10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2006
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission File No. 001-13579

FRIENDLY ICE CREAM CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Massachusetts	04-2053130
(State or Other Jurisdiction of	IRS Employer
1855 Boston Road Wilbraham, Massachusetts	Identification No.)
Incorporation or Organization)	01095
(Address of Principal Executive Offices)	(Zip Code)

(413) 731-4000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

	Title of class
Common Stock, $.01 par value
Rights to Purchase Series A Junior
Preferred Stock, $.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes    o   No    x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.   Yes   o   No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.   Yes   x   No   o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer oAccelerated Filer xNon-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes oNo x

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on July 3, 2005, based upon the closing sales price of the common stock on the American Stock Exchange, was $74,734,000. For purposes of the foregoing calculation only, all members of the Board of Directors and executive officers of the registrant have been deemed affiliates. The number of shares of common stock outstanding was 7,899,831 as of January 31, 2006.

Documents Incorporated By Reference

Part III of this Form 10-K incorporates information by reference from the registrant’s definitive proxy statement which will be filed no later than 120 days after January 1, 2006.

Forward-Looking Statements

Certain statements contained herein are “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve known and unknown risks, uncertainties and other factors which may cause our or the foodservice industry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to statements regarding:

·our highly competitive business environment;

·exposure to commodity prices;

·risks associated with the foodservice industry such as changes in consumer tastes and adverse publicity resulting from food quality, illness, injury or other health concerns;

·our ability to retain and attract new employees;

·government regulations;

·our high geographic concentration in the Northeast;

·the attendant weather patterns in locations in which we operate;

·the number of expected restaurant openings, re-franchisings, and re-imagings, including the appropriate conditions needed to meet restaurant re-imaging, re-franchising and new opening targets;

·the expected amount of capital expenditures for re-imaging projects;

·risks and uncertainties arising out of accounting adjustments;

·our ability to service our debt and other obligations;

·our ability to meet ongoing financial covenants contained in our debt instruments, loan agreements, leases and other long-term commitments;

·matters relating to litigation; and

·costs associated with improved service and other initiatives.

In some cases, forward-looking statements can be identified by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. Factors that could cause or contribute to differences in future financial results include those discussed in the risk factors set forth in Item 1A below as well as those discussed elsewhere in this report. We qualify all of our forward-looking statements by these cautionary statements.

Unless the context indicates otherwise: (i) references herein to “we,” “us,” “our,” “Friendly’s” or the “Company” refer to Friendly Ice Cream Corporation, its predecessors and its consolidated subsidiaries; (ii) references herein to “FICC” refer to Friendly Ice Cream Corporation and not its subsidiaries; and (iii) as used herein, “Northeast” refers to the Company’s core markets, which include Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.

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PART I

Item 1.BUSINESS

General

We are a leading full-service, casual dining restaurant company and provider of premium ice cream products in the Northeast. As of January 1, 2006, we operated 314 full-service restaurants and franchised 206 full-service restaurants and seven non-traditional units. We offer our customers a unique dining experience by serving a variety of high quality, reasonably priced breakfast, lunch and dinner items, as well as Friendly’s own signature premium ice cream desserts, in a fun and casual neighborhood setting. In addition to our restaurant operations, we manufacture a complete line of packaged premium ice cream desserts distributed through more than 4,500 supermarkets and other retail locations in 13 states.

Our fiscal year ends on the last Sunday in December, unless that day is earlier than December 27, in which case the fiscal year ends on the following Sunday. Fiscal years ended January 1, 2006 and December 28, 2003 contained 52 weeks, while fiscal year ended January 2, 2005 contained 53 weeks. For the year ended January 1, 2006, we generated $531.3 million in total revenues, incurred a $27.6 million loss from continuing operations, which included $20.9 million of interest expense and a provision for income taxes of $20.0 million primarily due to an increase in our deferred income tax valuation allowance. For the years ended January 1, 2006, January 2, 2005 and December 28, 2003, restaurant sales were approximately 75%, 78% and 79%, respectively, of our total revenues. As of January 1, 2006, January 2, 2005 and December 28, 2003, approximately 97%, 96% and 89%, respectively, of the Company-operated restaurants were located in the Northeast.

We are a Massachusetts corporation. Our principal executive offices are located at 1855 Boston Road, Wilbraham, Massachusetts 01095 and our telephone number is 413-731-4000. Our Internet website address is http://www.friendlys.com. Information on our website is not part of this report.

Friendly’s Concept

Founded in 1935, we believe that we are viewed as an institution in the Northeast, known for our ice cream treats served in a casual neighborhood setting. As a result, we enjoy strong brand awareness associated with good food and good memories and a unique position in the competitive restaurant industry. This differentiation helps us to target both families with kids and adults who desire a reasonably priced meal in a full-service setting.

Our menu offers a broad selection of freshly prepared foods for all dayparts, including over 100 food and dessert items available for breakfast, lunch and dinner plus afternoon and evening snacks. Breakfast items include specialty omelettes and our combination breakfasts featuring eggs, pancakes, French toast, bacon and sausage. Our lunch and dinner menu features signature products including Friendly’s own SuperMelt™ sandwiches, specialty colossal burgers, award winning clam chowder, entrée salads and a full line of dinner entrées, such as chicken, steak and seafood items. In addition, we offer an award winning kid’s menu and a special senior’s menu for guests over 60. Entrée selections are complemented by Friendly’s ice cream desserts and beverages featuring Fribble® shakes, old fashioned milk shakes, classic ice cream sundaes and banana splits, plus specialty sundaes of many varieties and flavors.

Most Friendly’s restaurants offer our full line of premium ice cream desserts, including traditional hand-scooped ice cream and soft serve ice cream products, and certain of our food menu items through carryout windows. Reserved parking is available at many of our freestanding restaurants to facilitate quick carryout service. During 2005, approximately 11.4% of restaurant revenues in the 314 Company-operated restaurants were derived from our carryout business with a significant portion of these sales occurring during the afternoon and evening snack periods. In addition, approximately 1.7% of 2005 revenues came from sales of packaged premium ice cream in display cases within our restaurants.

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Business Strategy

Management has implemented and continues to support a number of initiatives to enhance the Friendly’s dining experience and to improve the growth of our restaurant and retail businesses. These initiatives include: (i) implementing a franchising strategy to expand our restaurant presence in under-penetrated markets, accelerate restaurant growth in new markets, increase marketing and distribution efficiencies and preempt competition by acquiring restaurant locations in our targeted markets, (ii) re-imaging our restaurants, which includes remodeling, to capitalize on the strength and heritage of the Friendly’s brand, (iii) elevating customer service levels through online guest satisfaction surveys and a toll-free guest service line, marketing research and customer feedback, and by recruiting more qualified managers and expanding our training program, (iv) disposing of under-performing restaurants, and (v) leveraging our vertically integrated manufacturing operations and strong brand name recognition by expanding the sale of our unique line of packaged premium ice cream desserts through retail locations. We expect to improve the profitability of our retail business in our current retail markets by continuing to develop our product portfolio beyond the 56-ounce ice cream container with our unique specialty products, such as decorated ice cream cakes, rolls and sundae cups. We have also expanded our franchise operations through sales of existing Company-operated restaurants to franchisees, which we refer to as “re-franchising”. Many of our re-franchising transactions include development agreements, which require the franchisee to open additional franchises in new markets over a specified period of time.

Restaurant Site Selection

We believe that the specific location of a restaurant is critical to our long-term success and we devote significant resources to the investigation and evaluation of potential restaurant sites. Each potential location must be approved by the Real Estate Committee, which is comprised of representatives from operations, finance and development. Site selection for all new restaurants is made after an economic analysis and review of demographic data and other information relating to population density, traffic, competition, restaurant visibility and access, available parking, surrounding businesses and opportunities for market penetration. Restaurants developed by franchisees are built to our specifications on sites that we have approved, with emphasis on freestanding facilities, end caps and conversions.

Restaurant Operations

Restaurant Management.   The key to growing our customer base is ensuring that our customers have an enjoyable dine-in or carry-out experience. To ensure a positive guest experience, we must have competent and skilled restaurant management and service personnel at each of our locations. A typical Company-operated Friendly’s restaurant employs between two and four management team members, which may include one general manager and one to three managers, depending on sales volume, and one to four managers-in-training in each of our 60 training restaurants. The general manager is directly responsible for day-to-day operations. General managers report to a district manager who typically has responsibility for an average of five to eight restaurants. District managers report to a regional director or regional vice president, who typically has responsibility for approximately 35 to 50 restaurants. A portion of both general manager and district manager compensation is tied to the performance of their restaurant(s). Regional directors or regional vice presidents report to the Vice President, Company Restaurant Operations who oversees all Company-operated restaurants, as well as the training function.

The average Friendly’s restaurant is staffed with four to 28 employees per shift, including the salaried restaurant management. Shift staffing levels vary by sales volume level, building configuration and time of day. In 2005, our Company-operated restaurants utilized an average of approximately 44,300 hourly-wage labor hours in addition to salaried management.

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Training.   One regional training coordinator in each of our seven regions supports the training function with an emphasis on managers-in-training, corporate initiative implementation and ongoing manager development through workshops, seminars, food safety training and side-by-side development.

Our initial management-training program is a six-week program coordinated by the district manager and regional training coordinator. The program includes skill level competencies, shift management and the fundamentals that are required to successfully manage the business. Our restaurant manager development program is designed to build on skills and knowledge acquired during our initial management-training program. Managers at all levels are responsible to self-develop based on clear, measurable benchmarks. Learning is sequenced to gradually introduce the manager to financial and crew development results, and accountability is introduced sequentially and commensurate to the manager’s level of experience and knowledge. As managers complete each set of benchmarks, they are responsible to teach a fellow or subordinate manager and pass along the assigned level of responsibility. This builds an environment of structured and ongoing development for internal candidates, crew level employees, managers and general managers.

General managers that have training duties are also responsible for measuring the success of managers-in-training, providing support for new general managers, and becoming district leaders for ongoing development in addition to their restaurant responsibilities. We expect general managers with these responsibilities to build the skills necessary to manage multiple units, which ultimately creates a pool of internal district manager candidates.

Customer Satisfaction and Quality Control.   We devote significant resources toward ensuring that our restaurants offer quality food and good service. Our future success depends on our consistent commitment to exceeding our guests’ expectations. This commitment is monitored at Company-operated restaurants through the use of online guest satisfaction surveys, a toll-free guest service line, frequent on-site visits and formal inspections by management and training personnel. Franchised restaurants are monitored by periodic inspections by our franchise field operations personnel, online guest satisfaction surveys, and a toll-free guest service line, in addition to their own internal management oversight procedures. These guest satisfaction measurement tools provide means for both continuing and improving our excellence in customer service.

Capital Expenditures.   Our capital investment program is primarily targeted at improving and upgrading our restaurant facilities in order to provide a well-maintained, comfortable environment and to enhance the overall customer dining experience. During 2005, 2004 and 2003, we spent approximately $16.9 million, $19.7 million and $29.8 million, respectively, in capital expenditures, of which $10.4 million, $11.0 million and $14.0 million, respectively, was spent on upgrades of existing Company-operated restaurants; $1.2 million, $1.4 million and $5.8 million, respectively, was spent on restaurant re-imagings; and $3.1 million, $4.4 million and $3.4 million, respectively, was spent on new restaurant construction. The remaining capital dollars were spent on the foodservice business segment and at our executive offices.

As part of our re-imaging plan, we have remodeled approximately 57 Company-operated restaurants over the past three years. The typical components of a remodel include, among other things, new signs, painting of the building exterior and interior, new wallpaper and new pictures, carpet, chairs, tables and booths. During 2005, the average cost to remodel a Company-operated restaurant was approximately $0.1 million. In 2006, we plan to complete approximately 70 to 75 remodels at a lower per restaurant cost. We expect these remodels will require a lower capital investment as we plan to focus our remodeling on the restaurant exterior to create “curb appeal” with the intent of driving increased guest traffic. We also expect that the restaurant staff at each remodeled location will undergo a complete re-training program.

In 2005, we reduced the number of expected new restaurant openings to two new restaurants from four due, in part, to liquidity constraints and our commitment to fund the expanded restaurant remodel program. We expect to open two new restaurants in 2006, but will continue to evaluate the appropriate level of growth.

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Our management consistently strives to enhance the customer experience at Friendly’s restaurants by improving operational and financial efficiencies. To address this, we recently completed the upgrade of our existing point of sale (“POS”) register systems for all Company-operated and franchised restaurants. The upgraded POS register system is designed to improve revenue realization, food cost management and labor scheduling while increasing the speed and accuracy of processing customer orders. We expect to make additional food cost management enhancements to the POS register system beginning in 2006.

Franchising Program

Our franchising strategy is designed to expand our restaurant presence in under-penetrated markets, accelerate restaurant growth in new markets, increase marketing and distribution efficiencies and preempt competition by acquiring restaurant locations in our targeted markets. As of January 1, 2006, franchisees operated 206 Friendly’s restaurants and seven non-traditional units. From December 2001 to December 2005, the number of restaurants owned by franchisees increased 28%, rising from 29% of our total restaurants to 40% of total restaurants, and revenue from franchisees increased 58% during that period. In 2006, we expect that our franchisees will open 10 new franchised restaurants.

The expansion of our franchising activities includes the sale of Company-operated restaurants to franchisees, which we refer to as “re-franchising”, and the development of new restaurants by franchisees. Our re-franchising transactions have included, among other things, the sale and/or lease of owned real property, leasehold improvements or equipment and subletting or assignment of leases. Re-franchising transactions usually require the franchisee to also sign an area development agreement in which the franchisee commits to open new restaurants within a specified period of time, in specified geographical territories. We also pursue such area development agreements with new franchisees in new markets. We seek franchisees that have related business experience, sufficient capital to build-out the Friendly’s concept and no other operations, which have directly competitive restaurant or food concepts.

During 2005, we completed four re-franchising transactions in which four existing franchisees purchased nine existing Company-operated restaurants and agreed to develop a total of 10 new restaurants in future years (seven more than their prior commitments). Gross proceeds from these transactions were $4.1 million, of which $0.3 million was for franchise and development fees and $3.8 million was for the sale of certain assets and leasehold rights. In addition, we completed three transactions in which three former employees received franchises to operate six existing restaurants for a period of two years with options to purchase the restaurants within the two years. If the options are exercised, one franchisee has agreed to develop two new restaurants in future years. Proceeds from option transactions will be recognized upon purchase.

In October 2005, we entered into a second development agreement with our second largest franchisee. The franchisee currently has 34 locations and is expected to open 33 new restaurants over the next 27 years (eight more than their prior commitment). We expect that they will open a total of four new restaurants by 2010 and we expect that all 33 new restaurants will be opened by 2033.

We provide franchisees assistance with both the development and ongoing operation of their restaurants. Our management personnel assist with site selection, approve all restaurant sites and provide franchisees with prototype plans and construction support and specifications for their restaurants. Our staff provides both on-site and off-site instruction to franchised restaurant management personnel. Managers of franchised restaurants are required to complete the same training as managers of Company-operated units. Our support continues after a restaurant opening with periodic training programs, operating manuals, updates relating to product specifications and customer service and quality control procedures, advertising and marketing materials and assisting with particular advertising and marketing needs. Franchise field representatives visit all franchisees to support the successful operation of their restaurants.

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All franchised restaurants are required to serve only Friendly approved menu items. In addition to our manufactured products, franchisees served by our distribution centers purchase from us food and supplies of other approved manufacturers at our negotiated cost, plus a markup to cover our distribution operation. Using these services enables franchisees to benefit from our purchasing power and assists us in monitoring compliance with our quality standards and specifications.

In addition to certain franchise royalty fees (generally 4% of franchise restaurant revenues) and other related fees including rent, we generate revenues from franchisees from our distribution operation and the sale of our own manufactured premium ice cream desserts and products.

Retail (Packaged Goods) Sales

We offer a branded product line that includes approximately 50 varieties of premium ice cream shop flavors and unique sundae combinations, frozen yogurt and sherbet. Specialty products and flavors include Royal Banana Split™ Sundae, Caramel Fudge Blast® and Fudgeberry Swirl. Proprietary products include the Jubilee Roll®, Wattamelon Roll®, Orange Crème Roll™ and Friendly’s branded ice cream cakes. We also license from Hershey Foods Corporation (“Hershey”) the right to feature certain candy brands including Reese’s Pieces® and Reese’s® Peanut Butter Cups.

We focus our marketing and distribution efforts in the highly developed markets of Albany, Boston, Hartford and Springfield. We have developed a broker/distributor network designed to protect product quality through proper product handling and to enhance the merchandising of our premium ice cream desserts. Our experienced sales force manages this network to serve specific retailer needs on a market-by-market basis.

We expect to improve the profitability of our retail business in our current retail markets by continuing to develop our product portfolio beyond the 56-ounce ice cream container with our unique specialty products, such as decorated ice cream cakes, rolls and sundae cups. Our specialty products typically have higher margins and fewer competitors than the more traditional 56-ounce ice cream containers, making them less susceptible to discounting.

Marketing

Our overall marketing strategy is to build on the equity of our brand so as to maximize and leverage our 70-year heritage and “touch” what consumers emotionally feel about Friendly’s.

Our marketing objectives are to increase our share of visits from frequent casual and family dining customers, to build top-of-mind awareness of Friendly’s restaurants and the Friendly’s brand and to maintain a leadership position in ice cream. Friendly’s advertising attempts to build on the past emotional connections and experiences of families and kids with our brand to present current offers and new menu items. Our advertising, media, promotion and product strategies are focused on delivering these objectives.

Media is planned and purchased on a market-by-market basis to maximize the efficiencies and opportunities in each market. Our primary advertising medium is spot television in Friendly’s major markets with radio used in the secondary markets or as a frequency builder for special events. Due to the seasonality of ice cream consumption, and the effect from time to time of weather on patronage of the restaurants, our revenues and operating income are typically higher in our second and third quarters. Accordingly, media advertising is focused on the higher consumption months (March through December) with the highest levels during the summer period. We use targeted local restaurant marketing programs such as print (cooperative free-standing inserts and direct mail), school reading programs, Family Fun Nights (fundraisers for schools, church groups, youth sports, etc.) and other local store marketing initiatives to meet our marketing objectives in those markets where penetration does not allow for efficient broadcast media advertising.

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We believe that our integrated restaurant and retail (supermarket) marketing efforts provide significant support for the development of our retail business. Specifically, the retail business benefits from the overall awareness of the Friendly’s brand generated by the ongoing restaurant advertising program. This, combined with the use of a common advertising campaign for both restaurant and retail communications, delivers a significantly higher level of consumer exposure and usage compared to our packaged premium ice cream competitors, which have only retail distribution. In turn, sales of our premium ice cream products through more than 4,500 retail locations provide additional consumer awareness which we believe benefits the restaurants. Advertising and promotion expense was approximately $18.7 million for 2005, $20.7 million for 2004 and $21.7 million for 2003.

Manufacturing

We produce all of our premium ice cream and the majority of our syrups and toppings in our Wilbraham, MA Company-operated manufacturing plant. As of January 1, 2006, the Wilbraham plant employed a total of approximately 150 people. During 2005, the Wilbraham plant operated at an average capacity of 75%, attaining 84% capacity for the months of June through August of 2005. In 2004, our Wilbraham plant operated at an average capacity of 77%, attaining 83% capacity for the months of June through August of 2004. In 2005, we produced over 13.2 million gallons of ice cream, sherbets and yogurt in bulk and 56-ounce packages, 7.2 million sundae cups, 2.2 million premium ice cream dessert rolls, pies and cakes and 0.8 million gallons of fountain syrups and toppings.  In comparison, in 2004, we produced over 14.3 million gallons of ice cream, sherbets and yogurt in bulk and 56-ounce packages, 5.2 million sundae cups, 2.2 million premium ice cream dessert rolls, pies and cakes and 0.9 million gallons of fountain syrups and toppings.

Purchasing and Distribution

The majority of the cost of materials related to the manufacture of our premium ice cream, toppings, and specialty dessert products is in dairy and sweeteners. In addition to the procurement of raw materials and packaging used in the manufacturing plant, our purchasing department buys all of the food, carryout supplies, disposables, cleaning chemicals, china, glass and flatware used in Company-operated and franchised restaurants. Occasionally, we may purchase option contracts to hedge our price exposure on one or more exchange-traded agricultural commodities such as butter, coffee, orange juice, bacon or soybean oil, where we believe it is appropriate. Additionally, we may forward contract where appropriate for up to a two-year period. Since not all of our purchases are hedgeable or have adequate open interest to meet our needs, sudden market price increases can pose substantial price risks to us, such as those that happened in 1998 and 2004 to the price of cream, which could have a material adverse effect on our business in the future.

The purchasing department regularly monitors the cost of all items purchased to ensure that vendors are billing us the correct amount per contract, pricing agreement or spot market. The purchasing department conducts business related to food and raw material purchases with numerous vendors, many of which have had long-term relationships with us. Contracts are executed on an annual, semi-annual or monthly basis, depending on the nature of the item and the opportunities within the marketplace. In order to promote competitive pricing and uninterrupted supply, we routinely work with prospective vendors on existing products, as well as on items that may make up a new menu offering. In order to maximize our purchasing power, we purchase directly from manufacturers and service providers and attempt to avoid as much as possible any third party participation.

We own one distribution center and lease two others. We distribute most product lines to our restaurants from warehouses in Chicopee, MA and York, PA with a combined non-union workforce of approximately 175 employees. Based on fleet availability and economics, we distribute our packaged premium ice cream desserts to our retail customers. Our private truck fleet delivers most of the product lines required to our Company-operated and franchised restaurants. For economic efficiency, since 2000

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we have contracted with a third party distributor to provide some distribution services to restaurants located in Florida markets. In May 1999, we extended our distribution product lines to also include fresh produce and dairy items. We are currently distributing produce and dairy products to approximately 78% of our restaurants. The Chicopee, Wilbraham and York warehouses encompass approximately 60,000, 127,000 and 85,000 square feet, respectively. In 2003, we constructed an 18,000 square foot freezer addition to our Wilbraham facility. We believe that our distribution facilities operate at or above industry standards with respect to timeliness and accuracy of deliveries.

We have distributed our products since our inception to protect the product integrity of our premium ice cream desserts. As described above, we deliver products to most restaurants using our own fleet of tractors and trailers. The entire fleet is specially built to be compatible with storage access doors, thus protecting premium ice cream desserts from “temperature shock.” The trailer fleet is designed to have individual temperature controls for three distinct compartments. To provide us with additional efficiency and cost savings, the truck fleet backhauls by bringing purchased raw materials and finished products back to the distribution centers on approximately 38% of its delivery trips.

Employees

The total number of our employees varies between 12,000 and 16,000 depending on the season of the year. As of January 1, 2006, we employed approximately 12,700 employees, of which approximately 12,100 were employed in Friendly’s restaurants (including approximately 60 in field management), approximately 350 were employed at our manufacturing and three distribution facilities and approximately 250 were employed at our corporate headquarters and other offices. None of our employees is a party to a collective bargaining agreement.

Licenses and Trademarks

We regard our trademarks, service marks, business know-how and proprietary recipes as having significant value and as being an important factor in the marketing of our products. Our policy is to establish, enforce and protect our intellectual property rights using the intellectual property laws, and/or through contractual arrangements, such as franchising, development and license agreements.

We are the owner or licensee of the most significant trademarks and service marks (the “Marks”) used in our business. The Marks “Friendly®” and “Friendly’s®” are owned by us and are federally registered with the U.S. Patent and Trademark Office (the “PTO”). The Mark Friendly’s® is critically important to us and, subject to our continued use of that Mark, we have the right to perpetually renew the federal registration of such Mark with the PTO. We intend to exercise our rights to renew this Mark.

Upon the sale of Friendly’s by Hershey to The Restaurant Company in 1988, Hershey licensed to us all of the trademarks and service marks used in Friendly’s business at that time which did not contain the word “Friendly” (the “Non-Friendly Marks”). In September 2002, Hershey assigned the Non-Friendly Marks to us.

Hershey entered into non-exclusive licenses with us for certain candy trademarks used by us in our premium ice cream sundae cups (the “Cup License”) and pints (the “Pint License”). The Cup License and Pint License automatically renew for unlimited one-year terms subject to certain non-renewal rights held by both parties. Hershey is subject to a non-compete provision in the sundae cup business for a period of two years if the Cup License is terminated by Hershey without cause, provided that we maintain our current level of market penetration in the sundae cup business. However, Hershey is not subject to a non-compete provision if it terminates the Pint License without cause. We have not produced pints since 2001.

We also have a non-exclusive license agreement with Leaf, Inc. (“Leaf”), a subsidiary of Hershey, for use of the Heath® Bar candy trademark. The term of the royalty-free Leaf license continues indefinitely subject to termination by Leaf upon 60 days notice.

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Competition

The restaurant business is highly competitive and is affected by changes in the public’s eating habits and preferences, population trends and traffic patterns, as well as by local and national economic conditions affecting consumer spending habits, many of which are beyond our control. Key competitive factors in the industry are the quality and value of the food products offered, quality and speed of service, attractiveness of facilities, advertising, name brand awareness and image and restaurant locations. Each of our restaurants competes directly or indirectly with locally-owned restaurants as well as restaurants with national or regional images and, to a limited extent based on location, restaurants operated by our franchisees. A number of our significant competitors are larger or more diversified and have substantially greater resources than we do. Our retail operations compete with national and regional manufacturers of premium ice cream desserts, many of which have greater financial resources and more established channels of distribution than ours. Key competitive factors in the retail food business include brand awareness, access to retail locations, price and quality.

Government Regulation

We are subject to various federal, state and local laws affecting our business. Our facilities and restaurants are subject to licensing and regulation by a number of governmental authorities, which include health, safety, sanitation, building and fire agencies in the state or municipality in which the restaurant is located. These licensing and regulation matters relate to environmental, building, construction and zoning requirements and the preparation and sale of food products. Difficulties in obtaining or failures to obtain required licenses or approvals, or the loss of such licenses and approvals once obtained, can delay, prevent the opening of or close a restaurant in a particular area. We are also subject to federal and state environmental regulations, but these have not had a material adverse effect on our operations.

Substantive state laws that regulate the franchisor-franchisee relationship presently exist or are being considered in a significant number of states. In addition, bills may be introduced in Congress that would provide for federal regulation of substantive aspects of the franchisor-franchisee relationship. These current and proposed franchise relationship laws limit, among other things, the rights of a franchisor to approve the transfer of a franchise, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply.

Our operations are also subject to federal and state laws governing such matters as wages, hours, working conditions, civil rights and eligibility to work. Some states have set minimum wage requirements higher than the federal level. Significant numbers of hourly personnel at our restaurants are paid at rates related to the federal minimum wage and, accordingly, increases in the minimum wage at a federal and/or state level could increase labor costs at our restaurants. Other governmental initiatives such as mandated health insurance, if implemented, could adversely affect us as well as the restaurant industry in general. We are also subject to the Americans with Disabilities Act of 1990, which, among other things, may require certain renovations to our restaurants to meet federally-mandated requirements. In addition, our employment practices are subject to the requirements of the Immigration and Naturalization Service relating to citizenship and residency.

Available Information

Our Internet website address is http://www.friendlys.com. Our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through this Internet website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

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Item 1A.RISK FACTORS

This report contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. The cautionary statements made in this report are applicable to all forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed herein. Risk factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this report.

We operate in a highly competitive business environment.

The restaurant business is highly competitive and is affected by changes in the public’s eating habits and preferences, population trends and traffic patterns, as well as by local and national economic conditions affecting consumer spending habits, many of which are beyond our control. Key competitive factors in the industry are the quality and value of the food products offered, quality and speed of service, attractiveness of facilities, advertising, name brand awareness and image and restaurant location. Each of our restaurants competes directly or indirectly with locally owned restaurants as well as restaurants with national or regional images, and to a limited extent, restaurants operated by our franchisees. A number of our significant competitors are larger or more diversified and have substantially greater resources than we have. Our retail operations compete with national and regional manufacturers of premium ice cream desserts, many of which have greater financial resources and more established channels of distribution than ours. Key competitive factors in the retail food business include brand awareness, access to retail locations, price and quality.

Increases in the prices of, or interruptions in the supply of, raw materials and other essential food supplies may increase the costs of our products, create shortages in the manufacturing of products or cause interruptions in the supply of products to our customers.

The cost, availability and quality of the ingredients that we use to prepare our food are subject to a range of factors, including fluctuations in supply and demand and political and economic conditions, which are beyond our control. Our ability to maintain consistent quality throughout our restaurants depends in part upon our ability to acquire fresh food products and related items from reliable sources in accordance with our specifications. If these suppliers do not perform adequately or otherwise fail to distribute products or supplies to our restaurants, we may be unable to replace the suppliers in a short period of time on acceptable terms.

The basic raw materials for the manufacture of our premium ice cream desserts are dairy products and sugar. Our purchasing department purchases other food products, such as coffee, in large quantities. We rarely hedge our positions in these commodities other than with respect to cream as a matter of policy, but may opportunistically purchase some of these items in advance of a specific need. As a result, we are subject to the risk of substantial and sudden price increases, shortages or interruptions in supply of such items, which could have a material adverse effect on our business. Increases in the price of cream have adversely affected our financial results in the past and may do so in the future because we may be unable to pass along all price increases.

Increases in the prices of, or interruptions in the supply of, fuel may increase the costs of our products, or cause interruptions in the supply of products to our customers.

Our private truck fleet delivers most of the product lines required to our Company-operated and franchised restaurants. We also distribute our packaged ice cream desserts to our retail customers. As a result, we are subject to the risk of substantial and sudden price increases, shortages or interruptions in the supply of fuel, which could have a material adverse effect on our business.

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Changes in consumer preferences and economic conditions could adversely affect our financial performance.

Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions, demographic trends, traffic patterns, the cost and availability of labor, purchasing power, availability of products and the type, number and location of competing restaurants. In addition, factors such as increased food, labor and benefits costs, regional weather conditions and the potential scarcity of experienced management and hourly employees may also adversely affect the food service industry in general and the results of our operations and financial condition in particular. In addition, purchases at our restaurants are discretionary for consumers and, therefore, we are susceptible to economic slowdowns. Consumers are generally more willing to make discretionary purchases during periods in which favorable conditions prevail. A general slowdown in the United States economy could adversely affect consumer confidence and spending habits, which could negatively impact our sales.

Our business may be harmed by highly publicized incidents at one or more of our restaurants.

Multi-unit food service businesses can be materially and adversely harmed by publicity resulting from poor food quality, illness, injury or other health concerns or employee relations or other operating issues stemming from one location or a limited number of locations, whether or not the company is liable, or from consumer concerns with respect to the nutritional value of certain food. In addition, we cannot guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses. Some food-borne illness incidents could be caused by third party food suppliers and transporters outside of our control. Any outbreak of such illness attributed to one or more of our restaurants or to a similar multi-unit restaurant chain, or the perception of such an outbreak, could harm our business.

We may not be able to successfully continue the development and implementation of our franchising program.

The success of our business strategy depends, in part, on the continued development and implementation of our franchising program. We can provide no assurance that we will be able to continue to successfully locate and attract suitable franchisees or that these franchisees will have the business abilities or sufficient access to capital to open restaurants or will operate restaurants in a manner consistent with the Friendly’s concept and standards or in compliance with franchise agreements. The success of our franchising program will also be dependent upon factors not within our control or the control of our franchisees, including the availability of suitable sites on acceptable lease or purchase terms, permitting and regulatory compliance and general economic and business conditions.

In addition, even if our franchising program is successful, we can provide no assurance that it will prove advantageous to us from an operational standpoint. The interests of franchisees may conflict with our interests. For example, whereas franchisees are concerned with individual business strategies and objectives, we are responsible for ensuring the success of the entire range of our products and services.

Finally, although we evaluate and screen potential franchisees, we can provide no assurance that franchisees will have the business acumen or financial resources necessary to operate successful franchises in their franchise areas. The failure of franchisees to operate successfully could have an adverse effect on our business, reputation and brand and our ability to attract prospective franchisees.

Our operations are highly concentrated in the Northeast region.

Approximately 97% of Company-operated restaurants are located, and substantially all of our retail sales are generated, in the Northeast. As a result, a severe or prolonged economic recession or changes in demographic mix, employment levels, population density, weather, real estate market conditions or other factors specific to the Northeast may adversely affect our business more than certain of our competitors which are more geographically diverse.

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Our cash flows may fluctuate due to seasonality.

Due to the seasonality of premium ice cream dessert consumption, and the effect from time to time of weather on patronage of our restaurants, our revenues and operating income are typically higher in the second and third quarters. This seasonality may adversely affect our cash flows.

The locations where we have restaurants may cease to be attractive which could negatively affect our sales at these locations.

The success of Company-operated and franchised restaurants is significantly influenced by location. Current locations may not continue to be as attractive as demographic patterns change. Likewise, we may face difficulties in acquiring new locations at reasonable costs. It is possible that the neighborhood or economic conditions where our restaurants are located could decline in the future, potentially resulting in reduced sales in those locations.

Our franchisees and we may experience delays in restaurant openings, which could adversely affect our ability to increase revenues and profitability.

Our franchisees and we have experienced delays in restaurant openings from time to time and may experience delays in the future. Delays in opening new restaurants in accordance with our current plans and the current plans of our franchisees could materially adversely affect our expected revenues and profitability.

Our ability or the ability of our franchisees to open new restaurants will depend on a number of factors, some of which are beyond our control, including:

·the availability of funding;

·the identification and availability of suitable restaurant sites;

·negotiation of favorable leases;

·the timely development in certain cases of commercial, residential, street or highway construction near restaurants;

·dependence on contractors to construct new restaurants in a timely manner;

·management of construction and development costs of new restaurants;

·securing required local, state and federal governmental approvals and permits; and

·recruitment of qualified operating personnel.

If our manufacturing and distribution operation is damaged or otherwise interrupted for any prolonged period of time, our operations would be harmed.

Our business depends on our ability to reliably produce ice cream dessert products and deliver them to retailers, distributors and restaurants on a regular schedule. We currently produce most of our ice cream dessert products in a single manufacturing facility in Wilbraham, Massachusetts. As a result, our business is vulnerable to damage or interruption from fire, severe drought, flood, power loss, telecommunications failure, break-ins, snow and ice storms, work stoppages and similar events. Any such damage or failure could disrupt our operations and result in the loss of sales and current and potential customers if we are unable to quickly recover from such events. Our business interruption insurance may not be adequate to compensate for our losses if any of these events occur. In addition, business interruption insurance may not be available to us in the future on acceptable terms or at all. Even if we carry adequate insurance, such events could harm our business.

13

The restaurant and food distribution industries are heavily regulated.

We are subject to various federal, state and local laws affecting our business. Our restaurants and facilities are subject to licensing and regulation by a number of governmental authorities, which include health, safety, sanitation, environmental, building and fire agencies in the state or municipality in which the restaurant is located. Difficulties in obtaining or failures to obtain required licenses or approvals, or the losses of such licenses and approvals, can delay, prevent the opening of or close a restaurant in a particular area.

Our relationship with our current and potential franchisees is governed by state laws, which regulate substantive aspects of the franchisor-franchisee relationship. Current and proposed franchise relationship laws limit, among other things, the rights of a franchisor to approve the transfer of a franchise, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply.

We are also subject to the Americans with Disabilities Act of 1990, which, among other things, may require certain renovations to our restaurants to meet federally mandated requirements.

Increasing labor costs could adversely affect our profitability.

Our restaurant operations are subject to federal and state laws governing such matters as wages, hours, working conditions, civil rights and eligibility to work. Some states have set minimum wage requirements higher than the federal level. Significant numbers of hourly personnel at our restaurants are paid at rates related to the federal minimum wage and, accordingly, increases in the minimum wage at a federal and/or state level could increase labor costs at our restaurants. Other governmental initiatives such as mandated health insurance, if implemented, could adversely affect us as well as the restaurant industry in general.

A failure to attract and retain qualified employees may adversely affect us.

Our success and the success of our restaurants depend upon our ability to attract and retain a sufficient number of qualified employees, including skilled management, customer service personnel and wait and kitchen staff. We face significant competition in the recruitment of qualified employees. Our inability to recruit and retain qualified individuals may delay the planned openings of new restaurants, result in higher employee turnover, affect our ability to provide a high quality customer experience in restaurants or exert pressure on wages or other employee benefits to attract qualified personnel. Any of these consequences could have a material adverse effect on our business and results of operations.

We may not be able to protect our trademarks and other proprietary rights.

We believe that our trademarks and other proprietary rights are important to our success and competitive position. Accordingly, we devote substantial resources to the establishment and protection of our trademarks and proprietary rights. However, the actions we take to protect our intellectual property may be inadequate to prevent imitation of our products and concepts by others.

Our substantial debt could harm our business, results of operations, financial position and cash flows.

We have substantial debt and may incur additional debt in the future. The principal and interest payment obligations of such debt may restrict future operations and operating expenditures and impair our ability to meet our obligations under our debt instruments, loan agreements, letters of credit, leases and other long-term commitments, and may otherwise affect our profitability. In addition, our credit facility and our mortgage loans contain floating interest rates and any increase in the prevailing rates could have an adverse effect on our business.

14

As of January 1, 2006, we had approximately $233.9 million of total indebtedness outstanding, including capital leases. In addition, the indenture governing our 8.375% senior notes permits us to incur additional debt. Our substantial levels of debt may have important consequences. For instance, it could:

·make it more difficult for us to satisfy our financial obligations;

·require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due on our debt, which will reduce funds available for other business purposes;

·increase our vulnerability to general adverse economic and industry conditions;

·limit flexibility in planning for, or reacting to, changes in the business and in the industries in which we operate;

·place us at a competitive disadvantage compared with some of our competitors that have less debt; and

·limit our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporate purposes.

Our ability to satisfy our obligations and to reduce our total debt depends on future operating performance and on economic, financial, competitive and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these obligations or to successfully execute our business strategy.

The instruments governing our 8.375% senior notes and other debt impose restrictions.

The indenture governing our 8.375% senior notes and our other debt instruments, including without limitation our credit facility, contain, and other agreements we may enter into in the future may contain, covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other things:

·incur additional debt,

·create liens,

·make investments,

·enter into transactions with affiliates,

·sell assets,

·declare or pay dividends,

·redeem stock or make other distributions to shareholders,

·enter into sale and leaseback transactions, and

·consolidate or merge.

Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any of these restrictions could result in a default under the indenture. An event of default under our debt agreements would permit some of our lenders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. If we were unable to repay debt to secured lenders, they could proceed against our assets securing that debt. On March 15, 2006, we amended and restated our credit facility to, among other things, (i) revise certain financial covenants beginning with the fourth quarter of 2005 and extending through the

15

credit facility maturity date of June 30, 2007 (including leverage, interest coverage, minimum EBITDA and the deletion of the tangible net worth covenant) and (ii) permit certain transactions to be excluded from our annual capital expenditures limit. As a result of the amendments, we were in compliance with the covenants in our credit facility as of January 1, 2006.

We are exposed to potential risks as a result of the internal control testing and evaluation process mandated by Section 404 of the Sarbanes-Oxley Act of 2002.

We assessed the effectiveness of our internal control over financial reporting as of January 1, 2006 and assessed all deficiencies on both an individual basis and in combination to determine if, when aggregated, they constitute more than an inconsequential deficiency. As a result of this evaluation, no significant deficiencies or material weaknesses were identified. Although we have completed the documentation and testing of the effectiveness of our internal control over financial reporting for 2005 as required by Section 404 of the Sarbanes-Oxley Act of 2002, we expect to continue to incur costs, including accounting fees and staffing salaries, in order to maintain compliance with that section of the Sarbanes-Oxley Act. We continue to monitor controls for any additional weaknesses or deficiencies. However, no evaluation can provide complete assurance that our internal controls will detect or uncover all failures of persons within our company to disclose material information otherwise required to be reported. The effectiveness of our controls and procedures could also be limited by simple errors or faulty judgments.

In the future, if we fail to complete the Sarbanes-Oxley Section 404 evaluation in a timely manner, or if our independent registered public accounting firm cannot attest in a timely manner to our evaluation, we could be subject to regulatory scrutiny and a loss of public confidence in our internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Although we intend to devote substantial time and incur costs as necessary to ensure ongoing compliance, we cannot be certain that we will be successful in complying with Section 404.

We have incurred and may incur significant additional and unforeseen expenses and costs to defend or pursue litigation and related matters.

From time to time we are named as a defendant in legal actions arising in the ordinary course of our business. We are currently a party to litigation brought by S. Prestley Blake (“Blake”), holder of approximately 10% of our common stock. On February 25, 2003, Mr. Blake sued us and our Chairman in a purported derivative action in Hampden Superior Court, Massachusetts. The suit alleges breach of fiduciary duty and misappropriation of corporate assets, and alleges that we paid certain expenses relating to a corporate jet and the Chairman’s use of that jet and use of an office in Illinois. The suit seeks to require the Chairman to reimburse us and for Friendly’s to pay Blake’s attorneys’ fees. Friendly’s and our Chairman have denied Blake’s allegations and are vigorously defending the lawsuit. We cannot guarantee that we will be successful in defending this or any other litigation. Defending the Blake litigation and other litigation may cause us to incur significant additional and unforeseen costs to defend or pursue litigation or other investigations relating to the matters subject to the litigation.

Item 1B.UNRESOLVED STAFF COMMENTS

None.

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Item 2.PROPERTIES

The table below identifies the location of the 520 restaurants operating as of January 1, 2006.

	Company-Operated Restaurants				Franchised Restaurants
							Leased to
					Leased/Owned		Franchisees		Total
State	Freestanding		Other(a)		by Franchisees		By FICC		Restaurants
Connecticut		36		9		—		—		45
Delaware		—		—		6		2		8
Florida		—		—		6		10		16
Maine		9		—		—		—		9
Maryland		—		—		13		6		19
Massachusetts		83		22		3		1		109
New Hampshire		12		2		—		—		14
New Jersey		28		9		19		4		60
New York		27		10		74		6		117
North Carolina		—		—		1		—		1
Ohio		—		—		5		18		23
Pennsylvania		34		9		16		4		63
Rhode Island		5		1		—		—		6
South Carolina		—		—		4		—		4
Vermont		9		1		—		—		10
Virginia		8		—		6		2		16
Total		251		63		153		53		520

(a)Includes primarily malls and strip centers.

The 251 freestanding restaurants range in size from approximately 2,400 square feet to approximately 5,000 square feet. The 63 mall and strip center restaurants range in size from approximately 2,200 square feet to approximately 4,500 square feet. Of the 314 Company-operated restaurants at January 1, 2006, we owned the buildings and the land for 79 restaurants, owned the buildings and leased the land for 70 restaurants and leased both the buildings and the land for 165 restaurants. Our leases generally provide for the payment of fixed monthly rentals and related occupancy costs (e.g., property taxes and insurance). Additionally, most mall and strip center leases require the payment of common area maintenance charges and incremental rent of between 2% and 6% of the restaurant’s sales.

In addition to the Company-operated restaurants, we own an approximately 240,000 square foot facility on 35 acres in Wilbraham, MA, which houses our corporate headquarters, a training facility, a manufacturing and distribution facility and a warehouse. We also lease (i) an approximately 60,000 square foot distribution facility in Chicopee, MA and (ii) an approximately 85,000 square foot distribution and office facility in York, PA.

Item 3.LEGAL PROCEEDINGS

From time to time we are named as a defendant in legal actions arising in the ordinary course of our business. We do not believe that the resolutions of these claims will have a material adverse effect on our consolidated financial condition or consolidated results of operations.

On February 25, 2003, S. Prestley Blake (“Blake”), holder of approximately 10% of our outstanding common stock, sued Friendly’s and our Chairman in a purported derivative action in Hampden Superior Court, Massachusetts. The suit alleges breach of fiduciary duty and misappropriation of corporate assets in

17

that we paid certain expenses relating to a corporate jet and the Chairman’s use of that jet and use of an office in Illinois. The suit seeks to require the Chairman to reimburse us and for Friendly’s to pay Blake’s attorneys’ fees. Friendly’s and its Chairman have denied Blake’s allegations and are vigorously defending the lawsuit.

On June 27, 2005, Mr. Blake sent a demand letter to our Board of Directors demanding that our Board of Directors address his concerns and beliefs that are subject to the litigation filed on February 25, 2003. On July 14, 2005, our Board of Directors formed a special litigation committee consisting solely of independent directors (the “Committee”) to investigate the concerns and beliefs raised in Blake’s demand letter dated June 27, 2005. The Committee issued its report on October 24, 2005 and a supplemental report on November 30, 2005. Based on its findings, the Committee filed a Motion to Dismiss the claims made by Mr. Blake. As of the date hereof, the Court has not issued its ruling on the Committee’s Motion to Dismiss.

On September 28, 2004 we were served with a civil lawsuit filed in Connecticut Superior Court, Judicial District of Hartford by three employees from a Connecticut restaurant on behalf of themselves and other similarly situated individuals. The plaintiffs allege that pursuant to Connecticut law, they should have been paid a higher wage for work they performed that was unrelated to serving our customers. The plaintiffs sought class certification and damages for the purported class members. On January 25, 2006, the court denied the plaintiffs’ request for class certification. We have denied the allegations and are vigorously defending the lawsuit.

Item 4.SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

None.

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EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers and their respective ages and positions are as follows:

John L. Cutter, 61, has been Chief Executive Officer and President since February 2003. He served as the President and Chief Operating Officer from December 1998 to February 2003. Prior to joining us, Mr. Cutter served as the Chief Operating Officer of Boston Chicken, Inc. from March 1997 to October 1998.

Paul V. Hoagland, 53, has been the Executive Vice President of Administration and Chief Financial Officer, Treasurer and Assistant Clerk since February 2003. He served as the Senior Vice President, Chief Financial Officer, Treasurer and Assistant Clerk from May 2001 to February 2003. Prior to joining us, Mr. Hoagland served as the Executive Vice President and Chief Financial Officer of New England Restaurant Company, Inc. from October 1992 to January 2001.

Gregory A. Pastore,41, has been the Vice President, General Counsel and Clerk since February 2004. Prior to joining us, Mr. Pastore served as the Vice President of Development, General Counsel and Secretary of Bertucci’s Corporation from April 1999 to February 2004. Prior to April 1999, Mr. Pastore was affiliated with the law firm of Hutchins, Wheeler & Dittmar from April 1994 to April 1999.

Garrett J. Ulrich, 55, has been the Vice President of Human Resources since September 1991. Prior to joining us, Mr. Ulrich served as the Vice President of Human Resources of Dun & Bradstreet Information Services, North America from 1988 to 1991. From 1978 to 1988, Mr. Ulrich held various human resource executive and managerial positions at Pepsi Cola Company, a division of PepsiCo.

Kenneth D. Green, 42, has been the Vice President of Company Restaurant Operations since August 2004. He served as a Regional Director of Restaurant Operations from April 2003 to August 2004. Prior to joining us, Mr. Green served as Vice President of Operations of Cosi, Inc. from March 2001 to April 2003. From June 1996 to January 2003, Mr. Green served as President and owner of Dine West, Inc.

Allan J. Okscin, 54, has been the Vice President and Corporate Controller since July 2003. He served as Corporate Controller from 1989 to July 2003. Mr. Okscin is a certified public accountant.

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PART II

Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the American Stock Exchange (“AMEX”) under the symbol “FRN.” The following table sets forth the high and low sale price per share of our common stock during each fiscal quarter within the two most recent fiscal years as reported on AMEX:

MARKET PRICE OF COMMON STOCK

	High		Low
2005
First Quarter	$	9.95	$	7.61
Second Quarter	11.20		8.10
Third Quarter	13.85		8.75
Fourth Quarter	10.35		7.85
2004
First Quarter	$	16.00	$	9.58
Second Quarter	19.30		12.05
Third Quarter	13.38		8.56
Fourth Quarter	9.95		7.67

Holders of Record.   The number of shareholders of record of our common stock as of January 31, 2006 was 529.

Dividends.   We currently intend to retain any earnings to finance future growth and, therefore, do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any determination as to the payment of dividends will depend upon our future results of operations, capital requirements and financial condition and such other facts as our Board of Directors may consider, including any contractual or statutory restrictions on our ability to pay dividends. Our credit facility and the indenture relating to our 8.375% senior notes each limit our ability to pay dividends on our common stock and we are currently prohibited from paying any dividends (other than stock dividends) under these provisions. We have not paid any dividends in the last five years.

Recent Sales of Unregistered Securities.   We did not sell unregistered securities during 2005.

Issuer’s Purchases of Equity Securities.   We did not repurchase any of our equity securities during the fourth quarter of 2005.

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Item 6.SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth selected consolidated historical financial information, which has been derived from our audited Consolidated Financial Statements for each of the five most recent years ended January 1, 2006. This information should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere herein. See Note 2 of Notes to Consolidated Financial Statements for a discussion of the basis of the presentation and significant accounting policies of the consolidated historical financial information set forth below. No dividends were declared or paid for any period presented.

	Fiscal Year(a)
(in thousands, except per share data)	2005			2004				2003			2002			2001
				(53 weeks)										(unaudited)
Statement of Operations Data:
Revenues:
Restaurant	$	400,821			$	431,763		$	442,416		$	437,426			$	431,584
Foodservice	116,072				112,637			110,190			106,331				95,368
Franchise	14,454				13,199			9,822			9,472				9,174
Total revenues	531,347				557,599			562,428			553,229				536,126
Costs and expenses:
Cost of sales	205,332				210,477			202,322			197,654				193,346
Labor and benefits	143,973				158,133			159,428			154,592				151,071
Operating expenses	105,809				104,681			103,891			104,593				99,059
General and administrative expenses(b)	38,746				40,006			41,657			39,462				39,661
Pension settlement expense
(curtailment gain)(c)	—				2,204			(8,113		)	—				—
Restructuring expenses (reversal of restructuring expenses), net(d)	—				2,627			—			(400		)		636
Gain on litigation settlement(e)	—				(3,644		)	—			—				—
Write-downs of property and equipment(f)	2,478				91			26			976				800
Depreciation and amortization	23,435				22,592			22,650			24,355				29,121
Gain on franchise sales of restaurant operations and properties(g)	(2,658		)		(1,302		)	—			(675		)		(4,591		)
Loss (gain) on disposals of other property and equipment, net	1,030				213			2,044			578				(2,021		)
Operating income	13,202				21,521			38,523			32,094				29,044
Other expenses:
Interest expense, net(h)	20,924				22,295			24,157			24,870				27,310
Other (income) expense, principally debt retirement costs(i)	(130		)		9,235			—			—				—
(Loss) income before (provision for) benefit from income taxes and extraordinary item.	(7,592		)		(10,009		)	14,366			7,224				1,734
(Provision for) benefit from income taxes(j)	(20,002		)		7,145			(4,604		)	(1,581		)		391
(Loss) income from continuing operations before extraordinary item	(27,594		)		(2,864		)	9,762			5,643				2,125
Income (loss) from discontinued operations, net of income tax effect(k)	335				(553		)	(259		)	17				384
Extraordinary item, net of income tax effect(l)	—				—			—			—				547
Net (loss) income	$	(27,259	)		$	(3,417	)	$	9,503		$	5,660			$	3,056

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	Fiscal Year(a)
(in thousands, except per share data)	2005			2004				2003			2002			2001
				(53 weeks)										(unaudited)
Statement of Operations Data:
Basic (loss) income per share:
(Loss) income from continuing operations	$	(3.53	)		$	(0.38	)	$	1.31		$	0.77			$	0.29
Income (loss) from discontinued operations, net of income tax effect	0.04				(0.07		)	(0.03		)	—				0.05
Extraordinary item, net of income tax effect	—				—			—			—				0.07
Net (loss) income	$	(3.49	)		$	(0.45	)	$	1.28		$	0.77			$	0.41
Diluted (loss) income per share:
(Loss) income from continuing operations	$	(3.53	)		$	(0.38	)	$	1.28		$	0.75			$	0.29
Income (loss) from discontinued operations, net of income tax effect	0.04				(0.07		)	(0.03		)	—				0.05
Extraordinary item, net of income tax effect	—				—			—			—				0.07
Net (loss) income	$	(3.49	)		$	(0.45	)	$	1.25		$	0.75			$	0.41
Other Data:
Net cash provided by operating activities	$	14,445			$	7,427		$	25,846		$	32,471			$	15,472
Net cash (used in) provided by investing activities	$	(7,679	)		$	(14,677	)	$	(29,712	)	$	(11,614	)		$	42,753
Net cash used in financing activities	$	(5,574	)		$	(4,976	)	$	(4,844	)	$	(2,858	)		$	(56,467	)
Capital expenditures:
Cash	$	16,902			$	19,734		$	29,791		$	17,877			$	13,922
Non-cash(m)	256				3,445			1,925			215				—
Total capital expenditures	$	17,158			$	23,179		$	31,716		$	18,092			$	13,922

	January 1,			January 2,			December 28,				December 29,				December 30,
	2006			2005			2003				2002				2001
															(unaudited)
Balance Sheet Data:
Working capital (deficit) (n)	$	(14,241	)	$	(10,131	)		$	(1,489	)		$	3,197			$	(16,336	)
Total assets	$	218,242		$	248,884			$	247,288			$	252,163			$	246,876
Total long-term debt, capital lease and finance obligations, excluding current maturities	$	231,067		$	233,132			$	233,710			$	236,874			$	239,064
Total stockholders’ deficit	$	(141,838	)	$	(105,026	)		$	(103,152	)		$	(108,145	)		$	(99,930	)

(a)2004 included 53 weeks of operations. All other years presented included 52 weeks of operations.

