Document:

Exhibit
10.2

SEPARATION AGREEMENT AND RELEASE OF CLAIMS

This Separation Agreement and Release of Claims (the “Agreement”) is made and entered into between Jack
Johnson (“Employee”)
and Iteris, Inc., a Delaware
corporation (the “Company”).

WHEREAS, the Company and Employee
desire to the maximum extent allowed by law to conclude, resolve and settle
certain claims that Employee has or may have under federal, state or local law,
or under any alleged contractual provision, arising out of or related to his
employment with the Company, or the termination of that relationship;

WHEREAS,
Employee holds the following stock options to purchase an aggregate of 597,980
shares of the Company’s Common Stock (collectively, the “Options”), all of
which will be fully vested as of the Termination Date (as defined below):

	
  Grant Date

  	
   

  	
  No. of Shares

  	
   

  	
  Exercise Price

  Per Share

  	
   

  
	
  09/30/07

  	
   

  	
  449,980

  	
   

  	
  $

  	
  0.54

  	
   

  
	
  09/01/98

  	
   

  	
  12,000

  	
   

  	
  $

  	
  1.40

  	
   

  
	
  09/27/01

  	
   

  	
  80,000

  	
   

  	
  $

  	
  1.19

  	
   

  
	
  05/01/02

  	
   

  	
  56,000

  	
   

  	
  $

  	
  1.40

  	
   

  
	
   

  	
   

  	
  597,980

  	
   

  	
   

  	
   

  

WHEREAS, the parties hereto
desire to enter into this Agreement and resolve all disputes among the parties
hereto.

NOW
THEREFORE, for and in consideration of the mutual covenants, conditions,
promises and agreements hereinafter set forth, the Company and Employee agree
as follows:

1.         The parties hereto agree that Employee’s
employment with the Company will terminate as of March 31, 2007 (the “Termination
Date”).

2.         Employee agrees he has not executed
this Agreement without first having been given the opportunity to consider it
for 21 calendar days, if he should so choose, and did not execute this
Agreement without first being advised in writing to consult with an attorney at
his expense.

3.         Provided that Employee signs this
Agreement and delivers the signed original to Greg Miner, the Chairman of the
Board of the Company, by 4:00 p.m. Pacific Time on March 22, 2007 and as
long as Employee has not exercised his right of revocation as described in
paragraph 19(g) below, the Company shall on the eighth day following receipt of
this Agreement:

            (a)        Concede
that Employee’s termination has not been for “Misconduct” as defined under the
Company’s stock option plans, and Employee shall be deemed to remain in Service
under the Options until the Termination Date.

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            (b)        Make severance payments to Employee at
the rate of Employee’s current salary for one year following the Termination
Date, which shall be payable in accordance with the Company’s regular payroll
practices.  The Company shall deduct from
such payments all withholdings and other taxes that the Company, in its sole
discretion, deems necessary or advisable; and

            (c)        Allow Employee to submit a letter of
resignation for his personnel file, which resignation shall be in the form
attached hereto as Exhibit A.

            (d)        Allow Employee to keep his Honda Pilot,
which is the Company car that has been provided for Employee’s use  The Company agrees to take all reasonable
steps to transfer title to such vehicle to Employee as soon as reasonably
practicable following the Termination Date.

            (e)        Allow Employee to keep his cell phone
and related telephone number (714-724-7108); provided however, that as of the
Termination Date hereof, Employee agrees to take all such reasonable steps to
transfer the cellular contract for such phone into Employee’s name, and
Employee shall assume all responsibility for any charges related to this cell
phone hereinafter incurred;

            (f)         Allow Employee to keep the Dell laptop
computer that was provided to Employee by the Company; provided however, that
the Company shall be entitled to remove all confidential or proprietary
information of the Company from such computer before releasing such laptop to
Employee;

            (g)        Provide continued coverage for Employee
under the Company’s healthcare plans and group insurance policies (to the
extent Employee is eligible) or if Employee elects COBRA benefits, the Company
shall reimburse Employee’s COBRA payments for Employee’s health insurance
benefits until March 31, 2008.

4.         Employee
represents and warrants that the following represent all of his equity interest
in the Company and that he holds no other shares of the Company’s capital stock
and has no direct or indirect right to purchase or acquire any other equity
interest in the Company:  (a) the
Options; (b) a convertible debenture in the original principal amount of
$100,000; (c) warrants to purchase 6,335 shares of the Company’s Common Stock;
and (d) 378,393 shares of Common Stock (plus such additional shares of Common
Stock which may have been purchased through the Company’s 401(k) plan).

5.         Until
the Termination Date, Employee agrees to provide transition services from time
to time as reasonably requested by the Company, provided however, that such
services shall not exceed 160 hours in March 2007.

6.         Employee
acknowledges and agrees that he shall be paid his final paycheck including all
earned wages and accrued vacation on the Termination Date.  Except for (a) Employee’s vacation accrued
through the Termination Date, (b) Employee’s right to a bonus for services
rendered during the fiscal year ended March 31, 2007 to the extent earned
under that certain Iteris Executive Compensation Plan, or (c) reimbursement for
expenses incurred in the course of Employee’s

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employment through the Termination Date and documented
in accordance with the Company’s policies, Employee agrees that the Company
does not owe Employee any other wages, commissions, bonuses, expense
reimbursements, severance or other payments.

