Document:

Exhibit
10.26

DEVELOPMENT
AGREEMENT

BETWEEN

FRIENDLY’S
RESTAURANTS FRANCHISE, INC.

1855 BOSTON ROAD

WILBRAHAM,
MA  01095

AND

 

DATED

                     ,
2007

© 2007,
Friendly’s Restaurants Franchise, Inc.

Friendly’s 2006 Development
Agreement

TABLE OF
CONTENTS

	
  Section

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  SCHEDULE AND LIMITED EXCLUSIVITY

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  TERM

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  FEES

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  DEVELOPMENT PROCEDURES

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  ASSIGNMENT

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  CONFIDENTIALITY

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  DEFAULT AND TERMINATION

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  AGENCY AND INDEMNITY

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  NOTICES

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  ARBITRATION

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  MISCELLANEOUS

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  ACKNOWLEDGMENT OF RISK

  	
   

  	
  10

  

 

 

	
  EXHIBITS:

  	
   

  	
   

  
	
   

  	
   

  
	
  EXHIBIT A:

  	
  TERRITORY AND TIME SCHEDULE

  
	
   

  	
   

  
	
  EXHIBIT B:

  	
  REQUIREMENTS AND PROCEDURES FOR

  
	
   

  	
  DEVELOPMENT OF A FRIENDLY’S RESTAURANT

  
	
   

  	
   

  
	
  STATE RIDER

  	
  (IF APPLICABLE — ILLINOIS, MARYLAND,

  
	
   

  	
  NEW YORK & RHODE ISLAND)

  
				

 

DEVELOPMENT
AGREEMENT

THIS
AGREEMENT dated                    ,
2007, is by and between FRIENDLY’S RESTAURANTS
FRANCHISE, INC., a Delaware corporation with principal offices at
1855 Boston Road, Wilbraham, MA 01095 (hereinafter “we”, “us” or “Friendly’s”),
and 

	
  a sole
  proprietor/corporation/general partnership/limited liability company with
  principal offices at:

  
	
  (hereinafter “you”
  or “Developer”).

  

WHEREAS,
we own, operate and license others to operate restaurants (“Friendly’s Restaurants”)
that serve the public under the name Friendly’s®, selling our unique, proprietary products
and menu offerings utilizing standardized, distinctive trade dress and
procedures (collectively the “System”); and

WHEREAS,
we desire to achieve market penetration in selected regions and markets in the
United States, in order to more effectively expand, advertise and market the
System; and

WHEREAS,
we have concluded that to further our goals, we will from time to time grant to
experienced and financially qualified persons or organizations the opportunity
for exclusive development of Friendly’s Restaurants using the System within
limited territories for specified periods of time; and

WHEREAS,
you desire to develop Friendly’s Restaurants in accordance with all of the
standards and requirements of the System; and

WHEREAS,
you have represented to us that you have the organizational, operational and
financial strength, experience and resources necessary to carry out the
development of one or more Friendly’s Restaurants within the Territory, as
defined below, in the specified time set forth below.

NOW,
THEREFORE, in consideration of the mutual covenants contained
herein and pursuant to the terms and conditions of this Agreement, the parties
hereby agree as follows:

1.                                       SCHEDULE AND LIMITED EXCLUSIVITY.

A.            You agree to
construct, equip, open and maintain in continuous operation                
(     ) Friendly’s Restaurants in accordance with the
terms of this Agreement, and within the time schedule and geographical area set
forth on Exhibit A attached hereto and made a part hereof (the “Territory”).  Time is of the essence of this Agreement, and
you agree to strictly comply with each and every element of the schedule set
forth on Exhibit A (your “Development Schedule”).

B.            For so long as you
are in compliance with your Development Schedule, and provided further that you
are not in default of this Agreement or any Franchise Agreement for a Friendly’s
Restaurant, we will not, during the term of this Agreement, operate or license
any other party to operate any new Friendly’s Restaurants within the Territory,
except as set forth in Paragraph 1.C. below (hereinafter described as your “Exclusivity”).  Your Exclusivity does not apply to the sale
of our branded products in grocery stores, convenience stores and other
non-restaurant retail outlets.

C.            From time to time
during the term hereof, we may become aware of development opportunities within
the Territory that are not otherwise available to you.  Examples of such opportunities include,
without limitation, hotels, hospitals, mass transportation centers, limited
access highway rest areas, office or plant cafeterias, department stores, chain
conversions, stadiums, military, government,

Friendly’s 2006 Development Agreement

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school and college
cafeterias, amusement parks and other distribution opportunities that are not
generally available to you.  We will have
the right to pursue such opportunities for licensing to you or to others, in
accordance with this paragraph.  Where
such opportunity is available for us to license to you and provided that you
then meet the conditions set forth in Section 1.B. above, we will, to the
extent practicable without diminishing the value of the opportunity, first
offer you a right of first refusal to develop the opportunity.  We will deliver to you a written offer
setting forth the material terms and conditions of the opportunity.  If you fail to deliver to us a signed acceptance
of our offer within thirty (30) days, after your receipt thereof, your right of
first refusal will expire and we may then pursue the opportunity for ourselves
or for licensing to others.  The term “chain
conversion” means brand conversion of more than ten percent (10%) of the
restaurants in a chain having ten (10) or more units operating under the same
trade-name.

D.            For so long as your
Exclusivity remains in full force and effect, if we should develop an
opportunity as described in paragraph 1.C. above within the Territory, the
following provisions shall apply.  If we,
in our sole and absolute discretion, determine that the potential development
of Friendly’s Restaurants in the Territory is likely thereby to be diminished,
we will offer you one or more alternatives, which may include (i) extending the
term of the Development Schedule, (ii) changing the number of required
Restaurants to be developed, (iii) expanding or contracting the size of the
Territory, or (iv) such other alternative as we may determine, in our sole and
absolute discretion, to be appropriate under the circumstances.  We will be under no obligation to offer you
any such alternatives if you have failed to comply with the Development
Schedule, or if you are not in compliance with this Agreement or any Franchise
Agreement for a Friendly’s Restaurant.

E.             This Agreement does
not grant you any right to use the System at any location, nor does it grant
you any rights with respect to the System or to use any of our trademarks or
trade secrets, such rights being exclusively governed by a franchise agreement
(a “Franchise Agreement”) for each Friendly’s Restaurant opened hereunder.  As you open each Friendly’s Restaurant
pursuant to this Agreement, your relationship with Friendly’s with respect to
such Restaurant will be governed by the terms of an individual Franchise Agreement
on the form of such agreement in use by us at the time such agreement is
executed and delivered and which will be granted to Developer by Friendly’s in
the good faith exercise of its sole discretion.

