SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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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 ICE CREAM CORPORATION
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(Name of Registrant as Specified In Its Charter)
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Registrant)
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[LOGO]
FRIENDLY ICE CREAM CORPORATION
1855 BOSTON ROAD
WILBRAHAM, MASSACHUSETTS 01095
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 10, 2000
TO ALL SHAREHOLDERS OF FRIENDLY ICE CREAM CORPORATION:
Notice is Hereby Given that the Annual Meeting of Shareholders of Friendly
Ice Cream Corporation ("Friendly's") 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 Wednesday, May 10, 2000 for the following purposes:
1. To elect one Class III Director for a term expiring in 2003.
2. To ratify the appointment by the Board of Directors of Friendly's of
Arthur Andersen LLP as independent public accountants of Friendly's for
the fiscal year ending December 31, 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 April 7, 2000,
as the record date, and only holders of Friendly'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 1999 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
April 10, 2000
Proxy Statement for
Annual Meeting of Shareholders of
FRIENDLY ICE CREAM CORPORATION
To Be Held on May 10, 2000
TABLE OF CONTENTS
PAGE
--------
The Annual Meeting.......................................... 1
The Purpose of the 2000 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............................................. 3
Who Are the Largest Owners of Friendly's Stock?........... 3
How Much Stock Do Friendly's Directors and Executive
Officers Own?........................................... 4
Section 16: Beneficial Ownership Reporting Compliance..... 4
Proposal 1--Election of Director............................ 5
Director Standing for Election............................ 5
Directors Continuing in Office............................ 5
Director Compensation..................................... 6
Board Committees and Meetings............................. 6
Proposal 2--Ratification of Appointment of Independent
Public Accountants........................................ 8
Compensation Committee Report on Executive Compensation..... 8
Base Salaries............................................. 8
Annual Incentives......................................... 9
Long-Term Incentives...................................... 9
Restricted Stock Plan..................................... 9
Stock Option Plan......................................... 9
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
Shareholder Proposals and Shareholder Nominations of
Directors for the
2001 Annual Meeting..................................... 15
Other Business............................................ 15
Proxy Solicitation Costs.................................. 16
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 2000 Annual Meeting of Shareholders. This
proxy statement contains information related to the Annual Meeting of
Shareholders of Friendly's to be held on May 10, 2000 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, 2000.
THE ANNUAL MEETING
THE PURPOSE OF THE 2000 ANNUAL MEETING
At Friendly's 2000 Annual Meeting, shareholders will act upon the matters
outlined in the accompanying notice of meeting, namely, the election of a
director and the ratification of Friendly's independent public accountants.
Friendly's management will then report on the performance of Friendly's during
fiscal 1999 and respond to questions from shareholders.
VOTING AT THE ANNUAL MEETING
You are entitled to vote at the meeting if you are an owner of record of
shares of common stock of Friendly's, its only class of voting securities, at
the close of business on April 7, 2000. As an owner of record on the record
date, you are entitled to one vote for each share of common stock of Friendly's
that you hold. On March 1, 2000, there were 7,480,692 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 Friendly's, 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 Friendly's, 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 the nominee and FOR the proposal to ratify the
appointment of Arthur Andersen LLP as independent public accountants.
VOTING TO APPROVE EACH PROPOSAL
VOTING FOR THE ELECTION OF DIRECTOR: A director 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 the nominee or
withhold your vote as to the nominee. A properly executed proxy marked "WITHHOLD
AUTHORITY" with respect to the election of the director will not be voted with
respect to the director, and will have no effect on the outcome, although it
will be counted for purposes of determining whether there is a quorum.
1
VOTING FOR RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS: Approval of the ratification of Arthur Andersen LLP as independent
public accountants will require the affirmative vote of a majority of the 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 director (see "Proposal 1--Election of
Director"); and
- FOR ratification of the appointment of Arthur Andersen LLP as Friendly's
independent public accountants (see "Proposal 2--Ratification of
Independent Public 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.
2
STOCK OWNERSHIP
WHO ARE THE LARGEST OWNERS OF FRIENDLY'S STOCK?
