOWLES ELECTRONICS, INC.

                                 PATENT ASSETS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                 APPLN. NO.      FILING DATE
  COUNTRY       (PATENT NO.)     (ISSUE DATE)                               TITLE
---------------------------------------------------------------------------------------------------------------
<S>            <C>              <C>                   <C>
 Denmark         (167,299)        (10/04/93)          Acoustic Transducer with Improved Electrode Spacing
---------------------------------------------------------------------------------------------------------------
 Switzerland     (676,770)        (2/28/91)           Acoustic Transducer with Improved Electrode Spacing
---------------------------------------------------------------------------------------------------------------
 United         (2,200,013)       (4/11/90)           Acoustic Transducer with Improved Electrode Spacing
 Kingdom
---------------------------------------------------------------------------------------------------------------
 Germany        (3,790,540)       (11/14/91)          Acoustic Transducer with Improved Electrode Spacing
                                                      (related to RE 33,718)
---------------------------------------------------------------------------------------------------------------
 U.S.           (4,807,612)       (2/28/89)           Passive Ear Protector
---------------------------------------------------------------------------------------------------------------
 Denmark          6254/88          11/09/88           Passive Ear Protector
---------------------------------------------------------------------------------------------------------------
 Japan          (1,729,285)       (1/29/93)           Passive Ear Protector
---------------------------------------------------------------------------------------------------------------
 U.S.           (4,450,930)       (5/29/84)           Microphone with Stepped Response
---------------------------------------------------------------------------------------------------------------
 U.S.           (4,272,654)       (6/09/81)           Acoustic Transducer of Improved Construction
---------------------------------------------------------------------------------------------------------------
 U.S.           (4,592,087)       (5/27/86)           Class D Hearing Aid Amplifier
---------------------------------------------------------------------------------------------------------------
 Canada         (1,250,362)       (2/21/89)           Class D Hearing Aid Amplifier
---------------------------------------------------------------------------------------------------------------
 Denmark          2097/86          5/06/86            Class D Hearing Aid Amplifier
---------------------------------------------------------------------------------------------------------------
 Holland         (190,946)        (1/04/94)           Class D Hearing Aid Amplifier
---------------------------------------------------------------------------------------------------------------
 United         (2,188,208)                           Class D Hearing Aid Amplifier
 Kingdom
---------------------------------------------------------------------------------------------------------------
 Japan          (1,759,980)       (5/20/93)           Hearing Aid
---------------------------------------------------------------------------------------------------------------
 U.S.           (4,689,819)       (8/25/87)           Class D Hearing aid Amplifier
---------------------------------------------------------------------------------------------------------------
 U.S.           (4,815,560)       (3/28/89)           Microphone with Frequency Pre-Emphasis
---------------------------------------------------------------------------------------------------------------
 EPO            (0-319-010)       (2/16/94)           Microphone with Frequency Pre-Emphasis
---------------------------------------------------------------------------------------------------------------
 Denmark         (170,128)        (5/29/95)           Microphone with Frequency Pre-Emphasis
---------------------------------------------------------------------------------------------------------------
 Japan          (1,814,726)       (1/18/94)           Microphone with Frequency Pre-Emphasis Channel Plate
---------------------------------------------------------------------------------------------------------------
 U.S.           (4,837,833)       (6/06/89)           Microphone With Frequency Pre-Emphasis Channel Plate
---------------------------------------------------------------------------------------------------------------
 Denmark         (168,724)        (5/24/94)           Microphone with Frequency Pre-Emphasis Channel Plate
---------------------------------------------------------------------------------------------------------------
 Japan          (2,510,714)       (4/16/96)           Microphone with Frequency Pre-Emphasis Channel Plate
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                   Page 2 of 9

<PAGE>   46

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                 APPLN. NO.      FILING DATE
  COUNTRY       (PATENT NO.)     (ISSUE DATE)                               TITLE
---------------------------------------------------------------------------------------------------------------
<S>           <C>               <C>                   <C>
 U.S.         (RE 33,718)         (10/15/91)          Acoustic Transducer with Improved Electrode Spacing
              (reissued from
              USPN 4,730,283)
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,193,116)       (3/09/93)           Hearing Aid Output Transducer with Self-Contained
                                                      Amplifier
---------------------------------------------------------------------------------------------------------------
 Denmark         180/92            2/13/92            Class D Hearing Aid Amplifier
---------------------------------------------------------------------------------------------------------------
 Germany        (3,645,255)       (6/09/94)           Class D Hearing Aid Amplifier (related to U.S. Patent
                                                      No. 4,689,819)
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,222,050)       (6/22/93)           Water-Resistant Transducer Housing with Hydrophobic Vent
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,408,534)       (4/18/95)           Electret and Microphone Assembly
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,319,717)       (6/07/94)           Hearing Aid Microphone with Modified High-Frequency
                                                      Response
---------------------------------------------------------------------------------------------------------------
 Germany       (DE 3880965T2)     (5/12/93)           Passive Ear Protector (related to U.S. Patent No.
                                                      4,807,612)
---------------------------------------------------------------------------------------------------------------
 France         (0-315-942)       (4/22/93)           Passive Ear Protector
---------------------------------------------------------------------------------------------------------------
 United         (0-315-942)       (5/12/93)           Passive Ear Protector
 Kingdom
---------------------------------------------------------------------------------------------------------------
 Italy          (0-315-942)       (5/12/93)           Passive Ear Protector
---------------------------------------------------------------------------------------------------------------
 Netherlands    (0-315-942)       (7/30/93)           Passive Ear Protector
---------------------------------------------------------------------------------------------------------------
 Germany      (P68910139.2-00)   (10/06/93)           Microphone with Acoustic Frequency Pre-Emphasis
                                                      (related to U.S. Patent No. 4,837,833)
---------------------------------------------------------------------------------------------------------------
 United         (0-326-040)       (10/06/93)          Microphone with Acoustic Frequency Pre-Emphasis
 Kingdom
---------------------------------------------------------------------------------------------------------------
 Switzerland    (0-326-040)       (10/06/93)          Microphone with Acoustic Frequency Pre-Emphasis
---------------------------------------------------------------------------------------------------------------
 Netherlands    (0-326-040)       (10/06/93)          Microphone with Acoustic Frequency Pre-Emphasis
---------------------------------------------------------------------------------------------------------------
 Germany       (DE 38878412)      (6/22/94)           Microphone with Frequency Pre-Emphasis (related to U.S.
                                                      Patent No. 5,025,061)
---------------------------------------------------------------------------------------------------------------
 Netherlands    (0-319-010)       (6/22/94)           Microphone with Frequency Pre-Emphasis
---------------------------------------------------------------------------------------------------------------
 Switzerland    (0-319-010)       (6/22/94)           Microphone with Frequency Pre-Emphasis
---------------------------------------------------------------------------------------------------------------
 United         (0-319-010)       (6/22/94)           Microphone with Frequency Pre-Emphasis
 Kingdom
---------------------------------------------------------------------------------------------------------------
 U.S.           (D 360,691)       (7/25/95)           Design - Hearing Aid Receiver
---------------------------------------------------------------------------------------------------------------
 U.S.           (D 360,948)       (8/01/95)           Design - Hearing Aid Receiver
---------------------------------------------------------------------------------------------------------------
 U.S.           (D 360,949)       (8/01/95)           Design - Hearing Aid Receiver
---------------------------------------------------------------------------------------------------------------
 India          270/Del/94        (3/08/94)           Miniature Acoustic Hearing Aid Module for Emplacement
                                                      Completely Within an Ear Canal
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                   Page 3 of 9

<PAGE>   47

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                 APPLN. NO.      FILING DATE
  COUNTRY       (PATENT NO.)     (ISSUE DATE)                               TITLE
---------------------------------------------------------------------------------------------------------------
<S>           <C>                <C>                  <C>
 Japan           (D969,496)       (9/02/96)           Design - Hearing Aid Receiver
---------------------------------------------------------------------------------------------------------------
 Japan          (D969,496-1)      (8/02/96)           Design - Hearing Aid Receiver
---------------------------------------------------------------------------------------------------------------
 Japan           (969,497)        (9/02/96)           Design - Hearing Aid Receiver (Slant View, Figure 1)
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,548,658)       (8/20/96)           Acoustic Transducer
---------------------------------------------------------------------------------------------------------------
 Japan           5-515669          9/05/94            Electret Microphone Assembly and Method of Manufacture
---------------------------------------------------------------------------------------------------------------
 India          1493/Del/94       11/22/94            Acoustic Module for a Hearing Aid
---------------------------------------------------------------------------------------------------------------
 India          1492/Del/94       11/22/94            Acoustic Transducer
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,692,060)      (11/25/97)           Unidirectional Microphone
---------------------------------------------------------------------------------------------------------------
 Japan           6-502312          2/16/93            Water-Resistant Receiver with Hydrophobic Vent
---------------------------------------------------------------------------------------------------------------
 Japan           5-519673          9/14/93            Hearing Aid Microphone with Modified High-Frequency
                                                      Response
---------------------------------------------------------------------------------------------------------------
 Australia      (677,599)         (5/01/97)           Microphone with Modified High-Frequency Response
---------------------------------------------------------------------------------------------------------------
 Japan          7-508283           8/31/94            Receiver for a Hearing Aid
---------------------------------------------------------------------------------------------------------------
 United        (0-664-942)        (2/05/97)           Hearing Aid Microphone with Modified High-Frequency
 Kingdom                                              Response
---------------------------------------------------------------------------------------------------------------
 Germany      (69308027.2-08)     (2/05/97)           Hearing Aid Microphone with Modified High-Frequency
                                                      Response (related to U.S. Patent No. 5,319,717)
---------------------------------------------------------------------------------------------------------------
 Denmark       (0-664-942)        (2/05/97)           Hearing Aid Microphone with Modified High-Frequency
                                                      Response
---------------------------------------------------------------------------------------------------------------
 Netherlands   (0-664-942)        (2/05/97)           Hearing Aid Microphone with Modified High-Frequency
                                                      Response
---------------------------------------------------------------------------------------------------------------
 United        (0-646-307)        (9/04/96)           Water-Resistant Receiver with Hydrophobic Vent
 Kingdom
---------------------------------------------------------------------------------------------------------------
 U.S.           08/890,075         7/09/97            Shock-Resistant Electroacoustic Transducer
---------------------------------------------------------------------------------------------------------------
 U.S.           08/943,669        10/15/97            Receiver and Method of Construction
---------------------------------------------------------------------------------------------------------------
 PCT          PCT/US98/02347       2/06/98            Microphone with Modified High-Frequency Response
---------------------------------------------------------------------------------------------------------------
 U.S.           29/083,343         2/06/98            Design - Microphone Housing
---------------------------------------------------------------------------------------------------------------
 U.S.           29/083,329         2/06/98            Design - Microphone Housing
---------------------------------------------------------------------------------------------------------------
 U.S.           29/083,333         2/06/98            Design - Microphone Housing
---------------------------------------------------------------------------------------------------------------
 U.S.           60/076,571         3/02/98            Mitigating R.F. Interference in Hearing Aids
---------------------------------------------------------------------------------------------------------------
 U.S.           09/050,508         3/30/98            Miniature Transducer
---------------------------------------------------------------------------------------------------------------
 U.S.           60/080,077         3/31/98            Microphone with Reduced Sensitivity
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 4 of 9
<PAGE>   48