F.             If you fail for any
reason to open any Friendly’s Restaurant by the date required in your
Development Schedule, we may, in addition to and without prejudice to all other
rights and remedies under the law or this Agreement, terminate your
Exclusivity, without terminating this Agreement or in any way modifying your
other obligations hereunder.  In such
event, we may at any time thereafter, in our sole discretion, operate or
license others to operate new Friendly’s Restaurants in the Territory.  Your failure to timely open any Friendly’s
Restaurant in accordance with the Development Schedule will also be a default
under this Agreement and Friendly’s may, in its sole discretion, elect to
terminate the Agreement after giving you timely written notice in accordance
with paragraph 7.C. below.  All Friendly’s
Restaurants developed under this Agreement must be open and operating at all
times (excepting casualty or condemnation) on and after their scheduled opening
dates and in the event any such restaurant is not at all times open and
operating, it will constitute a default hereunder.

G.            Upon expiration or
termination of this Agreement for any reason, your Exclusivity and rights to
construct, equip, open and operate Friendly’s Restaurants shall automatically
terminate and expire and your rights to use the System shall be limited to
those Friendly’s Restaurants operating pursuant to effective Franchise
Agreements entered into prior to the expiration or termination of this
Agreement.

 2
 

2.                                       TERM.

This Agreement shall
commence upon the date first written above and shall automatically expire and
terminate on                  ,
           (the “Expiration
Date”), unless terminated earlier as provided for herein.  Provided you are not in default of this
Agreement or any Franchise Agreement on the Expiration Date, you will have the
option, for a period of thirty (30) days thereafter, to notify us of your
desire to renew this Agreement for an additional period to develop a certain
number of additional restaurants within the Territory pursuant to a development
schedule to be determined by us in our sole discretion.  Upon receipt of such notice, Friendly’s shall
evaluate your qualification for renewal under our then-current organizational,
operational and financial standards and requirements for multiple-restaurant
franchisees, and the development opportunities within the Territory.   We will notify you of our decision within
sixty (60) days of our receipt of your notice described above.  If we elect to renew this Agreement, we will
provide you a new development agreement on our then-current form, with
then-current fees and a schedule containing the number of Friendly’s
Restaurants to be developed within a specified deadline.  You will have thirty (30) days from delivery
thereof to accept, sign and return such development agreement and
schedule.  If the renewal development
agreement is not signed and returned to us within thirty (30) days of receipt,
then your renewal option will lapse.

3.                                       FEES.

In consideration of the
rights granted you hereunder, you agree to pay us the sum of                                      
and           /100 Dollars ($                  )
(the “Development Fee”) all or part of which has either heretofore been paid or
is tendered herewith.  The Development
Fee is non-refundable and we are not obligated in any event, including the
termination or expiration of this Agreement, to return all or any part thereof
to you, except as provided in Paragraph 7.G. of this Agreement

A.            Developer has no
rights in the Development Fee except as are specifically set out in this
Agreement.

B.            At such time as
Developer and Friendly’s execute a Franchise Agreement for any of the Friendly’s
Restaurants to be constructed, equipped and opened hereunder, Friendly’s will
apply a credit toward the Initial Franchise Fee due for such Restaurant in an
amount equal to the remaining balance of the Development Fee, if any, after
credits, if any, taken for previous Restaurants developed under this
Agreement.  You will pay us any balances
due for Initial Franchise Fees after the credits for the Development Fee have
been exhausted, upon your signing the Franchise Agreement.

4.                                       DEVELOPMENT PROCEDURES.

A.            During the term of
this Agreement, you must at all times qualify under our then-current
organizational, operational and financial standards and requirements for
multiple-restaurant franchisees.  Your
failure to do so will be sufficient grounds for us to disapprove your proposed
development of an additional Friendly’s Restaurant.  You will be solely responsible for locating
appropriate sites for your development of Friendly’s Restaurants as
contemplated hereunder and for taking all other actions necessary to acquire,
finance, build and construct such restaurants. 
Any and all real estate, financing and other commitments you make
pursuant to this Agreement must be made subject to the conditions that you
obtain (i) Friendly’s written consent for you to develop a Friendly’s
Restaurant on the premises and (ii) all necessary permits, licenses and local
governmental approvals needed for you to develop and operate a 

 3
 

Friendly’s
Restaurant on the premises. You should also include such other contingencies as
your attorney may recommend.

B.            In
the financial statements you submitted to us with your applications, you
represented a certain Net Worth (defined as the excess of your assets,
excluding homes, furnishings and automobiles and any intangibles such as
goodwill, over your liabilities).  During
the term of this Agreement, you must maintain and preserve your Net Worth at or
above such level.

C.            You
must submit each and every site you select for development of a Friendly’s
Restaurant to us for our prior written consent, in our sole discretion.  To obtain such consent, you must comply with
all of our requirements and procedures for consent set forth in Exhibit B attached
hereto and made a part of this Agreement. 
You acknowledge that a preliminary favorable opinion and/or
recommendation for consent of your proposed site by any of our employees is not
conclusive or binding upon us, since we may reject their recommendation.

D.            Upon
your receipt of written notice of our consent for your proposed site by our
Real Estate Committee and your giving us written confirmation of your decision
to proceed with development of a Friendly’s Restaurant at said location (the “Consented
Site”), you must promptly submit to us your application for a franchise
agreement for the Consented Site and you must then comply with all of our
requirements and procedures for such development, as set forth in Exhibit B and
as we may from time to time communicate to you.

E.             You
acknowledge and agree that:

(1)           We will only grant you a franchise
agreement for a Consented Site after you have submitted to us and we have
approved your franchise application on our then-current form, containing
all information requested thereon, and you have paid us all required fees;

(2)           You must comply in all respects with
our franchise application policies and procedures in force at the time you
apply for a franchise agreement;

(3)           We have sole discretion, to be
exercised in good faith, to decide whether or not to grant you a franchise
agreement; and

(4)           If granted, your franchise agreement
will be on the forms of such agreements then in use by us at the time such
agreement is executed and delivered to us; provided, however, the initial
franchise fee and royalty fee will be the same amount that we charge
franchisees at the time this Agreement is executed and delivered to you.

5.                                       ASSIGNMENT.

A.            We may assign all or
any part of our rights or obligations hereunder to any person or entity,
provided, however, that such person or entity has the right and authority, at
the time of such assignment, to license others to operate Friendly’s
Restaurants within the Territory.

B.            You shall not assign
any of your rights and/or obligations hereunder without our prior written
consent, which we may withhold in our sole discretion.  For the purposes of this clause, if Developer
is an entity, “assignment” includes any assignment, sale or other transfer,
directly or indirectly, of any interest in Developer.  Any purported assignment, sale or other
transfer of any interest in this Agreement or Developer during the term of this
Agreement without our prior written consent shall be a default hereunder.

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6.                                       CONFIDENTIALITY.

A.            Developer
acknowledges and agrees that Friendly’s has invested a substantial amount of
time and money in developing the System and certain trade secrets and other
confidential information associated therewith (the “Confidential Information”)
and so that Friendly’s may protect the System, Confidential Information and
trade secrets against unauthorized use or disclosure, Developer agrees to treat
the Confidential Information as set forth herein:  We will disclose certain Confidential
Information to you, and you may also learn additional Confidential Information
and trade secrets by virtue of this Agreement. 
You will not acquire any interest in such Confidential Information or
trade secrets other than the right to utilize the same in the development of
Friendly’s Restaurants.  You agree not to
use any of our Confidential Information or trade secrets in any other business
and not to disclose any of the same to any other person or entity and that you
will divulge the same only to such of your employees as must have access to it
in order to perform your duties under this Agreement.  Your breach of these restrictions shall
constitute a default under this Agreement and any Franchise Agreements and an
unfair and deceptive business practice.

