Document:

EX-10.1

 

EXECUTION VERSION

Exhibit 10.1

STOCK PURCHASE AGREEMENT

by and among

KNOWLES ELECTRONICS HOLDINGS, INC.,

KEY ACQUISITION, L.L.C.,

THE OTHER STOCKHOLDERS OF KNOWLES ELECTRONICS HOLDINGS, INC.,

DOVER ELECTRONICS, INC.

and

DOVER CORPORATION

Dated as of August 21, 2005

 

 

TABLE OF CONTENTS

	 	 	 
	 	 	PAGE
	ARTICLE I

	 
	 	 
	DEFINITIONS

	Section 1.1 Definitions
	 	1
	 
	 	 
	ARTICLE II

	 
	 	 
	PURCHASE AND SALE

	Section 2.1 Purchase and Sale of the Knowles Shares
	 	1
	Section 2.2 Payment of Purchase Price
	 	2
	Section 2.3 Treatment of Options
	 	3
	 
	 	 
	ARTICLE III

	 
	 	 
	THE CLOSING

	Section 3.1 Closing Date
	 	4
	Section 3.2 Transactions to be Effected at the Closing
	 	4
	 
	 	 
	ARTICLE IV

	 
	 	 
	REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLERS

	Section 4.1 Authorization
	 	5
	Section 4.2 The Knowles Shares
	 	5
	 
	 	 
	ARTICLE V

	 
	 	 
	REPRESENTATIONS AND WARRANTIES RELATING TO KNOWLES

	Section 5.1 Organization and Standing
	 	5
	Section 5.2 Consents
	 	6
	Section 5.3 Capital Stock of Knowles
	 	6
	Section 5.4 Non-contravention
	 	7
	Section 5.5 Subsidiaries
	 	7
	Section 5.6 Financial Statements
	 	8

i

 

	 	 	 
	 	 	PAGE
	Section 5.7 Absence of Certain Changes
	 	8
	Section 5.8 Litigation
	 	8
	Section 5.9 Compliance with Applicable Laws
	 	9
	Section 5.10 Material Contracts
	 	9
	Section 5.11 Intellectual Property
	 	10
	Section 5.12 Affiliate Transactions
	 	11
	Section 5.13 Benefit Plans; Employees
	 	11
	Section 5.14 Taxes
	 	12
	Section 5.15 Environmental Matters
	 	12
	Section 5.16 Real Property
	 	13
	Section 5.17 Products Liability
	 	14
	Section 5.18 Brokers
	 	14
	 
	 	 
	ARTICLE VI

	 
	 	 
	REPRESENTATIONS AND WARRANTIES OF THE BUYER

	Section 6.1 Organization and Existence
	 	15
	Section 6.2 Authorization
	 	15
	Section 6.3 Non-contravention
	 	15
	Section 6.4 Consents
	 	16
	Section 6.5 Litigation
	 	16
	Section 6.6 Brokers
	 	16
	Section 6.7 Investment Intent
	 	16
	Section 6.8 Available Funds
	 	16
	Section 6.9 Investigation
	 	17
	Section 6.10 Disclaimer Regarding Projections, Forecasts and Business Plans
	 	17
	 
	 	 
	ARTICLE VII

	 
	 	 
	COVENANTS

	Section 7.1 Conduct of the Business
	 	17
	Section 7.2 Access to Information
	 	19
	Section 7.3 Cooperation; Regulatory Filings
	 	20
	Section 7.4 Post-Closing Books and Records
	 	20

ii

 

	 	 	 
	 	 	PAGE
	Section 7.5 Expenses
	 	20
	Section 7.6 Benefit Plans
	 	21
	Section 7.7 Termination of Certain Agreements
	 	21
	Section 7.8 FIRPTA Certificate
	 	22
	Section 7.9 Director and Officer Liability and Indemnification
	 	22
	Section 7.10 Knowles Europe Pension Plan
	 	22
	Section 7.11 Exclusivity
	 	22
	 
	 	 
	ARTICLE VIII

	 
	 	 
	CONDITIONS TO CLOSING

	Section 8.1 Conditions to Obligation of the Buyer
	 	23
	Section 8.2 Conditions to Obligation of the Sellers
	 	24
	 
	 	 
	ARTICLE IX

	 
	 	 
	TERMINATION, AMENDMENT AND WAIVER

	Section 9.1 Termination
	 	25
	Section 9.2 Amendments and Waivers
	 	26
	 
	 	 
	ARTICLE X

	 
	 	 
	MISCELLANEOUS

	Section 10.1 No Survival
	 	26
	Section 10.2 Notices
	 	26
	Section 10.3 Schedules
	 	28
	Section 10.4 Severability
	 	29
	Section 10.5 Counterparts
	 	29
	Section 10.6 Entire Agreement; No Third Party Beneficiaries
	 	29
	Section 10.7 Governing Law
	 	29
	Section 10.8 Specific Performance
	 	29
	Section 10.9 Consent to Jurisdiction
	 	30
	Section 10.10 Publicity
	 	30
	Section 10.11 Assignment
	 	30
	Section 10.12 Sellers’ Representative
	 	30

iii

 

	 	 	 
	 	 	PAGE
	Section 10.13 Waiver
	 	31
	Section 10.14 Parent Guarantee
	 	32
	Section 10.15 Acknowledgement of Disclosure, etc.
	 	32
	Section 10.16 Construction
	 	33

iv

 

	 	 	 
	Schedules	 	 
	Schedule A

	 	Common Stockholders
	Schedule B

	 	Preferred Stockholders
	Schedule C

	 	Persons with knowledge of Knowles
	Schedule 4.2

	 	Exceptions to Ownership of Knowles Shares
	Schedule 5.1

	 	Exceptions to Organization and Standing
	Schedule 5.2

	 	Exceptions to no Consents
	Schedule 5.3(b)

	 	Exceptions to the Capital Stock of Knowles
	Schedule 5.4

	 	Exceptions to Noncontravention
	Schedule 5.5

	 	Subsidiaries
	Schedule 5.7

	 	Exceptions to Absence of Certain Changes
	Schedule 5.8

	 	Exceptions to Litigation
	Schedule 5.9

	 	Exceptions to Compliance with Applicable Laws
	Schedule 5.10(a)

	 	Material Contracts
	Schedule 5.10(b)

	 	Exceptions to Material Contracts
	Schedule 5.11(a)

	 	Exceptions to Intellectual Property
	Schedule 5.11(b)

	 	Intellectual Property
	Schedule 5.12

	 	Exceptions to Affiliate Transactions
	Schedule 5.13(a)

	 	Employee Benefit Plans
	Schedule 5.13(b)

	 	Exceptions to Employee Benefit Plan Compliance
	Schedule 5.13(f)

	 	Labor Agreements and Threatened Labor Disputes
	Schedule 5.13(g)

	 	Exceptions to Knowles Plans
	Schedule 5.14

	 	Exceptions to Taxes
	Schedule 5.15

	 	Exceptions to Environmental Matters
	Schedule 5.16(a)

	 	Owned Real Property
	Schedule 5.16(a)(i)

	 	Real Estate Encumbrances
	Schedule 5.16(a)(ii)

	 	Exceptions to Outstanding Options
	Schedule 5.16(b)

	 	Leased Real Property
	Schedule 7.1

	 	Exceptions to Conduct of Business
	Schedule 7.1(iv)

	 	Exceptions for Capital Stock
	Schedule 7.1(vi)

	 	Exceptions for Capital Expenditures
	Schedule 7.1(xi)

	 	Exceptions for Sales of Assets
	Schedule 7.6(a)

	 	Severance Plans
	Schedule 7.6(c)(i)

	 	Bonus Plans
	Schedule 7.7

	 	Exceptions to Terminated Agreements
	Schedule 10.15

	 	Certain Matters

 

 

          STOCK PURCHASE AGREEMENT, dated as of August 21, 2005 (this “Agreement”), by and among
KNOWLES ELECTRONICS HOLDINGS, INC., a Delaware corporation (“Knowles”), KEY ACQUISITION,
L.L.C., a Delaware limited liability company (“Key”), in its capacity as Seller and in its
capacity as Sellers’ Representative (as defined herein), and the individuals and other entities
listed on the signature pages hereto and Schedule A and Schedule B (such
individuals and entities together with Key, the “Sellers”), DOVER CORPORATION
(“Parent”), a Delaware corporation and DOVER ELECTRONICS, INC., a Delaware corporation and
Subsidiary of Parent (the “Buyer”).

          WHEREAS, the Buyer desires to purchase, and the Sellers desire to sell to the Buyer, all of
the issued and outstanding shares of Class A Common Stock, par value $0.001 per share (the
“Common Stock”), Series A-1 Preferred Stock, par value $0.001 per share (the “Series
A-1 Preferred Stock”), and Series A-2 Preferred Stock, par value $0.001 per share (the
“Series A-2 Preferred Stock”, and together with the Series A-1 Preferred Stock, the
“Preferred Stock”), of Knowles; and

          WHEREAS, the Sellers collectively own, beneficially and of record, all of the issued and
outstanding Common Stock and Preferred Stock (collectively, the “Knowles Shares”).

          NOW, THEREFORE, in consideration of the premises, and the mutual representations, warranties,
covenants and agreements herein set forth and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:

ARTICLE I

DEFINITIONS

          Section 1.1   Definitions. Defined terms used in this Agreement have the meanings
ascribed to them by definition in this Agreement or in Appendix A.

ARTICLE II

PURCHASE AND SALE

          Section 2.1   Purchase and Sale of the Knowles Shares.

               (a)   Upon the terms and subject to the conditions set forth in this Agreement, at the
Closing, each Seller shall sell, convey, assign, transfer and deliver to the Buyer, and the Buyer
shall purchase, acquire and accept from each Seller, the Knowles Shares owned by such Seller as set forth on the Purchase Price Disbursement
Schedule.

 

 

               (b)   In consideration for the sale, transfer and conveyance of the Knowles Shares by the
Sellers to the Buyer and for the cancellation of the Options, upon the terms and subject to the
conditions set forth in this Agreement, the Buyer shall pay to the Sellers an aggregate amount in
cash equal to the sum of (i) $750,000,000 (the “Purchase Price”), less (ii) the Closing
Date Debt Obligation Amount, less (iii) the amount of the Transaction Expenses, plus (iv) the
amount of Cash as of immediately prior to the Closing (such sum, the “Equity Purchase
Price”).

               (c)   Knowles shall deliver to the Buyer, not less than three (3) Business Days before the
Closing Date, a schedule (the “Purchase Price Disbursement Schedule”) which shall
accurately set forth (i) the calculation of the Closing Date Debt Obligation Amount, (ii) the
calculation of the Transaction Expenses, (iii) each Seller’s ownership of Knowles Shares as of the
Closing Date, (iv) each Optionholder’s ownership of Options as of the Closing Date, and (iv) any
payments to be made to each such Seller or Optionholder pursuant to Section 2.2 herein, together
with a certificate signed by an executive officer of Knowles specifying the Closing Date Debt
Obligation Amount and the amount of Transaction Expenses; provided, that such Purchase
Price Disbursement Schedule together with such certificate shall, to the extent necessary, be
updated by Knowles on the Closing Date to reflect the actual amounts owed on such date.

          Section 2.2   Payment of Purchase Price. Concurrent with the Closing, the Buyer shall
pay the Purchase Price, by wire transfer of immediately available funds as follows:

               (a)   to such account or accounts as Knowles specifies, in order to pay and discharge such
obligations, an amount equal to the Closing Date Debt Obligation Amount, less the Closing Date
Public Notes Obligation Amount;

               (b)   to such account of the Trustee (as such term is defined in the Indenture) as Knowles
specifies, in order to pay and discharge such obligations, an amount equal to the Closing Date
Public Notes Obligation Amount;

               (c)   to such account or accounts as Knowles specifies, in order to pay and discharge such
expenses, an amount equal to the Transaction Expenses;

               (d)   to such account or accounts as the Sellers’ Representative specifies, in consideration
for the sale, transfer and conveyance of the shares of Preferred Stock set forth opposite such
Seller’s name on the Purchase Price Disbursement Schedule, an amount equal to the product
of (i) the percentage (representing the proportion which such number of shares of Preferred Stock
bears to the aggregate number of shares of Preferred Stock issued and outstanding as of the Closing
Date) set forth opposite such Seller’s name on the Purchase Price Disbursement Schedule
multiplied by (ii) the Preferred Consideration. The “Preferred Consideration” shall equal the sum of (i) $1,000
multiplied by the aggregate number of shares of Preferred Stock, plus (ii) all accumulated and all
accrued and unpaid or unaccumulated dividends on the Preferred Stock through the Closing Date;

2

 

               (e)   to such account or accounts as the Sellers’ Representative specifies, in consideration
for the sale, transfer and conveyance of the shares of Common Stock set forth opposite such
Seller’s name on the Purchase Price Disbursement Schedule, an amount equal to (i) the
percentage (representing the proportion which such number of shares of Common Stock bears to the
aggregate number of shares of Common Stock issued and outstanding as of the Closing Date plus the
number of shares of Common Stock issuable upon exercise of all 2004 Options) set forth opposite
such Seller’s name on the Purchase Price Disbursement Schedule multiplied by (ii) the
Common Consideration. The “Common Consideration” shall equal (x) the Equity Purchase
Price, minus (y) the Preferred Consideration, plus (z) the aggregate amount of cash which would be
paid to Knowles upon the exercise of all outstanding 2004 Options (assuming payment in full of the
exercise price of each such 2004 Option solely in cash); and

               (f)   to such account or accounts as the Sellers’ Representative specifies, in consideration
for the cancellation of the 2004 Options, such 2004 Optionholder’s 2004 Option Cancellation Amount.

          Each of the parties hereto required to provide account information to the Buyer pursuant to
this Section 2.2 shall notify the Buyer in writing of such account information not less than three
(3) Business Days before the Closing Date. Amounts paid in respect of the Optionholders shall be
used, in part, to pay and discharge the obligations of Knowles set forth in Section 2.3 below at
the Closing.

          Section 2.3   Treatment of Options. Knowles shall take all actions necessary or
desirable so as to provide that immediately prior to the Closing Date, all outstanding options (the
“Options”) to purchase Common Stock held by any current or former employee or director of
Knowles or any of its Subsidiaries (such Persons, collectively, the “Optionholders” and
each, an “Optionholder”) granted under any stock option or stock purchase plan, program or
arrangement of Knowles (collectively, the “Stock Plans”), whether or not then exercisable,
shall be entitled at the Closing to the consideration set forth in this Section 2.3, and such
Options immediately thereafter shall be cancelled by Knowles. In consideration for such
cancellation, (A) each 2004 Optionholder shall be entitled to receive, in consideration for the
cancellation of the 2004 Options, an amount in cash equal to the product of (x) the excess, if any,
of (i) the price per share of Common Stock implied by Section 2.2(e) over (ii) the exercise price
per share of each such 2004 Option, multiplied by (y) the number of shares of Common Stock subject
to each such 2004 Option (such net amount, the “2004 Option Cancellation Amount”), and (B)
each 2001 Optionholder shall be entitled to receive, in consideration for the cancellation of the
2001 Options, an amount calculated in accordance with Section 7 of Knowles’ 2001 Stock Option Plan (such amount, the
“2001 Option Cancellation Amount”), in each case, reduced by applicable withholding Tax or
other amounts required to be withheld by law. The Buyer shall cause Knowles to deliver payment of
all 2001 Option Cancellation Amounts to each 2001 Optionholder pursuant to Section 2.2(c) and all
2004 Option Cancellation Amounts to each 2004 Optionholder pursuant to Section 2.2(f), as
applicable, at the Closing. Each Optionholder shall deliver to Knowles written confirmation signed
by

3

 

such Optionholder that amounts received pursuant to Section 2.2 hereof constitute payment in
full by Knowles with respect to such Options.

