K&F INDUSTRIES INC, 10-Q, 1994-11-10

K&F INDUSTRIES INC
10-Q, 1994-11-10
AIRCRAFT PARTS & AUXILIARY EQUIPMENT, NEC

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<PAGE> 1
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
----------------------

FORM 10-Q

(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 1994
------------------
or

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number: 33-29035
------------

K & F Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

Delaware 34-1614845
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

600 Third Avenue, New York, New York 10016
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number including area code (212) 297-0900
------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No
------- ------

As of November 1, 1994, there were 5,533,437 shares of Class A common stock
outstanding and 4,589,938 shares of Class B common stock outstanding. All of
the Class A common stock of the Company except ten shares are owned by the
Chairman of the Company, all of the Class B common stock are owned by Loral
Corporation and all of the preferred stock except 44,999 shares are owned by
four limited partnerships of Lehman Brothers Holdings Inc.
<PAGE> 2
PART I. FINANCIAL INFORMATION
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
September 30, March 31,
1994 1994
------------ -----------
<S> <C> <C>
ASSETS:

Current Assets:
Cash and cash equivalents $ 2,552,000 $ 4,327,000
Accounts receivable, net 34,201,000 32,783,000
Inventory 64,537,000 67,613,000
Other current assets 1,394,000 1,196,000
------------ ------------
Total current assets 102,684,000 105,919,000
------------ ------------
Property, plant and equipment 112,493,000 111,882,000
Less, accumulated depreciation and
amortization 47,698,000 43,142,000
------------ ------------
64,795,000 68,740,000
------------ ------------
Deferred charges, net of amortization 27,129,000 28,050,000
Cost in excess of net assets acquired,
net of amortization 211,282,000 214,340,000
Intangible assets, net of amortization 28,131,000 29,831,000
------------ ------------
$434,021,000 $446,880,000
============ ============
LIABILITIES and STOCKHOLDERS' DEFICIENCY:
Current Liabilities:
Accounts payable, trade $ 10,119,000 $ 9,028,000
Interest payable 8,771,000 8,818,000
Other current liabilities 35,251,000 34,982,000
------------ ------------
Total current liabilities 54,141,000 52,828,000
------------ ------------
Postretirement benefit obligation other
than pensions 79,199,000 80,150,000
Other long-term liabilities 24,145,000 22,836,000
Senior revolving loan -- 10,000,000
11 7/8% senior secured notes due 2003 100,000,000 100,000,000
13 3/4% senior subordinated debentures
due 2001 210,000,000 210,000,000
14 3/4% convertible debentures due 2004 -- 61,421,000
Stockholders' Deficiency:
Preferred stock, $.01 par value-
authorized 1,500,000 and 900,000
shares; issued and outstanding
1,027,635 and 899,999 shares
(liquidation preference of
$60,110,000 and $76,154,000) 10,000 9,000
Common stock, Class B, $.01 par value-
authorized 4,600,000 shares;
issued and outstanding 4,589,938
shares (liquidation preference of
$26,848,000) 46,000 --
Common stock, Class A, $.01 par value-
authorized 21,000,000 and 5,350,000
shares; issued and outstanding
5,533,437 and 4,846,164 shares 55,000 48,000
Additional paid-in capital 155,260,000 89,943,000
Deficit (181,075,000) (172,470,000)
Adjustment to equity for minimum pension
liability (7,467,000) (7,467,000)
Cumulative translation adjustment (293,000) (418,000)
------------ ------------
Total stockholders' deficiency (33,464,000) (90,355,000)
------------ ------------
$434,021,000 $446,880,000
============ ============
</TABLE>

See notes to consolidated financial statements.

2
<PAGE> 3

K & F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
Sales $115,143,000 $115,773,000

Costs and expenses 93,347,000 99,238,000

Amortization 5,230,000 5,312,000
------------ ------------

Operating income 16,566,000 11,223,000

Interest and investment
income 78,000 35,000

Interest expense (1) (25,249,000) (26,030,000)
------------ ------------

Loss before cumulative effect of change
in accounting principle (8,605,000) (14,772,000)

Cumulative effect of change in method
of accounting for the discounting
of certain liabilities - (2,305,000)
------------ ------------

Net loss $ (8,605,000) $(17,077,000)
============ ============
</TABLE>

Note (1): Includes non-cash interest expense on the convertible debentures
and financing costs of $4,613,000 and $4,771,000 for the six months
ended September 30, 1994 and 1993, respectively.

See notes to consolidated financial statements.

3
<PAGE> 4
K & F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
Sales $ 57,432,000 $ 64,042,000

Costs and expenses 45,664,000 53,152,000

Amortization 2,580,000 2,743,000
------------ ------------

Operating income 9,188,000 8,147,000

Interest and investment income 45,000 17,000

Interest expense (1) (12,252,000) (12,922,000)
------------ ------------

Net loss $ (3,019,000) $ (4,758,000)
============ ============
</TABLE>

Note (1): Includes non-cash interest expense on the convertible debentures
and financing costs of $1,943,000 and $2,394,000 for the three
months ended September 30, 1994 and 1993, respectively.

See notes to consolidated financial statements.

4
<PAGE> 5
K & F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
September 30, September 30,
1994 1993
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,605,000) $(17,077,000)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Cumulative effect of change in
accounting for the discounting of
certain liabilities - 2,305,000
Depreciation and amortization 9,786,000 10,056,000
Non-cash interest expense 4,613,000 4,771,000
Changes in assets and liabilities:
Accounts receivable, net (1,359,000) 8,982,000
Inventory 3,142,000 384,000
Other current assets (198,000) (333,000)
Accounts payable, interest payable,
and other current liabilities 1,313,000 (3,323,000)
Postretirement benefits other
than pensions (951,000) (781,000)
Other long-term liabilities 1,309,000 (2,500,000)
------------ ------------
Net cash provided by operating
activities 9,050,000 2,484,000
------------ ------------

Cash flows from investing activities:
Capital expenditures, net (611,000) (1,890,000)
Deferred charges (214,000) -
------------ ------------
Net cash used in investing activities (825,000) (1,890,000)
------------ ------------

Cash flows from financing activities:
Payments of senior revolving loan (20,000,000) (23,000,000)
Borrowings of senior revolving loan 10,000,000 24,000,000
Payment of convertible debentures (12,764,000) -
Proceeds from issuance of capital stock 12,764,000 -
------------ ------------
Net cash used by financing activities (10,000,000) 1,000,000
------------ ------------

Net (decrease) increase in cash and
cash equivalents (1,775,000) 1,594,000

Cash and cash equivalents, beginning
of period 4,327,000 2,921,000
------------ ------------

Cash and cash equivalents, end of
period $ 2,552,000 $ 4,515,000
============ ============

Supplemental cash flow information:
Cash interest paid during the period $ 20,683,000 $ 21,704,000
============ ============
</TABLE>

Supplemental disclosure of non-cash financing activities:
See Note 7 for a discussion of non-cash financing activities

See notes to consolidated financial statements.

5
<PAGE> 6
K & F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. The accompanying unaudited consolidated financial statements have been
prepared by K & F Industries, Inc. and Subsidiaries (the "Company") pursuant
to the rules of the Securities and Exchange Commission ("SEC") and, in the
opinion of the Company, include all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of financial position,
results of operations and cash flows. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules. The Company believes that the disclosures made
are adequate to make the information presented not misleading. The
consolidated statements of operations for the three and six months ended
September 30, 1994 are not necessarily indicative of the results to be
expected for the full year. It is suggested that these financial statements
be read in conjunction with the audited financial statements and notes
thereto included in the Company's March 31, 1994 Annual Report on Form 10-K.

2. Accounting Change

Effective April 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits." This statement requires that the costs of
benefits provided to employees after employment but before retirement be
recognized in the financial statements on an accrual basis. The adoption of
SFAS No. 112 did not have a material effect on the Company's financial
position or results of operations.

3. Receivables are summarized as follows:

<TABLE>
<CAPTION>
September 30, March 31,
1994 1994
------------- ----------
<S> <C> <C>
Accounts receivable, principally from
commercial customers $31,911,000 $29,099,000

Accounts receivable, on U. S. Government
and other long-term contracts 2,992,000 4,379,000

Allowances (702,000) (695,000)
------------ -----------
$34,201,000 $32,783,000
=========== ===========
</TABLE>

4. Inventory consists of the following:

<TABLE>
<CAPTION>
September 30, March 31,
1994 1994
------------- ----------
<S> <C> <C>
Raw materials and work-in-process $40,281,000 $42,375,000
Finished goods 13,626,000 15,821,000
Inventoried costs related to U.S.
Government and other long-term
contracts 11,233,000 9,823,000
----------- -----------
65,140,000 68,019,000
Less, unliquidated progress payments
received, principally related
to long-term government contracts 603,000 406,000
----------- -----------
$64,537,000 $67,613,000
=========== ===========
</TABLE>

6
<PAGE> 7
K & F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The Company customarily sells original wheel and brake equipment below cost
as an investment in a new airframe which is expected to be recovered through
the subsequent sale of replacement parts. These commercial investments
(losses) are recognized when original equipment is shipped. Losses on U.S.
Government contracts are immediately recognized in full when determinable.

Inventory is stated at average cost, not in excess of net realizable value.
In accordance with industry practice, inventoried costs may contain amounts
relating to contracts with long production cycles, a portion of which will
not be realized within one year.

5. Other current liabilities consist of the following:

<TABLE>
<CAPTION>
September 30, March 31,
1994 1994
------------- ----------
<S> <C> <C>
Accrued payroll costs 13,690,000 $11,687,000
Accrued taxes 6,663,000 7,094,000
Accrued costs on long-term contracts 3,962,000 3,415,000
Accrued warranty costs 5,103,000 4,502,000
Postretirement benefit obligation other
than pensions 2,000,000 2,000,000
Other 3,833,000 6,284,000
----------- -----------
$35,251,000 $34,982,000
=========== ===========
</TABLE>

6. Contingencies

There are various lawsuits and claims pending against the Company incidental
to its business. Although the final results in such suits and proceedings
cannot be predicted with certainty, in the opinion of management, the
ultimate liability, if any, will not have a material adverse effect on the
Company.

7. Retirement of Debt

On September 2, 1994, K & F retired the $65,371,000 principal amount of 14
3/4% Subordinated Convertible Debentures due 2004 held by Loral Corporation,
in exchange for $12,764,000 in cash and 4,589,938 shares of Class B common
stock representing 22.5% of equity. The cash portion of this transaction
was funded with a $12,764,000 capital infusion by K & F's principal
stockholders for which stockholders received a total of 687,273 shares of
Class A common stock and 127,636 shares of preferred stock. As a result, K
& F's stockholders' equity was increased by $65,371,000 million and
long-term debt was reduced by an equal amount, resulting in no gain or loss
on the transaction.

7
<PAGE> 8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION

Comparison of Results of Operations for the Six Months Ended September 30, 1994
and September 30, 1993

Sales for the first half of fiscal year 1995 totaled $115,143,000 compared with
$115,773,000 in the first six months of fiscal 1994. The decrease was due to a
decline in military sales of $3,200,000 primarily on the F-16 program and lower
shipments of commercial oil containment booms of $4,400,000. Offsetting this
decrease were higher sales of wheels and brakes for both commercial transport
and general aviation aircraft, which were approximately 10% higher than the
prior year. Exceptionally strong demand for DC-9 replacement parts resulted in
a 30% increase in sales on this program during the period.

Operating income increased to $16,566,000 or 14.4% of sales for the first half
of fiscal year 1995, compared with $11,223,000 or 9.7% of sales for the same
period in the prior year. Operating margins increased primarily due to a
favorable sales mix (whereby higher-margin commercial sales comprised a higher
percentage of total sales), lower shipments of original equipment to airframe
manufacturers at or below the cost of production and cost reductions
implemented during fiscal year 1994.

Interest expense decreased $781,000 for the first half of fiscal year 1995
compared with the same period in the prior year. This decrease was primarily
due to the retirement of the convertible debentures on September 2, 1994 (see
Note 7 to the consolidated financial statements) and a lower average principal
balance on the senior revolving loan.

Approximately 360 hourly employees of the Company's Aircraft Braking Systems
subsidiary are represented by the United Auto Workers' Union. Aircraft Braking
Systems' three-year contract with the United Auto Workers' Union expired on
August 10, 1991. Aircraft Braking Systems has not had a ratified collective
bargaining agreement since August 10, 1991, but has operated under Company
implemented terms and conditions of employment.

Comparison of Results of Operations for the Three Months Ended September 30,
1994 and September 30, 1993

Sales for the second quarter of fiscal year 1995 totaled $57,432,000 compared
with $64,042,000 for the second quarter of the prior year. The decline was
primarily due to lower shipments of commercial oil containment booms of
$4,400,000 and lower commercial sales of wheels and brakes of $1,300,000
primarily on the SAAB-340 program. Continued strong demand for replacement
parts was noted on the DC-9 program, where sales were up 12%.

Operating income increased to $9,188,000 or 16.0% of sales for the second
quarter of fiscal year 1995 compared with $8,147,000 or 12.7% of sales for the
same period in the prior year. Operating margins increased primarily due to
lower shipments of original equipment to airframe manufacturers at or below the
cost of production and cost reductions implemented during fiscal year 1994.

8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION

Interest expense decreased $670,000 for the second quarter of fiscal year 1995
compared with the same period in the prior year. This decrease was primarily
due to the retirement of the convertible debentures on September 2, 1994 (see
Note 7 to the consolidated financial statements) and a lower average principal
balance on the senior revolving loan.

Financial Condition

The Company expects that its principal use of funds for the next several years
will be to pay interest on indebtedness, fund capital expenditures and make
investments in original equipment for new airframes. Debt principal
amortization commences August 1, 1999. The Company's management believes that
it will have adequate resources to meet its cash requirements through funds
generated from operations and borrowings under its $80 million revolving credit
facility (maturing April 27, 1997 and subject to a borrowing base of a portion
of eligible accounts receivable and inventory). At September 30, 1994, the
Company had $55.1 million available to borrow under its revolving credit
facility.

On September 2, 1994, K & F retired the $65,371,000 principal amount of
14 3/4% Convertible Debentures due 2004 held by Loral Corporation, in exchange
for $12,764,000 in cash and 4,589,938 shares of Class B common stock
representing 22.5% of equity. The retirement of the convertible debentures has
reduced the Company's future cash requirements by approximately $195 million
had the debentures been outstanding until maturity. (See Note 7 to the
consolidated financial statements.)

Accounting Change

Effective April 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits."
The adoption of SFAS No. 112 did not have a material effect on the Company's
financial position or results of operations. (See Note 2 to the consolidated
financial statements.)

9
<PAGE> 10
PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

3.01 - Amended and Restated Certificate of Incorporation of K & F
Industries, Inc.

3.02 - Amended and Restated By-Laws of K & F Industries, Inc.

10.24- Securities Purchase Agreement among K & F Industries, Inc.,
Bernard L. Schwartz ("BLS") and the Lehman Brothers Partnerships
dated September 2, 1994

10.25- Amended and Restated Stockholders Agreement dated as of
September 2, 1994 By and Among K & F Industries, Inc., BLS, the
Lehman Partnerships, CBC Capital Partners, Inc. and Loral
Corporation

10.26- Agreement dated as of September 2, 1994 between K & F Industries,
Inc. and Loral Corporation

10.28- Waiver and Consent dated as of August 26, 1994

10.29- Amendment of Stockholders Agreement dated, November 8, 1994

10.30- Securities Conversion Agreement among K & F Industries, Inc. and
the Converting Stockholders dated, November 8, 1994

(b) Reports on Form 8-K.

The Company filed a report on Form 8-K dated September 2, 1994, under Item
5 (Other Events) reporting the issue of a press release announcing the
retirement of the $65.4 million principal amount of 14.75% Subordinated
Convertible Debentures due 2004.

10
<PAGE> 11

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

K & F INDUSTRIES, INC.
----------------------
Registrant

/s/KENNETH M. SCHWARTZ
-----------------------
Kenneth M. Schwartz
Chief Financial Officer
and
Registrant's Authorized
Officer

Dated: November 10, 1994

11
<PAGE> 12
EXHIBIT INDEX
-------------

Exhibit
No. Description
------- -----------

3.01 - Amended and Restated Certificate of Incorporation of K & F
Industries, Inc.

3.02 - Amended and Restated By-Laws of K & F Industries, Inc.

10.24- Securities Purchase Agreement among K & F Industries, Inc.,
Bernard L. Schwartz ("BLS") and the Lehman Brothers Partnerships
dated September 2, 1994

10.25- Amended and Restated Stockholders Agreement dated as of
September 2, 1994 By and Among K & F Industries, Inc., BLS, the
Lehman Partnerships, CBC Capital Partners, Inc. and Loral
Corporation

10.26- Agreement dated as of September 2, 1994 between K & F Industries,
Inc. and Loral Corporation

10.28- Waiver and Consent dated as of August 26, 1994

10.29- Amendment of Stockholders Agreement dated, November 8, 1994

10.30- Securities Conversion Agreement among K & F Industries, Inc. and
the Converting Stockholders dated, November 8, 1994

27 - Financial Data Schedule

<PAGE> 1
EXHIBIT 3.01

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

K & F INDUSTRIES, INC.

* * * * *

K & F Industries, Inc., a Delaware corporation, hereby
certifies that this Amended and Restated Certificate of Incorporation,
restating, integrating and amending its Certificate of Incorporation originally
filed by it with the Secretary of State of the State of Delaware on March 13,
1989, under the name Opus Acquisition Corporation, was duly adopted by the
directors and stockholders in accordance with the provisions of Sections 242
and 245 of the General Corporation Law of the State of Delaware.

FIRST: The name of the Corporation is K & F Industries, Inc.
(the "Corporation").

SECOND: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may now or hereafter be organized
under the General Corporation Law of the State of Delaware.

FOURTH: (I) The total number of shares of stock which the
Corporation shall have authority to issue is 27,100,000 consisting of (a)
25,600,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), of which 21,000,000 shares shall be Class A Common Stock (the "Class A
Common Stock"), and 4,600,000 shares shall be Class B Common Stock (the "Class
B Common Stock") and (b) 1,500,000 shares of Preferred Stock, par value $.01
per share (the "Preferred Stock"), of which 1,027,635 shares will be designated
Series A Convertible Preferred Stock (the "Series A Preferred Stock").

(II) Preferred Stock may be issued from time to
time in one or more series with such distinctive designations as may be stated
in the resolution or resolutions providing for the issue of such stock from
time to time adopted by the Board of Directors. The resolution or resolutions
providing for the issue of shares of a particular series shall fix, subject to
applicable laws and provisions of this ARTICLE FOURTH, the designation, rights,
preferences and limitations of the shares of each such series. The authority
<PAGE> 2
of the Board of Directors in respect to each series shall include, but not be
limited to, determination of the following:

(a) the consideration for which such Preferred Stock
shall be issued;

(b) the number of shares constituting such series,
including the authority to increase or decrease such number, and the
designation of such series;

(c) the divided rate of the shares of such series,
whether the dividends shall be cumulative and, if so, the date from which they
shall be cumulative, and the relative rights or priority, if any, of payment of
dividends on shares of such series;

(d) the right, if any, of the Corporation to redeem
shares of such series and the terms and conditions of such redemption;

(e) the rights of the shares in case of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of such series;

(f) the obligation, if any, of the Corporation to retire
shares of such series pursuant to a retirement or sinking funds of a similar
nature or otherwise and the terms and conditions of such obligation;

(g) the terms and conditions, if any, upon which shares
of such series shall be convertible into or exchangeable, at the option of the
Corporation or the holder, for shares of stock of any other class or classes or
debt securities of the Corporation, including the price or prices or the rate
or rates of conversion of exchange and terms of adjustment, if any;

(h) the voting rights and requirements, if any, of the
shares of such series, in addition to any voting rights required by law; and

(i) any other rights, preferences or limitations of
shares of such series.

(III) The designations, voting powers, preferences
and relative, participating, optional and other special rights of the shares of
the Series A Preferred Stock, and the qualifications, limitations or
restrictions thereof are as follows:

-2-
<PAGE> 3
(1) Dividends and Distributions.

(A) Subject to the prior and superior rights of the
holders of any shares of any series of preferred
stock ranking prior and superior to the Series A
Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in
preference to the shares of Common Stock shall be
entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for
the purpose, dividends payable in cash or in kind
respectively, commencing on the first issuance of a
share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest
cent), subject to the provision for adjustment
hereinafter set forth, equal to the aggregate per
share amount of all cash dividends, and equal to the
aggregate per share amount (payable in the same form
as payment to the holders of Common Stock) of all
non-cash dividends or other distributions other than
a dividend payable in shares of Common Stock,
declared on the Common Stock since the first issuance
of any share or fraction of a share of Series A
Preferred Stock. In the event the Corporation shall
at any time after July 27, 1989 (the "Original Issue
Date") (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which
holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be
adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common
Stock outstanding immediately after such event and
the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior
to such event.

(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in paragraph (A) above
simultaneously with the declaration of a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock) with identical
payment dates. No dividend shall be declared or paid on the Common Stock
unless the immediately preceding sentence shall have been complied with.

-3-
<PAGE> 4
(2) Voting Rights. In addition to any other voting rights
required by law, holders of shares of Series A Preferred Stock shall have only
the following voting rights:

(A) Subject to the provision for adjustment hereinafter
set forth, the holders of Series A Preferred Stock shall have the right to vote
on the election or removal of directors of the Corporation and on all other
matters to be voted on by the holders of Common Stock of the Corporation and
shall be entitled to one vote for each share of Series A Preferred Stock held.
In the event the Corporation shall at any time after the Original Issue Date
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the number
of votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.

(C) Except as set forth herein, holders of Series A
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.

(3) Certain Restrictions.

(A) Whenever dividends or distributions payable on the
Series A Preferred Stock as provided in ARTICLE FOURTH (1) are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series A Preferred Stock outstanding
shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;

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<PAGE> 5
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;

(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares
of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to
the Series A Preferred Stock; or

(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.

(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph (A)
of this ARTICLE FOURTH (3), purchase or otherwise acquire such shares at such
time and in such manner.

(4) Conversion of Series A Preferred Stock.

(A) Subject to and upon compliance with the provisions of
this Amended and Restated Certificate of Incorporation and subject to the
provisions for adjustment

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<PAGE> 6
hereinafter set forth, each record holder of shares of Series A Preferred Stock
shall be entitled at any time and from time to time to exchange each share of
Series A Preferred Stock held by such holder for ten shares of Class A Common
Stock. Each exchange of shares of Series A Preferred Stock for Class A Common
Stock shall be effected by the surrender of the certificate or certificates
evidencing the shares of Series A Preferred Stock to be exchanged at the
principal office of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the
holders of the Series A Preferred Stock) at any time during its usual business
hours, together with written notice by the holder of such shares of Series A
Preferred Stock, stating that such holder desires to exchange the shares, or a
stated number of shares, of Series A Preferred Stock evidenced by such
certificate or certificates into shares of Class A Common Stock. Such notice
shall also state the name or names (with addresses) and denominations in which
the certificate or certificates evidencing shares of Class A Common Stock shall
be issued and shall include instructions for delivery thereof. Receipt of such
notice together with the certificates evidencing the shares of Series A
Preferred Stock to be exchanged shall obligate the Corporation to issue shares
of Class A Common Stock as specified in such notice. Promptly after such
surrender and the receipt of such written notice, the corporation shall issue
and deliver in accordance with such instructions the certificate or
certificates evidencing the shares of Class A Common Stock issuable upon such
exchange. Such exchange, to the extent permitted by law, shall be deemed to
have been effected as of the close of business on the date on which such
certificate or certificates shall have been surrendered and such written notice
shall have been received by the Corporation, and at such time the rights of the
holder of such shares of Series A Preferred Stock to be exchanged as such
holder shall cease and the person or persons in whose name or names any
certificate or certificates evidencing shares of Class A Common Stock to be
issued upon such exchange shall be deemed to have become the holder or holders
of record of the shares of Class A Common Stock to be evidenced thereby. The
Corporation shall be entitled to rely conclusively, as to the truth of the
statements made therein, on such written notice, and the Corporation shall not
be liable to any person with respect to any action taken or omitted to be taken
by it in connection with such exchange in reliance on the statements made in
such written notice.

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<PAGE> 7
person other than a merger described in ARTICLE FOURTH (8) herein, (c) a sale
of all or substantially all of the assets of the Corporation, any capital
reorganization or any reclassification of the capital stock of the Corporation
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up, combination of shares) or (d) the exercise by the
holders of Common Stock or Series A Preferred Stock of their Put Sale Option or
Tag-Along Right as set forth in the Amended and Restated Stockholders Agreement
dated as of September 2, 1994 among the Corporation and the other parties
thereto (each such event, an "Event of Conversion"), all shares of the Series A
Preferred Stock, subject to the adjustment hereinafter set forth, shall,
subject to compliance with any applicable filing requirements (and the
expiration of all waiting periods) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), automatically convert
into an equal number of shares of Class A Common Stock. In the event the
Corporation shall at any time after the Original Issue Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the aggregate number of shares
of Class A Common Stock issuable upon conversion of a share of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

(C) The Corporation will at all times reserve and keep
available out of its authorized but unissued shares of Class A Common Stock, or
its treasury shares, solely for the purpose of issue upon exchange of the
shares of Series A Preferred Stock, as herein provided, such number of shares
of Class A Common Stock as shall then be issuable upon an exchange of all
outstanding shares of Series A Preferred Stock. The shares of Class A Common
Stock so issuable shall, when so issued, be duly authorized, validly issued,
fully paid and nonassessable.

(D) Shares of Series A Preferred Stock that are exchanged
for shares of Class A Common Stock as provided herein shall not be reissued as
Series A Preferred Stock.

(E) The issue of certificates evidencing shares of Class
A Common Stock upon exchange of shares of Series A Preferred Stock shall be
made without charge to the holders of such shares for any issue tax in respect
thereof, or other cost incurred by the Corporation in connection with such
exchange; provided, however, that the Corporation shall not be

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<PAGE> 8
required to pay any tax that may be payable in respect of any transfer
involving the issue and delivery of any certificate in a name other than that
of the holder or former holder of the Series A Preferred Stock.

(5) Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Series A Preferred Stock and may be reissued as part of a
new series of preferred stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on issuance set
forth in the Amended and Restated Certificate of Incorporation.

(6) Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation, dissolution or winding up of the Corporation (a "Liquidation"), no
distribution shall be made

(i) to the holders of shares of Common Stock
unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received the greater of (a) $84.62
per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared,
to the date of such payment, and (b) an aggregate amount per
share, subject to the provision for adjustment hereinafter set
forth, equal to ten times the aggregate amount to be
distributed per share to the holders of the Common Stock, or

(ii) to the holders of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and
all other such parity stock in proportion to the total amounts
to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.

(B) Pursuant to a Letter Agreement (the "Letter
Agreement") dated September 2, 1994, the holders of the Series A Preferred
Stock agreed to make certain payments to the holders of the Class B Common
Stock upon a distribution pursuant to Section (III)(6)(A)(i) above. The Letter
Agreement is hereby incorporated by reference into this Amended and Restated
Certificate of Incorporation. The rights and privileges of the Class B Common
Stock pursuant to the Letter Agreement shall terminate upon the conversion of
all of

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<PAGE> 9
the Series A Preferred Stock pursuant to Section 4 of Article IV of this
Amended and Restated Certificate of Incorporation. All references to the Loral
Shares in the Letter Agreement shall hereby be deemed to be references to the
outstanding shares of Class B Common Stock, and all references in the Letter
Agreement to Section (III)(7)(i)(a) of Article IV of the Certificate of
Incorporation of the Corporation shall be deemed to refer to Section
(III)(6)(A)(i) of Article IV of this Amended and Restated Certificate of
Incorporation. The Corporation shall take all such actions as are necessary to
effect the distributions to the holders of the Class B Common Stock that are
required to be made by the holders of the Series A Preferred Stock under the
Letter Agreement.