B.            We acknowledge that
the foregoing restrictions on your disclosure and use of Confidential
Information do not apply to the following: 
(i) information, processes or techniques which are generally known in
the restaurant industry, other than through disclosure (whether deliberate or
inadvertent) by you; and (ii) disclosure of Confidential Information in
judicial or administrative proceedings to the extent that you are legally
compelled to disclose such information, provided that you have used your best
efforts, and have afforded us the opportunity, to obtain an appropriate
protective order or other assurance satisfactory to us of confidential
treatment for the information required to be so disclosed.

7.                                       DEFAULT AND TERMINATION.

A.            This Agreement shall
terminate without notice at the time and date set forth in Paragraph 2
hereof, unless earlier terminated as set forth below.

B.            This Agreement shall
automatically terminate without notice in the event you become insolvent or are
unable to pay your debts as they may mature, or if you make an assignment for
the benefit of creditors or an admission of inability to pay obligations as
they become due, or if you file a voluntary petition in bankruptcy or any
pleading seeking any reorganization, liquidation, dissolution or composition or
other settlement with creditors under any law, or admits or if you fail to
contest the material allegations of any such pleading filed against Developer,
or if you are adjudicated bankrupt or insolvent, or if a receiver or other
custodian is appointed for a substantial part of your assets or the assets of
any Friendly’s Restaurant owned by you, or if a final judgment remains
unsatisfied or of record for ninety (90) days or longer (unless a supersedeas
bond is filed), or if execution is levied against any substantial part of your
assets or a tax levy is made, or if suit to foreclose any lien or mortgage
against you or any Friendly’s Restaurant owned by you is instituted and is not
dismissed within ninety (90) days, or if a substantial part of your real or
personal property is sold after levy of judgment thereupon by any sheriff,
marshal or constable, or the claims of your creditors are abated or subject to
a moratorium under any law.

C.            In the event you
fail to comply with any of the terms and conditions of this Agreement
(excepting only by reason of force majeure, such as, but not limited to:  civil strife or commotion, labor strike,
lockout or Acts of God) or the terms and conditions of any Franchise Agreement
or other agreement between you and Friendly’s or any of its affiliates, such
failure shall constitute a default of this

 5
 

Agreement, and if
you fail to cure such default(s) within thirty (30) days of our giving you
written notice of said default(s) (or within the lesser applicable cure period
provided in such other agreement), we may, in our sole and absolute discretion
and in addition to any other rights and remedies we may have at law or in
equity, terminate this Agreement without further notice to you.

D.            Upon expiration or
termination of this Agreement for any reason, your Exclusivity and right to
construct, equip, open and operate additional Friendly’s Restaurants shall
automatically terminate and expire and your rights to use the System shall be
limited solely to then-existing Friendly’s Restaurants pursuant to effective
Franchise Agreements.  In the event of
termination of this Agreement, we will retain all of the Development Fee,
except as provided for in subparagraph G below.

E.             A default under
this Agreement shall not constitute a default under any Franchise Agreement
between Friendly’s and Developer, except for failure to pay liquidated damages
stated below.

F.             If you default by
failing to open any Restaurant on or before the date required for such opening
in the Development Schedule (subject to force majeure stated in paragraph 7.C.
above), you may elect, upon receipt of our notice to cure, as a remedy in lieu
of termination of this Agreement, to pay us liquidated damages in the amount of
Fifty Dollars ($50.00) per day for each and every day you fail to open the
Restaurant commencing the first day after your 30-day cure period has expired
(the “Deadline”).  To elect this remedy,
you must respond in writing to our notice-to-cure within the 30-day cure
period.  Once elected, liquidated damages
will accrue and be due and payable daily until the Restaurant opens, even if it
never opens.  The period during which
liquidated damages accrue shall not exceed ninety (90) days in total for any
Restaurant.  If the Restaurant is not
open 90 days after the Deadline, this Agreement will thereupon automatically
terminate without further notice or opportunity to cure.  Liquidated damages are due and payable ten
(10) days after written demand.

G.            In the event we fail
to comply with the terms and conditions of this Agreement (except by reason of
force majeure described in subparagraph C above) such failure shall constitute
a default hereunder.  If we fail to cure
such default(s) within sixty (60) days of our receipt of written notice
thereof, this Agreement shall terminate and any portion of the Development Fee
not applied pursuant to Paragraph 4.B. hereunder shall be refunded to you;
and such refund shall constitute your sole and exclusive compensation and
remedy for such default and termination.

8.                                       AGENCY AND INDEMNITY.

A.            This Agreement does
not create any fiduciary relationship between Friendly’s and Developer.  Nothing in this Agreement is intended to make
either party an agent, legal representative, joint venturer, partner, employee
or servant of the other for any purpose whatsoever.  Each party to this Agreement is an
independent contractor and shall hold itself out to the public as an
independent contractor.

B.            You will not enter
into any contract or agreement, or make any warranty or representation on our
behalf or in our name.  We assume no
liability for, nor shall we be deemed liable for any claim arising from or by
reason of, any action or omission of Developer and its conduct of business
pursuant to this Agreement.

C.            Developer shall
indemnify and hold Friendly’s harmless from and promptly reimburse it for any
and all claims, demands, taxes or penalties, actions and payment of money
(including, but not limited to, fines, damages, legal fees and expenses) by
reason of any or all claims, demands, taxes or penalties arising directly or
indirectly from, as a result of, or in connection with Developer’s actions or
omissions hereunder or those of its agents or employees, including those of its
contractors and 

 6
 

subcontractors.  At our election, you will also defend us
against the same, at your expense.  In
any event, and regardless of your payment of legal fees, we will have the
right, through counsel of our choice, to control any claim, demand, action or
matter to the extent it could directly or indirectly affect us, and all such
expenses shall be subject to your indemnity hereunder.  Your obligations under this paragraph shall
survive the termination or expiration of this Agreement.

9.                                       NOTICES.

All notices required
under this Agreement shall be in writing and shall be personally delivered,
sent by facsimile or overnight courier or mailed by United States Mail, Return
Receipt Requested, to the respective parties at the following addresses unless
and until a different address has been designated by written notice to the
other party:

	
  

  	
   

  	
  Friendly’s:

  	
  FRIENDLY’S RESTAURANTS FRANCHISE, INC.

  1855 Boston Road 

  Wilbraham, Massachusetts 01095

  Attn: General Counsel

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Developer:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

Notices sent (i) by
personal delivery or facsimile shall be effective when received; (ii) by
mail on the third business day after mailing; and (iii) by overnight
courier on the second business day after delivery to the courier.

