<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 240.14a-11(c) or Section
240.14a-12
Friendly Ice Cream Corporation
- --------------------------------------------------------------------------------
(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/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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>
[LOGO]
FRIENDLY ICE CREAM CORPORATION
1855 BOSTON ROAD
WILBRAHAM, MASSACHUSETTS 01095
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 12, 1998
------------------------
TO ALL SHAREHOLDERS OF FRIENDLY ICE CREAM CORPORATION:
Notice is Hereby Given that the Annual Meeting of Shareholders of Friendly
Ice Cream Corporation will be held in the Friendly Ice Cream Corporation
Training Center, 37 Capital Drive, West Springfield, Massachusetts at 10:00 a.m.
local time on Tuesday, May 12, 1998 for the following purposes:
1. To elect two (2) Class I Directors for terms expiring in 2001.
2. To take action with respect to the ratification of the appointment by
the Board of Directors of the Company of Arthur Andersen LLP as
independent accountants of the Company for the fiscal year commencing
December 29, 1997.
3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Notice is Further Given that the Board of Directors has fixed April 6, 1998,
as the record date, and only holders of the Company's Common Stock of record
at the close of business on that date will be entitled to notice of, and to
vote at, the Annual Meeting or any adjournments thereof.
Your copy of the 1997 Annual Report of Friendly Ice Cream Corporation is
enclosed.
IF YOU PLAN TO ATTEND: PLEASE NOTE THAT SPACE LIMITATIONS MAKE IT NECESSARY
TO LIMIT ATTENDANCE TO SHAREHOLDERS AND ONE GUEST FOR EACH SHAREHOLDER.
ADMISSION TO THE MEETING WILL BE ON A FIRST-COME, FIRST-SERVED BASIS.
REGISTRATION WILL BEGIN AT 8:00 A.M., AND SEATING WILL BE AVAILABLE AT
APPROXIMATELY 9:00 A.M. CAMERAS AND RECORDING DEVICES WILL NOT BE PERMITTED AT
THE MEETING. BENEFICIAL OWNERS OF STOCK HELD IN "STREET NAME" WILL NEED TO BRING
A COPY OF A BROKERAGE STATEMENT REFLECTING STOCK OWNERSHIP AS OF THE RECORD
DATE.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS,
PLEASE FILL IN, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND MAIL IT PROMPTLY
IN THE ENCLOSED PREPAID RETURN ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING OF
SHAREHOLDERS, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY CARD.
By Authorization of the Board of
Directors
Aaron B. Parker
Associate General Counsel and Clerk
Wilbraham, Massachusetts
April 10, 1998
<PAGE>
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS OF
FRIENDLY ICE CREAM CORPORATION
TO BE HELD ON MAY 12, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Annual Meeting......................................................................................... 1
The Purpose of the 1998 Annual Meeting................................................................... 1
Voting at the Annual Meeting............................................................................. 1
Voting By Proxy.......................................................................................... 1
Voting to Approve Each Proposal.......................................................................... 1
What Constitutes a Quorum?............................................................................... 2
Board's Recommendations.................................................................................. 2
Stock Ownership............................................................................................ 2
Who Are the Largest Owners of the Company's Stock?....................................................... 2
How Much Stock do the Company's Directors and Executive Officers Own?.................................... 4
Proposal 1--Election of Directors.......................................................................... 5
Directors Standing for Election.......................................................................... 5
Directors Continuing in Office........................................................................... 5
Director Compensation.................................................................................... 6
Board Committees And Meetings............................................................................ 6
Proposal 2--Ratification of Appointment of Independent Accountants......................................... 7
Compensation Committee Report on Executive Compensation.................................................... 7
Base Salaries............................................................................................ 8
Annual Incentives........................................................................................ 8
Long-Term Incentives..................................................................................... 8
Policy with Respect to the $1 Million Deduction Limit.................................................... 10
Performance Graph.......................................................................................... 11
Executive Compensation..................................................................................... 12
Summary Compensation Table............................................................................... 12
Pension Plan............................................................................................. 13
Certain Relationships and Related Transactions............................................................. 13
Other Matters.............................................................................................. 15
Notice to Shareholders of By-Law Amendments.............................................................. 15
Other Business........................................................................................... 15
Shareholder Proposals for the 1999 Annual Meeting........................................................ 15
Proxy Solicitation Costs................................................................................. 15
</TABLE>
<PAGE>
PROXY STATEMENT
FRIENDLY ICE CREAM CORPORATION
1855 BOSTON ROAD
WILBRAHAM, MA 01095
The Board of Directors of Friendly Ice Cream Corporation (the "Company")
solicits your proxy for use at the 1998 Annual Meeting of Shareholders. This
proxy statement contains information related to the Annual Meeting of
Shareholders of the Company to be held on May 12, 1998 at the Friendly Ice Cream
Corporation Training Center, 37 Capital Drive, West Springfield, Massachusetts
at 10:00 a.m., and at any postponements or adjournments of such meeting. This
proxy statement and form of proxy are first being mailed to shareholders on
approximately April 10, 1998.
THE ANNUAL MEETING
THE PURPOSE OF THE 1998 ANNUAL MEETING
At the Company's 1998 Annual Meeting, shareholders will act upon the matters
outlined in the accompanying notice of meeting, namely, the election of
directors and the ratification of the Company's independent auditors. The
Company's management will then report on the performance of the Company during
fiscal 1997 and first quarter 1998 and respond to questions from shareholders.
