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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
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-
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.
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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 ."
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