Document:

<PAGE>   1

                                                                   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

-------------------------------------------------------------[LOGO]-------------

TELEPHONES (630) 250-5100      FAX NO. (630) 250-0575
<PAGE>   2

      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
      --------------------------
          Bernard J. Smith<PAGE>   1

                                                                   Exhibit 10.13

                      CHANGE-IN-CONTROL SEVERANCE PAY PLAN

                                    ARTICLE I
                               PURPOSE OF THE PLAN

      This Change-in-Control Severance Pay Plan (the "Plan") has been
established by Knowles Electronics, Inc., a Delaware corporation (the
"Company"), to provide for the payment of severance pay to selected employees
whose employment with the Company may terminate due to certain conditions
created by a change in control of the Company. For purposes of the Plan,
employees of subsidiaries of the Company shall be considered employees of the
Company.

                                   ARTICLE II
                                   ELIGIBILITY

      Only those employees of the Company designated as Plan participants by
resolution or resolutions adopted by the Board of Directors of the Company are
participants in the Plan ("Participants"). A list of the designated Participants
shall be maintained by the Secretary of the Company. No other employees are
covered by this Plan. This copy of the Plan has been issued to the designated
Participant named on the attached Exhibit A, which Exhibit A has been
authenticated for the Company by the signatures of its Chairman and Secretary.

                                   ARTICLE III
                                   DEFINITIONS

3.1   "Affiliate" means any entity directly or indirectly controlling,
      controlled by, or under common control with the Company or its successor.

3.2   "Annual Compensation" means the total of all wages, salary and bonuses
      which were paid in consideration for the Participant's services as an
      employee of the Company, its successor or an Affiliate during the year, or
      which would have been paid so paid at the Participant's usual rate of
      compensation if the Participant had worked a full year.

3.3   "Board" means the Board of Directors of the Company.

3.4   "Cause" in connection with the termination of a Participant's employment
      with the Company, means: (i) conviction of a felony; (ii) gross negligence
      in the performance of the Participant's duties; (iii) deliberate, material
      injury to the Company; or (iv) refusal after at least seven (7) days
      written notice from the Board to carry out directions of the Board,
      provided that performance in accordance with such directions does not
      constitute a change in the terms and conditions of the Participant's
      employment as described in
<PAGE>   2

      Section 4.1. If the Company could have terminated a Participant's
      employment for Cause, but lacked actual knowledge of any act or omission
      described above at the time of termination, the termination will
      nevertheless be deemed for Cause upon the later discovery of such act or
      omission. A determination that a termination is for Cause, as defined
      above, will be effective only for the purpose of this Plan and will not be
      determinative with respect to any other contract or arrangement between
      the Company and the Participant, unless the Board makes a specific
      determination to the contrary.

3.5   "Change-in-Control" means a Change-in-Control of the Company. A
      Change-in-Control of the Company shall be deemed to occur when either (i)
      the beneficial ownership (within the meaning of Rule 13d-3 promulgated
      under the Securities Exchange Act of 1934) of the Knowles Family in the
      Company is reduced to less than fifty percent (50%) of the combined voting
      power of the Company's voting securities entitled to vote in the election
      of directors, or (ii) all, or substantially all, of the assets and
      business are sold or otherwise disposed. The term "Knowles Family", as
      used herein, means the widow and the descendants of Hugh S. Knowles.

3.6   "Period of Protection" means that number of months immediately following a
      Change-In-Control for which a Participant is protected by the provisions
      of this Plan, which number of months for a Participant is set forth in the
      Exhibit A for that Participant.

                                   ARTICLE IV
                               PAYMENT CONDITIONS

4.1   Change in employment terms and conditions. A Participant who at any time
      within the Period of Protection sustains one of the following changes in
      the terms and conditions of his/her employment shall receive the severance
      payment described in Section 5.1. The changes in the terms and conditions
      of employment causing such a severance payment are:

      (a) involuntary termination of employment by the Company without Cause;

      (b) reduction in salary or material reduction in the Participant's fringe
      benefits to which Participant is entitled, including a reduction in the
      number of paid vacation days in any year, unless such reduction in
      benefits is nondiscriminatory and the resulting level of benefits is
      consistent with that available to employees with similar authority and
      length of service, which as to a Participant shall include service with
      the Company before the Change-in-Control.

      (c) reduction in eligibility to participate in employee benefit plans or
      reduction in eligibility to participate in other compensation plans,
      including but not limited to, incentive bonus plans, stock appreciation
      rights plans or stock option plans;

                                        2
<PAGE>   3

      (d) reduction in job responsibility and/or authority or the assignment of
      duties for which the Participant is not reasonably equipped by his/her
      skills and experience;

      (e) request to relocate the Participant's principal place of employment or
      residence by more than twenty-five (25) miles or assignment of duties that
      would reasonably require such relocation;

      (f) assignment of duties to the Participant which would reasonably require
      him/her to spend significantly more working days away from his/her
      principal place of employment or residence during any consecutive
      twelve-month period than such Participant was so required to spend on
      average during the three (3) consecutive twelve-month periods immediately
      preceding the date of the Change-in-Control; or

      (g) failure to provide office facilities, secretarial services, and other
      administrative services to the Participant which are substantially
      equivalent to the facilities and services provided to the Participant on
      the date of the Change-in-Control.

