<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
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[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)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $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 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] 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 14, 1996
Dear Stockholder:
You are cordially invited to attend the Annual
Meeting of Stockholders to be held at 10:00 a.m. on
Wednesday, April 24, 1996, 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
April 24, 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,
(Signature of James B. Adamson)
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 14, 1996
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
Wednesday, April 24, 1996, at 10:00 a.m., for the following purposes
as described in the accompanying Proxy Statement:
1. To elect nine (9) 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 1996.
3. To consider and vote upon a proposal to approve 1996 incentive
compensation for the Company's employees.
4. 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 7, 1996 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)
RHONDA J. PARISH
VICE PRESIDENT, 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 14, 1996
GENERAL
INTRODUCTION
The Annual Meeting of Stockholders of Flagstar Companies, Inc. ("FCI") will
be held on Wednesday, April 24, 1996, 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 7, 1996 (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 March 22, 1996.
Proxies in the accompanying form, properly executed and duly returned and not
revoked, will be voted at the meeting (including adjournments). Where
specifications are 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 specifications. If no specifications are made, proxies will
be voted (i) in favor of FCI's nine (9) 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
1996, and (iii) in favor of the proposal to approve 1996 incentive compensation
for the Company's employees.
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 7, 1996, 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 executive officer (or former executive 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>
AMOUNT AND PERCENTAGE
NATURE OF OF
BENEFICIAL COMMON
BENEFICIAL OWNER OWNERSHIP STOCK
<S> <C> <C>
KKR Associates
(and related entities)
9 West 57th Street
New York, NY 10019 (1)........................................................... 34,999,999 (2) 60.94%
DLJ Capital Corporation
(and related entities)
140 Broadway
New York, NY 10005............................................................... 3,035,839 (3) 7.15%
Gollust, Tierney & Oliver
(and related entities)
500 Park Avenue
New York, NY 10022............................................................... 2,216,201 (3) 5.22%
Ryback Management Corporation
(and related entities)
7711 Carondelet Avenue
St. Louis, MO 63105.............................................................. 2,359,082 (3) 5.28%
James B. Adamson................................................................... 225,306 (4) *
Michael Chu........................................................................ -- --
Vera King Farris................................................................... 100 *
Henry R. Kravis (1)................................................................ -- --
A. Andrew Levison.................................................................. 9,473 (6) *
Paul E. Raether (1)................................................................ -- --
Clifton S. Robbins (1)............................................................. -- --
George R. Roberts (1).............................................................. -- --
Elizabeth A. Sanders............................................................... -- --
L. Edwin Smart..................................................................... 10,400 (4) *
Michael T. Tokarz (1).............................................................. -- --
C. Robert Campbell................................................................. -- --
James R. Kibler.................................................................... 5,330 (5) *
C. Ronald Petty.................................................................... -- --
Kent M. Smith...................................................................... 1,000 *
Samuel H. Maw...................................................................... 21,871 (4) *
Jerome J. Richardson............................................................... 1,178,164 (4)(5) 2.75%
All current directors and executive officers as a group (22 persons)............... 260,760 (4)(5)(7) *
</TABLE>
* Less than one percent.
(1) Shares shown as owned by KKR Associates include 19,999,999 shares 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 all shares shown as beneficially owned by KKR
Associates. Such persons disclaim beneficial ownership of such shares.
(2) Also includes 15,000,000 shares of Common Stock underlying warrants (the
"Warrants"), which became 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
2
<PAGE>
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.
(3) Shares shown as owned by DLJ Capital Corporation ("DLJ Capital") and
related entities, Gollust, Tierney and Oliver ("GTO") and related entities
and Ryback Management Corporation ("Ryback") and related entities are as
reported on the latest Schedule 13D or 13G filings by DLJ Capital, GTO and
Ryback respectively. Shares held by Ryback include 2,280,082 shares of
Common Stock Ryback would be entitled to receive upon the conversion of the
Preferred Stock (as defined below) by Ryback.
(4) Includes for the following persons shares which such persons have the right
to acquire within 60 days after March 7, 1996 through the exercise of stock
options: (i) Messrs. Adamson (160,000 shares) Maw (40,000 shares),
Richardson (360,000 shares) and Smart (10,000 shares); and (ii) all current
directors and executive officers as a group (170,000 shares). Each of the
above mentioned options were granted by the Company pursuant to its 1989
Non-Qualified Stock Option Plan (the "1989 Option Plan") or, in the case of
Mr. Smart, pursuant to the Company's 1990 Non-Qualified Stock Option Plan
of FCI (the "1990 Option Plan").
(5) Includes shares held by the trustee of the Flagstar Thrift Plan (the
"Thrift Plan") as of December 31, 1995 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 330 are
credited to the accounts of Messrs. Richardson and Kibler, respectively,
and 681 are credited to the accounts of all current directors and executive
officers as a group.
(6) Mr. Levison is the Managing Director, Investment Banking of Donaldson,
Lufkin and Jenrette Securities Corporation ("DLJ"), an affiliate of DLJ
Capital. Shares listed for Mr. Levison exclude shares held by DLJ Capital
and related entities.
(7) 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 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 42,434,606 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, 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 to certain transfer restrictions with respect to the Common
Stock. Such transfer restrictions have subsequently expired. GTO (along with
certain of its affiliates) was originally a party to the Stockholders'
Agreement; however, effective as of January 1, 1995, pursuant to the latest
amendment thereto, GTO was removed as a party to the Stockholders' Agreement and
is no longer bound thereby.
Pursuant to the Stockholders' Agreement, the size of the Board was set at
eleven and 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) 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 (c) two independent directors. (GTO's
right to a Board representative terminated as of January 1, 1995). Mr.
Richardson was also entitled under the Stockholders' Agreement to a position on
the Board for so long as he remained Chief Executive Officer of FCI. For
additional information regarding Mr. Richardson's participation on the Board
during a portion of 1995, see "Executive Compensation -- Employment
Agreements -- Richardson Employment Agreement." Following the removal of GTO as
a party to the Stockholders' Agreement and Mr. Richardson's resignation and
since, as indicated elsewhere herein, Messrs. Robbins and Smart will not stand
for re-election to the Board, the
3
<PAGE>
size of the Board of Directors shall be reduced from eleven to nine. The
Stockholder Parties 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, (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 (including
shares currently held and shares that he would acquire upon exercise of stock
options granted by the Company under the 1989 Option Plan) 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. (Under a separate
agreement with FCI executed concurrently with the execution of the Purchase
Agreement, Mr. Richardson's shares of Common Stock (including shares currently
held and shares that he would acquire upon exercise of stock options granted by
the Company under the 1989 Option Plan) continue to be subject to various
transfer restrictions and "put" and "call" options (under certain circumstances)
between Mr. Richardson and FCI.)