The following table sets forth the beneficial ownership of Friendly's common
stock by each person who, as of March 1, 2000, is known to Friendly's to be the
beneficial owner of 5% or more of the common stock, with sole voting and
dispositive power except as otherwise indicated.
NAME AND ADDRESS AMOUNT OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------------------ -------------------- ----------
Cumberland Associates LLC ("CA")............................ 719,900(a) 9.6%
1114 Avenue of the Americas
New York, NY 10036
Donald N. Smith............................................. 637,951 8.5%
1 Pierce Place
Suite 100 East
Itasca, IL 60143
Fleet Boston Corporation.................................... 575,500(b) 7.7%
One Federal Street
Boston, MA 02110
Daniel S. Loeb and Third Point Management Company L.L.C..... 512,000(c) 6.8%
277 Park Avenue, 27th Floor
New York, NY 10172
- ------------------------
(a) CA is a company engaged in the business of managing, on a discretionary
basis, eleven securities accounts, the principal one of which is Cumberland
Partners. Gary Tynes, Oscar S. Schafer, Bruce G. Wilcox, Glenn Krevlin,
Andrew Wallach and Dipak M. Patel 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 47,200 shares.
(b) Fleet Boston Corporation through its subsidiaries, BankBoston, National
Association, Fleet National Bank, Fleet Investment Advisors and Fleet Trust
& Investment Services Company, reports sole voting power as to 404,500
shares, sole dispositive power as to 575,300 shares, and shared voting and
dispositive power as to 200 shares.
(c) 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., discretionary
investment manager to management accounts holding such shares.
3
HOW MUCH STOCK DO FRIENDLY'S DIRECTORS AND EXECUTIVE OFFICERS OWN?
The following table sets forth the beneficial ownership of Friendly's common
stock, as of March 1, 2000, 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.
AGGREGATE NO. OF SHARES % OF SHARES
NAME BENEFICIALLY OWNED OUTSTANDING
- ---- ----------------------- -----------
Donald N. Smith............................................. 637,951 8.5
Michael J. Daly............................................. 200(1) *
Steven L. Ezzes............................................. 17,437 *
Charles A. Ledsinger, Jr.................................... 0 --
Burton J. Manning........................................... 0 --
John L. Cutter.............................................. 44,456 *
Gerald A. Sinsigalli........................................ 42,471 *
Paul J. McDonald(2)......................................... 31,148 *
Dennis J. Roberts(3)........................................ 32,392 *
All directors and executive officers as a group............. 875,495 11.7
- ------------------------
* Represents less than 1% of Company's outstanding common stock.
(1) Represents 200 shares owned by Mr. Daly's spouse.
(2) Effective January 3, 2000, Mr. McDonald no longer served as an executive
officer of Friendly's. Information as to Mr. McDonald is as of January 3,
2000.
(3) Effective February 4, 2000, Mr. Roberts no longer served as an executive
officer of Friendly's. Information as to Mr. Roberts is as of February 4,
2000.
SECTION 16: BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities and Exchange Commission requires that Friendly's identify
each person who at any time during the fiscal year was a director, officer or
beneficial owner of more than ten percent of any class of equity securities of
Friendly's that failed to file on a timely basis reports required by
section 16(a) of the Securities Exchange Act of 1934 during the most recent
fiscal year or prior fiscal years. One transaction was inadvertently reported
late on behalf of Messrs. Sinsigalli, Daly, Ledsinger and Manning, two
transactions were inadvertently reported late on behalf of Mr. Ulrich, five
transactions were inadvertently reported late on behalf of Mr. Ezzes and one
report was inadvertently filed late on behalf of Messrs. Couch and Kelly.
4
PROPOSAL 1--ELECTION OF DIRECTORS
The Board of Directors is divided into three classes of directors. The term
of office of the director in Class III expires at the 2000 Annual Meeting. At
the Annual Meeting, such director will be elected in Class III to hold office
until the 2003 Annual Meeting of Shareholders or until his successor is elected
and qualified. The Board of Directors proposes that the nominee described below,
who is currently serving as a Class III director, be reelected as a Class III
director to serve until the 2003 Annual Meeting of Shareholders or until his
successor is elected and qualified.