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                 APPLN. NO.      FILING DATE
  COUNTRY       (PATENT NO.)     (ISSUE DATE)                               TITLE
---------------------------------------------------------------------------------------------------------------
<S>           <C>                <C>                  <C>
 U.S.            60/081,709        4/14/98            System for Separating a Distinctive Sound
---------------------------------------------------------------------------------------------------------------
 PCT           PCT/US98/14053      7/07/98            Shock-Resistant Electroacoustic Transducer
---------------------------------------------------------------------------------------------------------------
 PCT           PCT/US98/15213      7/23/98            Universal Voice-Operated Command and Control Engine
---------------------------------------------------------------------------------------------------------------
 Taiwan           87112170         7/24/98            Universal Voice-Operated Command and Control Engine
---------------------------------------------------------------------------------------------------------------
 U.S.            60/097,926        8/25/98            A&M for Matching Response of Microphone in Magnitude and
                                                      Phase
---------------------------------------------------------------------------------------------------------------
 Germany        19847379.6        10/14/98            Receiver and Method of Construction (related to U.S.
                                                      Serial No. 08/943,669)
---------------------------------------------------------------------------------------------------------------
 United          9821838.1        10/08/98            Receiver and Method of Construction
 Kingdom
---------------------------------------------------------------------------------------------------------------
 Netherlands      1010320         10/14/98            Receiver and Method of Construction
---------------------------------------------------------------------------------------------------------------
 Denmark        PA 1998/01303     10/14/98            Receiver and Method of Construction
---------------------------------------------------------------------------------------------------------------
 PCT           PCT/US98/25950     12/07/98            Automatic System for Optimizing Hearing Aid Adjustments
---------------------------------------------------------------------------------------------------------------
 U.S.            09/193,012       11/16/98            M&A for Matching Response of Microphone in Magnitude and
                                                      Phase
---------------------------------------------------------------------------------------------------------------
 Germany       (P69504665.9-08)   (9/09/98)           Acoustic Transducer (related to U.S. Patent
                                                      No. 5,548,658)
---------------------------------------------------------------------------------------------------------------
 Denmark          (0-764-387)     (9/09/98)           Acoustic Transducer
---------------------------------------------------------------------------------------------------------------
 United           (0-764-387)     (9/09/98)           Acoustic Transducer
 Kingdom
---------------------------------------------------------------------------------------------------------------
 Netherlands      (0/764-387)     (9/09/98)           Acoustic Transducer
---------------------------------------------------------------------------------------------------------------
 United            9905081.7       3/08/99            Miniature Transducer
 Kingdom
---------------------------------------------------------------------------------------------------------------
 Germany           19914235.1      3/29/99            Miniature Transducer (related to U.S. Serial
                                                      No. 09/050,508)
---------------------------------------------------------------------------------------------------------------
 Denmark         PA-19999-00343    3/11/99            Miniature Transducer
---------------------------------------------------------------------------------------------------------------
 Netherlands        1011639        3/27/99            Miniature Transducer
---------------------------------------------------------------------------------------------------------------
 EPO               99301500.7      5/21/99            Mitigating R.F. Interference in Hearing Aids
---------------------------------------------------------------------------------------------------------------
 U.S.              (5,250,926)    (10/05/93)          Potentiometer With Improved Seal (assigned from
                                                      Wilbrecht)
---------------------------------------------------------------------------------------------------------------
 U.S.              (5,588,064)    (12/24/96)          Hearing Aid Battery Cover Switch (assigned from
                                                      Wilbrecht)
---------------------------------------------------------------------------------------------------------------
 U.S.             Not Assigned     6/07/99            Potentiometer Detent
---------------------------------------------------------------------------------------------------------------
 PCT             PCT/US99/07222    3/31/99            Microphone with Reduced R.F. Sensitivity
---------------------------------------------------------------------------------------------------------------
 U.S.              (4,956,868)    (9/11/90)           Magnetically-Shielded Electromagnetic Acoustic Transducer
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 5 of 9
<PAGE>   49
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                 APPLN. NO.      FILING DATE
  COUNTRY       (PATENT NO.)     (ISSUE DATE)                               TITLE
---------------------------------------------------------------------------------------------------------------
<S>             <C>              <C>                  <C>
 Germany         (69021165)       (8/31/95)           Magnetically-Shielded Electromagnetic Acoustic Transducer
                                                      (related to U.S. Patent No. 4,956,868)
---------------------------------------------------------------------------------------------------------------
 Denmark         (0-424-916)      (7/26/95)           Magnetically-Shielded Electromagnetic Acoustic Transducer
---------------------------------------------------------------------------------------------------------------
 United          (0-424-916)      (7/26/95)           Magnetically-Shielded Electromagnetic Acoustic Transducer
 Kingdom
---------------------------------------------------------------------------------------------------------------
 Netherlands     (0-424-916)      (7/26/95)           Magnetically-Shielded Electromagnetic Acoustic Transducer
---------------------------------------------------------------------------------------------------------------
 U.S.            (4,867,267)      (9/19/89)           High LF Sensitivity Hearing Aid Traducer
---------------------------------------------------------------------------------------------------------------
 U.S.            (5,083,095)      (1/21/92)           Impedance Conversion Amplifier With Suppressed Ripple
---------------------------------------------------------------------------------------------------------------
 U.S.            (5,068,901)      (11/26/91)          Electret Assembly for Electroacoustic Transducer
---------------------------------------------------------------------------------------------------------------
 U.S.            (5,335,286)      (8/02/94)           Electret Assembly for Electroacoustic Transducer
---------------------------------------------------------------------------------------------------------------
 Germany         (69300380)       (9/28/95)           Electret Assembly for Electroacoustic Transducer (related
                                                      to U.S. Patent No. 5,335,286)
---------------------------------------------------------------------------------------------------------------
 Switzerland/    (0-556-792)      (8/23/95)           Electret Assembly for Electroacoustic Transducer
 Liechtenstein
---------------------------------------------------------------------------------------------------------------
 Netherlands     (0-556-792)      (8/23/95)           Electret Assembly for Electroacoustic Transducer
---------------------------------------------------------------------------------------------------------------
 United          (0-556-792)      (8/23/95)           Electret Assembly for Electroacoustic Transducer
 Kingdom
---------------------------------------------------------------------------------------------------------------
 U.S.            (5,337,011)      (8/09/94)           Pre-Amplifier for EG Hearing Aid Electret Microphone
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 6 of 9
<PAGE>   50
                                KNOWLES IC GROUP

                                 PATENT ASSETS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                 APPLN. NO.      FILING DATE
  COUNTRY       (PATENT NO.)     (ISSUE DATE)                               TITLE
---------------------------------------------------------------------------------------------------------------
<S>             <C>              <C>                  <C>
 U.S.            07/853,488        3/18/92            Solid State Condenser and Microphone Devices
---------------------------------------------------------------------------------------------------------------
 EPO               561566          3/11/93            Solid State Condenser and Microphone Devices
---------------------------------------------------------------------------------------------------------------
 Australia       (659,290)        (10/03/95)          Solid State Condenser and Microphone Devices
---------------------------------------------------------------------------------------------------------------
 Canada          2,092,627         3/12/93            Solid State Condenser and Microphone Devices
---------------------------------------------------------------------------------------------------------------
 Finland           931183                             Solid State Condenser and Microphone Devices
---------------------------------------------------------------------------------------------------------------
 Japan            58161/93         3/18/93            Solid State Condenser and Microphone Devices
---------------------------------------------------------------------------------------------------------------
 Norway            93.0970         3/17/93            Solid State Condenser and Microphone Devices
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,559,892)       (9/24/96)           MOS Circuit With Dynamically Reduced Voltage as for Use
                                                      in an Output Buffer of a Hearing Aid
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,490,220)       (2/06/96)           Solid State Condenser and Microphone Devices
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,446,413)       (8/29/95)           Impedance circuit for a Miniature Hearing Aid
---------------------------------------------------------------------------------------------------------------
 EPO             95919010.9        1/05/96            Solid State Condenser and Microphone Apparatus
---------------------------------------------------------------------------------------------------------------
 U.S.            08/576,676       12/21/95            Solid State Condenser and Microphone Devices
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,870,482)       (2/09/99)           Miniature Silicon Condenser Microphone
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,740,261)       (4/14/98)           Miniature Silicon Condenser Microphone
---------------------------------------------------------------------------------------------------------------
 EPO             95920492.8        2/08/96            Impedance Circuit for a Miniature Hearing Aid
---------------------------------------------------------------------------------------------------------------
 U.S.           (5,861,779)       (1/09/99)           Impedance Circuit for a Miniature Hearing Aid
---------------------------------------------------------------------------------------------------------------
 PCT          PCT/US98/03144       2/19/98            Miniature Silicon Condenser Microphone
---------------------------------------------------------------------------------------------------------------
 U.S.            60/088,048        6/05/98            Solid-State Receiver
---------------------------------------------------------------------------------------------------------------
 Netherlands     (0-753-239)      (9/02/98)           MOS Circuit With Dynamically Reduced Threshold Voltage
---------------------------------------------------------------------------------------------------------------
 Switzerland     (0-753-239)      (9/02/98)           MOS Circuit With Dynamically Reduced Threshold Voltage
---------------------------------------------------------------------------------------------------------------
 Denmark         (0-753-239)      (9/02/98)           MOS Circuit With Dynamically Reduced Threshold Voltage
---------------------------------------------------------------------------------------------------------------
 U.S.             60/103,415     (10/07/98)           Digital Hearing Aid Microphone
---------------------------------------------------------------------------------------------------------------
 Germany         (69504485)       (9/02/98)           MOS Circuit With Dynamically Reduced Threshold Voltage
                                                      (related to U.S. Patent No. 5,559,892)
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 7 of 9
<PAGE>   51

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                 APPLN. NO.       FILING DATE
   COUNTRY      (PATENT NO.)     (ISSUE DATE)                               TITLE
--------------------------------------------------------------------------------------------------------------
<S>              <C>             <C>                  <C>
   United          (0-753-239)    (9/02/98)           MOS Circuit with Dynamically Reduced Threshold Voltage
   Kingdom
--------------------------------------------------------------------------------------------------------------
   EPO             97948325.2      11/20/97           Miniature Silicon Condenser Microphone
--------------------------------------------------------------------------------------------------------------
   EPO             98908587.3      2/19/98            Miniature Silicon Condenser Microphone
--------------------------------------------------------------------------------------------------------------
   Japan          Not Assigned     2/19/98            Miniature Silicon Condenser Microphone
--------------------------------------------------------------------------------------------------------------
   Singapore      Not Assigned     2/19/98            Miniature Silicon Condenser Microphone
--------------------------------------------------------------------------------------------------------------
   PCT           PCT/US99/11761    5/27/99            Solid-State Receiver
--------------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 8 of 9

<PAGE>   52
                          SYNCHRO-START PRODUCTS, INC.

                                 PATENT ASSETS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                 APPLN. NO.       FILING DATE
   COUNTRY      (PATENT NO.)     (ISSUE DATE)                               TITLE
--------------------------------------------------------------------------------------------------------------
<S>             <C>              <C>                 <C>
   U.S.          (5,592,356)       (1/07/97)          Dual Coil Actuator with Timing Circuit
--------------------------------------------------------------------------------------------------------------
   U.S.           (D378,513)       (3/18/97)          Design - Solenoid Assembly
--------------------------------------------------------------------------------------------------------------
   U.S.           08/940,558        9/30/97           Solenoid Assembly
--------------------------------------------------------------------------------------------------------------
   U.S.          (4,407,517)      (10/04/83)          Protective Boot for Solenoid
--------------------------------------------------------------------------------------------------------------
   U.S.          (4,922,873)       (5/08/90)          Electromechanical Run/Stop Actuator for Diesel Engine
--------------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 9 of 9
<PAGE>   53
                                   SCHEDULE V

                     TRADEMARK REGISTRATIONS & APPLICATIONS

Synchro-Start Products, Inc. (pp. 2,3)
Knowles Electronics, Inc. (4-6)

                                  Page 1 of 6

<PAGE>   54

                          SYNCHRO-START PRODUCTS, INC.

                            TRADEMARK REGISTRATIONS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
     COUNTRY                            MARK                             REG. NO.        REGISTERED
----------------------------------------------------------------------------------------------------------
<S>               <C>                                                   <C>             <C>
      U.S.         ADAM (Stylized)                                       1,782,546       7/20/93
----------------------------------------------------------------------------------------------------------
      U.S.         APECS                                                 2,096,279       9/16/97
----------------------------------------------------------------------------------------------------------
      U.S.         COIL COMMANDER                                        2,111,637      11/11/97
----------------------------------------------------------------------------------------------------------
      U.S.         MINI-GEN                                              1,121,357       7/3/79
----------------------------------------------------------------------------------------------------------
      U.S.         PRO-LEAN                                              1,781,250       7/13/93
----------------------------------------------------------------------------------------------------------
     Canada        SS (Stylized)                                          140,791        6/11/65
----------------------------------------------------------------------------------------------------------
      U.S.         SYNCHRO-START                                          685,480        9/22/59
----------------------------------------------------------------------------------------------------------
     Canada        SYNCHRO-START (Stylized)                               142,477       10/29/65
----------------------------------------------------------------------------------------------------------
     Benelux       SYNCHRO-START & Design                                 407,385        2/28/85
----------------------------------------------------------------------------------------------------------
     Canada        SYNCHRO-START & Design                                 142,477       10/29/65
----------------------------------------------------------------------------------------------------------
     China         SYNCHRO-START & Design                                 930,483        1/14/97
----------------------------------------------------------------------------------------------------------
     China         SYNCHRO-START & Design                                 934,174        1/21/97
----------------------------------------------------------------------------------------------------------
     Taiwan        SYNCHRO-START & Design                                 341,602       11/16/86
----------------------------------------------------------------------------------------------------------
     Canada        SYNCHRO-START & Design                                 312,726       3/28/86
----------------------------------------------------------------------------------------------------------
     Japan         SYNCHRO-START & Design                                2,705,757      3/31/95
----------------------------------------------------------------------------------------------------------
      U.K.         SYNCHRO-START & Design                                B1237632       3/12/85
----------------------------------------------------------------------------------------------------------
      U.K.         SYNCHRO-START & Design                                B1493510       8/5/94
----------------------------------------------------------------------------------------------------------
    Australia      SYNCHRO-START PRODUCTS & Design                       B442,816
----------------------------------------------------------------------------------------------------------
     Korea         SYNCHRO-START PRODUCTS & Design                        339,146       5/7/96
----------------------------------------------------------------------------------------------------------
     Korea         SYNCHRO-START PRODUCTS & Design                        339,145       5/7/96
----------------------------------------------------------------------------------------------------------
     Canada        SYNCHRO-START PRODUCTS, INC.                           312,726       3/28/86
                   & Design
----------------------------------------------------------------------------------------------------------
     Italy         SYNCHRO-START PRODUCTS, INC.                           452,380      10/13/86
                   & Design
----------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 2 of 6

<PAGE>   55

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
     COUNTRY                            MARK                          REG. NO.        REGISTERED
---------------------------------------------------------------------------------------------------------
<S>               <C>                                               <C>              <C>
      U.S.        SYNCHRO-START PRODUCTS, INC. & Design                 910,380         3/23/71
---------------------------------------------------------------------------------------------------------
      U.S.        SISONIC                                             2,246,496         5/18/99
---------------------------------------------------------------------------------------------------------
      U.S.        TRANSLATOR                                          1,811,930        12/21/93
---------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 3 of 6
<PAGE>   56
<TABLE>
<CAPTION>
                                                   KNOWLES ELECTRONICS, INC.

