<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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 Section240.14a-11(c) or
Section240.14a-12
FRIENDLY'S 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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
FRIENDLY ICE CREAM CORPORATION
1855 BOSTON ROAD
WILBRAHAM, MASSACHUSETTS 01095
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 20, 1999
------------------------
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, April 20, 1999 for the following purposes:
1. To elect two Class II Directors for terms expiring in 2002.
2. To ratify the appointment by the Board of Directors of the Company of
Arthur Andersen LLP as independent accountants of the Company for the
fiscal year ending January 2, 2000.
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 March 19,
1999, 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 1998 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 9:00 A.M., AND SEATING WILL BE AVAILABLE AT
APPROXIMATELY 9:30 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
March 29, 1999
<PAGE>
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS OF
FRIENDLY ICE CREAM CORPORATION
TO BE HELD ON APRIL 20, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Annual Meeting......................................................................................... 1
The Purpose of the 1999 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
Section 16: Beneficial Ownership Reporting Compliance...................................................... 4
Proposal 1--Election of Directors.......................................................................... 5
Directors Standing for Election.......................................................................... 5
Directors Continuing in Office........................................................................... 6
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
Restricted Stock Plan.................................................................................... 9
Stock Option Plan........................................................................................ 9
Policy with Respect to the $1 Million Deduction Limit.................................................... 9
Performance Graph.......................................................................................... 10
Executive Compensation..................................................................................... 11
Summary Compensation Table............................................................................... 11
Pension Plan............................................................................................. 12
Certain Relationships and Related Transactions............................................................. 12
Other Matters.............................................................................................. 14
Notice to Shareholders of By-Law Amendments.............................................................. 14
Shareholder Proposals and Shareholder Nominations of Directors for
the 2000 Annual Meeting.................................................................................. 14
Other Business........................................................................................... 14
Proxy Solicitation Costs................................................................................. 14
</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 1999 Annual Meeting of Shareholders. This
proxy statement contains information related to the Annual Meeting of
Shareholders of the Company to be held on April 20, 1999 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 March 29, 1999.
THE ANNUAL MEETING
THE PURPOSE OF THE 1999 ANNUAL MEETING
At the Company's 1999 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 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 March
19, 1999. 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 March 19, 1999,
there were 7,474,401 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 both 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 both nominees or
withhold your vote as to both nominees or a specific nominee. A properly
executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one
or both 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
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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, may vote 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"); and
- 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 March 1, 1999, 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>
Donald N. Smith.............................................. 711,951 9.5%
1 Pierce Place
Suite 100 East
Itasca, IL 60143
Cumberland Associates LLC ("CA")............................. 685,000(a) 9.2%
1114 Avenue of the Americas
New York, NY 10036
Fleet Financial Group, Inc................................... 579,300(b) 7.8%
One Federal Street
Boston, MA 02110
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
Morgan Stanley, Dean Witter & Co............................. 475,079(c) 6.4%
1585 Broadway
New York, NY 10036
Goldman Sachs & Co........................................... 417,800(d) 5.6%
85 Broad Street
New York, NY 10004
Daniel S. Loeb and Third Point Management Company L.L.C...... 398,307(e) 5.3%
277 Park Avenue, 27th Floor
New York, NY 10172
</TABLE>
- ------------------------
(a) CA is a company engaged in the business of managing, on a discretionary
basis, thirteen securities accounts, the principal one of which is
Cumberland Partners. K. Tucker Anderson, Gary Tynes, Oscar Schafer, Bruce G.
Wilcox, Glenn Krevlin, Andrew Wallach and Eleanor Puppe are the members of
CA. CA reports sole voting and dispositive power as to 672,700 shares and
shared voting and dispositive power as to 12,300 shares.
(b) Fleet Financial Group, Inc. through its subsidiaries, Fleet National Bank,
Fleet Investment Advisors and Fleet Trust & Investment Services Company,
reports sole voting power as to 443,200 shares, sole dispositive power as to
579,300 shares, and shared voting and dispositive power as to 200 shares.