VOTING AT THE ANNUAL MEETING
You are entitled to vote at the meeting or any necessary adjournments or
postponements if you are an owner of record of shares of Common Stock of the
Company, its only class of voting securities, at the close of business on April
6, 1998. As an owner of record on the record date, you are entitled to one vote
for each share of Common Stock of the Company that you hold. On April 6, 1998,
there were 7,441,290 shares of Common Stock issued and outstanding.
VOTING BY PROXY
To vote by proxy, please promptly complete, sign and return the enclosed
proxy card. Once the enclosed proxy is completed, properly signed and returned
to the Company, it will be voted as directed. If you are planning to attend the
annual meeting, the proxy may also be delivered on the day of the annual
meeting.
You may revoke this proxy if you attend the meeting in person and request
that the proxy be revoked. To change your vote before the proxy is exercised,
simply file either a notice of revocation or a duly executed proxy bearing a
later date with the Clerk of the Company, before the proxy is exercised.
Please specify your voting choices on the enclosed form of proxy. If you do
not provide specific instructions, the shares represented by your signed proxy
will be voted FOR the election of all nominees and FOR the proposal to ratify
the appointment of Arthur Andersen LLP as independent accountants.
VOTING TO APPROVE EACH PROPOSAL
VOTING FOR THE ELECTION OF DIRECTORS: Directors will be elected by a
plurality of the votes cast by the shareholders voting in person or by proxy at
the Annual Meeting. You as a shareholder may vote in favor of all nominees or
withhold your vote as to all nominees or withhold your vote as to specific
nominees. A properly executed proxy marked "WITHHOLD AUTHORITY" with respect to
the election of one or more directors will not be voted with respect to the
director or directors indicated, and will have no effect on the outcome,
although it will be counted for purposes of determining whether there is a
quorum.
VOTING FOR RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS: Approval
of the ratification of Arthur Anderson LLP as independent accountants will
require the affirmative vote of a majority of the
1
<PAGE>
votes cast on this matter by the holders of the outstanding shares of Common
Stock represented at the Annual Meeting in person or by proxy. You as a
shareholder may vote in favor of a proposal, against a proposal or may abstain
from voting. A properly executed proxy marked "ABSTAIN" with respect to this
matter will not be deemed to be voted or cast, and will have no effect on the
outcome, although it will be counted for purposes of determining whether there
is a quorum.
Shares held in "street name" and represented at the meeting which the record
holders are not entitled to vote ("broker non-votes") will have no effect on
these outcomes.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. Proxies
received but marked as abstentions and broker non-votes will be included in the
calculation of the number of shares considered to be present at the meeting.
BOARD'S RECOMMENDATIONS
Unless otherwise instructed on the proxy card, the persons named as proxy
holders on the proxy card will vote in accordance with the recommendations of
the Board of Directors. The Board's recommendations are set forth below together
with the description of each proposal in this proxy statement. In summary, the
Board recommends a vote:
- FOR election of the nominated slate of directors (see "Proposal
I--Election of Directors");
- FOR ratification of the appointment of Arthur Andersen LLP as the
Company's independent accountants (see "Proposal 2--Ratification of
Independent Accountants").
Should any other matter come properly before the meeting, the proxy holders
will vote as recommended by the Board of Directors or, if no recommendation is
given, in their own discretion.
STOCK OWNERSHIP
WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?
The following table sets forth the beneficial ownership of the Company's
Common Stock by each person who, as of December 31, 1997, is known to the
Company to be the beneficial owner of 5% or more of the Common Stock with sole
voting and dispositive power except as otherwise indicated.
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
J.P. Morgan & Co. Incorporated ("JPM")....................... 766,000(a) 10.3%
60 Wall Street
New York, NY 10260
Donald N. Smith.............................................. 705,807 9.5%
1 Pierce Place
Suite 100 East
Itasca, IL 60143
Massachusetts Financial Services Company ("MFS")............. 621,700(b) 8.4%
500 Boylston Street
Boston, MA 02116
Goldman, Sachs & Co.......................................... 613,700(c) 8.3%
85 Broad Street
New York, NY 10004
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
FMR Corp..................................................... 455,500(d) 6.1%
82 Devonshire Street
Boston, MA 02109-3614
Morgan Stanley, Dean Witter,................................. 428,186(e) 5.8%
Discover & Co.
1585 Broadway
New York, NY 10036
Wellington Management Company, LLP ("WMC")................... 400,000(f) 5.4%
75 State Street
Boston, MA 02109
</TABLE>
- ------------------------
(a) JPM, as a holding company of Morgan Guaranty Trust Company of New York, J.P.
Morgan Investment Management, Inc. and J.P. Morgan Florida Federal Savings
Bank, reports sole voting power as to 638,700 of these shares and sole
dispositive power as to all of these shares.
(b) MFS reports sole voting power as to 617,700 of these shares and sole
dispositive power as to all of these shares, which include 355,000 shares
(4.8% of the outstanding Common Stock) also beneficially owned by MFS Series
Trust II-MFS Emerging Growth Fund, as well as MFS and 266,700 shares also
beneficially owned by certain other non-reporting entities as well as MFS.