Should this nominee become unable to serve for any reason, which is not
anticipated, the Board of Directors may, unless the Board by resolution provides
for a lesser number of directors, designate a substitute nominee, 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.
The nominee and the other directors have furnished certain information
relating to their principal occupations and directorships, and the number of
shares of Friendly's common stock beneficially owned by them.
DIRECTOR STANDING FOR ELECTION
CLASS III DIRECTOR. The director standing for election is:
Donald N. Smith Age: 59 Director since 1988
Donald N. Smith has been Chairman and Chief Executive Officer of Friendly's
since September 1988. Mr. Smith also served as Friendly's President from
September 1988 to December 1998. Since 1986 Mr. Smith has been Chairman of the
Board and Chief Executive Officer of The Restaurant Company and its
predecessors, which owns and franchises a chain of mid-scale restaurants known
as Perkins Restaurant and Bakery. Since 1998 he has also been the Chief
Operating Officer of The Restaurant Company.
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: 58 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: 68 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.
5
CLASS II DIRECTORS. The following Class II Directors were elected in 1999
for terms ending in 2002.
Steven L. Ezzes Age: 53 Director since 1995
Steven L. Ezzes was reelected as a director of Friendly's in December 1995.
Mr. Ezzes previously served as a director of Friendly's from January 1991 to
May 1992. Mr. Ezzes is Managing Director of Thomas H. Lee Capital, a private
investment company. Prior to joining Thomas H. Lee Capital, Mr. Ezzes was a
Managing Director of Societe Generale, a banking and financial services
organization, from April 1998 to October 1999. 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.
Charles A. Ledsinger, Jr. Age: 50 Director since 1997
Charles A. Ledsinger, Jr. was reelected as a director of Friendly's in
October 1997 and had previously served as a director of Friendly's from
August 1992 to July 1997. Mr. Ledsinger is a member of the Board of Directors
and has served 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 of St. Joe Corporation, a
diversified real estate, forestry, transportation and sugar company, 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, Inc. and TBC Corporation.
DIRECTOR COMPENSATION
Each director of Friendly's who is not an employee of Friendly's 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 1999 to
acquire 2,150 shares of Friendly's common stock under Friendly's 1997 Stock
Option Plan ("Option Plan"). The exercise price of the options was $5.75 per
share, the fair market value of Friendly'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
Friendly's Board of Directors has established an Audit Committee, a
Compensation Committee and a Nominating Committee. The Board of Directors met
six times during fiscal 1999. All directors attended 100% of the Board and
Committee meetings.
THE AUDIT COMMITTEE: This committee has two non-employee independent
directors and met three times during fiscal 1999. 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
6
any other functions or duties deemed appropriate by the Board of Directors.
Messrs. Ezzes and Ledsinger are the current members of this Committee.
Mr. Ledsinger is the Chair of this Committee.
THE COMPENSATION COMMITTEE: This committee has three non-employee
independent directors and met four times during fiscal 1999. 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
Friendly's and makes recommendations to the Board on the administration of the
terms and policies of Friendly's Annual Incentive Plan, Restricted Stock Plan
and Stock Option Plan; reviews and submits recommendations to the Board of
Directors regarding certain employee benefit plans; and performs any other
functions or duties as deemed appropriate by the Board. Messrs. Daly, Ledsinger
and Manning are the current members of this committee. Mr. Manning is the Chair
of this Committee.
THE NOMINATING COMMITTEE: This committee has two non-employee independent
directors and one employee director and met once during fiscal 1999. 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 Friendly's
headquarters. Mr. Smith is the Chair of this Committee.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF
THE DIRECTOR STANDING FOR ELECTION.
7
PROPOSAL 2--RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee recommended the appointment of Arthur Andersen LLP as
independent public accountants for the fiscal year ending December 31, 2000 and
the directors accepted the recommendation of the Audit Committee and appointed
Arthur Andersen LLP, to examine the consolidated financial statements of
Friendly's 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 Friendly's independent public
accountants for the fiscal year ending December 31, 2000. Should the
stockholders not approve Proposal 2, Friendly's will take such voting results
into consideration when determining who to engage as its auditors for fiscal
year 2001.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of Friendly's is comprised of three independent,
non-employee directors. The Compensation Committee will be responsible for
recommending compensation and benefits for the elected officers of Friendly's,
including awards under Friendly's stock plans.