      Notwithstanding the foregoing provisions of this Section 4.1, a
      Participant who sustains one or more of the changes described in clauses
      (b), (c), (d), (e), (f) and (g) above must terminate his/her employment
      within sixty (60) days after the change in employment terms and conditions
      in order to receive the severance payment described in Section 5.1.

4.2   Termination of employment by reason of death, disability or Cause. A
      Participant whose employment is terminated by death or disability or for
      Cause shall not be entitled to any severance payment.

                                    ARTICLE V
                                SEVERANCE PAYMENT

5.1   Severance pay. A Participant who satisfies the payment conditions under
      Section 4.1 will receive a severance payment equal to the product of the
      Participant's Annual Compensation for the calendar year immediately
      preceding the termination of the Participant's employment times the
      multiplier set forth in the Exhibit A for that Participant, less any
      reduction as provided in Article VII below.

5.2   Unfunded plan. Payments under this Plan shall be made from the general
      funds of the Company. Nothing contained in this Plan shall give a
      Participant any right, title or interest in any property of the Company.

5.3   Modification or Waiver. A Participant's rights under the Plan may be
      waived or modified by the written agreement of the affected Participant
      and the Company. Nothing herein will prohibit a divergence between the
      terms and conditions of a waiver or

                                       3
<PAGE>   4

      modification agreed to by any one Participant and the terms and conditions
      agreed to by any other Participant.

                                   ARTICLE VI
                                  PAYMENT TERMS

      Severance payments shall be made in approximately monthly payments over
the period from the date of Participant's termination of employment to the
expiration of his/her Period of Protection.

                                   ARTICLE VII
                                 PAYMENT OFFSETS

      Notwithstanding anything in this Plan to the contrary, the severance
payment received under this Plan shall be reduced by any salary and bonus or
bonuses paid to the Participant by the Company, its successor or an Affiliate
with respect to such Participant's employment after the effective date of a
Change-in-Control and prior to such Participant's termination of employment.

                                  ARTICLE VIII
                            AMENDMENT AND TERMINATION

8.1   Before Change-in-Control. This Plan may be amended from time to time or
      terminated by action of the Board. This Plan will also automatically
      terminate if the Company (1) is legally dissolved, (2) makes a general
      assignment for the benefit of its creditors' use, or (3) files for
      liquidation under the United States Bankruptcy Code.

8.2   After Change-in-Control. Notwithstanding the foregoing, the Plan may not
      be amended or discontinued by the Company or the Board after the effective
      date of a Change-in-Control.

                                   ARTICLE IX
                                  MISCELLANEOUS

9.1   No Guarantees. Nothing in this Plan will give Participants a separate
      right to continued employment, compensation level or position with the
      Company.

9.2   Applicable Law. To the extent not preempted by federal law, this Plan will
      be construed in accordance with the laws of the State of Illinois.

9.3   Participant Assignment. No interest of any Participant under this Plan, or
      any right to receive any payment or distribution hereunder, shall be
      subject in any manner to sale,

                                       4
<PAGE>   5

      transfer, assignment, pledge, attachment, garnishment, or other alienation
      or encumbrance of any kind, nor may such interest or right to receive a
      payment or distribution be taken, voluntarily or involuntarily, for the
      satisfaction of the obligations or debts of, or other claims against, the
      Participant including claims for alimony, support, separate maintenance,
      and claims in bankruptcy proceedings.

9.4   Withholding of taxes. The Company may take such steps as it may deem
      necessary or appropriate for the withholding of any taxes that the
      Company, any subsidiary, a successor or an Affiliate is required by any
      law or regulation of any governmental authority, whether federal, state or
      local, domestic or foreign, to withhold in connection with any severance
      payment hereunder.

9.5   Severability. In the event any provision of this Plan is held illegal or
      invalid, the remaining provisions of this Plan shall not be affected
      thereby.

9.6   Successors. The Plan shall be binding upon and inure to the benefit of the
      Company, the Participants and their respective heirs, representatives and
      successors.

9.7   Notice. Notices under this Plan shall be in writing and sent by registered
      mail, return receipt requested, to the following addresses or to such
      other address as the party being notified may have previously furnished to
      the other party by written notice:

      If to the Company:

      KNOWLES ELECTRONICS, INC.
      1151 Maplewood Drive
      Itasca, IL 60143
      Attention: Chief Executive Officer

      If to a Participant:

      The address last indicated on the records of the Company.

      IN WITNESS WHEREOF, the Company has adopted this Plan as of this 23rd day
of July, 1998.

                                          KNOWLES ELECTRONICS, INC.

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

Attest:

/s/ John W. Hupp
------------------------------
Secretary

                                       5
<PAGE>   6

                                   "EXHIBIT A"

      This Exhibit A authenticates and confirms that by resolution adopted by
the Board of Directors of Knowles Electronics, Inc., _________________________
has been designated a Participant in the Company's Change-In-Control Severance
Pay Plan. With respect to the above named Participant, the applicable Period of
Protection in Section 3.6 is ______ (___) months, and the multiplier in Section
5.1 is ________ (___).

                                    Authenticated for the Company this
                                    ______ day of ______________, 1998

                                    ------------------------------------------
                                                  Chairman and CEO

                                    ------------------------------------------
                                                     Secretary

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00011-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00011-of-00352.parquet"}]]