Exhibit 3
February 10, 1999
Xx. Xxxxxxx X. Xxxxxxx
President
Fingerhut Companies, Inc.
0000 Xxxxx Xxxx
Xxxxxxxxxx, XX 00000
Dear Will:
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/ XXXXXXX X. XXXXXXX
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XXXXXXX XXXXXXX
Current Title: President, Fingerhut
New Title: President and CEO, Fingerhut, effective 5/1/99
Chairman and CEO, Fingerhut, effective 1/1/00
Current Salary: $450,000
New Salary: $600,000 effective upon closing
$800,000 effective 5/1/99
Current Annual Bonus: Target of 125%, maximum of 168%
New Annual Bonus: Target of 125%, maximum of 168%.
For FY '99, bonus will be calculated at $700,000
base salary and cannot be less than $300,000.
Option Award: 300,000 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: 25,000 shares granted effective on merger closing
date. Additional shares will be granted effective
on merger closing date equal to the number
determined by dividing $1,585,769 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: The September 1998 option (370,000 shares) 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.
The May 1998 restricted share grant will be
exchanged into FDS restricted shares based upon
the closing price of FDS Common Stock on February
10, 1999. These new restricted shares will retain
the original vesting schedule. (See Exhibit A.) In
the event of termination by the Company without
cause, restrictions on any shares that resulted
from rolling previous shares will lapse
immediately and the shares will be owned
unconditionally.
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 the 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 amount equal to $1,350,000 (3x FY '98 base
salary) plus the greater of (i) $1,650,000 (3x FY
'98 bonus) or (ii) 3x actual bonus earned for FY
'99 calculated on $450,000 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).
Compensation package will be reexamined in Spring
2001.
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 - LANSING
OPTIONS
Assume $44 FDS Common Stock closing price on February 10, 1999.
370,000 shares divided by $44/$25 = 210,227 shares
Exercise price: $8.52 x $44/$25 = $15
New options: 210,227 FDS shares, vesting 25% per year, commencing on September
25, 1999
RESTRICTED SHARES
Assume $44 FDS Common Stock closing price on February 10, 1999.
Restricted shares value = $3,598,125
$3,598,125 divided by $44 = 81,776 shares
New restricted shares: 81,776 FDS shares vesting 25% per year commencing on May
1, 1999
