Document:

exv10w27

 

Exhibit 10.27

KNOWLES ELECTRONICS HOLDINGS, INC.

RETENTION INCENTIVE PLAN

ARTICLE I

ESTABLISHMENT AND PURPOSE

     Knowles Electronics Holdings, Inc., a Delaware corporation, hereby
establishes this Retention Incentive Plan for the benefit of certain of its
Employees, and those of its Affiliates. The purpose of the Plan is to provide
a group of key management Employees with a bonus program which provides such
Employees with an incentive to remain in the employ of the Employer.

ARTICLE II

DEFINITIONS

     The following words and phrases as used herein shall have the following
meanings, unless a different meaning is plainly required by the context.
Pronouns shall be interpreted so that the masculine pronoun shall include the
feminine and the singular shall include the plural:

     2.1 “Affiliate” means any corporation, organization, or entity which is
under common control with the Corporation or which is otherwise required to be
aggregated with the Corporation pursuant to paragraphs (b), (c), (m), or (o) of
Code Section 414.

     2.2 “Beneficiary” means the person who has been designated to receive a
Participant’s benefits under the Plan in the event of the Participant’s death,
as more fully described in Article X hereof.

     2.3 “Board” means the Board of Directors of the Corporation.

     2.4 “Code” means the Internal Revenue Code of 1986, as amended.

     2.5 “Committee” means the Compensation Committee of the Corporation which
is the administrative body responsible for the administration of the Plan.

     2.6 “Corporation” means Knowles Electronics Holdings, Inc., a Delaware
Corporation and any other business organization which succeeds to its business
and elects to continue the Plan.

     2.7 “Disability” means a Participant’s becoming disabled within the
meaning of Section 22(e)(3) of the code.

     2.8 “Distribution Event” means the occurrence of an event which results in
a Participant becoming entitled to payment of benefits from the Plan, as set
forth in Article VI.

 

 

     2.9 “Effective Date” means September 1, 2003.

     2.10 “Employee” means any person engaged by an Employer on or after the
Effective Date to perform personal services in an employer/employee
relationship who receives compensation from such Employer.

     2.11 “Employer” means the Corporation, and any corporation, organization,
or entity which is an Affiliate and (i) which adopts the Plan with the consent
of the Corporation; or (ii) which continues the Plan as a successor.

     2.12 “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor thereto.

     2.13 “Initial Public Offering” means an initial public offering and sale
of the Corporation’s equity securities pursuant to an effective registration
statement under the Securities Act of 1933, as amended.

     2.14 “Liquidity Event” means the occurrence of:

               (i) an Initial Public Offering; or

               (ii) the Sale of the Corporation.

     2.15 “Participant” means an Employee who has been selected for
participation in the Plan as set forth in Article III.

     2.16 “Participation Agreement” means the acknowledgment signed by each
Participant confirming his participation in the Plan pursuant to its terms.

     2.17 “Plan” means the Knowles Electronics Holdings, Inc., Retention
Incentive Plan as set forth herein, together with any amendments hereto.

     2.18 “Plan Year” means each twelve (12) month period beginning on
September 1st and ending on the following August 31st, commencing with
September 1, 2003 and ending August 31, 2008, on which basis the Plan is
administered.

     2.19 “Retention Bonus” means the bonus payable to each Participant
pursuant to Article VI.

     2.20 “Retention Bonus Percentage” means each Participant’s percentage
interest in the Retention Bonus Pool as communicated to such Participant.

     2.21 “Retention Bonus Pool” means the bookkeeping account established by
the Employer to record the amount of the Employer’s obligation to pay Retention
Bonuses under the Plan.

     2.22 “Retirement” means a Participant’s termination of employment with the
Employer while eligible for an early or normal retirement benefit under a
defined benefit pension plan sponsored by the Corporation or an Affiliate.

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     2.23 “Sale of the Corporation” means the sale of the Corporation other
than an Initital Public Offering in a single transaction or a series of related
transactions, to a purchaser who is not affiliated with the Corporation
pursuant to which such purchaser acquires all or substantially all of the
outstanding capital stock (whether by merger, consolidation, recapitalization,
reorganization, purchase of the outstanding capital stock or otherwise) or all
or substantially all of the consolidated assets of the Corporation.

     2.24 “Year of Vesting Service” means, unless specifically provided
otherwise in the award of a Retention Bonus Percentage to a particular
Employee, a 12-month period of employment with the Employer beginning on
September 1 of each of the years 2003, 2004, 2005, 2006 and 2007 and ending
August 31 of the following year.

ARTICLE III

PARTICIPATION AND AWARD OF RETENTION BONUS PERCENTAGE

     3.1 Participation. The Employees eligible to participate in the Plan
shall be selected by the Committee in its sole and absolute discretion. Each
Employee so selected shall be deemed a “Participant”. Each employee who is
selected to participate in the Plan shall be notified thereof by the Committee.
Each Participant shall commence to participate in the Plan as of the Effective
Date, unless specifically provided otherwise in the award of a Retention Bonus
Percentage to a particular Employee, but only upon signing his Participation
Agreement and the Confidentiality/Non-Competition/Non-Solicitation Agreement
attached hereto as Appendix A.

     3.2 Award of Retention Bonus Percentage. The Committee shall determine
each Participant’s Retention Bonus Percentage based upon guidelines established
by the Board, or as otherwise determined in the discretion of the Committee,
and shall notify each Participant of his Retention Bonus Percentage. The total
of the Retention Bonus Percentages awarded under the Plan may, or may not,
total one hundred percent (100%).

ARTICLE IV

BENEFITS UNDER THE PLAN

     4.1 Benefits. The benefit of each Participant under the Plan is equal to
the vested portion of such Participant’s Retention Bonus Percentage multiplied
by the value of the Retention Bonus Pool all as calculated as of the occurrence
of such Participant’s Distribution Event.