(b)General and administrative expenses included stock compensation expense of $75, $223, $330, $531 and $298 for 2005, 2004, 2003, 2002 and 2001, respectively.

(c)In 2004, lump-sum cash payments to pension plan participants were in excess of the interest cost component of net periodic pension cost. As a result, we recorded additional pension expense of $2,204 in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.”

In November 2003, we announced that effective December 31, 2003, all benefits accrued under the

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pension plan would be frozen at the level attained on that date. The benefits accrued through December 31, 2003 were not reduced and will continue to be credited with interest. As a result, we recognized a one-time pension curtailment gain of $8,113 in 2003.

(d)In March 2004, we recorded a pre-tax restructuring charge of $2,627 for severance and outplacement services associated with reduction in force actions taken during the first quarter.

On October 10, 2001, we eliminated approximately 70 positions at corporate headquarters. In addition, approximately 30 positions in the restaurant construction and fabrication areas were eliminated by December 30, 2001. The purpose of the reduction was to streamline functions and reduce redundancy among our business segments. As a result of the elimination of the positions and the outsourcing of certain functions, we reported a pre-tax restructuring charge of $2,536 for severance, rent and unusable construction supplies in the year ended December 30, 2001.

We reduced the restructuring reserves by $400 and $1,900 during the years ended December 29, 2002 and December 30, 2001, respectively, since the reserves exceeded estimated remaining payments.

(e)In January 2004, we reached a settlement in a lawsuit filed against a former administrator of one of our benefit plans. The settlement was based on the administrator’s alleged failure to adhere to the terms of a contract and resulted in a one-time payment to us of $3,775, which was received on April 2, 2004. As a result of this lawsuit, we incurred professional fees of approximately $500 which were included in the accompanying consolidated statement of operations for the year ended December 28, 2003 and an additional $131 in professional fees that were offset against the payment in the accompanying consolidated statement of operations for the year ended January 2, 2005.

(f)Write-downs of property and equipment primarily related to property and equipment to be held and used or disposed of through early lease terminations.

(g)Net gains recorded in connection with sales of equipment, operating rights and properties to franchisees.

(h)Interest expense was net of capitalized interest of $25, $61, $144, $0 and $93 and interest income of $682, $702, $838, $808 and $581 for 2005, 2004, 2003, 2002 and 2001, respectively.

(i)In March 2004, $127,357 of aggregate principal amount of our 10.5% senior notes was purchased at the tender offer and consent solicitation price of 104% of the principal amount and $476 of aggregate principal amount of our 10.5% senior notes were purchased at the tender offer price of 102% of the principal amount. In April 2004, the remaining $48,144 of our 10.5% senior notes was redeemed in accordance with our senior notes indenture at 103.5% of the principal amount. In connection with the tender offer, we wrote off unamortized deferred financing costs of $2,445 and paid a premium of $6,790 that was included in the accompanying consolidated statement of operations for the year ended January 2, 2005. The 2005 amount represented the realized gains on investments associated with the dissolution of our nonqualified deferred compensation plan.

(j)During the fourth quarter of 2005, we entered a three-year cumulative loss position and revised our projections of the amount and timing of profitability in future periods. As a result, we increased our deferred income tax valuation allowance by approximately $26,729,000 ($22,184,000 to income tax expense and $4,545,000 to accumulated other comprehensive loss) to reduce the carrying value of deferred tax assets to zero (Note 8 of Notes to Consolidated Financial Statements).

(k)Income from discontinued operations, net represented the results of operations of properties closed during 2005 and the related net gain on the disposals, as well as the results of operations of properties held for sale at January 1, 2006, net of income taxes (Note 5 of Notes to Consolidated Financial Statements).

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(l)Extraordinary item, net represents the $4,255 gain on the repurchase of our 10.5% senior notes net of (i) $2,806 of deferred financing costs which were expensed as a result of the repayment of term loans in July 2001 and the repayment of our previous credit facility and the repurchase of $21,300 of our 10.5% senior notes in December 2001, (ii) $522 of expenses associated with releasing mortgages, etc. in connection with the repayment of our previous credit facility and (iii) $380 of income taxes.

(m)Non-cash capital expenditures represent the cost of assets acquired through the incurrence of capital lease obligations and the utilization of lease incentives.

(n)Working capital (deficit) includes assets classified as held for sale in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” for all years presented (Notes 5 and 6 of Notes to Consolidated Financial Statements).

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Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company and the related Notes thereto included elsewhere herein.

Overview

Our revenues are derived primarily from the operation of full-service restaurants, the distribution and sale of premium ice cream desserts through retail locations and franchising. As of January 1, 2006, we operated 314 full-service restaurants, franchised 206 full-service restaurants and seven non-traditional units and manufactured a full line of premium ice cream desserts distributed through more than 4,500 supermarkets and other retail locations in 13 states. We were publicly held from 1968 until January 1979, at which time we were acquired by Hershey Foods Corporation (“Hershey”). Under Hershey’s ownership, the number of Company-operated restaurants increased from 601 to 849. Hershey subsequently sold us in September 1988 to The Restaurant Company (“TRC”) in a highly-leveraged transaction (the “TRC Acquisition”).

The high leverage associated with the TRC Acquisition has severely impacted our liquidity and profitability. As of January 1, 2006, we had a stockholders’ deficit of $141.8 million. Cumulative net interest expense of $606.4 million since the TRC Acquisition has significantly contributed to the deficit. Our net loss in 2005 of $27.3 million included $20.9 million of interest expense, net and a provision for income taxes of $20.0 million primarily due to an increase in our deferred income tax valuation allowance. The degree to which we are leveraged could have important consequences, including the following: (i) potential impairment of our ability to obtain additional financing in the future; (ii) because borrowings under our credit facility and mortgage financing in part bear interest at floating rates, we could be adversely affected by any increase in prevailing rates; (iii) we are more leveraged than certain of our principal competitors, which may place us at a competitive disadvantage; and (iv) our substantial leverage may limit our ability to respond to changing business and economic conditions and make us more vulnerable to a downturn in general economic conditions. We have reported net (loss) income of ($27.3 million), ($3.4 million), $9.5 million, $5.7 million and $3.1 million for 2005, 2004, 2003, 2002 and 2001, respectively.

Following is a summary of Company-operated and franchised units:

	For the Years Ended
	January 1,			January 2,			December 28,
	2006			2005			2003
Company Units:
Beginning of year		327			355			362
Openings		2			4			3
Refranchised closings		(15	)		(27	)		—
Closings		—			(5	)		(10	)
End of year		314			327			355
Franchised Units:
Beginning of year		195			163			162
Refranchised openings		15			27			—
Openings		6			8			6
Closings		(3	)		(3	)		(5	)
End of year		213			195			163

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Discontinued Operations

During 2005, we disposed of five properties by sale and nine properties other than by sale, including lease terminations. During December 2005, we closed seven restaurants and committed to a plan to sell those seven restaurants as well as four restaurants that were closed in 2004. At January 1, 2006, these 11 properties met the criteria for “held for sale” as defined in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

In accordance with SFAS No. 144, the results of operations of the 14 properties that were disposed of during 2005 and the related net gain on the disposals, as well as the results of operations of the 11 properties held for sale at January 1, 2006, were reported separately as discontinued operations in the accompanying consolidated statements of operations for all years presented. See Note 5 of Notes to Consolidated Financial Statements.

2005 Compared to 2004

Revenues:

Total Revenues—Total revenues decreased $26.3 million, or 4.7%, to $531.3 million in 2005 from $557.6 million in 2004. Fiscal 2004 included a 53rd week of operations. The additional week contributed $10.7 million in total revenues as restaurants, foodservice and franchise segments provided $9.0 million, $1.5 million and $0.2 million, respectively.

Restaurant Revenues—Restaurant revenues decreased $31.0 million, or 7.2%, to $400.8 million in 2005 from $431.8 million in 2004. Comparable Company-operated restaurant revenues decreased 1.2% from 2004 to 2005. Higher prices for gasoline, especially during the three weeks in September 2005 post hurricane Katrina, appeared to have had a negative impact on the number of customer visits during all day-parts, with our afternoon and evening snack periods experiencing the greatest declines. Comparable sales decreased 1.3% for the fourth quarter of 2005 compared to the same period in 2004, but were flat the last two months of 2005. Also contributing to the reduced comparable revenues was an unfavorable shift in the timing of the year-end holiday period as 2004 included January 1, 2004 and January 1, 2005. Also, there were additional operating days lost due to weather closings in 2005 when compared to 2004 as most markets in New England recorded higher than normal snowfall. The 53rd week of operations in 2004 contributed $9.0 million to the restaurant sales decline. Additionally, the closing of five locations and the re-franchising of 42 locations over the past 24 months resulted in declines of $1.6 million and $20.3 million, respectively, in restaurant revenues in 2005 as compared to 2004. These declines were partially offset by increased revenues of $4.1 million in 2005 as compared to 2004 due to the opening of six new restaurants over the past 24 months. There were two new restaurants opened during the year ended January 1, 2006.

Foodservice Revenues—Foodservice (product sales to franchisees and retail customers) revenues increased $3.5 million, or 3.0%, to $116.1 million in 2005 from $112.6 million in 2004. This increase was primarily due to a $3.9 million increase in franchised restaurant product revenue resulting from the increased number of franchised restaurants in 2005 compared to 2004, which was partially offset by a decrease in franchised restaurant product revenue of $1.1 million due to the 53rd week of operations in 2004. Additionally, Foodservice revenues were adversely impacted by a $0.4 million decrease in sales to foodservice retail supermarket customers in 2005 compared to 2004 as a result of greater discounting in 2005. Case volume in our retail supermarket business increased 0.7% for the year ended January 1, 2006 when compared to the year ended January 2, 2005 primarily as a result of higher volume of individual sundae cups and the introduction of new decorative cakes. Discounting and sales allowances were 0.7% greater as a percentage of gross revenues in 2005 when compared to 2004. Foodservice retail revenues were $0.4 million during the 53rd week in 2004.

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Franchise Revenues—Franchise royalty and fee revenues increased $1.3 million, or 9.5%, to $14.5 million in 2005 compared to $13.2 million in 2004 due primarily to increases in royalties on franchised sales and rental income for leased and subleased franchise locations, partially offset by a decline in franchise fees.

Royalties on franchised sales increased $0.8 million in 2005 as compared to 2004. Comparable franchised revenues grew 0.4% from the year ended January 2, 2005 to the year ended January 1, 2006. The opening of 13 new franchise restaurants and one café and 42 re-franchised restaurants during the last 24 months increased royalty revenues by $1.1 million while the closing of six under-performing locations during the same period reduced royalties by $0.2 million. Royalties were $0.2 million during the 53rd week in 2004.

Franchise fees declined by $0.5 million during 2005 when compared to 2004. We re-franchised 15 Company-operated restaurants and franchisees opened six new restaurants during 2005 as compared to the re-franchising of 27 Company-operated restaurants and the opening of seven new restaurants and one new café during 2004. Additionally in 2004, we received $0.1 million in franchise fees associated with the sale of leasehold improvements and equipment and assignment of the lease for one re-franchised location and the sale of equipment at three other re-franchised locations to the existing franchisee.

An increase in rental income for leased and subleased franchise locations of $1.0 million, due primarily to an increased number of leased and subleased franchised locations, also contributed to the higher revenues in 2005 compared to 2004. There were 213 and 195 franchise units open at January 1, 2006 and January 2, 2005, respectively.

Cost of sales:

Cost of sales decreased $5.2 million, or 2.4%, to $205.3 million in 2005 from $210.5 million in 2004. Cost of sales as a percentage of total revenues was 38.6% and 37.7% in 2005 and 2004, respectively. A shift in sales mix from Company-operated restaurant sales to foodservice sales added to the increase in cost of sales as a percentage of total revenue. Foodservice sales to franchisees and retail supermarket customers (21.8% and 20.2% of total revenues for the years ended January 1, 2006 and January 2, 2005, respectively) have higher food costs as a percentage of revenue, at 92.2%, than sales in Company-operated restaurants to restaurant patrons. This increase was partially offset by the growth in franchise revenues, which reduced cost of sales as a percentage of total revenues by 0.2% in 2005 when compared to 2004 since franchise revenues have no product costs associated with such revenues. Additionally, foodservice retail sales promotional allowances, recorded as offsets to revenues, increased by 0.7% in 2005 as a percentage of sales to foodservice retail supermarket customers when compared to 2004 due to an increase in discounting activities during 2005. This increase had an unfavorable impact on the overall cost of sales as a percentage of total revenues. Manufacturing efficiencies improved during the current year when compared to a year ago, especially during the third and fourth quarters, due to cost reductions associated with scheduling improvements; however, higher fuel costs in 2005 versus 2004 offset most of the benefit.

Restaurant cost of sales as a percentage of restaurant revenues was 27.0% and 27.2% in 2005 and 2004, respectively.

The relatively high price of butter in December 2004 resulted in unfavorable cream costs in the first quarter of 2005, as the market price of butter is generally reflected in our cost of sales approximately 30 days later. During the remainder of 2005, butter prices had a favorable impact on the price of cream when compared to the same period in 2004. The cost of cream was approximately $1.1 million lower in the year ended January 1, 2006 when compared to the year ended January 2, 2005. In 2005, market losses of $0.2 million were realized due to unfavorable positions on commodity option contracts while market gains of $0.6 million were realized in 2004. We enter into commodity option contracts from time to time to manage dairy cost pressures. Our commodity option contracts do not meet hedge accounting criteria as defined by

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SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and its related amendment, SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, and, accordingly, are marked to market each period with the resulting gains or losses recognized in cost of sales.

The table below shows the average monthly price of a pound of AA butter. Futures and options on AA butter are traded on the Chicago Mercantile Exchange and AA butter is the commodity used to derive the price of cream. The prices shown were obtained from market quotes provided by the United States Department of Agriculture’s (“USDA”) Agricultural Marketing Service.

Month:	2005		2004		2003		2002		2001
January	$	1.5775	$	1.4320	$	1.0815	$	1.3454	$	1.2531
February	1.6145		1.7132		1.0405		1.2427		1.3852
March	1.5527		2.1350		1.0915		1.2473		1.5708
April	1.4933		2.2204		1.0906		1.1712		1.8217
May	1.4044		2.0363		1.0919		1.0590		1.8713
June	1.5313		1.9300		1.1142		1.0427		1.9783
July	1.6210		1.7458		1.1985		1.0302		1.8971
August	1.6861		1.5408		1.1708		0.9752		2.0880
September	1.6988		1.7656		1.1731		0.9635		2.0563
October	1.6204		1.6475		1.1846		1.0315		1.4070
November	1.4260		1.9238		1.2057		1.0425		1.3481
December	1.3552		1.7083		1.2969		1.1198		1.2793
Mathematical Avg	$	1.5484	$	1.8166	$	1.1450	$	1.1059	$	1.6630

The cost of cream, the principal ingredient used in making ice cream, affects cost of sales as a percentage of total revenues, especially in foodservice’s retail business. A $0.10 increase in the cost of a pound of AA butter adversely affects our annual cost of sales by approximately $0.9 million. This adverse impact may be offset by price increases or other factors. However, no assurance can be given that we will be able to offset any cost increases in the future and future increases in cream prices could have a material adverse effect on our results of operations. To minimize risk, alternative supply sources continue to be pursued.

We purchased butter option contracts through the third quarter of 2005 to minimize the impact of increases in the cost of cream. When available, options on butter futures were purchased to cover up to 50% of the cream needs of the manufacturing plant. Option contracts are offered in the months of March, May, July, September, October and December; however, there is often not enough open interest in them to allow us to buy even very limited coverage without paying an exorbitant premium.

On September 19, 2005, the Chicago Mercantile Exchange launched the first electronically traded, cash-settled butter futures contract. This new futures contract is designed to meet the needs of food and dairy companies that have exposure to butterfat price risk but do not want to expose themselves to the possibility of being compelled to take physical delivery of butter. The size of the contract is 20,000 pounds of AA butter, versus the traditional butter futures contract, which is 40,000 pounds. The contract is cash settled based upon the USDA monthly weighted average price for butter in the United States. With this new type of futures contract, there is no risk of delivery of butter; therefore it offers us the ability to hedge the price risk of cream (on a butter basis) without having to take delivery of commodity butter. We have evaluated this new hedging instrument and believe it is an attractive way to hedge the price risk related to cream. During the fourth quarter of 2005, we purchased a small number of these contracts, but did not achieve a significant level of protection.

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Labor and benefits:

Labor and benefits decreased $14.1 million, or 9.0%, to $144.0 million in 2005 from $158.1 million in 2004. Labor and benefits as a percentage of total revenues decreased to 27.1% in 2005 from 28.4% in 2004. As a percentage of restaurant revenues, labor and benefits decreased to 35.9% in 2005 from 36.6% in 2004. Lower hourly labor costs accounted for 0.7% of the decrease in labor and benefits costs as a percentage of restaurant revenues, which was primarily the result of restructuring of the restaurant management team with fewer guest service supervisors and more servers, resulting in lower average hourly rates. Restaurant general manager bonuses were also lower during 2005 when compared to 2004 due primarily to a change in the bonus plan and accounted for 0.5% of the year-to-year decrease in labor and benefits costs as percentage of restaurant revenues. Partially offsetting these benefits were increases in pension expense and other fringe costs of 0.4% and 0.1%, respectively, in 2005 when compared to 2004. Revenue increases derived from franchised locations and product sales to franchisees and retail customers, which do not have any associated restaurant labor and benefits, also contributed to the lower labor and benefits as a percentage of total revenues.

Operating expenses:

Operating expenses were $105.8 million and $104.7 million in 2005 and 2004, respectively. Operating expenses as a percentage of total revenues were 19.9% and 18.8% in 2005 and 2004, respectively. The 1.1% increase in operating expenses as a percentage of total revenues resulted from higher restaurant costs for maintenance and utilities of 0.6% and 0.4% in 2005 when compared to 2004, respectively. Foodservice retail supermarket selling expenses increased 0.1% as a percentage of total revenues. Total advertising costs as a percentage of total revenues were 0.1% lower in 2005 when compared to 2004.

General and administrative expenses:

General and administrative expenses were $38.7 million and $40.0 million in 2005 and 2004, respectively. General and administrative expenses as a percentage of total revenues were 7.3% and 7.2% in 2005 and 2004, respectively. The $1.3 million decrease was primarily the result of decreases in bonuses ($0.6 million), outside restaurant guest evaluation services ($1.0 million), Sarbanes-Oxley related audit fees ($0.2 million), legal fees ($0.2 million, net of insurance reimbursements of $0.6 million), Board of Director fees ($0.2 million) and recruitment costs ($0.5 million). Partially offsetting these decreases were higher costs of $0.9 million and $0.6 million for other professional services and severance pay, respectively, during 2005 as compared to 2004.

Pension settlement expense (curtailment gain):

Certain of our employees are covered under a noncontributory defined benefit pension plan. During 2004, lump-sum cash payments to participants exceeded the interest cost component of net periodic pension cost for the plan year. As a result of the settlement volume, we recorded additional pension expense of $2.2 million.

Restructuring expenses:

Restructuring expenses of $2.6 million during the year ended January 2, 2005 related to severance and other benefits associated with reduction in force actions taken during the first quarter of 2004 that reduced headcount by approximately 20 permanent positions.

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Gain on litigation settlement:

In January 2004, we reached a settlement in a lawsuit that we filed against a former administrator of one of our benefit plans. The settlement was based on the administrator’s alleged failure to adhere to the terms of a contract and resulted in a one-time payment to us of approximately $3.8 million, which was received on April 2, 2004. As a result of this lawsuit, we incurred professional fees of approximately $0.5 million that were included in the consolidated statement of operations for the year ended December 28, 2003 and an additional $0.2 million in professional fees that were offset against the payment in the accompanying consolidated statement of operations for the year ended January 2, 2005.

Write-downs of property and equipment:

Write-downs of property and equipment were $2.5 million and $0.1 million in 2005 and 2004, respectively. During 2005, we determined that the carrying values of six restaurant properties and certain capital inventory used to replace restaurant equipment exceeded their estimated fair values less costs to sell. The carrying values were reduced by an aggregate of $2.5 million accordingly. During 2004, it was determined that the carrying value of one property and a vacant land parcel exceeded their estimated fair values less costs to sell and the carrying values were reduced by an aggregate of $0.1 million accordingly.

Depreciation and amortization:

Depreciation and amortization was $23.4 million and $22.6 million in 2005 and 2004, respectively. Depreciation and amortization as a percentage of total revenues was 4.4% and 4.1% in 2005 and 2004, respectively. The increase in depreciation expense was primarily the result of the opening of six new restaurants over the last 24 months and the reduction of the lives of leasehold improvement assets as a result of management decisions to close certain leased properties sooner than previously anticipated.

Gain on franchise sales of restaurant operations and properties:

Gain on franchise sales of restaurant operations and properties was $2.7 million and $1.3 million in 2005 and 2004, respectively. During the year ended January 1, 2006, we recognized a gain of $2.7 million associated with the sale of certain equipment assets, lease and sublease rights and franchise rights in nine existing Company-operated restaurants to four franchisees. During the year ended January 2, 2005, we recognized a gain of approximately $0.7 million associated with the sale of certain equipment assets, lease and sublease rights and franchise rights in 10 existing Company-operated restaurants to a franchisee. Additionally, during 2004, we sold leasehold improvements and equipment and assigned the lease for one re-franchised location and sold equipment at three other re-franchised locations to the existing franchisee, resulting in a gain of approximately $0.3 million. We also sold the real property and equipment for one re-franchised location and assigned the lease and sold the equipment for a second re-franchised location to the existing franchisee, resulting in a gain of approximately $0.3 million during 2004.

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Loss on disposals of other property and equipment, net:

The loss on disposals of other property and equipment, net, was $1.0 million and $0.2 million in 2005 and 2004, respectively. The table below identifies the components of the loss on disposals of other property and equipment, net as shown on the accompanying consolidated statements of operations (in thousands):

	For the Years Ended
	January 1,			January 2,
	2006			2005
Restaurant equipment assets retired due to remodeling		$	225		$	195
Restaurant equipment assets retired due to replacement		200			442
Loss on property not held for disposition		118			63
Loss on abandoned capital projects and architectural plans		108			—
Gain on property held for disposition		—			(782		)
All other		379			295
Loss on disposals of other property and equipment, net		$	1,030		$	213

Interest expense, net:

Interest expense, net of capitalized interest and interest income was $20.9 million and $22.3 million in 2005 and 2004, respectively. The decrease in interest expense in 2005 compared to 2004 was primarily due to lower interest rates on our debt as a result of the refinancing of $176.0 million of our 10.5% senior notes due December 1, 2007.

Other (income) expense, principally debt retirement costs:

Other (income) expense, principally debt retirement costs of $0.1 million in 2005 represented the realized gains on investments sold in association with the dissolution of our nonqualified deferred compensation plan. Other (income) expense, principally debt retirement costs in 2004 represented the $6.8 million premium and the write-off of unamortized deferred financing costs of $2.4 million in connection with the tender offer for the $176.0 million of 10.5% senior notes. In March 2004, $127.8 million of aggregate principal amount of 10.5% senior notes were purchased pursuant to the tender offer and in April 2004, the remaining $48.2 million of 10.5% senior notes were redeemed in accordance with the 10.5% senior notes indenture at 103.5% of the principal amount.

(Provision for) benefit from income taxes:

The provision for income taxes was $20.0 million in 2005. Management evaluates the need for a valuation allowance on a quarterly basis. A more in depth evaluation is made as part of the annual and strategic planning process conducted in the fourth quarter of each year.

As of January 1, 2006, we had approximately $32.1 million of net deferred tax assets relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences that are available to reduce income taxes in future years. SFAS No. 109 “Accounting for Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates, length of carryback and carryforward periods, and projections of future operating results. Where there are cumulative losses in recent years, SFAS No. 109 creates a strong presumption that a valuation allowance is needed. The presumption can be overcome in very limited circumstances.

During the fourth quarter of 2005, we entered a three-year cumulative loss position and revised our projections of the amount and timing of profitability in future periods. As a result, we increased our

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valuation allowance by approximately $26.7 million ($22.2 million to income tax expense and $4.5 million to stockholders’ deficit) to reduce the carrying value of deferred tax assets to zero.

We expect to record a full valuation allowance on future tax benefits until we can sustain an appropriate level of profitability. However, going forward should our return to profitability provide sufficient evidence, in accordance with SFAS No. 109, to support the ultimate realization of income tax benefits attributable to net operating loss and credit carryforwards and other deductible temporary differences, a reduction in the valuation allowance may be recorded and the carrying value of deferred tax assets may be restored, resulting in a non-cash credit to earnings.

The 2005 provision for income taxes also included a $1.4 million increase in income tax accruals related to income tax audits and other tax matters as the IRS is currently auditing fiscal years 2002 through 2004. During the second quarter of 2005, we recorded $0.2 million of the increase and during the fourth quarter of 2005, we recorded an additional $1.2 million.

The benefit from income taxes was $7.1 million, an effective tax rate of 71.4%, in 2004, as the final benefit from income taxes for 2004 included a $2.2 million reversal of income tax accruals recorded in prior years. These accruals related to tax matters that, based upon additional information obtained during the fourth quarter of 2004, were no longer necessary. The reversal was recorded in the fourth quarter of 2004. The benefit from income taxes in 2004 was favorably impacted by the generation of Federal General Business Credits.

(Loss) income from continuing operations:

Loss from continuing operations was $27.6 million and $2.9 million for 2005 and 2004, respectively, for the reasons discussed above.

Income (loss) from discontinued operations:

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the results of operations of a component of an entity that either has been disposed of or is classified as held for sale and any related gain (loss) on the sales are reported in discontinued operations.

Income (loss) from the discontinued operations of 14 properties that were disposed of during 2005 and 11 properties that were classified as held for sale at January 1, 2006 consisted of the following
(in thousands):

	For the Years Ended
	January 1,				January 2,
	2006				2005
Net sales		$	10,499			$	16,898
Pretax loss		(1,548		)		(938		)
Gain on disposals of property and equipment		2,115				—
Income tax (expense) benefit		(232		)		385
Income (loss) from discontinued operations		$	335			$	(553	)

2004 Compared to 2003

Revenues:

Total Revenues—Total revenues decreased $4.8 million, or 0.9%, to $557.6 million in 2004 from $562.4 million in 2003. Fiscal 2004 included a 53rd week of operations. The additional week contributed $10.7 million in total revenues as restaurants, foodservice and franchise segments provided $9.0 million, $1.5 million and $0.2 million, respectively.

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Restaurant Revenue—Restaurant revenues decreased $10.6 million, or 2.4%, to $431.8 million in 2004 from $442.4 million in 2003. Excluding the impact of the 53rd week of operations, comparable Company-operated restaurant revenues decreased 0.6% from 2003 to 2004 as declines occurred in lunch and snack dayparts with the largest occurring during the evening snack period. The unfavorable impact of record snowfall during the first quarter of 2003 had a favorable impact on restaurant revenues when compared to the first quarter of 2004, as operating days lost due to weather closings were minimal in 2004. However, sales growth in the fast food restaurant segment, higher gas prices and fewer ninety-degree summer days in the Northeast may have contributed to a decline in comparable restaurant revenues during 2004. Nine and 34 restaurants were re-imaged during 2004 and 2003, respectively. The closing of 15 Company-operated restaurants and the refranchising of 27 restaurants over the 24 months ended January 2, 2005 resulted in restaurant revenue declines of $5.6 million and $18.0 million, respectively, during 2004 as compared to 2003. These declines were partially offset by a $5.6 million increase in restaurant revenues due to the opening of seven new restaurants over the 24 months ended January 2, 2005. Four of the new restaurants were opened in 2004.

Foodservice Revenues—Foodservice revenues (product sales to franchisees and retail customers) increased $2.4 million, or 2.2%, to $112.6 million in 2004 from $110.2 million in 2003. Franchised restaurant product revenues increased by $9.3 million in 2004 as compared to 2003 due primarily to the increased number of franchised restaurants and selling price increases related to increased costs of dairy and other manufacturing ingredients and food and supply items. Sales to foodservice retail supermarket customers declined by $6.9 million from 2003 to 2004 due primarily to a decline in case volume sold to retail supermarket customers. Case volume in our retail supermarket business fell by 8.7% in 2004 when compared to 2003. Increases in competitive discounting and a higher non-discounted selling price to final consumers, as a result of higher ingredient costs, may have contributed to the case decline. During the quarter ended March 28, 2004, we reduced the size of our retail ice cream container to a 56-ounce product from a 64-ounce product.

Franchise Revenues—Franchise royalty, fee and rental revenues increased $3.4 million, or 34.4%, to $13.2 million in 2004 compared to $9.8 million in 2003.

Royalties on franchised restaurant sales increased $1.6 million in 2004 when compared to 2003 as the number of franchised units increased and comparable franchised restaurant revenues grew 2.7% from 2003 to 2004. The opening of 14 new franchised restaurants and the refranchising of 27 Company-operated restaurants during the 24 months ended January 2, 2005 increased royalty revenues by $1.1 million while the closing of eight under-performing locations during the same period had no material impact on royalty revenues.

Franchise fees increased by $0.7 million during 2004 when compared to 2003 due primarily to the refranchising of 27 Company-operated restaurants, the opening of seven new restaurants and the opening of one new café during 2004. There were six new franchised restaurants opened and no Company-operated restaurants re-franchised in 2003.

An increase in rental income for leased and subleased franchise locations of $1.1 million in 2004 when compared to 2003 also contributed to the higher franchise revenues. This increase was partially offset by $0.3 million received in 2003 pursuant to an agreement releasing a franchisee from all obligations and guarantees related to certain leases associated with franchised locations. There were 195 and 163 franchise units open at January 2, 2005 and December 28, 2003, respectively.

Cost of sales:

Cost of sales increased $8.2 million, or 4.0%, to $210.5 million in 2004 from $202.3 million in 2003. Cost of sales as a percentage of total revenues was 37.7% and 36.0% in 2004 and 2003, respectively. Higher commodity costs, especially for cream, raw milk and vanilla had an unfavorable impact on cost of sales as a percentage of total revenues. A shift in sales mix from Company-operated restaurant sales to foodservice sales added to the increase in cost of sales as a percentage of total revenues. Foodservice sales to

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franchisees and retail supermarket customers (20.2% and 19.6% of total revenues in 2004 and 2003, respectively) have a higher food cost as a percentage of revenue than sales in Company-operated restaurants to restaurant patrons. Foodservice retail sales promotional allowances, recorded as offsets to revenues, increased by 4.6% in 2004 as a percentage of gross retail sales when compared to 2003 as a result of a change in mix of promotional activities. This increase had an unfavorable impact on the overall cost of sales as a percentage of total revenues. Distribution costs were higher in 2004 when compared to 2003 as a result of the unfavorable impact of new federal restrictions imposed on driver hours, higher fuel costs, additional operating leases for new equipment and increases in general liability insurance. Restaurant cost of sales as a percentage of restaurant revenues increased to 27.2% in 2004 from 26.8% in 2003 as menu price increases have lagged increases in the commodity costs mentioned above. The conversion during the first quarter of 2004 from a 64-ounce container to a 56-ounce container and gains realized in the first quarter of 2004 due to favorable positions on options for butter futures contracts partially offset higher prices for cream and other commodities. The benefits derived from options for butter futures contracts realized in the first quarter of 2004 did not continue during the remainder of 2004. The growth in franchise royalty, fee and rental revenues reduced cost of sales as a percentage of total revenues by 0.2% in 2004 when compared to 2003.

Labor and benefits:

Labor and benefits decreased $1.3 million, or 0.8%, to $158.1 million in 2004 from $159.4 million in 2003. Labor and benefits as a percentage of total revenues was 28.4% and 28.3% in 2004 and 2003, respectively. As a percentage of restaurant revenues, labor and benefits increased to 36.6% in 2004 from 36.1% in 2003. The increase in labor and benefits as a percentage of restaurant revenues was due to training costs associated with the rollout of a new point of sale register system in 300 restaurants during 2004 and declines in labor scheduling efficiencies during the first quarter of 2004, especially during off meal periods in the winter months. Day to day weather changes, particularly in the winter months, can result in over scheduling labor when daypart sales fall short of expectations. In April 2004, we initiated a program to reinforce proper labor scheduling techniques. Accordingly, labor and benefits as a percentage of restaurant revenues improved in the latter half of 2004 when compared to the same period in 2003. Payroll taxes, insurance costs and general manager compensation also increased as a percentage of sales in 2004 when compared to 2003. Revenue increases derived from franchised locations and retail supermarket customers, which do not have any associated restaurant labor and benefits, reduced the impact of the higher restaurant labor and benefits as a percentage of total revenues.

Operating expenses:

Operating expenses increased $0.8 million, or 0.8%, to $104.7 million in 2004 from $103.9 million in 2003. Operating expenses as a percentage of total revenues were 18.8% and 18.5% in 2004 and 2003, respectively. The percentage increase primarily resulted from increased general liability insurance costs, restaurant menu costs, kid premium supply costs and new restaurant pre-opening expenses in 2004 when compared to 2003.

General and administrative expenses:

General and administrative expenses were $40.0 million and $41.7 million in 2004 and 2003, respectively. General and administrative expenses as a percentage of total revenues decreased to 7.2% in 2004 from 7.4% in 2003. The dollar decrease is primarily the result of lower bonus expense and a reduction in salaries and wages, which resulted from the elimination of certain positions during the first quarter of 2004. The decrease was partially offset by increased medical insurance, computer rental costs and legal, accounting, recruitment and other professional fees in 2004 when compared to 2003. During 2004, we also recorded a charge for future rents associated with a vacated training facility. We incurred higher accounting fees related to documenting and testing our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002.

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Pension settlement expense (curtailment gain):

Certain of our employees are covered under a noncontributory defined benefit pension plan. During 2004, lump-sum cash payments to participants exceeded the interest cost component of net periodic pension cost for the plan year. As a result of the settlement volume, we recorded additional pension expense of $2.2 million.

In November 2003, we announced that effective December 31, 2003, all benefits accrued under the pension plan would be frozen at the level attained on that date. The benefits accrued through December 31, 2003 were not reduced and cash balance accounts will continue to be credited with interest after that date. As a result, we recognized a one-time pension curtailment gain of $8.1 million in 2003 equal to the unamortized balances as of December 31, 2003 from all plan changes prior to that date.

Restructuring expenses:

Restructuring expenses of $2.6 million related to severance and other benefits associated with reduction in force actions taken during the first quarter of 2004 that reduced headcount by approximately 20 permanent positions.

Gain on litigation settlement:

In January 2004, we reached a settlement in a lawsuit that we filed against a former administrator of one of our benefit plans. The settlement was based on the administrator’s alleged failure to adhere to the terms of a contract and resulted in a one-time payment to us of approximately $3.8 million, which was received on April 2, 2004. As a result of this lawsuit, we incurred professional fees of approximately $0.5 million that were included in the consolidated statement of operations for the year ended December 28, 2003 and an additional $0.2 million in professional fees that were offset against the payment in the accompanying consolidated statement of operations for the year ended January 2, 2005.

Write-downs of property and equipment:

Write-downs of property and equipment were $91,000 and $26,000 in 2004 and 2003, respectively. During 2004, it was determined that the carrying value of one restaurant property and the carrying value of a vacant land parcel exceeded their estimated fair values less costs to sell. The 2003 write-down related to a vacant land parcel.

Depreciation and amortization:

Depreciation and amortization was $22.6 million and $22.7 million in 2004 and 2003, respectively. Depreciation and amortization as a percentage of total revenues was 4.1% and 4.0% in 2004 and 2003, respectively.

Gain on franchise sales of restaurant operations and properties:

Gain on franchise sales of restaurant operations and properties was $1.3 million in 2004 due primarily to the sale of certain equipment assets, lease and sublease rights and franchise rights in 10 existing Company-operated restaurants to a franchisee.

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Loss on disposals of other property and equipment, net:

The loss on disposals of other property and equipment, net was $0.2 million and $2.0 million in 2004 and 2003, respectively. The table below identifies the components of the loss on disposals of other property and equipment, net as shown in the accompanying consolidated statements of operations (in thousands):

	For the Years Ended
	January 2,				December 28,
	2005				2003
Restaurant equipment assets retired due to replacement		$	442			$	387
Restaurant assets retired due to remodeling		195				1,235
Loss on property not held for disposition		63				—
(Gain) loss on property held for disposition		(782		)		280
All other		295				142
Loss on disposals of other property and equipment, net		$	213			$	2,044

Interest expense, net:

Interest expense, net of capitalized interest and interest income, was $22.3 million and $24.2 million in 2004 and 2003, respectively. In March 2004, $127.8 million of aggregate principal amount of our 10.5% senior notes were purchased in a tender offer with the proceeds from the issuance of $175.0 million of 8.375% new senior notes. In April 2004, the remaining $48.2 million of 10.5% senior notes were redeemed in accordance with the 10.5% senior notes indenture at 103.5% of the principal amount. In 2004, interest expense, which related primarily to the 8.375% senior notes, was reduced by $2.6 million compared to interest expense in 2003, which related to the 10.5% senior notes, including an additional $0.3 million related to the 53rd week of operations in 2004. Interest associated with capital lease obligations increased $0.4 million with the rollout of a new point of sale register system in 300 restaurants during 2004.

Other expenses, principally debt retirement costs:

Other expenses, principally debt retirement costs represented the $6.8 million premium and the write off of unamortized deferred financing costs of approximately $2.4 million in connection with the tender offer for the $176.0 million of our 10.5% senior notes. In March 2004, $127.8 million of aggregate principal amount of our 10.5% senior notes were purchased pursuant to the tender offer and in April 2004, the remaining $48.2 million of 10.5% senior notes were redeemed in accordance with the 10.5% senior notes indenture at 103.5% of the principal amount.

Benefit from (provision for) income taxes:

The benefit from income taxes for 2004 included a $2.2 million reversal of income tax accruals recorded in prior years. This accrual related to tax matters that, based upon additional information obtained during the fourth quarter of 2004, was no longer necessary. The reversal was recorded in the fourth quarter of 2004. The benefit from income taxes was $7.1 million, an effective tax rate of 71.4%, in 2004.

The provision for income taxes was $4.6 million, an effective tax rate of 32.0%, for 2003. The benefit from income taxes in 2004 and the provision for income taxes in 2003 were favorably impacted by the generation of Federal General Business Credits. We record income taxes based on the effective rate expected for the year with any changes in the valuation allowance reflected in the period of change.

(Loss) income from continuing operations:

Loss from continuing operations was $2.9 million in 2004 as compared to income from continuing operations of $9.8 million in 2003 for the reasons discussed above.

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Income (loss) from discontinued operations:

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the results of operations of a component of an entity that either has been disposed of or is classified as held for sale and any related gain (loss) on the sales are reported in discontinued operations.

Loss from the discontinued operations of 14 properties that were disposed of during 2005 and 11 properties that were classified as held for sale at January 1, 2006 consisted of the following (in thousands):

	For the Years Ended
	January 2,				December 28,
	2005				2003
Net sales		$	16,898			$	17,342
Pretax loss		(938		)		(439		)
Income tax benefit		385				180
Loss from discontinued operations		$	(553	)		$	(259	)

Liquidity and Capital Resources

General:

Our primary sources of liquidity and capital resources are cash generated from operations and, if needed, borrowings under our $35 million revolving credit facility (the “Credit Facility”). Additional sources of liquidity consist of capital and operating leases for financing leased restaurant locations (in malls and shopping centers and land or building leases), restaurant equipment, manufacturing equipment, distribution vehicles and computer equipment. Additional sources of cash are sales of under-performing existing restaurant properties and other assets and re-franchising (to the extent FICC’s and its subsidiaries’ debt instruments permit). The amount of debt financing that FICC will be able to incur is limited by the terms of our Credit Facility and 8.375% senior notes indenture. Below was the financing status of our operating restaurants as of January 1, 2006:

Owned land and building, mortgaged	61
Leased land, owned building, mortgaged	1
Sold and leased back	59
Owned land and building	18
Leased land, owned building	69
Leased land and building	106
Total Company-operated restaurants	314

The restaurants above not identified as owned land and building, mortgaged or sold and leased back secure our obligations under the Credit Facility. Of the 18 restaurant properties identified as owned land and building, six were available to be sold.

In addition to the 61 properties identified as owned land and building, mortgaged, we own and mortgage an additional 11 properties in this category, which are operated by franchisees.

In addition to our 314 operating restaurants, we have 11 closed properties that are classified as held for sale in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (Notes 5 and 6 of Notes to Consolidated Financial Statements).

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Operating Cash Flows:

Net cash provided by operating activities was $14.4 million and $7.4 million in 2005 and 2004, respectively. The increase of $7.0 million was partially due to the $6.8 million premium paid in 2004 in connection with the tender offer for the $176.0 million of 10.5% senior notes. Cash was also generated from lower inventory of $3.6 million as a result of the lower cost of cream in 2005 and from a favorable change of $4.4 million in accounts payable balances due to timing of payments. These cash increases were offset by lower sales in 2005, due in part to the 53rd week of operations in 2004. Although our net loss increased by $23.8 million in 2005 as compared to 2004, net non-cash charges including write-downs of property and equipment and an increase in the valuation allowance against deferred tax assets contributed $20.7 million to that increase.

We had a working capital deficit of $14.2 million and $10.1 million as of January 1, 2006 and January 2, 2005, respectively. Our working capital deficit includes assets classified as held for sale in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The working capital needs of companies engaged in the restaurant industry are generally low and as a result, restaurants are frequently able to operate with a working capital deficit because: (i) restaurant operations are conducted primarily on a cash (and cash equivalent) basis with a low level of accounts receivable; (ii) rapid turnover allows a limited investment in inventories; and (iii) cash from sales is usually received before related expenses for food, supplies and payroll are paid.

Investing Cash Flows:

Net cash used in investing activities was $7.7 million and $14.7 million in 2005 and 2004, respectively.

During 2005 and 2004, we spent $16.9 million and $19.7 million, respectively, on capital expenditures, excluding capital leases, of which $14.7 million and $16.8 million, respectively, was spent on restaurant operations. Capital expenditures were offset by proceeds from the sales of property and equipment of $8.2 million and $6.0 million in 2005 and 2004, respectively. The proceeds in 2005 were the result of re-franchising transactions and the sale of five restaurant properties. The proceeds in 2004 were primarily the result of re-franchising transactions.

During 2005, we completed four re-franchising transactions in which four existing franchisees purchased nine existing Company-operated restaurants and agreed to develop a total of 10 new restaurants in future years (seven more than their prior commitments). Gross proceeds from these transactions were $4.1 million, of which $0.3 million was for franchise and development fees and $3.8 million was for the sale of certain assets and leasehold rights. In addition, we completed three transactions in which three former employees received franchises to operate six existing restaurants for a period of two years with options to purchase the restaurants within the two years. If the options are exercised, one franchisee has agreed to develop two new restaurants in future years. Proceeds from option transactions will be recognized upon purchase.

During 2005, we also disposed of five properties by sale and nine properties other than by sale, including lease terminations. During December 2005, we closed seven restaurants and committed to a plan to sell these seven restaurants as well as four other restaurants that were closed in 2004. At January 1, 2006, these 11 properties met the criteria for “held for sale” as defined in SFAS No. 144.

In accordance with SFAS No. 144, the results of operations of the 14 properties that were disposed of during 2005 and the related net gain on the disposals, as well as the results of operations of the 11 properties held for sale at January 1, 2006, were reported separately as discontinued operations in the accompanying consolidated statements of operations. Operating losses before depreciation from these properties were $0.9 million and $0.3 million during 2005 and 2004, respectively. Gross proceeds on the disposals of the properties were $4.8 million in 2005.

During 2004, we completed four re-franchising transactions in which four franchisees purchased a total of 17 existing restaurants and agreed to develop a total of 20 new restaurants in future years. Gross

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proceeds from these transactions were $4.9 million, of which $0.8 million was for franchise fees and $4.1 million was for the sale of certain assets and leasehold rights. In addition, we completed three transactions in which three former employees received franchises to operate 10 existing restaurants, with options to purchase the restaurants within two years. If the options are exercised, the franchisees will also agree to develop 14 new restaurants in future years. Proceeds from option transactions will be recognized upon purchase.

Financing Cash Flows:

Net cash used in financing activities was $5.6 million and $5.0 million in 2005 and 2004, respectively.

Outstanding Debt:

Sale/Leaseback and Mortgage Financings.   In December 2001, we completed a financial restructuring plan which included the repayment of all amounts outstanding under our then existing credit facility and the purchase of approximately $21.3 million of our 10.5% senior notes with the proceeds from $55.0 million in long-term mortgage financing (the “Mortgage Financing”) and a $33.7 million sale and leaseback transaction (the “Sale/Leaseback Financing”).

In connection with the Sale/Leaseback Financing, we sold 44 properties operating as Friendly’s restaurants and entered into a master lease with the buyer to lease the 44 properties for an initial term of 20 years under a triple net lease. There are four five-year renewal options and lease payments are subject to escalator provisions every five years based upon increases in the Consumer Price Index.

Interest on $10.0 million of the original $55.0 million from the Mortgage Financing is variable (“Variable Mortgages”) and the remaining $45.0 million of the original $55.0 million from the Mortgage Financing bears interest at a fixed annual rate of 10.16% (“Fixed Mortgages”). The Fixed Mortgages have a maturity date of January 1, 2022 and are amortized over 20 years.

On December 30, 2005, we completed a refinancing of the Variable Mortgages (the “Variable Refinancing”). Under the terms of the loan agreement for the Variable Mortgages, we borrowed an aggregate sum of $8.5 million at a variable interest rate equal to the sum of the 90-day LIBOR rate in effect (4.54% at December 30, 2005) plus 4% on an annual basis. Changes in the interest rate are calculated monthly and recognized annually when the monthly payment amount is adjusted. Changes in the monthly payment amounts owed due to interest rate changes are reflected in the principal balances, which are re-amortized over the remaining life of the mortgages. The loans under the Variable Mortgages have a maturity date of January 1, 2020 and are being amortized over 14 years.

The primary purposes of the Variable Refinancing were to (i) reduce the variable interest rate on the Variable Mortgages from LIBOR plus 6% on an annual basis to LIBOR plus 4% on an annual basis, (ii) enable the partial prepayment of the loans, subject to applicable prepayment premiums during the first three years and an agreed upon release value for properties released in connection with partial prepayments, and (iii) permit partial lien releases on the properties subject to the loans upon partial prepayments. In addition, in connection with this transaction, we prepaid two mortgage loans from the lender in the amount of $1.0 million from existing cash.

In connection with the Variable Refinancing, we incurred direct expenses of $0.1 million that were included in the accompanying consolidated statement of operations for the year ended January 1, 2006 and $0.2 million of costs that were included in intangible assets and deferred costs in the accompanying consolidated balance sheet as of January 1, 2006. These costs will be amortized over the term of the Variable Mortgages.

Pursuant to the terms of the Mortgage Financing, we may sell properties securing our obligations provided that other properties are substituted in place of the sold properties. The substituted properties must meet certain requirements under the terms of the Mortgage Financing. In August 2005, proceeds of $0.4 million and $2.7 million were received in connection with the sale of two mortgaged properties. In

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connection with the Variable Refinancing, the mortgage on one of these properties was released. A substitution property for the second property must be in place to secure our obligations no later than May 31, 2006. As of January 1, 2006, balances of $0.4 million and $1.3 million were held as collateral pending mortgage payment and property substitution and were included in restricted cash on the accompanying consolidated balance sheet as of January 1, 2006.

In September 2005, we acquired additional financing secured by our newly constructed Milford, MA restaurant (the “Milford Mortgage”). The financing provided for a real estate improvement and equipment loan. The real estate improvement loan has a principal balance of $0.8 million and is amortized over 15 years with a balloon payment due on October 1, 2010. The equipment loan has a principal balance of $0.3 million and is amortized over seven years with a balloon payment due on October 1, 2010. The interest rate is variable and is the sum of the 90-day LIBOR rate in effect (4.54% at January 1, 2006) plus 4% on an annual basis. Changes in the interest rate are calculated monthly and recognized annually when the monthly payment amount is adjusted. Changes in the monthly payment amounts owed due to interest rate changes are reflected in the principal balances, which are re-amortized over the remaining life of the mortgages. The variable rate notes are subject to prepayment penalties during the first three years.

All mortgage financings are subject to covenants, including various minimum fixed charge coverage ratios. We were in compliance with the covenants for the Variable Mortgages and the Fixed Mortgages as of January 1, 2006. As of January 1, 2006, we were not in compliance with the fixed charge coverage ratio related to the Milford Mortgage. We obtained a waiver from the Milford Mortgage lender on March 7, 2006 waiving this covenant requirement for the year ended January 1, 2006.

8.375% Senior Notes.In 2003 and 2004, we purchased or redeemed all of the remaining outstanding 10.5% senior notes in a series of transactions. In February 2004, we announced a cash tender offer and consent solicitation for $176 million of our 10.5% senior notes which was financed with the proceeds from a $175 million private offering of new 8.375% senior notes (the “New Senior Notes”), available cash and our Credit Facility. In March 2004, $127.4 million of aggregate principal amount of 10.5% senior notes were purchased at the tender offer and consent solicitation price of 104% of the principal amount and $0.5 million of aggregate principal amount of 10.5% senior notes were purchased at the tender offer price of 102% of the principal amount. In April 2004, the remaining $48.1 million of 10.5% senior notes were redeemed in accordance with the 10.5% senior notes indenture at 103.5% of the principal amount. In connection with the tender offer, we wrote off unamortized deferred financing costs and incurred other direct expenses of $9.2 million that were included in the accompanying consolidated statement of operations for the year ended January 2, 2005.

The $175 million of New Senior Notes issued in March 2004 are unsecured senior obligations of FICC, guaranteed on an unsecured senior basis by FICC’s Friendly’s Restaurants Franchise, Inc. subsidiary, but are effectively subordinated to all secured indebtedness of FICC, including the indebtedness incurred under our Credit Facility. The New Senior Notes mature on June 15, 2012. Interest on the New Senior Notes is payable at 8.375% per annum semi-annually on June 15 and December 15 of each year. The New Senior Notes are redeemable, in whole or in part, at any time on or after June 15, 2008 at FICC’s option at redemption prices from 104.188% to 100.00%, based on the redemption date. In addition, at any time prior to June 15, 2007, FICC may redeem, subject to certain conditions, up to 35% of the aggregate principal amount of the New Senior Notes with the proceeds of one or more qualified equity offerings, as defined, at a redemption price of 108.375% of the principal amount, plus accrued interest.

Revolving Credit Facility.We have a $35.0 million revolving credit facility. The $35.0 million revolving credit commitment less outstanding letters of credit is available for borrowing to provide working capital and for other corporate needs. As of January 1, 2006 and January 2, 2005, total letters of credit outstanding were $16.0 million and $15.2 million, respectively. During 2005 and 2004, there were no drawings against the letters of credit. The revolving credit loans bear interest at our option at either (a) the base rate plus the applicable margin as in effect from time to time (the “Base Rate”) (9.75% at January 1, 2006) or (b) the Eurodollar rate plus the applicable margin as in effect from time to time (the “Eurodollar

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Rate”) (8.86% at January 1, 2006). As of January 1, 2006 there were no revolving credit loans outstanding. As of January 2, 2005, $4.0 million of revolving credit loans were outstanding. As of January 1, 2006 and January 2, 2005, $19.0 million and $15.8 million, respectively, was available for borrowing.