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.
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) while 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 shares of Common Stock 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."
4
<PAGE>
NUMBER OF SHARES OUTSTANDING AND VOTING
As of the close of business on March 7, 1996, there were issued and
outstanding and entitled to be voted at the Annual Meeting 42,434,606 shares of
Common Stock. At the meeting, holders of Common Stock will have one vote per
share for an aggregate total of 42,434,606 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.
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 Vice
President, 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.
1996 STOCKHOLDER PROPOSALS
In order for stockholder proposals intended to be presented at the 1997
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 14, 1996.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS OF FCI
The Board of Directors of FCI currently consists of eleven (11) directors,
including Elizabeth A. Sanders who was appointed by the Board in October 1995,
as provided in FCI's Bylaws, to fill the vacancy created by the resignation from
the Board of Mr. Jerome J. Richardson. Messrs. Clifton S. Robbins and L. Edwin
Smart will not stand for re-election to the Board of Directors. Accordingly, the
Board has determined that as of the date of the Annual Meeting the number of
directors of FCI shall be decreased from eleven to nine.
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, George R.
Roberts, Elizabeth A. Sanders and Michael T. Tokarz, each to serve until the
1997 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. 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 Mr. Adamson to the Board. Each of the
nominees 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.
5
<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 are set forth below. Unless otherwise indicated, each such person
has held the occupation listed opposite his or her 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.................... 48 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). Director of Kmart
Corporation and Oxford Health Plans, Inc.
Michael Chu......................... 47 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.
and FINANSOL Compania de Financiamiento Comercial.
Vera King Farris.................... 55 Director of FCI and Flagstar; President of The Richard Stockton College of New
Jersey (1983-present); Director of National Utility Investors.
Henry R. Kravis (a)................. 52 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of American Re Corporation, Auto Zone, Inc., Borden, Inc., Bruno's, Inc. Duracell
International, Inc., IDEX Corporation, K-III Communications Corporation,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., Safeway, Inc., The Stop & Shop
Companies, Inc., Union Texas Petroleum Holdings, Inc. and World Color Press, Inc.
A. Andrew Levison................... 39 Director of FCI and Flagstar; 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..................... 49 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of Bruno's, Inc., Duracell International, Inc., Fred Meyer, Inc., IDEX
Corporation and The Stop & Shop Companies, Inc.
Clifton S. Robbins.................. 38 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of Borden, Inc., IDEX Corporation and The Stop & Shop Companies, Inc.
George R. Roberts (a)............... 52 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.,
Safeway, Inc., The Stop & Shop Companies, Inc., Union Texas Petroleum Holdings,
Inc. and World Color Press, Inc.
Elizabeth A. Sanders................ 50 Director of FCI and Flagstar; Management consultant, The Sanders Partnership,
Sutter Creek, California (1990 to Present); Vice-President and General Manager of
Nordstrom, Inc. (1981-1990); Director of H.F. Ahmanson & Co., Wal-Mart Stores,
Inc. and Wolverine Worldwide, Inc.
L. Edwin Smart...................... 72 Director of FCI and Flagstar; Counsel, Hughes Hubbard & Reed (law firm which
performed services for the Company in 1995) (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.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
Michael T. Tokarz................... 46 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of IDEX Corporation, K-III Communications Corporation, Safeway, Inc. and Walter
Industries, 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, Ms. Farris, Mr. Levison and Ms. Sanders, with Mr.
Chu serving as Chairman. 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. 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 1995.
AUDIT COMMITTEE. The Audit Committee, which held three meetings in 1995,
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 four meetings in 1995, 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 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 eight meetings in
1995, 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 1995, 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 1995, there were eight meetings of the Board of Directors of FCI and
seven meetings of the Board of Directors of Flagstar. During 1995, each director
of FCI, other than Messrs. Kravis, Levison 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 1996.
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.
7
<PAGE>
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.
APPROVAL OF 1996 INCENTIVE COMPENSATION
The Compensation and Benefits Committee and the Board of Directors of
Flagstar have approved certain incentive compensation arrangements for 1996 for
(i) Flagstar's executive officers (other than the Chief Executive Officer) and
certain other key employees pursuant to Flagstar's 1996 Incentive Program (the
"1996 Incentive Program"), and (ii) Mr. Adamson, chairman of the Board of
Directors of Flagstar and 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 Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code")) of amounts that
may ultimately be paid under such arrangements to the Company's Chief Executive
Officer and the four highest compensated officers for the taxable year (other
than the Chief Executive Officer).
Under the 1996 Incentive Program, subject to stockholder approval, plan
participants will receive Target Awards of a percentage of their 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 Free
Cash Flow ("FCF", i.e. earnings before interest, taxes, depreciation and
amortization ("EBITDA") less capital expenditures) and Comparable Store Sales
("CSS") performance levels. A participant will be designated either a Corporate
Participant or a Concept Participant. A Corporate Participant will receive 75%
of his or her Target Award if Company FCF and CSS equal the "target" performance
levels established by the Chief Executive Officer and the Committee. A Concept
Participant will receive 25% of his or her Target Award if Company FCF and CSS
equal the "target" performance levels established by the Chief Executive Officer
and the Committee plus an additional 50% of his or her Target Award if his or
her Concept FCF and CSS equal the "target" performance levels 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
or her team meeting predetermined individual or team performance objectives for
the year.
If the Company and/or Concept FCF and CSS "target" performance levels are
exceeded, a participant's award may be increased, but only to the extent the
Company and/or the Concept FCF increases by at least twice the amount of the
cost of the additional awards.
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 or her
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 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 1996 Incentive Program 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 1996 Incentive Program at any time, and such
cancellation, modification or amendment may be retroactive to the beginning of
the year. A total of approximately 1000 employees are participants in the 1996
Incentive Program.
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% ($1,900,000) 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. (Pursuant to the terms of his employment agreement, Mr. Adamson was
scheduled to receive a base salary of $1,000,000 for 1996; at his request,
however, his base salary for 1996 will remain at $950,000.) Subject to
stockholder approval, the Compensation and Benefits Committee has determined
that, for 1996, Mr. Adamson's
8
<PAGE>
incentive award shall track and be determined based on the Company FCF and CSS
performance levels that have been established for all employees participating in
the 1996 Incentive Program.