(C) In the event the Corporation shall at any time after
November 8, 1994 (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under clause (b) of Section
(III)(6)(A)(i) above shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

(7) Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after the Original Issue Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

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<PAGE> 10
(8) No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.

(9) Rank. The Series A Preferred Stock shall rank junior
with respect to payment of dividends and on liquidation to all other series of
the Corporation's preferred stock that specifically provide that they shall
rank senior to the Series A Preferred Stock.

(10) Amendment. The Amended and Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of a majority or more of the outstanding shares, if any, of
Series A Preferred Stock, voting separately as a class.

(IV) Holders of the Class B Common Stock have
certain rights to receive distributions made to the holders of the Series A
Preferred Stock upon a Liquidation pursuant to Article IV, Section (III)(6)(B)
hereof. Except as provided in Article IV, Section (III)(6)(B) hereof, or as
otherwise expressly provided in this Amended and Restated Certificate of
Incorporation, all outstanding shares of Common Stock shall be identical and
shall entitle the holders thereof to the same rights and privileges.

(1) When, as and if dividends or distributions are
declared on outstanding shares of Common Stock, whether payable in cash, in
property or in securities of the Corporation (other than shares of Common
Stock), the holders of outstanding shares of Common Stock, shall be entitled to
share equally, share for share, in such dividends and distributions. If
dividends or distributions are declared on outstanding shares of Common Stock
that are payable in shares of, or in subscription or other rights to acquire
shares of, Common Stock, such dividends shall be declared at the same rate on
the outstanding shares of Class A Common Stock and the outstanding shares of
Class B Common Stock, but shall be payable only in shares or in subscription or
other rights to acquire shares, as the case may be, of Class A Common Stock to
holders of outstanding shares of Class A Common Stock and Class B Common Stock
to holders of outstanding shares of Class B Common Stock.

(2) Upon any Liquidation, the holders of Common Stock
shall be entitled to share equally, share for share, in the assets of the
Corporation to be distributed among the holders of shares of the Common Stock.
Additionally, the holders of outstanding shares of Class B Common Stock shall
have the rights and privileges set forth in Article IV, Section III(6)(B)
hereof.

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<PAGE> 11
(3) If the Corporation shall in any manner subdivide or
combine the outstanding shares of one class of Common Stock, the outstanding
shares of the other class of Common Stock shall be correspondingly subdivided
or combined, as the case may be.

(4) The holders of outstanding shares of Common Stock
shall have the right to vote on the election or removal of the directors of the
Corporation and on all other matters to be voted on by the stockholders of the
Corporation and shall be entitled to one vote for each share of Common Stock
held.

(5) The Amended and Restated Certificate of Incorporation
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Class B Common
Stock so as to affect them adversely without the affirmative vote of the
holders of a majority or more of the outstanding shares, if any, of Class B
Common Stock voting separately as a class.

(6) The Corporation shall not authorize or issue any
additional shares of the Class B Common Stock without the affirmative vote of
the holders of a majority or more of the outstanding shares, if any, of the
Series A Preferred Stock.

(7) Any shares of Class B Common Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall
upon their cancellation become authorized but unissued shares of Class B Common
Stock and may be reissued as part of a new series of common stock to be created
by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth in the Amended and Restated
Certificate of Incorporation.

FIFTH: The Board of Directors shall have the power to adopt,
amend or repeal the by-laws of the Corporation to the extent provided in the
by-laws.

SIXTH: (1)(a) A director of the Corporation shall not be
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit.

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<PAGE> 12
(b) If the General Corporation Law of the State of
Delaware is hereafter amended to further eliminate or limit the liability of a
director of a corporation, then a director of the Corporation, in addition to
the circumstances set forth herein, shall not be liable to the fullest extent
permitted by the General Corporation Law of the State of Delaware as so
amended.

(2)(a) Each person who was or is a party or is threatened to
be made a party to, or is involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the Corporation to the fullest extent
permitted by applicable law. The right to indemnification conferred in this
ARTICLE SIXTH shall also include the right to be paid by the Corporation the
expenses incurred in connection with any such proceeding in advance of its
final disposition to the fullest extent authorized by applicable law. The
right to indemnification conferred in this ARTICLE SIXTH shall be a contract
right.

(b) The Corporation shall determine the right of any
person to receive indemnification as provided hereunder in accordance with the
provisions of applicable law.

(3) The rights and authority conferred in this ARTICLE
SIXTH shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Amended and Restated
Certificate of Incorporation or the by-laws of the Corporation, agreement, vote
of stockholders or disinterested directors or otherwise.

(4) Neither the amendment nor repeal of this ARTICLE
SIXTH nor the adoption of any provision of this Certificate of Incorporation or
the by-laws of the Corporation or of any statute inconsistent with this ARTICLE
SIXTH shall eliminate or reduce the effect of this ARTICLE SIXTH in respect of
any acts or omissions occurring prior to such amendment or repeal or such
adoption of an inconsistent provision.

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<PAGE> 13
such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of the State of Delaware.

EIGHTH: The Corporation reserves the right to amend this
Amended and Restated Certificate of Incorporation in any manner permitted by
the General Corporation Law of the State of Delaware, as amended from time to
time, and all rights and powers conferred herein on stockholders, directors and
officers, if any, are subject to this reserved power.

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<PAGE> 14
IN WITNESS WHEREOF, said Corporation has caused this Amended
and Restated Certificate to be signed by its Vice President and attested to by
its Assistant Secretary, this 8th day of November, 1994.

K & F INDUSTRIES, INC.

By: KENNETH M. SCHWARTZ
Kenneth M. Schwartz,
Vice President

ATTEST: LISA F. STEIN-MCMEEKIN
Lisa F. Stein-McMeekin
Asst. Secretary

<PAGE> 1
EXHIBIT 3.02

AMENDED AND RESTATED

BY-LAWS

K&F INDUSTRIES, INC.

ARTICLE I

Offices

SECTION 1. Registered Office in Delaware. The registered
office of K&F Industries, Inc. (hereinafter called the "Corporation") in the
State of Delaware shall be in the City of Wilmington, County of New Castle, and
the registered agent in charge thereof shall be The Corporation Trust Company.

SECTION 2. Other Offices. The Corporation may have such
other offices in such places, either within or without the State of Delaware,
as the Board of Directors may from time to time determine or the business of
the Corporation may require.

ARTICLE II

Meetings of Stockholders; Stockholders'
Consent in Lieu of Meeting

SECTION 1. Annual Meeting. The annual meeting of
stockholders for the election of directors and for the transaction of such
other business as may properly come before the meeting shall be held at such
place within or without the State of Delaware, and at such date and hour, as
shall be designated by the Board of Directors.

SECTION 2. Special Meetings. A special meeting stockholders,
for any purpose or purposes, may be called at any time by any member of the
Board of Directors or by the Chairman of the Board. Any such meeting shall be
held at such place within or without the State of Delaware, and at such date
and hour, as shall be designated in the notice of such meeting.

SECTION 3. Notice of Meeting. Unless waived in writing by
the stockholder of record or unless such stockholder is represented thereat in
person or by proxy, each stockholder of record shall be given written notice of
each meeting of stockholders, which notice shall state the place, date and hour
of the meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called. Such notice
<PAGE> 2
shall be given at least ten days and no more than sixty days before the date
fixed for such meeting.

SECTION 4. Quorum. At each meeting of stockholders, the
holders of record of a majority of the issued and outstanding stock of the
Corporation entitled to vote at such meeting, present in person or by proxy,
shall constitute a quorum for the transaction of business, except where
otherwise provided by law, the Certificate of Incorporation or these By-Laws.
In the absence of a quorum, any officer entitled to preside at, or act as
secretary of, such meeting shall have the power to adjourn the meeting from
time to time until a quorum shall be constituted. At any such adjourned
meeting at which a quorum shall be present any business may be transacted which
might have been transacted at the meeting as originally called, but only those
stockholders entitled to vote at the meeting as originally noticed shall be
entitled to vote at any adjournment or adjournments thereof.

SECTION 5. Voting. Except as otherwise provided
in the Certificate of Incorporation, at every meeting of stockholders each
holder of record of the issued and outstanding stock of the Corporation
entitled to vote thereat shall be entitled to one vote, in person or by proxy,
for each share of stock held by such stockholder. Shares of capital stock of
the Corporation belonging to the Corporation directly or indirectly shall not
be voted directly or indirectly. At all meetings of stockholders, a quorum
being present, all matters shall be decided by majority vote of the shares of
stock entitled to vote thereat, except as otherwise required by the laws of the
State of Delaware. Unless demanded by a stockholder of the Corporation present
in person or by proxy at any meeting of stockholders and entitled to vote
thereat or so directed by the chairman of the meeting or required by the laws
of the State of Delaware, the vote thereat on any question need not be by
ballot. On a vote by ballot, each ballot shall be signed by the stockholder
voting, or in his name by his proxy, if there be such proxy, and shall state
the number of shares voted by him and the number of votes to which each share
is entitled.

SECTION 6. Stockholders' Consent in Lieu of Meeting. Any
corporate action requiring a vote of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Such writing or writings
shall be filed with the minutes of stockholders' meetings and prompt notice of
the taking of any such action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not so consented in
writing.

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ARTICLE III

Board of Directors

SECTION 1. General Powers. The property, business and
affairs of the Corporation shall be managed by the Board of Directors.

SECTION 2. Number and Term of Holding Office. The number of
directors which shall constitute the whole Board of Directors shall be seven,
or such other number of directors as the Board may determine from time to time.
Each of the directors of the Corporation shall hold office until the annual
meeting next after his election and until his successor shall be elected and
shall qualify or until his earlier death or resignation or removal in the
manner hereinafter provided.

SECTION 3. Organization and Order of Business. Except as
otherwise provided in Article IV Section 2, at each meeting of the Board of
Directors, any director chosen by a majority of the directors present thereat
shall act as chairman of the meeting and preside thereat. The Secretary of the
Corporation or, in the case of his absence, any person whom the chairman shall
appoint, shall act as secretary of such meeting and keep the minutes thereof.

SECTION 4. Resignations. Any director may resign any time by
giving written notice of his resignation to the President or the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, then it shall take effect when accepted by action of the Board of
Directors. Except as aforesaid, the acceptance of such resignation shall not
be necessary to make it effective.

SECTION 5. Removal of Directors. Any director may be
removed, either with or without cause, at any time by vote of a majority in
interest of the stockholders of Corporation.

SECTION 6. Vacancies. Any vacancy in the Board of Directors,
arising from death, resignation, removal, an increase in the number of
directors or any other cause, may be filled either by a majority vote of the
remaining directors, although less than a quorum, or by the stockholders of the
Corporation at the next annual meeting or any special meeting called for the
purpose.

SECTION 7. Place of Meeting. The Board of Directors may hold
its meetings at such place or places within or without the State of Delaware as
the Board may from time to time by resolution determine or as shall be
designated in the respective notices or waivers of notice thereof.

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<PAGE> 4
SECTION 8. Meetings.

(a) Annual Meetings. As soon as practicable after each
annual election of directors, the Board of Directors shall meet for the purpose
of organization and the transaction of other business.

(b) Other Meetings. Other meetings of the Board of Directors
shall be held at such times and places as the Board shall from time to time
determine or upon call by the President of the Corporation.

SECTION 9. Notice of Meetings. The Secretary of the
Corporation shall give notice to each director of each meeting, including the
time and place of such meeting. Notice of each such meeting shall be mailed to
each director, addressed to him at his residence or usual place of business, at
least three days before the day on which such meeting is to be held, or shall
be sent to him by telegraph, cable, wireless or other form of recorded
communication or be delivered personally or by telephone not later than the day
before the day on which such meeting is to be held. Notice of any meeting
shall not be required to be given to any director who shall attend such
meeting. A written waiver of notice, signed by the person entitled thereto,
whether before or after the time stated therein, shall be deemed equivalent to
adequate notice.

SECTION 10. Quorum and Manner of Acting.

(a) General Provisions. Except as provided by law, the
Certificate of Incorporation or these By-Laws, a majority of the directors then
in office (or such other number of directors as the Board of Directors may
determine from time to time) shall be necessary at any meeting of the Board of
Directors in order to constitute a quorum for the transaction of business at
such meeting, and the vote of a majority of those directors present at any such
meeting at which a quorum is present shall be necessary for the passage of any
resolution or act of the Board. In the absence of a quorum for any such
meeting, a majority of the directors present thereat may adjourn such meeting
from time to time until a quorum shall be present thereat. Notice of any
adjourned meeting need not be given.

(b) Certain Actions. Notwithstanding the provisions of
Section 10(a) and for so long as there are directors on the Board nominated as
director-designees by LBP (as defined in the Corporation's Amended and Restated
Stockholders Agreement dated September 2, 1994), the following-listed actions
to be taken by the Corporation, directly or indirectly, shall require the
affirmative vote of a majority of the directors then in office, including, if
any LBP director-designees shall then be in office, the affirmative vote of at
least one of the LBP director-designees:

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<PAGE> 5
(i) mergers, consolidations, recapitalizations and
reorganizations of the Corporation other than with or into a
wholly-owned subsidiary of the Corporation;

(ii) issuances of Common Stock or Preferred Stock by
the Corporation (other than any issuance of Common Stock of the
Corporation upon conversion of any convertible stock);

(iii) repurchases (other than repurchases of Common
Stock issued pursuant to the exercise of options held by employees
pursuant to option plans of the Company) of and dividends on Common
Stock by the Corporation or its subsidiaries;

(iv) the issuance of employee options representing
in excess of 500,000 shares of Common Stock;

(v) the acquisition, sale or exchange of assets in
excess of $5,000,000;

(vi) dissolution or liquidation of the Corporation;

(vii) amendment of the Restated Certificate of
Incorporation or these Amended and Restated By-Laws;

(viii) the incurrence of debt or liens in excess of
$10,000,000 in the aggregate;

(ix) the making of loans, investments or capital
expenditures in excess of $10,000,000;

(x) transactions with affiliates of the Corporation;

(xi) engagement in new types of businesses or
ventures by the Corporation;

(xii) prepayments of or amendments to any amount of
financing in excess of $10,000,000;

(xiii) provision of compensation to the Chairman of
the Board and other directors or directors of subsidiaries in addition
to base compensation of $2,400,000 per annum; and

(xiv) approval and implementation of any
noncompetition agreement with the Chairman of the Board.

SECTION 11. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a

-5-
<PAGE> 6
written consent thereto is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of the proceedings of the Board or such committee.

SECTION 12. Meetings by Telephone, etc. Members of the Board
of Directors, or of any committee thereof, may participate in a meeting of the
Board, or of such committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.

SECTION 13. Compensation. Each director, in consideration of
his serving as such, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at meetings of the Board of
Directors or of any committee thereof, or both, as the Board shall from time to
time determine. The Board may likewise provide that the Corporation shall
reimburse each director or member of a committee for any expenses incurred by
him on account of his attendance at any such meeting. Nothing contained in
this Section shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.

SECTION 14. Committees. The Board of Directors, by
resolution passed by a majority of the whole Board, may designate members of
the Board to constitute one or more committees, which shall in each case
consist of such number of directors, not fewer than two, and shall have and may
exercise such powers as the Board may by resolution determine and specify in
the respective resolutions appointing them, subject to Section 10(B) of these
By-Laws. A majority of all the members of any such committee may fix its rules
of procedure, determine its action and fix the time and place, whether within
or without the State of Delaware, of its meetings and specify what notice
thereof, if any, shall be given, unless the Board shall otherwise by resolution
provide. The Board shall have power to change the members of any such
committee at any time, to fill vacancies therein and to discharge any such
committee, either with or without cause, at any time.

ARTICLE IV

Officers

SECTION 1. Number. The officers of the Corporation shall be
a Chairman, a President, one or more Vice Presidents, a Treasurer and a
Secretary. Each such officer shall be elected by the Board of Directors at its
initial organization meeting and thereafter at its annual meeting shall hold
office until the next succeeding annual meeting of the Board and until his
successor is

-6-
<PAGE> 7
elected or until his earlier death or resignation or removal in the manner
hereinafter provided.

The Board may elect or appoint such other officers of the
Corporation (including one or more Assistant Treasurers and one or more
Assistant Secretaries) as it deems necessary who shall have such authority and
shall perform such duties as the Board may prescribe. If additional officers
are elected or appointed during the year, each of them shall hold office until
the next annual meeting of the Board at which officers are regularly elected or
appointed and until his successor is elected or appointed or until his earlier
death or resignation or removal in the manner hereinafter provided.

A vacancy in any office may be filled for the unexpired
portion of the term in the same manner as provided for election or appointment
to such office.

All officers and agents elected or appointed by the Board
shall be subject to removal at any time by the Board with or without cause.

Any officer may resign at any time by giving written notice to
the President or the Secretary of the Corporation, and such resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, it shall take effect when accepted by
action of the Board. Except as aforesaid, the acceptance of such resignation
shall not be necessary to make it effective.

SECTION 2. Chairman of the Board. The Board of Directors may
appoint one of its members to be Chairman of the Board. If so appointed, he
shall preside at all meetings of the Board of Directors and at all meetings of
the stockholders and shall have and exercise such further powers and duties as
may from time to time be conferred upon or assigned to him by the Board of
Directors.

SECTION 3. Vice Presidents. Each Vice President shall have
such powers and perform such duties as the President or the Board may from time
to time prescribe and shall perform such other duties as may be prescribed by
these By-Laws. At the request of the President, or in case of his absence or
inability to act, any of the Vice Presidents shall perform the duties of the
President and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President.

SECTION 4. Treasurer. The Treasurer of the Corporation shall
have charge and custody of and be responsible for all funds and securities of
the Corporation and its books of account.

-7-
<PAGE> 8
SECTION 5. Secretary. The Secretary of the Corporation shall
keep the records of all meetings of the stockholders and the Board of
Directors. He shall affix the seal of the Corporation to all deeds, contracts,
bonds or other instruments requiring the corporate seal when the same shall
have been signed on behalf of the Corporation by a duly authorized officer and
shall be the custodian of all contracts, deeds, documents and all other indicia
of title to Properties owned by the Corporation and of its other corporate
records.

ARTICLE V

Contracts, Checks, Drafts, Bank Accounts, etc.

SECTION 1. Execution of Documents. Any officer, employee or
agent of the Corporation designated by the Board of Directors shall have power
to execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation, and the Board of Directors may authorize any such
officer, employee or agent to delegate such power (including authority to
redelegate) by written instrument to other officers, employees or agents of the
Corporation.

SECTION 2. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation or otherwise as the Board of Directors or the President or any
other officer of the Corporation to whom power in that respect shall have been
delegated by the Board shall select.

ARTICLE VI

Books and Records

The books and records of the Corporation may be kept at such
places within or without the State of Delaware as the Board of Directors may
from time to time determine.

ARTICLE VII

Seal

The Board shall provide a corporate seal, which shall be in
the form of a circle and shall bear the full name of the Corporation and the
word "Delaware" and figures representing the year of its incorporation.

-8-
<PAGE> 9
ARTICLE VIII

Indemnification

To the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware, as now in effect and as from time to
time amended, or any successor provisions thereto, the Corporation shall hold
harmless and indemnify against any expense, liability or loss (including,
without limitation, judgments, fines, settlement payments and the expense of
legal counsel) incurred by any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and
whether or not such action is an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person is
or was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The right to indemnification conferred in this Article also shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition to the
fullest extent permitted by applicable law.

At the discretion of the Board of the Corporation and to the
fullest extent permitted by law, the Corporation may purchase insurance at its
expense, in amounts and in a manner determined by the Board, to protect itself
and any other person who is or was a director, officer, employee or agent of
the Corporation or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any expense, liability or loss
incurred by such person in any such capacity or arising out of such person's
status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under applicable
law.

ARTICLE IX

Shares and Their Transfer

SECTION 1. Certificates of Stock. Every owner of stock of
the Corporation shall be entitled to have a certificate certifying the number
of shares owned by him or it in the Corporation and designating the class of
stock to which such shares belong, which shall otherwise be in such form as the
Board of Directors shall prescribe. Each such certificate shall be signed by
the President or a Vice President and the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary

-9-
<PAGE> 10
of the Corporation. In case any officer or officers who shall have signed any
such certificate or certificates shall cease to be such officer or officers of
the Corporation, whether because of death, resignation, removal or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate had not ceased to be such officer or officers of the
Corporation.

SECTION 2. Record. A record shall be kept of the name of the
person, firm or corporation owning the stock represented by each certificate
for stock of the Corporation issued, the number of shares represented by each
such certificate, and the date thereof, and, in the case of cancellation, the
date of cancellation. The person in whose name shares of stock stand on the
books of the Corporation shall be deemed the owner thereof for all purposes as
regards the Corporation.

SECTION 3. Transfer of Stock. Transfers of shares of the
stock of the Corporation shall be made only on the books of the Corporation by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary of the Corporation, and
on the surrender of the certificate or certificates for such shares properly
endorsed.

SECTION 4. Lost, Destroyed or Mutilated Certificate. In case
of the alleged loss or destruction or the mutilation of a certificate
representing stock of the Corporation, a new certificate may be issued in place
thereof, in the manner and upon such terms as the Board of Directors may
prescribe.

SECTION 5. Regulations. The Board of Directors may make such
rules and regulations as it may deem expedient, not inconsistent with the
Certificate of Incorporation or these By-Laws, concerning the issue, transfer
and registration of certificates for shares of the stock of the Corporation.
It may appoint, or authorize any principal officer or officers to appoint, one
or more transfer agents and one or more registrars, and may require all
certificates of stock to bear the signature or signatures of any of them. The
Board of Directors may at any time terminate the employment of any transfer
agent or any registrar of transfers.

SECTION 6. Stockholder Agreements. Shares of stock of the
Corporation may be subject to one or more agreements abridging, limiting or
restricting the rights of any one or more of the stockholders to sell, assign,
transfer, mortgage, pledge or hypothecate any or all of the stock of the
Corporation held by them, or providing for preemptive rights, or may be subject
to one or more agreements providing a purchase option with respect to any
shares of stock of the Corporation or establishing certain

-10-
<PAGE> 11
voting rights and obligations. If such agreements exist, all certificates of
shares of stock subject to such abridgements, limitations, restrictions, or
option shall have reference thereto endorsed on such certificate, and such
stock shall not thereafter be transferred on the books of the Corporation
except in accordance with the terms and conditions of such agreement or
agreements. Copies of such agreement or agreements shall be maintained at the
offices of the Corporation.

ARTICLE X

Amendments

These By-Laws, or any of them, may be altered, amended or
repealed, or new By-Laws may be made, by the stockholders entitled to vote
thereon at any annual or special meeting thereof or by the Board of Directors;
provided that, for so long as there are directors nominated as
director-designees by LBP on the Board of Directors, no such alteration,
amendment, repeal or restatement may be approved by the Board of Directors
without the affirmative vote of at least one of the directors nominated by LBP.

-11-

<PAGE> 1
EXHIBIT 10.24

================================================================================

SECURITIES PURCHASE AGREEMENT

among

K & F Industries, Inc.

and

The Purchasers (as defined herein)

September 2, 1994

================================================================================
<PAGE> 2
SECURITIES PURCHASE AGREEMENT

Table of Contents

<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.1. Commitments to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.2. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.1. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.2. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.3. Organization and Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.4. Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.5. No Violation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.6. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.7. Offer or Sale of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE IV INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 4.1. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE V CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 5.1. Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE VI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 6.1. Applicability of the Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 6.2. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>

-ii-
<PAGE> 3
SECURITIES PURCHASE AGREEMENT dated as
of September 2, 1994, among K&F Industries,
Inc. (f.k.a. Opus Acquisition Corporation), a
Delaware corporation (together with its
successors, the "Issuer"), Bernard L. Schwartz
("BLS"), Lehman Brothers Capital Partners II,
L.P. ("LBCP"), Lehman Brothers Merchant
Banking Portfolio Partnership L.P. ("LBMB"),
Lehman Brothers Offshore Investment
Partnership L.P. ("LBOP") and Lehman Brothers
Offshore Investment Partnership - Japan L.P.
("LBOJ"; and LBOJ, BLS, LBCP, LBOP, LBMB,
collectively, the "Purchasers").

The Issuer is currently negotiating with Loral Corporation
("Loral") to retire the Issuer's 14.75% Subordinated Convertible Debentures Due
2004 which are held by Loral (the "Proposed Transaction").

To obtain the cash which the Issuer proposes to pay to Loral
in the Proposed Transaction, the Issuer has agreed to sell to the Purchasers,
and the Purchasers have agreed to purchase from the Issuer, shares of the
Issuer's capital stock on the terms and subject to the conditions contained
herein. All of the proceeds from the issuance by the Issuer of capital stock
hereunder will be used to effect the Proposed Transaction.

Accordingly, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1. Definitions. Capitalized terms used and
not otherwise defined herein shall have the meanings given to such terms in the
Securities Purchase Agreement (the "Original Purchase Agreement") dated as of
April 27, 1989, among the Issuer, BLS and Lehman Brothers Holdings Inc.
(formerly known as Shearson Lehman Hutton Holdings Inc.).

ARTICLE II

PURCHASE AND SALE OF SECURITIES

SECTION 2.1. Commitments to Purchase. At the Closing (as
defined below) the Issuer agrees to issue and sell to each Purchaser and each
Purchaser agrees, severally but not jointly,
<PAGE> 4
to purchase from the Issuer the number of shares of Nonvoting Common Stock, par
value $.01 per share (the "Common Shares"), or shares of Series A Nonvoting
Convertible Preferred Stock, par value $.01 per share ("Series A Preferred
Shares" and, together with the Common Shares, the "Shares"), of the Issuer as
are set forth opposite such Purchaser's name on Schedule I attached hereto at
the aggregate purchase price set forth opposite such Purchaser's name on
Schedule I.

SECTION 2.2. Closing. (a) The purchase and sale of the
Shares (the "Closing") will take place at the offices of O'Sullivan Graev &
Karabell, 30 Rockefeller Plaza, New York, New York 10112 simultaneously with
the execution and delivery hereof.

(b) At the Closing, the Issuer shall deliver to each
Purchaser a stock certificate, registered in the name of such Purchaser,
representing the Shares being purchased by such Purchaser pursuant to Section
2.1.

(c) Delivery of certificates representing Shares shall be
made to each Purchaser against receipt by the Issuer of a wire transfer of
immediately available funds in an amount equal to the aggregate purchase price
to be paid for such Purchaser's Shares.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Issuer hereby represents and warrants to each Purchaser as
follows:

SECTION 3.1. Disclosure. There is no fact known to the
Issuer which has not been disclosed to the Issuer's board of directors at
meetings of the board of directors (other than facts related to general
economic conditions of the economy as a whole) which has resulted in a material
adverse effect, or, insofar as the Issuer can reasonably foresee, is likely to
have a material adverse effect on the properties, business, prospects,
operations, earnings, assets, liabilities or condition (financial or otherwise)
of the Issuer and its subsidiaries taken as a whole (a "Material Adverse
Effect").

SECTION 3.2. Financial Statements. The audited consolidated
balance sheet of the Issuer as of March 31, 1994 and the related consolidated
statements of income, shareholder's equity and cash flow for the year ended
March 31, 1994 fairly present, in conformity with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of the Issuer and its
consolidated subsidiaries as of the date thereof and their consolidated results
of operations, shareholders' equity and cash flows for the period then ended.

-2-
<PAGE> 5
SECTION 3.3. Organization and Status. The Issuer is a
corporation duly organized, validly existing and in good standing under the
General Corporation Law of the State of Delaware and is duly qualified to
transact business in each jurisdiction in which the character of its business
makes such qualification necessary, except where such failure to qualify would
not have a Material Adverse Effect and the Issuer has all requisite corporate
power and authority and all material governmental licenses, authorizations,
consents and approvals required to own, lease and operate its property and
assets and to transact the business in which it is engaged. Attached as
Exhibits A and B hereto are true and correct copies of the By-laws and
Certificate of Incorporation of the Issuer as amended and restated through the
date hereof.

