<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X}
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (section mark)240.14a-11(c) or
(section mark)240.14a-12
FLAGSTAR COMPANIES, INC.
(Name of Registrant as Specified In Its Charter)
FLAGSTAR COMPANIES, INC.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange
Act Rule 0-11:1
4) Proposed maximum aggregate value of transaction:
1Set forth the amount on which the filing fee is calculated and state how it was
determines.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
(FLAGSTAR LOGO APPEARS HERE)
203 East Main Street
Spartanburg, South Carolina 29319
March 28, 1995
Dear Stockholder:
You are cordially invited to attend the Annual
Meeting of Stockholders to be held at 10:00 a.m. on
Tuesday, May 2, 1995, at the Flagstar Tower, 17th Floor
Auditorium, located at 203 East Main Street,
Spartanburg, South Carolina. We look forward to greeting
personally those stockholders who are able to attend. In
order to be admitted to the Auditorium, you must present
the enclosed card.
The accompanying formal Notice of Meeting and Proxy
Statement describe the matters on which action will be
taken at the meeting.
Whether or not you plan to attend the meeting on
May 2, it is important that your shares be represented.
To ensure that your vote will be received and counted,
please sign, date and mail the enclosed proxy at your
earliest convenience. Your vote is important regardless
of the number of shares you own.
On Behalf of the Board of Directors,
Sincerely,
JAMES B. ADAMSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
VOTING YOUR PROXY IS IMPORTANT
PLEASE SIGN AND DATE YOUR PROXY
AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE
(FLAGSTAR LOGO APPEARS HERE)
NOTICE OF MEETING
Spartanburg, SC
March 28, 1995
The Annual Meeting of Stockholders of Flagstar Companies, Inc.
("FCI") will be held at the Flagstar Tower, 17th Floor Auditorium,
located at 203 East Main Street, Spartanburg, South Carolina, on
Tuesday, May 2, 1995, at 10:00 a.m., for the following purposes as
described in the accompanying Proxy Statement:
1. To elect eleven (11) directors.
2. To consider and vote upon a proposal to ratify the selection
by the Board of Directors of Deloitte & Touche LLP as the principal
independent auditors of FCI and its subsidiaries (collectively, the
"Company") for the year 1995.
3. To consider and vote upon a proposal to amend the 1989
Non-Qualified Stock Option Plan of FCI, as previously amended, to
increase the authorized shares issuable thereunder.
4. To consider and vote upon a proposal to approve 1995 incentive
compensation for the Company's senior management.
5. To transact such other business as may properly come before
the meeting.
Only holders of record of FCI's common stock at the close of
business on March 15, 1995 will be entitled to vote at such meeting.
Whether or not you plan to attend the meeting, you are urged to
complete, sign, date and return the enclosed proxy promptly in the
envelope provided. Returning your proxy does not deprive you of your
right to attend the meeting and to vote your shares in person.
(Signature of Rhonda J. Parish appears here)
RHONDA J. PARISH
GENERAL COUNSEL AND SECRETARY
IMPORTANT NOTE: To vote shares of common stock at the Annual Meeting
(other than in person at the meeting), a stockholder must return a proxy.
The return envelope enclosed with the proxy card requires no postage if
mailed in the United States of America.
<PAGE>
(FLAGSTAR LOGO APPEARS HERE)
PROXY STATEMENT
March 28, 1995
GENERAL
INTRODUCTION
The Annual Meeting of Stockholders of Flagstar Companies, Inc. ("FCI") will
be held on Tuesday, May 2, 1995, at 10:00 a.m., at the Flagstar Tower, 17th
Floor Auditorium, located at 203 East Main Street, Spartanburg, South Carolina
(the "Annual Meeting"), for the purposes set forth in the accompanying notice.
Only holders of record of common stock of FCI, par value $.50 per share (the
"Common Stock"), at the close of business on March 15, 1995 (the "Record Date")
will be entitled to notice of, and to vote at, such meeting. This Proxy
Statement is furnished in connection with the solicitation by the Board of
Directors of proxies to be used at such meeting and at any and all adjournments
thereof and is first being sent to stockholders on or about the date hereof.
Proxies in the accompanying form, properly executed and duly returned and not
revoked, will be voted at the meeting (including adjournments). Where a
specification is made by means of the ballot provided in the proxies regarding
any matter presented to the Annual Meeting, such proxies will be voted in
accordance with such specification. If no specification is made, proxies will be
voted (i) in favor of FCI's eleven (11) nominees to the Board of Directors, (ii)
in favor of the selection of Deloitte & Touche LLP as the principal independent
auditors of FCI and its subsidiaries (collectively, the "Company") for the year
1995, (iii) in favor of the proposed amendment of the 1989 Non-Qualified Stock
Option Plan of FCI, as adopted December 1, 1989 and thereafter amended (the
"1989 Option Plan"), and (iv) in favor of the proposal to approve 1995 incentive
compensation for the Company's senior management.
The Company's principal executive offices are located at 203 East Main
Street, Spartanburg, South Carolina 29319. However, proxies should not be sent
to that address, but to Continental Stock Transfer and Trust Company, 2
Broadway, New York, New York 10004, Attention: Gail Konsker.
This Proxy Statement is furnished by FCI to stockholders of FCI in
connection with the upcoming Annual Meeting. The information provided herein
concerns not only FCI, but also its wholly-owned subsidiary, Flagstar
Corporation ("Flagstar"), since substantially all operations of FCI are
currently conducted through Flagstar.
OWNERSHIP OF CAPITAL SECURITIES
The following table sets forth, as of March 15, 1995, the beneficial
ownership of Common Stock by each stockholder known by the Company to own more
than 5% of the outstanding shares, by each director and nominee to the Board of
Directors of FCI, by each officer of the Company included in the Summary
Compensation Table in "Executive Compensation" below, and by all directors and
executive officers of FCI and Flagstar as a group. Except as otherwise noted,
the persons named in the table below have sole voting and investment power with
respect to all shares shown as beneficially owned by them.
1
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
AMOUNT AND NATURE OF OF COMMON
BENEFICIAL OWNER BENEFICIAL OWNERSHIP STOCK
<S> <C> <C>
KKR Associates
(and related entities)
9 West 57th Street
New York, NY 10019............................................................... 34,999,999 (1)(2) 60.94%
Gollust, Tierney & Oliver
(and related entities)
500 Park Avenue
New York, NY 10022............................................................... 4,844,445 (3) 11.42%
DLJ Capital Corporation
(and related entities)
140 Broadway
New York, NY 10005............................................................... 3,040,407 7.16%
James B. Adamson................................................................... 65,306 (4) *
Michael Chu........................................................................ -- --
Vera King Farris................................................................... 100 *
Hamilton E. James.................................................................. 36,687 (5) *
Henry R. Kravis (1)................................................................ -- --
A. Andrew Levison.................................................................. 9,473 (6) *
Paul E. Raether (1)................................................................ -- --
Jerome J. Richardson............................................................... 1,058,164 (7)(8) 2.48%
Clifton S. Robbins (1)............................................................. -- --
George R. Roberts (1).............................................................. -- --
L. Edwin Smart..................................................................... 14,566 (5)(9) *
Michael T. Tokarz (1).............................................................. -- --
Gregory M. Buckley................................................................. 12,000 *
Samuel H. Maw...................................................................... 22,092 (7) *
Raymond J. Perry................................................................... -- --
C. Ronald Petty.................................................................... -- --
All directors and executive officers as a group (27 persons)....................... 1,247,417 (7)(10)(11) 2.92%
</TABLE>
* Less than one percent.
(1) Includes 19,999,999 shares of Common Stock owned of record. Such shares are
owned of record by TW Associates, L.P. ("TW Associates") (19,913,333
shares) and KKR Partners II, L.P. ("KKR Partners II") (86,666 shares). TW
Associates and KKR Partners II are collectively referred to herein as
"Associates." KKR Associates is the sole general partner and possesses sole
voting and investment power as to each of TW Associates and KKR Partners
II. Messrs. Kravis, Raether, Robbins, Roberts and Tokarz (directors of FCI
and Flagstar) and Messrs. Saul A. Fox, Edward A. Gilhuly, Perry Golkin,
James H. Greene, Jr., Robert J. MacDonnell, Michael W. Michelson and Scott
Stuart, as the general partners of KKR Associates, may be deemed to share
beneficial ownership of the shares shown as beneficially owned by KKR
Associates. Such persons disclaim beneficial ownership of such shares.
(2) Includes 15,000,000 shares of Common Stock underlying warrants (the
"Warrants"), which become exercisable on March 31, 1995, acquired by TW
Associates (14,935,000 shares) and KKR Partners II (65,000 shares) under a
Stock and Warrant Purchase Agreement dated August 11, 1992 by and between
FCI and TW Associates (the "Purchase Agreement"). The Warrants were issued
pursuant to a Warrant Agreement dated November 16, 1992 by and between FCI
and Associates. Each Warrant entitles the holder thereof to purchase one
fully paid and nonassessable share of Common Stock at an exercise price of
$17.50, subject to adjustment from time to time upon the occurrence of
certain events.
2
<PAGE>
(3) The Common Fund (which is a party to an investment management arrangement
with Gollust, Tierney & Oliver ("GTO")) owns 1,872,540 of the shares
listed. GTO disclaims beneficial ownership of such shares. GTO and related
entities own the balance of the shares listed. According to a Schedule 13D
filed by GTO and related entities dated as of January 3, 1995, The Saurer
Group Investments Ltd. and North Atlantic Continental Capital Ltd.,
formerly parties to investment management arrangements with GTO with
respect to their ownership of shares of Common Stock, no longer maintain
such arrangements. Accordingly, shares owned by such entities are not
included in the shares listed.
(4) Shares listed are those received by Mr. Adamson pursuant to the terms of
his employment agreement with the Company, 50% of which are subject to
forfeiture upon the termination of Mr. Adamson's employment with the
Company under certain conditions prior to January 23, 1996. See "Executive
Compensation -- Employment Agreements -- Adamson Employment Agreement."
(5) Includes 10,000 shares that each of Messrs. James and Smart has a right to
acquire upon the exercise of currently exercisable options granted by the
Company in 1990 pursuant to the 1990 Non-Qualified Stock Option Plan of
FCI, as adopted July 31, 1990 and thereafter amended (the "1990 Option
Plan"). Mr. James is Managing Director of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and Chairman, DLJ Merchant Banking Group. He
also has a limited investment in GTO or related entities, or both. Shares
listed for Mr. James exclude shares held by DLJ Capital Corporation ("DLJ
Capital") and related entities or by GTO and related entities.
(6) Mr. Levison is a nominee to the Board of Directors of FCI for election at
the Annual Meeting and the Managing Director, Investment Banking of DLJ.
Shares listed for Mr. Levison exclude shares held by DLJ Capital and
related entities.
(7) Includes shares held by the trustee of the Flagstar Thrift Plan (the
"Thrift Plan") as of December 31, 1994 for the individual accounts of
employee participants. Under the Thrift Plan, shares attributable to
participating employees' contributions and Company contributions are voted
by the trustee in accordance with the employees' instructions, while shares
as to which no instructions are received are voted by the trustee in its
discretion. Of shares held in the Thrift Plan for the accounts of directors
and executive officers of FCI and Flagstar, approximately 3,364 and 222 are
credited to the accounts of Messrs. Richardson and Maw, respectively, and
7,551 are credited to the accounts of all directors and executive officers
as a group.
(8) Includes 240,000 shares that Mr. Richardson has the right to acquire upon
the exercise of currently exercisable options granted by the Company under
the 1989 Option Plan.
(9) Includes 4,166 shares that Mr. Smart has the right to acquire upon
conversion of Flagstar's 10% Convertible Junior Subordinated Debentures Due
2014.
(10) Includes shares referred to in (5), (8) and (9) above and otherwise that
individual directors or officers have the right to acquire upon the
exercise of options or conversion of certain securities.
(11) Excludes shares owned by KKR Associates through TW Associates and KKR
Partners II, as set forth above. Messrs. Kravis, Raether, Robbins, Roberts
and Tokarz are general partners of KKR Associates, the sole general partner
of TW Associates and KKR Partners II. They also are directors of FCI and
Flagstar. Each of Messrs. Kravis, Raether, Robbins, Roberts and Tokarz
disclaims beneficial ownership of those shares listed above as owned by KKR
Associates. Also excludes shares shown as beneficially owned by GTO or DLJ
Capital and related entities, as set forth above.
FCI currently has authorized capital of (i) 200,000,000 shares of Common
Stock, of which 42,434,620 shares are currently issued and outstanding, and (ii)
25,000,000 shares of $2.25 Series A Cumulative Convertible Exchangeable
Preferred Stock, par value $.10 per share (the "Preferred Stock"), of which
6,300,000 shares are currently issued and outstanding.
THE STOCKHOLDERS' AGREEMENT. Concurrently with the execution of the
Purchase Agreement, GTO and certain of its affiliates (collectively, the "GTO
Group"), DLJ Capital, Mr. Richardson, TW Associates (the "Stockholder Parties")
and FCI entered into an agreement (as amended from time to time thereafter, the
"Stockholders' Agreement") pursuant to which the Stockholder Parties agreed not
to transfer or sell shares of Common Stock held by them prior to December 31,
1994 (or, in certain circumstances, March 31, 1995), except in connection with
the sale of 90% or more of the outstanding Common Stock and except for transfers
in connection with extraordinary corporate transactions, transfers in certain
cases to certain affiliates of GTO or Associates, and sales to the public by GTO
commencing on or after June 30, 1993. Effective as of January 1, 1995, pursuant
to the
3
<PAGE>
latest amendment thereto, the GTO Group is no longer a Stockholder Party or
otherwise a party to or bound by the Stockholders' Agreement.
Pursuant to the Stockholders' Agreement, each of the Stockholder Parties
agreed to nominate and vote all shares of Common Stock owned by it to elect as
directors (a) six persons designated by Associates, (b) Mr. Richardson (for so
long as Mr. Richardson remained Chief Executive Officer of FCI), (c) one
representative designated by DLJ Capital (for so long as DLJ Capital continues
to own at least 2% of the outstanding shares of Common Stock on a fully-diluted
basis) and (d) two independent directors. GTO's right to a Board representative
terminated as of January 1, 1995. For information regarding Mr. Richardson's
continuing participation on the Board following his resignation as Chief
Executive Officer, see "Executive Compensation -- Employment
Agreements -- Richardson Employment Agreement." The Stockholder Parties have
further agreed to increase by two the number of directors constituting the
entire Board of Directors of FCI and to nominate (if requested) and vote to
elect as directors two additional persons to be designated by Associates if at
any time the holders of the Preferred Stock, voting together as a class with all
other classes or series of preferred stock ranking junior to or on a parity with
the Preferred Stock, are entitled to elect two additional directors; provided
that the two Associates' designees so elected shall resign and the size of the
FCI Board of Directors shall be reduced accordingly at such time as the
directors elected by preferred stockholders shall resign or their terms shall
end.
Under the Stockholders' Agreement, at any time after March 31, 1995, (i)
DLJ Capital may make two written requests to FCI for registration under the
Securities Act of 1933, as amended (the "Securities Act"), of all or any part of
the shares of Common Stock owned by DLJ Capital, and (ii) the holders of a
majority of all shares of Common Stock and Warrants issued to Associates and all
shares of Common Stock issued or issuable to Associates upon exercise of any
Warrant (the "Associates Registrable Securities") may make five written requests
to FCI for registration of all or part of such securities under the Securities
Act. In addition, DLJ Capital, Mr. Richardson and Associates have customary
"piggyback" registration rights to include their securities, subject to certain
limitations, in any other registration statement filed by FCI, pursuant to any
of the foregoing requests or otherwise under the Securities Act. If Associates
exercises its demand or "piggyback" registration rights and Mr. Richardson is
then employed by the Company, then Mr. Richardson has the right to have included
in any registration statement relating to the exercise of such rights by
Associates the same percentage of his Common Stock as the fully-diluted
percentage of Associates Registrable Securities registered thereunder. If at any
time Mr. Richardson shall have the right to participate in a "piggyback"
registration and Mr. Richardson elects not to exercise such "piggyback"
registration right, he may make one written request to FCI for registration
under the Securities Act of up to the number of shares of Common Stock that he
had the right to include, but did not so include, in such one or more
registrations pursuant to his "piggyback" registration rights. The Company has
agreed to pay all expenses in connection with the performance of its obligations
to effect demand or "piggyback" registrations under the Securities Act of
securities covered by the registration rights of the Stockholder Parties, and to
indemnify and hold harmless, to the full extent permitted by law, each holder of
such securities against liability under the securities laws.
The Stockholders' Agreement will terminate upon the sale of all shares of
Common Stock now owned or hereafter acquired by DLJ Capital and Mr. Richardson
or by Associates; provided that, at such time as DLJ Capital shall own less than
2% of the outstanding Common Stock on a fully-diluted basis, DLJ Capital shall
be released from its obligations and forfeit its rights under the Stockholders'
Agreement.
