EMPLOYMENT AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.2

Execution Copy

EMPLOYMENT AGREEMENT

        This Employment Agreement ( " Agreement " ) is entered into as of November 15, 2004 by and between Kenneth Schwartz, an individual ( " Executive " ), and K&F Industries, Inc., a Delaware corporation (the " Company " ).

        1.      Employment by the Company and Term .

        (a)    Full Time and Best Efforts . Subject to the terms set forth herein, the Company agrees to employ Executive as its President and Chief Executive Officer and in such other executive capacities, commensurate with Executive's position as President and Chief Executive Officer of the Company, 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 position as the Company's President and Chief Executive Officer, consistent with the Bylaws of the Company and as reasonably required by the Board.

        (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)    Appointment to Board . During the term of this Agreement, Executive shall be nominated for election to the Board at each meeting of stockholders at which directors are to be elected, and the Company shall use its best efforts to provide for Executive's election to the Board at each such meeting. Notwithstanding the foregoing provisions of this Section 1(d), (i) Executive shall not have any right to be appointed to the Board by reason of this Agreement, and (ii) Executive agrees that effective upon notice being provided of the termination of his services with the Company, he shall immediately resign from any appointment as a member of the Board.

        (e)    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.

        (f)     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

1

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 fourth (4 ^th ) 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(g) below.

        (g)    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 Agreement shall be automatically extended for a period of one year, such procedure to be followed in each such successive period. Each extended term shall continue to be subject to the provisions for termination set forth herein.

        2.      Compensation and Benefits .

        (a)    Base Salary . Executive shall receive for services to be rendered hereunder a salary at the rate of $46,500 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 five (5) 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)    Split-Dollar 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, subject to any priority interest in the Company's favor for all premium amounts paid by the Company, (i) that certain split-dollar life insurance policy (Policy No. 200114572A1) issued by MetLife Insurance Company with a face amount of Five Million Dollars ($5,000,000), and (ii) that certain split-dollar life insurance policy (Policy No. 67163779) issued by John Hancock Life Insurance Company with a face amount of One Million, Two Hundred Ten Thousand, Six Hundred and Four

2

Dollars ($1,210,604), on Executive's life (collectively, the " Policies " ). Notwithstanding anything herein to the contrary, to the extent the Company is subject to Section 402 of the Sarbanes-Oxley Act of 2002, the Company shall not be obligated to make any premium payments on the Policies, but the Company shall instead pay Executive a bonus in an amount that is equal to such premiums as and when they become due, plus an additional "gross-up" bonus amount that is sufficient to satisfy all applicable tax obligations of Executive in respect of such bonus payments (including the "gross-up" bonus). 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 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 .

        (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 60% 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. 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 such calendar year; provided , however , that (i) 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 this Section 3(a) for such calendar year and (ii) 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 this Section 3(a). Such pro rata part shall equal the total

3

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)    CEO Incentive Bonus . Executive shall be eligible for an incentive bonus each calendar year if the Company's consolidated EBITDA-I (or some other financial performance measure as determined by the Board in its discretion (but which shall not conflict with any other financial performance measure that serves as the basis for performance bonuses payable to other executives of the Company)) (the " Performance Measure ") for such year is at least 105% (or such other percentage as the Board may determine at its discretion) of the Company's Performance Measure for the prior year. The incentive bonus provided for herein shall equal ten percent (10%) (or such other percentage as the Board may determine at its discretion) of the amount of the increase in the Company's Performance Measure for such year over the Company's Performance Measure for such prior year; provided , however , that such bonus amount shall be reduced by any performance-based bonus awarded under Section 3(a) for such year. Subject to the terms of this Section 3(b), any incentive bonus payable to Executive shall be paid promptly following publication of the Company's audited financial statements; provided , however , that (i) if Executive resigns before the last day of a calendar year (other than for a Material Breach) or is discharged by the Company for Cause before the last day of such calendar year, Executive will not be entitled to receive an incentive bonus pursuant to this Section 3(b) for such calendar year and (ii) 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 incentive bonus for such calendar year pursuant to this Section 3(b). Such pro rata part shall equal the total incentive 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.

        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 AAKF Acquisition, Inc. 2004 Stock Incentive Plan (the " Stock Plan " ). Aurora shall grant Executive from the Option Pool options to purchase forty-five percent (45%) 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 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.

4

        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. It is understood and agreed by the parties that reasonable expenses shall include first-class commercial airfare for travel undertaken by Executive in connection with the performance of Executive's duties under this Agreement. 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 ."

        (a)    Termination for Cause .

        (i)     Termination; Payment of Accrued Benefits . Subject to the Company's notification obligations and Executive's cure rights as set forth in Section 6(a)(ii), the Board may terminate Executive's employment with the Company at any time for Cause, upon proper written notice to Executive of the circumstances leading to such termination for Cause. In the event that Executive's employment is terminated for Cause, Executive shall receive payment for all accrued Base Salary and vacation time through the Termination Date, which in this event shall be the date upon which proper written notice of termination is given, and any other compensation and benefits (other than severance benefits) to which he is entitled under the terms of any of the Company's employee benefit plans, policies, programs or arrangements (collectively, the " Accrued Benefits " ). The Company shall have no further obligation to pay severance benefits of any kind whether under this Agreement or otherwise.

        (ii)    Definition of Cause . For purposes of this Agreement, " Cause " means the occurrence or existence of any of the following with respect to Executive, as determined in good faith by a majority of the disinterested directors of the Board: (a) a material breach by Executive of any of his material obligations hereunder (other than by reason of Executive's incapacity) which remains uncured after the lapse of thirty (30) days following the date that the Company has given Executive written notice thereof; (b) a material breach by Executive of his duty not to engage in any transaction that represents, directly or indirectly, self-dealing with the Company or any of its Affiliates which has not been approved by a majority of the disinterested directors of the Board, if in any such case such material breach remains uncured after the lapse of thirty (30) days following the date that the Company has given Executive written notice thereof; (c) the repeated material breach by Executive of any material duty referred to in clause (a) or (b) above as to which at least two (2) written notices have been given pursuant to such clause (a) or (b); (d) any act of misappropriation, embezzlement, intentional fraud or similar conduct involving the Company or any of its Affiliates; (e) the conviction or the plea of nolo contendere or the equivalent in respect of a felony involving moral turpitude; (f) intentional infliction of any damage of a material nature to any property of the Company or any of its respective Affiliates; or (g) the repeated non-prescription abuse of any controlled substance or the repeated abuse of alcohol or any other non-controlled substance which, in any case described in this clause, the Board reasonably determines renders Executive unfit to serve in his capacity as an officer of the Company.

        (b)    Termination by Executive .

        (i)    Executive shall have the right, at his election, to terminate his employment with the Company by written notice to the Company to that effect if (1) the Company shall have failed to perform a material condition or covenant of this Agreement (a " Material Breach " ); provided , however , that termination for a Material Breach will not be effective until Executive shall have given written notice specifying the claimed breach and, provided such breach is curable, the Company fails to correct the claimed breach within thirty (30) days after the

5

receipt of the applicable notice (but within ten (10) days if the failure to perform is a failure to pay monies when due under the terms of this Agreement), or (2) the Company repeatedly commits a Material Breach as to which at least t