Document:

Exhibit 10.1

 

FRIENDLY ICE CREAM
CORPORATION

 

2003 INCENTIVE PLAN

 

 

As Amended on
July 23, 2003

 

 

FRIENDLY ICE
CREAM CORPORATION

2003 INCENTIVE PLAN

 

SECTION 1

GENERAL

 

1.1                                 Purpose. 
The Friendly Ice Cream Corporation 2003 Incentive Plan (the “Plan”) has
been established by Friendly Ice Cream Corporation (the “Company”) to (i)
attract and retain persons eligible to participate in the Plan; (ii) motivate
Participants, by means of appropriate incentives, to achieve long-range goals;
(iii) provide incentive compensation opportunities that are competitive with
those of other similar companies; and (iv) further align Participants’
interests with those of the Company’s other shareholders through compensation
that is based on the growth in value of the Company’s equity and achievement of
factors that contribute to the enhancement of long-term shareholder return.

 

1.2                                 Participation. 
Subject to the terms and conditions of the Plan, the Committee shall
determine and designate, from time to time, from among the Eligible Individuals
(including transferees of Eligible Individuals to the extent the transfer is
permitted by the Plan and the applicable Award Agreement), those persons who
will be granted one or more Awards under the Plan, and thereby become
“Participants” in the Plan.

 

1.3                                 Operation, Administration, and Definitions.  The operation and administration of the
Plan, including the Awards made under the Plan, shall be subject to the
provisions of Section 5 (relating to operation and administration).
Capitalized terms in the Plan shall be defined as set forth in the Plan
(including the definition provisions of Section 8).

 

SECTION 2

 

OPTIONS AND SARS

 

2.1                                 Definitions.

 

(a)                                  The
grant of an “Option” entitles the Participant to purchase shares of Stock at an
Exercise Price established by the Committee. Any Option granted under this
Section 2 may be either an incentive stock option (an “ISO”) or a
non-qualified option (an “NQO”), as determined in the discretion of the
Committee. An “ISO” is an Option that is intended to satisfy the requirements
applicable to an “incentive stock option” described in section 422(b) of
the Code. An ISO may only be granted to an Employee. An “NQO” is an Option that
is not intended to be an “incentive stock option” as that term is described in
section 422(b) of the Code.

 

 

(b)                                 A
stock appreciation right (an “SAR”) entitles the Participant to receive, in
cash or Stock (as determined in accordance with subsection 2.5), value
equal to (or otherwise based on) the excess of: (a) the Fair Market Value of a
specified number of shares of Stock at the time of exercise; over (b) an
Exercise Price established by the Committee.

 

2.2                                 Exercise Price. 
The “Exercise Price” of each Option and SAR granted under this
Section 2 shall be established by the Committee or shall be determined by
a method established by the Committee at the time the Option or SAR is granted;
provided that the Exercise Price shall not be less than 100% of the Fair Market
Value of a share of Stock on the date of grant (or, if greater, the par value
of a share of Stock).

 

2.3                                 Exercise. 
An Option and an SAR shall be exercisable in accordance with such terms
and conditions and during such periods as may be established by the Committee.

 

2.4                                 Payment of Option Exercise Price.  The payment of the Exercise Price of an
Option granted under this Section 2 shall be subject to the following:

 

(a)                                  Subject
to the following provisions of this subsection 2.4, the full Exercise
Price for shares of Stock purchased upon the exercise of any Option shall be
paid at the time of such exercise (except that, in the case of an exercise
arrangement approved by the Committee and described in paragraph 2.4(c),
payment may be made as soon as practicable after the exercise).

 

(b)                                 The
Exercise Price shall be payable in cash, by promissory note (if permitted by
law), or by tendering, by either actual delivery of shares or by attestation,
shares of Stock acceptable to the Committee, and valued at Fair Market Value as
of the day of exercise, or in any combination thereof, as determined by the
Committee.

 

(c)                                  The
Committee may permit a Participant to elect to pay the Exercise Price upon the
exercise of an Option by irrevocably authorizing a third party to sell shares
of Stock (or a sufficient portion of the shares) acquired upon exercise of the
Option and remit to the Company a sufficient portion of the sale proceeds to
pay the entire Exercise Price and any tax withholding resulting from such
exercise.

 

2.5                                 Settlement of Award.  Settlement of Options and SARs is subject to subsection 5.7.

 

2.6                                 Repricing. 
Except for either adjustments pursuant to paragraph 5.2(f) (relating to
the adjustment of shares), or decreases approved by the Company’s stockholders,
the Exercise Price for any outstanding Option granted under the Plan may not be
decreased after the date of grant nor may an outstanding Option granted under
the Plan be surrendered to the Company as consideration for the grant of a new
Option with a lower exercise price in a transaction which would constitute a
repricing for accounting purposes.

 

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SECTION 3

 

OTHER AWARDS

 

3.1                                 Definitions.

 

(a)                                  A
“Bonus Stock” Award is a grant of shares of Stock in return for previously
performed services, or in return for the Participant surrendering rights to
other compensation that may be due.