7.         Employee
understands and agrees the foregoing consideration set forth in paragraph 3
above shall constitute the entire consideration provided to him under this
Agreement; the amount of this consideration exceeds the amount he otherwise
would be entitled to as severance under his Change in Control Agreement dated
May 20, 2003 (the “Change in Control Agreement”) under any other practice,
program or policy of the Company. 
Notwithstanding anything to the contrary in the Company’s bonus and
option plans, related agreements and prior practices, Employee agrees that he
shall not accrue or earn any further bonus or commission payments from the
Company or any further accrual of vacation benefits after the Termination
Date.  Employee further agrees that the
Change in Control Agreement  shall be
deemed cancelled and terminated, and neither party thereto shall have any
further obligations thereunder.

8.         Employee
understands that if the Options or any portion of the Options are exercised
later than three (3) months from the Termination Date, the Options or such
portion of the Options may not qualify for treatment as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code.

9.         In
connection with Employee’s termination of employment or completion of severance
payments, regardless of whether Employee accepts this Agreement, Employee may
have rights to continued health insurance coverage pursuant to a federal
statute called “COBRA” or a similar state agency.  Subject to paragraph 3 of this Agreement,
COBRA coverage shall be at the Employee’s expense.  As part of the consideration for this
Agreement, however, if Employee does not qualify for continued healthcare
coverage under the Company’s plans, the Company will provide a monthly payment
to Employee in an amount equal to the COBRA cost for Employee with continuation
of coverage at the same level of participation and elections as Employee had as
of February 28, 2007.  In order to
receive this payment for continuation of coverage, Employee must be eligible
for and elect to continue coverage under COBRA. 
Employee is being provided with information about how to elect continued
coverage under COBRA on or prior to the Termination Date.  If so elected by Employee, this COBRA
coverage would be effective as of the date his active participation under the
Company’s healthcare plans is terminated, which is expected to be on March 31,
2008.  Any COBRA benefits or otherwise
after March 31, 2008 will be at Employee’s own expense.

10.       Employee
pledges and agrees he will not seek any further compensation from the Company
for any other claimed damages, costs or attorney’s fees in connection with the
matters encompassed by the Agreement. 
Employee also promises never to raise any claim of any kind for
employment, reemployment or reinstatement. 
Employee agrees the Company is entitled to reject without cause any such
application by him.

11.       Employee
represents and promises that he has returned or immediately will return all
property of the Company to the Company, other than Employee’s

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Company car, cell phone and Dell computer, which
Employee shall be entitled to keep after the Company shall have removed all
confidential information.

12.    Employee represents and
warrants that he has not filed any complaints, claims, grievances or actions
against the Company with any state, federal or local agency or court or any
other tribunal, and that he will not do so at any time hereafter based on
conduct or omissions occurring up to or on the date that Employee signs this
Agreement.

13.    Each of the Employee and the
Company agrees to keep the fact and terms of this Agreement confidential and
will not hereafter disclose any information concerning this Agreement to
anyone, except as required by law, regulation or the Nasdaq listing
requirements, provided that such party may make such disclosures to his or its
respective counsel, accountants, officers, directors, financial advisors and
spouse, if any.  Notwithstanding the
foregoing, nothing contained herein shall preclude the disclosure of any
information contained herein as may be necessary for legitimate law enforcement
purposes or if such disclosure is otherwise required by law, regulation or the
Nasdaq rules.

14.    Employee agrees to continue to
be bound by that certain Iteris Associate Agreement dated January 7, 2002
between the Company and Employee. 
Notwithstanding the foregoing, Employee expressly agrees that he will
not disclose to any third party any trade secret or other confidential
information concerning the Company that was acquired or learned during the
course of his employment with the Company. 
By way of example and not limitation, such information includes
technical data, customer lists, product information and specifications,
customer preferences and identities, product roadmaps and service plans,
designs, schedules, pricing, management organization or other organization
charts, marketing plans, salary structures and data, computer code, research
and development plans and manufacturing plans and strategies and all other
trade secrets.

15.    Employee agrees that he will
not disparage the Company or any past or present (as of the time any statement
is made) officer, director or employee of the Company or otherwise make
statements whether or not such statements are thought to be (or are) true, and
whether or not such statements are made publicly, privately, subject to
confidentiality obligations or otherwise, which could tend to harm or injure
the personal or business reputation or business, of the Company or of any past
or present officer, director or employee of the Company, and whether or not
such statements are made to any present or former employee or director of the
Company or to someone outside of the Company. 
The Company agrees that it will not disparage Employee or otherwise make
statements which could tend to harm or injure the personal or business reputation
or business, of Employee, whether or not such statements are thought to be (or
are) true, and whether or not such statements are made publicly, privately,
subject to confidentiality obligations or otherwise.  Employee also agrees that he will not waive
the attorney-client privilege or otherwise use, disclose or consent to the use
or disclosure of any information relating to, or secured or developed in the
course of, his employment with the Company, the use or disclosure of which
could adversely affect the interests of the Company.

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16.    Employee agrees that all
rights under Civil Code section 1542 are hereby waived by him as to the
matters encompassed by this Agreement. 
Section 1542 provides as follows:

A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor.