ARTICLE III

THE CLOSING

          Section 3.1   Closing Date. Upon the terms and subject to the conditions set forth in
this Agreement, the closing of the transactions pursuant hereto (the “Closing”) shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, New
York 10036 at 10:00 a.m., local time, on the fifth (5th) Business Day following the
satisfaction and/or waiver of all of the conditions set forth in Article VIII (other than those
conditions that by their nature are to be satisfied at the Closing), or at such other time, date
and place as Knowles and the Buyer may agree upon (the date on which the Closing actually occurs,
the “Closing Date”).

          Section 3.2   Transactions to be Effected at the Closing. At the Closing:

               (a)   (i) Each Seller shall deliver (or cause to be delivered) to the Buyer certificates
representing the number of shares of Common Stock set forth opposite such Seller’s name on the
Purchase Price Disbursement Schedule and the number of shares of Preferred Stock set forth
opposite such Seller’s name on the Purchase Price Disbursement Schedule, in each case, duly
endorsed in blank in proper form for transfer, together with a duly executed receipt acknowledging
full payment for the Knowles Shares owned by such Seller, and (ii) Knowles shall deliver (or cause
to be delivered) to the Buyer the documents and certificates set forth in Section 8.1 herein and
required to be delivered by Knowles at the Closing; and

               (b)   the Buyer shall (i) pay the Purchase Price as provided in Section 2.2, (ii) deliver to
the Sellers the documents and certificates set forth in Section 8.2 and required to be delivered by
the Buyer at the Closing and (iii) deliver a duly executed receipt acknowledging the receipt of the
Knowles Shares purchased hereunder.

               (c)   (i) the Buyer shall irrevocably deposit in trust with the Trustee the Closing Date
Public Notes Obligation Amount, on behalf of Knowles, as provided in Section 2.2(b), and (ii)
Knowles shall, in accordance with Section 8.01(ii) of the Indenture, give irrevocable notice of
redemption to the Trustee.

4

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLERS

          Except as set forth in the Schedules, each of the Sellers, solely as to itself, severally and
not jointly, hereby represents and warrants to the Buyer as follows:

          Section 4.1   Authorization. The execution, delivery and performance by such Seller
of this Agreement and the consummation by such Seller of the transactions contemplated hereby are
within such Seller’s powers and have been duly authorized by all necessary action on the part of
such Seller. This Agreement constitutes (assuming the due execution and delivery by each of the
other parties hereto and, as applicable, thereto) a legal, valid and binding obligation of such
Seller enforceable against such Seller in accordance with its terms, except as such enforcement may
be limited by or subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting creditors’ rights
generally and general equitable principles (whether considered in a proceeding in equity or at
law).

          Section 4.2   The Knowles Shares. Except as set forth on Schedule 4.2, such
Seller is the record and beneficial owner of the shares of Common Stock set forth opposite such
Seller’s name on Schedule A and the shares of Preferred Stock set forth opposite such
Seller’s name on Schedule B, in each case, free and clear of any liens, claims,
encumbrances, security interests, options, charges or restrictions of any kind
(“Encumbrances”) other than (i) applicable transfer restrictions pursuant to federal, state
or foreign securities or antitrust laws, (ii) those Encumbrances that will be released on or prior
to the Closing Date and (iii) those Encumbrances created by the Buyer. Upon transfer of the
Knowles Shares to the Buyer on the Closing Date in accordance with Article II, the Buyer will
receive good title to such Seller’s Knowles Shares, free and clear of any Encumbrances other than
(i) applicable transfer restrictions pursuant to federal, state or foreign securities or antitrust
laws and (ii) those Encumbrances created by the Buyer.

ARTICLE V

REPRESENTATIONS AND WARRANTIES RELATING TO KNOWLES

          Except as set forth in the Schedules, Knowles represents and warrants to the Buyer that:

          Section 5.1   Organization and Standing. Except as set forth on Schedule 5.1, Knowles (i) is a corporation duly
incorporated, validly existing and in good standing under the laws of the State of Delaware, has
the corporate power and authority and possesses all material governmental franchises, licenses,
permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its
properties and assets and to

5

 

carry on the Business as presently conducted, except such governmental
franchises, licenses, permits, authorizations and approvals the absence of which would not
reasonably be expected to have a Material Adverse Effect; and (ii) where applicable, is duly
qualified and in good standing to do business as a foreign corporation in each jurisdiction in
which the conduct or nature of its business or the ownership, leasing or holding of its properties
make such qualification or good standing necessary, except such jurisdictions where the failure to
be so qualified or in good standing, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.

          Section 5.2   Consents. Except as set forth on Schedule 5.2 or as required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”),
or Applicable Foreign Antitrust Law, no material consent, approval, license, permit, order or
authorization (each, a “Consent”) of, or registration, declaration or filing (each, a
“Filing”) with, any Governmental Entity, which has not been obtained or made by Knowles, is
required for or in connection with the execution and delivery of this Agreement by Knowles, and the
consummation by Knowles of the transactions contemplated hereby, other than such Consents and
Filings (i) the failure of which to obtain or make, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on the ability of Knowles to consummate
the transactions contemplated hereby or (ii) required by reason of the regulatory status and
operations of the Buyer.

     Section 5.3   Capital Stock of Knowles.

               (a)   The authorized issued and outstanding capital stock of Knowles as of the date hereof
consists of 947,500.000 shares of Class A Common Stock, no shares of Class B Common Stock, par
value $0.001 per share, 164,444.444 shares of Series A-1 Preferred Stock and 20,555.656 shares of
Series A-2 Preferred Stock; all of such outstanding shares of capital stock are duly authorized and
validly issued, fully paid and nonassessable. As of the date hereof, 52,500.000 shares of Common
Stock are held by Knowles as treasury stock.

               (b)   Except as set forth on Schedule 5.3(b): (i) the Knowles Shares have not been
issued in violation of any purchase option, call, right of first refusal, preemptive, subscription
or similar rights under any provision of Applicable Law, the organizational documents of Knowles,
or any contract, agreement or instrument to which Knowles is subject or by which it is bound; and
(ii) there are no outstanding warrants, options, rights, agreements, convertible or exchangeable
securities or other commitments(other than this Agreement, the Options and the Stock Plans) pursuant to which Knowles is or
may become obligated to issue, sell, purchase, return or redeem any shares of capital stock or
other securities of Knowles. As of the date hereof, there are options to acquire 225,922 shares of
Common Stock outstanding under Knowles’ 2001 Stock Option Plan, and there are options to acquire
45,835 shares of Common Stock outstanding under Knowles’ 2004 Stock Option Plan. There are no
outstanding or authorized appreciation, phantom interest, profit participation or similar rights
with respect to Knowles. Except as

6

 

set forth on Schedule 5.3(b), there are no voting
trusts, proxies or other agreements or undertakings with respect to the voting of the capital stock
of Knowles.

          Section 5.4   Non-contravention. Except as set forth on Schedule 5.4, neither
the execution and the delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) violate any Applicable Law, except for such violations which,
individually or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect, (ii) violate any provision of the certificate of incorporation or bylaws (or other
comparable organizational documents) of any of Knowles and its Subsidiaries or (iii) result in a
breach of, constitute a default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel any agreement, contract, lease, license, instrument, or
other arrangement to which any of Knowles and its Subsidiaries is a party or by which their
respective properties or assets are bound (or result in the imposition of any Encumbrances upon any
of its assets), except for such breaches, defaults, accelerations, rights or Encumbrances, which,
individually or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.

          Section 5.5   Subsidiaries. Schedule 5.5 sets forth a true, correct, and
complete list of each Subsidiary of Knowles as of the date hereof, together with the following:
(i) jurisdiction of formation or incorporation; (ii) the number of issued and outstanding shares of
each class of its capital stock or units, the names of the registered owner of the shares or units,
the number of shares owned and the percentage interest held by each such holder; and (iii) its
directors and officers or governors and managers. Knowles has previously made available to the
Buyer correct and complete copies of the charter, by-laws or other governing documents of each
Subsidiary of Knowles (as amended to date). Except as set forth on Schedule 5.5, (i) each
Subsidiary of Knowles is duly organized, validly existing and, where applicable, in good standing
under the laws of its jurisdiction of incorporation, has the corporate or other organizational
power and authority and possesses all material governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties
and assets and to carry on its business as presently conducted, except such governmental
franchises, licenses, permits, authorizations and approvals the absence of which would not
reasonably be expected to have a Material Adverse Effect; and (ii) where applicable, each of such
Subsidiaries is duly qualified and in good standing to do business as a foreign corporation in each
jurisdiction in which the conduct or nature of its business or the ownership, leasing or holding of its
properties makes such qualification or good standing necessary, except such jurisdictions where the
failure to be so qualified or in good standing, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. All the outstanding shares of capital
stock of such Subsidiaries are duly authorized and validly issued and outstanding, fully paid and
nonassessable and owned, either directly or indirectly, by Knowles free and clear of all
Encumbrances, except for (i) applicable transfer restrictions pursuant to federal, state or foreign
securities or antitrust laws, and/or (ii) those Encumbrances that will be released on or prior to
the Closing Date (including those Encumbrances set forth on Schedule 5.5). None of such
outstanding shares of capital stock of such Subsidiaries has been issued in violation of any

7

 

purchase option, call, right of first refusal, preemptive, subscription or similar rights under any
provision of Applicable Law, the respective organizational documents of such Subsidiaries, or any
contract, agreement or instrument to which such Subsidiary is subject or by which it is bound.
There are no outstanding warrants, options, rights, agreements, convertible or exchangeable
securities or other commitments pursuant to which any of such Subsidiaries is or may become
obligated to issue, sell, purchase, return or redeem any shares of capital stock or other
securities of such Subsidiary. There are no outstanding or authorized appreciation, phantom
interest, profit participation or similar rights with respect to any Subsidiary. There are no
voting trusts, proxies or other agreements or undertakings with respect to the voting of the
capital stock of any Subsidiary.

          Section 5.6   Financial Statements. Knowles has delivered or made available to the
Buyer true and complete copies of (a) the audited consolidated balance sheets of Knowles for the
fiscal years ended December 31, 2002, 2003 and 2004, respectively, and the related statements of
income and cash flows for the fiscal years then ended and (b) the unaudited consolidated balance
sheet (the “Most Recent Balance Sheet”) and statements of income, changes in shareholders’
equity and cash flow as of and for the month ended June 30, 2005 for Knowles and its Subsidiaries
(collectively, including any notes and schedules thereto, the “Company Financial
Statements”). Except as otherwise indicated in the Company Financial Statements, the balance
sheets and statements of income included in the Company Financial Statements have been prepared in
accordance with GAAP consistently applied throughout the relevant periods, except that the
unaudited statements are subject to normal year end adjustments and lack footnotes and other
presentation items, and present fairly, in all material respects, the consolidated financial
position and the results of operations of Knowles and its Subsidiaries as of the dates and for the
periods presented therein. The Company Financial Statements have been prepared from, and are in
accordance with, the books and records of Knowles and its Subsidiaries relating thereto, which
books and records have been regularly kept and maintained in accordance with Knowles’ normal and
customary practices.

          Section 5.7
   Absence of Certain Changes. Since December 31, 2004, except as
set forth on Schedule 5.7 and except to the extent contemplated by or in connection with
this Agreement, Knowles (through itself and any of its Subsidiaries) has not (i) conducted its
business in any material respect not in the ordinary course of business consistent with past
practice or (ii) suffered any change in its business, operations or financial position which
changes, individually or in the aggregate, have had a Material Adverse Effect.

          Section 5.8   Litigation. Except as set forth on Schedule 5.8, as of the date
hereof, there is no Action pending, or to the knowledge of Knowles, threatened in writing, against
Knowles or any of its Subsidiaries that (a) involves a claim in excess of $750,000, (b) involves a
claim for an unspecified amount which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect or (c) seeks injunctive relief which, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect. Except as set forth
on Schedule 5.8, there are no material outstanding

8

 

judgments, decrees, injunctions or
orders of any Governmental Entity by which Knowles or any of its Subsidiaries or any of their
respective assets or properties are bound.

          Section 5.9   Compliance with Applicable Laws. Except as set forth on Schedule
5.9, (a) Knowles and each of its Subsidiaries is in compliance with all Applicable Laws except
for such instances of non-compliance which would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect and (b) Knowles and its Subsidiaries have all
governmental permits, licenses and authorizations necessary for the conduct of the Business as
presently conducted (the “Permits”) and are in compliance with the terms of the Permits,
except where the failure to have any such Permit or any such non-compliance would not, in either
case, be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect;
provided, however, that Knowles makes no representation or warranty in this Section
5.9 with respect to employee and benefit matters, Taxes, or environmental matters, which matters
are exclusively addressed in Sections 5.13, 5.14 and 5.15 hereto, respectively.

          Section 5.10   Material Contracts. Set forth on Schedule 5.10(a) is a list of
the following contracts and agreements in effect on the date of this Agreement (other than the
plans, arrangements and agreements set forth on Schedules 5.11 and 5.13): (i) each
contract or agreement (other than purchase orders and similar agreements entered into in the
ordinary course of business consistent with past practice) for the purchase of any materials,
supplies or services that requires an annual expenditure by Knowles or any of its Subsidiaries of
more than $1,000,000; (ii) each personal property lease under which Knowles or any of its
Subsidiaries is either a lessor or lessee that requires annual payments or receipts of more than
$1,000,000; (iii) each contract or agreement (other than purchase orders and similar agreements
entered into in the ordinary course of business consistent with past practice) with a customer that requires annual payments to Knowles or any of its Subsidiaries of more
than $1,000,000; (iv) material agreements granting or obtaining any right to use any Intellectual
Property Rights (other than agreements granting rights to use readily available commercial software
having an acquisition price of less than $200,000 in the aggregate for all such related
agreements); and (v) each other commitment, agreement and instrument (including mortgages,
indentures and other agreements and instruments relating to indebtedness for borrowed money) to
which Knowles or any of its Subsidiaries is a party or by which it or its properties are bound that
has a term of more than one year and requires annual payments by Knowles or such Subsidiary of more
than $1,000,000. Except as set forth on Schedule 5.10(b), (x) to the knowledge of Knowles,
as of the date hereof, each Material Contract is valid, binding and in full force and effect; and
(y) neither Knowles nor any of its Subsidiaries has received written notice prior to the date
hereof that any party to a Material Contract is in breach or default, and, to the knowledge of
Knowles, as of the date hereof, no event has occurred that, with notice or lapse of time, would
constitute a breach or default, or permit termination, modification or acceleration under a
Material Contract. As used in this Agreement, the term “Material Contract” means any
commitment, agreement, lease, order or instrument required to be set forth on Schedule
5.10(a), 5.11 or 5.13.

