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Exhibit 10.4
Execution Copy
EMPLOYMENT AGREEMENT
This Employment
Agreement ( "Agreement" ) is entered into as of
November 18, 2004 by and between Ronald Kisner, an individual
( "Executive" ), and K&F Industries, Inc., a
Delaware corporation (the "Company" ).
1.
Employment by the Company and Term.
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(a)
Full Time and Best Efforts. Subject to the terms set forth
herein, the Company agrees to employ Executive as its Executive
Vice President, Secretary and General Counsel and in such other
executive capacities, commensurate with Executive's position, as
may be requested from time to time by the Company's Board of
Directors (the "Board" ) or a duly authorized
committee thereof, and Executive hereby accepts such employment.
Executive shall render such other services for each of the Company
and corporations controlled by or controlling the Company, and to
successor entities and assignees of the Company (the
"Affiliates" ), as the Company may from time to time
reasonably request and shall be consistent with the duties
Executive is to perform for the Company and with Executive's
experience. During the term of his employment with the Company,
Executive will devote his full business time and use his best
efforts to advance the business and welfare of the Company, and
will not engage in any other employment or business activities for
any direct or indirect remuneration that would be directly harmful
or detrimental to, or that may compete with, the business and
affairs of the Company, or that would interfere with his duties
hereunder; provided, however, that it is understood and
agreed by the parties that Executive shall not be precluded from
involvement in charitable or civic activities, serving as a member
of the board of directors of any other business enterprise or
engaging in personal financial investment activities to the extent
the same do not compete with or materially interfere with his time
or attention to the business of the Company or otherwise violate
the terms of this Agreement.
(b)
Duties. Executive shall serve in an executive capacity and
shall perform such duties as are customarily associated with his
positions as the Company's Executive Vice President, Secretary and
General Counsel, consistent with the Bylaws of the Company and as
reasonably required by the Board. Executive shall report to the
President and Chief Executive Officer of the Company.
(c)
Location. The principal location of Executive's employment
shall be at the Company's executive office located in New York, New
York, although Executive understands and agrees that he may be
required to travel from time to time for Company business
reasons.
(d)
Company Policies. The employment relationship between the
parties shall be governed by the general employment policies and
practices of the Company, including but not limited to those
relating to protection of confidential information and assignment
of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment
policies or practices, this Agreement shall control.
(e)
Term. The initial term of employment of Executive under this
Agreement shall begin immediately following the effective date of
the closing of the purchase of all of the outstanding capital stock
of the Company in accordance with that certain Stock Purchase
Agreement, dated as of October 15, 2004, by and among the
Company, AAKF Acquisition, Inc., a Delaware corporation ("
Aurora "), and the stockholders named on
Exhibit A therein (the "Effective Date" ) for an
initial term ending on the third (3 rd ) anniversary of
the Effective Date (such period, the "Initial Term"
), subject to the provisions for termination set forth herein and
renewal as provided in Section 1(f) below.
(f)
Renewal. Unless either party shall have given the other
notice that this Agreement shall not be renewed at least ninety
(90) days prior to the end of the Initial Term, the term of
this
2.
Compensation and Benefits.
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(a)
Base Salary. Executive shall receive for services to be
rendered hereunder a salary at the rate of $18,250 per month
payable at least as frequently as monthly and subject to payroll
deductions as may be necessary or customary in respect of the
Company's salaried employees (the "Base Salary" ).
The Base Salary will be reviewed by and shall be subject to
increase (but not decrease) at the sole discretion of the Board or
the compensation committee of the Board each year during the term
of this Agreement; provided that Executive's Base Salary for
2005 shall be reviewed by the Board or the compensation committee
during January 2005.
(b)
Participation in Benefit Plans. During the term hereof,
Executive shall be entitled to participate in any group insurance,
hospitalization, medical, dental, health, accident, disability,
retirement, deferred compensation or similar plan or program of the
Company now existing or established hereafter to the extent that he
is eligible under the general provisions thereof. The Company may,
in its sole discretion and from time to time, amend, eliminate or
establish additional benefit programs as it deems appropriate,
provided any such amendment or elimination does not violate the
terms of such program, applicable law or the terms of this
Agreement. Executive shall also participate in all fringe benefits
offered by the Company to any of its executives at Executive's
level.