(c) Goldman Sachs & Co., on its own behalf and on behalf of its parent holding
company, Goldman Sachs Group, L.P., has reported shared voting and
dispositive power over the above shares, and on behalf of Goldman Sachs
Trust on behalf of Goldman Sachs Small Cap Value Fund, 1 New York Plaza, New
York, NY 10004, has reported shared voting and dispositive power over
463,100 of these shares (6.2% of the outstanding Common Stock).
(d) FMR Corp. reports sole dispositive power as to all of these shares through
its control of (i) Fidelity Management & Research Company which beneficially
owns 95,500 of such shares (1.3% of the outstanding Common Stock) and (ii)
Fidelity Management Trust Company ("FMTC") which beneficially owns 360,000
of such shares (4.8% of the outstanding Common Stock). FMR Corp. has sole
voting power for the 360,000 shares beneficially owned by FMTC.
(e) Morgan Stanley, Dean Witter, Discover & Co. has reported shared voting and
dispositive power over the above shares, which include 389,900 shares (5.2%
of the outstanding Common Stock) as to which its wholly owned subsidiary,
Miller Andersen & Sherrerd LLP, 1 Tower Bridge, Suite 1100, West
Conshohocken, PA 19428, reported shared voting and dispositive power.
(f) WMC has reported shared dispositive power over all of these shares in its
capacity as an investment advisor to owners of record of such shares.
3
<PAGE>
HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS OWN?
The following table sets forth the beneficial ownership of Company Common
Stock, as of February 1, 1998, for each director and nominee, the Chief
Executive Officer, the next four most highly compensated executive officers, and
for all directors and executive officers as a group, with sole voting and
dispositive power except as indicated.
<TABLE>
<CAPTION>
AGGREGATE NO. OF
SHARES % OF SHARES
NAME BENEFICIALLY OWNED OUTSTANDING
- -------------------------------------------------------- ---------------------- ---------------
<S> <C> <C>
Donald N. Smith......................................... 705,807 9.5
Chairman of the Board, Chief Executive Officer and
President
Michael J. Daly......................................... 0 --
Director
Steven L. Ezzes......................................... 0 --
Director
Charles A. Ledsinger, Jr................................ 0 --
Director
Burton J. Manning....................................... 0 --
Director
Paul J. McDonald (1).................................... 41,796 *
Senior Executive Vice President, Chief Administrative
Officer
Joseph A. O'Shaughnessy................................. 13,694 *
Senior Executive Vice President
Gerald A. Sinsigalli.................................... 40,026 *
President, Food Service Division
Dennis J. Roberts....................................... 40,026 *
Senior Vice President, Restaurant Operations
All directors and executive officers as a group (15
persons)(1)........................................... 986,602 13.3
</TABLE>
- ------------------------
* Represents less than 1% of Company's outstanding Common Stock.
(1) Includes 200 shares owned by Mr. McDonald's son over which Mr. McDonald has
shared voting and investment power.
4
<PAGE>
PROPOSAL 1--ELECTION OF DIRECTORS
The Board of Directors is divided into three classes of directors. The term
of office of directors in Class I expires at the 1998 Annual Meeting. At the
Annual Meeting, two directors are to be elected in Class I to hold office until
the 2001 Annual Meeting of Shareholders or until their successors are elected
and qualified. The Board of Directors proposes that the nominees described
below, all of whom are currently serving as Class I directors, be reelected to
Class I for a new term of three years and until their successors are duly
elected and qualified.
Should either or both of these nominees become unable to serve for any
reason, or for good cause will not serve, which is not anticipated, the Board of
Directors may, unless the Board by resolution provides for a lesser number of
directors, designate substitute nominees, in which event the persons named in
the enclosed proxy will vote proxies that would otherwise be voted for the named
nominees for the election of such substitute nominee or nominees.
Certain information with respect to each of the nominees and directors
relating to principal occupations and directorships, and the approximate number
of shares of the Company's Common Stock beneficially owned by them, directly or
indirectly, has been furnished to the Company by such nominees and directors.
DIRECTORS STANDING FOR ELECTION
CLASS I DIRECTORS. The directors standing for election are:
Michael J. Daly Age: 56 Director since 1997
Mr. Daly became a director of the Company in November 1997. He has served as
the President and Chief Executive Officer of Baystate Health Systems, a health
care organization, since December 1981.
Burton J. Manning Age: 66 Director since 1997
Mr. Manning became a director of the Company in November 1997. He has been
the Chairman Emeritus of J. Walter Thompson, Inc., an international advertising
agency, since January, 1998. He also served as the Chairman of J. Walter
Thompson, Inc. from 1987 through 1997 and served as its Chief Executive Officer
from 1987 through 1996. Mr. Manning is also a director of International
Specialty Products, Inc.
DIRECTORS CONTINUING IN OFFICE
CLASS II DIRECTORS. The following Class II directors were elected in 1997
for terms ending in 1999.
Steven L. Ezzes Age: 51 Director since 1995
Steven L. Ezzes was reelected as a director of the Company in December 1995.
Mr. Ezzes previously served as a director of the Company from January 1991 to
May 1992. Mr. Ezzes has been a Managing Director of Scotia Capital Markets
(USA), an investment banking firm, since November 1996. Prior to that, he was a
partner of the Airlie Group, a private investment firm, from 1988 until 1994 and
from 1995 until 1996. Mr. Ezzes was also a Managing Director of Lehman Brothers,
an investment banking firm, from 1994 to 1995. Mr. Ezzes is also a director of
OzEMail.