                                                    Trademark Registrations

---------------------------------------------------------------------------------------------------------
     COUNTRY                             MARK                           REG. NO.         REGISTERED
---------------------------------------------------------------------------------------------------------
<S>                <C>                                               <C>                 <C>
    Australia      DELTEK                                               720,764
---------------------------------------------------------------------------------------------------------
      China        DELTEK                                              1,137,488            12/21/97
---------------------------------------------------------------------------------------------------------
      Korea        DELTEK                                               410,155             7/15/98
---------------------------------------------------------------------------------------------------------
     Taiwan        DELTEK                                               800,755             4/16/98
---------------------------------------------------------------------------------------------------------
    Australia      K                                                    B305,914            3/30/77
---------------------------------------------------------------------------------------------------------
     Benelux       K                                                    346,402             3/31/77
---------------------------------------------------------------------------------------------------------
     Canada        K                                                    238,455             12/21/79
---------------------------------------------------------------------------------------------------------
      China        K                                                   1,066,165            7/28/97
---------------------------------------------------------------------------------------------------------
     Denmark       K                                                   1193-1962            6/23/62
---------------------------------------------------------------------------------------------------------
     Germany       K                                                   1,015,250            3/11/81
---------------------------------------------------------------------------------------------------------
      Japan        K                                                   1,894,852            4/25/86
---------------------------------------------------------------------------------------------------------
    Singapore      K                                                    2769/89              5/4/89
---------------------------------------------------------------------------------------------------------
     Sweden        K                                                    160,278              8/5/77
---------------------------------------------------------------------------------------------------------
   Switzerland     K                                                    287,764             3/22/77
---------------------------------------------------------------------------------------------------------
     Taiwan        K                                                    326,751             5/15/86
---------------------------------------------------------------------------------------------------------
      U.K.         K & Design                                          1,076,481            3/31/77
---------------------------------------------------------------------------------------------------------
      U.S.         K & Design                                          1,007,572            3/25/75
---------------------------------------------------------------------------------------------------------
    Germany        K & KNOWLES                                          990,965             9/26/79
---------------------------------------------------------------------------------------------------------
    Australia      KEMAR                                                A281,980            9/24/74
---------------------------------------------------------------------------------------------------------
     Benelux       KEMAR                                                328,349             9/27/74
---------------------------------------------------------------------------------------------------------
     Canada        KEMAR                                                208,322             7/18/75
---------------------------------------------------------------------------------------------------------
     Denmark       KEMAR                                               3026-1975             8/1/75
---------------------------------------------------------------------------------------------------------
     Germany       KEMAR                                                944,946             5/26/76
---------------------------------------------------------------------------------------------------------
      Japan        KEMAR                                               1,269,088            5/16/77
---------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 4 of 6
<PAGE>   57

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
     COUNTRY                             MARK                           REG. NO.         REGISTERED
---------------------------------------------------------------------------------------------------------
<S>                <C>                                               <C>                <C>
     Sweden        KEMAR                                                 151,144            4/5/75
---------------------------------------------------------------------------------------------------------
   Switzerland     KEMAR                                                 273,844           9/27/74
---------------------------------------------------------------------------------------------------------
      U.K.         KEMAR                                                1,035,813          9/25/74
---------------------------------------------------------------------------------------------------------
      U.S.         KEMAR                                                1,020,978          9/23/75
---------------------------------------------------------------------------------------------------------
    Argentina      KNOWLES                                              1,656,708          6/26/68
---------------------------------------------------------------------------------------------------------
     Brazil        KNOWLES                                               450,715           6/13/72
---------------------------------------------------------------------------------------------------------
      China        KNOWLES                                               887,679          10/21/96
---------------------------------------------------------------------------------------------------------
      China        KNOWLES                                               890,170          10/28/96
---------------------------------------------------------------------------------------------------------
     Denmark       KNOWLES                                              1837-1963          8/17/63
---------------------------------------------------------------------------------------------------------
     France        KNOWLES                                              1,567,459          12/5/89
---------------------------------------------------------------------------------------------------------
     Germany       KNOWLES                                               767,970          11/30/62
---------------------------------------------------------------------------------------------------------
      Italy        KNOWLES                                               435,877           6/23/86
---------------------------------------------------------------------------------------------------------
      Japan        KNOWLES                                               602,744          12/24/62
---------------------------------------------------------------------------------------------------------
      Korea        KNOWLES                                               335,547           3/20/96
---------------------------------------------------------------------------------------------------------
     Malaysia      KNOWLES                                              89/02647           5/5/89
---------------------------------------------------------------------------------------------------------
    Singapore      KNOWLES                                               2770/89           5/4/89
---------------------------------------------------------------------------------------------------------
     Taiwan        KNOWLES                                               326,747           5/15/86
---------------------------------------------------------------------------------------------------------
      U.S.         KNOWLES                                               743,319           1/8/63
---------------------------------------------------------------------------------------------------------
      China        KNOWLES (Block & Script)                              890,169          10/28/96
---------------------------------------------------------------------------------------------------------
      China        KNOWLES (Block & Script)                              887,678          10/21/96
---------------------------------------------------------------------------------------------------------
      U.K.         KNOWLES (Stylized)                                    848,916           5/10/63
---------------------------------------------------------------------------------------------------------
</TABLE>

                                   Page 5 of 6
<PAGE>   58

                           KNOWLES ELECTRONICS, INC.

                             TRADEMARK APPLICATIONS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
 COUNTRY                                 MARK                         APPL. NO.         FILED
---------------------------------------------------------------------------------------------------------
<S>                <C>                                                <C>               <C>
   U.S.            DELTEK                                             75-216,968        12/23/96
---------------------------------------------------------------------------------------------------------
   U.S.            DELTEK and design                                  75-216,785        12/23/96
---------------------------------------------------------------------------------------------------------
  Canada           DELTEK                                              827,586          11/1/96
---------------------------------------------------------------------------------------------------------
 European
Community          DELTEK                                              405,255          11/11/96
---------------------------------------------------------------------------------------------------------
 Malaysia          K                                                   89/02648          5/5/89
---------------------------------------------------------------------------------------------------------
   U.S.            EMKAY                                               NONE YET          6/2/99
---------------------------------------------------------------------------------------------------------
   U.S.            EMKAY & DESIGN                                      NONE YET          6/2/99
---------------------------------------------------------------------------------------------------------
 European          EMKAY                                               1175959          5/18/99
Community
---------------------------------------------------------------------------------------------------------
 European          EMKAY & DESIGN                                      1179415          5/18/99
Community
---------------------------------------------------------------------------------------------------------
  Taiwan           EMKAY                                               88026111         5/29/99
---------------------------------------------------------------------------------------------------------
  Taiwan           EMKAY & DESIGN                                      88026103         5/29/99
---------------------------------------------------------------------------------------------------------
  China            EMKAY                                              NONE YET         Filing in
                                                                                        Progress
---------------------------------------------------------------------------------------------------------
  China            EMKAY & DESIGN                                     NONE YET         Filing in
                                                                                        Progress
---------------------------------------------------------------------------------------------------------
Australia          KNOWLES (Stylized)                                  755,849          2/24/98
---------------------------------------------------------------------------------------------------------
</TABLE>

                                  Page 6 of 6
<PAGE>   59

                                                                  Annex 1 to the
                                                              Security Agreement

                        LOCKBOX AND DEPOSITORY AGREEMENT dated as of
                [          ], among [Name of Grantor], a [       ] corporation
                (the "Grantor"), THE CHASE MANHATTAN BANK, a New York banking
                corporation ("Chase"), as Administrative Agent (in such
                capacity, the "Administrative Agent") for the Secured Parties
                (such term, and each other capitalized term used but not
                defined herein, having the meaning given it in the Security
                Agreement referred to below) and [                     ], a
                [                         ] banking corporation (the
                "Sub-Agent").

         A.  Reference is made to (a) the Credit Agreement dated as of June 28,
1999 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among the Parent Borrower, the lenders from time to time
party thereto (the "Lenders"), Chase, as Administrative Agent for the Lenders,
Swingline Lender and as issuing bank (in such capacity, the "Issuing Bank") and
Morgan Stanley Senior Funding, Inc., as Syndication Agent,  (b) the Parent
Guarantee Agreement dated as of June 30, 1999 (as amended, supplemented or
otherwise modified from time to time, the "Parent Guarantee Agreement"),
between the Parent Borrower  and the Administrative Agent and (c) the
Subsidiary Guarantee Agreement dated as of June 30, 1999 (as amended,
supplemented or otherwise modified from time to time, the "Subsidiary Guarantee
Agreement"; and, collectively with the Parent Guarantee Agreement, the
"Guarantee Agreements"), among the Subsidiary Guarantors and the Administrative
Agent.

         B.  The Sub-Agent has agreed to act as collection sub-agent of the
Administrative Agent to receive and forward payments with respect to the
Accounts Receivable and Inventory on the terms and subject to the conditions
set forth herein.
<PAGE>   60

         NOW, THEREFORE, the parties hereto agree as follows:

         1   The Administrative Agent hereby appoints the Sub-Agent as its
collection sub-agent under the Security Agreement and authorizes the Sub-Agent,
on the terms and subject to the conditions set forth herein, to receive
payments in respect of Collateral consisting of Accounts Receivable and
Inventory.

         2   The Sub-Agent has established and shall maintain deposit account
number [        ] (including all subaccounts thereof) for the benefit of the
Administrative Agent (such account being called the "Collection Deposit
Account").  The Collection Deposit Account shall be designated with the title
"The Chase Manhattan Bank, as Administrative Agent under the [        ]
Security Agreement dated as of [        ]" (or a similar title).  [Subject to
the Sub-Agent's Terms for Remittance Banking (Lockbox) Services attached hereto
as Exhibit A, to the extent that the terms thereof relate to procedures or fees
and to the extent not inconsistent with the terms hereof,] all payments
received by the Sub-Agent in Lockbox Number [         ] and [         ] or any
replacements in respect thereof (the "Lockboxes") shall be promptly deposited
in the Collection Deposit Account and shall not be commingled with other funds.
All funds at any time on deposit in the Collection Deposit Account shall be
held by the Sub-Agent for application in accordance with the terms of this
Agreement.  The Sub-Agent agrees to give the Administrative Agent prompt notice
if the Collection Deposit Account shall become subject to any writ, judgment,
warrant of attachment, execution or similar process.  As security for the
payment and performance of the Obligations, the Grantor hereby confirms and
pledges, assigns and transfers to the Administrative Agent, and hereby creates
and grants to the Administrative Agent, a security interest in the Collection
Deposit Account, all property and assets held therein and all Proceeds thereof.

         3   The Collection Deposit Account shall be under the sole dominion
and control of the Administrative Agent, who shall possess all right, title and
interest in all of the items from time to time in the Collection Deposit
Account and their Proceeds.  The Sub-Agent shall be the Administrative Agent's
agent for the purpose of holding and collecting such items and their Proceeds.
Neither the Grantor nor any Person or entity claiming by, through or under the
Grantor shall have any right, title or interest in, or control over the use of,
or any right to withdraw any amount from, the Collection Deposit Account,
except that the Administrative Agent shall have the right to withdraw amounts
from the Collection Deposit Account.  The Sub-Agent shall be entitled to rely
on, and
<PAGE>   61

                                                                               3

shall act in accordance with, all instructions given to it by the
Administrative Agent with respect to the Collection Deposit Account.  The
Administrative Agent shall have the sole power to agree with the Sub-Agent as
to specifications for Lockbox services.

