QuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.1    
    


 
 

EXECUTION COPY    
    


 
 

EMPLOYMENT AGREEMENT    
    


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


        1.     Employment by the Company and Term.



        (a)   Appointment as Chairman of the Board. Subject to the terms set forth herein, the Company agrees to nominate Executive for
election as the Chairman of the Board of Directors of the Company (the "Board") at each meeting of stockholders at which directors are to be elected (or
any action by consent of stockholders), and the Company shall use its best efforts to provide for Executive "s election to the Board as Chairman at each such meeting or consent. 


        (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 Chairman of the Board, as further determined in consultation with Lawrence Bossidy from time to time. 


        (c)   Term. The 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"), and end on the first (1st) anniversary of the Effective Date (such period, the
"Term"). Notwithstanding the foregoing, Executive acknowledges and agrees that he may be removed as Chairman of the Board pursuant to any action of the
Board or the stockholders of the Company effected in accordance with the Company's charter and by-laws; provided, however, if Executive is removed as Chairman of the Board prior to the end
of the Term, such removal shall not affect the Company's continuing obligation to provide Executive with the compensation and benefits set forth in Section 2 below for the remainder of the
Term. 


        (d)   Part Time Efforts. Executive shall devote such of his business time and energy during the Term as is necessary to perform
his duties as Chairman of the Board and to fulfill his responsibilities under this Agreement, and during the Term shall use his reasonable best efforts and ability to promote the interests of the
Company. To the extent Executive performs activities permitted by Section 1(e), Executive shall ensure that such permitted activities do not interfere with the performance of his duties under
this Agreement. 


        (e)   Certain Permissible Activities. Notwithstanding Section 1(d), during the Term, Executive may (i) make and
manage personal business investments of his choice, (ii) serve in any capacity with any civic, educational or charitable organization, or any governmental entity or trade association, and
(iii) conduct such other business activities as Executive may elect, in each such case without seeking or obtaining approval by the Company, so long as such activities are consistent with
Section 1(d) above. 




        2.     Compensation. Executive will be entitled to the following compensation: 



        (a)   Salary. During the Term, Executive shall receive a salary at the rate of $8,333.33 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 "Salary").
The Company may offset against such compensation payments any amounts owed to it by Executive pursuant to that certain Airplane Use and Reimbursement Agreement, dated as of the date hereof, by and
between Executive and the Company. Except as expressly provided in this Section 2(a), 








 

2(b)
and 2(c) below, Executive will not be entitled to receive from the Company any additional fees or compensation for serving as a director of or consultant to the Company. 


        (b)   Participation in Benefit Plans; 2004 Bonus. During the Term, Executive shall be entitled to participate in any group
insurance, hospitalization, medical, dental, health, accident, disability, pension, retirement 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 (i) violate the terms of such program, applicable law or the terms of this Agreement, or (ii) result in a reduction in the benefits
that are being provided to Executive under the benefit programs in which Executive participates immediately prior to the Effective Date. Executive shall be entitled to a bonus for calendar 2004, which
bonus shall be determined and paid in accordance with the Company's compensation policy for its Chief Executive Officer as described in the Company's Annual Report on Form 10-K for
the year ended December 31, 2003. 


        (c)   Reasonable Business Expenses. 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. 




        3.     Sole Property of Company.



        (a)   Executive
acknowledges and agrees that all the now and hereafter existing literary material, inventions, ideas, service marks, products, trademarks, copyrights, trade
names, service names, designs, patents, programs, documents, data, methods, analyses, reports, discoveries, improvements, trade secrets, techniques, processes, know-how and any other
intellectual property rights, whether or not subject to patent, trademark, copyright or trade secret protection and whether or not reduced to practice or reduced to writing, which was created either
alone or jointly with others (the "Intellectual Property") during the course of Executive's employment with the Company or any of its respective
Affiliates (the "Company Intellectual Property") shall be the sole property of the Company and Executive hereby assigns to the Company his entire right
and interest in and to all the now and hereafter existing Company Intellectual Property. The Company or any other entity designated by the Company shall be the sole owner of all domestic and foreign
rights pertaining to the now and hereafter existing Company Intellectual Property. 


        (b)   Notwithstanding
any provision in this Agreement to the contrary, Section 3(a) shall not apply to copies of documents specifically related to Executive's interest,
if any, as a stockholder of the Company or its affiliates or as a member of the Board or any Intellectual Property which was developed entirely on Executive's own time without using the Company's
equipment, supplies, facilities or trade secret information except for Intellectual Property that either (i) relates directly at the time of conception or reduction to practice to the Company's
business or actual or demonstrably anticipated research or development, or (ii) results directly from any work performed by Executive for the Company or any of its affiliates within the twelve
month period immediately preceding the time of conception or reduction to practice of such Intellectual Property. 