ARTICLE V

VESTING AND FORFEITURE OF RETENTION BONUSES

     5.1 Vesting. Subject to the limitations set forth in this Article V, a
Participant shall be entitled to receive only the vested portion of his
Retention Bonus Percentage in the Retention Bonus Pool as of the occurrence of
his Distribution Event. Such vested portion shall be computed on the basis of
the Participant’s whole Years of Vesting Service in accordance with the
following schedule:

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	 	 	Vested Portion of
	Full Years of Vesting	 	Retention Bonus
	Service
	 	Percentage

	Less than 1
	 	 	0	%
	1 but less than 2
	 	 	20	%
	2 but less than 3
	 	 	40	%
	3 but less than 4
	 	 	60	%
	4 but less than 5
	 	 	80	%
	5 or more
	 	 	100	%

     5.2 Termination of Employment by Employer Other Than for Misconduct or
Violation of Section 5.7. If a Participant’s employment with the Employer is
terminated by the Employer for a reason other than (i) the Participant’s
misconduct as described in Section 5.6 or, (ii) the Participant’s commission of
an act which violates Section 5.7, the Participant shall only be entitled to
receive the vested portion of his Retention Bonus Percentage of the Retention
Bonus Pool in effect on the date of such termination and he shall forfeit any
interest in the Retention Bonus Pool which is not vested on the date of such
termination.

     5.3 Other Termination of Employment. Upon the occurrence of an event
described in (i)-(iv) below, the Participant shall only be entitled to receive
the vested portion of his Retention Bonus Percentage of the Retention Bonus
Pool in effect on the date of the occurrence of such event, and he shall
forfeit any interest in the Retention Bonus Pool which is not vested on the
date of the occurrence of such event:

               (i) the Participant’s death;

               (ii) the Participant’s Retirement;

               (iii) the Participant’s Disability; and

               (iv) the termination of the Plan.

     5.4 Full Vesting. Notwithstanding the provisions of Sections 5.1, 5.2 and
5.3 and except as provided in Sections 5.5, 5.6 and 5.7, a Participant shall
become 100% vested in his Retention Bonus Percentage of the Retention Bonus
Pool upon the first to occur of (i) the occurrence of a Liquidity Event, or
(ii) August 31, 2008.

     5.5 Voluntary Termination of Employment by Participant. If a Participant
voluntarily terminates his employment with the Employer for a reason other than
Retirement, the Participant shall not be eligible to receive any benefits from
the Plan and shall forfeit all benefits under the Plan whether or not such
benefits are vested on the date of such termination.

     5.6 Forfeiture for Termination of Employment for Misconduct.
Notwithstanding the other provisions of the Plan, if a Participant’s employment
with the Employer is terminated by either the Participant or the Employer, and
the Committee determines, in its sole discretion, that said termination is as a
result of misconduct, including, but not limited to, (1) the Participant’s
embezzlement or misappropriation of funds of the Employer, or (2) the
commitment of an act of fraud or dishonesty by the Participant that results,
directly or indirectly, in material gain or

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personal enrichment of the Participant at the Employer’s expense, or (3)
the Participant engaging in a willful and intentional act which is materially
inimical to the best interests of the Employer, then the Participant shall not
be eligible to receive any benefits from the Plan and all of the Participant’s
rights under the Plan shall be forfeited and all of the Employer’s obligations
to the Participant under the Plan shall terminate and cease immediately and no
payments under the Plan shall be made to Participant.

     5.7 Forfeiture for Violation of
Confidentiality/Non-Competition/Non-Solicitation Agreement. Not withstanding
the other provisions of the Plan, if a Participant violates any provision of
the Confidentiality/Non-Competition/Non-Solicitation Agreement attached to the
Plan as Addendum A (or the provisions of any other agreement with the Employer
or policy of the Employer similar to the Agreement set forth on Addendum A), as
determined in the sole discretion of the Committee, then the Participant shall
not be eligible to receive any benefits from the Plan and all of the
Participant’s rights under the Plan shall be forfeited and all of the
Employer’s obligations to the Participant under the Plan shall terminate and
cease immediately and no payments under the Plan shall be made to Participant,
and the Employer shall have the right to recover from the Participant any
payment previously made to the Participant pursuant to the Plan.

ARTICLE VI

DISTRIBUTION EVENTS, DETERMINATION OF RETENTION

BONUS AMOUNTS, AND PAYMENT OF RETENTION BONUSES

     The distribution of benefits under the Plan shall be pursuant to the
provisions set forth in this ARTICLE VI.

     6.1 Distribution Events. A Distribution Event shall occur with respect
to one or more Participants upon the first to occur of the following:

     (i) the termination of the Participant’s employment with the
Employer for a reason set forth in Section 5.2;

     (ii) the Participant’s death;

     (iii) the Participant’s Retirement;

     (iv) the Participant’s Disability;

     (v) the occurrence of a Liquidity Event;

     (vi) the termination of the Plan; or

     (vii) August 31, 2008

     6.2 Retention Bonus. Upon the occurrence of a Distribution Event with
respect to a Participant, the Participant (or his beneficiary in the case of
the Participant’s death) shall be entitled to receive from the Employer an
amount equal to the vested portion of his Retention Bonus Percentage multiplied
by the value of the Retention Bonus Pool, all as calculated as of the
occurrence of such Distribution Event.

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     6.3 Payment of Retention Bonuses. All Retention Bonuses payable under the
Plan shall be paid to the Participant (or the Participant’s Beneficiary in the
case of the Participant’s death) in a single sum payment within thirty (30)
days of the occurrence of the Distribution Event giving rise to such payment,
or as soon as administratively feasible thereafter.

ARTICLE VII

RETENTION BONUS POOL

     7.1 Retention Bonus Pool. The value of the Retention Bonus Pool (before
any payments from said pool pursuant to the Plan) shall be Four Million Dollars
($4,000,000.00). The Retention Bonus of a Participant shall be equal to the
vested portion of the Participant’s Retention Bonus Percentage multiplied by
Four Million Dollars ($4,000,000.00).