Charles A. Ledsinger, Jr. Age: 48 Director since 1997
Charles A. Ledsinger, Jr. became a director of the Company in October 1997
and had previously served as a director of the Company from August 1992 to July
1997. Mr. Ledsinger is the President and Chief Operating Officer of St. Joe
Corporation, a diversified real estate, forestry, transportation and sugar
company, where he has been employed since May 1997. Prior to joining St. Joe
Corporation, he served as the Senior Vice President and Chief Financial Officer
of Harrah's Entertainment, Inc./The Promus
5
<PAGE>
Companies, an operator of hotel and gaming properties, and its predecessor
companies from 1978 to 1997. Mr. Ledsinger is also a director of Felcor Suite
Hotels, Inc. and TBC Corporation.
CLASS III DIRECTOR. The following Class III Director was elected in 1997
for a term ending in 2000.
Donald N. Smith Age: 57 Director since 1988
Donald N. Smith has been Chairman, Chief Executive Officer and President of
the Company since September 1988. Mr. Smith has also been Chairman of the Board
and Chief Executive Officer of Perkins Management Company, Inc. ("PMC"), the
general partner to a limited partnership operating a family restaurant chain
known as Perkins Family Restaurants, since 1986. Prior to joining PMC, Mr. Smith
was President and Chief Executive Officer for Diversifoods, Inc. from 1983 to
October 1985. From 1980 to 1983, Mr. Smith was Senior Vice President of
PepsiCo., Inc. and was President of its Food Service Division. He was
responsible for the operations of Pizza Hut Inc. and Taco Bell Corp., as well as
North American Van lines, Lee Way Motor Freight, Inc., PepsiCo Foods
International and La Petite Boulangerie. Prior to 1980, Mr. Smith was President
and Chief Operations Officer of Burger King Corporation and Senior Executive
Vice President and Chief Operations Officer for McDonald's Corporation.
DIRECTOR COMPENSATION
Each director of the Company who is not an employee of the Company receives
a fee of $2,500 per month, and $1,500 per board of directors and special board
of directors meeting attended, plus expenses. Each of the four outside directors
was granted options to acquire 3,750 shares of Company Common Stock on November
14, 1997 under the Company's 1997 Stock Option Plan ("Option Plan") in
connection with the Company's initial public offering in November 1997.
Additionally, Mr. Manning was granted options to acquire 1,250 shares of the
Company's Common Stock under the Option Plan in consideration for certain
consulting services he provides to the Company. The exercise price of the
options was $17-3/8 per share, the fair market value of the Company's Stock on
the date of the grant. One-fifth of the options become exercisable on each of
the first five anniversaries of the grant date. The options expire 10 years from
the grant date subject to certain early expiration provisions.
BOARD COMMITTEES AND MEETINGS
The Company's Board of Directors has established an Audit Committee, a
Compensation Committee and a Nominating Committee.
THE AUDIT COMMITTEE: This committee has two non-employee independent
directors. It annually recommends to the Board of Directors the appointment of
independent auditors and reviews with the auditors the plan and scope of the
audit and audit fees; reviews the guidelines established for the dissemination
of financial information; meets periodically with the independent and internal
auditors, the Board of Directors and management to monitor the adequacy of
reporting and internal controls; reviews consolidated financial statements; and
performs any other functions or duties deemed appropriate by the Board of
Directors. Messrs. Ledsinger and Ezzes are the current members of this
Committee.
THE COMPENSATION COMMITTEE: This committee has two non-employee independent
directors. This newly formed committee did not meet during fiscal 1997. It
annually recommends to the Board of Directors the base salary, incentive
compensation and any other compensation of the Chairman of the Board and the
elected officers of the Company and makes recommendations to the Board on the
administration of the terms and policies of the Company's (i) Annual Incentive
Plan, (ii) Restricted Stock Plan and (iii) Stock Option Plan; reviews and
submits recommendations to the Board of Directors regarding employee benefit
plans generally; and performs any other functions or duties as deemed
appropriate by the Board. Messrs. Ledsinger and Manning are the current members
of this committee.
6
<PAGE>
THE NOMINATING COMMITTEE: This committee has two non-employee independent
directors and one employee director. This newly formed committee did not meet
during fiscal 1997. It considers and proposes director nominees for election at
the Annual Meeting; selects candidates to fill Board vacancies as they occur;
makes recommendations to the Board of Directors regarding Board committee
memberships; and performs any other functions deemed appropriate by the Board of
Directors. Messrs. Daly, Ezzes and Smith are the current members of this
committee. The Nominating Committee will accept for consideration shareholders'
nominations for directors if made in writing in accordance with the Company's
By-laws. The nominee's written consent to the nomination and sufficient
background information on the candidate must be included to enable the committee
to make proper judgments as to his or her qualifications.
Following the Company's initial public offering in November, 1997 and ending
with the Company's most recently completed fiscal year, the Board of Directors
and the Audit Committee each held one meeting. All current directors attended
such meetings of the Board and, if a member, of the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE ELECTION OF THE DIRECTORS STANDING FOR ELECTION.
PROPOSAL 2--RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
The Audit Committee recommended the appointment of Arthur Andersen LLP as
independent accountants for the fiscal year ending December 27, 1998 and the
directors accepted the recommendation of the Audit Committee and appointed
Arthur Andersen LLP, subject to ratification by the shareholders, to examine the
1998 consolidated financial statements of the Company. Accordingly, the
shareholders will be asked to ratify such appointment at the Annual Meeting by
the affirmative vote of a majority of the votes entitled to be cast by the
holders of the outstanding shares of Common Stock represented at the Annual
Meeting in person or by proxy.