9

 

          Section 5.11   Intellectual Property.

               (a)   Except as set forth on Schedule 5.11(a) or as, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect, since June 30, 2002, neither
Knowles nor any of its Subsidiaries has (i) to the knowledge of Knowles, infringed upon,
misappropriated, or violated any Intellectual Property Rights of third parties in any respect, or
(ii) received in writing any charge, complaint, claim, demand, or notice alleging any such
infringement, misappropriation, or violation (including any claim that Knowles or any of its
Subsidiaries must license or refrain from using any Intellectual Property Rights of any third
party). Except as set forth on Schedule 5.11(a) or as, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect, since June 30, 2003, to the
knowledge of Knowles, no third party has infringed upon, misappropriated, or violated any
Intellectual Property Rights of Knowles or any of its Subsidiaries in any material respect.

               (b)   Schedule 5.11(b) identifies each patent or registration which has been issued to
Knowles or any of its Subsidiaries with respect to any of its material patents, trademarks,
copyrights and Internet domain names and identifies each pending patent application or application
for registration that Knowles or any of its Subsidiaries has made with respect to any of its
material patents, trademarks, or copyrights and identifies each license or sublicense that Knowles
or any of its Subsidiaries has granted to any third party with respect to any of its material
Intellectual Property Rights (together with any exceptions). With respect to each item required to
be identified in Schedule 5.11(b) of the Disclosure Schedule, except as, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse Effect, or as set forth on Schedule
5.11(b):

                    (i)   Knowles or any of its Subsidiaries possess all right, title, and
interest in and to the item, free and clear of any lien;

                    (ii)   the item is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge; and

                    (iii)   no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the knowledge of Knowles, is
threatened that challenges the legality, validity, enforceability, use, or
ownership of the item.

               (c)   As used herein, the term “Intellectual Property Rights” shall mean all of the
following in any jurisdiction throughout the world: (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, slogans, trade names, corporate names, Internet domain names,
and rights in telephone numbers, together with all translations, adaptations, derivations, and
combinations thereof and

10

 

including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection therewith, (d) all mask works and
all applications, registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including confidential and proprietary ideas, research and
development, know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (f) all computer software
(including source code, executable code, data, databases, and related documentation), (g) all
proprietary rights in advertising and promotional materials, (h) all other proprietary rights, and
(i) all copies and tangible embodiments thereof (in whatever form or medium).

          Section 5.12   Affiliate Transactions. Except as set forth on Schedule 5.12
or 5.13, to the knowledge of Knowles, as of the date hereof, there is no ongoing agreement
or arrangement between any Seller or any controlled affiliate of any Seller (other than Knowles and
its Subsidiaries), on the one hand, and Knowles or any of its Subsidiaries, on the other hand,
involving annual payments in excess of $250,000.

          Section 5.13   Benefit Plans; Employees.

               (a)   Schedule 5.13(a) lists each “employee benefit plan” (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)),
and any other benefit or incentive plan or agreement sponsored or maintained by Knowles and its
Subsidiaries (or to which Knowles or any of its Subsidiaries has or had any obligation to
contribute) for the benefit of current and former employees of Knowles and its Subsidiaries (other
than any plans required by the law of any applicable jurisdiction to be sponsored or maintained)
(such employees, the “Knowles Employees” and such plans and arrangements, the “Knowles
Plans”). Copies or descriptions of the Knowles Plans have been or will be furnished or made
available to the Buyer.

               (b)   Except as set forth on Schedule 5.13(b), each Knowles Plan (and each related
trust, insurance contract or fund) has been maintained, funded and administered in all material
respects in compliance with the terms of such plan and all Applicable Laws.

               (c)   None of Knowles or any of its Subsidiaries has within the most immediately preceding
five (5) years with respect to any Knowles Plan incurred a material liability arising from a
“reportable event” (as such term is used in Section 4043 of ERISA), “prohibited transaction” (as
such term is used in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the “Code”)) or “accumulated funding deficiency” (as such term is used in Section
412 or 4971 of the Code).

               (d)   No material litigation or administrative or other proceeding involving any Knowles Plan
has, as of the date hereof, occurred or, to the knowledge of Knowles, is threatened (other than
routine claims for benefits by participants).

11

 

               (e)   Neither Knowles nor any of its Subsidiaries contributes to a “multiemployer plan”
(within the meaning of Section 3(37) of ERISA), and neither Knowles or any Subsidiary nor any
member of the group required to be aggregated with Knowles or any of its Subsidiaries for purposes
of Title IV of ERISA has incurred any withdrawal liability under Title IV of ERISA which remains
unsatisfied in an amount which, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect.

               (f)   Except as set forth on Schedule 5.13(f), neither Knowles nor any of its
Subsidiaries is a party to or bound by any collective bargaining or similar labor agreement, and
there are no existing or, to the knowledge of Knowles, threatened material labor disputes involving
the current employees of Knowles or any of its Subsidiaries.

               (g)   Except as set forth on Schedule 5.13(g), with respect to each Knowles Plan that
is a defined benefit pension plan, the present value of all vested and non-vested accrued benefits
under such plan, based upon the actuarial assumptions used in the most recent actuarial report
prepared by such plan’s actuary (determined in accordance with PBGC methods, factors, and
assumptions applicable to a defined benefit plan terminating on the date for determination) with
respect to such plan did not exceed, as of its latest valuation date, the then current value of the
assets of such plan allocable to such accrued benefits. No such plan has been completely or partially terminated. No proceeding by
the PBGC to terminate any such plan has been instituted or, to the knowledge of Knowles,
threatened. Neither Knowles nor any of its Subsidiaries has incurred any liability to the PBGC or
otherwise under Title IV of ERISA or under the Code with respect to any such defined benefit plan
that has not been satisfied in full, and, to the knowledge of Sellers, no circumstance exists that
would reasonably be expected to result in such a liability.

          Section 5.14   Taxes. Except as set forth on Schedule 5.14: (i) all material
Returns required to be filed by, or with respect to any activities of, Knowles or any of its
Subsidiaries have been filed (except those under valid extension); (ii) all material Taxes which
were shown to be due on such Returns have been paid (unless such Taxes are being contested in good
faith); (iii) there is no action, suit, proceeding, investigation, claim or audit now pending
against, or with respect to, Knowles or any of its Subsidiaries in respect of any Taxes or
assessments which, if determined adversely, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect; and (iv) Knowles is not and has not been a United
States real property holding company within the meaning of Section 897(c)(2) of the Code.

          Section 5.15   Environmental Matters. Except as set forth on Schedule 5.15 or
except as would not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect:

               (a)   Each of Knowles and its Subsidiaries has been and is in compliance with all
Environmental Laws.

12

 

               (b)   Without limiting the generality of the foregoing, each of Knowles, its Subsidiaries, and
their respective Affiliates has obtained, has complied with or has timely applied for or requested
renewal thereof, and is in compliance with all Environmental Permits for the occupation of its
facilities and the operation of its business.

               (c)   Neither Knowles, or any of its Subsidiaries nor their respective Affiliates has received
any written notice, report or other information regarding any actual or alleged material violation
of Environmental Laws, or any material liabilities or potential material liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any material investigatory,
remedial or corrective obligations, relating to any of them or their facilities arising under
Environmental Laws, excluding liabilities in the nature of obligations arising out of compliance
with applicable Environmental Laws in the ordinary course of business.

               (d)   Sellers, Knowles, and its Subsidiaries have furnished to Buyer all environmental audits,
reports and other material environmental assessments relating to Knowles’ or its Subsidiaries’ past or current properties, facilities, or operations that are
in their possession.

               (e)   The representations and warranties set forth herein are the sole and exclusive
representations and warranties related to environmental matters in this Agreement.

          Section 5.16   Real Property.

               (a)   Schedule 5.16(a) lists all material real property owned by Knowles and/or its
Subsidiaries. With respect to each parcel of owned real property listed on Schedule
5.16(a):

               (i)   the identified owner has good and marketable fee simple title to the
parcel of real property, free and clear of any Encumbrances, except the
encumbrances identified on Schedule 5.16(a)(i) (the “Real Estate
Encumbrances”) and Permitted Encumbrances;

               (ii)   except as identified on Schedule 5.16(a)(ii) there are no
outstanding options or rights of first refusal to purchase the real property, or
any portion or interest of the real property; nor has the identified owner leased
or otherwise granted the right to use or occupy such owned real property or any
portion thereof;

               (iii)   to the knowledge of Knowles the identified owner has received no
notice of actual or threatened special assessments or reassessments of the real
property; and

               (iv)   to the knowledge of Knowles the identified owner has not received
written notice from any Governmental Authority

13

 

regarding any currently pending or threatened condemnation or similar eminent domain proceeding against the real
property.

               (b)   Schedule 5.16(b) lists all material real property leased or subleased to
Knowles. Knowles has delivered to the Buyer true and complete copies of the leases and subleases
listed on Schedule 5.16(b). With respect to each lease and sublease listed on Schedule
5.16(b):

               (i)   the lease or sublease is legal, valid, binding, enforceable and in full
force and effect (subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors’ rights generally and general equitable principles (whether
considered in a proceeding in equity or at law)); and

               (ii)   to the knowledge of Knowles no party to the lease or sublease is in
breach or default.

               (c)   The real property identified on Schedule 5.16(a) and the leased real property
identified on Schedule 5.16(b) (collectively, the “Real Property”) comprise all of
the material real property used in the business of Knowles and its Subsidiaries.

               (d)   To the knowledge of Knowles all buildings, structures, fixtures, building systems and
equipment, and all components thereof, included in the Real Property (the “Improvements”)
are in good condition and repair, ordinary wear and tear excepted, and sufficient for the operation
of the business of Knowles and its Subsidiaries as currently conducted.

          Section 5.17   Products Liability. As of the date of this Agreement, there is no
Action pending or, to the knowledge of Knowles, threatened against Knowles or any of its
Subsidiaries concerning any product that is designed, manufactured, distributed, or sold by Knowles
or any of its Subsidiaries (a “Product”), relating to or resulting from an alleged defect
in the design, manufacture, materials or workmanship of any Product, or, with respect to any
Product, any alleged failure to warn or any alleged breach of express warranties or
representations, except for any of the foregoing that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.

          Section 5.18   Brokers. Other than Credit Suisse First Boston LLC (whose fees will be
paid by Knowles concurrent with the Closing pursuant to Section 2.2(c)), neither Knowles nor any of
its Subsidiaries has employed any investment banker, broker or finder or incurred any liability for
any investment banking fees, brokerage fees, commissions or finders’ fees or any other fees or
commissions to investment bankers, brokers or finders in connection with the transactions
contemplated by this Agreement for which Knowles or any of its Subsidiaries has or could have any
liability.

14

 

          Notwithstanding anything contained in Article IV and this Article V or any other provision of
this Agreement, it is the explicit intent of each party hereto that neither Knowles nor any Seller
is making any representation or warranty whatsoever, express or implied, except those
representations and warranties set forth in Article IV and this Article V, and in entering into
this Agreement and acquiring the Knowles Shares from the Sellers, the Buyer expressly acknowledges
and agrees that it is not relying on any statement, representation or warranty, including, but not
limited to, those which may be contained in any confidential information memorandum or similar
materials containing information regarding Knowles, its Subsidiaries or any of their businesses or
in any materials provided to the Buyer during the course of its due diligence investigation of Knowles, other than those representations and warranties set forth in Article IV and this
Article V.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF THE BUYER

          Each of the Buyer and Parent, severally and jointly, hereby represent and warrant to Knowles
and the Sellers as follows:

          Section 6.1   Organization and Existence. Each of the Buyer and Parent is a
corporation duly incorporated, validly existing and in good standing under the laws of the State of
Delaware and has all corporate power and authority required to enter into this Agreement and
consummate the transactions contemplated hereby.

          Section 6.2   Authorization. The execution, delivery and performance by each of the
Buyer and Parent of this Agreement and the consummation by each of them of the transactions
contemplated hereby are within the each of the Buyer’s and Parent’s powers and have been duly
authorized by all necessary action on the part of the Buyer and Parent. This Agreement
constitutes, (assuming the due execution and delivery by each of the other parties hereto), a
legal, valid and binding obligation of the Buyer and Parent, as applicable, enforceable against
each of them in accordance with their terms, except as such enforcement may be limited by or
subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws relating to or affecting creditors’ rights generally and general equitable
principles (whether considered in a proceeding in equity or at law).

          Section 6.3   Non-contravention. Neither the execution and the delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i) violate any
Applicable Law, except for such violations which, individually or in the aggregate, would not
reasonably be expected to materially impair or delay the ability of the Buyer or Parent to effect
the Closing, (ii) violate any provision of the certificate of incorporation or bylaws of Buyer or
Parent or (iii) result in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel any agreement, contract,
lease, license, instrument, or other arrangement

15

 

to which Buyer, Parent or any of their respective Subsidiaries is a party or by which their respective properties or assets are bound (or result in
the imposition of any Encumbrances upon any of its assets), except for such breaches, defaults,
accelerations, rights or Encumbrances, which, individually or in the aggregate, would not reasonably be expected to materially impair or delay the ability of
the Buyer or Parent to effect the Closing.

          Section 6.4   Consents. Except as required under the HSR Act or Applicable Foreign
Antitrust Law, no Consent of, or Filing with, any Governmental Entity, which has not been obtained
or made by the Buyer or Parent, is required for or in connection with the execution and delivery of
this Agreement by the Buyer and Parent, and the consummation by the Buyer and Parent of the
transactions contemplated hereby, other than such Consents and Filings the failure of which to
obtain or make, individually or in the aggregate, would not materially impair or delay the ability
of the Buyer or Parent to effect the Closing.

          Section 6.5   Litigation. There are no Actions against either the Buyer or Parent
pending, or to the knowledge of the Buyer or Parent, threatened in writing against the Buyer or
Parent which seek to, and neither the Buyer or Parent is not subject to any judgments, decrees,
injunctions or orders of any Governmental Entity which, individually or in the aggregate, would
enjoin, rescind or materially delay the transactions contemplated by this Agreement or otherwise
prevent the Buyer or Parent from complying in all material respects with the terms and provisions
of this Agreement.

          Section 6.6   Brokers. None of the Buyer, Parent or any of their respective
directors, officers, employees or affiliates has employed any investment banker, broker or finder
or incurred any liability for any investment banking fees, brokerage fees, commissions or finders’
fees or any other fees or commissions to investment bankers, brokers or finders in connection with
the transactions contemplated by this Agreement for which any Seller or any affiliate thereof, or,
in the event the Closing does not occur, any Seller, Knowles or any of their respective affiliates,
has or could have any liability.