In any event, the provisions of the Stockholders' Agreement with respect to
voting arrangements and restrictions will terminate no later than ten years from
the date of the Stockholders' Agreement, subject to extension in accordance with
applicable law by the agreement of the remaining parties to the Stockholders'
Agreement.
RICHARDSON SHAREHOLDER AGREEMENT. Shares of Common Stock currently owned by
Mr. Richardson ("Owned Stock") and shares that he would acquire upon exercise of
any stock options granted to him by the Company under the 1989 Option Plan
("Option Stock") are subject to various rights and restrictions contained in a
shareholder agreement (the "Richardson Shareholder Agreement") executed by Mr.
Richardson and FCI concurrently with the execution of the Purchase Agreement.
In general, the Richardson Shareholder Agreement provides that, (i) subject
to Mr. Richardson's registration rights under the Stockholders' Agreement, Mr.
Richardson may not sell or transfer the Owned Stock or Option Stock until after
November 16, 1997, unless Mr. Richardson's employment terminates by reason of
death or permanent disability, or is terminated by Flagstar without "cause" and
FCI elects (if permitted by the Amended
4
<PAGE>
Richardson Agreement, as defined herein) to require payment of the balance of
the principal and accrued interest on the Richardson Loan (as defined herein)
(in which case he may transfer the Owned Stock), (ii) before November 16, 1997,
with respect to any Owned Stock permitted to be transferred pursuant to clause
(i) above, and after November 16, 1997 with respect to the Option Stock, Mr.
Richardson may not transfer any such Owned Stock or Option Stock without first
offering to sell it to FCI at the price offered by a third party, (iii) upon Mr.
Richardson's death or permanent disability while he is employed by Flagstar or
following his retirement after November 16, 1997, Mr. Richardson and his estate
each have a one-time right, exercisable within six months after death or
permanent disability, to elect to require FCI, except under certain
circumstances, to purchase all or part of Mr. Richardson's Option Stock at its
market value and to cash out the value of his exercisable options based on the
excess of such value over the exercise price, and FCI may elect to require Mr.
Richardson and his estate to sell such stock and cash out such options at such
prices, and (iv) if Mr. Richardson's employment is terminated for any reason
other than his death or permanent disability or his retirement on or after
November 16, 1997, FCI may repurchase all but not less than all of Mr.
Richardson's Option Stock at the lesser of (i) its market value or (ii) the sum
of the exercise price of the options pursuant to which such stock was acquired,
plus a multiple of 20% of any excess of such market value over such exercise
price for each year of his employment after November 16, 1992, and, in the event
of an exercise by FCI of any option to repurchase (described above), FCI shall
cash out his exercisable options at a price equal to the excess of the
applicable repurchase price over the option exercise price, provided that, if
Mr. Richardson's employment is terminated as a result of a termination without
"cause" pursuant to the Amended Richardson Agreement, the market value with
respect to 160,000 shares of the Option Stock is to be reduced on a per share
basis by the difference between $20.00 and the exercise price thereof.
The Richardson Shareholder Agreement provides that all shares of Owned
Stock and Option Stock shall be deemed to be "Registrable Securities" under the
Stockholders' Agreement and shall be entitled to registration rights as set
forth herein. For additional information, see "Executive Compensation
-- Employment Agreements -- Richardson Employment Agreement."
ADAMSON SHAREHOLDER AGREEMENT. Pursuant to a shareholder agreement (the
"Adamson Shareholder Agreement") dated January 10, 1995 between Mr. Adamson and
Associates, Associates has agreed to vote all shares of Common Stock owned by it
to elect Mr. Adamson to the Board of Directors of FCI as long as Mr. Adamson is
employed by FCI. If at any time during Mr. Adamson's Employment Term as defined
in the Adamson Employment Agreement (defined below) for so long as Mr. Adamson
is an active employee of the Company, Associates proposes to sell or exchange
any shares of its Common Stock to any third party which is not an affiliate of
Associates, then Mr. Adamson has the right to have included in such sale or
exchange a number of his vested shares of Common Stock (including shares as to
which Mr. Adamson is entitled, under certain circumstances, to accelerated
vesting) determined by multiplying (i) the total number of shares of Common
Stock proposed to be sold or exchanged by Associates by (ii) a fraction, the
numerator of which is equal to the number of such shares of Common Stock owned
by Mr. Adamson and the denominator of which is equal to the aggregate number of
such shares of Common Stock owned by Mr. Adamson and the number of shares owned
by Associates. The Adamson Shareholder Agreement terminates upon the termination
of Mr. Adamson's Employment Term. For additional information, see "Executive
Compensation -- Employment Agreements -- Adamson Employment Agreement."
NUMBER OF SHARES OUTSTANDING AND VOTING
As of the close of business on March 15, 1995, there were issued and
outstanding and entitled to be voted at the Annual Meeting 42,434,620 shares of
Common Stock. At the meeting, holders of Common Stock will have one vote per
share for an aggregate total of 42,434,620 votes. A quorum being present,
directors will be elected by a majority vote, and the actions proposed in the
remaining items referred to in the accompanying Notice of Meeting will become
effective if a majority of the outstanding shares of Common Stock is cast in
favor thereof. Abstentions and broker non-votes will not be counted in
determining the number of shares voted for any director-nominee or for any
proposal.
A holder of Common Stock who signs a proxy card may withhold votes as to
any director-nominee by writing the name of such nominee in the space provided
on the proxy card.
5
<PAGE>
REVOCATION OF PROXY
Stockholders who execute proxies may revoke them at any time before they
are exercised by delivering a written notice to Rhonda J. Parish, the General
Counsel and Secretary of FCI, either at the Annual Meeting or prior to the
meeting date at the Company's offices at 203 East Main Street, Spartanburg,
South Carolina 29319, by executing and delivering a later-dated proxy, or by
attending the meeting and voting in person.
EXPENSES OF SOLICITATION
The Company will pay the costs of solicitation of proxies, including the
cost of assembling and mailing this Proxy Statement and the material enclosed
herewith. In addition to the use of the mails, proxies may be solicited
personally, or by telephone or telegraph, by corporate officers and employees of
the Company without additional compensation. The Company intends to request
brokers and banks holding stock in their names or in the names of nominees to
solicit proxies from their customers who own such stock, where applicable, and
will reimburse them for their reasonable expenses of mailing proxy materials to
their customers.
1995 STOCKHOLDER PROPOSALS
In order for stockholder proposals intended to be presented at the 1996
Annual Meeting of Stockholders to be eligible for inclusion in the Company's
proxy statement and the form of proxy for such meeting, they must be received by
the Company at its principal offices in Spartanburg, South Carolina no later
than November 28, 1995.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS OF FCI
The Board of Directors of FCI currently consists of eleven (11) directors,
including Mr. Adamson who was appointed by the Board in January 1995, as
provided in FCI's Bylaws, to fill the vacancy created by the resignation from
the Board of Mr. Augustus K. Oliver.
It is intended that proxies in the accompanying form will be voted at the
meeting for the election to the Board of Directors of the following nominees,
each of whom has consented to serve if elected: James B. Adamson, Michael Chu,
Vera King Farris, Henry R. Kravis, A. Andrew Levison, Paul E. Raether, Jerome J.
Richardson, Clifton S. Robbins, George R. Roberts, L. Edwin Smart and Michael T.
Tokarz, each to serve until the 1996 Annual Meeting of Stockholders and until
his or her successor shall be elected and shall qualify, except as otherwise
provided in FCI's Bylaws and Restated Certificate of Incorporation, each as
amended. Mr. Hamilton E. James will not stand for re-election to the Board of
Directors. The foregoing individuals have been selected as director-nominees
pursuant to the Stockholders' Agreement and the Adamson Shareholder Agreement.
See "General -- Ownership of Capital Securities -- The Stockholders' Agreement"
and " -- Adamson Shareholder Agreement." See also "Executive
Compensation -- Employment Agreements" regarding the election of Messrs.
Richardson and Adamson to the Board. Each of the nominees, except Mr. Levison,
is presently a director of FCI and of Flagstar. If for any reason any nominee
named above is not a candidate when the election occurs, it is intended that
proxies in the accompanying form will be voted for the election of the other
nominees named above and may be voted for any substitute nominee or, in lieu
thereof, the Board of Directors may reduce the number of directors in accordance
with FCI's Bylaws and Restated Certificate of Incorporation, each as amended.
6
<PAGE>
The name, age, present principal occupation or employment, and the material
occupations, positions, offices or employments for the past five years, of each
FCI director and director-nominee are set forth below. Unless otherwise
indicated, each such person has held the occupation listed opposite his name for
at least the past five years.
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
James B. Adamson.................... 47 Director of FCI and Flagstar; President and Chief Executive Officer of FCI and
Flagstar (February 1995-present); Chief Executive Officer of Burger King
Corporation (1993-January 1995); Chief Operating Officer of Burger King
Corporation (1991-1993); President of Burger King U.S.A. Retail Division (1991);
Executive Vice President, Marketing of Revco, Inc. (1988-1991).
Michael Chu......................... 46 Director of FCI and Flagstar; President and Chief Executive Officer of ACCION
International (1994-present); Director of Latin American Operations, ACCION
International (1993-1994); Executive of Kohlberg Kravis Roberts & Co. ("KKR") and
a Limited Partner of KKR Associates (1989-1993); Director of Banco Solidario
S.A., Commercial Printing Holding Co., FINANSOL Compania de Financiamiento
Comercial and World Color Press, Inc.
Vera King Farris.................... 54 Director of FCI and Flagstar; President of The Richard Stockton College of New
Jersey (1983-present); Director of National Utility Investors.
Hamilton E. James................... 44 Director of FCI and Flagstar; Managing Director of DLJ (investment banking)
(1987-present); Chairman, DLJ Merchant Banking Group (1992-present); Director of
County Seat Stores, Inc. and Price/Costco Inc.
Henry R. Kravis (a)................. 51 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of American Re Corporation, Auto Zone, Inc., Borden, Inc., Duracell
International, Inc., IDEX Corporation, K-III Communications Corporation,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., RJR Nabisco Holdings Corp., RJR
Nabisco, Inc., Safeway, Inc., The Stop & Shop Companies, Inc., Union Texas
Petroleum Holdings, Inc. and World Color Press, Inc.
A. Andrew Levison................... 38 Managing Director, Investment Banking of DLJ (1989-present); Managing Director,
Leverage Buyout Group of Drexel Burnham Lambert (1984-1989); Director of
Ferrellgas Companies, Inc. and Rickel Home Centers, Inc.
Paul E. Raether..................... 48 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of Duracell International, Inc., Fred Meyer, Inc., IDEX Corporation and The Stop
& Shop Companies, Inc.
Jerome J. Richardson................ 58 Chairman of FCI and Flagstar (1992-present); Director of FCI (1989-present);
Director of Flagstar (1980-present); Chief Executive Officer of FCI and Flagstar
(1989-January 1995); President of FCI (1989-1992); President of Flagstar
(1987-1992); Chairman of Denny's (1989-1994); President and Chief Executive
Officer of Canteen (1989-1994); Chairman of Flagstar Systems, Inc. (1990-1994);
President and Chief Executive Officer of Flagstar Systems, Inc. (1989-1994);
President and Chief Executive Officer of Denny's (1988); Senior Vice President of
Flagstar (1986-1987); President of Spartan Food Systems, division of Flagstar
(1986-1989); President of Flagstar Systems, Inc. (1962-1986); Director of
Isotechnologies, Inc., NCAA Foundation and Sonat Inc.; Member of the Board of
Visitors, Duke University Medical Center; Founder and President of the corporate
general partner of Richardson Sports, the franchisee of the NFL Carolina
Panthers.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
Clifton S. Robbins.................. 37 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of Borden, Inc., IDEX Corporation, RJR Nabisco Holdings Corp., RJR Nabisco, Inc.
and The Stop & Shop Companies, Inc.
<S> <C> <C>
George R. Roberts (a)............... 51 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of American Re Corporation, Auto Zone, Inc., Borden, Inc., Duracell
International, Inc., IDEX Corporation, K-III Communications Corporation,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., Red Lion Properties, Inc., RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., Safeway, Inc., The Stop & Shop
Companies, Inc., Union Texas Petroleum Holdings, Inc. and World Color Press, Inc.
L. Edwin Smart...................... 71 Director of FCI and Flagstar; Counsel, Hughes Hubbard & Reed (law firm which
performed services for the Company in 1994) (1989-present); Chairman of the Board
and Chief Executive Officer of Flagstar (1986-1987); Chairman of the Board and
Chief Executive Officer of Transworld Corporation (1978-1986); Chairman of the
Board of Trans World Airlines, Inc. ("TWA") (1977-1985); Chief Executive Officer
of TWA (1977-1979); Vice Chairman of TWA (1976-1977); Senior Vice President of
TWA (1967-1975); Director of Sonat Inc.
Michael T. Tokarz................... 45 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of IDEX Corporation, K-III Communications Corporation, RJR Nabisco, Inc., RJR
Nabisco Holdings Corp. and Safeway, Inc.
</TABLE>
(a) Messrs. Kravis and Roberts are first cousins.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
There are four standing committees of the Board of Directors of FCI and/or
Flagstar, the Audit Committee, the Compensation and Benefits Committee, the
Executive Committee and the Public Affairs Committee. The Audit Committee
currently consists of Mr. Chu, Mr. James and Ms. Farris, with Mr. Chu serving as
Chairman. Until December 31, 1994, Mr. Oliver had served as Chairman of the
Audit Committee. Ms. King was appointed to the Audit Committee in March 1995 to
fill the vacancy created by Mr. Oliver's resignation. The Compensation and
Benefits Committee is comprised of Messrs. Raether, Robbins and Tokarz, with Mr.
Raether serving as Chairman. The Executive Committee is comprised of Messrs.
Adamson, Raether and Tokarz, with Mr. Adamson serving as Chairman. Mr.
Richardson had served as Chairman of the Executive Committee until January 1995.
The Public Affairs Committee is comprised of Ms. Farris, Mr. Robbins and Mr.
Smart, with Ms. Farris serving as Chairman. Set forth below is a summary of the
principal functions of each committee and the number of meetings held during
1994.
AUDIT COMMITTEE. The Audit Committee, which held four meetings in 1994,
recommends the appointment of the Company's independent auditors, determines the
scope of the annual audit to be made, reviews the conclusions of such auditors
and reports the findings and recommendations thereof to the Board, reviews with
the Company's auditors the adequacy of the Company's system of internal controls
and procedures and the role of management in connection therewith, reviews
transactions between the Company and its officers, directors and principal
stockholders, and performs such other functions and exercises such other powers
as the Board from time to time may determine.
COMPENSATION AND BENEFITS COMMITTEE. The Compensation and Benefits
Committee, which held three meetings in 1994, administers certain compensation
and employee benefit plans of the Company, oversees and advises the Board
regarding the compensation of Company officers, determines the compensation of
other key personnel of the Company and reviews and makes recommendations to the
Board concerning compensation practices, policies, procedures and retirement
benefit plans and programs for the employees of the Company. It administers the
1989 Option Plan, the 1990 Option Plan, and such other similar plans as may from
time to time be
8
<PAGE>
adopted by the Company, and performs such other functions and exercises such
other powers as the Board from time to time may determine.
EXECUTIVE COMMITTEE. The Executive Committee, which held ten meetings in
1994, generally has and may exercise all of the powers of the Board of Directors
in the management and business affairs of Flagstar.
PUBLIC AFFAIRS COMMITTEE. The Public Affairs Committee, which held four
meetings in 1994, considers and reviews the policies and practices established
by the Company from time to time to address issues of social and public concern,
reviews significant legislative and other social trends and developments of
importance to the Company and its employees, customers and vendors, monitors and
reports to the Board of Directors concerning the Company's compliance with and
progress toward the goals of its Fair Share Agreement with the NAACP, and
performs such other functions and exercises such other powers as the Board from
time to time may determine.
The Company currently has no standing nominating committee.
During 1994, there were eight meetings of the Board of Directors of FCI and
eight meetings of the Board of Directors of Flagstar. During 1994, each director
of FCI, other than Messrs. Kravis and Roberts, attended at least 75% of the
meetings of the Board of Directors of FCI (and, as applicable, committees
thereof).
SELECTION OF INDEPENDENT PUBLIC AUDITORS
The Board of Directors has selected the firm of Deloitte & Touche LLP as
the principal independent public auditors of the Company for the year 1995.
Deloitte & Touche LLP has acted in such capacity for the Company since 1986.
This selection is submitted for approval by the stockholders at the Annual
Meeting.
Representatives of Deloitte & Touche LLP will attend the Annual Meeting.
They will have an opportunity to make a statement, if they so desire, and to
respond to appropriate questions.