 

(b)                                 A
“Stock Unit” Award is the grant of a right to receive shares of Stock in the
future.

 

(c)                                  A
“Performance Share” Award is a grant of a right to receive shares of Stock or
Stock Units which is contingent on the achievement of performance or other
objectives during a specified period.

 

(d)                                 A
“Performance Unit” Award is a grant of a right to receive a designated dollar
value which is contingent on the achievement of performance or other objectives
during a specified period, the settlement of which may be in the form of cash,
Stock or any combination thereof.

 

(e)                                  A
“Restricted Stock” Award is a grant of shares of Stock, and a “Restricted Stock
Unit” Award is the grant of a right to receive shares of Stock in the future,
with such shares of Stock or right to future delivery of such shares of Stock
subject to a risk of forfeiture or other restrictions that will lapse upon the
achievement of one or more goals relating to completion of service by the Participant,
or achievement of performance or other objectives, as determined by the
Committee.

 

3.2                                 Restrictions on Awards.  Each Bonus Stock Award, Stock Unit Award, Restricted Stock Award,
Restricted Stock Unit Award, Performance Share Award, and Performance Unit
Award shall be subject to the following:

 

(a)                                  Any
such Award shall be subject to such conditions, restrictions and contingencies
as the Committee shall determine.

 

(b)                                 The
Committee may designate whether any such Award being granted to any Participant
is intended to be “performance-based compensation” as that term is used in
section 162(m) of the Code. Any such Awards designated as intended to be
“performance-based compensation” shall be conditioned on the achievement of one
or more Performance Measures, to the extent required by Code
section 162(m). The Performance Measures shall be established in writing
by the Committee not later than 90 days after the beginning of the performance
period (but in no event after 25% of the performance period has elapsed), and
while the outcome as to the performance goals is substantially uncertain. The
performance goals established by the Committee may be with respect to corporate
performance, operating group or sub-group performance, individual company
performance, other group or individual performance, or division performance,

 

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shall be based
on one or more of the Performance Measures, may be measured gross or net and
may be on a total or per share basis. 
The “Performance Measures” that may be used by the Committee for such
Awards shall be based on any one or more of the following, as selected by the
Committee: earnings (e.g., earnings before income taxes, or “EBIT”; earnings
before income taxes, depreciation and amortization, or “EBITDA”; earnings per
share, or “EPS”), financial return ratios (e.g., return on investment, or
“ROI”; return on invested capital, or “ROIC”; return on equity, or “ROE”),
revenue, operating or net cash flows, total shareholder return, market share,
operating income or net income, debt load reduction, expense management, stock
price and strategic business objectives, consisting of one or more objectives
based on meeting specific cost targets, business expansion goals and goals
relating to acquisitions or divestitures.

 

(c)                                  For
Awards under this Section 3 which are intended to be “performance-based
compensation,” the grant of the Awards and the establishment of the Performance
Measures shall be made during the period required under Code section 162(m).

 

(d)                                 If
the right to become vested in a Restricted Stock Award or Restricted Stock Unit
Award granted under this Section 3 is conditioned on the completion of a
specified period of service with the Company or the Subsidiaries, without
achievement of Performance Measures or other performance objectives being
required as a condition of vesting, and without it being granted in lieu of
other compensation, then the required period of service for full vesting shall
be not less than three years (subject to acceleration of vesting, to the extent
permitted by the Committee, in the event of a change in control or the
Participant’s death, disability, retirement, or involuntary termination).

 

(e)                                  Upon
the occurrence of significant events or changes that occur during the
performance period, the Committee shall have the sole discretion to determine
whether any revision to the Performance Measures should be made; provided,
however, that if the Award is intended to satisfy the requirements for
“performance-based compensation,” any such revisions occurring after the
establishment of the Performance Measures may not result in an increase in the
amount of settlement of the Award.

 

(f)                                    Except
as otherwise provided by the Committee, if a Participant’s employment
terminates because of death or disability, or if a Change in Control occurs
prior to the Participant’s termination of employment, the Participant’s
Performance Unit Award shall become vested without regard to whether such Award
would be performance-based compensation, based on a target level performance,
or as otherwise provided by the Committee in the Award Agreement.

 

(g)                                 Nothing
in this Section 3 shall preclude the Committee, the Company, or any
Subsidiary from granting performance Awards that are not intended to be
“performance-based compensation”; provided, however, that, at the time of grant
of performance Awards by the Committee, the Committee shall designate whether
such amounts are intended to constitute “performance-based compensation.” To

 

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the extent
that the provisions of this Section 3 reflect the requirements applicable
to performance-based compensation, such provisions shall not apply to the
portion of the award, if any, which is not intended to satisfy the
performance-based compensation requirements.