          Section 6.7   Investment Intent. The Buyer and Parent acknowledge that neither the
offer nor the sale of the Knowles Shares has been registered under the Securities Act of 1933, as
amended (together with the rules and regulations promulgated thereunder, the “Securities
Act”), or under any state or foreign securities laws. The Buyer is acquiring the Knowles
Shares for its own account for investment, without a view to, or for a resale in connection with,
the distribution thereof in violation of the Securities Act or any applicable state securities laws
and with no present intention of distributing or reselling any part thereof. The Buyer will not,
and Parent will cause the Buyer not to, so distribute or resell any of the Knowles Shares in
violation of any such law.

          Section 6.8   Available Funds. The Buyer has, and on the Closing Date will have, sufficient funds to purchase the Knowles
Shares and pay the Purchase Price in accordance with the terms hereof, pay all related fees and
expenses and effect all other transactions contemplated hereby.

16

 

          Section 6.9   Investigation. The Buyer and Parent are knowledgeable about the
industries in which Knowles and its Subsidiaries operate and is experienced in the acquisition and
management of businesses. The Buyer and Parent have been afforded reasonable access to the books,
records, facilities and personnel of Knowles and its Subsidiaries for purposes of conducting a due
diligence investigation of Knowles. The Buyer and Parent have conducted a reasonable due diligence
investigation of Knowles and its Subsidiaries and has received satisfactory answers to all
inquiries they has made respecting Knowles and its Subsidiaries and their businesses. To the
knowledge of the Buyer and Parent and except to the extent the Buyer or Parent have otherwise
advised the Sellers’ Representative in writing, none of the representations or warranties in
Articles IV or V is untrue or incorrect.

          Section 6.10   Disclaimer Regarding Projections, Forecasts and Business Plans. In
connection with the Buyer’s and Parent’s investigation of Knowles, the Buyer and Parent have
received from Knowles and its affiliates, agents and representatives certain projections and other
forecasts, including but not limited to projected financial statements, cash flow items and other
data of Knowles and its Subsidiaries and certain business plan information of Knowles and its
Subsidiaries. The Buyer and Parent acknowledges that there are uncertainties inherent in
attempting to make such projections and other forecasts and plans and accordingly is not relying on
them, that the Buyer and Parent are familiar with such uncertainties, that the Buyer and Parent are
taking full responsibility for making its own evaluation of the adequacy and accuracy of all
projections and other forecasts and plans so furnished to it, and that the Buyer shall have no
claim against anyone with respect thereto. Accordingly, the Buyer and Parent acknowledge that,
without limiting the generality of the last paragraph of Article V, none of Knowles, Key or any of
the other Sellers, or any of the representatives, agents or Affiliates of the foregoing, has made
any representation or warranty with respect to such projections and other forecasts and plans.

          Notwithstanding anything contained in Article VI or any other provision of this Agreement, it
is the explicit intent of each party hereto that the Buyer is not making any representation or
warranty whatsoever, express or implied, except those representations and warranties set forth in
this Article VI, and in entering into this Agreement and in selling the Knowles Shares to the
Buyer, the Sellers expressly acknowledge and agree that they are not relying on any statement,
representation or warranty other than those representations and warranties set forth in this
Article VI.

ARTICLE VII

COVENANTS

          Section 7.1   Conduct of the Business.

               (a)   From the date hereof until the Closing Date, except as (i) contemplated by this
Agreement, (ii) required by any commitment, agreement, lease,

17

 

order or instrument to which Knowles or any of its Subsidiaries is a party or (iii) set forth on Schedule 7.1, Knowles shall,
and shall cause its Subsidiaries to, operate their business in the ordinary course of business
consistent with past practice and (b) from the date hereof to the Closing Date, except as (i)
contemplated by this Agreement, (ii) required by any commitment, agreement, lease, order or
instrument to which Knowles or any Subsidiary is a party or (iii) set forth on Schedule
7.1, Knowles and its Subsidiaries shall not, except in the ordinary course of business
consistent with past practice, do any of the following, to the extent applicable, without the prior
written consent of the Buyer (which consent shall not be unreasonably withheld, conditioned or
delayed):

               (i)   grant to any Knowles Employee any increase in compensation or benefits,
except (A) for normal salary increases following performance reviews and payment
of any performance-based incentives upon the achievement of performance goals as
in effect immediately prior to the date of this Agreement, (B) in connection with
any newly hired employees filling positions that are, as of the date of this
Agreement, vacant (or which become vacant due to terminations of employment and/or
promotions) and in connection with any promotions, (C) as may be required under
existing Knowles Plans or (D) as may be required by Applicable Law;

               (ii)   make any material change in any method of accounting or accounting
practice or policy other than in accordance with GAAP;

               (iii)   amend its Second Restated Certificate of Incorporation, as amended
through the date hereof, or Amended and Restated By-laws (or other organizational
documents);

               (iv)   other than as set forth on Schedule 7.1(iv), redeem or
otherwise acquire any shares of its capital stock or issue any capital stock or
any options, warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock;

               (v)   acquire all or a substantial portion of the assets or capital stock of
any business or any corporation, partnership, association or other business
organization or division thereof;

               (vi)   make or incur any capital expenditure (other than as contemplated
under Schedule 7.1(vi)) which, individually, is in excess of $1,000,000;

               (vii)   pay, loan or advance any amount to, or sell, transfer or lease any of
its assets to, or enter into any agreement or arrangement with, the Sellers or any
of their respective affiliates (other than Knowles and its Subsidiaries);

18

 

               (viii)   amend or terminate any Material Contract, or enter into any
agreement that, if existing on the date of this Agreement, would be a Material
Contract, except as required by law or such Material Contract;

               (ix)   modify, amend, terminate or permit the lapse of, in any material
manner, any lease of, operating agreement or other agreement relating to any real
property material to the business of Knowles and its Subsidiaries (except for the
lapse or termination of any lease or agreement in accordance with its terms);

               (x)   permit any of its assets to become subjected to any Encumbrance which
would reasonably be expected to result in a Material Adverse Effect, other than
those Encumbrances existing prior to the date of this Agreement which would be
removed at or prior to Closing or except as required by Applicable Law;

               (xi)   other than as set forth on Schedule 7.1(xi), sell, lease or
otherwise dispose of any of its assets which are material, individually or in the
aggregate, to Knowles and its Subsidiaries taken as a whole; or

               (xii)   incur or assume any liabilities, obligations or indebtedness for
borrowed money or guarantee any such liabilities, obligations or indebtedness that
would otherwise remain outstanding following the Closing; and

               (xiii)   delay payments to vendor or suppliers beyond normal and ordinary
payment terms (except with respect to payment obligations being contested in good
faith) in any material respect or offer any material inducements or incentives to
customers to pay earlier than normal and ordinary payment terms, in each case,
other than as may be reasonably customary in the industries in which Knowles and
its Subsidiaries operate.

               (b)   Other than the right to consent or withhold consent with respect to the foregoing
matters, nothing contained herein shall give the Buyer any right to manage, control, direct or be
involved in the management of Knowles, its Subsidiaries or the Business prior to the Closing.

          Section 7.2   Access to Information.

               (a)   From the date of this Agreement until the earlier of the termination of this Agreement
and the Closing, Knowles shall give the Buyer and its authorized representatives reasonable access
to the offices, executive officers, properties, books and records of Knowles and its Subsidiaries
during normal business hours and upon reasonable prior notice, provided that such access
shall not interfere with normal operations

19

 

of Knowles and its Subsidiaries, and shall furnish to the Buyer and its authorized representatives such financial and operating data and other
information as the Buyer may reasonably request; provided, however, that the
foregoing shall not require Knowles or its Subsidiaries to provide any such access or furnish any
such information that in its reasonable judgment would result in the disclosure of any trade
secrets of third parties or violate any Applicable Law or violate any obligations with respect to
confidentiality or, in the reasonable judgment of Knowles, compromise or constitute a waiver of any
attorney-client privilege of Knowles or its Subsidiaries.

               (b)   Any information regarding Knowles and its Subsidiaries heretofore obtained from or on
behalf of the Sellers or Knowles or any of its Subsidiaries by the Buyer or hereafter obtained from
or on behalf of the Sellers or Knowles or any of its Subsidiaries by the Buyer shall be subject to
the terms of the Confidentiality Agreement and such information shall be held by the Buyer in
accordance with the terms of such Confidentiality Agreement.

          Section 7.3   Cooperation; Regulatory Filings. The Buyer and Knowles agree to
reasonably cooperate with each other and to use their respective reasonable efforts to facilitate
the completion of the transactions contemplated hereunder as promptly as practicable, including,
without limitation, furnishing to each other such necessary information and reasonable assistance
as may be reasonably requested in connection with the preparation of necessary Filings or
submissions to any Governmental Entity in connection with the transactions contemplated hereby.
Without limiting the foregoing, to the extent applicable, Knowles, the Sellers and the Buyer shall
make or cause to be made as soon as practicable after the date hereof (to the extent not already
made) all Filings required by the parties hereto or on their behalf under the HSR Act or Applicable
Foreign Antitrust Law relating to the transactions contemplated hereby and shall use their
reasonable efforts to cause the waiting period thereunder to expire as quickly as possible.

          Section 7.4   Post-Closing Books and Records. After the Closing, upon reasonable written notice, the Buyer shall furnish or cause to be
furnished to the Sellers and their respective counsel, auditors and representatives access, during
normal business hours, such information and assistance relating to Knowles and its Subsidiaries as
is reasonably necessary for financial reporting and accounting matters, the preparation and filing
of any Return or the defense of any Tax claim or assessment. Each Seller shall reimburse Knowles
for reasonable out-of-pocket costs and expenses incurred in assisting such Seller pursuant to this
Section 7.4.

          Section 7.5   Expenses. Except as otherwise provided in this Agreement, whether or
not the Closing takes place, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.

20

 

          Section 7.6   Benefit Plans.

               (a)   Continuation of Compensation and Benefits. To the extent permitted by law,
during the period through the first (1st) anniversary of the Closing Date (the
“Protected Period”), the Buyer shall, or shall cause Knowles and its Subsidiaries (or any
successor thereof) to, provide Knowles Employees with compensation levels (including base salary
and wage rates and target bonus opportunities) and benefits that are, in the aggregate, no less
favorable than to those provided to such employees under the Knowles Plans immediately prior to the
Closing Date; provided, however, that during the Protected Period, the Buyer shall,
or shall cause Knowles and its Subsidiaries (or any successor thereof) to, maintain the severance
plans set forth on Schedule 7.6(a) without adverse amendment thereto.

               (b)   Service Credit; Pre-Existing Conditions; Co-payments and Deductibles.

               (i)   The Buyer shall cause each Knowles Employee to be given credit for all
purposes (except for accrual of benefits under any qualified defined benefit
pension plans) for all service, on and prior to the Closing Date, with Knowles and
its Subsidiaries (to the extent taken into account under similar Knowles Plans in
effect immediately prior to the Closing Date) under each employee benefit plan,
program and arrangement maintained for his or her benefit on or after the Closing
Date.

               (ii)   With respect to any welfare benefit plans maintained for the benefit
of Knowles Employees on and after the Closing Date, the Buyer shall (i) cause
there to be waived any pre-existing condition limitations and waiting periods and
(ii) give effect, in determining any deductible and maximum out-of-pocket
limitations for the year in which the Closing Date occurs, to claims incurred and amounts paid by, and amounts
reimbursed to, such employees under similar Knowles Plans in effect immediately
prior to the Closing Date.

               (c)   Incentive Plans. On the Closing Date, Knowles shall pay all amounts due any
eligible Knowles Employee under the Retention Incentive Plan, the Asia Retention Incentive Plan,
the Value Enhancement Incentive Plan and the Asia Value Enhancement Incentive Plan, each as set
forth on Schedule 7.6(c)(i).

               (d)   Employment Agreements. Following the Closing, the Buyer shall, and shall cause
its affiliates (including Knowles) to, honor in accordance with its terms each employment agreement
entered into between Knowles and a Knowles Employee that is in effect immediately prior to the
Closing.

          Section 7.7   Termination of Certain Agreements. Except as set forth on Schedule
7.7, all agreements between any Seller or any affiliate of any Seller (other than Knowles and
its Subsidiaries), on the one hand, and any of Knowles or any of its Subsidiaries,

21

 

on the other hand, shall be terminated as of the Closing Date, and all obligations and liabilities thereunder
shall be satisfied on the Closing Date other than any agreements relating to the indemnification of
current directors and officers of Knowles or any of its Subsidiaries.

          Section 7.8   FIRPTA Certificate. Immediately prior to the Closing, Knowles shall
furnish to the Buyer a certification in accordance with Treasury Regulation Section 1.445-2(c),
certifying that an interest in Knowles is not a United States real property interest because
Knowles is not and has not been a United States real property holding corporation (as defined in
Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code.

          Section 7.9   Director and Officer Liability and Indemnification. For the duration of
the period of six (6) years commencing on the Closing Date, the Buyer shall not, and shall not
permit Knowles or any of its Subsidiaries to amend, repeal or otherwise modify any provision in
Knowles’ or any of its Subsidiaries’ certificate of incorporation (or equivalent governing
document) or bylaws relating to the exculpation or indemnification of any officers and/or directors
(unless required by law), it being the intent of the parties hereto that the present (as of the
Closing) and former officers and directors of Knowles and its Subsidiaries shall continue to be
entitled to such exculpation and indemnification to the full extent of the law. In addition, the
Buyer shall cause Knowles to maintain in effect for the duration of the period of six (6) years
commencing on the Closing Date directors’ and officers’ liability insurance covering those persons
who are currently covered by Knowles’ directors’ and officers’ liability insurance policy with
coverage limits not lower in any respect than, and otherwise on terms no less favorable to the insured parties than, Knowles’ insurance coverage as in effect on the date
hereof. This covenant is intended to be for the benefit of, and shall be enforceable by, each of
the present and former officers and directors of Knowles or any of its Subsidiaries.

          Section 7.10   Knowles Europe Pension Plan. The Buyer shall indemnify each of the
Sellers and all associated and connected persons (as those terms are defined in Sections 249 and
435 of the Insolvency Act 1986) of the Sellers against all liability, costs and/or expenses each of
them might incur because of the issuance of contribution notices and/or financial support
directions under the Pensions Act 2004 or by virtue of Section 75 Pensions Act 1995 in respect of
the Knowles Europe Pension Plan and all other liability each may incur in respect of the Knowles
Europe Pension Plan as a consequence of the acquisition of the Knowles Shares by the Buyer. This
covenant is intended to be for the benefit of, and shall be enforceable by, each of the Sellers
associated and connected persons (as those terms are defined in Sections 249 and 435 of the
Insolvency Act 1986).

          Section 7.11   Exclusivity. Neither Key nor Knowles shall (a) solicit, initiate or
encourage the submission of any proposal or offer from any Person relating to the acquisition of
any capital stock or other voting securities, or any substantial portion of the assets, of Knowles
and its Subsidiaries (including any acquisition structured as a merger, consolidation or share
exchange), or (b) participate in any discussions or negotiations

22

 

regarding, furnish any non-public information with respect to, assist or participate in, or facilitate in any other manner any effort
or attempt by any Person (other than the Buyer, Parent or their respective Affiliates) to do or
seek any of the foregoing.

