Exhibit 5
February 10, 1999
Xx. Xxxx X. Xxxx
Executive Vice President - Human Resources,
Operations and Information Systems
Fingerhut Companies, Inc.
0000 Xxxxx Xxxx
Xxxxxxxxxx, XX 00000
Dear Xxxx:
Federated Department Stores, Inc. ("Federated") and you have discussed
entering into an employment contract providing you with the economics set forth
in the attached term sheet. You have told Federated that you intend to remain
with Fingerhut after its acquisition. You and we have agreed that the economic
terms of the attached term sheet are those under which you would, subject to the
balance of this letter, enter into an employment agreement with Federated. This
letter is intended to be a NON-BINDING letter of intent setting forth your
confirmation that you have agreed to negotiate, in good faith, an employment
agreement with Federated consistent with the economic terms outlined in the
attached term sheet. Your entering into the employment agreement remains subject
to you, with advice of your legal, tax and financial advisors, agreeing to all
of the terms and conditions therein.
Please sign and return the enclosed acknowledgement copy confirming
your agreement.
Sincerely,
Federated Department Stores, Inc.
By: /s/ XXX XXXXX
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Confirmed and acknowledged
this 10th day of February, 1999:
/s/ XXXX X. XXXX
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XXXX XXXX
Current Title: EVP, Operations, Mdse. Information Systems and HR,
Fingerhut
New Title: Same
Current Salary: $350,000
New Salary: $400,000 effective upon closing
Current Annual Bonus: Target of 110%, maximum of 146%
New Annual Bonus: For FY '99, bonus will be calculated on $387,500
base salary and cannot be less than $347,500. For
FY '00 and FY '01, target of 110%, maximum of
146%.
Option Award: 125,000 options granted effective on merger
closing date at closing price of FDS Common Stock
on February 10, 1999. 10 year term with 4 year
vesting, 25% on each of first, second, third and
fourth anniversaries of the grant. In the event
that the Company terminates the executive without
cause, Management will request Board approval to
permit continued vesting of options following
termination of employment.
Restricted Stock: 10,000 shares granted effective on merger closing
date. Additional shares will be granted effective
on merger closing date equal to the number
determined by dividing $290,902 by the closing
price of FDS Common Stock on last trading day
immediately preceding merger closing date. FDS to
provide tax indemnity to executive. Restrictions
for both grants to lapse 25% on each of first,
second, third and fourth anniversaries of the
grant. In the event that the Company terminates
the executive without cause, Management will
request Board approval to permit continued vesting
of restricted stock following termination of
employment.
Additional Investment: 100,000 Fingerhut options will be exchanged into
FDS options with the exercise price to be
determined in relation to the closing price of FDS
Common Stock on February 10, 1999. (See Exhibit
A.) These new options will retain the original
vesting schedule. In the event of termination by
the Company without cause, any unvested options
that resulted from rolling previous options will
vest immediately and may be exercised.
Employment Contract: Three year contract (which will include a
modification to the existing severance agreement
waiving the right to leave during the 13th month
after closing; payout as provided under Retention
Arrangements to be paid on first anniversary of
the merger closing date.)
Retention Arrangements: On first anniversary of the merger closing date,
unless Executive has terminated employment for
other than Good Reason (as defined in the
severance agreement) before that date, payout of
an award equal to 3x the higher of (i) the
aggregate base salary and bonus paid in respect of
FY '98 performance or (ii) the aggregate of
$350,000 and the bonus payable in respect of FY
'99 performance applying the applicable bonus to
an assumed $350,000 base salary in lieu of any and
all rights under Article V of the severance
agreement (subject to termination terms and
conditions to be agreed to).
Benefits: Additional benefits:
40% discount at all Federated divisions with
gross-up (currently 47%).
Eligible to participate in Federated Matching
Aid Program.
Miscellaneous: The foregoing and the entitlements in Merger
Agreement in lieu of any and all rights under
Article III of severance agreement.
EXHIBIT A - BUCK
OPTIONS
Assume $44 FDS Common Stock closing price on February 10, 1999.
100,000 shares divided by $44/$25 = 56,818 shares
Exercise price: $8.52 x $44/$25 = $15
New options: 56,818 FDS shares, vesting on original schedule