17.    Employee agrees this Agreement
is in full accord, satisfaction and discharge of disputed claims encompassed by
this Agreement, and that this Agreement has been executed by Employee with the
express intention of effectuating the legal consequences provided for in Civil
Code section 1541, i.e., the extinguishment of certain obligations, known
or unknown.  Employee has read
section 1541 and it is fully understood by him.  It provides:

An obligation is extinguished by a release
therefrom given to the debtor by the creditor,
upon a new consideration, or in writing, with or without new consideration.

18.    Notwithstanding the
provisions of Civil Code section 1542, Employee, on behalf of himself, his
spouse, successors, heirs, and assigns, hereby forever and unconditionally
relieves, releases, and discharges the Company and any of its parent
corporations, subsidiaries (whether or not wholly-owned), brother-sister
corporations, and all other affiliated or related corporations, including but
not limited to all affiliates of the Company, 
all benefit plans sponsored by the Company, and entities, and each of
their respective present and former officers, directors, agents, employees,
representatives, administrators, accountants, attorneys, investigators,
insurers, investors, associates, successors, and assigns, in any and all
capacities (including but not limited to the fiduciary, representative or
individual capacity of any released person or entity), and any entity owned by
or affiliated with any of the above, from any and all claims, debts,
liabilities, demands, obligations, liens, grievances, promises, acts,
agreements, costs and expenses (including but not limited to attorneys’ fees),
damages, actions and causes of action, of whatever kind or nature, including
but not limited to any statutory, civil, administrative, or common law claim,
whether known or unknown, suspected or unsuspected, fixed or contingent,
apparent or concealed arising out of any act or omission occurring before
Employee’s execution of this Agreement, including but not limited to any claims
based on, arising out of, or related to Employee’s employment with, or the
ending of Employee’s employment with, the Company, including but not limited to
any claims arising from rights under federal, state, and local laws relating to
the regulation of federal or state tax payments or accounting; federal, state
or local laws that prohibit harassment or discrimination on the basis of race,
national origin, religion, sex, gender, age, marital status, bankruptcy status,
disability, perceived disability, ancestry, sexual orientation, family and
medical leave, or any other form of harassment or discrimination or related
cause of action (including but not limited failure to maintain an environment
free from harassment and retaliation, inappropriate comments or touching and/or
“off-duty” conduct of other Company employees); statutory or common law claims
of any

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kind, including but not limited to, any alleged violation of Title VII
of the Civil Rights Act of 1964, The Civil Rights Act of 1991, Sections 1981
through 1988 of Title 42 of the United States Code, as amended; The Employee
Retirement Income Security Act of 1971, as amended, the Age Discrimination In
Employment Act, the Older Worker’s Benefit Protection Act, The Americans with
Disability Act of 1990, as amended, the Workers Adjustment and Retraining
Notification Act, as amended; the Occupational Safety and Health Act, as
amended, the Sarbanes-Oxley Act of 2002, the California Family Rights Act (Cal.
Govt. Code § 12945.2 et seq.), the California Fair Employment and Housing Act
(Cal. Govt. Code § 12900 et. seq.), statutory provision regarding
retaliation/discrimination for filing a workers’ compensation claim under Cal.
Labor Code § 132a, California Unruh Civil Rights Act, California Sexual
Orientation Bias Law (Cal. Lab. Code § 1101 et. seq.), California AIDS Testing
and Confidentiality Law, California Confidentiality of Medical Information
(Cal. Civ. Code § 56 et. seq.) contract, tort, and property rights, breach of
contract, breach of implied-in-fact contract, breach of the implied covenant of
good faith and fair dealing, tortious interference with contract or current or
prospective economic advantage, fraud, deceit, invasion of privacy, unfair
competition, misrepresentation, defamation, wrongful termination, tortious
infliction of emotional distress (whether intentional or negligent), breach of
fiduciary duty, violation of public policy, or any other common law claim of
any kind whatsoever; any claims for severance pay, sick leave, family leave,
liability pay, overtime pay, vacation, life insurance, health insurance,
continuation of health benefits, disability or medical insurance (except as
specifically provided for under this Agreement), or any other fringe benefit or
compensation, including but not limited to stock options; any claim for damages
or declaratory or injunctive relief of any kind.  Employee represents that he has no workers’
compensation claims that he intends to bring against the Company and has
suffered no work related injury or illness. 
Employee further covenants not to sue or institute administrative
proceedings with respect to any claims released in this Agreement.  Notwithstanding the foregoing, this release
does not include a release of (i) Employee’s rights for state mandated
insurance for unemployment insurance and workers’ compensation insurance or
(ii) the obligations of the Company to indemnify Employee pursuant to Labor
Code Section 2802 or pursuant to that certain Indemnification Agreement dated
April 25, 2005 between Employee and the Company (the “Indemnification Agreement”).  For the purposes of clarity, nothing
contained herein shall terminate Employee’s rights under the Indemnification
Agreement.