The benefits or amounts that will be received by or allocated to the Chief
Executive Officer, to the other current officers named in the Summary
Compensation Table or to other individuals or categories of employee under these
incentive compensation arrangements are not determinable since they will be
based on Company operating results for 1996. Additionally, the benefits or
amounts which would have been awarded for 1995 to the individuals named in the
Summary Compensation Table and other specified groups had the above described
incentive compensation arrangements been in effect for 1995 are not readily
determinable in that FCF performance levels were not separately tracked by the
Company in 1995. In 1995 the Company did, however, have in effect similar
incentive compensation arrangements based on the achievement of Company and
Concept EBITDA (at performance levels that vary from those established for 1996)
and measurable individual or team performance objectives. Accordingly, set forth
below is information with respect to incentive awards granted to the individuals
named in the Summary Compensation Table and other specified groups under the
incentive compensation arrangements in effect for 1995.
NEW PLAN BENEFITS
INCENTIVE COMPENSATION
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS
<S> <C> <C>
James B. Adamson
Chairman and Chief Executive Officer of Flagstar................................... $ -0- --
Jerome J. Richardson
Former Chairman and Chief Executive Officer of Flagstar............................ $ -0- --
C. Ronald Petty
Executive Vice President of Flagstar and President and Chief Executive Officer of
Denny's............................................................................ $ -0- --
C. Robert Campbell
Executive Vice President and Chief Financial Officer of Flagstar................... $ -0- --
Kent M. Smith
Senior Vice President and Assistant to the Chairman of Flagstar.................... $ -0- --
James R. Kibler
Senior Vice President of Flagstar and President and Chief Operating Officer of the
Hardee's and Quincy's Divisions.................................................... $ -0- --
Samuel H. Maw
Former Executive Vice President, Product Development and Distribution of
Flagstar........................................................................... $ -0- --
All current executive officers as a group............................................ $ -0- --
All current non-executive officer directors as a group............................... $ -0- --
All current non-executive officer employees as a group............................... $ 162,848 --
</TABLE>
EXECUTIVE COMPENSATION
COMPENSATION AND BENEFITS COMMITTEE REPORT
The following is an explanation of the Company's executive officer
compensation program as in effect for 1995.
1995 EXECUTIVE OFFICER COMPENSATION PROGRAM
The 1995 executive officer compensation program of Flagstar had three
primary components:
(Bullet) Base salary established on the basis of (i) quantitative market
data in the form of salary comparisons to peer position groupings
within the restaurant and food service industry and other
industries for positions not unique to the food service sector,
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 1995 Senior Management
Incentive Plan. Under this plan, as approved by the Company's
stockholders at their 1995 annual meeting, plan participants (not
including the
9
<PAGE>
Chief Executive Officer) were entitled to receive Target Awards of
a percentage of their base salary depending on the group
classification assigned to such participant by the Compensation
and Benefits 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. A participant was
designated either a Corporate Participant or a Concept
Participant. A Corporate Participant was entitled to receive 75%
of his Target Award if Company EBITDA equaled the "target"
performance level established by the Chief Executive Officer and
the Committee. A Concept Participant was entitled to receive 50%
of his Target Award if Company EBITDA equaled 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 equaled the "target" performance level
established by the Chief Executive Officer and the Committee.
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). If these EBITDA "target" performance levels were not met,
the Corporate and Concept Participants were nevertheless entitled
to receive specified percentages of their Target Awards based on
Company and/or Concept EBITDA provided Company EBITDA and/or
Concept EBITDA performance did not fall below specified minimum
levels. 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 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 1995, consisted solely of stock
options.
Executive officers (including the Chief Executive Officer) were also
eligible in 1995 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 executive officer compensation program is designed with
stockholder value as a primary concern. It focuses on Company performance (for
1995, 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.
The Company also recognizes that the short and long-term rewards available
to the Company's leaders must be competitive in the marketplace in order to
attract and retain the necessary talent. Thus, the Company regularly
participates in numerous national, regional and local salary surveys to assess
the competitiveness of its programs.
In December 1995, the Committee reviewed the status of the 1995 Senior
Management Incentive Plan and anticipated year-end operating results. In light
of Company and Concept EBITDA results for the year, no bonus payments were made
to executive officers based on the predetermined Company and Concept EBITDA
goals.
With respect to Section 162(m) of the Code and the underlying 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 executive officers
in 1995 in connection with their initial employment in 1995. 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 1995." The Committee allocated options to these named executive
officers and others based on an evaluation of their relative levels of
responsibility for and their potential 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
10
<PAGE>
stockholder value. Additionally, certain Company executive officers were awarded
options pursuant to the Company's repricing of options during 1995. For details
concerning this option repricing in relation to the Company's executive officers
see "Executive Compensation -- Report on Repricing of Options." Taking into
account the options granted in connection with the Company's 1995 option
repricing, the number of shares issuable upon exercise of options were deemed to
be generally in line with target stock ownership levels based on the market
analyses undertaken by the Company (in conjunction with the executive officer
compensation surveys referred to above).
CHIEF EXECUTIVE OFFICER COMPENSATION
Pursuant to his employment agreement with the Company (see " -- Employment
Agreements -- Adamson Employment Agreement") for 1995, Mr. Adamson received: (i)
a base salary of $950,000, (ii) a one-time signing bonus of $500,000, (iii)
65,306 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 were subject to forfeiture had Mr. Adamson terminated his
employment under certain conditions prior to January 23, 1996, and (iv) a grant
under the 1989 Option Plan of a ten-year option to purchase 800,000 shares of
Common Stock, at an exercise price of $6.125 per share and exercisable at a rate
of 20% per year beginning on January 9, 1996 and each anniversary thereafter.
Additionally, during 1995 Mr. Adamson was entitled to receive an annual
performance bonus at an annual rate of up to 200% of his base salary (targeted
to equal 75% of his base salary) if the Company and Mr. Adamson achieved
budgeted financial and other performance targets established by the Compensation
and Benefits Committee under the 1995 Senior Management Incentive Plan, with a
guaranteed minimum bonus of $500,000 for 1995 (although Mr. Adamson elected not
to receive such $500,000 minimum bonus amount for 1995.) The above-referenced
compensation paid to Mr. Adamson was based upon arm's-length contract
negotiations between the Company and Mr. Adamson, with the Company taking into
account in that regard factors such as Mr. Adamson's previous work experience,
positions of responsibility and authority, and his performance in these previous
positions.