     7.2 Funding from General Assets. All payments from the Plan shall be from
the general assets of the Participant’s Employer. To the extent that any
person acquires a right to receive a payment under the plan, such right shall
be no greater than the right of any unsecured general creditor of the
Participant’s Employer.

     7.3 Bookkeeping Account. The Committee shall establish and maintain a
bookkeeping account on the Employer’s records to record each Participant’s
potential interest in, and the activity of, the Retention Bonus Pool. The
establishment of this account is for the record keeping convenience of the
Employer. Such account shall not result in any amounts being made available to
a Participant or otherwise set aside for a Participant in a funded plan within
the meaning of Part 3 of Title I of ERISA, or otherwise.

     7.4 Trust. The Corporation, in its sole discretion, may establish a
grantor Trust for the purpose of setting aside amounts representing benefits
accrued under the Plan; provided, however, such amounts shall continue to
represent the general assets of the Employer and shall be subject to the claims
of the Employer’s general creditors.

ARTICLE VIII

PLAN ADMINISTRATION

     8.1 The Committee. This Plan shall be administered by the Committee in
accordance with such rules and regulations as the Committee may establish from
time to time, which are consistent with the provisions of this Plan.

     8.2 Authority of the Committee. The Committee shall have full power to
select Employees for participation in the Plan; to determine the Retention
Bonus Percentage to be awarded to each Participant; to construe and interpret
the Plan and any agreement or instrument entered into hereunder; to establish,
amend, or waive rules and regulations for the Plan’s administration and to
amend the Plan to the extent provided in Article IX. Further, the Committee
shall have full power to make any other determination which may be necessary or
advisable for the Plan’s administration.

     8.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive,
and binding on all persons, including Employees, Participants and their estates
and beneficiaries. All decisions of the Committee regarding the determination
of eligibility and entitlement to benefits under the Plan,

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the interpretation and administration of the Plan, the review of claims
under the Plan and any other decisions of the Committee in carrying out its
duties hereunder, shall be made in the absolute discretion of the Committee.

ARTICLE IX

AMENDMENT AND TERMINATION

     9.1 Amendment by Corporation. The Corporation hereby reserves the right
to amend, modify, and/or terminate the Plan at any time. However, no such
amendment or termination shall in any manner adversely affect any Participant’s
rights previously accrued under the Plan without the written consent of the
Participant.

     9.2 Amendment by Committee. In addition, the Committee, by a written
instrument duly executed by its members, may (i) make any amendment which may
be necessary or desirable to ensure any compliance of the Plan under the Code
or which may be necessary to comply with the requirements of any applicable law
or regulation, and (ii) may make any other amendment to the Plan which in the
Committee’s discretion is necessary or desirable to carry out the purposes of
the Plan, as long as the cost of such amendment to the Employer is not material
in the judgment of the Committee.

ARTICLE X

BENEFICIARY DESIGNATION

     10.1 Designation of Beneficiary. Each Participant shall be entitled to
designate a Beneficiary or Beneficiaries who, upon the Participant’s death,
will receive all amounts that otherwise would have been paid to the Participant
under the Plan. All designations shall be signed by the Participant, and shall
be on a form prescribed by the Committee. The Participant may change his or her
designation of beneficiary at any time, on a form prescribed by the Committee.
A designation of a Beneficiary will take effect only upon receipt thereof by
the Committee and shall automatically revoke all prior designations by that
Participant.

     10.2 Death of Beneficiary. In the event that all the Beneficiaries named
by a Participant pursuant to Section 10.1 predecease the Participant, then, on
the Participant’s death, any amounts due such Participant shall be paid to the
spouse to whom the Participant was married at the time of his death, if any,
otherwise to the estate of the Participant.

     10.3 Ineffective Designation. In the event a Participant does not
designate a Beneficiary, or for any reason such designation is ineffective in
whole or in part, any amounts due such Participant shall be paid to the spouse
to whom the Participant was married at the time of his death, if any, otherwise
to the estate of the Participant.

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ARTICLE XI

MISCELLANEOUS

     11.1 Unfunded Plan. This Plan is intended to be an unfunded bonus program
described in ERISA Reg. 2510.3-2(c) and therefore is intended to be exempt from
the provisions of Title I of ERISA.

     11.2 Costs of the Plan. All costs of implementing and administering the
Plan shall be borne by the Employer.

     11.3 Nontransferability. Participants’ rights under the Plan may not be
sold, transferred, assigned, or otherwise alienated or hypothecated, other than
by a valid or deemed beneficiary designation pursuant to Article X. In no
event shall the Employer make any payment under the Plan to any assignee or
creditor of a Participant or to any assignee or creditor of a Participant’s
Beneficiary.

     11.4 Successors. All obligations of the Employer under the Plan shall be
binding upon and inure to the benefit of any successor to the Employer, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Employer.

     11.5 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.

     11.6 Applicable Law. To the extent not preempted by Federal law, the Plan
shall be governed by and construed in accordance with the laws of the State of
Illinois.

     11.7 Adoption by Affiliates. The Employers adopting the Plan are
identified by their signatures hereon or on a separate adoption page attached
hereto. Any Employer may, with the approval of the Board, adopt the Plan as to
the whole of its business or as to any one or more divisions or classifications
of Employees as permitted by law by resolution of its board of directors. Such
Employer shall give written notice of such adoption to the Board.

     11.8 No Employment Contract. The establishment of the Plan, the creation
of any account, or the payment of any benefit does not create in any Employee,
Participant or other party a right to continuing employment with the Employer
or an Affiliate.

     11.9 Fiscal Records and Reports. The fiscal records of the Plan are to be
maintained on the basis of the Plan Year.

     11.10 Headings. The headings contained in the Plan are for reference
only, and they do not in any manner limit or expand the terms and provisions of
the Plan.

     11.11 No Vested Interest. Except for the right to receive any benefit
properly payable under the Plan, no person shall have any right, title or
interest in or to the assets of the Employer because of the Plan.