10.                                 ARBITRATION.

As used in this Section 10, the term “Dispute” means and encompasses
all types of disagreements, controversies or causes of action, whether arising
under common law or any state or federal statute and whether a claim,
counterclaim or cross-claim.  As used in
this Section 10, the terms “Friendly’s” “we” and “us” and “Developer” and “you”
include, without limitation, the past and present employees, agents,
representatives, officers, directors, shareholders, members, guarantors,
sureties, parent corporations, subsidiary corporations, controlled affiliated
entities, predecessors, successors and/or assigns of each party hereto.  The parties intend for these definitions to
be given the broadest possible interpretation by a court of law.  Except as otherwise specified in this Section
10, all Disputes between Friendly’s and Developer, of whatever kind or nature, whether
arising out of or relating to the negotiation, performance or breach of this or
any other agreement or otherwise, must be settled by arbitration administered
by a recognized independent alternative dispute resolution service to be
selected by Friendly’s, such as, without limitation, the American Arbitration
Association, CPR Institute for Dispute Resolution or JAMS/Endispute ( the “Arbitration
Service”) under the then-current rules for commercial arbitration of the
Arbitration Service (collectively the “Rules”), except as herein expressly
modified.

A.            Eligibility and Procedures.  Either party (as “Claimant”) may initiate
arbitration by delivering a notice of arbitration to the other party (“Respondent”)
in accordance with Section 9 above.  The
Claimant must initiate arbitration within two (2) years after the discovery of
the facts giving rise to the claim or action, or within the time set forth in
the statute of limitations applicable to the cause of action asserted, if less.  Any cause of action that is not initiated
within the lesser period stated above will not be eligible for
arbitration.  The arbitration will be
deemed to have commenced on the date the Respondent receives the notice of
arbitration from the Claimant.  The
Claimant’s notice of arbitration

 7
 

must contain a general
statement of the nature of the claim and the relief sought.  We will establish the identity of the
selected Arbitration Service by written notice to you no later than fifteen
(15) days after the Respondent receives the notice of arbitration.  Arbitration shall be by a single arbitrator,
provided however, that either party may elect, within thirty (30) days after
the Respondent receives the notice of arbitration, to require a panel of three
(3) arbitrators.  Selection of the arbitrator(s)
will be in accordance with the Rules of the Arbitration Service.  In addition to the qualifications set forth
in the Rules, the arbitrator(s) must have prior experience in franchise
arbitration.  All arbitration proceedings, including without limitation all
conferences, preliminary and dispositive hearings will be conducted in the
city closest to our principal place of business (currently Springfield,
Massachusetts), unless otherwise required by
law or if all parties agree to another venue. 
The arbitrator(s) may issue such orders for interim relief as may
be deemed necessary to safeguard the rights of the parties during the
arbitration proceedings, but without prejudice to the ultimate rights of the
parties, the final determination of the Dispute or the parties’ rights to seek
equitable relief from a court of competent jurisdiction at any time during the
term of the arbitration proceedings.

B.            Enforcement and Effect.  The decision of the arbitrator(s) will be
final and binding on the parties hereto. 
Judgment on the award, including, without limitation, any interim award
for interim relief, rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof.  The binding
or preclusive effect of any award will be limited to the actual dispute or
claim arbitrated, and to the parties, and will have no collateral effect on any
other dispute or claim of any kind whatsoever.

C.            Governing
Law.  The Federal Arbitration Act, 9 U.S.C. §§
1-16, and related federal judicial procedure will govern this contract to the
fullest extent possible, superceding all state arbitration law, irrespective of
the location of the arbitration proceedings, the nature of the Dispute between
the parties or the nature of the court in which any related judicial proceedings
may be brought.  Except as provided in
the preceding sentence respecting arbitration law, the resolution of all
Disputes between the parties bound hereunder, whether in tort and regardless of
the place of injury or the place of the alleged wrongdoing or whether arising
out of or relating to the parties’ contractual relationship, will be governed
by the laws of the Commonwealth of Massachusetts without regard to conflict of
law principles.

D.            Exceptions to Arbitration.

(1)           Friendly’s will have the right to
litigate any one or more of the following causes of action, by filing a
complaint in any court of competent jurisdiction: (a) the enforcement of an
obligation to pay money to Friendly’s under an express term of any agreement,
(b) any action for declaratory or equitable relief, including, without
limitation, seeking of preliminary and/or permanent injunctive relief, specific
performance, other relief in the nature of equity or any action in equity to
enjoin any harm or threat of harm to Friendly’s goodwill, trademarks or its
tangible or intangible property, brought at any time, including, without
limitation, prior to or during the pendency of any arbitration proceedings
initiated hereunder; or (c) any action in ejectment or for possession of any
interest in real or personal property.

(2)           Developer will have the right to
litigate any action for declaratory or equitable relief, including, without
limitation, seeking of preliminary and/or permanent injunctive relief, specific
performance, other relief in the nature of equity or any action in equity to
enjoin any harm or threat of harm to Developer’s interests, brought at any
time, including, without limitation, prior to or during the pendency of any
arbitration proceedings initiated hereunder.

(3)           If Friendly’s
litigates any cause of action pursuant to subparagraph 10.D.(1) above, and if
Developer files any counterclaim, cross-claim, offset claim or the like against
Friendly’s in the litigation, Developer must waive the right to a trial by jury
and the rights to any and all claim(s) for punitive, multiple and/or exemplary
damages.  Otherwise, Developer must
submit each such counterclaim, cross-claim, offset claim or the like to
arbitration, if then available pursuant to this Section 10.

 8
 

(4)           Disputes concerning
the validity or scope of this Section 10 (Arbitration) are within the
authority of the arbitrator(s), including,
without limitation, whether a dispute is subject to arbitration hereunder.

E.             Waivers and Other Agreements.  Each of the parties hereto knowingly,
voluntarily and intentionally agree as follows:

(1)           Each party expressly waives any and
all rights to a trial by jury; and

(2)           Each party expressly waives any and
all claims for punitive, multiple and/or exemplary damages, except that
Friendly’s may at any time bring an action for willful trademark infringement
and, if successful, receive an award of multiple damages as provided by law;
and

(3)           Each party expressly agrees that no
party may recover damages for economic loss attributable to negligent acts or
omissions, except for conduct which is determined to constitute gross
negligence or an intentional wrong; and

(4)           Each party expressly agrees that in
the event of any final adjudication or applicable enactment of law that
punitive, multiple and/or exemplary damages may not be waived by the parties,
no recovery by any party in any forum will ever exceed two (2) times actual
damages, except for an award of multiple damages to Friendly’s for willful
trademark infringement, as provided by law; and

(5)           Each party expressly agrees that any
and all claims and actions arising out of or relating to this Agreement or the
relationship of Friendly’s and Developer brought in any forum by any party
hereto against another, must be commenced within two (2) years after the discovery of the facts giving rise to such
claim or action, or such claim or action will be barred; and

(6)           Each party expressly agrees that it
will not initiate or participate in any class action litigation claim against
any other party hereto; and

(7)           The foregoing provisions shall govern
all Disputes, whether settled by arbitration or brought in any other forum.