         4   Upon receipt of written, telecopy or telephonic notice (which, in
the case of telephonic notice, shall be promptly confirmed in writing or by
telecopy) from the Administrative Agent, the Sub-Agent shall, if so directed in
such notice (subject to the Sub-Agent's right to request that the
Administrative Agent furnish, in form satisfactory to the Sub-Agent, signature
cards and/or other appropriate documentation), promptly transmit or deliver to
the Administrative Agent at the office specified in paragraph 12 hereof (or
such other office as the Administrative Agent shall specify) (a) all funds, if
any, then on deposit in, or otherwise to the credit of, the Collection Deposit
Account (provided that funds on deposit that are subject to collection may be
transmitted promptly upon availability for withdrawal), (b) all checks, drafts
and other instruments for the payment of money received in the Lockboxes and in
the possession of the Sub-Agent, without depositing such checks, drafts or
other instruments in the Collection Deposit Account or any other account and
(c) any checks, drafts and other instruments for the payment of money received
in the Lockboxes by the Sub-Agent after such notice, in whatever form received,
provided that the Sub-Agent may retain a reasonable reserve in a separate
deposit account with the Sub-Agent in respect of unpaid fees and amounts which
may be subject to collection.
<PAGE>   62

                                                                               4

         5  The Sub-Agent is hereby instructed and authorized to transfer by
wire transfer or Automated Clearing House ("ACH") from the Collection Deposit
Account all funds that are from time to time deposited or otherwise credited to
such account (after such funds become available to the Sub-Agent, either
through the Federal Reserve System or other clearing mechanism used by the
Sub-Agent's branch and to the extent such funds exceed $[1,000]), to such
account as the Administrative Agent may from time to time direct, provided
that, unless the Administrative Agent otherwise instructs, no such transfer
shall be required if such transfer would result in the transfer of an amount
less than $[1,000].  Unless otherwise directed by the Administrative Agent,
such funds shall be transferred on each business day by wire transfer or ACH
and shall be identified as follows:

                 The Chase Manhattan Bank
                 ABA Number
                 For credit to The Chase Manhattan Bank, New York, NY 10017
                 Account Number
                 Re:[        ] Cash Collateral Account

         These transfer instructions and authorizations may not be amended,
altered or revoked by the Grantor without the prior written consent of the
Administrative Agent.  The Administrative Agent, however, shall have the right
to amend or revoke these transfer instructions and authorizations at any time
without the consent of the Grantor.

         6   The Sub-Agent shall furnish the Administrative Agent with monthly
statements setting forth the amounts deposited in the Collection Deposit
Account and all transfers and withdrawals therefrom, and shall furnish such
other information at such times as shall be reasonably requested by the
Administrative Agent.

         7   The fees for the services of the Sub-Agent shall be mutually
agreed upon between the Grantor and the Sub-Agent and shall be the obligation
of the Grantor; provided, however, that, notwithstanding the terms of any
agreement under which the Collection Deposit Account shall have been
established with the Sub-Agent, the Grantor and the Sub-Agent agree not to
terminate such Collection Deposit Account for any reason (including the failure
of the Grantor to pay such fees) for so
<PAGE>   63

                                                                               5

long as this Agreement shall remain in effect (it being understood that the
foregoing shall not be construed to prohibit the resignation of the Sub-Agent
in accordance with paragraph 9 below).  Neither the Administrative Agent nor
the Secured Parties shall have any liability for the payment of any such fees.
The Sub-Agent may perform any of its duties hereunder by or through its agents,
officers or employees.

         8  The Sub-Agent hereby represents and warrants that (a) it is a
banking corporation duly organized, validly existing and in good standing under
the laws of [                 ] and has full corporate power and authority
under such laws to execute, deliver and perform its obligations under this
Agreement and (b) the execution, delivery and performance of this Agreement by
the Sub-Agent have been duly and effectively authorized by all necessary
corporate action and this Agreement has been duly executed and delivered by the
Sub-Agent and constitutes a valid and binding obligation of the Sub-Agent
enforceable in accordance with its terms.

         9  The Sub-Agent may resign at any time as Sub-Agent hereunder by
delivery to the Administrative Agent of written notice of resignation not less
than thirty days prior to the effective date of such resignation. The Sub-Agent
may be removed by the Administrative Agent at any time, with or without cause,
by written, telecopy or telephonic notice (which, in the case of telephonic
notice, shall be promptly confirmed in writing or by telecopy) of removal
delivered to the Sub-Agent.  Upon receipt of such notice of removal, or
delivery of such notice of resignation, the Sub-Agent shall (subject to the
Sub-Agent's right to request that the Administrative Agent furnish, in form
satisfactory to the Sub-Agent, signature cards and/or other appropriate
documentation), promptly transmit or deliver to the Administrative Agent at the
office specified in paragraph 12 (or such other office as the Administrative
Agent shall specify) (a) all funds, if any, then on deposit in, or otherwise to
the credit of, the Collection Deposit Account (provided that funds on deposit
that are subject to collection may be transmitted promptly upon availability
for withdrawal), (b) all checks, drafts and other instruments for the payment
of money received in the Lockboxes and in the possession of the Sub-Agent,
without depositing such checks, drafts or other instruments in the Collection
Deposit Account or any other account and (c) any checks, drafts and other
instruments for
<PAGE>   64

                                                                               6

the payment of money received in the Lockboxes by the Sub-Agent after such
notice, in whatever form received.

         10   The Grantor consents to the appointment of the Sub-Agent and
agrees that the Sub-Agent shall incur no liability to the Grantor as a result
of any action taken pursuant to an instruction given by the Administrative
Agent in accordance with the provisions of this Agreement.  The Grantor agrees
to indemnify and defend the Sub-Agent against any loss, liability, claim or
expense (including reasonable attorneys' fees) arising from the Sub-Agent's
entry into this Agreement and actions taken hereunder, except to the extent
resulting from the Sub-Agent's gross negligence or willful misconduct.

         11   The term of this Agreement shall extend from the date hereof
until the earlier of (a) the date on which the Sub-Agent has been notified in
writing by the Administrative Agent that the Sub-Agent has no further duties
under this Agreement and (b) the date of termination specified in the notice of
removal given by the Administrative Agent, or notice of resignation given by
the Sub-Agent, as the case may be, pursuant to paragraph 9.  The obligations of
the Sub-Agent contained in the last sentence of paragraph 9 and in paragraph
15, and the obligations of the Grantor contained in paragraphs 7 and 10, shall
survive the termination of this Agreement.

         12   All notices and communications hereunder shall be in writing and
shall be delivered by hand or by courier service, mailed by certified or
registered mail or sent by telecopy (except where telephonic instructions or
notices are authorized herein) and shall be effective on the day on which
received (a) in the case of the Administrative Agent, to The Chase Manhattan
Bank, 270 Park Avenue, New York, New York 10017, Attention of [Collateral
Monitoring Department], and (b) in the case of the Sub-Agent, addressed to
[                  ], Attention of [                 ].  For purposes of this
Agreement, any officer of the Administrative Agent shall be authorized to act,
and to give instructions and notices, on behalf of the Administrative Agent
hereunder.

         13   The Sub-Agent will not assign or transfer any of its rights or
obligations hereunder (other than to the Administrative Agent) without the
prior written consent of the
<PAGE>   65

                                                                               7

other parties hereto, and any such attempted assignment or transfer shall be
void.

         14   Except as provided in paragraph 5 above, this Agreement may be
amended only by a written instrument executed by the Administrative Agent, the
Sub-Agent and the Grantor, acting by their duly authorized representative
officers.

         15   Except as otherwise provided in the Credit Agreement with respect
to rights of set off available to the Sub-Agent in its capacity as a Lender (if
and so long as the Sub-Agent is a Lender thereunder), the Sub-Agent hereby
irrevocably waives any right to set off against, or otherwise deduct from, any
funds held in the Collection Deposit Account and all items (and Proceeds
thereof) that come into its possession in connection with the Collection
Deposit Account any indebtedness or other claim owed by the Grantor or any
affiliate thereof to the Sub-Agent; provided, however, that this paragraph
shall not limit the ability of the Sub-Agent to, and the Sub-Agent may, (a)
exercise any right to set off against, or otherwise deduct from, any such funds
to the extent necessary for the Sub-Agent to collect any fees owed to it by the
Grantor in connection with the Collection Deposit Account, (b) charge back and
net against the Collection Deposit Account any returned or dishonored items or
other adjustments in accordance with the Sub-Agent's usual practices and (c)
(i) establish the reserves contemplated in paragraph 4 in respect of unpaid
fees and amounts which may be subject to collection and (ii) transfer funds in
respect of such reserves from the Collection Deposit Account to the separate
deposit account with the Sub-Agent as contemplated in paragraph 4.

         16   This Agreement shall inure to the benefit of and be binding upon
the Administrative Agent, the Sub-Agent, the Grantor and their respective
permitted successors and assigns.

         17   This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.  Delivery of an executed signature page to this
Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof.

         18   EXCEPT TO THE EXTENT THE LAWS OF THE STATE OF [          ]
GOVERN THE COLLECTION DEPOSIT ACCOUNT, THIS
<PAGE>   66

                                                                               8

AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.

         19   The Sub-Agent shall be an independent contractor.  This Agreement
does not give rise to any partnership, joint venture or fiduciary relationship.

         20   In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such provision
in any other jurisdiction).  The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.

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

                            [Name of Grantor],

                               by
                                 ------------------------------------------
                                   Name:
                                   Title:

                            THE CHASE MANHATTAN BANK,
                            as Administrative Agent,

                               by
                                 ------------------------------------------
                                   Name:
                                   Title:

                            [Sub-Agent],
<PAGE>   67

                                                                               9

                               by
                                 ------------------------------------------

                                   Name:
                                   Title:

<PAGE>   68

                                                                 Annex 2 to the
                                                             Security Agreement

                                   [Form Of]
                             PERFECTION CERTIFICATE

         Reference is made to (a) the Credit Agreement dated as of June 28, 1999
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Knowles Electronics, Inc. (the "Parent Borrower"), the
lenders from time to time party thereto (the "Lenders"), The Chase Manhattan
Bank, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), Swingline Lender and as issuing bank (in such capacity,
the "Issuing Bank") and Morgan Stanley Senior Funding, Inc., as Syndication
Agent and (b) the Guarantee Agreement dated as of June 30, 1999 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee
Agreement"), among the Subsidiary Guarantors and the Administrative Agent.

         The undersigned, a Financial Officer and a Legal Officer, respectively,
of the Parent Borrower, hereby certify to the Administrative Agent and each
other Secured Party as follows:

         1.  Names. (a) The exact corporate name of each Grantor, as such name
appears in its respective certificate of incorporation, is as follows:

         (b)  Set forth below is each other corporate name each Grantor has had
in the past five years, together with the date of the relevant change:

         (c)  Except as set forth in Schedule 1 hereto, no Grantor has changed
its identity or corporate structure in any way within the past five years.
Changes in identity or corporate structure would include mergers, consolidations
and acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include in Schedule 1
the information required by Sections 1 and 2 of this certificate as to each
acquiree or constituent party to a merger or consolidation.

         (d)  The following is a list of all other names (including trade names
or similar appellations) used by each Grantor or any of its divisions or other
business units in connection with the conduct of its business or the ownership
of its properties at any time during the past five years:
<PAGE>   69

         (e)  Set forth below is the Federal Taxpayer Identification Number of
each Grantor:

<PAGE>   70

                                                                               3

         2.  Current Locations. (a) The chief executive office of each Grantor
is located at the address set forth opposite its name below:

Grantor           Mailing Address          County           State

         (b)  Set forth below opposite the name of each Grantor are all
locations where such Grantor maintains any books or records relating to any
Accounts Receivable (with each location at which chattel paper, if any, is kept
being indicated by an "*"):

Grantor           Mailing Address          County           State

         (c)  Set forth below opposite the name of each Grantor are all the
places of business of such Grantor not identified in paragraph (a) or (b) above:

Grantor           Mailing Address          County           State

         (d)  Set forth below opposite the name of each Grantor are all the
locations where such Grantor maintains any Collateral not identified above:

Grantor           Mailing Address          County           State

         (e)  Set forth below opposite the name of each Grantor are the names
and addresses of all Persons other than such Grantor that have possession of any
of the Collateral of such Grantor:

Grantor           Mailing Address          County           State
<PAGE>   71

                                                                               4

         3.  Unusual Transactions. All Accounts Receivable have been originated
by the Grantors and all Inventory has been acquired by the Grantors in the
ordinary course of business.

         4.  File Search Reports. Attached hereto as Schedule 4(A) are true
copies of file search reports from the Uniform Commercial Code filing offices
where filings described in Section 3.19 of the Credit Agreement are to be made.
Attached hereto as Schedule 4(B) is a true copy of each financing statement or
other filing identified in such file search reports.