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     11.12 Limit on Liability. Nothing contained in the Plan shall impose on
the Employer, or any Board members, officers or employees of the Employer any
liability for the payment of benefits under this Plan other than liabilities
resulting from willful neglect or fraud. The liability of the Employer for
benefits shall be limited to the benefits provided under the Plan. Persons
entitled to benefits under the Plan shall look only to the Employer for
payment.

     11.13 Taxes. The Employer shall have the right to deduct from all
payments made pursuant to the Plan amounts sufficient to satisfy any Federal,
state, and local tax withholding requirements.

     11.14 Other Plans. Payments from the Plan shall be included in the
calculation of a Participant’s eligible compensation for purposes of other
employee benefit plans or programs of the Employer.

     IN WITNESS WHEREOF, Knowles Electronics Holdings, Inc., has caused this
Plan to be executed on its behalf and its seal to be hereunto affixed and
attested by its officers hereunto duly authorized, as of December 12, 2003.

	 	 	 	 	 
	 	 	KNOWLES ELECTRONICS HOLDINGS, INC.

 	 
	 	By:  	               /s/ John J. Zei
 	 
	 	 	John J. Zei
 	 
	 	 	President and CEO

ADOPTION BY AFFILIATE:

Adopted this 12th day of  December, 2003. 	 
	 

	 	 	 	 	 
	 	 	KNOWLES ELECTRONICS, LLC

 	 
	 	By:  	/s/ John J. Zei
 	 
	 	 	John J. Zei
 	 
	 	 	President and CEO 	 

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Knowles Electronics Holdings, Inc.

Retention Incentive Plan

Addendum A

Confidentiality/Non-Competition/Non-Solicitation Agreement

     As consideration for participation in the Knowles Electronics Holdings,
Inc. Retention Incentive Plan, the undersigned Employee agrees as follows:

     1. Confidentiality and Ownership.

   (a) Information. The Employee acknowledges and agrees that the
proprietary information and data obtained by him while employed by the
Corporation or any of its Affiliates concerning the business or affairs
of the Corporation or any Affiliate (“Confidential Information”) are the
property of the Corporation or such Affiliate. Consequently, the Employee
agrees that, except to the extent required by applicable law, statute,
ordinance, rule, regulation or orders of courts or regulatory
authorities, he shall not disclose to any unauthorized person (which
shall not include customers or suppliers to whom information is provided
in the ordinary course in the interests of promoting their business
relationships with the Corporation or any of its Affiliates) or use for
his own account any Confidential Information without the prior written
consent of the Board, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public
other than as a result of the Employee’s acts or omissions to act. The
Employee shall deliver to the Corporation at the termination of the
Employee’s employment, or at any other time the Corporation may request,
all memoranda, notes, plans, records, reports, computer tapes and
software and other documents and data (and copies thereof) relating to
the Confidential Information, Work Product (as defined below) and the
business of the Corporation or any Affiliate which he may then possess or
have under his control.

   (b) Inventions and Patents. The Employee agrees that all
inventions, innovations, improvements, developments, methods, designs,
analyses, drawings, reports, and all similar or related information which
relates to the Corporation’s or any of its Affiliates’ actual or
anticipated business, research and development or existing or future
products or services and which are conceived, developed or made by the
Employee prior to the date hereof while employed by the Corporation or
any of its Affiliates (“Work Product”) belong to the Corporation or such
Affiliate. The Employee will promptly disclose such Work Product to the
Board and perform all actions reasonably requested by the Board (whether
during or after the Employee’s employment period) to establish and
confirm such ownership (including, without limitation, assignments,
consents, powers of attorney and other instruments).

     2. Non-compete, Non-solicitation.

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   (a) Non-Compete. The Employee acknowledges that in the course of
his employment with the Corporation and its Affiliates he has become
familiar, and he will become familiar, with the Corporation’s and its
Affiliates’ trade secrets and with other Confidential Information and
that his services have been and will be of special, unique and
extraordinary value to the Corporation and its Affiliates. Therefore,
the Employee agrees that he shall not, during the time he is employed by
the Corporation and its Affiliates and for    months thereafter,
directly or indirectly own, operate, manage, control, participate in,
consult with, advise, engage in services for any competitor of the
Corporation or in any manner engage in any start up of a business
(including by himself or in association with any person, firm, corporate
or other business organization or through any other entity) in
competition with the businesses of the Corporation or its Affiliates as
in existence or in process on the date of termination of the Employee’s
employment (the “Businesses”), within any state or country in which the
Corporation or any of its Affiliates makes sales. Nothing herein shall
prohibit the Employee from being a passive owner of not more than 2% of
the outstanding stock or equity of an entity which is publicly traded, so
long as the Employee has no active participation in the business of such
entity.

   (b) Non-Solicitation. During the time the Employee is employed by
the Corporation and its Affiliates and for    months thereafter, the
Employee shall not directly or indirectly through another entity (i)
induce or attempt to induce any employee of the Corporation or any
Affiliate to leave the employ of the Corporation or such Affiliate, or in
any way interfere with the relationship between the Corporation or any
Affiliate and any employee thereof, including without limitation,
inducing or attempting to induce any union, employee or group of
employees to interfere with the business or operations of the Corporation
or its Affiliates, (ii) hire any person who was an employee of the
Corporation or any Affiliate at any time within the six month period
prior to the date the Employee employs or seeks to employ such person, or
(iii) induce or attempt to induce any supplier, distributor, franchisee,
licensee or other business relation of the Corporation or any Affiliate
to cease doing business with the Corporation or such Affiliate, or in any
way interfere with the relationship between any such customer, supplier,
distributor, franchisee, licensee or business relation and the
Corporation or any Affiliate.

     3. In the event that the Employee’s employment is terminated by the
Corporation or an Affiliate for a reason described in Section 5.2 of the Plan,
any salary continuation or extension of coverage under the Corporation or
Affiliate’s medical plans otherwise due the Employee shall cease in the event
the Employee breaches any provisions of this Addendum A.