Mr. Richardson, who resigned as the Company's President and Chief Executive
Officer on January 10, 1995, was compensated in 1995 pursuant to his employment
agreement, as amended, with the Company (see " -- Employment
Agreements -- Richardson Employment Agreement").
COMPENSATION AND BENEFITS COMMITTEE
<TABLE>
<S> <C>
Paul E. Raether, Chairman
Clifton S. Robbins
Michael T. Tokarz
</TABLE>
COMPENSATION OF OFFICERS
No executive officer of FCI is compensated directly by FCI in connection
with services provided to the Company. All such executive compensation is paid
by Flagstar. Set forth below is information for 1995, 1994 and 1993 with respect
to compensation for services to the Company of the following individuals: (1)
all those individuals serving the Company as Chief Executive Officer during
1995, (2) the four most highly compensated executive officers, other than the
Chief Executive Officer, who were serving as executive officers at the end of
1995, and (3) those additional individuals who would have been among the four
most highly compensated executive officers but for the fact that the individual
was not serving as an executive officer at the end of 1995.
11
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION ALL
AWARDS OTHER
NAME AND ANNUAL COMPENSATION (1) SECURITIES UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($) OPTIONS (#) ($)(3)(4)(5)
<S> <C> <C> <C> <C> <C>
James B. Adamson 1995 $ 894,211(7) -- 800,000 $1,250,693
Chairman and Chief Executive Officer of 1994 -- -- -- --
Flagstar 1993 -- -- -- --
Jerome J. Richardson 1995 $ 772,676 -- -- $ 3,554
Former Chairman and Chief Executive Officer 1994 $ 856,594 $ 250,000 -- $ 10,250
of Flagstar 1993 $ 824,355 -- -- $ 13,652
C. Ronald Petty 1995 $ 416,731 -- 160,000(6) --
Executive Vice President of Flagstar and 1994 $ 284,284 $ 144,281 80,000 $ 78,194
President and Chief Executive Officer of 1993 $ 142,500(7) -- 80,000 $ 483,125
Denny's
C. Robert Campbell 1995 $ 214,300(7) -- 100,000 $ 405,957
Executive Vice President and Chief 1994 -- -- -- --
Financial Officer of Flagstar 1993 -- -- -- --
Kent M. Smith 1995 $ 234,216(7) -- 160,000(6) $ 62,000
Senior Vice President and Assistant to the 1994 -- -- -- --
Chairman of Flagstar 1993 -- -- -- --
James R. Kibler 1995 $ 252,880 -- 140,000(6) --
Senior Vice President of Flagstar and 1994 $ 180,705 $ 67,650 80,000 --
President and Chief Operating Officer of 1993 $ 143,510 -- 60,000 --
Hardee's and Quincy's
Samuel H. Maw 1995 $ 297,793(7) -- -- $1,868,276
Former Executive Vice President, Product 1994 $ 301,145 $ 95,625 80,000 --
Development and Distribution of Flagstar 1993 $ 280,861 -- 80,000 --
</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 1995 include accruals of $8,892, $19,596 and $119,799
for Messrs. Richardson, Kibler and Maw, respectively, under a supplemental
executive retirement plan. The amounts shown for 1994 include accruals of
$112,938 and $41,086, and the amounts shown for 1993 include accruals of
$62,082 and $26,823, 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) The amount shown for Mr. Adamson consists of Company paid life insurance
premiums payments of $8,440 and additional compensation and/or expense
reimbursement paid to Mr. Adamson at or near the time of, or otherwise
arising in connection with, his initial employment with the Company. The
amounts shown for Mr. Richardson are split-dollar insurance premium payments
paid by the Company for the years indicated.
(4) The amounts shown for Messrs. Petty, Campbell and Smith consist of
additional compensation and/or expense reimbursement paid to the respective
named executive officers at or near the time of, or otherwise arising in
connection with, their initial employment with the Company.
(5) The amount shown for Mr. Maw represents payments made to him in connection
with his retirement from the Company in 1995.
(6) Shares listed for 1995 for Messrs. Petty, Smith and Kibler were the result
of the Company's option repricing more fully described below under
" -- Report on Repricing of Options."
(7) Reflects base salary paid for only the portion of the year in which the
named executive officer was employed by Flagstar.
12
<PAGE>
STOCK OPTIONS
Set forth below is information with respect to individual grants of stock
options with respect to the Common Stock made during 1995 to Messrs. Adamson,
Petty, Campbell, Smith and Kibler. No stock options were granted in 1995 to
Messrs. Richardson or Maw.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
% OF
TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE
SECURITIES GRANTED VALUE AT ASSUMED ANNUAL
UNDERLYING TO EXERCISE RATES OF STOCK PRICE
OPTIONS EMPLOYEES OR BASE APPRECIATION FOR OPTION
GRANTED IN PRICE EXPIRATION TERM
NAME (#)(1) 1995(4) ($/SH)(2) DATE(3) 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
James B. Adamson 800,000 23.2% $ 6.125 01-09-05 $ 3,081,561 $7,809,326
C. Ronald Petty 160,000 4.6% $ 6.000 06-21-05 $ 603,734 $1,529,990
C. Robert Campbell 100,000 2.9% $ 5.125 05-01-05 $ 322,306 $ 816,792
Kent M. Smith 160,000 4.6% $ 6.000 06-21-05 $ 603,734 $1,529,990
James R. Kibler 140,000 4.1% $ 6.000 06-21-05 $ 528,268 $1,338,742
</TABLE>
(1) Such options listed for Messrs. Adamson and Campbell were granted under the
1989 Option Plan in connection with their initial employment with the
Company. Mr. Adamson's options become exercisable at a rate of 20% per annum
for five consecutive years beginning on January 9, 1996. The options granted
to Mr. Campbell become exercisable at a rate of 50% as of May 1, 1997 and an
additional 25% each of the next two anniversary dates thereafter. The
options listed for Messrs. Petty, Smith and Kibler were granted pursuant to
the option repricing, described more fully below under " -- Report on
Repricing of Options", whereby Messrs. Petty, Smith and Kibler surrendered
all options previously granted to them under the 1989 Option Plan in
exchange for an option to purchase the same number of shares exercisable at
a rate of 20% per annum beginning on the first anniversary date of the
grant. The options surrendered by Mr. Smith were options granted to him
earlier in 1995 in connection with his initial employment at an exercise
price of $6.125 per share and exercisable at a rate of 50% as of the second
anniversary date of the grant, and an additional 25% each of the next two
anniversary dates thereafter.