         5.  UCC Filings. Duly signed financing statements on Form UCC-1 in
substantially the form of Schedule 5 hereto have been prepared for filing in the
Uniform Commercial Code filing office in each jurisdiction where a Grantor has
Collateral as identified in Section 2 hereof.

         6.  Schedule of Filings. Attached hereto as Schedule 6 is a schedule
setting forth, with respect to the filings described in Section 5 above, each
filing and the filing office in which such filing is to be made.

         7.  Filing Fees. All filing fees and taxes payable in connection with
the filings described in Section 5 above have been paid.

         8.  Stock Ownership. Attached hereto as Schedule 8 is a true and
correct list of all the duly authorized, issued and outstanding stock of each
Subsidiary and the record and beneficial owners of such stock. Also set forth on
Schedule 8 is each equity Investment of the Parent Borrower and each Subsidiary
that represents 50% or less of the equity of the entity in which such investment
was made.

         9.  Notes. Attached hereto as Schedule 9 is a true and correct list of
all notes held by the Parent Borrower and each Subsidiary and all intercompany
notes between the Parent Borrower and each Subsidiary of the Parent Borrower and
between each Subsidiary of the Parent Borrower and each other such Subsidiary.

         10.  Advances. Attached hereto as Schedule 10 is (a) a true and correct
list of all advances made by the Parent Borrower to any Subsidiary of the Parent
Borrower or made by
<PAGE>   72

                                                                               5

any Subsidiary of the Parent Borrower to the Parent Borrower or any other
Subsidiary of the Parent Borrower, which advances will be on and after the date
hereof evidenced by one or more intercompany notes pledged to the Administrative
Agent under the Pledge Agreement, and (b) a true and correct list of all unpaid
intercompany transfers of goods sold and delivered by or to the Parent Borrower
or any Subsidiary of the Parent Borrower.

         11.  Mortgage Filings. Attached hereto as Schedule 11 is a schedule
setting forth, with respect to each Mortgaged Property, (i) the exact corporate
name of the corporation that owns such property as such name appears in its
certificate of incorporation, (ii) if different from the name identified
pursuant to clause (i), the exact name of the current record owner of such
property reflected in the records of the filing office for such property
identified pursuant to the following clause and (iii) the filing office in which
a Mortgage with respect to such property must be filed or recorded in order for
the Administrative Agent to obtain a perfected security interest therein.

         IN WITNESS WHEREOF, the undersigned have duly executed this certificate
on this [   ] day of [         ].

                           [        ],

                                   by
                                     --------------------------------------

                                   Name:
                                   Title:   [Financial
                                            Officer]

                                   by
                                     ---------------------------------------

                                   Name:
                                   Title:   [Legal Officer]

<PAGE>   73

                                                                  Annex 3 to the
                                                              Security Agreement

                           SUPPLEMENT NO. __ dated as of             , to the
                  Security Agreement dated as of June 30, 1999, among KNOWLES
                  ELECTRONICS, INC., a Delaware corporation (the "Parent
                  Borrower"), each subsidiary of the Parent Borrower listed on
                  Schedule I hereto (each such subsidiary individually a
                  "Subsidiary Guarantor" and collectively, the "Subsidiary
                  Guarantors"; the Subsidiary Guarantors and the Parent Borrower
                  are referred to collectively herein as the "Grantors") and THE
                  CHASE MANHATTAN BANK, a New York banking corporation
                  ("Chase"), as administrative agent (in such capacity, the
                  "Administrative Agent") for the Secured Parties (as defined
                  herein).

         A.  Reference is made to (a) the Credit Agreement dated as of June 28,
1999 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among the Parent Borrower, the lenders from time to time
party thereto (the "Lenders"), Chase, as Administrative Agent for the Lenders,
Swingline Lender and as issuing bank (in such capacity, the "Issuing Bank") and
Morgan Stanley Senior Funding, Inc., as Syndication Agent, (b) the Parent
Guarantee Agreement dated as of June 30, 1999 (as amended, supplemented or
otherwise modified from time to time, the "Parent Guarantee Agreement"), between
the Parent Borrower and the Administrative Agent and (c) the Subsidiary
Guarantee Agreement dated as of June 30, 1999 (as amended, supplemented or
otherwise modified from time to time, the "Subsidiary Guarantee Agreement"; and,
collectively with the Parent Guarantee Agreement, the "Guarantee Agreements"),
among the Subsidiary Guarantors and the Administrative Agent.

         B.  Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Security Agreement and the
Credit Agreement.

         C.  The Grantors have entered into the Security Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue Letters of
Credit. Section 7.15 of Security Agreement provides that additional Subsidiaries
of the Parent Borrower may become Grantors under the Security Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary (the "New Grantor") is executing this Supplement in
accordance with the requirements of the Credit
<PAGE>   74

Agreement to become a Grantor under the Security Agreement in order to induce
the Lenders to make additional Loans and the Issuing Bank to issue additional
Letters of Credit and as consideration for Loans previously made and Letters of
Credit previously issued.

         Accordingly, the Administrative Agent and the New Grantor agree as
follows:

         SECTION 1.  In accordance with Section 7.15 of the Security Agreement,
the New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby (a) agrees to all the terms and provisions of
the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Grantor, as security for the payment and
performance in full of the Obligations (as defined in the Security Agreement),
does hereby create and grant to the Administrative Agent, its successors and
assigns, for the benefit of the Secured Parties, their successors and assigns, a
security interest in and lien on all of the New Grantor's right, title and
interest in and to the Collateral (as defined in the Security Agreement) of the
New Grantor. Each reference to a "Grantor" in the Security Agreement shall be
deemed to include the New Grantor. The Security Agreement is hereby incorporated
herein by reference.

         SECTION 2.  The New Grantor represents and warrants to the
Administrative Agent and the other Secured Parties that this Supplement has been
duly authorized, executed and delivered by it and constitutes its legal, valid
and binding obligation, enforceable against it in accordance with its terms.

         SECTION 3.  This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Administrative
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Grantor and the Administrative Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.

         SECTION 4.  The New Grantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a true and
<PAGE>   75

                                                                               3

correct schedule of the location of any and all Collateral of the New Grantor
and (b) set forth under its signature hereto, is the true and correct location
of the chief executive office of the New Grantor.

         SECTION 5.  Except as expressly supplemented hereby, the Security
Agreement shall remain in full force and effect.

         SECTION 6.  THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

         SECTION 7.  In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

         SECTION 8.  All communications and notices hereunder shall be in
writing and given as provided in Section 7.01 of the Security Agreement. All
communications and notices hereunder to the New Grantor shall be given to it at
the address set forth under its signature below.

         SECTION 9.  The New Grantor agrees to reimburse the Administrative
Agent for its reasonable out-of-pocket expenses in connection with this
Supplement, including the reasonable fees, other charges and disbursements of
counsel for the Administrative Agent.
<PAGE>   76

                                                                               4

         IN WITNESS WHEREOF, the New Grantor and the Administrative Agent have
duly executed this Supplement to the Security Agreement as of the day and year
first above written.

                         [Name Of New Grantor],

                            by
                              -----------------------------------
                               Name:
                               Title:
                               Address:

                         THE CHASE MANHATTAN BANK, as
                         Administrative Agent,

                            by
                              --------------------------------------
                               Name:
                               Title:
<PAGE>   77

                                                                      SCHEDULE I
                                                     to Supplement No.___ to the
                                                              Security Agreement

                             LOCATION OF COLLATERAL

<TABLE>
<CAPTION>
         Description                             Location
         -----------                             --------
         <S>                                     <C>
</TABLE><PAGE>   1
                                                                   Exhibit 10.5*

                        PLEDGE AGREEMENT dated as of June 30, 1999, among
                  KNOWLES ELECTRONICS, INC., a Delaware corporation (the "Parent
                  Borrower"), each Subsidiary of the Parent Borrower listed on
                  Schedule I hereto (each such Subsidiary individually a
                  "Subsidiary Pledgor" and collectively, the "Subsidiary
                  Pledgors"; the Parent Borrower and the Subsidiary Pledgors are
                  referred to collectively herein as the "Pledgors") and THE
                  CHASE MANHATTAN BANK, a New York banking corporation
                  ("Chase"), as administrative agent (in such capacity, the
                  "Administrative Agent") for the Secured Parties (as defined in
                  the Credit Agreement referred to below).

      Reference is made to (a) the Credit Agreement dated as of June 28, 1999
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Parent Borrower, the lenders from time to time party
thereto (the "Lenders"), Chase, as Administrative Agent for the Lenders,
Swingline Lender and as issuing bank (in such capacity, the "Issuing Bank"), and
Morgan Stanley Senior Funding, Inc., as Syndication Agent, (b) the Parent
Guarantee Agreement dated as of June 30, 1999 (as amended, supplemented or
otherwise modified from time to time, the "Parent Guarantee Agreement"), between
the Parent Borrower and the Administrative Agent and (c) the Subsidiary
Guarantee Agreement dated as of June 30, 1999 (as amended, supplemented or
otherwise modified from time to time, the "Subsidiary Guarantee Agreement"; and,
collectively with the Parent Guarantee Agreement, the "Guarantee Agreements"),
among the Subsidiary Pledgors and the Administrative Agent.

      The Lenders have agreed to make Loans to the Borrowers and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrowers,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. Each of the Subsidiary Guarantors (as defined in the Security
Agreement) have agreed to guarantee, among other things, all the obligations of
each Borrower under the Credit Agreement. The obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit are conditioned upon,
among other things, the execution and delivery by the Pledgors of a Pledge
Agreement in the form hereof to secure (a) the due and punctual payment by each
Borrower of (i) the principal of and premium, if any, and interest (including
interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on the Loans made to such Borrower, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise, (ii) each payment required to be made by such Borrower
under the Credit Agreement in respect of any Letter of Credit, when and as due,
including payments in respect of reimbursement of disbursements, interest
thereon and obligations to provide cash collateral and (iii) all other monetary
obligations, including fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of such Borrower to the Secured Parties under the
Credit Agreement and the other Loan Documents, (b) the due and punctual
performance of all covenants, agreements, obligations and liabilities of each
Borrower under or pursuant to the Credit Agreement and the other Loan Documents,
(c) the due and punctual payment and performance of all the covenants,
agreements, obligations and liabilities of each other Loan Party under or
pursuant to this Agreement and the other Loan Documents and (d) the due and
punctual payment and performance of all obligations of each Borrower and any
Loan Party under each Hedging Agreement entered into with any counterparty that
was a Lender (or an Affiliate of a Lender)

* Confidential Information in this Exhibit 10.5 has been omitted and filed
  separately with the Securities and Exchange Commission.

<PAGE>   2
                                                                               2

at the time such Hedging Agreement was entered into (all the monetary and other
obligations referred to in the preceding clauses (a) through (d) being referred
to collectively as the "Obligations"). Capitalized terms used herein and not
defined herein shall have meanings assigned to such terms in the Credit
Agreement.

      Accordingly, the Pledgors and the Administrative Agent, on behalf of
itself and each Secured Party (and each of their respective successors or
assigns), hereby agree as follows:

      SECTION 1. Pledge. As security for the payment and performance, as the
case may be, in full of the Obligations, each Pledgor hereby transfers, grants,
bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto the
Administrative Agent, its successors and assigns, and hereby grants to the
Administrative Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in all of the Pledgor's right, title and
interest in, to and under (a)(i) the Equity Interests owned by it and listed on
Schedule II hereto and any shares of capital stock of the Parent Borrower or any
Subsidiary obtained in the future by such Pledgor and the certificates
representing all such shares and (ii) any shares of capital stock of Knowles
Electronics Japan K.K. obtained in the future by the Parent Borrower and the
certificates representing all such shares (collectively, the "Pledged Stock");
provided that the Pledged Stock shall not include (i) more than 65% of the
issued and outstanding shares of voting stock of any Foreign Subsidiary or (ii)
to the extent that applicable law requires that a Subsidiary of such Pledgor
issue directors' qualifying shares, such qualifying shares; (b)(i) the debt
securities listed opposite the name of such Pledgor on Schedule II hereto, (ii)
any debt securities in the future issued to such Pledgor and (iii) the
promissory notes and any other instruments evidencing such debt securities (the
"Pledged Debt Securities"); (c) all other property that may be delivered to and
held by the Administrative Agent pursuant to the terms hereof; (d) subject to
Section 5, all payments of principal or interest, dividends, cash, instruments
and other property from time to time received, receivable or otherwise
distributed, in respect of, in exchange for or upon the conversion of the
securities referred to in clauses (a) and (b) above; (e) subject to Section 5,
all rights and privileges of the Pledgor with respect to the Equity Interests,
securities and other property referred to in clauses (a), (b), (c) and (d)
above; and (f) all proceeds of any of the foregoing (the items referred to in
clauses (a) through (f) above being collectively referred to as the
"Collateral"). Upon delivery to the Administrative Agent, (a) any certificates
with respect to Equity Interests, notes or other securities now or hereafter
included in the Collateral (the "Pledged Securities") shall be accompanied by
stock powers duly executed in blank or other instruments of transfer
satisfactory to the Administrative Agent and by such other instruments and
documents as the Administrative Agent may reasonably request and (b) all other
property comprising part of the Collateral shall be accompanied by proper
instruments of assignment duly executed by the applicable Pledgor and such other
instruments or documents as the Administrative Agent may reasonably request.
Each delivery of Pledged Securities shall be accompanied by a schedule
describing the securities theretofore and then being pledged hereunder, which
schedule shall be attached hereto as Schedule II and made a part hereof. Each
schedule so delivered shall supersede any prior schedules so delivered.

      TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Administrative Agent, its successors and assigns, for the ratable
benefit of the Secured Parties, forever; subject, however, to the terms,
covenants and conditions hereinafter set forth.

      SECTION 2. Delivery of the Collateral. (a) Each Pledgor agrees promptly to
deliver or cause to be delivered to the Administrative Agent any and all Pledged
Securities, and any and all certificates or other instruments or documents
representing the Collateral.
<PAGE>   3
                                                                               3

      (b) Each Pledgor will cause any Indebtedness for borrowed money owed to
the Pledgor by any Person to be evidenced by a duly executed promissory note
that is pledged and delivered to the Administrative Agent pursuant to the terms
thereof.

      SECTION 3. Representations, Warranties and Covenants. Each Pledgor hereby
represents, warrants and covenants, as to itself and the Collateral pledged by
it hereunder, to and with the Administrative Agent that:

            (a) the Pledged Stock represents that percentage as set forth on
      Schedule II of the issued and outstanding shares of each class of the
      capital stock of the issuer with respect thereto;

            (b) except for the security interest granted hereunder and other
      than as permitted under the terms of the Credit Agreement, the Pledgor (i)
      is and will at all times continue to be the direct owner, beneficially and
      of record, of the Pledged Securities indicated on Schedule II, (ii) holds
      the same free and clear of all Liens, (iii) will make no assignment,
      pledge, hypothecation or transfer of, or create or permit to exist any
      security interest in or other Lien on, the Collateral, other than pursuant
      hereto, and (iv) subject to Section 5, will cause any and all Collateral,
      whether for value paid by the Pledgor or otherwise, to be forthwith
      deposited with the Administrative Agent and pledged or assigned hereunder;

            (c) the Pledgor (i) has the power and authority to pledge the
      Collateral in the manner hereby done or contemplated and (ii) will defend
      its title or interest thereto or therein against any and all Liens (other
      than the Lien created by this Agreement), however arising, of all Persons
      whomsoever;

            (d) no consent of any other Person (including stockholders or
      creditors of any Pledgor) and no consent or approval of any Governmental
      Authority or any securities exchange which has not been obtained was or is
      necessary to the validity of the pledge effected hereby;

            (e) by virtue of the execution and delivery by the Pledgors of this
      Agreement, when the Pledged Securities, certificates or other documents
      representing or evidencing the Collateral are delivered to the
      Administrative Agent in accordance with this Agreement, the Administrative
      Agent will obtain a valid and perfected first lien upon and security
      interest in such Pledged Securities as security for the payment and
      performance of the Obligations;

            (f) the pledge effected hereby is effective to vest in the
      Administrative Agent, on behalf of the Secured Parties, the rights of the
      Administrative Agent in the Collateral as set forth herein;

            (g) all of the Pledged Stock has been duly authorized and validly
      issued and is fully paid and nonassessable;

            (h) all information set forth herein relating to the Pledged Stock
      is accurate and complete in all material respects as of the date hereof;
      and

            (i) the pledge of the Pledged Stock pursuant to this Agreement does
      not violate Regulation T, U or X of the Federal Reserve Board or any
      successor thereto as of the date hereof.
<PAGE>   4
                                                                               4

      SECTION 4. Registration in Nominee Name; Denominations. The Administrative
Agent, on behalf of the Secured Parties, shall have the right (in its sole and
absolute discretion) to hold the Pledged Securities in its own name as pledgee,
the name of its nominee (as pledgee or as sub-agent) or the name of the
Pledgors, endorsed or assigned in blank or in favor of the Administrative Agent.
Each Pledgor will promptly give to the Administrative Agent copies of any
notices or other communications received by it with respect to Pledged
Securities registered in the name of such Pledgor. The Administrative Agent
shall at all times have the right to exchange the certificates representing
Pledged Securities for certificates of smaller or larger denominations for any
purpose consistent with this Agreement.

      SECTION 5. Voting Rights; Dividends and Interest, etc. (a) Unless and
until an Event of Default shall have occurred and be continuing:

            (i) Each Pledgor shall be entitled to exercise any and all voting
      and/or other consensual rights and powers inuring to an owner of Pledged
      Securities or any part thereof for any purpose consistent with the terms
      of this Agreement, the Credit Agreement and the other Loan Documents;
      provided, however, that such Pledgor will not be entitled to exercise any
      such right if the result thereof could materially and adversely affect the
      rights inuring to a holder of the Pledged Securities or the rights and
      remedies of any of the Secured Parties under this Agreement or the Credit
      Agreement or any other Loan Document or the ability of the Secured Parties
      to exercise the same.

            (ii) The Administrative Agent shall execute and deliver to each
      Pledgor, or cause to be executed and delivered to each Pledgor, all such
      proxies, powers of attorney and other instruments as such Pledgor may
      reasonably request for the purpose of enabling such Pledgor to exercise
      the voting and/or consensual rights and powers it is entitled to exercise
      pursuant to subparagraph (i) above and to receive the cash dividends it is
      entitled to receive pursuant to subparagraph (iii) below.

            (iii) Each Pledgor shall be entitled to receive and retain any and
      all cash dividends, interest and principal paid on the Pledged Securities
      to the extent and only to the extent that such cash dividends, interest
      and principal are permitted by, and otherwise paid in accordance with, the
      terms and conditions of the Credit Agreement, the other Loan Documents and
      applicable laws. All noncash dividends, interest and principal, and all
      dividends, interest and principal paid or payable in cash or otherwise in
      connection with a partial or total liquidation or dissolution, return of
      capital, capital surplus or paid-in surplus, and all other distributions
      (other than distributions referred to in the preceding sentence) made on
      or in respect of the Pledged Securities, whether paid or payable in cash
      or otherwise, whether resulting from a subdivision, combination or
      reclassification of the outstanding capital stock of the issuer of any
      Pledged Securities or received in exchange for Pledged Securities or any
      part thereof, or in redemption thereof, or as a result of any merger,
      consolidation, acquisition or other exchange of assets to which such
      issuer may be a party or otherwise, shall be and become part of the
      Collateral, and, if received by any Pledgor, shall not be commingled by
      such Pledgor with any of its other funds or property but shall be held
      separate and apart therefrom, shall be held in trust for the benefit of
      the Administrative Agent and shall be forthwith delivered to the
      Administrative Agent in the same form as so received (with any necessary
      endorsement).

      (b) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to dividends, interest or principal that such Pledgor
is authorized to receive pursuant to paragraph (a)(iii) above shall cease, and
all such rights shall thereupon become
<PAGE>   5
                                                                               5

vested in the Administrative Agent, which shall have the sole and exclusive
right and authority to receive and retain such dividends, interest or principal.
All dividends, interest or principal received by the Pledgor contrary to the
provisions of this Section 5 shall be held in trust for the benefit of the
Administrative Agent, shall be segregated from other property or funds of such
Pledgor and shall be forthwith delivered to the Administrative Agent upon demand
in the same form as so received (with any necessary endorsement). Any and all
money and other property paid over to or received by the Administrative Agent
pursuant to the provisions of this paragraph (b) shall be retained by the
Administrative Agent in an account to be established by the Administrative Agent
upon receipt of such money or other property and shall be applied in accordance
with the provisions of Section 7. After all Events of Default have been cured or
waived, the Administrative Agent shall, within five Business Days after all such
Events of Default have been cured or waived, repay to each Pledgor all cash
dividends, interest or principal (without interest), that such Pledgor would
otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii)
above and which remain in such account.

      (c) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to exercise the voting and consensual rights and
powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section
5, and the obligations of the Administrative Agent under paragraph (a)(ii) of
this Section 5, shall cease, and all such rights shall thereupon become vested
in the Administrative Agent, which shall have the sole and exclusive right and
authority to exercise such voting and consensual rights and powers, provided
that unless otherwise directed by the Required Lenders, the Administrative Agent
shall have the right from time to time following and during the continuance of
an Event of Default to permit the Pledgors to exercise such rights. After all
Events of Default have been cured or waived, such Pledgor will have the right to
exercise the voting and consensual rights and powers that it would otherwise be
entitled to exercise pursuant to the terms of paragraph (a)(i) above.

      SECTION 6. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Administrative Agent may sell the Collateral, or any part
thereof, at public or private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the Administrative
Agent shall deem appropriate. The Administrative Agent shall be authorized at
any such sale (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to Persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such sale
the Administrative Agent shall have the right to assign, transfer and deliver to
the purchaser or purchasers thereof the Collateral so sold. Each such purchaser
at any such sale shall hold the property sold absolutely free from any claim or
right on the part of any Pledgor, and, to the extent permitted by applicable
law, the Pledgors hereby waive all rights of redemption, stay, valuation and
appraisal any Pledgor now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted.

      The Administrative Agent shall give a Pledgor 10 days' prior written
notice (which each Pledgor agrees is reasonable notice within the meaning of
Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New
York or its equivalent in other jurisdictions) of the Administrative Agent's
intention to make any sale of such Pledgor's Collateral. Such notice, in the
case of a public sale, shall state the time and place for such sale and, in the
case of a sale at a broker's board or on a securities exchange, shall state the
board or exchange at which such sale is to be made and the day on which the
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be
<PAGE>   6
                                                                               6

held at such time or times within ordinary business hours and at such place or
places as the Administrative Agent may fix and state in the notice of such sale.
At any such sale, the Collateral, or portion thereof, to be sold may be sold in
one lot as an entirety or in separate parcels, as the Administrative Agent may
(in its sole and absolute discretion) determine. The Administrative Agent shall
not be obligated to make any sale of any Collateral if it shall determine not to
do so, regardless of the fact that notice of sale of such Collateral shall have
been given. The Administrative Agent may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Administrative Agent until the sale price is paid in full by the purchaser or
purchasers thereof, but the Administrative Agent shall not incur any liability
in case any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may be sold
again upon like notice. At any public (or, to the extent permitted by applicable
law, private) sale made pursuant to this Section 6, any Secured Party may bid
for or purchase, free from any right of redemption, stay or appraisal on the
part of any Pledgor (all said rights being also hereby waived and released), the
Collateral or any part thereof offered for sale and may make payment on account
thereof by using any claim then due and payable to it from such Pledgor as a
credit against the purchase price, and it may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to such Pledgor therefor. For purposes hereof, (a) a written agreement to
purchase the Collateral or any portion thereof shall be treated as a sale
thereof, (b) the Administrative Agent shall be free to carry out such sale
pursuant to such agreement and (c) such Pledgor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding
the fact that after the Administrative Agent shall have entered into such an
agreement all Events of Default shall have been remedied and the Obligations
paid in full. As an alternative to exercising the power of sale herein conferred
upon it, the Administrative Agent may proceed by a suit or suits at law or in
equity to foreclose upon the Collateral and to sell the Collateral or any
portion thereof pursuant to a judgment or decree of a court or courts having
competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver. Any sale pursuant to the provisions of this Section 6 shall be deemed
to conform to the commercially reasonable standards as provided in Section
9-504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions.

       SECTION 7. Application of Proceeds of Sale. The proceeds of any sale of
Collateral pursuant to Section 6, as well as any Collateral consisting of cash,
shall be applied by the Administrative Agent as follows:

            FIRST, to the payment of all costs and expenses incurred by the
      Administrative Agent in connection with such sale or otherwise in
      connection with this Agreement, any other Loan Document or any of the
      Obligations, including all court costs and the reasonable fees and
      expenses of its agents and legal counsel, the repayment of all advances
      made by the Administrative Agent hereunder or under any other Loan
      Document on behalf of any Pledgor and any other costs or expenses incurred
      in connection with the exercise of any right or remedy hereunder or under
      any other Loan Document;

            SECOND, to the payment in full of the Obligations (the amounts so
      applied to be distributed among the Secured Parties pro rata in accordance
      with the amounts of the Obligations owed to them on the date of any such
      distribution); and
<PAGE>   7
                                                                               7

            THIRD, to the Pledgors, their successors or assigns, or as a court
      of competent jurisdiction may otherwise direct.