 

19.    It is expressly understood
by Employee that among the civil claims being waived in this release are those
arising under the federal Age Discrimination in Employment Act to the extent
that the facts giving rise to such claims occurred prior to or on the date that
Employee signs this Agreement Employee understands and agrees he:

(a)        Has
had 21 calendar days to consider this Agreement before signing it, and, if he
signs this Agreement before such 21 day period has elapsed, he does so
voluntarily and with the advice of counsel (Employee understands and
acknowledges that Dorsey & Whitney LLP is only representing the Company in
connection with this Agreement and is not representing Employee);

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(b)       Has
carefully read and fully understands the provisions of this Agreement;

(c)        Is,
through this Agreement, releasing the Company from certain claims he may have
against the Company;

(d)       Knowingly
and voluntarily agrees the terms set forth in the Agreement;

(e)        Knowingly
and voluntarily intends to be legally bound by the Agreement;

(f)        Was
advised and hereby is again advised to consider the terms of this Agreement and
consult with his attorney prior to executing this Agreement;

(g)       Has
a full seven (7) calendar days following his execution of this Agreement to
revoke this Agreement by so notifying Chairman of the Board of the Company, in
writing, within that period, and that he has been and hereby is advised in
writing that this Agreement shall not become effective or enforceable until the
revocation period has expired;

(h)       Was
advised and is advised that his rights or claims under the Age Discrimination
in Employment that may arise after the date this Agreement is executed are not
waived; and

(i)         Understands
and agrees that changes to this Agreement, whether or not material, shall not
start the 21-day deliberation period nor seven-day revocation period anew.

20.    The Company on behalf of
itself and its successors and assigns hereby forever and unconditionally
relieves, releases and discharges Employee and his respective agents, assigns
and heirs from any and all liabilities, claims, debts, liabilities, demands,
obligations, liens, grievances, promises, acts, agreements, costs and expenses
(including but not limited to attorneys fees, damages, actions and causes of
action of whatever kind or nature, arising out of actions taken by Employee in
the course and scope of his employment.  As
of the date of this Agreement, the Company is not aware of any wrongful actions
taken by the Employee .

21.    The parties represent and
acknowledge that in executing this Agreement they do not rely and have not
relied upon any representation or statement made by any of the parties or by
any of the parties’ agents, attorneys or representatives with regard to the
subject matter, basis or effect of this Agreement or otherwise, other than
those stated in this written Agreement.

22.    This Agreement shall be
binding upon the parties hereto and upon their heirs, administrators,
representatives, executors, successors and assigns, and shall inure to the
benefit of said parties and each of them and to their heirs, administrators,
representatives, executors, successors and assigns.  Employee expressly warrants that he

 7
 

is the sole owner of and he has not transferred to any
person or entity any rights, causes of action or claims released in this
Agreement.

23.    Should any provision of
this Agreement be declared or be determined by any court of competent
jurisdiction to be wholly or partially illegal, invalid, or unenforceable, the
legality, validity and enforceability of the remaining parts, terms or
provisions shall not be affected thereby, and said illegal, unenforceable, or
invalid part, term or provision shall be deemed not to be a part of this
Agreement.

24.    This Agreement sets forth
the entire agreement between the parties hereto and fully supersedes any and
all prior agreements or understandings, written or oral, between the parties
hereto pertaining to the subject matter hereof.

25.    Employee further
understands that nothing contained in this Agreement, including, but not
limited to, paragraph 18, will be interpreted to prevent him from filing a
charge with a governmental agency or participating in or cooperating with an
investigation conducted by a governmental agency.  However, Employee agrees that he is waiving
the right to monetary damages or other individual legal or equitable relief
awarded as a result of any such proceeding.

 8
 

IN WITNESS WHEREOF, the parties hereto hereby execute
this Agreement as of the dates set forth opposite their names.

	
  DATED:

  	
   

  	
    March 1, 2007

  	
   

  	
   

  	
             /S/
  JACK JOHNSON

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  JACK JOHNSON

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DATED:

  	
   

  	
    March 1, 2007

  	
   

  	
   

  	
  ITERIS, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
    /S/ GREGORY A. MINER

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Gregory A. Miner,

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Chairman of the Board

  
												

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ACKNOWLEDGEMENT OF
RECEIPT

 

The undersigned hereby acknowledges receipt of this
Separation Agreement and Release of Claims.

	
  Dated: March 1, 2007

  	
   

  	
             /S/
  JACK JOHNSON

  
	
   

  	
   

  	
  JACK JOHNSON

  

 

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EXHIBIT A

Resignation

I hereby resign as
the President, Chief Executive Officer and as a member of the Board of
Directors of Iteris, Inc., and from all other officer or director positions
that I may now hold with Iteris, Inc. or any of its subsidiaries, effective
March 1, 2007.

	
  

  	
   

  	
        /S/ JACK JOHNSON

  
	
   

  	
   

  	
  JACK JOHNSONExhibit
10.1

GUARANTY
AND UNDERTAKINGS AGREEMENT

This GUARANTY AND UNDERTAKINGS AGREEMENT (this “Agreement”) is entered into as of March 5, 2007, by
MEGGITT PLC, a public limited company organized under the laws of England and
Wales (“Guarantor”) in favor of and for the benefit of K & F
INDUSTRIES HOLDINGS, INC., a Delaware
corporation (the “Company”).

WHEREAS,
MEGGITT-USA, Inc., a Delaware corporation (“Purchaser”) and Ferndown
Acquisition Corp., a Delaware corporation and direct wholly-owned subsidiary of
Purchaser (“Merger Sub” and, together with Purchaser, the “Guarantor
Subsidiaries”) are wholly owned subsidiaries of Guarantor.

WHEREAS,
Purchaser, Merger Sub and the Company are parties to that certain Agreement and
Plan of Merger dated as of the date hereof (the “Merger Agreement”;
capitalized terms defined therein and not otherwise defined herein being used
herein as therein defined).