 

SECTION 4

 

OPERATION AND ADMINISTRATION

 

4.1                                 Effective Date. 
Subject to the approval of the shareholders of the Company at the
Company’s 2003 annual meeting of its shareholders, the Plan shall be effective as
of March 30, 2003 (the “Effective Date”); provided, however, that to the
extent that Awards are granted under the Plan prior to its approval by
shareholders, the Awards shall be contingent on approval of the Plan by the
shareholders of the Company at such annual meeting. The Plan shall be unlimited
in duration and, in the event of Plan termination, shall remain in effect as
long as any Awards under it are outstanding; provided, however, that no Awards
may be granted under the Plan after the ten-year anniversary of the Effective
Date (except for Awards granted pursuant to commitments entered into prior to
such ten-year anniversary).

 

4.2                                 Shares Subject to Plan.  The shares of Stock for which Awards may be granted under the
Plan shall be subject to the following:

 

(a)                                  The
shares of Stock with respect to which Awards may be made under the Plan shall
be shares currently authorized but unissued or currently held or, to the extent
permitted by applicable law, subsequently acquired by the Company as treasury
shares, including shares purchased in the open market or in private
transactions.

 

(b)                                 Subject
to the following provisions of this subsection 4.2, the maximum number of
shares of Stock that may be delivered to Participants and their beneficiaries
under the Plan shall be 307,000 shares of Stock.

 

(c)                                  To
the extent provided by the Committee, any Award may be settled in cash rather
than Stock. To the extent any shares of Stock covered by an Award are not
delivered to a Participant or beneficiary because the Award is forfeited or
canceled, or the shares of Stock are not delivered because the Award is settled
in cash or used to satisfy the applicable tax withholding obligation, such
shares shall not be deemed to have been delivered for purposes of determining
the maximum number of shares of Stock available for delivery under the Plan.

 

(d)                                 If
the exercise price of any stock option granted under the Plan is satisfied by
tendering shares of Stock to the Company (by either actual delivery or by
attestation), only the number of shares of Stock issued net of the shares of
Stock tendered shall be deemed delivered for purposes of determining the
maximum number of shares of Stock available for delivery under the Plan.

 

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(e)                                  Subject
to paragraph 4.2(f), the following additional maximums are imposed under the
Plan.

 

(i)                                     The
maximum number of shares of Stock that may be issued pursuant to Options
intended to be ISOs shall be 307,000  shares.

 

(ii)                                  The
maximum number of shares that may be covered by Awards granted to any one
individual pursuant to Section 2 (relating to Options and SARs) shall be  150,000
shares during any calendar year. If an Option is in tandem with an SAR, such
that the exercise of the Option or SAR with respect to a share of Stock cancels
the tandem SAR or Option right, respectively, with respect to such share, the
tandem Option and SAR rights with respect to each share of Stock shall be
counted as covering but one share of Stock for purposes of applying the limitations
of this paragraph (ii).

 

(iii)                               The
maximum number of shares of Stock that may be issued in conjunction with Awards
granted pursuant to Section 3 (relating to Other Stock Awards) shall be
150,000 shares.

 

(iv)                              For
Bonus Stock Awards, Stock Unit Awards, Restricted Stock Awards, Restricted
Stock Unit Awards and Performance Share Awards that are intended to be
“performance-based compensation” (as that term is used for purposes of Code
section 162(m)), no more than 75,000 shares of stock may be subject to such
Awards granted to any one individual during any calendar year.  If, after shares have been earned, the
delivery is deferred, any additional shares attributable to dividends during
the deferral period shall be disregarded.

 

(v)                                 For
Performance Unit Awards that are intended to be “performance-based
compensation” (as that term is used for purposes of Code section 162(m)),
no more than $3,000,000 may be subject to such Awards granted to any one
individual during any calendar year. If, after amounts have been earned with
respect to Performance Unit Awards, the delivery of such amounts is deferred,
any additional amounts attributable to earnings on deferred amounts during the
deferral period shall be disregarded

 

(vi)                              The
maximum number of shares that may be covered by Awards granted to any one
individual non-employee director pursuant to Section 2 (relating to
Options and SARs) shall be 75,000 shares during any calendar year and the
maximum number of shares that may be covered by Awards granted to any one individual
non-employee director pursuant to Section 3 (relating to Other Stock
Awards) shall be 37,500 shares during any calendar year.

 

(f)                                    In
the event of a corporate transaction involving the Company (including, without
limitation, any stock dividend, stock split, reverse stock split, extraordinary
cash dividend, recapitalization, reorganization, merger, consolidation,
split-up, spin-off,

 

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combination or exchange of shares), the
Committee may adjust Awards to preserve the benefits or potential benefits of
the Awards. Action by the Committee may include: (i) adjustment of the number
and kind of shares which may be delivered under the Plan; (ii) adjustment of
the number and kind of shares subject to outstanding Awards; (iii) adjustment
of the Exercise Price of outstanding Options and SARs; and (iv) any other
adjustments that the Committee determines to be equitable (which may include,
without limitation, (I) replacement of Awards with other Awards which the Committee
determines have comparable value and which are based on stock of a company
resulting from the transaction, and (II) cancellation of the vested and
unvested portion of such Award in return for cash payment of the current value
of Award, determined as though the Award is fully vested at the time of
payment, provided that in the case of an Option, the amount of such payment may
be the excess of value of the Stock subject to the Option at the time of the
transaction over the exercise price).