The Committee is committed to implementing a compensation program that
supports Friendly's mission--to grow Friendly's revenues and earnings by
building on and reinforcing the Friendly's brand. Thus, 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 Friendly's 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.
- Friendly's 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,
Friendly's 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 Friendly'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 Friendly'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 Friendly's.
8
As reflected in the Summary Compensation Table, Mr. Smith's base salary was
decreased by 52% to $250,000 in 1999. This was based on the Compensation
Committee's recommendation to the Board in light of Mr. Smith's withdrawal as
the President of Friendly's and the assumption of those duties by Mr. Cutter. In
determining future adjustments 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 Friendly's long-term organizational success.
ANNUAL INCENTIVES
The 2000 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 Friendly'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 earn a bonus in 1999 due to the
fact that Friendly's 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 Friendly's Restricted
Stock and Stock Option Plans.
RESTRICTED STOCK PLAN
Friendly'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 Friendly's Board of Directors, which may include
conditions related to continued employment with Friendly's or the achievement of
performance measures. During fiscal 1999, 62,938 shares of restricted stock were
awarded to executive officers. The 1999 awards generally vest 12.5% per year and
are subject to accelerated vesting at 25% per year upon Friendly's achieving
annual financial performance targets set by the Board. All awards under the
Restricted Stock Plan will become fully vested upon a change in control of
Friendly's. In general terms, a change in control may occur when:
(i) (a) third parties acquire 35% or more of the voting stock of Friendly's,
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 Friendly's occurs.
STOCK OPTION PLAN
Friendly'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.
Stock options representing 25,000 shares were awarded to executive officers
during fiscal 1999. As of January 2, 2000, no stock appreciation rights had been
issued.
9
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.
Stock 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 Friendly's or attainment of performance goals. Stock
options awarded in 1999 will become exercisable over a five-year period, subject
to the optionee's continued employment with Friendly's. All awards under the
Stock Option Plan will become fully vested and exercisable upon a change in
control of Friendly's as described above (see "Restricted Stock Plan").
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
Burton J. Manning
Charles A. Ledsinger, Jr.
Michael J. Daly
10
PERFORMANCE GRAPH
The following indexed graph and table indicate Friendly's total stockholder
return for the period beginning November 14, 1997 (the first trading day for
Friendly's) and ending January 2, 2000 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.
Friendly's stock was not included within either of these indexes during the
measurement period. Total stockholder return for Friendly's, 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
FRIENDLY ICE CREAM CORPORATION S&P RESTAURANT INDEX S&P 500 INDEX
11/14/97 100.00 100.00 100.00
12/28/97 63.19 95.85 102.34
12/27/98 33.33 156.80 136.02
1/02/00 24.65 161.32 165.07
11/14/97 12/28/97 12/27/98 1/02/00
-------- -------- -------- --------
Friendly Ice Cream Corporation.............................. 100.00 63.19 33.33 24.65
S&P Restaurant Index........................................ 100.00 95.85 156.80 161.32
S&P 500 Index............................................... 100.00 102.34 136.02 165.07
11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below sets forth the compensation earned for
the last three fiscal years by Friendly's Chief Executive Officer and each of
the other four most highly compensated executive officers (the "Named Executive
Officers").