F.             Venue and Jurisdiction.  Except as provided above, you agree that (i)
we may institute any action against you to enforce the provisions of this
Agreement in any state or federal court of competent jurisdiction in the state
and county in which our principal place of business is then located and you
irrevocably submit to the jurisdiction and venue of such courts and waive any
objection you may have to either the jurisdiction or venue of such courts and
(ii) any action brought by you to enforce any provision of this Agreement will
be brought and maintained only in a state or federal court of competent
jurisdiction in such county and state.

G.            Post-Term Applicability.  The provisions of this Section 10 will
continue in full force and effect subsequent to and notwithstanding expiration
or termination of this Agreement, however effected.

11.                                 MISCELLANEOUS.

A.            No failure or delay
of either party to exercise any rights reserved to it in this Agreement or to
insist upon compliance by either party of any obligation or condition in this
Agreement, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of either party’s right to demand strict
compliance with the terms of this Agreement. 
Waiver by either party of any particular default will not affect or
impair the rights of either party with respect to any subsequent default of the
same or a different nature.

B.            This Agreement is
solely for the benefit of the parties hereto and their permitted assignees and
is not intended to and shall not be construed to benefit any other person, firm
or entity.

 9
 

C.            The title headings
of the respective paragraphs of this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement in any
way.

D.            This is the entire
agreement between the parties concerning the development of Friendly’s
Restaurants within the Territory and any modifications must be in writing and
signed by both parties, or said modifications will be void and of no force and
effect.

E.             If any term or
provision of this Agreement or the application thereof to any person or
circumstances shall, to any extent, be invalid or unenforceable, the remainder
of this Agreement, or the application of such term or provision to persons
whose circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby.

12.                                 ACKNOWLEDGMENT OF RISK.

A.            You represent that
you have independently investigated our business and you are not relying upon
any representation by us regarding the sales or profits that you, in
particular, might expect to realize.  You
acknowledge that the business venture contemplated by this Agreement involves
substantial business risks and that your prospects for success will be, in
large part, dependent upon your capability as an independent businessperson or
organization.  You further represent that
none of our directors, officers, employees or agents made any representations
to induce you to enter into this Agreement, other than the contents of our
Uniform Franchise Offering Circular provided to you prior to entering into this
Agreement.

B.            Our consent
regarding a location is not a representation or a warranty that a restaurant at
that location will be profitable or that you will achieve any particular level
of sales at that location.  It merely
means that the site has met certain minimum criteria we have established for
identifying suitable sites for proposed Friendly’s Restaurants in the region in
which the site is located.  Because
restaurant development is not a precise science, you agree that our decision to
give, or not give, consent regarding a site does not impose any liability or
obligation upon us.  The final decision
to develop a Friendly’s Restaurant on any particular site is yours, alone,
after our review and consent.

(SIGNATURE PAGE FOLLOWS)

 10
 

IN
WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date and year first above written.

 

	
  WITNESS:

  	
   

  	
  FRIENDLY’S RESTAURANTS

  FRANCHISE, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
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 11

EXHIBIT A

to

DEVELOPMENT AGREEMENT

Dated                        ,
2007

between

FRIENDLY’S RESTAURANTS FRANCHISE,
INC.

and

                                   

TERRITORY:

The boundaries of the
Territory defined above shall, throughout the term of this Development
Agreement, be those boundaries as they exist as of the date hereof.

	
  DEVELOPMENT SCHEDULE:

  
	
   

  
	
  No later than

  (Date)

  	
   

  	
  Number of
  Friendly’s Restaurants to be constructed, equipped, opened and in continuous
  operation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 A-1

EXHIBIT B

REQUIREMENTS AND PROCEDURES 

FOR DEVELOPMENT OF A FRIENDLY’S
RESTAURANT

Site Location and Acquisition

1.             It is your sole
responsibility to retain an attorney and other appropriate, independent
advisors in connection with negotiating your acquisition of the right to
develop and operate a Restaurant on each proposed site.  We will not act as your agent, employee or
fiduciary for the purpose of assisting you with negotiations.  We assume no liability or obligation, to you
or any third party, for any assistance in negotiation we may elect to provide
you.  Although we may comment on your
negotiations with third parties, any assistance we provide you is no substitute
for the advice of independent counsel. 
You agree you will defend and indemnify us against and hold us harmless
from any damage, liability or costs resulting from any claim by any third party
regarding your efforts to acquire any lease, contract of sale or other control
document or financing document for any site, pursuant to this Agreement.

(a)           Any real estate commitments you may
make pursuant to this Agreement must be subject to the condition that you must
obtain (a) Friendly’s consent for your developing a Friendly’s Restaurant on
the site and (b) all necessary permits, licenses and local governmental
approvals needed to develop and operate a Friendly’s Restaurant on the
site.  You should also include such other
contingencies as your attorney recommends.

(b)           You must submit to us, on our
then-current form, a written summary of all of your proposed lease and/or
purchase terms.  We will have the right
to disapprove such terms and conditions of your lease or financing that do not
conform to our minimum standards or requirements.   We may contact your lender, lessor or seller
for the purpose of obtaining or verifying information relating to the proposed
site and you hereby authorize each of them to disclose any and all such
information to us.

(c)           You must furnish us a copy of your
fully-executed lease for the site within ten (10) days after its execution and
receipt by you.

(d)           You must promptly hire a licensed
architect (your “Architect”), whose responsibility will be to adapt our
generic, plans and specifications to the specific requirements of the proposed
site, its geographical region, and all pertinent codes, laws and
ordinances.  The Architect will also
oversee your contractors’ completion of construction of the Restaurant.  You or your Architect must promptly order
such topographical and boundary surveys, soil borings and structural engineering
tests for the proposed site as you, your Architect and/or we may require.

Consent For Your Proposed Site

2.             For each site upon
which you propose to develop a Friendly’s Restaurant, you must submit to us a
written report on our then-current form, containing a summary of lease or
purchase terms and such engineering, demographic, commercial, financial and
other information and photographs as we may reasonably request (your “Site
Report”).  You acknowledge and agree that
it is in your best interest that our review be based upon reliable data and
information, and represent and warrant that you will, to the best of your
ability, submit Site Reports that are complete and accurate in all material
respects.  You agree to promptly
supplement your Site Review with additional information, if we so request.  Subject to delays beyond our control, we will
use our diligent efforts to notify you of our decision to consent or not
consent to your proposed site by our Real Estate Committee within thirty (30)
days after the date we receive your complete (and supplemented, if requested)
Site Report.

 B-1
 

Conditions
Precedent to Commencing Construction

3.             Before you commence construction of the Restaurant on
the Consented Site, you are solely responsible for completing the following tasks
and/or duties:

(a)           We will furnish you a set of our
prototypical plans and specifications (the “Friendly’s Plans”).  The Friendly’s Plans are and at all times
shall remain our exclusive property. 
NEITHER YOU NOR YOUR ARCHITECT SHALL OBTAIN ANY RIGHTS OF OWNERSHIP, USE
OR REUSE IN OUR PROTOTYPICAL PLANS AND SPECIFICATIONS OR IN ANY AND ALL OF YOUR
ARCHITECT’S ADAPTATIONS THEREOF, EXCEPT AS IS NECESSARY TO CONSTRUCT THE
RESTAURANT.  Your Architect must adapt
the Friendly’s Plans as stated in subparagraph 1.(d) above and you must submit
your proposed plans and specifications for the Restaurant (your “Proposed Plans”)
to us for our review.  If we require any
changes to your Proposed Plans, you must revise and resubmit your Proposed
Plans to us.  You may not commence
construction until you have obtained our written approval of your Proposed
Plans (the “Approved Plans”).  Once
approved, no change can be made to the Approved Plans during construction or
installation, except as we may reasonably require or approve in writing.