      The Administrative Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Administrative Agent
(including pursuant to a power of sale granted by statute or under a judicial
proceeding), the receipt of the purchase money by the Administrative Agent or of
the officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Administrative Agent or such officer or be answerable in any way for
the misapplication thereof.

      SECTION 8. Reimbursement of Administrative Agent. (a) Each Pledgor agrees
to pay upon demand to the Administrative Agent the amount of any and all
reasonable expenses, including the reasonable fees, other charges and
disbursements of its counsel and of any experts or agents, that the
Administrative Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Administrative Agent hereunder or (iv)
the failure by such Pledgor to perform or observe any of the provisions hereof.

      (b) Without limitation of its indemnification obligations under the other
Loan Documents, each Pledgor agrees to indemnify the Administrative Agent and
the Indemnitees (as defined in Section 9.03(b) of the Credit Agreement) against,
and hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, other
charges and disbursements, incurred by or asserted against any Indenmitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties hereto
of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or (ii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such Indemnitee.

      (c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8 shall remain operative and in full force and effect regardless
of the termination of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Obligations, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document or any investigation made by or on behalf of the Administrative Agent
or any other Secured Party. All amounts due under this Section 8 shall be
payable on written demand therefor and shall bear interest at the rate specified
in Section 2.13(c)(ii) of the Credit Agreement.

      SECTION 9. Administrative Agent Appointed Attorney-in-Fact. Each Pledgor
hereby appoints the Administrative Agent the attorney-in-fact of such Pledgor
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Administrative Agent may deem
necessary or advisable to accomplish the purposes hereof, which appointment is
irrevocable and coupled with an interest. Without
<PAGE>   8
                                                                               8

limiting the generality of the foregoing, the Administrative Agent shall have
the right, upon the occurrence and during the continuance of an Event of
Default, with full power of substitution either in the Administrative Agent's
name or in the name of such Pledgor, to ask for, demand, sue for, collect,
receive and give acquittance for any and all moneys due or to become due under
and by virtue of any Collateral, to endorse checks, drafts, orders and other
instruments for the payment of money payable to the Pledgor representing any
interest or dividend or other distribution payable in respect of the Collateral
or any part thereof or on account thereof and to give full discharge for the
same, to settle, compromise, prosecute or defend any action, claim or proceeding
with respect thereto, and to sell, assign, endorse, pledge, transfer and to make
any agreement respecting, or otherwise deal with, the same; provided, however,
that nothing herein contained shall be construed as requiring or obligating the
Administrative Agent to make any commitment or to make any inquiry as to the
nature or sufficiency of any payment received by the Administrative Agent, or to
present or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby. The Administrative Agent and the other
Secured Parties shall be accountable only for amounts actually received as a
result of the exercise of the powers granted to them herein, and neither they
nor their officers, directors, employees or agents shall be responsible to any
Pledgor for any act or failure to act hereunder, except for their own gross
negligence or wilful misconduct.

      SECTION 10. Waivers: Amendment. (a) No failure or delay of the
Administrative Agent in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Administrative Agent
hereunder and of the other Secured Parties under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provisions of this Agreement or consent to any
departure by any Pledgor therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on any Pledgor in any case shall entitle such Pledgor
to any other or further notice or demand in similar or other circumstances.

      (b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Administrative Agent and the Pledgor or Pledgors with respect to which such
waiver, amendment or modification is to apply, with the prior written consent of
the Required Lenders (and such other consent as may be required by Section 9.02
of the Credit Agreement).

      SECTION 11. Securities Act, etc. In view of the position of the Pledgors
in relation to the Pledged Securities, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the "Federal Securities Laws") with respect to any
disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Administrative Agent if the Administrative
Agent were to attempt to dispose of all or any part of the Pledged Securities,
and might also limit the extent to which or the manner in which any subsequent
transferee of any Pledged Securities could dispose of the same. Similarly, there
may be other legal restrictions or limitations affecting the Administrative
Agent in any attempt to dispose of all or part of the Pledged Securities under
applicable "blue
<PAGE>   9
                                                                               9

sky" or other state securities laws or similar laws analogous in purpose or
effect. Each Pledgor recognizes that in light of such restrictions and
limitations the Administrative Agent may, with respect to any sale of the
Pledged Securities, limit the purchasers to those who will agree, among other
things, to acquire such Pledged Securities for their own account, for
investment, and not with a view to the distribution or resale thereof. Each
Pledgor acknowledges and agrees that in light of such restrictions and
limitations, the Administrative Agent, in its sole and absolute discretion, (a)
may proceed to make such a sale whether or not a registration statement for the
purpose of registering such Pledged Securities or part thereof shall have been
filed under the Federal Securities Laws and (b) may approach and negotiate with
a single potential purchaser to effect such sale. Each Pledgor acknowledges and
agrees that any such sale might result in prices and other terms less favorable
to the seller than if such sale were a public sale without such restrictions. In
the event of any such sale, the Administrative Agent shall incur no
responsibility or liability for selling all or any part of the Pledged
Securities at a price that the Administrative Agent, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid or
if more than a single purchaser were approached. The provisions of this Section
11 will apply notwithstanding the existence of a public or private market upon
which the quotations or sales prices may exceed substantially the price at which
the Administrative Agent sells.

      SECTION 12. Registration, etc. Each Pledgor agrees that, upon the
occurrence and during the continuance of an Event of Default hereunder, if for
any reason the Administrative Agent desires to sell any of the Pledged
Securities of the Parent Borrower at a public sale, it will, at any time and
from time to time, upon the written request of the Administrative Agent, use its
best efforts to take or to cause the issuer of such Pledged Securities to take
such action and prepare, distribute and/or file such documents, as are required
or advisable in the reasonable opinion of counsel for the Administrative Agent
to permit the public sale of such Pledged Securities. Each Pledgor further
agrees to indemnify, defend and hold harmless the Administrative Agent, each
other Secured Party, any underwriter and their respective officers, directors,
affiliates and controlling Persons from and against all loss, liability,
expenses, costs of counsel (including, without limitation, reasonable fees and
expenses to the Administrative Agent of legal counsel), and claims (including
the costs of investigation) that they may incur insofar as such loss, liability,
expense or claim arises out of or is based upon any alleged untrue statement of
a material fact contained in any prospectus (or any amendment or supplement
thereto) or in any notification or offering circular, or arises out of or is
based upon any alleged omission to state a material fact required to be stated
therein or necessary to make the statements in any thereof not misleading,
except insofar as the same may have been caused by any untrue statement or
omission based upon information furnished in writing to such Pledgor or the
issuer of such Pledged Securities by the Administrative Agent or any other
Secured Party expressly for use therein. Each Pledgor further agrees, upon such
written request referred to above, to use its best efforts to qualify, file or
register, or cause the issuer of such Pledged Securities to qualify, file or
register, any of the Pledged Securities under the "blue sky" or other securities
laws of such states as may be requested by the Administrative Agent and keep
effective, or cause to be kept effective, all such qualifications, filings or
registrations. Each Pledgor will bear all costs and expenses of carrying out its
obligations under this Section 12. Each Pledgor acknowledges that there is no
adequate remedy at law for failure by it to comply with the provisions of this
Section 12 and that such failure would not be adequately compensable in damages,
and therefore agrees that its agreements contained in this Section 12 may be
specifically enforced.

      SECTION 13. Security Interest Absolute. All rights of the Administrative
Agent hereunder, the grant of a security interest in the Collateral and all
obligations of each Pledgor
<PAGE>   10
                                                                              10

hereunder, shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document, any
agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement or instrument
relating to any of the foregoing, (c) any exchange, release or nonperfection of
any other collateral, or any release or amendment or waiver of or consent to or
departure from any guaranty, for all or any of the Obligations or (d) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, any Pledgor in respect of the Obligations or in respect of this
Agreement (other than the indefeasible payment in full of all the Obligations).

      SECTION 14. Termination or Release. (a) This Agreement and the security
interests granted hereby shall terminate when all the Obligations (other than
any right to indemnification of any Secured Party with respect to any matter in
respect of which no claim has been asserted and is outstanding) have been
indefeasibly paid in full and the Lenders have no further commitment to lend
under the Credit Agreement, the LC Exposure has been reduced to zero and the
Issuing Bank has no further obligation to issue Letters of Credit under the
Credit Agreement.

      (b) Upon any sale or other transfer by any Pledgor of any Collateral that
is permitted under the Credit Agreement to any Person that is not a Pledgor, or,
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to Section 9.02(b) of the
Credit Agreement, the security interest in such Collateral shall be
automatically released.

      (c) In connection with any termination or release pursuant to paragraph
(a) or (b), the Administrative Agent shall execute and deliver to any Pledgor,
at such Pledgor's expense, all documents that such Pledgor shall reasonably
request to evidence such termination or release. Any execution and delivery of
documents pursuant to this Section 14 shall be without recourse to or warranty
by the Administrative Agent.

      SECTION 15. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to any Subsidiary Pledgor shall be given to
it in care of the Parent Borrower.

      SECTION 16. Further Assurances. Each Pledgor agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Administrative Agent may at any
time reasonably request in connection with the administration and enforcement of
this Agreement or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Administrative Agent its rights and
remedies hereunder.

      SECTION 17. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any Pledgor that are contained in
this Agreement shall bind and inure to the benefit of its successors and
assigns. This Agreement shall become effective as to any Pledgor when a
counterpart hereof executed on behalf of such Pledgor shall have been delivered
to the Administrative Agent and a counterpart hereof shall have been executed on
behalf of the Administrative Agent, and thereafter shall be binding upon such
Pledgor and the
<PAGE>   11
                                                                              11

Administrative Agent and their respective successors and assigns, and shall
inure to the benefit of such Pledgor, the Administrative Agent and the other
Secured Parties, and their respective successors and assigns, except that no
Pledgor shall have the right to assign its rights hereunder or any interest
herein or in the Collateral (and any such attempted assignment shall be void),
except as expressly contemplated by this Agreement or the other Loan Documents.
If all of the capital stock of a Pledgor is sold, transferred or otherwise
disposed of to a Person that is not an Affiliate of the Parent Borrower pursuant
to a transaction permitted by Section 6.05 of the Credit Agreement, such Pledgor
shall be released from its obligations under this Agreement without further
action. This Agreement shall be construed as a separate agreement with respect
to each Pledgor and may be amended, modified, supplemented, waived or released
with respect to any Pledgor without the approval of any other Pledgor and
without affecting the obligations of any other Pledgor hereunder.

      SECTION 18. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by each Pledgor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Administrative Agent and the other Secured Parties
and shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect as long as all the Obligations have not been indefeasibly paid in full or
the LC Exposure does not equal zero and as long as the Commitments have not been
terminated.

      (b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.

      SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

      SECTION 20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute a single contract, and shall become effective
as provided in Section 17. Delivery of an executed counterpart of a signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.

      SECTION 21. Rules of Interpretation. The rules of interpretation specified
in Section 1.03 of the Credit Agreement shall be applicable to this Agreement.
Section headings used herein are for convenience of reference only, are not part
of this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting this Agreement.

      SECTION 22. Jurisdiction; Consent to Service of Process. (a) Each Pledgor
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or Federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof; in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for
<PAGE>   12
                                                                              12

recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that, to the extent permitted by
applicable law, all claims in respect of any such action or proceeding may be
heard and determined in such New York State or, to the extent permitted by law,
in such Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Agreement shall affect any right that the Administrative
Agent or any other Secured Party may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against any
Pledgor or its properties in the courts of any jurisdiction.

      (b) Each Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.

      (c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 15. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.

      SECTION 23. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTAT1VE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

      SECTION 24. Additional Pledgors. Pursuant to Section 5.12 of the Credit
Agreement, each Subsidiary of the Parent Borrower that was not in existence or
not a Subsidiary on the date of the Credit Agreement is or may be required (if
and to the extent set forth in the Credit Agreement) to enter in this Agreement
as a Subsidiary Pledgor upon becoming a Subsidiary if such Subsidiary owns or
possesses property of a type that would be considered Collateral hereunder. Upon
execution and delivery by the Administrative Agent and a Subsidiary of an
instrument in the form of Annex 1, such Subsidiary shall become a Subsidiary
Pledgor hereunder with the same force and effect as if originally named as a
Subsidiary Pledgor herein. The execution and delivery of such instrument shall
not require the consent of any Pledgor hereunder. The rights and obligations of
each Pledgor hereunder shall remain in full force and effect notwithstanding the
addition of any new Subsidiary Pledgor as a party to this Agreement.

      SECTION 25. Execution of Financing Statements. Pursuant to Section 9-402
of the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions, each Pledgor authorizes the Administrative
Agent to file financing statements with respect to the Collateral owned by it
without the signature of such Pledgor in such form and in such filing offices as
the Administrative Agent reasonably determines appropriate to
<PAGE>   13
                                                                              13

perfect the security interests of the Administrative Agent under this Agreement.
A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement for filing in any jurisdiction.
<PAGE>   14

      IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.