The Credit Facility has an annual “clean-up” provision which obligates us to repay in full any and all outstanding revolving credit loans for a period of not less than 15 consecutive days during the period beginning on or after May 1 and ending on or before June 15 (or the next business day, if, in any year, June 15 is not a business day) of each calendar year, commencing with the 2006 calendar year, such that immediately following the date of such repayment, the amount of all outstanding revolving credit loans shall be zero.

The Credit Facility matures on June 30, 2007. The Credit Facility includes certain restrictive covenants including limitations on indebtedness, restricted payments such as dividends and stock repurchases, liens, mergers, investments and sales of assets and of subsidiary stock. Additionally, the Credit Facility limits the amount which we may spend on capital expenditures, restricts the use of proceeds, as defined, from asset sales and requires that we comply with certain financial covenants. On March 15, 2006, we amended and restated the Credit Facility as of December 30, 2005 to, among other things, (i) revise certain financial covenants beginning with the fourth quarter of 2005 and extending through the Credit Facility maturity date of June 30, 2007 (including leverage, interest coverage, minimum EBITDA and the deletion of the tangible net worth covenant) and (ii) permit certain transactions to be excluded from our annual capital expenditures limit. As a result of the amendments, we were in compliance with the covenants in the Credit Facility as of January 1, 2006.

We anticipate requiring capital in the future principally to maintain existing restaurant and plant facilities and to continue to renovate and re-image existing restaurants. We anticipate that capital expenditures for 2006 will be between $20.0 million and $25.0 million in the aggregate, of which we expect to spend between $16.0 million and $20.0 million on restaurants. Our actual 2006 capital expenditures may vary from these estimated amounts. We believe that the combination of the funds generated from operating activities and borrowing availability under our Credit Facility will be sufficient to meet our anticipated operating requirements, debt service requirements, lease obligations, capital requirements and obligations associated with the corporate restructurings.

Contractual Obligations

The following represents our contractual obligations and commercial commitments as of January 1, 2006 (in thousands):

	Payments Due by Period
											Fiscal Years
			Fiscal Years								Beyond
Contractual Obligations:	Total		2006		2007 & 2008			2009 & 2010			2010
Long-term debt	$	226,320	$	1,426		$	3,386		$	4,862		$	216,646
Capital lease and finance obligations	10,159		2,119			4,088			1,466			2,486
Operating leases	144,282		18,058			31,508			25,304			69,412
Purchase commitments*	97,151		49,883			47,268			—			—

	Amount of Commitment Expiration by Period
											Fiscal Years
			Fiscal Years								Beyond
Other Commercial Commitments:	Total		2006		2007 & 2008			2009 & 2010			2010
Letters of credit	$	15,974	$	—		$	15,974		$	—		$	—

*Purchase commitments include commitments for raw materials, food products and supplies used in the normal course of business.

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Inflation

The inflationary factors that have historically affected our results of operations include increases in the costs of cream, sweeteners, purchased food, labor and other operating expenses. Approximately 13% of our restaurant employees are paid minimum wage under applicable federal and state minimum hourly wage rates. Accordingly, any changes to the federal or state minimum hourly wage rates would have an immediate impact on wages paid to these employees. In addition, a significant change in the federal or state minimum hourly wage rates may result in an increase in hourly wage rates for other employees that are currently paid above the minimum rates. We are able to minimize the impact of inflation on occupancy costs by owning the underlying real estate for approximately 25% of our restaurants. Consistent with industry practice, we typically attempt to offset the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to offset such inflationary cost increases in the future.

Seasonality

Due to the seasonality of ice cream consumption, and the effect from time to time of weather on patronage of the restaurants, our revenues and operating income are typically higher in our second and third quarters.

Geographic Concentration

Approximately 97% of the Company-operated restaurants are located, and substantially all of our retail sales are generated, in the Northeast. As a result, a severe or prolonged economic recession or changes in demographic mix, employment levels, population density, weather, real estate market conditions or other factors specific to this geographic region may adversely affect us more than certain of our competitors which are more geographically diverse.

Significant Known Events, Trends or Uncertainties

Defined Benefit Pension Plan

Certain of our employees are covered under a noncontributory defined benefit pension plan. As of December 31, 2005, the 2005 measurement date, this plan had an accumulated benefit obligation of $119.9 million, which exceeded the fair value of plan assets of $91.0 million. As a result of the underfunded status of the plan, we recorded a charge to stockholders’ deficit during the year ended January 1, 2006 of $11.1 million. We initially recorded an additional minimum pension liability in 2002, the first measurement date where the accumulated benefit obligation exceeded the fair value of plan assets. We also recorded a charge to stockholders’ deficit during the years ended December 28, 2003 and January 2, 2005 of $9.1 million and $1.3 million ($5.4 million and $0.8 million, net of income tax benefit), respectively. As of January 1, 2006, the cumulative additional minimum pension liability included in accumulated other comprehensive loss was $46.2 million ($31.8 million, net of income tax benefit and deferred income tax valuation allowance). Given the sensitivity of the projected benefit obligation to changes in discount rates, future changes in market interest rates may significantly increase or reduce the pension plan funded status.

We expect our net periodic pension cost to increase from $0.3 million in 2005 to $1.0 million in 2006.

During 2004, lump-sum cash payments to participants exceeded the interest cost component of net periodic pension cost. As a result of the settlement volume, we recorded additional pension expense of $2.2 million during the year ended January 2, 2005.

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Critical Accounting Policies

Financial Reporting Release No. 60 issued by the Securities and Exchange Commission requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The following is a brief discussion of the more significant accounting policies and methods that we use. Our Consolidated Financial Statements, including the Notes thereto, which are included elsewhere herein, should be read in conjunction with this discussion.

Use of Estimates in the Preparation of Financial Statements—

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The critical accounting policies and most significant estimates and assumptions relate to revenue recognition, insurance reserves, recoverability of accounts receivable, pension and post-retirement medical and life insurance benefits expense, asset impairment analysis, income tax valuation allowances and tax contingency reserves. Actual amounts could differ significantly from the estimates.

Revenue Recognition—

Our revenues are derived primarily from the operation of full-service restaurants, the distribution and sale of premium ice cream desserts through retail and institutional locations and franchising. We recognize restaurant revenue upon receipt of payment from the customer and foodservice revenue (product sales to franchisees and retail customers), net of discounts and allowances, upon delivery of product. Reserves for discounts and allowances from retail sales (trade promotions) are estimated and accrued when revenue is recorded based on promotional planners prepared by our retail sales force. Due to the high volume of trade promotion activity and the difficulty of coordinating trade promotion pricing with our customers, differences between our accrual and the subsequent settlement amount occur frequently. Usually these differences are individually insignificant. To address the financial impact of these differences, our estimating methodology takes these smaller differences into account. We believe our methodology has been reasonably reliable in recording trade promotion accruals. The accrual for future trade promotion settlements as of January 1, 2006 and January 2, 2005 was $5.1 million and $4.9 million, respectively. A variation of five percent in the 2005 accrual would change retail sales by approximately $0.3 million. Franchise royalty income, generally calculated as 4% of net sales of franchisees, is recorded monthly based upon the actual sales reported by each franchisee for the month just completed. Franchise fees are recorded as revenue upon completion of all significant services, generally upon opening of the restaurant.

Insurance Reserves—

We are self-insured through retentions or deductibles for the majority of our workers’ compensation, automobile, general liability, employer’s liability, product liability and group health insurance programs. Self-insurance amounts vary up to $0.5 million per occurrence. Insurance with third parties, some of which is then reinsured through Restaurant Insurance Corporation (“RIC”), our wholly owned subsidiary, is in place for claims in excess of these self-insured amounts. RIC reinsures 100% of the risk from $0.5 million to $1.0 million per occurrence through September 2, 2000 for FICC’s workers’ compensation, general liability, employer’s liability and product liability insurance. Subsequent to September 2, 2000, we discontinued our use of RIC as a captive insurer for new claims.

Our liabilities for estimated ultimate losses for workers’ compensation, automobile, general liability, employer’s liability and product liability coverages are actuarially determined and recorded in the accompanying consolidated financial statements on an undiscounted basis. The projections of estimated

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ultimate losses are based on commonly used actuarial procedures. These procedures take into consideration certain actuarial assumptions or management judgments regarding economic conditions, the frequency and severity of claims and claim settlement practices. While the estimated ultimate losses are reasonable, any actuarial estimate is subject to uncertainty due to the volatility inherent in casualty exposures and changes in the assumptions. Our provision for insurance expense reflects estimated amounts for the current year as well as revisions in estimates to prior years. Actual losses could vary significantly from the estimated losses and would have a material effect on our insurance expense. Our reserves have historically been within the range of management’s expectations.

We record a liability for our group health insurance programs for all estimated unpaid claims based primarily upon loss development analyses derived from actual claim payment experience provided by our third party administrators.

Concentration of Credit Risk—

Financial instruments, which potentially expose us to concentrations of credit risk, consist principally of accounts receivable. We perform ongoing credit evaluations of our customers and generally require no collateral to secure accounts receivable. The credit review is based on both financial and non-financial factors. We maintain a reserve for potentially uncollectible accounts receivable based on our assessment of the collectibility of accounts receivable. We recognize allowances for doubtful accounts to ensure receivables are not overstated due to uncollectibility. Bad debt reserves are maintained for customers in the aggregate based on a variety of factors, including the length of time receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when we become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances change, estimates of the recoverability of receivables would be further adjusted. Our reserves have historically been within the range of management’s expectations.

Pension and Post-Retirement Medical and Life Insurance Benefits—

Certain of our employees are covered under a noncontributory defined benefit pension plan. The determination of our obligation and expense for pension and post-retirement medical and life insurance benefits is dependent upon the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among other things, the discount rate, expected long-term rate of return on plan assets and rates of increase in health care costs. In accordance with accounting principles generally accepted in the United States, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in such future periods. Significant differences in actual experience or significant changes in the assumptions may materially affect the future pension and post-retirement medical and life insurance obligations and expense.

We used a discount rate assumption of 6.00%, 6.25% and 6.75% in the calculation of net periodic pension benefit cost for 2005, 2004 and 2003, respectively. A one-percentage point decrease in the discount rate assumption would have increased 2005 net periodic pension cost by $1.0 million and a one percentage point increase in the discount rate assumption would have decreased 2005 net periodic pension cost by $0.9 million.

We reduced our discount rate assumption to 5.75% for valuing obligations as of January 1, 2006 from 6.0% at January 2, 2005, due to the declining interest rate environment. Keeping all other assumptions constant, a one percentage point decrease in the discount rate assumption from 5.75% would have increased the January 1, 2006 pension benefit obligation by $18.6 million and a one percentage point

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increase in the discount rate assumption from 5.75% would have decreased the January 1, 2006 pension benefit obligation by $15.4 million.

For 2005, 2004 and 2003, an asset return assumption of 8.75%, 9.00% and 9.50%, respectively, was used in the calculation of net periodic pension cost and the expected return on plan assets component of net periodic pension benefit cost was based on the market-related value of pension plan assets. A one percentage point decrease in the long term asset return assumption would have increased 2005 net periodic pension cost by $1.0 million and a one percentage point increase in the long term asset return assumption would have decreased 2005 net periodic pension cost by $1.0 million.

Long-Lived Assets—

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we review our Non-Friendly Marks, which were assigned to us by Hershey in September 2002, for impairment on a quarterly basis. We recognize impairment has occurred when the carrying value of the Non-Friendly Marks license agreement fee exceeds the estimated future undiscounted cash flows of the trademarked products. Additionally, we review long-lived assets related to each restaurant to be held and used in the business quarterly for impairment or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. We evaluate restaurants using a “two-year history of cash flow” as the primary indicator of potential impairment. Based on the best information available, we write down an impaired restaurant to its estimated fair market value, which becomes its new cost basis. Estimated fair market value is based on our experience selling similar properties and local market conditions, less costs to sell for properties to be disposed of. In addition, restaurants scheduled for closing are reviewed for impairment and depreciable lives are adjusted. The impairment evaluation is based on the estimated cash flows from continuing use through the expected disposal date and the expected terminal value. SFAS No. 144 requires a long-lived asset to be disposed of other than by sale to be classified as held and used until it is disposed of.

SFAS No. 144 also requires the results of operations of a component of an entity that is classified as held for sale or that has been disposed of to be reported as discontinued operations in the statement of operations if certain conditions are met. These conditions include commitment to a plan of disposal after the effective date of this statement, elimination of the operations and cash flows of the entity component from the ongoing operations of the company and no significant continuing involvement in the operations of the entity component after the disposal transaction.

During 2005, we disposed of 14 properties and had 11 properties that met the criteria for held for sale. The results of operations for these 25 restaurants and any net gain or loss associated with the disposals of the property and equipment are reported as discontinued operations in the accompanying consolidated statements of operations for the three years ended January 1, 2006.

During the year ended January 1, 2006, we determined that the carrying values of six restaurant properties and certain capital inventory used to replace restaurant equipment exceeded their estimated fair values less costs to sell. The carrying values were reduced by an aggregate of $2.5 million. During the year ended January 2, 2005, we determined that the carrying value of a vacant restaurant land parcel and the carrying value of one restaurant property exceeded their estimated fair values less costs to sell. The carrying values were reduced by an aggregate of $91,000. During the year ended December 28, 2003, we determined that the carrying value of one land parcel exceeded its estimated fair value less cost to sell. The carrying value was reduced by $26,000.

Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, closure costs and sublease income. Accordingly, actual results could vary significantly from these estimates.

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Leases and Deferred Straight-Line Rent Payable—

We lease many of our restaurant properties. Leases are accounted for under the provisions of SFAS No. 13, “Accounting for Leases,” as amended, which requires that leases be evaluated and classified as operating or capital leases for financial reporting purposes. The lease term used for lease evaluation includes option periods only in instances in which the exercise of the option period can be reasonably assured and failure to exercise such options would result in an economic penalty. Leasehold improvements that are acquired subsequent to the inception of a lease are amortized over the lesser of the useful life of the asset or a term that includes option periods that are reasonably assured at the date of the purchase.

For leases that contain rent escalations, we record the total rent payable during the lease term, as determined above, on a straight-line basis over the term of the lease and record the difference between the rents paid and the straight-line rent as a deferred straight-line rent payable.

Certain leases contain provisions that require additional rental payments based upon restaurant sales volume (“contingent rentals”). Contingent rentals are accrued each period as the liabilities are incurred utilizing prorated periodic sales targets.

Income Taxes—

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. We record deferred tax assets to the extent we believe there will be sufficient future taxable income to utilize those assets prior to their expiration. To the extent deferred tax assets may be unable to be utilized, we record a valuation allowance against the potentially unrealizable amount and record a charge against earnings.  The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in several different tax jurisdictions. We are periodically reviewed by tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions. In evaluating the exposure associated with various filing positions, we record estimated reserves for probable exposures.

Due to ever-changing tax laws and income tax rates, significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future. We must also make estimates about the sufficiency of taxable income in future periods to offset any deductions related to deferred tax assets currently recorded. Accordingly, we believe estimates related to income taxes are critical.

Derivative Instruments and Hedging Agreements—

We purchase butter option contracts to minimize the impact of increases in the cost of cream. When available, options on butter futures are purchased to cover up to 50% of the cream needs of the manufacturing plant. Option contracts are offered in the months of March, May, July, September, October and December; however, there is often not enough open interest in them to allow us to buy even very limited coverage without paying high premiums.

In addition to hedging, we pursue fixed price cream contracts to manage dairy cost pressures. We were unable to find a supplier interested in an agreement for a fixed-price load of cream for part of the year or the full year of 2005, 2004 and 2003. The situation surrounding the supply of cream (which depends on milk production, milk per cow, number of cows, butter inventories, etc.) is very uncertain in the wake of the National Milk Producers Federation’s “Cooperatives Working Together” program.

On September 19, 2005, the Chicago Mercantile Exchange launched the first electronically traded, cash-settled butter futures contract. This new futures contract is designed to meet the needs of food and dairy companies that have exposure to butterfat price risk but do not want to expose themselves to the

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possibility of being compelled to take physical delivery of butter. The size of the contract is 20,000 pounds of AA butter, versus the traditional butter futures contract, which is 40,000 pounds. The contract is cash settled based upon the USDA monthly weighted average price for butter in the United States. With this new type of futures contract, there is no risk of delivery of butter; therefore it offers us the ability to hedge the price risk of cream (on a butter basis) without having to take delivery of commodity butter. We have evaluated this new hedging instrument and believe it is an attractive way to hedge the price risk related to cream. During the fourth quarter of 2005, we purchased a small number of these contracts, but did not achieve a significant level of protection. Our strategy related to hedging is never to hedge more than 50% of our needs using these instruments, so as not to put us in an uncompetitive position.

Our commodity option contracts and the cash-settled butter futures contracts do not meet hedge accounting criteria as defined by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and its related amendment, SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, and, accordingly, are marked to market each period with the resulting gains or losses recognized in cost of sales. During 2005, 2004 and 2003, (losses) gains of approximately ($0.2 million), $0.6 million and ($0.3 million), respectively, were included in cost of sales related to these contracts.

Contingencies—

From time to time we are named as a defendant in legal actions arising in the ordinary course of our business. We do not believe that the resolutions of these claims will have a material adverse effect on our consolidated financial condition or consolidated results of operations.

On February 25, 2003, S. Prestley Blake (“Blake”), holder of approximately 10% of our outstanding common stock, sued Friendly’s and our Chairman in a purported derivative action in Hampden Superior Court, Massachusetts. The suit alleges breach of fiduciary duty and misappropriation of corporate assets in that we paid certain expenses relating to a corporate jet and the Chairman’s use of that jet and use of an office in Illinois. The suit seeks to require the Chairman to reimburse us and for Friendly’s to pay Blake’s attorneys’ fees. Friendly’s and its Chairman have denied Blake’s allegations and are vigorously defending the lawsuit.

On June 27, 2005, Mr. Blake sent a demand letter to our Board of Directors demanding that our Board of Directors address his concerns and beliefs that are subject to the litigation filed on February 25, 2003. On July 14, 2005, our Board of Directors formed a special litigation committee consisting solely of independent directors (the “Committee”) to investigate the concerns and beliefs raised in Blake’s demand letter dated June 27, 2005. The Committee issued its report on October 24, 2005 and a supplemental report on November 30, 2005. Based on its findings, the Committee filed a Motion to Dismiss the claims made by Mr. Blake. As of the date hereof, the Court has not issued its ruling on the Committee’s Motion to Dismiss.

Stock-Based Compensation—

We account for stock-based compensation for employees under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and elected the disclosure-only alternative under SFAS No. 123, “Accounting for Stock-Based Compensation.” Stock-based compensation costs of approximately $0.1 million, $0.2 million and $0.1 million related to modified option awards were included in net (loss) income in 2005, 2004 and 2003, respectively, for our Stock Option Plan and our 2003 Incentive Plan. In accordance with SFAS No. 148, “Accounting for Stock Based Compensation-Transition and Disclosure,” we have continued to disclose the required pro-forma information in the notes to the consolidated financial statements.

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Recently Issued Accounting Pronouncements

In October 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position 13-1, “Accounting for Rental Costs Incurred during a Construction Period” (“FSP 13-1”). FSP 13-1 concludes that rental costs incurred during and after a construction period are for the right to control the use of a leased asset during and after construction of a leased asset and that there is no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period. Therefore, rental costs associated with ground or building operating leases that are incurred during a construction period should be recognized as rental expense. The guidance is effective for periods beginning after December 15, 2005. The adoption of FSP 13-1 is not expected to have a material effect on our consolidated financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 applies to all voluntary changes in accounting principles and requires retrospective application to prior periods’ financial statements of changes in accounting principles, unless it is impracticable. SFAS No. 154 requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change of estimate affected by a change in accounting principles. SFAS No. 154 also carries forward without change the guidance in APB Opinion No. 20 with respect to accounting for changes in accounting estimates, changes in the reporting unit and correction of an error in previously issued financial statements. We are required to adopt SFAS No. 154 for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a material effect on our consolidated financial position or results of operations.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123R must be adopted no later than the first annual period beginning after June 15, 2005. SFAS No. 123R allows companies to choose between the modified-prospective and modified-retrospective transition alternatives in adopting SFAS No. 123R. Under the modified-prospective transition method, compensation cost will be recognized in financial statements issued subsequent to the date of adoption for all shared-based payments granted, modified or settled after the date of adoption, as well as for any unvested awards that were granted prior to the date of adoption. Under the modified-retrospective transition method, compensation cost will be recognized in a manner consistent with the modified-prospective transition method; however, prior period financial statements will also be restated by recognizing compensation cost as previously reported in the pro forma disclosures under SFAS No. 123. The restatement provisions can be applied to either all periods presented or to the beginning of the fiscal year in which SFAS No. 123R is adopted. We adopted SFAS No. 123R on January 2, 2006 using the modified-prospective method. As we previously adopted only the pro forma disclosure provisions of SFAS No. 123, we will recognize compensation cost relating to the unvested portion of awards granted prior to the date of adoption using the same estimate of the grant-date fair value and the same attribution method used to determine the pro forma disclosures under SFAS No. 123.

On December 20, 2004, our Board of Directors approved the vesting of all outstanding and unvested options for our Stock Option Plan and our 2003 Incentive Plan. This action was taken to reduce, or eliminate to the extent permitted, the transition expense related to outstanding stock option awards under SFAS No. 123R. The 259,850 options that were vested included 145,239 options with exercise prices greater than our closing stock price on the modification date. Under the accounting guidance of APB

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Opinion No. 25, the accelerated vesting resulted in stock-based compensation cost of approximately $9,400 (net of related income tax benefit of $6,600), which was included in net loss for the year ended January 2, 2005. Additionally, the effect of the accelerated vesting in our pro-forma disclosure (Note 2 of Notes to Consolidated Financial Statements) was incremental stock-based compensation of approximately $0.7 million (net of related income tax benefit of $0.5 million). The portion of this stock-based compensation expense related to future vesting would otherwise have been recognized in accordance with SFAS No. 123R in our consolidated statements of operations over the next two fiscal years.

As permitted by SFAS No. 123, we have accounted for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognized no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123R’s fair value method will have an impact on our results of operations, although it will have no impact on our overall financial position. We anticipate that the adoption of SFAS 123R in fiscal 2006 will result in the recognition of stock compensation expense of approximately $0.3 million related to unvested stock options and restricted stock units outstanding at January 1, 2006. Additionally, we expect to recognize stock compensation expense of $0.1 million to $0.4 million related to newly issued awards in 2006. The actual stock compensation expense recognized in 2006 may vary from this estimated amount because it will depend upon levels of share-based payments granted and forfeited in the future. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amounts of operating cash flows recognized in prior years for such excess tax deductions were $0.5 million, $0.8 million and $0.2 million in 2005, 2004 and 2003, respectively.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of Accounting Research Bulletin No. 43, Chapter 4.” The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 is the result of a broader effort by the FASB to improve the comparability of cross-border financial reporting by working with the International Accounting Standards Board toward development of a single set of high-quality accounting standards. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material effect on our consolidated financial position or results of operations.

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Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

We have market risk exposure to interest rates on our fixed and variable rate debt obligations. We do not enter into contracts for trading purposes. The information below summarizes our market risk associated with our debt obligations as of January 1, 2006. The table presents principal cash flows and related interest rates by expected year of maturity. For variable rate debt obligations, the average variable rates are based on implied forward rates as derived from appropriate monthly spot rate observations as of year-end. Because the mortgage loans are privately held, we believe that the carrying value of the mortgage loans as of January 1, 2006 approximated the fair value.

EXPECTED YEAR OF MATURITY
(dollars in thousands)

	2006		2007		2008		2009		2010		Thereafter			Total		Fair Value
Fixed Rate:
Senior Notes	$	—	$	—	$	—	$	—	$	—		$	175,000	$	175,000		$	156,625
Fixed interest rate												8.38%		8.38%
Mortgage loans	$	1,074	$	1,190	$	1,306	$	1,459	$	1,617		$	35,068	$	41,714		$	41,714
Fixed interest rate	10.16%		10.16%		10.16%		10.16%		10.16%			10.16%		10.16%
Variable Rate:
Mortgage loans	$	352	$	426	$	464	$	506	$	1,280		$	6,578	$	9,606		$	9,606
Average interest rates	8.76%		8.75%		8.76%		8.86%		8.97%			9.36%		9.22%

We are subject to volatility in food costs as a result of market risk associated with commodity prices. Our ability to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we operate. We manage exposure to this risk primarily through contractual commitments to purchase raw materials, food products and supplies used in the normal course of business. The majority of the commitments cover periods of one to 12 months. Additionally, on a limited basis, we occasionally purchase butter option contracts to minimize the impact of increases in the cost of cream. Option contracts entered into for the fiscal years ended January 1, 2006, January 2, 2005 and December 28, 2003 did not significantly impact our cost of sales.

Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is included in a separate section of this report. See “Index to Consolidated Financial Statements” on page F-1.

Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management

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necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In connection with the preparation of this Annual Report on Form 10-K, as of January 1, 2006, an evaluation was performed under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of January 1, 2006.

Management’s Report on Internal Control over Financial Reporting.   We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of our principal executive and principal financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;

·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have assessed the effectiveness of our internal control over financial reporting as of January 1, 2006. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

Based on our assessment, we believe that, as of January 1, 2006, our internal control over financial reporting was effective at a reasonable assurance level based on these criteria.

Ernst & Young, our independent registered public accounting firm, has issued an audit report on our assessment of our internal control over financial reporting. This report, in which they expressed an unqualified opinion, is included below.

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Friendly Ice Cream Corporation maintained effective internal control over financial reporting as of January 1, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Friendly Ice Cream Corporation’s management is responsible for

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maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Friendly Ice Cream Corporation maintained effective internal control over financial reporting as of January 1, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Friendly Ice Cream Corporation maintained, in all material respects, effective internal control over financial reporting as of January 1, 2006, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of January 1, 2006 and January 2, 2005 and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the three years in the period ended January 1, 2006 of Friendly Ice Cream Corporation and our report dated March 15, 2006 expressed an unqualified opinion thereon.

Ernst & Young LLP

/s/ Ernst & Young LLP

Boston, Massachusetts
March 15, 2006

Change in Internal Control Over Financial Reporting.There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

52

Item 9B.OTHER INFORMATION

On March 15, 2006, we amended and restated the Credit Facility as of December 30, 2005 to, among other things, (1) revise certain financial covenants beginning with the fourth quarter of 2005 and extending through the Credit Facility maturity date of June 30, 2007 (including leverage, interest coverage, minimum EBITDA and the deletion of the tangible net worth covenant) and (ii) permit certain transactions to be excluded from our annual capital expenditures limit.

PART III

Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this Item 10 relating to our directors is incorporated herein by reference to the section entitled “ELECTION OF DIRECTORS” of our definitive proxy statement which will be filed no later than 120 days after January 1, 2006. The information required by this Item 10 relating to our executive officers is set forth under the heading “Executive Officers of the Registrant” following Item 4 of Part I of this report. The information required by this Item 10 under Item 405 of Regulation S-K is incorporated herein by reference to the section entitled “STOCK OWNERSHIP—Section 16(a) Beneficial Ownership Reporting Compliance” of our definitive proxy statement which will be filed no later than 120 days after January 1, 2006.

We have adopted a code of ethics that applies to our Chief Executive Officer, the Chief Financial Officer and the Controller. We have posted a copy of the code on our Internet website at the Internet address http://www.friendlys.com. Copies of the code may be obtained free of charge from our website at the above Internet address. We intend to satisfy the disclosure requirement under Item 5.05 of Current Report of Form 8-K regarding an amendment to, or waiver from, a provision of this code by posting such information on our website, at the address specified above.

Item 11.EXECUTIVE COMPENSATION

Information required by this Item 11 is incorporated herein by reference to the sections entitled “ELECTION OF DIRECTORS—Director Compensation” and “EXECUTIVE COMPENSATION” of our definitive proxy statement which will be filed no later than 120 days after January 1, 2006.

53

Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information related to security ownership required by this Item 12 is incorporated herein by reference to the sections entitled “STOCK OWNERSHIP,” “COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION” and “PERFORMANCE GRAPH”of our definitive proxy statement which will be filed no later than 120 days after January 1, 2006.

Securities authorized under equity compensation plans as of January 1, 2006 were as follows:

Equity Compensation Plan Information

	Column a			Column b			Column c
							Number of securities
							remaining available for
	Number of securities						future issuance under
	to be issued upon			Weighted-average			equity compensation plans
	exercise of			exercise price of			(excluding securities
Plan Category	outstanding options			outstanding options			reflected in column a)
Equity compensation plans approved by security holders		307,833	(1)		$	8.46		110,689	(2)
Equity compensation plans not approved by security holders		343,617			$	6.56		25,023	(3)
Total		651,450			$	7.46		135,712

(1)Includes options to purchase 277,833 shares of our common stock. Also includes 30,000 restricted stock units (the right to receive shares of our common stock in the future after certain restrictions have lapsed) that were awarded under our 2003 Incentive Plan on December 2, 2005.

(2)Represents 803 unissued shares available under the 1997 Restricted Stock Plan, which provides for the issuance of restricted stock, 4,097 unissued shares under the 1997 Stock Option Plan and 105,789 unissued shares available under the 2003 Incentive Plan.

(3)Represents unissued shares available under the 1997 Stock Option Plan.

In 1997, the Board of Directors adopted a stock option plan, pursuant to which 395,000 shares of common stock options were authorized for issuance. Our shareholders originally approved the 1997 Stock Option Plan in October 1997. However, in 2000 and 2001, the total number of shares reserved for issuance under the 1997 Stock Option Plan was subsequently increased by 439,970 and 200,000 shares, respectively, by the Board of Directors without seeking additional shareholder approval. Accordingly, in the foregoing chart, awards outstanding under the 1997 Stock Option Plan are included in columns (a) and (c) under both the “approved by security holders” and “not approved by security holders” categories. Shares covered by awards that expire or otherwise terminate will again become available for grant.

In 1997, the Board of Directors adopted the 1997 Restricted Stock Plan, pursuant to which 371,285 shares were authorized for issuance. Our shareholders approved the 1997 Restricted Stock Plan in October 1997. The 1997 Restricted Stock Plan provides for the award of common stock, the vesting of which is subject to conditions and limitations established by the Board of Directors. Such conditions may include continued employment with us or the achievement of performance measures. Upon the award of common stock, the participant has the rights of a stockholder, including but not limited to the right to vote such stock and the right to receive any dividends paid on such stock. Our Board of Directors, in its sole discretion, may designate employees and persons providing material services to us as eligible for participation in the 1997 Restricted Stock Plan. In connection with the approval of the 2003 Incentive Plan, the shares authorized for issuance under the 1997 Restricted Stock Plan were reduced by 156,217 shares of stock.

54

On April 9, 2003, the Board of Directors adopted a long-term incentive plan (the “2003 Incentive Plan”), subject to approval by our shareholders. On May 14, 2003, the shareholders approved the 2003 Incentive Plan, which became effective as of March 30, 2003. Pursuant to the 2003 Incentive Plan, the shares reserved for issuance under our 1997 Restricted Stock Plan were reduced by 156,217 shares of stock. The 2003 Incentive Plan allows for a maximum of 307,000 shares of common stock to be issued.

Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item 13 is incorporated herein by reference to the section entitled “EXECUTIVE COMPENSATION—Certain Relationships and Related Transactions” of our definitive proxy statement which will be filed no later than 120 days after January 1, 2006.

Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Item 14 is incorporated herein by reference to the section entitled “Independent Registered Public Accounting Firm” of our definitive proxy statement, which will be filed no later than 120 days after January 1, 2006.

PART IV

Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	1.	Financial statements:
		For a listing of consolidated financial statements that are included in this document, see page F-1.
	2.	Financial statement schedules:
		The following consolidated financial statement schedule is included pursuant to Item 15(c): Schedule II—Valuation and Qualifying Accounts. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
	3.	Exhibits:
		The exhibit index is incorporated by reference herein.
(b)		Exhibits:
		Included in Item 15(a)(3) above.
(c)		Financial statement schedules:
		Included in Item 15(a)(2) above.

55

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Friendly Ice Cream Corporation
	By:	/s/ PAUL V. HOAGLAND
		Name: Paul V. Hoagland
		Title: Executive Vice President of Administration and Chief Financial Officer
	Date:	March 17, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated.

	Name		Title (Capacity)		Date
/s/ JOHN L. CUTTER		Chief Executive Officer and President		March 17, 2006
John L. Cutter		(Principal Executive Officer and Director)
		Executive Vice President of Administration
/s/ PAUL V. HOAGLAND		and Chief Financial Officer (Principal Financial		March 17, 2006
Paul V. Hoagland		and Accounting Officer)
/s/ DONALD N. SMITH		Chairman of the Board		March 17, 2006
Donald N. Smith
/s/ STEVEN L. EZZES		Director		March 17, 2006
Steven L. Ezzes
/s/ BURTON J. MANNING		Director		March 17, 2006
Burton J. Manning
/s/ MICHAEL J. DALY		Director		March 17, 2006
Michael J. Daly
/s/ PERRY D. ODAK		Director		March 17, 2006
Perry D. Odak

56

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of January 1, 2006 and January 2, 2005		F-3
Consolidated Statements of Operations for the Years Ended January 1, 2006, January 2, 2005 and December 28, 2003		F-4
Consolidated Statements of Changes in Stockholders’ Deficit for the Years Ended January 1, 2006, January 2, 2005 and December 28, 2003		F-5
Consolidated Statements of Cash Flows for the Years Ended January 1, 2006, January 2, 2005 and December 28, 2003		F-6
Notes to Consolidated Financial Statements		F-7

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Friendly Ice Cream Corporation:

We have audited the accompanying consolidated balance sheets of Friendly Ice Cream Corporation and subsidiaries as of January 1, 2006 and January 2, 2005 and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the three years in the period ended January 1, 2006. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Friendly Ice Cream Corporation and subsidiaries at January 1, 2006 and January 2, 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 1, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Friendly Ice Cream Corporation and subsidiaries internal control over financial reporting as of January 1 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Boston, Massachusetts
March 15, 2006

F-2

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

	January 1,			January 2,
	2006			2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	14,597		$	13,405
Restricted cash	2,549			1,711
Accounts receivable, net	10,757			10,448
Inventories	15,775			17,545
Assets held for sale	3,326			3,572
Deferred income taxes	—			6,853
Prepaid expenses and other current assets	5,044			4,382
TOTAL CURRENT ASSETS	52,048			57,916
DEFERRED INCOME TAXES	—			10,619
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization	141,121			152,840
INTANGIBLE ASSETS AND DEFERRED COSTS, net of accumulated amortization of $11,248 and $9,389 at January 1, 2006 and January 2, 2005, respectively	19,063			20,510
OTHER ASSETS	6,010			6,999
TOTAL ASSETS	$	218,242		$	248,884
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt	$	1,426		$	5,224
Current maturities of capital lease and finance obligations	1,419			1,533
Accounts payable	24,968			21,536
Accrued salaries and benefits	8,212			8,740
Accrued interest payable	1,324			1,427
Insurance reserves	9,002			9,927
Restructuring reserves	72			1,078
Other accrued expenses	19,866			18,582
TOTAL CURRENT LIABILITIES	66,289			68,047
CAPITAL LEASE AND FINANCE OBLIGATIONS, less current maturities	6,173			7,380
LONG-TERM DEBT, less current maturities	224,894			225,752
ACCRUED PENSION COST	28,904			17,532
OTHER LONG-TERM LIABILITIES	33,820			35,199
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT:
Common stock, par value $.01 per share; authorized 50,000,000 shares; 7,898,591 and 7,713,279 shares issued and outstanding at January 1, 2006 and January 2, 2005, respectively	79			77
Preferred stock, par value $.01 per share; authorized 1,000,000 shares; no shares issued and outstanding	—			—
Additional paid-in capital	144,675			143,115
Accumulated other comprehensive loss	(31,785		)	(20,670		)
Accumulated deficit	(254,807		)	(227,548		)
TOTAL STOCKHOLDERS’ DEFICIT	(141,838		)	(105,026		)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	218,242		$	248,884

The accompanying notes are an integral part of these consolidated financial statements.

F-3

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	For the Years Ended
	January 1,				January 2,				December 28,
	2006				2005				2003
					(53 weeks)
REVENUES:
Restaurant		$	400,821			$	431,763			$	442,416
Foodservice		116,072				112,637				110,190
Franchise		14,454				13,199				9,822
TOTAL REVENUES		531,347				557,599				562,428
COSTS AND EXPENSES:
Cost of sales		205,332				210,477				202,322
Labor and benefits		143,973				158,133				159,428
Operating expenses		105,809				104,681				103,891
General and administrative expenses		38,746				40,006				41,657
Pension settlement expense (curtailment gain) (Note 11)		—				2,204				(8,113		)
Restructuring expenses (Note 9)		—				2,627				—
Gain on litigation settlement (Note 19)		—				(3,644		)		—
Write-downs of property and equipment (Note 4)		2,478				91				26
Depreciation and amortization		23,435				22,592				22,650
Gain on franchise sales of restaurant operations and properties		(2,658		)		(1,302		)		—
Loss on disposals of other property and equipment, net		1,030				213				2,044
OPERATING INCOME		13,202				21,521				38,523
OTHER EXPENSES:
Interest expense, net of capitalized interest of $25, $61 and $144 and interest income of $682, $702 and $838 for the years ended January 1, 2006, January 2, 2005 and December 28, 2003, respectively		20,924				22,295				24,157
Other (income) expense, principally debt retirement costs		(130		)		9,235				—
(LOSS) INCOME BEFORE (PROVISION FOR) BENEFIT FROM INCOME TAXES		(7,592		)		(10,009		)		14,366
(Provision for) benefit from income taxes		(20,002		)		7,145				(4,604		)
(LOSS) INCOME FROM CONTINUING OPERATIONS		(27,594		)		(2,864		)		9,762
Income (loss) from discontinued operations, net of income tax effect of ($232), $385 and $180 for the years ended January 1, 2006, January 2, 2005 and December 28, 2003, respectively		335				(553		)		(259		)
NET (LOSS) INCOME		$	(27,259	)		$	(3,417	)		$	9,503
BASIC NET (LOSS) INCOME PER SHARE:
(Loss) income from continuing operations		$	(3.53	)		$	(0.38	)		$	1.31
Income (loss) from discontinued operations		0.04				(0.07		)		(0.03		)
Net (loss) income		$	(3.49	)		$	(0.45	)		$	1.28
DILUTED NET (LOSS) INCOME PER SHARE:
(Loss) income from continuing operations		$	(3.53	)		$	(0.38	)		$	1.28
Income (loss) from discontinued operations		0.04				(0.07		)		(0.03		)
Net (loss) income		$	(3.49	)		$	(0.45	)		$	1.25
WEIGHTED AVERAGE SHARES:
Basic		7,802				7,637				7,447
Diluted		7,802				7,637				7,609

The accompanying notes are an integral part of these consolidated financial statements.

F-4

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(In thousands, except share data)

								Accumulated
						Additional		Other
	Common Stock					Paid-In		Comprehensive				Accumulated
	Shares		Amount			Capital		(Loss) Income				Deficit				Total
BALANCE, DECEMBER 29, 2002	7,392,141			$	74	$	139,974		$	(14,559	)		$	(233,634	)	$	(108,145	)
Comprehensive (loss) income:
Net income	—			—		—			—				9,503			9,503
Minimum pension liability (net of income tax benefit of $3,727)	—			—		—			(5,363		)		—			(5,363		)
Total comprehensive (loss) income	—			—		—			(5,363		)		9,503			4,140
Shares forfeited in connection with the Restricted Stock Plan	(1,609	)		—		—			—				—			—
Stock options exercised	98,946			1		357			—				—			358
Income tax benefit of stock options exercised	—			—		165			—				—			165
Stock compensation expense	—			—		330			—				—			330
BALANCE, DECEMBER 28, 2003	7,489,478			$	75	$	140,826		$	(19,922	)		$	(224,131	)	$	(103,152	)
Comprehensive (loss) income:
Net loss	—			—		—			—				(3,417		)	(3,417		)
Minimum pension liability (net of income tax benefit of $540)	—			—		—			(777		)		—			(777		)
Net unrealized gains on marketable securities (net of income tax expense of $20)	—			—		—			29				—			29
Total comprehensive loss	—			—		—			(748		)		(3,417		)	(4,165		)
Stock options exercised	223,801			2		976			—				—			978
Income tax benefit of stock options exercised	—			—		818			—				—			818
Stock compensation expense	—			—		495			—				—			495
BALANCE, JANUARY 2, 2005	7,713,279			$	77	$	143,115		$	(20,670	)		$	(227,548	)	$	(105,026	)
Comprehensive loss:
Net loss	—			—		—			—				(27,259		)	(27,259		)
Minimum pension liability (net of income tax benefit of $4,545)	—			—		—			(6,541		)		—			(6,541		)
Deferred tax valuation allowance	—			—		—			(4,545		)					(4,545		)
Net unrealized gains on marketable securities (net of income tax expense of $20)	—			—		—			(29		)		—			(29		)
Total comprehensive loss	—			—		—			(11,115		)		(27,259		)	(38,374		)
Stock options exercised	185,312			2		1,035			—				—			1,037
Income tax benefit of stock options exercised	—			—		450			—				—			450
Stock compensation expense	—			—		75			—				—			75
BALANCE, JANUARY 1, 2006	7,898,591			$	79	$	144,675		$	(31,785	)		$	(254,807	)	$	(141,838	)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	For the Years Ended
	January 1,				January 2,			December 28,
	2006				2005			2003
					(53 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income		$	(27,259	)	$	(3,417	)		$	9,503
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Stock compensation expense		75			495				330
Depreciation and amortization		23,435			22,592				22,650
Non-cash (income) loss from discontinued operations		(1,560		)	639				737
Write-offs of deferred financing costs		—			2,445				44
Write-downs of property and equipment		2,478			91				26
Deferred income tax expense (benefit)		17,849			(7,383		)		4,192
(Gain) loss on disposals of property and equipment, net		(1,616		)	(1,107		)		2,044
Pension settlement expense (curtailment gain)		—			2,204				(8,113		)
Changes in operating assets and liabilities:
Accounts receivable		(309		)	(64		)		469
Inventories		1,770			(1,876		)		1,609
Other assets		(1,428		)	(3,000		)		(76		)
Accounts payable		3,432			(939		)		(1,427		)
Accrued expenses and other long-term liabilities		(2,422		)	(3,253		)		(6,142		)
NET CASH PROVIDED BY OPERATING ACTIVITIES		14,445			7,427				25,846
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(16,902		)	(19,734		)		(29,791		)
Proceeds from sales of property and equipment		8,245			6,035				79
Purchases of marketable securities		(665		)	(1,130		)		—
Proceeds from sales of marketable securities		1,643			152				—
NET CASH USED IN INVESTING ACTIVITIES		(7,679		)	(14,677		)		(29,712		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of New Senior Notes		—			175,000				—
Proceeds from borrowings under revolving credit facility		16,250			26,250				—
Proceeds from issuance of mortgages		9,615			—				—
Repayments of debt		(30,521		)	(199,338		)		(3,797		)
Payments of deferred financing costs		(429		)	(6,650		)		—
Repayments of capital lease and finance obligations		(1,526		)	(1,216		)		(1,404		)
Stock options exercised		1,037			978				357
NET CASH USED IN FINANCING ACTIVITIES		(5,574		)	(4,976		)		(4,844		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,192			(12,226		)		(8,710		)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		13,405			25,631				34,341
CASH AND CASH EQUIVALENTS, END OF YEAR		$	14,597		$	13,405			$	25,631
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest		$	20,169		$	21,953			$	23,981
Income taxes		691			70				1,246
Income tax benefit of stock options exercised		450			818				165
Capital lease obligations terminated		51			—				—
Capital lease obligations incurred		256			3,445				1,682
Lease incentive equipment received		—			—				243

The accompanying notes are an integral part of these consolidated financial statements.

F-6

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

As of January 1, 2006, Friendly’s operated 314 full-service restaurants and franchised 206 full-service restaurants and seven non-traditional units. The Company manufactures and distributes a full line of premium ice cream dessert products. These products are distributed to Friendly’s restaurants, supermarkets and other retail locations in 13 states. The restaurants offer a wide variety of breakfast, lunch and dinner menu items as well as premium ice cream dessert products. For the years ended January 1, 2006, January 2, 2005 and December 28, 2003, restaurant sales were approximately 75%, 78% and 79%, respectively, of the Company’s total revenues. As of January 1, 2006, January 2, 2005 and December 28, 2003, approximately 97%, 96% and 89%, respectively, of the Company-operated restaurants were located in the Northeast United States.

References herein to “Friendly’s” or the “Company” refer to Friendly Ice Cream Corporation, its predecessor and its consolidated subsidiaries; references herein to “FICC” refer to Friendly Ice Cream Corporation and not its subsidiaries; and as used herein, “Northeast” refers to the Company’s core markets, which include Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation—

The consolidated financial statements include the accounts of FICC and its wholly owned subsidiaries after elimination of intercompany accounts and transactions.

Fiscal Year—

Friendly’s fiscal year ends on the last Sunday in December, unless that day is earlier than December 27, in which case the fiscal year ends on the following Sunday. The fiscal year ended January 2, 2005 included 53 weeks. All other years presented included 52 weeks. The additional week in 2004 contributed $10,689,000 in total revenues.

Use of Estimates in the Preparation of Financial Statements—

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The critical accounting policies and most significant estimates and assumptions relate to revenue recognition, insurance reserves, recoverability of accounts receivable, pension and post-retirement medical and life insurance benefits expense, asset impairment analysis, income tax valuation allowances and tax contingency reserves. Actual amounts could differ significantly from the estimates.

Revenue Recognition—

The Company’s revenues are derived primarily from the operation of full-service restaurants, the distribution and sale of premium ice cream desserts through retail and institutional locations and franchising. The Company recognizes restaurant revenue upon receipt of payment from the customer and foodservice revenue (product sales to franchisees and retail customers), net of discounts and allowances,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

upon delivery of product. Reserves for discounts and allowances from retail sales (trade promotions) are estimated and accrued when revenue is recorded based on promotional planners prepared by the Company’s retail sales force. Due to the high volume of trade promotion activity and the difficulty of coordinating trade promotion pricing with its customers, differences between the Company’s accrual and the subsequent settlement amount occur frequently. Usually these differences are individually insignificant. To address the financial impact of these differences, the Company’s estimating methodology takes these smaller differences into account. The Company believes its methodology has been reasonably reliable in recording trade promotion accruals. The accrual for future trade promotion settlements as of January 1, 2006 and January 2, 2005 was $5,127,000 and $4,930,000, respectively. A variation of five percent in the 2005 accrual would change retail sales by approximately $256,000. Franchise royalty income, generally calculated as 4% of net sales of franchisees, is recorded monthly based upon the actual sales reported by each franchisee for the month just completed. Franchise fees are recorded as revenue upon completion of all significant services, generally upon opening of the restaurant.

Shipping and Handling Costs—

Costs related to shipping and handling are included in cost of sales in the accompanying consolidated statements of operations for all periods presented.

Insurance Reserves—

The Company is self-insured through retentions or deductibles for the majority of its workers’ compensation, automobile, general liability, employer’s liability, product liability and group health insurance programs. Self-insurance amounts vary up to $500,000 per occurrence. Insurance with third parties, some of which is then reinsured through Restaurant Insurance Corporation (“RIC”), the Company’s wholly owned subsidiary, is in place for claims in excess of these self-insured amounts. RIC reinsures 100% of the risk from $500,000 to $1,000,000 per occurrence through September 2, 2000 for FICC’s workers’ compensation, general liability, employer’s liability and product liability insurance. Subsequent to September 2, 2000, the Company discontinued its use of RIC as a captive insurer for new claims. FICC’s and RIC’s liabilities for estimated incurred losses are actuarially determined and recorded in the accompanying consolidated financial statements on an undiscounted basis. Actual incurred losses may vary from the estimated incurred losses and could have a material effect on the Company’s insurance expense.

Accounts Receivable and Allowance for Doubtful Accounts—

At January 1, 2006 and January 2, 2005, accounts receivable of $10,757,000 and $10,448,000 were net of allowances for doubtful accounts totaling $758,000 and $539,000, respectively. Accounts receivable consists primarily of amounts due from the sale of products to franchisees and supermarkets. Accounts receivable also includes amounts related to franchise royalties, rents and other miscellaneous items.

The Company recognizes allowances for doubtful accounts to ensure receivables are not overstated due to uncollectibility. Bad debt reserves are maintained for customers in the aggregate based on a variety of factors, including the length of time receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances change, estimates of the recoverability of receivables would be further adjusted.

Pension and Post-Retirement Medical and Life Insurance Benefits—

The determination of the Company’s obligation and expense for pension and post-retirement medical and life insurance benefits is dependent upon the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among other things, the discount rate, expected long-term rate of return on plan assets and rates of increase in health care costs. In accordance with accounting principles generally accepted in the United States, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in such future periods. Significant differences in actual experience or significant changes in the assumptions may materially affect the future pension and post-retirement medical and life insurance obligations and expense.

Cash and Cash Equivalents—

The Company considers all investments with an original maturity of three months or less when purchased to be cash equivalents.

Restricted Cash—

RIC is required to hold assets in trust whose value is at least equal to certain of RIC’s outstanding estimated insurance claim liabilities. Accordingly, as of January 1, 2006 and January 2, 2005, cash of $899,000 and $1,711,000, respectively, was restricted.

Pursuant to the terms of the Mortgage Financing, we may sell properties securing the Mortgage Financing obligations provided that other properties are substituted in place of the sold properties to secure the Mortgage Financing. The substituted properties must meet certain requirements under the terms of the Mortgage Financing. In August 2005, proceeds of $415,000 and $2,650,000 were received in connection with the sale of two mortgaged properties. In connection with the refinancing of the variable mortgages in December 2005, the mortgage on one of these properties was released. A substitution property must secure the Mortgage Financing obligation for the second property no later than May 31, 2006. As of January 1, 2006, balances of $400,000 and $1,250,000 were held as collateral pending mortgage payment and property substitution and were included in restricted cash on the accompanying consolidated balance sheet as of January 1, 2006.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Inventories—

Inventories are stated at the lower of first-in, first-out cost or market and consisted of the following at January 1, 2006 and January 2, 2005 (in thousands):

	January 1,			January 2,
	2006			2005
Raw materials		$	1,657		$	2,685
Goods in process		106			157
Finished goods		14,012			14,703
Total		$	15,775		$	17,545

Long-Lived Assets—

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews its Non-Friendly Marks, which were assigned to the Company by Hershey in September 2002, for impairment on a quarterly basis. The Company recognizes impairment has occurred when the carrying value of the Non-Friendly Marks exceeds the estimated future undiscounted cash flows of the trademarked products. Additionally, the Company reviews long-lived assets related to each restaurant to be held and used in the business quarterly for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. The Company evaluates restaurants using a “two-year history of cash flow” as the primary indicator of potential impairment. Based on the best information available, the Company writes down an impaired restaurant to its estimated fair market value, which becomes its new cost basis. Estimated fair market value is based on the Company’s experience selling similar properties and local market conditions, less costs to sell for properties to be disposed of. In addition, restaurants scheduled for closing are reviewed for impairment and depreciable lives are adjusted. The impairment evaluation is based on the estimated cash flows from continuing use through the expected disposal date and the expected terminal value. SFAS No. 144 requires a long-lived asset to be disposed of other than by sale to be classified as held and used until it is disposed of.

Store closure costs include costs of disposing of the assets as well as other facility-related expenses from previously closed stores. These store closure costs are expensed as incurred. Additionally, at the date the closure occurs, the Company records a liability for the amount of any remaining operating lease obligations subsequent to the expected closure date, net of estimated sublease income, if any.

SFAS No. 144 also requires the results of operations of a component of an entity that is classified as held for sale or that has been disposed of to be reported as discontinued operations in the statement of operations if certain conditions are met. These conditions include commitment to a plan of disposal after the effective date of this statement, elimination of the operations and cash flows of the entity component from the ongoing operations of the company and no significant continuing involvement in the operations of the entity component after the disposal transaction.

Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, closure costs and sublease income. Accordingly, actual results could vary significantly from estimates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property and Equipment—

Property and equipment are carried at cost. Depreciation of property and equipment is computed using the straight-line method over the following estimated useful lives:

Buildings—30 years

Building improvements and leasehold improvements—lesser of lease term or 20 years

Equipment—3 to 10 years

At January 1, 2006 and January 2, 2005, property and equipment included (in thousands):

	January 1,			January 2,
	2006			2005
Land	$	24,376		$	27,945
Buildings and improvements	95,910			95,402
Leasehold improvements	38,348			37,716
Assets under capital leases	12,247			14,436
Equipment	224,955			227,881
Construction in progress	4,146			4,172
Property and equipment	399,982			407,552
Less: accumulated depreciation and amortization	(258,861		)	(254,712		)
Property and equipment, net	$	141,121		$	152,840

Depreciation expense was $21,576,000, $20,780,000 and $20,942,000 for the years ended January 1, 2006, January 2, 2005 and December 28, 2003, respectively. Additionally, depreciation of $555,000, $639,000 and $737,000 was included in discontinued operations for the years ended January 1, 2006, January 2, 2005 and December 28, 2003, respectively.