     4. The Employee agrees that: (i) the covenants set forth in this Addendum
A are reasonable in geographical and temporal scope and in all other respects,
(ii) the Corporation and its Affiliates would not have allowed the Employee to
participate in the Plan, but for the covenants of the Employee contained
herein, and (iii) the covenants

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contained herein have been made in order to induce the Corporation and its
affiliates to allow the Employee to participate in the Plan.

     5. If, at the time of enforcement of this Addendum A, a court shall hold
that the duration, scope or area restrictions stated herein are unreasonable
under circumstances then existing, the parties agree that the maximum duration,
scope or area reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.

     6. The Employee recognizes and affirms that in the event of his breach of
any provision of this Addendum A, money damages would be inadequate and the
Corporation and its Affiliates would have no adequate remedy at law.
Accordingly, the Employee agrees that, in the event of a breach or a threatened
breach by the Employee of any of the provisions of this Addendum A, the
Corporation and its Affiliates, in addition and supplementary to other rights
and remedies existing in its favor, may apply to any court of law or equity or
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violation so the provisions hereof
(without posting a bond or other security).

Signed:___________________________________________________________
        
 _____________________, 2003

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EXHIBIT 10.28

KNOWLES ELECTRONICS HOLDINGS, INC.

VALUE ENHANCEMENT INCENTIVE PLAN

ARTICLE XII

ESTABLISHMENT AND PURPOSE

     Knowles Electronics Holdings, Inc., a Delaware corporation, hereby
establishes this Value Enhancement Incentive Plan for the benefit of certain of
its Employees, and those of its Affiliates. The purpose of the Plan is to
provide a group of key management Employees with a bonus program which
motivates such Employees and rewards such Employees for increasing the
enterprise value of the Employer.

ARTICLE XIII

DEFINITIONS

     The following words and phrases as used herein shall have the following
meanings, unless a different meaning is plainly required by the context.
Pronouns shall be interpreted so that the masculine pronoun shall include the
feminine and the singular shall include the plural:

     13.1 “Affiliate” means any corporation, organization, or entity which is
under common control with the Corporation or which is otherwise required to be
aggregated with the Corporation pursuant to paragraphs (b), (c), (m), or (o) of
Code Section 414.

     13.2 “Board” means the Board of Directors of the Corporation.

     13.3 “Code” means the Internal Revenue Code of 1986, as amended.

     13.4 “Committee” means the Compensation Committee of the Corporation which
is the administrative body responsible for the administration of the Plan.

     13.5 “Corporation” means Knowles Electronics Holdings, Inc., a Delaware
Corporation and any other business organization which succeeds to its business
and elects to continue the Plan.

     13.6 “Effective Date” means September 1, 2003.

     13.7 “Employee” means any person engaged by an Employer on the Effective
Date, or thereafter, to perform personal services in an employer/employee
relationship who receives compensation from such Employer.

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     13.8 “Employer” means the Corporation, and any corporation, organization,
or entity which is an Affiliate and (i) which adopts the Plan with the consent
of the Corporation; or (ii) which continues the Plan as a successor.

     13.9 “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor thereto.

     13.10 “Initial Public Offering” means an initial public offering and sale
of the Corporation’s equity securities pursuant to an effective registration
statement under the Securities Act of 1933, as amended.

     13.11 “Liquidity Event” means the occurrence of:

               (i) an Initial Public Offering; or

               (ii) the Sale of the Corporation.

     13.12 “Participant” means an Employee who has been selected for
participation in the Plan as set forth in Article III.

     13.13 “Participation Agreement” means the acknowledgment signed by each
Participant confirming his participation in the Plan pursuant to its terms.

     13.14 “Plan” means the Knowles Electronics Holdings, Inc. Value
Enhancement Incentive Plan as set forth herein, together with any amendments
hereto.

     13.15 “Value Enhancement Bonus” means the bonus payable to each
Participant pursuant to Article VI.

     13.16 “Value Enhancement Bonus Percentage” means each Participant’s
percentage interest in the Value Enhancement Bonus Pool as communicated to such
Participant.

     13.17 “Value Enhancement Bonus Pool” means the pool of funds which the
Corporation agrees to set aside, or cause to be set aside, out of the proceeds
resulting from the occurrence of a Liquidity Event. The value of the Value
Enhancement Bonus Pool shall be calculated pursuant to Addendum A attached
hereto.

     13.18 “Sale of the Corporation” means the sale of the Corporation, other
than an Initial Public Offering, in a single transaction or a series of
transactions, to a purchaser who is not affiliated with the Corporation
pursuant to which such purchaser acquires all or a material portion of the
outstanding capital stock (whether by merger, consolidation, recapitalization,
reorganization, purchase of the outstanding capital stock or otherwise) or all
or a material portion of the consolidated assets of the Corporation.

-14-

 

ARTICLE XIV

PARTICIPATION AND AWARD OF

VALUE ENHANCEMENT BONUS PERCENTAGE

     14.1 Participation. The Employees eligible to participate in the Plan
shall be selected by the Committee in its sole and absolute discretion. Each
Employee so selected shall be deemed a “Participant”. Each employee who is
selected to participate in the Plan shall be notified thereof by the Committee.
Each Participant shall commence to participate in the Plan as of the Effective
Date, unless specifically provided otherwise in the award of a Value
Enhancement Bonus Percentage to a particular Employee, but only upon signing
his Participation Agreement and the
Confidentiality/Non-Competition/Non-Solicitation Agreement attached hereto as
Addendum B.

     14.2 Award of Value Enhancement Bonus Percentage. The Committee shall
determine each Participant’s Value Enhancement Bonus Percentage based upon
guidelines established by the Board, or as otherwise determined in the
discretion of the Committee, and shall notify each Participant of his Value
Enhancement Bonus Percentage. The total of the Value Enhancement Bonus
Percentages awarded under the Plan may, or may not, total one hundred percent
(100%).