(b)           You are solely responsible for (i)
evaluating the soil and subsoil on the Consented Site for hazardous substances
or unstable conditions, (ii) inspecting any structure on the Consented Site for
asbestos or other toxic or hazardous materials, and (iii) ensuring that the
Restaurant will comply with the Americans With Disabilities Act (“ADA”) and all
other applicable governmental regulations. 
We assume no responsibility to obtain or provide you any assurance that
the Consented Site and all structures thereon are free from environmental
contamination and in compliance with ADA requirements.

(c)           You must obtain all necessary
licenses and permits from all applicable governmental agencies that are needed
for completing construction of the Restaurant, including, without limitation,
those required by applicable zoning, access, utility, sign, building, health,
safety, environmental and other laws, ordinances, rules, regulations, and
requirements.

(d)           You must provide us satisfactory
evidence that cash and/or financing is in place sufficient to fund the
completion of construction and purchase of necessary equipment and signs.  We assume no duty or obligation to provide or
guarantee funding or financing of your construction and/or equipping of the Restaurant.  We will not guarantee your mortgage, lease or
other real estate related obligations. 
If, in our sole discretion, we agree to provide or guaranty any
financing of your purchase or leasing of equipment and/or signs, the owner of
the Consented Site real estate must agree that the equipment and signs are not
a part of the realty and must waive any and all interest in the equipment
and/or signs, in order to permit us to provide you financing of the equipment
and/or signs.   In this connection, the
owner of the Consented Site real estate must sign such reasonable documents as
we may require.

(e)           You must execute a franchise
agreement for the Consented Site and such other documents and agreements as are
customarily required by us in similar circumstances, including, if appropriate,
but not limited to, a standard form of rider to your lease that ensures us the
continued availability of the Consented Site as a franchised restaurant in the
event of your default under your lease, mortgage or franchise agreement for the
Consented Site.  If you will own the
Consented Site’s real estate, you must grant us the right to lease the
Consented Site on negotiated terms comparable to those under which we lease
comparable property elsewhere, in a contingent lease or other document
acceptable to us, signed in conjunction with this site, before construction
commences on the Consented Site.

 B-2
 

(f)            You must furnish to us the names of
your Architect and all engineers, general contractor and major subcontractors
that you will use in connection with your construction of the Restaurant.

(g)           You must commence construction within
twelve (12) months after the date of your franchise agreement for the Consented
Site.  If you fail to do so, we may, in
our sole discretion, terminate the franchise agreement by written notice to
you.  Commencement of construction means
excavation for footings (in the case of new construction) or demolition (in the
case of remodeling).  The foregoing
limitation does not modify your obligation to strictly comply with the
Development Schedule.

Restaurant Construction

4.             You
will bear the entire cost to construct (including remodeling) and equip the
Restaurant, including the cost of professional fees, licenses and permits,
equipment, signage, fixtures, furniture, equipment, furnishings, decor,
supplies and other items required by the approved plans and
specifications.  You agree to furnish us,
within ninety (90) days after the opening of the Restaurant, a report in a form
prescribed by us, certifying all such costs. 
You must complete construction and equipping and open the Restaurant to
serve the general public within fifteen (15) months after the date of your
franchise agreement for the Consented Site. 
If you fail to do so, we will have the right, in our sole discretion, to
increase your initial franchise fee or terminate your franchise agreement by
written notice to you.  In the event we cause any delay, or if you have
been unavoidably delayed by acts of God, government restrictions, labor
difficulties, inability to obtain building materials or similar contingencies
not within your control, we will extend the 15 month deadline for a period of
time equal to the cumulative periods of such delay(s).  The foregoing limitation does not modify your
obligation to strictly comply with the Development Schedule.

5.             You will permit us access to the Consented Site at all
times, to inspect construction in progress, to ensure that all of our standards
and requirements are met.  We and our
employees will not act as your agent or in place of your Architect during
construction.  The duties of our
construction representative are limited solely to ensuring that our standards
and requirements are met with respect to the Restaurant on the Location and we
assume no liability or responsibility for architectural, engineering or other
professional judgments outside the scope of such duties.  You acknowledge and agree that you will not
rely upon any opinions expressed by any of our employees or agents, regarding
structural integrity, safety, construction procedures, building codes and
ordinances, or other matters properly within the responsibility of your
Architect.

6.             Before the Restaurant opens to serve the general public,
you must obtain our final written approval of the construction of the building,
site improvements and landscaping, as appropriate, and the installation of all
signs and equipment for the Restaurant. 
Our approval of your construction is not a representation or a warranty
that the Restaurant has been constructed in accordance with any architectural,
engineering or legal standards for design or workmanship.  It merely means that we are satisfied that
the standards and requirements that we have established for consistency of
design and layout have been met or properly waived, as the case may be.  You agree that our approval of your
construction of the Restaurant will not impose any liability or obligation on
us.    If we request, your Architect must
certify to us in writing that the Restaurant has been constructed or remodeled
in strict compliance with the Approved Plans, as well as all applicable codes
or other requirements of applicable law.

7.             As soon as we have approved that your construction and
equipping of the Restaurant are substantially complete and that all conditions
required for opening the Restaurant have been met, we will authorize you to
open the Restaurant for business. You will thereupon promptly open the
Restaurant to serve the general public.

 B-3

STATE RIDER (IF APPLICABLE)

(ILLINOIS, MARYLAND, NEW YORK
& RHODE ISLAND)

RIDER TO THE FRIENDLY’S
RESTAURANTS FRANCHISE, INC.

DEVELOPMENT AGREEMENT

FOR USE IN ILLINOIS

 

This
Rider is entered into this        day
of                                 ,
200     , by and between FRIENDLY’S
RESTAURANTS FRANCHISE, INC., a Delaware corporation whose principal
business address is 1855 Boston Road, Wilbraham, Massachusetts 01095 (referred
to in this Rider as “we” or “us”), and
                                                               ,
whose principal business address is
                                                                             (referred
to in this Rider as “you”).

In
recognition of the requirements of the Illinois Franchise Disclosure Act, Ill.
Comp. Stat. 705/1 et. seq., as amended, the parties to the attached
Development Agreement of Friendly’s Restaurants agree as follows:

1.             Background.  The parties have entered into that certain
Development Agreement dated                           ,
                 
(the “Development Agreement”) concurrently with this Rider.  This Rider is annexed to and forms part of
the Development Agreement.  This Rider is
being executed because (a) you are a resident of the State of Illinois, and/or
(b) the offer or sale of the franchise contemplated by the Development
Agreement was made in Illinois and the Restaurant that you will operate under
the Development Agreement will be operated in the State of Illinois.