Major renewals and betterments are capitalized. Replacements and maintenance and repairs which do not extend the lives of the assets are charged to operations as incurred.

Other Assets—

Other assets included notes receivable of $4,401,000 and $4,524,000, which were net of allowances for doubtful accounts totaling $263,000 and $263,000 as of January 1, 2006 and January 2, 2005, respectively. Also included in other assets as of January 1, 2006 and January 2, 2005 were payments made to fronting insurance carriers of $1,556,000 and $1,402,000, respectively, to establish loss escrow funds.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other Accrued Expenses—

Other accrued expenses consisted of the following at January 1, 2006 and January 2, 2005 (in thousands):

	January 1,			January 2,
	2006			2005
Accrued rent		$	4,739		$	4,782
Gift cards outstanding		4,280			4,068
Income taxes payable		2,761			600
Accrued meals and other taxes		2,219			2,766
Accrued construction costs		1,335			1,236
Accrued advertising		1,211			1,824
Unearned revenues		1,205			1,056
Current portion of deferred gains (Note 7)		638			638
Accrued bonus		58			751
All other		1,420			861
Total		$	19,866		$	18,582

Income Taxes—

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company records deferred tax assets to the extent it believes there will be sufficient future taxable income to utilize those assets prior to their expiration. To the extent deferred tax assets may be unable to be utilized, the Company records a valuation allowance against the potentially unrealizable amount and records a charge against earnings.  The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in several different tax jurisdictions. The Company is periodically reviewed by tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions. In evaluating the exposure associated with various filing positions, the Company records estimated reserves for probable exposures.

Due to ever-changing tax laws and income tax rates, significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future. The Company must also make estimates about the sufficiency of taxable income in future periods to offset any deductions related to deferred tax assets currently recorded. Accordingly, the Company believes estimates related to income taxes are critical.

Derivative Instruments and Hedging Agreements—

The Company enters into commodity option contracts from time to time to manage dairy cost pressures. In addition, on September 19, 2005, the Chicago Mercantile Exchange launched the first electronically traded, cash-settled butter futures contract. This new futures contract is designed to meet the needs of food and dairy companies that have exposure to butterfat price risk but do not want to expose

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

themselves to the possibility of being compelled to take physical delivery of butter. The size of the contract is 20,000 pounds of AA butter, versus the traditional butter futures contract, which is 40,000 pounds. The contract is cash settled based upon the U.S. Department of Agriculture’s monthly weighted average price for butter in the United States. With this new type of futures contract, there is no risk of delivery of butter; therefore it offers the Company the ability to hedge the price risk of cream (on a butter basis), without having to take delivery of commodity butter. The Company has evaluated this new hedging instrument and believes it is an attractive way to hedge the price risk related to cream. During the fourth quarter of 2005, the Company purchased a small number of these contracts, but did not achieve a significant level of protection.

The Company’s commodity option contracts and the cash-settled butter futures contracts do not meet hedge accounting criteria as defined by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and its related amendment, SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, and, accordingly, are marked to market each period with the resulting gains or losses recognized in cost of sales. During 2005, 2004 and 2003, (losses) gains of approximately ($238,000), $623,000 and ($277,000) were included in cost of sales related to these contracts, respectively.

Advertising—

The Company expenses advertising costs as incurred. For the years ended January 1, 2006, January 2, 2005 and December 28, 2003, advertising expenses were $18,694,000, $20,734,000 and $21,700,000, respectively.

Leases and Deferred Straight-Line Rent Payable—

The Company leases many of its restaurant properties. Leases are accounted for under the provisions of SFAS No. 13, “Accounting for Leases,” as amended, which requires that leases be evaluated and classified as operating or capital leases for financial reporting purposes. The lease term used for lease evaluation includes option periods only in instances in which the exercise of the option period can be reasonably assured and failure to exercise such options would result in an economic penalty. Leasehold improvements that are acquired subsequent to the inception of a lease are amortized over the lesser of the useful life of the asset or a term that includes option periods that are reasonably assured at the date of the purchase.

For leases that contain rent escalations, the Company records the total rent payable during the lease term, as determined above, on a straight-line basis over the term of the lease and records the difference between the rents paid and the straight-line rent as a deferred straight-line rent payable.

Certain leases contain provisions that require additional rental payments based upon restaurant sales volume (“contingent rentals”). Contingent rentals are accrued each period as the liabilities are incurred utilizing prorated periodic sales targets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Lease Guarantees and Contingencies—

Primarily as a result of the Company’s refranchising efforts, the Company remains liable for certain lease assignments and guarantees. These leases have varying terms, the latest of which expires in 2020. As of January 1, 2006, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessees was $8,431,000. The present value of these potential payments discounted at the Company’s pre-tax cost of debt at January 1, 2006 was $6,386,000. The Company generally has cross-default provisions with franchisees that would put them in default of their franchise agreement in the event of non-payment under the lease. The Company believes these cross-default provisions significantly reduce the risk that the Company will be required to make payments under these leases and, historically, the Company has not been required to make such payments. However, as of January 1, 2006, the Company believes that one franchisee may be unable to fulfill its lease obligations during 2006. Under the terms of the assignment of the leases to this franchisee, the Company has the right to recover possession before lease default. The Company believes that it has the management resources to assume operation of the franchisee’s restaurants if it were to take back possession of these locations. Accordingly, no liability has been recorded for exposure under such leases at January 1, 2006 and January 2, 2005.

(Loss) Earnings Per Share—

Basic (loss) earnings per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted (loss) earnings per share is calculated by dividing net (loss) income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents are dilutive stock options and warrants that are assumed exercised for calculation purposes. The number of common stock options which could dilute basic earnings per share in the future, that were not included in the computation of diluted (loss) income per share because to do so would have been antidilutive, was 273,000, 320,000 and 163,000 for the years ended January 1, 2006, January 2, 2005 and December 28, 2003, respectively.

Presented below is the reconciliation between basic and diluted weighted average shares (in thousands):

	For the Years Ended
	January 1,		January 2,		December 28,
	2006		2005		2003
Basic weighted average number of common shares outstanding during the year		7,802		7,637		7,447
Adjustments:
Assumed exercise of stock options		—		—		162
Diluted weighted average number of common shares outstanding during the year		7,802		7,637		7,609

Stock-Based Compensation—

The Company accounted for stock-based compensation for employees under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and elected the disclosure-only alternative under SFAS No. 123, “Accounting for Stock-Based Compensation.” Stock-

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

based compensation cost of $68,000, $238,000 and $71,000 related to modified option awards was included in net (loss) income for the years ended January 1, 2006, January 2, 2005 and December 28, 2003, respectively, for the Company’s Stock Option Plan and the Company’s 2003 Incentive Plan. Additionally, stock-based compensation cost of $7,400 was recorded related to 30,000 restricted stock units issued on December 2, 2005 with a weighted average fair value of $8.90 at grant date.

In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” which amends SFAS No. 123. SFAS No. 148 allows for three methods of transition for those companies that adopt SFAS No. 123’s provisions for fair value recognition. SFAS No. 148’s transition guidance and provisions for annual disclosures are effective for fiscal years ending after December 15, 2002. In accordance with SFAS No. 148, the Company has continued to disclose the required pro-forma information in the notes to the consolidated financial statements.

In accordance with SFAS No. 148, the following table presents the effect on net (loss) income and net (loss) income per share had compensation cost for the Company’s stock plans been determined consistent with SFAS No. 123 (in thousands, except per share data):

	For the Years Ended
	January 1,			January 2,				December 28,
	2006			2005				2003
Net (loss) income as reported	$	(27,259	)		$	(3,417	)		$	9,503
Add stock-based compensation expense included in reported net (loss) income, net of related income tax effect of $0, $97 and $29, respectively	75				140				42
Less stock-based compensation expense determined under fair value method for all stock options, net of related income tax benefit of $0, $752 and $257, respectively (a)	(172		)		(1,082		)		(370		)
Pro forma net (loss) income	$	(27,356	)		$	(4,359	)		$	9,175
Basic net (loss) income per share, as reported	$	(3.53	)		$	(0.45	)		$	1.28
Basic net (loss) income per share, pro forma	$	(3.50	)		$	(0.57	)		$	1.23
Diluted net (loss) income per share, as reported	$	(3.53	)		$	(0.45	)		$	1.25
Diluted net (loss) income per share, pro forma	$	(3.50	)		$	(0.57	)		$	1.21

(a)On December 20, 2004, the Company’s Board of Directors approved the vesting of all outstanding and unvested options for the Company’s Stock Option Plan and the Company’s 2003 Incentive Plan. This action was taken to reduce, or eliminate to the extent permitted, the transition expense related to outstanding stock option awards under SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). The 259,850 options that were vested included 145,239 options with exercise prices greater than the Company’s closing stock price on the modification date. Under the accounting guidance of APB Opinion No. 25, the accelerated vesting resulted in stock-based compensation cost of $9,400 (net of related income tax benefit of $6,600), which was included in net loss for the year ended January 2, 2005. Additionally, the effect of the accelerated vesting in the Company’s pro-forma disclosure was incremental stock-based compensation of approximately $666,000 (net of related income tax benefit of $463,000). This stock-based compensation expense would otherwise have been recognized in accordance with SFAS No. 123R in the Company’s consolidated statements of operations over the next two fiscal years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair value was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	2005	2004	2003
Risk free interest rate	3.58%-4.50%	3.03%-3.87%	3.04%-3.21%
Expected life	4 -5 years	4 -5 years	5 years
Expected volatility	55.98%-58.16%	71.23%-73.59%	74.23%-75.47%
Dividend yield	0.00%	0.00%	0.00%
Fair value	$4.28-$4.70	$5.03-$7.72	$4.27-$5.63

Reclassifications—

Certain prior year amounts have been reclassified to conform with current year presentation.

Recently Issued Accounting Pronouncements—

In October 2005, the FASB issued FASB Staff Position 13-1, “Accounting for Rental Costs Incurred during a Construction Period” (“FSP 13-1”). FSP 13-1 concludes that rental costs incurred during and after a construction period are for the right to control the use of a leased asset during and after construction of a leased asset and that there is no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period. Therefore, rental costs associated with ground or building operating leases that are incurred during a construction period should be recognized as rental expense. The guidance is effective for periods beginning after December 15, 2005. The adoption of FSP 13-1 is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 applies to all voluntary changes in accounting principles and requires retrospective application to prior periods’ financial statements of changes in accounting principles, unless it is impracticable. SFAS No. 154 requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change of estimate affected by a change in accounting principles. SFAS No. 154 also carries forward without change the guidance in APB Opinion No. 20 with respect to accounting for changes in accounting estimates, changes in the reporting unit and correction of an error in previously issued financial statements. The Company is required to adopt SFAS No. 154 for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123R must be adopted no later than the first annual period beginning after June 15, 2005. SFAS No. 123R allows companies to choose between the modified-prospective and modified-retrospective transition alternatives in adopting SFAS No. 123R. Under the modified-prospective transition method, compensation cost will be recognized in financial statements issued subsequent to the date of adoption for all shared-based payments granted, modified or settled after the date of adoption, as well as for any unvested awards that were granted prior to the date of adoption. Under the modified-retrospective transition method, compensation cost will be recognized in a manner consistent with the modified-prospective transition method; however, prior period financial statements will also be restated by recognizing compensation cost as previously reported in the pro forma disclosures under SFAS No. 123. The restatement provisions can be applied to either all periods presented or to the beginning of the fiscal year in which SFAS No. 123R is adopted. The Company adopted SFAS No. 123R on January 2, 2006 using the modified-prospective method. As the Company previously adopted only the pro forma disclosure provisions of SFAS No. 123, the Company will recognize compensation cost relating to the unvested portion of awards granted prior to the date of adoption using the same estimate of the grant-date fair value and the same attribution method used to determine the pro forma disclosures under SFAS No. 123.

As permitted by SFAS No. 123, the Company has accounted for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognized no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123R’s fair value method will have an impact on the Company’s results of operations, although it will have no impact on the overall financial position. The Company anticipates that the adoption of SFAS 123R in fiscal 2006 will result in the recognition of stock option expense of $300,000 related to unvested stock options and restricted stock units outstanding at January 1, 2006. Additionally, the Company expects to recognize stock compensation of $150,000 to $400,000 related to newly issued awards in 2006. The actual stock compensation expense recognized in 2006 may vary from this estimated amount because it will depend upon levels of share-based payments granted and forfeited in the future. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior years for such excess tax deductions were $450,000, $818,000 and $165,000 in 2005, 2004 and 2003, respectively.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of Accounting Research Bulletin No. 43, Chapter 4.” The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 is the result of a broader effort by the FASB to improve the comparability of cross-border financial reporting by working with the International Accounting Standards Board toward development of a single set of high-quality accounting standards. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

F-17

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. INTANGIBLE ASSETS AND DEFERRED COSTS

Intangible assets and deferred costs as of January 1, 2006 and January 2, 2005 were (in thousands):

	January 1,			January 2,
	2006			2005
1988 Non-Friendly Marks license agreement fee amortized over 40 years on a straight-line basis	$	18,650			$	18,650
Deferred financing costs amortized over the terms of the related loans on an effective yield basis	10,558				10,146
Other	1,103				1,103
Intangible assets and deferred costs	30,311				29,899
Less: accumulated amortization	(11,248		)		(9,389		)
Net	$	19,063			$	20,510

Amortization expense was $1,859,000, $1,812,000 and $1,708,000 for the years ended January 1, 2006, January 2, 2005 and December 28, 2003, respectively.

Future amortization expense related to these intangible assets and deferred costs as of January 1, 2006 was (in thousands):

Year	Amount
2006	$	1,887
2007	1,678
2008	1,472
2009	1,462
2010	1,464
Thereafter	11,100
Total	$	19,063

Upon the sale of the Company by Hershey Foods Corporation (“Hershey”) in 1988, all of the trademarks and service marks used in the Company’s business at that time which did not contain the word “Friendly” (the “Non-Friendly Marks”) were licensed by Hershey to the Company. The Non-Friendly Marks license agreement fee was being amortized over the term of the agreement, which expired on September 2, 2028. In September 2002, Hershey assigned the Non-Friendly Marks to the Company. The Company will continue to amortize the Non-Friendly Marks license agreement fee over the original term of 40 years. The Company reviews the estimated future cash flows related to each trademarked product on a quarterly basis to determine whether any impairment has occurred. For the years ended January 1, 2006, January 2, 2005 and December 28, 2003, no impairments were recorded.

In July 2003, the Company repurchased $2,750,000 in aggregate principal amount of its 10.5% senior notes. Accordingly, the related unamortized deferred financing costs of $44,000 were written off and included in operating expenses in the accompanying consolidated statement of operations for the year ended December 28, 2003.

In February 2004, the Company announced a cash tender offer and consent solicitation for $175,977,000 of its 10.5% senior notes. In connection with the tender offer, the Company wrote off unamortized deferred financing costs for the purchase of the 10.5% senior notes in March 2004 and the

F-18

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. INTANGIBLE ASSETS AND DEFERRED COSTS (Continued)

redemption of the remaining 10.5% senior notes in April 2004 of $1,788,000 and $657,000, respectively. The $2,445,000 was included in other expenses, principally debt retirement costs in the accompanying consolidated statement of operations for the year ended January 2, 2005. Additionally, the Company incurred $6,374,000 of costs associated with the issuance of the New Senior Notes and the amendment to the revolving credit facility, which were included in intangible assets and deferred costs in the accompanying consolidated balance sheet as of January 2, 2005. These costs will be amortized over the terms of the New Senior Notes and the Credit Facility.

4. WRITE-DOWNS OF PROPERTY AND EQUIPMENT

During 2005, the Company disposed of five properties by sale and nine properties other than by sale. During December 2005, the Company closed seven restaurants and committed to a plan to sell these seven restaurants as well as four restaurants that were closed in 2004. At January 1, 2006, these 11 properties met the criteria for “held for sale” as defined in SFAS No. 144. The carrying values of these properties of $3,326,000 and $3,572,000 as of January 1, 2006 and January 2, 2005, respectively, were reported as assets held for sale in the accompanying consolidated balance sheets. The carrying values of these properties were not adjusted since the carrying values were less than the estimated fair market values less costs to sell.

During the third quarter of 2004, the Company committed to a plan to close and sell four underperforming restaurants. The Company determined that the plan of sale criteria in SFAS No. 144 had been met and separately presented the properties as assets held for sale in the consolidated balance sheets as of September 26, 2004 and December 28, 2003. During the fourth quarter of 2004, the Company sold two of these properties in separate transactions. Aggregate gross proceeds from the sales were $1,795,000. The Company recognized an aggregate gain of $782,000 related to the sales.

SFAS No. 144 also requires the results of operations of a component of an entity that is classified as held for sale or that has been disposed of to be reported as discontinued operations in the statement of operations if certain conditions are met. These conditions include commitment to a plan of disposal after the effective date of this statement, elimination of the operations and cash flows of the entity component from the ongoing operations of the company and no significant continuing involvement in the operations of the entity component after the disposal transaction. See Note 5 for a discussion of discontinued operations. The results of operations and any related gain or loss associated with all closings or properties held for sale since the adoption of SFAS No. 144 through 2004 were immaterial.

The table below identifies the components of the “Loss on disposals of other property and equipment, net” as shown on the consolidated statements of operations (in thousands):

	For the Years Ended
	January 1,			January 2,				December 28,
	2006			2005				2003
Restaurant assets retired due to remodeling		$	225		$	195			$	1,235
Restaurant equipment assets retired due to replacement		200			442				387
(Gain) loss on property held for disposition		—			(782		)		280
Loss on property not held for disposition		118			63				—
Loss on abandoned capital projects and architectural plans		108			—				—
All other		379			295				142
Loss on disposals of other property and equipment, net		$	1,030		$	213			$	2,044

F-19

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. WRITE-DOWNS OF PROPERTY AND EQUIPMENT (Continued)

During the year ended January 1, 2006, the Company determined that the carrying values of six restaurant properties and certain capital inventory used to replace restaurant equipment exceeded their estimated fair values less costs to sell. The carrying values were reduced by an aggregate of $2,478,000.

During the year ended January 2, 2005, the Company determined that the carrying value of a vacant restaurant land parcel and the carrying value of one restaurant property exceeded their estimated fair values less costs to sell. The carrying values were reduced by an aggregate of $91,000. During the year ended December 28, 2003, it was determined that the carrying value of a vacant restaurant land parcel exceeded its estimated fair value less costs to sell. The carrying value of this property was reduced by an aggregate of $26,000.

5. DISCONTINUED OPERATIONS

During 2005, the Company disposed of five properties by sale and nine properties other than by sale. During December 2005, the Company closed seven restaurants and committed to a plan to sell these seven restaurants as well as four restaurants that were closed in 2004. At January 1, 2006, these 11 properties met the criteria for “held for sale” as defined in SFAS No. 144.

In accordance with SFAS No. 144, the results of operations of the 14 properties that were disposed of during 2005 and the related net gain on the disposals, as well as the results of operations of the 11 properties held for sale at January 1, 2006, were reported separately as discontinued operations in the accompanying consolidated statements of operations for all years presented. Operating results for the year ended January 1, 2006 and results for the years ended January 2, 2005 and December 2, 2003 that were included in the restaurant segment in previously issued Annual Reports on Form 10-K and the net gain on disposals of the properties are summarized below (in thousands):

	For the Years Ended
	January 1,				January 2,				December 28,
	2006				2005				2003
					(53 weeks)
Net sales		$	10,499			$	16,898			$	17,342
Operating loss		(1,548		)		(938		)		(439		)
Gain on disposals of property and equipment		2,115				—				—
Income tax (expense) benefit		(232		)		385				180
Income (loss) from discontinued operations		$	335			$	(553	)		$	(259	)

F-20

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. DEBT

Debt at January 1, 2006 and January 2, 2005 consisted of the following (in thousands):

	January 1,			January 2,
	2006			2005
New Senior Notes, 8.375%, due June 15, 2012	$	175,000		$	175,000
Revolving credit loans, due September 30, 2005	—			4,000
Mortgage loans, due January 2, 2006 through January 1, 2022	51,320			51,976
Total debt	226,320			230,976
Less: current portion	(1,426		)	(5,224		)
Total long-term debt	$	224,894		$	225,752

Principal payments due as of January 1, 2006 were as follows (in thousands):

Year	Amount
2006	$	1,426
2007	1,616
2008	1,770
2009	1,965
2010	2,897
Thereafter	216,646
Total	$	226,320

In December 2001, the Company completed a financial restructuring plan which included the repayment of all amounts outstanding under its then existing credit facility and the purchase of approximately $21,273,000 of its 10.5% senior notes with the proceeds from $55,000,000 in long-term mortgage financing (the “Mortgage Financing”) and a $33,700,000 sale and leaseback transaction (the “Sale/Leaseback Financing”).

Interest on $10,000,000 of the original $55,000,000 from the Mortgage Financing is variable (“Variable Mortgages”) and the remaining $45,000,000 of the original $55,000,000 from the Mortgage Financing bears interest at a fixed annual rate of 10.16% (“Fixed Mortgages”). The Fixed Mortgages have a maturity date of January 1, 2022 and are amortized over 20 years.

On December 30, 2005, the Company completed a refinancing of the Variable Mortgages (the “Variable Refinancing”). Under the terms of the loan agreement for the Variable Mortgages, the Company borrowed an aggregate sum of $8,500,000 at a variable interest rate equal to the sum of the 90-day LIBOR rate in effect (4.54% at December 30, 2005) plus 4% on an annual basis. Changes in the interest rate are calculated monthly and recognized annually when the monthly payment amount is adjusted. Changes in the monthly payment amounts owed due to interest rate changes are reflected in the principal balances, which are re-amortized over the remaining life of the mortgages. The loans under the Variable Mortgages have a maturity date of January 1, 2020 and are being amortized over 14 years. In connection with this transaction, the Company prepaid two mortgage loans from the lender in the amount of approximately $965,000 from existing cash.

In connection with the Variable Refinancing, the Company incurred direct expenses of $71,300 that were included in the accompanying consolidated statement of operations for the year ended January 1,

F-21

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. DEBT (Continued)

2006 and $186,600 of costs that were included in intangible assets and deferred costs in the accompanying consolidated balance sheet as of January 1, 2006. These costs will be amortized over the term of the Variable Mortgages.

Pursuant to the terms of the Mortgage Financing, the Company may sell properties securing its obligations provided that other properties are substituted in place of the sold properties. The substituted properties must meet certain requirements under the terms of the Mortgage Financing. In August 2005, proceeds of $415,000 and $2,650,000 were received in connection with the sale of two mortgaged properties. In connection with the Variable Refinancing, the mortgage on one of these properties was released. A substitution property for the second property must be in place to secure the Company’s obligations no later than May 31, 2006. As of January 1, 2006, balances of $400,000 and $1,250,000 were held as collateral pending mortgage payment and property substitution and were included in restricted cash on the accompanying consolidated balance sheet as of January 1, 2006.

In September 2005, the Company acquired additional financing secured by its newly constructed Milford, MA restaurant (the “Milford Mortgage”). The financing provided for a real estate improvement and equipment loan. The real estate improvement loan has a principal balance of $821,000 and is amortized over 15 years with a balloon payment due on October 1, 2010. The equipment loan has a principal balance of $294,000 and is amortized over seven years with a balloon payment due on October 1, 2010. The interest rate is variable and is the sum of the 90-day LIBOR rate in effect (4.54% at January 1, 2006) plus 4% on an annual basis. Changes in the interest rate are calculated monthly and recognized annually when the monthly payment amount is adjusted. Changes in the monthly payment amounts owed due to interest rate changes are reflected in the principal balances, which are re-amortized over the remaining life of the mortgages. The variable rate notes are subject to prepayment penalties during the first three years.

All mortgage financings are subject to covenants, including various minimum fixed charge coverage ratios. We were in compliance with the covenants for the Variable Mortgages and the Fixed Mortgages as of January 1, 2006. As of January 1, 2006, we were not in compliance with the fixed charge coverage ratio related to the Milford Mortgage. We obtained a waiver from the Milford Mortgage lender on March 7, 2006 waiving this covenant requirement for the year ended January 1, 2006.

In 2003 and 2004, the Company purchased or redeemed all of the remaining outstanding 10.5% senior notes in a series of transactions. In February 2004, the Company announced a cash tender offer and consent solicitation for $176,000,000 of its 10.5% senior notes which was financed with the proceeds from a $175,000,000 private offering of new 8.375% senior notes (the “New Senior Notes”), available cash and its Credit Facility. In March 2004, $127,357,000 of aggregate principal amount of the 10.5% senior notes was purchased at the tender offer and consent solicitation price of 104% of the principal amount and $476,000 of aggregate principal amount of 10.5% senior notes were purchased at the tender offer price of 102% of the principal amount. In April 2004, the remaining $48,144,000 of the 10.5% senior notes was redeemed in accordance with the 10.5% senior notes indenture at 103.5% of the principal amount. In connection with the tender offer, the Company wrote off unamortized deferred financing costs and incurred other direct expenses of $9,235,000 that were included in the accompanying consolidated statement of operations for the year ended January 2, 2005.

The $175,000,000 of New Senior Notes issued in March 2004 are unsecured senior obligations of FICC, guaranteed on an unsecured senior basis by FICC’s Friendly’s Restaurants Franchise, Inc.

F-22

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. DEBT (Continued)

subsidiary, but are effectively subordinated to all secured indebtedness of FICC, including the indebtedness incurred under the Company’s Credit Facility. The New Senior Notes mature on June 15, 2012. Interest on the New Senior Notes is payable at 8.375% per annum semi-annually on June 15 and December 15 of each year. The New Senior Notes are redeemable, in whole or in part, at any time on or after June 15, 2008 at FICC’s option at redemption prices from 104.188% to 100.00%, based on the redemption date. In addition, at any time prior to June 15, 2007, FICC may redeem, subject to certain conditions, up to 35% of the aggregate principal amount of the New Senior Notes with the proceeds of one or more qualified equity offerings, as defined, at a redemption price of 108.375% of the principal amount, plus accrued interest.

The Company has a $35,000,000 revolving Credit Facility. The $35,000,000 revolving credit commitment less outstanding letters of credit is available for borrowing to provide working capital and for other corporate needs. As of January 1, 2006 and January 2, 2005, total letters of credit outstanding were $15,974,000 and $15,224,000, respectively. During 2005 and 2004, there were no drawings against the letters of credit. The revolving credit loans bear interest at the Company’s option at either (a) the base rate plus the applicable margin as in effect from time to time (the “Base Rate”) (9.75% at January 1, 2006) or (b) the Eurodollar rate plus the applicable margin as in effect from time to time (the “Eurodollar Rate”) (8.86% at January 1, 2006). As of January 1, 2006 there were no revolving credit loans outstanding. As of January 2, 2005, $4,000,000 of revolving credit loans were outstanding. As of January 1, 2006 and January 2, 2005, $19,026,000 and $15,776,000, respectively, was available for borrowing.

The Credit Facility has an annual “clean-up” provision which obligates the Company to repay in full any and all outstanding revolving credit loans for a period of not less than 15 consecutive days during the period beginning on or after May 1 and ending on or before June 15 (or the next business day, if, in any year, June 15 is not a business day) of each calendar year, commencing with the 2006 calendar year, such that immediately following the date of such repayment, the amount of all outstanding revolving credit loans shall be zero.

The Credit Facility matures on June 30, 2007. The Credit Facility includes certain restrictive covenants including limitations on indebtedness, restricted payments such as dividends and stock repurchases, liens, mergers, investments and sales of assets and of subsidiary stock. Additionally, the Credit Facility limits the amount which the Company may spend on capital expenditures, restricts the use of proceeds, as defined, from asset sales and requires the Company to comply with certain financial covenants. On March 15, 2006, the Company amended and restated the Credit Facility as of December 30, 2005 to, among other things, (i) revise certain financial covenants beginning with the fourth quarter of 2005 and extending through the Credit Facility maturity date of June 30, 2007 (including leverage, interest coverage, minimum EBITDA and the deletion of the tangible net worth covenant) and (ii) permit certain transactions to be excluded from the Company’s annual capital expenditures limit. As a result of the  amendment, the Company was in compliance with the covenants in the Credit Facility as of January 1, 2006.

F-23

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. DEBT (Continued)

The financial covenant requirements, as defined under the Credit Facility, and actual ratios/amounts as of and for the years ended January 1, 2006 and January 2, 2005 were (dollars in thousands):

	January 1, 2006					January 2, 2005
	Requirement			Actual		Requirement				Actual
Leverage ratio		5.80 to 1		5.69 to 1			5.50 to 1			5.22 to 1
Interest coverage ratio		2.00 to 1		2.06 to 1			2.00 to 1			2.16 to 1
Fixed charge coverage ratio		1.05 to 1		1.14 to 1			1.00 to 1			1.15 to 1
Consolidated tangible net worth (deficit)		N/A		N/A			$	(107,611	)	$	(99,213	)
Capital expenditures (a)		$	25,500	$	17,158		$	23,500		$	22,179
Consolidated EBITDA (b)		$	42,000	$	43,100		$	46,500		$	48,190

(a)The Credit Facility’s definition of capital expenditures differs from the Company’s total capital expenditures.

(b)The Credit Facility’s definition of consolidated EBITDA allows non-cash losses and capitalized interest to be added back to net income (loss) which differs from the Company’s internal EBITDA computation presented elsewhere herein.

The fair values of the Company’s long-term debt at January 1, 2006 and January 2, 2005 were as follows (in thousands):

	January 1, 2006				January 2, 2005
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
New Senior Notes	$	175,000	$	156,625	$	175,000	$	169,313
Revolving credit loans	—		—		4,000		4,000
Mortgage loans	51,320		51,320		51,976		51,976
Total	$	226,320	$	207,945	$	230,976	$	225,289

The fair values of the New Senior Notes were determined based on the actual trade prices occurring closest to January 1, 2006 and January 2, 2005. As the interest on the revolving credit loans is variable, the carrying value approximated the fair value. Because the mortgage loans are privately held, the Company believes that the carrying value of the mortgage loans as of January 1, 2006 and January 2, 2005 approximated the fair value.

F-24

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. LEASES

As of January 1, 2006 and January 2, 2005, the Company operated 314 and 347 restaurants, respectively. These operations were conducted in premises owned or leased as follows:

	January 1,		January 2,
	2006		2005
Land and building owned		79		94
Land leased and building owned		70		79
Land and building leased		165		174
		314		347

Restaurants in shopping centers are generally leased for a term of 10 to 20 years. Leases of freestanding restaurants generally are for a 15 or 20 year lease term and provide for renewal options for three or four five-year renewals at the then current fair market value. Additionally, the Company leases certain equipment over lease terms from three to seven years.

In connection with the Sale/Leaseback Financing in December 2001, the Company sold 44 properties operating as Friendly’s restaurants and entered into a master lease with the buyer to lease the 44 properties for an initial term of 20 years under a triple net lease. There are four five-year renewal options and lease payments are subject to escalator provisions every five years based upon increases in the Consumer Price Index. In accordance with SFAS No. 66, “Accounting for Sales of Real Estate” and SFAS No. 98, “Accounting for Leases”, the Company recognized an aggregate loss of $428,000 on two properties which was included in gain on disposals of other properties and equipment, net in 2001. The aggregate gain of $11,377,000 on the remaining 42 properties was deferred and the unamortized balance of $10,050,000 was included in other accrued expenses and other long-term liabilities. The deferred gain is being amortized straight-line over 20 years.

Future minimum lease payments and amounts to be received as lessor or sublessor under noncancelable leases with an original term in excess of one year as of January 1, 2006 were (in thousands):

	Commitments
			Capital
			Lease and				Operating
	Operating		Finance				Lease
Year	Leases		Obligations				Receivables
2006	$	18,058		$	2,119			$	3,371
2007	16,592			2,062				2,644
2008	14,916			2,026				2,495
2009	13,586			1,022				2,485
2010	11,718			444				2,246
Thereafter	69,412			2,486				19,415
Total future minimum lease payments	$	144,282		10,159				$	32,656
Less amounts representing interest				(2,567		)
Present value of minimum lease payments				7,592
Less current maturities of capital lease and finance obligations				(1,419		)
Long-term maturities of capital lease and finance obligations				$	6,173

F-25

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. LEASES (Continued)

Capital lease and finance obligations reflected in the accompanying consolidated balance sheets have effective interest rates ranging from 6.00% to 12.00% and are payable in monthly installments through 2016. Maturities of such obligations as of January 1, 2006 were (in thousands):

Year	Amount
2006		$	1,419
2007		1,515
2008		1,642
2009		793
2010		258
Thereafter		1,965
Total		$	7,592

Rent expense included in the accompanying consolidated statements of operations for operating leases was (in thousands):

	For the Years Ended
	January 1,			January 2,			December 28,
	2006			2005			2003
Minimum rentals		$	19,847		$	20,668		$	19,154
Contingent rentals		815			968			1,022
Total		$	20,662		$	21,636		$	20,176

8. INCOME TAXES

The (provision for) benefit from income taxes for the years ended January 1, 2006, January 2, 2005 and December 28, 2003 were as follows (in thousands):

	For the Years Ended
	January 1,			January 2,				December 28,
	2006			2005				2003
Current (provision) benefit:
Federal	$	(726	)		$	837			$	(88	)
State	(213		)		(89		)		(144		)
Increase in tax accruals	(1,446		)		(601		)		—
Total current (provision) benefit	$	(2,385	)		$	147			$	(232	)
Deferred (provision) benefit:
Federal	$	(17,212	)		$	3,662			$	(3,649	)
State	(637		)		964				(543		)
Reversal of tax accruals	—				2,757				—
Total deferred (provision) benefit	$	(17,849	)		$	7,383			$	(4,192	)
Income tax provision (benefit) allocated to discontinued operations	$	232			$	(385	)		$	(180	)
Total (provision for) benefit from income taxes	$	(20,002	)		$	7,145			$	(4,604	)

F-26

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. INCOME TAXES (Continued)

A reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate follows:

	For the Years Ended
	January 1,			January 2,			December 28,
	2006			2005			2003
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes net of federal benefit		6.0			6.0			6.0
Effect of change in valuation allowance		(292.1	)		0.1			(0.6	)
Tax credits		4.8			8.9			(6.6	)
Nondeductible expenses		(1.7	)		(2.3	)		1.1
Adjustment of income tax accruals		(19.0	)		21.6			—
Other		3.5			2.1			(2.9	)
Effective tax rate		(263.5	)%		71.4	%		32.0	%

Deferred tax assets and liabilities are determined as the difference between the financial statement and tax bases of the assets and liabilities multiplied by the enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets (liabilities) at January 1, 2006 and January 2, 2005 were as follows (in thousands):

	January 1,			January 2,
	2006			2005
Property and equipment	$	(13,788	)	$	(15,683	)
Net operating loss carryforwards	3,732			3,705
Insurance reserves	12,690			8,670
Inventories	285			248
Pension	11,850			7,590
Intangible assets	(4,333		)	(4,524		)
Tax credit carryforwards	11,958			13,668
Deferred gain	3,930			4,192
Other	5,820			5,021
Net deferred tax asset	32,144			22,887
Valuation allowance	(32,144		)	(5,415		)
Net deferred tax asset	$	—		$	17,472
Total deferred tax assets	$	50,932		$	43,680
Total deferred tax liabilities	(18,788		)	(20,793		)
Valuation allowance	(32,144		)	(5,415		)
Net deferred tax asset	$	—		$	17,472

As of January 1, 2006, the Company had approximately $32,144,000 of net deferred tax assets relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences that are available to reduce income taxes in future years. SFAS No. 109 “Accounting for Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates,

F-27

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. INCOME TAXES (Continued)

length of carryback and carryforward periods, and projections of future operating results. Where there are cumulative losses in recent years, SFAS No. 109 creates a strong presumption that a valuation allowance is needed. The presumption can be overcome in very limited circumstances.

During the fourth quarter of 2005, the Company entered a three-year cumulative loss position and revised its projections of the amount and timing of profitability in future periods. As a result, the Company increased its valuation allowance by approximately $26,729,000 ($22,184,000 to income tax expense and $4,545,000 to stockholders’ deficit) to reduce the carrying value of net deferred tax assets to zero.

The Company expects to record a full valuation allowance on future tax benefits until it can sustain an appropriate level of profitability. However, going forward should the Company’s return to profitability provide sufficient evidence, in accordance with SFAS No. 109, to support the ultimate realization of income tax benefits attributable to net operating loss (“NOL”) and credit carryforwards and other deductible temporary differences, a reduction in the valuation allowance may be recorded and the carrying value of deferred tax assets may be restored, resulting in a non-cash credit to earnings.

As of January 2, 2005, the Company had valuation allowances in the amount of $5,415,000, which had been recorded against state NOL carryforwards and state credit carryforwards in the amounts of $2,985,000 and $2,430,000, respectively.

The income tax provision for the year ended January 1, 2006 included the above referenced increase in the valuation allowance of $22,184,000 and an increase in income tax accruals of $1,446,000 related to ongoing tax audits and other tax matters. The increase in the valuation allowance and the increase in income tax accruals accounted for (292.1)% and (19.0)%, respectively, of the Company’s effective tax rate of (263.5)%.

The benefit from income taxes for the year ended January 2, 2005 included a $2,156,000 reversal of income tax accruals recorded in prior years. This accrual related to tax matters that, based upon additional information obtained during the fourth quarter, was no longer necessary. The reversal was recorded in the fourth quarter of 2004. This reversal accounted for approximately 21.6% of the Company’s effective tax rate of 71.4%.

During the year ended January 1, 2006, the Company generated federal taxable income of approximately $1,178,000. During the year ended January 2, 2005, the Company estimated a federal NOL of approximately $8,739,000. The Company carried the 2004 federal NOL back to the 2003 and 2002 tax years. The Company had aggregate state NOL carryforwards, the tax effect of which was approximately $3,732,000 and $3,705,000 as of January 1, 2006 and January 2, 2005, respectively. The state NOL carryforwards expire between 2006 and 2025.

As of January 1, 2006 and January 2, 2005, the Company had federal general business credit carryforwards of $9,237,000 and $11,238,000, respectively, which expire between 2018 and 2024. The Company had $2,721,000 and $2,430,000 of state tax credit carryforwards as of January 1, 2006 and January 2, 2005, respectively, which either expire between 2006 and 2010 or have no expiration date.

Refundable taxes, credit carryforwards and state loss carryforwards were increased by an aggregate of $450,000 and $818,000 in 2005 and 2004, respectively, as a result of stock options exercised.

F-28

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. RESTRUCTURINGS

During March 2004, the Company recorded a pre-tax restructuring charge of $2,627,000 for severance and outplacement services associated with reduction in force actions taken during the first quarter of 2004 that reduced headcount by approximately 20 permanent positions.

On October 10, 2001, the Company eliminated approximately 70 positions at corporate headquarters. In addition, approximately 30 positions in the restaurant construction and fabrication areas were eliminated by December 30, 2001. The purpose of the reduction was to streamline functions and reduce redundancy among its business segments. As a result of the elimination of the positions and the outsourcing of certain functions, the Company reported a pre-tax restructuring charge of $2,536,000 for severance, rent and unusable construction supplies in the year ended December 30, 2001.

In March 2000, the Company’s Board of Directors approved a restructuring plan that provided for the immediate closing of 81 restaurants at the end of March 2000 and the disposition of an additional 70 restaurants over the next 24 months. As a result of this plan, the Company reported a pre-tax restructuring charge of $12,056,000 for severance, rent, utilities and real estate taxes, demarking, lease termination costs and certain other costs associated with the closing of the locations, along with a pre-tax write-down of property and equipment for these locations of approximately $17,000,000 in the year ended December 31, 2000. The Company reduced the restructuring reserve by $400,000 and $1,900,000 during the years ended December 29, 2002 and December 30, 2001, respectively, since the reserve exceeded estimated remaining payments.

The following represents the reserve and activity associated with the March 2004, October 2001 and March 2000 restructurings (in thousands):

	For the Year Ended January 1, 2006
	Restructuring										Restructuring
	Reserve as of						Costs Paid				Reserve as of
	January 2, 2005			Expense			and Reclassified				January 1, 2006
Rent		$	92		$	—		$	(92	)		$	—
Severence pay		952			—			(880		)		72
Other		34			—			(34		)		—
Total		$	1,078		$	—		$	(1,006	)		$	72

	For the Year Ended January 2, 2005
	Restructuring										Restructuring
	Reserve as of						Costs Paid				Reserve as of
	December 28, 2003			Expense			and Reclassified				January 2, 2005
Rent		$	319		$	—		$	(227	)		$	92
Utilities and real estate taxes		40			—			(40		)		—
Severence pay		—			2,549			(1,597		)		952
Outplacement services		—			78			(78		)		—
Other		82			—			(48		)		34
Total		$	441		$	2,627		$	(1,990	)		$	1,078

Based on information currently available, management believes that the restructuring reserve as of January 1, 2006 was adequate and not excessive.

F-29

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. FRANCHISE TRANSACTIONS

During 2005, the Company completed four re-franchising transactions in which four existing franchisees purchased nine existing Company-operated restaurants and agreed to develop a total of 10 new restaurants in future years (seven more than their prior commitments). Gross proceeds from these transactions were $4,102,000, of which $210,000 was for franchise fees, $85,000 was for development fees and $3,807,000 was for the sale of certain assets and leasehold rights. During the year ended January 1, 2006, the Company recorded $210,000 of franchise fee revenue for the initial re-franchised locations and deferred $85,000 related to future development. The $85,000, which represents one-half of future franchise fees, will be recognized into income as restaurants are opened. In addition, the Company recognized a gain of approximately $2,712,000 related to the sale of assets.

In addition, the Company completed three transactions in which three former employees received franchises to operate six existing restaurants for a period of two years with options to purchase the restaurants within the two years. If the options are exercised, one franchisee has agreed to develop two new restaurants in future years. Proceeds from option transactions will be recognized upon purchase.

On September 13, 2004, the Company sold leasehold improvements and equipment and assigned the lease for one re-franchised location and sold equipment at three other re-franchised locations to the existing franchisee. In addition, as part of the Company’s agreement with the franchisee, the franchisee committed to open five new restaurants in the Dayton, OH market over the six years following the date of the agreement with an option to open an additional five restaurants in the following five years. Gross proceeds from the sale were approximately $875,000, of which $205,000 was for franchise fees and $670,000 was for the sale of assets and lease assignment. During the year ended January 2, 2005, the Company recorded $130,000 of franchise fee revenue for the initial re-franchised locations and deferred $75,000 related to future development. The $75,000, which represents one-half of future franchise fees, will be recognized into income as restaurants are opened. In addition, the Company recognized a gain of approximately $292,000 related to the sale of assets.

On September 9, 2004, the Company entered into an agreement granting NL Ark Development, Inc. (“NL Ark”) certain limited exclusive rights to operate and develop Friendly’s restaurants in designated areas within Palm Beach County, Florida. NL Ark committed to open five new Friendly’s restaurants over the five years following the date of the agreement. The Company received development fees of $80,000, which represents one-half of future franchise fees. The $80,000 will be recognized into income as restaurants are opened.

On March 5, 2004, the Company sold the real property and equipment for one re-franchised location and assigned the lease and sold the equipment for a second re-franchised location to the existing franchisee. Gross proceeds from the sale were approximately $485,000, of which $70,000 was for franchise fees and $415,000 was for the sale of assets and lease assignment. In 2004, the Company recorded $70,000 as franchise fee revenue and recognized a gain of approximately $250,000 related to the sale of assets.

On January 15, 2004, the Company entered into an agreement granting Central Florida Restaurants LLC (“Central Florida”) certain limited exclusive rights to operate and develop Friendly’s full-service restaurants in designated areas within the Orlando, Florida market (the “Central Florida Agreement”). Pursuant to the Central Florida Agreement, Central Florida purchased certain equipment assets, lease and sublease rights and franchise rights in 10 existing Friendly’s restaurants and committed to open an additional 10 restaurants over the six years following the date of the agreement with an option for 15 more restaurants in the following five years. Gross proceeds from the sale were approximately $3,150,000 of

F-30

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. FRANCHISE TRANSACTIONS (Continued)

which $310,000 was for franchise fees for the initial 10 restaurants. In 2004, the Company recorded $310,000 as franchise fee revenue and recognized a gain of approximately $679,000 related to the sale of the assets for the 10 locations. During the year ended January 1, 2006, Central Florida opened two new restaurants.

During July 2003, the Company entered into a development agreement granting Jax Family Rest., Inc. (“Jax”) certain limited exclusive rights to operate and develop Friendly’s full-service restaurants in designated areas within Baker, Clay, Nassau, Putnam and St. John’s counties, Florida (the “Jax Agreement”). Pursuant to the Jax Agreement, Jax agreed to develop 10 new restaurants over seven years, with a specific number of restaurants opening in specific years.. The Company received development fees of $155,000, which represents one-half of future franchise fees. The $155,000 will be recognized into income as restaurants are opened. During the year ended January 2, 2005, Jax opened one new restaurant. Jax is currently behind in its development schedule.

11. PENSION PLAN

Certain of the employees of the Company are covered by a non-contributory defined benefit cash balance pension plan. Plan benefits are based on years of service and participant compensation during their years of employment.

Under the cash balance plan, a nominal account for each participant was established. Through 2003, the Company made an annual contribution to each participant’s account based on current wages and years of service. Each account earns a specified rate of interest, which is adjusted annually. Plan expenses may also be paid from the assets of the plan.

In 1997, pension benefits were reduced to certain employees. In 1998, death benefits were increased. In 2002, pension benefits that were reduced in 1997 were restored to certain employees. Also in 2002, pension benefits were reduced to all employees, to be effective in 2003.

In November 2003, the Company announced that effective December 31, 2003, all benefits accrued under the pension plan would be frozen at the level attained on that date. The benefits accrued through December 31, 2003 were not reduced. As a result, the Company recognized a one-time pension curtailment gain of $8,113,000 in 2003 equal to the unamortized balances as of December 31, 2003 from all plan changes made prior to that date. Cash balance accounts continued to be credited with interest after December 31, 2003 and will continue to be credited with interest.

During 2004, lump-sum cash payments to participants exceeded the interest cost component of net periodic pension cost. As a result of the unusual settlement volume, the Company recorded additional pension expense of $2,204,000 during the year ended January 2, 2005.

As of December 31, 2005, the latest measurement date, the accumulated benefit obligation of the pension plan exceeded the fair value of plan assets. Accordingly, in accordance with SFAS No. 87, “Employer’s Accounting for Pensions”, the Company recorded an additional minimum pension liability of $11,086,000. The Company initially recorded an additional minimum pension liability in 2002, the first measurement date where the accumulated benefit obligation exceeded the fair value of plan assets. The Company also recorded additional minimum pension liabilities during the years ended January 2, 2005 and December 28, 2003 of $1,317,000 ($777,000, net of income tax benefit) and $9,090,000 ($5,363,000, net of income tax benefit), respectively. These adjustments were included in other accumulated comprehensive

F-31

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. PENSION PLAN (Continued)

loss as a direct charge to stockholders’ deficit. As of January 1, 2006, the cumulative additional minimum pension charge included in accumulated other comprehensive loss was $46,169,000 ($31,785,000, net of income tax benefit).

For the years ended January 1, 2006 and January 2, 2005, the reconciliation of the projected benefit obligation was (in thousands):

	January 1,			January 2,
	2006			2005
Beginning of year benefit obligation	$	110,042		$	106,998
Interest cost	6,684			6,603
Assumption changes	5,151			4,149
Actuarial loss	4,693			861
Disbursements	(6,621		)	(8,569		)
End of year benefit obligation	$	119,949		$	110,042

The reconciliation of the fair value of assets of the plan as of January 1, 2006 and January 2, 2005 was (in thousands):

	January 1,			January 2,
	2006			2005
Beginning of year fair value of assets	$	92,510		$	90,871
Actual return on plan assets (net of expenses)	5,156			10,208
Disbursements	(6,621		)	(8,569		)
End of year fair value of assets	$	91,045		$	92,510

The reconciliation of the funded status of the pension plan as of January 1, 2006 and January 2, 2005 included the following components (in thousands):

	January 1,			January 2,
	2006			2005
Projected benefit obligation	$	119,949		$	110,042
Fair value of plan assets	91,045			92,510
Funded status	(28,904		)	(17,532		)
Unrecognized net actuarial loss	46,169			35,083
Prepaid benefit cost	$	17,265		$	17,551

F-32

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. PENSION PLAN (Continued)

The amounts recognized in the consolidated balance sheets and the consolidated statements of changes in stockholders’ deficit were (in thousands):

	January 1,			January 2,
	2006			2005
Accumulated benefit obligation	$	119,949		$	110,042
Fair value of plan assets	91,045			92,510
Minimum pension liability	(28,904		)	(17,532		)
Prepaid benefit cost	(17,265		)	(17,551		)
Accrued benefit liability	(46,169		)	(35,083		)
Income tax benefit	14,384			14,384
Accumulated other comprehensive loss	$	(31,785	)	$	(20,699	)

The components of net periodic pension cost (benefit) for the years ended January 1, 2006, January 2, 2005 and December 28, 2003 were (in thousands):

	January 1,				January 2,				December 28,
	2006				2005				2003
Service cost		$	—			$	—			$	2,211
Interest cost		6,684				6,604				6,425
Expected return on assets		(8,288		)		(9,391		)		(9,097		)
Net amortization:
Unrecognized prior service benefit		—				—				(1,278		)
Unrecognized net actuarial loss		1,890				671				608
Periodic pension cost (benefit) before adjustments		286				(2,116		)		(1,131		)
Settlement expense (curtailment gain)		—				2,204				(8,113		)
Net periodic pension cost (benefit)		$	286			$	88			$	(9,244	)

A summary of the Company’s key actuarial assumptions used to determine benefit obligations as of January 1, 2006 and January 2, 2005 follows:

	January 1, 2006	January 2, 2005
Discount rate	5.75%	6.00%
Salary increase rate	3.25-4.75%	3.25-4.75%
Expected long-term rate of return	8.75%	8.75%

F-33

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. PENSION PLAN (Continued)

A summary of the Company’s key actuarial assumptions used to determine net periodic pension cost (benefit) for the years ended January 1, 2006, January 2, 2005 and December 28, 2003 follows:

	January 1, 2006	January 2, 2005	December 28, 2003
Discount rate	6.00%	6.25%	6.75%
Salary increase rate	3.25-4.75%	3.25-4.75%	3.25-4.75%
Expected long-term rate of return	8.75%	9.00%	9.50%

The Company determines its expected long-term rate of return based on its expectations of future returns for the pension plan’s investments based on target allocations of the pension plan’s investments. Additionally, the Company considers historical returns on comparable equity, fixed income and real estate investments and adjusts its estimates as deemed appropriate. As of January 1, 2006, point estimates of the Company’s long-term target allocation to equity (57.5%), fixed income (32.0%), real estate (10.0%) and other (0.5%) is expected to provide real rates of return of 7.23%, 2.21%, 1.90% and 1.50%, respectively. In addition, the long-term inflation assumption was 3.75%. The resulting weighted expected long-term rate of return on plan assets was 8.75%.

The Company’s pension plan weighted average asset allocations at January 1, 2006 and January 2, 2005 by asset category were as follows:

	January 1,		January 2,
Asset Category	2006		2005
Equity securities		66%		65%
Debt securities		21%		19%
Real estate		12%		11%
Other		1%		5%
Total		100%		100%

The Company actively manages its pension plan assets utilizing a registered investment advisor as recognized under the Investment Advisors Act of 1940, as amended. Oversight of the investment advisor is provided by the Company’s Qualified Benefit Plans Committee (“QBPC”). The plan’s trustee and investment advisor monitor transactions and performance monthly and the QBPC reviews performance monthly with a complete review of plan assets on a quarterly basis. Monthly, cash is withdrawn from the pension fund to meet benefit requirements. This provides the investment advisor with an opportunity to rebalance on a limited scale. If larger scale rebalancing is required, it is performed on an as needed basis.