(c)
Vacation. Executive shall be entitled to a period of annual
vacation that is consistent with the Company's vacation policy in
effect from time to time; provided, however, that in no
event shall Executive be entitled to less than three (3) weeks
of annual vacation. The days selected for Executive's vacation must
be mutually and reasonably agreeable to the Company and
Executive.
(d)
Executive Medical Plan. During the term of this Agreement,
the Company agrees that, in addition to any group health insurance
plan in which Executive is eligible to participate, it shall
continue to maintain, at its expense, the supplemental executive
medical/dental expense reimbursement plan known as the K&F
Industries, Inc. Insurance and Health Plan (GP-655199-B), or a
comparable arrangement, providing an annual benefit of not less
than Ten Thousand Dollars ($10,000) in respect of medical/dental
expenses incurred by Executive and Executive's covered
dependents.
(e)
Supplemental Life Insurance. During the term of this
Agreement, the Company agrees that, in addition to any group life
insurance plan or program in which Executive is eligible to
participate, it shall satisfy all obligations and make all payments
necessary to maintain a Five Hundred Thousand Dollar ($500,000)
supplemental whole life insurance policy on Executive's life,
payable to Executive's estate and/or beneficiaries as designated by
Executive under such policies. The Company may obtain additional
life insurance on Executive's life payable for the benefit of the
Company, and Executive agrees to cooperate in the obtaining of any
such insurance.
(f)
SERP. During the term of this Agreement, the Company agrees
that, in addition to any qualified retirement plans or programs in
which Executive is eligible to participate, it shall continue to
maintain in its present form, subject to the next succeeding
sentence, at its expense, the K&F Industries Supplemental
Executive Retirement Plan (the "SERP" ). Anything
herein to the contrary notwithstanding, the Company shall take all
such actions as are necessary to amend the SERP (to the extent
permitted under applicable law) so that if, prior to attaining age
sixty-two (62), Executive's employment with the Company ceases for
any reason (other than as a result of a termination by the Company
for Cause or by Executive pursuant to Section 6(b)(ii)), the
amount to be paid to Executive under the SERP at such termination
date shall equal the sum of the
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benefit that is otherwise accrued and payable
under the SERP plus the accrued benefit that is payable under the
K&F Industries Retirement Plan for Salaried Employees (the
"Pension Plan" ), both calculated without reduction
for early retirement, less the amount that is payable from the
Pension Plan with reduction for early retirement as of such
termination date.
3.
Bonus.
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(a)
Performance-Based Bonus. Executive shall be eligible for
performance-based bonuses awarded on an annual calendar year basis
provided the Company achieves financial objectives established by
the Company's management and approved by the Board for such
calendar year. For calendar year 2004, the target financial
objectives shall be those previously established and approved by
the Board, which in the case of Executive is the achievement of
consolidated EBITDA-I of $140,696,000. For calendar years 2005 and
following, the target financial objectives shall be established by
the Company's management and approved by the Board for the
applicable calendar year in a like manner such that Executive shall
have the opportunity to realize a performance based bonus
consistent with prior practice. Approval of the applicable
financial objectives by the Board shall occur (i) on or before
March 31 of the calendar year provided that the Company's
management has furnished the Board with the proposed annual budget
by December 31 of such prior calendar year or (ii) if the
Company's management has not furnished the Board with the proposed
annual budget by December 31, as soon as reasonably
practicable after the Company's management has furnished the Board
with the proposed annual budget. Subject to the provisions of this
Section 3(a), Executive shall be provided the opportunity to
earn at least an additional 50% of Executive's annual Base Salary
then in effect in performance-based bonus compensation if the
Company achieves 90% of the targeted financial objectives for the
applicable calendar year. Subject to the immediately following
sentence, performance-based bonuses that are earned with respect to
any calendar year will be payable no later than the end of the
first calendar quarter of the following calendar year. If Executive
resigns before the last day of a calendar year (other than for a
Material Breach (as hereinafter defined)) or is discharged by the
Company for Cause (as hereinafter defined) before the last day of
such calendar year, Executive will not be entitled to receive a
performance-based bonus pursuant to Section 3(a) for such
calendar year. If Executive's employment terminates prior to the
last day of a calendar year for any other reason, Executive shall
be entitled to receive a pro rata part of the
performance-based bonus for such calendar year pursuant to
Section 3(a). Such pro rata part shall equal the total
performance-based bonus that would have been payable had Executive
remained employed for all of such calendar year multiplied by a
fraction, the numerator of which is the number of days elapsing in
such calendar year through the date Executive's employment
terminates and the denominator of which is 365. Notwithstanding
anything herein to the contrary, in the event the Company does not
achieve 90% of the targeted financial objectives approved by the
Board for any calendar year, Executive will only be entitled to
receive a performance-based bonus pursuant to this Section 3
for such calendar year if the Board, in its sole and absolute
discretion, elects to pay such a bonus to Executive.