ARTICLE XV

BENEFITS UNDER THE PLAN

     15.1 Benefits. The benefit of each Participant under the Plan is equal to
such Participant’s Value Enhancement Bonus Percentage multiplied by the amount
of the Value Enhancement Bonus Pool resulting from the occurrence of a
Liquidity Event. The rights of Participants to any benefits under the Plan
shall only come into existence upon the occurrence of a Liquidity Event which
results in an amount being allocated to the Value Enhancement Bonus Pool
pursuant to Addendum A.

ARTICLE XVI

INELIGIBILITY FOR VALUE ENHANCEMENT BONUSES

     16.1 Ineligibility upon Termination of Employment Prior to Occurrence of a
Liquidity Event. A Participant shall only be entitled to his Value Enhancement
Bonus Percentage of the Value Enhancement Bonus Pool if the Participant is
employed by the Employer on the occurrence of a Liquidity Event. If a
Participant’s employment with the Employer is terminated prior to the
occurrence of a Liquidity Event for any reason whatsoever, including, but not
limited to, the termination of the Participant’s employment by the Employer for
any reason, with or without cause, the voluntary termination of employment by
the Participant for any reason, with or without cause, or the Participant’s
death, disability or retirement, the Participant shall not accrue any benefits
under the Plan and shall not be eligible to receive any benefits from the Plan
and all of the Employer’s obligations to the Participant under the Plan shall
terminate and cease immediately and no payments under the Plan shall be made to
the Participant.

     16.2 Forfeiture for Violation of
Confidentiality/Non-Competition/Non-Solicitation Agreement. Not withstanding
the other provisions of the Plan, if a Participant violates any

-15-

 

provision of the Confidentiality/Non-Competition/Non-Solicitation
Agreement attached to the Plan as Addendum B (or the provisions of any other
agreement with the Employer or policy of the Employer similar to the Agreement
set forth on Addendum B), as determined in the sole discretion of the
Committee, then the Participant shall not accrue any benefits under the Plan
and shall not be eligible to receive any benefits from the Plan and all of the
Participant’s rights under the Plan shall be forfeited and all of the
Employer’s obligations to the Participant under the Plan shall terminate and
cease immediately and no payments under the Plan shall be made to Participant,
and the Employer shall have the right to recover from the Participant any
payment previously made to the Participant pursuant to the Plan.

ARTICLE XVII

DETERMINATION OF AMOUNT OF VALUE ENHANCEMENT

BONUS AMOUNTS AND PAYMENT OF VALUE ENHANCEMENT BONUSES

     17.1 Determination of amount of Value Enhancement Bonus. Upon the
occurrence of a Liquidity Event, each Participant shall be entitled to receive
from the Employer an amount equal to such Participant’s Value Enhancement Bonus
Percentage multiplied by the value of the Value Enhancement Bonus Pool which
results from the occurrence of such Liquidity Event.

     17.2 Payment of Value Enhancement Bonuses. All Value Enhancement Bonuses
payable under the Plan shall be paid to the Participants in a single sum
payment within thirty (30) days of the occurrence of the Liquidity Event giving
rise to such payment, or as soon as administratively feasible thereafter.

ARTICLE XVIII

VALUE ENHANCEMENT BONUS POOL

     18.1 Value Enhancement Bonus Pool. The amount of the Value Enhancement
Bonus Pool (before any payments from said pool pursuant to the Plan) resulting
from a Liquidity Event shall be determined pursuant to Addendum A attached
hereto. The Value Enhancement Bonus of a Participant shall be equal to the
Participant’s Value Enhancement Bonus Percentage multiplied by the amount of
the Value Enhancement Bonus Pool.

     18.2 Funding from General Assets. All payments from the Plan shall be
from the general assets of the Corporation or an Affiliate. To the extent that
any person acquires a right to receive a payment under the plan, such right
shall be no greater than the right of any unsecured general creditor of the
Corporation or an Affiliate.

     18.3 Bookkeeping Account. The Committee shall establish and maintain a
bookkeeping account on the Corporation’s records to record each Participant’s
potential interest in, and the activity of, the Value Enhancement Bonus Pool.
The establishment of this account is for the record keeping convenience of the
Corporation. Such account shall not result in any amounts being made available
to a Participant or otherwise set aside for a Participant in a funded plan
within the meaning of Part 3 of Title I of ERISA, or otherwise.

     18.4 Trust. The Corporation, in its sole discretion, may establish a
grantor Trust for the purpose of setting aside the benefits accrued under the
Plan; provided, however, such

-16-

 

amounts shall continue to represent the general assets of the Employer and
shall be subject to the claims of the Employer’s general creditors.

ARTICLE XIX

PLAN ADMINISTRATION

     19.1 The Committee. This Plan shall be administered by the Committee in
accordance with such rules and regulations as the Committee may establish from
time to time, which are consistent with the provisions of this Plan.

     19.2 Authority of the Committee. The Committee shall have full power to
select Employees for participation in the Plan; to determine the Value
Enhancement Bonus Percentage to be awarded to each Participant; to construe and
interpret the Plan and any agreement or instrument entered into hereunder; to
establish, amend, or waive rules and regulations for the Plan’s administration
and to amend the Plan to the extent provided in Article IX. Further, the
Committee shall have full power to make any other determination which may be
necessary or advisable for the Plan’s administration.

     19.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive,
and binding on all persons, including Employees, Participants and their estates
and beneficiaries. All decisions of the Committee regarding the determination
of eligibility and entitlement to benefits under the Plan, the interpretation
and administration of the Plan, the review of claims under the Plan and any
other decisions of the Committee in carrying out its duties hereunder, shall be
made in the absolute discretion of the Committee.

ARTICLE XX

AMENDMENT

     20.1 Amendment by Committee. The Committee, by a written instrument duly
executed by its members, may (i) make any amendment which may be necessary or
desirable to ensure any compliance of the Plan under the Code or which may be
necessary to comply with the requirements of any applicable law or regulation,
and (ii) may make any other amendment to the Plan which in the Committee’s
discretion is necessary or desirable to carry out the purposes of the Plan, as
long as the cost of such amendment to the Employer is not material in the
judgment of the Committee.