LONG-TERM
COMPENSATION
RESTRICTED
ANNUAL COMPENSATION STOCK
----------------------- ALL
NAME AND FISCAL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(B) AWARDS(C) COMPENSATION
- ------------------ -------- ---------- ---------- ------------ ------------
Donald N. Smith...................... 1999 $267,423 -- -- --
Chairman and Chief 1998 545,109(a) -- -- --
Executive Officer 1997 514,825(a) $1,873,074(a) -- --
John L. Cutter....................... 1999 $337,533 -- $135,936 --
President and Chief 1998 13,942(e) -- -- --
Operating Officer
Paul J. McDonald..................... 1999 $309,555 -- -- $246,375(d)
Senior Executive Vice 1998 289,094 -- -- --
President, Chief Financial 1997 257,891 $ 257,891 $273,656 --
Officer and Treasurer
Gerald E. Sinsigalli................. 1999 $309,555 -- $ 14,059 --
President, Food Service 1998 290,879 -- -- --
Division 1997 260,259 $ 364,835 $246,378 --
Dennis J. Roberts.................... 1999 $284,150 -- -- --
Sr. Vice President 1998 264,934 -- -- --
Restaurant and Franchise 1997 233,769 $ 359,235 $246,378 --
Operations
- ------------------------
(a) These amounts (excluding the value of common stock awards in 1997 under
Friendly's Limited Stock Compensation Plan) were paid to Mr. Smith by The
Restaurant Company, which is paid a management fee by Friendly's. See
"Certain Relationships and Related Transactions." Beginning with 1998,
Mr. Smith was paid directly by Friendly's. Mr. Smith also devotes a
portion of his time to The Restaurant Company, 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
Friendly's 1996 Management Stock Plan ("MSP") and Limited Stock
Compensation Plan that vested during the year of the award.
(c) Awards for 1999 were made under Friendly's 1997 Restricted Stock Plan to
Messrs. Cutter, McDonald, Sinsigalli and Roberts of 30,000, 1,764, 2,445
and 2,400 shares, respectively. The 1999 awards to Messrs. McDonald and
Roberts were forfeited upon their separation from Friendly's. The award
to Mr. Sinsigalli will vest in eight equal annual installments no later
than the third full business day following the first quarter of
Friendly's fiscal years 2000 through 2007. The award to Mr. Cutter will
vest 25% in 2000 and the balance will vest in six equal annual
installments 90 days following the end of Friendly's fiscal years 2000
through 2005. Dividends, if any, are payable on restricted common stock,
although Friendly's does not presently intend to pay dividends. Awards
for 1997 were made under Friendly's 1997 Restricted Stock Plan to
Messrs. McDonald, Sinsigalli and Roberts of 15,750, 14,180 and
12
14,180 restricted shares of common stock, respectively. The 1997 awards
vest in eight equal annual installments 90 days following the end of
Friendly's fiscal years 1998 through 2005, and are subject to forfeiture
upon termination of employment prior to vesting and to accelerated
vesting upon Friendly's meeting prescribed financial performance targets
set by the Board or a change of control. At the end of fiscal 1999,
Messrs. Cutter and Sinsigalli held 30,000 and 14,852 restricted shares,
respectively, under the 1997 Restricted Stock Plan valued at $133,125 and
$65,906, respectively
(d) Mr. McDonald will receive this amount in fiscal year 2000 under his
severance agreement with Friendly's and has agreed to perform advisory
services for Friendly's Board of Directors. Mr. McDonald also received
payments from the Pension Plan and SERP as described below.
(e) Mr. Cutter joined Friendly's in late December, 1998.
PENSION PLAN
Benefits under the Friendly Ice Cream Corporation Cash Balance Pension Plan
(the "Pension Plan") for Messrs. Smith, Cutter, 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 is 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, 1999, 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, Cutter and Sinsigalli, were $43,700, $17,400 and $177,100,
respectively. Annual benefits for Mr. Roberts, whose employment terminated in
February, 2000, will be $65,500. Mr. McDonald, whose employment terminated in
December, 1999, received a lump sum, one time payment of $436,550 in
satisfaction of his Pension Plan and SERP benefits.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 12, 1998, Friendly's entered into a franchise agreement with The
Ice Cream Corporation ("TICC"), as franchisee, which conditionally granted TICC
exclusive rights to purchase and develop Friendly's full service restaurants in
the Lancaster and Chester counties of Pennsylvania (the "TICC Agreement"). The
owners of TICC are family members of Donald N. Smith, the Chairman of the Board
and Chief Executive Officer of Friendly's. Pursuant to the TICC Agreement, TICC
purchased at fair market value certain assets and rights in two existing
Friendly's restaurants, committed to open an additional 10 restaurants over the
next six years and has an option to purchase an additional three restaurants.