(b)
Deferred Bonus Plan. Executive shall be eligible for
deferred performance-based bonuses awarded at the discretion of the
Board each calendar year, provided the Company's EBITA for such
year is at least 105% (or such other percentage as the Board may
determine at its discretion) of the prior year's EBITA. Subject to
the terms of this Section 3(b), any deferred bonuses awarded
to Executive shall be paid in three equal annual installments
commencing on the second January 15 following the year for
which the bonus was awarded. For calendar year 2004, a deferred
bonus will be awarded (and paid in equal installments on
January 15 of 2006, 2007 and 2008) if the Company's EBITA for
2004 is $104,550,000 (105% of 2003 EBITA). If prior to
January 15 of any year for which a deferred bonus installment
payment is due Executive resigns (other than for a Material Breach
(as hereinafter defined)) or Executive is discharged by the Company
for Cause (as
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hereinafter defined), Executive shall forfeit all
remaining unpaid deferred bonus payments. If Executive's employment
terminates prior to January 15 of any year for which an
installment payment is due for any other reason, Executive shall be
entitled to receive the full amount of the remaining installments
as if Executive had remained employed by the Company.
4.
Options. Aurora has reserved up to five percent (5%) of the
fully-diluted shares of Aurora's common stock, par value $0.01 (the
"Common Stock" ), as of the Effective Date (the
"Option Pool" ) for stock options available for grant
to Executive and other members of the Company's executive
management under the Aurora Acquisition, Inc. 2004 Stock
Incentive Plan (the "Stock Plan" ). Aurora shall
grant Executive from the Option Pool options to purchase eight
percent (8%) of the Option Pool (the "Executive
Options" ) at an exercise price equal or equivalent to the
initial price per share paid by Aurora Equity Partners II L.P. or
any of its affiliates for the Company's common stock immediately
prior to the Effective Date. The Executive Options shall have a
five (5) year vesting schedule with twenty percent (20%) of
the options vesting at the end of each of the first five
(5) years following the Effective Date. Unvested Executive
Options scheduled to vest at the end of a year in which Executive's
employment is terminated by the Company without Cause pursuant to
Section 6(d) below or by Executive pursuant to
Section 6(b)(i) below shall vest pro rata
according to the number of months Executive was employed in such
year of termination. Upon a change of control of Aurora (as defined
in the Stock Plan or the relevant option agreement between Aurora
and Executive) while Executive is employed by the Company, the
vesting schedule of the Executive Options shall accelerate and
thereafter all Executive Options shall be exercisable in full in
accordance with the provisions of the Stock Plan and the relevant
option agreement between Aurora and Executive. The additional terms
of the Executive Options shall be set forth in an option agreement
to be entered into between Aurora and Executive.
5.
Reasonable Business Expenses and Support. Executive shall be
reimbursed for documented and reasonable business expenses in
connection with the performance of his duties hereunder, including
appropriate professional fees and dues. Executive shall be
furnished reasonable office space, assistance, including an
administrative assistant, and facilities located in New York, New
York.
6.
Termination of Employment. The date on which Executive's
employment by the Company ceases, under any of the following
circumstances, shall be defined herein as the "Termination
Date."
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