WHEREAS,
it is desired that Guarantor fully and unconditionally guarantee and, as
applicable, agree to perform the Guaranteed Obligations (as defined below) as
provided herein for the benefit of the Company.

WHEREAS,
it is desired that Guarantor make certain representations, warranties,
covenants, undertakings and agreements in connection with the Merger and the
Guaranty.

WHEREAS,
as a condition and inducement to the willingness of the Company to enter into
the Merger Agreement, and pursuant to the terms of the Merger Agreement, the
Company has required Guarantor to enter into this Agreement.

NOW,
THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:

ARTICLE
I

REPRESENTATIONS AND WARRANTIES OF GUARANTOR

Guarantor
represents and warrants to the Company as follows:

1.1           Organization and Good Standing.  Guarantor
is duly organized, validly existing and in good standing under the laws of
England and Wales.  The Company has been
furnished with true, correct and complete copies of each Organizational
Document of Guarantor.

1.2           Authorization; Execution; Enforceability.

(a)          Guarantor
has all requisite power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate, and cause the Purchaser and
Merger Sub to consummate, the Merger and the other transactions expressly
contemplated by the Merger Agreement

subject
to, prior to the consummation of the Merger and the Rights Issue, the Parent
Shareholder Approval.  The only vote of
the holders of outstanding securities of Guarantor required by its
Organizational Documents, by Law or otherwise to consummate the Merger or any
of the transactions expressly contemplated hereby or by the Merger Agreement
is, only with respect to the consummation of the Merger and the Rights Issue,
the Parent Shareholder Approval.

(b)         The
execution and delivery by Guarantor of this Agreement and the other instruments
and agreements to be executed and delivered by Guarantor as contemplated hereby
or by the Merger Agreement, and the performance by Guarantor of its obligations
hereunder or as contemplated by the Merger Agreement have been duly and validly
authorized by all requisite corporate action on the part of Guarantor  subject to, with respect to the consummation
of the Merger and the Rights Issue, obtaining Parent Shareholder Approval.  This Agreement and the other instruments and
agreements to be executed and delivered by Guarantor as contemplated hereby or
by the Merger Agreement have been or will be, when delivered, duly and validly
executed and delivered by Guarantor and constitute or upon execution and
delivery will constitute, assuming the due and valid execution and delivery
thereof by the Company, valid and binding obligations of Guarantor enforceable
against it in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors rights and to general
principles of equity.

(c)          The
Rights Issue has been duly and validly authorized by all requisite action on
the part of Guarantor, except for the Parent Shareholder Approval.

1.3           Consents.  The execution, delivery
and performance of this Agreement by Guarantor and the consummation of the
Merger and the other transactions expressly contemplated hereby or by the
Merger Agreement by Guarantor do not and will not require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity or any other Person except (i) the pre-merger notification
requirements under the HSR Act or applicable International Competition Laws set
forth on Schedule 4.3 of the Purchaser Disclosure Schedules, (ii) the
applicable requirements of the Exchange Act and the rules and regulations
promulgated thereunder, (iii) the filing of the Certificate of Merger with the
Delaware Secretary, (iv) the notification provisions of Exon-Florio, (v) under
any Export Control Laws and NISPOM, (vi) compliance with any applicable
requirements of the U.K. Financial Services Authority after the date hereof,
and (vii) any such consent, approval, authorization, permit, filing, or
notification of the failure of which to make or obtain would not prevent or
materially delay Guarantor from performing its obligations under this
Agreement, and the other instruments and agreements to be 

 2
 

executed
and delivered by Guarantor as contemplated expressly hereby or the other
transactions expressly contemplated by the Merger Agreement.

1.4           Litigation.  There is no Proceeding,
at Law or in equity, by any Person pending or, to the Knowledge of Guarantor,
threatened, which would prevent or have a material adverse effect on Guarantor’s
ability to perform its obligations under this Agreement or the Merger
Agreement, and the other instruments and agreements to be executed and
delivered by Guarantor as contemplated expressly hereby or by the Merger
Agreement or the consummation of the Merger, the performance of the Guaranteed
Obligations or the other transactions expressly contemplated hereby or by the
Merger Agreement.

1.5           No Brokers.  Other than N M Rothschild
& Sons and Merrill Lynch International, neither Guarantor nor any of its
Subsidiaries has (i) employed or engaged any broker, investment banker, agent
or finder or (ii) incurred any Liability for any brokerage fees or expenses,
commissions or finders’ fees or expenses, payable by Guarantor or any
Subsidiary thereof in connection with the transactions expressly contemplated
by the Merger Agreement or hereby.

1.6           Solvency.  Immediately following the Closing, each of
Guarantor, Purchaser and the Surviving Corporation will be Solvent (assuming
for the purposes of this representation that the Company and each of its
Subsidiaries was Solvent immediately prior to the Closing).