 

4.3                                 General Restrictions.  Delivery of shares of Stock or other amounts under the Plan shall
be subject to the following:

 

(a)                                  Notwithstanding
any other provision of the Plan, the Company shall have no liability to deliver
any shares of Stock under the Plan or make any other distribution of benefits
under the Plan unless such delivery or distribution would comply with all
applicable laws (including, without limitation, the requirements of the
Securities Act of 1933), and the applicable requirements of any securities exchange
or similar entity.

 

(b)                                 To
the extent that the Plan provides for issuance of stock certificates to reflect
the issuance of shares of Stock, the issuance may be effected on a
non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.

 

4.4                                 Tax Withholding. 
All distributions under the Plan are subject to withholding of all
applicable taxes, and the Committee may condition the delivery of any shares or
other benefits under the Plan on satisfaction of the applicable withholding
obligations. Except as otherwise provided by the Committee, such withholding
obligations may be satisfied (i) through cash payment by the Participant (or by
such third party as may be permitted in Section 2.4(c)); (ii) through the
surrender of shares of Stock which the Participant already owns (provided,
however, that to the extent shares described in this clause (ii) are used to
satisfy more than the minimum statutory withholding obligation, as described
below, then, except as otherwise provided by the Committee, payments made with
shares of Stock in accordance with this clause (ii) above shall be limited to
shares held by the Participant for not less than six months prior to the
payment date); or (iii) through the surrender of shares of Stock to which the
Participant is otherwise entitled under the Plan; provided, however, that such
shares under this clause (iii) may be used to satisfy not more than the
Company’s minimum statutory withholding obligation (based on minimum statutory
withholding rates for Federal and state tax purposes, including payroll taxes,
that are applicable to such supplemental taxable income).

 

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4.5                                 Grant and Use of Awards.  In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the
Plan, and more than one Award may be granted to a Participant. Awards may be
granted as alternatives to or replacement of awards granted or outstanding
under the Plan, or any other plan or arrangement of the Company or a Subsidiary
(including a plan or arrangement of a business or entity, all or a portion of
which is acquired by the Company or a Subsidiary). Subject to the overall
limitation on the number of shares of Stock that may be delivered under the
Plan, the Committee may use available shares of Stock as the form of payment
for compensation, grants or rights earned or due under any other compensation
plans or arrangements of the Company or a Subsidiary, including the plans and
arrangements of the Company or a Subsidiary assumed in business combinations.

 

4.6                                 Dividends and Dividend Equivalents.  An Award (including without limitation an
Option or SAR Award) may provide the Participant with the right to receive
dividend payments or dividend equivalent payments with respect to Stock subject
to the Award (both before and after the Stock subject to the Award is earned,
vested, or acquired), which payments may be either made currently or credited
to an account for the Participant, and may be settled in cash or Stock, as
determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in shares of Stock, may be
subject to such conditions, restrictions and contingencies as the Committee
shall establish, including the reinvestment of such credited amounts in Stock
equivalents.

 

4.7                                 Settlement of Awards.  The obligation to make payments and distributions with respect to
Awards may be satisfied through cash payments, the delivery of shares of Stock,
the granting of replacement Awards, or any combination thereof as the Committee
shall determine. Satisfaction of any such obligations under an Award, which is
sometimes referred to as “settlement” of the Award, may be subject to such
conditions, restrictions and contingencies as the Committee shall determine.
The Committee may permit or require the deferral of any Award payment, subject
to such rules and procedures as it may establish, which may include provisions
for the payment or crediting of interest or dividend equivalents, and may
include converting such credits into deferred Stock equivalents. Each
Subsidiary shall be liable for payment of cash due under the Plan with respect
to any Participant to the extent that such benefits are attributable to the
services rendered for that Subsidiary by the Participant. Any disputes relating
to liability of a Subsidiary for cash payments shall be resolved by the
Committee.

 

4.8                                 Transferability. 
Except as otherwise provided by the Committee, Awards under the Plan are
not transferable except as designated by the Participant by will or by the laws
of descent and distribution.

 

4.9                                 Form and Time of Elections.  Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.

 

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4.10                           Agreement With Company.  An Award under the Plan shall be subject to such terms and
conditions, not inconsistent with the Plan, as the Committee shall, in its sole
discretion, prescribe. The terms and conditions of any Award to any Participant
shall be reflected in such form of written document as is determined by the
Committee. A copy of such document shall be provided to the Participant, and
the Committee may, but need not, require that the Participant sign a copy of
such document. Such document is referred to in the Plan as an “Award Agreement”
regardless of whether any Participant signature is required.

 

4.11                           Action by Company or Subsidiary.  Any action required or permitted to be taken
by the Company or any Subsidiary shall be by resolution of its board of
directors, or by action of one or more members of the board (including a
committee of the board) who are duly authorized to act for the board, or
(except to the extent prohibited by applicable law or applicable rules of any
stock exchange) by a duly authorized officer of such company.