ARTICLE VIII

CONDITIONS TO CLOSING

          Section 8.1   Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the Closing is subject to the reasonable satisfaction (or waiver, in whole or in part,
to the extent permitted by Applicable Law, by the Buyer) on and as of the Closing Date of each of
the following conditions:

               (a)   (i) Knowles and each Seller shall have performed and satisfied in all material respects
each of its respective agreements and obligations set forth in this Agreement required to be
performed and satisfied by each of them at or prior to the Closing except to the extent that the
failure to have performed or satisfied such agreements or obligations, individually or in the
aggregate, have not resulted in a material diminution in the value of Knowles to the Buyer; (ii) the representations and warranties of
Knowles and the Sellers contained in this Agreement shall be complete, true and correct as of the
Closing Date, as if made at and as of such date (except that those representations and warranties
which are made as of a specific date shall be complete and correct only as of such date), except to
the extent that breaches thereof, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect; and (iii) the Buyer shall have received
a certificate signed by an authorized officer of Knowles to the foregoing effect.

               (b)   The waiting period applicable to the purchase and sale of the Knowles Shares under the
HSR Act shall have been terminated or shall have expired and all material Consents of and Filings
with any Governmental Entity, including under Applicable Foreign Antitrust Law, which are necessary
for the consummation by the Buyer of the transactions contemplated by this Agreement shall have
been obtained or made, except for such Consents and Filings, the failure of which to obtain,
individually or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect and the failure of which to obtain would not subject the Buyer or any officer, director or
agent of the Buyer to civil or criminal liability.

               (c)   No temporary restraining order, preliminary or permanent injunction, cease and desist
order or other legal restraint or prohibition of any Governmental Entity preventing the purchase
and sale contemplated hereby or the consummation of the transactions to be effected by the Buyer at
the Closing shall be in effect.

               (d)   Knowles shall have executed and delivered to the Buyer the certificate referenced in
Section 7.8.

23

 

     The Buyer may waive any condition specified in this Section 8.1 by providing a written waiver
at or prior to the Closing.

          Section 8.2   Conditions to Obligation of the Sellers. The obligations of the Sellers
to consummate the Closing are subject to the reasonable satisfaction (or waiver, in whole or in
part, to the extent permitted by Applicable Law, by the Sellers’ Representative) of each of the
following conditions:

               (a)   (i) The Buyer shall have performed and satisfied in all material respects each of its
agreements and obligations set forth in this Agreement required to be performed and satisfied by it
at or prior to the Closing; (ii) the representations and warranties of the Buyer contained in this
Agreement, shall be complete and correct at and as of the Closing Date, as if made at and as of
such date (except that those representations and warranties which are made as of a specific date
shall be complete and correct only as of such date), except to the extent that breaches thereof,
individually or in the aggregate, have not had, and would not reasonably be expected to have, a
material adverse effect on the ability of the Buyer to perform its obligations under this
Agreement; and (iii) the Sellers shall have received a certificate signed by an authorized officer of the Buyer to the
foregoing effect.

               (b)   The waiting period applicable to the purchase and sale of the Shares under the HSR Act
shall have been terminated or shall have expired and all material Consents of and Filings with any
Governmental Entity, including under Applicable Foreign Antitrust Law, which are necessary for the
consummation of the transactions by the Sellers contemplated by this Agreement shall have been
obtained or made, except for such Consents and Filings the failure of which to obtain, individually
or in the aggregate, would not reasonably be expected to have a material adverse effect on the
ability of the Buyer to perform its obligations under this Agreement and the failure of which to
obtain would not subject any Seller or any officer, director or agent of any Seller to civil or
criminal liability.

               (c)   No temporary restraining order, preliminary or permanent injunction, cease and desist
order or other legal restraint or prohibition of any Governmental Entity preventing the purchase
and sale contemplated hereby or the consummation of the transactions to be effected by the Sellers
at the Closing shall be in effect.

24

 

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

          Section 9.1   Termination.

               (a)   Notwithstanding anything to the contrary in this Agreement, this Agreement may be
terminated and the transactions contemplated hereby abandoned at any time prior to the Closing (i)
by mutual written consent of the Sellers’ Representative and the Buyer, (ii) by the Sellers’
Representative or the Buyer, if the Closing does not occur on or prior to December 31, 2005 (the
“Outside Date”); provided, however, that the party seeking termination
pursuant to this clause (ii) is not in breach of any of its representations, warranties, covenants
or agreements contained in this Agreement, (iii) by the Sellers’ Representative or the Buyer if, as
a result of action or inaction by the other party, the Closing shall not have occurred on or prior
to the date that is ten (10) Business Days following the date on which all of the conditions to
Closing set forth in Section 8.1 or 8.2 are satisfied or waived, (iv) by the Seller’s
Representative or the Buyer if any Governmental Entity shall have issued a order, decree or ruling
or taken any other action (which the parties hereto shall use all reasonable efforts to lift)
permanently restrains, enjoins or otherwise prohibits the consummation of the transactions
contemplated hereby and such order, decree, ruling or other action shall have become final and
non-appealable; (v) by the Buyer if the Sellers or Knowles shall have breached in any material
respect any of their representations, warranties, covenants or other agreements contained in this
Agreement, which breach (i) cannot be cured by the Outside Date and (ii) which would result in any
of the conditions in Section 8.1 not being satisfied by the Outside Date; or (vi) by the Sellers’
Representative if the Buyer or Parent shall have breached in any material respect any of their
representations, warranties, covenants or other agreements contained in this Agreement, which
breach cannot be cured, which would result in any of the conditions in Section 8.2 not being
satisfied by the Outside Date.

               (b)   In the event of termination by any party hereto pursuant to this Section 9.1, written
notice thereof shall forthwith be given to the other party and the transactions contemplated by
this Agreement shall be terminated, without further action by any party. If the transactions
contemplated by this Agreement are terminated as provided herein, the Buyer shall promptly return
to the Sellers’ Representative and its affiliates all documents and other material received from or
on behalf of such Persons relating to the transactions contemplated hereby, whether so obtained
before or after the execution hereof.

               (c)   If this Agreement is terminated and the transactions contemplated hereby are abandoned
as described in this Section 9.1, this Agreement shall become null and void and of no further force
and effect, except for the provisions of (i) Sections 5.18 and 6.6 relating to broker’s fees, (ii)
this Section 9.1, (iii) Section 10.10 relating to publicity, (iv) Section 7.5 relating to certain expenses, (v) Section 10.2
relating to notices, (vi) Section 10.7 relating to governing law, (vii) Section 10.9 relating to

25

 

consent to jurisdiction, (viii) Section 10.12 relating to the Sellers’ Representative, (ix) Section
10.16 relating to the construction and interpretation of this Agreement, and provided that
the provisions of the Confidentiality Agreement shall continue in full force and effect. Nothing
in this Section 9.1 shall be deemed to release any party hereto from any liability for any willful
and intentional breach by such party of the terms and provisions of this Agreement.

          Section 9.2   Amendments and Waivers. This Agreement may not be amended except by an
instrument in writing signed on behalf of the Buyer and the Sellers’ Representative. Any of the
parties hereto may, by an instrument in writing signed on behalf of such party, waive compliance by
any other party hereto with any term or provision of this Agreement that such other party hereto
was or is obligated to comply with or perform.

ARTICLE X

MISCELLANEOUS

          Section 10.1   No Survival. The representations and warranties made in this Agreement
or in any other agreement, certificate or other document extended in connection herewith shall not
survive the Closing. The covenants and agreements contained in this Agreement and to be performed
at or prior to the Closing shall not survive the Closing; the covenants and agreements contained
herein to be performed or complied with after the Closing shall survive the Closing in accordance
with their respective terms.

          Section 10.2   Notices. All notices, requests and other
communications hereunder shall be in writing (including wire, telefax or similar writing) and shall
be sent, delivered or mailed, addressed, or telefaxed:

	 	 	 
	(a)  

	 	if to the Buyer or Parent, to:
	 
	 	 
	 

	 	Dover Electronics, Inc.
	 

	 	267 Lowell Road, Suite 100
	 

	 	Hudson, New Hampshire 03051-4916
	 

	 	Attention: Robert A. Livingston
	 

	 	Facsimile: (603) 578-4025
	 
	 	 
	 

	 	Dover Corporation
	 

	 	280 Park Avenue
	 

	 	New York, New York 10017-1292
	 

	 	Attention: Joseph Schmidt
	 

	 	Facsimile: (212) 922-1656

26

 

	 	 	 
	 

	 	with a copy (which shall not constitute notice) to:
	 
	 	 
	 

	 	Coughlin & Gerhart, LLP
	 

	 	20 Hawley Street
	 

	 	P.O. Box 2039
	 

	 	Binghamton, New York 13902
	 

	 	Attention: Robert J. Smith
	 

	 	Facsimile: (607) 723-1530
	 
	 	 
	(b)  

	 	if to Knowles, to:
	 
	 	 
	 

	 	Knowles Electronics Holdings, Inc.
	 

	 	1151 Maplewood Drive
	 

	 	Itasca, Illinois 60143
	 

	 	Attention: James H. Moyle
	 

	 	Facsimile: (630) 285-5804
	 
	 	 
	 

	 	with a copy (which shall not constitute notice) to each of:
	 
	 	 
	 

	 	Key Acquisition, L.L.C.
	 

	 	c/o Doughty Hanson & Co., Inc.
	 

	 	152 West 57th Street
	 

	 	New York, New York 10019
	 
	 	 
	 

	 	Attention: Company Secretary
	 

	 	Facsimile: (212) 641-3750
	 
	 	 
	 

	 	Skadden, Arps, Slate, Meagher & Flom (UK) LLP
	 

	 	40 Bank Street
	 

	 	Canary Wharf
	 

	 	London E14 5DS, England
	 

	 	Attention: Allan Murray-Jones
	 

	 	Facsimile: (44) 207-519-7070
	 
	 	 
	 

	 	and
	 
	 	 
	 

	 	Skadden, Arps, Slate, Meagher & Flom LLP
	 

	 	4 Times Square
	 

	 	New York, New York 10036
	 
	 	 
	 

	 	Attention: Mark C. Smith
	 

	 	                Allison R. Schneirov
	 

	 	Facsimile: (212) 735-2000

27

 

	 	 	 
	(c)  

	 	if to the Sellers, to the Sellers’ Representative:
	 
	 	 
	 

	 	Key Acquisition, L.L.C.
	 

	 	c/o Doughty Hanson & Co., Inc.
	 

	 	152 West 57th Street
	 

	 	New York, New York 10019
	 

	 	Attention: Company Secretary
	 

	 	Facsimile: (212) 641-3750
	 
	 	 
	 

	 	with a copy (which shall not constitute notice) to each of:
	 
	 	 
	 

	 	Skadden, Arps, Slate, Meagher & Flom (UK) LLP
	 

	 	40 Bank Street
	 

	 	Canary Wharf
	 

	 	London E14 5DS, England
	 

	 	Attention: Allan Murray-Jones
	 

	 	Facsimile: (44) 207-519-7070
	 
	 	 
	 

	 	and
	 
	 	 
	 

	 	Skadden, Arps, Slate, Meagher & Flom LLP
	 

	 	4 Times Square
	 

	 	New York, New York 10036
	 

	 	Attention: Mark C. Smith
	 

	 	                Allison R. Schneirov
	 

	 	Facsimile: (212) 735-2000

Each such notice, request or other communication shall be given (i) by mail (postage prepaid,
registered or certified mail, return receipt requested), (ii) by hand delivery, (iii) by nationally
recognized courier service or (iv) by telefax, receipt confirmed (with a confirmation copy to be
sent by first class mail; provided that the failure to send such confirmation copy shall
not prevent such telefax notice from being effective). Each such notice, request or communication
shall be effective (i) if mailed, three days after mailing at the address specified in this Section
10.1 (or in accordance with the latest unrevoked written direction from such party), (ii) if
delivered by hand or by nationally recognized courier service, when delivered at the address
specified in this Section 10.1 (or in accordance with the latest unrevoked written direction from
the receiving party) and (iii) if given by telefax, when such telefax is transmitted to the telefax
number specified in this Section 10.1 (or in accordance with the latest unrevoked written direction
from the receiving party), and the appropriate confirmation is received.

          Section 10.3   Schedules. Disclosures included in any schedule to this Agreement (a “Schedule”) shall be
considered to be made for purposes of all Schedules if it is reasonably apparent from the face of
such disclosure that the disclosure would also be applicable to some other Schedule. Inclusion of
any matter or item in any Schedule does not imply that such matter or item would, under the
provisions of this Agreement,

28

 

have to be included in any Schedule or that such matter or term is
otherwise material. In addition, matters disclosed in any Schedule are not necessarily limited to
matters required by this Agreement to be disclosed in the Schedules, and any such additional
matters are set forth for informational purposes only and do not necessarily include other matters
of a similar nature.

          Section 10.4   Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof. If any provision of this Agreement, or the
application thereof to any Person or any circumstance, is found to be invalid or unenforceable in
any jurisdiction, (a) a suitable and equitable provision shall be substituted therefor in order to
carry out, so far as may be valid or enforceable, such provision and (b) the remainder of this
Agreement and the application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other
jurisdiction.

          Section 10.5   Counterparts. This Agreement may be executed in two (2) or more
counterparts (including by means of facsimile), each of which shall be deemed an original and all
of which shall, taken together, be considered one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of a
manually executed counterpart of this Agreement.

          Section 10.6   Entire Agreement; No Third Party Beneficiaries. This Agreement (a)
constitutes the entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties hereto with respect to the subject matter hereof and (b) other
than with respect to Section 7.9, is not intended to confer upon any Person (including any Knowles
Employee) other than the parties hereto, any rights or remedies hereunder; provided that
nothing herein shall be construed to modify or supersede the Confidentiality Agreement, it being
understood that such Confidentiality Agreement shall continue to be in full force and effect
notwithstanding the execution or termination of this Agreement.

          Section 10.7   Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws, and
not the laws governing conflicts of laws (other than Sections 5-1401 and 5-1402 of the New York
General Obligations Law), of the State of New York.

          Section 10.8   Specific Performance. The parties hereto hereby agree that irreparable
damage would occur in the event that the provisions of this Agreement were not performed in
accordance with their specific terms. Accordingly, it is hereby agreed that the parties hereto
shall be entitled to an injunction or injunctions to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this being in addition
to any other remedy to which they are entitled at law or in equity.

29

 

          Section 10.9   Consent to Jurisdiction. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the United States District Court for the Southern District
of New York located in the borough of Manhattan in the City of New York, or if such court does not
have jurisdiction, the Supreme Court of the State of New York, New York County, for the purposes of
any suit, action or other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of the parties hereto hereby further agrees that service of any process, summons,
notice or document by United States registered mail to the respective address of such party set
forth in Section 10.2 shall be effective service of process for any action, suit or proceeding in
New York with respect to any matters to which it has submitted to jurisdiction as set forth above
in the immediately preceding sentence. Each of the parties hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby in (a) the United States
District Court for the Southern District of New York or (b) the Supreme Court of the State of New
York, New York County, and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.