1.7           Proxy Statement Information; Other Filings.  The information provided by Guarantor or its
Subsidiaries relating to Guarantor or its Subsidiaries expressly for inclusion
in the Proxy Statement will not, at the time the Proxy Statement is first
mailed or at the time of the Special Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading. 
Any such information that is to be so provided shall be specifically
identified and agreed upon in writing, in advance, by Guarantor and the
Company.  No Other Filing made by
Guarantor with the SEC or any other filing made by Guarantor or any Subsidiary
thereof with any Governmental Entity in relation to the Merger or the other
transactions expressly contemplated by the Merger Agreement or any other
communication made by Guarantor or any transactions expressly contemplated by
the Merger Agreement will, at the time of filing or furnishing thereof, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading.

 3
 

ARTICLE
II

GUARANTY

2.1           Guaranty.

(a)          In
order to induce the Company to enter into the Merger Agreement, Guarantor
irrevocably and unconditionally guaranties, as primary obligor and not merely
as surety, the due and punctual performance and payment in full of all
Guaranteed Obligations (as hereinafter defined) when the same shall become due,
whether under the Merger Agreement, by operation of Law or otherwise (the “Guaranty”).  The Guaranty is a guaranty of performance and
payment when due and not merely of collection. 
The obligations of Guarantor hereunder are independent of the Guaranteed
Obligations, and a separate action or actions may be brought and prosecuted
against Guarantor regardless of whether any action is brought against either or
both of the Guarantor Subsidiaries or whether either or both of the Guarantor
Subsidiaries is joined in any such action or actions.  The Guaranty shall be unconditional
regardless of any bankruptcy, insolvency or similar proceeding with respect to
either or both of the Guarantor Subsidiaries. 
Guarantor acknowledges that the Guaranteed Obligations are being
incurred for and will inure to the benefit of the Company.

(b)         The
term “Guaranteed Obligations” means any and all representations,
warranties, covenants, undertakings or obligations of either or both of the
Guarantor Subsidiaries or Guarantor arising under, pursuant to or in connection
with the Merger Agreement, the Merger or any of the other transactions
expressly contemplated by the Merger Agreement. 
For avoidance of doubt, the “Guaranteed Obligations” shall
include any and all covenants, undertakings or obligations with respect to
which Purchaser and/or Merger Sub have agreed to cause Parent or its Affiliates
to perform pursuant to or in connection with the Merger Agreement.  The Guarantor expressly agrees to comply with
all obligations imposed upon it or purported to be imposed upon it or any of
its Affiliates under the Merger Agreement to the same extent as if it were a
party to the Merger Agreement.

(c)          In
the event that all or any portion of the Guaranteed Obligations are performed
(by payment or otherwise) by Purchaser and/or Merger Sub, the obligations of
Guarantor hereunder shall be reinstated in the event that all or any part of
such performance (by payment or otherwise) is rescinded or recovered directly
or indirectly from the Company as a preference, fraudulent transfer or
otherwise, and any such payments that are so rescinded or recovered shall
constitute Guaranteed Obligations.

(d)         Upon
the failure of either or both of the Guarantor Subsidiaries to perform or pay
any of the Guaranteed Obligations when and as the same shall 

 4
 

become
due, Guarantor will upon demand by the Company perform or cause to be performed
such Guaranteed Obligations as are to be performed, and pay in cash or cause to
be paid in cash such Guaranteed Obligations as are to be paid, in each case as
and to the extent provided in the Merger Agreement or herein.

2.2           Guaranty Absolute; Continuing Guaranty.  The obligations of Guarantor hereunder are
irrevocable, absolute, independent and unconditional and shall not be affected
by any circumstance which constitutes a legal or equitable discharge of a
guarantor or surety other than indefeasible performance in full of the
Guaranteed Obligations.  In furtherance
of the foregoing and without limiting the generality thereof, Guarantor agrees
that: (a) the obligations of Guarantor hereunder are independent of the
obligations of either or both of the Guarantor Subsidiaries under the Merger
Agreement and a separate action or actions may be brought and prosecuted
against Guarantor whether or not any action is brought against either Guarantor
Subsidiary or any of such other guarantors and whether or not either or both of
the Guarantor Subsidiaries is joined in any such action or actions; and (b)
Guarantor’s payment of a portion, but not all, of the Guaranteed Obligations
shall in no way limit, affect, modify or abridge Guarantor’s liability for any
portion of the Guaranteed Obligations that has not been indefeasibly paid.  The Guaranty is a continuing guaranty and
shall be binding upon Guarantor and its successors and assigns.

2.3           Actions by the Company.  The Company may from time to time,
without notice or demand and without affecting the validity or enforceability
of the Guaranty or giving rise to any limitation, impairment or discharge of
Guarantor’s liability hereunder and so long as permitted by the Merger
Agreement, (a) terminate, release, compromise, subordinate, renew, extend,
accelerate or otherwise change the time, place, manner or terms of performance
(by payment or otherwise) of, or rescind any demand for payment or acceleration
of, any or all of the Guaranteed Obligations, (b) settle, compromise,
release or discharge, or accept or refuse any offer of performance with respect
to, or substitutions for, any or all of the Guaranteed Obligations or any
agreement relating thereto and/or subordinate the performance (by payment or
otherwise) of the same to the performance (by payment or otherwise) of any
other obligations, (c) request and accept other guaranties of any or all
of the Guaranteed Obligations and take and hold security for the payment of the
Guaranty or the Guaranteed Obligations, (d) release, exchange, compromise,
subordinate or modify, with or without consideration, or exercise any right or
remedy with respect to, any security for payment of the Guaranteed Obligations,
any other guaranties of any or all of the Guaranteed Obligations, or any other
obligation of any Person with respect to any or all of the Guaranteed Obligations,
(e) exercise in such manner and order as it elects in its sole discretion,
fail to exercise, waive, suspend, terminate or suffer expiration of, any of the
remedies or rights of the Company against either or both of the Guarantor
Subsidiaries or any other guarantor or Person in respect of any or all of the
Guaranteed Obligations, (f) accept partial payments on any or all the
Guaranteed Obligations and apply any and all 

