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Exhibit 10.3
Execution Copy
EMPLOYMENT
AGREEMENT
This Employment
Agreement ( "Agreement"
) is entered into as of November 9, 2004 by and
between Dirkson R. Charles, 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 Executive Vice President and
Chief Financial Officer 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 and Chief Financial Officer, 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 Agreement shall be automatically
extended for a period of one year, such procedure to be
2.
Compensation and Benefits.
-
(a)
Base Salary. Executive
shall receive for services to be rendered hereunder a salary at the
rate of $20,333.33 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 Four
Thousand Dollars ($4,000) 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.
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
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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 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
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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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