(c) Morgan Stanley, Dean Witter & Co. has reported shared voting power over
469,136 shares and shared dispositive power over all of the above shares,
which include 236,800 shares 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.
(d) Goldman Sachs & Co., on its own behalf and on behalf of its parent holding
company, The 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
272,300 shares (3.7% of the outstanding Common Stock).
(e) Third Point Management Company L.L.C. has reported shared voting and
dispositive over the above shares with Daniel S. Loeb, who serves as the
managing member of Third Point Management Company L.L.C.
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 March 1, 1999, for each director and nominee, the Chief Executive
Officer and the other officers named in the Summary Compensation Table, 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......................................... 711,951 9.5
Michael J. Daly......................................... 200(1) *
Steven L. Ezzes......................................... 0 --
Charles A. Ledsinger, Jr................................ 0 --
Burton J. Manning....................................... 0 --
Paul J. McDonald........................................ 41,596 *
Gerald A. Sinsigalli.................................... 40,026 *
Dennis J. Roberts....................................... 40,026 *
George G. Roller (2).................................... 25,080 *
All directors and executive officers as a group......... 980,202 13.1
</TABLE>
- ------------------------
* Represents less than 1% of Company's outstanding Common Stock.
(1) Represents 200 shares owned by Mr. Daly's spouse.
(2) Effective January 31, 1999, Mr. Roller no longer served as an executive
officer of the Company.
SECTION 16: BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Mr. McDonald filed one late report involving a sales transaction of 200
shares held in a trust account.
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 II expires at the 1999 Annual Meeting. At the
Annual Meeting, two directors are to be elected in Class II to hold office until
the 2002 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 II directors, be reelected as
Class II directors until the 2002 Annual Meeting of Shareholders or until their
successors are 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 II DIRECTORS. The directors standing for election are:
Steven L. Ezzes Age: 52 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 is Managing Director of Societe Generale, a financial
services and banking organization, where he has been employed since May, 1998.
Mr. Ezzes was a Managing Director of Scotia Capital Markets (USA), an investment
banking firm, from November 1996 until May, 1998. 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
Perkins Management Company, Inc.
Charles A. Ledsinger, Jr. Age: 49 Director since 1997
Charles A. Ledsinger, Jr. was reelected as 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 a member of the Board of Directors and
serves as the President and Chief Executive Officer of Choice Hotels
International, Inc., an international hospitality chain, since August, 1998. He
was previously President and Chief Operating Officer or Chief Financial Officer
of St. Joe Corporation, a diversified real estate, forestry, transportation and
sugar company, where he was employed from May, 1997 through July, 1998. Prior to
joining St. Joe Corporation, he served as the Senior Vice President and Chief
Financial Officer of Harrah's Entertainment, Inc./The Promus Companies, an
operator of hotel and gaming properties, and its predecessor companies from 1978
to 1997. From December 1993 to April, 1997, Mr. Ledsinger was an officer in
Harrah's Jazz Finance Corporation, a non-consolidated special purpose subsidiary
of Harrah's Entertainment, Inc. created in connection with the Harrah's Jazz
Casino project, which filed for bankruptcy in November, 1995. Harrah's Jazz
Finance Corporation consummated its bankruptcy reorganization on October 30,
1998. Mr. Ledsinger is also a director of FelCor Lodging Trust, Incorporated and
TBC Corporation.
5
<PAGE>
DIRECTORS CONTINUING IN OFFICE
CLASS I DIRECTORS. The following Class I directors were elected in 1998 for
terms ending in 2001.
Michael J. Daly Age: 57 Director since 1997
Mr. Daly has served as the President and Chief Executive Officer of Baystate
Health Systems, a health care organization, since December 1981.
Burton J. Manning Age: 67 Director since 1997
Mr. Manning has been the Chairman Emeritus of J. Walter Thompson, Inc., an
international advertising agency, since January, 1998. He 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.
CLASS III DIRECTOR. The following Class III Director was elected at a
Special Meeting of shareholders in 1997 for a term ending in 2000.