The Company believes that a moderately aggressive risk posture is appropriate for the plan and is consistent with the actuarially-determined cash payment requirements. Accordingly, the investment of plan assets is governed by the Investment Policy of the Company’s retirement program which reflects two primary objectives:  1) achieving investment results that will contribute to the proper funding of the plan, and 2) receiving from its investment advisor performance that is above the average market return. Asset mix guidelines exist within the Investment Policy that target equities at 30-80% of the portfolio, fixed income at 10-60% and real estate at 10%. It is expected that over long periods of time, these asset allocation parameters will enable the plan to meet or exceed actuarial assumptions.

F-34

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. PENSION PLAN (Continued)

The investment guidelines prohibit certain types of transactions, including the purchase of securities on margin, short-sale transactions, the purchase of letter stock or other non-registered securities, securities lending and any other investments or investment strategies disallowed by ERISA or related regulations.

Equity securities of the plan did not include any investment in the Company’s common stock at January 1, 2006 or January 2, 2005.

The Company does not expect to contribute any cash to its pension plan in 2006.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

Year	Amount
2006	$	3,759
2007	3,781
2008	4,388
2009	4,873
2010	5,133
2011—2015	33,809
Total	$	55,743

12. POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS

The Company provides medical and life insurance benefits to certain groups of employees upon retirement. Eligible employees may continue their coverage if they are receiving a pension benefit, are at least 55 years of age and have completed ten years of service. The plan requires contributions for medical coverage from participants who retired after September 1, 1989. Medical coverage may continue until age 65. Life insurance benefits are contributory for participants who retired after July 1, 2002. Medical benefits under the plan are provided through the Company’s general assets.

The Company uses a December 31 measurement date for the plan.

The Company accrues the cost of postretirement medical and life insurance benefits over the years employees provide services to the date of their full eligibility for such benefits. The reconciliation of the accumulated benefit obligation for the years ended January 1, 2006 and January 2, 2005 was as follows (in thousands):

	January 1,				January 2,
	2006				2005
Beginning of year benefit obligation		$	7,985			$	7,897
Service cost		162				141
Interest cost		407				456
Plan participants’ contributions		208				199
Actuarial gain		(1,243		)		(36		)
Disbursements		(669		)		(672		)
End of year benefit obligation		$	6,850			$	7,985

F-35

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS (Continued)

The reconciliation of the funded status of the plan as of January 1, 2006 and January 2, 2005 included the following components (in thousands):

	January 1,				January 2,
	2006				2005
Accumulated benefit obligation		$	(6,850	)		$	(7,985	)
Fair value of plan assets		—				—
Funded status		(6,850		)		(7,985		)
Unrecognized prior service benefit		(1,362		)		(1,505		)
Unrecognized net actuarial loss		937				2,216
Accrued benefit liability		$	(7,275	)		$	(7,274	)

The components of the net postretirement medical and life insurance benefit cost for the years ended January 1, 2006, January 2, 2005 and December 28, 2003 were (in thousands):

	January 1,				January 2,				December 28,
	2006				2005				2003
Service cost		$	162			$	141			$	99
Interest cost		407				456				470
Recognized actuarial loss		35				70				62
Net amortization of unrecognized prior service benefit		(142		)		(142		)		(142		)
Net benefit cost		$	462			$	525			$	489

A summary of the Company’s key actuarial assumptions used to determine benefit obligations as of January 1, 2006 and January 2, 2005 follows:

	January 1, 2006	January 2, 2005
Discount rate	5.75%	6.00%
Salary increase rate	3.25-4.75%	3.25-4.75%
Medical cost trend:
First year	8.50%	9.50%
Ultimate	4.75%	5.50%
Years to reach ultimate	3	4

A summary of the Company’s key actuarial assumptions used to determine net periodic benefit cost for the years ended January 1, 2006, January 2, 2005 and December 28, 2003 follows:

	January 1, 2006	January 2, 2005	December 28, 2003
Discount rate	6.00%	6.25%	6.75%
Salary increase rate	3.25-4.75%	3.25-4.75%	3.25-4.75%
Medical cost trend:
First year	9.50%	8.50%	8.50%
Ultimate	5.50%	5.50%	5.50%
Years to reach ultimate	3	3	3

F-36

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS (Continued)

Assumed health care cost trends have a significant effect on the amounts reported for health care plans. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:

	One Percentage- Point Increase			One Percentage- Point Decrease
Effect on total of service and interest cost		$	52,500		$	(46,192	)
Effect on accumulated benefit obligation		$	458,917		$	(420,585	)

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

	Payments net
	of Medicare D			Medicare D
Year	Subsidies			Subsidies
2006		$	472		$	81
2007		482			85
2008		492			88
2009		485			90
2010		488			90
2011—2015		2,330			451
Total		$	4,749		$	885

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), which introduced a Medicare prescription drug benefit, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit, was enacted. On May 19, 2004, the FASB issued Financial Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”) to discuss certain accounting and disclosure issues raised by the Act. FSP 106-2 addresses accounting for the federal subsidy for the sponsors of single employer postretirement health care plans and disclosure requirements for plans for which the employer has not yet been able to determine actuarial equivalency. Except for certain nonpublic entities, FSP 106-2 became effective for the first interim or annual period beginning after June 15, 2004 (the quarter ended September 26, 2004 for the Company).

Based on regulations issued by the Centers for Medicare & Medicaid Services, the Company has concluded that, for certain participants, the benefits provided are at least actuarially equivalent to benefits available through Medicare Part D. The accumulated benefit obligation of the Company’s postretirement medical and life insurance plan at January 1, 2006 decreased by $900,000 due to the effect of the federal subsidy and the net periodic benefit cost for 2005 was reduced by $99,900.

13. OTHER RETIREMENT BENEFIT PLANS

The Company’s Employee Savings and Investment Plan (the “Plan”) covers all eligible employees and is intended to be qualified under Sections 401(a) and 401(k) of the Internal Revenue Code. For the years ended January 1, 2006, January 2, 2005 and December 28, 2003, the Company made matching

F-37

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. OTHER RETIREMENT BENEFIT PLANS (Continued)

contributions in an amount equal to 75% of the sum of the participants’ contributions that do not exceed 6% of the participant’s compensation for employees above the position of secondary management, as defined in the Plan. All employee contributions are fully vested. Company contributions are vested at the completion of three years of service or at retirement, death, disability or termination at age 65 or over, as defined by the Plan. Company contributions and administrative expenses for the Plan were approximately $866,000, $972,000 and $755,000 for the years ended January 1, 2006, January 2, 2005 and December 28, 2003, respectively.

During 2004, the Company established a nonqualified deferred compensation plan (“Deferred Comp Plan”) that was developed as a retirement plan for a select group of management employees that were not allowed to participate in the Company’s Employee Savings and Investment Plan.

The Company accounted for the Deferred Comp Plan in accordance with Emerging Issues Task Force No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Are Held in a Rabbi Trust and Invested.” The investments of the rabbi trust were $1,028,000 and were included in other assets in the accompanying consolidated balance sheet as of January 2, 2005. A corresponding liability was included in other long-term liabilities.

The Company terminated the Deferred Comp Plan and issued lump sum disbursements to participants during 2005.

14. INSURANCE RESERVES

At January 1, 2006 and January 2, 2005 insurance reserves of approximately $32,097,000 and $32,435,000, respectively, had been recorded. Insurance reserves at January 1, 2006 and January 2, 2005 included RIC’s reserves for the Company’s insurance liabilities of approximately $7,461,000 and $8,524,000, respectively. Reserves also included accruals related to post employment benefits and postretirement medical and life insurance benefits. While management believes these reserves were adequate, it is reasonably possible that the ultimate liabilities may exceed such estimates.

Classification of the reserves was as follows (in thousands):

	January 1,			January 2,
	2006			2005
Current		$	9,002		$	9,927
Long-term		23,095			22,508
Total		$	32,097		$	32,435

Following is a summary of the activity in the insurance reserves for the years ended January 1, 2006, January 2, 2005 and December 28, 2003 (in thousands):

	January 1,			January 2,			December 28,
	2006			2005			2003
Beginning balance	$	32,435		$	30,952			$	30,986
Provision	11,023			12,621				10,684
Payments	(11,361		)	(11,138		)		(10,718		)
Ending balance	$	32,097		$	32,435			$	30,952

F-38

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. INSURANCE RESERVES (Continued)

The provision for insurance reserves each year was actuarially determined and reflected amounts for the current year as well as revisions in estimates to open reserves for prior years. Payments included amounts paid on open claims for all years.

15. STOCKHOLDERS’ DEFICIT

In 1997, the Board of Directors adopted a restricted stock plan (the “Restricted Stock Plan”), pursuant to which 371,285 shares were authorized for issuance. The Restricted Stock Plan provides for the award of common stock, the vesting of which is subject to conditions and limitations established by the Board of Directors. Such conditions may include continued employment with the Company or the achievement of performance measures. Upon the award of common stock, the participant has the rights of a stockholder, including but not limited to the right to vote such stock and the right to receive any dividends paid on such stock. The Board of Directors, in its sole discretion, may designate employees and persons providing material services to the Company as eligible for participation in the Restricted Stock Plan. In connection with the approval of the 2003 Incentive Plan, discussed elsewhere herein, the shares authorized for issuance under the Restricted Stock Plan were reduced by 156,217 shares of stock.

The issued shares vested on a straight-line basis over eight years or on an accelerated basis if certain performance criteria were met. The Company recorded the fair value of the shares issued at the issuance dates as compensation expense over the estimated vesting periods. During the years ended January 2, 2005 and December 28, 2003, the Company recorded stock compensation expense of approximately $257,000 and $330,000, respectively, which was included in general and administrative expenses in the accompanying consolidated statements of operations.

In 1997, the Board of Directors adopted a stock option plan (the “Stock Option Plan”), pursuant to which 395,000 shares of common stock options were authorized for issuance. The Board of Directors amended the Stock Option Plan to increase the shares available by 200,000 shares and 439,970 shares on October 24, 2001 and March 27, 2000, respectively. The Stock Option Plan provides for the issuance of nonqualified stock options and incentive stock options (which are intended to satisfy the requirements of Section 422 of the Internal Revenue Code) and stock appreciation rights (“SARs”). The Board of Directors determines the employees who will receive awards under the Stock Option Plan and the terms of such awards. The exercise price of a stock option or SAR shall not be less than the fair market value of one share of common stock on the date the stock option or SAR is granted. Options issued prior to July 24, 2002 expire 10 years from the date of grant. Options issued subsequent to that date have a five-year expiration date, which was approved by the Board of Directors.

Options issued prior to February 10, 2000 had a five-year vesting period, options issued subsequent to that date had a three-year vesting period. On December 20, 2004, the Company’s Board of Directors approved the vesting of all outstanding and unvested options for the Company’s Stock Option Plan and the Company’s 2003 Incentive Plan. This action was taken to reduce, or eliminate to the extent permitted, the transition expense related to outstanding stock option awards under SFAS No. 123R (see Note 2). Options issued subsequent to December 20, 2004 vest over three years.

As of January 1, 2006, no SARs had been issued.

On April 9, 2003, the Board of Directors adopted a long-term incentive plan (the “2003 Incentive Plan”), subject to approval by the Company’s shareholders. On May 14, 2003, the shareholders approved

F-39

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. STOCKHOLDERS’ DEFICIT (Continued)

the 2003 Incentive Plan, which became effective as of March 30, 2003. The 2003 Incentive Plan provides for the issuance of nonqualified stock options and incentive stock options (which are intended to satisfy the requirements of Section 422 of the Internal Revenue Code), SARs, bonus stock, stock units, performance shares, performance units, restricted stock and restricted stock units. No more than 307,000 shares of common stock may be delivered to participants and their beneficiaries under the 2003 Incentive Plan. The Board of Directors determines the employees who will receive awards under the 2003 Incentive Plan and the terms of such awards. The exercise price of a stock option or SAR shall not be less than the fair market value of one share of common stock on the date the stock option or SAR is granted. The options generally expire five years from the date of grant. The Board of Directors 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 Internal Revenue 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 Internal Revenue Code Section 162(m).

On December 2, 2005, 30,000 restricted stock units were issued with a weighted average fair value of $8.90 at grant date. Stock-based compensation cost of $7,400 was recorded related to these units.

As of January 1, 2006, no SARs had been issued.

As of January 1, 2006, there were 105,789, 29,120 and 803 securities remaining available for future issuance under the 2003 Incentive Plan, the Stock Option Plan and the Restricted Stock Plan, respectively.

A summary of the stock options outstanding pursuant to the Company’s Stock Option Plan and 2003 Incentive Plan is presented below:

	Number of			Average
	Shares			Exercise Price
Options outstanding at December 29, 2002		795,674			$	5.05
Granted		166,311			6.88
Forfeited		(53,964	)		5.12
Exercised		(98,946	)		3.61
Options outstanding at December 28, 2003		809,075			5.60
Granted		160,819			11.43
Forfeited		(60,427	)		9.02
Exercised		(223,801	)		4.37
Options outstanding at January 2, 2005		685,666			7.06
Granted		142,453			9.02
Forfeited		(21,357	)		10.98
Exercised		(185,312	)		5.59
Options outstanding at January 1, 2006		621,450			7.82

F-40

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. STOCKHOLDERS’ DEFICIT (Continued)

The following table summarizes information related to outstanding options as of January 1, 2006:

			Weighted-Average
	Number		Remaining		Weighted
	Outstanding as of		Contractual Life		Average
Range of Exercise Prices	January 1, 2006		(Years)		Exercise Price
$0.00 - $2.48		77,940		5.7		$	2.27
2.48 -   4.95		91,587		4.4		3.66
4.95 -   7.43		107,598		2.8		6.43
7.43 -   9.90		219,989		3.8		8.71
9.90 - 12.38		550		2.6		12.00
12.38 - 14.85		88,386		2.8		12.52
17.33 - 19.80		34,100		2.6		17.38
22.28 - 24.75		1,300		2.4		24.75
		621,450		3.7		7.82

The following table summarizes information related to outstanding exercisable options as of January 1, 2006:

	Number		Weighted
	Exercisable as of		Average
Range of Exercise Prices	January 1, 2006		Exercise Price
$0.00 - $2.48		77,940		$	2.27
2.48 -   4.95		91,587		3.66
4.95 -   7.43		107,598		6.43
7.43 -   9.90		88,000		8.22
9.90 - 12.38		550		12.00
12.38 - 14.85		88,386		12.52
17.33 - 19.80		34,100		17.38
22.28 - 24.75		1,300		24.75
		489,461		7.49

Pursuant to a stockholder rights plan (the “Stockholder Rights Plan”) that FICC adopted in 1997, the Board of Directors declared a dividend distribution of one purchase right (a “Right”) for each outstanding share of common stock. The Stockholder Rights Plan provides, in substance, that should any person or group (other than certain management and affiliates) acquire 15% or more of FICC’s common stock, each Right, other than Rights held by the acquiring person or group, would entitle its holder to purchase a specified number of shares of common stock for 50% of their then current market value. Until a 15% acquisition has occurred, the Rights may be redeemed by FICC at any time prior to the termination of the Stockholder Rights Plan.

16. RELATED PARTY TRANSACTIONS

FICC’s Chairman of the Board is an officer of TRC. FICC previously entered into a sublease for certain land, building and equipment from a subsidiary of TRC. For the years ended January 1, 2006, January 2, 2005 and December 28, 2003, rent expense related to the sublease was approximately $70,000,

F-41

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. RELATED PARTY TRANSACTIONS (Continued)

$69,000 and $68,000, respectively. On January 15, 2004, the Company subleased this property in connection with the Central Florida Agreement (Note 10).

In 1994, TRC Realty LLC (a subsidiary of TRC, whose majority equity owner is the Company’s Chairman) entered into a ten-year operating lease for an aircraft for use by both the Company and TRC (which operates restaurants using the trademark Perkins Restaurant and Bakery (“Perkins”)). In 1999, this lease was cancelled and TRC Realty LLC entered into a new ten-year operating lease for a new aircraft. The Company shared proportionately with Perkins in reimbursing TRC Realty LLC for leasing, tax and insurance expenses. In addition, the Company also incurred actual usage costs. During the year ended December 29, 2002, the Company expensed its share of the expected net loss on the termination of the cost sharing arrangement as TRC Realty LLC anticipated terminating the lease and disposing of the aircraft by May 2003. At the Company’s July 23, 2003 Board of Directors meeting, the disinterested Board members approved a payment up to $1,000,000 to TRC Realty LLC and on August 26, 2003, a payment of approximately $868,000 was made to TRC Realty LLC that terminated the Company’s cost sharing arrangement with Perkins. The payment exceeded the remaining reserve for expected losses by approximately $86,000, which was included in operating expenses for the year ended December 28, 2003. Under the cost sharing arrangement, which would have expired in January 2010, the Company paid approximately $500,000 annually.

The Company purchased certain food products used in the normal course of business from a division of TRC at cost plus a mark-up. For the years ended January 1, 2006, January 2, 2005 and December 28, 2003, purchases were approximately $353,000, $340,000 and $322,000, respectively.

During August 2003, Friendly’s entered into a single restaurant franchise agreement with Treats of Huntersville LLC (“Treats”). The owner of Treats is a family member of the Company’s Chairman of the Board of Directors. The transaction was a standard agreement in compliance with the terms and conditions of the Uniform Franchise Offering Circular allowing Treats to operate one location. The location, which was initially opened by a former franchisee but closed in July 2002, was reopened by Treats in August 2003. Treats paid an initial franchise fee of $35,000, which was included in income during the year ended December 28, 2003.

17. COMMITMENTS AND CONTINGENCIES

The Company is a party to various legal proceedings arising in the ordinary course of business which management believes, after consultation with legal counsel, will not have a material adverse effect on the Company’s consolidated financial position or future operating results.

As of January 1, 2006, the Company had commitments to purchase approximately $97,151,000 of raw materials, food products and supplies used in the normal course of business. The majority of the commitments cover periods of one to 12 months. Most of these commitments are noncancelable.

F-42

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SEGMENT REPORTING

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision-maker is the Chief Executive Officer and President of the Company. The Company’s operating segments include restaurant, foodservice and franchise. The revenues from these segments include both sales to unaffiliated customers and inter-segment sales, which generally are accounted for on a basis consistent with sales to unaffiliated customers. Intersegment sales and other inter-segment transactions have been eliminated in the accompanying consolidated financial statements.

The Company’s restaurants target families with kids and adults who desire a reasonably priced meal in a full-service setting. The Company’s menu offers a broad selection of freshly-prepared foods, which appeal to customers throughout all dayparts. The menu currently features over 100 items comprised of a broad selection of breakfast, lunch, dinner and afternoon and evening snack items. Foodservice operations manufactures premium ice cream dessert products and distributes such manufactured products and purchased finished goods to Company-operated and franchised restaurants. Additionally, it sells premium ice cream dessert products to distributors and retail locations. The Company’s franchise segment includes a royalty based on franchised restaurant revenue. In addition, the Company receives rental income from various franchised restaurants. The Company does not allocate general and administrative expenses associated with its headquarters operations to any business segment. These costs include expenses of the following functions: legal, accounting, personnel not directly related to a segment, information systems and other headquarters activities.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies except that the financial results for the foodservice operating segment, prior to inter-segment eliminations, have been prepared using a management approach, which is consistent with the basis and manner in which the Company’s management internally reviews financial information for the purpose of assisting in making internal operating decisions. Using this approach, the Company evaluates performance based on stand-alone operating segment income (loss) before income taxes and generally accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices.

F-43

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SEGMENT REPORTING (Continued)

EBITDA represents net (loss) income before (i) (provision for) benefit from income taxes, (ii) other (income) expense, principally debt retirement costs, (iii) interest expense, net, (iv) depreciation and amortization, (v) write-downs of property and equipment, (vi) net periodic pension cost (benefit) and (vii) other non-cash items. The Company has included information concerning EBITDA in this Form 10-K because the Company’s management incentive plan pays bonuses based on achieving EBITDA targets and the Company believes that such information is used by certain investors as one measure of a company’s historical ability to service debt. EBITDA should not be considered as an alternative to, or more meaningful than, earnings (loss) from operations or other traditional indications of a company’s operating performance.

	For the Years Ended
	January 1,			January 2,			December 28,
	2006			2005			2003
				(53 weeks)
	(in thousands)
Revenues:
Restaurant	$	400,821		$	431,763			$	442,416
Foodservice	238,099			245,484				240,313
Franchise	14,454			13,199				9,822
Total	$	653,374		$	690,446			$	692,551
Intersegment revenues:
Restaurant	$	—		$	—			$	—
Foodservice	(122,027		)	(132,847		)		(130,123		)
Franchise	—			—				—
Total	$	(122,027	)	$	(132,847	)		$	(130,123	)
External revenues:
Restaurant	$	400,821		$	431,763			$	442,416
Foodservice	116,072			112,637				110,190
Franchise	14,454			13,199				9,822
Total	$	531,347		$	557,599			$	562,428

F-44

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SEGMENT REPORTING (Continued)

	For the Years Ended
	January 1,			January 2,			December 28,
	2006			2005			2003
				(53 weeks)
	(in thousands)
EBITDA:
Restaurant	$	35,034		$	42,105			$	50,801
Foodservice	11,563			12,983				18,378
Franchise	10,274			9,384				6,763
Corporate	(19,366		)	(19,973		)		(20,656		)
Gain (loss) on property and equipment, net	1,610			892				(2,200		)
Restructuring expenses	—			(2,627		)		—
Gain on litigation settlement	—			3,644				—
Less pension expense (benefit) included in reporting segments	286			(2,116		)		(1,131		)
Total	$	39,401		$	44,292			$	51,955
Interest expense, net-Corporate	$	20,924		$	22,295			$	24,157
Other (income) expense, principally debt retirement costs	$	(130	)	$	9,235			$	—
Depreciation and amortization:
Restaurant	$	16,845		$	15,636			$	15,533
Foodservice	3,216			3,376				3,084
Franchise	172			286				153
Corporate	3,202			3,294				3,880
Total	$	23,435		$	22,592			$	22,650
Other non-cash expenses (income):
Pension expense (benefit)	$	286		$	(2,116	)		$	(1,131	)
Pension settlement expense (curtailment gain)	—			2,204				(8,113		)
Write-downs of property and equipment	2,478			91				26
Total	$	2,764		$	179			$	(9,218	)
(Loss) income from continuing operations before (provision for) benefit from income taxes:
Restaurant	$	18,189		$	26,469			$	35,268
Foodservice	8,347			9,607				15,294
Franchise	10,102			9,098				6,610
Corporate	(43,362		)	(54,797		)		(48,693		)
(Loss) gain on property and equipment, net	(868		)	801				(2,226		)
Pension (settlement expense) curtailment gain	—			(2,204		)		8,113
Restructuring expenses	—			(2,627		)		—
Gain on litigation settlement	—			3,644				—
Total	$	(7,592	)	$	(10,009	)		$	14,366

F-45

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SEGMENT REPORTING (Continued)

	For the Years Ended
	January 1,			January 2,
	2006			2005
	(in thousands)
Capital expenditures, including assets acquired under capital leases:
Restaurant		$	14,674		$	20,309
Foodservice		1,516			1,700
Corporate		968			1,170
Total		$	17,158		$	23,179

	January 1,		January 2,
	2006		2005
	(in thousands)
Total assets:
Restaurant	$	131,810	$	142,366
Foodservice	38,609		40,567
Franchise	7,634		7,726
Corporate	40,189		58,225
Total	$	218,242	$	248,884

19. GAIN ON LITIGATION SETTLEMENT

In January 2004, the Company reached a settlement in a lawsuit filed against a former administrator of one of the Company’s benefit plans. The settlement was based on the administrator’s alleged failure to adhere to the terms of a contract and resulted in a one-time payment to the Company of $3,775,000, which was received on April 2, 2004. As a result of this lawsuit, the Company incurred professional fees of approximately $500,000 which were included in the consolidated statement of operations for the year ended December 28, 2003 and an additional $131,000 in professional fees that were offset against the payment in the accompanying consolidated statement of operations for the year ended January 2, 2005.

F-46

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. QUARTERLY FINANCIAL DATA (UNAUDITED)

	For the Quarters Ended
	April 3,				July 3,			October 2,			January 1,
	2005				2005			2005			2005 (g,h)
2005 (f)	(in thousands, except per share amounts)
Revenues		$	121,663		$	145,093			$	141,141		$	123,450
Operating income (loss)		$	1,928		$	9,041			$	7,718		$	(5,485	)
(Loss) income from continuing operations		$	(2,618	)	$	2,648			$	2,421		$	(30,045	)
(Loss) income from discontinued operations, net of income tax effect		$	(368	)	$	(131	)		$	986		$	(152	)
Net (loss) income		$	(2,986	)	$	2,517			$	3,407		$	(30,197	)
Basic (loss) income per share:
(Loss) income from continuing operations.		$	(0.34	)	$	0.34			$	0.31		$	(3.80	)
(Loss) income from discontinued operations, net of income tax effect		$	(0.05	)	$	(0.02	)		$	0.12		$	(0.02	)
Net (loss) income		$	(0.39	)	$	0.32			$	0.43		$	(3.82	)
Diluted (loss) income per share:
(Loss) income from continuing operations		$	(0.34	)	$	0.34			$	0.31		$	(3.80	)
(Loss) income from discontinued operations, net of income tax effect		$	(0.05	)	$	(0.02	)		$	0.12		$	(0.02	)
Net (loss) income		$	(0.39	)	$	0.32			$	0.43		$	(3.82	)
Weighted average shares:
Basic		7,717			7,753				7,840			7,899
Diluted		7,717			7,893				7,988			7,899

	March 28,				June 27,			September 26,				January 2,
	2004 (a)(b)				2004 (b)			2004				2005 (c,d,e)
2004 (i)	(in thousands, except per share amounts)
Revenues		$	126,767		$	142,855			$	148,429			$	139,548
Operating income		$	5,803		$	5,597			$	8,174			$	1,947
(Loss) income from continuing operations		$	(5,027	)	$	(1,452	)		$	3,543			$	72
(Loss) income from discontinued operations, net of income tax effect		$	(215	)	$	32			$	(66	)		$	(304	)
Net (loss) income		$	(5,242	)	$	(1,420	)		$	3,477			$	(232	)
Basic (loss) income per share:
(Loss) income from continuing operations		$	(0.67	)	$	(0.19	)		$	0.46			$	0.01
Loss from discontinued operations, net of income tax effect		$	(0.03	)	$	—			$	(0.01	)		$	(0.04	)
Net (loss) income		$	(0.70	)	$	(0.19	)		$	0.45			$	(0.03	)
Diluted (loss) income per share:
(Loss) income from continuing operations.		$	(0.67	)	$	(0.19	)		$	0.45			$	0.01
Loss from discontinued operations, net of income tax effect		$	(0.03	)	$	—			$	(0.01	)		$	(0.04	)
Net (loss) income		$	(0.70	)	$	(0.19	)		$	0.44			$	(0.03	)
Weighted average shares:
Basic		7,520			7,611				7,695				7,709
Diluted		7,520			7,611				7,869				7,709

F-47

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued)

(a)During March 2004, the Company recorded a pre-tax restructuring charge of $2,627,000 for severance and outplacement services associated with reduction in force actions taken during the first quarter of 2004 that reduced headcount by approximately 20 permanent positions.

In January 2004, the Company reached a settlement in a lawsuit filed against a former administrator of one of the Company’s benefit plans. The settlement was based on the administrator’s alleged failure to adhere to the terms of a contract and resulted in a one-time payment to the Company of $3,775,000, which was received on April 2, 2004. As a result of this lawsuit, the Company incurred professional fees of approximately $500,000 which were included in the consolidated statement of operations for the year ended December 28, 2003 and an additional $131,000 in professional fees that were offset against the payment in the accompanying consolidated statement of operations for the year ended January 2, 2005.

(b)In March 2004, $127,357,000 of aggregate principal amount of 10.5% senior notes was purchased at the tender offer and consent solicitation price of 104% of the principal amount and $476,000 of aggregate principal amount of 10.5% senior notes were purchased at the tender offer price of 102% of the principal amount. In April 2004, the remaining $48,144,000 of 10.5% senior notes were redeemed in accordance with the 10.5% senior notes indenture at 103.5% of the principal amount. In connection with the tender offer, the Company wrote off unamortized deferred financing costs of $2,445,000 and paid a premium of $6,790,000 that was included in the accompanying consolidated statement of operations for the year ended January 2, 2005.

(c)The quarter ended January 2, 2005 included 14 weeks. All other quarters presented included 13 weeks. The additional week in 2004 contributed $10,689,000 in total revenues.

(d)During 2004, lump-sum cash payments to pension plan participants exceeded the interest cost component of net periodic pension cost. As a result of the settlement volume, the Company recorded additional pension expense of $2,204,000 during the fourth quarter ended January 2, 2005.

(e)The benefit from income taxes for the year ended January 2, 2005 included a $2,156,000 reversal of income tax accruals recorded in prior years related to tax matters that were resolved and recorded in the fourth quarter of 2004.

(f)As described in Note 5, in accordance with SFAS No. 144, the results of operations of the 14 properties that were disposed of during 2005 and the related net gain on the disposals, as well as the results of operations of the 11 properties held for sale at January 1, 2006, were reported separately as discontinued operations in the accompanying consolidated statements of operations for all years presented. Sales that were included in the restaurant segment in previously issued Quarterly Reports on Form 10-Q were $2,985,000, $3,330,000 and $2,416,000 for the quarters ended April 3, 2005, July 3, 2005 and October 2, 2005, respectively. Operating (loss) income that was included in the restaurant segment in previously issued Quarterly Reports on Form 10-Q was ($623,000), ($224,000) and $1,671,000 for the quarters ended April 3, 2005, July 3, 2005 and October 2, 2005, respectively. (Loss) income from continuing operations that was included in the restaurant segment in previously issued Quarterly Reports on Form 10-Q was ($368,000), ($131,000) and $986,000 for the quarters ended April 3, 2005, July 3, 2005 and October 2, 2005, respectively.

F-48

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued)

(g)During the fourth quarter of 2005, the Company entered a three-year cumulative loss position and revised its projections of the amount and timing of profitability in future periods. As a result, the Company increased its valuation allowance by approximately $26,729,000 ($22,184,000 to income tax expense and $4,545,000 to stockholders’ deficit) to reduce the carrying value of deferred tax assets to zero (Note 8).

(h)The fourth quarter in 2005 included asset impairment write-downs of $2,190,000 (Note 4).

(i)As described in Note 5, in accordance with SFAS No. 144, the results of operations of the 14 properties that were disposed of during 2005 and the related net gain on the disposals, as well as the results of operations of the 11 properties held for sale at January 1, 2006, were reported separately as discontinued operations in the accompanying consolidated statements of operations for all years presented. Sales that were included in the restaurant segment in previously issued Quarterly Reports on Form 10-Q were $3,987,000, $4,661,000, $4,626,000 and $3,624,000 for the quarters ended March 28, 2004, June 27, 2004, September 26, 2004 and January 2, 2005, respectively. Operating (loss) income that was included in the restaurant segment in previously issued Quarterly Reports on Form 10-Q was ($364,000), $54,000, ($112,000) and ($516,000) for the quarters ended March 28, 2004, June 27, 2004, September 26, 2004 and January 2, 2005, respectively. (Loss) income from continuing operations that was included in the restaurant segment in previously issued Quarterly Reports on Form 10-Q was ($215,000), $32,000, ($65,000) and ($305,000) for the quarters ended March 28, 2004, June 27, 2004, September 26, 2004 and January 2, 2005, respectively.

21. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION

FICC’s obligation related to the New Senior Notes is guaranteed fully and unconditionally by one of FICC’s wholly owned subsidiaries. There are no restrictions on FICC’s ability to obtain dividends or other distributions of funds from this subsidiary, except those imposed by applicable law. The following supplemental financial information sets forth, on a consolidating basis, balance sheets, statements of operations and statements of cash flows for FICC (the “Parent Company”), Friendly’s Restaurants Franchise, Inc. (the “Guarantor Subsidiary”) and Friendly’s International, Inc., Restaurant Insurance Corporation, Friendly’s Realty I, LLC, Friendly’s Realty II, LLC and Friendly’s Realty III, LLC (collectively, the “Non-guarantor Subsidiaries”). All of the LLCs’ assets were owned by the LLCs, which are separate entities with separate creditors, which will be entitled to be satisfied out of the LLCs’ assets. Separate complete financial statements and other disclosures of the Guarantor Subsidiary as of January 1, 2006 and January 2, 2005 and for the years ended January 1, 2006, January 2, 2005 and December 28, 2003 are not presented because management has determined that such information is not material to investors.

Investments in subsidiaries are accounted for by the Parent Company on the equity method for purposes of the supplemental consolidating presentation. Earnings of the subsidiaries are, therefore, reflected in the Parent Company’s investment accounts and earnings. The principal elimination entries eliminate the Parent Company’s investments in subsidiaries and intercompany balances and transactions.

F-49

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Consolidating Balance Sheet
As of January 1, 2006
(in thousands)

							Non-
	Parent			Guarantor			guarantor
	Company			Subsidiary			Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents	$	11,546			$	780		$	2,271			$	—			$	14,597
Restricted cash	—				—			2,549				—				2,549
Accounts receivable, net	9,036				1,721			—				—				10,757
Inventories	15,775				—			—				—				15,775
Assets held for sale	3,326				—			—				—				3,326
Deferred income taxes	(131		)		26			—				105				—
Prepaid expenses and other current assets	7,571				2,565			7,785				(12,877		)		5,044
Total current assets	47,123				5,092			12,605				(12,772		)		52,048
Deferred income taxes	(276		)		381			—				(105		)		—
Property and equipment, net	98,611				—			42,510				—				141,121
Intangibles and deferred costs, net	16,808				—			2,255				—				19,063
Investments in subsidiaries	5,188				—			—				(5,188		)		—
Other assets	5,095				5,118			915				(5,118		)		6,010
Total assets	$	172,549			$	10,591		$	58,285			$	(23,183	)		$	218,242
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Current maturities of long-term obligations	$	9,253			$	—		$	1,368			$	(7,776	)		$	2,845
Accounts payable	24,968				—			—				—				24,968
Accrued expenses	37,237				4,258			1,825				(4,844		)		38,476
Total current liabilities	71,458				4,258			3,193				(12,620		)		66,289
Long-term obligations, less current maturities	182,221				—			48,846				—				231,067
Other long-term liabilities	60,708				930			6,461				(5,375		)		62,724
Stockholders’ (deficit) equity	(141,838		)		5,403			(215		)		(5,188		)		(141,838		)
Total liabilities and stockholders’ (deficit) equity	$	172,549			$	10,591		$	58,285			$	(23,183	)		$	218,242

F-50

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Consolidating Statement of Operations
For the Year Ended January 1, 2006
(in thousands)

								Non-
	Parent			Guarantor				guarantor
	Company			Subsidiary				Subsidiaries				Eliminations				Consolidated
Revenues.	$	520,369			$	10,978			$	—			$	—			$	531,347
Costs and expenses:
Cost of sales	205,332				—				—				—				205,332
Labor and benefits	143,973				—				—				—				143,973
Operating expenses and write- downs of property and equipment	115,239				—				(6,952		)		—				108,287
General and administrative expenses	34,126				4,620				—				—				38,746
Depreciation and amortization	21,230				—				2,205				—				23,435
Gain on franchise sales of restaurant operations and properties	(2,658		)		—				—				—				(2,658		)
Loss on disposals of other property and equipment, net	1,030				—				—				—				1,030
Interest expense, net	16,345				—				4,579				—				20,924
Other income	(130		)		—				—				—				(130		)
(Loss) income before provision for income taxes and equity in net income of consolidated subsidiaries	(14,118		)		6,358				168				—				(7,592		)
Provision for income taxes	(17,175		)		(2,607		)		(220		)		—				(20,002		)
(Loss) income from continuing operations	(31,293		)		3,751				(52		)		—				(27,594		)
(Loss) income from discontinued operations, net of income taxes	(1,517		)		—				1,852				—				335
(Loss) income before equity in net income of consolidated subsidiaries	(32,810		)		3,751				1,800				—				(27,259		)
Equity in net income of consolidated subsidiaries	5,551				—				—				(5,551		)		—
Net (loss) income	$	(27,259	)		$	3,751			$	1,800			$	(5,551	)		$	(27,259	)

F-51

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Consolidating Statement of Cash Flows
For the Year Ended January 1, 2006
(in thousands)

								Non-
	Parent			Guarantor				guarantor
	Company			Subsidiary				Subsidiaries				Eliminations				Consolidated
Net cash provided by (used in) operating activities	$	14,482			$	(580	)		$	1,356			$	(813	)		$	14,445
Cash flows from investing activities:
Purchases of property and equipment	(16,902		)		—				—				—				(16,902		)
Proceeds from sales of property and equipment	5,375				—				2,870				—				8,245
Purchases of marketable securities	(665		)		—				—				—				(665		)
Proceeds from sales of marketable securities	1,643				—				—				—				1,643
Return of investments in subsidiaries, net	1,367				—				—				(1,367		)		—
Net cash (used in) provided by investing activities	(9,182		)		—				2,870				(1,367		)		(7,679		)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility	16,250				—				—				—				16,250
Proceeds from issuance of mortgages	1,115				—				8,500				—				9,615
Repayments of obligations	(21,786		)		—				(10,261		)		—				(32,047		)
Payments of deferred financing costs	(243		)		—				(186		)		—				(429		)
Stock options exercised	1,037				—				—				—				1,037
Reinsurance deposits received	—				—				114				(114		)		—
Reinsurance payments made from deposits	—				—				(927		)		927				—
Capital contributions	—				—				503				(503		)		—
Dividends paid	—				—				(1,870		)		1,870				—
Net cash used in financing activities	(3,627		)		—				(4,127		)		2,180				(5,574		)
Net increase (decrease) in cash and cash equivalents	1,673				(580		)		99				—				1,192
Cash and cash equivalents, beginning of year	9,873				1,360				2,172				—				13,405
Cash and cash equivalents, end of year	$	11,546			$	780			$	2,271			$	—			$	14,597
Supplemental disclosures:
Interest paid	$	15,517			$	—			$	4,652			$	—			$	20,169
Income taxes (refunded) paid	(2,118		)		2,594				215				—				691
Income tax benefit of stock options exercised	450				—				—				—				450
Capital lease obligations incurred	256				—				—				—				256
Capital lease obligations terminated	51				—				—				—				51

F-52

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Consolidating Balance Sheet
As of January 2, 2005
(in thousands)

							Non-
	Parent			Guarantor			guarantor
	Company			Subsidiary			Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents	$	9,873			$	1,360		$	2,172			$	—			$	13,405
Restricted cash	—				—			1,711				—				1,711
Accounts receivable, net	8,548				1,900			—				—				10,448
Inventories	17,545				—			—				—				17,545
Assets held for sale	3,572				—			—				—				3,572
Deferred income taxes	6,705				18			—				130				6,853
Prepaid expenses and other current assets	10,991				2,512			7,782				(16,903		)		4,382
Total current assets	57,234				5,790			11,665				(16,773		)		57,916
Deferred income taxes	10,383				366			—				(130		)		10,619
Property and equipment, net	107,315				—			45,525				—				152,840
Intangibles and deferred costs, net	18,234				—			2,276				—				20,510
Investments in subsidiaries	(3,117		)		—			—				3,117				—
Other assets	6,083				1,216			915				(1,215		)		6,999
Total assets	$	196,132			$	7,372		$	60,381			$	(15,001	)		$	248,884
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Current maturities of long-term obligations	$	13,309			$	—		$	1,224			$	(7,776	)		$	6,757
Accounts payable	21,536				—			—				—				21,536
Accrued expenses	38,085				4,829			5,650				(8,810		)		39,754
Total current liabilities	72,930				4,829			6,874				(16,586		)		68,047
Long-term obligations, less current maturities	182,380				—			50,752				—				233,132
Other long-term liabilities	45,848				891			7,524				(1,532		)		52,731
Stockholders’ (deficit) equity	(105,026		)		1,652			(4,769		)		3,117				(105,026		)
Total liabilities and stockholders’ (deficit) equity	$	196,132			$	7,372		$	60,381			$	(15,001	)		$	248,884

F-53

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21.SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Consolidating Statement of Operations
For the Year Ended January 2, 2005
(in thousands)

								Non-
	Parent			Guarantor				guarantor
	Company			Subsidiary				Subsidiaries				Eliminations				Consolidated
Revenues	$	546,844			$	10,755			$	—			$	—			$	557,599
Costs and expenses:
Cost of sales	210,477				—				—				—				210,477
Labor and benefits	158,133				—				—				—				158,133
Operating expenses and write- downs of property and equipment	111,361				—				(6,589		)		—				104,772
General and administrative expenses	35,386				4,620				—				—				40,006
Restructuring expenses	2,627				—				—				—				2,627
Gain on litigation settlement	(3,644		)		—				—				—				(3,644		)
Pension settlement expense	2,204				—				—				—				2,204
Depreciation and amortization	20,333				—				2,259				—				22,592
Gain on franchise sales of restaurant
operations and properties	(1,302		)		—				—				—				(1,302		)
Loss (gain) on disposals of other property and equipment, net	430				—				(217		)		—				213
Interest expense, net	17,760				—				4,535				—				22,295
Other expense, principally debt retirement costs	9,235				—				—				—				9,235
(Loss) income before benefit from (provision for) income taxes and equity in net income of consolidated subsidiaries	(16,156		)		6,135				12				—				(10,009		)
Benefit from (provision for) income taxes	9,862				(2,515		)		(202		)		—				7,145
(Loss) income from continuing operations	(6,294		)		3,620				(190		)		—				(2,864		)
Loss from discontinued operations, net of income tax benefit	(553		)		—				—				—				(553		)
(Loss) income before equity in net income of consolidated subsidiaries	(6,847		)		3,620				(190		)		—				(3,417		)
Equity in net income of consolidated subsidiaries	3,430				—				—				(3,430		)		—
Net (loss) income	$	(3,417	)		$	3,620			$	(190	)		$	(3,430	)		$	(3,417	)

F-54

FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Consolidating Statement of Cash Flows
For the Year Ended January 2, 2005
(in thousands)

								Non-
	Parent			Guarantor				guarantor
	Company			Subsidiary				Subsidiaries				Eliminations				Consolidated
Net cash (used in) provided by operating activities	$	(4,959	)		$	10,187			$	2,159			$	40			$	7,427
Cash flows from investing activities:
Purchases of property and equipment	(19,734		)		—				—				—				(19,734		)
Proceeds from sales of property and equipment	6,035				—				—				—				6,035
Purchases of marketable securities	(1,130		)		—				—				—				(1,130		)
Proceeds from sales of marketable securities	152				—				—				—				152
Return of investment in subsidiary	11,734				—				—				(11,734		)		—
Net cash used in investing activities	(2,943		)		—				—				(11,734		)		(14,677		)
Cash flows from financing activities:
Proceeds from issuance of New Senior Notes	175,000				—				—				—				175,000
Proceeds from other borrowings	26,250				—				—				—				26,250
Repayments of obligations	(199,443		)		—				(1,111		)		—				(200,554		)
Payments of deferred financing costs	(6,650		)		—				—				—				(6,650		)
Stock options exercised	978				—				—				—				978
Reinsurance deposits received	—				—				1,132				(1,132		)		—
Reinsurance payments made from deposits	—				—				(1,092		)		1,092				—
Dividends paid	—				(11,000		)		(734		)		11,734				—
Net cash used in financing activities	(3,865		)		(11,000		)		(1,805		)		11,694				(4,976		)
Net (decrease) increase in cash and cash equivalents	(11,767		)		(813		)		354				—				(12,226		)
Cash and cash equivalents, beginning of year	21,640				2,173				1,818				—				25,631
Cash and cash equivalents, end of year	$	9,873			$	1,360			$	2,172			$	—			$	13,405
Supplemental disclosures:
Interest paid	$	17,417			$	—			$	4,536			$	—			$	21,953
Income taxes (refunded) paid	(1,705		)		1,576				199				—				70
Income tax benefit of stock options exercised	818				—				—				—				818
Capital lease obligations incurred	3,445				—				—				—				3,445

F-55

ANNUAL REPORT ON FORM 10-K
ITEM 15(c)

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED JANUARY 1, 2006, JANUARY 2, 2005 and DECEMBER 28, 2003
(in thousands)

Column A	Column B			Column C							Column D			Column E
	Balance at			Charged to			Charged to							Balance at
	Beginning			Costs and			Other							End
Description	of Year			Expenses			Accounts				Deductions			of Year
2005
Reserve for restructuring costs		$	1,078		$	—		$	—			$	1,006		$	72
Allowance for doubtful accounts— accounts receivable		$	539		$	222		$	(3	)		$	—		$	758
Allowance for doubtful accounts— notes receivable		$	263		$	—		$	—			$	—		$	263
2004
Reserve for restructuring costs		$	441		$	2,627		$	—			$	1,990		$	1,078
Allowance for doubtful accounts— accounts receivable		$	696		$	88		$	(245	)		$	—		$	539
Allowance for doubtful accounts— notes receivable		$	313		$	—		$	—			$	50		$	263
2003
Reserve for restructuring costs		$	937		$	—		$	—			$	496		$	441
Allowance for doubtful accounts— accounts receivable		$	767		$	233		$	(304	)		$	—		$	696
Allowance for doubtful accounts— notes receivable		$	313		$	—		$	—			$	—		$	313

F-56

EXHIBIT INDEX

3.1	Restated Articles of Organization of Friendly Ice Cream Corporation (the “Company”) (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, Reg. No. 333-34633).
3.2	Amended and Restated By-laws of the Company (Incorporated by reference to Exhibit 3(II) to the Company’s current report on Form 8-K filed September 2, 2003, File No. 001-13579).
4.1	Revolving Credit Agreement among the Company, Fleet National Bank and certain other banks and financial institutions (“Credit Agreement”) dated as of December 17, 2001 (Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001, File No. 001-13579).
4.2	Consent, Limited Waiver and Amendment No. 1 to Revolving Credit Agreement dated as of February 15, 2002. (Incorporated by reference to Exhibit 4.1(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002, File No. 001-13579).
4.3	Limited Waiver and Amendment No. 2 to Revolving Credit Agreement dated as of December 27, 2002. (Incorporated by reference to Exhibit 4.1(b) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002, File No. 001-13579).
4.4	Limited Waiver to Revolving Credit Agreement dated as of July 3, 2003 (Incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2005, File No. 001-13579).
4.5	Consent and Amendment No. 3 to Revolving Credit Agreement dated as of January 16, 2004 (Incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2005, File No. 001-13579).
4.6	Amended and Restated Amendment No. 4 to Revolving Credit Agreement dated as of February 17, 2004. (Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2004, File No. 001-13579).
4.7	Limited Waiver to Revolving Credit Agreement dated as of October 19, 2004 (Incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2005, File No. 001-13579).
4.8	Amendment No. 5 to Revolving Credit Agreement dated as of December 17, 2004. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated December 17, 2004, File No. 001-13579).
4.9	Amended and Restated Revolving Credit Agreement dated as of March 15, 2006.
4.10	Loan Agreement between the Company’s subsidiary, Friendly’s Realty I, LLC and G.E. Capital Franchise Finance Corporation effective as of December 19, 2001 (Incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001, File No. 001-13579).
4.11	Loan Agreement between the Company’s subsidiary, Friendly’s Realty II, LLC and G.E. Capital Franchise Finance Corporation effective as of December 19, 2001 (Incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001, File No. 001-13579).
4.12	Loan Agreement between the Company’s subsidiary, Friendly’s Realty III, LLC and G.E. Capital Franchise Finance Corporation effective as of December 19, 2001 (Incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001, File No. 001-13579).
4.13	Rights Agreement between the Company and The Bank of New York, a Rights Agent (Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1, Reg. No. 333-34633).

4.14	Indenture Dated as of March 8, 2004, among Friendly Ice Cream Corporation, Friendly’s Restaurants Franchise, Inc. and The Bank of New York, as Trustee. (Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2004, File No. 001-13579).
4.15	Form of Loan Agreement between the Company’s subsidiary, Friendly’s Realty I, LLC and G.E. Capital Franchise Finance Corporation effective as of December 30, 2005.
10.1	The Company’s 1997 Stock Option Plan (Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1, Reg. No. 333-34633).*
10.2	The Company’s 1997 Stock Option Plan (as amended effective March 27, 2000) (Incorporated by reference to Exhibit 10.1(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002, File No. 001-13579).*
10.3	The Company’s 1997 Stock Option Plan (as amended effective October 24, 2001) (Incorporated by reference to Exhibit 10.1(b) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002, File No. 001-13579).*
10.4	The Company’s 1997 Restricted Stock Plan (Incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, Reg. No. 333-34633).*
10.5	The Company’s 2003 Incentive Plan (as amended July 23, 2003) (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 28, 2003, File No. 001-13579).*
10.6	The Company’s 2005 Annual Incentive Plan for Corporate Employees.*
10.7	The Company’s 2005 Annual Incentive Plan for Corporate and Company Restaurants Group.*
10.8	The Company’s 2005 Form of 1997 Stock Option Plan Award Agreement for Officers.*
10.9	The Company’s 2005 Form of 1997 Stock Option Plan Award Agreement for Directors.*
10.10	The Company’s 2005 Form of 2003 Incentive Plan Award Agreement for Officers.*
10.11	The Company’s 2005 Form of 2003 Incentive Plan Restricted Stock Unit Award Agreement for Directors.*
10.12	Summary of Board of Directors Compensation.*
10.13	Form of Change of Control Agreement between the Company and the employees listed on the schedule attached thereto (Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2005, File No. 001-13579).*
10.14	Purchase Agreement between Realty Income Corporation as buyer and the Company as seller dated December 13, 2001 (Incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001, File No. 001-13579).
10.15	Sublease between SSP Company, Inc. and the Company, as amended, for the Chicopee, Massachusetts Distribution Center (Incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1, Reg. No. 333-34633).
10.16	TRC Management Contract between the Company and The Restaurant Company (Incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1, Reg. No. 333-34633).
10.17	Termination of Aircraft Reimbursement Agreement between the Company and TRC Realty Co. (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 28, 2003, File No. 001-13579).
10.18	Memorandum of Agreement Between Michael A. Maglioli and Friendly Ice Cream Corporation effective March 25, 2004 * (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2004, File No. 001-13579).*

10.19	Memorandum of Agreement between Lawrence A. Rusinko and the Company effective May 31, 2005 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended July 3, 2005, File No. 001-13579).*
10.20	Amendment to Memorandum of Agreement between Lawrence A. Rusinko and the Company effective as of September 2, 2005 (Incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K filed with the Commission on September 9, 2005).*
10.21	Domestic Relocation Policy for Executives and Regional Directors (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended July 3, 2005, File No. 001-13579).*
10.22	Memorandum of Agreement Between Allan J. Okscin and Friendly Ice Cream Corporation effective January 23, 2006 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the Commission on January 26, 2006).*
21.1	Subsidiaries of the Company. (Incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002, File No. 001-13579).
23.1	Consent of Ernst & Young LLP.
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by John L. Cutter.
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by Paul V. Hoagland.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by John L. Cutter and Paul V. Hoagland.