PROPOSED AMENDMENT TO 1989 OPTION PLAN
The Board of Directors of FCI has approved an amendment to the 1989 Option
Plan to increase the number of shares of Common Stock that may be issued under
the 1989 Option Plan by an additional 2,000,000, from 4,500,000 to 6,500,000,
subject to stockholder approval (the "Amendment"). The Amendment is being
proposed to allow future grants to other key employees. No other amendments to
the 1989 Option Plan are proposed.
Options to purchase a total of approximately 1,275,800 shares of Common
Stock were granted to approximately 991 plan participants in 1994 under the 1989
Option Plan. At present, after taking into account the cancellation of certain
options, including the cancellation of options after December 31, 1994 (and
without giving effect to the proposed Amendment), options representing a total
of approximately 4,060,800 shares are outstanding, and options for approximately
439,200 additional shares are available for future grant. There has been no
decision with respect to the number or terms of options that may be granted
hereafter (following stockholder approval of the Amendment) or the number or
identity of future optionees under the 1989 Option Plan.
Under the 1989 Option Plan, the Compensation and Benefits Committee has
authority to grant options to key employees (including officers) and otherwise
administer the 1989 Option Plan. Such committee consists of three members of the
Board of Directors of FCI who are "disinterested persons" within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Any employee of the Company is eligible to receive options
under the 1989 Option Plan, at the discretion of the committee. In the event
that an outstanding option terminates for any reason, the shares of Common Stock
subject to the unexercised portion of such option shall again be available for
grants under the 1989 Option Plan.
An option granted under the 1989 Option Plan (evidenced by an agreement in
a form approved by the committee) entitles the participant to purchase shares of
Common Stock at an option exercise price determined by the committee. Option
agreements may provide for the exercise of options, in whole or in part, from
time to time during the term of the option or in such installments as the
committee shall determine, subject to earlier termination upon certain events as
provided in the 1989 Option Plan. The committee may, in its discretion,
accelerate the date on which an option becomes exercisable. The options are not
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). The maximum term of each option is ten years. The
exercise price of all options granted pursuant to the 1989 Option Plan is
determined by the committee at the
9
<PAGE>
time of grant, but cannot be less than the minimum price required by law. The
exercise price of shares of Common Stock purchased upon the exercise of an
option may be paid in cash, by surrender of other shares of Common Stock having
a fair market value on the date of exercise equal to such exercise price, or
subject to the approval of the committee, in a combination of cash and such
shares.
Upon termination of the services of a participant, all options granted to
such participant that are not then exercisable shall expire and terminate. If
such termination is by reason of death, retirement or disability, such holder's
exercisable options shall remain exercisable for one year following termination.
If such termination is due to voluntary termination or termination without
cause, such holder's exercisable options shall generally remain exercisable for
sixty days following termination. If such termination is for cause, all of such
holder's options shall expire and terminate as of the date of termination.
Options granted under the 1989 Option Plan are nontransferable and
nonassignable by the optionee, other than by will or the laws of descent and
distribution, and are exercisable during his or her lifetime only by the
optionee. No option may be exercised after the expiration of its term. The
Company receives no proceeds upon the grant of options. Any proceeds received by
the Company from the sale of Common Stock on the exercise of options shall be
used for general corporate purposes. No partial exercise of an option shall be
for an aggregate exercise price of less than $1,000 or in respect of less than
100 shares of Common Stock. The partial exercise of an option shall not cause
the termination of the remaining portion thereof.
Upon the occurrence of certain events involving a recapitalization or
reorganization of the Company, the committee will make appropriate adjustments
to the number of shares covered by each outstanding option and the per share
exercise price thereof, redeem such options (whether or not then exercisable),
or make other appropriate adjustments, in its discretion, to prevent dilution or
enlargement of rights.
The Board of Directors of FCI may at any time suspend or discontinue the
1989 Option Plan or revise or amend it in any respect whatsoever; provided,
however, that without approval of the stockholders, no revision or amendment
shall increase the number of shares of Common Stock that may be issued under the
1989 Option Plan, materially increase the benefits accruing to individuals
holding options granted pursuant to the 1989 Option Plan or materially modify
the requirements as to eligibility for participation in the 1989 Option Plan.
As of March 15, 1995, options with respect to approximately 4,060,800
shares of Common Stock had been granted and were outstanding under the 1989
Option Plan. Set forth below is information with respect to options granted in
1994 to the officers named in the Summary Compensation Table and other specified
groups under the 1989 Option Plan.
10
<PAGE>
NEW PLAN BENEFITS
1989 NON-QUALIFIED STOCK OPTION PLAN OF FCI
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS
<S> <C> <C>
Jerome J. Richardson
Chairman; Formerly Chief Executive
Officer of Flagstar................................................................... -- --
Gregory M. Buckley
Senior Vice President of Flagstar
and President and Chief
Operating Officer of Quincy's......................................................... (1) 80,000
Samuel H. Maw
Executive Vice President,
Product Development and
Distribution of Flagstar.............................................................. (1) 80,000
Raymond J. Perry
Senior Vice President of
Flagstar and President and
Chief Operating Officer
of El Pollo Loco...................................................................... (1) 80,000
C. Ronald Petty
Executive Vice President of
Flagstar and President and Chief
Executive Officer of Denny's.......................................................... (1) 80,000
All current executive officers as a group............................................... (1) 615,000
All current non-executive officer directors as a group.................................. -- --
All current non-executive officer employees as a group.................................. (1) 285,400
</TABLE>
(1) All options granted in 1994 have an exercise price of $9.00 per share and
have a ten-year term subject to earlier termination as described above. The
dollar value of each of the options granted is not determinable due to
fluctuating market prices. As of March 15, 1995, the Common Stock had a
closing sales price of $6.00 per share. For information with respect to the
potential realizable value of the options granted to the named officers in
1994 at assumed rates of stock price appreciation, see "Executive
Compensation -- Stock Options -- Option Grants in 1994" below.
FEDERAL INCOME TAX CONSEQUENCES
No federal taxable income is recognized by a 1989 Option Plan participant
upon the grant of a non-qualified stock option. Holders of options will,
however, recognize ordinary income in the year in which the option is exercised
in the amount by which the fair market value of the purchased shares on the date
of exercise exceeds the option exercise price. Participants who are directors of
the Company and other participants who are otherwise deemed to be affiliates of
the Company and thereby subject to liability under Section 16(b) of the Exchange
Act ("16(b) Optionees") are not deemed to recognize the ordinary income
attributable to exercise until the occurrence of both (i) an exercise and (ii)
the earlier of (a) the expiration of six months after the date of grant of the
option and (b) the first day on which the sale of the stock at a profit will not
subject the participant to Section 16(b) liability (the "Recognition Date"). The
amount of ordinary income to be recognized by 16(b) Optionees will equal the
excess of the fair market value on the Recognition Date of the Company's shares
so purchased over the option exercise price, unless the 16(b) Optionee files a
written election with the Internal Revenue Service (the "IRS") and the Company
pursuant to Section 83(b) of the Code within thirty days after exercise to have
the ordinary income attributable to exercise realized as of the exercise date.
The fair market value of the shares on the date of exercise (or, in the
case of 16(b) Optionees who do not make an 83(b) election, on the Recognition
Date) will constitute the tax basis thereof for computing gain or loss on any
subsequent sale, and their holding period will generally be measured from the
date the option is exercised (or, in the case of 16(b) Optionees who do not make
an 83(b) election, from the Recognition Date). The Company will be entitled to a
business expense deduction for the Company's taxable year during which the
option is exercised equal to the amount of ordinary income recognized by the
participant. In the case of 16(b) Optionees, the
11
<PAGE>
Company's deduction will be for the taxable year during which the participant
recognizes income as a result of the exercise of the option. Additional gain or
loss shall be recognized by the optionee upon the subsequent disposition of the
shares.
If the option exercise price under any non-qualified stock option is paid
for by surrendering shares of Common Stock previously acquired, then the
optionee will recognize ordinary income on the exercise as described above (any
shares acquired under the option in excess of the number of shares surrendered
being treated as having been acquired without consideration), but will not
recognize any taxable gain or loss on the difference between the optionee's
basis in the surrendered shares and their current fair market value. For federal
income tax purposes, newly acquired shares equal to the number of shares
surrendered will have the same basis and holding period as the surrendered
shares. Any additional newly acquired shares will have a basis equal to their
fair market value at exercise and their holding period will begin at the date of
exercise as described above.
APPROVAL OF 1995 INCENTIVE COMPENSATION
The Compensation and Benefits Committee and the Board of Directors of
Flagstar have approved certain incentive compensation arrangements for 1995 for
(i) Flagstar's executive officers (other than the Chief Executive Officer) and
certain other key employees pursuant to Flagstar's 1995 Senior Management
Incentive Plan (the "1995 Incentive Plan"), and (ii) Mr. Adamson, the Company's
President and Chief Executive Officer, under the terms of his employment
agreement with the Company. The Board has made such arrangements subject to
approval by the stockholders at the Annual Meeting in order to maximize the tax
deductibility to the Company (under the Omnibus Budget Reconciliation Act of
1993) of amounts that may ultimately be paid under such arrangements to Mr.
Adamson and the officers (other than Mr. Richardson) named in the Summary
Compensation Table.
Under the 1995 Incentive Plan, subject to stockholder approval, plan
participants will receive Target Awards of either 75%, 50%, 25% or 15% of the
participant's base salary depending on the group classification assigned to such
participant by the Committee. Depending on an individual participant's role and
position with the Company and its various business concepts, 75% of a
participant's award will be determined based on the Company and/or his or her
concept attaining various "EBITDA" (i.e., earnings before interest, taxes,
depreciation and amortization) performance levels. A participant will be
designated either a Corporate Participant or a Concept Participant. A Corporate
Participant will receive 75% of his Target Award if Company EBITDA equals the
"target" performance level established by the Chief Executive Officer and the
committee. A Concept Participant will receive 50% of his Target Award if Company
EBITDA equals the "target" performance level established by the Chief Executive
Officer and the committee plus an additional 25% of his Target Award if his or
her concept EBITDA equals the "target" performance level established by the
Chief Executive Officer and the committee. The remaining 25% of a plan
participant's potential award will be determined based on the participant or his
team meeting predetermined individual or team performance objectives for the
year.
If these EBITDA "target" performance levels are not met, the Corporate and
Concept Participants will nevertheless receive a specified percentage of their
Target Awards based on Company and/or concept EBITDA provided Company EBITDA
and/or concept EBITDA performance do not fall below specified minimum levels. If
the Company EBITDA and/or concept EBITDA "target" performance levels are
exceeded, a participant will receive up to 200% (at the highest stated
performance level, plus in the case of Company EBITDA performance, an additional
5% for each $1 million over the highest stated performance level) of the amount
he would have received based on Company EBITDA and/or concept EBITDA had the
"target" performance level been met but not exceeded. Incentive pay-out levels
between the various EBITDA levels or beyond the highest stated EBITDA level will
be interpolated on a straight-line basis. There is no maximum amount of
incentive pay-out based on Company EBITDA results. The maximum amount of award
based on concept EBITDA results is limited to 200% of that portion of the Target
Award that is based on concept EBITDA.
To determine the amount of any individual/team award, the Target Awards for
each participant within a particular team are summed and multiplied by 25% to
arrive at an "Initial Team Pool." The team may receive an award by meeting
and/or exceeding stated performance goals determined by the Chief Executive
Officer. The team leader of each team will receive a portion of his team's team
award (which may exceed the amount of the "Initial Team Pool" if performance
goals are exceeded) as determined by the Chief Executive Officer. The remaining
amount of each team award is allocated to the other participants on the team,
such allocation to be
12
<PAGE>
made by the team leader in consultation with the Chief Executive Officer. The
final aggregate team award for all team participants combined may not exceed
150% of the aggregate "Initial Team Pool."
Payments of awards under the 1995 Incentive Plan will be made as soon as
practicable after the end of the year. The Board has reserved the right to
cancel, modify or amend the 1995 Incentive Plan at any time, and such
cancellation, modification or amendment may be retroactive to the beginning of
the year. A total of approximately 230 persons holding key managerial or other
important positions in the Company are participants in the 1995 Incentive Plan.
Under the terms of his employment agreement, Mr. Adamson is entitled to
receive an annual bonus in the form of an incentive award in an amount up to
200% of his base salary (targeted to equal 75% of his base salary), subject to
the achievement of budgeted financial and other performance targets determined
by the Compensation and Benefits Committee. Such award may be greater or lesser
than 75% of his base salary if the Company's and/or Mr. Adamson's performance
exceeds or falls short of the target levels determined by the committee;
provided, however, that Mr. Adamson is entitled to receive a minimum 1995 bonus
equal to $500,000. (For 1995, Mr. Adamson's base salary has been established at
$950,000.) Subject to stockholder approval and the Company's contractual
obligations described above, the Compensation and Benefits Committee has
determined that, for 1995, Mr. Adamson's incentive award shall track and be
determined based on the Company EBITDA performance levels that have been
established for all employees participating in the 1995 Incentive Plan.
The benefits or amounts that will be received by or allocated to the Chief
Executive Officer, to the officers (other than Mr. Richardson) named in the
Summary Compensation Table or to other individuals or categories of employee
under these incentive compensation arrangements are not determinable since they
will be based on Company operating results for 1995. In 1994, the Company had in
effect similar incentive compensation arrangements based on the achievement of
Company and concept EBITDA (at performance levels that vary from those
established for 1995) and individual or team performance objectives. Set forth
below is information with respect to incentive awards granted to Mr. Richardson
for 1994 pursuant to his employment agreement and granted under Flagstar's 1994
Senior Management Incentive Plan to the other officers named in the Summary
Compensation Table and other specified groups.
NEW PLAN BENEFITS
1994 INCENTIVE COMPENSATION
<TABLE>
<CAPTION>
DOLLAR VALUE
NAME AND POSITION ($)(1) NUMBER OF UNITS
<S> <C> <C>
Jerome J. Richardson
Chairman; Formerly Chief Executive
Officer of Flagstar................................................................ $ 250,000(2) --
Gregory M. Buckley
Senior Vice President
of Flagstar and President and Chief
Operating Officer of Quincy's...................................................... $ 126,563 --
Samuel H. Maw
Executive Vice President,
Product Development
and Distribution of Flagstar....................................................... $ 95,625 --
Raymond J. Perry
Senior Vice President
of Flagstar and President and Chief
Operating Officer of El Pollo Loco................................................. $ 135,000 --
C. Ronald Petty
Executive Vice President
of Flagstar and President and Chief
Executive Officer of Denny's....................................................... $ 144,281 --
All current executive officers as a group............................................ $1,161,957 --
All current non-executive officer directors as a group............................... -- --
All current non-executive officer employees as a group............................... $2,158,807 --
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
13
<PAGE>
(1) All awards under the 1994 Senior Management Incentive Plan were made based
on achievement of certain concept EBITDA performance levels and/or
non-quantitative individual or team objectives.
(2) See "Executive Compensation -- Compensation and Benefits Committee Report"
for information concerning the bases for the award of 1994 incentive
compensation to Mr. Richardson.
MANAGEMENT
DIRECTORS OF FCI AND FLAGSTAR
For information with respect to the Board of Directors of each of FCI and
Flagstar, see "Election of Directors."
EXECUTIVE OFFICERS OF FCI
The name, age, positions and offices held with the Company and the
principal occupation or employment for the last five years of each of the
current executive officers of FCI (other than Messrs. Adamson and Richardson)
are set forth below. Each executive officer serves as such until his or her
successor is elected and qualified. Except as may otherwise be disclosed herein,
no executive officer of FCI was selected pursuant to any arrangement or
understanding with any person other than FCI.
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
A. Ray Biggs........................ 53 Vice President and Chief Financial Officer of FCI and Senior Vice President and
Chief Financial Officer of Flagstar (1992-present); Partner, Deloitte & Touche
LLP (accounting firm which served as independent auditors for the Company in
1994) (1978-1992).
Rhonda J. Parish.................... 38 Vice President and General Counsel of FCI and Senior Vice President and General
Counsel of Flagstar (January 1995-present); Secretary of FCI and Flagstar
(February 1995-present); Assistant General Counsel of Wal-Mart Stores, Inc.
(1990-1994); Corporate Counsel of Wal-Mart Stores, Inc. (1983-1990).
</TABLE>
(For information with respect to Messrs. Adamson and Richardson, see "Election
of Directors.")
EXECUTIVE OFFICERS OF FLAGSTAR
The name, age, positions and offices held with the Company and the
principal occupation or employment for the past five years of each of the
current executive officers of Flagstar (other than Messrs. Adamson, Richardson
and Biggs and Ms. Parish) are set forth below. Each executive officer serves as
such until his or her successor is elected and qualified. Except as may
otherwise be disclosed herein, no executive officer of Flagstar was selected
pursuant to any arrangement or understanding with any person other than
Flagstar.