 

4.12                           Gender and Number.  Where the context admits, words in any gender shall include any
other gender, words in the singular shall include the plural and the plural
shall include the singular.

 

4.13                           Limitation of Implied Rights.

 

(a)                                  Neither
a Participant nor any other person shall, by reason of participation in the
Plan, acquire any right in or title to any assets, funds or property of the
Company or any Subsidiary whatsoever, including, without limitation, any
specific funds, assets, or other property which the Company or any Subsidiary,
in its sole discretion, may set aside in anticipation of a liability under the
Plan. A Participant shall have only a contractual right to the Stock or
amounts, if any, payable under the Plan, unsecured by any assets of the Company
or any Subsidiary, and nothing contained in the Plan shall constitute a
guarantee that the assets of the Company or any Subsidiary shall be sufficient
to pay any benefits to any person.

 

(b)                                 The
Plan does not constitute a contract of employment, and selection as a
Participant will not give any participating employee the right to be retained
in the employ of the Company or any Subsidiary, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan. Except as otherwise provided in the Plan, no Award
under the Plan shall confer upon the holder thereof any rights as a shareholder
of the Company prior to the date on which the individual fulfills all
conditions for receipt of such rights and is issued shares.

 

4.14                           Evidence. 
Evidence required of anyone under the Plan may be by certificate,
affidavit, document or other information which the person acting on it
considers pertinent and reliable, and signed, made or presented by the proper
party or parties.

 

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SECTION 5

 

CHANGE IN CONTROL

 

Subject to the provisions of paragraph 4.2(f)
(relating to the adjustment of shares), and except as otherwise provided in the
Plan or the Award Agreement reflecting the applicable Award:

 

(a)                                  If
a Participant who is employed by the Company or an Affiliate at the time of a
Change in Control then holds one or more outstanding Options, all such Options
(regardless of whether in tandem with SARs) then held by the Participant shall
become fully exercisable on and after the date of the Change in Control
(subject to the expiration provisions otherwise applicable to the Options), and
any Stock purchased by the Participant under such Option following such Change
in Control shall be fully vested upon exercise.

 

(b)                                 If
a Participant who is employed by the Company or an Affiliate at the time of a
Change in Control then holds one or more outstanding SARs, all such SARs
(regardless of whether in tandem with Options) then held by the Participant
shall become fully exercisable on and after the date of the Change in Control
(subject to the expiration provisions otherwise applicable to the SARs), and
any cash or stock acquired by the Participant under such SAR following such
Change in Control shall be fully vested upon exercise.

 

(c)                                  If
a Participant who is employed by the Company or an Affiliate at the time of a
Change in Control then holds one or more shares of Bonus Stock, Stock Units,
Restricted Stock, Restricted Stock Units, Performance Shares, or Performance
Units, all such Bonus Stock, Restricted Stock, Performance Shares, and units
shall become fully vested on the date of the Change in Control; provided that,
if the amount of the award or the vesting is to be determined based on the
level of performance achieved, the target level of performance shall be deemed
to have been achieved.

 

SECTION 6

 

COMMITTEE

 

6.1                                 Administration. 
The authority to control and manage the operation and administration of
the Plan shall be vested in a committee (the “Committee”) in accordance with
this Section 6. The Committee shall be selected by the Board, and shall
consist solely of two or more members of the Board who are not employees of the
Company or any Subsidiary. If the Committee does not exist, or for any other
reason determined by the Board, the Board may take any action under the Plan
that would otherwise be the responsibility of the Committee.

 

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6.2                                 Powers of Committee.  The Committee’s administration of the Plan shall be subject to
the following:

 

(a)                                  Subject
to the provisions of the Plan, the Committee will have the authority and
discretion to select from among the Eligible Individuals those persons who
shall receive Awards, to determine the time or times of receipt, to determine
the types of Awards and the number of shares covered by the Awards, to
establish the terms, conditions, performance criteria, restrictions, and other
provisions of such Awards, and (subject to the restrictions imposed by
Section 7) to cancel or suspend Awards.

 

(b)                                 To
the extent that the Committee determines that the restrictions imposed by the
Plan preclude the achievement of the material purposes of the Awards in
jurisdictions outside the United States, the Committee will have the authority
and discretion to modify those restrictions as the Committee determines to be
necessary or appropriate to conform to applicable requirements or practices of
jurisdictions outside of the United States.

 

(c)                                  The
Committee will have the authority and discretion to interpret the Plan, to
establish, amend, and rescind any rules and regulations relating to the Plan,
to determine the terms and provisions of any Award Agreement made pursuant to
the Plan, and to make all other determinations that may be necessary or
advisable for the administration of the Plan.

 

(d)                                 Any
interpretation of the Plan by the Committee and any decision made by it under
the Plan is final and binding on all persons.

 

(e)                                  In
controlling and managing the operation and administration of the Plan, the
Committee shall take action in a manner that conforms to the articles and
by-laws of the Company, applicable state corporate law and applicable stock
exchange requirements.

 

6.3                                 Delegation by Committee.  Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities
and powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Committee at any time.