*—ManagementContract or Compensatory Plan or Arrangement

EX-4.9

Exhibti 4.9

$35,000,000

AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT,

dated as of March 15, 2006,

among

FRIENDLY ICE CREAM CORPORATION,

as the Borrower,

VARIOUS FINANCIAL INSTITUTIONS FROM TIME TO TIME

PARTIES HERETO AS LISTED ON SCHEDULE I HERETO,

as the Lenders,

WELLS FARGO FOOTHILL, INC.,

as Administrative Agent for the Lenders,

TABLE OF CONTENTS

			Page
1.	DEFINITIONS AND RULES OF INTERPRETATION		1
	1.1	Definitions	1
	1.2	Rules of Interpretation	26
2.	THE REVOLVING CREDIT FACILITY		27
	2.1	Commitment to Lend	27
	2.2	Commitment Fee	28
	2.3	Reduction of Total Commitment	28
	2.4	The Revolving Credit Notes	28
	2.5	Interest on Revolving Credit Loans	28
	2.6	Requests for Revolving Credit Loans	29
	2.7	Conversion Options	30
	2.8	Funds for Revolving Credit Loan	30
	2.9	Settlements	31
	2.10	Repayments of Revolving Credit Loans From Concentration Account After Event of Default	32
3.	REPAYMENT OF THE REVOLVING CREDIT LOANS		33
	3.1	Maturity	33
	3.2	Mandatory Repayments of Revolving Credit Loans	33
	3.3	Optional Repayments of Revolving Credit Loans	34
	3.4	Application of Payments	35
4.	LETTERS OF CREDIT		35
	4.1	Letter of Credit Commitments	35
	4.2	Reliance by Administrative Agent	37
	4.3	Letter of Credit Fees	38
5.	CERTAIN GENERAL PROVISIONS		38
	5.1	Administrative Agent’s Fee	38
	5.2	Funds for Payments	38
	5.3	Computations	40
	5.4	Inability to Determine Eurodollar Rate	40
	5.5	Illegality	40
	5.6	Additional Costs, etc	41
	5.7	Capital Adequacy	42
	5.8	Certificate	43
	5.9	Indemnity	43
	5.10	Interest After Default	43
	5.11	Replacement of Lenders	43
	5.12	Mitigation	44
6.	COLLATERAL SECURITY AND GUARANTIES		44

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	6.1	Security of Borrower	44
	6.2	Guaranties and Security of Restricted Subsidiaries	44
7.	REPRESENTATIONS AND WARRANTIES		44
	7.1	Corporate Authority	45
	7.2	Governmental Approvals	45
	7.3	Title to Properties; Leases	45
	7.4	Financial Statements and Projections	46
	7.5	No Material Adverse Changes, etc	46
	7.6	Franchises, Patents, Copyrights, etc	46
	7.7	Litigation	46
	7.8	No Materially Adverse Contracts, etc	47
	7.9	Compliance with Other Instruments, Laws, etc	47
	7.10	Tax Status	47
	7.11	No Event of Default	47
	7.12	Holding Company and Investment Company Acts	47
	7.13	Absence of Financing Statements, etc	47
	7.14	Perfection of Security Interest	47
	7.15	Certain Transactions	48
	7.16	Employee Benefit Plans	48
	7.17	Use of Proceeds	49
	7.18	Environmental Compliance	49
	7.19	Subsidiaries, etc	50
	7.20	Disclosure	51
	7.21	Bank Accounts	51
8.	AFFIRMATIVE COVENANTS		51
	8.1	Punctual Payment	51
	8.2	Maintenance of Office	51
	8.3	Records and Accounts	51
	8.4	Financial Statements, Certificates and Information	52
	8.5	Notices	53
	8.6	Legal Existence; Maintenance of Properties	54
	8.7	Insurance	55
	8.8	Taxes	55
	8.9	Inspection of Properties and Books, etc	55
	8.10	Compliance with Laws, Contracts, Licenses, and Permits	56
	8.11	Employee Benefit Plans	57
	8.12	Use of Proceeds	57
	8.13	Future Guarantors; Mortgaged Property	57
	8.14	Bank Accounts	58
	8.15	[Intentionally Omitted]	59
	8.16	[Intentionally Omitted]	59

ii

	8.17	[Intentionally Omitted]	59
	8.18	Mortgage Assignments	59
	8.19	Additional Mortgages	59
	8.20	Agency Account Agreements	59
	8.21	Further Assurances	59
	8.22	Delivery of Purchase and Sale Agreements	59
9.	CERTAIN NEGATIVE COVENANTS		59
	9.1	Restrictions on Indebtedness	60
	9.2	Restrictions on Liens	61
	9.3	Restrictions on Investments	64
	9.4	Restricted Payments	66
	9.5	Merger, Consolidation and Disposition of Assets	66
	9.6	Sale and Leaseback	67
	9.7	Compliance with Environmental Laws	67
	9.8	Prepayments; Modification of Certain Documents	67
	9.9	Employee Benefit Plans	68
	9.10	Business Activities	68
	9.11	Fiscal Year	68
	9.12	Transactions with Affiliates	68
	9.13	Bank Accounts	69
10.	FINANCIAL COVENANTS		69
	10.1	Interest Coverage	69
	10.2	Capital Expenditures	69
	10.3	Minimum EBITDA	70
	10.4	Leverage Ratio	70
	10.5	[Intentionally Omitted]	71
	10.6	Fixed Charge Coverage Ratio The Borrower will not permit the Fixed Charge Coverage Ratio for any Reference Period to be less than 1.05:1.00	71
11.	CLOSING CONDITIONS		71
	11.1	Delivery of Documents	71
	11.2	Validity of Liens	71
	11.3	Certificates of Insurance	71
	11.4	Administrative Agent’s Fee Letter	71
	11.5	Assignment Agreements	72
	11.6	Intellectual Property Assignment	72
	11.7	Revolving Credit Notes	72
	11.8	Pledge of Subordinated Promissory Note	72
	11.9	Patriot Act Searches	72
	11.10	Payment of Fees, Etc	72
	11.11	Miscellaneous	72

iii

12.	CONDITIONS TO ALL BORROWINGS		72
	12.1	Representations True; No Event of Default	72
	12.2	No Legal Impediment	72
	12.3	Proceedings and Documents	73
13.	EVENTS OF DEFAULT; ACCELERATION; ETC		74
	13.1	Events of Default and Acceleration	75
	13.2	Termination of Commitments	75
	13.3	Remedies	76
	13.4	Distribution of Collateral Proceeds	76
14.	THE ADMINISTRATIVE AGENT		77
	14.1	Authorization	77
	14.2	Employees and Administrative Agents	77
	14.3	No Liability	77
	14.4	No Representations	78
	14.5	Payments	78
	14.6	Holders of Revolving Credit Notes	79
	14.7	Indemnity	79
	14.8	Administrative Agent as Lender	80
	14.9	Resignation	80
	14.10	Notification of Defaults and Events of Default	80
	14.11	Duties in the Case of Enforcement	80
	14.12	Release of Collateral	81
15.	ASSIGNMENT AND PARTICIPATION		81
	15.1	Conditions to Assignment by Lenders	82
	15.2	Certain Representations and Warranties; Limitations; Covenants	83
	15.3	Register	83
	15.4	New Revolving Credit Notes	83
	15.5	Participations	84
	15.6	Assignee or Participant Affiliated with the Borrower	84
	15.7	Miscellaneous Assignment Provisions	85
	15.8	Assignment by Borrower	85
16.	PROVISIONS OF GENERAL APPLICATIONS		85
	16.1	Setoff	85
	16.2	Expenses	86
	16.3	Indemnification	87
	16.4	Treatment of Certain Confidential Information	88
	16.5	Survival of Covenants, etc	88
	16.6	Notices	89
	16.7	Governing Law	89

iv

16.8	Headings	90
16.9	Counterparts	90
16.10	Entire Agreement, etc	90
16.11	Waiver of Jury Trial	90
16.12	Consents, Amendments, Waivers, etc	90
16.13	Severability	92
16.14	No Novation	92

v

Exhibits

Exhibit AForm of Assignment and Acceptance

Exhibit BForm of Revolving Credit Note

Exhibit CForm of Loan and Letter of Credit Request

Schedules

Schedule A-1Administrative Agent’s Account

Schedule 1(a)Lenders and Commitments

Schedule 1(b)Core Mortgaged Properties

Schedule 1(c)Encumbered Properties

Schedule 1(d)Excess Properties

Schedule 1(e)Non-Encumbered Properties

Schedule 1(f)Permitted Units

Schedule 1(g)Units

Schedule 1(h)Existing Letters of Credit

Schedule 7.3Title to Properties; Leases

Schedule 7.7Litigation

Schedule 7.14Perfection of Security Interest

Schedule 7.18Environmental Compliance

Schedule 7.19Subsidiaries Etc.

Schedule 7.21Bank Accounts

Schedule 8.19Non-Core Mortgaged Properties

Schedule 9.lExisting Indebtedness

Schedule 9.2Existing Liens

Schedule 9.2.2Restrictions on Negative Pledges

Schedule 9.3Existing Investments

vii

AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT

This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated as of March 15, 2006, is among FRIENDLY ICE CREAM CORPORATION, a Massachusetts corporation (the “Borrower”), the various financial institutions and other Persons from time to time parties hereto listed on Schedule 1(a) attached hereto (the “Lenders”), WELLS FARGO FOOTHILL, INC., a California corporation (“WFF”), as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).

RECITALS

WHEREAS, the Borrower, the various financial institutions and other Persons from time to time parties thereto listed on Schedule 1(a) attached thereto (the “Previous Lenders”), FLEET NATIONAL BANK, as administrative agent for the Previous Lenders (in such capacity, the “Previous Administrative Agent”) and documentation agent for the Previous Lenders (in such capacity, the “Documentation Agent”), BANC OF AMERICA SECURITIES LLC and FLEET SECURITIES, INC., as co-lead arrangers and joint book runners, and BANK OF AMERICA, N.A., as syndication agent for the Previous Lenders are parties to that certain Revolving Credit Agreement, dated as of December 17, 2001 (as amended or modified from time to time prior to the date hereof, the “Original Credit Agreement”);

WHEREAS, concurrent herewith, the Previous Lenders and WFF are entering into Assignment and Acceptance Agreements (the “Assignment Agreements”) pursuant to which Previous Lenders are assigning to WFF and WFF is purchasing from Previous Lenders all of their right, title and interest in and to the Loans under the Original Credit Agreement;

WHEREAS, in connection therewith, the Borrower, the Lenders, and the Administrative Agent desire to amend and restate the terms and provisions of the Original Credit Agreement; and

WHEREAS, subject to the foregoing, the Borrower, the Lenders, and the Administrative Agent are willing to so amend and restate the Original Credit Agreement in accordance with the terms and conditions hereof; it being understood that nothing contained herein shall be deemed a satisfaction or novation of the Loans or the indebtedness created or evidenced by the Original Credit Agreement and it being further understood that the parties are merely amending and restating the Original Credit Agreement and the Loan Documents in accordance with the terms hereof.

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, and subject to the terms and conditions hereof, the Borrower, the Lenders, and the Administrative Agent agree that the Original Credit Agreement be and hereby is amended and restated in its entirety as follows:

1.DEFINITIONS AND RULES OF INTERPRETATION.

1.1Definitions. The following terms shall have the meanings set forth in this §1 or elsewhere in the provisions of this Credit Agreement referred to below:

Adjustment Date. The first day of the month immediately following the month in which a Compliance Certificate is to be delivered by the Borrower pursuant to §8.4(d).

Administrative Agent. Wells Fargo Foothill, Inc., acting as administrative agent for the Lenders; and each other Person appointed as the successor Administrative Agent in accordance with §14.9.

Administrative Agent’s Account. The Deposit Account of Administrative Agent identified on Schedule A-1.

Administrative Agent’s Fee Letter. The amended and restated fee letter, dated as of the Closing Date, between the Borrower and the Administrative Agent.

Administrative Agent’s Office. The Administrative Agent’s office located at 2450 Colorado Avenue, Suite 3000 West, Santa Monica, California 90404, or at such other location as the Administrative Agent may designate from time to time.

Administrative Agent’s Special Counsel. Paul, Hastings, Janofsky & Walker LLP or such other counsel as may be approved by the Administrative Agent.

Affiliate. As to any Person, another Person which, directly or indirectly, controls, is controlled by or is under common control with such first Person. “Control” of the Borrower means the power, directly or indirectly, (a) to vote ten percent (10%) or more of the Capital Stock (on a fully diluted basis) of the Borrower having ordinary voting power for the election of directors, managing members or general partners (as applicable); or (b) to direct or cause the direction of the management and policies of the Borrower (whether by contract or otherwise).

Agency Account Agreement. See §8.14.

Applicable Margin. For each period commencing on an Adjustment Date through the date immediately preceding the next Adjustment Date (each a “Rate Adjustment Period”), the Applicable Margin shall be the applicable margin set forth below with respect to the Leverage Ratio, as determined for the Reference Period of the Borrower and its Subsidiaries ending on the fiscal quarter ended immediately prior to the applicable Rate Adjustment Period.

Level	Leverage Ratio	Base Rate Loans		Eurodollar Rate Loans		Letter of Credit Fees		Commitment Fee
I	Greater than or equal to 4.00:1.00	2.50	%	4.50	%	4.50	%	0.75	%
II	Less than 4.00:1.00 but greater than or equal to 3.50:1.00	2.00	%	4.00	%	4.00	%	0.75	%
III	Less than 3.50:1.00	1.50	%	3.50	%	3.50	%	0.75	%

2

Notwithstanding the foregoing, if the Borrower fails to deliver any Compliance Certificate pursuant to §8.4(d) hereof then, for the period commencing on the next Adjustment Date to occur subsequent to such failure through the date immediately following the date on which such Compliance Certificate is delivered, the Applicable Margin shall be the highest Applicable Margin set forth above.

Applicable Pension Legislation. At any time, any pension or retirement benefits legislation (be it national, federal, provincial, territorial or otherwise) then applicable to the Borrower or any of its Subsidiaries.

Appraised Value. The valuation of any Mortgaged Property or Units delivered to the Administrative Agent by an appraiser selected by the Administrative Agent and using such methodology as is satisfactory to the Administrative Agent.

Asset Sale. Any one or series of related transactions in which the Borrower or any of its Restricted Subsidiaries conveys, sells, leases, licenses or otherwise disposes of (other than to the Borrower or any Restricted Subsidiary of the Borrower), directly or indirectly, any of its properties, businesses or assets (including the sale or issuance of capital stock of any Restricted Subsidiary other than to the Borrower or any Restricted Subsidiary of the Borrower) whether owned on the Closing Date or thereafter acquired.

Asset Sale Capital Expenditure Proceeds. See § 3(b)(i).

Assignment and Acceptance. An assignment and acceptance substantially in the form of Exhibit A hereto.

Assignment Agreements. Has the meaning set forth in the recitals to this Credit Agreement.

Authorized Person. Any officer or employee of Borrower.

Balance Sheet Date. December 31, 2000.

Bankruptcy Code. Title 11 of the United States Code, as in effect from time to time.

Base Rate. The higher of (a) the variable annual rate of interest so designated from time to time by Wells Fargo as its “prime rate,” such rate being a reference rate and not necessarily representing the lowest or best rate being charged to any customer, and (b) 0.5% above the Federal Funds Effective Rate. For the purposes of this definition, “Federal Funds Effective Rate” shall mean for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent. Changes in the Base Rate resulting

3

from any changes in Wells Fargo’s “prime rate” shall take place immediately without notice or demand of any kind.

Base Rate Loans. Revolving Credit Loans bearing interest calculated by reference to the Base Rate.

Borrower. As defined in the preamble hereto.

Business Day. Any day on which banking institutions in California are open for the transaction of banking business and, in the case of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day.

Capital Assets. Fixed assets, both tangible (such as land, buildings, fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and good will); provided that Capital Assets shall not include any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with GAAP.

Capital Expenditures. Amounts paid or Indebtedness incurred by the Borrower or any of its Subsidiaries (excluding expenditures made in connection with the replacement, substitution or restoration of assets to the extent financed from insurance proceeds (or other similar recoveries) paid on account of the loss of or damage to the assets being replaced or restored or with awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced) in connection with (a) the purchase or lease by the Borrower or any of its Subsidiaries of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with GAAP (other than Growth Capital Expenditures paid for with the proceeds of Indebtedness permitted pursuant to §9.1(c)(ii)), or (b) the lease of any assets by the Borrower or any of its Subsidiaries as lessee under any Synthetic Lease to the extent that such assets would have been Capital Assets had the Synthetic Lease been treated for accounting purposes as a Capitalized Lease.

Capital Stock. Any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

Capitalized Leases. Leases under which the Borrower or any of its Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with GAAP.

Cash Equivalents. As to the Borrower and its Subsidiaries, (a) securities issued or directly and fully guaranteed or insured by the United States of America and having a maturity of not more than one (1) year from the date of acquisition; (b) certificates of deposit, time deposits and eurodollar time deposits with maturities of one (1) year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one (1) year and overnight bank deposits, in each case, (i) with any Lenders or (ii) with any domestic commercial bank organized under the laws of the United States of America or any state thereof or a foreign subsidiary of such bank, in each case having a rating of not less than A or its equivalent by S&P or any successor and having

4

capital and surplus in excess of $500,000,000; (c) repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clauses (a) and (b) above which (i) are secured by a fully perfected security interest in any obligation of the type described in clause (a) hereof, and (ii) have a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder; (d) any commercial paper or finance company paper issued by (i) any Lender or any holding company controlling any Lender or (ii) any other Person that is rated not less than “P-1” or “A-1” or their equivalents by Moody’s or S&P or their successors; or (e) mutual funds registered under Rule 2a-7 of the Investment Company Act of 1940 investing only in assets described in clauses (a) through (d) of this definition.

Casualty Event. With respect to any property (including any interest in property) of the Borrower or any of its Restricted Subsidiaries, any loss of, damage to, or condemnation or other taking of, such property for which the Borrower or such Restricted Subsidiary receives insurance proceeds, proceeds of a condemnation award or other compensation.

CERCLA. See §7.18(a).

Change of Control. (a) An event or series of events by which any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act), directly or indirectly, of 30% or more of the outstanding shares of the Voting Stock of the Borrower on a fully diluted basis; or (b) during any period of 24 consecutive months, individuals who at the beginning of such period constituted the Board of Directors of the Borrower (together with any new directors whose election to such Board of Directors or whose nomination for election by the stockholders of the Borrower was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office.

Closing Date. The first date on which the conditions set forth in §11 have been satisfied and any Revolving Credit Loans are to be made or any Letter of Credit is to be issued, in each case hereunder after the date hereof.

Code. The Internal Revenue Code of 1986.

Collateral. All of the property, rights, and interests of the Borrower and its Restricted Subsidiaries that are or are intended to be subject to the Liens created by the Security Documents.

Commitment. With respect to each Lender, the amount set forth on Schedule 1(a) hereto or in the applicable Assignment and Acceptance, in each case as the amount of such Lender’s commitment to make Revolving Credit Loans to, and to participate in the issuance, extension and renewal of Letters of Credit for the account of, the Borrower, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero.

5

Commitment Fee. See §2.2.

Commitment Percentage. With respect to each Lender, the percentage set forth on Schedule 1(a) hereto or in the applicable Assignment and Acceptance, in each case as such Lender’s percentage of the aggregate Commitments of all of the Lenders.

Compliance Certificate. A certificate certified by the principal financial or accounting officer of the Borrower and setting forth in reasonable detail computations evidencing compliance with the covenants contained in §10 and (if applicable) reconciliations to reflect changes in GAAP since the Balance Sheet Date, in form and substance reasonably acceptable to the Administrative Agent.

Concentration Account. See §8.14.

Concentration Account Agreement. See §8.14.

Consolidated or consolidated. With reference to any term defined herein, shall mean that term as applied to the accounts of the Borrower and its Subsidiaries, consolidated in accordance with GAAP.

Consolidated EBITDA. With respect to any fiscal period, an amount equal to the sum of (a) Consolidated Net Income of the Borrower and its Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of such Person’s Consolidated Net Income and without duplication, (i) depreciation and amortization for such period (including any associated with discontinued operations for the period), plus (ii) income tax expense for such period (including any associated with discontinued operations for the period), plus (iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) other noncash charges for such period which do not result in cash payments for any subsequent period, all as determined in accordance with GAAP, after eliminating therefrom all extraordinary noncash nonrecurring items of expense, plus (v) the reasonable and documented legal fees and expenses in connection with the derivative action filed by S. Prestley Blake incurred in the 2005 fiscal year of the Borrower, provided that such fees and expenses shall not exceed $776,000, plus, (vi) a one-time re-organization charge incurred during Borrower’s 2005 fiscal year of $678,000, plus, (vii) a one-time inventory write-down of $153,000 incurred during Borrower’s 2005 fiscal year, plus (viii) all fees and costs associated with the amendment and restatement of the Original Credit Agreement and the Assignment Agreements.

Consolidated EBITDAR. With respect to any fiscal period, an amount equal to the sum of (a) Consolidated EBITDA of the Borrower and its Subsidiaries for such fiscal period, plus, (b) Rental Expense.

Consolidated Net Income (or Deficit). The consolidated net income (or deficit) of the Borrower and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, after eliminating therefrom all extraordinary nonrecurring items of income, each as determined in accordance with GAAP.

Consolidated Total Funded Debt. With respect to the Borrower and its Subsidiaries, the sum, without duplication, of (a) the aggregate amount of Indebtedness of the

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Borrower and its Subsidiaries, on a consolidated basis, relating to (i) the borrowing of money or the obtaining of credit, including the issuance of Revolving Credit Notes or bonds, (ii) the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business), (iii) in respect of any Synthetic Leases or any Capitalized Leases, and (iv) the maximum drawing amount of all letters of credit outstanding and bankers acceptances (excluding Letters of Credit constituting documentary letters of credit in an aggregate stated amount not to exceed $250,000), plus, (b) Indebtedness of the type referred to in clause (a) of another Person guaranteed by the Borrower or any of its Subsidiaries, minus, (c) cash and Cash Equivalents in excess of $10,000,000.

Consolidated Total Interest Expense. For any period, the aggregate amount of interest required to be paid or accrued by the Borrower and its Subsidiaries during such period on all Indebtedness of the Borrower and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any Capitalized Lease or any Synthetic Lease, and including Commitment Fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.

Control Agreement. A control agreement, in form and substance satisfactory to Administrative Agent, executed and delivered by the Borrower or one of its Subsidiaries, Agent, and the applicable bank or securities intermediary.

Conversion Request. A notice given by the Borrower to the Administrative Agent of the Borrower’s election to convert or continue a Loan in accordance with §2.7.

Copyright Mortgages. The several Memorandums of Grants of Security Interest in Copyrights made by the Borrower and its Restricted Subsidiaries in favor of the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent.

Core Mortgaged Properties. Any Real Estate listed on Schedule l(b) hereto and any additional Real Estate pledged as “Core Mortgaged Properties” pursuant to §8.13.3.

Credit Agreement. This Amended and Restated Revolving Credit Agreement, including the Schedules and Exhibits hereto.

Daily Balance. As of any date of determination and with respect to any Obligation, the amount of such Obligation (including without limitation the aggregate amount of Obligations consisting of contingent reimbursement obligations in respect of Letters of Credit) owed at the end of such day.

Debt Issuance. The sale or issuance by the Borrower or any of its Restricted Subsidiaries of any Indebtedness permitted by this Credit Agreement.

Default. Any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default.

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Defaulting Lender. Any Lender that fails to make any Loan (or other extension of credit) that it is required to make hereunder on the date that it is required to do so hereunder.

Defaulting Lender Rate. (a) For the first 3 days from and after the date the relevant payment is due, the Base Rate, and (b) thereafter, the interest rate then applicable to Revolving Credit Loans that are Base Rate Loans.

Deferred Compensation. Payments of salary and compensation by Borrower in connection with Borrower’s deferred compensation plan.

Delinquent Lender. See §14.5.3.

Deposit Account. Any deposit account (as that term is defined in the Uniform Commercial Code, as in effect from time to time).

Distribution. The declaration or payment of any dividend on or in respect of any shares of any class of Capital Stock of the Borrower, other than dividends payable solely in shares of common stock of the Borrower; the purchase, redemption, defeasance, retirement or other acquisition of any shares of any class of Capital Stock of the Borrower, directly or indirectly through a Subsidiary of the Borrower or otherwise (including the setting apart of assets for a sinking or other analogous fund to be used for such purpose); the return of capital by the Borrower to its shareholders as such; or any other distribution on or in respect of any shares of any class of Capital Stock of the Borrower.

Dollars or $. Dollars in lawful currency of the United States of America.

Domestic Lending Office. Initially, the office of each Lender designated as such in Schedule l(a) hereto; thereafter, such other office of such Lender, if any, located within the United States that will be making or maintaining Base Rate Loans.

Drawdown Date. The date on which any Revolving Credit Loan is made or is to be made, and the date on which any Revolving Credit Loan is converted or continued in accordance with §2.7.

Employee Benefit Plan. Any employee benefit plan within the meaning of §3(3) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan.

Encumbered Properties. Any Real Estate listed on Schedule l(c) hereto which is subject to any Lien granted in connection with the Sale-Leaseback Transaction and the FFCA Mortgage Financing.

Environmental Laws. See §7.18(a).

EPA. See §7.18(b).

Equity Issuance. The sale or issuance by the Borrower or any of its Restricted Subsidiaries of any of its Capital Stock (other than (x) the sale or issuance of any Capital Stock

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by (i) the Borrower to any Restricted Subsidiary or (ii) any Restricted Subsidiary to the Borrower or another Restricted Subsidiary or (y) the sale or issuance of any Capital Stock by the Borrower or any of its Restricted Subsidiaries to any officers, directors or employees in connection with any benefit or compensation plan).

ERISA. The Employee Retirement Income Security Act of 1974.

ERISA Affiliate. Any Person which is treated as a single employer with the Borrower under §414 of the Code.

ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within the meaning of §4043 of ERISA and the regulations promulgated thereunder.

Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate Loan, the maximum rate (expressed as a decimal) at which any bank subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against “Eurocurrency Liabilities” (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Rate.

Eurodollar Business Day. Any day on which commercial banks are open for international business (including dealings in Dollar deposits) in London or such other eurodollar interbank market as may be selected by the Administrative Agent in its sole discretion acting in good faith.

Eurodollar Lending Office. Initially, the office of each Lender designated as such in Schedule 1(a) hereto; thereafter, such other office of such Lender, if any, that shall be making or maintaining Eurodollar Rate Loans.

Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate Loan, the rate of interest equal to (a) the arithmetic average of the rates per annum for the Reference Lender (rounded upwards to the nearest 1/16 of one percent) of the rate at which the Reference Lender’s Eurodollar Lending Office is offered Dollar deposits two Eurodollar Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Rate Loan of the Reference Lender to which such Interest Period applies, divided by (b) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable.

Eurodollar Rate Loans. Revolving Credit Loans bearing interest calculated by reference to the Eurodollar Rate.

Event of Default. See §13.1.

Excess Properties. Any Real Estate listed on Schedule 1(d).

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Excess Properties Sale. The sale or other disposition of any Excess Properties by the Borrower or any Restricted Subsidiary to any Person or business; provided, that immediately before and after giving effect to such sale, no Event of Default shall have occurred and be continuing or would result therefrom.

Excluded Properties. Any Real Estate constituting (i) Encumbered Properties, (ii) Excess Properties, (iii) Permitted Units and (iv) any other Real Estate (other than Core Mortgaged Properties) to the extent the granting of a valid and enforceable first priority Mortgage on such Real Estate would result in the incurrence of mortgage taxes or would require the consent by the applicable landlord prior to the granting of such Mortgage.

Fees. Collectively, the Commitment Fee, the Letter of Credit Fee and the other fees set forth in the Administrative Agent’s Fee Letter.

FFCA Amended and Restated Master Lease. The Amended and Restated Master Lease, dated as of the Original Closing Date, by and between GECC and the Borrower.

FFCA Loan Agreements. The loan agreements, each dated as of the Original Closing Date, by and among GECC, as lender, and the SPVs, as borrowers.

FFCA Master Leases. The Master Leases executed in connection with the FFCA Mortgage Financing, each dated as of the Original Closing Date, by and among the SPVs, as lessors, and the Borrower, as lessee.

FFCA Mortgage Financing. The mortgage financing transaction described in the FFCA Loan Agreements.

FFCA Mortgage Financing Documents. Any and all documents and instruments delivered or executed in connection with the FFCA Mortgage Financing (including the FFCA Amended and Restated Master Lease), as the same may be amended, supplemented or amended and restated or otherwise modified from time to time in accordance with §9.8.

Fifth Amendment. The Amendment No. 5 to Revolving Credit Agreement, dated as of December 17, 2004, among the Borrower, the Previous Lenders and the Previous Administrative Agent.

Fifth Amendment Effective Date. The date on which all conditions precedent to the Fifth Amendment hereto were satisfied or waived by the Previous Lenders.

Financial Affiliate. A Subsidiary of the bank holding company controlling any Lender, which Subsidiary is engaging in any of the activities permitted by §4(e) of the Bank Holding Company Act of 1956 (12 U.S.C. §1843).

Fixed Charge Coverage Ratio. As of any date of determination, the ratio of (a) Consolidated EBITDAR, minus, the sum of (b)(i) Maintenance Capital Expenditures less Asset Sale Capital Expenditure Proceeds not to exceed $2,000,000 in the aggregate in any fiscal year, and (ii) cash income tax expense, to, the sum of (w) Consolidated Total Interest Expense payable in cash, (x) actual and accrued scheduled principal repayments of Indebtedness made or

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accrued during such period, (y) Rental Expense and (z) mandatory cash contributions made by the Borrower to any of its pension plans due to changes in fair market value of pension plan assets (to the extent not already deducted in the calculation of Consolidated EBITDA).

Foreign Subsidiaries. Each Subsidiary of the Borrower organized under the laws of any jurisdiction other than the United States or any state thereof.

Fourth Amendment Effective Date. The date on which all conditions precedent to the Fourth Amendment hereto were satisfied or waived by the Previous Lenders.

GAAP or generally accepted accounting principles. (a) When used in §10, whether directly or indirectly through reference to a capitalized term used therein, means (i) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (ii) to the extent consistent with such principles, the accounting practice of the Borrower reflected in its financial statements for the year ended on the Balance Sheet Date, and (b) when used in general, other than as provided above, means principles that are (i) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time, and (ii) consistently applied with past financial statements of the Borrower adopting the same principles, provided that in each case referred to in this definition of “GAAP” a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in GAAP) as to financial statements in which such principles have been properly applied.

GECC. GE Capital Franchise Finance Corporation, a Delaware corporation.

Governing Documents. With respect to any Person, its certificate or articles of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its Capital Stock.

Governmental Authority. Any foreign, federal, state, regional, local, municipal or other government, or any department, commission, board, bureau, agency, public authority or instrumentality thereof, or any court or arbitrator.

Growth Capital Expenditures. Capital Expenditures related to (i) the construction, acquisition or opening of any new restaurant locations during any fiscal year, plus (ii) the expansion and/or conversion of any existing manufacturing and distribution facilities during any fiscal year, plus (iii) the opening of any new manufacturing and distribution facilities during any fiscal year, plus (iv) the Impact Remodeling Program, as in effect on the date of the Fifth Amendment Effective Date, during any fiscal year.

Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of §3(2) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan.

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Guaranty. The Guaranty made by each Restricted Subsidiary of the Borrower in favor of the Lenders and the Administrative Agent, pursuant to which each Restricted Subsidiary of the Borrower guaranties to the Lenders and the Administrative Agent the payment and performance of the Obligations, in form and substance satisfactory to the Administrative Agent.

Hazardous Substances. See §7.18(b).

Indebtedness. As to any Person and whether recourse is secured by or is otherwise available against all or only a portion of the assets of such Person and whether or not contingent, but without duplication:

(a)every obligation of such Person for money borrowed;

(b)every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses;

(c)every reimbursement obligation of such Person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such Person;

(d)every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith);

(e)every obligation of such Person under any Capitalized Lease;

(f)every obligation of such Person under any Synthetic Lease;

(g)all sales by such Person of (i) accounts or general intangibles for money due or to become due, (ii) chattel paper, instruments or documents creating or evidencing a right to payment of money or (iii) other receivables (collectively “receivables”), whether pursuant to a purchase facility or otherwise, other than in connection with the disposition of the business operations of such Person relating thereto or a disposition of defaulted receivables for collection and not as a financing arrangement, and together with any obligation of such Person to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith;

(h)every obligation of such Person (an “equity related purchase obligation”) to purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock issued by such Person or any rights measured by the value of such Capital Stock;

(i)every net obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices (a “derivative contract”);

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(j)every obligation in respect of Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent that such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor and such terms are enforceable under applicable law; and

(k)every obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guarantying or otherwise acting as surety for, any obligation of a type described in any of clauses (a) through 0) (the “primary obligation”) of another Person (the “primary obligor”), in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person (i) to purchase or pay (or advance or supply funds for the purchase of) any security for the payment of such primary obligation, (ii) to purchase property, securities or services for the purpose of assuring the payment of such primary obligation, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such primary obligation.

The “amount” or “principal amount” of any Indebtedness at any time of determination represented by (t) any Indebtedness, issued at a price that is less than the principal amount at maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with GAAP, (u) any Capitalized Lease shall be the principal component of the aggregate of the rentals obligation under such Capitalized Lease payable over the term thereof that is not subject to termination by the lessee, (v) any sale of receivables shall be the amount of unrecovered capital or principal investment of the purchaser (other than the Borrower or any of its wholly-owned Subsidiaries) thereof, excluding amounts representative of yield or interest earned on such investment, (w) any Synthetic Lease shall be the stipulated loss value, termination value or other equivalent amount, (x) any derivative contract referred to in clause (i) shall be the maximum amount (after giving effect to netting) of any termination or loss payment required to be paid by such Person if such derivative contract were, at the time of determination, to be terminated by reason of any event of default or early termination event thereunder, whether or not such event of default or early termination event has in fact occurred, (y) any equity related purchase obligation shall be the maximum fixed redemption or purchase price thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or purchase price and (z) any guaranty or other contingent liability referred to in clause (k) shall be an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty or other contingent obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith, in each case subject to any limitation contained in such guaranty or other contingent liability.

Indemnified Liabilities. See §14.7.

Ineligible Securities. Securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. §24, Seventh), as amended.

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Intellectual Property Assignment. The Assignment of Security Interest in form and substance reasonably satisfactory to the Administrative Agent.

Interest Coverage Ratio. As of any date of determination, the ratio of (a) Consolidated EBITDA, to, (b) Consolidated Total Interest Expense.

Interest Payment Date. (a) As to any Base Rate Loan, the last day of the calendar quarter with respect to interest accrued during such quarter, including, without limitation, the quarter which includes the Drawdown Date of such Base Rate Loan; and (b) as to any Eurodollar Rate Loan in respect of which the Interest Period is (i) 3 months or less, the last day of such Interest Period and (ii) more than 3 months, the date that is 3 months from the first day of such Interest Period and, in addition, the last day of such Interest Period.

Interest Period. With respect to each Revolving Credit Loan, (a) initially, the period commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrower in a Loan and Letter of Credit Request or as otherwise required by the terms of this Credit Agreement (i) for any Base Rate Loan, the last day of the calendar quarter; and (ii) for any Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Revolving Credit Loan and ending on the last day of one of the periods set forth above, as selected by the Borrower in a Conversion Request; provided that all of the foregoing provisions relating to Interest Periods are subject to the following:

(a)if any Interest Period with respect to a Eurodollar Rate Loan would otherwise end on a day that is not a Eurodollar Business Day, that Interest Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day;

(b)if any Interest Period with respect to a Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day;

(c)if the Borrower shall fail to give notice as provided in §2.7, the Borrower shall be deemed to have requested a conversion of the affected Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base Rate Loans as Base Rate Loans on the last day of the then current Interest Period with respect thereto;

(d)any Interest Period relating to any Eurodollar Rate Loan that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month; and

(e)any Interest Period that would otherwise extend beyond the Revolving Credit Loan Maturity Date shall end on the Revolving Credit Loan Maturity Date.

Interest Rate Agreement. Any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate futures contract, interest rate option

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agreement or other similar agreement or arrangement to which the Borrower and any Lender is a party, designed to protect the Borrower against fluctuations in interest rates.

Investments. All expenditures made and all liabilities incurred (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property (other than in the ordinary course of business) to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any other Person. In determining the aggregate amount of Investments outstanding at any particular time:  (a) the amount of any Investment represented by a guaranty (subject to any limitation contained in such guaranty) shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (b) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (c) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise; and (d) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof.

Issuing Lender. WFF or any other Lender that, at the request of Borrower and with the consent of Administrative Agent, agrees, in such Lender’s sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or L/C Undertakings pursuant to Section 4.1.

L/C. See §4.1.

L/C Disbursement. A payment made by the Issuing Lender pursuant to a Letter of Credit.

L/C Undertaking. See §4.1.

Lender Affiliate. (a) With respect to any Lender, (i) an Affiliate of such Lender or (ii) any entity (whether a corporation, partnership, limited liability company, trust or legal entity) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by such Lender or an Affiliate of such Lender and (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other entity (whether a corporation, partnership, limited liability company, trust or other legal entity) that is a fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

Lenders. WFF and the other lending institutions listed on Schedule l(a) hereto and any other Person who becomes an assignee of any rights and obligations of a Lender pursuant to §15.

Lender Group. Individually and collectively, each of the Lenders (including the Issuing Lender) and Administrative Agent.

Letter of Credit. An L/C or an L/C Undertaking, as the context requires.

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Letter of Credit Usage  As of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit.

Letter of Credit Application. See §4.1.

Letter of Credit Fee. The fees set forth in §4.3.

Letter of Credit Participation. See §4.1.

Leverage Ratio. As at any date of determination, the ratio of (a) Consolidated Total Funded Debt outstanding on such date, to, (b) Consolidated EBITDA for the Reference Period ending on such date.

Lien. Any mortgage, deed of trust, security interest, pledge, hypothecation, assignment, attachment, deposit arrangement, encumbrance, lien (statutory, judgment or otherwise), or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any Capitalized Lease, any Synthetic Lease, any financing lease involving substantially the same economic effect as any of the foregoing and the filing of any financing statement under the UCC or comparable law of any jurisdiction).

Loan Documents. This Credit Agreement, the Revolving Credit Notes, the Letter of Credit Applications, the Compliance Certificate, the Letters of Credit, the Mortgages, the Copyright Mortgage, the Trademark Assignments, the Administrative Agent’s Fee Letter, the Agency Account Agreements, the Concentration Account Agreements, the Control Agreements, the Reaffirmation Agreement, the Transitional Arrangements Agreement, the Assignment Agreements, the Mortgage Assignments, Mortgage Amendments, the Intellectual Property Assignment, and the Resignation and Appointment of Agent Agreement, each agreement pursuant to which the Administrative Agent is granted a Lien to secure Obligations (including, without limitation, the Security Documents) and each other agreement, certificate, document or instrument delivered in connection with any Loan Document, whether or not specifically mentioned herein or therein, in each case as amended, supplemented, amended and restated or otherwise modified from time to time.

Loan and Letter of Credit Request. A written notice of each Revolving Credit Loan and Letter of Credit requested pursuant to this Credit Agreement, substantially in the form of Exhibit C hereto.

Loans. Collectively, the Revolving Credit Loans and the Swing Line Loans.

Local Account. See §8.14.

Maintenance Capital Expenditures. Capital Expenditures that are not Growth Capital Expenditures. For purposes of calculating the financial covenants in Section 10 hereof, Maintenance Capital Expenditures shall be the greater of (i) Maintenance Capital Expenditures for such fiscal year and (ii) $15,000,000.

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Material Adverse Effect. With respect to any event or occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding):

(a)a material adverse effect on the business, assets, liabilities (actual or contingent), condition (financial or otherwise), operations or prospects of the Borrower and its Subsidiaries, taken as a whole;

(b)a material adverse effect on the ability of the Borrower or any of its Subsidiaries taken as a whole, to perform any of their respective Obligations under any of the Loan Documents to which it is a party; or

(c)any material impairment of the validity, binding effect or enforceability of this Credit Agreement or any of the other Loan Documents, any material impairment of the rights, remedies or benefits available to the Administrative Agent or any Lender under any Loan Document or any material impairment of the attachment, perfection or priority of any Lien of the Administrative Agent under the Security Documents.

Maximum Drawing Amount. The maximum aggregate amount that the beneficiaries may at any time draw under outstanding Letters of Credit, as such aggregate amount may be reduced from time to time pursuant to the terms of the Letters of Credit.

Minimum Aggregate Appraisal Amount. At any time of determination, the Total Commitment, multiplied by, 2.25.

Moody’s. Moody’s Investors Services, Inc.

Mortgage Assignments. Mortgage Assignments in favor of Administrative Agent in form and substance reasonably satisfactory to the Administrative Agent.

Mortgage Amendments. Amendments to the Mortgages in favor of Administrative Agent in form and substance reasonably satisfactory to the Administrative Agent.

Mortgaged Property. Any Real Estate which is subject to any Mortgage.

Mortgages. The several mortgages and deeds of trust from the Borrower and its Restricted Subsidiaries to the Administrative Agent with respect to the fee and leasehold interests of the Borrower and its Restricted Subsidiaries in the Real Estate, in form and substance reasonably satisfactory to the Administrative Agent.

Multiemployer Plan. Any multiemployer plan within the meaning of §3(37) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate.

Net Cash Debt Issuance Proceeds. With respect to any Debt Issuance of any Person, the excess of the gross cash proceeds received by such Person for such Debt Issuance after deduction of all reasonable and customary transaction expenses (including, without limitation, underwriting discounts and commissions) actually incurred in connection with such a sale or other issuance.

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Net Cash Equity Issuance Proceeds. With respect to any Equity Issuance of any Person, the excess of the gross cash proceeds received by such Person for such Equity Issuance after deduction of all reasonable and customary transaction expenses (including, without limitation, underwriting discounts and commissions) actually incurred in connection with such a sale or other issuance.

Net Cash Sale Proceeds. The net cash proceeds received by a Person in respect of any Asset Sale, less the sum of (a) all reasonable out-of-pocket fees, commissions and other reasonable and customary direct expenses actually incurred in connection with such Asset Sale, including the amount of any taxes required to be paid by such Person in connection with such Asset Sale, (b) the aggregate amount of cash so received by such Person which is required to be used to retire (in whole or in part) any Indebtedness (other than under the Loan Documents) of such Person permitted by this Credit Agreement that was secured by a lien or security interest permitted by this Credit Agreement having priority over the liens and security interests (if any) of the Administrative Agent (for the benefit of the Administrative Agent and the Lenders) with respect to such assets transferred and which is required to be repaid in whole or in part (which repayment, in the case of any other revolving credit arrangement or multiple advance arrangement, reduces the commitment thereunder) in connection with such Asset Sale, and (c) amounts to be provided by the Borrower or any Subsidiary, as the case may be, as a reserve against any liabilities associated with the assets sold or disposed of in such Asset Sale and retained by the Borrower or such Subsidiary, as the case may be, after such Asset Sale, including pension and other post-employment benefit liabilities and liabilities related to environmental matters and liabilities under any indemnification obligation associated with the assets sold or disposed of in such Asset Sale; provided, that (x) the Borrower shall notify the Administrative Agent on or prior to the date of such Asset Sale of the amount of such reserve, and (y) the amount of such reserve shall be reasonably acceptable to the Administrative Agent.

Ninth Amendment. The Limited Consent and Amendment No. 9 to Revolving Credit Agreement, dated as of December 9, 2005, among the Borrower the Lenders and the Administrative Agent.

Net Casualty Proceeds. With respect to any Casualty Event, the amount of any insurance proceeds or condemnation awards received by the Borrower or any of its Restricted Subsidiaries in connection with such Casualty Event, individually or in the aggregate over the course of a fiscal year (net of all reasonable and customary collection expenses thereof).

New Senior Notes. The senior notes issued pursuant to the New Senior Note Indenture.

New Senior Note Indenture. The indenture by and among the Borrower and an indenture trustee, dated March 8, 2004, pursuant to which up to $175,000,000 of New Senior Notes have been issued or will be issued.

Non-Encumbered Properties. Any Real Estate listed on Schedule 1(e) hereto which is not subject to any Mortgage and is not otherwise subject to any Lien granted in connection with the Sale-Leaseback Transaction, the FFCA Mortgage Financing or otherwise existing thereon.

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Obligations. All indebtedness, obligations and liabilities of any of the Borrower and its Subsidiaries to any of the Lenders and the Administrative Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement, any of the other Loan Documents (including any fees or any interest accruing during, or which would have accrued but for, the pendency of any proceeding of the type described in §13.1(h), regardless of whether a claim therefor is allowed in whole or in part in any such proceeding), any Interest Rate Agreement, any cash management services provided by any Lender or in respect of any of the Loans made or Reimbursement Obligations incurred or any of the Revolving Credit Notes, the Letter of Credit Applications, the Letters of Credit, or other instruments at any time evidencing any thereof.

Operating Account. See §2.6.1.

Original Closing Date. December 17, 2001.

Original Credit Agreement. Has the meaning set forth in the recitals to this Agreement.

Outstanding. With respect to the Loans, the aggregate unpaid principal thereof as of any date of determination.

PBGC. The Pension Benefit Guaranty Corporation created by §4002 of ERISA and any successor entity or entities having similar responsibilities.

Perfection Certificates. The Perfection Certificates as defined in the Security Agreements.

Permitted Acquisitions. Any purchase or lease by the Borrower or any of its Restricted Subsidiaries of not more than five (5) restaurant locations during any one fiscal year in which the following conditions are satisfied:

(a)immediately before and after giving effect to such purchase or lease, no Default shall have occurred and be continuing or would result therefrom;

(b)the Borrower shall have delivered to the Administrative Agent a Compliance Certificate for the period of four full fiscal quarters immediately preceding such acquisition (prepared in good faith and in a manner and using such methodology which is consistent with the most recent financial statements delivered pursuant to §8.4) giving pro forma effect to the consummation of such purchase or lease and evidencing compliance with the covenants set forth in §10;

(c)the Permitted Acquisitions shall not exceed $7,000,000 in the aggregate per fiscal year and such amounts shall be a Growth Capital Expenditure for purposes of Section 10.2;

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provided, however, for any Permitted Acquisition that is less than $3,000,000 in the aggregate, the condition set forth in clause (b) above shall not have to be satisfied by the Borrower.

Permitted Asset Sales. The sale or other disposition of any assets (other than assets sold pursuant to Permitted Unit Sales) arising from discontinuance of operations (including, without limitation furniture, fixtures and equipment) or from any re-franchising arrangement by the Borrower to any Person or business to which the Administrative Agent has consented in writing in its reasonable discretion in which the following conditions are satisfied:

(a)the purchase and sale documentation is in form, scope and substance reasonably satisfactory to the Administrative Agent in its sole discretion;

(b)immediately before and after giving effect to such sale, no Default shall have occurred and be continuing or would result therefrom;

(c)the aggregate amount of net cash proceeds of any individual property sold in a Permitted Asset Sale shall not exceed $1,800,000;

(d)each Permitted Asset Sale is for not less than fair market value (as determined by the Borrower in good faith) and the consideration received consists of no less than 90% in cash; and

(e)the aggregate amount of net cash proceeds of all Permitted Asset Sales shall not, in the aggregate, exceed $7,500,000 in any fiscal year.

Permitted Discretion. A determination made in the exercise of reasonable (from the perspective of a secured lender) business judgment.

Permitted Liens. Liens permitted by §9.2.

Permitted Intercompany Sales. The sale or other disposition of assets (a) by the Borrower to any Restricted Subsidiary or (b) by any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary, in each case in which the following conditions are satisfied:

(a)immediately before and after giving effect to such sale, no Default shall have occurred and be continuing or would result therefrom; and

(b)the Permitted Intercompany Sales shall not exceed $5,000,000 in the aggregate.

Permitted Units. The restaurant or other locations listed on Schedule 1(f).

Permitted Unit Sales. The sale or other disposition of a Permitted Unit by the Borrower or any Restricted Subsidiary to any Person or business in which the following conditions are satisfied:

(a)immediately before and after giving effect to such sale, no Default shall have occurred and be continuing or would result therefrom;

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(b)the Permitted Unit Sales shall not exceed $3,500,000 in the aggregate; and

(c)each Permitted Unit Sale is for fair market value and the consideration received consists of no less than 80% in cash.

Person. Any individual, corporation, limited liability company, partnership, limited liability partnership, trust, other unincorporated association, business, or other legal entity, and any Governmental Authority.

Previous Administrative Agent. Has the meaning set forth in the recitals to this Agreement.

Previous Lenders. Has the meaning set forth in the recitals to this Agreement.

RCRA. See §7.18(a).

Reaffirmation Agreement. The Reaffirmation Agreement by Borrower and its Restricted Subsidiaries in favor of the Lender Group in form and substance reasonably satisfactory to the Administrative Agent.

Real Estate. All real property (including any attendant fixtures) at any time owned or leased (as lessee or sublessee) by the Borrower or any of its Restricted Subsidiaries.

Record. The grid attached to a Revolving Credit Note, or the continuation of such grid, or any other similar record, including computer records, maintained by any Lender with respect to any Loan referred to in such Revolving Credit Note.

Reference Lender. Wells Fargo.

Reference Period. With respect to any fiscal quarter, the period comprising such fiscal quarter and the three immediately preceding fiscal quarters treated as a single accounting period.

Refinancing Indebtedness. Indebtedness that refunds, refinances, replaces, renews, repays or extends (including pursuant to any defeasance or discharge mechanism) (collectively, “refinances,” and “refinanced” shall have a correlative meaning) any Indebtedness including Indebtedness that refinances other Refinancing Indebtedness; provided, however, that (1) the Refinancing Indebtedness has a stated maturity no earlier than the stated maturity of the Indebtedness being refinanced, (2) such Refinancing Indebtedness is incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced plus the amount of accrued and unpaid interest on the Indebtedness being refinanced, any premium paid to the holders of the Indebtedness being refinanced and reasonable expenses incurred in connection with the incurrence of the Refinancing Indebtedness and (3) the material terms of such Refinancing Indebtedness shall be on terms which are not materially more onerous on the Borrower than the terms in the Indebtedness being refinanced.

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Register. See §15.3.

Reimbursement Obligation. The Borrower’s obligation to reimburse the Administrative Agent and the Lenders on account of any drawing under any Letter of Credit as provided in §4.1.

Rental Expense. All payments made or required to be made by the Borrower or any of its Subsidiaries, as lessee or sublessee under any operating lease of real or personal property as rental payments and contingent rentals, in each case, as calculated in accordance with GAAP, minus, rental income of the Borrower and its Subsidiaries paid in cash from any operating sublease of real property.

Required Lenders. As of any date, the Lenders holding at least 66.7% of the outstanding principal amount of the Revolving Credit Notes and if no such principal is outstanding, the Lenders whose aggregate Commitments constitute at least 66.7% of the Total Commitment.

Resignation and Appointment of Agent Agreement. The Resignation and Appointment of Agent Agreement in form and substance reasonably satisfactory to the Administrative Agent.

Restaurant Concentration Account. See §8.14.

Restricted Payment. In relation to the Borrower and its Subsidiaries, any (a) Distribution, (b) payment or prepayment in respect of Capital Stock by the Borrower or its Subsidiaries to the Borrower’s or any Subsidiary’s shareholders (or other equity holders), in each case, other than to the Borrower, or (c) derivatives or other transactions with any financial institution, commodities or stock exchange or clearinghouse (a “Derivatives Counterparty”) obligating the Borrower or any Restricted Subsidiary to make payments to such Derivatives Counterparty as a result of any change in market value of any Capital Stock of the Borrower or such Subsidiary.

Restricted Subsidiary. Each Subsidiary that is not an Unrestricted Subsidiary.

Revolving Credit Loan Maturity Date. June 30, 2007.

Revolving Credit Loans. Revolving credit loans made or to be made by the Lenders to the Borrower pursuant to §2.

Revolving Credit Note Record. A Record with respect to a Revolving Credit Note.

Revolving Credit Notes. The revolving promissory notes of the Borrower in substantially the form of Exhibit B attached hereto.

Risk Participation Liability. As to each Letter of Credit, all reimbursement obligations of Borrower to the Issuing Lender with respect to an L/C Undertaking, consisting of (a) the amount available to be drawn or which may become available to be drawn, (b) all

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amounts that have been paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed by Borrower, whether by the making of a Loan or otherwise, and (c) all accrued and unpaid interest, fees, and expenses payable with respect thereto.

Sale-Leaseback Transaction. The sale-leaseback transaction as evidenced and otherwise described in the Purchase Agreement and Escrow Instructions, dated as of the Original Closing Date, by and among Realty Income Corporation, as buyer, and the Borrower, as seller.

Sale-Leaseback Transaction Documents. Any and all documents and instruments delivered or executed in connection with the Sale Leaseback Transaction, as the same may be amended, supplemented or amended and restated or otherwise modified from time to time in accordance with §9.8.

Security Interest Subordination Agreements. Each of (a) the Security Interest Subordination Agreements, dated as of the Original Closing Date, among the SPVs, the Borrower and the Administrative Agent, and (b) the Security Interest Subordination Agreement, dated as of the Original Closing Date, among GECC, the Borrower and the Administrative Agent.

S&P. Standard & Poor’s Ratings Group.

SARA. See §7.18(a).

SEC. The Securities and Exchange Commission.

Security Agreements. The several Security Agreements between the Borrower and its Restricted Subsidiaries and the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent.

Security Documents. The Guaranty, the Security Agreements, the Mortgages, the Trademark Assignments, the Copyright Mortgages, the Stock Pledge Agreement and all other instruments and documents, including without limitation Uniform Commercial Code financing statements, required to be executed or delivered pursuant to any Security Document.