SECTION 3.4. Authorization. (a) The Issuer has the
requisite corporate power to execute, deliver and perform the terms and
provisions of this Agreement and the Amended and Restated Stockholders
Agreement dated the date hereof among the Issuer and certain stockholders of
the Issuer (the "Stockholders Agreement" and, together with this Agreement, the
"Documents") and has taken all requisite corporate action to authorize the
execution, delivery and performance by it of the Documents. Each Document
constitutes a valid and binding agreement of the Issuer.

(b) The Shares have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement, will have been
validly issued and will be fully paid and nonassessable, and free and clear of
any Lien or other right or claim, except to the extent set forth in the
Stockholders Agreement, and each Purchaser will acquire good and valid title to
the Shares to be purchased by it free of any Lien and free of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of such Shares), except as provided in the Stockholders
Agreement and the Issuer's Certificate of Incorporation. The issuance of the
Shares is not subject to any preemptive or similar rights which have not been
satisfied or waived and holders of the Shares will not be entitled to any
preemptive or similar rights, except as set forth in the Issuer's Certificate
of Incorporation and in the Stockholders Agreement.

SECTION 3.5. No Violation; Consents. The execution, delivery
and performance by the Issuer of this Agreement will not (i) contravene any
applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality by which the
Issuer is bound, (ii) conflict with or constitute a default under, or give rise
to any right of termination or acceleration under any indenture, loan
agreement, contract, lease or other agreement to which the Issuer is a party or
by which it or any of its property or assets is bound or to which it may be
subject, or (iii) violate any provision of the certificate of incorporation or
by-laws of the Issuer. No consent, authorization or order of, or filing or

-3-
<PAGE> 6
registration with, any court or governmental department, agency or authority is
required for the execution, delivery and performance of the Documents by the
Issuer.

SECTION 3.6. Litigation. Except as previously disclosed to
the Issuer's board of directors at meetings thereof, there is no pending or, to
the knowledge of the Issuer, threatened action, suit or proceeding before any
court, governmental or regulatory authority, agency, commission or board of
arbitration against the issuer or which relates to or challenges the legality,
validity or enforceability of this Agreement, or which, if any adverse
determination were made, could have a Material Adverse Effect.

SECTION 3.7. Offer or Sale of Securities. Neither the Issuer
nor anyone acting on its behalf has offered or sold or will offer or sell any
securities or has taken any other action that would subject the issuance and
sale of the Shares to the registration provisions of the Securities Act.

ARTICLE IV

INDEMNIFICATION

SECTION 4.1. Indemnification. The Issuer agrees to indemnify
and hold harmless each Purchaser and its respective Affiliates, the respective
directors, officers, agents and employees of each Purchaser and its Affiliates,
and each other person controlling such Purchaser, any agent of such Purchaser
or any of its respective Affiliates within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act and any partner of any of
them from and against any losses, claims, damages, liabilities or expenses
(including counsel fees and disbursements) arising out of any misrepresentation
or breach of any warranty or covenant made or to be performed by the Issuer
pursuant to this Agreement.

ARTICLE V

CONDITIONS TO CLOSING

SECTION 5.1. Closing Conditions. The obligation of each
Purchaser to purchase the Shares in accordance with the terms hereof is subject
to the receipt of a legal opinion of O'Sullivan Graev & Karabell, special
counsel to the Issuer, reasonably satisfactory to such Purchaser.

-4-
<PAGE> 7
ARTICLE VI

MISCELLANEOUS

SECTION 6.1. Applicability of the Purchase Agreement. The
parties hereto acknowledge and agree that the Shares purchased hereunder shall
be subject to all the terms, conditions and provisions relating to transfer
restrictions contained in the Original Purchase Agreement and to all of the
provisions of the Stockholders' Agreement.

SECTION 6.2. 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 principles of conflicts of laws).

-5-
<PAGE> 8
IN WITNESS WHEREOF, each of the undersigned has duly executed the
Securities Purchase Agreement as of the 2nd day of September, 1994.

K&F INDUSTRIES, INC.

By: KENNETH M. SCHWARTZ
--------------------------
Name: Kenneth M. Schwartz
Title:Vice President

BERNARD L. SCHWARTZ
--------------------------
Bernard L. Schwartz
<PAGE> 9
LEHMAN BROTHERS CAPITAL
PARTNERS II, L.P.

By: Lehman Brothers Holdings Inc.,
General Partner

By: RONALD L. GALLATIN
---------------------------------
Name: Ronald L. Gallatin
Title: Sr. Exec. Vice President

LEHMAN BROTHERS MERCHANT
BANKING PORTFOLIO PARTNERSHIP, L.P.

By: Lehman Brothers Merchant
Banking Partners Inc., General
Partner

By: ALAN WASHKOWITZ
------------------------
Name: Alan Washkowitz
Title: Managing Director

LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP, L.P.

By: Lehman Brothers Offshore
Partners Ltd., General Partner

By: C. GRANT HALL
--------------------
Name: C. Grant Hall
Title: Secretary

LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP - JAPAN L.P.

By: Lehman Brothers Offshore
Partners Ltd., General Partner

By: C. GRANT HALL
--------------------
Name: C. Grant Hall
Title: Secretary
<PAGE> 10
<TABLE>
<CAPTION>
Series A
Nonvoting
Nonvoting Convertible Purchase
Purchasers Common Stock Preferred Price
---------- ------------ ------------- ----------
<S> <C> <C> <C>
Bernard L. Schwartz 687,273 $ 1,963,636.36

Lehman Brothers Capital 42,232 $ 3,573,500.53
Partners II, L.P.

Lehman Brothers Merchant 61,891 $ 5,236,910.17
Banking Portfolio Partnership, L.P.

Lehman Brothers Offshore Investment 17,015 $ 1,439,750.58
Partnership, L.P.

Lehman Brothers Offshore
Investment Partnership -
Japan L.P. 6,498 $ 549,838.72
-------- ------- --------------

Total: 687,273 127,636 $12,763,636.36
======== ======= ==============
</TABLE>

<PAGE> 1
EXHIBIT 10.25

================================================================================

AMENDED AND RESTATED

STOCKHOLDERS AGREEMENT

DATED AS OF SEPTEMBER 2, 1994

By and Among

K&F INDUSTRIES, INC.

AND THE

STOCKHOLDERS IDENTIFIED HEREIN

================================================================================

<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2. Certain Restrictions on Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1. Transfers in Accordance with this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2. Certain Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3. Agreement to be Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4. BLS Transfer Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3. Certain Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1. Certain Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

4. Rights of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1. Transfers to Third Parties; Rights of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2. Subsequent Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5. Public Offering; Tag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2. Tag-Along Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

6. Put-Sale Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1. Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2. Put-Sale Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

7. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2. Deliveries at Closing; Method of Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . 23

8. Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

9. Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

10. Certain Voting and Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.1. Board of Directors of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.2. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.3. Charter and By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.4. Certain Stock-Related Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.5. Purchase of Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.6. Company Purchase of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

11. No Implied Right to Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

12. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

13. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.1. Recapitalization, Exchanges, etc., Affecting the Common Stock . . . . . . . . . . . . . . . . . . . 31
13.2. Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>

<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
13.3. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.4. Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.5. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.6. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.7. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.8. Headings; References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.9. Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

SIGNATURES

Schedule I - Addresses for Notices

Exhibit A - Amended and Restated By-laws

Exhibit B - Restated Certificate of Incorporation

Exhibit C - Registration Rights
</TABLE>

<PAGE> 4

AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT

AMENDED AND RESTATED STOCKHOLDERS AGREEMENT dated as of
September 2, 1994 by and among K&F Industries, Inc. (formerly known as Opus
Acquisition Corporation), a Delaware corporation (the "Company"); Bernard L.
Schwartz ("BLS"); Lehman Brothers Merchant Banking Portfolio Partnership L.P.
("LBMB"), Lehman Brothers Offshore Investment Partnership L.P. ("LBOI"), Lehman
Brothers Offshore Investment Partnership - Japan L.P. ("LBOIJ"), Lehman
Brothers Capital Partners II, L.P. ("LBCP"; and LBMB, LBOI, LBOIJ and LBCP,
collectively "LBP"), CBC Capital Partners, Inc. ("CBC"), and Loral Corporation
("Loral"). Each of the parties to this Agreement (other than the Company) and
any other Person who shall become a party to or agree to be bound by the terms
of this Agreement after the date hereof is sometimes hereinafter referred to as
a "Stockholder". This Agreement amends and restates the Stockholders Agreement
dated as of April 27, 1989 by and among the Company and certain of the
Stockholders, as amended on July 28, 1989 and shall become effective (the
"Effective Date") on the date hereof. For purposes of this Agreement, CBC
shall be deemed to be a Transferee of LBP.

As of the Effective Date, the Company has an authorized
capital stock consisting of (i) 21,000,000 shares of voting common stock, par
value $.01 per share (the "Voting Common Stock") and 5,300,000 shares of
non-voting common stock, par value $.01 per share (the "Nonvoting Common
Stock"; and together

<PAGE> 5

with the Voting Common Stock the "Common Stock") and (ii) 1,200,000 shares of
Series A Voting Convertible Preferred Stock, par value $.01 per share (the
"Series A Voting Stock"), and 130,000 shares of Series A Nonvoting Convertible
Preferred Stock, par value $.01 per share (the "Series A Nonvoting Stock"; and
the Series A Voting Stock and the Series A Nonvoting Stock, collectively, the
"Series A Preferred Stock"; and the Series A Preferred Stock and the Common
Stock, collectively, the "Stock").

The parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Stock, including both issued
and outstanding shares of Stock as well as shares of Stock which may be issued
hereafter, and to provide for certain rights and obligations in respect thereto
as hereinafter provided.

Accordingly, the parties hereto agree as follows:

1. Certain Definitions.

As used in this Agreement, the following terms shall have the
meanings ascribed to them below:

"Affiliate" shall mean, with respect to any Person, any other
Person that, directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person;
provided, however, that for purposes of this Agreement BLS and Loral shall not
be deemed to be Affiliates.

"Alternative Investment Bank" shall have the meaning set forth
in Section 6.1(b).

-2-
<PAGE> 6

"Appraisal Request" shall have the meaning set forth in
Section 6.1(a).

"Appraised Value" shall have the meaning set forth in Section
6.1(a).

"BLS" shall have the meaning set forth in the preamble of
this Agreement.

"BLS Investor" shall mean each Transferee of BLS or a BLS
Investor designated as such by BLS from time to time but shall not include any
LBP Investor or Loral Investor.

"Board of Directors" shall mean the Board of Directors of the
Company.

"Buyer's Notice" shall have the meaning set forth in Section
4.1(a).

"By-laws" shall mean the by-laws of the Company, in the form
of Exhibit A hereto, as amended from time to time.

"Charitable Institution" shall mean an organization described
in section 501(c)(3) of the Code.

"Charter" shall mean the Restated Certificate of Incorporation
of the Company, in the form of Exhibit B hereto, as amended from time to time.

"Charter Documents" shall have the meaning set forth in
Section 10.3(a).

"Closing Date" shall have the meaning set forth in Section 6.1.

"Code" shall mean the Internal Revenue Code of 1986, as
amended.

-3-
<PAGE> 7

"Common Equivalents" shall mean outstanding shares of Common
Stock and shares of Common Stock issuable upon the exercise of outstanding
options or rights to acquire Common Stock or upon conversion of outstanding
convertible securities whether or not vested, exercisable, or convertible at
the time of determination.

"Common Stock" shall have the meaning set forth in the
preamble of this Agreement.

"Company" shall have the meaning set forth in the preamble of
this Agreement.

"Effective Date" shall have the meaning set forth in the
preamble of this Agreement.

"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

"First Investment Bank" shall have the meaning set forth in
Section 6.1(b).

"First Offerees" shall have the meaning set forth in Section
4.1(b).

"Initial Public Offering" shall mean the Company's initial
sale of Stock pursuant to an effective registration statement under the
Securities Act (other than a registration statement on Form S-4 or Form S-8 or
otherwise relating to shares of Stock issuable under any employee benefit plan
of the Company or issued in connection with the sale of any debt securities of
the Company).

"LBP" shall have the meaning set forth in the preamble of this
Agreement.

-4-
<PAGE> 8

"LBP Investors" shall mean LBP and each Transferee of LBP or
an LBP Investor designated as such by an LBP Nominee (as defined herein) but
shall not include a BLS Investor or a Loral Investor.

"Loral" shall have the meaning set forth in the preamble of
this Agreement.

"Loral Investor" shall mean each Transferee of Loral or a
Loral Investor designated as such by Loral from time to time but shall not
include a BLS Investor or a LBP Investor.

"Offer Price" shall have the meaning set forth in Section
4.1(a).

"Offered Shares" shall have the meaning set forth in Section
4.1(a).

"Offeree Group" shall have the meaning set forth in Section
4.1(b).

"Offerees" shall have the meaning set forth in Section 4.1(b).

"Original Selling Stockholder" shall have the meaning set
forth in Section 5.2(a).

"Person" shall mean an individual, corporation, partnership,
joint venture, trust, association, joint stock company, unincorporated
organization or a government or any agency or political subdivision thereof.

"Proposed Purchaser" shall have the meaning set forth in
Section 5.2(a).

"Put-Sale Group" shall have the meaning set forth in Section
6.2(b).

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<PAGE> 9

"Put-Sale Notice" shall have the meaning set forth in Section
6.2(b).

"Rule 144 Open Market Transaction" shall mean any sale of
shares of Stock in an open market transaction under Rule 144 of the Securities
Act (or any successor rule) if such sale is in compliance with the requirements
of paragraphs (c), (d), (e), (f) and (g) of such Rule (notwithstanding the
provisions of paragraph (k) of such Rule).

"SEC" shall mean the Securities and Exchange Commission.

"Second Offerees" shall have the meaning set forth in Section
4.1(b).

"Securities Act" shall mean the Securities Act of 1933, as
amended.

"Seller" shall have the meaning set forth in Section 4.1(a).

"Seller's Notice" shall have the meaning set forth in Section
4.1(a).

"Senior Bank Financing" means the syndicated senior bank loan
financing facilities to which the Company, or any of its subsidiaries, are a
party on the Effective Date and any refinancing thereof.

"Senior Subordinated Debentures" shall mean the Company's
13-3/4% Senior Subordinated Debentures Due 2001.

"Senior Secured Notes" shall mean the Company's 11-7/8% Senior
Notes Due 2003.

-6-
<PAGE> 10

"Stock" shall have the meaning set forth in the preamble to
this Agreement.

"Stockholder" shall have the meaning set forth in the preamble
of this Agreement.

"Tag-Along Stockholder" shall have the meaning set forth in
Section 5.2(a).

"Third Offerees" shall have the meaning set forth in Section
4.1(b).

"Transfer" shall have the meaning set forth in Section 2.1.

"Transferee" shall have the meaning set forth in Section 2.1.

2. Certain Restrictions on Transfers.

2.1. Transfers in Accordance with this Agreement. No
Stockholder shall, directly or indirectly, transfer, sell, assign, pledge,
hypothecate, encumber, or otherwise dispose of any Stock to any Person (any
such act being referred to as a "Transfer" and any Person acquiring Stock from
a Stockholder and any subsequent transferee of any such Person is referred to
as a "Transferee" of such Stockholder), unless such Transfer is permitted under
Section 3.1. The Company shall not register upon its books any Transfer of
Stock by a Stockholder to any Person except a Transfer in accordance with this
Agreement.

2.2. Certain Stockholders. Each Stockholder that is an
entity that was formed for the purpose of acquiring Stock or that has no
substantial assets other than such Stock or interests therein agrees that (a)
its shares of common stock or instruments

-7-
<PAGE> 11

reflecting equity interests therein (and the shares of common stock or
instruments of any similar entities that control it) will note the restrictions
on Transfer contained in this Agreement as if they were Stock and (b) no shares
of stock or other equity interests in any such entities may be transferred to
any Person other than in accordance with the terms of this Agreement as if such
stock or other equity interests were Stock.

2.3. Agreement to be Bound. No Transfer of Stock (other
than Transfers pursuant to the registration rights included in Exhibit C, Rule
144 Open Market Transactions or pursuant to any other bona fide registered
public offering) shall be effective (and the Company shall not transfer on its
books any such Common Stock) unless (i) the certificates representing such
Stock issued to the Transferee shall bear the legends provided in Article 9, if
required by such Section, and (ii) the Transferee (if not already a party
hereto) shall have executed and delivered to the Company, as a condition
precedent to such Transfer, an instrument or instruments in form and substance
reasonably satisfactory to the Company confirming that the Transferee agrees to
be bound by the terms of this Agreement.

2.4. BLS Transfer Limitations. BLS shall not Transfer any
Common Stock to any Person if, after giving effect to such Transfer, BLS and
his immediate family would beneficially own less than 1,350,000 Common
Equivalents; unless (i)(A) LBP approves any such Transfer or LBP and its
Affiliates no longer beneficially own at least 1,000,000 Common Equivalents,
and (B) Loral approves any such Transfer or Loral and its Affiliates

-8-
<PAGE> 12

no longer beneficially own at least 500,000 Common Equivalents, (ii) BLS dies
or is rendered incapable of acting as chairman of the Board of Directors of the
Company for 180 consecutive days due to physical or mental illness, or (iii)
such Transfer consists of a pledge of Common Stock pursuant to Section
3.1(viii) so long as the pledgee is not exercising rights upon default. For
purposes of this Agreement, (i) BLS shall not be deemed to beneficially own any
shares of Stock in which any other Person has any economic or voting interest
other than a partnership, trust or corporation of which the entire equity
interest is held by BLS if BLS retains sole voting and dispository control over
such shares and (ii) BLS and his immediate family shall not be deemed to
beneficially own any Stock in which any other Person has any economic or voting
interest other than a partnership, trust or corporation of which the entire
equity interest is held by BLS and his immediate family if BLS retains sole
voting and dispositive power over such shares. In addition, for purposes of
this Agreement, the "immediate family" of BLS includes only the spouse and
children of BLS.

3. Certain Permitted Transfers.

3.1. Certain Permitted Transfers. None of the restrictions
contained in this Agreement with respect to Transfers of Stock (other than
those set forth in Sections 2.3 and 2.4 and this Section 3.1) shall apply:

(i) to any Transfer (including by gift) by any Stockholder
who is an individual:

-9-
<PAGE> 13

(A) to such Stockholder's spouse or descendants
(collectively, "relatives");

(B) to a Charitable Institution;

(C) to a trust of which there are no beneficiaries
other than one or more of such Stockholder and the relatives
of such Stockholder;

(D) to a partnership of which there are no partners
other than one or more of such Stockholder and the relatives
of such Stockholder;

(E) to a corporation of which there are no
stockholders other than one or more of such Stockholder and
the relatives of such Stockholder;

(F) to a legal representative or guardian of such
Stockholder or a relative of such Stockholder if such
Stockholder or relative becomes mentally incompetent; or

(G) to any Person by will or by the laws of descent;

provided that any such Transferee listed in clauses (A) through (C)
and (E) through (G) above agrees that, notwithstanding the terms of
this Section 3.1, such Transferee shall not thereafter Transfer such
Stock to any Person to whom such transferor Stockholder would not be
permitted to Transfer such Stock pursuant to the terms of this
Agreement;

(ii) to any Transfer of Stock by BLS or any BLS Investor to
BLS, any BLS Investor or any individual who is then employed by, a
consultant to or a director of the Company or any of its subsidiaries;

(iii) to any Transfer of Stock, by any Stockholder that is
not an individual, to any Affiliate thereof; provided that any such
Affiliate agrees that,

-10-
<PAGE> 14

notwithstanding the terms of this Section 3.1, it shall not thereafter
Transfer such Stock to any Person to whom such transferor Stockholder
would not be permitted to Transfer such Stock pursuant to the terms of
this Agreement;

(iv) to any Transfer of Stock by any LBP Investor to
employees, consultants and advisors of any LBP Investor or its
Transferees;

(v) to any Transfer of Stock, by any LBP Investor that is a
partnership, to its general or limited partners; provided that such
Transfer is made pro rata according to the economic interests of such
partners therein as determined under the governing instruments of such
partnership;

(vi) to any Transfer of Stock for cash pursuant to the
registration rights included in Exhibit C or any other bona fide
registered public offering, subject to the rights of first offer
contained in Section 4.1;

(vii) to any Transfer of Stock for cash pursuant to Rule 144
Open Market Transactions occurring after an Initial Public Offering,
subject to the rights of first offer contained in Section 4.1.;

(viii) to any Transfer of Common Stock consisting of the
pledge of Stock by any Stockholder to a commercial bank, savings and
loan institution or any other lending institution as security for a
bona fide loan or loans the proceeds of which are used solely to
purchase Stock provided

-11-
<PAGE> 15

that upon any foreclosure such pledgee shall assume and be bound by
all the terms of this Agreement;

(ix) to any Transfer of Stock pursuant to a bona fide sale to
a third party for cash, subject to the rights of first offer set forth
in Section 4.1;

(x) to any Transfer of Stock by a Tag-Along Stockholder
pursuant to the tag-along rights set forth in Section 5.2, subject to
the rights of first offer contained in Section 4.1;

(xi) to any Transfer of Stock pursuant to the put-sale rights
set forth in Section 6.2; or

(xii) to any Transfer of Stock acquired on the open market in
connection with market-making or investment management activities.

4. Rights of First Offer.

4.1. Transfers to Third Parties; Rights of First Offer. (a)
Except as provided in Section 3.1, if at any time any Stockholder desires to
Transfer any Stock then owned by such Stockholder to any third party (including
upon foreclosure of or similar action with respect to any pledge), such
Stockholder shall first comply with the rights of first offer contained in this
Section 4.1. Such Stockholder shall give written notice to the Company stating
that such Stockholder desires to make such Transfer, the number of shares of
Stock proposed to be Transferred and the cash price per share that such
Stockholder proposes to be paid for such shares of Stock or, in the case of a
Transfer in the form of a registered public offering, a range of

-12-
<PAGE> 16

prices per share the low and high point of which shall not deviate by more than
15% from the midpoint of such range.

For purposes of this Agreement, any notice stating a
Stockholder's desire to Transfer Common Stock pursuant to this Section 4.1 is
referred to as a "Seller's Notice"; the Common Stock covered by any Seller's
Notice is referred to as the "Offered Shares"; the Stockholder giving the
Seller's Notice is sometimes referred to as the "Seller"; the price per share
which the Stockholder proposes to be paid therefor (or, in the case of a
registered public offering, the midpoint of the range of prices proposed
therefor) is referred to as the "Offer Price"; and any notice given by the
Company or any Stockholder pursuant to which the Company or such Stockholder
(as the case may be) elects to purchase Offered Shares and that states (i) the
maximum number of such Offered Shares that the Company or such Stockholder (as
the case may be) elects to purchase, (ii) that the election made in such notice
is irrevocable and (iii) that the Company or such Stockholder (as the case may
be) shall purchase any number of Offered Shares up to such maximum number at
the Offer Price in cash is referred to as a "Buyer's Notice". Each Seller's
Notice shall constitute an irrevocable offer by the Seller to the Company
and/or the other Stockholders, as the case may be, of the Offered Shares at the
Offer Price. The Company shall mail a copy of any Seller's Notice (together
with a description of the offering procedures hereunder) to each Stockholder of
the Company within 5 days of the receipt thereof.

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<PAGE> 17

(b) Offered Shares offered by any Seller pursuant to this
Section 4.1 shall be offered to the Company and other Stockholders in the
following order:

(i) in the case of any offer by BLS, first to the Company and
second to all other Stockholders who are not BLS Transferees;

(ii) in the case of any offer by any BLS Investor or any
other Transferee of BLS, first to BLS, second to the Company and third
to the other Stockholders;

(iii) in the case of any offer by any LBP Investors or any
Transferee of any LBP Investors, first to the other LBP Investors,
second to the Company and third to the other Stockholders; and

(iv) in the case of any offer by any Loral Investor or any
Transferee of Loral or a Loral Investor, first to the other Loral
Investors, second to the Company and third to the other Stockholders.

The first Person or group to whom Offered Shares are so offered is called the
"First Offerees"; the second such Person or group is called the "Second
Offerees"; and the third such Person or group, if any, is called the "Third
Offerees". Each such Person or group is called an "Offeree Group" and all such
Persons and groups are called the "Offerees".

(c) Within 10 days after the date of mailing by the Company
of the Seller's Notice, the First Offerees may elect to purchase Offered Shares
at the Offer Price in a Buyer's Notice to the Seller, with a copy to the
Company.

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<PAGE> 18

(d) If the First Offerees elect to purchase none of, or less
than all of, the Offered Shares, then the Company shall give written notice to
the Second Offerees not later than three days after the expiration of the
10-day period set forth in Section 4.1(c), which notice shall specify the Offer
Price and the number of remaining Offered Shares available for purchase by the
Second Offerees. The Second Offerees may elect to purchase Offered Shares at
the Offer Price in a Buyer's Notice to the Seller, with a copy to the Company,
within 10 days following mailing of the notice from the Company.

(e) If the First Offerees and the Second Offerees elect to
purchase none of, or less than all of, the Offered Shares, then the Company
shall give written notice to the Third Offerees (if applicable) not later than
three days after the expiration of the 10-day period set forth in Section
4.1(d), which notice shall specify the Offer Price and the number of remaining
Offered Shares available for purchase by the Third Offerees. The Third
Offerees may elect to purchase Offered Shares at the Offer Price in a Buyer's
Notice to the Seller, with a copy to the Company, within 10 days following
mailing of the notice from the Company.

(f) If the Offerees fail to elect to purchase all the Offered
Shares, then the Company shall give written notice to the First Offerees, the
Second Offerees and, if applicable, the Third Offerees not later than three
days after the expiration of the last 10-day period set forth in Section 4.1(d)
or (if applicable) Section 4.1(e), which notice shall specify the Offer Price
and

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<PAGE> 19

the number of remaining Offered Shares available for purchase by the Offerees.
Offerees may elect to purchase Offered Shares at the Offer Price in a Buyer's
Notice to the Seller, with a copy to the Company, within 10 days following
mailing of the notice from the Company.

(g) If the Offerees fail to elect to purchase all the Offered
Shares within the time periods specified in this Section 4.1, then the Seller
(i) shall be under no obligation to sell any of the Offered Shares to the
Company or any Stockholder, unless the Seller so elects, and (ii) may, within a
period of three months from the date of the Seller's Notice, sell all or any
Offered Shares to one or more third parties for cash at a price per share not
less than the Offer Price and on other terms which are no more favorable to the
purchaser than those set forth in the Seller's Notice.

(h) In the event of an oversubscription to purchase Offered
Shares in connection with notice given under Sections 4.1(c), (d), (e) or (f)
hereof, each Offeree which delivered a Buyer's Notice thereunder shall be
permitted to purchase its pro rata share of the Offered Shares. Such pro rata
share shall equal the product of (i) the fraction, the numerator of which shall
be the number of Offered Shares such Offeree offered to purchase pursuant to
its Buyer's Notice delivered under Section 4.1(c), (d), (e) or (f), as
applicable, and the denominator of which shall be the aggregate number of
Offered Shares all Offerees offered to purchase under Section 4.1(c), (d), (e)
or (f), as applicable, times (ii) the aggregate number of Offered

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<PAGE> 20

Shares available to be purchased under Section 4.1(c), (d), (e) or (f), as
applicable.

4.2. Subsequent Transfers. If the Company and the
Stockholders do not elect to purchase all the Offered Shares at the Offer Price
in cash and the Seller shall not have Transferred the Offered Shares to any
Transferee prior to the expiration of the three month period specified in
Section 4.1(g), then the rights of first offer under this Article 4 shall again
apply in connection with any subsequent Transfer or offer to Transfer by such
Seller.

5. Public Offering; Tag-Along Rights.

5.1. Registration Rights.

The Company hereby grants to each Stockholder the
registration and other rights set forth in, and each Stockholder agrees to
comply with the terms and conditions contained in, Exhibit C hereto.