(2) The exercise price for such options was established at the closing sales
price for the Common Stock as of the date of grant. Under the 1989 Option
Plan, the exercise price upon the exercise of an option may be paid in cash
or by surrender of other shares of Common Stock having a fair market value
on the date of exercise equal to such exercise price, or in a combination of
cash and such shares.
(3) Upon termination of employment of a holder, all of such holder's options not
then exercisable expire and terminate. If such termination is by reason of
death, retirement or disability, such holder's exercisable options remain
exercisable for one year following termination. If such termination is
voluntary or without cause, such holder's exercisable options generally
remain exercisable for sixty days following termination. If such termination
is for cause, such holder's exercisable options expire and terminate as of
the date of termination.
(4) Includes options granted pursuant to the 1995 option repricing more fully
described below under " -- Report on Repricing of Options."
13
<PAGE>
The following table sets forth information with respect to the 1995
year-end values of unexercised options, all of which were granted by the Company
pursuant to the 1989 Option Plan, held by each of the persons named in the
Summary Compensation Table above:
AGGREGATED OPTION EXERCISES IN 1995 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED OPTIONS THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
<S> <C> <C>
James B. Adamson.................................................................. -- /800,000 -- / --
Jerome J. Richardson.............................................................. 360,000/240,000 -- / --
C. Ronald Petty................................................................... -- /160,000 -- / --
C. Robert Campbell................................................................ -- /100,000 -- / --
Kent M. Smith..................................................................... -- /160,000 -- / --
James R. Kibler................................................................... -- /140,000 -- / --
Samuel H. Maw..................................................................... 40,000/120,000 -- / --
</TABLE>
No options held by the foregoing persons were exercised in 1995.
REPORT ON REPRICING OF OPTIONS
Set forth below is information with respect to repricings of stock options
held by all executive officers since FCI became a public company in 1989. The
1993 repricings were made at the then current market price for the Common Stock.
The 1995 repricings were made at the then current market price for the Common
Stock of $6.00. The terms of such repricings are described in further detail
below.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES ORIGINAL TERM
UNDERLYING MARKET PRICE OF EXERCISE PRICE REMAINING AT
OPTIONS STOCK AT TIME AT TIME OF DATE OF
DATE OF REPRICED OR OF REPRICING OR REPRICING OR NEW EXERCISE REPRICING OR
NAME/POSITION REPRICING AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
<S> <C> <C> <C> <C> <C> <C>
James R. Kibler -- Sr. VP 6/29/93 6,000 $11.250 $ 20.000 $ 11.250 6 years
of Flagstar, President 6/21/95 6,000 $ 6.000 $ 11.250 $ 6.000 4 years
and COO of Hardee's and 6/21/95 54,000 $ 6.000 $ 11.250 $ 6.000 8 years
Quincy's 6/21/95 80,000 $ 6.000 $ 9.000 $ 6.000 9 years
William H. Mitchell -- VP Real 6/29/93 4,800 $11.250 $ 20.000 $ 11.250 6 years
Estate and Construction 6/21/95 7,000 $ 6.000 $ 11.250 $ 6.000 8 years
Edna K. Morris -- Exec. 6/21/95 35,000 $ 6.000 $ 11.250 $ 6.000 8 years
VP, Human 6/21/95 40,000 $ 6.000 $ 9.000 $ 6.000 9 years
Resources and
Corporate Affairs of
Flagstar
Honorio J. Padron -- VP 6/21/95 25,000 $ 6.000 $ 6.375 $ 6.000 9 years
Business
Transformation of
Flagstar
Rhonda J. Parish -- Sr. 6/21/95 50,000 $ 6.000 $ 9.000 $ 6.000 9 years
VP, General Counsel
& Secretary of
Flagstar
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES ORIGINAL TERM
UNDERLYING MARKET PRICE OF EXERCISE PRICE REMAINING AT
OPTIONS STOCK AT TIME AT TIME OF DATE OF
DATE OF REPRICED OR OF REPRICING OR REPRICING OR NEW EXERCISE REPRICING OR
NAME/POSITION REPRICING AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
<S> <C> <C> <C> <C> <C> <C>
C. Ronald Petty -- Exec. 6/21/95 80,000 $ 6.000 $ 11.250 $ 6.000 8 years
VP of Flagstar 6/21/95 80,000 $ 6.000 $ 9.000 $ 6.000 9 years
President and CEO of
Denny's
Kent Smith -- Sr. VP and Asst. 6/21/95 160,000 $ 6.000 $ 6.125 $ 6.000 9 years
to CEO
Samuel H. Maw -- Former 6/29/93 8,400 $11.250 $ 20.000 $ 11.250 6 years
Exec. VP, Product
Development and
Distribution of
Flagstar
Jerome J. Richardson -- 12/15/92 100,000(1) $20.300 $ 20.000 $ 15.000 7 years
Former CEO of 12/15/92 60,000(1) $20.300 $ 20.000 $ 17.500 7 years
Flagstar
</TABLE>
(1) Under the terms of the Richardson Employment Agreement (as defined herein),
which took effect on November 16, 1992, Mr. Richardson received upon the
termination of the ten-year option that he received from FCI in 1989 to
purchase 160,000 shares of Common Stock at $20.00 per share (and provided
that he continues to be employed by the Company unless his employment is
terminated as a result of "Termination Without Cause" (as defined therein)),
the grant of a new option or options to purchase 600,000 shares of Common
Stock, exercisable at the rate of 20% per year beginning on November 16,
1993 and subject to exercise prices of $15.00 per share for 100,000 shares
and $17.50 per share for 500,000 shares.
In 1995, all of the outstanding options (with certain limited exceptions)
held by current employees of the Company under the 1989 Option Plan were
repriced at $6.00 per share, the market value of Common Stock on June 21, 1995.
Such repricing was executed under the following terms. All officer level
employees were given the choice of either retaining their current options at
their existing exercise prices and vesting schedules or surrendering their
existing options in exchange for an option to purchase the same number of shares
exercisable at a rate of 20% per annum beginning on the first anniversary date
of the new grant. All non-officer employees received the new exercise price of
$6.00 per share and retained their original vesting schedules for all of their
outstanding options previously granted under the 1989 Option Plan. The
determination to reprice such options under the terms thereof was intended to
provide maximum motivation to optionees to bring the Company to profitability
and increase stockholder value in the shortest possible time.
The new stock options granted in 1993 to the named officers (in
consideration for the cancellation of prior options) were part of a broad based
stock option program implemented in 1993 under the 1989 Option Plan that also
included the grant of additional options to the named officers, together with
grants to other officers (not involving repricings) and other non-officer
employees.