Donald N. Smith Age: 58 Director since 1988
Donald N. Smith has been Chairman and Chief Executive Officer of the Company
since September 1988. Mr. Smith also served as the Company's President from
September, 1988 to December, 1998. Mr. Smith has also been Chairman of the Board
and Chief Executive Officer of Perkins Management Company, Inc. ("PMC"), the
general partner of a limited partnership operating a family restaurant chain
known as Perkins Family Restaurants, since 1986. In October, 1998, Mr. Smith
also became Chief Operating Officer of PMC. 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 Executive 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 meeting attended,
plus expenses. Each of the four outside directors was granted options in 1997 to
acquire 3,750 shares of Company Common Stock under the Company's 1997 Stock
Option Plan ("Option Plan"). 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 for
which he receives no other compensation. 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 becomes 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 forfeiture provisions, including the director
ceasing to serve as a Board member.
BOARD COMMITTEES AND MEETINGS
The Company's Board of Directors has established an Audit Committee, a
Compensation Committee and a Nominating Committee. The Board of Directors met
seven times during fiscal 1998. All directors attended 75% or more of the Board
and Committee meetings except Mr. Manning.
THE AUDIT COMMITTEE: This committee has two non-employee independent
directors and met three times during fiscal 1998. 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
6
<PAGE>
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 three non-employee
independent directors and met four times during fiscal 1998. 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 Annual Incentive Plan, Restricted Stock Plan
and 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,
Manning and Daly are the current members of this committee.
THE NOMINATING COMMITTEE: This committee has two non-employee independent
directors and one employee director and met twice during fiscal 1998. 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. 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.
Nominations should be addressed to the Nominating Committee at the Company's
headquarters.
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 January 2, 2000 and the
directors accepted the recommendation of the Audit Committee and appointed
Arthur Andersen LLP, subject to ratification by the shareholders, to examine the
consolidated financial statements of the Company for that fiscal year.
Accordingly, the shareholders will be asked to ratify such appointment at the
Annual Meeting by the affirmative vote of a majority of the votes 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 stockholders vote "FOR" ratification
of the appointment of Arthur Andersen LLP as the Company's independent
accountants for fiscal year ending January 2, 2000.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company is comprised of three independent,
non-employee directors. At its initial meeting in January, 1998, the
Compensation Committee met to discuss the Company's needs as a public entity and
the Committee's charter and role. The Compensation Committee will be responsible
for recommending compensation and benefits for the elected officers of the
Company, including awards under the Company's stock plans.
7
<PAGE>
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.
- 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 generally mirror those offered by comparably sized
organizations within the restaurant industry although, 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 regularly reviews each executive officer's base salary. Base
salaries are 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 are driven primarily by
individual performance. Individual performance is evaluated based on sustained
levels of individual contribution to the Company.
As reflected in the Summary Compensation Table, Mr. Smith's base salary was
increased by 5.8% to $525,000 in 1998. This increase was based on the
Compensation Committee's recommendation to the Board in light of Mr. Smith's
experience, tenure and performance and further taking into consideration the
compensation of chief executives of other chain restaurant companies. 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 the Company's long-term organizational success.
ANNUAL INCENTIVES
The 1999 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 100% of base pay. Maximum awards for
superior performance are capped at 150% of target. Each year, the Compensation
Committee establishes 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 are considered achievable but require above-average performance.
Executive officers including Mr. Smith did not receive a bonus in 1998 due to
the fact that the Company failed to meet the annual incentive performance
targets set by the Board of Directors.
LONG-TERM INCENTIVES
Long-term incentives will be provided pursuant to the Company's Restricted
Stock and Stock Option Plans.
8
<PAGE>
RESTRICTED STOCK PLAN
The Company's 1997 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. No restricted stock was
awarded to executive officers during fiscal 1998. 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 occurs.
STOCK OPTION PLAN
The Company's 1997 Stock Option 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. No grants were made to any executive officers during fiscal 1998.
Stock options are 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 awards 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.