5.2. Tag-Along Right. (a) If, at any time, any Stockholder
(or group of Stockholders acting in concert) (individually, the "Original
Selling Stockholder") proposes to Transfer shares of Common Stock (or options
or rights to acquire Common Stock or securities convertible into Common Stock)
representing more than 15% of the Common Equivalents to any Person or group of
Persons (the "Proposed Purchaser") in any transaction or series of related
transactions (other than (i) sales pursuant to a bona fide public offering
under an effective registration statement under the Securities Act and (ii)
Transfers permitted under Section 3.1 (other than clause

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<PAGE> 21

(ix) thereof)), the Original Selling Stockholder shall afford each other
Stockholder (each, a "Tag-Along Stockholder") the opportunity to participate
proportionately in such Transfer in accordance with this Section 5.2. Each
Stockholder shall have the right to Transfer the same percentage of the Common
Equivalents owned by such Stockholder as the percentage of Common Equivalents
the Original Selling Stockholder is proposing to transfer of such Original
Selling Stockholder's Common Equivalents. The Original Selling Stockholder
shall give notice to the other Stockholders of their right to sell Common
Equivalents hereunder (the "Tag-Along Notice") which notice shall state the
number of shares of Common Equivalents proposed to be Transferred, the proposed
offering price and any other material terms and conditions of the Transfer.

(b) Within 10 days after the date of delivery of a Tag-Along
Notice, any Stockholder may elect to participate in such Transfer pursuant to
the terms and conditions of such Notice in a notice given to the Original
Selling Stockholder; provided, however, that the only representations and
warranties which such Tag-Along Stockholder shall be required to give are as to
due authority and execution, good title and the absence of liens with respect
to such Tag-Along Stockholder's Common Equivalents and the only indemnities
which such Tag-Along Stockholder may be required to give are as to the
foregoing matters.

(c) If the Proposed Purchaser is acquiring Common Equivalents
in a single transaction from more than one Stockholder or in a series of
related transactions from one or

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<PAGE> 22

more Stockholders, (i) the price per share or Common Equivalent shall be the
highest of the prices, and the other terms and conditions of the Transfer shall
be the most favorable of the terms and conditions, offered by the Proposed
Purchaser to any Stockholder at or prior to the consummation of such Transfer
and (ii) the form of consideration shall be the same for all Common Equivalents
Transferred in such Transfer.

(d) Any Tag-Along Stockholder exercising Tag-Along rights
hereunder with respect to any Common Equivalent other than shares of Common
Stock shall convert or exercise such Common Equivalent into or for Common Stock
prior to the consummation of any Transfer hereunder.

(e) Any Original Selling Stockholder that proposes to
Transfer shares of Common Stock under this Section 5 shall comply with the
Rights of First Offer provisions set forth in Section 4 hereto. The Seller's
Notice required thereunder shall be given by the Original Selling Stockholder
concurrently with the Tag-Along Notice hereunder and any purchase thereunder
and hereunder shall occur simultaneously.

(f) Any Transfer by the Original Selling Stockholder subject
to this Section 5.2 shall be made within three months of the date of the
Tag-Along Notice and shall be made substantially in accordance with the terms
and conditions described in such Tag-Along Notice. If the Original Selling
Stockholder shall not have effected the Transfer prior to the expiration of
such three-month period, the tag-along rights under this Section 5.2

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<PAGE> 23

shall again apply in connection with any subsequent Transfer or offer to
Transfer by such Original Selling Stockholder.

6. Put-Sale Option.

6.1. Appraisal. (a) At any time and from time to time,
either LBP or BLS may, by notice (an "Appraisal Request") to the Company and
the other party, request an appraisal of the value of the common equity of the
Company (the "Appraised Value"). BLS, LBP and the Company shall cause such
appraisal to be completed within 30 days of delivery of the Appraisal Request
according to the procedures set forth in Section 6.1(b) and (c).

(b) The Appraised Value shall be determined jointly by LBP
and a nationally recognized investment bank selected by BLS (the "First
Investment Bank") or, if LBP and the First Investment Bank fail to agree on an
Appraised Value within 15 days of delivery of the Appraisal Request, by another
nationally recognized investment bank selected jointly by LBP and BLS (the
"Alternative Investment Bank"). Any Appraised Value as determined by any
Alternative Investment Bank shall be between the values determined by LBP and
the First Investment Bank.

(c) The Appraised Value shall be the value of the Company's
common equity (assuming conversion of all Common Equivalents to Common Stock)
that would be realized in a sale of the Company as an entirety with a
reasonable amount of time available to negotiate and consummate such sale;
provided that the Appraised Value shall not be less than the value offered in
any bona fide proposal that may be made to acquire the Company or

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<PAGE> 24

its assets prior to the date upon which the Appraised Value shall be
determined.

(d) The Company shall give LBP, the First Investment Bank and
any Alternative Investment Bank access to the books, records and personnel of
the Company and shall pay all fees and expenses of the appraisers incurred in
connection with the Appraisal.

6.2. Put-Sale Right. (a) Within 15 days after the
Appraised Value has been established, either BLS or LBP (the "Put Party") may,
at its sole option, deliver written notice (the "Put-Sale Notice") to the other
party (the "Other Party") and the Company of its desire to sell all of the
Common Stock owned by the Put Party and any Transferees thereof designated by
the Put Party (the "Put-Sale Group") from among the Put Party and their
Transferees. The purchase price for the shares of Stock shall be an amount
equal to the pro rata share (based on Common Equivalents) of the Appraised
Value of the Common Stock subject to such put.

(b) The Other Party shall have 90 days following receipt of
the Put-Sale Notice to make binding arrangements (including full financing
commitments) for the purchase for cash of the Stock of the Put-Sale Group by
the Other Party or a third party designated by the Other Party. The closing of
such purchase shall be no later than 30 days following the execution of such
binding arrangements, subject to extension with the written consent of the Put
Party, which consent will not be unreasonably withheld. During such 90-day
period, the Other

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<PAGE> 25

Party shall either (i) use its best efforts to arrange for the prompt purchase
of the Stock or (ii) notify the Put Party as soon as the Other Party determines
that it will not or can not purchase, nor arrange for a third party to
purchase, the Stock held by the Put-Sale Group.

(c) In the event that the Other Party is unable or chooses
not to arrange for and consummate the purchase of the Put-Sale Group's Stock
within the time periods set forth in Section 6.1(b), then BLS and LBP shall
cause the Company to be sold as an entirety if such sale can be arranged
yielding proceeds at least equal to the Appraised Value. BLS, LBP and the
Company shall proceed in good faith and use their best efforts to sell the
Company as an entirety as promptly as practicable and in any event within six
months of the expiration of the time periods set forth in Section 6.1(b),
subject to extension with the written consent of BLS and LBP, which consent
will not be unreasonably withheld. If it becomes apparent, in the Put Party's
reasonable judgment, that the Company can not be sold at the Appraised Value,
then the Put Party, at its sole option, may reduce the price for which the
Company is being offered by up to 10% of the Appraised Value. Any sale of the
Company as an entirety hereunder shall include all Stockholders and the
proceeds thereof shall be allocated among the Stockholders in accordance with
their Stock ownership in the Company based on Common Equivalents.

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<PAGE> 26

7. Closing.

7.1. Closing. Any selling Stockholder and any Stockholders
who are purchasing or selling any shares of Stock pursuant to Articles 4, 5 or
6 shall mutually determine a closing date (the "Closing Date") which, subject
to any applicable regulatory waiting periods, shall not be more than 30 days
after the last notice is given with respect to such purchase or after the
expiration of the last notice period applicable to such purchase. The closing
shall be held at 10:00 a.m., local time, on the Closing Date at the principal
office of the Company, or at such other time or place as the parties mutually
agree.

7.2. Deliveries at Closing; Method of Payment of Purchase
Price. On the Closing Date, any selling Stockholder shall deliver (1)
certificates representing the shares of Stock being sold, free and clear of any
lien, claim or encumbrance, (2) any documents representing options, rights or
convertible securities being sold, and (3) such other documents, including
evidence of ownership and authority, as the purchasers may reasonably request.
The purchase price shall be paid by delivery of a cashier's or certified check.

8. Preemptive Rights.

(a) In the case of the proposed issuance of, or the proposed
granting by the Company of warrants, options or other rights to purchase,
shares of Common Stock or securities convertible into or exchangeable for
shares of Common Stock (other than in a transaction specified in Section 8(b))
or participating preferred stock, if any, each Stockholder shall

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<PAGE> 27

have the right, on the same terms as those of the proposal and during a
reasonable time no less than 30 days after the Company has given notice to the
Stockholders of such proposed issuance or granting, to purchase a proportion of
such shares of capital stock or securities, warrants, options or rights equal
to such Stockholder's percentage ownership of the then outstanding Common
Equivalents on a record date not more than 10 days prior to such issuance or
granting. The price or prices for such shares of capital stock, securities,
warrants, options or rights shall not be less favorable to the purchasing
Stockholders than the price or prices at which such shares of capital stock,
securities, warrants, options or rights are proposed to be offered for sale or
granted to others, without deduction of the expenses of and compensation for
the sale, underwriting or purchase of such shares of capital stock, securities,
warrants, options or rights by underwriters or dealers as may be paid by the
Company.

(b) The provisions of Section 8(a) shall not apply to any of
the following transactions: (i) any bona fide public offering under a
registration of shares of Common Stock by the Company pursuant to the
Securities Act or any proposed issuance in connection with the sale of any debt
securities of the Company the proceeds of which will be used to repay the
Senior Bank Financing, Senior Subordinated Debentures or Senior Secured Notes;
(ii) the grant of restricted Common Stock or options to purchase Common Stock
pursuant to employee plans of the Company; (iii) the issuance of Common Stock
upon the exercise of any of the options specified in clause (ii) above; or (iv)
the issuance

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<PAGE> 28

of Stock to Loral, BLS and the LBP Investors in connection with the exchange by
Loral of the Company's 14.75% convertible subordinated debentures for Stock and
cash.

9. Legend.

A copy of this Agreement shall be filed with the Secretary of
the Company and kept with the records of the Company. Each of the Stockholders
hereby agrees that each outstanding certificate representing shares of Stock
issued to any Stockholder, or any certificate issued in exchange for any
similarly legended certificate, shall, unless sold pursuant to a bona fide
registered public offering or pursuant to a Rule 144 Open Market Transaction,
bear a legend reading substantially as follows:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

THIS SECURITY ALSO IS SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN A SECURITIES PURCHASE AGREEMENT AND
AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, BETWEEN THE
HOLDER HEREOF AND THE COMPANY, COPIES OF WHICH MAY BE OBTAINED
FROM THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE MADE ON
THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF
COMPLIANCE WITH THE TERMS OF SUCH AGREEMENTS.

10. Certain Voting and Other Agreements.

10.1. Board of Directors of the Company. (a) BLS shall be
entitled, but not required, to designate members (the "BLS Nominees") of the
Board of Directors, such Board of Directors initially to be comprised of 7
members, as follows:

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<PAGE> 29

BLS Nominees constituting all of the Board of Directors not otherwise
designated by LBP as provided in this Section 10.1 (such BLS Nominees
constituting at least a majority of such Board) for as long as BLS and his
immediate family beneficially own at least 1,350,000 shares of Common Stock;
three Nominees for as long as BLS and his immediate family beneficially own at
least 1,000,000 shares of Common Stock; and one BLS Nominee for as long as BLS
and his immediate family beneficially own any outstanding shares of Common
Stock. LBP shall be entitled, but not required, to designate members (the "LBP
Nominees") of the Board of Directors constituting all of the Board of Directors
not otherwise designated by BLS as provided in this Section 10.1 (such LBP
Nominees constituting at least a majority of such Board) for so long as (i) LBP
and its Affiliates beneficially own at least 1,350,000 shares of Common
Equivalents and (ii) either (A) BLS and his immediate family beneficially own
less than 1,350,000 shares of Common Stock or (B) BLS shall have died or become
incapable of acting as chairman of the Board of Directors of the Company for
180 consecutive days due to physical or mental illness; three LBP Nominees for
so long as LBP and Affiliates beneficially own at least 1,000,000 shares of
Common Equivalents; and one LBP Nominee for so long as LBP and its Affiliates
beneficially own any outstanding shares of Common Stock. If and for so long as
Loral and its Affiliates own any shares of Voting Common Stock, at the request
of Loral, the number of members on the Board of Directors shall be increased to
9, Loral shall be entitled to designate one member (the "Loral Nominee") of the

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<PAGE> 30

Board of Directors and the remaining member of the Board of Directors shall be
designated by the Stockholder which at such time has the right hereunder to
designate a majority of the Board of Directors. Each of the Stockholders
agrees to vote its shares of Common Stock, at any regular or special meeting of
the stockholders of the Company called for the purpose of filling positions on
the Board of Directors, or in any written consent executed in lieu of such a
meeting of stockholders, and agrees to take all actions necessary, to ensure
the election to the Board of Directors of the LBP Nominees, BLS Nominees and
Loral Nominee as described herein.

(b) The Company and each Stockholder hereby agrees to use its
best efforts to call, or cause the appropriate officers and directors of the
Company to call, a special meeting of stockholders of the Company and to vote
all of the shares of Common Stock owned or held of record by such Stockholder
for, or to take all actions by written consent in lieu of any such meeting
necessary to cause, the removal (with or without cause) of any LBP Nominee if
LBP (or any Affiliate thereof designated by LBP) requests such director's
removal for any reason, any BLS Nominee if BLS requests such director's removal
for any reason or any Loral Nominee if Loral requests such director's removal
for any reason. LBP and its Affiliates, BLS and Loral shall have the right to
designate a new nominee in the event any LBP Nominee, BLS Nominee or Loral
Nominee, as applicable, shall be so removed or vacate his directorship for any
reason. The number of Directors that shall constitute the entire Board of
Directors may

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<PAGE> 31

be increased or decreased from time to time in accordance with the terms and
provisions of this Agreement and the by-laws.

(c) Subject to Section 10.1(b) hereof, each Stockholder
hereby agrees that, at any time it is then entitled to vote for the election or
removal of directors, it will not vote in favor of the removal of any LBP
Nominee, BLS Nominee or Loral Nominee unless such removal shall be for Cause
otherwise than as required by Section 10.1(b) hereof. For the purposes of this
Section 10.1(c), "Cause" shall mean the willful and continued failure by a
director substantially to perform duties as a director of the Company, the
willful engaging by a director in conduct which is demonstrably and materially
injurious to the Company, or the director's conviction of any crime
constituting a felony.

(d) The Company covenants that it will not, without the
consent of LBP, take any action requiring (under the Company's by-laws) the
approval of at least one LBP Nominee if the only LBP Nominees approving such
action are Persons whose removal from the Board of Directors LBP has requested
at or prior to the time of such action.

(e) The initial LBP Nominees shall be James Stern, Robert
Towbin and Alan Washkowitz. LBP and Loral each acknowledges and agrees that it
will consult BLS with respect to any future LBP Nominees or Loral Nominees,
respectively, designated to replace the initial LBP Nominees or Loral Nominees,
respectively, with a view towards ensuring a harmonious Board of Directors.

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<PAGE> 32

10.2. Chairman of the Board. In the event that BLS shall
have died or become incapable of acting as chairman of the Board of Directors
of the Company for 180 consecutive days due to physical or mental illness, the
successor chairman of the Board shall be selected by LBP from among the LBP
Nominees. Upon such death or disability of BLS, the estate of BLS may, but
shall not be required to, designate a member of the Board of Directors, other
than the Chairman of the Board to replace BLS.

10.3. Charter and By-laws. (a) Exhibits A and B set forth
copies of the Company's Charter and by-laws, each in the form in effect on the
date hereof (the "Charter Documents").

(b) The Company covenants that it will act in accordance with
the Charter Documents and will not (subject to Section 10.1(d)), without the
approval of an LBP Nominee, so long as LBP shall beneficially own 1,000,000 or
more shares of Common Stock, then in office, amend either of the Charter
Documents. Each Stockholder shall vote its Common Stock at any regular or
special meeting of stockholders of the Company or in any written consent
executed in lieu of such a meeting of stockholders, and shall take all actions
necessary to ensure that the Charter Documents do not, at any time, conflict
with the provisions of this Agreement and (unless otherwise specified by LBP)
to ensure that the Charter Documents continue to provide as specified in
Exhibits A or B, as applicable.

10.4. Certain Stock-Related Compensation Plans. Each of the
Stockholders (other than Loral) agrees to vote all of the shares of Common
Stock entitled to vote owned or held of record

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<PAGE> 33

by such stockholder to approve any and all Stock related employee compensation
plan of the Company provided such plan has been approved by the Board of
Directors.

10.5. Purchase of Debt Securities. If, at any time prior to
the first anniversary of the Effective Date, BLS or LBP shall purchase any
Senior Secured Notes, Senior Subordinated Debentures or Senior Bank Financing,
such party shall deliver a written notice to Loral offering to sell to Loral an
amount of the Senior Secured Notes, Senior Subordinated Debentures or Senior
Bank Financing so purchased equal to the face amount of the securities so
purchased multiplied by the percentage of the Common Equivalents then owned by
Loral. Such offer shall be on the same terms and conditions (including price
and payment terms) as were applicable to the purchase by BLS or LBP. Loral
shall have a period of 10-days to accept such offer by delivering a written
notice to BLS or LBP, as applicable, and if no such notice is delivered in a
timely fashion such offer shall expire.

10.6. Company Purchase of Stock. If, at any time prior to
the first anniversary of the Effective Date, the Company shall purchase (an
"Original Repurchase") any Stock from a BLS Investor, LBP Investor or Loral
Investor (each, an "Investor Group"), the Company shall, upon the consummation
of the Original Repurchase, deliver a written notice to each Investor Group
which did not sell Stock in the Original Repurchase, offering to purchase the
same percentage of the Stock owned by the members of such Investor Group as the
percentage of the position of the Investor Group participating in the Original
Repurchase that was

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<PAGE> 34

purchased from the Investor Group which participated in the Original
Repurchase. Each such offer shall be on the same terms as the Original
Repurchase. Each Investor Group shall have a period of 10 days to accept such
offer by delivering a written notice to the Company and if no such notice is
delivered in a timely fashion such offer shall expire.

11. No Implied Right to Employment. Neither this
Agreement nor any provision hereof nor any action taken or omitted to be taken
hereunder shall be deemed to create or confer on any Stockholder who is an
employee of the Company or any Affiliate any right to be retained in the employ
of the Company or any Affiliate thereof, or to interfere with or limit in any
way the right of the Company or any Affiliate thereof to terminate the
employment of such Stockholder at any time.

12. Termination.

12.1. Termination. (a) This Agreement shall terminate
after a public offering as a result of which more than 75% of the then
outstanding shares of Common Equivalents, after giving effect to such offering,
have been sold to the public pursuant to one or more effective registration
statements under the Securities Act or are otherwise owned by Persons other
than Stockholders; provided that the registration rights contained in Exhibit C
hereto shall continue with respect to any remaining shares of Common Stock held
by the Stockholders for so long as they hold such shares.

(b) The provisions contained in Article 10 shall terminate on
the tenth anniversary of the date hereof.

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<PAGE> 35

13. Miscellaneous.

13.1. Recapitalization, Exchanges, etc., Affecting the
Common Stock. The provisions of this Agreement shall (a) apply to the full
extent set forth herein with respect to the shares of Stock and (b) as
appropriate with respect to any and all shares of capital stock of the Company
or any successor or assign of the Company (whether by merger, consolidation,
sale of assets or otherwise) which may be issued in respect of, in exchange
for, or in substitution for the shares of Stock, by reason of any stock
dividend, split, reverse split, combination, recapitalization,
reclassification, merger, consolidation or otherwise. In the event of any
change in capitalization of the Company, as a result of any stock split, stock
dividend or stock combination, the provisions of this Agreement shall be
appropriately adjusted.

13.2. Injunctive Relief. It is hereby agreed and
acknowledged that it will be impossible to measure in money the damages that
would be suffered if the parties fail to comply with any of the obligations
herein imposed on them and that in the event of such failure, an aggrieved
person will be irreparably damaged and will not have an adequate remedy at law.
Any such person shall, therefore, be entitled to injunctive relief, including
specific performance to enforce such obligation, without the posting of any
bond, and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the
defense that there is an adequate remedy at law.

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<PAGE> 36

13.3. Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, and their
respective successors and assigns; provided that (i) except as expressly
provided herein, neither this Agreement nor any rights or obligations hereunder
may be transferred by the Company and (ii) no rights of any Stockholder under
this Agreement may be assigned except that any Stockholder may transfer its
rights and obligations hereunder, in whole or in part, to a Transferee in
connection with a Transfer of Stock made in compliance with all of the
provisions of this Agreement to a Person who is or thereby becomes a
Stockholder. If any Stockholder shall acquire additional Stock, such Stock
shall, except as expressly provided herein, be held subject to all of the terms
of this Agreement.

13.4. Amendment; Waiver. This Agreement may be amended (i)
by a written instrument signed by the Company and by Stockholders holding an
aggregate of at least 80% of the Common Equivalents held by the Stockholders
and, in the case of any provision of any amendment that adversely affects any
Stockholder or all of the members of any group of Stockholders differently from
any of the other Stockholders, the written consent of such Stockholder or
members of such group of Stockholders holding an aggregate of at least 75% of
the Common Equivalents held by such group of Stockholders, respectively, or
(ii) by a written instrument signed by BLS, LBH and Loral for so long as (x)
BLS and his immediate family beneficially own at least 1,350,000 Common
Equivalents, (y) LBP and its Affiliates beneficially own

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<PAGE> 37

at least 1,000,000 Common Equivalents and (2) Loral and its Affiliates
beneficially own at least 500,000 Common Equivalents.

No provision of this Agreement may be waived orally, but only
by a signed, written instrument. Stockholders shall be bound from and after
the date of the receipt of a written notice from the Company setting forth such
amendment or waiver by a consent authorized by this Section, whether or not the
Common Stock shall have been marked to indicate such consent.

13.5. Notices. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be in
writing (including a writing delivered by facsimile transmission) and shall be
deemed to have been duly given if delivered personally, or sent prepaid, or by
overnight courier guaranteeing next day delivery, or by telex or telecopier,
addressed to the Company or BLS at the Loral Corporation, 600 Third Avenue, New
York, New York 10016 (telecopier (212) 949-9879) with a copy thereof to
O'Sullivan, Graev & Karabell at 30 Rockefeller Plaza, New York, New York 10112
Attention: George O'Sullivan (telecopier (212) 408-2467) and to the other
parties at the "Address for Notices" specified below its name on Schedule I
hereto. Each Stockholder, by written notice given to the Company in accordance
with this Section 13.5 may change the address to which such notice or other
communications are to be sent to such Stockholder. All such notices and
communications shall be deemed to have been received on the date of delivery
thereof if delivered by hand, on the next day after the sending thereof if by
overnight courier, when answered back if telexed,

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<PAGE> 38

and when receipt is acknowledged if telecopied. Whenever pursuant to this
Agreement any notice is required to be given by such Stockholder to any other
Stockholder or Stockholders, such Stockholder may request from the Company a
list of addresses of all Stockholders of the Company, which list shall be
promptly furnished to such Stockholder.

13.6. Inspection. So long as this Agreement shall be in
effect, this Agreement and any amendments hereto shall be made available for
inspection by a Stockholder at the principal offices of the Company.

13.7. Applicable 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 conflicts of law principles thereof.

13.8. Headings; References. Article, section and paragraph
headings are inserted herein for convenience and do not form a part of this
Agreement. All section, paragraph, exhibit and schedule references are to this
Agreement, unless otherwise expressly provided.

13.9. Integration. This Agreement and the documents
referred to herein or delivered pursuant hereto contain the entire
understanding of the parties with respect to the subject matter hereof.

13.10. Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or

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<PAGE> 39

unenforceable the remaining terms and provisions of this Agreement or affecting
the validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdictions.

13.11. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.

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<PAGE> 40

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

K&F INDUSTRIES, INC.

By: KENNETH M. SCHWARTZ
--------------------------
Name: Kenneth M. Schwartz
Title: Vice President

BERNARD L. SCHWARTZ
--------------------------
Bernard L. Schwartz

CBC CAPITAL PARTNERS, INC.

By: DAVID J. HOFFMAN
--------------------------
Name: David J. Hoffman
Title:

LORAL CORPORATION

By: MICHAEL TARGOFF
--------------------------
Name: Michael Targoff
Title: Senior Vice President

<PAGE> 41

LEHMAN BROTHERS CAPITAL
PARTNERS II, L.P.

By: Lehman Brothers Holdings Inc.,
General Partner

By: RONALD L. GALLATIN
------------------------------
Name: Ronald L. Gallatin
Title: Sr. Exec. Vice President

LEHMAN BROTHERS MERCHANT
BANKING PORTFOLIO PARTNERSHIP, L.P.

By: Lehman Brothers Merchant Banking
Partners Inc., General Partner

By: ALAN WASHKOWITZ
------------------------------
Name: Alan Washkowitz
Title: Managing Director

LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP, L.P.

By: Lehman Brothers Offshore
--------------------------------
Partners Ltd., General Partner

By: C. GRANT HALL
--------------------
Name: C. Grant Hall
Title: Secretary

LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP - JAPAN L.P.

By: Lehman Brothers Offshore
Partners Ltd., General Partner

By: C. GRANT HALL
--------------------
Name: C. Grant Hall
Title: Secretary
<PAGE> 42

SCHEDULE I

Addresses for Notices

LBP INVESTORS:

Lehman Brothers Inc.
200 Vesey Street
New York, NY 10205
Attention: Alan Washkowitz
Telephone: (212) 526-2384
Fax No.: (212) 619-7165

CBC CAPITAL PARTNERS, INC.:

Chemical Venture Partners
270 Park Avenue, 5th Floor
New York, New York 10017-2070
Attention: Jeffrey C. Walker
Telephone: (212) 270-3220
Fax No.: (212) 270-2327

LORAL INVESTORS:

Loral Corporation
600 Third Avenue
New York, New York 10016
Attention: Chairman
Telephone: (212) 697-1105
Fax No.: (212) 697-9805
<PAGE> 43

EXHIBIT A

AMENDED AND RESTATED

BY-LAWS

K&F INDUSTRIES, INC.

ARTICLE 14

Offices

ARTICLE 15

Meetings of Stockholders; Stockholders'
Consent in Lieu of Meeting

shall be given at least ten days and no more than sixty days before the date
fixed for such meeting.

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ARTICLE 16

Board of Directors

SECTION 1. General Powers. The property, business and
affairs of the Corporation shall be managed by the Board of Directors.

SECTION 5. Removal of Directors. Any director may be
removed, either with or without cause, at any time by vote of a majority in
interest of the stockholders of Corporation.

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SECTION 8. Meetings.

(a) Annual Meetings. As soon as practicable after each
annual election of directors, the Board of Directors shall meet for the purpose
of organization and the transaction of other business.

(b) Other Meetings. Other meetings of the Board of Directors
shall be held at such times and places as the Board shall from time to time
determine or upon call by the President of the Corporation.

SECTION 10. Quorum and Manner of Acting.

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(i) mergers, consolidations, recapitalizations and
reorganizations of the Corporation other than with or into a
wholly-owned subsidiary of the Corporation;

(ii) issuances of Common Stock or Preferred Stock by
the Corporation (other than any issuance of Common Stock of the
Corporation upon conversion of any convertible stock);

(iv) the issuance of employee options representing
in excess of 500,000 shares of Common Stock;

(v) the acquisition, sale or exchange of assets in
excess of $5,000,000;

(vi) dissolution or liquidation of the Corporation;

(vii) amendment of the Restated Certificate of
Incorporation or these Amended and Restated By-Laws;

(viii) the incurrence of debt or liens in excess
of $10,000,000 in the aggregate;

(ix) the making of loans, investments or capital
expenditures in excess of $10,000,000;

(x) transactions with affiliates of the Corporation;

(xi) engagement in new types of businesses or
ventures by the Corporation;

(xii) prepayments of or amendments to any amount of
financing in excess of $10,000,000;

(xiii) provision of compensation to the Chairman of
the Board and other directors or directors of subsidiaries in addition
to base compensation of $2,400,000 per annum; and

(xiv) approval and implementation of any
noncompetition agreement with the Chairman of the Board.