The Committee determined that the 1995 repricing of options previously
granted was in the Company's best interest because, in its view, even in light
of the 1993 repricings, the exercise prices of such former options provided
little direct incentive to Company employees and because the circumstances which
resulted in such options being significantly "out-of-the-money" were deemed
principally to be outside the control of such optionees.
COMPENSATION AND BENEFITS COMMITTEE
<TABLE>
<S> <C>
Paul E. Raether, Chairman
Clifton S. Robbins
Michael T. Tokarz
</TABLE>
15
<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............................................ $ 43,056 $ 57,408 $ 71,760 $ 86,112 $100,000
250,000............................................ 54,306 72,408 90,510 108,612 125,000
300,000............................................ 65,556 87,408 109,260 131,112 150,000
350,000............................................ 76,806 102,408 128,010 153,612 175,000
400,000............................................ 88,056 117,408 146,760 176,112 200,000
500,000............................................ 110,556 147,408 184,260 221,112 250,000
600,000............................................ 133,056 177,408 221,760 266,112 300,000
700,000............................................ 155,556 207,408 259,260 311,112 350,000
800,000............................................ 178,056 237,408 296,760 356,112 400,000
900,000............................................ 200,556 267,408 334,260 401,112 450,000
1,000,000............................................ 223,056 297,408 371,760 446,112 500,000
1,200,000............................................ 268,056 357,408 446,760 536,112 600,000
1,400,000............................................ 313,056 417,408 521,760 626,112 700,000
1,600,000............................................ 358,056 477,408 596,760 716,112 800,000
</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 and El Pollo Loco 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 1994 year-end bonus paid in
1995), 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.
16
<PAGE>
The maximum annual pension benefit payable under the Flagstar Retirement
Plan for 1995 was $120,000 (or, if greater, the participant's 1982 accrued
benefit).
Except for the exclusion of 1995 bonuses paid in 1996 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
1995 for Messrs. Adamson, Petty, Campbell, Smith, Kibler, Richardson and Maw was
$985,231, $559,425, $500,754, $297,673, $303,504, $975,344 and $824,823,
respectively.
As of December 31, 1995, the estimated credited years of service under the
Flagstar Retirement Plan for Messrs. Adamson, Petty, Campbell, Smith, Kibler,
Richardson and Maw at normal retirement age was 18, 15, 14, 7, 44, 40 and 29,
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.
EMPLOYMENT AGREEMENTS
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). Pursuant to the Adamson Employment Agreement, Mr. Adamson was
appointed the Chairman of the Board of Directors of FCI. 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 of Common Stock (plus an amount in cash to
reimburse Mr. Adamson in part for his income tax liabilities with respect to
such shares), 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. Notwithstanding such contract terms, Mr. Adamson
declined his guaranteed first year bonus and salary increase for his second year
of employment as set forth above.
17
<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, and (d)
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.
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, to serve as the Company's
Chairman and Chief Executive Officer. Effective as of January 10, 1995, Mr.
Richardson resigned as the Company's Chief Executive Officer. As of May 2, 1995,
he stepped down as the Company's Chairman and as a member of the Board of
Directors. Since that date he has served as an advisor to the Company. 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 1995 (the
"Amended Richardson Agreement"), Mr. Richardson was entitled to receive (i) an
annual base salary at the rate of $750,000 per year, and (ii) an annual
performance bonus as determined by the Board in its discretion. Previously under
the Richardson Employment Agreement in consideration of 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"), Mr.
Richardson received 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. Under the Amended Richardson Agreement,
if the Company terminates Mr. Richardson's employment other than for "cause" or
if Mr. Richardson dies, the Richardson Options immediately become fully
exercisable. The Richardson Employment Agreement also entitles 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 in 1992, extending 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. 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 and an amendment to the terms thereof pursuant to
the Amended Richardson Agreement, see "Certain Transactions."
18
<PAGE>
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 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 Richardson Employment Agreement as in effect
in 1995, 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.
OTHER EMPLOYMENT ARRANGEMENTS
During 1995, Messrs. Petty, Campbell, Smith and Kibler 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. The agreements for Messrs.
Campbell, Petty, Kibler and Smith contain termination provisions for the payment
of severance benefits upon termination of their employment under certain
circumstances. Also, in 1995, Mr. Maw, pursuant to a separate agreement,
received severance benefits upon his termination of employment with the Company
in 1995 and the Company waived the termination provisions applicable to his
stock options that otherwise would have been triggered by his termination.
COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Raether, Robbins and Tokarz served on the Company's Compensation
and Benefits Committee during 1995. Messrs. Tokarz and Robbins serve as officers
of certain subsidiaries of the Company. Messrs. Raether, Robbins and Tokarz are
general partners of KKR. In 1995, KKR received an annual financial advisory fee
of $1,250,000.
Pursuant to the Purchase Agreement, Associates agreed that it would 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 provided that, until November 16, 1995, FCI
would 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 was not available at a reasonable cost, as much
such insurance as was available to it at a reasonable cost). FCI and its
subsidiaries have also maintained 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
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 1992 recapitalization of the Company 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
19
<PAGE>
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. 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.
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, 1991 and ending December 31, 1995. The
graph and table assume that $100 was invested on December 31, 1990 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.
(The Performance Graph appears here. The plot points are listed in the
table below.)
[ ] FLAGSTAR COS INC (circle) S&P 500 INDEX (triangle) RESTAURANTS
<TABLE>
<CAPTION>
DECEMBER 31,
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Stock Index............................... $ 100.00 $130.47 $140.41 $154.56 $156.60 $215.45
S&P Restaurant Index.............................. $ 100.00 $134.86 $172.77 $201.69 $201.06 $301.56
Flagstar Companies, Inc........................... $ 100.00 $104.35 $139.13 $ 64.35 $ 48.70 $ 21.74
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent (10%) of
the Company's Common Stock to file initial reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Additionally, SEC
regulations require that the Company identify any individuals for whom one of
the referenced reports was not filed on a timely basis during the most recent
fiscal year or prior fiscal years. To the Company's knowledge, based
20
<PAGE>
solely on review of reports furnished to it and written representations that no
other reports were required during and with respect to the fiscal year ended
December 31, 1995, all Section 16(a) filing requirements applicable to its
executive officers, directors and more than 10% beneficial owners were complied
with, except that Mr. Smart inadvertently filed late one report showing the
sale, in 1995, of certain Company securities that were convertible into shares
of Common Stock.