 

6.4                                 Information to be Furnished to Committee.  The Company and Subsidiaries shall furnish
the Committee with such data and information as it determines may be required
for it to discharge its duties. The records of the Company and Subsidiaries as
to an employee’s or Participant’s employment, termination of employment, leave
of absence, reemployment and compensation shall be conclusive on all persons
unless determined to be incorrect. 
Participants and other persons entitled to benefits under the Plan must
furnish the Committee such evidence, data or information as the Committee
considers desirable to carry out the terms of the Plan.

 

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SECTION 7

 

AMENDMENT AND TERMINATION

 

The Board may, at any time, amend or terminate the
Plan, and may amend any Award Agreement, provided, that no amendment or
termination may, in the absence of written consent to the change by the
affected Participant (or, if the Participant is not then living, the affected
beneficiary), adversely affect the rights of any Participant or beneficiary
under any Award granted under the Plan prior to the date such amendment is
adopted by the Board; further provided, that adjustments pursuant to paragraph
4.2(f) shall not be subject to the foregoing limitations of this
Section 7; and further provided, that no amendment may (i) remove the
provisions of subsection 2.6 (relating to Option repricing), (ii)
materially increase the benefits accruing to Participants under the Plan, (iii)
materially increase the number of securities which may be issued under the
Plan, or (iv) materially modify the requirements for participation in the Plan,
unless the amendment is approved by the Company’s stockholders.

 

SECTION 8

 

DEFINED TERMS

 

In addition to the other definitions contained herein,
the following definitions shall apply:

 

(a)                                  Award. 
The term “Award” means any award or benefit granted under the Plan,
including, without limitation, the grant of Options, SARs, Bonus Stock Awards,
Stock Unit Awards, Restricted Stock Awards, Restricted Stock Unit Awards,
Performance Unit Awards and Performance Share Awards.

 

(b)                                 Board.  The term “Board” means the Board of
Directors of the Company.

 

(c)                                  Change
in Control.  A “Change in Control”
shall be deemed to occur on the earliest of the existence of one of the
following events:

 

(i)                                     any
“person” (as such term is used in Sections 13(d) or 14(d) of the Exchange Act),
other than one or more Permitted Holders (as defined below), is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of more than 35% of the total voting power of the
Voting Stock (as defined below) of the Company and (ii) the Permitted Holders
“beneficially own” (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of the Company than such other person and do
not have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Board of Directors of the Company;

 

(ii)                                  individuals
who, as of the date hereof, constitute the Board (as of the date hereof the
“Incumbent Board”) cease for any reason to constitute at least a majority of
the Board, provided that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election

 

12

 

by the
Company’s shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company; or

 

(iii)                               approval by the Company’s shareholders of a
reorganization, merger or consolidation of the Company, in each case, with
respect to which all or substantially all of the individuals and entities who
were the respective beneficial owners of the common stock and voting securities
of the Company immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger or consolidation,
beneficially own, directly and indirectly, more than 70% of the then
outstanding shares of common stock or the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors of the corporation resulting from such reorganization, merger or
consolidation, or of a complete liquidation or dissolution of the Company or of
the sale or other disposition of all or substantially all of the assets of the
Company.

 

For purposes of this subparagraph (c), the term “Permitted Holders”
means Donald N. Smith and/or the Company’s then existing senior management and
their respective Affiliates (as defined under the Exchange Act). The term
“Voting Stock” of the Company means all classes of capital stock of the Company
then outstanding and normally entitled to vote in the election of directors.

 

(d)                                 Code.  The
term “Code” means the Internal Revenue Code of 1986, as amended. A reference to
any provision of the Code shall include reference to any successor provision of
the Code.

 

(e)                                  Eligible Individual.  The term “Eligible Individual” means any employee of the Company
or a Subsidiary and any consultant, director or other person providing bona
fide services to the Company or a Subsidiary. An Award may be granted to an
employee, in connection with hiring, retention or otherwise, prior to the date
the employee first performs services for the Company or the Subsidiaries,
provided that such Awards shall not become vested prior to the date the
employee first performs such services.

 

(f)                                    Exchange
Act.  The term “Exchange Act” means the
Securities Exchange Act of 1934, as amended.

 

(g)                                 Fair Market Value.  For purposes of determining the “Fair Market Value” of a share of
Stock as of any date, the following rules shall apply:

 

(i)                                     If
the principal market for the Stock is a national securities exchange or the
Nasdaq stock market, then the “Fair Market Value” as of that date shall be

 

13

 

the reported
closing price of the Stock on that date on the principal exchange or market on
which the Stock is then listed or admitted to trading.

 

(ii)                                  If
closing prices are not available or if the principal market for the Stock is
not a national securities exchange and the Stock is not quoted on the Nasdaq
stock market, then the “Fair Market Value” as of that date shall be the mean of
the highest bid and lowest asked prices for the Stock on such day as reported
on the Nasdaq OTC Bulletin Board Service or by the National Quotation Bureau,
Incorporated or a comparable service.