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
Samuel H. Maw (a)................... 61 Executive Vice President, Product Development and Distribution of Flagstar
(1994-present); Senior Vice President, Product Development and Distribution of
Flagstar (1990-1994); Chief Operating Officer of Canteen Corporation
(1993-1994); Senior Vice President of Flagstar (1989); President and Chief
Executive Officer of Denny's (1988-1990); Senior Vice President of Spartan Food
Systems, division of Flagstar (1987-1988); Vice President of Research and
Development of Flagstar Systems, Inc. (1974-1986); Director of Isotechnologies,
Inc.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
H. Stephen McManus (a).............. 52 Executive Vice President, Special Projects of Flagstar (February 1995-present);
President of Flagstar Systems, Inc. (1994-present); Executive Vice President,
Restaurant Operations of Flagstar (1991-February 1995); Senior Vice President of
Flagstar (1989-1991); Chief Operating Officer of Flagstar Enterprises, Inc.
(Hardee's) (1990-1991); Senior Vice President of Flagstar Systems, Inc.
(1990-1991); Vice President of Operations of Spartan Food Systems, division of
Flagstar (1986-1989); Vice President of Operations of Flagstar Systems, Inc.
(1984-1986).
<S> <C> <C>
Edna K. Morris...................... 43 Executive Vice President, Human Resources and Corporate Affairs of Flagstar
(February 1995-present); Senior Vice President, Human Resources of Flagstar
(1993-February 1995); Vice President, Education and Devel-
opment of Flagstar (1992-1993); Senior Vice President/Human Resources of
Hardee's Food Systems, Inc. (1987-1992); Director of Employee Relations of
Hardee's Food Systems, Inc. (1987); Personnel Manager, Consolidated Diesel
Company, a joint venture between J. I. Case and Cummins Engine Company
(1981-1987); Personnel Manager, Manufacturing of Hardee's Food Systems, Inc.
(1980-1981).
C. Ronald Petty..................... 50 Executive Vice President of Flagstar and President of Denny's (1994-present);
Chief Executive Officer of Denny's (February 1995-present); Chief Operating
Officer of Denny's (1993-present); Senior Vice President of Flagstar
(1993-1994); Independent Consultant (1992-1993); President and Chief Executive
Officer of Miami Subs Corporation (1990-1992); President and Chief Operating
Officer of Burger King Corporation, US Division (1988-1990); President,
International Division of Burger King Corporation (1986-1988).
Gregory M. Buckley.................. 41 Senior Vice President of Flagstar and Chief Operating Officer of Quincy's
Restaurants, Inc. (1993-present); President of Quincy's Restaurants, Inc.
(1994-present); Vice President, Central Division of Pizza Hut (1990-1993);
President, Southeast Division of Progressive Corp. (1986-1990).
Jerry A. Houck...................... 52 Senior Vice President, Real Estate and Construction of Flagstar (1990-present);
Vice President of Construction and Real Estate of Flagstar Systems, Inc.
(1988-1990); Vice President of Construction of Flagstar Systems, Inc.
(1987-1988); Director of New Construction for Flagstar Systems, Inc.
(1976-1987).
James R. Kibler..................... 40 Senior Vice President of Flagstar and Chief Operating Officer of Flagstar
Enterprises, Inc. (Hardee's) (1991-present); President of Flagstar Enterprises,
Inc. (Hardee's) (1994-present); Senior Vice President of Flagstar Systems, Inc.
(1991-present); Vice President of Operations -- Denny's West Coast (1989-1991);
Division Leader for Hardee's (1989); Region Leader for Hardee's (1979-1989).
Raymond J. Perry.................... 53 Senior Vice President of Flagstar and Chief Operating Officer of El Pollo Loco
(1993-present); President of El Pollo Loco (1994-present); President of Kelly's
Coffee & Fudge Factory (1991-1993); Executive Vice President of Carl's Jr.
Restaurants (1989-1991); Group Vice President of Carl's Jr. Restaurants
(1988-1989); Vice President of Operations of Carl's Jr. Restaurants (1986-1988).
Kent M. Smith....................... 57 Senior Vice President and Assistant to the Chief Executive Officer of Flagstar
(March 1995-present); Consultant of Pollo Tropical (1994-February 1995); Senior
Vice President of Burger King Corporation (1992-1994); President of Strategic
Marketing Group (1984-1992).
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
Coleman J. Sullivan................. 45 Senior Vice President, Corporate Affairs of Flagstar (February 1995-present);
Vice President, Communications of Flagstar (1990-February 1995); Vice President
of Brown Boxenbaum, Inc. (public relations firm) (1986-1990); Director,
Financial Relations, Transworld Corporation (1984-1986).
<S> <C> <C>
C. Burt Duren....................... 36 Vice President, Tax of Flagstar (1993-present); Treasurer of Flagstar
(1994-present); Director of Tax of Flagstar (1989-1993); Senior Tax Manager,
Deloitte & Touche LLP (1988-1989).
Thomas R. Holt...................... 38 Vice President, Information Services of Flagstar (1993-present); Director,
Information Services of Flagstar (1991-1993); Director, Management Information
Services of Flagstar Systems, Inc. (1988-1990); Manager, Information Services of
Carpet and Rug Division of Fieldcrest Cannon (1987-1988).
Honorio J. Padron................... 42 Vice President, Business Transformation of Flagstar (March 1995-present); Senior
Director of Research and Development of Burger King Corporation (January
1995-March 1995); Director of Reengineering of Burger King Corporation
(1993-January 1995); Director of Worldwide Profit and Loss Improvement of Burger
King Corporation (1993); Manager of Systems Support of Burger King Corporation
(1990-1993).
Stephen W. Wood..................... 36 Vice President, Compensation, Benefits and Employee Information Systems of
Flagstar (1993-present); Senior Director, Compensation, Benefits and Employee
Information Systems of Flagstar (1993); Director, Benefits and Executive
Compensation of Hardee's Food Systems, Inc. (1991-1993); Consultant of Hewitt
Associates, L.P. (benefit consultants that performed services for the Company in
1994) (1990); McGuire, Woods, Battle & Boothe (law firm) (1984-1990).
</TABLE>
(a) Messrs. Maw and McManus are brothers-in-law.
(For information with respect to Messrs. Adamson and Richardson, see "Election
of Directors." For information with respect to Mr. Biggs and Ms. Parish, see
"Management -- Executive Officers of FCI.")
EXECUTIVE COMPENSATION
COMPENSATION AND BENEFITS COMMITTEE REPORT
The following is an explanation of the Company's officer compensation
program as in effect for 1994.
1994 OFFICER COMPENSATION PROGRAM
The 1994 officer compensation program of Flagstar had three primary
components:
(Bullet) Base salary established on the basis of (i) quantitative data in
the form of comparisons to peer groupings within the restaurant
and food service industry, and (ii) non-quantitative factors such
as positions of responsibility and authority, years of service and
annual performance evaluations.
(Bullet) Short-term incentives under the Company's 1994 Senior Management
Incentive Plan. Under this plan, as approved by the Company's
stockholders at their 1994 annual meeting, plan participants (not
including the Chief Executive Officer) were entitled to receive
target awards of either 75%, 50%, 25% or 15% of a participant's
base salary depending on the group classification assigned to such
participant by the committee. Depending on an individual
participant's role and position with the Company and its various
business concepts, 75% of such participant's potential award was
to be determined based on the Company's and/or his or her
concept's attaining various EBITDA performance levels. There was
no maximum amount of potential incentive pay-out based on Company
EBITDA results (although the maximum amount of award based on
concept EBIDTA results was limited to 200% of that portion of a
participant's target award that was based on concept EBITDA). The
remaining 25% of a plan participant's potential award was to be
based on the participant or his or her team meeting predetermined,
generally non-quantitative, individual
16
<PAGE>
or team performance objectives for the year. Such objectives had
to be approved by the Chief Executive Officer or his designee(s)
and varied among participants depending on their areas of
responsibility. Team awards were allocable by team leaders
(designated by the Chief Executive Officer) in consultation with
the Chief Executive Officer and the Compensation and Benefits
Committee.
(Bullet) Long-term incentives, which in 1994, consisted solely of stock
options.
Officers (including the Chief Executive Officer) were also eligible in 1994
to participate in various benefits plans similar to those provided to other
employees of the Company. Such benefits plans are intended to provide a safety
net of coverage against various events, such as death, disability and
retirement.
The Company's officer compensation program is designed with stockholder
value as a primary concern. It focuses on Company performance (EBITDA) that
rewards the generation of funds to repay debt and makes the Company stronger for
stockholders. Through the stock option program, it also rewards officers and
others based on stock price increases over time.
During 1993, the Company undertook a comprehensive study of its approach to
officer compensation, including a review of (i) competitive levels of
compensation, and (ii) the relative mix of compensation among base salary,
benefits, short-term incentives and long-term incentives, principally in
relation, in each case, to other restaurant and food service companies (such as
those included in the Standard & Poor's Restaurant Index reflected in the
stockholder return performance graph elsewhere herein). The comparison groups
also included certain food manufacturing and hospitality companies not included
in the stockholder return performance graph index because the committee
considered those to be relatively comparable industries. As discussed in last
year's report, that study generally indicated that the Company's officer
compensation program was somewhat lower than comparison groups with regard to
base salary and long-term incentives and in aggregate terms (although the
Company's potential short-term incentive compensation (described above) was
somewhat higher than that of the comparison groups). The committee did make
certain adjustments to senior leader base salaries in late 1994 (to become
effective in 1995) based on such study and based on additional analyses
performed during 1994 of senior leaders' salaries relative to peer groupings
within the restaurant and food service industry. The analyses performed in late
1994 generally confirmed the results of the study undertaken in 1993. The
committee considered these adjustments to be particularly important in light of
the salary freeze instituted by the Company in 1993 and which continued through
1994. Results of these studies were also taken into account with regard to the
Company's grant of stock options in 1994 as discussed elsewhere herein.
In December 1994, the committee reviewed the status of the 1994 Senior
Management Incentive Plan and anticipated year-end operating results. In light
of Company EBITDA results for the year (which fell short of the various Company
EBITDA performance levels established under the plan), no bonus payments were
made to officers based on the predetermined Company EBIDTA goals. However, some
bonus payments were made based on achievement of certain concept EBITDA
performance levels and, upon the recommendation of the Chief Executive Officer,
based on achievement of certain predetermined, non-quantitative individual and
team performance objectives under the 1994 plan.
With respect to IRS regulations pertaining to the deductibility of
compensation to certain executive officers in excess of $1 million, the
committee has adopted a policy that it will attempt to comply with such
regulations, to the extent practicable, including its presentation of the
Company's annual incentive compensation plans to the stockholders for prior
approval. However, the committee has also determined that some flexibility is
required, notwithstanding these IRS regulations, in negotiating and implementing
the Company's incentive compensation program. It has, therefore, retained the
discretion to award some bonus payments based on non-quantitative performance
objectives and other criteria which it may determine, in its discretion, from
time to time.
The Committee granted stock options to certain Company officers in 1994 in
conjunction with its ongoing broad based stock option program. For details
concerning the grant of options to the executive officers named in the Summary
Compensation Table below, see "Executive Compensation -- Stock Options -- Option
Grants in 1994." The Committee allocated options to the named executive officers
and others based on an evaluation of their relative levels of responsibility for
and contribution to the Company's operating results (in relation to the
Company's other optionees) and to provide them with significant long-term
incentives to enhance stockholder value. Although the 1994 grants were in
addition to significant grants in 1993, the number of shares issuable upon
exercise of such options were still deemed to be generally in line with target
stock ownership levels based on the
17
<PAGE>
market studies undertaken by the Company (in conjunction with the officer
compensation studies referred to above) of other large public companies.
CHIEF EXECUTIVE OFFICER COMPENSATION
In August 1992, Mr. Richardson and the Company executed an employment
agreement in connection with the recapitalization of the Company, the principal
elements of which were completed on November 16, 1992 (the "Recapitalization").
The terms of such agreement, including the initial base salary thereunder, were
based on arms'-length negotiations among the parties to the Recapitalization
and, although generally consistent therewith, were established prior to and
independently of implementation of the committee's current compensation program.
Consistent with the salary freeze instituted by the Company in 1993 and that
extended through 1994, Mr. Richardson did not receive an increase in his base
salary in 1994 over the amount originally negotiated in 1992. See "Executive
Compensation -- Employment Agreements -- Richardson Employment Agreement" for
information concerning Mr. Richardson's compensation in 1994 pursuant to this
agreement.
Mr. Richardson's right to receive incentive compensation for 1994 was
governed by his employment agreement and was not a part of the 1994 Senior
Management Incentive Plan. See "Executive Compensation -- Employment
Agreements -- Richardson Employment Agreement." During the first quarter of
1994, the committee had determined that Mr. Richardson's incentive award for
1994 would be based on the same Company EBITDA performance levels that the
committee had adopted for the rest of management under the 1994 Senior
Management Incentive Plan. Although the Company did not achieve its Company
EBITDA targets for the year, the committee did determine in its discretion in
December 1994, in consultation with the rest of the Board, based on
non-quantitative factors such as improving operating trends at Denny's, the sale
of the Company's food and vending operation, and other developments during the
year (and consistent with its determination to approve bonus payments under the
1994 plan to other senior leaders based on non-quantitative individual and team
performance), to make a bonus payment to Mr. Richardson as indicated in the
Summary Compensation Table below.
COMPENSATION AND BENEFITS COMMITTEE
<TABLE>
<S> <C>
Paul E. Raether, Chairman
Clifton S. Robbins
Michael T. Tokarz
</TABLE>
COMPENSATION OF OFFICERS
No executive officer of FCI is compensated directly by FCI in connection
with services provided to the Company. All such executive compensation is paid
by Flagstar. Set forth below is information for 1994, 1993 and 1992 with respect
to compensation for services to the Company of Mr. Richardson, the Chief
Executive Officer of the Company during 1994, and each of the four most highly
compensated executive officers (other than the Chief Executive Officer) of the
Company during 1994.
18
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION ALL
AWARDS OTHER
NAME AND ANNUAL COMPENSATION (1) SECURITIES UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($) OPTIONS (#)(3) ($)(4)(5)
<S> <C> <C> <C> <C> <C>
Jerome J. Richardson 1994 $ 856,594 $250,000 -- $ 10,250
Chairman; Formerly 1993 $ 824,355 -- -- $ 13,652
Chief Executive 1992 $ 776,804 $750,000 600,000 $ 15,286
Officer of Flagstar
Gregory M. Buckley 1994 $ 221,416 $126,563 80,000 $111,747
Senior Vice President of 1993 $ 136,533 -- 60,000 $460,852
Flagstar and President 1992 -- -- -- --
and Chief Operating
Officer of Quincy's
Samuel H. Maw 1994 $ 301,145 $ 95,625 80,000 --
Executive Vice President, 1993 $ 280,861 -- 80,000 --
Product Development 1992 $ 273,024 $124,888 -- --
and Distribution
of Flagstar
Raymond J. Perry 1994 $ 237,339 $135,000 80,000 --
Senior Vice President 1993 $ 136,606 -- 60,000 $130,000
of Flagstar and President 1992 -- -- -- --
and Chief Operating
Officer of El Pollo Loco
C. Ronald Petty 1994 $ 284,284 $144,281 80,000 $ 78,194
Executive Vice President 1993 $ 142,500 -- 80,000 $483,125
of Flagstar and President 1992 -- -- -- --
and Chief Executive
Officer of Denny's
</TABLE>
(1) The amounts shown for each named executive officer exclude perquisites and
other personal benefits that did not exceed, in the aggregate, the lesser of
either $50,000 or 10% of the total of annual salary and bonus reported for
the named executive officer for any year included in this table.
(2) The amounts shown for 1994 include accruals of $112,938 and $41,086 for
Messrs. Richardson and Maw, respectively, under a supplemental executive
retirement plan. The amounts shown for 1993 include accruals of $62,082 and
$26,823, and the amounts shown for 1992 include accruals of $58,053 and
$30,119, for Messrs. Richardson and Maw, respectively, under the same plan.
Such amounts also reflect certain costs and credits to the named executive
officers relating to certain life, health and disability insurance coverage
provided through the Company.
(3) For additional information concerning the grant of options in 1994, see
"Executive Compensation -- Stock Options" below. Options to purchase Common
Stock were granted to Mr. Richardson on December 15, 1992 pursuant to the
1989 Option Plan and his employment agreement dated as of August 11, 1992,
upon the termination of his prior option to purchase 160,000 shares of
Common Stock. Such options become exercisable at the rate of 20% per year
beginning on November 16, 1993, conditioned upon his continued employment
with the Company. Pursuant to Mr. Richardson's employment agreement, all
shares of Common Stock that Mr. Richardson acquires upon any exercise of
such options shall be subject to the Richardson Shareholder Agreement. See
"Executive Compensation -- Employment Agreements -- Richardson Employment
Agreement" and "General -- Ownership of Capital Securities -- Richardson
Shareholder Agreement" for additional information. Options were granted to
Messrs. Buckley, Maw, Perry and Petty on June 29, 1993 pursuant to the 1989
Option Plan. The exercise price for such options is $11.25 per share. Such
options become exercisable at the rate of 50% as of June 29, 1995 and 25%
per year thereafter.