          Section 10.10   Publicity. None of the parties hereto nor their respective affiliates
shall issue or cause the publication of any press release or other public announcement or
communication with respect to the transactions contemplated by this Agreement without the consent
of the Sellers’ Representative (with respect to the Sellers) and the Buyer, which consent shall not
be unreasonably withheld or withdrawn, except to the minimum extent necessary to comply with the
requirements of law or the regulations or policies of any securities exchange, in which case the
party hereto required to make the release or statement or communication shall allow the Sellers’
Representative or the Buyer, as the case may be, reasonable time to comment on such release or
statement or communication in advance of such issuance, disclosure or filing.

          Section 10.11   Assignment. Neither this Agreement nor any of the rights or
obligations hereunder shall be assigned by any of the parties hereto without the prior written
consent of each of the other parties hereto. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns. Any attempted assignment in violation of the terms of
this Section 10.11 shall be null and void, ab initio.

          Section 10.12   Sellers’ Representative.

               (a)   Each of the Sellers hereby authorizes and appoints Key as its agent, proxy,
attorney-in-fact and representative under this Agreement (the “Sellers’ Representative”) to
take such action, as it determines in its judgment appropriate, on behalf of such Seller, to
exercise such rights, power and authority, as are authorized, delegated and granted to the Sellers’
Representative on behalf of the Sellers (including, to give and receive notices and communications,
to receive on behalf of and deliver to any Seller any

30

 

amounts due to such Seller under this Agreement, to waive satisfaction of the conditions to the Sellers’ obligations to consummate the
Closing pursuant to Section 8.2, to terminate or consent to the termination of this Agreement
pursuant to Section 9.1(a), to amend this Agreement pursuant to Section 9.2, to consent to or
comment on public communications pursuant to Section 10.10 and to take all actions necessary or
appropriate in the judgment of the Sellers’ Representative for the accomplishment of the
foregoing). By its execution hereof, each Seller hereby authorizes, delegates and grants to the
Sellers’ Representative authority to take all actions that this Agreement provides are to be taken
by the Sellers’ Representative.

               (b)   Each Seller agrees that the Sellers’ Representative shall not (i) be liable for any
actions taken or omitted to be taken by it or any agent employed by it under or in connection with
this Agreement or the transactions contemplated hereby, or (ii) owe any fiduciary duty or have any
fiduciary responsibility to any of the Sellers or Knowles as a result of their actions taken as the
Sellers’ Representative pursuant to this Agreement, except for such actions taken or omitted to be
taken resulting from the Sellers’ Representative’s gross negligence or willful misconduct. Without
limiting the foregoing, (i) each Seller, jointly and severally, hereby agrees to defend, indemnify
and hold harmless the Sellers’ Representative and its Affiliates and each of their respective
officers, directors, employees and agents from and against all expenses (including fees and
expenses of counsel), losses, claims, fines, liabilities, damages, judgments or amounts paid in
settlement in respect of any threatened, pending or completed claim, action, suit or proceeding,
whether criminal, civil, administrative or investigative, based on, arising out of or relating to
the fact that such Person is or was a Sellers’ Representative hereunder or arising out of acts or
omissions of such Person in such capacity occurring on or prior to the Closing (including in
respect of acts or omissions in connection with this Agreement and the transactions contemplated hereby). The Sellers’ Representative shall not be liable to
any Seller for any apportionment or distribution of payments made by it in good faith, and, if any
such apportionment or distribution is subsequently determined to have been made in error, the sole
recourse of any Seller to whom payment was due, but not made, shall be to recover from other
Sellers, as applicable, any payment in excess of the amount to which they are determined to have
been entitled pursuant to this Agreement.

          Section 10.13   Waiver. FROM AND AFTER THE CLOSING, EXCEPT FOR ANY RIGHTS OR CLAIMS
OF OR BY ANY FORMER OFFICER OR DIRECTOR OF KNOWLES OR ITS SUBSIDIARIES TO OR FOR INDEMNIFICATION
FROM KNOWLES OR ANY OF ITS SUBSIDIARIES (AND EXCEPT AS SET FORTH IN SECTION 7.9 HEREOF), THE
SELLERS AND THE BUYER HEREBY RELEASE AND FOREVER DISCHARGE KNOWLES AND THEIR RESPECTIVE DIRECTORS,
OFFICERS, SHAREHOLDERS, EMPLOYEES, AGENTS, REPRESENTATIVES, SUBSIDIARIES, AFFILIATES, SUCCESSORS
AND ASSIGNS OF AND FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, LIABILITIES,
DAMAGES, EXPENSES AND SUITS OF EVERY KIND, CHARACTER AND DESCRIPTION, KNOWN OR UNKNOWN, AT LAW OR
IN EQUITY, OTHER THAN FOR FRAUD, WHICH THE SELLERS OR THE BUYER

31

 

MAY HAVE HAD AT ANY TIME HERETOFORE, MAY HAVE NOW OR MAY HAVE AT ANY TIME HEREAFTER, ARISING FROM, RELATING TO, RESULTING
FROM OR IN ANY MANNER INCIDENTAL TO ANY AND EVERY MATTER, THING OR EVENT WHATSOEVER OCCURRING OR
FAILING TO OCCUR AT ANY TIME IN THE PAST UP TO AND INCLUDING THE DATE OF THIS AGREEMENT AND, BY
RECEIPT OF THE CONSIDERATION TO BE RECEIVED BY SUCH SELLER AND THE KNOWLES SHARES TO BE RECEIVED BY
THE BUYER AT CLOSING, UP TO AND INCLUDING THE CLOSING, INCLUDING MATTERS RELATING TO (I) KNOWLES,
(II) THE KNOWLES SHARES, THE OPTIONS OR ANY OTHER OWNERSHIP INTEREST IN KNOWLES AND ITS
SUBSIDIARIES AND (III) ANY INFORMATION PROVIDED BY THE COMPANIES TO THE SELLERS AND THE BUYER IN
CONNECTION WITH OR RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

          Section 10.14   Parent Guarantee.

               (a)   Parent, as primary obligor and not merely as surety, hereby, absolutely, unconditionally
and irrevocably guarantees to the Sellers, for the benefit of the Sellers and their respective
successors, transferees and assigns, the prompt and complete performance by the Buyer of all of its
covenants, agreements, obligations and liabilities under or pursuant to this Agreement, whether
fixed, contingent, now existing or hereafter arising, created, assumed, incurred or acquired, in
each case subject to the terms and conditions of this Agreement, including the obligation of the Buyer to pay the Purchase
Price and any other amounts that may be payable by the Buyer under or in connection with the
Purchase Agreement (collectively, the “Guaranteed Obligations”). Until satisfaction in
full of the Guaranteed Obligations, Parent expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which Parent may now or
hereafter have against the Sellers arising from the existence or performance of this Agreement.

               (b)   The obligations of Parent hereunder are independent of the obligations of Buyer with
respect to all or any part of the Guaranteed Obligations and, in the event of any default
hereunder, a separate action or actions may be brought and prosecuted against Parent. In
addition, the obligations of Parent hereunder are primary and unconditional and the Sellers shall
not be required to bring an action against the Buyer to enforce its rights against Parent with
respect to the Guaranteed Obligations.

          Section 10.15   Acknowledgement of Disclosure, etc.. Buyer acknowledges the matters
set forth on Schedule 10.15 and agrees (x) that it is purchasing Knowles subject to all
liabilities arising from these disclosed matters and (y) that such liabilities, if any, shall not
result in the failure to satisfy any condition to the obligations of the Buyer set forth in Section
8.1 or, for the avoidance of doubt, any liability on the part of the Sellers.

32

 

          Section 10.16   Construction.

               (a)   The parties hereto have participated jointly in the negotiation and drafting of this
Agreement. This Agreement shall be construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting or causing any instrument to be drafted.

               (b)   The descriptive headings herein are inserted for convenience only and are not intended
to be part of or to affect the meaning or interpretation of this Agreement. References in this
Agreement to any gender include references to all genders, and references to the singular include
references to the plural and vice versa. The words “include”, “includes” and “including” when used
in this Agreement shall be deemed to be followed by the phrase “without limitation”. Unless
otherwise noted, references in this Agreement to Articles, Sections, Exhibits, Schedules,
Appendices and Attachments shall be deemed references to Articles and Sections of, and Exhibits,
Schedules, Appendices and Attachments to, this Agreement. All references to this Agreement shall
be deemed to include this Agreement and all Exhibits, Schedules, Appendices and Attachments to this
Agreement, which are made a part hereof and incorporated herein by reference. Unless the context
otherwise requires, the words “hereof”, “hereby” and “herein” and words of similar meaning when
used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. Unless otherwise
indicated, references in this Agreement to dollars are to United States dollars.

33

 

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

	 	 	 	 	 
	 	 	KNOWLES ELECTRONICS HOLDINGS, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ John J. Zei
	 

	 	 	 	 
	 

	 	 	 	Name: John J. Zei
	 

	 	 	 	Title:
	 
	 	 	 	 
	 	 	KEY ACQUISITION, L.L.C.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Timothy D. Robson
	 

	 	 	 	 
	 

	 	 	 	Name: Timothy D. Robson
	 

	 	 	 	Title: Treasurer

	 	 	 
	 

	 	/s/ John J. Zei
	 

	 	 
	 

	 	John J. Zei
	 
	 	 
	 

	 	/s/ Jeffery S. Niew
	 

	 	 
	 

	 	Jeffery S. Niew
	 
	 	 
	 

	 	/s/ Dennis R. Kirchhoefer
	 

	 	 
	 

	 	Dennis R. Kirchhoefer
	 
	 	 
	 

	 	/s/ Stephen D. Petersen
	 

	 	 
	 

	 	Stephen D. Petersen
	 
	 	 
	 

	 	/s/ James E. Knowles
	 

	 	 
	 

	 	James E. Knowles
	 
	 	 
	 

	 	/s/ James Hugh Knowles
	 

	 	 
	 

	 	James Hugh Knowles
	 
	 	 
	 

	 	/s/ Charles L. Knowles
	 

	 	 
	 

	 	Charles L. Knowles
	 
	 	 
	 

	 	/s/ Charles C. Schink
	 

	 	 
	 

	 	Hugh C. Schink
	 
	 	 
	 

	 	/s/ Reg G. Garratt
	 

	 	 
	 

	 	Reg G. Garratt

 

 

	 	 	 
	 

	 	/s/ Peter V. Loeppert
	 

	 	 
	 

	 	Peter V. Loeppert
	 
	 	 
	 

	 	/s/ Randyll W. Kjell
	 

	 	 
	 

	 	Randyll W. Kjell
	 
	 	 
	 

	 	/s/ Susan Knowles Bates
	 

	 	 
	 

	 	Susan Knowles Bates
	 
	 	 
	 

	 	/s/ Richard J. S. Bates
	 

	 	 
	 

	 	Richard J.S. Bates
	 
	 	 
	 

	 	/s/ Raymond D. Cabrera
	 

	 	 
	 

	 	Raymond D. Cabrera
	 
	 	 
	 

	 	/s/ Nancy J. Knowles
	 

	 	 
	 

	 	Nancy J. Knowles
	 
	 	 
	 

	 	Marital Trust under the
	 

	 	Hugh S. Knowles Trust DTD 8/22/74

	 	 	 	 	 
	 

	 	By:
	 	/s/ Nancy W. Knowles
	 

	 	 	 	 
	 

	 	Name:
	 	Nancy W. Knowles
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ John W. Hupp
	 

	 	 	 	 
	 

	 	Name:
	 	John W. Hupp
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Beth Engel
	 

	 	 	 	 
	 

	 	Name:
	 	Bank of America, N.A.
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	Nancy W. Knowles Trust under the

Hugh S. Knowles Trust DTD 8/22/74
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Nancy W. Knowles
	 

	 	 	 	 
	 

	 	Name:
	 	Nancy W. Knowles
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ John W. Hupp
	 

	 	 	 	 
	 

	 	Name:
	 	John W. Hupp
	 

	 	 	 	Title: Trustee

 

 

	 	 	 	 	 
	 

	 	By:
	 	/s/ Beth Engel
	 

	 	 	 	 
	 

	 	Name:
	 	Bank of America, N.A.
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	James E. Knowles Trust under the

Hugh S. Knowles Trust DTD 8/22/74
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Nancy W. Knowles
	 

	 	 	 	 
	 

	 	Name:
	 	Nancy W. Knowles
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ John W. Hupp
	 

	 	 	 	 
	 

	 	Name:
	 	John W. Hupp
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Beth Engel
	 

	 	 	 	 
	 

	 	Name:
	 	Bank of America, N.A.
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	James E. Knowles D/O/T dated 12/18/96
	 
	 	 	 	 
	 

	 	By:
	 	/s/ James E. Knowles
	 

	 	 	 	 
	 

	 	Name:
	 	James E. Knowles
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	Margaret Knowles Schink u/t/a dtd 10/27/72
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Margaret Knowles Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Margaret Knowles Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Katherine Knowles Strasburg Separate

Property Revocable Trust u/t/a/ dtd 12/3/88
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Katherine Knowles Strasburg
	 

	 	 	 	 
	 

	 	Name:
	 	Katherine Knowles Strasburg
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Nancy W. Knowles D/O/T dated
4/18/90
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Nancy W. Knowles
	 

	 	 	 	 
	 

	 	Name:
	 	Nancy W. Knowles
	 

	 	 	 	Title: Trustee

 

 

	 	 	 	 	 
	 	 	Theodore Knowles Schink u/t/a dtd 12/24/79
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Katherine Knowles Strasburg
	 

	 	 	 	 
	 

	 	Name:
	 	Katherine Knowles Strasburg
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	Laura Anne Strasburg u/t/a dtd 12/30/78
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Margaret Knowles Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Margaret Knowles Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	Paul A. Strasburg
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Paul A. Strasburg
	 

	 	 	 	 
	 

	 	Name:
	 	Paul A. Strasburg
	 

	 	 	 	Title: Custodian for Gregory Arthur
	 	 	Strasburg under the NY Uniform Gift to

Minors Act
	 
	 	 	 	 
	 	 	Paul A. Strasburg Revocable Trust u/t/a

dated 10/27/94
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Paul A. Strasburg
	 

	 	 	 	 
	 

	 	Name:
	 	Paul A. Strasburg
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Bates Children Trust II DTD 12/15/92
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Susan Knowles Bates
	 

	 	 	 	 
	 

	 	Name:
	 	Susan Knowles Bates
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Richard J.S. Bates
	 

	 	 	 	 
	 

	 	Name:
	 	Richard J.S. Bates
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Bates Children 1997 Irrevocable Trust

DTD 12/31/97
	 
	 	 	 	 
	 

	 	By:
	 	/s/ James Hugh Knowles
	 

	 	 	 	 
	 