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
Michael J. Daly
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PERFORMANCE GRAPH
The following indexed graph and table indicate the Company's total
stockholder return for the period beginning November 14, 1997 (the first trading
day for the Company) and ending December 27, 1998 as compared to the total
return for the Standard & Poor's 500 Composite Index and the Standard & Poor's
Restaurant Index, assuming an investment of $100 in each as of November 14,
1997. Total stockholder return for the Company, as well as for the Indexes, is
based on the cumulative amount of dividends for a given period (assuming
dividend reinvestment) and the difference between the share price at the
beginning and at the end of the period. Please note that the graph and table are
historical representations and, as such, are not indicative of future
performance relative to the Indexes.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
11/14/97 12/26/97 12/27/98
<S> <C> <C> <C>
Friendly Ice Cream Corporation $100.00 $63.19 $33.33
S&P Restaurant Index $100.00 $95.85 $156.80
S&P 500 Index $100.00 $102.34 $136.02
</TABLE>
<TABLE>
<CAPTION>
11/14/97 12/26/97 12/27/98
----------- ----------- -----------
<S> <C> <C> <C>
Friendly Ice Cream Corporation...................................................... 100.00 63.19 33.33
S&P Restaurant Index................................................................ 100.00 95.85 156.80
S&P 500 Index....................................................................... 100.00 102.34 136.02
</TABLE>
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<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.................... 1998 $545,109 $ -- --
Chairman and Chief 1997 514,825(a) 1,873,074(a) --
Executive Officer 1996 495,355(a) 150,000(a) --
Paul J. McDonald................... 1998 $289,094 $ -- $ --
Senior Executive Vice 1997 257,891 364,435 273,656
President, Chief Financial
Officer 1996 246,145 47,050 151
and Treasurer
Gerald E. Sinsigalli............... 1998 $290,879 $ -- $ --
President, FoodService 1997 260,259 364,835 246,378
Division 1996 249,552 40,050 151
Dennis J. Roberts.................. 1998 $264,934 $ -- $ --
Sr. Vice President 1997 233,769 359,235 246,378
Restaurant and Franchise 1996 222,139 60,050 151
Operations
George G. Roller................... 1998 $245,117 $ -- $ --
Vice President, Finance 1997 216,074 325,176 223,964
Chief Financial Officer and 1996 208,096 40,050 140
Treasurer
</TABLE>
- ------------------------
(a) These amounts (excluding the value of Common Stock awards in 1997 under the
Company's Limited Stock Compensation Plan) 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 was paid directly by the Company. Mr. Smith also devotes a portion of
his time to Perkins Management Company, Inc., where he serves as Chairman,
Chief Executive Officer and Chief Operating 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, Roberts and Roller of 3,762, 3,762, 3,762, and 3,548 restricted
shares of Common Stock, respectively, that 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,
Roberts and Roller of 15,750, 14,180, 14,180 and 12,890 restricted shares of
Common Stock, respectively. The 1997 awards will vest in eight equal annual
installments 90 days following the end of the Company's fiscal
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<PAGE>
years 1998 through 2005, and are subject to forfeiture upon termination of
employment prior to vesting and to accelerated vesting upon the Company
meeting prescribed financial performance targets set by the Board or a
change of control. At the end of fiscal 1998, Messrs. McDonald, Sinsigalli,
Roberts and Roller held 15,750, 14,180, 14180 and 12,890 restricted shares
respectively under the 1997 Restricted Stock Plan valued at $94,500,
$85,080, $85,080, and $77,340, respectively. Dividends, if any, are payable
on restricted Common Stock, although the Company does not presently intend
to pay dividends.
PENSION PLAN
Benefits under the Friendly Ice Cream Corporation Cash Balance Pension Plan
(the "Pension Plan") for Messrs. Smith, McDonald, Roberts and Roller 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 Mr. Sinsigalli were determined primarily based on final compensation
and years of credited service but it is not anticipated that his current accrued
benefits will be increased based on additional compensation or years of service.