It is expected that representatives of Arthur Andersen LLP will attend the
Annual Meeting and be available to make a statement or respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN
LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company is comprised of two independent,
non-employee directors. At its initial meeting in January, 1998 following the
Company's 1997 public offering, the newly formed Compensation Committee met to
discuss the Company's needs as a public entity and to establish its charter and
role. The Compensation Committee will be responsible for recommending
compensation and benefits for the executive officers of the Company, including
awards under the Company's stock plans.
The Committee is committed to implementing a compensation program that
supports the Company's mission--to grow the Company's revenues and earnings by
building on and reinforcing the Friendly's brand. Thus, the executive
compensation will be structured around the following tenets:
- Total compensation programs should strengthen the relationship between pay
and performance by emphasizing variable, at-risk compensation that is
dependent on the achievement of Company and individual performance goals.
7
<PAGE>
- Management should be focused on the long-term interests of shareholders.
Thus, a significant portion of the compensation opportunity should be
long-term, at-risk pay in the form of equity.
- The Company must maintain its ability to attract, retain and encourage the
development of qualified, capable executives. Total compensation
opportunities will mirror those offered by comparably sized organizations
within the restaurant industry--for those positions where the labor market
is not limited to the restaurant industry, the Company will reference
broader general industry information for similarly sized organizations.
The comparator group used for compensation purposes will generally be
broader than the group that comprises the published industry index in the
Performance Graph included in this proxy statement. The Compensation
Committee believes that the Company's competition for executive talent is
not limited to the companies included in the published industry index
established for comparing shareholder returns.
The key elements of the Company's executive compensation program are base
salary, annual incentives and long-term compensation. These key elements are
addressed separately below.
BASE SALARIES
The Committee will regularly review each executive officer's base salary.
Base salaries will be targeted at or slightly above the median of market levels
with adjustments above or below market to recognize varying levels of
responsibility, prior experience, breadth of knowledge and internal equity
issues, as well as external pay practices. Increases to base salaries will be
driven primarily by individual performance. Individual performance will be
evaluated based on sustained levels of individual contribution to the Company.
As reflected in the Summary Compensation Table, Mr. Smith's base salary was
$496,090 in 1997. In determining future increases to Mr. Smith's base salary,
the Committee will consider his individual performance as measured by short-term
achievements as well as his contributions to long-term organizational success
such as the Company's initial public offering, successfully completed in
November, 1997. The Committee will also compare Mr. Smith's base salary to base
salaries of CEOs among comparable companies.
ANNUAL INCENTIVES
The 1998 Annual Incentive Plan is structured to provide a variable pay
opportunity based on Company and individual performance. For the executive
officers, target payouts range up to 60% of base pay. Maximum awards for
superior performance are capped at 150% of target. Each year, the Compensation
Committee will establish Company financial objectives. The financial objectives
are based upon Company's achievement of specified levels of earnings as measured
by EBITDA (i.e., earnings before interest, taxes, depreciation and
amortization). These goals will be considered achievable but will require
above-average performance. Mr. Smith's annual bonus payment for services
rendered in 1997 was $136,425 representing 28% of his base salary. In 1997,
bonus payment amounts under the Annual Incentive Plan were based on a formula
calculation measured against the Company achieving a prescribed level of
operating cash flow.
LONG-TERM INCENTIVES
Long-term incentives will be provided pursuant to the Company's newly
adopted Restricted Stock and Stock Option Plans.
On the consummation of the public offering, all outstanding awards under the
prior restricted stock plan vested and no awards will be issued under that plan
in the future.
8
<PAGE>
RESTRICTED STOCK PLAN
In 1997, the Company adopted the 1997 Restricted Stock Plan. Under this
plan, approximately 70 employees including the executive officers received
grants of restricted shares. The Restricted Stock Plan provides for the award of
Common Stock, the vesting of which will be subject to such conditions and
limitations as shall be established by the Company's Board of Directors, which
may include conditions related to continued employment with the Company or the
achievement of performance measures. All awards under the Restricted Stock Plan
will become fully vested upon a change in control of the Company. In general
terms, a change in control may occur when:
(i) (a) third parties acquire 35% or more of the voting stock of the Company,
with certain exceptions; and
(b) existing senior management and certain existing shareholders
collectively own less voting stock than such third parties and no longer
have the ability to elect a majority of the Board of Directors;
(ii) individuals currently on the Board of Directors cease to constitute a
majority of the Board of Directors unless a majority of the existing Board
of Directors approves such new directors; or
(iii) a reorganization, merger, consolidation, liquidation, dissolution or sale
of substantially all the assets of the Company.
STOCK OPTION PLAN
Also in 1997, the Company adopted the 1997 Stock Option Plan. The plan
provides for the grant of incentive stock options, non-qualified stock options
or stock appreciation rights. The Committee anticipates that stock options will
be the primary form of long-term incentive. Grants were made in 1997 to
approximately 120 employees and to the four non-employee directors. No grants
were made, however, to any of the executive officers.