 5
 

payments
or recoveries to such of the Guaranteed Obligations as the Company may elect in
its sole direction, (g) refund at any time, at the Company’s sole direction,
any payments or recoveries received in respect of any or all of the Guaranteed
Obligations, (h) otherwise deal with the Guarantor Subsidiaries or either of
them, and any other guarantor or Person as the Company may elect in its sole
discretion; and (i) exercise any other rights available to the Company under
the Merger Agreement, at Law or in equity.

2.4           Waivers.  Guarantor waives, for the benefit of the
Company:

(a)          any
right to require the Company, as a condition of payment or performance by
Guarantor, to (i) proceed against either or both of the Guarantor
Subsidiaries, any other guarantor of any of the Guaranteed Obligations or any
other Person, (ii) proceed against or have resort to any balance of any
deposit account or credit on the books of the Company in favor of either or
both of the Guarantor Subsidiaries or any other Person, or (iii) have the
property of either or both of the Guarantor Subsidiaries, any other guarantor
or any other Person first applied to the discharge of the Guaranteed
Obligations or (iv) pursue any other remedy in the power of the Company;

(b)         all
rights and benefits under Law purporting to reduce a guarantor’s obligations in
proportion to the obligation of the principal or providing that the obligations
of a surety or guarantor must neither be larger nor in other respects more
burdensome than that of the principal;

(c)          any
requirement of marshalling or any other principles of election of remedies and
all rights and defenses arising out of an election of remedies by the Company,
even though that election of remedies has destroyed Guarantor’s rights of
subrogation and reimbursement against either or both of the Guarantor
Subsidiaries;

(d)         the
benefit of any statute of limitations affecting the Guaranteed Obligations or
the Guarantor’s liability hereunder;

(e)          any
defense arising by reason of the incapacity, lack of authority or any
disability of either or both of the Guarantor Subsidiaries or (ii) any other
defense (but excluding an “other defense” to the extent a court of competent
jurisdiction has resolved in a final, non-appealable judgment that Purchaser
and Merger Sub are not obligated to perform or satisfy the Guaranteed
Obligation (other than due to the bankruptcy or insolvency of Purchaser or
Merger Sub) of either or both of the Guarantor Subsidiaries, including any
defense based on or arising out of the lack of validity of the Guaranteed
Obligations or any agreement or instrument relating thereto;

(f)            any
right to assert against the Company any defense (legal or equitable), set off,
counterclaim and other right that the Guarantor may now or any 

 6
 

time
hereafter have against the Guarantor Subsidiaries or any other guarantor of any
or all of the Guaranteed Obligations;

(g)         notices,
demands, presentments, protests, notices of protest, notices of dishonor or
nonperformance and notices of any action or inaction, including acceptance of
the Guaranty, notices of default under the Merger Agreement, or any agreement
or instrument related thereto, notices of any renewal, extension or
modification of any or all of the Guaranteed Obligations or any agreement
related thereto, notices of any extension of credit to either or both of the
Guarantor Subsidiaries and notices of any of the matters referred to in Section
2.3 and any right to consent to any thereof and other notices of any kind;

(h)         to
the fullest extent permitted by Law, any defenses or benefits that at any time
may be derived from or afforded by virtue of any valuation, stay, moratorium or
other Law now or hereafter in effect and all rights and defenses that are or
may become available to Guarantor by reason of Law; and

(i)             to
the fullest extent permitted by Law, any defenses or benefits that at any time
may be derived or afforded by any Law which limit the liability of or exonerate
guarantors or sureties.

2.5           Expenses.  Guarantor agrees to pay, or cause to be paid,
on demand, and to save the Company harmless against liability for any and all
reasonable out-of-pocket costs, fees and expenses (including fees, costs of
settlement and disbursements of counsel) incurred or expended by the Company in
connection with the enforcement of any rights under this Agreement.

ARTICLE
III

MISCELLANEOUS

3.1           Cumulative Rights.  The rights, powers and remedies given to the
Company by this Agreement are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to the Company by virtue
of any statute or rule of Law or in the Merger Agreement or any of the other
agreements expressly contemplated thereby. 
Any forbearance or failure to exercise, and any delay by the Company in
exercising, any right, power or remedy hereunder shall not impair any such
right, power or remedy or be construed to be a waiver thereof, nor shall it
preclude the further exercise of any such right, power or remedy.

3.2           Interpretation.

(a)          The
headings of the sections of this Agreement are inserted as a matter of
convenience and for reference only and in no way define, limit or describe the
scope of this Agreement or the meaning of any provision of this Agreement.

 7
 

(b)         The
words “hereof,” “herein” and “hereunder” and words of similar import, when used
in this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.

(c)          Whenever
the word “primarily” is used in this Agreement with respect to a given subject,
it shall be deemed to be followed by the words “or exclusively”.