(4) The amounts shown for Mr. Richardson are split-dollar insurance premium
payments paid by the Company for the years indicated.
(5) The amounts shown for Messrs. Buckley, Perry and Petty consist of additional
compensation and/or expense reimbursement paid to the respective named
executive officers at or near the time of, or otherwise arising in
connection with, their initial employment with the Company.
19
<PAGE>
STOCK OPTIONS
Set forth below is information with respect to individual grants of stock
options with respect to the Common Stock made during 1994 to Messrs. Buckley,
Maw, Perry and Petty. No stock options were granted in 1994 to Mr. Richardson.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
% OF
NUMBER OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED EXERCISE ANNUAL RATES OF STOCK
OPTIONS TO OR BASE PRICE APPRECIATION
GRANTED EMPLOYEES PRICE EXPIRATION FOR OPTION TERM
NAME (#)(1) IN 1994 ($/SH)(2) DATE 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Gregory M. Buckley 80,000 6.3% $9.00 08-16-04 $ 453,600 $1,144,800
Samuel H. Maw 80,000 6.3% $9.00 08-16-04 $ 453,600 $1,144,800
Raymond J. Perry 80,000 6.3% $9.00 08-16-04 $ 453,600 $1,144,800
C. Ronald Petty 80,000 6.3% $9.00 08-16-04 $ 453,600 $1,144,800
</TABLE>
(1) Such options were granted on August 16, 1994 pursuant to the 1989 Option
Plan and become exercisable at the rate of 50% as of August 16, 1996 and 25%
per year thereafter, conditioned upon continued employment with the Company.
Under the 1989 Option Plan, the exercise price upon the exercise of an
option may be paid in cash or by surrender of other shares of Common Stock
having a fair market value on the date of exercise equal to such exercise
price, or in a combination of cash and such shares. Upon termination of
employment of a holder, all of such holder's options not then exercisable
expire and terminate. If such termination is by reason of death, retirement
or disability, such holder's exercisable options remain exercisable for one
year following termination. If such termination is voluntary or without
cause, such holder's exercisable options generally remain exercisable for
sixty days following termination. If such termination is for cause, such
holder's exercisable options expire and terminate as of the date of
termination.
(2) The exercise price for such options was established at the closing sales
price for the Common Stock as of the date prior to the date of grant.
The following table sets forth information with respect to the 1994
year-end values of unexercised options, all of which were granted by the Company
pursuant to the 1989 Option Plan, held by Mr. Richardson, the Chief Executive
Officer of the Company during 1994, and each of the other persons named in the
Summary Compensation Table above:
AGGREGATED OPTION EXERCISES IN 1994 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED OPTIONS THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
<S> <C> <C>
Jerome J. Richardson.............................................................. 240,000/360,000 -- / --
Gregory M. Buckley................................................................ -- /140,000 -- / --
Samuel H. Maw..................................................................... -- /160,000 -- / --
Raymond J. Perry.................................................................. -- /140,000 -- / --
C. Ronald Petty................................................................... -- /160,000 -- / --
</TABLE>
No options held by the foregoing persons were exercised in 1994.
20
<PAGE>
RETIREMENT PLANS
A tax qualified defined benefit retirement plan is maintained by Flagstar
Systems, Inc. and certain other Flagstar subsidiaries. Such plan is described
below.
The following table shows the estimated annual benefits for a single life
annuity that could be payable under the Flagstar Retirement Plan (as defined),
as amended, and the ancillary plan described below upon a person's normal
retirement at age 65 if that person were in one of the following classifications
of assumed compensation and years of credited service.
<TABLE>
<CAPTION>
AVERAGE ANNUAL REMUNERATION OVER YEARS OF SERVICE
A FIVE-YEAR PERIOD 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 200,000............................................ $ 43,296 $ 57,728 $ 72,161 $ 86,593 $100,000
250,000............................................ 54,546 72,728 90,911 109,093 125,000
300,000............................................ 65,796 87,728 109,661 131,593 150,000
350,000............................................ 77,046 102,728 128,411 154,093 175,000
400,000............................................ 88,296 117,728 147,161 176,593 200,000
500,000............................................ 110,796 147,728 184,661 221,593 250,000
600,000............................................ 133,296 177,728 222,161 266,593 300,000
700,000............................................ 155,796 207,728 259,661 311,593 350,000
800,000............................................ 178,296 237,728 297,161 356,593 400,000
900,000............................................ 200,796 267,728 334,661 401,593 450,000
</TABLE>
The Flagstar Pension Plan (the "Flagstar Retirement Plan") is
noncontributory and generally covers all employees of Flagstar and its
subsidiaries (other than its Denny's restaurant and distribution, El Pollo Loco,
and concessions and recreation services subsidiaries) who have attained the age
of 21 and who have completed one thousand hours of service. There are two entry
dates per year for new employees, January 1 and July 1. As a result of a plan
amendment effective January 1, 1989, a participant's annual retirement benefit
under the Flagstar Retirement Plan at normal retirement age is calculated by
multiplying the number of years of participation in the Flagstar Retirement Plan
(not to exceed 35 years) by the sum of one percent of the average Compensation
(as defined below) paid during 60 consecutive calendar months chosen to produce
the highest average ("Average Compensation" for the purposes of this paragraph)
plus an additional one-half of one percent of the Average Compensation in excess
of the average Social Security wage base. Benefits payable cannot exceed 50% of
the Average Compensation. Plan benefits are normally in the form of a life
annuity or, if the retiree is married, a joint and survivor annuity.
"Compensation" for the purposes of this paragraph generally consists of all
remuneration paid by the employer to the employee for services rendered as
reported or reportable on Form W-2 for federal income tax withholding purposes
(including the amount of any 1993 year-end bonus paid in 1994), excluding
reimbursements and other expense allowances, fringe benefits, moving expenses,
deferred compensation and welfare benefits (such exclusions including, without
limitation, severance pay, relocation allowance, gross-up pay to compensate for
taxable reimbursements, hiring bonuses, cost of living differentials, special
overseas premiums, compensation resulting from participation in, or cancellation
of, stock option plans, contributions by the employer to the Flagstar Retirement
Plan or any other benefit plan and imputed income resulting from the use of
Company property or services). Except for limited purposes described in the
plan, Compensation also includes any deferred compensation under a Section
401(k) plan maintained by the employer and salary reduction amounts under a
Section 125 plan maintained by the employer. The funding of the Flagstar
Retirement Plan is based on actuarial determinations.
Ancillary to the Flagstar Retirement Plan is a nonqualified plan for key
executive employees that provides future service benefits and benefits in excess
of the annual maximum benefits limit under the Code to certain key employees.
"Compensation" and "Average Compensation" are defined in this ancillary plan the
same way they are defined in the Flagstar Retirement Plan. Benefits payable
under the ancillary plan are included in the table above. A supplemental
executive retirement plan provides additional benefits to certain key executives
calculated as a percentage of base salary.
The maximum annual pension benefit payable under the Flagstar Retirement
Plan for 1994 was $118,800 (or, if greater, the participant's 1982 accrued
benefit).
21
<PAGE>
Except for the exclusion of 1994 bonuses paid in 1995 and the accrual of
certain nonqualified benefits as described herein, the Compensation included
under the Flagstar Retirement Plan (including the ancillary nonqualified plan)
generally corresponds with the annual compensation of the named executive
officers in the Summary Compensation Table above. Includable Compensation for
1994 for Messrs. Richardson, Buckley, Maw and Petty was $750,000, $225,000,
$261,236 and $285,000, respectively.
As of December 31, 1994, the estimated credited years of service under the
Flagstar Retirement Plan for Messrs. Richardson, Buckley, Maw and Petty at
normal retirement age was 40, 24, 29 and 15, respectively.
The early retirement provisions of the Flagstar Retirement Plan were
amended effective January 1, 1989 to provide an improved benefit for long
service employees. Employees with age and service equalling or exceeding 85 and
who are within five years of the Social Security retirement age will receive no
reduction of accrued benefits. Employees who are at least 55 years of age with
15 years of service will receive a reduction of three percent in accrued
benefits for the first five years prior to normal retirement date and six
percent for the next five years. Accrued benefits for employees retiring with
less than 15 years of service will be actuarially reduced beginning at age 55.
Vesting of retirement benefits was also changed to comply with the law from
12-year graduating vesting to five-year cliff vesting for the plan.
FLAGSTAR THRIFT PLAN
The Thrift Plan is designed to encourage and facilitate systematic savings
by eligible employees. The Thrift Plan is available to salaried employees who
are not governed by a collective bargaining agreement and who are employed by
Flagstar or any subsidiary that adopts the Thrift Plan with the consent of the
Board of Directors. Participation in the Thrift Plan is voluntary. The Thrift
Plan may be amended by the Board of Directors from time to time, but such
amendments may not diminish the securities or cash in the account of a
participant.
A participant in the Thrift Plan generally may choose either of two options
for contributions: an after-tax option or a pre-tax option. An employee may not
make both after-tax and pre-tax contributions in the same month.
A salaried employee is eligible to participate in the Thrift Plan if the
employee (i) has attained 21 years of age, (ii) has completed one year of
service (as defined) and (iii) is not subject to a collective bargaining
agreement. Under the after-tax option, each participant specifies a percentage
of compensation (as defined in the Thrift Plan) to be contributed to the Thrift
Plan, which contribution is made by payroll deduction. No participant may
contribute more than 10% of annual compensation. Flagstar contributes a matching
amount equivalent to 25% of the participant's contribution, subject to certain
statutory limits. Contributions of the participants and Flagstar are invested in
investment vehicles designated by the plan administrator. A participant is able
to withdraw certain eligible contributions once per calendar year or at early
retirement age, upon normal retirement, upon termination of employment, upon
disability or at death.
Under the pre-tax option, an eligible employee may make a contribution to
the Thrift Plan on a pre-tax basis, pursuant to Section 401(k) of the Code, by
deferring up to 10% of such employee's compensation (as defined in the Thrift
Plan) but not more than $9,240 (for 1994, the amount being indexed annually) per
year, which is then contributed by Flagstar to the Thrift Plan. Flagstar
currently matches 25% of the employee pre-tax contribution up to 6% of the
employee's compensation (as defined in the Thrift Plan) plus 75% of the first
$500 of employee pre-tax contributions. Contributions are invested in investment
vehicles designated by the plan administrator. Flagstar's matching contributions
are invested pursuant to participants' investment directions for their pre-tax
and after-tax contributions. A participant is able to withdraw pre-tax matching
contributions (and earnings thereon) once per quarter, provided such
contributions were made prior to January 1, 1988. A participant may withdraw his
own pre-tax contributions (including earnings thereon through December 31, 1988)
upon the showing of an immediate and substantial financial hardship as defined
in the plan. Upon the attainment of age 59 1/2, as well as upon the occurrence
of retirement, death, disability or termination of service, a participant
generally may withdraw all contributions and earnings thereon. Flagstar's
contributions vest upon contribution.
Effective June 14, 1990, Common Stock again became an optional investment
vehicle under the Thrift Plan. Participants may direct the investment of up to
25% of their own contributions and the matching contributions in Common Stock.
Participants also may transfer amounts from other investment vehicles into
Common Stock. In no
22
<PAGE>
event, however, may a participant transfer amounts into Common Stock that would
result in the ownership of Common Stock exceeding 25% of the participant's total
interest in the Thrift Plan.
On October 26, 1988, the Board of Directors of Flagstar approved certain
amendments to the Thrift Plan. These amendments were necessitated by changes in
the federal tax laws and became effective on January 1, 1989. As a result of the
amendments, highly compensated employees, as defined by the Code and the
regulations thereunder, and including the executive officers of Flagstar, are no
longer eligible to make pre-tax or after-tax contributions to the Thrift Plan,
although certain executive officers continue to have accounts thereunder. In
lieu of this benefit, such employees received certain salary increases.
Under the Thrift Plan, shares of the Common Stock attributable to
participating employees' contributions and contributions by Flagstar will be
voted by the plan trustee in accordance with the employee's instructions and,
absent such instructions, in the trustee's discretion.
EMPLOYMENT AGREEMENTS
RICHARDSON EMPLOYMENT AGREEMENT
Concurrently with the execution of the Purchase Agreement, Mr. Richardson
and Flagstar entered into an employment agreement (the "Richardson Employment
Agreement"), which took effect on November 16, 1992, which provided that
Flagstar would employ Mr. Richardson as Chief Executive Officer and Chairman of
the Board of Flagstar until November 16, 1997 or his earlier death or
termination of employment by reason of permanent disability, voluntary
termination of employment or involuntary termination for cause (as defined). The
Richardson Employment Agreement prohibits Mr. Richardson from soliciting
employees of Flagstar or its affiliates and from engaging in certain competitive
activities generally during his term of employment and for a period of three
years after termination of employment. The Richardson Employment Agreement
further prohibits Mr. Richardson from using or disclosing certain "confidential"
or "proprietary" information for purposes other than carrying out his duties
with the Company.
Under the Richardson Employment Agreement as in effect in 1994, Mr.
Richardson was entitled to receive (i) an annual base salary at the rate of
$750,000 per year from November 16, 1992 through December 31, 1993 and at a rate
determined by the Compensation and Benefits Committee of Flagstar's Board of
Directors annually thereafter, (ii) an annual performance bonus targeted to
equal his base salary if Flagstar and Mr. Richardson achieved budgeted financial
and other performance targets, to be established annually by the Compensation
and Benefits Committee, and (iii) subject to the termination of the ten-year
option that Mr. Richardson received from FCI in 1989 to purchase 160,000 shares
of Common Stock at $20.00 per share (the "Prior Option"), the grant of a new
option or options to purchase 600,000 shares of Common Stock (the "Richardson
Options"), exercisable at the rate of 20% per year beginning on November 16,
1993 (provided that he continues to be employed by the Company unless his
employment is terminated as a result of a "Termination Without Cause" (as
defined below), in which case the option to purchase 160,000 of such shares
would be exercisable pursuant to the schedule for the Prior Option), and subject
to exercise prices of $15.00 per share for 100,000 shares and $17.50 per share
for 500,000 shares. In December 1992, Mr. Richardson terminated his Prior Option
and was granted such options to purchase 600,000 shares of Common Stock. The
Richardson Employment Agreement also entitled Mr. Richardson to participate in
all of the Company's benefit plans applicable to the Company's executive
officers generally. As a condition to Mr. Richardson entering into the
Richardson Employment Agreement which extended his term of employment with
Flagstar for an additional three years, FCI advanced funds (the "Richardson
Loan") to refinance approximately $13,900,000 outstanding principal and certain
interest due on a 1989 loan from NationsBank, N.A. (Carolinas) to Mr.
Richardson. Mr. Richardson used the proceeds of the 1989 loan to finance his
purchase of approximately 800,000 shares of Common Stock. For additional
information concerning the Richardson Loan, see "Certain Transactions."
In the event of Mr. Richardson's termination of employment during the term
of the Richardson Employment Agreement, Flagstar is required to make payments as
follows based upon the cause of such termination: (i) if by reason of death, Mr.
Richardson's surviving spouse is entitled to be paid an amount equal to Mr.
Richardson's base salary for a one-year period after his death; (ii) if by
reason of permanent disability, Mr. Richardson is entitled to be paid one-half
of his base salary and annual bonus for a period of two years after termination
of employment; and (iii) if by Flagstar other than for "cause" or by Mr.
Richardson following a material breach by Flagstar of a material provision of
the Richardson Employment Agreement (each, a "Termination Without
23
<PAGE>
Cause"), Mr. Richardson is entitled to be paid immediately upon such termination
a lump sum amount equal to his base salary and bonuses (deemed to be $1,500,000,
in the aggregate, per year) and his other benefits for the remaining term of the
agreement. Under the terms of the Amended Richardson Agreement (as defined
below) such other benefits referred to in (iii) above shall include certain
health, welfare and retirement plan benefits through the remaining term of the
agreement or the cash equivalents thereof.
As of January 10, 1995, Mr. Richardson and the Company entered into an
amended and restated employment agreement (the "Amended Richardson Agreement")
to provide that Flagstar would employ Mr. Richardson as its Chief Executive
Officer until February 6, 1995, as its Chairman until November 16, 1997 unless a
successor is chosen upon 30 days' prior notice and, thereafter, as Chairman
Emeritus until November 16, 1997, unless earlier terminated as provided in the
agreement. Under the Amended Richardson Agreement, (i) Mr. Richardson shall be
entitled to receive a base salary at a rate of $750,000 per year and an annual
bonus, if any, as determined in the reasonable discretion of the Board, (ii) the
Richardson Options remain outstanding generally in accordance with terms
previously established, provided, however, that if the Company terminates Mr.