SECTION 11. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a

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written consent thereto is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of the proceedings of the Board or such committee.

ARTICLE 17

Officers

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<PAGE> 49

elected or until his earlier death or resignation or removal in the manner
hereinafter provided.

A vacancy in any office may be filled for the unexpired
portion of the term in the same manner as provided for election or appointment
to such office.

All officers and agents elected or appointed by the Board
shall be subject to removal at any time by the Board with or without cause.

SECTION 4. Treasurer. The Treasurer of the Corporation shall
have charge and custody of and be responsible for all funds and securities of
the Corporation and its books of account.

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SECTION 5. Secretary. The Secretary of the Corporation shall
keep the records of all meetings of the stockholders and the Board of
Directors. He shall affix the seal of the Corporation to all deeds, contracts,
bonds or other instruments requiring the corporate seal when the same shall
have been signed on behalf of the Corporation by a duly authorized officer and
shall be the custodian of all contracts, deeds, documents and all other indicia
of title to Properties owned by the Corporation and of its other corporate
records.

ARTICLE 18

Contracts, Checks, Drafts, Bank Accounts, etc.

ARTICLE 19

Books and Records

The books and records of the Corporation may be kept at such
places within or without the State of Delaware as the Board of Directors may
from time to time determine.

ARTICLE 20

Seal

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ARTICLE 21

Indemnification

ARTICLE 22

Shares and Their Transfer

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of the Corporation. In case any officer or officers who shall have signed any
such certificate or certificates shall cease to be such officer or officers of
the Corporation, whether because of death, resignation, removal or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate had not ceased to be such officer or officers of the
Corporation.

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<PAGE> 53

voting rights and obligations. If such agreements exist, all certificates of
shares of stock subject to such abridgements, limitations, restrictions, or
option shall have reference thereto endorsed on such certificate, and such
stock shall not thereafter be transferred on the books of the Corporation
except in accordance with the terms and conditions of such agreement or
agreements. Copies of such agreement or agreements shall be maintained at the
offices of the Corporation.

ARTICLE 23

Amendments

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EXHIBIT B

RESTATED CERTIFICATE OF INCORPORATION

K & F INDUSTRIES, INC.

* * * * *

K & F Industries, Inc., a Delaware corporation, hereby
certifies that this Restated Certificate of Incorporation, restating,
integrating and amending its Certificate of Incorporation originally filed by
it with the Secretary of State of the State of Delaware on March 13, 1989,
under the name Opus Acquisition Corporation, was duly adopted by the directors
and stockholders in accordance with the provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware.

FIRST: The name of the Corporation is K & F Industries, Inc.
(the "Corporation").

THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may now or hereafter be organized
under the General Corporation Law of the State of Delaware.

FOURTH: (I) The total number of shares of stock which the
Corporation shall have authority to issue is 27,800,000 consisting of (i)
26,300,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), of which 21,000,000 shares shall be Voting Common Stock (the "Voting
Common Stock") and 5,300,000 shares shall be Nonvoting Common Stock (the
"Nonvoting Common Stock") and 1,500,000 shares of Preferred Stock, par value
$0.01 per share (the "Preferred Stock"), of which 1,200,000 shares will be
designated Series A Voting Convertible Preferred Stock (the "Series A Voting
Preferred Stock") and 130,000 shares shall be Series A Nonvoting Convertible
Preferred Stock (the "Series A Nonvoting Preferred Stock"; and together with
the Series A Voting Preferred Stock, the "Series A Preferred Stock").

this ARTICLE FOURTH, the designation, rights, preferences and limitations of
the shares of each such series. The authority of the Board of Directors in
respect to each series shall include, but not be limited to, determination of
the following:

(a) the consideration for which such Preferred Stock shall be
issued;

(b) the number of shares constituting such series, including
the authority to increase or decrease such number, and the designation of such
series;

(c) the divided rate of the shares of such series, whether
the dividends shall be cumulative and, if so, the date from which they shall be
cumulative, and the relative rights or priority, if any, of payment of
dividends on shares of such series;

(d) the right, if any, of the Corporation to redeem shares of
such series and the terms and conditions of such redemption;

(g) the terms and conditions, if any, upon which shares of
such series shall be convertible into or exchangeable, at the option of the
Corporation or the holder, for shares of stock of any other class or classes or
debt securities of the Corporation, including the price or prices or the rate
or rates of conversion of exchange and terms of adjustment, if any;

(h) the voting rights and requirements, if any, of the shares
of such series, in addition to any voting rights required by law; and

(i) any other rights, preferences or limitations of shares of
such series.

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<PAGE> 56

(1) Dividends and Distributions.

(A) Subject to the prior and superior rights of the holders
of any shares of any series of preferred stock ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the shares of Common Stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, dividends payable in cash or in
kind respectively, commencing on the first issuance of a share or fraction of a
share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent), subject to the provision for adjustment hereinafter set forth,
equal to the aggregate per share amount of all cash dividends, and equal to the
aggregate per share amount (payable in the same form as payment to the holders
of Common Stock) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock, declared on the Common Stock since
the first issuance of any share or fraction of a share of Series A Preferred
Stock. In the event the Corporation shall at any time after July 27, 1989 (the
"Original Issue Date") (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) above
simultaneously with the declaration of a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock) with identical
payment dates. No dividend shall be declared or paid on the Common Stock
unless the immediately preceding sentence shall have been complied with.

(2) Voting Rights. Except as may be required by law, holders
of shares of Series A Nonvoting Preferred Stock shall have no voting rights.
In addition to any other voting rights required by law, holders of shares of
Series A Voting Preferred Stock shall have only the following voting rights:

(A) Subject to the provision for adjustment hereinafter set
forth, the holders of Series A Voting Preferred Stock shall have the right to
vote on the election or removal of directors of the Corporation and on all
other matters to be voted on by the holders of Voting Common Stock of the
Corporation and shall be entitled to one vote for each

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<PAGE> 57

share of Series A Voting Preferred Stock held. In the event the Corporation
shall at any time after the Original Issue Date (i) declare any dividend on
Voting Common Stock payable in shares of Voting Common Stock, (ii) subdivide
the outstanding Voting Common Stock, or (iii) combine the outstanding Voting
Common Stock into a smaller number of shares, then in each such case the number
of votes per share to which holders of shares of Series A Voting Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number of
shares of Voting Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Voting Common Stock that were
outstanding immediately prior to such event.

(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Voting Preferred Stock and the holders of shares
of Voting Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.

(C) Except as set forth herein, holders of Series A Voting
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Voting Common Stock as set forth herein) for taking any corporate action.

(3) Certain Restrictions.

(A) Whenever dividends or distributions payable on the Series
A Preferred Stock as provided in ARTICLE FOURTH (1) are in arrears, thereafter
and until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:

(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;

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(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this ARTICLE FOURTH (3), purchase or otherwise acquire such shares at such time
and in such manner.

(4) Conversion of Series A Voting Preferred Stock.

(A) Subject to and upon compliance with the provisions of
this Restated Certificate of Incorporation and subject to the provisions for
adjustment hereinafter set forth, each record holder of shares of Series A
Voting Preferred Stock shall be entitled at any time and from time to time to
exchange any or all of the shares of Series A Voting Preferred Stock held by
such holder for an equal number of shares of Voting Common Stock. Each
exchange of shares of Series A Voting Preferred Stock for Voting Common Stock
shall be effected by the surrender of the certificate or certificates
evidencing the shares of Series A Voting Preferred Stock to be exchanged at the
principal office of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the
holders of the Series A Voting Preferred Stock) at any time during its usual
business hours, together with written notice by the holder of such shares of
Series A Voting Preferred

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<PAGE> 59

Stock, stating that such holder desires to exchange the shares, or a stated
number of shares, of Series A Voting Preferred Stock evidenced by such
certificate or certificates into shares of Voting Common Stock. Such notice
shall also state the name or names (with addresses) and denominations in which
the certificate or certificates evidencing shares of Voting Common Stock shall
be issued and shall include instructions for delivery thereof. Receipt of such
notice together with the certificates evidencing the shares of Series A Voting
Preferred Stock to be exchanged shall obligate the Corporation to issue shares
of Voting Common Stock as specified in such notice. Promptly after such
surrender and the receipt of such written notice, the corporation shall issue
and deliver in accordance with such instructions the certificate or
certificates evidencing the shares of Voting Common Stock issuable upon such
exchange. Such exchange, to the extent permitted by law, shall be deemed to
have been effected as of the close of business on the date on which such
certificate or certificates shall have been surrendered and such written notice
shall have been received by the Corporation, and at such time the rights of the
holder of such shares of Series A Voting Preferred Stock to be exchanged as
such holder shall cease and the person or persons in whose name or names any
certificate or certificates evidencing shares of Voting Common Stock to be
issued upon such exchange shall be deemed to have become the holder or holders
of record of the shares of Voting Common Stock to be evidenced thereby. The
Corporation shall be entitled to rely conclusively, as to the truth of the
statements made therein, on such written notice, and the Corporation shall not
be liable to any person with respect to any action taken or omitted to be taken
by it in connection with such exchange in reliance on the statements made in
such written notice.

(B) Notwithstanding the foregoing, upon (a) the consummation
of a public offering by any of the Corporation, Aircraft Braking Systems
Corporation, a wholly owned subsidiary of the Corporation, or Engineered
Fabrics Corporation, a wholly owned subsidiary of the Corporation, of its
shares of common stock pursuant to the Securities Act of 1933, as amended, (b)
a merger of the Corporation with or into another person other than a merger
described in ARTICLE FOURTH (8) herein, (c) a sale of all or substantially all
of the assets of the Corporation, any capital reorganization or any
reclassification of the capital stock of the Corporation (other than a change
in par value or as a result of a stock dividend or subdivision, split-up,
combination of shares) or (d) the exercise by the holders of Common Stock or
Series A Preferred Stock of their Put Sale Option or Tag-Along Right as set
forth in the Amended and Restated Stockholders Agreement dated as of September
2, 1994 among the Corporation and the other parties thereto (each such event,
an "Event of Conversion"), all shares of the Series A Voting Preferred Stock,
subject to the adjustment hereinafter set forth, shall, subject to compliance
with any applicable filing requirements

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(and the expiration of all waiting periods) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), automatically
convert into an equal number of shares of Voting Common Stock. In the event
the Corporation shall at any time after the Original Issue Date (i) declare any
dividend on Voting Common Stock payable in shares of Voting Common Stock, (ii)
subdivide the outstanding Voting Common Stock, or (iii) combine the outstanding
Voting Common Stock into a smaller number of shares, then in each such case the
aggregate number of shares of Voting Common Stock issuable upon conversion of a
share of Series A Voting Preferred Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Voting
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Voting Common Stock that were outstanding
immediately prior to such event.

(C) The Corporation will at all times reserve and keep
available out of its authorized but unissued shares of Voting Common Stock, or
its treasury shares, solely for the purpose of issue upon exchange of the
shares of Series A Voting Preferred Stock, as herein provided, such number of
shares of Voting Common Stock as shall then be issuable upon an exchange of all
outstanding shares of Series A Voting Preferred Stock. The shares of Voting
Common Stock so issuable shall, when so issued, be duly authorized, validly
issued, fully paid and nonassessable.

(D) Shares of Series A Voting Preferred Stock that are
exchanged for shares of Voting Common Stock as provided herein shall not be
reissued as Series A Voting Preferred Stock.

(E) The issue of certificates evidencing shares of Voting
Common Stock upon exchange of shares of Series A Voting Preferred Stock shall
be made without charge to the holders of such shares for any issue tax in
respect thereof, or other cost incurred by the Corporation in connection with
such exchange; provided, however, that the Corporation shall not be required to
pay any tax that may be payable in respect of any transfer involving the issue
and delivery of any certificate in a name other than that of the holder or
former holder of the Series A Voting Preferred Stock.

(5) Conversion of Series A Nonvoting Preferred Stock.

(A) Subject to and upon compliance with the provisions of
this Restated Certificate of Incorporation, each record holder of shares of
Series A Nonvoting Preferred Stock shall be entitled at any time and from time
to time to exchange any or all of the shares of Series A Nonvoting Preferred
Stock held by such holder for an equal number of shares of Series A Voting
Preferred Stock. Each exchange of shares of Series A Nonvoting Preferred Stock
for Series A

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Voting Preferred Stock shall be effected by the surrender of the certificate or
certificates evidencing the shares of Series A Nonvoting Preferred Stock to be
exchanged at the principal office of the Corporation (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holders of the Series A Nonvoting Preferred Stock) at any time during
its usual business hours, together with written notice by the holder of such
shares of Series A Nonvoting Preferred Stock, stating that such holder desires
to exchange the shares, or a stated number of shares, of Series A Nonvoting
Preferred Stock evidenced by such certificate or certificates into shares of
Series A Voting Preferred Stock. Such notice shall also state the name or
names (with addresses) and denominations in which the certificate or
certificates evidencing shares of Series A Voting Preferred Stock shall be
issued and shall include instructions for delivery thereof. Receipt of such
notice together with the certificates evidencing the shares of Series A
Nonvoting Preferred Stock to be exchanged shall obligate the Corporation to
issue shares of Series A Voting Preferred Stock as specified in such notice.
Promptly after such surrender and the receipt of such written notice, the
corporation shall issue and deliver in accordance with such instructions the
certificate or certificates evidencing the shares of Series A Voting Preferred
Stock issuable upon such exchange. Such exchange, to the extent permitted by
law, shall be deemed to have been effected as of the close of business on the
date on which such certificate or certificates shall have been surrendered and
such written notice shall have been received by the Corporation, and at such
time the rights of the holder of such shares of Series A Nonvoting Preferred
Stock to be exchanged as such holder shall cease and the person or persons in
whose name or names any certificate or certificates evidencing shares of Series
A Voting Preferred Stock to be issued upon such exchange shall be deemed to
have become the holder or holders of record of the shares of Series A Voting
Preferred Stock to be evidenced thereby. The Corporation shall be entitled to
rely conclusively, as to the truth of the statements made therein, on such
written notice, and the Corporation shall not be liable to any person with
respect to any action taken or omitted to be taken by it in connection with
such exchange in reliance on the statements made in such written notice.

(B) Notwithstanding the foregoing, immediately prior to any
Event of Conversion, all shares of the Series A Nonvoting Preferred Stock
shall, subject to compliance with any applicable filing requirements (and the
expiration of all waiting periods) under the HSR Act, automatically convert
into an equal number of shares of Series A Voting Preferred Stock in order to
facilitate the conversion required by paragraph (B) of this ARTICLE FOURTH (4).

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Series A Voting Preferred Stock, or its treasury shares, solely for the purpose
of issue upon exchange of the shares of Series A Nonvoting Preferred Stock, as
herein provided, such number of shares of Series A Voting Preferred Stock as
shall then be issuable upon an exchange of all outstanding shares of Series A
Nonvoting Preferred Stock. The shares of Series A Voting Preferred Stock so
issuable shall, when so issued, be duly authorized, validly issued, fully paid
and nonassessable.

(D) Shares of Series A Nonvoting Preferred Stock that are
exchanged for shares of Series A Voting Preferred Stock as provided herein
shall not be reissued as Series A Nonvoting Preferred Stock.

(E) The issue of certificates evidencing shares of Series A
Voting Preferred Stock upon exchange of shares of Series A Nonvoting Preferred
Stock shall be made without charge to the holders of such shares for any issue
tax in respect thereof, or other cost incurred by the Corporation in connection
with such exchange; provided, however, that the Corporation shall not be
required to pay any tax that may be payable in respect of any transfer
involving the issue and delivery of any certificate in a name other than that
of the holder or former holder of the Series A Voting Preferred Stock.

(F) If the Corporation shall in any manner subdivide or
combine the outstanding shares of one class of Series A Preferred Stock, the
outstanding shares of the other class of Series A Preferred Stock shall be
correspondingly subdivided or combined, as the case may be.

(6) Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Series A Preferred Stock and may be reissued as part of a
new series of preferred stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on issuance set
forth in the Restated Certificate of Incorporation.

(7) Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation (a "Liquidation"), no
distribution shall be made

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to the provision for adjustment hereinafter set forth, equal
to the aggregate amount to be distributed per share to the
holders of the Common Stock, or

In the event the Corporation shall at any time after the Original Issue Date
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of paragraph (i) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

(8) Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after the Original Issue Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

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(9) No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.

(10) Rank. The Series A Preferred Stock shall rank junior
with respect to payment of dividends and on liquidation to all other series of
the Corporation's preferred stock that specifically provide that they shall
rank senior to the Series A Preferred Stock.

(11) Amendment. The Restated Certificate of Incorporation of
the Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of a majority or more of the outstanding shares, if any, of Series A
Preferred Stock, voting separately as a class.

(IV) Except as otherwise expressly provided in this
Restated Certificate of Incorporation, all outstanding shares of Common Stock
shall be identical and shall entitle the holders thereof to the same rights and
privileges.

(1) When, as and if dividends or distributions are
declared on outstanding shares of Common Stock, whether payable in cash, in
property or in securities of the Corporation (other than shares of Common
Stock), the holders of outstanding shares of Voting Common Stock and Nonvoting
Common Stock shall be entitled to share equally, share for share, in such
dividends and distributions. If dividends or distributions are declared on
outstanding shares of Common Stock that are payable in shares of, or in
subscription or other rights to acquire shares of, Common Stock, such dividends
shall be declared at the same rate on the outstanding shares of Voting Common
Stock and the outstanding shares of Nonvoting Common Stock, but shall be
payable only in shares or in subscription or other rights to acquire shares, as
the case may be, of Voting Common Stock to holders of outstanding shares of
Voting Common Stock and of Nonvoting Common Stock to holders of outstanding
shares of Nonvoting Common Stock.

(2) Upon any Liquidation, the holders of outstanding shares
of Voting Common Stock and outstanding shares of Nonvoting Common Stock shall
be entitled to share equally, share for share, in the assets of the Corporation
to be distributed among the holders of shares of the Common Stock.

(3) Subject to and upon compliance with the provisions of
this Restated Certificate of Incorporation, each record holder of shares of
Nonvoting Common Stock shall be entitled at any time and from time to time to
exchange any or all of the shares of Nonvoting Common Stock held by such holder
for the same number of shares of the Common Stock.

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Notwithstanding the foregoing, upon any Event of Conversion, all shares of
Nonvoting Common Stock shall, subject to compliance with any applicable filing
requirements (and the expiration of all waiting periods) under the HSR Act,
automatically convert into an equal number of shares of Voting Common Stock.

(4) Each exchange of shares of Nonvoting Common Stock for
Voting Common Stock shall be effected by the surrender of the certificate or
certificates evidencing the shares of Nonvoting Common Stock to be exchanged at
the principal office of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the
holders of the Nonvoting Common Stock) at any time during its usual business
hours, together with written notice by the holder of such shares of Nonvoting
Common Stock, stating that (i) such holder desires to exchange the shares, or a
stated number of shares, of Nonvoting Common Stock evidenced by such
certificate or certificates into shares of Voting Common Stock and (ii) such
exchange is in compliance with the provisions of this Restated Certificate of
Incorporation. Such notice shall also state the name or names (with addresses)
and denominations in which the certificate or certificates evidencing shares of
Voting Common Stock shall be issued and shall include instructions for delivery
thereof. Receipt of such notice together with the certificates evidencing the
shares of Nonvoting Common Stock to be exchanged shall obligate the Corporation
to issue shares of Voting Common Stock as specified in such notice. Promptly
after such surrender and the receipt of such written notice, the Corporation
shall issue and deliver in accordance with such instructions the certificate or
certificates evidencing the shares of Voting Common Stock issuable upon such
exchange. Such exchange, to the extent permitted by law, shall be deemed to
have been effected as of the close of business on the date on which such
certificate or certificates shall have been surrendered and such written notice
shall have been received by the Corporation, and at such time the rights of the
holder of such shares of Common Stock to be exchanged as such holder shall
cease and the person or persons in whose name or names any certificate or
certificates evidencing shares of Common Stock to be issued upon such exchange
shall be deemed to have become the holder or holders of record of the shares of
Voting Common Stock to be evidenced thereby. The Corporation shall be entitled
to rely conclusively, as to the truth of the statements made therein, on such
written notice, and the Corporation shall not be liable to any person with
respect to any action taken or omitted to be taken by it in connection with
such exchange in reliance on the statements made in such written notice.

(5) If the Corporation shall in any manner subdivide or
combine the outstanding shares of one class of Common Stock, the outstanding
shares of the other class of

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<PAGE> 66

Common Stock shall be correspondingly subdivided or combined, as the case may
be.

(6) The Corporation will at all times reserve and keep
available out of its authorized but unissued shares of Voting Common Stock, or
its treasury shares, solely for the purpose of issue upon exchange of the
shares of Nonvoting Common Stock, as herein provided, such number of shares of
Voting Common Stock as shall then be issuable upon an exchange of all
outstanding shares of Nonvoting Common Stock. The shares of Voting Common
Stock so issuable shall, when so issued, be duly authorized, validly issued,
fully paid and nonassessable.

(7) Shares of Nonvoting Common Stock that are exchanged for
shares of Voting Common Stock as provided herein shall not be reissued.

(8) The issue of certificates evidencing shares of Voting
Common Stock upon exchange of shares of Nonvoting Common Stock shall be made
without charge to the holders of such shares for any issue tax in respect
thereof, or other cost incurred by the Corporation in connection with such
exchange; provided, however, that the Corporation shall not be required to pay
any tax that may be payable in respect of any transfer involving the issue and
delivery of any certificate in a name other than that of the holder or former
holder of the Non-Voting Common Stock.

(9) The holders of outstanding shares of Voting Common Stock
shall have the right to vote on the election or removal of the directors of the
Corporation and on all other matters to be voted on by the stockholders of the
Corporation and shall be entitled to one vote for each share of Voting Common
Stock held. Except as may be required by law, the holders of shares of
Nonvoting Common Stock shall have no voting rights.

FIFTH: The Board of Directors shall have the power to adopt,
amend or repeal the by-laws of the Corporation to the extent provided in the
by-laws.

(b) If the General Corporation Law of the State of Delaware is
hereafter amended to further eliminate or limit

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<PAGE> 67

the liability of a director of a corporation, then a director of the
Corporation, in addition to the circumstances set forth herein, shall not be
liable to the fullest extent permitted by the General Corporation Law of the
State of Delaware as so amended.

(b) The Corporation shall determine the right of any person
to receive indemnification as provided hereunder in accordance with the
provisions of applicable law.

(3) The rights and authority conferred in this ARTICLE SIXTH
shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Restated Certificate of
Incorporation or the by-laws of the Corporation, agreement, vote of
stockholders or disinterested directors or otherwise.

(4) Neither the amendment nor repeal of this ARTICLE SIXTH
nor the adoption of any provision of this Certificate of Incorporation or the
by-laws of the Corporation or of any statute inconsistent with this ARTICLE
SIXTH shall eliminate or reduce the effect of this ARTICLE SIXTH in respect of
any acts or omissions occurring prior to such amendment or repeal or such
adoption of an inconsistent provision.

SEVENTH: The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the

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<PAGE> 68

provisions of the General Corporation Law of the State of Delaware.

EIGHTH: The Corporation reserves the right to amend this
Restated Certificate of Incorporation in any manner permitted by the General
Corporation Law of the State of Delaware, as amended from time to time, and all
rights and powers conferred herein on stockholders, directors and officers, if
any, are subject to this reserved power.

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<PAGE> 69

IN WITNESS WHEREOF, said Corporation has caused this Restated
Certificate to be signed by its Vice President and attested to by its Assistant
Secretary, this 1st day of September, 1994.

K & F INDUSTRIES, INC.

By: KENNETH M. SCHWARTZ
---------------------
Kenneth M. Schwartz,
Vice President

ATTEST: LISA F. STEIN-MCMEEKIN
-----------------------
Lisa F. Stein- McMeekin
Asst. Secretary
<PAGE> 70

EXHIBIT C

REGISTRATION RIGHTS

ARTICLE XXIV

DEFINITIONS

SECTION 24.i. Definitions.

Terms defined in the Amended and Restated Stockholders
Agreement dated as of September 2, 1994 among K&F Industries, Inc. (the
"Company") and the other parties thereto (the "Stockholders Agreement") are
used herein as therein defined. In addition, the following terms shall have
the meanings ascribed to them below:

"Adjusted Stock" means all outstanding shares of Stock and all
shares of Stock issuable upon the exercise of Options (adjusted to reflect any
stock dividends, stock splits or other issuances of shares of capital stock in
respect of the Stock and computed assuming the exercise of all Options and the
conversion of all convertible securities into Common Stock).

"Demand Registration" means a Demand Registration as defined
in Section 2.1.

"Excess Amount" means the number of Registrable Securities,
requested by a Holder or Holders to be sold pursuant to Section 2.1 which the
managing Underwriter or Underwriters determines exceeds the largest number of
Registrable Securities which can successfully be sold in an orderly manner in
such offering within a price range acceptable to the Holders or the Company, as
the case may be.

"Holder" means any party who is a signatory to the
Stockholders Agreement and any party who shall hereafter acquire and hold
Registrable Securities pursuant to the provisions of, and subject to the rights
and restrictions set forth in, the Stockholders Agreement, including, without
limitation, any party who shall hereafter acquire Registrable Securities, or
Options unless such Registrable Security is acquired in a public distribution
pursuant to a registration statement under the Securities Act or pursuant to a
transaction exempt from registration under the Securities Act where securities
sold in such transaction may be resold without subsequent registration under
the Securities Act.

"Institutional Investor" means each Holder.

"Options" means options to acquire Common Stock pursuant to
Company stock option plans.

"Piggy-Back Registration" means a Piggy-Back
<PAGE> 71

Registration as defined in Section 2.2.

"Registrable Security" means any shares of Common Stock
outstanding, any shares of Common Stock issuable upon conversion of any other
class of Stock and any shares of Common Stock issuable upon exercise of Options
which at the time of determination of Registrable Securities are fully vested
and exercisable, in each case until (i) a registration statement covering such
Common Stock has been declared effective by the Commission and has been
disposed of pursuant to such effective registration statement, (ii) it is sold
under circumstances in which all of the applicable conditions of Rule 144 (or
any similar provisions then in force) under the Securities Act are met or under
which it may be sold pursuant to Rule 144(k) or (iii) it has been otherwise
Transferred, the Company has delivered a new certificate or other evidence of
ownership for it not bearing the legend required pursuant to the Stockholders
Agreement and it may be resold without subsequent registration under the
Securities Act.

"Requisite Share Number" means (i) until a registration
statement with respect to the sale of Registrable Securities shall have become
effective under the Securities Act and Registrable Securities shall have been
disposed of in accordance with such registration statement, a number of
Registrable Securities not less than 10% of the Adjusted Stock and (ii)
thereafter, a number of Registrable Securities not less than 5% of the Adjusted
Stock.

"Selling Holder" means a Holder who is Selling Registrable
Securities pursuant to a registration statement under the Securities Act.

"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.

"Withdrawn Securities" means Withdrawn Securities defined in
Section 2.3.

ARTICLE XXV

REGISTRATION RIGHTS

SECTION 25.i. Demand Registration. (A) Request for
Registration. At any time and from time to time any Holder or Holders owning,
individually or in the aggregate, at least the Requisite Share Number may make
a written request for registration under the Securities Act of all or part of
its or their Registrable Securities (a "Demand Registration"); provided that
such Holders are together requesting that the Requisite Share Number or more of
the Adjusted Stock be registered; and provided, further, that (i) except as
provided

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<PAGE> 72

in Section 5.1, the Company shall not be obligated to effect more than two
Demand Registrations requested by LBP or its transferees, more than two Demand
Registrations requested by BLS or his transferees or more than one Demand
Registration requested by Loral or its transferees (excluding in each case any
registration statement that has become effective, but as to which the offering
price of the Registrable Securities is not established (whether under the
circumstances contemplated by Rule 430A under the Securities Act or otherwise)
or the offering is interfered with by any stop order, injunction or other order
or requirement of the Commission or any other governmental agency or court) and
(ii) the Company shall not be obligated to effect a Demand Registration
requested by Loral or its transferrees until after the second anniversary of
the date of the Amended and Restated Stockholders Agreement. Such request will
specify the number of shares of Registrable Securities proposed to be sold and
will also specify the intended method of disposition thereof. The Company
shall give written notice of such registration request within 10 days after the
receipt thereof to all other Holders. Within 20 business days of such notice
by any Holder, such Holder may request and the Company shall include in the
Demand Registration the Registrable Securities of any such Holder requested to
be so included. Each such request by such other Holders shall specify the
number of shares of Registrable Securities to be registered and the intended
method of disposition thereof. Unless the Holder or Holders of a majority of
the Registrable Securities to be registered in such Demand Registration shall
consent in writing, no other party, including the Company (other than Holders
that have so requested inclusion), shall be permitted to offer securities under
any such Demand Registration.