ARTICLE XXI

MISCELLANEOUS

     21.1 Unfunded Plan. This Plan is intended to be an unfunded bonus program
described in ERISA Reg. 2510.3-2(c) and therefore is intended to be exempt from
the provisions of Title I of ERISA.

     21.2 Costs of the Plan. All costs of implementing and administering the
Plan shall be borne by the Employer.

-17-

 

     21.3 Nontransferability. Participants’ rights under the Plan may not be
sold, transferred, assigned, or otherwise alienated or hypothecated. In no
event shall the Employer make any payment under the Plan to any assignee or
creditor of a Participant or to any assignee or creditor of a Participant’s
Beneficiary.

     21.4 Successors. All obligations of the Employer under the Plan shall be
binding upon and inure to the benefit of any successor to the Employer, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Employer.

     21.5 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.

     21.6 Applicable Law. To the extent not preempted by Federal law, the Plan
shall be governed by and construed in accordance with the laws of the State of
Illinois.

     21.7 Adoption by Affiliates. The Employers adopting the Plan are
identified by their signatures hereon or on a separate adoption page attached
hereto. Any Employer may, with the approval of the Board, adopt the Plan as to
the whole of its business or as to any one or more divisions or classifications
of Employees as permitted by law by resolution of its board of directors. Such
Employer shall give written notice of such adoption to the Board.

     21.8 No Employment Contract. The establishment of the Plan, the creation
of any account, or the payment of any benefit does not create in any Employee,
Participant or other party a right to continuing employment with the Employer
or an Affiliate.

     21.9 Fiscal Records and Reports. The fiscal records of the Plan are to be
maintained on the basis of the Plan Year.

     21.10 Headings. The headings contained in the Plan are for reference
only, and they do not in any manner limit or expand the terms and provisions of
the Plan.

     21.11 No Vested Interest. Except for the right to receive any benefit
properly payable under the Plan, no person shall have any right, title or
interest in or to the assets of the Employer because of the Plan.

     21.12 Limit on Liability. Nothing contained in the Plan shall impose on
the Employer, or any Board members, officers or employees of the Employer any
liability for the payment of benefits under this Plan other than liabilities
resulting from willful neglect or fraud. The liability of the Employer for
benefits shall be limited to the benefits provided under the Plan. Persons
entitled to benefits under the Plan shall look only to the Employer for
payment.

     21.13 Taxes. The Employer shall have the right to deduct from all
payments made pursuant to the Plan amounts sufficient to satisfy any Federal,
state, and local tax withholding requirements.

-18-

 

     21.14 Other Plans. Payments from the Plan shall be included in the
calculation of a Participant’s eligible compensation for purposes of other
employee benefit plans or programs of the Employer.

     IN WITNESS WHEREOF, Knowles Electronics Holdings, Inc., has caused this
Plan to be executed on its behalf and its seal to be hereunto affixed and
attested by its officers hereunto duly authorized, as of December 12, 2003.

	 	 	 	 	 
	 	 	KNOWLES ELECTRONICS HOLDINGS, INC.

 	 
	 	By:  	                /s/ John J. Zei
 	 
	 	 	John J. Zei
 	 
	 	 	President and CEO

ADOPTION BY AFFILIATE:

Adopted this 12th day of December, 2003. 	 
	 

	 	 	 	 	 
	 	 	KNOWLES ELECTRONICS, LLC

 	 
	 	By:  	                /s/ John J. Zei
 	 
	 	 	John J. Zei
 	 
	 	 	President and CEO 	 

-19-

 

	 	 	 	 	 

Knowles Electronics Holdings, Inc.

Value Enhancement Incentive Plan

Addendum A

Calculation of Amount of Value Enhancement Bonus Pool

     (1) The amount allocated to the Value Enhancement Bonus Pool
(“Pool”) as a result of the occurrence of a Liquidity Event, shall
be determined as follows:

	 	 	 	 	 	 	 
	 	 	Proceeds from Liquidity Event
	 	Allocation to Pool

	

	 	(1) If the Proceeds from the occurrence of the
Liquidity Event do not equal at least
$212,000,000:

	 	$	0	 
	 
	 	 	 	 	 	 
	

	 	(2) If the Proceeds from the occurrence of the
Liquidity Event equal or exceed $212,000,000, but
are less than $275,000,000:

	 	$	10,000,000	 
	 
	 	 	 	 	 	 
	

	 	(3) If the Proceeds from the occurrence of the
Liquidity Event equal $275,000,000:

	 	$	12,650,000	 
	 
	 	 	 	 	 	 
	

	 	(4) If the Proceeds from the occurrence of the
Liquidity Event exceed $275,000,000, then in
addition to the amount allocated to the Pool
under (3) above, there shall be allocated to the
Pool an amount equal to 5% of the Proceeds
received in excess of $275,000,000 (the “Excess”)
up to the point where the Excess is sufficient to
	 	 	 	 

	(a)	 	redeem all of the Corporation’s

Preferred Stock outstanding as of
the

occurrence of the Liquidity
Event

($185,000,000), and
	 
	(b)	 	pay off all accrued but unpaid

dividends on the Corporation’s

Preferred stock outstanding as of
the

occurrence of the Liquidity
Event.

                 (2) For purposes of this Addendum A, the term “Proceeds” shall
mean all consideration (including, but not limited to, cash,
equity, debt or post-closing proceeds) that is received at or after
the closing by the Corporation or any

 

 

                    shareholder or Affiliate of the Corporation as a result of the
occurrence of a Liquidity Event.

                    (3) In the event of a Liquidity Event which results in the
sale of less than all of the Corporation’s capital stock (“Stock”)
or assets (“Assets”), then, for the purposes of the Plan, the
dollar amounts set forth in (a) above shall be multiplied by a
fraction, of which (1) in the case of the sale of Stock, the
numerator is the number of shares of Stock sold pursuant to said
Sale and the denominator is the number of shares of Stock
outstanding at the date of said sale; and (2) in the case of the
sale of Assets, the numerator is the value of the Assets sold
pursuant to said sale and the denominator is the total value of the
Corporation’s Assets at the date of said sale.