Stock options will be granted at the fair market value of the Common Stock
on the date of grant. The ultimate value of an option grant to the recipient
depends on the shareholder value created between the date of grant and the date
of exercise. Option award size will be based primarily on competitive practice
but may also be adjusted to reflect factors such as individual and Company
performance.
Stocks options and stock appreciation rights are exercisable in accordance
with the terms established by the Board of Directors, which terms may relate to
continued service with the Company or attainment of performance goals. Stock
options awarded in connection with the Company's initial public offering will
become exercisable over a five-year period, subject to the optionee's continued
employment with the Company. All awards under the Stock Option Plan will become
fully vested and exercisable upon a change in control of the Company as
described above.
LIMITED STOCK COMPENSATION PROGRAM
In connection with its initial public offering, the Company established a
program pursuant to which a one-time award of Common Stock was made to
approximately 70 employees of the Company, including the executive officers, in
recognition of their past service.
Approximately 300,000 shares of Common stock were awarded under the program.
The Common Stock awards vested upon consummation of the initial public offering
but are subject to transfer restrictions. Shares will become transferable on a
pro rata basis on the first through fourth anniversaries of the initial public
offering except for the 99,951 shares of Common Stock awarded to Mr. Smith which
were immediately transferable.
9
<PAGE>
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to elected officers named in the proxy to $1
million, unless certain requirements are met. The Compensation Committee will
consider the impact of this provision when making compensation decisions.
However, the Committee will weigh all pertinent factors to determine appropriate
plan design and incentive awards.
THE COMPENSATION COMMITTEE
Charles A. Ledsinger, Jr.
Burton J. Manning
10
<PAGE>
PERFORMANCE GRAPH
The following indexed graph and table indicate the Company's total
stockholder return for the period beginning November 14, 1997 and ending
December 26, 1997(1) as compared to the total return for the Standard & Poor's
500 Composite Index and the Standard & Poor's Restaurant Index, assuming a
common starting point of 100. Total stockholder return for the Company, as well
as for the Indexes, is determined by adding (a) the cumulative amount of
dividends for a given period (assuming dividend reinvestment), and (b) the
difference between the share price at the beginning and at the end of the
period, the sum of which is then divided by the share price at the beginning of
such period. Please note that the graph and table are historical representations
and, as such, are not indicative of future performance relative to the Indexes.
(1) The measurement period in the graph set forth above begins on the first
trading day for the Company. The issue price on that date is the base amount,
with cumulative returns for each subsequent fiscal period measured as a change
from that base. That cumulative return for each period is calculated in relation
to the base amount as of the last trading day of the Company's fiscal year.
<TABLE>
<CAPTION>
11/14/97 11/21/97 12/26/97
----------- ----------- -----------
<S> <C> <C> <C>
Friendly Ice Cream Corporation...................................................... 100.00 93.06 63.19
S&P Restaurant Index................................................................ 100.00 103.10 105.10
S&P 500 Index....................................................................... 100.00 105.10 102.34
</TABLE>
11
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below sets forth the compensation earned for
the last three fiscal years by the Company's Chief Executive Officer and each of
the other four most highly compensated executive officers (the "Named Executive
Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION RESTRICTED
------------------------ STOCK
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS(B) AWARDS(C)
- --------------------------------------------------------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Donald N. Smith.......................................... 1997 $ 514,825(a) $ 1,873,074 --
Chairman, Chief Executive 1996 495,355(a) 150,000 --
Officer and President 1995 472,640(a) -- --
Paul J. McDonald......................................... 1997 $ 257,891 $ 364,435 $ 273,656
Senior Executive Vice 1996 246,145 47,050 151
President, Chief 1995 236,780 -- --
Administrative Officer and
Assistant Clerk
Gerald E. Sinsigalli..................................... 1997 $ 260,259 $ 364,835 $ 246,378
President, FoodService 1996 249,552 40,050 151
Division 1995 239,646 -- --
Joseph A. O'Shaughnessy.................................. 1997 $ 256,974 $ 140,694 --
Senior Executive Vice 1996 255,974 37,050 151
President 1995 253,348 -- --
Dennis J. Roberts........................................ 1997 $ 233,769 $ 359,235 $ 246,378
Sr. Vice President 1996 222,139 60,050 151
Restaurant Operations 1995 210,481 -- --
</TABLE>
- ------------------------
(a) These amounts were paid to Mr. Smith by The Restaurant Company, which is
paid a management fee by the Company. See "Certain Relationships and Related
Transactions." Beginning with 1998, Mr. Smith will be paid directly by the
Company. Mr. Smith also devotes a portion of his time to Perkins Management
Company, Inc., where he serves as Chairman and Chief Executive Officer.
(b) Includes both cash bonuses and the value of Common Stock awards under the
Company's 1996 Management Stock Plan ("MSP") and Limited Stock Compensation
Plan that vested during the year of the award.
(c) Awards for 1996 were made under the MSP to each of Messrs. McDonald,
Sinsigalli, O'Shaughnessy and Roberts of 3,762 restricted shares of Common
Stock and vested upon the completion of the Company's initial public
offering in 1997. Awards for 1997 were made under the Company's 1997
Restricted Stock Plan to Messrs. McDonald, Sinsigalli and Roberts of 15,750,
14,180 and 14,180 restricted shares of Common Stock, respectively. The 1997
awards will vest in equal installments on the first eight anniversaries of
the date of grant, are subject to forfeiture upon termination of employment
and to accelerated vesting upon a change of control, and were outstanding at
the end of fiscal 1997 when they had a value of $179,156, $161,298 and
$161,298, respectively. Dividends, if any, are payable on restricted Common
Stock, although the Company does not presently intend to pay dividends.