(d)         Whenever
the words “included,” “includes” or “including” are used in this Agreement,
they shall be deemed to be followed by the words “without limitation.”

(e)          Terms
defined in the singular shall have a comparable meaning when used in the
plural, and vice versa.

3.3           Severability.  It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the Law and public policies applied in each jurisdiction in
which enforcement is sought.  Accordingly,
in the event that any provision of this Agreement would be held in any
jurisdiction to be invalid, prohibited, void or unenforceable for any reason,
such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the validity
or enforceability of such provision in any other jurisdiction.  Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited,
void or unenforceable in such jurisdiction, it shall, as to such jurisdiction,
be so narrowly drawn, without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction.

3.4           Specific Performance.  Guarantor agrees that irreparable damage would
occur to the Company in the event any of the provisions of this Agreement were
not performed in accordance with the terms hereof and that the Company is
entitled to specific performance of the terms of this Agreement in addition to
any other remedies at Law or in equity.

3.5           No Assignment.  Neither Guarantor nor the Company may assign
its rights or delegate its obligations under this Agreement, in whole or in
part without the prior written consent of Guarantor or the Company, as
applicable; provided, however, that the Company may assign the benefit of this
Guaranty to any Person that acquires all or substantially all of the assets of
the Company (whether by merger, sale of assets or otherwise).  Any purported assignment or delegation in
violation of the terms of this Agreement is void.  This Agreement shall inure to the benefit of
the Company and such permitted assigns. 
This Agreement is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.

 

 8

3.6           Governing Law.  THE PROVISIONS OF THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED SOLELY WITHIN SUCH STATE.

3.7           Jurisdiction and Venue.

(a)          Each
of the parties hereto hereby irrevocably and unconditionally submits, for
itself or himself and its or his property, to the exclusive jurisdiction of the
United States District Court for the Southern District of New York, in any
action or proceeding arising out of or relating to this Agreement or the
transactions expressly contemplated hereunder or for recognition or enforcement
of any judgment relating thereto, 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 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.

(b)         Each
of the parties hereto irrevocably and unconditionally waives, to the fullest
extent it or he may legally and effectively do so, any objection that it or he
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 transactions
expressly contemplated hereunder as set forth in Section 3.7(a).  Each of the parties hereto 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)          The
parties hereto further agree that the mailing by certified or registered mail,
return receipt requested, of any process required by any such court shall
constitute valid and lawful service of process against them, without the
necessity for service by any other means provided by law, with respect to any
matters for which it has submitted to jurisdiction pursuant to this Section
3.7.  The foregoing consents to
jurisdiction and appointments of agents to receive service of process shall not
constitute general consents to service of process in the State of New York for
any purpose except as provided above and shall not be deemed to confer rights
on any Person other than the respective parties to this Agreement.

(d)         The
prevailing party or parties in any such litigation shall be entitled to receive
from the losing party or parties all costs and expenses, including reasonable
counsel fees, incurred by the prevailing party or parties.

(e)          Nothing
contained in this Section 3.7 shall preclude the Company from bringing
any action or proceeding arising out of this Agreement, including

 9
 

without
limitation the Guaranty, in the courts of any place where Guarantor or any of
its assets may be found or located.

3.8           Mutual Waiver of Jury Trial. THE
PARTIES HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
DOCUMENTS RELATED HERETO.  EACH OF GUARANTOR AND THE COMPANY
(I) 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
(II) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
3.8.

3.9           Counterparts and Facsimile Execution.  This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered (by facsimile or otherwise) to the other party, it
being understood that all parties need not sign the same counterpart.  Any counterpart or other signature hereupon
delivered by facsimile shall be deemed for all purposes as constituting good
and valid execution and delivery of this Agreement by such party.

3.10         Mutual Contribution.  The parties to this Agreement and their
counsel have mutually contributed to its drafting. Consequently, no provision
of this Agreement shall be construed against any party on the ground that party
drafted the provision or caused it to be drafted.

3.11         Amendment.  This Agreement may be amended only by a
writing signed by Guarantor and the Company.

3.12         Complete Agreement.  This Agreement and the other documents
referenced herein and therein, including without limitation the Merger
Agreement, contain the entire agreement of the parties with respect to the
subject matter of this Agreement and supersede all prior and contemporaneous
negotiations, agreements, arrangements and understandings between them with
respect to such subject matter.

3.13         Cross Default.  Any breach by Guarantor of any of the
representations, warranties, covenants, agreements or undertakings made by
Guarantor under this Agreement shall constitute a breach by the Guaranteed
Subsidiaries under the Merger Agreement, entitling the Company to exercise its
rights and remedies thereunder.

[remainder of page intentionally left blank]

 10
 

IN
WITNESS WHEREOF, Guarantor has caused this Agreement to be
executed under seal by two of its duly elected directors thereunto duly
authorized, and the Company has caused this Agreement to be duly executed and
delivered by one of its officers thereunto duly authorized, in each case as of
the date first written above.

	
  

  	
  MEGGITT PLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Philip E. Green

  
	
   

  	
   

  	
  Name:

  	
  Philip E. Green

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ StephenYoung

  
	
   

  	
   

  	
  Name:

  	
  Stephen Young

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  K & F INDUSTRIES HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kenneth M. Schwartz

  
	
   

  	
   

  	
  Name:

  	
  Kenneth M. Schwartz

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

 11

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