-2-

 

Knowles Electronics Holdings, Inc.

Value Enhancement Incentive Plan

Addendum B

Confidentiality/Non-Competition/Non-Solicitation Agreement

     As consideration for participation in the Knowles Electronics Holdings,
Inc. Retention Incentive Plan, the undersigned Employee agrees as follows:

     1. Confidentiality and Ownership.

   (a) Information. The Employee acknowledges and agrees that the
proprietary information and data obtained by him while employed by the
Corporation or any of its Affiliates concerning the business or affairs of
the Corporation or any Affiliate (“Confidential Information”) are the
property of the Corporation or such Affiliate. Consequently, the Employee
agrees that, except to the extent required by applicable law, statute,
ordinance, rule, regulation or orders of courts or regulatory authorities,
he shall not disclose to any unauthorized person (which shall not include
customers or suppliers to whom information is provided in the ordinary
course in the interests of promoting their business relationships with the
Corporation or any of its Affiliates) or use for his own account any
Confidential Information without the prior written consent of the Board,
unless and to the extent that the aforementioned matters become generally
known to and available for use by the public other than as a result of the
Employee’s acts or omissions to act. The Employee shall deliver to the
Corporation at the termination of the Employee’s employment, or at any
other time the Corporation may request, all memoranda, notes, plans,
records, reports, computer tapes and software and other documents and data
(and copies thereof) relating to the Confidential Information, Work
Product (as defined below) and the business of the Corporation or any
Affiliate which he may then possess or have under his control.

   (b) Inventions and Patents. The Employee agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to
the Corporation’s or any of its Affiliates’ actual or anticipated
business, research and development or existing or future products or
services and which are conceived, developed or made by the Employee prior
to the date hereof while employed by the Corporation or any of its
Affiliates (“Work Product”) belong to the Corporation or such Affiliate.
The Employee will promptly disclose such Work Product to the Board and
perform all actions reasonably requested by the Board (whether during or
after the Employee’s employment period) to establish and confirm such
ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).

 

 

     2. Non-compete, Non-solicitation.

   (a) Non-Compete. The Employee acknowledges that in the course of his
employment with the Corporation and its Affiliates he has become familiar,
and he will become familiar, with the Corporation’s and its Affiliates’
trade secrets and with other Confidential Information and that his
services have been and will be of special, unique and extraordinary value
to the Corporation and its Affiliates. Therefore, the Employee agrees
that he shall not, during the time he is employed by the Corporation and
its Affiliates and for    months thereafter, directly or indirectly
own, operate, manage, control, participate in, consult with, advise,
engage in services for any competitor of the Corporation or in any manner
engage in any start up of a business (including by himself or in
association with any person, firm, corporate or other business
organization or through any other entity) in competition with the
businesses of the Corporation or its Affiliates as in existence or in
process on the date of termination of the Employee’s employment (the
“Businesses”), within any state or country in which the Corporation or any
of its Affiliates makes sales. Nothing herein shall prohibit the Employee
from being a passive owner of not more than 2% of the outstanding stock or
equity of an entity which is publicly traded, so long as the Employee has
no active participation in the business of such entity.

   (b) Non-Solicitation. During the time the Employee is employed by
the Corporation and its Affiliates and for    months thereafter, the
Employee shall not directly or indirectly through another entity (i)
induce or attempt to induce any employee of the Corporation or any
Affiliate to leave the employ of the Corporation or such Affiliate, or in
any way interfere with the relationship between the Corporation or any
Affiliate and any employee thereof, including without limitation, inducing
or attempting to induce any union, employee or group of employees to
interfere with the business or operations of the Corporation or its
Affiliates, (ii) hire any person who was an employee of the Corporation or
any Affiliate at any time within the six month period prior to the date
the Employee employs or seeks to employ such person, or (iii) induce or
attempt to induce any supplier, distributor, franchisee, licensee or other
business relation of the Corporation or any Affiliate to cease doing
business with the Corporation or such Affiliate, or in any way interfere
with the relationship between any such customer, supplier, distributor,
franchisee, licensee or business relation and the Corporation or any
Affiliate.

     3. In the event that the Employee’s employment is terminated by the
Corporation or an Affiliate for a reason described in Section 5.2 of the Plan,
any salary continuation or extension of coverage under the Corporation or
Affiliate’s medical plans otherwise due the Employee shall cease in the event
the Employee breaches any provisions of this Addendum B.

     4. The Employee agrees that: (i) the covenants set forth in this Addendum
B are reasonable in geographical and temporal scope and in all other respects,
(ii) the Corporation and its Affiliates would not have allowed the Employee to
participate in the Plan, but for the covenants of the Employee contained
herein, and (iii) the covenants contained herein have been made in order to
induce the Corporation and its affiliates to allow the Employee to participate
in the Plan.

     5. If, at the time of enforcement of this Addendum B, a court shall hold
that the duration, scope or area restrictions stated herein are unreasonable
under circumstances then existing, the parties agree that the maximum duration,
scope or area reasonable under such circumstances shall

23

 

be substituted for the stated duration, scope or area and that the court shall
be allowed to revise the restrictions contained herein to cover the maximum
period, scope and area permitted by law.

     6. The Employee recognizes and affirms that in the event of his breach of
any provision of this Addendum B, money damages would be inadequate and the
Corporation and its Affiliates would have no adequate remedy at law.
Accordingly, the Employee agrees that, in the event of a breach or a threatened
breach by the Employee of any of the provisions of this Addendum B, the
Corporation and its Affiliates, in addition and supplementary to other rights
and remedies existing in its favor, may apply to any court of law or equity or
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violation so the provisions hereof
(without posting a bond or other security).

 
Signed:___________________________________________________________
        
 _____________________, 2003

24

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