                                        KNOWLES ELECTRONICS, INC.,

                                        by /s/ Reg G. Garratt
                                          --------------------------------------
                                          Name:
                                          Title: CHM/CEO

                                        THE SUBSIDIARY PLEDGORS LISTED
                                        ON SCHEDULE I HERETO,

                                        by /s/ Reg G. Garratt
                                          --------------------------------------
                                          Name:
                                          Title: Authorized Officer

                                        THE CHASE MANHATTAN BANK, as
                                        Administrative Agent,

                                        by______________________________________
                                          Name:
                                          Title:
<PAGE>   15

      IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.

                                        KNOWLES ELECTRONICS, INC.,

                                        by
                                          --------------------------------------
                                          Name:
                                          Title:

                                        THE SUBSIDIARY PLEDGORS LISTED
                                        ON SCHEDULE I HERETO,

                                        by
                                          --------------------------------------
                                          Name:
                                          Title: Authorized Officer

                                        THE CHASE MANHATTAN BANK, as
                                        Administrative Agent,

                                        by /s/ D. Davey
                                          --------------------------------------
                                          Name:  Deborah Davey
                                          Title: Vice President
<PAGE>   16

                                                               Schedule I to the
                                                                Pledge Agreement

                               Subsidiary Pledgors

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
               Guarantor                              Address
               ---------                              -------
--------------------------------------------------------------------------------
<S>                                     <C>
Knowles Intermediate Holding, Inc.      1151 Maplewood Drive
                                        Itasca, IL 60143
--------------------------------------------------------------------------------
Emkay Innovative Products, Inc.         1151 Maplewood Drive
                                        Itasca, IL 60143
--------------------------------------------------------------------------------
Knowles Manufacturing Ltd.              1151 Maplewood Drive
                                        Itasca, IL 60143
--------------------------------------------------------------------------------
Synchro-Start Products, Inc.            6250 West Howard Street
                                        Niles, IL 60714
--------------------------------------------------------------------------------
</TABLE>
<PAGE>   17

                                                              Schedule II to the
                                                                Pledge Agreement

Items marked with an asterisk are those being pledged pursuant to this Pledge
Agreement.

                                Equity Interests

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                                                                              Percentage
                             Number of        Registered          Number of    of Equity
          Issuer            Certificate        Owner(4)            Shares      Interests
          ------            -----------        --------            ------      ---------
----------------------------------------------------------------------------------------
<S>                              <C>       <C>                  <C>           <C>
Gennum Corporation(5)                --    Knowles                   90            --
                                           Electronics, Inc.
----------------------------------------------------------------------------------------
*Knowles Intermediate                 1    Knowles                1,000           100%
Holding, Inc.                              Electronics, Inc.
----------------------------------------------------------------------------------------
*Knowles Electronics                  1    Knowles                    1           100%
B.V.I. Ltd.                                Electronics, Inc.
----------------------------------------------------------------------------------------
*Knowles Electronics              A-001    Knowles                  100           100%
Japan, K.K. ("KEJ")               B-001    Electronics, Inc.        100
----------------------------------------------------------------------------------------
* Knowles Electronics                 1    Knowles                    9           100%
(Malaysia) Sdn. Bhd.                  3    Electronics, Inc.          1
("KEM")
----------------------------------------------------------------------------------------
Knowles Electronics                  --    Knowles                   --           100%
Suzhou Co. Ltd. ("KES")(6)                 Electronics, Inc.
----------------------------------------------------------------------------------------
*Knowles Electronics              No. 1    Knowles               52,993       99.9984%
Taiwan, Ltd. ("KET")              No. 9    Electronics, Inc.      6,000
                                 No. 10                         138,858
                                 No. 11                          25,000
                                 No. 13                           4,237
                                 No. 14                         180,840
                                 No. 15                          57,731
----------------------------------------------------------------------------------------
</TABLE>

----------

(4) Prior to, on, or as soon as possible after the Effective Date, Knowles
Electronics, Inc. shall contribute all of its stock in its Subsidiaries to
Knowles Intermediate Holding, Inc.

(5) Gennum Corporation is a Canadian corporation listed on the Toronto Stock
Exchange.

(6) Pledgor's contribution to the issuer's registered capital is $1,750,000.
<PAGE>   18

<TABLE>
----------------------------------------------------------------------------------------
<S>                              <C>       <C>                  <C>           <C>
Knowles Electronics                  --    Knowles                   --           100%
Trading (Shanghai) Co.                     Electronics, Inc.
Ltd.(7)
----------------------------------------------------------------------------------------
* Knowles Manufacturing               1    Knowles                1,000           100%
Ltd. ("KML")                               Electronics, Inc.
----------------------------------------------------------------------------------------
*Emkay Innovative                     1    Knowles                  100           100%
Products, Inc.                             Electronics, Inc.
----------------------------------------------------------------------------------------
Ruf                                 N/A    Knowles                  N/A           100%
                                           Electronics, Inc.
----------------------------------------------------------------------------------------
*Synchro-Start Products,              1    Knowles                2,000           100%
Inc. ("SSPI")                              Electronics, Inc.
----------------------------------------------------------------------------------------
*Synchro-Start Products               1    SSPI                       1           100%
Europe Limited                        2                         199,999
----------------------------------------------------------------------------------------
*Knowles Europe                     N/A    KML                      N/A           100%
----------------------------------------------------------------------------------------
</TABLE>

                                 Debt Securities

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
       Holder              Issuer          Principal      Date of      Maturity Date
       ------              ------          ---------      -------      -------------
                                             Amount        Note
                                             ------        ----
---------------------------------------------------------------------------------------
<S>                  <C>                  <C>              <C>         <C>
*Knowles             Wilbrecht            $200,000         11/20/96    11/20/00
Electronics, Inc.    Electronics, Inc.
---------------------------------------------------------------------------------------
**
---------------------------------------------------------------------------------------
*Knowles             Ruwido               $883,620.90      11/24/98    Upon 30 days
Electronics, Inc.                                                      notice by either
                                                                       party
---------------------------------------------------------------------------------------
*KML                 Knowles Europe       $3 million       12/31/98    12/31/01
---------------------------------------------------------------------------------------
</TABLE>

----------
(7) Pledgor's contribution to the issuer's registered capital is $200,000.

**

(9) The loan may mature earlier pursuant to the terms of the agreement-this is
the latest possible maturity date.

** Confidential Information omitted and filed separately with the Securities and
   Exchange Commission.
<PAGE>   19

--------------------------------------------------------------------------------
See Intercompany Loan Agreements and Intercompany Advances disclosed on Schedule
6.01 to the Credit Agreement
--------------------------------------------------------------------------------
<PAGE>   20

<PAGE>   21

                                                                  Annex 1 to the
                                                                Pledge Agreement

                              SUPPLEMENT NO.  dated as of  , to the Pledge
                        Agreement dated as of June 30, 1999, among KNOWLES
                        ELECTRONICS, INC., a Delaware corporation (the "Parent
                        Borrower"), each Subsidiary of the Parent Borrower
                        listed on Schedule I hereto (each such Subsidiary
                        individually a "Subsidiary Pledgor" and collectively,
                        the "Subsidiary Pledgors"; the Parent Borrower and the
                        Subsidiary Pledgors are referred to collectively herein
                        as the "Pledgors") and THE CHASE MANHATTAN BANK, a New
                        York banking corporation ("Chase"), as administrative
                        agent (in such capacity, the "Administrative Agent") for
                        the Secured Parties (as defined in the Credit Agreement
                        referred to below).

      A. Reference is made to (a) the Credit Agreement dated as of June 28, 1999
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the lenders from time to time party thereto
(the "Lenders"), Chase, as Administrative Agent, Swingline Lender and as issuing
bank (in such capacity, the "Issuing Bank"), and Morgan Stanley Senior Funding,
Inc., as Syndication Agent, (b) the Parent Guarantee Agreement dated as of June
30, 1999 (as amended, supplemented or otherwise modified from time to time, the
"Parent Guarantee Agreement"), between the Parent Borrower and the
Administrative Agent and (c) the Subsidiary Guarantee Agreement dated as of June
30, 1999 (as amended, supplemented or otherwise modified from time to time, the
"Subsidiary Guarantee Agreement"; and, collectively with the Parent Guarantee
Agreement, the "Guarantee Agreements"), among the Subsidiary Pledgors and the
Administrative Agent.

      B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement.

      C. The Pledgors have entered into the Pledge Agreement in order to induce
the Lenders to make Loans and the Issuing Bank to issue Letters of Credit.
Pursuant to Section 5.12 of the Credit Agreement, each Subsidiary of the Parent
Borrower that was not in existence or not a Subsidiary on the date of the Credit
Agreement is required to enter into the Pledge Agreement as a Subsidiary Pledgor
upon becoming a Subsidiary if such Subsidiary owns or possesses property of a
type that would be considered Collateral under the Pledge Agreement. Section 24
of the Pledge Agreement provides that such Subsidiaries may become Subsidiary
Pledgors under the Pledge Agreement by execution and delivery of an instrument
in the form of this Supplement. The undersigned Subsidiary (the "New Pledgor")
is executing this Supplement in accordance with the requirements of the Credit
Agreement to become a Subsidiary Pledgor under the Pledge Agreement in order to
induce the Lenders to make additional Loans and the Issuing Bank to issue
additional Letters of Credit and as consideration for Loans previously made and
Letters of Credit previously issued.

      Accordingly, the Administrative Agent and the New Pledgor agree as
follows:

      SECTION 1. In accordance with Section 24 of the Pledge Agreement, the New
Pledgor by its signature below becomes a Pledgor under the Pledge Agreement with
the same force and effect as if originally named therein as a Pledgor and the
New Pledgor hereby agrees (a) to all the terms and provisions of the Pledge
Agreement applicable to it as a Pledgor thereunder and (b) represents and
warrants that the representations and warranties made by it as a Pledgor
thereunder are true and correct on and as of the date hereof. In furtherance of
the foregoing, the New Pledgor, as security for the payment and performance in
full of the Obligations (as defined in the Pledge Agreement), does hereby create
and grant to the Administrative Agent, its successors and assigns, for the
benefit of the Secured Parties, their
<PAGE>   22
                                                                               2

successors and assigns, a security interest in and lien on all of the New
Pledgor's right, title and interest in and to the Collateral (as defined in the
Pledge Agreement) of the New Pledgor. Each reference to a "Subsidiary Pledgor"
or a "Pledgor" in the Pledge Agreement shall be deemed to include the New
Pledgor. The Pledge Agreement is hereby incorporated herein by reference.

      SECTION 2. The New Pledgor represents and warrants to the Administrative
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.

      SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Administrative Agent shall have received counterparts of this Supplement that,
when taken together, bear the signatures of the New Pledgor and the
Administrative Agent. Delivery of an executed signature page to this Supplement
by facsimile transmission shall be as effective as delivery of a manually signed
counterpart of this Supplement.

      SECTION 4. The New Pledgor hereby represents and warrants that set forth
on Schedule I attached hereto is a true and correct schedule of all its Pledged
Securities.

      SECTION 5. Except as expressly supplemented hereby, the Pledge Agreement
shall remain in full force and effect.

      SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

      SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Pledge Agreement shall not in any way be affected or impaired.
The parties hereto shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

      SECTION 8. All communications and notices hereunder shall be in writing
and given as provided in Section 15 of the Pledge Agreement. All communications
and notices hereunder to the New Pledgor shall be given to it in care of the
Parent Borrower.

      SECTION 9. The New Pledgor agrees to reimburse the Administrative Agent
for its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Administrative Agent.

      IN WITNESS WHEREOF, the New Pledgor and the Administrative Agent have duly
executed this Supplement to the Pledge Agreement as of the day and year first
above written.

                              [Name of New Pledgor],
<PAGE>   23
                                                                               3

                                       by
                                         ---------------------------------------
                                         Name:
                                         Title:
                                         Address:

                                    THE CHASE MANHATTAN BANK, as
                                    Administrative Agent,

                                       by
                                         ---------------------------------------
                                         Name:
                                         Title:
<PAGE>   24

                                                                   Schedule I to
                                                                  Supplement No.
                                                         to the Pledge Agreement

                      Pledged Securities of the New Pledgor

                                  CAPITAL STOCK
<TABLE>
<CAPTION>
          Number of      Registered     Number and          Percentage of
Issuer    Certificate    Owner          Class of Shares     Shares
------    -----------    -----          ---------------     ------
<S>       <C>            <C>            <C>                 <C>
</TABLE>

                                 DEBT SECURITIES
<TABLE>
<CAPTION>
                    Principal
Issuer              Amount              Date of Note        Maturity Date
------              ------              ------------        -------------
<S>                 <C>                 <C>                 <C>
</TABLE>

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