12
<PAGE>
PENSION PLAN
Benefits under the Friendly Ice Cream Corporation Cash Balance Pension Plan
(the "Pension Plan") for Messrs. Smith, McDonald and Roberts are generally
determined based on the value in their respective notional cash balance accounts
under the Pension Plan. Each year each participant's cash balance account is
credited with a percentage of compensation, which percentage is determined based
on the participant's years of service. Interest credits are also credited to the
cash balance account each year. Amounts in excess of those payable under the
Pension Plan as a result of limits imposed by the Internal Revenue Code will be
paid under the Friendly Ice Cream Corporation Supplemental Executive Retirement
Plan (the "SERP"). Benefits under the Pension Plan and the SERP for Messrs.
O'Shaughnessy and Sinsigalli were determined primarily based on final
compensation and years of credited service but it is not anticipated that their
current accrued benefits will be increased based on additional compensation or
years of service. As of December 31, 1997, the estimated annual benefits,
payable upon retirement at age 65 in the form of a straight life annuity,
unreduced for social security benefits and including benefits payable under the
SERP, for each of Messrs. Smith, McDonald, Roberts, O'Shaughnessy and
Sinsigalli, were $69,500, $90,600, $129,400, $165,200 and $177,100,
respectively.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Donald N. Smith, the Company's Chairman, Chief Executive Officer and
President, is also a 33.2% shareholder of The Restaurant Company ("TRC") and
Chairman of the Board and Chief Executive Officer of TRC and its direct and
indirect wholly-owned subsidiaries, Perkins Restaurants, Inc. ("PRI") and
Perkins Management Company, Inc. ("PMC"). PMC is the general partner of Perkins
Restaurants Operating Company, L.P. ("Perkins"), which operates a family
restaurant chain known as Perkins Family Restaurants. TRC has provided
management services to the Company, including Mr. Smith's services, under a
Management Agreement executed in 1996 and has received a management fee from the
Company of $474,000 for fiscal 1997 services ($824,000 was paid in 1997, of
which $350,000 was refunded in 1998). Beginning with fiscal 1998, Mr. Smith will
be employed by, and paid directly by, the Company, and the Management Agreement
will continue only to provide for certain office space and support staff
services provided by TRC at a substantially reduced cost to the Company. The
Company leases or subleases certain land, buildings, and improvements from
Perkins. The two subleases extend until 2002 and 2017 and have respective annual
rents of approximately $91,500 and $123,500 plus a percentage of revenues over a
set amount. The lease extends until 2014 and provides for annual rental of
$64,000. During the year ended December 28, 1997, Company rent expense related
to the subleases and lease was approximately $279,000.
On March 19, 1997, the Company acquired all of the outstanding shares of
common stock of Restaurant Insurance Corporation ("RIC") from The Restaurant
Company ("TRC") for cash of $1,300,000 and a $1,000,000 promissory note payable
to TRC bearing interest at an annual rate of 8.25%. The promissory note and
accrued interest of approximately $1,024,000 was paid on June 30, 1997. Such
purchase price was based upon the book value of RIC which was approximately
$2,300,000 at the time. The Company's Board including its two disinterested
directors determined that RIC's book value was the appropriate purchase price
and unanimously approved this transaction. RIC, which was formed in 1993,
reinsures certain Company risks (i.e. workers' compensation, employer's
liability, general liability and product liability) from a third party insurer.
TRC Realty Co. (a subsidiary of TRC) entered into a ten year operating lease
commencing April 14, 1994 for an aircraft, for use by both the Company and
Perkins. Perkins is an indirect subsidiary of TRC. The Company shares equally
with Perkins in reimbursing TRC Realty Co. for leasing, tax and insurance
expenses. In addition, the Company also incurs actual usage costs. Total expense
for the year ended December 28, 1997 was approximately $610,000.
The Company purchased certain food products used in the normal course of
business from a division of Perkins. For the year ended December 28, 1997,
purchases were approximately $975,000.
13
<PAGE>
For the year ended December 28, 1997, the Company expensed approximately
$177,000, for fees paid to the lenders' agent bank. At the time the fees were
earned, such lenders held approximately 48% of the Company's voting stock and
had loans outstanding to the Company of approximately $353,100,000 which
borrowings accrued interest at 11% per annum and were secured by substantially
all the assets of the Company. Such loans were paid in full upon the closing of
the initial public offering of the Company in November, 1997.
The Company is a party to two agreements with TRC relating to taxes. In
connection with the distribution by TRC to its shareholders of the Common Stock
in the Company immediately prior to the 1996 bank restructuring, the Company
entered into a Tax Disaffiliation Agreement dated March 25, 1996. Under the Tax
Disaffiliation Agreement, TRC must indemnify the Company for all income taxes
during periods when the Company and its affiliates were includable in a
consolidated federal income tax return with TRC and for any income taxes due as
a result of the Company ceasing to be a member of the TRC consolidated group.
TRC does not retain any liability for periods when the Company and its
affiliates were not includable in the TRC consolidated federal income tax return
and the Company must indemnify TRC if any such income taxes are assessed against
TRC. TRC also does not indemnify the Company for a reduction of the Company's
existing NOLs or for NOLs previously utilized by TRC. The Tax Disaffiliation
Agreement terminates 90 days after the statute of limitations expires for each
tax covered by the agreement including unfiled returns as if such returns had
been filed by the appropriate due date. No payments were made during Company's
1997 fiscal year under this agreement.
