December 3, 1997 Page 1
December 3, 1997
PERSONAL AND CONFIDENTIAL
---------------
Flagstar Corporation
000 Xxxx Xxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Dear ____________:
This letter agreement between _________________ (the "Executive") and
Flagstar Corporation (the "Company") replaces in its entirety the letter
agreement between the Company and the Executive dated January 15, 1997 (the
"Employment Agreement"); provided, however, the Change of Control and Severance
provisions contained in said prior agreement shall not be revoked, rescinded or
cancelled unless and until a stock option agreement containing terms as
described on Attachment A is signed and returned to the Company by the
Executive. This agreement is entered into as an inducement to the Executive to
continue in the employ of the Company. With respect to the period from and after
Flagstar Corporation's emergence from bankruptcy protection, the "Company" shall
also refer herein to Reorganized Flagstar as such term is used in the Plan of
Reorganization confirmed by the U. S. Bankruptcy Court as of November 7, 1997.
1. LEADERSHIP BONUS. In addition to other salary or bonus payments and
benefits to which the Executive is otherwise entitled, the Executive shall be
entitled to receive the following payments (the "Leadership Bonus") provided the
Executive continues to be employed by the Company (or a subsidiary thereof) as
of the accrual date indicated:
Accrual Date Payment Amount
December 31, 1997 $100,000
June 30, 1998 $ 50,000
December 31, 1998 $125,000
June 30, 1999 $ 50,000
December 31, 1999 $175,000
December 3, 1997 Page 2
Each such payment shall be due and payable to the Executive on or before fifteen
(15) days following the corresponding accrual date. Any unaccrued portion of
such Leadership Bonus shall be forfeited upon termination of the Executive's
employment for Cause, as defined herein, or upon the voluntary termination of
employment by the Executive. If the Executive's employment is terminated by the
Company for any reason other than for Cause, the Executive shall be entitled to
receive any unaccrued portion of such Leadership Bonus at the time of payment of
any other Severance Payments set forth in Section 3 hereof and any other
payments payable upon such termination of employment under the Employment
Agreement. For purposes of this letter agreement, "Cause" shall mean (A) the
Executive's habitual neglect of his material duties, (B) an act or acts by the
Executive, or any omission by him, constituting a felony, and the Executive has
entered a guilty plea or confession to, or has been convicted of, such felony,
(C) the Executive's failure to follow any lawful directive of the Board or Chief
Executive Officer ("CEO") consistent with the Executive's position and duties,
(D) an act or acts of fraud or dishonesty by the Executive which results or is
intended to result in financial or economic harm to the Company, or (E) breach
of a material provision of this Agreement by the Executive; provided that the
Company shall provide the Executive (x) written notice specifying the nature of
the alleged Cause, and, with respect to Clauses (A), (C) and (E), (y) a
reasonable opportunity to appear before the Board or CEO to discuss the matter,
and (z) a reasonable opportunity to cure any such alleged Cause.
2. STOCK OPTIONS. Upon the emergence of the Company from bankruptcy
protection and the issuance of new common stock of the Company, the Executive
will be granted stock options in the new common stock in the amounts and on the
vesting schedule set forth on Attachment A. The Executive shall immediately
become one hundred percent vested in, and eligible to exercise, all stock
options that have been granted to him/her by the Company in the event of (a)
his/her actual or constructive termination as described in Section 3 (a) or (b)
below, (b) a dissolution or liquidation of the Company, (c) a sale of all or
substantially all of the Company's assets, (d) a merger or consolidation
involving the Company in which the company is not the surviving corporation, (e)
a merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of common stock receive
securities of another corporation and/or other property, including cash, or (f)
a tender offer for at least a majority of the outstanding common stock of the
Company.
3. SEVERANCE PAYMENT. The Executive shall receive a severance payment
(as described below) if either (a) the Company elects to terminate the
Executive's employment for any reason other than Cause as defined in Section 1
above, or (b) the Company takes an action that reduces the Executive's base
salary, or the Executive no longer has the position or responsibility of the
December 3, 1997 Page 3
Company's chief legal officer. If either event described in subsection (a) or
(b) above occurs then the Executive shall receive a single lump sum payment
equal to (i) two times the Executive's then current base pay (in no event less
than $450,000 in total); plus (ii) an amount (grossed up at a total of
forty-five [45%] percent for federal, state and local income taxes) equal to the
Company's then actual benefit credits for an eighteen (18) month period (the
"Severance Payment"); plus (iii) accrued but unused vacation time. Such
Severance Payment shall be made to Executive within five (5) business days
following any such termination. The Executive will also be entitled to receive
career placement advice and counseling at the Company's expense for a period of
eighteen (18) months. In the event the Executive is terminated during a calendar
year for which an annual bonus is paid by the Company, the annual bonus to which
the Executive would have otherwise been entitled shall be prorated and included
as a part of the Severance Payment, provided the Executive was employed for at
least six (6) months during that year. This prorated bonus payment shall be paid
to the Executive at the same time as payments are made to actively employed
bonus recipients. Further, should such an event of termination of the
Executive's employment occur, the Executive shall not be required to seek other
employment to mitigate damages, and any income earned by the Executive from
other employment or self-employment shall not be offset against any obligations
of the Company to the Executive under this Agreement.
4. SUBSIDIARY GUARANTIES. The Company's payment obligations herein in
respect to the Leadership Bonus and the Severance Payment shall be
unconditionally guaranteed by the Company's subsidiaries, Denny's, Inc., DFO,
Inc., El Pollo Loco, Inc., Xxxxxx's Restaurants, Inc., and Flagstar Enterprises,
Inc., such subsidiaries being among the principal operating subsidiaries
receiving the benefits of the Executive's continuing employment with the
Company. Such subsidiary guaranties shall be "guaranties of payment" and not
"guaranties of collection."
Except as supplemented and modified hereby, the Employment Agreement
and the severance benefits therein contained shall remain in effect and binding
on the Executive and the Company. Nothing herein shall be deemed to modify in
any respect the right of the Company to terminate the services of the Executive
in accordance with the terms of the Employment Agreement and Company policies
now or hereafter in effect.
December 3, 1997 Page 4
If you are in agreement with these terms, please sign one copy of this
letter and return it to Xxxxxxx Xxxx.
Sincerely,
Xxxxx X. Xxxxxxx
Chairman, Chief Executive Officer
and President
cc: Xxxxxx X. Xxxxxx
Xxxxxxx X. Xxxx
Agreed and accepted:
________________________________ _________________ ___, 199__
December 3, 1997 Page 5
By authority duly obtained as of the date first above written, the
undersigned, Denny's, Inc., DFO, Inc., El Pollo Loco, Inc., Xxxxxx's
Restaurants, Inc., and Flagstar Enterprises, Inc., indirect subsidiaries of the
Company, hereby jointly and severally guarantee the payment by the Company to
the Executive of the Leadership Bonus, the Change of Control Benefit, and the
Severance Payment as provided above. In providing such guaranty, each such
guarantor acknowledges that it is receiving and will receive substantial and
meaningful benefits and services from the Executive's continued employment with
the Company. Each such guaranty shall be a guaranty of payment and not of
collection.
Denny's, Inc. Quincy's Restaurants, Inc.
By: By:
DFO, Inc. Flagstar Enterprises, Inc.
By: By:
El Pollo Loco, Inc.
By: