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Employment Agreement

EMPLOYMENT AGREEMENT

This Employment Agreement dated as of December 15, 2006 (the Agreement Date) and effective as of January 1, 2007 (the Effective Date) between Nathans Famous, Inc., a Delaware corporation having an address at 1400 Old Country Road, Westbury, New York 11590 (the "Company"), and Eric Gatoff, an individual having an address at 254 East 68th Street, Apt 24B, New York, NY 10021 (the "Executive").

WHEREAS, the Company desires to employ the Executive and to receive certain services from him, and the Executive is willing to continue to be employed and to render such services to the Company, all upon the terms and subject to the conditions contained herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. Employment. Subject to and upon the terms and conditions contained in this Agreement, the Company hereby agrees to employ Executive and Executive agrees to be employed by the Company, for the period set forth in Paragraph 2 hereof, to render the services to the Company, its affiliates and/or subsidiaries described in Paragraph 3 hereof.

2. Effective Date and Term. The Effective Date of this Agreement shall be January 1, 2007. The Executive's term of employment under this Agreement shall commence on the Effective Date hereof and shall continue for a period through and including the second anniversary of the Effective Date hereof (the "Initial Agreement Term"). At the end of the Initial Agreement Term, this Agreement shall be automatically extended for additional, successive periods of one year (each of which successive periods shall be considered an Additional Agreement Term and, together with the Initial Agreement Term, the Term) unless terminated in writing by either party no less than 180 days prior to the end of either the Initial Agreement Term or any Additional Agreement Term pursuant to the terms and conditions set forth herein.

3. Duties. (a) The Executive shall be employed as Chief Executive Officer of the Company as of the Effective Date hereof. The Executive shall report to the Executive Chairman and Board of Directors (the Board) of the Company. It is agreed that Executive shall perform his services in the Company's Westbury, New York offices, or at any other facilities mutually agreeable to the parties.

(b) The Executive agrees to abide by all By-laws and applicable policies of the Company promulgated from time to time by the Board of Directors of the Company, including without limitation the normal business policies of the Company.

4. Exclusive Services and Best Efforts. The Executive shall devote all of his working time, attention, best efforts and ability during regular business hours exclusively to the service of the Company, its affiliates and subsidiaries during the term of this Agreement.

5. Compensation. As compensation for his services and covenants hereunder, the Company shall pay the Executive the following:

(a) Base Salary. The Company shall pay the Executive a base salary ("Base Salary") of $225,000 per year commencing on the Effective Date of this Agreement. The Base Salary shall be subject to review and adjustment on an annual basis beginning January 1, 2008, (if this Agreement is then in effect) or, at the Company's discretion, on such earlier date as the Company may determine; provided, however, that in no event shall the Executive's Base Salary be reduced below the Base Salary specified herein.

(b) Bonus Compensation.

(i) For each fiscal year within the Term commencing with the fiscal year ending March 30, 2008, the Company shall pay to the Executive annual bonus compensation ("Bonus Compensation") within the range of 0% to 100% of his (then) current Base Salary based on the Companys achievement of certain financial and operational performance objectives as are mutually agreed-upon by the Board and the Executive during the last quarter of the immediately prior fiscal year (such objectives being the Performance Targets); provided, however, that for each year within the Initial Agreement Term, such Bonus Compensation shall not be less than 50% of the Executives (then) current Base Salary (the Minimum Bonus). The Executive shall be eligible to receive Bonus Compensation of 75% of his (then) current Base Salary should the Company attain the Performance Targets established for the applicable fiscal year. Should the Company significantly exceed the Performance Targets for a fiscal year, the Executive shall be eligible to receive Bonus Compensation in an amount determined by the Compensation Committee and Board in their sole discretion, not to exceed 100% of his (then) current Base Salary. The foregoing Bonus Compensation shall be paid by the Company within thirty (30) days after completion of the audited financial results of the Company for the applicable fiscal year.