(B) Effective Registration. A registration will not count as
a Demand Registration until it has become effective.

(C) Priority on Demand Registration. If the Holders of a
majority of shares of the Registrable Securities to be registered in a Demand
Registration so elect, the offering of such Registrable Securities pursuant to
such Demand Registration shall be in the form of an underwritten offering. The
Company and the Holders making such Demand Registration shall select any
additional investment bankers to act as the book-running managing Underwriter or
Underwriters in connection with such offering and shall select any additional
investment bankers and managers to be used in connection with the offering,
provided, however that the selection of an Underwriter shall be subject to any
rights Lehman Brothers Holdings Inc. (formerly known as Shearson Lehman Hutton
Holdings Inc.) may have pursuant to any other agreements it or its Affiliates
have or may enter into with the Company or BLS. To the extent more than 20% of
the Registrable Securities so requested to be registered are excluded from the
offering in accordance with Section 2.3, the

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Holders of such Registrable Securities as a group shall have the right to one
additional Demand Registration under this Section with respect to such
Registrable Securities (unless such Registration is a Shelf Registration).

SECTION 25.ii. Piggy-Back Registration. If at any time the
Company proposes to file a registration statement under the Securities Act with
respect to an offering by the Company for its own account or for the account of
any of its respective securityholders of any class of security (other than a
registration statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the Commission) or a registration statement filed in connection with
an exchange offer or offering of securities solely to the Company's existing
securityholders or in connection with an offering of debt securities by the
Company), then the Company shall give written notice of such proposed filing to
the Holders of Registrable Securities as soon as practicable (but in no event
less than 10 days before the anticipated filing date), and such notice shall
offer such Holders the opportunity to register such number of shares of
Registrable Securities as each such Holder may request (which request shall
specify the Registrable Securities intended to be disposed of by such Holder and
the intended method of distribution thereof) (a "Piggy-Back Registration"). The
Company shall use its best efforts to cause the managing Underwriter or
Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any similar securities of the Company
included therein to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. Any
Holder shall have the right to withdraw its request for inclusion of its
Registrable Securities in any registration statement pursuant to this Section
2.2 by giving written notice to the Company of its request to withdraw.

SECTION 25.iii. Reduction of Offering. Notwithstanding
anything contained herein, if the managing Underwriter or Underwriters of an
offering described in Section 2.1 or 2.2 deliver a written opinion to the
Holders of the Registrable Securities requesting inclusion in such offering
that (i) the size of the offering that the Holders, the Company and/or such
other persons, intend to make or (ii) the kind of securities that the Holders,
the Company and/or any other persons or entities intend to include in such
offering is such that the success of the offering would be materially and
adversely affected by inclusion of the Registrable Securities requested to be
included, then (A) if the size of the offering is the basis of such
Underwriter's opinion, the Company shall not include in such registration a pro
rata amount of Registrable Securities requested to be included in such offering
by all Holders equal to the Excess Amount; provided that, in the case of a
Piggy-Back Registra-

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<PAGE> 74

tion, if securities are being offered for the account of other persons or
entities as well as the Company, then with respect to the Registrable Securities
intended to be offered by Holders, the proportion by which the amount of such
class of securities intend to be offered by Holders is reduced shall not exceed
the proportion by which the amount of such class of securities intended to be
offered by such other persons or entities is reduced; and (B) if the combination
of securities to be offered is the basis of such Underwriter's opinion, (x) the
Registrable Securities to be included in such offering shall be reduced as
described in clause (A) above (subject to the proviso in clause (A)) or, (y) if
the actions described in clause (x) would, in the judgment of the managing
Underwriter, be insufficient to substantially eliminate the adverse effect that
inclusion of the Registrable Securities requested to be included would have on
such offering, such Registrable Securities will be excluded from such offering.

If, as a result of the proration provisions of this Section
2.3, any Holder shall not be entitled to include all Registrable Securities in
a Section 2.1 or 2.2 registration that such Holder has requested to be
included, such Holder may elect to withdraw his request to include Registrable
Securities in such registration (a "Withdrawal Election"); provided, however,
that a Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, a Holder shall no longer have any right to include Registrable
Securities in the registration as to which such Withdrawal Election was made.
If, as a result of Withdrawal Elections (but after the Company shall have
included in such registration in place of such withdrawn Registrable Securities
such additional Registrable Securities held by other Holders whose Registrable
Securities were excluded as a result of the proration provisions of this
Section 2.3), the resulting number of Registrable Securities requested to be
included in a Section 2.1 registration, constitutes less than 10% of the
Adjusted Stock the Company may (except in the case of a registration effected
on Form S-3 or any similar short form registration statement), at its election,
give written notice to all Holders who have requested that Registrable
Securities be included in a registration and who have not made a Withdrawal
Election that the Company has determined not to proceed with such registration
and, thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such abandoned registration, without prejudice,
however, to the Holders' rights to have Registrable Securities registered
pursuant to Section 2.1 in the future.

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<PAGE> 75

ARTICLE XXVI

REGISTRATION PROCEDURES

SECTION 26.i. Filings; Information. Whenever Holders request
that any Registrable Securities be registered pursuant to Section 2.1 hereof,
the Company will use its best efforts to effect the registration and the sale
of such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any such
request:

(A) The Company will as expeditiously as possible
prepare and file with the Commission a registration statement on any
form for which the Company then qualifies or which counsel for the
Company shall deem appropriate and which form shall be available for
the sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use
its best efforts to cause such filed registration statement to become
and remain effective for a period of not less than 270 days for an
underwritten offering and 120 days for any other registration;
provided that, if the Company shall furnish to the Holders making a
request pursuant to Section 2.1 a certificate signed by either its
Chairman or the Vice Chairman stating that in his good faith judgment
it would be significantly disadvantageous to the Company or its
shareholders for such a registration statement to be filed as
expeditiously as possible, the Company shall have a period of not more
than 90 days within which to file such registration statement measured
from the date of receipt of the request in accordance with Section
2.1.

(B) The Company will, prior to filing a registration
statement or prospectus or any amendment or supplement thereto,
furnish to each Selling Holder, one counsel representing all such
Selling Holders, and each Underwriter, if any, of the Registrable
Securities covered by such registration statement copies of such
registration statement as proposed to be filed, together with exhibits
thereto, which documents will be subject to review by the foregoing
within 3 days after delivery, and thereafter furnish to such Selling
Holder and Underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by
reference therein), the prospectus included in such registration
statement (including each preliminary prospectus) and such other
documents as such Selling Holder or Underwriter may reasonably request
in order to facilitate the disposition of the Registrable Securities
owned by such Selling Holder.

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<PAGE> 76

(C) After the filing of the registration statement,
the Company will promptly notify each Selling Holder of Registrable
Securities covered by such registration statement of any stop order
issued or threatened by the Commission and take all reasonable actions
required to prevent the entry of such stop order or to remove it if
entered.

(D) The Company will use its best efforts to (i)
register or qualify the Registrable Securities under such other
securities or blue sky laws of such jurisdictions in the United States
as any Selling Holder reasonably (in light of such Selling Holder's
intended plan of distribution) requests and (ii) cause such
Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to
enable such Selling Holder to consummate the disposition of the
Registrable Securities owned by such Selling Holder; provided that the
Company will not be required to (A) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (B) subject itself to taxation in
any such jurisdiction or (C) consent to general service of process in
any such jurisdiction.

(E) The Company will immediately notify each Selling
Holder of such Registrable Securities, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and promptly
make available to each Selling Holder any such supplement or
amendment.

(F) The Company will enter into customary agreements
(including, if applicable, an underwriting agreement in customary
form) and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of such Registrable
Securities (the Selling Holders may, at their option, require that any
or all of the representations, warranties and covenants of the Company
or to or for the benefit of such Underwriters shall also be made to
and for the benefit of such Holders).

(G) The Company will deliver promptly to each Holder
participating in the offering and each Under-

7
<PAGE> 77

writer, if any, subject to restrictions imposed by the United States
federal government or any agency or instrumentality thereof, copies of
all correspondence between the Commission and the Company, its counsel
or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the registration statement
and, make available for inspection by any Selling Holder of such
Registrable Securities, any Underwriter participating in any
disposition pursuant to such registration statement and any attorney,
accountant or other professional retained by any such Selling Holder
or Underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the
Company (collectively, the "Records") as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and
cause the Company's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection with
such registration statement. Records which the Company determines, in
good faith, to be confidential and which it notifies the Inspectors
are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such registration statement or (ii) the
disclosure or release of such Records is requested or required
pursuant to oral questions, interrogatories, requests for information
or documents or a subpoena or other order from a court of competent
jurisdiction or other process; provided that prior to any disclosure
or release pursuant to clause (ii), the Inspectors shall provide the
Company with prompt notice of any such request or requirement so that
the Company may seek an appropriate protective order or waive such
Inspectors' obligation not to disclose such Records; and provided,
further, that if failing the entry of a protective order or the waiver
by the Company permitting the disclosure or release of such Records,
the Inspectors, upon opinion of counsel, are compelled to disclose
such Records, the Inspectors may disclose that portion of the Records
which counsel has advised the Inspectors that the Inspectors are
compelled to disclose. Each Selling Holder of such Registrable
Securities agrees that information obtained by it solely as a result
of such inspections (not including any information obtained from a
third party who, insofar as is known to the Selling Holder after
reasonable inquiry, is prohibited from providing such information by a
contractual, legal or fiduciary obligation to the Company) shall be
deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or its Affiliates
unless and until such is made generally available to the public. Each
Selling Holder of such Registrable Securities further agrees that it
will, upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to the

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<PAGE> 78

Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential.

(H) The Company will furnish to each Selling Holder
and to each Underwriter, if any, a signed counterpart, addressed to
such Selling Holder or Underwriter, of (i) an opinion or opinions of
counsel to the Company and (ii) a comfort letter or comfort letters
from the Company's independent public accountants, each in customary
form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the Majority
Holders of the issue of Registrable Securities included in such
offering or the managing Underwriter therefor reasonably requests.

(I) The Company will otherwise use its best efforts
to comply with all applicable rules and regulations of the Commission,
and make available to its securityholders, as soon as reasonably
practicable, an earnings statement covering a period of 12 months,
beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.

(J) The Company will use its best efforts (i) to
cause all such Registrable Securities to be listed on a national
securities exchange (if such shares are not already so listed) and on
each additional national securities exchange on which similar
securities issued by the Company are then listed (if any), if the
listing of such Registrable Securities is then permitted under the
rules of such exchange or (ii) to secure designation of all such
shares covered by such registration statement as a NASDAQ "national
market system security" within the meaning of Rule 11Aa2-l of the
Commission or, failing that, to secure NASDAQ authorization for such
shares and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register as such with
respect to such shares with the NASD.

(K) The Company will provide a transfer agent and
registrar for all such Registrable Securities covered by such
registration statement not later than the effective date of such
registration statement.

The Company may require each Selling Holder of Registrable
Securities to promptly furnish in writing to the Company such information
regarding the distribution of the Registrable Securities as the Company may
from time to time reasonably request and such other information as may be
legally required in connection with such registration.

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Each Selling Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3.1(e) hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3.1(e) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give
such notice, the Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(e) hereof to
the date when the Company shall make available to the Selling Holders of
Registrable Securities covered by such registration statement a prospectus
supplemented or amended to conform with the requirements of Section 3.1(e)
hereof.

SECTION 26.ii. Registration Expenses. In connection with any
registration statement required to be filed hereunder, the Company shall pay
the following registration expenses incurred in connection with the
registration hereunder (the "Registration Expenses"): (i) all registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (iii) printing
expenses, (iv) internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) the fees and expenses incurred in connection with the listing of
the Registrable Securities, (vi) reasonable fees and disbursements of counsel
for the Company and customary fees and expenses for independent certified
public accountants retained by the Company (including the expenses of any
comfort letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letters requested pursuant to
Section 3.1(h) hereof), (vii) the reasonable fees and expenses of any special
experts retained by the Company in connection with such registration, and
(viii) reasonable fees and expenses of one counsel (who shall be reasonably
acceptable to the Company) for the Holders. The Company shall have no
obligation to pay any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities, or any out-of-pocket expenses of the
Holders (or the agents who manage their accounts).

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ARTICLE XXVII

INDEMNIFICATION AND CONTRIBUTION

SECTION 27.i. Indemnification by the Company. The Company
agrees to indemnify and hold harmless each Selling Holder of Registrable
Securities, its officers, directors and agents, and each Person, if any, who
controls such Selling Holder within the meaning of Section 15 of the Securities
Act from and against any loss, claim, damage or liability and any action in
respect thereof to which such Selling Holder, its officers, directors and
agents, and such control person may become subject under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or arises out of, or is based upon any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and shall reimburse each Selling
Holder, its officers, directors and agents, and each such controlling person
for any legal and other expenses reasonably incurred by that Selling Holder,
its officers, directors and agents, or controlling person in investigating or
defending or preparing to defend against any such loss, claim, damage,
liability or action; provided that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action
arises out of, or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus if
it is determined that it was the responsibility of such Selling Holder to
provide such person with a current copy of the prospectus and such current copy
of the prospectus would have cured the defect giving rise to such loss, claim,
damage or liability. The Company also agrees to indemnify any Underwriters of
the Registrable Securities, their officers and directors and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Selling Holders provided in this Section 4.1.

SECTION 27.ii. Indemnification by Holders of Registrable
Securities. Each Selling Holder agrees, severally but not jointly, to
indemnify and hold harmless the Company, its officers, directors and agents and
each Person, if any, who controls the Company within the meaning of Section 15
of the Securities Act to the same extent as the foregoing indemnity from the
Company to such Selling Holder, but only with reference to information related
to such Selling Holder furnished in writing by such Selling Holder or on such
Selling Holder's behalf expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any

11
<PAGE> 81

preliminary prospectus. In case any action or proceeding shall be brought
against the Company or its officers, directors or agents or any such
controlling person, in respect of which indemnity may be sought against such
Selling Holder, such Selling Holder shall have the rights and duties given to
the Company, and the Company or its officers, directors or agents or such
controlling person shall have the rights and duties given to such Selling
Holder, by the preceding paragraph. Each Selling Holder also agrees to
indemnify and hold harmless Underwriters of the Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Company
provided in this Section 4.2.

SECTION 27.iii. Conduct of Indemnification Proceedings.
Promptly after receipt by any person in respect of which indemnity may be
sought pursuant to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any
claim or the commencement of any action, the Indemnified Party shall, if a
claim in respect thereof is to be made against the person against whom such
indemnity may be sought (an "Indemnifying Party") notify the Indemnifying Party
in writing of the claim or the commencement of that action provided that the
failure to notify the Indemnifying Party shall not relieve it from any
liability which it may have to an Indemnified Party otherwise than under
Section 4.1 or 4.2. If any such claim or action shall be brought against an
Indemnified Party, and it shall notify the Indemnifying Party thereof, the
Indemnifying Party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified Indemnifying Party,
to assume the defense thereof with counsel satisfactory to the Indemnified
Party. After notice from the Indemnifying Party to the Indemnified Party of
its election to assume the defense of such claim or action, the Indemnifying
Party shall not be liable to the Indemnified Party for any legal or other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation; provided that the
Indemnified Party shall have the right to employ separate counsel to represent
the Indemnified Party and their respective controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the Indemnified Party against the Indemnifying Party, if in the
reasonable judgment of the Indemnified Party, it is advisable for the
Indemnified Party to be represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the Company.

SECTION 27.iv. Contribution. If the indemnification provided
for in this Article 4 is unavailable to the Indemnified Parties in respect of
any losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages

12
<PAGE> 82

or liabilities (i) as between the Company and the Selling Holders on the one
hand and the Underwriters on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling Holders
on the one hand and the Underwriters on the other from the offering of the
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and the Selling Holders on the one hand and
of the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations and (ii) as between the Company on the
one hand and each Selling Holder on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of each Selling
Holder in connection with such statements or omissions, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Selling Holders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company and the Selling Holders bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the prospectus. The
relative fault of the Company and the Selling Holders on the one hand and of
the Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Holders or by the
Underwriters. The relative fault of the Company on the one hand and of each
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

The Company and the Selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 4.4 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 4.4, no

13
<PAGE> 83

Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities of such Selling Holder
were offered to the public exceeds the amount of any damages which such Selling
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Selling Holder's obligations
to contribute pursuant to this Section 4.4 are several in proportion to the
proceeds of the offering received by such Selling Holder bears to the total
proceeds of the offering received by all the Selling Holders and not joint.

ARTICLE XXVIII

MISCELLANEOUS

SECTION 28.i. Participation in Underwritten Registrations.
No Person may participate in any underwritten registration hereunder unless
such Person (a) agrees to sell such Person's securities on the basis provided
in any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and these
Registration Rights; provided that (i) any Institutional Investor (other than
BLS if he is then employed by the Company or any subsidiary thereof)
participating in such registration will not be required to make any
representations or warranties except those which relate solely to such
Institutional Investor and its intended method of distribution and (ii) the
liability of each such Institutional Investor to any Underwriter under such
underwriting agreement will be limited to liability arising from misstatements
or omissions regarding such Institutional Investor and its intended method of
distribution and an amount equal to the amount of net proceeds such
Institutional Investor derives from such registration; provided, however, that
in the case of a registration pursuant to Section 2.2, the Company will be
required to use only its best efforts to cause the Underwriters to accept the
foregoing representations and warranties made by, and the limitation on
liability of, Institutional Investors participating in such registration. If
the Underwriters of any registration pursuant to Section 2.2 do not accept the
foregoing

14
<PAGE> 84

limitation, then LBP or Loral, as applicable, shall, in lieu of participating
in the registration pursuant to Section 2.2, be afforded one additional
registration under Section 2.1, which registration will be effected in
accordance with the provisions of Section 2.1. The Company shall take all
reasonable steps to ensure that the shares of Registrable Securities sold in
any underwritten public offering shall be widely disseminated.

SECTION 28.ii. Rule 144. The Company covenants that it will
file any reports required to be filed by it under the Securities Act and the
Exchange Act and that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable
Holders to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon the
request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.

SECTION 28.iii. Holdback Agreements. (A) Restrictions on
Public Sale by Holder of Registrable Securities. To the extent not
inconsistent with applicable law, each Holder of Registrable Securities agrees
not to effect any sale or distribution of the issue being registered or of a
similar security of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 under the Securities Act, during the 14 days prior to, and during the
90-day period beginning on, the effective date of the registration statement
filed by the Company (except as part of such registration) if, and to the
extent, requested by the managing Underwriter or Underwriters in the case of an
underwritten public offering.

(B) Restrictions on Sale by the Company and Others. The
Company and its Affiliates agree (i) not to effect any sale or distribution of
any securities similar to those being registered in accordance with Section 2.1
hereof, or any securities convertible into or exchangeable or exercisable for
such securities, during the 14 days prior to, and during the 90-day period
beginning on, the effective date of any registration statement (except as part
of such registration statement where the Majority Holders of the Registrable
Securities to be included in such registration statement consent) or the
commencement of a public distribution of Registrable Securities; and (ii) that
any agreement entered into after the date of the Agreement pursuant to which
the Company issues or agrees to issue any privately placed securities shall
contain a provision under which holders of such securities agree not to effect
any sale or distribution of any such securities during the periods described in
(i) above, in each case including a sale pursuant to Rule 144

15
<PAGE> 85

under the Securities Act (except as part of any such registration, if
permitted); provided, however, that the provisions this paragraph (b) shall not
prevent the conversion or exchange of any securities pursuant to their terms
into or for other securities.

28.iv. Stockholders Agreement. Notwithstanding anything above
to the contrary, all transfers of Registrable Securities subject to the
provisions of the Stockholders Agreement shall be made in accordance with such
provisions.

<PAGE> 1

EXHIBIT 10.26

AGREEMENT

dated as of

September 2, 1994

between

LORAL CORPORATION

and

K&F INDUSTRIES, INC.
<PAGE> 2
TABLE OF CONTENTS*

<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I

DEFINITIONS

Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II

EXCHANGE AND REPAYMENT OF CONVERTIBLE DEBENTURES

Section 2.1. Exchange and Repayment of Convertible Debentures . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE ISSUER

Section 3.1. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.2. Organization and Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.3. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4. Financial Statements; Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . 5
Section 3.5. No Violation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.6. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.7. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE IV

REPRESENTATIONS AND WARRANTIES
OF LORAL

Section 4.1. Private Placement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.2. Organization and Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.3. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.4. No Violation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>

__________________________________

* This Table of Contents is not part of this Agreement.

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<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE V

CONDITIONS PRECEDENT TO CLOSING

Section 5.1. Conditions to Loral's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.2. Conditions to Issuer's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE VI

COVENANTS

Section 6.1. Furnishing of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.2. Regulatory Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.3. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.4. Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.5. Anti-dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE VII

LIMITATION ON TRANSFERS

Section 7.1. Restrictions on Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.2. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.3. Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.4. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE VIII

MISCELLANEOUS

Section 8.1. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.2. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.4 No Waivers; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.5 Survival of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.6. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8.8. Incorporators, Stockholders, Officers and Directors of Issuer Exempt from
Individual Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8.9. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8.10. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>

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<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>

AGREEMENT

AGREEMENT, dated as of September 2, 1994, between Loral
Corporation, a New York corporation ("Loral"), and K&F Industries, Inc., a
Delaware corporation (the "Issuer").

The parties hereto, intending legally to be bound, agree as
follows:

ARTICLE I

DEFINITIONS

Section 1.1. Definitions. The following terms, as used
herein, have the following meanings:

"Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling," "controlled by" and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.

"Agreement" means this Agreement, as the same may be amended
from time to time.

"Amended and Restated Stockholders Agreement" means the
Amended and Restated Stockholders Agreement of the Issuer in the form of
Exhibit A annexed hereto.

"BLS" means Bernard L. Schwartz.

"Business Day" means each day other than Saturdays, Sundays
and days when commercial banks are authorized to be closed for business in New
York, New York.

"Closing" and "Closing Date" have the meanings set forth in
Section 2.2(a).

"Commission" means the Securities and Exchange Commission.

"Common Stock" means the Voting Common Stock and Non-Voting
Common Stock.
<PAGE> 5
"Convertible Debentures" means the Issuer's 14.75% Convertible
Subordinated Debentures Due April 15, 2004.

"Exchange" has the meaning set forth in Section 2.1 of this
Agreement.

"Exchange Act" means the Securities Exchange Act of 1934, as
amended.

"Financial Statements" means the Issuer's audited balance
sheet at March 31, 1994 and its unaudited balance sheet at June 30, 1994, and
the related statements of income, stockholders' equity and cash flows for the
fiscal periods ended on such dates, including, in each case, the notes to such
Financial Statements.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.

"Issuer" has the meaning set forth in the first paragraph of
this Agreement.

"Issuer's Counsel" means O'Sullivan Graev & Karabell.

"Lien" means, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect
of such Property. For the purposes of this Agreement, any Person shall be
deemed to own subject to any Lien any Property that it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
Property.

"Loral" has the meaning set forth in the first paragraph of
this Agreement.

"Non-Voting Common Stock" means the non-voting common stock,
$.01 par value, of the Issuer.

"Person" means an individual or a corporation, partnership,
association, trust, or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.

"Property" of any Person means all types of real, personal,
tangible, intangible or mixed property whether or not included in the most
recent consolidated balance sheet of such Person under generally accepted
accounting principles.

"Securities Act" means the Securities Act of 1933, as amended.

"Senior Bank Financing" has the meaning set forth in the
Amended and Restated Stockholders Agreement.

"Senior Secured Notes" has the meaning set forth in the
Amended and Restated Stockholders Agreement.

-2-
<PAGE> 6
"Senior Subordinated Debentures" has the meaning set forth in
the Amended and Restated Stockholders Agreement.

"Stockholders Agreement" means the Stockholders Agreement
dated as of April 27, 1989, as amended, among the Issuer, BLS, Lehman Brothers
Holdings Inc. (formerly known as Shearson Lehman Hutton Holdings Inc.) and
certain other stockholders.

"Subsidiary" means, with respect to any Person, any
corporation or other entity of which a majority of the capital stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the
time directly or indirectly owned by such Person.

"Transfer" means any disposition of Common Stock that would
constitute a sale thereof under the Securities Act.

"Voting Common Stock" means the voting common stock, $.01 par
value, of the Issuer.

ARTICLE II

EXCHANGE AND REPAYMENT OF CONVERTIBLE DEBENTURES

Section 2.1. Exchange and Repayment of Convertible
Debentures. Upon the basis of the representations and warranties herein
contained, but subject to the terms and conditions hereinafter stated, the
Issuer hereby agrees to pay to Loral $12,763,636.36 in cash and to issue to
Loral 4,589,938 shares of Non-Voting Common Stock, representing 22.5% of the
Common Stock of the Issuer, on a fully diluted basis (assuming conversion of
all issued and outstanding shares of preferred stock and other common stock
equivalents which are exercisable, convertible or fully vested as of the date
of this Agreement and which have an exercise price less than the per share
value of the Common Stock), immediately after such issuance, in exchange for
the delivery by Loral of $65,370,902.80 aggregate principal amount of
Convertible Debentures, representing all of the Convertible Debentures
beneficially owned by Loral, and any accrued but unpaid interest thereon (all
such transactions being hereafter collectively referred to as the "Exchange").
The parties agree that the consideration to be received by Loral in the
Exchange shall be allocated first to the repayment of the $30,000,000 face
amount of Convertible Debentures originally issued by the Issuer to Loral and
thereafter to the payment of any Convertible Debentures received by Loral as
payment-in-kind for accrued interest thereon.

Section 2.2. The Closing. (a) The Exchange will take place
at a closing (the "Closing") at the offices of O'Sullivan Graev & Karabell, New
York, New York at 10:00 A.M. on September 2, 1994, or such other date and
location as the Issuer and Loral shall agree. The date and time of Closing are
referred to herein as the "Closing Date."

-3-
<PAGE> 7
(b) On the Closing Date, Loral shall deliver the
Convertible Debentures to the Issuer for cancellation and the Issuer shall
cancel all such Convertible Debentures.

(c) At the Closing, the Issuer shall deliver,
against receipt of certificates representing the Convertible Debentures, to
Loral (1) by wire transfer of immediately available funds in an amount equal to
$12,763,636.36 to an account specified in writing by Loral not later than one
Business Day prior to the Closing Date and (2) certificates for the Non- Voting
Common Stock in definitive form and registered in such names and in such
denominations as Loral shall request not later than one Business Day prior to
the Closing Date.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE ISSUER

The Issuer hereby represents and warrants to Loral as follows:

Section 3.1. Disclosure. (a) None of the representations
or warranties of the Issuer contained in this Agreement, or in the exhibits
hereto, contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make any of such representations or
warranties in light of the circumstances under which they were made not
misleading. The Issuer confirms that it has delivered certain projections to
Loral which Loral has relied upon, in part, in connection with its
determination to consummate the Exchange. The Issuer makes no representation
or warranty concerning any such projections, except that the Issuer has no
reason to believe that such projections are based on other than the good faith
estimates and assumptions of the management of the Issuer which such management
believes to be reasonable. Notwithstanding the foregoing, it is understood
that events included in such projections and assumptions may or may not occur.