Friendly's engaged a major public accounting firm (other than Friendly's
auditor) to assist Friendly's in evaluating the fairness of the transaction.
Based upon their findings, Friendly's board of directors approved the
transaction. Mr. Smith did not participate in the board vote on this
transaction. 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
was for franchise fees for certain of the additional restaurants described above
and $25,000 was for the option to purchase two additional existing restaurants.
The $57,000 was recorded as revenue in the year ended December 27, 1998 and the
option fees will be recorded as income as additional restaurants are purchased.
Friendly's recognized income of approximately $1.0 million related to the sale
of the equipment and operating rights for the two existing franchised locations
in the year ended December 27, 1998. The franchisee is required by the terms of
the TICC Agreement to purchase from Friendly's all of the frozen dessert
13
products it sells in the franchised restaurants. In December 1999, Friendly's
Chairman of the Board and Chief Executive Officer purchased from Friendly's the
underlying real estate at a restaurant currently being franchised by TICC for
$440,000, the fair market value of the property. The fair market value was
determined by an independent third party appraisal. Friendly's recognized a loss
on the sale of approximately $56,000. Friendly's had a ground lease and owned
the improvements on one of the properties franchised to TICC. In October 1998,
Friendly's assigned the ground lease and in connection with that assignment,
Friendly's receives monthly assignment fees from TICC for the value of the
improvements on the property. The term of the assignment and related assignment
fees is for approximately 18 years ending in August 2016. The monthly assignment
fees payable to Friendly's are $2434.90 which increase over the term of the
assignment to $2678.40 in November 2003, $2946.30 in November 2008 and $3240.90
in November 2013.
TRC has provided management services to Friendly's under a Management
Agreement executed in 1996 and has received a management fee from Friendly's of
approximately $91,000 for fiscal 1999 services. The Management Agreement
provides for certain office space and support staff services provided by TRC to
Friendly's. The Company leases or subleases certain land, buildings, and
improvements from TRC. 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 January 2, 1999, Company rent expense related
to the subleases and lease was approximately $302,000.
In 1994, TRC Realty LLC (a subsidiary of TRC) entered into a ten-year
operating lease with an independent third party for an aircraft, for use by both
Friendly's and TRC. In 1999, this lease was cancelled and TRC Realty LLC entered
into a new ten-year operating lease for a new aircraft from an independent third
party. Friendly's shares proportionately with TRC in reimbursing TRC Realty LLC
for leasing, tax and insurance expenses. In addition, Friendly's also incurs
actual usage costs. Total expense for the years ended January 2, 2000,
December 27, 1998 and December 28, 1997 was approximately $568,000, $691,000 and
$610,000, respectively.
Friendly's purchased certain food products used in the normal course of
business from a division of TRC. For the years ended January 2, 2000,
December 27, 1998 and December 28, 1997, purchases were approximately $967,000,
$945,000 and $975,000, respectively.
In June 1999, Friendly's pension plan sold a restaurant business (excluding
the related property which is still owned by the pension plan), to a franchisee
of Friendly's. Under the original lease agreement between Friendly's and the
pension plan, Friendly's leased the restaurant from the pension plan for $62,700
per annum through June 2001. In conjunction with the sale of the restaurant
business to the franchisee, Friendly's will sublease the property to the
franchisee for an aggregate annual amount of $76,700 through July 31, 2001.
Under the terms of the sublease agreement, the pension plan will receive rental
income directly from the franchisee. The franchisee will have the option to
extend the lease for three, five year options and one, two year and ten month
option.
In August, 1999, the pension plan sold a restaurant business and the related
property to an independent third party. As a result of the sale, the pension
plan realized a loss of $107,500 in fiscal 1999. Friendly's then contributed
$107,500 to the pension plan, in settlement of its ongoing obligations under the
lease.
In November, 1997 Friendly's guaranteed the indebtedness of loans by an
independent national bank to Mr. Roberts and other Friendly's employees. The
largest aggregate indebtedness outstanding since the beginning of the last
fiscal year which remained outstanding as of March 1, 2000 by Mr. Roberts was
approximately $172,000.