The Company also entered into a Tax Responsibility Agreement dated as of
March 19, 1997 in connection with the sale of RIC to the Company. Under the Tax
Responsibility Agreement, the Company must indemnify TRC for any income taxes
that are assessed against TRC as a result of the operations of RIC. The Tax
Responsibility Agreement terminates 90 days after the statute of limitations
expires for each tax covered by the agreement. No payments were made during
Company's 1997 fiscal year under this agreement.
14
<PAGE>
OTHER MATTERS
NOTICE TO SHAREHOLDERS OF BY-LAW AMENDMENTS
Pursuant to Massachusetts General Laws Annotated, Chapter 156B Section17,
the Company is providing notice to its shareholders that its By-laws were
amended at a meeting of the Company's Board of Directors on January 30, 1998.
The amendments relate to Company shareholder meeting voting requirements. The
salient provisions of the amendments provide that:
1) The affirmative vote of a majority of the shares of stock present and
voting on a matter at a meeting at which a quorum is present or
represented, shall approve the matter submitted to a vote of the
shareholders.
2) Elections of directors shall be determined by a plurality of the votes
cast by shareholders.
3) Abstentions and shares as to which a nominee has no voting authority
will not be deemed to be voted or cast but will be included for purposes
of constituting a quorum for the transaction of business.
4) Proxies are only valid for up to six (6) months prior to the Annual
Meeting and are invalid after the final adjournment at such meeting.
Proxies representing two or more persons will be valid if executed by any
of them unless the Company is notified in writing prior to the exercise
of the proxy that such proxy is invalid.
OTHER BUSINESS
As of the date of this proxy statement, the Company knows of no business
that will be presented for consideration at the Annual Meeting other than the
proposals referred to above. Should any other matter be properly brought before
the meeting for action by the shareholders, proxies in the enclosed form
returned to the Company will be voted in accordance with the recommendation of
the Board of Directors or, in the absence of such a recommendation, in
accordance with the judgment of the proxy holder.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
To be eligible for inclusion in the Company's proxy statement for the 1999
Annual Meeting, shareholder proposals must be received by the Company's Clerk no
later than December 11, 1998 and must comply with the requirements of the
Securities & Exchange Commission. Shareholders otherwise interested in
presenting a proposal for consideration at the Company's annual meeting of
shareholders in 1999 must comply with the procedures described in the Company's
By-Laws.
PROXY SOLICITATION COSTS
The proxies being solicited hereby are being solicited by the Company. The
cost of soliciting proxies in the enclosed form will be borne by the Company.
Officers and regular employees of the Company may, but without compensation
other than their regular compensation, solicit proxies by further mailing or
personal conversations, or by telephone, telex, facsimile or electronic means.
The Company will, upon request, reimburse brokerage firms and others for their
reasonable expenses in forwarding solicitation material to the beneficial owners
of stock.
By Authorization of the Board of
Directors
Aaron B. Parker
Associate General Counsel and Clerk
April 10, 1998
15
<PAGE>
FRIENDLY ICE CREAM CORPORATION PROXY/VOTING INSTRUCTION CARD
- --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors of Friendly Ice
Cream Corporation for the Annual Meeting on May 12, 1998
The undersigned appoints George G. Roller and Aaron B. Parker and each of
them, with full power of substitution in each, the proxies of the
undersigned, to represent the undersigned and vote all shares of Friendly Ice
Cream Corporation Common Stock which the undersigned may be entitled to vote
at the Annual Meeting of Shareholders to be held on May 12, 1998, and at any
adjournment or postponement thereof, as indicated on the reverse side.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given, this proxy
will be voted FOR proposals 1 and 2.
(Continued, and to be signed and dated on the reverse side.)
FRIENDLY ICE CREAM CORPORATION
P.O. BOX 11389
NEW YORK, N.Y. 10203-0369
<PAGE>
<TABLE>
<S> <C> <C>
1. To elect two (2) Class I Directors FOR all nominees /X/ WITHHOLDING AUTHORITY to vote /X/ *EXCEPTIONS /X/
for terms expiring in 2001. listed below for all nominees listed below
Nominees: Michael J. Daly, Burton J. Manning
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box and write that nominee's name
in the space provided below.)
*Exceptions
---------------------------------------------------------------------------------------------------------------------
2. To take action with respect to the ratification of the 3. To transact such other business as may properly come before
appointment by the Board of Directors of the Company of the meeting or any adjournment or adjournments thereof.
Arthur Andersen LLP as independent accountants of the
Company for the fiscal year commencing December 29, 1997.
FOR /X/ AGAINST /X/ ABSTAIN /X/
Change of Address and /X/
or Comments Mark Here
The signature on this Proxy should correspond
exactly with stockholder's name as printed to
the law. In the case of joint tenancies,
co-executors, or co-trustees, both should sign.
Persons signing as Attorney, Executor,
Administrator, Trustee or Guardian should give
their full name.
Dated: , 199
------------------------------------ --
--------------------------------------------------
Please print name of Stockholder here.
--------------------------------------------------
Please sign here.
Votes must be indicated / /
(x) in Black or Blue Ink
</TABLE>