Richardson's employment other than for "cause" or if Mr. Richardson dies, the
Richardson Options immediately become fully exercisable, and (iii) the
Richardson Loan remains outstanding generally in accordance with terms
previously established, except as otherwise described in "Certain Transactions.
Such amended agreement also provides that during the employment term, while Mr.
Richardson shall be the Chief Executive Officer, Chairman and/or Chairman
Emeritus of the Company, he shall serve on the Board.
ADAMSON EMPLOYMENT AGREEMENT
Concurrently with the execution of the Adamson Shareholder Agreement, Mr.
Adamson and FCI entered into an employment agreement (as amended on February 27,
1995, the "Adamson Employment Agreement") which took effect on January 23, 1995
and which provides that FCI will employ Mr. Adamson as President and Chief
Executive Officer of FCI until January 23, 1998 or until his earlier death or
termination of employment by reason of permanent disability, voluntary
termination of employment or involuntary termination with or without cause (as
defined). The Adamson Employment Agreement also provides that Mr. Adamson shall
be appointed as a director of FCI (on or before the first meeting of the Board
of Directors of FCI that is held after January 23, 1995) and as the Chairman of
the Board of Directors of FCI (on or before July 23, 1995, or upon 30 days'
prior notice if such date is extended at Mr. Adamson's sole discretion). The
Adamson Employment Agreement prohibits Mr. Adamson from soliciting employees of
the Company or its affiliates and from engaging in certain competitive
activities generally during his term of employment and for a period of two years
after the later of the termination of his employment or the date on which the
Company is no longer required to make certain termination benefits. The Adamson
Employment Agreement further prohibits Mr. Adamson from using or disclosing
certain "confidential" or "proprietary" information for purposes other than
carrying out his duties with the Company.
Under the Adamson Employment Agreement, Mr. Adamson is entitled to receive
(i) an annual base salary at the annual rate of $950,000, $1,000,000 and
$1,050,000 for the first, second and third years of employment, respectively,
(ii) a one-time signing bonus equal to $500,000, (iii) an annual performance
bonus at an annual rate up to 200% of his base salary (targeted to equal 75% of
his base salary) if the Company and Mr. Adamson achieve budgeted financial and
other performance targets to be established by the Compensation and Benefits
Committee, with a guaranteed minimum bonus of $500,000 for his first year of
employment, (iv) 65,306 shares (the "Restricted Shares") of Common Stock (plus
an amount in cash to reimburse Mr. Adamson in part for his income tax
liabilities with respect to such shares), fifty percent (50%) of which are
subject to forfeiture upon the termination of Mr. Adamson's employment under
certain conditions prior to January 23, 1996, and (v) the grant under the 1989
Option Plan of a ten-year option to purchase 800,000 shares of Common Stock, to
become exercisable at the rate of 20% per year beginning on January 9, 1996 and
each anniversary thereafter (conditioned upon Mr. Adamson's continuing to be
employed by the Company on such dates), and subject to an exercise price of
$6.125 per share (the "Adamson Option"). Vested shares of Common Stock acquired
by Mr. Adamson pursuant to (iv) and (v) above (including shares as to which Mr.
Adamson is entitled, under certain circumstances, to accelerated vesting) are
subject to and have the rights and benefits of the Adamson Shareholder
Agreement. See "General -- Ownership of Capital Securities -- Adamson
Shareholder Agreement." The Adamson Employment Agreement also entitles Mr.
Adamson to reimbursement of expenses of relocation and certain other privileges
and benefits, including participation in all of the Company's benefit plans
applicable to the Company's executive officers generally.
24
<PAGE>
In the event of Mr. Adamson's termination of employment during the term of
the Adamson Employment Agreement, the Company is required to make payments as
follows based upon the cause of such termination: (i) if by reason of death, Mr.
Adamson's surviving spouse is entitled to be paid an amount equal to Mr.
Adamson's base salary and annual bonus and continuation of certain benefits for
a one-year period after his death; (ii) if by reason of permanent disability,
Mr. Adamson is entitled to be paid one-half of his base salary and annual bonus
and continuation of certain benefits for a period of two years after termination
of employment; and (iii) if by FCI other than for "cause," Mr. Adamson is, in
general, entitled to (a) a lump sum in the amount of the base salary remaining
to be paid over the remaining unexpired contract term but not less than an
amount equal to two years' base salary, (b) a pro rata portion of the annual
bonus otherwise payable during the calendar year of termination, (c) the
continued vesting of the Adamson Option until the option to purchase an
aggregate of 480,000 shares thereunder shall have become exercisable, (d) the
immediate vesting of 100% of the Restricted Shares, and (e) continuation of
certain benefits and other contract rights; provided, however, that in the event
of termination by FCI without "cause" following a "change of control", the
Adamson Option shall be 100% vested and exercisable as of the date of such
termination and Mr. Adamson shall be entitled to a lump sum payment on such date
equal to 200% of his targeted bonus for the year during which such termination
occurs. Furthermore, the Adamson Option shall expire and terminate as follows in
the event of Mr. Adamson's termination of employment for the following reasons:
(i) if for "cause" or voluntary termination, the Adamson Option shall expire and
terminate as of the date of termination; (ii) if by reason of death, permanent
disability or without "cause" following a "change in control", the Adamson
Option shall expire and terminate on the later of (a) the date the Company is no
longer required to provide certain termination benefits, and (b) the first
anniversary of the date of termination; and (iii) if without "cause" (but not
following a "change in control"), the Adamson Option shall expire and terminate
on the latest of January 9, 1999 and (a) and (b) above.
OTHER EMPLOYMENT ARRANGEMENTS
During 1994, Messrs. Buckley, Perry and Petty were each party to employment
agreements with the Company providing for specified base salaries, subject to
annual adjustment by the Compensation and Benefits Committee, an annual
performance bonus and options to purchase Common Stock. These agreements also
contained provisions for the payment of certain additional compensation to each
of the named executive officers at or near the time of their initial employment.
See the Summary Compensation Table above. Mr. Petty's agreement also contained
termination provisions for the payment of severance benefits equal to two years'
annual base salary and bonus upon termination of his employment under certain
circumstances. Also, in 1994, Messrs. Buckley, Maw and Perry entered into
separate agreements providing for severance benefits equal to two years' annual
base salary upon termination of their employment under certain circumstances or
the occurrence of certain other events, including a change of control of the
Company.
COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Raether, Robbins and Tokarz served on the Company's Compensation
and Benefits Committee during 1994. Messrs. Tokarz and Robbins serve as officers
of certain subsidiaries of the Company. Messrs. Raether, Robbins and Tokarz are
general partners of KKR. In 1994, KKR received an annual financial advisory fee
of $1,250,000.
Pursuant to the Purchase Agreement, Associates has agreed that it will not,
directly or indirectly, sell, assign, pledge, hypothecate or otherwise transfer
any of the shares of Common Stock acquired under the Purchase Agreement or the
Common Stock issuable upon exercise of the Warrants prior to March 31, 1995
except (i) in connection with a sale of or acceptance of an offer to purchase
90% or more of the outstanding shares of Common Stock, (ii) in connection with a
merger or other similar extraordinary corporate transaction which results in a
change of control of FCI and involves an entity which immediately prior thereto
is not an affiliate of Associates, any partner thereof or FCI, or (iii) to
certain affiliates of Associates or any partner thereof.
The Purchase Agreement further provides that, until November 16, 1995, FCI
shall maintain in full force and effect its existing directors' and officers'
liability insurance policy with respect to events occurring prior to November
16, 1992 (or, if such insurance is not available at a reasonable cost, as much
such insurance as is available to it at a reasonable cost). FCI and its
subsidiaries will maintain in effect the provisions in their respective charters
and bylaws which provide for indemnification of FCI's and its subsidiaries'
officers and directors with respect to events occurring prior to November 16,
1992. Associates also agreed not to engage in a Rule 13e-3
25
<PAGE>
Transaction (as defined in Rule 13e-3 under the Exchange Act) prior to March 31,
1995 without the approval of a majority of the disinterested directors of FCI
and a fairness opinion from an investment banking firm selected by such
directors.
Pursuant to the Purchase Agreement, FCI has agreed to indemnify and hold
harmless Associates and its affiliates, directors, officers, advisors, agents
and employees to the fullest extent lawful, from and against any and all losses,
damages, claims, liabilities and actions arising out of or in connection with
the Recapitalization and all expenses of investigating, preparing or defending
any such claim or action (including reasonable legal fees and expenses);
provided, however, that nothing contained in such indemnification provision is
to be construed as a guarantee by FCI with respect to the value of the shares of
Common Stock acquired under the Purchase Agreement or indemnification of
Associates against any diminution in value thereof which may occur; and
provided, further, that no indemnified party will be entitled to indemnification
by FCI with respect to any of the foregoing arising solely from the bad faith or
gross negligence (as finally determined by a court of competent jurisdiction) of
such indemnified party or any of the affiliates, directors, officers, agents or
employees of such indemnified party.
See "General -- Ownership of Capital Securities" for additional information
concerning other agreements among Associates, DLJ Capital, Mr. Richardson and
FCI.
COMPENSATION OF DIRECTORS
Directors of the Company other than Mr. Richardson and Mr. Adamson are
entitled to an annual retainer of $40,000. Directors are also reimbursed for
expenses incurred in attending meetings of the Board of Directors and its
committees.
26
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's Common Stock against the cumulative total return of the
Standard & Poor's 500 Stock Index and the Standard & Poor's Restaurant Index for
the five years commencing January 1, 1990 and ending December 31, 1994. The
graph and table assume that $100 was invested on December 31, 1989 in each of
the Company's Common Stock, the Standard & Poor's 500 Stock Index and the
Standard & Poor's Restaurant Index and that all dividends were reinvested.
(PERFORMANCE GRAPH APPEARS HERE. THE PLOT POINTS ARE LISTED BELOW.)
<TABLE>
<CAPTION>
DECEMBER 31,
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Stock Index................................. $ 100.00 $96.89 $126.42 $136.05 $149.76 $151.74
S&P Restaurant Index................................ $ 100.00 $87.11 $117.48 $150.50 $175.69 $175.15
Flagstar Companies, Inc............................. $ 100.00 $63.89 $ 66.67 $ 88.89 $ 41.11 $ 31.11
</TABLE>
CERTAIN TRANSACTIONS
Pursuant to the Richardson Employment Agreement, the Company advanced funds
to Mr. Richardson to refinance approximately $13.9 million of his outstanding
bank indebtedness. Interest and principal on the Richardson Loan is payable on
November 16, 1997, subject to acceleration, as provided pursuant to the Amended
Richardson Agreement, upon Mr. Richardson's earlier termination of employment by
reason of a voluntary termination or termination for "cause". Interest thereon
accrues at the rate prescribed for five-year term loans under Section 7872 of
the Code (5.6% per annum) as of the date the loan by the Company was made. In
the event of a payment to Mr. Richardson upon the acceleration of benefits due
to a Termination Without Cause (as defined herein), such payment shall be offset
against amounts due on the Richardson Loan, with the balance due on November 16,
1997. The Richardson Loan is secured by 812,000 shares of Common Stock and
certain other collateral. See "Executive Compensation -- Employment
Agreements -- Richardson Employment Agreement."
GTO received fees of $250,000 in 1994 for certain financial advisory
services.
Mr. Richardson, the Company's Chairman, is also an officer, director and
principal shareholder of P.F.F., Inc., the corporate general partner of
Richardson Sports, the franchisee of the NFL Carolina Panthers. Several members
of Mr. Richardson's immediate family have similar interests in P.F.F., Inc. The
stadium to be used by the team beginning with the 1996-1997 NFL season is owned
by Carolinas Stadium Corp. ("CSC") and is leased to Richardson Sports for NFL
football games and for Richardson Sports' day-to-day operations. Neither
27
<PAGE>
Mr. Richardson nor members of his immediate family hold any ownership interest
in CSC. The Company has entered into the Concession Agreements with Richardson
Sports and CSC described below. These agreements were the result of arms'-length
negotiations and were approved by a disinterested majority of the Board of
Directors of the Company.
On or about February 15, 1994, Volume Services, Inc., an indirect
wholly-owned subsidiary of the Company ("VSI"), entered into Concession
Agreements (the "Concession Agreements") pursuant to which VSI was granted the
exclusive right to sell food and beverage concessions and novelties at the
Carolinas Stadium currently under construction for a 20-year period commencing
with the 1996-1997 NFL season (with CSC) and at the Clemson University Memorial
Stadium for the 1995-1996 NFL season (with Richardson Sports) and until
completion of the Carolinas Stadium. As consideration for the exclusive rights
granted under the Concession Agreements, VSI is required to pay Richardson
Sports an aggregate amount of $6 million over a ten-year period beginning in
1994 as well as certain minimum commissions during each year of operation. VSI
has also committed to incur construction costs and other related capital
expenditures for the project of an additional $10.5 million by 1996.
The Company has also entered into certain suite rentals and has purchased
permanent seat licenses and season tickets at Carolinas Stadium at an aggregate
cost to the Company in 1994 of $137,250. Such transactions were on terms and
conditions identical with those applicable to unrelated third parties.
For information concerning certain transactions in which KKR (and their
affiliates) have an interest, see "Executive Compensation -- Compensation and
Benefits Committee Interlocks and Insider Participation."
OTHER MATTERS
In the event that any matters other than those referred to in the
accompanying notice should properly come before and be considered at the Annual
Meeting, it is intended that proxies in the accompanying form will be voted
thereon in accordance with the judgment of the person or persons voting such
proxies.
28
<PAGE>
(FLAGSTAR LOGO APPEARS HERE)
Notice of Annual Meeting
and
Proxy Statement
ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD
MAY 2, 1995
<PAGE>
****************************************************************************
APPENDIX
FLAGSTAR COMPANIES, INC.
P R O X Y
203 EAST MAIN STREET, SPARTANBURG, SC 29319
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Paul E. Raether and Michael T. Tokarz as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of the Common
Stock of Flagstar Companies, Inc. held of record by the undersigned on March 15,
1995, at the Annual Meeting of Stockholders to be held on May 2, 1995 or any
adjournment thereof.
1. ELECTION OF DIRECTORS
Nominees: James B. Adamson, Michael Chu, Vera King Farris, Henry R. Kravis,
A. Andrew Levison, Paul E. Raether, Jerome J. Richardson, Clifton S.
Robbins, George R. Roberts, L. Edwin Smart and Michael T. Tokarz (Mark only
one of the following boxes.)
[ ] VOTE FOR all nominees listed above, except vote withheld as to the
following nominees (if any):
[ ] VOTE WITHHELD as to all nominees
2. SELECTION OF AUDITORS
To ratify the appointment of Deloitte & Touche as the independent auditors
for the Company for the fiscal year ending December 31, 1995.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENT TO THE COMPANY'S 1989 NON-QUALIFIED STOCK OPTION PLAN
To approve an amendment to the Company's 1989 Non-Qualified Stock Option
Plan, as previously amended, to increase the authorized shares issuable
thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. APPROVAL OF 1995 SENIOR MANAGEMENT INCENTIVE COMPENSATION
To approve 1995 incentive compensation for the Company's senior management.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign.
YOUR SHARES WILL BE VOTED BY THE TRUSTEE AT ITS DISCRETION IN THE BEST
INTERESTS OF THE PARTICIPANTS, UNLESS YOU SIGN AND RETURN THIS CARD SO THAT IT
WILL BE RECEIVED BY THE TRUSTEE NO LATER THAN APRIL 20, 1995.
DATED: , 1995
SIGNATURE
SIGNATURE, IF HELD JOINTLY
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
<PAGE>
FLAGSTAR COMPANIES, INC.
P R O X Y
203 EAST MAIN STREET, SPARTANBURG, SC 29319
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Paul E. Raether and Michael T. Tokarz as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of the Common
Stock of Flagstar Companies, Inc. held of record by the undersigned on March 15,
1995, at the Annual Meeting of Stockholders to be held on May 2, 1995 or any
adjournment thereof.
1. ELECTION OF DIRECTORS
Nominees: James B. Adamson, Michael Chu, Vera King Farris, Henry R. Kravis,
A. Andrew Levison, Paul E. Raether, Jerome J. Richardson, Clifton S.
Robbins, George R. Roberts, L. Edwin Smart and Michael T. Tokarz (Mark only
one of the following boxes.)
[ ] VOTE FOR all nominees listed above, except vote withheld as to the
following nominees (if any):
[ ] VOTE WITHHELD as to all nominees
2. SELECTION OF AUDITORS
To ratify the appointment of Deloitte & Touche as the independent auditors
for the Company for the fiscal year ending December 31, 1995.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENT TO THE COMPANY'S 1989 NON-QUALIFIED STOCK OPTION PLAN
To approve an amendment to the Company's 1989 Non-Qualified Stock Option
Plan, as previously amended, to increase the authorized shares issuable
thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. APPROVAL OF 1995 SENIOR MANAGEMENT INCENTIVE COMPENSATION
To approve 1995 incentive compensation for the Company's senior management.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign.