2.             Miscellaneous.  Section 10.D of the Development Agreement
is hereby amended to add the following:

Nothing contained in this Section 10.D. shall be
construed as a limitation of your rights under the Illinois Franchise
Disclosure Act, as amended.

3.             Governing
Law.  Section 10.C. of the Development Agreement is
hereby deleted in its entirety and the following shall be substituted in its
place:

C.            The Federal Arbitration Act, 9 U.S.C. §§ 1-16, and
related federal judicial procedure will govern this contract to the fullest
extent possible, excluding all state arbitration law, irrespective of the
location of the arbitration proceedings, the nature of the dispute between the
parties or the nature of the court in which any related judicial proceedings
may be brought.  Except as provided in
the preceding sentence respecting arbitration law, the resolution of all
disputes between the parties bound hereunder, whether in tort and regardless of
the place of injury or the place of the alleged wrongdoing or whether arising
out of or relating to the parties’ contractual relationship, will be governed
by the law of the Commonwealth of Massachusetts without regard to conflict of
law principles.  However, Illinois
law shall govern if the jurisdictional requirements of the Illinois Franchise
Disclosure Act, as amended, are met.

4.             Nothing contained in the
Development Agreement shall de deemed to waive your reliance on our most recent
Uniform Franchise Offering Circular delivered to you before you enter into this
Agreement.

5.             Each provision of this Rider shall
be effective only to the extent, with respect to such provision, that the
jurisdictional requirements of the Illinois Franchise Disclosure Act are met
independently without reference to this Rider.

Except
as set forth in this Rider, the provisions of the Development Agreement shall
remain effective as provided therein.

WITNESS
WHEREOF the parties hereto have executed and delivered this
Rider as of the date listed above.

	
  WITNESS:

  	
   

  	
  FRIENDLY’S RESTAURANTS FRANCHISE, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
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RIDER TO THE FRIENDLY’S
RESTAURANTS FRANCHISE, INC.

DEVELOPMENT
AGREEMENT

FOR USE
IN MARYLAND

 

In
recognition of the requirements of the Maryland Franchise Registration and
Disclosure Law, Md. Code Bus. Reg. Sections 1401 through 14-233, the
parties to the attached Friendly’s Restaurants Development Agreement, agree as
follows:

1.     Default and Termination.  The following language is hereby added to the
end of Section 7.B. of the Development Agreement:

“, however such provision may not be enforceable under
federal bankruptcy law (11 U.S.C. Section 101 et  seq.);”

2.     Default and Termination.  The following language is hereby added at the
end of Section 7.F. of the Development Agreement:

“provided, however, that pursuant to COMAR
02.02.08.16L, the general release shall not apply to liability under the
Maryland Franchise Regulation and Disclosure Law.”

3.     Arbitration.  The following language is hereby added at the
end of Section 10 of the Development Agreement:

“Your obligation to resolve disputes outside of
Maryland is subject to state law and excludes claims arising under the Maryland
Franchise Registration and Disclosure Law. 
Any such claim may be brought in the State of Maryland, provided
however, that it must be brought within three (3) years after the grant of the
franchise.”

4.     Acknowledgement of Risk.  The following language is hereby added to the
end of Section 12.A. of the Development Agreement:

“Such representations are not intended to nor shall
they act as a release, estoppel or waiver of any liability incurred under the
Maryland Franchise Registration and Disclosure Law.”

Each
provision of this Rider shall be effective only to the extent, with respect to
such provision, that the jurisdictional requirements of the Maryland Franchise
Registration and Disclosure Law (Md. Code Bus. Reg. Sections 14-201 through
14-233) are met independently without reference to this Rider.

Except
as set forth in this Rider, the provisions of the Development Agreement shall
remain effective as provided therein.

WITNESS WHEREOF the parties
hereto have executed and delivered this Rider on
                ,
200       .

	
  WITNESS:

  	
   

  	
  FRIENDLY’S RESTAURANTS FRANCHISE, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
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RIDER TO THE FRIENDLY’S
RESTAURANTS FRANCHISE, INC.

DEVELOPMENT AGREEMENT

 

FOR USE IN NEW YORK

1.     Miscellaneous.  The following language is added to the end of
Section 10.C. of the Development Agreement:

; however, the governing choice of law shall not be
considered a waiver of any right conferred upon you by the provisions of
Article 33 of the General Business Law of the State of New York.

WITNESS WHEREOF the parties
hereto have executed and delivered this Rider on
                ,
200       .

	
  WITNESS:

  	
   

  	
  FRIENDLY’S RESTAURANTS FRANCHISE, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
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RIDER TO THE FRIENDLY’S
RESTAURANTS FRANCHISE, INC.

DEVELOPMENT AGREEMENT

FOR USE IN RHODE ISLAND

 

1.     Miscellaneous.  Section 10.C. of the Development
Agreement is hereby deleted in its entirety and the following shall be
substituted in its place:

C.            This Agreement and any rights or liabilities arising from
or in connection with this Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, excluding any claims arising under the
Rhode Island Franchise Investment Law. 
Any action brought to enforce any provision of this Agreement shall be
brought and maintained only in a state or federal court of competent
jurisdiction in Hampden County, Massachusetts, excluding any claims arising
under the Rhode Island Franchise Investment Law.

WITNESS
WHEREOF the parties hereto have executed and delivered this
Rider on
            ,
200         .

 

	
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  FRIENDLY’S RESTAURANTS FRANCHISE, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
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  individuallyExhibit
10.35

AGREEMENT

This
Agreement is made as of the 8th day of January, 2007, by and between Friendly
Ice Cream Corporation, a Massachusetts corporation (the “Company”), and George
M. Condos (“Employee”).

WHEREAS,
Employee is currently serving as the Company’s President and Chief Executive
Officer;

WHEREAS,
in consideration for Employee agreeing to continue his employment with the
Company, agreeing to keep Company information confidential and not to compete
with the Company in the event Employee’s employment is terminated and providing
the Company with a release of any potential claims, the Company agrees that
Employee shall receive a similar release from the Company and the compensation
set forth in this Agreement as a cushion against the financial and career
impact on Employee in the event Employee’s employment with the Company is
terminated without cause.

NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements hereinafter set forth and intending to be legally bound hereby, the
parties hereto agree as follows:

1.             Definitions

“Base
Compensation” shall mean the annualized base rate of salary being paid to
Employee at the time of Employee’s Termination of Employment.

“Cause”
shall mean (1) misappropriation of funds, (2) habitual insobriety or substance
abuse, (3) conviction of a crime involving moral turpitude, or (4) gross
negligence in the performance of duties, which gross negligence has had a
material adverse effect on business, operations, assets, properties or financial
condition of the Company and its Subsidiaries taken as a whole.

“Severance
Period” shall mean the one (1)-year period after Employee’s Termination of
Employment.

“Termination of
Employment” shall mean the termination of Employee’s active employment relationship
with the Company or its parent, Friendly Ice Cream Corporation.