 

(iii)                               If
the day is not a business day and, as a result, paragraphs (i) and (ii) next
above are inapplicable, the Fair Market Value of the Stock shall be determined
as of the next earlier business day. If paragraphs (i) and (ii) next above are
otherwise inapplicable, then the Fair Market Value of the Stock shall be
determined in good faith by the Committee.

 

(h)                                 Subsidiary. 
The term “Subsidiary” means any company during any period in which it is
a “subsidiary corporation” (as that term is defined in Code
section 424(f)) with respect to the Company.

 

(i)                                     Stock. 
The term “Stock” means shares of common stock of the Company.

 

14

 

SUPPLEMENT A

ELECTIVE DEFERRAL

 

SECTION 1

 

DEFERRAL ELECTION

 

1.1                                 General. 
A Participant who is otherwise entitled to receive shares of Stock or a
cash payment in settlement of an Award under the terms of the Plan may elect to
defer delivery of all or a portion of such shares of Stock or such cash,
subject to the following terms of this Supplement A.

 

1.2                                 Deferral Election. 
An election to defer the receipt of shares of Stock or a cash
payment shall be filed prior to the first day of the calendar year in which the
Stock or cash would otherwise have been delivered (or the year of vesting
of  a restricted stock Award) to the
Participant. The election to defer the delivery of shares of Stock or a cash
payment shall be made on a form as may be determined by the Committee (the
Deferral Election”).

 

SECTION 2

 

ACCOUNTS

 

2.1                                 Stock Account. 
A Stock Account shall be maintained on behalf of each Participant who
elects to defer the distribution of shares of Stock under this Supplement A,
for the period during which delivery of shares of Stock is deferred. A
Participant’s Stock Account shall be subject to the following adjustments:

 

(a)                                  The
Stock Account will be credited with Share Units equal to the number of shares
of Stock as to which the Participant has elected deferred receipt, with such Share
Units to be credited as of the date on which the shares would otherwise have
been delivered to him in the absence of the deferral.

 

(b)                                 As
of each dividend record date for the Stock following the date any Share Units
are credited to the Participant’s Stock Account, and prior to the date of
distribution of shares of Stock with respect to those Share Units, the
Participant’s Stock Account shall be credited with additional Share Units
(including fractional Share Units) equal to (i) the amount of the dividend that
would be payable with respect to the number of shares of Stock equal to the
number of Share Units credited to the Participant’s Stock Account on the
dividend record date, divided by (ii) the
Fair Market Value of a share of Stock on the date of payment of the dividend.

 

(c)                                  As
of the date of any distribution of shares of Stock with respect to a
Participant’s Stock Account under Section 3 of this Supplement, the Share
Units credited to a

 

15

 

Participant’s
Stock Account shall be reduced by the number of Shares so distributed to the
Participant.

 

2.2                                 Cash Account. 
A Cash Account shall be maintained on behalf of each Participant who
elects to defer the distribution of cash under this Supplement A, for the period
during which delivery of cash is deferred. A Participant’s Cash Account shall
be credited with a notional rate of return based upon investment(s) selected by
the Committee in its sole discretion. As of the date of any distribution with
respect to a Participant’s Account under Section 3 of this Supplement, the
balance credited to a Participant’s Account shall be reduced by the amount of
the distribution to the Participant.

 

2.3                                 Statement of Accounts.  As soon as practicable after the end of each Plan Year, the
Company shall provide each Participant having one or more Accounts under the
Plan with a statement of the transactions in his Accounts during that year and
his Account balances as of the end of the year.

 

SECTION 3

 

DISTRIBUTIONS

 

3.1                                 General.

 

(a)                                  Subject
to the terms of this Section 3, a Participant shall specify, as part of
his Deferral Election with respect to Stock Awards, and as part of his Deferral
Election with respect to cash payments, the time of distribution of the amounts
deferred pursuant to such election; provided, however, that distribution of
shares of Stock, and of cash, shall be made in a lump sum not later than the
first anniversary of the date on which the individual ceases to be an Eligible
Individual; and further provided, that, unless otherwise provided for by the
Committee, a Participant may elect only a single date for distribution of all
of his Stock Account and only a single date for distribution of all of his Cash
Account under the Plan, provided that the distribution date for the
Participant’s Stock Account and Cash Account may differ.

 

(b)                                 At
the time of distribution of deferred shares in accordance with the
Participant’s Deferral Election, the Participant shall receive a distribution
of shares of Stock equal to the number of share units credited to his Stock
Account immediately prior to such distribution. If the scheduled distribution
date would otherwise occur after a dividend record date but before the payment
of the dividend, distribution shall be deferred (not more than 30 days) until
the dividend is paid.

 

(c)                                  At
the time of distribution of the Cash Account in accordance with the
Participant’s Deferral Election, the Participant shall receive the amount then
credited to the Participant’s Cash Account as of the date of distribution.

 

(d)                                 In
determining a Participant’s right to distributions of stock under this
Section 3, the vesting provisions of subsection 2.3 of the Plan shall
apply to the share units

 

16

 

credited to the
Participant’s Stock Account as though each unit represented one share of Stock,
and with all units attributable to payment of dividends being fully vested as
of the date they are credited to the Participant’s Stock Account.