DATED: , 1995
SIGNATURE
SIGNATURE, IF HELD JOINTLY
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
<PAGE>
TW HOLDINGS, INC.
1989 NON-QUALIFIED STOCK OPTION PLAN
AS ADOPTED DECEMBER 1, 1989*
1. PURPOSE OF THE PLAN
This TW Holdings, Inc. 1989 Non-Qualified Stock Option Plan is intended to
promote the interests of the Company by providing the employees of the Company,
who are largely responsible for the management, growth and protection of the
business of the Company, with incentives and rewards to encourage them to
continue in the employ of the Company.
2. DEFINITIONS
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Board of Directors" shall mean the Board of Directors of TW
Holdings, Inc.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean the termination of
the Participant's employment by the Company on account of (A) an act or
acts by him, or any omission by him, constituting a felony, if the
Participant has entered a guilty plea or confession to, or has been
convicted of, such felony, (B) any proven act of fraud or dishonesty by the
Participant which results or is intended to result in any material
financial or economic harm to the Company or (C) a breach of a material
provision of any employment agreement between the Participant and the
Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" shall mean the Committee designated by the Board of
Directors pursuant to Section 4 hereof from time to time.
(e) "Common Stock" shall mean TW Holdings, Inc. common stock, $0.10
par value per share.
(f) "Company" shall mean TW Holdings, Inc., a Delaware corporation,
and each of its Subsidiaries.
(g) "Disability" shall mean any physical or mental condition which
would qualify a Participant for a disability benefit under the long-term
disability plan maintained by the Company and applicable to him.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) the "Fair Market Value" of a share of Common Stock on any day
shall be (A) the closing sales price on the immediately preceding day of a
share of Common Stock as reported on the principal securities exchange on
which shares of Common Stock are then listed or admitted to trading or (B)
if not so reported, the average of the closing bid and ask prices on the
immediately preceding business day as reported on the National Association
of Securities Dealers Automated Quotation System or (C) if not so reported,
as furnished by any member of the National Association of Securities
Dealers, Inc. selected by the Committee. In the event that the price of a
share of Common Stock shall not be so reported, the Fair Market Value of a
share of Common Stock shall be determined by the Committee in its absolute
discretion.
(j) "Option" shall mean an option to purchase shares of Common Stock
granted pursuant to Section 6 hereof. Each Option shall be identified as a
non-qualified stock option in the agreement by which it is evidenced.
(k) "Participant" shall mean an employee of the Company who is
eligible to participate in the Plan and to whom an Option is granted
pursuant to the Plan, and, upon his death, his successors, heirs, executors
and administrators, as the case may be.
(l) "Plan" shall mean this TW Holdings, Inc. 1989 Non-Qualified Stock
Option Plan, as it may be amended from time to time.
(m) "Securities Act" shall mean the Securities Act of 1933, as
amended.
* As amended through June 7, 1994.
<PAGE>
(n) "Subsidiary" shall mean any corporation in which at the time of
reference TW Holdings, Inc. owns, directly or indirectly, stock comprising
more than fifty percent of the total combined voting power of all classes
of stock of such corporation.
(o) "Voluntary Termination" shall mean any voluntary termination by
the Participant of his employment with the Company.
3. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 7 hereof, the Committee may
grant Options under the Plan with respect to a number of shares of Common Stock
that in the aggregate does not exceed 4,500,000 shares. In the event that any
outstanding Option expires, terminates or is cancelled for any reason, the
shares of Common Stock subject to the unexercised portion of such Option shall
again be available for grants under the Plan. Shares of Common Stock issued
under the Plan may be either newly issued shares or treasury shares, at the
discretion of the Committee.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a Committee of the Board of Directors
consisting of three or more persons, each of whom shall be a "disinterested
person" within the meaning of Rule 16b-3 promulgated under Section 16 of the
Exchange Act. The Committee shall from time to time designate the key employees
of the Company who shall be granted Options and the number of shares of Common
Stock covered by such Option.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Option issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties.
The Committee may, in its absolute discretion, accelerate the date on which
any Option becomes exercisable. In addition, the Committee may, in its absolute
discretion, grant Options to Participants on the condition that such
Participants surrender to the Committee for cancellation such other Options
(including, without limitation, Options with higher exercise prices) as the
Committee specifies. Notwithstanding Section 3 herein, prior to the surrender of
such other Options, Options granted pursuant to the preceding sentence of this
Section 4 shall not count against the limits set forth in such Section 3.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and TW Holdings, Inc. shall indemnify and
hold harmless each member of the Committee and each other director or employee
of the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of TW Holdings, Inc.) arising out of any action,
omission or determination relating to the Plan, unless, in either case, such
action, omission or determination was taken or made by such member, director or
employee in bad faith and without reasonable belief that it was in the best
interests of the Company.
5. ELIGIBILITY
The persons who shall be eligible to receive Options pursuant to the Plan
shall be such employees of the Company who are responsible for the management,
growth and protection of the business of the Company (including officers of TW
Holdings, Inc., whether or not they are directors of TW Holdings, Inc.) as the
Committee shall select from time to time.
6. OPTIONS
Options granted pursuant to the Plan shall be evidenced by agreements in
such form as the Committee shall from time to time approve. Options shall comply
with and be subject to the following terms and conditions:
(a) Identification of Options
All Options granted under the Plan shall be identified in the
agreement evidencing such Options as non-qualified stock options that are
not intended to be incentive stock options within the meaning of Section
422A of the Code.
2
<PAGE>
(b) Exercise Price
The exercise price in respect of each share of Common Stock covered by
any Option granted under the Plan shall be such price as the Committee
shall determine on the date on which such Option is granted; PROVIDED, that
in the case of any Option granted prior to December 31, 1989 such exercise
price shall be Four Dollars ($4.00) per share of Common Stock covered by
such Option; and PROVIDED, FURTHER, that such exercise price may not be
less than the minimum price required by law.
(c) Term and Exercise of Options
(1) Each Option shall be exercisable on such date or dates, during
such period and for such number of shares of Common Stock as shall be
determined by the Committee on the day on which such Option is granted
and set forth in the Option agreement with respect to such Option;
PROVIDED, HOWEVER, that no Option shall be exercisable after the
expiration of ten years from the date such Option was granted; and,
PROVIDED, FURTHER, that each Option shall be subject to earlier
termination, expiration or cancellation as provided in this Plan.
(2) Each Option shall be exercisable in whole or in part; PROVIDED,
that no partial exercise of an Option shall be for an aggregate exercise
price of less than $1,000 or in respect of less than 100 shares of
Common Stock. The partial exercise of an Option shall not cause the
expiration, termination or cancellation of the remaining portion
thereof. Upon the partial exercise of an Option, the agreement
evidencing such Option shall be returned to the Participant exercising
such Option together with the delivery of the certificates described in
Section 6(c)(5) hereof.
(3) Subject to the provisions of Section 11 hereof, an Option shall
be exercised by delivering notice to TW Holdings, Inc.'s principal
office, to the attention of its Secretary, no less than three business
days in advance of the effective date of the proposed exercise. Such
notice shall be accompanied by the agreement evidencing the Option,
shall specify the number of shares of Common Stock with respect to which
the Option is being exercised and the effective date of the proposed
exercise and shall be signed by the Participant. The Participant may
withdraw such notice at any time prior to the close of business on the
business day immediately preceding the effective date of the proposed
exercise, in which case such agreement shall be returned to him. Payment
for shares of Common Stock purchased upon the exercise of an Option
shall be made on the effective date of such exercise either (i) in cash,
by certified check, bank cashier's check or wire transfer, or (ii)
subject to the prior written approval of the Committee, in shares of
Common Stock owned by the Participant and valued at their Fair Market
Value on the effective date of such exercise, or partly in shares of
Common Stock with the balance in cash, by certified check, bank
cashier's check or wire transfer. Any payment in shares of Common Stock
shall be effected by the delivery of such shares to the Secretary of TW
Holdings, Inc., duly endorsed in blank or accompanied by stock powers
duly endorsed in blank, together with any other documents and evidences
as the Secretary of TW Holdings, Inc. shall require from time to time.
(4) Any Option granted under the Plan may be exercised by a
broker-dealer acting on behalf of a Participant if (i) the broker-dealer
has received from the Participant or the Company a fully- and
duly-endorsed agreement evidencing such Option and instructions signed
by the Participant requesting TW Holdings, Inc. to deliver the shares of
Common Stock subject to such Option to the broker-dealer on behalf of
the Participant and specifying the account into which such shares should
be deposited, (ii) adequate provision has been made with respect to the
payment of any withholding taxes due upon such exercise and (iii) the
broker-dealer and the Participant have otherwise complied with Section
220.3(e)(4) of Regulation T, 12 CFR Part 220.
(5) Certificates for shares of Common Stock purchased upon the
exercise of an Option shall be issued in the name of the Participant and
delivered to the Participant as soon as practicable following the
effective date on which the Option is exercised.
(6) During the lifetime of a Participant, each Option granted to
him shall be exercisable only by him. No Option shall be assignable or
transferable otherwise than by will or by the laws of descent and
distribution.
(d) Effect of Termination of Employment
Except as otherwise provided in the agreement evidencing the grant of
an Option:
(1) In the event that the employment of a Participant with the
Company shall terminate for any reason other than for Cause or by reason
of Voluntary Termination (i) Options granted to such Participant, to the
extent
3
<PAGE>
that they were exercisable at the time of such termination of
employment, shall remain exercisable until the expiration of one year
after such termination of employment, on which date they shall expire
and terminate and (ii) Options granted to such Participant, to the
extent that they were not exercisable at the time of such termination,
shall expire and terminate at the close of business on the date of such
termination of employment; PROVIDED, HOWEVER, that no Option shall be
exercisable after the expiration of its term.
(2) In the event of the termination of a Participant's employment
for Cause or by reason of Voluntary Termination, all outstanding Options
granted to such Participant shall expire and terminate at the
commencement of business on the date of such termination of employment.
(e) Certain Restrictions
(1) Without limiting the provisions of Section 10 hereof, unless
otherwise specified in the agreement pursuant to which an Option is
granted, in the event a Participant's employment by the Company is
terminated for Cause prior to July 5, 1994, such Participant shall be
required to offer to sell to TW Holdings, Inc. or its designee all
shares of Common Stock acquired by him pursuant to the exercise of such
Option and at the time of such termination of employment owned by him,
and TW Holdings, Inc. shall have the right to require such Participant
to sell such shares to it or its designee, at a price per share equal to
the exercise price with respect to each such share under such Option.
Such offer and right shall be on the basis that the purchase and sale
shall occur on a business day selected by TW Holdings, Inc. by written
notice to the Participant, which business day shall be at least five
calendar days after TW Holdings, Inc. gives the Participant written
notice of its intent to purchase such shares and which business day
shall be not more than ninety (90) days following such termination of
employment. At the time of such purchase and sale, the Participant shall
deliver to TW Holdings, Inc. the certificates representing the shares of
Common Stock to be so purchased against payment of the purchase price
therefor in cash or by certified check, wire transfer or bank cashiers
check, as selected by TW Holdings, Inc. or its designee.
(2) Without limiting the provisions of Section 10 hereof,
certificates representing shares of Common Stock issued pursuant to this
Plan shall bear such legends as the Committee, its sole discretion,
deems necessary or desirable to reflect the restrictions described in
this Section 6(e).
7. ADJUSTMENT UPON CHANGES IN COMMON STOCK
(a) Shares Available for Grants
In the event of any change in the number of shares of Common Stock
outstanding by reason of any stock dividend or split, recapitalization,
merger, consolidation, combination or exchange of shares or similar
corporate change, the maximum aggregate number of shares of Common Stock
with respect to which the Committee may grant Options shall be
appropriately adjusted by the Committee. In the event of any change in the
number of shares of Common Stock outstanding by reason of any other event
or transaction, the Committee may, but need not, make such adjustments in
the number and class of shares of Common Stock with respect to which
Options may be granted as the Committee may deem appropriate.
(b) Outstanding Options - Increase or Decrease in Issued Shares
Without Consideration
Subject to any required action by the shareholders of TW Holdings,
Inc., in the event of any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation of
shares of Common Stock or the payment of a stock dividend (but only on the
shares of Common Stock), or any other increase or decrease in the number of
such shares effected without receipt of consideration by TW Holdings, Inc.,
the Committee shall proportionally adjust the number of shares of Common
Stock subject to each outstanding Option and the exercise price per share
of Common Stock in respect of each such Option.
(c) Outstanding Options - Certain Mergers
Subject to any required action by the shareholders of TW Holdings,
Inc., in the event that TW Holdings, Inc. shall be the surviving
corporation in any merger or consolidation (except a merger or
consolidation as a result of which the holders of shares of Common Stock
receive securities of another corporation), each Option outstanding on the
date of such merger or consolidation shall pertain to and apply to the
securities which a holder of the number of shares of Common Stock subject
to such Option would have received in such merger or consolidation.
4
<PAGE>
(d) Outstanding Options - Certain Other Transactions
In the event of (i) a dissolution or liquidation of TW Holdings, Inc.,
(ii) a sale of all or substantially all of TW Holdings, Inc.'s assets,
(iii) a merger or consolidation involving TW Holdings, Inc. in which TW
Holdings, Inc. is not the surviving corporation or (iv) a merger or
consolidation involving TW Holdings, Inc. in which TW Holdings, Inc. is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash,
the Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such
event, each Option outstanding immediately prior to such event (whether
or not then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option was granted an
amount in cash, for each share of Common Stock subject to such Option,
equal to the excess of (A) the value, as determined by the Committee in
its absolute discretion, of the property (including cash) received or to
be received by the holder of a share of Common Stock as a result of such
event over (B) the exercise price in respect of each share of Common
Stock covered by such Option; or
(ii) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then exercisable) for an
option on some or all of the property for which each share of Common
Stock subject to such Option is exchanged and, incident thereto, make an
equitable adjustment as determined by the Committee in its absolute
discretion in the exercise price of the option, or the number of shares
or amount of property subject to the option or, if appropriate, provide
for a cash payment to the Participant to whom such Option was granted in
partial consideration for the exchange of the Option.
(e) Outstanding Options - Other Changes
In the event of any change in the capitalization of TW Holdings, Inc.
or corporate change other than those specifically referred to in Sections
7(a), (b), (c) or (d) hereof, the Committee may, in its absolute
discretion, make such adjustments in the number and class of shares subject
to Options outstanding on the date on which such change occurs and in the
per share exercise price of each such Option as the Committee may consider
appropriate to prevent dilution or enlargement of rights.
(f) No Other Rights
Except as expressly provided in the Plan, no Participant shall have
any rights by reason of any subdivision or consolidation of shares of stock
of any class, the payment of any dividend, any increase or decrease in the
number of shares of stock of any class or any dissolution, liquidation,
merger or consolidation of TW Holdings, Inc. or any other corporation.
Except as expressly provided in the Plan, no issuance by TW Holdings, Inc.
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number of shares of Common Stock subject to an
Option or the exercise price of any Option.
8. RIGHTS AS A STOCKHOLDER
No person shall have any rights as a stockholder with respect to any shares
of Common Stock covered by or relating to any Option granted pursuant to this
Plan until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise expressly provided in Section 7 hereof, no
adjustment to any Option shall be made for dividends or other rights for which
the record date occurs prior to the date on which such stock certificate is
issued.
9. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO OPTION
Nothing contained in the Plan or any Option shall confer upon any
Participant any right with respect to the continuation of his employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Option.
No person shall have any claim or right to receive an Option hereunder. The
Committee's granting of an Option to a Participant at any time shall neither
require the Committee to grant an Option to such Participant or any other
Participant or other person at any time nor preclude the Committee from making
subsequent grants to such Participant or any other Participant or other person.
5
<PAGE>
10. SECURITIES MATTERS
(a) TW Holdings, Inc. shall be under no obligation to effect the
registration pursuant to the Securities Act of any shares of Common Stock
to be issued hereunder or to effect similar compliance under any state
laws. Notwithstanding anything herein to the contrary, TW Holdings, Inc.
shall not be obligated to cause to be issued or delivered any certificates
evidencing shares of Common Stock pursuant to the Plan unless and until TW
Holdings, Inc. is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws, regulations of
governmental authority and the requirements of any securities exchange on
which shares of Common Stock are traded. The Committee may require, as a
condition of the issuance and delivery of certificates evidencing shares of
Common Stock pursuant to the terms hereof, that the recipient of such
shares make such covenants, agreements and representations, and that such
certificates bear such legends, as the Committee, in its sole discretion,
deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be
effective at such time as counsel to TW Holdings, Inc. shall have
determined that the issuance and delivery of shares of Common Stock
pursuant to such exercise is in compliance with all applicable laws,
regulations of governmental authority and the requirements of any
securities exchange on which shares of Common Stock are traded. TW
Holdings, Inc. may, in its sole discretion, defer the effectiveness of any
exercise of an Option granted hereunder in order to allow the issuance of
shares of Common Stock pursuant thereto to be made pursuant to an effective
registration statement or an exemption from such registration or other
methods for compliance available under federal or state securities laws. TW
Holdings, Inc. shall inform the Participant in writing of its decision to
defer the effectiveness of the exercise of an Option granted hereunder.