(b) There is no fact known to the Issuer which
the Issuer has not disclosed to Loral or which has not otherwise been publicly
disclosed by the Issuer in any document or report previously filed by the
Issuer pursuant to the Exchange Act (other than facts related to general
economic conditions) which materially adversely affects or, insofar as the
Issuer can reasonably foresee, will materially adversely affect, the
properties, business, prospects, operations, earnings, assets, liabilities or
condition (financial or otherwise) of the Issuer and its Subsidiaries, taken as
a whole, or the ability of the Issuer to perform its obligations under this
Agreement or the Amended and Restated Stockholders Agreement.

Section 3.2. Organization and Status. The Issuer is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and is duly qualified to transact
business in each jurisdiction in which the character of its business makes such
qualification necessary, except where such failure to

-4-
<PAGE> 8
qualify would not have a material adverse effect on the business, operations,
prospects, properties or condition (financial or otherwise) of the Issuer and
its Subsidiaries, taken as a whole, and the Issuer has adequate corporate power
and authority to own its property and assets and to transact the business in
which it is engaged.

Section 3.3. Authorization. (a) The Issuer has the
requisite corporate power to execute, deliver and perform the terms and
provisions of this Agreement and the Amended and Restated Stockholders
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Agreement and the Amended and Restated
Stockholders Agreement. The Issuer has duly executed and delivered this
Agreement and the Amended and Restated Stockholders Agreement, and this
Agreement and the Amended and Restated Stockholders Agreement constitute valid
and binding agreements of the Issuer.

(b) The shares of Non-Voting Common Stock to be
received in the Exchange by Loral pursuant to this Agreement have been duly
authorized and, when issued and delivered in accordance with the terms of this
Agreement, will have been validly issued and will be fully paid and
nonassessable, and free and clear of any Lien or other right or claim, except
to the extent set forth in the Amended and Restated Stockholders Agreement.
The issuance of the shares of Non-Voting Common Stock is not subject to any
preemptive or similar rights (except under the terms of the Stockholders
Agreement, which will be amended at or prior to the Closing) and holders of the
shares of Common Stock will not be entitled to any preemptive or similar
rights, except as set forth in the Amended and Restated Stockholders Agreement.
After giving effect to the issuance of the Non-Voting Common Stock to be
delivered pursuant to this Agreement, as of the Closing Date, the authorized
capital stock of the Issuer will consist of (i) 26,300,000 shares of common
stock, consisting of 21,000,000 shares of Non-Voting Common Stock and 5,300,000
shares of Voting Common Stock, of which 5,277,211 shares of Non-Voting Common
Stock will be issued and outstanding and 4,846,164 shares of Voting Common
Stock will be issued and outstanding and (ii) 1,330,000 shares of preferred
stock, consisting of 1,200,000 shares of Series A Voting Convertible Preferred
Stock, par value $.01 per share, and 130,000 shares of Series A Non-Voting
Convertible Preferred Stock, par value $.01 per share, of which 899,999 shares
of Series A Voting Convertible Preferred Stock will be issued and outstanding
and 127,636 shares of Series A Non-Voting Convertible Preferred Stock will be
issued and outstanding. Except as set forth above and as set forth in the
Amended and Restated Stockholders Agreement, the Issuer will have outstanding
no other shares of capital stock and no securities convertible into or
exchangeable for, or options or other rights to acquire from the Issuer, or
other obligations of the Issuer to issue, directly or indirectly, any shares of
capital stock of the Issuer (other than 500,000 shares of Common Stock reserved
for issuance upon the exercise of stock options granted to employees of the
Issuer). The shares of Non-Voting Common Stock shall have the rights and
privileges set forth in the Issuer's Amended and Restated Certificate of
Incorporation annexed hereto as Exhibit B. The Issuer has delivered a true,
correct and complete copy of the Stockholders Agreement, as amended through the
date hereof, to Loral.

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<PAGE> 9
Section 3.4. Financial Statements; Absence of Undisclosed
Liabilities. The Financial Statements, including the notes thereto, (i) have
been prepared from the books and records of the Issuer in accordance with
generally accepted accounting principles, applied on a consistent basis during
the periods referred to therein, and (ii) present fairly the financial
condition of the Issuer as of their respective dates (subject, in the case of
any unaudited financial statements included therein, to normal year-end audit
adjustments). Except as set forth in Schedule 3.4, the Issuer does not have
any indebtedness or liability, absolute or contingent, known or unknown,
accrued or unaccrued, which is not shown or provided for on the respective
balance sheets of the Issuer as of the dates included in the Financial
Statements other than liabilities incurred or accrued in the ordinary course of
business since March 31, 1994.

Section 3.5. No Violation; Consents. The execution,
delivery and performance by the Issuer of this Agreement and the Amended and
Restated Stockholders Agreement, compliance by the Issuer with the respective
terms and provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby (i) will not contravene any
applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality to which the
Issuer is bound except where such violation would not have a material adverse
effect on the business, operations, prospects, properties or condition
(financial or otherwise) of the Issuer and its Subsidiaries taken as a whole,
(ii) except as disclosed on Schedule 3.5, will not conflict with or constitute
a default under, or give rise to any right of termination or acceleration
under, any indenture, loan agreement, contract, lease or other agreement, to
which the Issuer or any Subsidiary is a party or by which they or any of their
property or assets are bound or to which they may be subject, except where such
conflict, default, termination or acceleration would not have a material
adverse effect on the business, operations, prospects, properties or condition
(financial or otherwise) of the Issuer and its Subsidiaries, taken as a whole,
and except for the amendment to the Stockholders Agreement to be reflected in
the Amended and Restated Stockholders Agreement, and (iii) will not violate any
provision of the certificate of incorporation or by-laws of the Issuer or any
of its Subsidiaries. Except for (A) registrations, filings and approvals under
Federal or state securities laws or with any applicable national securities
exchanges that will be required in connection with the performance of Article
II of this Agreement, (B) filings required under the HSR Act and (C) consents,
authorizations, orders, filings, or registrations the failure of which to
obtain or make would not have a material adverse effect on the consummation of
the transactions contemplated by this Agreement and the Amended and Restated
Stockholders Agreement or the ability of the Issuer to perform its obligations
hereunder and thereunder, no consent, authorization or order of, or filing or
registration with, any court or governmental agency is required for the
execution, delivery and performance of this Agreement or the Amended and
Restated Stockholders Agreement.

Section 3.6. Litigation. Except as disclosed in Schedule
3.6, there is no pending or threatened action, suit or proceeding before any
court, governmental or regulatory authority, agency, commission or board of
arbitration against the Issuer or, to the best knowledge of the Issuer, which
relates to or challenges the legality, validity or

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<PAGE> 10
enforceability of this Agreement or the Amended and Restated Stockholders
Agreement or which would have a material adverse effect on the business,
operations, prospects, properties or condition (financial or otherwise) of the
Issuer and its Subsidiaries, taken as a whole.

Section 3.7. Investment Company Act. The Issuer is not
required to register as an "investment company" within the meaning of the
Investment Company Act of 1940.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF LORAL

Loral hereby represents and warrants to the Issuer as follows:

Section 4.1. Private Placement. (a) Loral understands that
(i) the delivery of the Common Stock pursuant to the terms of this Agreement is
intended to be exempt from registration under the Securities Act pursuant to
section 4(2) thereof and (ii) there is no existing public or other market for
the Common Stock and there can be no assurance that Loral will be able to sell
or dispose of the Common Stock.

(b) The Common Stock to be acquired by Loral
pursuant to this Agreement is being acquired for Loral's own account and
without a view to making a distribution thereof or any interest therein in
violation of the Securities Act.

(c) Loral has sufficient knowledge and experience
in financial and business matters so as to be capable of evaluating the merits
and risks of its investment in the Common Stock and Loral is capable of bearing
the economic risks of such investment, including a complete loss of its
investment in the Common Stock.

(d) Loral has been given the opportunity to ask
questions of, and receive answers from the Issuer concerning the terms and
conditions upon which the Common Stock is being issued hereunder and other
related matters. Loral further represents and warrants to the Issuer that the
Issuer has made available to Loral or its agents all documents and information
relating to an investment in the Common Stock requested by or on behalf of
Loral. In evaluating the suitability of an investment in the Common Stock,
Loral has not relied upon any other representations or other information
(whether oral or written) made by or on behalf of the Issuer other than as
contemplated by the two preceding sentences.

(e) Loral is an "accredited investor" as such
term is defined in Regulation D of the Securities Act.

Section 4.2. Organization and Status. Loral is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its

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<PAGE> 11
incorporation and is duly qualified to transact business in each jurisdiction
in which the character of its business makes such qualification necessary,
except where such failure to qualify would not have a material adverse effect
on its business, operations, prospects, properties or condition (financial or
otherwise), and Loral has adequate corporate power and authority to own its
property and assets and to transact the business in which it is engaged.

Section 4.3. Authorization. (a) Loral has the requisite
corporate power to execute, deliver and perform the terms and provisions of
this Agreement and the Amended and Restated Stockholders Agreement and has
taken all necessary action to authorize the execution, delivery and performance
by it of this Agreement and the Amended and Restated Stockholders Agreement.
Loral has duly executed and delivered this Agreement and the Amended and
Restated Stockholders Agreement, and this Agreement and the Amended and
Restated Stockholders Agreement constitute valid and binding agreements of
Loral.

Section 4.4. No Violation; Consents. The execution,
delivery and performance by Loral of this Agreement and the Amended and
Restated Stockholders Agreement, compliance by Loral with the respective terms
and provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby (i) will not contravene any applicable
provision of any law, statute, rule, regulation, order, writ, injunction or
decree of any court or governmental instrumentality to which Loral is bound
except where such violation would not have a material adverse effect on its
business, operations, prospects, properties or condition (financial or
otherwise), (ii) will not conflict with or constitute a default under, or give
rise to any right of termination or acceleration under, any indenture, loan
agreement, contract, lease or other agreement, to which Loral is a party or by
which it or any of its property or assets are bound or to which it may be
subject, except where such conflict, default, termination or acceleration would
not have a material adverse effect on its business, operations, prospects,
properties or condition (financial or otherwise), and (iii) will not violate
any provision of its certificate of incorporation or by-laws. Except for (A)
registrations, filings and approvals under Federal or state securities laws or
with any applicable national securities exchanges that will be required in
connection with the performance of Article II of this Agreement, (B) filings
required under the HSR Act and (C) consents, authorizations, orders, filings,
or registrations the failure of which to obtain or make would not have a
material adverse effect on the consummation of the transactions contemplated by
this Agreement and the Amended and Restated Stockholders Agreement or the
ability of Loral to perform its obligations hereunder and thereunder, no
consent, authorization or order of, or filing or registration with, any court
or governmental agency is required for the execution, delivery and performance
of this Agreement or the Amended and Restated Stockholders Agreement.

Section 4.5. Litigation. There is no pending or
threatened action, suit or proceeding before any court, governmental or
regulatory authority, agency, commission or board of arbitration against Loral
or, to the best knowledge of Loral, which relates to or challenges the
legality, validity or enforceability of this Agreement or the Amended

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<PAGE> 12
and Restated Stockholders Agreement or which would have a material adverse
effect on the business, operations, prospects, properties or condition
(financial or otherwise) of Loral.

ARTICLE V

CONDITIONS PRECEDENT TO CLOSING

Section 5.1. Conditions to Loral's Obligations. Loral's
obligation to consummate the transactions contemplated by this Agreement is
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions:

(a) (i) the representations and warranties of the
Issuer contained herein shall be true and correct in all material respects as
of the Closing Date as if made on and as of such date and (ii) Loral and its
counsel shall be reasonably satisfied that the transactions contemplated by
this Agreement and the Amended and Restated Stockholders Agreement do not and
will not contravene any applicable provision of any law, statute, rule,
regulation, order, writ, injunction, or decree of any court or governmental
instrumentality, except to the extent any such contravention or contraventions,
singly or in the aggregate, would not materially adversely affect the Issuer,
its Subsidiaries or the transaction;

(b) the Issuer, Bernard L. Schwartz, Loral,
Lehman Brothers Merchant Banking Portfolio Partnership L.P., Lehman Brothers
Offshore Investment Partnership L.P., Lehman Brothers Offshore Investment
Partnership - Japan L.P., Lehman Brothers Capital Partners II, L.P., and CBC
Capital Partners, Inc. shall have entered into the Amended and Restated
Stockholders Agreement, in the form of Exhibit A annexed hereto, and such
Amended and Restated Stockholders Agreement shall be in full force and effect;

(c) there shall be no litigation, proceeding,
inquiry or other action seeking an injunction or other restraining order,
damages or other relief from a court of competent jurisdiction pending or
threatened which, in the judgment of Loral, would adversely affect the
consummation of the transaction contemplated by this Agreement or the Amended
and Restated Stockholders Agreement, and there shall be no other litigation or
proceeding (including, without limitation, any environmental proceeding)
pending or threatened against the Issuer or its Subsidiaries which is
reasonably likely to have a material adverse effect on the business,
operations, prospects, properties or condition (financial or otherwise) of the
Issuer and its Subsidiaries, taken as a whole;

(d) all consents, waivers, authorizations and
approvals of any governmental or regulatory authority, domestic or foreign, and
of any other person, firm or corporation, required in connection with the
execution, delivery and performance of this Agreement and the Amended and
Restated Stockholders Agreement by each of the

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<PAGE> 13
Issuer and Loral (other than approvals in respect of any filing required under
the HSR Act) shall have been duly obtained and shall be in full force and
effect on the Closing Date;

(e) the Issuer shall have filed with the
Secretary of State of the State of Delaware an amendment to the Issuer's
Certificate of Incorporation, in the form annexed hereto as Exhibit B and
acceptable to Loral and its counsel, amending the Issuer's Certificate of
Incorporation for the purpose of issuing the shares of Non-Voting Common Stock
contemplated by this Agreement, and such amendment shall have become effective
under the General Corporation Law of the State of Delaware;

(f) on the Closing Date, Loral shall have
received an opinion, dated the Closing Date, from Issuer's Counsel in the form
of Exhibit C annexed hereto and otherwise reasonably acceptable to counsel for
Loral.

(g) on the Closing Date, all corporate and other
proceedings taken or to be taken by the Issuer in connection with the
transactions contemplated by this Agreement and the Amended and Restated
Stockholders Agreement and all documents incident thereto other than those
enumerated above, shall be in form and substance reasonably satisfactory to
Loral as being consistent with the satisfaction of the conditions set forth in
this Section 5.1.

Section 5.2. Conditions to Issuer's Obligations. The
obligation of the Issuer to consummate the transactions contemplated by this
Agreement is subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:

(a) The representations and warranties of Loral
contained herein shall be true and correct in all material respects on and as
of the Closing Date as if made on and as of such date;

(b) Loral shall have performed and complied in
all material respects with all agreements required by this Agreement to be
performed or complied with at or prior to the Closing Date; and

(c) The issue and sale of the Non-Voting Common
Stock by the Issuer shall not be prohibited by any applicable law, court order
or governmental regulation.

ARTICLE VI

COVENANTS

Section 6.1. Furnishing of Information. Unless the Issuer
is otherwise subject to the reporting requirements of the Exchange Act (in
which event only Section 6.1(c) shall be applicable), so long as Loral owns any
of the Common Stock, the Issuer will deliver to Loral:

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<PAGE> 14
(a) Quarterly Financial Statements. Within 60
days after the close of each quarterly accounting period ending after the
Closing Date, the consolidated balance sheet of the Issuer as at the end of
such quarterly period and the related consolidated statements of income,
shareholders' equity and cash flow for such quarterly period and for the
elapsed portion of the fiscal year ended with the last day of such quarterly
period, and in each case setting forth comparative figures for the related
periods in the prior fiscal year, all of which shall be certified by the chief
financial officer of the Issuer to have been prepared in accordance with
generally accepted accounting principles (but not including footnotes), subject
to year-end audit adjustments.

(b) Annual Financial Statements. Within 90 days
after the close of each fiscal year of the Issuer, the consolidated balance
sheet of the Issuer as of the end of such fiscal year and the related
consolidated statements of income, shareholders' equity and cash flow for such
fiscal year, in each case setting forth comparative figures for the preceding
fiscal year, and certified by independent certified public accountants of
recognized national standing.

(c) Reports and Filings. No later than five days
after transmission thereof, copies of all financial statements, proxy
statements, notices and reports as the Issuer shall send to its debt or equity
holders and copies of all registration statements (without exhibits), other
than on Form S-8 or any similar successor form, and all reports which the
Issuer files with the Securities and Exchange Commission.

(d) Requested Information. From time to time
(unless the Issuer is subject to the reporting requirements of the Exchange
Act), such other information or documents (financial or otherwise) as Loral may
reasonably request.

Section 6.2. Regulatory Filings. As soon as may be
reasonably practicable, but in no event later than 20 days after the Closing
Date, the Issuer and Loral each shall file with the Federal Trade Commission
(the "FTC") and the Antitrust Division of the Department of Justice (the "DOJ")
Notification and Report Forms relating to the purchase effected hereunder as
required by the HSR Act. The Issuer and Loral each shall promptly (a) supply
the other with any information which may be required in order to effectuate
such filings and (b) supply any additional information which reasonably may be
required by the FTC or the DOJ.

Section 6.3. Public Announcements. The Issuer and Loral
will consult with each other before issuing any press releases or otherwise
making any public statements with respect to this Agreement and shall not issue
any such press release or make any such public statement without the prior
written consent of the other party (which consent will not be unreasonably
withheld or delayed) except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or as
may be advised by counsel to be appropriate.

Section 6.4. Additional Agreements. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or

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<PAGE> 15
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, including using
reasonable efforts to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings, including, but not limited
to, filings under the HSR Act and submissions of information requested by
governmental authorities.

Section 6.5. Anti-dilution. The Issuer shall not, at any
time prior to the six month anniversary of the date of this Agreement,
consummate any refinancing, refunding, restructuring, renewal, extension or
other modification (collectively, a "Restructuring") of any of its Senior
Secured Notes, Senior Subordinated Debentures or Senior Bank Financing which
would require the Issuer to issue any equity securities to any Person in
connection with any such Restructuring unless, in connection therewith, the
Issuer shall also issue to Loral, simultaneously therewith, a number of shares
of Common Stock, for consideration equal to the par value of such shares of
Common Stock so issued, such that after the consummation of the Restructuring
the relative percentage of Common Stock, on a fully diluted basis, owned by
Loral shall equal the percentage of Common Stock, on a fully diluted basis,
owned by Loral immediately prior to such Restructuring.

ARTICLE VII

LIMITATION ON TRANSFERS

Section 7.1. Restrictions on Transfer. From and after the
Closing Date, neither the Common Stock nor any interest therein shall be
transferable except upon the conditions specified in Sections 7.2 through 7.4,
which conditions are intended to ensure compliance with the provisions of the
Securities Act in respect of the Transfer of any of the Common Stock. Loral
will cause any proposed transferee of the Common Stock (or any interest
therein) held by it to agree to take and hold such Common Stock (or any
interest therein) subject to the provisions and upon the conditions specified
in Sections 7.2 through 7.4.

Section 7.2. Restrictive Legends. Each certificate for
Common Stock issued to Loral or to a subsequent transferee shall (unless
otherwise permitted by the provisions of Section 7.3) include a legend in
substantially the form set forth in the Amended and Restated Stockholders
Agreement.

Section 7.3. Notice of Proposed Transfers. At least five
Business Days prior to any proposed Transfer of any Common Stock, the holder
thereof shall give written notice to the Issuer of such holder's intention to
effect such Transfer, setting forth the manner and circumstances of the
proposed Transfer in reasonable detail. Such proposed Transfer may be effected
only if the Issuer shall have received such notice of Transfer accompanied by
(i) an opinion of counsel reasonably satisfactory to the Issuer addressed to
the Issuer, to the effect that the proposed Transfer of the Common Stock may be
effected without registration under the Securities Act, (ii) representation
letters

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<PAGE> 16
in form and substance reasonably satisfactory to the Issuer to ensure
compliance with the provisions of the Securities Act, and (iii) letters in form
and substance reasonably satisfactory to the Issuer from each such transferee
stating such transferee's agreement to be bound by the terms of this Article
VII. In addition to the requirements set forth herein, Transfers of the Common
Stock may only be made in compliance with the provisions of the Amended and
Restated Stockholders Agreement. Each certificate evidencing the Common Stock
transferred as above provided shall bear the legend referred to in Section 7.2,
except that such certificate shall not bear the Securities Act legend if the
opinion of counsel referred to above is to the further effect that neither such
legend nor the restrictions on Transfer in Sections 7.2 and 7.3 are required in
order to ensure compliance with the provisions of the Securities Act.

Section 7.4. Registration Rights. Loral shall be
entitled to the registration rights set forth in the Amended and Restated
Stockholders Agreement with respect to the Common Stock.

ARTICLE VIII

MISCELLANEOUS

Section 8.1. Assignment. Except as otherwise provided in
this Agreement, no party hereto shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto and any such attempted assignment without such prior written consent
shall be void and of no force and effect.

Section 8.2. Governing Law. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without regard to the principles of the conflict of laws thereof.

Section 8.3. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including telex,
telecopier or similar writing) and shall be given to such party at its address,
telex or telecopier number set forth on the signature pages hereof, or such
other address, telex or telecopier number as such party may hereinafter specify
for the purpose to the party giving such notice. Each such notice, request or
other communication shall be effective (i) if given by telex or telecopy, when
such telex or telecopy is transmitted to the telex or telecopy number specified
in this Section and the appropriate answerback is received or, (ii) if given by
mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or, (iii) if given by any other
means, when delivered at the address specified in this Section 9.3.

Section 8.4. No Waivers; Amendments. (a) No failure or
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a

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<PAGE> 17
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.

(b) Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and
is signed by the Issuer and Loral.

Section 8.5. Survival of Provisions. The representations
and warranties, covenants and agreements contained in this Agreement shall
survive and remain in full force and effect, regardless of any investigation
made by or on behalf of Loral, or by or on behalf of the Issuer, and shall
survive delivery of the Common Stock and any transfer of the Common Stock other
than any such transfer subsequent to the effectiveness of a registration
statement under the Securities Act covering the Common Stock.

Section 8.6. Expenses. Each party hereto shall pay all of
its own expenses incurred in connection with the transactions contemplated by
this Agreement and any amendments hereto.

Section 8.7. Replacement Securities. The Issuer agrees to
issue from time to time replacement Common Stock certificates to facilitate
transfers and assignments. In addition, after delivery of an indemnity in form
and substance satisfaction to the Issuer, the Issuer also agrees to issue
replacement Common Stock certificates for Common Stock which has been lost,
stolen, mutilated or destroyed.

Section 8.8. Incorporators, Stockholders, Officers and
Directors of Issuer Exempt from Individual Liability. No recourse under or
upon any obligation, covenant, agreement, representation or warranty contained
this Agreement shall be had against any incorporator, as such, or against any
past, present or future stockholder, officer or director, as such, of the
Issuer or of any successor, either directly or through the Issuer or any
success under any rule of law, statute or constitutional provision by the
enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Common Stock by the holders thereof and as part of the
consideration for the issue of the Common Stock.

Section 8.9. Entire Agreement. This Agreement, together
with the Amended and Restated Stockholders Agreement, constitute the entire
agreement and understanding among the parties hereto and supersedes any and all
prior agreements and understandings, written or oral, relating to the subject
matter hereof.

Section 8.10. Section Headings. The section headings
contained in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.

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<PAGE> 18
Section 8.11. Counterparts. This Agreement may be signed
in counterparts, each of which shall constitute an original and which together
shall constitute one and the same agreement.

(Remainder of Page Intentionally Left Blank.
The Next Page is the Signature Page.)

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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers, as of
the date first above written.

K&F INDUSTRIES, INC.

By KENNETH M. SCHWARTZ
--------------------------
Name: Kenneth M. Schwartz
Title: Vice President

LORAL CORPORATION

By MICHAEL TARGOFF
--------------------------
Name: Michael Targoff
Title: Senior Vice President

-16-

<PAGE> 1

EXHIBIT 10.28
WAIVER AND CONSENT

August 26, 1994

Aircraft Braking Systems Corporation
Engineered Fabrics Corporation
c/o K & F Industries, Inc.
600 Third Avenue
New York, New York 10016

Attention: Mr. Kenneth M. Schwartz

Ladies and Gentlemen:

Reference is hereby made to the Amended and Restated Revolving
Credit Agreement, dated as of June 10, 1992 (the ("Credit Agreement"), among
Aircraft Braking Systems Corporation ("ABS") and Engineered Fabrics Corporation
("EF"), each a Delaware corporation (ABS and EF collectively, the "Borrowers"),
the several banks parties thereto (collectively, the "Banks"; each
individually, a "Bank") and Chemical Bank, a New York, banking corporation, as
agent for the Banks (in such capacity, the "Agent"). All terms used but not
defined herein shall have their meanings as defined in the Credit Agreement.

You have informed the Agent and the Banks that your parent
company, K & F Industries, Inc., a Delaware corporation ("K & F"), may prepay,
convert, redeem, repurchase and/or exchange the entire principal amount (such
principal amount as of June 30, 1994 being $63,765,000) of its 14.75%
Subordinated Convertible Debentures Due April 15, 2004 issued in the aggregate
original principal amount of $30,000,000 (the "Junior Subordinated Notes").
This transaction (the "Junior Subordinated Note Redemption") would be effected
only by (i) the use of cash proceeds from an equity contribution of up to
$12,800,000 from existing K & F shareholders, (ii) conversion of the Junior
Subordinated Notes to K & F common stock and/or (iii) exchange of the Junior
Subordinated Notes for K & F common stock. K & F expects to close the Junior
Subordinated Note Redemption on or before September 2, 1994.

As a result of the foregoing, (i) the Borrowers have requested
that the Agent waive and, subject to the satisfaction of the terms and
conditions set forth in this Waiver and Consent, the Agent waives, compliance
by K & F with the provisions of paragraphs 2(c), 2(d) and 2(g) of the K & F
Agreement, but only to the extent that such paragraphs would prevent K & F from
effecting the Junior Subordinated Note Redemption and (ii) the Borrowers have
requested that the Banks consent to and, subject
<PAGE> 2
2

to the satisfaction of the terms and conditions set forth in this Waiver and
Consent, the Banks consent to K & F effecting the Junior Subordinated Note
Redemption.

This Waiver and Consent shall become effective when (i) a
counterpart of this Waiver and Consent shall have been executed and delivered
to the Agent by the Required Banks, ABS, EF, K & F and the Agent and (ii) the
Junior Subordinated Note Redemption shall have been consummated prior to
September 30, 1994. By executing this Waiver and Consent the Required Banks
authorize the Agent to waive each of the provisions of the K & F Agreement so
waived.

This Waiver and Consent shall be effective solely to the
extent set forth herein, and is not and shall not be construed (i) to be a
waiver, consent or amendment of any other term or condition of the K & F
Agreement, the Credit Agreement (including without limitation Section 8(q)) or
any other Loan Document or (ii) to prejudice any other right or rights which
the Banks or the Agent may now have or may have in the future under or in
connection with the K & F Agreement, the Credit Agreement or any other Loan
Document.

The rights and obligations of the parties under this Waiver
and Consent shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York.

This Waiver and Consent may be executed by the parties hereto on any
number of separate counterparts and all of said counterparts taken all together
shall be deemed to constitute one and the same instrument.

Very truly yours.

CHEMICAL BANK, as Agent and as
a Bank

By: JOHN C. RIORDAN
----------------------
Name: John C. Riordan
Title: Vice President

BANKERS TRUST COMPANY

By: __________________________________
Title:
<PAGE> 3
3

NATIONAL WESTMINSTER BANK USA

By: ERIC RUBIN
-----------------------
Name: Eric Rubin
Title: Vice President

THE NIPPON CREDIT BANK, LTD.

By: __________________________________
Title:

THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.

By: __________________________________
Title:

PILGRIM PRIME RATE TRUST

By: __________________________________
Title:

DEW NORSKE BANK AS

By: __________________________________
Title:

MITSUBISHI TRUST & BANKING CORPORATION

By: __________________________________
Title:

NATIONAL WESTMINSTER BANK NJ

By: CLIFFORD A. EVANS
------------------------
Name: Clifford A. Evans
Title: Vice President

<PAGE> 1

EXHIBIT 10.29

K & F INDUSTRIES, INC.
600 THIRD AVENUE
NEW YORK, NEW YORK 10016

November 8, 1994

The Signatories to the
Amended and Restated
Stockholders Agreement

Re: Amendment of Stockholders Agreement

Gentlemen:

Reference is made to (i) the Amended and Restated Stockholders
Agreement (the "Stockholders Agreement") dated September 2, 1994 by and among
K&F Industries, Inc. (formerly known as Opus Acquisition Corporation), a
Delaware corporation (the "Company"); Bernard L. Schwartz; Lehman Brothers
Merchant Banking Portfolio Partnership L.P., Lehman Brothers Offshore
Investment Partnership L.P., Lehman Brothers Offshore Investment Partnership -
Japan L.P., Lehman Brothers Capital Partners II, L.P., CBC Capital Partners,
Inc., and Loral Corporation ("Loral") and (ii) the Certificate of Incorporation
of the Company as amended and restated on the date hereof (the "Certificate").

The Certificate has been amended to authorize the Series B
Voting Common Stock, par value $.01 per share of the Company and to remove
certain nonvoting securities from the capitalization of the Company.
Consequently, the second paragraph of the Stockholders Agreement shall be
deleted in its entirety and replaced with the following paragraph in order to
accurately reflect the capitalization of the Company:

"The Company has an authorized capital stock
consisting of (i) 21,000,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), 4,600,000 shares of Class
B Common Stock, par value $.01 per share (the "Class B Common Stock";
and together with the Class A Common Stock the "Common Stock") and
(ii) 1,500,000 shares of Preferred Stock, of which 1,027,635 shares
have been designated Series A Convertible Preferred Stock, par value
$.01 per share (the "Series A Preferred Stock" and the Series A
Preferred Stock and the Common Stock, collectively, the "Stock")."
<PAGE> 2
If the foregoing is acceptable, please sign this letter
agreement in the place provided below.

Very truly yours,

K & F Industries, Inc.

By: KENNETH M. SCHWARTZ
------------------------------
Name: Kenneth M. Schwartz
Title: Vice President

Agreed and Accepted:

K&F INDUSTRIES, INC.

By: KENNETH M. SCHWARTZ
----------------------------
Title: Vice President

BERNARD L. SCHWARTZ
----------------------------
Bernard L. Schwartz

CBC CAPITAL PARTNERS, INC.

By: DAVID J. HOFFMAN
---------------------------
Name: David J. Hoffman
Title:

LORAL CORPORATION

By: MICHAEL TARGOFF
----------------------------
Name: Michael Targoff
Title: Senior Vice President
<PAGE> 3
LEHMAN BROTHERS CAPITAL
PARTNERS II, L.P.

By: Lehman Brothers Holdings Inc.,
General Partner

By:________________________________
Name:
Title:

LEHMAN BROTHERS MERCHANT
BANKING PORTFOLIO PARTNERSHIP, L.P.

By: Lehman Brothers Merchant Banking
Partners Inc., General Partner

By:________________________________
Name:
Title:

LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP, L.P.

By: Lehman Brothers Offshore
Partners Ltd., General Partner

By:________________________________
Name:
Title:

LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP - JAPAN L.P.

By: Lehman Brothers Offshore
Partners Ltd., General Partner

By:________________________________
Name:
Title:

<PAGE> 1
EXHIBIT 10.30

================================================================================

SECURITIES CONVERSION AGREEMENT

among

K & F Industries, Inc.

and

The Converting Stockholders (as defined herein)

November 8, 1994

================================================================================

<PAGE> 2
SECURITIES CONVERSION AGREEMENT

Table of Contents

<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II CONCURRENT ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.1. Deliveries by the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.1. Organization and Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.2. Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.3. No Violation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.4. Offer or Sale of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE IV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 4.1. Applicability of the Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 4.2. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
<PAGE> 3

SECURITIES CONVERSION AGREEMENT dated
as of November 2, 1994, among K&F Industries,
Inc. (f.k.a. Opus Acquisition Corporation), a
Delaware corporation (the "Issuer"), Loral
Corporation, a New York corporation ("Loral"),
Bernard L. Schwartz ("BLS"), Lehman Brothers
Capital Partners II, L.P. ("LBCP"), Lehman
Brothers Merchant Banking Portfolio Partnership
L.P. ("LBMB"), Lehman Brothers Offshore
Investment Partnership L.P. ("LBOP"), and
Lehman Brothers Offshore Investment Partnership
- Japan L.P. ("LBOJ"; and LBOJ, Loral, BLS,
LBCP, LBOP and LBMB, collectively, the
"Converting Stockholders").

The Issuer entered into an Agreement with Loral on September
2, 1994 to retire the Issuer's 14.75% Subordinated Convertible Debentures Due
2004 which were held by Loral (the "Transaction"). Pursuant to the Transaction
Loral received $12,763,636.36 in cash and 4,589,938 shares of Nonvoting Common
Stock of the Issuer (the "Loral Shares").

To obtain the cash which the Issuer paid to Loral in the
Transaction, the Issuer sold to the Converting Stockholders, other than Loral,
shares of the Issuer's nonvoting capital stock (the "Converting Stockholders'
Shares"; and the Converting Stockholders' Shares and the Loral Shares,
collectively, the "Converting Shares") as set forth opposite each Converting
Stockholder's name on SCHEDULE I attached hereto.

Accordingly, the parties hereto agree as follows:

ARTICLE I

CONVERSION OF SECURITIES

SECTION 1.1. Conversion. At the Closing (as defined
below), the Converting Shares shall be converted into the number and type of
the Issuer's shares (the "Converted Shares") as set forth opposite each
Converting Stockholder's name on SCHEDULE I attached hereto.

SECTION 1.2. Closing. (a) The conversion of the
Converting Shares (the "Closing") will take place at the offices of O'Sullivan
Graev & Karabell, 30 Rockefeller Plaza, New York, New York 10112 simultaneously
with the execution of this Agreement.

(b) At the Closing, the Issuer shall file the Amended and
Restated Certificate of Incorporation of the Issuer with the
<PAGE> 4
Secretary of State of the State of Delaware, in the form attached hereto as
Exhibit A. As soon as practicable after the Closing, the Issuer shall deliver
to each Converting Stockholder a stock certificate, registered in the name of
such Converting Stockholder, representing such Converting Stockholder's
Converted Shares against delivery of stock certificates representing such
Converting Stockholders' Converting Shares.

(c) The issuance of certificates evidencing the Converted
Shares upon surrender of the Converting Shares shall be made without charge to
the Converting Stockholders for any issue tax in respect thereof, or other cost
incurred by the Issuer in connection with such exchange; provided, however,
that the Issuer shall not be required to pay any tax that may be payable in
respect of any transfer involving the issue and delivery of any certificate in
a name other than that of the holder or former holder of the Converting Shares.

ARTICLE II

CONCURRENT ACTIONS

SECTION 2.1. Deliveries by the Parties. Simul taneously
with the execution and delivery of this Agreement the Issuer and the Converting
Stockholders have executed and delivered the following items to be held in
escrow by the Issuer, which items shall be deemed to have been delivered
without any action on the part of the parties upon the Closing:

(a) the Letter Agreement dated the date hereof, amending the
Amended and Restated Stockholders Agreement (the
"Stockholders Agreement") dated September 2, 1994 by and
among the Issuer, the Converting Stockholders and CBC
Capital Partners, executed by each Converting
Stockholder.

(b) resolutions of the Board of Directors of the Issuer
approving the transactions contemplated hereby, including
the Amended and Restated Certificate of Incorporation to
be filed at the Closing and this Agreement; and

(c) the Written Consent of the Stockholders of the Issuer
approving the Amended and Restated Certificate of
Incorporation to be filed at the Closing.

2
<PAGE> 5

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Issuer hereby represents and warrants to each Converting
Stockholder as follows:

SECTION 3.1 Organization and Status. The Issuer is a
corporation duly organized, validly existing and in good standing under the
General Corporation Law of the State of Delaware and is duly qualified to
transact business in each jurisdiction in which the character of its business
makes such qualification necessary, except where such failure to qualify would
not have a Material Adverse Effect and the Issuer has all requisite corporate
power and authority and all material governmental licenses, authorizations,
consents and approvals required to own, lease and operate its property and
assets and to transact the business in which it is engaged.

SECTION 3.2. Authorization. (a) The Issuer has the
requisite corporate power to execute, deliver and perform the terms and
provisions of this Agreement.

(b) The Converted Shares have been duly authorized and, when
issued and delivered in accordance with the terms of this Agreement, will have
been validly issued and will be fully paid and nonassessable, and free and
clear of any Lien or other right or claim, except to the extent set forth in
the Restated Stockholders Agreement dated September 2, 1994 among the Issuer
and certain Stockholders of the Issuer (the "Stockholder Agreement"), and each
Converting Stockholder will acquire good and valid title to the Converted
Shares to be obtained by it free of any Lien and free of any other limitation
or restriction (including any restriction on the right to vote, sell or
otherwise dispose of such Converted Shares), except as provided in the
Stockholders Agreement and the Issuer's Certificate of Incorporation. The
issuance of the Converted Shares is not subject to any preemptive or similar
rights which have not been satisfied or waived, and holders of the Converted
Shares will not be entitled to any preemptive or similar rights, except as set
forth in the Issuer's Certificate of Incorporation and in the Stockholders
Agreement.

SECTION 3.3. No Violation; Consents. The execution,
delivery and performance by the Issuer of this Agreement will not (i)
contravene any applicable provision of any law, statute, rule, regulation,
order, writ, injunction or decree of any court or governmental instrumentality
by which the Issuer is bound, (ii) conflict with or constitute a default under,
or give rise to any right of termination or acceleration under any indenture,
loan agreement, contract, lease or other agreement to which the Issuer is a
party or by which it or any of its property or assets is bound or to which it
may be subject, or (iii) violate any provision of the certificate of
incorporation or by-laws of the Issuer. No consent, authorization or order of,
or filing or

3
<PAGE> 6
registration with, any court or governmental department, agency or authority is
required for the execution, delivery and performance of this Agreement by the
Issuer.

SECTION 3.4. Offer or Sale of Securities. Neither the
Issuer nor anyone acting on its behalf has offered or sold or will offer or
sell any securities or has taken any other action that would subject this
securities conversion to the registration provisions of the Securities Act of
1933, as amended.

ARTICLE IV

MISCELLANEOUS

SECTION 4.1. Applicability of the Purchase Agreement. The
parties hereto acknowledge and agree that the Converted Shares obtained
hereunder shall be subject to all the terms, conditions and provisions relating
to transfer restrictions contained in the Securities Purchase Agreement dated
as of April 27, 1989 among the Issuer, BLS and Lehman Brothers Holdings, Inc.
(formerly known as Shearson Lehman Hutton Holdings Inc.) and to all of the
provisions of the Stockholders Agreement.

SECTION 4.2. 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 principles of conflicts of laws).

4
<PAGE> 7
IN WITNESS WHEREOF, each of the undersigned has duly executed
the Securities Conversion Agreement as of the 8th day of November, 1994.

K&F INDUSTRIES, INC.

By: KENNETH M. SCHWARTZ
------------------------------
Name: Kenneth M. Schwartz
Title: Vice President

LORAL CORPORATION

By: MICHAEL TARGOFF
------------------------------
Name: Michael Targoff
Title: Senior Vice President

BERNARD L. SCHWARTZ
------------------------------
Bernard L. Schwartz
<PAGE> 8
LEHMAN BROTHERS CAPITAL
PARTNERS II, L.P.

By: Lehman Brothers Holdings Inc.,
General Partner

By:________________________________
Name:
Title:

LEHMAN BROTHERS MERCHANT
BANKING PORTFOLIO PARTNERSHIP, L.P.

By: Lehman Brothers Merchant
Banking Partners Inc., General
Partner

By:________________________________
Name:
Title:

LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP, L.P.

By: Lehman Brothers Offshore
Partners Ltd., General Partner

By:________________________________
Name:
Title:

LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP - JAPAN L.P.

By: Lehman Brothers Offshore
Partners Ltd., General Partner

By:________________________________
Name:
Title:
<PAGE> 9
SCHEDULE I

<TABLE>
<CAPTION>
Converting Shares Converted Shares
--------------------------- ------------------------------------------------
Series A
Nonvoting Series A
Nonvoting Convertible Class A Class B Convertible
Converting Stockholders Common Stock Preferred Common Stock Common Stock Preferred
----------------------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Bernard L. Schwartz 687,273 687,273

Loral Corporation 4,589,938 4,589,938

Lehman Brothers Capital
Partners II, L.P. 42,232 42,232

Lehman Brothers Merchant
Banking Portfolio Partnership, L.P. 61,891 61,891

Lehman Brothers Offshore Investment 17,015 17,015
Partnership, L.P.

Lehman Brothers Offshore 6,498 6,498
Investment Partnership -Japan L.P.
</TABLE>
<PAGE> 10
EXHIBIT A

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

K & F INDUSTRIES, INC.

* * * * *

FIRST: The name of the Corporation is K & F Industries, Inc.
(the "Corporation").

THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may now or hereafter be organized
under the General Corporation Law of the State of Delaware.

(II) Preferred Stock may be issued from time to time
in one or more series with such distinctive designations as may be stated in
the resolution or resolutions providing for the issue of such stock from time
to time adopted by the Board of Directors. The resolution or resolutions
providing for the issue of shares of a particular series shall fix, subject to
applicable laws and provisions of this ARTICLE FOURTH, the designation, rights,
preferences and limitations of the shares of each such series. The authority
of the Board of Directors in respect to each series shall include, but not be
limited to, determination of the following:
<PAGE> 11
(a) the consideration for which such Preferred Stock shall be
issued;

(b) the number of shares constituting such series, including
the authority to increase or decrease such number, and the designation of such
series;

(c) the divided rate of the shares of such series, whether
the dividends shall be cumulative and, if so, the date from which they shall be
cumulative, and the relative rights or priority, if any, of payment of
dividends on shares of such series;

(d) the right, if any, of the Corporation to redeem shares of
such series and the terms and conditions of such redemption;

(g) the terms and conditions, if any, upon which shares of
such series shall be convertible into or exchange able, at the option of the
Corporation or the holder, for shares of stock of any other class or classes or
debt securities of the Corporation, including the price or prices or the rate
or rates of conversion of exchange and terms of adjustment, if any;

(h) the voting rights and requirements, if any, of the shares
of such series, in addition to any voting rights required by law; and

(i) any other rights, preferences or limitations of shares of
such series.

(III) The designations, voting powers, preferences and
relative, participating, optional and other special rights of the shares of the
Series A Preferred Stock, and the qualifications, limitations or restrictions
thereof are as follows:

2
<PAGE> 12
(1) Dividends and Distributions.

(A) Subject to the prior and superior rights of the holders of
any shares of any series of preferred stock ranking prior
and superior to the Series A Preferred Stock with respect
to dividends, the holders of shares of Series A Preferred
Stock, in preference to the shares of Common Stock shall
be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the
purpose, dividends payable in cash or in kind
respectively, commencing on the first issuance of a share
or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent), subject to
the provision for adjustment hereinafter set forth, equal
to the aggregate per share amount of all cash dividends,
and equal to the aggregate per share amount (payable in
the same form as payment to the holders of Common Stock)
of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock,
declared on the Common Stock since the first issuance of
any share or fraction of a share of Series A Preferred
Stock. In the event the Corporation shall at any time
after July 27, 1989 (the "Original Issue Date") (i)
declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the
amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall
be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the
denominatorof which is the number of shares of Common
Stock that were outstanding immediately prior to such
event.

(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) above
simultaneously with the declaration of a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock) with identical
payment dates. No dividend shall be declared or paid on the Common Stock
unless the immediately preceding sentence shall have been complied with.

3
<PAGE> 13
(2) Voting Rights. In addition to any other voting rights
required by law, holders of shares of Series A Preferred Stock shall have only
the following voting rights:

(A) Subject to the provision for adjustment hereinafter set
forth, the holders of Series A Preferred Stock shall have the right to vote on
the election or removal of directors of the Corporation and on all other
matters to be voted on by the holders of Common Stock of the Corporation and
shall be entitled to one vote for each share of Series A Preferred Stock held.
In the event the Corporation shall at any time after the Original Issue Date
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the number
of votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multi plying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

(C) Except as set forth herein, holders of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.

(3) Certain Restrictions.

(A) Whenever dividends or distributions payable on the Series
A Preferred Stock as provided in ARTICLE FOURTH (1) are in arrears, thereafter
and until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:

4
<PAGE> 14
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;

(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this ARTICLE FOURTH (3), purchase or otherwise acquire such shares at such time
and in such manner.

(4) Conversion of Series A Preferred Stock.

(A) Subject to and upon compliance with the provi sions of
this Amended and Restated Certificate of Incorporation and subject to the
provisions for adjustment

5
<PAGE> 15
hereinafter set forth, each record holder of shares of Series A Preferred Stock
shall be entitled at any time and from time to time to exchange each share of
Series A Preferred Stock held by such holder for ten shares of Class A Common
Stock. Each exchange of shares of Series A Preferred Stock for Class A Common
Stock shall be effected by the surrender of the certificate or certificates
evidencing the shares of Series A Preferred Stock to be exchanged at the
principal office of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the
holders of the Series A Preferred Stock) at any time during its usual business
hours, together with written notice by the holder of such shares of Series A
Preferred Stock, stating that such holder desires to exchange the shares, or a
stated number of shares, of Series A Preferred Stock evidenced by such
certificate or certificates into shares of Class A Common Stock. Such notice
shall also state the name or names (with addresses) and denominations in which
the certificate or certificates evidencing shares of Class A Common Stock shall
be issued and shall include instructions for delivery thereof. Receipt of such
notice together with the certificates evidencing the shares of Series A
Preferred Stock to be exchanged shall obligate the Corporation to issue shares
of Class A Common Stock as specified in such notice. Promptly after such
surrender and the receipt of such written notice, the corporation shall issue
and deliver in accordance with such instructions the certificate or
certificates evidencing the shares of Class A Common Stock issuable upon such
exchange. Such exchange, to the extent permitted by law, shall be deemed to
have been effected as of the close of business on the date on which such
certificate or certificates shall have been surrendered and such written notice
shall have been received by the Corporation, and at such time the rights of the
holder of such shares of Series A Preferred Stock to be exchanged as such
holder shall cease and the person or persons in whose name or names any
certificate or certificates evidencing shares of Class A Common Stock to be
issued upon such exchange shall be deemed to have become the holder or holders
of record of the shares of Class A Common Stock to be evidenced thereby. The
Corporation shall be entitled to rely conclusively, as to the truth of the
statements made therein, on such written notice, and the Corporation shall not
be liable to any person with respect to any action taken or omitted to be taken
by it in connection with such exchange in reliance on the statements made in
such written notice.

6
<PAGE> 16
person other than a merger described in ARTICLE FOURTH (8) herein, (c) a sale
of all or substantially all of the assets of the Corporation, any capital
reorganization or any reclassification of the capital stock of the Corporation
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up, combination of shares) or (d) the exercise by the
holders of Common Stock or Series A Preferred Stock of their Put Sale Option or
Tag-Along Right as set forth in the Amended and Restated Stockholders Agreement
dated as of September 2, 1994 among the Corporation and the other parties
thereto (each such event, an "Event of Conversion"), all shares of the Series A
Preferred Stock, subject to the adjustment hereinafter set forth, shall,
subject to compliance with any applicable filing requirements (and the
expiration of all waiting periods) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), automatically convert
into an equal number of shares of Class A Common Stock. In the event the
Corporation shall at any time after the Original Issue Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the aggregate number of shares
of Class A Common Stock issuable upon conversion of a share of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

(D) Shares of Series A Preferred Stock that are exchanged for
shares of Class A Common Stock as provided herein shall not be reissued as
Series A Preferred Stock.

(E) The issue of certificates evidencing shares of Class A
Common Stock upon exchange of shares of Series A Preferred Stock shall be made
without charge to the holders of such shares for any issue tax in respect
thereof, or other cost incurred by the Corporation in connection with such
exchange; provided, however, that the Corporation shall not be required to pay
any tax that may be payable in respect of any transfer involving the issue and
delivery of any certificate

7
<PAGE> 17
in a name other than that of the holder or former holder of the Series A
Preferred Stock.

(5) Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Cor poration in any manner
whatsoever shall be retired and can celled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Series A Preferred Stock and may be reis sued as part of a
new series of preferred stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on issuance set
forth in the Amended and Restated Certificate of Incorporation.

(6) Liquidation, Dissolution or Winding Up. (M) Upon any
liquidation, dissolution or winding up of the Corporation (a "Liquidation"), no
distribution shall be made

(i) to the holders of shares of Common Stock unless,
prior thereto, the holders of shares of Series A Preferred
Stock shall have received the greater of (a) $84.62 per share,
plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of
such payment, and (b) an aggregate amount per share, subject
to the provision for adjustment hereinafter set forth, equal
to ten times the aggregate amount to be distributed per share
to the holders of the Common Stock, or

(B) Pursuant to a Letter Agreement (the "Letter Agreement")
dated September 2, 1994, the holders of the Series A Preferred Stock agreed to
make certain payments to the holders of the Class B Common Stock upon a
distribution pursuant to Section (III)(6)(A)(i) above. The Letter Agreement is
hereby incorporated by reference into this Amended and Restated Certificate of
Incorporation. The rights and privileges of the Class B Common Stock pursuant
to the Letter Agreement shall terminate upon the conversion of all of the
Series A Preferred Stock pursuant to Section 4 of Article IV of this Amended
and Restated Certificate of Incorporation.

8
<PAGE> 18
All references to the Loral Shares in the Letter Agreement shall hereby be
deemed to be references to the outstanding shares of Class B Common Stock, and
all references in the Letter Agreement to Section (III)(7)(i)(a) of Article IV
of the Certificate of Incorporation of the Corporation shall be deemed to refer
to Section (III)(6)(A)(i) of Article IV of this Amended and Restated
Certificate of Incorporation. The Corporation shall take all such actions as
are necessary to effect the distributions to the holders of the Class B Common
Stock that are required to be made by the holders of the Series A Preferred
Stock under the Letter Agreement.

(7) Consolidation, Merger, etc. In case the Cor poration
shall enter into any consolidation, merger, combina tion or other transaction
in which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case the
shares of Series A Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Original Issue Date
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

(8) No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.

(9) Rank. The Series A Preferred Stock shall rank junior
with respect to payment of dividends and on liquidation

9
<PAGE> 19
to all other series of the Corporation's preferred stock that specifically
provide that they shall rank senior to the Series A Preferred Stock.

(1) When, as and if dividends or distributions are
declared on outstanding shares of Common Stock, whether pay able in cash, in
property or in securities of the Corporation (other than shares of Common
Stock), the holders of outstand ing shares of Common Stock, shall be entitled
to share equal ly, share for share, in such dividends and distributions. If
dividends or distributions are declared on outstanding shares of Common Stock
that are payable in shares of, or in subscrip tion or other rights to acquire
shares of, Common Stock, such dividends shall be declared at the same rate on
the outstand ing shares of Class A Common Stock and the outstanding shares of
Class B Common Stock, but shall be payable only in shares or in subscription or
other rights to acquire shares, as the case may be, of Class A Common Stock to
holders of outstanding shares of Class A Common Stock and Class B Common Stock
to holders of outstanding shares of Class B Common Stock.

(2) Upon any Liquidation, the holders of Common Stock shall
be entitled to share equally, share for share, in the assets of the Corporation
to be distributed among the holders of shares of the Common Stock.
Additionally, the holders of outstanding shares of Class B Common Stock shall
have the rights and privileges set forth in Article IV, Section III(6)(B)
hereof.

(3) If the Corporation shall in any manner sub divide or
combine the outstanding shares of one class of Common Stock, the outstanding
shares of the other class of Common Stock shall be correspondingly subdivided
or combined, as the case may be.

10
<PAGE> 20
(4) The holders of outstanding shares of Common Stock shall
have the right to vote on the election or removal of the directors of the
Corporation and on all other matters to be voted on by the stockholders of the
Corporation and shall be entitled to one vote for each share of Common Stock
held.

(5) The Amended and Restated Certificate of Incorporation of
the Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Class B Common Stock
so as to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares, if any, of Class B Common Stock
voting separately as a class.

(7) Any shares of Class B Common Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Class B Common
Stock and may be reissued as part of a new series of common stock to be created
by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth in the Amended and Restated
Certificate of Incorporation.

FIFTH: The Board of Directors shall have the power to adopt,
amend or repeal the by-laws of the Corporation to the extent provided in the
by-laws.

SIXTH: (1)(a) A director of the Corporation shall not be
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve inten tional misconduct or
a knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit.

(b) If the General Corporation Law of the State of Delaware
is hereafter amended to further eliminate or limit the liability of a director
of a corporation, then a director of the Corporation, in addition to the
circumstances set forth herein, shall not be liable to the fullest extent
permitted by the General Corporation Law of the State of Delaware as so
amended.

11
<PAGE> 21
(2)(a) Each person who was or is a party or is threatened to
be made a party to, or is involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partner ship, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the Corporation to the fullest extent
permitted by applicable law. The right to indemnification conferred in this
ARTICLE SIXTH shall also include the right to be paid by the Corporation the
expenses incurred in connection with any such proceeding in advance of its
final disposition to the fullest extent authorized by applicable law. The
right to indemnification conferred in this ARTICLE SIXTH shall be a contract
right.

(b) The Corporation shall determine the right of any person
to receive indemnification as provided hereunder in accordance with the
provisions of applicable law.

(3) The rights and authority conferred in this ARTICLE SIXTH
shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Amended and Restated
Certificate of Incorporation or the by-laws of the Corporation, agreement, vote
of stockholders or disinterested directors or otherwise.

(4) Neither the amendment nor repeal of this ARTICLE SIXTH
nor the adoption of any provision of this Certificate of Incorporation or the
by-laws of the Corporation or of any statute inconsistent with this ARTICLE
SIXTH shall eliminate or reduce the effect of this ARTICLE SIXTH in respect of
any acts or omissions occurring prior to such amendment or repeal or such
adoption of an inconsistent provision.

SEVENTH: The Corporation shall have power to pur chase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of the
General Corporation Law of the State of Delaware.

EIGHTH: The Corporation reserves the right to amend this
Amended and Restated Certificate of Incorporation in any manner permitted by
the General Corporation Law of the State

12
<PAGE> 22
of Delaware, as amended from time to time, and all rights and powers conferred
herein on stockholders, directors and offi cers, if any, are subject to this
reserved power.

13
<PAGE> 23
IN WITNESS WHEREOF, said Corporation has caused this Amended
and Restated Certificate to be signed by its Vice President and attested to by
its Assistant Secretary, this 8th day of November, 1994.

K & F INDUSTRIES, INC.

By: KENNETH M. SCHWARTZ
---------------------
Kenneth M. Schwartz,
Vice President

ATTEST: LISA F. STEIN-MCMEEKIN
Lisa F. Stein-McMeekin
Asst. Secretary

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1994 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-1-1994
<PERIOD-END> SEP-30-1994
<CASH> 2,552,000
<SECURITIES> 0
<RECEIVABLES> 34,903,000
<ALLOWANCES> 702,000
<INVENTORY> 64,537,000
<CURRENT-ASSETS> 102,684,000
<PP&E> 112,493,000
<DEPRECIATION> 47,698,000
<TOTAL-ASSETS> 434,021,000
<CURRENT-LIABILITIES> 54,141,000
<BONDS> 310,000,000
<COMMON> 101,000
0
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<OTHER-SE> (33,575,000)
<TOTAL-LIABILITY-AND-EQUITY> 434,021,000
<SALES> 115,143,000
<TOTAL-REVENUES> 115,143,000
<CGS> 79,201,000
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<INCOME-PRETAX> (8,605,000)
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