CERTAIN TRANSACTIONS
Pursuant to the Richardson Employment Agreement, the Company advanced funds
to Mr. Richardson, the former Chairman and Chief Executive Officer of the
Company, 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."
Mr. Richardson 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 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 until December 1995 ("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 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.
21
<PAGE>
(FLAGSTAR logo appears here)
Notice of Annual Meeting
and
Proxy Statement
ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD
APRIL 24, 1996
<PAGE>
Final
3/6/96
1996 Flagstar Incentive Program
Flagstar Corporation
<PAGE>
I. Purpose
Flagstar Corporation, including its subsidiaries and affiliated
entities (collectively "Flagstar") hereby adopts the Flagstar 1996
Incentive Program (the "Program") to assist Flagstar in retaining and
attracting qualified employees and to provide an additional incentive
to employees to contribute to the success of Flagstar.
II. Certain Definitions
For the purposes of this Program, the following terms shall have the
following meanings:
A. Employee
An individual on the active full time regular 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 nor is an eligible participant
in any other incentive program sponsored by Flagstar or its
concepts.
B. Comparable Store Sales
The sales from Company-owned restaurants that were open for
all of 1995 and all of 1996. Restaurants that opened or closed
during either year are not included.
C. Compensation Committee
The Compensation and Benefits Committee of the Board of
Directors (the "Committee").
D. EBITDA
Earnings (as such term is defined by Generally Accepted
Accounting Principles ["GAAP"]) before interest, income taxes,
depreciation and amortization for the Plan Year and before
accruals for awards pursuant to the provisions of this
Program.
E. Free Cash Flow
EBITDA minus capital expenditures.
F. Participant
An employee of Flagstar designated by the Committee pursuant
to Article V hereof.
G. Fiscal Year/Program Year
That period of time from January 1, 1996 through December 31,
1996.
H. 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 Program.
1
<PAGE>
I. Team
The group of Participants who participate in a particular
Individual/Team Award Pool as discussed in Article IX.
III. Effective Date
This Program will become effective as of January 1, 1996.
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.
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 Plan Year shall be Employees of
Flagstar. The Committee shall assign each Participant to one of the
following categories. Categories will have the Target Awards shown
below.
- ---------------------------------------------------------------------------
Participant Group Target Award,
as a % of Base Salary
- ---------------------------------------------------------------------------
Group I (excluding the Chairman and Chief 65%
Executive Officer)
Group II 45%
Group III 25%
Group IV 15%
Group V 5%
- ---------------------------------------------------------------------------
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 Free Cash Flow and Flagstar Comparable Store Sales Increase
2. Concept Free Cash Flow and Concept Comparable Store Sales Increase
3. Individual/Team Award
Amounts are earned under each element without reference to the other
elements.
2
<PAGE>
VII. Calculation
Corporate Participants: (Flagstar Finance, Benefits, Legal, etc.)
Employees not assigned to a specific concept, but who support all
concepts are in this category. Several examples of Corporate
Participants are employees assigned to the Legal, Corporate Finance,
and Benefits departments. Awards for this category are divided into two
parts. Three quarters of the award is based on the overall financial
performance of Flagstar in total. The other quarter is designated as
"Discretionary" and may be awarded without regard to achievement of the
Free Cash Flow and Comparable Store Sales goals, if a particular team
has made significant contributions to the business throughout the year.
Concept Participants: (Denny's, Hardee's, Quincy's, El Pollo Loco)
Employees solely supporting a specific concept are in this category.
Several examples are Denny's Financial Planning, Hardee's Operations
Support and Quincy's Marketing. Awards for this group are divided into
three parts. One half of the award is based on the financial
performance of the individual concept. One quarter of the award is
based on the overall financial performance of Flagstar in total. The
other quarter is designated as "Discretionary" and may be awarded
without regard to achievement of Free Cash Flow and Comparable Store
Sales goals, if a particular team has made significant contributions to
the business throughout the year.
Financial Measures
Two financial measures must be met for the financial performance
portion of the award to be paid. Comparable Store Sales and Free Cash
Flow must meet or exceed the targets set forth below. Failure to
satisfy both criteria results in no financial performance award being
paid.
Flagstar Incentive Program 1996 Financial Measures
<TABLE>
<CAPTION>
Flagstar Denny's Hardee's Quincy's E.P.L. H/Q
<S> <C> <C> <C> <C> <C> <C>
Comparable Store Sales +3.0% +3.5% +3.0% +3.5% +5.0% +3.0%
Free Cash Flow * $229 $134 $68 $33 $14 $101
(in Millions)
</TABLE>
*For purposes of determining Free Cash Flow for Flagstar,
Denny's and EPL, no more than $8.7 million, $7.2 million and
$1.5 million respectively can be derived from the sale of
operating assets without the prior consent of Flagstar's CEO.
3
<PAGE>
Corporate Participant Financial Award Criteria
Comparable Store Sales. For Corporate Participants, the Comparable
Store Sales goal is set forth in the table above. To receive any
portion of the financial performance award, the weighted average
increase of Comparable Store Sales for all concepts must meet or exceed
the goal (+3.0%).
Free Cash Flow. Free Cash Flow works similar to the sales measure.
Corporate Participants may receive the financial performance award if
Flagstar achieves the 1996 Free Cash Flow goal set forth in the table
above.
Concept Participant Financial Award Criteria
Comparable Store Sales. Concept Participants have two opportunities to
earn financial awards. To qualify for the concept financial performance
portion (one half of the award total) of the award, the concept must
achieve the Comparable Store Sales goal set forth in the table above.
To receive the Flagstar financial portion of the award (one quarter of
the potential award amount), the weighted average Comparable Store
Sales for all concepts must meet or exceed the Flagstar 1996 Comparable
Store Sales goal (+3.0%).
Free Cash Flow. Free Cash Flow works similar to the sales measure.
Concept Participants have two Free Cash Flow components. If the Concept
Comparable Store Sales goal is met, and at the end of 1996, the concept
meets or exceeds the Free Cash Flow goal (as set forth in the table
above), one half of the total award will be paid. To receive the
Flagstar financial performance portion of the award (one quarter of the
potential award amount), the Flagstar Comparable Store Sales goal must
be met, and Flagstar must achieve its Free Cash Flow goal.
Corporate Participants may receive a financial performance award only
if Flagstar achieves its Free Cash Flow and Comparable Store Sales
goals. Concept Participants may receive a partial award if the concept
achieves its Free Cash Flow and Concept Comparable Store Sales goals,
even if Flagstar in total does not achieve its 1996 Comparable Store
Sales and Free Cash Flow goals.