Settlement. The making or receiving of payments, in immediately available funds, by the Lenders, to the extent necessary to cause each Lender’s actual share of the outstanding amount of Revolving Credit Loans (after giving effect to any Loan and Letter of Credit Request) to be equal to such Lender’s Commitment Percentage of the outstanding amount of such Revolving Credit Loans (after giving effect to any Loan and Letter of Credit Request), in any case where, prior to such event or action, the actual share is not so equal.

Settlement Amount. See §2.9.1.

Settlement Date. (a) The Drawdown Date relating to any Loan and Letter of Credit Request, (b) Friday of each week, or if a Friday is not a Business Day, the Business Day immediately following such Friday, (c) at the option of the Administrative Agent, on any Business Day following a day on which the account officers of the Administrative Agent active upon the Borrower’s account become aware of the existence of an Event of Default, (d) any

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Business Day on which the amount of Revolving Credit Loans outstanding from WFF plus WFF’s Commitment Percentage of the sum of the Maximum Drawing Amount and any Unpaid Reimbursement Obligations is equal to or greater than WFF’s Commitment Percentage of the Total Commitment, (e) any day on which any conversion of a Base Rate Loan to a Eurodollar Rate Loan occurs, and (f) any Business Day on which (i) the amount of outstanding Revolving Credit Loans decreases and (ii) the amount of the Administrative Agent’s Revolving Credit Loans outstanding equals zero Dollars ($0).

Settling Lender. See §2.9.1.

SPV. Collectively, Friendly’s Realty I, LLC, a Delaware limited liability company, Friendly’s Realty II, LLC, a Delaware limited liability company, and Friendly’s Realty III, LLC, a Delaware limited liability company, or one or more successor special purpose vehicles which hold title to any of the assets held by the SPVs existing on the Closing Date.

Stock Pledge Agreement. The Stock Pledge Agreement between the Borrower and its Restricted Subsidiaries, if applicable, and the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent.

Subordinated Promissory Note. That certain Subordinated Promissory Note, dated April 11, 2001, in the principal amount of $4,250,000, by J&B Restaurant Partners of Long Island, LLC and J&B Restaurant Partners of Long Island II, LLC in favor of Borrower.

Subsidiary. Any corporation, association, trust, or other business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock.

Survey. In relation to the manufacturing plant and headquarters located at 1855 Boston Road, Wilbraham, Massachusetts 01095, an instrument survey for such property dated as of a date subsequent to the Original Closing Date, which shall show the location of all buildings, structures, easements and utility lines on such property, shall be sufficient to remove the survey exception from the Title Policy, shall show that all buildings and structures are within the lot lines of such property, shall not show any encroachments by others, shall show the zoning district or districts in which such property is located, shall show any flood hazard district as established by the Federal Emergency Management Agency or any successor agency or equivalent of any other Governmental Authority and shall show whether such property is located in any flood plain, flood hazard or wetland protection district established by any Governmental Authority.

Surveyor Certificate. In relation to each Mortgaged Property for which a Survey has been conducted, a certificate executed by the surveyor who prepared such Survey dated as of a recent date and containing such information relating to such Mortgaged Property as the Administrative Agent or the Title Insurance Company may require, such certificate to be satisfactory to the Administrative Agent in form and substance.

Swing Line Loans. See §2.6.2.

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Synthetic Lease. Any lease of goods or other property, whether real or personal, which is treated as an operating lease under GAAP and as a loan or financing for U.S. income tax purposes.

Title Insurance Company. Commonwealth Title Insurance Company or Lawyers Title Insurance Company, each a wholly-owned subsidiary of Landamerica Title Insurance Company.

Title Policy. In relation to each Core Mortgaged Property, an ALTA standard form title insurance policy issued by the Title Insurance Company (with such reinsurance or co-insurance as the Administrative Agent may require, any such reinsurance to be with direct access endorsements) in such amount as may be determined by the Administrative Agent insuring the priority of the Mortgage of such Core Mortgaged Property and that the Borrower or one of its Restricted Subsidiaries holds marketable fee simple or leasehold title, as the case may be, to such Core Mortgaged Property, subject only to the encumbrances permitted by such Mortgage and which shall not contain exceptions for mechanics liens, persons in occupancy (except Borrower) or, in respect of the manufacturing plant and headquarters located at 1855 Boston Road, Wilbraham, Massachusetts 01095, matters which would be shown by a survey (except as may be permitted by such Mortgage), shall not insure over any matter except to the extent that any such affirmative insurance is reasonably acceptable to the Administrative Agent in its reasonable discretion, and shall contain such endorsements and affirmative insurance as the Administrative Agent in its reasonable discretion may require, but only to the extent available, including but not limited to (a) comprehensive endorsement, (b) variable rate of interest endorsement, (c) usury endorsement, (d) revolving credit endorsement and (e) doing business endorsement.

Total Commitment. The sum of the Commitments of the Lenders, as in effect from time to time, and which shall be in the aggregate principal amount not to exceed $35,000,000.

Trademark Assignments. The several Trademark Assignments made by the Borrower and its Restricted Subsidiaries in favor of the Administrative Agent and the Assignments of Trademarks and Service Marks executed in connection therewith in form and substance reasonably satisfactory to the Administrative Agent.

Transitional Arrangements Agreement. The Transitional Arrangements Agreement by and among Administrative Agent, Previous Administrative Agent, Borrower, and Previous Lenders in form and substance reasonably satisfactory to the Administrative Agent.

Type. As to any Revolving Credit Loan, its nature as a Base Rate Loan or a Eurodollar Rate Loan.

Underlying Issuer. A third Person which is the beneficiary of an L/C Undertaking and which has issued a letter of credit at the request of the Issuing Lender for the benefit of Borrower.

Underlying Letter of Credit. A letter of credit that has been issued by an Underlying Issuer.

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Units. The restaurant locations listed on Schedule 1(g) constituting all restaurant locations owned or leased by the Borrower or any of its Subsidiaries as of the Closing Date.

Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which the Borrower does not reimburse the Administrative Agent and the Lenders on the date specified in, and in accordance with, §4.1.

Unrestricted Subsidiary. Restaurant Insurance Corporation, the SPVs, any Foreign Subsidiary or any other Subsidiary designated as an Unrestricted Subsidiary and formed in compliance with §§9.3(i) and 9.5.

Voting Stock. Stock or similar interests, of any class or classes (however designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency.

Wells Fargo. Wells Fargo Bank, N.A.

WFF. Wells Fargo Foothill, Inc., a California corporation.

York Sale-Leaseback Transaction. The sale-leaseback transaction in respect of distribution facility located at 600 Bartlett Road, York, Pennsylvania as evidenced and otherwise described in a to be negotiated purchase agreement, by and among a buyer, and the Borrower, as seller.

1.2Rules of Interpretation.

(a)A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement.

(b)The singular includes the plural and the plural includes the singular.

(c)The term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.”

(d)A reference to any law includes any amendment or modification to such law.

(e)A reference to any Person includes its permitted successors and permitted assigns.

(f)Accounting terms not otherwise defined herein have the meanings assigned to them by GAAP applied on a consistent basis by the accounting entity to which they refer.

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(g)The words “include,” “includes” and “including” are not limiting.

(h)All terms not specifically defined herein or by GAAP, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein, with the term “instrument” being that defined under Article 9 of the Uniform Commercial Code.

(i)Reference to a particular “§” refers to that section of this Credit Agreement unless otherwise indicated.

(j)The words “herein,” “hereof,” “hereunder” and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement.

(k)Unless otherwise expressly indicated, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including,” the words “to” and “until” each mean “to but excluding,” and the word “through” means “to and including.”

(l)This Credit Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are, however, cumulative and are to be performed in accordance with the terms thereof.

(m)This Credit Agreement and the other Loan Documents are the result of negotiation among, and have been reviewed by counsel to, among others, the Administrative Agent and the Borrower and are the product of discussions and negotiations among all parties. Accordingly, this Credit Agreement and the other Loan Documents are not intended to be construed against the Administrative Agent or any of the Lenders merely on account of the Administrative Agent’s or any Lender’s involvement in the preparation of such documents.

2.THE REVOLVING CREDIT FACILITY.

2.1Commitment to Lend. Subject to the terms and conditions set forth in this Credit Agreement, each of the Lenders severally agrees to lend to the Borrower, and the Borrower may borrow, repay, and reborrow from time to time from the Closing Date up to but not including the Revolving Credit Loan Maturity Date upon notice by the Borrower to the Administrative Agent given in accordance with §2.6, such sums as are requested by the Borrower up to a maximum aggregate amount outstanding (after giving effect to all amounts requested) at any one time equal to such Lender’s Commitment minus such Lender’s Commitment Percentage of the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations, provided that the sum of the outstanding amount of the Revolving Credit Loans (after giving effect to all amounts requested) plus the Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not at any time exceed the Total Commitment at such time. The Revolving Credit Loans shall be made pro rata in accordance with each Lender’s Commitment Percentage. Each request for a Revolving Credit Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in §11 and

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§12, in the case of the initial Revolving Credit Loans to be made on the Closing Date, and §12, in the case of all other Revolving Credit Loans, have been satisfied on the date of such request.

2.2Commitment Fee. The Borrower agrees to pay to the Administrative Agent for the accounts of the Lenders in accordance with their respective Commitment Percentages a commitment fee (the “Commitment Fee”) calculated at the rate per annum of the Applicable Margin with respect to the Commitment Fee as in effect from time to time on the average daily amount during each calendar quarter or portion thereof from the date hereof, Closing Date or other applicable date to the Revolving Credit Loan Maturity Date by which the Total Commitment minus the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations exceeds the outstanding amount of Revolving Credit Loans during such calendar quarter. The Commitment Fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Loan Maturity Date or any earlier date on which the Commitments shall terminate.

2.3Reduction of Total Commitment. The Borrower shall have the right at any time and from time to time upon five (5) Business Days’ prior written notice to the Administrative Agent to reduce by $1,000,000 or an integral multiple thereof or to terminate entirely the Total Commitment whereupon the Commitments of the Lenders shall be reduced pro rata in accordance with their respective Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Borrower delivered pursuant to this §2.3, the Administrative Agent will notify the Lenders of the substance thereof. Upon the effective date of any such reduction or termination, the Borrower shall pay to the Administrative Agent for the respective accounts of the Lenders the full amount of any Commitment Fee then accrued on the amount of the reduction. No reduction or termination of the Commitments may be reinstated.

2.4The Revolving Credit Notes. The Revolving Credit Loans shall be evidenced by separate Revolving Credit Notes, dated as of the Closing Date (or such other date on which a Lender may become a party hereto in accordance with §15 hereof) and completed with appropriate insertions. One Revolving Credit Note shall be payable to the order of each Lender in a principal amount equal to such Lender’s Commitment or, if less, the outstanding amount of all Revolving Credit Loans made by such Lender, plus interest accrued thereon, as set forth below. The Borrower irrevocably authorizes each Lender to make or cause to be made, at or about the time of the Drawdown Date of any Revolving Credit Loan or at the time of receipt of any payment of principal on such Lender’s Revolving Credit Note, an appropriate notation on such Lender’s Revolving Credit Note Record reflecting the making of such Revolving Credit Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Revolving Credit Loans set forth on such Lender’s Revolving Credit Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Lender absent manifest error, but the failure to record, or any error in so recording, any such amount on such Lender’s Revolving Credit Note Record shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Revolving Credit Note to make payments of principal of or interest on any Revolving Credit Note when due.

2.5Interest on Revolving Credit Loans. Except as otherwise provided in §5.10:

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(a)Each Revolving Credit Loan which is a Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the rate per annum equal to the Base Rate plus the Applicable Margin with respect to Base Rate Loans as in effect from time to time.

(b)Each Revolving Credit Loan which is a Eurodollar Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the rate per annum equal to the Eurodollar Rate determined for such Interest Period plus the Applicable Margin with respect to Eurodollar Rate Loans as in effect from time to time.

The Borrower promises to pay interest on each Revolving Credit Loan in arrears on each Interest Payment Date with respect thereto.

2.6Requests for Revolving Credit Loans.

2.6.1General. The Borrower shall give to the Administrative Agent a Loan and Letter of Credit Request no less than (a) one (1) Business Day prior to the proposed Drawdown Date of any Base Rate Loan and (b) three (3) Eurodollar Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan. Each such notice shall specify (i) the principal amount of the Revolving Credit Loan requested, (ii) the proposed Drawdown Date of such Revolving Credit Loan, (iii) the Interest Period for such Revolving Credit Loan and (iv) the Type of such Revolving Credit Loan. Promptly upon receipt of any such notice, the Administrative Agent shall notify each of the Lenders thereof. Each Loan and Letter of Credit Request shall be irrevocable and binding on the Borrower and shall obligate the Borrower to accept the Revolving Credit Loan requested from the Lenders on the proposed Drawdown Date. Each Loan shall be in a minimum aggregate amount of $250,000 or an integral multiple thereof and shall be made to the Borrower’s operating account, as such operating account number is delivered to the Administrative Agent from time to time (the “Operating Account”).

2.6.2Swing Line. Notwithstanding the notice and minimum amount requirements set forth in §2.6.1 but otherwise in accordance with the terms and conditions of this Credit Agreement, the Administrative Agent may, in its sole discretion and without conferring with the Lenders, make Revolving Credit Loans to the Borrower to the Operating Account in an amount as requested by the Borrower, in an aggregate outstanding amount not to exceed $2,000,000. The Borrower acknowledges and agrees that the making of such Revolving Credit Loans shall, in each case, be subject in all respects to the provisions of this Credit Agreement as if they were Revolving Credit Loans covered by a Loan and Letter of Credit Request including, without limitation, the limitations set forth in §2.1 and the requirements that the applicable provisions of §11 (in the case of Revolving Credit Loans made on the Closing Date) and §12 be satisfied. All actions taken by the Administrative Agent pursuant to the provisions of this §2.6.2 shall be conclusive and binding on the Borrower and the Lenders absent the Administrative Agent’s gross negligence or willful misconduct. Revolving Credit Loans made pursuant to this §2.6.2 shall be Base Rate Loans until converted in accordance with the provisions of the Credit Agreement and, prior to a Settlement, such interest shall be for the account of the Administrative Agent.

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2.7Conversion Options.

2.7.1Conversion to Different Type of Revolving Credit Loan. The Borrower may elect from time to time to convert any outstanding Revolving Credit Loan to a Revolving Credit Loan of the other Type, provided that (a) with respect to any such conversion of a Eurodollar Rate Loan to a Base Rate Loan, the Borrower shall give the Administrative Agent at least one (1) Business Day’s prior written notice of such election; (b) with respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrower shall give the Administrative Agent at least three (3) Eurodollar Business Days’ prior written notice of such election; and (c) no Revolving Credit Loan may be converted into a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing. On the date on which such conversion is being made each Lender shall take such action as is necessary to transfer its Commitment Percentage of such Revolving Credit Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the case may be. All or any part of outstanding Revolving Credit Loans of any Type may be converted into a Revolving Credit Loan of the other Type as provided herein, provided that any partial conversion shall be in an aggregate principal amount of $250,000 or a whole multiple thereof. Each Conversion Request relating to the conversion of a Revolving Credit Loan to a Eurodollar Rate Loan shall be irrevocable by the Borrower.

2.7.2Continuation of Type of Revolving Credit Loan. Any Revolving Credit Loan of any Type may be continued as a Revolving Credit Loan of the same Type upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in §2.7.1; provided that no Eurodollar Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto ending during the continuance of any Default or Event of Default of which officers of the Administrative Agent active upon the Borrower’s account have actual knowledge. In the event that the Borrower fails to provide any such notice with respect to the continuation of any Eurodollar Rate Loan as such, then such Eurodollar Rate Loan shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto. The Administrative Agent shall notify the Lenders promptly when any such automatic conversion contemplated by this §2.7 is scheduled to occur.

2.7.3Eurodollar Rate Loans. Any conversion to or from Eurodollar Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurodollar Rate Loans having the same Interest Period shall not be less than $250,000 or a whole multiple of $100,000 in excess thereof. No more than six (6) Eurodollar Rate Loans having different Interest Periods may be outstanding at any time.

2.8Funds for Revolving Credit Loan.

2.8.1Funding Procedures. Not later than 11:00 a.m. (California time) on the proposed Drawdown Date of any Revolving Credit Loans (other than Revolving Credit Loans made pursuant to §2.6.2), each of the Lenders will make available to the Administrative Agent, at the Administrative Agent’s Office, in immediately available funds, the amount of such Lender’s Commitment Percentage of the amount of the requested Revolving Credit Loans. Upon

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receipt from each Lender of such amount, and upon receipt of the documents required by §§11 and 12 and the satisfaction of the other conditions set forth therein, to the extent applicable, the Administrative Agent will make available to the Borrower the aggregate amount of such Revolving Credit Loans made available to the Administrative Agent by the Lenders. The failure or refusal of any Lender to make available to the Administrative Agent at the aforesaid time and place on any Drawdown Date the amount of its Commitment Percentage of the requested Revolving Credit Loans (a) shall not relieve any other Lender from its several obligation hereunder to make available to the Administrative Agent the amount of such other Lender’s Commitment Percentage of any requested Revolving Credit Loans, or (b) shall not impose upon any other Lender any liability with respect to such failure or refusal or otherwise increase the Commitment of such other Lender.

2.8.2Advances by Administrative Agent. The Administrative Agent may, unless notified to the contrary by any Lender prior to a Drawdown Date, assume that such Lender has made available to the Administrative Agent on such Drawdown Date the amount of such Lender’s Commitment Percentage of the Revolving Credit Loans to be made on such Drawdown Date, and the Administrative Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Lender makes available to the Administrative Agent such amount on a date after such Drawdown Date, such Lender shall pay to the Administrative Agent on demand an amount equal to such amount plus interest thereon at the Defaulting Lender Rate until paid in full. A statement of the Administrative Agent submitted to such Lender with respect to any amounts owing under this paragraph shall be prima facie evidence of the amount due and owing to the Administrative Agent by such Lender. If the amount of such Lender’s Commitment Percentage of such Revolving Credit Loans is not made available to the Administrative Agent by such Lender within three (3) Business Days following such Drawdown Date, the Administrative Agent shall be entitled to recover such amount from the Borrower on demand, with interest thereon at the rate per annum applicable to the Revolving Credit Loans made on such Drawdown Date.

2.9Settlements.

2.9.1General. On each Settlement Date, the Administrative Agent shall, not later than 11:00 a.m. (California time), give telephonic or facsimile notice (a) to the Lenders and the Borrower of the respective outstanding amount of Revolving Credit Loans made by the Administrative Agent on behalf of the Lenders from the immediately preceding Settlement Date through the close of business on the prior day and the amount of any Eurodollar Rate Loans to be made (following the giving of notice pursuant to §2.6.1(b)) on such date pursuant to a Loan and Letter of Credit Request and (b) to the Lenders of the amount (a “Settlement Amount”) that each Lender (a “Settling Lender”) shall pay to effect a Settlement of any Revolving Credit Loan. A statement of the Administrative Agent submitted to the Lenders and the Borrower or to the Lenders with respect to any amounts owing under this §2.9 shall be prima facie evidence of the amount due and owing. Each Settling Lender shall, not later than 3:00 p.m. (California time) on such Settlement Date, effect a wire transfer of immediately available funds to the Administrative Agent in the amount of the Settlement Amount for such Settling Lender. All funds advanced by any Lender as a Settling Lender pursuant to this §2.9 shall for all purposes be treated as a Revolving Credit Loan made by such Settling Lender to the Borrower and all funds received by any Lender pursuant to this §2.9 shall for all purposes be treated as repayment of amounts owed

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with respect to Revolving Credit Loans made by such Lender. In the event that any bankruptcy, reorganization, liquidation, receivership or similar cases or proceedings in which the Borrower is a debtor prevent a Settling Lender from making any Revolving Credit Loan to effect a Settlement as contemplated hereby, such Settling Lender will make such dispositions and arrangements with the other Lenders with respect to such Revolving Credit Loans, either by way of purchase of participations, distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Lender’s share of the outstanding Revolving Credit Loans being equal, as nearly as may be, to such Lender’s Commitment Percentage of the outstanding amount of the Revolving Credit Loans.

2.9.2Failure to Make Funds Available. The Administrative Agent may, unless notified to the contrary by any Settling Lender prior to a Settlement Date, assume that such Settling Lender has made or will make available to the Administrative Agent on such Settlement Date the amount of such Settling Lender’s Settlement Amount, and the Administrative Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Settling Lender makes available to the Administrative Agent such amount on a date after such Settlement Date, such Settling Lender shall pay to the Administrative Agent on demand such amount plus interest thereon at the Defaulting Lender Rate until paid in full. A statement of the Administrative Agent submitted to such Settling Lender with respect to any amounts owing under this §2.9.2 shall be prima facie evidence of the amount due and owing to the Administrative Agent by such Settling Lender. If such Settling Lender’s Settlement Amount is not made available to the Administrative Agent by such Settling Lender within three (3) Business Days following such Settlement Date, the Administrative Agent shall be entitled to recover such amount from the Borrower on demand, with interest thereon at the rate per annum applicable to the Revolving Credit Loans as of such Settlement Date.

2.9.3No Effect on Other Lenders. The failure or refusal of any Settling Lender to make available to the Administrative Agent at the aforesaid time and place on any Settlement Date the amount of such Settling Lender’s Settlement Amount shall not (a) relieve any other Settling Lender from its several obligations hereunder to make available to the Administrative Agent the amount of such other Settling Lender’s Settlement Amount, or (b) impose upon any Lender, other than the Settling Lender so failing or refusing, any liability with respect to such failure or refusal or otherwise increase the Commitment of such other Lender.

2.10Repayments of Revolving Credit Loans From Concentration Account After Event of Default. Following the occurrence and during the continuance of an Event of Default, at its election, Administrative Agent may instruct any bank, depositary institution or securities intermediary to liquidate all funds or other assets previously transferred or credited to a Concentration Account, a Restaurant Concentration Account or any other Deposit Account or securities account of Borrower or any of its Restricted Subsidiaries and transfer the proceeds thereof to Administrative Agent’s Account and apply such proceeds to the Obligations in accordance with §13.4.

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3.REPAYMENT OF THE REVOLVING CREDIT LOANS.

3.1Maturity. The Borrower promises to pay on the Revolving Credit Loan Maturity Date, and there shall become absolutely due and payable on the Revolving Credit Loan Maturity Date, all of the Revolving Credit Loans outstanding on such date, together with any and all accrued and unpaid interest thereon, any unpaid Fees and any Unpaid Reimbursement Obligations.

3.2Mandatory Repayments of Revolving Credit Loans.

(a)If at any time the sum of the outstanding amount of the Revolving Credit Loans, the Maximum Drawing Amount and all Unpaid Reimbursement Obligations exceeds the Total Commitment at such time, then the Borrower shall immediately pay the amount of such excess to the Administrative Agent for the respective accounts of the Lenders for application:  first, to any Unpaid Reimbursement Obligations; second, to the Revolving Credit Loans; and third, to provide to the Administrative Agent cash collateral for Reimbursement Obligations as contemplated by §4.1. Each payment of any Unpaid Reimbursement Obligations or prepayment of Revolving Credit Loans shall be allocated among the Lenders, in proportion, as nearly as practicable, to each Reimbursement Obligation or (as the case may be) the respective unpaid principal amount of each Lender’s Revolving Credit Note, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion.

(b)Concurrently with the receipt by the Borrower or any Restricted Subsidiary of:

(i)Net Cash Sale Proceeds from Asset Sales (other than (A) the sale, lease, license or other disposition of assets in the ordinary course of business consistent with past practices, (B) Asset Sales made in connection with the Sale-Leaseback Transaction and the FFCA Mortgage Financing, (C) Excess Properties Sales, or (D) Permitted Unit Sales), the Borrower shall pay to the Administrative Agent for the respective accounts of the Lenders an amount equal to one hundred percent (100%) of such Net Cash Sale Proceeds; provided, however, that the Borrower may, at its option (as elected by the Borrower in writing to the Administrative Agent on or prior to the event giving rise to such Net Cash Sale Proceeds), so long as in each fiscal year (commencing with the 2005 fiscal year) the aggregate amount of such Net Cash Sale Proceeds reinvested by the Borrower pursuant to this clause (i) shall not exceed $2,000,000 and so long as no Default shall have occurred and be continuing, reinvest (or commit to reinvest as evidenced by a binding written contract upon terms reasonably acceptable to the Administrative Agent) such Net Cash Sale Proceeds in Capital Expenditures to be used in the business of the Borrower and its Restricted Subsidiaries within 180 days of receipt thereof (the “Asset Sale Capital Expenditure Proceeds”); provided, further, however, that any Net Cash Sale Proceeds not so reinvested (or committed to be reinvested upon terms reasonably acceptable to the Administrative Agent) within 180 days of receipt thereof shall be immediately applied to the prepayment of the Loans as set forth in § 3.4;

(ii)Net Cash Equity Issuance Proceeds of the Borrower or any of its Restricted Subsidiaries, the Borrower shall pay to the Administrative Agent for the

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respective accounts of the Lenders an amount equal to seventy-five percent (75%) of such Net Cash Equity Issuance Proceeds;

(iii)Net Cash Debt Issuance Proceeds of the Borrower or any of its Restricted Subsidiaries (other than any Net Cash Debt Issuance Proceeds of Indebtedness permitted pursuant to §9.1), the Borrower shall pay to the Administrative Agent for the respective accounts of the Lenders an amount equal to one hundred percent (100%) of such Net Cash Debt Issuance Proceeds; or

(iv)Net Casualty Proceeds in excess of $500,000 in the aggregate of the Borrower or any of its Restricted Subsidiaries, the Borrower shall pay to the Administrative Agent for the respective accounts of the Lenders an amount equal to one hundred percent (100%) of such Net Casualty Proceeds; provided, however, the Borrower may, at its option (as elected by the Borrower in writing to the Administrative Agent within 90 days from the event giving rise to such Net Casualty Proceeds) commit (as evidenced by a binding written contract) such Net Casualty Proceeds within 180 days of receipt of such proceeds to the repair or replacement of the property so damaged, destroyed or taken, and, if so committed, such repair or replacement of the property so damaged, destroyed or taken shall have been commenced within 270 days of receipt of such proceeds pursuant to such binding written contract; provided, further, however, that any Net Casualty Proceeds not so reinvested, or committed to be so reinvested, as the case may be, shall be immediately applied to the prepayment of the Loans as set forth in §3.4;

(c)The Borrower shall repay in full to the Revolving Credit Lenders all principal amounts outstanding under the Revolving Credit Loans on or after May 1 and on or before June 15 of each calendar year during the term hereof, commencing with the 2006 calendar year, such that as of June 15 of each such calendar year (or the next Business Day, if, in any year, June 15 is not a Business Day) and for a period of not less than 15 consecutive days immediately following the date of such repayment, the amount of all outstanding Revolving Credit Loans (excluding all Unpaid Reimbursement Obligations) shall be zero. Such payments shall not be made from the proceeds of the Loans or any other Indebtedness unless such Indebtedness is permitted pursuant to § 9.1.

3.3Optional Repayments of Revolving Credit Loans. The Borrower shall have the right, at its election, to repay the outstanding amount of the Revolving Credit Loans, as a whole or in part, at any time without penalty or premium to be applied in the manner provided for in §3.4. The Borrower shall give the Administrative Agent, no later than 10:00 a.m., California time, at least one (1) Business Day’s prior written notice of any proposed prepayment pursuant to this §3.3 of Base Rate Loans, and three (3) Eurodollar Business Days’ notice of any proposed prepayment pursuant to this §3.3 of Eurodollar Rate Loans, in each case specifying the proposed date of prepayment of Revolving Credit Loans and the principal amount to be prepaid. Each such partial prepayment of the Revolving Credit Loans shall be in an integral multiple of $250,000, shall be accompanied by the payment of accrued interest on the principal prepaid to the date of prepayment and shall be applied, in the absence of instruction by the Borrower, first to the principal of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Each partial prepayment shall be allocated among the Lenders, in proportion, as nearly as practicable,

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to the respective unpaid principal amount of each Lender’s Revolving Credit Note, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion.

3.4Application of Payments. All payments made pursuant to §3.2(b) shall be applied to reduce the outstanding amount of the Revolving Credit Loans and to permanently reduce the Total Commitment by such amount; provided, that any payments made pursuant to §3.2(b) shall not reduce the Total Commitment if on the date such payment is made (x) no Default has occurred and is continuing and (y) no Revolving Credit Loans are outstanding; provided, further, that if (x) a Default has occurred and is continuing and (y) no Revolving Credit Loans are outstanding, the Total Commitment shall be reduced by the amount of payments made pursuant to §3.2(b). Such mandatory prepayments shall be allocated among the Lenders in proportion, as nearly as practicable, to the respective outstanding amounts of each Lender’s Revolving Credit Notes, with adjustments to the extent practicable to equalize any prior prepayments not exactly in proportion. Subject to the first proviso in this §3.4, no amounts repaid pursuant to this §3.4 may be reborrowed.

4.LETTERS OF CREDIT.

4.1Letter of Credit Commitments.

4.1.1Subject to the terms and conditions of this Agreement, the Issuing Lender agrees to issue letters of credit for the account of Borrower (each, an “L/C”) or to purchase participations or execute indemnities or reimbursement obligations (each such undertaking, an “L/C Undertaking”) with respect to letters of credit issued by an Underlying Issuer (as of the Closing Date, the prospective Underlying Issuer is to be Wells Fargo) for the account of Borrower. Each request for the issuance of a Letter of Credit (a “Letter of Credit Application”), or the amendment, renewal, or extension of any outstanding Letter of Credit, shall be made in writing by an Authorized Person and delivered to the Issuing Lender and Administrative Agent via hand delivery, telefacsimile, or other electronic method of transmission reasonably in advance of the requested date of issuance, amendment, renewal, or extension. Each such request shall be in form and substance satisfactory to the Issuing Lender in its Permitted Discretion and shall specify (i) the amount of such Letter of Credit, (ii) the date of issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the expiration date of such Letter of Credit, (iv) the name and address of the beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as applicable), and (v) such other information (including, in the case of an amendment, renewal, or extension, identification of the outstanding Letter of Credit to be so amended, renewed, or extended) as shall be necessary to prepare, amend, renew, or extend such Letter of Credit. If requested by the Issuing Lender, Borrower also shall be an applicant under the application with respect to any Underlying Letter of Credit that is to be the subject of an L/C Undertaking. The Issuing Lender shall have no obligation to issue a Letter of Credit if any of the following would result after giving effect to the issuance of such requested Letter of Credit:

(a)the Letter of Credit Usage would exceed $20,000,0000, or

(b)the Letter of Credit Usage would exceed the Total Commitments less the outstanding amount of the Loans.

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Borrower and the Lender Group acknowledge and agree that certain Underlying Letters of Credit have been issued to support letters of credit that already are outstanding as of the Closing Date and which are identified on Schedule 1(h). Each Letter of Credit (and corresponding Underlying Letter of Credit) shall be in form and substance acceptable to the Issuing Lender (in the exercise of its Permitted Discretion), including the requirement that the amounts payable thereunder must be payable in Dollars. If Issuing Lender is obligated to advance funds under a Letter of Credit, Borrower immediately shall reimburse such L/C Disbursement to Issuing Lender by paying to Administrative Agent an amount equal to such L/C Disbursement not later than 11:00 a.m., California time, on the date that such L/C Disbursement is made, if Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 10:00 a.m., California time, on such date, or, if such notice has not been received by Borrower prior to such time on such date, then not later than 11:00 a.m., California time, on the Business Day that Borrower receives such notice, if such notice is received prior to 10:00 a.m., California time, on the date of receipt, and, in the absence of such reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be a Revolving Credit Loan hereunder and, initially, shall bear interest at the rate then applicable to Revolving Credit Loans that are Base Rate Loans. To the extent an L/C Disbursement is deemed to be a Revolving Credit Loan hereunder, Borrower’s obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting Revolving Credit Loan. Promptly following receipt by Administrative Agent of any payment from Borrower pursuant to this paragraph, Administrative Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to Section 4.1.2 to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interests may appear.

4.1.2Promptly following receipt of a notice of L/C Disbursement pursuant to Section 4.1.1 each Lender agrees to fund its Commitment Percentage of any Revolving Credit Loan deemed made pursuant to the foregoing subsection on the same terms and conditions as if Borrower had requested such Revolving Credit Loan and Administrative Agent shall promptly pay to Issuing Lender the amounts so received by it from the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Lender or the Lenders with a Commitment, the Issuing Lender shall be deemed to have granted to each Lender, and each Lender shall be deemed to have purchased, a participation in each Letter of Credit (a “Letter of Credit Participation”), in an amount equal to its Commitment Percentage of the Risk Participation Liability of such Letter of Credit, and each such Lender agrees to pay to Administrative Agent, for the account of the Issuing Lender, such Lender’s Commitment Percentage of any payments made by the Issuing Lender under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to Administrative Agent, for the account of the Issuing Lender, such Lender’s Commitment Percentage of each L/C Disbursement made by the Issuing Lender and not reimbursed by Borrower (the “Unpaid Reimbursement Obligations”) on the date due as provided in Section 4.1.1, or of any reimbursement payment required to be refunded to Borrower for any reason. Each Lender acknowledges and agrees that its obligation to deliver to Administrative Agent, for the account of the Issuing Lender, an amount equal to its respective Commitment Percentage of each L/C Disbursement made by the Issuing Lender pursuant to this Section 4.1.2 shall be absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in

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Section 11. If any such Lender fails to make available to Administrative Agent the amount of such Lender’s Commitment Percentage of each L/C Disbursement made by the Issuing Lender in respect of such Letter of Credit as provided in this Section, such Lender shall be deemed to be a Defaulting Lender and Administrative Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full.

4.1.3Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by the Lender Group arising out of or in connection with any Letter of Credit; provided, however, that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability to the extent that it is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group. Borrower agrees to be bound by the Underlying Issuer’s regulations and interpretations of any Underlying Letter of Credit or by Issuing Lender’s interpretations of any L/C issued by Issuing Lender to or for Borrower’s account, even though this interpretation may be different from Borrower’s own, and Borrower understands and agrees that the Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto. Borrower understands that the L/C Undertakings may require Issuing Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrower against such Underlying Issuer. Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by the Lender Group under any L/C Undertaking as a result of the Lender Group’s indemnification of any Underlying Issuer; provided, however, that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability to the extent that it is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group. Borrower hereby acknowledges and agrees that neither the Lender Group nor the Issuing Lender shall be responsible for delays, errors, or omissions resulting from the malfunction of equipment in connection with any Letter of Credit.

4.1.4Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Lender’s instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application.

Any and all issuance charges, commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of Credit immediately shall be reimbursable by Borrower to Administrative Agent for the account of the Issuing Lender; it being acknowledged and agreed by Borrower that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings, and renewals.

4.2Reliance by Administrative Agent. To the extent not inconsistent with §4.1, the Administrative Agent shall be entitled to rely, and shall be fully protected in relying upon, any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it

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in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Credit Agreement unless it shall first have received such advice or concurrence of the Required Lenders as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Credit Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Lenders and all future holders of the Revolving Credit Notes or of a Letter of Credit Participation.

4.3Letter of Credit Fees.

4.3.1Issuance Fee. Borrower shall pay Administrative Agent (for the ratable benefit of the Lenders, subject to any agreements between Administrative Agent and individual Lenders), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 4.1 which shall accrue at a rate equal to the Applicable Margin per annum in effect from time to time times the Daily Balance of the undrawn amount of all outstanding Letters of Credit.

4.3.2Fronting Fee. The Borrower agrees to pay the Administrative Agent a fronting fee for its own account for each Letter of Credit issued by the Administrative Agent in the amount agreed to between the Borrower and the Administrative Agent in the Administrative Agent’s Fee Letter.

5.CERTAIN GENERAL PROVISIONS.

5.1Administrative Agent’s Fee. The Borrower shall pay to the Administrative Agent annually in advance, for the Administrative Agent’s own account, the Fees set forth in the Administrative Agent’s Fee Letter.

5.2Funds for Payments.

5.2.1Payments to Administrative Agent. All payments of principal, interest, Reimbursement Obligations, Fees and any other amounts due hereunder or under any of the other Loan Documents shall be made on the due date thereof to the Administrative Agent in Dollars, for the respective accounts of the Lenders and the Administrative Agent, at the Administrative Agent’s Office or at such other place that the Administrative Agent may from time to time designate, in each case on or prior to 11:00 a.m. (California time or other local time at the place of payment) and in immediately available funds.

5.2.2No Offset, etc. All payments by the Borrower hereunder and under any of the other Loan Documents shall be made without recoupment, setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or

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other authority therein (excluding franchise taxes and taxes imposed on or measured by the net income, profits or receipts of the Administrative Agent or any Lender, all such non-excludable items being called “Taxes”) unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower in respect of any Taxes with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Administrative Agent, for the account of the Lenders or (as the case may be) the Administrative Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Lenders or the Administrative Agent to receive the same net amount which the Lenders or the Administrative Agent would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Administrative Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document.

5.2.3Non-U.S. Lenders. Each Lender and the Administrative Agent that is not a U.S. Person as defined in Section 7701(a)(30) of the Code for federal income tax purposes (a “Non-U.S. Lender”) hereby agrees that, if and to the extent it is legally able to do so, it shall, prior to the date of the first payment by the Borrower hereunder to be made to such Lender or the Administrative Agent or for such Lender’s or the Administrative Agent’s account, deliver to the Borrower and the Administrative Agent, as applicable, such certificates, documents or other evidence, as and when required by the Code or Treasury Regulations issued pursuant thereto, including (a) in the case of a Non-U.S. Lender that is a “bank” for purposes of Section 881(c)(3)(A) of the Code, two (2) duly completed copies of Internal Revenue Service Form W-8BEN or Form W-8ECI and any other certificate or statement of exemption required by Treasury Regulations, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Lender or the Administrative Agent establishing that with respect to payments of principal, interest or fees hereunder it is (i) not subject to United States federal withholding tax under the Code because such payment is effectively connected with the conduct by such Lender or Administrative Agent of a trade or business in the United States or (ii) totally exempt or partially exempt from United States federal withholding tax under a provision of an applicable tax treaty and (b) in the case of a Non-U.S. Lender that is not a “bank” for purposes of Section 881(c)(3)(A) of the Code, a certificate in form and substance reasonably satisfactory to the Administrative Agent and the Borrower and to the effect that such Non-U.S. Lender (i) is not a “bank” for purposes of Section 881(c)(3)(A) of the Code, is not subject to regulatory or other legal requirements as a bank in any jurisdiction, and has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any governmental authority, any application made to a rating agency or qualification for any exemption from any tax, securities law or other legal requirements, (ii) is not a ten (10) percent shareholder of the Borrower for purposes of Section 881(c)(3)(B) of the Code and (iii) is not a controlled foreign corporation receiving interest from a related person for purposes of Section 881(c)(3)(C) of the Code, together with a properly completed Internal Revenue Service Form W-8BEN or W-9, as applicable (or successor forms). Each Lender or the Administrative Agent agrees that it shall, promptly upon a change of its lending office or the selection of any additional lending office, to the extent the forms previously delivered by it pursuant to this section are no longer effective, and promptly upon the Borrower’s or the Administrative Agent’s reasonable request after the occurrence of any other event (including the passage of time)

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requiring the delivery of a Form W-8BEN, Form W-8ECI or W-9 in addition to or in replacement of the forms previously delivered, deliver to the Borrower and the Administrative Agent, as applicable, if and to the extent it is properly entitled to do so, a properly completed and executed Form W-8BEN, Form W-8ECI or W-9, as applicable (or any successor forms thereto). The Borrower shall not be required to pay any additional amounts to any Non-U.S. Lender in respect of United States federal withholding tax pursuant to §5.2.2 above to the extent that the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with the provisions of this §5.2.3; provided, however, that the foregoing shall not relieve the Borrower of its obligation to pay additional amounts pursuant to §5.2.2 in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in interpretation, administration or application thereof, a Non-U.S. Lender that was previously entitled to receive all payments under this Credit Agreement and the Revolving Credit Notes without deduction or withholding of any United States federal income taxes is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding.

5.3Computations. All computations of interest on the Loans and of Fees shall, unless otherwise expressly provided herein, be based on a 360-day year and paid for the actual number of days elapsed (or, in the case of interest on Base Rate Loans, a 365-day year or, if appropriate, a 366-day year). Except as otherwise provided in the definition of the term “Interest Period” with respect to Eurodollar Rate Loans, whenever a payment of principal on any Revolving Credit Note becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension.

5.4Inability to Determine Eurodollar Rate. In the event, prior to the commencement of any Interest Period relating to any Eurodollar Rate Loan, the Administrative Agent shall determine in good faith or be notified by the Required Lenders that they have determined in good faith that (a) by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable methods do not exist for ascertaining the Eurodollar Rate that would otherwise determine the rate of interest to be applicable to any Eurodollar Rate Loan during such Interest Period or (b) the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to the Lenders of making or maintaining their Eurodollar Rate Loans during such period, the Administrative Agent shall forthwith give notice of such determination (which shall be conclusive and binding on the Borrower and the Lenders) to the Borrower and the Lenders. In such event and for so long as such circumstances shall continue (i) any Loan and Letter of Credit Request or Conversion Request with respect to Eurodollar Rate Loans shall be automatically withdrawn and shall be deemed a request for Base Rate Loans, (ii) each Eurodollar Rate Loan will automatically, on the last day of the then current Interest Period relating thereto, become a Base Rate Loan, and (iii) the obligations of the Lenders to make Eurodollar Rate Loans shall be suspended until the Administrative Agent determines that the circumstances giving rise to such suspension no longer exist, whereupon the Administrative Agent shall so notify the Borrower and the Lenders.

5.5Illegality. Notwithstanding any other provisions herein, if any future law (or any change in any present law), regulation, treaty or directive or the interpretation or application of such law, regulation, treaty or directive by any governmental or regulatory body charged with the

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administration thereof shall make it unlawful for any Lender to make or maintain Eurodollar Rate Loans, such Lender shall forthwith give notice of such circumstances to the Borrower and the other Lenders and thereupon, so long as such circumstances shall continue, (a) the commitment of such Lender to make Eurodollar Rate Loans or convert Base Rate Loans to Eurodollar Rate Loans shall forthwith be suspended (but such Lender shall make Base Rate Loans concurrently with the making of, or conversion into, Eurodollar Rate Loans by the Lender not so affected, in each case in an amount equal to the amount of Eurodollar Loans that would have been made or converted into by such Lender at such time in the absence of such circumstances), and (b) such Lender’s Revolving Credit Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such Eurodollar Rate Loans or within such earlier period as may be required by law. The Borrower hereby agrees promptly to pay (without duplication of any payments required by §5.9) to the Administrative Agent for the account of such Lender, upon demand by such Lender, any additional amounts necessary to compensate such Lender for any costs incurred by such Lender in making any conversion in accordance with this §5.5, including any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder.

5.6Additional Costs, etc. If any future applicable law (or any change in any present law), which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Lender or the Administrative Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall:

(a)subject any Lender or the Administrative Agent to any Tax with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, such Lender’s Commitment or the Loans; or

(b)materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Lender of the principal of or the interest on any Loans or any other amounts payable to any Lender or the Administrative Agent under this Credit Agreement or any of the other Loan Documents; or

(c)impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or letters of credit issued by, or commitments of an office of any Lender; or

(d)impose on any Lender or the Administrative Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, the Loans, such Lender’s Commitment, or any class of loans, letters of credit or commitments of which any of the Loans or such Lender’s Commitment forms a part, and the result of any of the foregoing is:

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(i)to increase the actual cost to any Lender of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Lender’s Commitment or any Letter of Credit; or

(ii)to reduce the amount of principal, interest, Reimbursement Obligation or other amount payable to such Lender or the Administrative Agent hereunder on account of such Lender’s Commitment, any Letter of Credit or any of the Loans; or

(iii)to require such Lender or the Administrative Agent to make any payment or to forego any interest or Reimbursement Obligation or other sum payable hereunder, the amount of which payment or foregone interest or Reimbursement Obligation or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Lender or the Administrative Agent from the Borrower hereunder,

then, and in each such case, the Borrower will, within five (5) days of demand made by such Lender or (as the case may be) the Administrative Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Lender or the Administrative Agent such additional amounts as will be sufficient to compensate such Lender or the Administrative Agent for such additional cost, reduction, payment or foregone interest or Reimbursement Obligation or other sum.

5.7Capital Adequacy. If after the date hereof any Lender or the Administrative Agent determines in good faith that (a) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for banks or bank holding companies or any change in the interpretation or application thereof by a Governmental Authority with appropriate jurisdiction, or (b) compliance by such Lender or the Administrative Agent or any corporation controlling such Lender or the Administrative Agent with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on such Lender’s or the Administrative Agent’s commitment with respect to any Loans to a level below that which such Lender or the Administrative Agent could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or the Administrative Agent’s then existing policies with respect to capital adequacy) by any amount deemed by such Lender or (as the case may be) the Administrative Agent, in each case determined in good faith, to be material, then such Lender or the Administrative Agent may notify the Borrower of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the interest payable hereunder, the Borrower and such Lender shall thereafter attempt to negotiate in good faith, within thirty (30) days of the day on which the Borrower receives such notice, an adjustment payable hereunder that will adequately compensate such Lender in light of these circumstances. If the Borrower and such Lender are unable to agree to such adjustment within thirty (30) days of the date on which the Borrower receives such notice, then commencing on the date of such notice (but not earlier than the effective date of any such increased capital requirement), the fees payable hereunder shall increase by an amount that will, in such Lender’s reasonable determination, provide adequate compensation. Each Lender shall allocate such cost increases among its customers in good faith and on an equitable basis.

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5.8Certificate. Any Lender or the Administrative Agent claiming reimbursement or compensation under §§5.6 or 5.7 shall deliver to the Borrower a certificate setting forth (a) any additional amounts payable pursuant to §§5.6 or 5.7, and (b) the basis for such claim and a calculation of the amount payable to such Lender or the Administrative Agent in connection therewith in reasonable detail. Any such certificate submitted by any Lender or the Administrative Agent to the Borrower, shall be conclusive, absent manifest error, that such amounts are due and owing.

5.9Indemnity. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from and against any loss, cost or expense (excluding the loss of anticipated profits) that such Lender may sustain or incur as a consequence of (a) default by the Borrower in payment of the principal amount of or any interest on any Eurodollar Rate Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by such Lender to banks of funds obtained by it in order to maintain its Eurodollar Rate Loans, (b) default by the Borrower in making a borrowing or conversion after the Borrower has given (or is deemed to have given) a Loan and Letter of Credit Request or a Conversion Request relating thereto in accordance with §§2.6 or 2.7, or (c) the making of any payment of a Eurodollar Rate Loan or the making of any conversion of any such Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain any such Loans.

5.10Interest After Default. During the continuance of an Event of Default, all principal and interest on the Loans and all other amounts payable hereunder or under any of the other Loan Documents shall bear interest at a rate per annum equal to 2% plus the rate of interest then applicable thereto (or, if no rate of interest is then applicable thereto, the Base Rate).

5.11Replacement of Lenders. If any Lender (an “Affected Lender”) (a) makes demand upon the Borrower for (or if the Borrower is otherwise required to pay) amounts pursuant to §§5.2.2, 5.6 or 5.7, (b) is unable to make or maintain Eurodollar Rate Loans as a result of a condition described in §5.5 or (c) defaults in its obligation to make Loans in accordance with the terms of this Credit Agreement or purchase any Letter of Credit Participation, the Borrower may, so long as no Default or Event of Default has occurred and is then continuing by notice in writing to the Administrative Agent and such Affected Lender, (i) request the Affected Lender to cooperate with the Borrower in obtaining a replacement Lender reasonably satisfactory to the Administrative Agent and the Borrower (the “Replacement Lender”); (ii) request the non-Affected Lenders to acquire and assume all of the Affected Lender’s Loans and Commitment as provided herein, but none of such Lenders shall be under an obligation to do so; or (iii) designate a Replacement Lender approved by the Administrative Agent, such approval not to be unreasonably withheld or delayed. If any satisfactory Replacement Lender shall be obtained, and/or if any one or more of the non-Affected Lenders shall agree to acquire and assume all of the Affected Lender’s Loans and Commitment, then such Affected Lender shall assign, in accordance with §15, all of its Commitment, Loans, Letter of Credit Participations, Revolving Credit Notes and other rights and obligations under this Credit Agreement and all other Loan Documents to such Replacement Lender or non-Affected Lenders, as the case may be, in exchange for payment of the principal amount so assigned and all interest and fees accrued on the amount so assigned, plus all other Obligations then due and payable to

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the Affected Lender; provided, however, that (A) such assignment shall be without recourse, representation or warranty and shall be on terms and conditions reasonably satisfactory to such Affected Lender and such Replacement Lender and/or non-Affected Lenders, as the case may be, and (B) prior to any such assignment, the Borrower shall have paid to such Affected Lender all amounts properly demanded and unreimbursed under §§5.6 and 5.7. Upon the effective date of such assignment, the Borrower shall issue replacement Revolving Credit Notes to such Replacement Lender and/or non-Affected Lenders, as the case may be, and such institution shall become a “Lender” for all purposes under this Credit Agreement and the other Loan Documents.

5.12Mitigation. Each Lender shall promptly notify the Borrower and the Administrative Agent of any event of which it has actual knowledge which will result in, and will use reasonable commercial efforts available to it (and not otherwise disadvantageous to such Lender) to mitigate or avoid, any obligation by the Borrower to pay any amount pursuant to, or the occurrence of any circumstances described in §§5.2.2, 5.5, 5.6or 5.7 (and, if any Lender has given any such notice and thereafter such event ceases to exist, such Lender shall promptly so notify the Borrower and the Administrative Agent). Without limiting the foregoing, each Lender will designate a different funding office (if available) if such designation will avoid (or reduce the cost to the Borrower of) any event described in the preceding sentence and such designation will not be otherwise disadvantageous to such Lender.

6.COLLATERAL SECURITY AND GUARANTIES.

6.1Security of Borrower. The Obligations shall be secured by a perfected first priority security interest (subject only to Permitted Liens entitled to priority under applicable law) in all of the assets of the Borrower (other than the Encumbered Properties or as provided in the Security Agreement and the Stock Pledge Agreement), whether now owned or hereafter acquired, pursuant to the terms of the Security Documents to which the Borrower is a party (provided that (x) the Borrower shall not be required to deliver a Mortgage in respect of any Excluded Properties, and (y) the pledge of the Capital Stock of a Foreign Subsidiary shall be limited to 65% of the outstanding Capital Stock of such Subsidiary).

6.2Guaranties and Security of Restricted Subsidiaries. The Obligations shall also be guaranteed pursuant to the terms of the Guaranty. The obligations of the Borrower’s Restricted Subsidiaries under the Guaranty shall be in turn secured by a perfected first priority security interest (subject only to Permitted Liens entitled to priority under applicable law) in all of the assets of each such Restricted Subsidiary (other than the Encumbered Properties or as provided in the Security Agreement and the Stock Pledge Agreement), whether now owned or hereafter acquired, pursuant to the terms of the Security Documents to which such Restricted Subsidiary is a party (provided that (x) such Restricted Subsidiary shall not be required to deliver a Mortgage in respect of any Excluded Properties, and (y) the pledge of the Capital Stock of a Foreign Subsidiary shall be limited to 65% of the outstanding Capital Stock of such Subsidiary).

7.REPRESENTATIONS AND WARRANTIES.

The Borrower represents and warrants to the Lenders and the Administrative Agent as follows:

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7.1Corporate Authority.

7.1.1Incorporation; Good Standing. Each of the Borrower and its Subsidiaries (a) is a corporation (or similar business entity) duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation, (b) has all requisite corporate (or the equivalent company) power to own its property and conduct its business as now conducted and as presently contemplated, and (c) is in good standing as a foreign corporation (or similar business entity) and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a Material Adverse Effect.

7.1.2Authorization. The execution, delivery and performance of this Credit Agreement, the other Loan Documents, the Sale-Leaseback Transaction Documents and the FFCA Mortgage Financing Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (a) are within the corporate (or the equivalent company) authority of such Person, (b) have been duly authorized by all necessary corporate (or the equivalent company) proceedings, (c) do not and will not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower or any of its Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower or any of its Subsidiaries, and (d) do not conflict with any provision of the Governing Documents of, or any agreement or other instrument binding upon, the Borrower or any of its Subsidiaries.

7.1.3Enforceability. The execution and delivery of this Credit Agreement, the other Loan Documents, the Sale-Leaseback Transaction Documents and the FFCA Mortgage Financing Documents to which the Borrower or any of its Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Person enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights and general principles of equity and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought.