 

(e)                                  Notwithstanding
the foregoing provisions of this Section 3, if any share units are
credited to a Participant’s Stock Account as of the date of a Change in
Control, the Participant shall receive a distribution of shares of Stock equal
to the number of such share units. Such distribution shall be in settlement of
the Participant’s rights to a distribution under this Section 3, provided
that if the record date for a dividend is prior to a Change in Control, but the
dividend payment is to occur after such Change in Control, the additional
shares attributable to such dividends shall be distributed as soon as
practicable thereafter.

 

3.2                                 Limitation of Implied Rights.  Neither the Participant nor any other person
shall, by reason of deferral of shares of Stock or the deferral of a cash payment,
under this Supplement A, acquire any right in or title to any assets, funds or
property of the Company whatsoever prior to the date such shares or cash are
distributed. A Participant shall have only a contractual right to the shares
and cash, if any, distributable under the Plan, unsecured by any assets of the
Company. Nothing contained in the Plan shall constitute a guarantee by the
Company that the assets of the Company shall be sufficient to provide any
benefits to any person. The Company may, but shall not be obligated to,
establish a trust to hold assets for the purpose of satisfying obligations
under this Supplement A. The Board shall retain the right to terminate, at any
time, for any reason, or no reason, the deferral provisions under this Supplement
A (which may, but need not, be in conjunction with a termination of the Plan),
and shall immediately distribute all, but not less than all, of the Stock
Accounts and Cash Accounts as of the date of such termination.

 

17Exhibit
10.2

 

AGREEMENT

 

This agreement (“Agreement”) is entered as of the 27th day August, 2003
(the “Termination Date”) between Friendly Ice Cream Corporation (“FICC”) and
TRC Realty LLC (“TRC Realty”).

 

Whereas
on April 14, 1994 FICC and TRC Realty entered into an Aircraft Reimbursement
Agreement (a copy of which is attached as EXHIBIT A) to accommodate the
projected use of and shared expenses for a private aircraft between the parties
(or their respective affiliates),

 

Whereas
the Aircraft Reimbursement Agreement was amended from time to time, by a course
of dealing between the parties, including an amendment in 1999 to substitute
the “Aircraft” (as defined under the Aircraft Reimbursement Agreement) and
extend the term of the Aircraft Reimbursement Agreement for an additional 10
years (the Aircraft Reimbursement Agreement, as amended, being referred to
hereafter as the “ARA”),

 

Whereas
FICC seeks to terminate all of its future obligations under the ARA, and

 

Whereas
TRC Realty has agreed to terminate the ARA pursuant to the terms and conditions
set forth in this Agreement.

 

Now Therefore
the parties agree as follows:

 

1.               FICC agrees to pay TRC Realty the sum of
$868,440 (the “Termination Payment”) contemporaneous with the full execution of
this Agreement, it being understood that such events shall occur on or before
the Termination Date.

 

2.               In consideration of the Termination
Payment by FICC, TRC Realty hereby agrees to terminate the ARA as of the
Termination Date. The parties agree that such Termination Payment shall
extinguish any obligations by FICC under the ARA to pay any monies or perform
any actions on and after the Termination Date, excluding FICC’s obligations
pursuant to Section 3 of this Agreement.

 

3.               The parties agree to perform their
respective obligations under the ARA arising prior to the Termination Date,
including without limitation FICC’s payment of its reimbursement obligations,
as adjusted for any credits including pre-paid expenses such as aviation
insurance, all of the foregoing items to be pro rated as of the Termination
Date.

 

4.               TRC
Realty and FICC hereby remise, release and forever discharge each other, their
officers, directors, employees, representatives or assigns, of and from all
debts, demands, actions, causes of actions, suits, accounts, covenants,
contracts, agreements, demands, and any and all claims, demands and
liabilities, whatsoever of every name and nature, both in law and equity, which
such parties now have or ever had arising under the ARA.  Notwithstanding the forgoing provisions of
this Section 4, the parties’ rights to enforce

 

 

the terms of this Agreement shall survive the Termination Date. Each party warrants that it has not assigned
any of the claims hereby released to any third party.

 

5.               All
terms and provisions of this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.

 

 

AGREED AND CONSENTED TO:

 

Friendly Ice Cream Corporation

 

 

	
  By:

  	
   /s/ Aaron B. Parker

  	
   

  
	
   

  	
  Aaron B. Parker

  	
   

  
	
   

  
	
   

  
	
  TRC Realty LLC

  
	
   

  
	
   

  
	
  By:

  	
   /s/ Michael P. Donahoe

  	
   

  
	
   

  	
  Michael P. Donahoe

  	
   

  
				

 

2

 

EXHIBIT
A

 

 

Aircraft Reimbursement Agreement between the
Company and TRC Realty Co.

 

(Incorporated by reference to Exhibit 10.11 to the Registrant’s Annual
Report

on Form 10-K for the fiscal year ended December 27, 1998, File No. 0-3930).

 

3

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