	 	Name:
	 	James Hugh Knowles
	 

	 	 	 	Title: Successor Trustee

 

 

	 	 	 	 	 
	 	 	The James E. Knowles 1998 Gift Trust for

James
	 
	 	 	 	 
	 

	 	By:
	 	/s/ James H. Knowles
	 

	 	 	 	 
	 

	 	Name:
	 	James H. Knowles
	 

	 	 	 	Title: Trustee

	 	 	 	 	 
	 

	 	By:
	 	/s/ Robert E. Spellmeyer
	 

	 	 	 	 
	 

	 	 	 	Name: Robert E. Spellmeyer
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The James E. Knowles 1998 Gift Trust for

Charles
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Charles L. Knowles
	 

	 	 	 	 
	 

	 	Name:
	 	Charles L. Knowles
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Robert J. Nelson
	 

	 	 	 	 
	 

	 	 	 	Name: Robert J. Nelson
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The James E. Knowles 1998 Descendants

Trust for Susan
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Susan K. Bates
	 

	 	 	 	 
	 

	 	 	 	Name: Susan K. Bates
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Richard J. S. Bates
	 

	 	 	 	 
	 

	 	Name:
	 	Richard J.S. Bates
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Susan Knowles Bates 1998 Family

Trust
	 
	 	 	 	 
	 

	 	By:
	 	/s/ James Hugh Knowles
	 

	 	 	 	 
	 

	 	 	 	Name: James Hugh Knowles
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Robert Spellmeyer
	 

	 	 	 	 
	 

	 	 	 	Name: Robert Spellmeyer
	 

	 	 	 	Title: Trustee

 

 

	 	 	 	 	 
	 	 	The Richard J.S. Bates 1998 Family Trust
	 
	 	 	 	 
	 

	 	By:
	 	/s/ James Hugh Knowles
	 

	 	 	 	 
	 

	 	Name:
	 	James Hugh Knowles
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Katherine Knowles Strasburg Qualified Annuity

Trust for Laura Anne Strasburg, DTD 8/28/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Margaret Knowles Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Margaret Knowles Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Marsden S. Blois III
	 

	 	 	 	 
	 

	 	Name:
	 	Marsden S. Blois III
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Katherine Knowles Strasburg Qualified Annuity

Trust for Gregory Arthur Strasburg DTD 8/28/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Margaret Knowles Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Margaret Knowles Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Marsden S. Blois III
	 

	 	 	 	 
	 

	 	Name:
	 	Marsden S. Blois III
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Katherine Knowles Strasburg Irrevocable Trust

for Laura Anne Strasburg DTD 8/28/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Margaret Knowles Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Margaret Knowles Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Marsden S. Blois III
	 

	 	 	 	 
	 

	 	Name:
	 	Marsden S. Blois III
	 

	 	 	 	Title: Trustee

 

 

	 	 	 	 	 
	 
	 	 	 	 
	 	 	The Katherine Knowles Strasburg Irrevocable

Trust for Gregory Arthur Strasburg DTD 8/28/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Margaret Knowles Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Margaret Knowles Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Marsden S. Blois III
	 

	 	 	 	 
	 

	 	Name:
	 	Marsden S. Blois III
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Laura Anne Strasburg Irrevocable GST Trust

DTD 8/28/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Margaret Knowles Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Margaret Knowles Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Marsden S. Blois III
	 

	 	 	 	 
	 

	 	Name:
	 	Marsden S. Blois III
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Gregory Arthur Strasburg Irrevocable GST

Trust DTD 8/28/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Margaret Knowles Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Margaret Knowles Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Marsden S. Blois III
	 

	 	 	 	 
	 

	 	Name:
	 	Marsden S. Blois III
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Margaret Knowles Schink 1998 Gift Trust for

TAD u/a/d 8/14/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Katherine Knowles Strasburg
	 

	 	 	 	 
	 

	 	Name:
	 	Katherine Knowles Strasburg
	 

	 	 	 	Title: Trustee

 

 

	 	 	 	 	 
	 	 	The Margaret Knowles Schink 1998 Gift Trust for

Hugh u/a/d 8/14/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Katherine Knowles Strasburg
	 

	 	 	 	 
	 

	 	Name:
	 	Katherine Knowles Strasburg
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Hugh C. Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Hugh C. Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Margaret Knowles Schink Annuity 7 Trust u/a/d

9/3/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Katherine Knowles Strasburg
	 

	 	 	 	 
	 

	 	 
	 	Name: Katherine Knowles Strasburg
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Margaret Knowles Schink Annuity 12 Trust

u/t/a 9/3/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Katherine Knowles Strasburg
	 

	 	 	 	 
	 

	 	Name:	 	Katherine Knowles Strasburg
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Margaret Knowles Schink 1998 Descendants

Trust u/a/d 8/14/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Katherine Knowles Strasburg
	 

	 	 	 	 
	 

	 	Name:
	 	Katherine Knowles Strasburg
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Margaret Knowles Schink Trust under the Hugh
S. Knowles Trust dated 8/22/74
	 
	 	 	 	 
	 

	 	By:
	 	/s/ David A. Diamond
	 

	 	 	 	 
	 

	 	 	 	Name: J.P. Morgan Trust Company of Delaware
	 

	 	 	 	Title: Trustee

 

 

	 	 	 	 	 
	 	 	The Margaret Knowles Schink Sub-Trust under The
Hugh S. Knowles Trust dated 8/22/74
	 
	 	 	 	 
	 

	 	By:
	 	/s/ David A. Diamond
	 

	 	 	 	 
	 

	 	 	 	Name: J.P. Morgan Trust Company of Delaware
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	Katherine Knowles Strasburg Trust under The Hugh
S. Knowles Trust dated 8/22/74
	 
	 	 	 	 
	 

	 	By:
	 	/s/ David A. Diamond
	 

	 	 	 	 
	 

	 	Name:
	 	J.P. Morgan Trust Company of Delaware
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Katherine Knowles Strasburg Sub-Trust under
the Hugh S. Knowles Trust dated 8/22/74
	 
	 	 	 	 
	 

	 	By:
	 	/s/ David A. Diamond
	 

	 	 	 	 
	 

	 	 	 	Name: J.P. Morgan Trust Company of Delaware
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Margaret Knowles Schink 1998 Gift Trust for

Hugh u/a/d 8/14/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Katherine Knowles Strasburg
	 

	 	 	 	 
	 

	 	Name:
	 	Katherine Knowles Strasburg
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Hugh C. Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Hugh C. Schink
	 

	 	 	 	Title: Trustee
	 
	 	 	 	 
	 	 	The Margaret Knowles Schink 1998 Gift Trust for

Tad u/a/d 8/14/98
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Katherine Knowles Strasburg
	 

	 	 	 	 
	 

	 	Name:
	 	Katherine Knowles Strasburg

Title: Trustee
	 

	 	By:
	 	/s/ Hugh C. Schink
	 

	 	 	 	 
	 

	 	Name:
	 	Hugh C. Schink
	 

	 	 	 	Title: Trustee

 

 

	 	 	 	 	 
	 	 	DOVER ELECTRONICS, INC., as Buyer
	 
	 	 	 	 
	 

	 	By
	 	/s/ Robert A. Livingston
	 

	 	 	 	 
	 

	 	 	 	Name: Robert A. Livingston
	 

	 	 	 	Title: President
	 
	 	 	 	 
	 	 	DOVER CORPORATION, as Parent,
	 
	 	 	 	 
	 

	 	By
	 	/s/ Robert A. Tyre
	 

	 	 	 	 
	 

	 	 	 	Name: Robert A. Tyre
	 

	 	 	 	Title: Vice President,
	 

	 	 	 	          Corporate Development

 

 

Appendix A

          As used in the Agreement, the following terms shall have the following meanings:

          “2001 Option Cancellation Amount” shall have the meaning set forth in Section 2.3.

          “2001 Optionholders” shall mean those Optionholders to whom 2001 Options have been
granted.

          “2001 Options” shall mean the Options granted under Knowles’ 2001 Stock Option Plan.

          “2004 Option Cancellation Amount” shall have the meaning set forth in Section 2.3.

          “2004 Optionholders” shall mean those Optionholders to whom 2004 Options have been
granted.

          “2004 Options” shall mean the Options granted under Knowles’ 2004 Stock Option Plan.

          “Action” shall mean any action, claim, suit, arbitration, proceeding or investigation
by or before any Governmental Entity or arbitration tribunal.

          An “affiliate” of any Person shall mean any other Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under common control with,
such first Person.

          “Agreement” shall have the meaning set forth in the heading of the Agreement.

          “Applicable Foreign Antitrust Law” shall mean and include all foreign Applicable Law
designed or intended to regulate competition or investment (foreign or otherwise) or to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

          “Applicable Law” shall mean, with respect to any Person, any domestic or foreign,
federal, state, provincial or local statute, law, ordinance, rule, administrative interpretation,
regulation, order, writ, injunction, directive, judgment, decree or other requirement of any
Governmental Entity applicable to such Person or any of their respective properties or assets, in
effect as of the date of this Agreement.

          “Business” shall mean the business of Knowles.

 

 

          “Business Day” shall mean any day other than a Saturday or Sunday or any day banks in
the State of New York are authorized or required to be closed.

          “Buyer” shall have the meaning set forth in the heading of the Agreement.

          “Cash” means, as of a given time, all cash, cash equivalents and marketable securities
held by, or on behalf of, Knowles or any of its Subsidiaries at such time.

          “Chase Credit Agreement” shall mean the Credit Agreement, dated as of June 28, 1999,
as amended and restated as of July 21, 1999 and as amended through the Closing Date, among Knowles,
as parent borrower, the lenders party thereto, the JPMorgan Chase Bank, N.A., as successor to Chase
Manhattan Bank, as Administrative Agent, and Morgan Stanley Senior Funding, Inc., as Syndication
Agent.

          “Closing” shall have the meaning set forth in Section 3.1.

          “Closing Date” shall have the meaning set forth in Section 3.1.

          “Closing Date Debt Obligation Amount” shall mean, as of the Closing Date, the sum of
(i) the outstanding aggregate principal amount of indebtedness of Knowles on the Closing Date
incurred pursuant to the Chase Credit Agreement and the Xerion Credit Agreement (other than letters
of credit or other contingent obligations), in each case, together with any accrued and unpaid
interest, fees, prepayment penalties, redemption premiums, and other amounts owing thereunder, plus
(ii) the Closing Date Public Notes Obligation Amount, plus (iii) the outstanding principal amount
of the Key Notes on the Closing Date, together with any accrued and unpaid interest, fees,
prepayment penalties, redemption premiums, and other amounts owing thereunder.

          “Closing Date Public Notes Obligation Amount” shall mean, as of the Closing Date, the
outstanding principal amount of the Public Notes on the Closing Date, together with any accrued and
unpaid interest, fees, prepayment penalties, redemption premiums, and other amounts owing
thereunder to the applicable redemption date.

          “Code” shall have the meaning set forth in Section 5.13(c).

          “Common Consideration” shall have the meaning set forth Section 2.2(e).

          “Common Stock” shall have the meaning set forth in the recitals to the Agreement.

          “Company Financial Statements” shall have the meaning set forth in Section 5.5.

          “Confidentiality Agreement” shall mean the letter agreement, agreed and accepted as of
June 3, 2005, between Knowles and the Parent.

          “Consent” shall have the meaning set forth in Section 5.2.

A-2

 

          The term “control” (including its correlative meanings “controlled by” and
“under common control with”) shall mean possession, directly or indirectly, of the power to
direct or cause the direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).

          “Encumbrances” shall have the meaning set forth in Section 4.2.

          “Environmental Laws” shall mean all applicable federal, state, local and foreign
statutes, regulations, ordinances, and similar provisions having the force or effect of law, all
judicial and administrative orders and determinations, concerning public health, pollution, or
protection of the environment, including all those relating to the treatment, disposal, discharge,
release, threatened release, or cleanup of any hazardous materials, substances, or wastes, chemical
substances, or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products
or byproducts, asbestos, polychlorinated biphenyls, noise, or radiation in effect on the date of
this Agreement.

          “Environmental Permits” shall mean all permits, licenses, registrations, and other
authorizations required under applicable Environmental Laws.

          “Equity Purchase Price” shall have the meaning set forth in Section 2.1(b).

          “ERISA” shall have the meaning set forth in Section 5.13(a).

          “Filing” shall have the meaning set forth in Section 5.2.

          “GAAP” shall mean United States generally accepted accounting principles applied in a
manner consistent with those used in preparing the Latest Balance Sheet. With respect to any
calculation of Net Working Capital for the purposes of this Agreement, no change in accounting
principles shall be made from those set forth in the immediately preceding sentence, including,
without limitation, with respect to the nature of accounts, level of reserves or level of accruals.
For purposes of the preceding sentence, “changes in accounting principles” includes all changes in
accounting principles, policies, practices, procedures or methodologies with respect to financial
statements, their classification or presentation, as well as all changes in practices, methods,
conventions or assumptions (unless required by objective changes in underlying events) utilized in
making accounting estimates.

          “Governmental Entity” shall mean any federal, state, provincial or local governmental
authority, court, government or self-regulatory organization, commission, tribunal or organization
or any regulatory, administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.

          “Guaranteed Obligations” shall have the meaning set forth in Section 10.14.

          “HSR Act” shall have the meaning set forth in Section 5.2.

A-3

 

          “Indenture” shall mean the Indenture, dated as of October 1, 1999, among Knowles,
certain of its Subsidiaries and the Bank of New York, as trustee.

          “Intellectual Property Rights” shall have the meaning set forth in Section 5.11.

          “Key” shall have the meaning set forth in the heading of the Agreement.

          “Key Notes” shall mean the 10% Senior Subordinated Notes Due October 15, 2009 of
Knowles, issued under the Note Purchase Agreement, dated as of August 28, 2002, among Knowles, as
issuer, certain of its Subsidiaries, as subsidiary guarantors, and Key, as purchaser.

          “knowledge of Buyer” shall mean the actual knowledge of any executive officer of the
Buyer or Parent.

          “knowledge of Knowles” shall mean the actual knowledge of the key executives set forth
on Schedule C hereto.

          “Knowles” shall have the meaning set forth in the heading of the Agreement.

          “Knowles Employees” shall have the meaning set forth in Section 5.13(a).

          “Knowles Plans” shall have the meaning set forth in Section 5.13(a).

          “Knowles Shares” shall have the meaning set forth in the recitals to the Agreement.

          “Material Adverse Effect” shall mean a material adverse effect on the business,
assets, results of operations or condition (financial or otherwise) of Knowles and its
Subsidiaries, taken as a whole, except any such effect resulting from or arising in connection with
(i) the public announcement of the Sellers’ or any of their affiliates’ intent to sell the business
or capital stock of Knowles and its Subsidiaries, (ii) conditions affecting the acoustic
electronics components manufacturing industry generally, (iii) events affecting the United States
or global economy or capital or financial markets generally, (iv) changes in general economic
conditions affecting the industries in which Knowles and its Subsidiaries operate, (v) changes in
law or applicable regulations or the official interpretations thereof or in GAAP, (vi) the effect
of any war, act of terrorism, civil unrest or similar event, (vii) any existing event or occurrence
or circumstance with respect to which the Buyer has knowledge as of the date hereof, (viii) any
action taken, or any omission to act, by the Buyer or any of its Affiliates or (ix) the compliance
by Knowles with the terms of, or taking of any action contemplated or permitted by this Agreement.