During the period that the effectiveness of the exercise of an Option has
been deferred, the Participant may, by written notice, withdraw such
exercise and obtain the refund of any amount paid or delivered with respect
thereto.
11. WITHHOLDING TAXES
(a) Cash Remittance
Whenever shares of Common Stock are to be issued upon the exercise of
an Option, the Participant shall be required, as a condition to the
exercise of the related Option, to remit to the Company in cash an amount
sufficient to satisfy federal, state and local withholding tax
requirements, if any, attributable to such exercise prior to the delivery
of any certificate or certificates for such shares.
(b) Stock Remittance
At the election of the Participant, subject to the approval of the
Committee (which approval may be withheld for any reason whatsoever or for
no reason), when shares of Common Stock are to be issued upon the exercise
of an Option, in lieu of the cash remittance required by Section 11(a)
hereof, the Participant may tender to the Company a number of shares of
Common Stock determined by such Participant, the Fair Market Value of which
at the tender date the Committee determines, in its sole discretion, to be
sufficient to satisfy the federal, state and local withholding tax
requirements, if any, attributable to such exercise and not greater than
the Participant's estimated total federal, state and local tax obligations
associated with such exercise.
(c) Stock Withholding
At the election of the Participant, subject to the approval of the
Committee (which approval may be withheld for any reason whatsoever or for
no reason), when shares of Common Stock are to be issued upon the exercise
of an Option, in lieu of the cash remittance required by Section 11(a)
hereof, the Company shall withhold a number of such shares determined by
such Participant, the Fair Market Value of which at the exercise date the
Committee determines (in its sole discretion) to be sufficient to satisfy
the federal, state and local withholding tax requirements, if any,
attributable to such exercise and not greater than the Participant's
estimated total federal, state and local tax obligations associated with
such exercise.
(d) Participants Subject to Section 16(b)
Notwithstanding Section 6(c)(5) hereof, the Company shall hold as
custodian for any Participant who is subject to the provisions of Section
16(b) of the Exchange Act and who has not made an election pursuant to
Section 83(b) of the Code stock certificates evidencing the total number of
shares of Common Stock required to be issued pursuant to the exercise of an
Option until the expiration of six months following the date of such
exercise. Upon the expiration of such six-month period, the Participant
shall remit to the Company in cash an amount sufficient to satisfy federal,
6
<PAGE>
state and local withholding tax requirements, if any, attributable to such
exercise prior to the delivery of any certificate or certificates for such
shares, unless the Participant has made an election, and the Committee has
approved such election, pursuant to Section 11(b) or (c) hereof, in which
case the Participant shall tender a number of shares prior to such
delivery, or the Company shall withhold a number of shares, as the case may
be, determined pursuant to such Section.
(e) Timing and Method of Elections
Notwithstanding any provision of the Plan to the contrary, a
Participant who is subject to Section 16(b) of the Exchange Act may not
make either of the elections described in Sections 11(b) and (c) hereof
prior to the expiration of six months after the date on which the
applicable Option was granted, except in the event of the death or
Disability of the Participant. In addition, notwithstanding any provision
of the Plan to the contrary, a Participant who is subject to Section 16(b)
of the Exchange Act may not make such elections other than (i) during the
10-day window period beginning on the third business day following the date
of release for publication of TW Holdings, Inc.'s quarterly and annual
summary statements of sales and earnings and ending on the twelfth business
day following such date or (ii) at least six months prior to the date as of
which the income attributable to the exercise of such Option is recognized
under the Code. Such elections shall be irrevocable and shall be made by
the delivery to TW Holdings, Inc.'s principal office, to the attention of
its Secretary, of a written notice signed by the Participant.
12. AMENDMENT OF THE PLAN
The Board of Directors may at any time suspend or discontinue the Plan or
revise or amend it in any respect whatsoever; PROVIDED, HOWEVER, that without
approval of the shareholders no revision or amendment shall (a) except as
provided in Section 7 hereof, increase the number of shares of Common Stock that
may be issued under the Plan, (b) materially increase the benefits accruing to
individuals holding Options granted pursuant to the Plan or (c) materially
modify the requirements as to eligibility for participation in the Plan.
13. NO OBLIGATION TO EXERCISE
The grant to a Participant of an Option shall impose no obligation upon
such Participant to exercise such Option.
14. TRANSFERS UPON DEATH
Upon the death of a Participant, outstanding Options granted to such
Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Option, or the
right to exercise any Option, shall be effective to bind the Company unless the
Committee shall have been furnished with (a) written notice thereof and with a
copy of the will and/or such evidence as the Committee may deem necessary to
establish the validity of the transfer and (b) an agreement by the transferee to
comply with all the terms and conditions of the Option that are or would have
been applicable to the Participant and to be bound by the acknowledgment made by
the Participant in connection with the grant of the Option.
15. EXPENSES
The expenses of the Plan shall be paid by the Company.
16. FAILURE TO COMPLY
In addition to the remedies of the Company elsewhere provided for herein,
if a Participant shall fail to comply with any of the terms or conditions of the
Plan or the agreement executed by such Participant evidencing an Option, the
Committee may cancel such Option and cause such Option to be forfeited, in whole
or in part, as the Committee, in its absolute discretion, may determine, unless
such failure is remedied by such Participant within ten days after such
Participant's receipt of written notice of such failure from the Committee or
the Company.
17. EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board of Directors on December 1, 1989, subject
to approval by the shareholders of TW Holdings, Inc. in accordance with
applicable law and the requirements of Rule 16b-3 promulgated under Section
16(b) of the Exchange Act. Options may be granted under the Plan at any time
prior to the receipt of such shareholder approval; provided, however, that each
such grant shall be subject to such approval. Without limitation on the
foregoing, no Option may be exercised prior to the receipt of such approval. If
the Plan is not so approved prior to November 30, 1990, then the Plan and all
Options then outstanding hereunder shall forthwith automatically terminate and
be of no force and effect.
7
<PAGE>
1995 SENIOR MANAGEMENT INCENTIVE PLAN
FLAGSTAR CORPORATION
I. PURPOSE
Flagstar Corporation, including its subsidiaries and affiliated entities
(collectively "Flagstar") hereby adopts the Flagstar 1995 Senior Management
Incentive Plan (the "Plan") to assist Flagstar in retaining and attracting
qualified salaried employees in managerial or other important positions and to
provide an additional incentive to employees in such positions to contribute to
the success of Flagstar.
II. CERTAIN DEFINITIONS
For the purposes of this Plan, the following terms shall have the following
meanings:
A. EMPLOYEE
An individual on the active salaried payroll of Flagstar at any time
during the fiscal year for which an award is made whose compensation is not
governed by a collective bargaining agreement.
B. COMPENSATION COMMITTEE
The Compensation and Benefits Committee of the Board of Directors (the
"Committee").
C. EBITDA
Earnings (as such term is defined by Generally Accepted Accounting
Principles ("GAAP") before interest, income taxes, depreciation an
amortization for the Plan Year and before accruals for awards pursuant to
the provisions of this Plan.
D. PARTICIPANT
An employee of Flagstar designated by the Committee pursuant to
Article V hereof.
E. FISCAL YEAR/PLAN YEAR
That period of time from January 1, 1995 through December 31, 1995.
F. TARGET AWARD
A Participant's award that is designated by the Committee to be paid
if goals are met at "target" levels as specified in the Plan.
G. TEAM
The group of Participants who participate in a particular
Individual/Team Award Pool as discussed in Article IX.
H. TEAM LEADER
The Participant designated by the Chief Executive Officer to allocate
the Team Pool (as defined in Article IX) to the Team members.
III. EFFECTIVE DATE.
This plan will become effective as of January 1, 1995.
IV. ADMINISTRATION
The Plan will be administered by the Committee. The Committee shall have
the authority to interpret the Plan. All determinations and actions taken by the
Committee with respect to the administration and interpretation of the Plan
shall be final, conclusive, and binding upon the Participants.
<PAGE>
The Committee shall meet at such times as it deems appropriate. Meetings
may be conducted by telephone. The vote of a majority of the Committee and the
actions taken by the Committee shall be a part of the corporate records of
Flagstar.
V. PARTICIPANTS AND TARGET AWARDS
Participants in the Plan for the Year shall be those employees of Flagstar
nominated by the Chief Executive Officer of Flagstar and approved by the
Committee. The Committee shall assign each Participant to one of the following
categories. Categories will have the Target Awards shown.
<TABLE>
<CAPTION>
TARGET AWARD,
PARTICIPANT GROUP AS A % OF BASE SALARY
<S> <C>
Group I (excluding the Chairman and Chief Executive Officer)............................................ 75%
Group II................................................................................................ 50%
Group III............................................................................................... 25%
Group IV................................................................................................ 15%
</TABLE>
VI. AWARDS
Each Participant shall be designated by the Committee as either a Corporate
Participant or a Concept Participant.
There are three performance elements to the Plan:
1. Flagstar EBITDA
2. Concept EBITDA
3. Individual/Team Award
Amounts are earned under each element without reference to the other
elements.
Corporate Participants will have 75% of their Target Awards earned through
Flagstar EBITDA. Their Flagstar EBITDA Multiple is .75. In addition, they will
be eligible for an Individual/Team Award as discussed in Article IX.
Concept Participants will have 50% of their Target Awards earned through
Flagstar EBITDA, and 25% earned through Concept EBITDA. Their Flagstar EBITDA
Multiple is .50, and their Concept EBITDA Multiple is .25. In addition, they
will be eligible for an Individual/Team Award as discussed in Article IX.
VII. FLAGSTAR EBITDA
A target Flagstar EBITDA will be determined each year by the Chief
Executive Officer and the Committee. For 1995, Flagstar EBITDA shall be
determined without regard for EBITDA contributions of any discontinued
operation, as that term is defined by GAAPs. Participants earn their Target
Award times their Flagstar EBITDA Multiple, if target Flagstar EBITDA is
achieved. Awards for EBITDA achievement between points is interpolated on
a straight-line basis.
The Chief Executive Officer and Committee will also determine EBITDA levels
above and below the target level that will result in an award more than or less
than Target Award times Flagstar EBITDA Multiple. There is no cap on the amount
that can be earned through Flagstar EBITDA.
The Flagstar EBITDA payout schedule for 1995 is:
<TABLE>
<CAPTION>
PERCENT OF TARGET AWARD TIMES
FLAGSTAR EBITDA ($ MILLIONS) FLAGSTAR EBITDA MULTIPLE EARNED
<S> <C>
Below $ ........................................................................ 0%
At $ ........................................................................... 25%
At $ ........................................................................... 40%
At $ ........................................................................... 100%
At $ ........................................................................... 170%
At $ ........................................................................... 200%
Percent earned for each $1 million above $ ..................................... 5%
</TABLE>
Note: For purposes of determining Flagstar's EBITDA performance, no more than
$ can be derived from the sale of operating assets.
VIII. CONCEPT EBITDA
A target Concept EBITDA will be determined for each Concept by the Chief
Executive Officer and the Committee. Participants earn their Target Award times
their Concept EBITDA Multiple, if target Concept EBITDA is achieved.
2
<PAGE>
The Chief Executive Officer and the Committee will also determine Concept
EBITDA levels above and below the target level that will result in an award more
than or less than Target Award times the Concept EBITDA Multiple. The maximum
award possible is 200% of Target Award times the Concept EBITDA Multiple.
Awards for Concept EBITDA achievement between points is interpolated on a
straight-line basis.
Each Concept will have a performance/payout schedule consistent with the
following:
<TABLE>
<CAPTION>
PERCENT OF TARGET AWARD TIMES
CONCEPT EBITDA ($ MILLIONS) CONCEPT EBITDA MULTIPLE EARNED
<S> <C>
Below $ ........................................................................ 0%
At $ ........................................................................... 25%
At $ ........................................................................... 40%
At $ ........................................................................... 100%
At $ ........................................................................... 170%
At or above $......................................................................... 200%
</TABLE>
Note: For purposes of determining a concept's EBITDA performance, no more than
$ can be derived from the sale of operating assets.
IX. INDIVIDUAL/TEAM AWARD
Each Participant will be assigned to a Team by the Chief Executive
Officer. The Target Awards for Participants within each Team will be
summed and multiplied by 25%. The result equals the Initial Team Pool for each
Team under the Individual/Team Award.
After the Plan Year has ended, the Chief Executive Officer will determine
the amounts of the Final Team Pools. He will make reference to expectations set
with each Team during the Plan Year in making this determination. The Final Team
Pools, in the aggregate, may not exceed 150% of the aggregated Initial Team
Pools, unless the Committee approves a larger aggregate award.
The Chief Executive Officer will determine the amount from each Final Team
Pool that will be paid as the Individual/Team Award to the Team Leader. Each
Team Leader will allocate the remaining Final Team Pool to the other
Participants on his or her Team. The allocation will be made in the Team
Leader's discretion, in consultation with the Chief Executive Officer.
Individual/Team Awards to any single Participant have no limit, except that the
total of all such awards for all Participants combined may not (absent
Committee approval) exceed 150% of the aggregate of the Initial Team Pools.
Individual payouts may be zero.
X. PAYMENT OF AWARDS
Any award made to a Participant shall be paid as soon as practicable after
the close of the Plan Year.
XI. RESERVE
In connection with determining awards for a Plan Year as herein provided,
in addition to other allocations made pursuant to the Plan, the Board may direct
the creation of a Reserve and credit thereto a sum of money for the purpose of
making awards as determined by the Committee to any Employee who was not a
Participant under the Plan, or who otherwise would not receive an award under
the Plan.
The creation of a Reserve by the Board shall not obligate the Committee to
make awards for the Reserve. Awards from the Reserve shall be made at such times
and in such amounts as the Committee deems appropriate.
XII. TERMINATION OF EMPLOYMENT
The Committee shall determine the award, if any, to be paid to a
Participant whose employment is terminated during a Plan Year. Awards vest on
the January 1 following the end of the Plan Year.
XIII. NEW HIRES OR PROMOTIONS
Employees hired or promoted during a Plan Year shall be eligible to receive
such award for that Plan Year as the Committee may determine.
XIV. ASSIGNMENTS AND TRANSFERS
A Participant may not assign, transfer, pledge, or otherwise encumber
amounts accruing to such Participant under the Plan.
3
<PAGE>
XV. NO CREATION OF EMPLOYEE RIGHTS UNDER THE PLAN
No employee or other person shall have any claim or right to be named a
Participant or granted an award under the Plan. Neither the Plan nor any action
taken thereunder shall be construed as giving any Employee or Participant under
the Plan any right to be retained in the employ of Flagstar.
XVI. WITHHOLDING TAX
Flagstar shall deduct from all amounts paid as awards to Participants all
taxes required by law to be withheld with respect to such payments.
XVII. DEATH OF A PARTICIPANT PRIOR TO PAYMENT OF AN AWARD
If a Participant shall die before the payment of any award under the Plan,
the award shall be paid only to the executor, administrator or other legal
representative of the deceased Participant following the receipt of a court
certificate of the appointment thereof. The allocation of awards, if any, to a
Participant who dies prior to the end of the Plan Year shall be in the sole
discretion of the Committee.
XVIII. CANCELLATION OF AND MODIFICATIONS TO THE PLAN
Flagstar's Board of Directors shall have the right to cancel, amend or
modify this Plan in its sole discretion. Such cancellation, amendment or
modification that takes place during a Plan Year may be retroactive to the
beginning of that Plan Year, as the Board determines.
XIX. OTHER EMPLOYEE BENEFIT PLANS
Nothing herein contained shall be construed to affect any right of
Participants in this Plan to participate in other employee benefits plans of
Flagstar.
XX. MISCELLANEOUS
Any award under the Plan will not affect the amount of any insurance
coverage available to the Participant under any group insurance plan maintained
by Flagstar.
Each person who is or shall have been a member of the Committee or a member
of the Board shall be indemnified and held harmless by Flagstar against and from
any and all loss, cost, liability or expense that may be imposed upon or
reasonably incurred in connection with or resulting from any claim, action, suit
or proceeding to which such person may be a party or in which such person may be
involved by reason of any action taken or failure to act under the Plan. Upon
the institution of any claim, action, suit or proceeding against such person,
immediate written notice shall be given to Flagstar and Flagstar shall, at its
sole expense, defend the same.
All expenses and costs in connection with the operation of the Plan shall
be borne by Flagstar.
4