VIII. Additional Awards
Participants' financial performance awards may be increased if Flagstar
and/or the concepts exceed their Comparable Store Sales and Free Cash
Flow goals. (Discretionary awards do not automatically increase if
Flagstar or the concepts exceed their financial goals.)
For Corporate Participants, each 1/2 percent (0.5%) improvement over
the Comparable Store Sales goal that Flagstar achieves increases each
Participant's financial performance award payout potential by 2.5% of
his/her base salary, provided that Flagstar's aggregate Free Cash Flow
increases by at least twice the amount of the cost of the additional
awards. The increases are paid in steps without interpolation between
levels of Comparable Store Sales performance (e.g. 0.5%, 1.0%, 1.5%,
etc.). Should Flagstar
4
<PAGE>
and/or a concept achieve Comparable Store Sales above the 1996 Plan
goals, but have less than the required Free Cash Flow from the sales
level achieved, the highest award funded by both Comparable Store Sales
and Free Cash Flow performance will be made.
Example:
1996 Flagstar Financial Plan
Comparable Store Sales +3.0% over 1995
Free Cash Flow $229 Million
If Flagstar's 1996 Comparable Store Sales increase 3.5%, and if
increasing payouts under this Program by 2.5% of each Participant's
salary increases award payouts by $1 million, then Flagstar's Free Cash
Flow for 1996 MUST at least equal $231M for any increased financial
performance awards to be paid.
For Concept Participants, each 1/2 percent (0.5%) improvement over the
Comparable Store Sales goal that the concept achieves increases each
Participant's concept financial performance award payout potential by
1.0% of his/her salary if the concept's Total Free Cash Flow increases
by at least twice the amount of the cost of the additional awards. The
increases are paid in steps without interpolation between levels of
Comparable Store Sales performance (e.g. 0.5%, 1.0%, 1.5%, etc.).
Should a concept achieve Comparable Store Sales above its 1996 Plan
goals, but have less than the required Free Cash Flow from the sales
level achieved, the highest award funded by both the Comparable Store
Sales and Free Cash Flow performance will be made.
Example:
1996 Denny's Financial Plan
Comparable Store Sales +3.5% over 1995
Free Cash Flow $134 Million
If Denny's 1996 Comparable Store Sales increase by 4.0%, and if
increasing payouts under this Program to Denny's Participants by 1.0%
of each Participant's salary increases award payouts by $0.5 million,
then Denny's Free Cash Flow in 1996 MUST at least equal $135 million
for the increased award to be paid to Denny's Participants.
A Concept Participant's financial performance award payout may also be
increased by an additional 1.5% of his/her salary for each 1/2 percent
(0.5%) improvement Flagstar achieves over its 1996 Comparable Store
Sales goal (3.0%). To receive this additional award payout, Flagstar's
1996 Free Cash Flow must increase by at least twice the amount of the
cost of these additional awards to Concept Participants.
5
<PAGE>
IX. Individual/Team Award
Each Participant will be assigned to a Team by the Chief Executive
Officer. These Teams will generally consist of the direct reports to
the CEO, and all Participants who report up through those direct
reports. 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 Program 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 at the beginning of the Program 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 his
respective direct report. Each direct report will then allocate the
remaining final "Team Pool" to the other Participants on his or her
Team. The allocation will be made in the direct report's discretion,
after prior consultation with the Chief Executive Officer.
Individual/Team Awards to any single Team or 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 Program Year.
XI. Reserve
In connection with determining awards for a Program Year as herein
provided, in addition to other allocations made pursuant to the
Program, 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
Program, or who otherwise would not receive an award under the Program.
The creation of a reserve by the Board shall not obligate the Committee
to make awards from 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 Program Year.
Awards vest on the January 1 following the end of the Program Year.
6
<PAGE>
XIII. New Hires or Promotions
Employees hired or promoted during a Program Year shall be eligible to
receive such award for that Program Year as the Committee may
determine. The Committee will have the discretion to establish new
target goals for any Employees hired or promoted during the Program
Year. Persons hired on or after October 1 of the Program Year are
ineligible for awards under this Program.
XIV. Assignments and Transfers
A Participant may not assign, transfer, pledge, or otherwise encumber
amounts accruing to such Participant under the Program.
XV. No Creation of Employee Rights Under the Program
No employee or other person shall have any claim or right to be named a
Participant or granted an award under the Program. Neither the Program
nor any action taken thereunder shall be construed as giving any
Employee or Participant under the Program 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
Program, 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 Program Year shall be in the sole discretion of the
Committee.
XVIII. Cancellation of and Modifications to the Program
Flagstar's Board of Directors shall have the right to cancel, amend or
modify this Program in its sole discretion and without advance notice
to Participants. Such cancellation, amendment or modification that
takes place during a Program Year may be retroactive to the beginning
of that Program Year, as the Board determines.
In case of the sale of any concept or Portiontrol Foods Inc. ("PTF") an
adjustment will be made to the Free Cash Flow target of the concept or
PTF by revising the target plan for the period remaining in the year
subsequent to the sale by their includable amount for the remainder of
the year in the original target plan. In the case of an acquisition
during the year of any additional concept(s), new target goals may be
established for new participants in the plan due to the acquisition of
the new concept(s). For purposes of determining Flagstar's Comparable
Store Sales and Free Cash Flow goals, any new concept(s) will be
excluded from the target goal computations.
7
<PAGE>
XIX. Other Employee Benefit Plans
Nothing herein contained shall be construed to affect any right of
Participants in this Program to participate in other employee benefits
plans of Flagstar.
XX. Miscellaneous
Any award under the Program 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 Program. 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 Program
shall be borne by Flagstar.
8
<PAGE>
<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 7,
1996, at the Annual Meeting of Stockholders to be held on April 24, 1996 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, George R. Roberts, Elizabeth A. Sanders
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 LLP as the independent
auditors for the Company for the fiscal year ending December 31, 1996.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF 1996 INCENTIVE COMPENSATION
To approve 1996 incentive compensation for the Company's employees.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
4. 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 AND 3.
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 19, 1996.
DATED: , 1996
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 7,
1996, at the Annual Meeting of Stockholders to be held on April 24, 1996 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, George R. Roberts, Elizabeth A. Sanders
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 LLP as the independent
auditors for the Company for the fiscal year ending December 31, 1996.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF 1996 INCENTIVE COMPENSATION
To approve 1996 incentive compensation for the Company's employees.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
4. 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 AND 3.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign.
DATED: , 1996
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.