          “Material Contracts” shall have the meaning set forth in Section 5.10.

A-4

 

          “Most Recent Balance Sheet” shall have the meaning set forth in Section 5.6.

          “Most Recent Fiscal Year End” shall mean December 31, 2004.

          “Optionholder” or “Optionholders” shall have the meaning set forth in Section
2.3.

          “Options” shall have the meaning set forth in Section 2.3.

          “Outside Date” shall have the meaning set forth in Section 9.1(a).

          “Permits” shall have the meaning set forth in Section 5.9.

          “Permitted Encumbrances” shall mean with respect to each parcel of Real Property: (a)
real estate taxes, assessments and other governmental levies, fees, or charges imposed with respect
to such Real Property that are (i) not due and payable as of the Closing Date or (ii) if due, (A)
not delinquent or (B) being contested in good faith; (b) mechanics’, workmen’s repairmen’s,
warehousemen’s, carrier’s, other similar liens for labor, materials, or supplies provided with
respect to such Real Property incurred in the Ordinary Course of Business for amounts that are (i)
not more than 30 days past due and or (ii) being contested in good faith; (c) zoning, building
codes and other land use laws regulating the use or occupancy of such Real Property or the
activities conducted thereon which are imposed by any governmental authority having jurisdiction
over such Real Property provided the operation of Knowles’ or any of its Subsidiaries’ business as
currently conducted is not prevented or restricted by the same; (d) easements, covenants,
conditions, restrictions, licenses, rights-of-way and other similar matters of record affecting
title to such Real Property that do not or would not impair the use or occupancy of such Real
Property in the operation of Knowles’ or its Subsidiaries’ business as currently conducted thereon;
(e) any conditions that may be shown by survey, title report or physical inspection (whether or not
made); (f) liens or title retention arrangements arising under original purchase price conditional
sales contracts and equipment leases with third parties entered into in the ordinary course of
business; liens or title retention arrangements arising under original purchase price conditional
sales contracts and equipment leases with third parties entered into in the ordinary course of
business consistent with past practice; (g) those Encumbrances that will be released on or prior to
the Closing Date; and (h) other Encumbrances which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

          “Person” shall mean any individual, corporation, partnership, limited liability
company, joint venture, trust, association, organization, Governmental Entity or other entity.

          “Preferred Consideration” shall have the meaning set forth in Section 2.2(d).

A-5

 

          “Preferred Stock” shall have the meaning set forth in the recitals to the Agreement.

          “Product” shall have the meaning set forth in Section 5.17.

          “Protected Period” shall have the meaning set forth in Section 7.6.

          “Public Notes” means the 13 1/8% Senior Subordinated Notes Due October 15, 2009 of
Knowles, issued under the Indenture.

          “Purchase Price” shall have the meaning set forth in Section 2.1(b).

          “Purchase Price Disbursement Schedule” shall have the meaning set forth in Section
2.1(c).

          “Real Property” shall have the meaning set forth in Section 5.16.

          “Return” or “Returns” shall mean all returns, estimated returns, forms,
declarations, reports, claims for refund or information returns or statements relating to Taxes,
including any schedule or attachment thereto, and including any amendment thereof filed or to be
filed with any Tax Authority in connection with the determination, assessment or collection of
Taxes.

          “Schedule” shall have the meaning set forth in Section 10.3.

          “Securities Act” shall have the meaning set forth in Section 6.7.

          “Sellers” shall have the meaning set forth in the heading of the Agreement.

          “Sellers’ Representative” shall have the meaning set forth in Section 10.12.

          “Series A-1 Preferred Stock” shall have the meaning set forth in the recitals to the
Agreement.

          “Series A-2 Preferred Stock” shall have the meaning set forth in the recitals to the
Agreement.

          “Stock Plans” shall have the meaning set forth in Section 2.3.

          “Subsidiary” shall mean, with respect to any specified Person, (a) a corporation fifty
percent (50%) or more of the voting or capital stock of which is, as of the time in question,
directly or indirectly owned by such Person and (b) any partnership, joint venture, association, or
other entity in which such Person, directly or indirectly, owns fifty percent (50%) or more of the
equity economic interest thereof or has the power to elect or direct the election of more than
fifty percent (50%) of the members of the governing body of such entity.

A-6

 

          “Tax” or “Taxes” shall mean all federal, state, local and foreign income,
profits, franchise, gross receipts, payroll, sales, employment, use, property, real estate, excise,
value added, estimated, stamp, alternative or add-on minimum, environmental, withholding and any
other taxes, duties or other governmental charges or assessments, together with all interest,
penalties and additions imposed with respect to such amounts.

          “Tax Authority” shall mean any domestic, foreign, federal, national, state, county or
municipal or other local government, any subdivision, agency, commission or authority thereof, any
quasi-governmental body or any other authority responsible for the administration of Taxes.

          “Transaction Expenses” shall mean (i) all fees, costs and expenses incurred or owing
(whether or not yet invoiced) by Key (whether incurred in its capacity as Seller or as Sellers’
Representative) or Knowles in connection with the negotiation and preparation of this Agreement and
such other agreements and arrangements prepared in connection herewith and the transactions
contemplated hereby, including, without limitation, such fees, costs and expenses of Credit Suisse
First Boston LLC, Skadden, Arps, Slate, Meagher & Flom LLP, Dykema Gossett PLLC, Lovells, Ernst &
Young LLP and PriceWaterhouseCoopers LLP, (ii) all amounts due to any eligible Knowles Employee
under the Retention Incentive Plan, the Asia Retention Incentive Plan, the Value Enhancement
Incentive Plan and the Asia Value Enhancement Incentive Plan, each as set forth on Schedule
7.6(c)(i), and (iii) all amounts due to any 2001 Optionholder under Knowles’ 2001 Option Plan.

          “Xerion Credit Agreement” shall mean the Credit Agreement, dated as of December 20,
2004, as amended through the Closing Date, among Knowles, as borrower, Xerion Partners II Master
Fund Limited, as lender, and the other lenders party thereto from time to time.

A-7<PAGE>
                                                                    EXHIBIT 10.4

                           LEASE TERMINATION AGREEMENT

      THIS LEASE TERMINATION AGREEMENT ("AGREEMENT") dated for reference
purposes only as of the 14th day of September, 2005, is entered into by and
between CARDIAC SCIENCE, INC., a Delaware corporation, and its successors and
assigns (collectively, "TENANT"), and TERRACE TOWER ORANGE COUNTY, LLC, a
Delaware limited liability company and its successors and assigns (collectively,
"LANDLORD"), for the premises located at 1900 Main Street, Suite 700, Irvine,
California 92614 (the "PREMISES").

      1. Landlord and Tenant are parties to that certain Lease for the Premises
dated March 31, 2003 (the "LEASE"). The term of the Lease is scheduled to expire
September 30, 2008. However, Landlord and Tenant desire to terminate the Lease
early upon the terms and conditions set forth herein. Defined terms which are
used in this Agreement without definition have the meanings given to them in the
Lease.

      2. Subject to satisfaction of the terms and conditions set forth below,
including, without limitation, the consummation of a Replacement Lease as set
forth below in Paragraph 4 and Landlord's receipt of the Termination Fee (as
defined below in Paragraph 3), and provided Tenant complies with all terms and
conditions of the Lease through the Termination Date (as defined below), in
consideration of the mutual promises contained herein, (i) Tenant shall
surrender all rights under the Lease and possession of the Premises not later
than December 31, 2005 (the "OUTSIDE SURRENDER DATE") and (ii) all obligations
of Tenant to pay Monthly Base Rent and additional rent (as defined in Section
5(a) of the Lease) under the Lease (but not Tenant's obligation to pay
Termination Fee installments as provided in Paragraph 3 below) shall terminate
on the date Tenant actually surrenders possession of the Premises to Landlord
(the "ACTUAL SURRENDER DATE"), provided in no event shall Tenant's obligation to
pay Monthly Base Rent, additional rent and parking charges terminate prior to
October 31, 2005 regardless of any earlier Actual Surrender Date. Tenant agrees
to leave the Premises vacant, broom clean and in good order, condition and
repair on the Actual Surrender Date, with all of Tenant's personal property
removed to the extent required by the Lease as well as all phone and data
cabling removed from the Premises at Tenant's sole cost and expense, and Tenant
shall otherwise comply with the provisions of the Lease regarding surrender of
the Premises as of the Actual Surrender Date. Notwithstanding any provision of
the Lease or this Agreement to the contrary, Landlord hereby agrees that (i)
other than Tenant's phone and data cabling which is to be removed by Tenant upon
Tenant's surrender of the Premises at Tenant's sole cost and expense, Tenant
shall not be required to remove any Tenant Improvements or Alterations at any
time or pay for any damage to the Premises caused by any such removal, and (ii)
Landlord shall not treat any Tenant Improvements or Alterations as abandoned.

      3. As consideration for Landlord's agreement to terminate the Lease early,
Tenant shall pay to Landlord in cash or wire transfer of funds, the sum of Six
Hundred Fifty Thousand and No/100ths Dollars ($650,000.00) (the "TERMINATION
FEE") as follows: Four Hundred Thousand and No/100ths Dollars ($400,000.00)
shall be due and payable by Tenant on November 1, 2005. The remaining balance of
Two Hundred Fifty Thousand and No/100ths Dollars ($250,000.00) shall be due and
payable by Tenant in five (5) equal monthly installments of Fifty Thousand and
No/100ths Dollars ($50,000.00) on the first day of each calendar month
commencing on December 1, 2005 and ending on April 1, 2006. Tenant's payment of
the monthly installments of Fifty Thousand and No/100ths Dollars ($50,000.00)
per month for the months of November and December shall be in lieu of Monthly
Base Rent and Operating Expenses for such months, provided Tenant shall also pay
during all periods of Tenant's occupancy until the later of the Actual Surrender
Date or October 31, 2005, all parking charges and after-hours HVAC charges for
such periods of Tenant's remaining occupancy. Tenant may surrender possession of
the Premises to Landlord at any time prior to the Outside Surrender Date;
provided, that any such early surrender shall not affect Tenant's obligation to
pay any then unpaid installments of the Termination Fee or Monthly Base Rent,
additional rent, parking charges and after hours HVAC charges through to the
later of the Actual Surrender Date or October 31, 2005.

      4. This Agreement is subject to and contingent upon Landlord consummating
a new lease for the Premises with a replacement tenant (the "REPLACEMENT
LEASE"). If Landlord does not enter into the Replacement Lease by October 1,
2005, then, at Landlord's sole option and election, upon written notice to
Tenant made not later than October 6, 2005, this Agreement shall
<PAGE>
be deemed null and void and of no further force or effect, in which case the
Lease shall remain in full force and effect and shall expire in accordance with
its existing terms as unmodified by the terms of this Agreement. The foregoing
contingency is for the benefit of Landlord only.

      5. Landlord hereby agrees that subject to (a) Tenant's surrender of the
Premises on or before the Outside Surrender Date in accordance with the terms of
the Lease and this Agreement and (b) payment of the Termination Fee in
accordance with Section 3 of this Agreement, the Lease and all obligations of
Tenant under the Lease shall terminate as of 11:59 p.m. on the date of payment
of the final installment of the Termination Fee (the "TERMINATION DATE").
Landlord shall retain the original Letter of Credit currently held by Landlord
in the amount of $146,241.00 until the Termination Date at which time, upon
Landlord's receipt of the final installment of the Termination Fee, Landlord
shall return the original Letter of Credit to Tenant. Effective as of the
Termination Date, Tenant on the one hand, and Landlord on the other hand, for
themselves and their successors and assigns, hereby remise, release and forever
discharge the other party, and their representatives, shareholders, trustees,
officers, directors, partners, affiliates, employees and agents and their
respective successors and assigns, from any and all claims, liabilities, losses,
damages, acts, demands, grievances, suits, actions, causes of action, debts,
liens, charges, accounts, contracts, agreements, promises, costs or expenses
whatsoever, whether at law, admiralty or in equity (individually, a "CLAIM" or
collectively, "CLAIMS") of any nature whatsoever, known or unknown, fixed or
contingent which Tenant or Landlord or their successors and assigns may have
from and after the Termination Date, arising out of or connected in any way with
the Lease or arising out of or in any way connected with the use, occupancy or
condition of the Premises; provided, however, the foregoing release shall not
extend to (a) any obligations, liabilities or losses that are based on this
Agreement, (b) any indemnity obligations under the Lease arising from acts,
circumstances or events occurring prior to the Actual Surrender Date or (c)
liability for third party claims against Landlord and/or Tenant arising from
acts, circumstances or events occurring prior to the Actual Surrender Date.

      6. Except as expressly provided in Section 5, effective as of the
Termination Date, Landlord, on the one hand, and Tenant on the other hand,
expressly waive any and all rights conferred upon them by the provisions of
California Civil Code Section 1542 and the provisions of any other applicable
laws restricting the release of claims which the Landlord or Tenant does not
know of or suspect to exist at the time of executing this Agreement, and
expressly consents that this Agreement shall be given full force and effect
according to each and all of its express terms and provisions. California Civil
Code Section 1542 provides:

            "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
            CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR
            AT THE TIME OF EXECUTING THE RELEASE WHICH IF KNOWN BY HIM OR
            HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
            THE DEBTOR."

      Landlord and Tenant hereby understand and acknowledge the significance and
consequences of such release and specific waiver of California Civil Code
Section 1542 and each acknowledges having been advised by independent legal
counsel concerning the same.

      Landlord's Initials: /s/ SJ  Tenant's Initials: /s/ MM

      7. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.

      8. This Agreement may not be modified or amended except by a written
agreement executed by the parties hereto.

      9. This Agreement may be executed in two or more counterparts, each of
which shall be an original, but all of which together shall constitute one
agreement binding on all of the parties hereto notwithstanding that all of the
parties hereto are not signatories to the same counterpart.

                                      -2-
<PAGE>
      10. This Agreement shall be construed and interpreted in accordance with
the laws of the State of California applicable to agreements made and to be
performed in said State, without giving effect to conflicts of law provisions
thereof.

      IN WITNESS WHEREOF, the parties have executed this Agreement.

LANDLORD:                                     TENANT:

TERRACE TOWER ORANGE COUNTY, LLC,             CARDIAC SCIENCE, INC., a
a Delaware limited liability company          Delaware corporation

By: Terrace Tower U.S.A., Inc.,
    a Delaware corporation,                   By: /s/ Michael Matsyik
    Its Manager                               Print Name: Mike Matsyik
    By: /s/ Steve Johnston                    Print Title: Chief Financial
    Print Name: Steve Johnston                             Officer
    Print Title: Executive Vice President     Date: September 14, 2005

Date: September 30, 2005

                                      -3-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00091-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00091-of-00352.parquet"}]]