        4.     Indemnification. The Company hereby agrees to indemnify and hold harmless Executive against any liability, cost or expense
arising out of Executive's association with the Company to the full extent legally permissible under the Delaware General Corporation Law, as such law may be amended from time to time. Solely in
consideration for the Company's agreement to indemnify and hold harmless Executive pursuant to this Section, after the termination of Executive's employment with the Company, Executive agrees, at the
Company's expense, to fully assist, consult and cooperate in good faith with the Company, as requested by the Company, in connection with (i) any pending or threatened or completed action,
suit, or proceeding, whether civil, criminal, administrative, arbitrative, 


2







 

or
investigative and whether Executive is a named or threatened party to such action, suit or proceeding, (ii) any appeal in such an action, suit or proceeding, and (iii) any inquiry or
investigation that could lead to such an action, suit or proceeding. 


        6.     Miscellaneous.




        (a)   Notices. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of two days
following personal delivery (including personal delivery by telecopy or telex), or the fourth day after mailing by first class mail to the recipient at the address indicated below: 



To
the Company: 


K&F
Industries, Inc.

c/o Aurora Capital Group

10877 Wilshire Boulevard

Suite 2100

Los Angeles, California 90024

Attention: Richard K. Roeder

Telecopier: (310) 824-2791 


With
copies to: 


Aurora
Capital Group

10877 Wilshire Boulevard

Suite 2100

Los Angeles, California 90024

Attention: Richard K. Roeder

Telecopier: (310) 824-2791 


Gibson,
Dunn & Crutcher LLP

333 South Grand Avenue

Los Angeles, California 90071-3197

Attention: Bruce D. Meyer, Esq.

Telecopier: (213) 229-7520 


To
Executive: 


Bernard
L. Schwartz

944 Fifth Avenue, 8th Floor

New York, New York 10021

Telecopier: (212) 288-0705 


With
a copy to: 


Neil
Novikoff, Esq.

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, New York 10019

Telecopier: (212) 728-8111 





or
to such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party. 



        (b)   Severability. Any provision of this Agreement which is deemed invalid, illegal or unenforceable in any jurisdiction
shall, as to that jurisdiction and subject to this paragraph be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any 



3







 

way
the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall be modified so that the scope of the covenant is reduced only to the minimum extent
necessary to render the modified covenant valid, legal and enforceable. 


        (c)   Entire Agreement. This document constitutes the final, complete, and exclusive embodiment of the entire agreement and
understanding between the parties related to the subject matter hereof and supersedes and preempts any prior or contemporaneous understandings, agreements, or representations by or between the
parties, written or oral. 


        (d)   Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of
more than one party, but all of which taken together will constitute one and the same agreement. 


        (e)   Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive,
the Company and their respective successors and assigns, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the prior written
consent of the Company. 


        (f)    Amendments. No amendments or other modifications to this Agreement may be made except by a writing signed by all parties.
No amendment or waiver of this Agreement requires the consent of any individual, partnership, corporation or other entity not a party to this Agreement. Nothing in this Agreement, express or implied,
is intended to confer upon any third person any rights or remedies under or by reason of this Agreement. 



        (g)   Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. Each of the parties hereto agrees that any legal action or proceeding with respect to this Agreement may be brought in the Courts
of the State of New York, County of New York or the United States District Court for the Southern District of New York and, by execution and delivery of this Agreement, each party hereto irrevocably
submits itself in respect of its property, generally and unconditionally, to the non-exclusive jurisdiction of the aforesaid courts in any legal action or proceeding arising out of this
Agreement. Each of the parties hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or
in connection with this Agreement brought in the courts referred to in the preceding sentence. Each party hereby consents to process being served in any such action or proceeding by the mailing of a
copy thereof to the address set forth in Section 6(a) hereof (or to such other address as the party has specified by prior written notice to the serving party) and agrees that such service upon
receipt shall constitute good and sufficient service of process or notice thereof. Nothing in this Section 6(g) shall affect or eliminate any right to serve process in any other matter
permitted by law. 


        (h)   Survivorship. The provisions of this Agreement necessary to carry out the intention of the parties as expressed herein
shall survive the termination or expiration of this Agreement. 


        (i)    Waiver. Except as provided herein, the waiver by either party of the other party's prompt and complete performance, or
breach or violation, of any provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation, and the failure by either party hereto to exercise any
right or remedy which it may possess hereunder shall not operate nor be construed as a bar to the exercise of such right or remedy by such party upon the occurrence of any subsequent breach or
violation. 



4







 




        (j)    Captions. The captions of this Agreement are for convenience and reference only and in no way define, describe, extend or
limit the scope or intent of this Agreement or the intent of any provision hereof. 



        (k)   Construction. The parties acknowledge that this Agreement is the result of arm's-length negotiations between
sophisticated parties each afforded representation by legal counsel. Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of the
same, and any rule of construction that a document shall be construed against the drafting party shall not be applicable to this Agreement. 



[SIGNATURE
PAGE FOLLOWS] 


5







 

        IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. 



	 	 	BERNARD L. SCHWARTZ
	

 	
 	

/s/  BERNARD L. SCHWARTZ      
 Date: November 15, 2004
	

 	
 	

K&F INDUSTRIES, INC.
	

 	
 	

By:	
 	

/s/  KENNETH M. SCHWARTZ      
 Name: Kenneth M. Schwartz

Title: President

Date: November 15, 2004




6











QuickLinks



Exhibit 10.1

EXECUTION COPY


EMPLOYMENT AGREEMENT