In June 1999, Visual Events, Inc., a company wholly owned by Richard L.Couch
(who became an executive officer in November, 1999) and his spouse, entered into
a contract with Friendly's pursuant to
14
which Visual Events, Inc. will provide various marketing management services for
Friendly's. The contract provides for a monthly retainer of $12,000 for twelve
consecutive months commencing July 1, 1999 subject to early termination by
either party upon 90 days notice. The contract provides for Visual Events, Inc.
to be reimbursed for certain expenses and to perform other project-based
services subject to budgets approved by Friendly's. Payments by Friendly's under
the contract during the fiscal year ended January 2, 2000 totaled approximately
$166,000.
Friendly's 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 Friendly's in 1996, Friendly's entered into a Tax Disaffiliation Agreement
under which TRC must indemnify Friendly's for all income taxes during periods
when Friendly's and its affiliates were includable in a consolidated federal
income tax return with TRC and for any income taxes due as a result of
Friendly's ceasing to be a member of the TRC consolidated group. TRC does not
retain any liability for periods when Friendly's and its affiliates were not
includable in the TRC consolidated federal income tax return and Friendly's must
indemnify TRC if any such income taxes are assessed against TRC. TRC also does
not indemnify Friendly's for a reduction of Friendly'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 since the
beginning of Friendly's 1999 fiscal year under this agreement.
Friendly's also entered into a Tax Responsibility Agreement in 1997 in
connection with the sale of Restaurant Insurance Corporation ("RIC") to
Friendly's. Under the Tax Responsibility Agreement, Friendly's 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 since the beginning of Friendly's 1999 fiscal year under this
agreement.
OTHER MATTERS
SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS OF DIRECTORS FOR THE 2001
ANNUAL MEETING
To be eligible for inclusion in Friendly's proxy statement for the 2001
Annual Meeting, shareholder proposals must be received by Friendly's Clerk no
later than December 11, 2000 and must comply with the requirements of the
Securities and Exchange Commission. Shareholders otherwise interested in
presenting a proposal for consideration at Friendly's annual meeting of
shareholders in 2001 must comply with the procedures set forth in Friendly's
By-Laws and the proposal must be received by the Clerk of Friendly's no later
than sixty days in advance of the meeting if such meeting is held on a day which
is within thirty days preceding the anniversary of the previous year's meeting,
or ninety days in advance of such meeting if such meeting is to be held on or
after May 10, 2001.
Only a stockholder of record entitled to vote in the election of Directors
generally may nominate a person for election as a Director at an annual meeting
of stockholders. Such nominations "must be noticed" to Friendly'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, Friendly's 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 Friendly's will be voted in accordance with the recommendation of
the Board of
15
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
Friendly's. Officers and regular employees of Friendly's 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. Friendly's 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, 2000
16
(Please sign, date and return this proxy in the enclosed postage prepaid
envelope.)
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 10, 2000
The undersigned appoints Paul J. Kelley 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 10, 2000, 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.)
2. Ratify the appointment by the Board of Directors of Friendly's of Arthur
Andersen LLP as independent public accountants of Friendly's for the fiscal year
ending December 31, 2000.
FOR AGAINST ABSTAIN
x x x
3. To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
The signature on this Proxy should correspond exactly with stockholder's name as
printed to the left. 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 title.
Dated:
- ------------------------------------------, 2000
- --------------------------------------------------------
Please print name of Stockholder here.
- --------------------------------------------------------
Please sign here.
Votes must be indicated (x) in Black or Blue ink. x
FRIENDLY ICE CREAM
CORPORATION
P.O. BOX 11389
NEW YORK, N.Y. 10203-0389
Change of Address and or Comments Mark Here x
Nominee: Donald N. Smith
(INSTRUCTIONS: To withhold authority to vote for nominee, mark the "Exceptions"
box and write that nominee's name in the space provided below.)
*Exceptions
- -------------------------------------------------------------------------------
1. To elect one Class III Director for a term expiring in 2003.
FOR the nominee listed below x
*EXCEPTIONS x
WITHHOLD AUTHORITY to vote for the nominee listed below x