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                                                                   Exhibit 10.12

------Knowles.------------------------------------------------------------------
            ELECTRONICS, INC.
            1151 MAPLEWOOD DRIVE o ITASCA, ILLINOIS 60143 o USA

                                September 9, 1998

      Mr. Bernard J. Smith
      10 Torrin Rocks Cove
      Inverness, IL 60010

                  Re:   Special Severance Commitment

      Dear Bernie:

            In connection with the major corporate transaction being pursued on
      behalf of the Company and its stockholders by Lehman Brothers, Knowles
      Electronics, Inc. contractually commits to make special severance payments
      to you in the circumstances and on the conditions set forth below. You are
      a participant in the Company's Change-In-Control Severance Pay Plan (the
      "Plan"), and this letter agreement is in addition to and supplements the
      Plan. The capitalized words and phrases as used herein have the same
      meaning as such words and phrases have in the Plan.

            The special severance payments to be made to you hereunder are
      conditioned on (i) the Company or its stockholders entering into a
      definitive agreement (the "definitive agreement") providing for the sale
      or other complete disposition of the Company (excluding TFC) within two
      years of the date hereof, (ii) the closing of the transaction provided for
      in the definitive agreement, (iii) your continued employment with the
      Company to the closing, and (iv) your full cooperation and assistance in
      achieving the best possible transaction result.

            In the event either (a) you voluntarily terminate your employment
      with the Company, or your employment is terminated by reason of your
      disability, during the second year of your two-year Period of Protection
      or (b) your employment with the Company is involuntarily terminated by the
      Company without Cause, or your employment is terminated by reason of your
      disability, within one year after the expiration of your Period of
      Protection, the Company will make special severance payments to you as
      follows:

            (i)   You will continue to be compensated for one additional year
                  commencing on the date of termination of employment at the
                  rate of Annual Compensation you were paid for your services as
                  an employee of the Company during the one-year period ending
                  on the date of termination;

            (ii)  Your pension benefits (including the related SERP) will
                  continue to be accrued on your behalf under the Company's
                  qualified pension plan and related SERP if permitted under the
                  provisions of the plans, and if not, on a pro forma basis as a
                  contractual obligation of the Company, over the period you are
                  being compensated pursuant to (a) above; and

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TELEPHONES (630) 250-5100      FAX NO. (630) 250-0575
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      Mr. Bernard J. Smith
      September 9, 1998
      Page Two

            (iii) A lump sum payment will be made to you within thirty days of
                  the date of termination of employment in an amount equal to
                  the present value (determined as of said date on the basis of
                  a 5.5% per annum interest rate) of the projected cost of
                  medical insurance for you and your spouse comparable to the
                  medical insurance then being provided by the Company to you
                  and your spouse from the date of termination of employment to
                  your 65th birthday.

      Notwithstanding the foregoing, if your employment is terminated by reason
      of your disability at a time that one year of continued compensation will
      be payable to you in accordance with (i) above, such compensation shall be
      reduced by the amount of disability payments you receive for the one-year
      period from the Company's long-term disability plan and from the Social
      Security Administration.

            In the event you sustain a change in terms and conditions of your
      employment as described in Section 4.1 of the Plan during your Period of
      Protection under the Plan, the Company will pay you, as the special
      severance payments hereunder, the additional severance payments you would
      have received pursuant to Section 5.1 and Article VI of the Plan had your
      Period of Protection been three years rather than two years. You will not
      be entitled to any special severance payments pursuant to this paragraph
      if your employment is terminated by reason of your disability.

            In no event will you be entitled to any special severance payments
      pursuant to this letter agreement if your employment is terminated by
      death or for Cause.

            Please let me know Bernie if you have questions or comments
      regarding this special severance commitment or any other aspects of this
      letter agreement. If this letter agreement is acceptable from your
      standpoint, please so indicate by signing and returning the attached copy
      to me.

                                          Sincerely,

                                          KNOWLES ELECTRONICS, INC.


                                          By: /s/ Reg G. Garratt
                                              -------------------------------
                                                     Chairman and CEO

      Accepted this 14th day of
      September, 1998


      /s/ Bernard J. Smith
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          Bernard J. Smith