2.             Severance Compensation upon
Termination.   Subject to the
requirements of Section 7 hereof, in the event that Employee’s employment is
terminated by Friendly’s (as defined below) for a reason other than for Cause,
Employee shall be entitled to receive salary continuation payments during the
Severance Period in an aggregate amount equal to the Base Compensation, which
payments shall be paid on Employee’s then
current payment schedule.

Notwithstanding
the foregoing, no such payments shall be provided unless Employee executes, and
does not revoke, an effective written release, complying with all state and
federal 

requirements (the “Release”),
of any and all claims against the Company and all related parties with respect
to all matters arising out of Employee’s employment or the termination thereof.

3.             Confidential Information.  Employee recognizes and acknowledges that, by
reason of his employment by and service to the Company, he has had and will
continue to have access to confidential information of the Company and its
affiliates, including, without limitation, information and knowledge pertaining
to the products and services offered, innovations, designs, ideas, plans, trade
secrets, proprietary information, distribution and sales methods and systems,
sales and profit figure, customer and client lists, and relationships between
the Company and its affiliates and other distributors, customers, clients,
suppliers and others who have business dealings with the Company and its
affiliates (“Confidential Information”). 
Employee acknowledges that such Confidential Information is a valuable
and unique asset and covenants that he will not, either during or after his
employment by the Company, disclose any such Confidential Information to any
person for any reason whatsoever without the prior written authorization of the
Board, unless such information is in the public domain through no fault of
Employee or except as may be required by law or in a judicial or administrative
proceeding.  In the event that Employee
is required to disclose any of the Company’s Confidential Information, Employee
shall provide reasonable notice to the Company and shall provide reasonable
cooperation with any efforts of the Company to oppose such disclosure.

4.             Non-Competition.

(a)           During his employment by the Company
and for a period of one year thereafter unless acting with the prior written
consent of the Board, Employee shall not, directly or indirectly, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation, control or financing of, or be connected as an officer, director,
employee, partner, principal, agent, representative, consultant or otherwise
with or use or permit his name to be used in connection with, those businesses
directly competing with the Company, including, and limited to, Denny’s, IHOP
and Bob Evans. Employee also shall not, directly or indirectly, during such
period (a) solicit or divert business from, or attempt to convert any client,
account or customer of the Company or any of its affiliates, whether existing
at the date hereof or acquired during Employee’s employment nor (b) following
Employee’s employment, solicit or attempt to hire or hire any then employee of
the Employer or of any of its affiliates.

(b)           The foregoing restriction shall not
be construed to prohibit the ownership by Employee of less than five percent
(5%) of any class of securities of any corporation in the family dining segment
having a class of securities registered pursuant to the Securities Exchange Act
of 1934, provided that such ownership represents a passive investment and that
neither Employee nor any group of persons including Employee in any way, either
directly or indirectly, manages or exercises control of any such corporation,
guarantees any of its financial obligations, otherwise takes any part in its
business, other than exercising his rights as a shareholder, or seeks to do any
of the foregoing.

5.             Equitable Relief.  Employee acknowledges that the restrictions
contained in Sections 3 and 4 hereof are reasonable and necessary to protect
the legitimate interests of the Company and its affiliates, that the Company
would not have entered into this Agreement in the 

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absence of such
restrictions, and that any violation of any provision of those Sections will
result in irreparable injury to the Company. 
Employee represents that his experience and capabilities are such that
the restrictions contained in Section 4 hereof will not prevent Employee from
obtaining employment or otherwise earning a living at the same general level of
economic benefit as is currently the case. 
Employee further represents and acknowledges that (i) he has been advised
by the Company to consult his own legal counsel in respect of this Agreement,
and (ii) that he has had full opportunity, prior to execution of this
Agreement, to review thoroughly this Agreement with this counsel.

6.             Notice.  All notices and other communications required
or permitted hereunder or necessary or convenient in connection herewith shall
be in writing and shall be delivered personally or mailed by registered or
certified mail, return receipt requested, or by overnight express courier
services, as follows:

	
  

  	
  If to the Company, to:

  
	
   

  	
   

  
	
   

  	
   

  	
  Friendly Ice Cream Corporation

  
	
   

  	
   

  	
  1855 Boston Road

  
	
   

  	
   

  	
  Wilbraham, MA 01095

  
	
   

  	
   

  	
  Attention: General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
  If to the Employee, to:

  
	
   

  	
   

  
	
   

  	
   

  	
  George M. Condos

  
	
   

  	
   

  	
  299 Great Bay Street

  
	
   

  	
   

  	
  East Falmouth, MA 02536

  

 

or to such other names
or addresses as the Company or Employee, as the case may be, shall designate by
notice to the other party hereto in the manner specified in this Section.  Any such notice shall be deemed delivered and
effective when received in the case of personal delivery, five days after
deposit; postage prepaid, with the U.S. Postal Service in the case of
registered or certified mail, or on the next business day in the case of
overnight express courier service.

7.             Release of Claims.  Notwithstanding any provision contained
herein, Employee’s right to receive payments hereunder is expressly conditioned
upon Employee’s execution of an agreement to release claims, which agreement
shall contain, in part, the following provision:

 “Employee, on
his behalf, his spouse, heirs, agents, attorneys, representatives and assigns,
hereby releases and discharges forever all claims and causes of action of every
name and nature that have arisen or might have arisen at any time up to and
including the date on which you sign this Agreement (whether known or unknown,
accrued, contingent, or liquidated) that you now have or may have against
Friendly Ice Cream Corporation, any of its subsidiaries, divisions, parents and
affiliates (collectively, “Friendly’s”), or any of the aforementioned entities’
agents, employees, directors, and officers, including but not limited to, any
claims relating to your employment with Friendly’s and the termination thereof;
any claims based on statute, regulation, ordinance, 

 3
 

contract or tort; any claims arising under the Age
Discrimination in Employment Act of 1967, as amended (the “ADEA”), or any other
federal, state, or local law relating to employment discrimination, harassment,
or retaliation; any claims relating to wages, compensation, or benefits; and any
related claims for attorney’s fees.”

8.             Miscellaneous.

(a)           All
section headings are for convenience only. 
This Agreement may be executed in several counterparts, each of which is
an original.  It shall not be necessary
in making proof of this Agreement or any counterpart hereof to produce or
account for any of the other counterparts.

(b)           Nothing
in this Agreement shall be construed as giving Employee any right to be
retained in the employ of the Company. 
Employee is and will remain an employee at will.

(c)           If
any provision of this Agreement or application thereof to anyone or under any
circumstances shall be determined to be invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provisions or
applications of this Agreement which can be given effect without the invalid or
unenforceable provision or application.

(d)           This
Agreement shall be governed by and interpreted under the laws of the State of
Delaware without giving effect to any conflict of laws provisions.

IN
WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed
this Agreement as of the date first above written.

	
  

  	
  FRIENDLY ICE CREAM CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald N. Smith

  
	
   

  	
   

  	
  Donald N. Smith, Chairman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ George M. Condos

  
	
   

  	
   

  	
  George M. Condos

  

 

 

 4

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