As of December 31, 1998, 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 and Sinsigalli, were $55,600, $79,700, $106,300 and
$177,100, respectively. Annual benefits for Mr. Roller, whose employment
terminated in January, 1999, will be $20,700.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Donald N. Smith, the Company's Chairman and Chief Executive Officer, is also
a 50% 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 Operating Company, L.P.
("Perkins"), which operates a family restaurant chain known as Perkins Family
Restaurants. TRC has provided management services to the Company under a
Management Agreement executed in 1996 and has received a management fee from the
Company of approximately $110,000 for fiscal 1998 services. The Management
Agreement provides for certain office space and support staff services provided
by TRC to the Company. The Company leases or subleases certain land, buildings,
and improvements from Perkins. The two subleases extend until 2002 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 27, 1998, Company rent
expense related to the subleases and lease was approximately $309,000.
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. 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 to the Company pursuant to this arrangement to
TRC Realty Co. for the year ended December 27, 1998 were approximately $691,000.
The Company purchased certain food products used in the normal course of
business from a division of Perkins. For the year ended December 27, 1998,
purchases were approximately $945,000.
On October 12, 1998, the Company entered into a franchise agreement with The
Ice Cream Corporation ("TICC") which conditionally granted TICC exclusive rights
to purchase and develop
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<PAGE>
Friendly's full service restaurants in Lancaster and Chester counties in
Pennsylvania (the "TICC Agreement"). The owners of TICC are family members of
Mr. Smith. Pursuant to the TICC Agreement, TICC purchased at fair market value
certain assets and rights in two existing Friendly's restaurants and has
committed to open an additional ten restaurants over the next six years and has
an option to purchase an additional three restaurants. Proceeds from the sale
were approximately $1,547,700, of which $57,000 was for initial franchise fees
for the two initial restaurants, $125,000 for franchise fees for certain of the
additional restaurants described above, and approximately $25,000 for the option
to purchase three additional existing restaurants. The franchisee is required by
the terms of the TICC Agreement to purchase from the Company all of the frozen
dessert products it sells in the franchised restaurants. The Company subleases
the real estate properties to TICC. The Company collected approximately $17,000
of rental income from TICC in 1998. The subleases extend until 2016 and 2017 and
have respective annual rents of approximately $80,300 and $29,200. The Company
engaged a major public accounting firm (other than the Company's auditor) to
assist the Company in evaluating the fairness of the transaction. Based on their
findings, the Company's board of directors approved the transaction. Mr. Smith
did not participate in the board vote on this transaction.
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 in 1996, the Company entered into a Tax Disaffiliation Agreement
under which 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 net
operating loss ("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 the Company's 1998 fiscal year under this agreement.
The Company also entered into a Tax Responsibility Agreement in 1997 in
connection with the sale of Restaurant Insurance Corporation ("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 the Company's 1998 fiscal year under this agreement.
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<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 July 29, 1998. The
amendments relate to advance notice requirements of Company shareholders
interested in presenting a proposal for consideration at the Company's annual
meeting of shareholders.
SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS OF DIRECTORS FOR THE 2000
ANNUAL MEETING
To be eligible for inclusion in the Company's proxy statement for the 2000
Annual Meeting, shareholder proposals must be received by the Company's Clerk no
later than November 29, 1999 and must comply with the requirements of the
Securities and Exchange Commission. Shareholders otherwise interested in
presenting a proposal for consideration at the Company's annual meeting of
shareholders in 2000 must comply with the procedures set forth in the Company's
By-Laws and must be received by Clerk of the Company no later than ninety days
in advance of such meeting provided that, unless at least one hundred twenty
days advance notice of the meeting is given, such notice shall be timely if
received by January 21, 2000.
Only a shareholder of record entitled to vote in the election of Directors
generally may nominate one or more persons for election as Directors at an
annual meeting of shareholders. Such nominations must be noticed to the
Company's Clerk no later than 60 days in advance of the annual meeting if it is
to be held within 30 days preceding the anniversary of the previous year's
annual meeting, or 90 days in advance of such meeting if such meeting is to be
held on or after the anniversary of the previous year's meeting.
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.
PROXY SOLICITATION COSTS
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
March 29, 1999
14