7.2Governmental Approvals. The execution, delivery and performance by the Borrower and any of its Subsidiaries of this Credit Agreement, the other Loan Documents, the Sale-Leaseback Transaction Documents and the FFCA Mortgage Financing Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority, or any other third party, other than those already obtained, filings to perfect Liens and filings to transfer Real Estate to purchasers thereof.

7.3Title to Properties; Leases. Except as indicated on Schedule 7.3 hereto, the Borrower and its Subsidiaries own all of the assets reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no Liens, except Permitted Liens.

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7.4Financial Statements and Projections.

7.4.1Fiscal Year. The Borrower and each of its Subsidiaries maintains a 52-week fiscal year which ends on the last Sunday of each calendar year, provided, that in any calendar year in which the last Sunday is prior to December 27, the Borrower and each of its Subsidiaries maintains a 53-week fiscal year which ends on the first Sunday in the month of January of the following calendar year.

7.4.2Financial Statements. There has been furnished to each of the Lenders a consolidated balance sheet of the Borrower and its Subsidiaries as of the Balance Sheet Date, and a consolidated statement of income and cash flow statement of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2000, January 2, 2000 and December 27, 1998, certified by Arthur Andersen LLP. Such balance sheet and statement of income have been prepared in accordance with GAAP and fairly present the financial condition of the Borrower as at the close of business on the date thereof and the results of operations for the fiscal year then ended. There are no contingent liabilities of the Borrower or any of its Subsidiaries as of such date involving material amounts, known to the officers of the Borrower, which were not disclosed in such balance sheet and the notes related thereto.

7.4.3Projections. The projections of the annual operating budgets of the Borrower and its Subsidiaries on a consolidated basis, balance sheets and cash flow statements for each fiscal year of Borrower from 2001 through 2006 and for the period commencing as of the first day of Borrower’s 2007 fiscal year and ending on June 30, 2007, copies of which have been delivered to each Lender, disclose all assumptions made with respect to general economic, financial and market conditions used in formulating such projections. To the knowledge of the Borrower or any of its Subsidiaries, no facts exist that (individually or in the aggregate) would result in any material change in any of such projections. The projections are based upon reasonable estimates and assumptions, have been prepared on the basis of the assumptions stated therein and reflect the reasonable estimates of the Borrower and its Subsidiaries of the results of operations and other information projected therein (it being understood that projections are inherently subject to uncertainties and contingencies, many of which may be beyond the Borrower’s control, and no assurance can be given that projections will be realized).

7.5No Material Adverse Changes, etc. Since the Balance Sheet Date, there has been no event or occurrence which has had a Material Adverse Effect. Since the Balance Sheet Date, the Borrower has not made any Restricted Payment.

7.6Franchises, Patents, Copyrights, etc. Except as set forth in Schedule 7.6 hereto, the Borrower and each of its Restricted Subsidiaries possesses, or is licensed to use, all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others, except where such failure to possess, or be licensed to use, could not reasonably be expected to have a Material Adverse Effect.

7.7Litigation. Except as set forth in Schedule 7.7 hereto, there are no actions, suits, proceedings or investigations of any kind pending or, to the best of the Borrower’s knowledge, threatened against the Borrower or any of its Subsidiaries before any Governmental Authority

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that (a) either in any case or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (b) which questions or otherwise affects the validity of the transactions contemplated by the Credit Agreement, any of the other Loan Documents, the Sale-Leaseback Transaction Documents or the FFCA Mortgage Financing Documents, or any action taken or to be taken pursuant hereto or thereto.

7.8No Materially Adverse Contracts, etc. Neither the Borrower nor any of its Subsidiaries is subject to any Governing Document or other legal restriction, or any judgment, decree, order, law, statute, rule or regulation that has or could reasonably be expected in the future to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries is a party to any contract or agreement that has or could reasonably be expected, in the judgment of the Borrower’s officers, to have a Material Adverse Effect.

7.9Compliance with Other Instruments, Laws, etc. Neither the Borrower nor any of its Subsidiaries is in violation of any provision of its Governing Documents, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could reasonably be expected to, result in the imposition of substantial penalties, or have a Material Adverse Effect.

7.10Tax Status. The Borrower and its Subsidiaries (a) have filed all federal and all other material tax returns, reports and declarations required by law to have been filed by each of them, (b) have paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (c) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and none of the officers of the Borrower know of any basis for any such claim.

7.11No Event of Default. No Default or Event of Default has occurred and is continuing.

7.12Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an “investment company,” or an “affiliated company” or a “principal underwriter” of an “investment company,” as such terms are defined in the Investment Company Act of 1940.

7.13Absence of Financing Statements, etc. Except with respect to Permitted Liens, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry or other public office, that purports to cover, affect or give notice of any present or possible future Lien on any assets or property of the Borrower or any of its Subsidiaries or any rights relating thereto.

7.14Perfection of Security Interest. All filings, assignments, pledges and deposits of documents or instruments have been made and all other actions have been taken that are necessary under applicable law to establish and perfect the Administrative Agent’s security interest in the Collateral. Except as set forth on Schedule 7.14, the Collateral and the

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Administrative Agent’s rights with respect to the Collateral are not subject to any setoff, claims, withholdings or other defenses (other than Permitted Liens). The Borrower or a Restricted Subsidiary of the Borrower party to one of the Security Agreements is the owner of the Collateral free from any Lien, except for Permitted Liens.

7.15Certain Transactions. Except for arm’s-length transactions pursuant to which the Borrower or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Borrower or such Subsidiary could obtain from third parties, none of the officers, directors, or employees of the Borrower or any of its Subsidiaries is presently a party to any transaction with the Borrower or any of its Subsidiaries (other than the FFCA Mortgage Financing, the Sale-Leaseback Transaction or in respect of services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

7.16Employee Benefit Plans.

7.16.1In General. Each Employee Benefit Plan and each Guaranteed Pension Plan has been maintained and operated in compliance in all material respects with the provisions of ERISA and all Applicable Pension Legislation and, to the extent applicable, the Code. The Borrower has heretofore delivered to the Administrative Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required to be submitted under §103(d) of ERISA, with respect to each Guaranteed Pension Plan.

7.16.2Guaranteed Pension Plans. Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of §302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan, and neither the Borrower nor any ERISA Affiliate is obligated to or has posted security in connection with an amendment to a Guaranteed Pension Plan pursuant to §307 of ERISA or §401(a)(29) of the Code. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by the Borrower or any ERISA Affiliate with respect to any Guaranteed Pension Plan and since January 1, 1996, there has not been any ERISA Reportable Event (other than an ERISA Reportable Event as to which the requirement of 30 days notice has been waived), or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all such Guaranteed Pension Plans within the meaning of §4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities, by more than $100,000.

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7.16.3Multiemployer Plans. Neither the Borrower nor any ERISA Affiliate has, since January 1, 1996, incurred any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under §4201 of ERISA or as a result of a sale of assets described in §4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of §4241 or §4245 of ERISA or is at risk of entering reorganization or becoming insolvent, or that any Multiemployer Plan intends to terminate or has been terminated under §4041A of ERISA.

7.17Use of Proceeds.

7.17.1General. The proceeds of the Loans shall be used for working capital, capital expenditures (to the extent permitted in §10.2 of this Credit Agreement) and general corporate purposes. For the avoidance of doubt, after the Closing Date, proceeds of the Loans shall not be used for the repurchase of the New Senior Notes.

7.17.2Regulations U and X. No portion of any Loan is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of purchasing or carrying any “margin security” or “margin stock” as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.

7.17.3Ineligible Securities. No portion of the proceeds of any Loans is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of knowingly purchasing, or providing credit support for the purchase of, during the underwriting or placement period or within thirty (30) days thereafter, any Ineligible Securities underwritten or privately placed by a Financial Affiliate.

7.18Environmental Compliance.

(a)To the best of the knowledge of the Borrower, none of the Borrower, its Subsidiaries or any operator of the Real Estate or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act (“RCRA”), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986 (“SARA”), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state, local or foreign law, statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter “Environmental Laws”), which violation would have a Material Adverse Effect;

(b)neither the Borrower nor any of its Subsidiaries has received written notice from any third party including, without limitation, any Governmental Authority, (i) that any one of them has been identified by the United States Environmental Protection Agency (“EPA”) as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. §6903(5), any hazardous substances as defined by 42 U.S.C. §9601(14), any pollutant or contaminant as defined by 42 U.S.C. §9601(33) and any toxic substances,

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petroleum constituents, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws (“Hazardous Substances”) which any one of them has generated, transported or disposed of has been found at any site at which a Governmental Authority has conducted or has ordered that any Borrower or any of its Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party’s incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances;

(c)except as set forth on Schedule 7.18 attached hereto:  (i) no portion of the Real Estate currently owned, occupied or operated by the Borrower or any of its Restricted Subsidiaries, and to the best of the knowledge of the Borrower, previously owned and occupied or operated by the Borrower or any Restricted Subsidiaries, has been used for the handling, processing, storage or disposal of Hazardous Substances except in material compliance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of the Real Estate currently owned, occupied or operated by the Borrower or any of its Restricted Subsidiaries, and to the best of the knowledge of the Borrower, previously owned, occupied or operated by the Borrower or any of its Subsidiaries; (ii) in the course of any activities conducted by the Borrower, its Subsidiaries or their operators, no Hazardous Substances have been generated or are being used on the Real Estate except in material compliance with applicable Environmental Laws; (iii) there have been no releases (i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or threatened releases of Hazardous Substances on, upon, into or from the Real Estate currently owned, occupied or operated by the Borrower or any of its Restricted Subsidiaries, and to the best of the knowledge of the Borrower, previously owned and occupied or operated by the Borrower or any Restricted Subsidiaries, which releases would have a Material Adverse Effect; (iv) to the best of the Borrower’s knowledge, there have been no releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on, and which would have a Material Adverse Effect; and (v) in addition, any Hazardous Substances that have been generated by the Borrower, its Subsidiaries or their operators on any of the Real Estate have been transported in compliance with applicable Environmental Laws; and

(d)none of the Borrower and its Subsidiaries, any Mortgaged Property or any of the other Real Estate is subject to any applicable Environmental Law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any Governmental Authority or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the recording of any Mortgage or to the effectiveness of any other transactions contemplated hereby the failure of which would have a Material Adverse Effect.

7.19Subsidiaries, etc. The Borrower has (a) no Restricted Subsidiaries other than those listed on Schedule 7.19(a) hereto (as such Schedule shall be amended for each subsequently acquired or organized Restricted Subsidiary), and (b) no Unrestricted Subsidiaries

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other than those listed on Schedule 7.19(b) hereto (as such Schedule shall be amended for each subsequently acquired or organized Unrestricted Subsidiary). Except as set forth on Schedule 7.19(c) hereto, neither the Borrower nor any Subsidiary of the Borrower is engaged in any joint venture or partnership with any other Person hereto (as such Schedule shall be amended for each subsequently existing joint venture or partnership). The jurisdiction of incorporation/formation and principal place of each Subsidiary of the Borrower is listed on Schedule 7.19(d) hereto.

7.20Disclosure. None of the factual information heretofore or contemporaneously furnished in writing to the Administrative Agent or any Lender by or on behalf of the Borrower or any Subsidiary in connection with any Loan Document or any transaction contemplated hereby contains any untrue statement of a material fact or omits to state a material fact (known to the Borrower or any of its Subsidiaries in the case of any document or information not furnished by it or any of its Subsidiaries) necessary in order to make the statements herein or therein, taken as a whole, not misleading.

7.21Bank Accounts. As of the Closing Date, Schedule 7.21 sets forth the account numbers and location of all material bank accounts of the Borrower or any of its Restricted Subsidiaries (as reasonably determined by the Borrower).

8.AFFIRMATIVE COVENANTS.

The Borrower covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Revolving Credit Note is outstanding or any Lender has any obligation to make any Loans or the Administrative Agent has any obligation to issue, extend or renew any Letters of Credit:

8.1Punctual Payment. The Borrower will duly and punctually pay or cause to be paid the principal and interest on the Loans, all Reimbursement Obligations, the Letter of Credit Fees, the Commitment Fees, the Administrative Agent’s Fee and all other amounts provided for in this Credit Agreement and the other Loan Documents to which the Borrower or any of its Restricted Subsidiaries is a party, all in accordance with the terms of this Credit Agreement and such other Loan Documents.

8.2Maintenance of Office. The Borrower will maintain its chief executive office at 1855 Boston Road, Wilbraham, Massachusetts 01095, or at such other place in the United States of America as the Borrower shall designate upon written notice to the Administrative Agent, where notices, presentations and demands to or upon the Borrower in respect of the Loan Documents to which the Borrower is a party may be given or made.

8.3Records and Accounts. The Borrower will (a) keep, and cause each of its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with GAAP, (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves, and (c) at all times engage independent certified public accountants satisfactory to the Administrative Agent as the independent certified public accountants of the Borrower and its Subsidiaries and will not

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permit more than thirty (30) days to elapse between the cessation of such firm’s (or any successor firm’s) engagement as the independent certified public accountants of the Borrower and its Subsidiaries and the appointment in such capacity of a successor firm as shall be satisfactory to the Administrative Agent.

8.4Financial Statements, Certificates and Information. The Borrower will deliver to each of the Lenders:

(a)as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flows for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated statements to be in reasonable detail, prepared in accordance with GAAP, and certified, without qualification and without an expression of uncertainty as to the ability of the Borrower or any of its Subsidiaries to continue as going concerns, by independent certified public accountants satisfactory to the Administrative Agent, together with a written statement from such accountants to the effect that they have read a copy of this Credit Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; provided that such accountants shall not be liable to the Lenders for failure to obtain knowledge of any Default or Event of Default. Notwithstanding any of the foregoing, the Borrower may satisfy its obligation to deliver the foregoing financial information by delivering copies of the Borrower’s annual report on Form 10-K in respect of such fiscal year, together with the financial statements required to be attached thereto; provided, that (x) the Borrower is required to file such annual report on Form 10-K with the SEC, (y) such filing is actually made and (z) such annual report and financial statements are delivered within ninety (90) days after the end of each fiscal year of the Borrower and are otherwise in compliance with this §8.4(a);

(b)as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the first three fiscal quarters in any fiscal year of the Borrower, copies of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flows for the portion of the Borrower’s fiscal year then elapsed, all in reasonable detail and prepared in accordance with GAAP, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such financial statements fairly presents the financial position of the Borrower and its Subsidiaries on the date thereof (subject to year-end adjustments). Notwithstanding any of the foregoing, the Borrower may satisfy its obligation to deliver the foregoing financial information by delivering copies of the Borrower’s quarterly report on Form 10-Q in respect of such fiscal year, together with the financial statements required to be attached thereto; provided, that (x) the Borrower is required to file such quarterly report on Form 10-Q with the SEC, (y) such filing is actually made and (z) such quarterly report and financial statements are delivered within forty-five (45) days after the end of each of the first three fiscal quarters in any fiscal year of the Borrower and are otherwise in compliance with this §8.4(b);

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(c)           as soon as practicable, but in any event within thirty (30) days after the end of each month in each fiscal year of the Borrower, unaudited monthly consolidated financial statements of the Borrower and its Subsidiaries for such month setting forth in comparative form the figures from the actual historical figures for the previous year and a comparison setting forth the corresponding figures from the projected figures set forth in the projections described in §8.4(g) for such period, prepared in accordance with GAAP, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such financial statements fairly presents the financial condition of the Borrower and its Subsidiaries on the date thereof (subject to quarter-end and year-end adjustments);

(d)           simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, the Compliance Certificate;

(e)           contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Borrower generally;

(f)            projections of the Borrower and its Subsidiaries updating those projections delivered to the Lenders and referred to in §7.4.3 and if applicable, updating any later such projections delivered in response to a request pursuant to this §8.4(f);

(g)           a twelve-month forecast, including the consolidated balance sheet of the Borrower and its Subsidiaries and related consolidated statements of income and cash flow, to be delivered to the Lenders prior to January 15 of each fiscal year of the Borrower;

(h)           not less than once during any twelve-month period, account numbers and location of all material bank accounts of the Borrower or any of its Restricted Subsidiaries (as reasonably determined by the Borrower) not otherwise listed on Schedule 7.21; and

(i)            concurrently with the financial statements delivered pursuant to clause (c) hereof, account receivable agings reports;

(j)            from time to time such other financial data and information (including accountants, management letters) as the Administrative Agent or any Lender may reasonably request.

8.5          Notices.

8.5.1             Defaults.  The Borrower will promptly notify the Administrative Agent and each of the Lenders in writing of the occurrence of any Default or Event of Default, together with a reasonably detailed description thereof, and the actions, if any, the Borrower proposes to take with respect thereto.  If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement, the New Senior Note Indenture, the FFCA Mortgage Financing Documents, or the Sale-Leaseback Transaction Documents or a material default under any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrower or

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any of its Subsidiaries is a party or obligor, whether as principal, guarantor, surety or otherwise, the Borrower shall forthwith give written notice thereof to the Administrative Agent and each of the Lenders, describing the notice or action and the nature of the claimed default.

8.5.2             Environmental Events.  The Borrower will give notice to the Administrative Agent and each of the Lenders (a) of any material violation of any Environmental Law that the Borrower or any of its Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any Governmental Authority no later than fifteen (15) days after such material violation is reported or reportable, and (b) within fifteen (15) days of becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any Governmental Authority of potential environmental liability, of any Governmental Authority that would have a Material Adverse Effect.

8.5.3             Notification of Claim against Collateral.  The Borrower will, within fifteen (15) days of becoming aware thereof, notify the Administrative Agent and each of the Lenders in writing of any material setoff, claims (including, with respect to the Real Estate, environmental claims), withholdings or other defenses to which any of the Collateral, or the Administrative Agent’s rights with respect to the Collateral, are subject.

8.5.4             Notice of Litigation and Judgments.  The Borrower will, and will cause each of its Subsidiaries to, give notice to the Administrative Agent and each of the Lenders in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Borrower or any of its Subsidiaries or to which the Borrower or any of its Subsidiaries is or becomes a party involving an uninsured claim against the Borrower or any of its Subsidiaries that would have a Material Adverse Effect on the Borrower and its Subsidiaries, taken as a whole, and stating the nature and status of such litigation or proceedings.  The Borrower will, and will cause each of its Subsidiaries to, give notice to the Administrative Agent and each of the Lenders, in writing, in form and detail satisfactory to the Administrative Agent, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrower or any of its Subsidiaries in an amount in excess of $1,000,000.

8.6          Legal Existence; Maintenance of Properties.

8.6.1             Legal Existence.  The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence, rights and franchises and those of its Subsidiaries (other than (x) Restricted Subsidiaries which are either merged into the Borrower or other Restricted Subsidiaries as permitted by §9.5.1 or (y) the dissolution of Restaurant Insurance Corporation).

8.6.2             Maintenance of Properties.  The Borrower (a) will cause all of its properties and those of its Subsidiaries useful and necessary (as determined by the Borrower in a commercially reasonable manner) in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order (ordinary wear and tear excepted) and supplied with all necessary equipment, and (b) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as

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in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

8.7          Insurance.  The Borrower will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent and in accordance with the terms of the Security Agreements (it being understood that the Borrower and its Subsidiaries are self-insured through Restaurant Insurance Corporation with respect to various insurable risks and will maintain such self-insurance in amounts not to exceed those in effect on the Closing Date until such time as Restaurant Insurance Corporation is dissolved).  The Borrower will, and will cause each of its Restricted Subsidiaries to, maintain insurance on the Mortgaged Properties in accordance with the terms of the Mortgages.

8.8          Taxes.  The Borrower will, and will cause each of its Subsidiaries to, duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it and its Real Estate, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a Lien or charge upon any of its property; provided that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; and provided further that the Borrower and each Subsidiary of the Borrower will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any Lien that may have attached as security therefor.

8.9          Inspection of Properties and Books, etc.

8.9.1             General.  The Borrower shall permit the Lenders, through the Administrative Agent or any of the Lenders’ other designated representatives, to visit and inspect any of the properties of the Borrower or any of its Restricted Subsidiaries, to examine the books of account of the Borrower and its Restricted Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrower and its Restricted Subsidiaries with, and to be advised as to the same by, its and their officers, all at such reasonable times and during normal business hours as the Administrative Agent or any Lender may reasonably request upon reasonable prior notice.  Notwithstanding anything contained in this Credit Agreement, the Administrative Agent shall be permitted to conduct commercial finance exams, including without limitation any audit (whether conducted by the Administrative Agent or an outside examiner), all at such reasonable times and during normal business hours as the Administrative Agent may reasonably request upon reasonable prior notice; provided, that the Borrower shall (x) prior to the occurrence of a Default, pay the expenses for up to one such commercial finance exam during any fiscal year of the Borrower and (y) after the occurrence of a Default, pay the expenses for all such commercial finance exams.

8.9.2             Appraisals.  The Borrower will (a) deliver to the Administrative Agent any appraisal reports obtained by the Borrower in the ordinary course of business, or (b) if an

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Event of Default shall have occurred and be continuing, upon the request of the Administrative Agent, obtain and deliver to the Administrative Agent appraisal reports in form and substance and from appraisers satisfactory to the Administrative Agent, stating (i) the then current fair market, orderly liquidation and forced liquidation values of all or any portion of the equipment or real estate owned by the Borrower or any of its Restricted Subsidiaries (excluding any Real Estate consisting of Excluded Properties) and (ii) the then current business value of each of the Borrower and its Restricted Subsidiaries.  All such appraisals shall be conducted and made at the expense of the Borrower.

8.9.3             Environmental Assessments.  In the event (a) an Event of Default shall have occurred and be continuing, or (b) the Administrative Agent has a reasonable basis to believe that (i) there has been a release or threat of release of Hazardous Substances in or under the Mortgaged Properties in material violation of applicable Environmental Laws, or (ii) the use and operation of the Mortgaged Properties is not in material compliance with Environmental Laws, the Administrative Agent may, from time to time, in its discretion for the purpose of assessing and ensuring the value of any Mortgaged Property, obtain one or more environmental assessments or audits of such Mortgaged Property prepared by a hydrogeologist, an independent engineer or other qualified consultant or expert approved by the Administrative Agent to evaluate or confirm (a) whether any Hazardous Materials are present in the soil or water at such Mortgaged Property and (b) whether the use and operation of such Mortgaged Property complies with all Environmental Laws.  Environmental assessments may include without limitation detailed visual inspections of such Mortgaged Property including any and all storage areas, storage tanks, drains, dry wells and leaching areas, and the taking of soil samples, surface water samples and ground water samples, as well as such other investigations or analyses as the Administrative Agent deems appropriate.  All such environmental assessments shall be conducted and made at the expense of the Borrower.

8.9.4             Communications with Accountants.  Upon the occurrence and continuance of a Default, the Borrower authorizes the Administrative Agent and, if accompanied by the Administrative Agent, the Lenders to communicate directly with the Borrower’s independent certified public accountants and authorizes such accountants to disclose to the Administrative Agent and the Lenders any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, financial condition and other affairs of the Borrower or any of its Subsidiaries.  At the request of the Administrative Agent, the Borrower shall deliver a letter addressed to such accountants instructing them to comply with the provisions of this §8.9.4.

8.10        Compliance with Laws, Contracts, Licenses, and Permits.  The Borrower will, and will cause each of its Subsidiaries to, comply with (a) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, (b) the provisions of its Governing Documents, (c) all agreements and instruments by which it or any of its properties may be bound and (d) all applicable decrees, orders, and judgments, except, in each case, where the failure to so comply could not reasonably be expected to result in a Material Adverse Effect or material non-compliance with any applicable Environmental Laws.  If any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrower or any of its Subsidiaries may fulfill any of its obligations hereunder or any of the other Loan Documents to

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which the Borrower or such Subsidiary is a party, the Borrower will, or (as the case may be) will cause such Subsidiary to, immediately take or cause to be taken all reasonable steps within the power of the Borrower or such Subsidiary to obtain such authorization, consent, approval, permit or license and furnish the Administrative Agent and the Lenders with evidence thereof.

8.11        Employee Benefit Plans.  The Borrower will (a) promptly upon request of the Administrative Agent, furnish to the Administrative Agent a copy of the most recent actuarial statement required to be submitted under §103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan, and (b) promptly upon receipt or dispatch, furnish to the Administrative Agent any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under §§302, 4041, 4042, 4043, 4063, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under §§4041A, 4202, 4219, 4242, or 4245 of ERISA.

8.12        Use of Proceeds.  The Borrower will use the proceeds of the Loans and obtain Letters of Credit solely for the purposes set forth in §7.17.1.

8.13        Future Guarantors; Mortgaged Property.

8.13.1           Future Guarantors, Security, etc.  Subject to §8.13.3, the Borrower will, and will cause each Restricted Subsidiary to, execute any documents, agreements and instruments, and take all further action that may be required under applicable law, or that the Administrative Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority (subject to Permitted Liens) of the Liens created or intended to be created by the Loan Documents.  The Borrower will cause any subsequently acquired or organized Restricted Subsidiary to execute a Guaranty (or a supplement thereto) and each applicable Loan Document in favor of the Administrative Agent.  In addition, from time to time, the Borrower will, at its cost and expense, promptly secure the Obligations by pledging or creating, or causing to be pledged or created, perfected Liens with respect to such of its and its Restricted Subsidiaries’ assets and properties as the Administrative Agent shall designate (excluding Excluded Properties, and subject to the limitations set forth in §6.1 and §6.2, the Security Agreement and the Pledge Agreement).

8.13.2           Real Estate General.  Any Real Estate (other than Excluded Properties) at any time owned or leased by the Borrower or its Restricted Subsidiaries and used as headquarters, manufacturing facilities or warehouse facilities, shall in each case at all times be Mortgaged Properties.  If, after the Original Closing Date, the Borrower or any of its Restricted Subsidiaries acquires or leases such Real Estate, the Borrower shall, or shall cause such Restricted Subsidiary to, forthwith deliver to the Administrative Agent a fully executed mortgage or deed of trust over such Real Estate, in form and substance reasonably satisfactory to the Administrative Agent, together with, in the case of Core Mortgaged Properties, Title Policies, surveys, evidences of insurance with the Administrative Agent named as loss payee and additional insured, legal opinions and other documents and certificates with respect to such Real Estate as was required for Real Estate of the Borrower or such Restricted Subsidiary as of the Original Closing Date.  The Borrower further agrees that, following the taking of such actions with respect to such Real Estate, the Administrative Agent shall have for the benefit of the

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Lenders and the Administrative Agent a valid and enforceable first priority mortgage or deed of trust over such Real Estate, free and clear of all Liens except for Permitted Liens.

8.13.3           Reduction in Appraisal Value.  In the event the Appraised Value of all Core Mortgaged Properties is less than the Minimum Aggregate Appraisal Amount at any time an Event of Default shall have occurred and be continuing, the Borrower shall, or shall cause such Restricted Subsidiaries to, forthwith deliver to the Administrative Agent a fully-executed mortgage or deed of trust over such additional Real Estate, as determined by the Administrative Agent in its sole discretion, which, together with all other Core Mortgaged Properties, has an Appraised Value of not less than the Minimum Aggregate Appraisal Amount, and is in form and substance satisfactory to the Administrative Agent, together with title insurance policies, surveys, evidences of insurance with the Administrative Agent named as loss payee and additional insured, legal opinions and other documents and certificates with respect to such Real Estate as was required for Real Estate of the Borrower or such Restricted Subsidiary as of the Closing Date.  The Borrower further agrees that, following the taking of such actions with respect to such Real Estate, the Administrative Agent shall have for the benefit of the Lenders and the Administrative Agent a valid and enforceable first priority mortgage or deed of trust over such Real Estate, free and clear of all Liens except for Permitted Liens.

8.14        Bank Accounts.  The Borrower will, and will cause each of its Restricted Subsidiaries to (a) establish one or more depository accounts (the “Concentration Accounts”), which Concentration Accounts (from and after the date that is 30 days after the Closing Date) shall be under the control of the Administrative Agent for the benefit of the Lenders and the Administrative Agent, in the name of the Borrower, pursuant to one or more agreements in form and substance reasonably satisfactory to the Administrative Agent (the “Concentration Account Agreements”), (b) cause all cash proceeds of accounts receivable to be deposited only in the restaurant concentration depository accounts (“Restaurant Concentration Accounts”) with financial institutions which (from and after the date that is 30 days after the Closing Date) have entered into agency account agreements and, if applicable, lock box agreements (collectively, “Agency Account Agreements”) in form and substance satisfactory to the Administrative Agent, or the Concentration Accounts; provided, that Borrower and its Restricted Subsidiaries may have up to $200,000 on deposit with financial institutions which have not entered into such an Agency Account Agreement, (c) direct all depository institutions with Restaurant Concentration Accounts to cause all funds of the Borrower and its Restricted Subsidiaries held in such Restaurant Concentration Accounts to be transferred daily to, and only to, the Concentration Accounts, and (d)  at all times ensure that immediately upon the Borrower’s or any of its Restricted Subsidiaries’ receipt of any funds constituting or cash proceeds of any Collateral, all such amounts shall have been deposited in a Restaurant Concentration Account or a Concentration Account; provided, that Borrower and its Restricted Subsidiaries may have up to $200,000 on deposit with financial institutions which have not entered into an Agency Account Agreement or a Concentration Account Agreement.  Notwithstanding anything to the contrary herein, the Borrower may maintain flex spending accounts, medical disbursement accounts, medical insurance accounts, gift card accounts, workers’ compensation accounts and payroll accounts in the ordinary course of business and deposit funds in such accounts, provided that in all cases the aggregate amount of funds on deposit in each such account shall not exceed the amount reasonably necessary to fund such account.

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8.15        [Intentionally Omitted].

8.16        [Intentionally Omitted].

8.17        [Intentionally Omitted].

8.18        Mortgage Assignments and Mortgage Amendments.  Within 30 days after the Closing Date, the Borrower shall, and shall cause its Restricted Subsidiaries to, execute and deliver Administrative Agent such Mortgage Assignments and Mortgage Amendments as Administrative Agent shall require.

8.19        Additional Mortgages.  The Borrower shall deliver to the Administrative Agent, the Mortgages with respect to the Real Estate (together with flood certifications) listed on Schedule 8.19, in each case in form and substance satisfactory to the Administrative Agent.

8.20        Agency Account Agreements, Concentration Account Agreements and Control Agreements.  Within 30 days after the Closing Date, Borrower shall have obtained such Concentration Account Agreements, Agency Account Agreements and Control Agreements with respect to the Deposit Accounts and securities accounts of Borrower and the Guarantors as Administrative Agent shall reasonably require.

8.21        Further Assurances.  The Borrower will, and will cause each of its Subsidiaries to, cooperate with the Lenders and the Administrative Agent and execute such further instruments and documents as the Lenders or the Administrative Agent shall reasonably request to carry out to their reasonable satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents (including, but not limited to, any replacement Revolving Credit Notes to replace any Revolving Credit Notes lost by any Lender in an amount equal to such lost Revolving Credit Note).

8.22        Delivery of Purchase and Sale Agreements.  Promptly upon the consummation of each of the purchase and sale arrangements consented to in Section 1(a) to the Ninth Amendment, Borrower shall deliver, to the Administrative Agent an Officer’s Certificate of the Borrower, signed by an authorized officer of the Borrower, in form and substance satisfactory to the Administrative Agent, attaching copies of each of the documents executed and delivered in connection with the applicable Purchase and Sale and Termination Agreement (as each such term is defined in the Ninth Amendment) and attesting that such copies are true and complete as of the closing of such Purchase and Sale and Termination Agreement, that no Default or Event of Default exists as of the date of such sale or arose as a result thereof, and, in respect of any subleasing arrangements, that such subleasing arrangement does require the approval of the applicable landlord and does not give rise to, any breach under the applicable lease.

9.CERTAIN NEGATIVE COVENANTS.

The Borrower covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Revolving Credit Note is outstanding or any Lender has any obligation to make any Loans or the Administrative Agent has any obligations to issue, extend or renew any Letters of Credit:

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9.1          Restrictions on Indebtedness.  The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than:

(a)           Indebtedness to the Lenders and the Administrative Agent arising under any of the Loan Documents;

(b)           endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business;

(c)           Indebtedness incurred in connection with (i) the acquisition after the Original Closing Date of any real or personal property by the Borrower or any Restricted Subsidiary or under any Capitalized Lease, provided; that (A) the aggregate principal amount of such Indebtedness of the Borrower and its Restricted Subsidiaries incurred after the Fourth Amendment Effective Date shall not exceed the aggregate amount of $10,000,000 at any one time during the period beginning on the Fourth Amendment Effective Date and ending on the Revolving Credit Loan Maturity Date and (B) the Borrower and its Restricted Subsidiaries shall not incur such Indebtedness in an aggregate amount greater than $4,000,000 per fiscal year, and (ii) a Permitted Acquisition;

(d)           Indebtedness in respect of Interest Rate Agreements or derivative contracts, in each case entered into in the ordinary course of business and not for speculative purposes or as an arbitrage of rates;

(e)           Indebtedness existing on the date hereof and listed and described on Schedule 9.1 hereto, and any refinancing of such Indebtedness; provided, that (x) the principal amount (as such amount may have been reduced following the Closing Date) thereof is not increased, (y) the maturity date thereof is not shortened, and (z) the material terms thereof are not materially more onerous on the Borrower than the terms contained in the Indebtedness being refinanced;

(f)            Indebtedness of a Subsidiary of the Borrower existing on the date hereof to the Borrower;

(g)           unsecured Indebtedness of a Restricted Subsidiary of the Borrower to the Borrower which Indebtedness (i) shall not be forgiven or otherwise discharged for any consideration other than payment in full in cash (provided, that only the amount repaid in part shall be discharged); and (ii) shall be evidenced by one or more promissory notes which shall be delivered in pledge to the Administrative Agent pursuant to a Loan Document;

(h)           unsecured Indebtedness of (i) the Borrower to (A) any Restricted Subsidiary in an aggregate principal amount not to exceed $29,000,000, or (B) Restaurant Insurance Corporation in an aggregate principal amount not to exceed $10,000,000, (ii) any Unrestricted Subsidiary (other than Restaurant Insurance Corporation) to the Borrower in an aggregate principal amount not exceed $5,000; and (iii) Restaurant Insurance Corporation to the Borrower in an aggregate principal amount not to exceed $10,000,000;

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(i)            unsecured Indebtedness in respect of guarantees made in the ordinary course of business by the Borrower or any of its Restricted Subsidiaries in respect of Indebtedness of any Restricted Subsidiary of the Borrower permitted hereunder in an aggregate principal amount not to exceed $250,000;

(j)            unsecured Indebtedness in respect of guarantees made in the ordinary course of business by the Borrower or any of its Restricted Subsidiaries of Indebtedness of franchisees of the Borrower or any Restricted Subsidiary in an aggregate principal amount not to exceed $5,000,000;

(k)           unsecured Indebtedness incurred by the Borrower or any of its Restricted Subsidiaries to finance the payment of property, casualty and specialty insurance premiums in the ordinary course of the Borrower’s business which is repaid within 18 months of its incurrence, provided that such Indebtedness does not exceed $7,500,000 in the aggregate at any one time outstanding;

(l)            Indebtedness in respect of the Sale-Leaseback Transaction and the FFCA Mortgage Financing;

(m)          [Intentionally Omitted].

(n)           other Indebtedness not described in clauses (a) through (m) in an aggregate amount not to exceed $250,000 at any time outstanding; and

(o)           Indebtedness pursuant to the New Senior Notes and guarantees thereof by Subsidiaries and Refinancing Indebtedness in respect of the foregoing.

9.2          Restrictions on Liens.

9.2.1             Permitted Liens.  The Borrower will not, and will not permit any of its Subsidiaries to:

(a)           create or incur or suffer to be created or incurred or to exist any Lien upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom;

(b)           transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors;

(c)           acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement;

(d)           suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; and

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(e)           sell, assign, pledge or otherwise transfer any “receivables” as defined in clause (g) of the definition of the term “Indebtedness,” with or without recourse;

provided that the Borrower or any of its Subsidiaries may create or incur or suffer to be created or incurred or to exist:

(i)            Liens in favor of the Borrower on all or part of the assets of any Subsidiary of the Borrower securing Indebtedness owing by such Subsidiary of the Borrower to the Borrower;

(ii)           Liens to secure taxes, assessments and other government charges in respect of obligations not overdue or Liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue;

(iii)          deposits or pledges made in connection with, or to secure payment of, workmen’s compensation, unemployment insurance, old age pensions or other social security obligations;

(iv)          Liens on properties in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrower or any Subsidiary shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review;

(v)           Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens on properties in respect of obligations not overdue by more than 30 days or which are being contested in good faith and by appropriate proceedings; provided, that none of such Liens (x) interferes materially with the use of such property affected in the ordinary conduct of the business of the Borrower and its Subsidiaries, or (y) individually or in the aggregate have a Material Adverse Effect;

(vi)          encumbrances on Real Estate consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord’s or lessor’s liens and other minor Liens; provided, that none of such Liens (x) interferes materially with the use of such property affected in the ordinary conduct of the business of the Borrower and its Subsidiaries, or (y) individually or in the aggregate have a Material Adverse Effect;

(vii)         Liens (A) existing on the date hereof and listed on Schedule 9.2 hereto, or (B) securing any extension, renewal or replacement of any obligations secured by any such Lien; provided, that (x) in respect of Liens permitted pursuant to clause (A) hereof, no such Lien shall encumber any additional property and the amount of Indebtedness secured by such Lien is not increased from that existing on the Closing Date (as such Indebtedness may have been permanently reduced subsequent to the Closing Date), and (y) in respect of Liens permitted pursuant to clause (B) hereof, such Lien shall only cover the same assets which originally secured the obligations being extended, renewed or replaced;

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(viii)        purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure purchase money Indebtedness of the type and amount permitted by §9.1(c) or Liens arising in connection with Capitalized Leases permitted by §9.1(c), in each case incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired;

(ix)           Liens on each Mortgaged Property as and to the extent permitted by the Mortgage applicable thereto;

(x)            Liens in favor of the Administrative Agent for the benefit of the Lenders and the Administrative Agent under the Loan Documents;

(xi)           any interest or title of a lessor in connection with a Permitted Acquisition or any operating lease entered into by the Borrower or any Restricted Subsidiary in the ordinary course of its business and covering only the assets so leased;

(xii)          Liens arising by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depository institution;

(xiii)         Liens incurred or deposits made to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of alike nature incurred in the ordinary course of business securing obligations not exceeding $2,500,000 in the aggregate;

(xiv)        Liens arising in the ordinary course of business out of consignment or similar arrangements for the sale of goods securing obligations not exceeding $100,000 in the aggregate;

(xv)         Liens securing Indebtedness described in §9.1(l);

(xvi)        [Intentionally Omitted];

(xvii)       Liens consisting of the licensing of intellectual property in the ordinary course of business and consistent with past practices, including, without limitation, (i) that certain License Agreement between Borrower and Friendly’s Realty I, LLC, a Delaware limited liability company, (ii) that certain License Agreement between Borrower and Friendly’s Realty II, LLC, a Delaware limited liability company, (iii) that certain License Agreement between Borrower and Friendly’s Realty III, LLC, a Delaware limited liability company, and (iv) that certain Security and License Agreement between the Borrower and GE Capital Franchise Finance Corporation; provided, that the use of such licenses shall be limited to the Units subject to, and on which Liens have been granted in connection with, the FFCA Mortgage Financing;

(xviii)      Liens (A) in favor of the SPVs granted by the Borrower pursuant to the FFCA Master Leases and (B) in favor of GECC granted by the Borrower

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pursuant to the FFCA Amended and Restated Master Lease, and in each case at all times subject to the Security Interest Subordination Agreements; and

(xix)         Liens not otherwise permitted hereunder in an aggregate amount not to exceed $10,000.

9.2.2             Restrictions on Negative Pledges and Upstream Limitations.  Except as set forth on Schedule 9.2.2, the Borrower will not, nor will it permit any of its Restricted Subsidiaries to (a) enter into or permit to exist any arrangement or agreement (excluding the Credit Agreement and the other Loan Documents) which directly or indirectly prohibits the Borrower or any of its Restricted Subsidiaries from creating, assuming or incurring any Lien granted pursuant to this Credit Agreement or any other Loan Document to secure the Obligations upon its properties, revenues or assets or those of any of its Restricted Subsidiaries whether now owned or hereafter acquired, or (b) enter into any agreement, contract or arrangement (excluding the Credit Agreement and the other Loan Documents) restricting the ability of any Restricted Subsidiary of the Borrower to pay or make dividends or distributions in cash or kind to the Borrower, to make loans, advances or other payments of whatsoever nature to the Borrower, or to make transfers or distributions of all or any part of its assets to the Borrower; in each case other than (i) restrictions on specific assets which assets are the subject of purchase money security interests or Capitalized Leases to the extent permitted under §9.2.1, (ii) customary anti-assignment provisions contained in leases and licensing agreements entered into by the Borrower or such Restricted Subsidiary in the ordinary course of its business, (iii) in the case of clause (b), any encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Borrower or any Restricted Subsidiary not otherwise prohibited by this Agreement or (C) contained in security agreements securing Indebtedness of a Restricted Subsidiary permitted hereunder to the extent such encumbrance or restrictions restrict the transfer of the property subject to such security agreements, (iv) any encumbrance or restriction arising under or by reason of applicable law, (v) any encumbrance or restriction applicable to secured Indebtedness otherwise permitted to be incurred under this Agreement that limits the right of the debtor to dispose of the assets securing such Indebtedness, (vi) customary net worth provisions contained in leases and other agreements entered into by the Borrower or a Restricted Subsidiary in the ordinary course of business, (vii) any restrictions with respect to a Restricted Subsidiary imposed pursuant to an agreement which has been entered into in connection with the disposition of the common stock or assets of such Restricted Subsidiary in a transaction permitted hereunder, or (viii) any restrictions contained in the FFCA Mortgage Financing Documents and the Sale-Leaseback Transaction Documents in respect of Encumbered Properties.

9.2.3             Negative Pledge.  The Borrower will not, and will not permit any of its Restricted Subsidiaries to create, assume or incur any Lien (other than Liens permitted pursuant to §§9.2.1(ii), (iv), (v) and (vi)) upon any Non-Encumbered Properties.

9.3          Restrictions on Investments.  The Borrower will not, and will not permit any of its Subsidiaries to, make or permit to exist or to remain outstanding any Investment except:

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(a)           Investments existing on the Original Closing Date hereof and listed on Schedule 9.3 hereto;

(b)           Investments with respect to Indebtedness permitted by §§ 9.1(d), (g), (h), (i), (j), (k), (1), and (o);

(c)           Investments consisting of the Guaranty or Investments by the Borrower in Restricted Subsidiaries of the Borrower existing on the Closing Date;

(d)           Investments consisting of promissory notes received as proceeds of asset dispositions permitted by §§9.5.2(b) and (d);

(e)           Investments consisting of loans and advances to employees in the ordinary course of business consistent with past practices not to exceed $2,000,000 in the aggregate at any time outstanding;

(f)            Investments consisting of extensions of trade credit in the ordinary course of business consistent with past practices;

(g)           Investments in Cash Equivalents which, from and after the date that is 30 days after the Closing Date, are subject to an Agency Account Agreement, a Concentration Account Agreement or any other Control Agreement; provided that Borrower and its Restricted Subsidiaries may have up to $200,000 on deposit with financial institutions which have not entered into an Agency Account Agreement, a Concentration Account Agreement or such other Control Agreement;

(h)           Investments in, and extensions of credit to (i) (A) any Unrestricted Subsidiary (other than Restaurant Insurance Corporation) in an aggregate principal amount not to exceed $5,000 by the Borrower and (B) Restaurant Insurance Corporation in an aggregate principal amount not to exceed $10,000,000 by the Borrower, (ii) the Borrower in an aggregate principal amount not to exceed $29,000,000 by any Restricted Subsidiary, and (iii) the Borrower in an aggregate principal amount not to exceed $10,000,000 by Restaurant Insurance Corporation;

(i)            Investments in securities of account debtors received (A) in settlement of obligations in the ordinary course of business or (B) pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such account debtors; provided, that any Investments pursuant to clause (A) shall be limited to $1,000,000 in the aggregate;

(j)            Investments in respect of guarantees of the Borrower and its Restricted Subsidiaries permitted by §9.1;

(k)           Investments consisting of capital contributions to Friendly’s Restaurants Franchise, Inc. consistent with past practices; and

(l)            Investments in franchisees of the Borrower in an aggregate amount at any one time outstanding not to exceed $10,000,000.

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Any Investment which when made complies with the requirements of the definition of the term “Cash Equivalent” may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements, so long as any applicable requirements set forth above in clause (g) of this §9.3 are satisfied with respect thereto.

9.4          Restricted Payments.  The Borrower will not, and will not permit any of its Subsidiaries to, make any Restricted Payments other than (a) payments of salary and compensation to employees and members of the Board of Directors of the Borrower and its Subsidiaries in the ordinary course of business and consistent with past practices or as Deferred Compensation, (b) payments of Fees and expenses payable pursuant to this Credit Agreement, and (c) payments to suppliers and customers in the ordinary course of business and consistent with past practices.

9.5          Merger, Consolidation and Disposition of Assets.

9.5.1             Mergers and Acquisitions.  The Borrower will not, and will not permit any of its Restricted Subsidiaries to, become a party to any merger, amalgamation or consolidation, or agree to or effect any asset acquisition or stock acquisition (other than the acquisition of assets in the ordinary course of business consistent with past practices, the formation of Restricted or Unrestricted Subsidiaries in compliance with §8.13.1 and §9.3) except:

(a)           the merger or consolidation of one or more of the Restricted Subsidiaries of the Borrower with and into the Borrower;

(b)           the merger or consolidation of two or more Restricted Subsidiaries of the Borrower;

(c)           Permitted Acquisitions.

9.5.2             Disposition of Assets.  The Borrower will not, and will not permit any of its Restricted Subsidiaries to, become a party to or agree to or effect any disposition of assets, except:

(a)           the sale of inventory in the ordinary course of business consistent with past practices;

(b)           Permitted Unit Sales;

(c)           the licensing of intellectual property on a non-exclusive basis, including, without limitation, (i) that certain License Agreement between Borrower and Friendly’s Realty I, LLC, a Delaware limited liability company, (ii) that certain License Agreement between Borrower and Friendly’s Realty II, LLC, a Delaware limited liability company, (iii) that certain License Agreement between Borrower and Friendly’s Realty III, LLC, a Delaware limited liability company, and (iv) that certain Security and License Agreement between the Borrower and GE Capital Franchise Finance Corporation (provided, that the use of such licenses shall be limited to the Units subject to, and on which Liens have been granted in connection with, the FFCA Mortgage Financing);

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(d)           the disposition of obsolete or worn-out assets in the ordinary course of business consistent with past practices;

(e)           the sale or other disposition of any Excess Properties;

(f)            sales of assets permitted under the FFCA Mortgage Financing Documents (other than the sale of the Capital Stock of the SPVs) and the Sale-Leaseback Transaction Documents;

(g)           Sale of Cash Equivalents in the ordinary course of business and consistent with past practices;

(h)           Permitted Intercompany Sales; and

(i)            Permitted Asset Sales.

9.6          Sale and Leaseback.  The Borrower will not, and will not permit any of its Restricted Subsidiaries to, enter into any arrangement, directly or indirectly, whereby the Borrower or any Restricted Subsidiary of the Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Borrower or any Restricted Subsidiary of the Borrower intends to use for substantially the same purpose as the property being sold or transferred other than (x) as permitted by §§9.1, 9.2 or 9.5.2, or (y) the Sale-Leaseback Transaction and (z) the FFCA Mortgage Financing.

9.7          Compliance with Environmental Laws.  The Borrower will not, and will not permit any of its Subsidiaries to, (a) use any of the Real Estate or any portion thereof for the handling, processing, storage or disposal of Hazardous Substances, (b) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances, (c) generate any Hazardous Substances on any of the Real Estate, (d) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or into the Real Estate or (e) otherwise conduct any activity at any Real Estate or use any Real Estate in any manner that would violate any Environmental Law or bring such Real Estate in violation of any Environmental Law, where, in the case of clauses (a) through (e), it would have a Material Adverse Effect or result in material non-compliance with applicable Environmental Laws.

9.8          Prepayments; Modification of Certain Documents.

(a)           The Borrower will not, and will not permit any of its Subsidiaries to, prepay, redeem or repurchase any of the Indebtedness outstanding under the New Senior Note Indenture, other than in connection with a refinancing thereof with Refinancing Indebtedness.

(b)           The Borrower will not, and will not permit any of its Subsidiaries to, consent to or enter into any amendment, supplement or other modification of any of the terms or provisions contained in, or applicable to, (i) the New Senior Note Indenture, other than any amendment, supplement, waiver or modification for which no fee is payable to the holders of the

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New Senior Notes and which (A) extends the date or reduces the amount of any required repayment, prepayment or redemption of the principal of such New Senior Note Indenture, (B) reduces the rate or extends the date for payment of the interest, premium (if any) or fees payable on such New Senior Note Indenture or (C) makes the covenants, events of default or remedies in such New Senior Note Indenture less restrictive on the Borrower, or (ii) any Sale-Leaseback Transaction Documents or FFCA Mortgage Financing Documents, in each case in any manner that is adverse in any respect to the Lenders unless consented to in writing prior thereto by the Required Lenders.

9.9          Employee Benefit Plans.  Neither the Borrower nor any ERISA Affiliate will:

(a)           engage in any “prohibited transaction” within the meaning of §406 of ERISA or §4975 of the Code which could result in a material liability for the Borrower or any of its Subsidiaries; or

(b)           permit any Guaranteed Pension Plan to incur an “accumulated funding deficiency,” as such term is defined in §302 of ERISA, whether or not such deficiency is or may be waived; or

(c)           fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance on the assets of the Borrower or any of its Subsidiaries pursuant to §302(f) or §4068 of ERISA; or

(d)           amend any Guaranteed Pension Plan in circumstances requiring the posting of security pursuant to §307 of ERISA or §401(a)(29) of the Code; or

(e)           permit or take any action which would result in the aggregate benefit liabilities (within the meaning of §4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of the aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities, by more than the amount set forth in §7.16.3; or

(f)            permit or take any action which would contravene any Applicable Pension Legislation.

9.10        Business Activities.  The Borrower will not, and will not permit any of its Subsidiaries to, engage directly or indirectly (whether through Subsidiaries or otherwise) in any type of business other than the businesses conducted by them on the Closing Date and in related businesses.

9.11        Fiscal Year.  The Borrower will not, and will not permit any of its Subsidiaries to, change the date of the end of its fiscal year from that set forth in §7.4.1.

9.12        Transactions with Affiliates.  The Borrower will not, and will not permit any of its Subsidiaries to, engage in any transaction with any Affiliate (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property

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to or from, or otherwise requiring payments to or from any such Affiliate or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any such Affiliate has a substantial interest or is an officer, director, trustee or partner, on terms more favorable to such Person than would have been obtainable on an arm’s-length basis in the ordinary course of business; provided, that nothing contained herein shall prohibit the Sale-Leaseback Transaction or the FFCA Mortgage Financing.

9.13        Bank Accounts.  The Borrower will not, and will not permit any of its Restricted Subsidiaries to (a) if at any time an Event of Default shall have occurred and be continuing, establish any bank accounts other than those Local Accounts, Interim Concentration Accounts and other accounts, all listed on Schedule 7.21 (as such Schedule shall be updated pursuant to §8.4(i)), without the Administrative Agent’s prior written consent, (b) violate directly or indirectly any Agency Account Agreement or other bank agency or lock box agreement in favor of the Administrative Agent for the benefit of the Lenders and the Administrative Agent with respect to such account, or (c) deposit into any of the payroll accounts listed on Schedule 7.21 any amounts in excess of amounts necessary to pay current payroll obligations from such accounts.

10.FINANCIAL COVENANTS.

The Borrower covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Revolving Credit Note is outstanding or any Lender has any obligation to make any Loans or the Administrative Agent has any obligation to issue, extend or renew any Letters of Credit:

10.1        Interest Coverage.  The Borrower will not permit the Interest Coverage Ratio for any Reference Period to be less than the ratio set forth opposite such period set forth in such table:

Reference Period Ending	Ratio
Fourth Fiscal Quarter of 2005	2.00:1.00
First Fiscal Quarter of 2006	1.85:1.00
Second, Third and Fourth Fiscal Quarters of 2006 and each Fiscal Quarter thereafter	1.95:1.00

10.2        Capital Expenditures.  The Borrower will not make, or permit any Subsidiary of the Borrower to make (a) Growth Capital Expenditures arising in connection with the construction, acquisition or opening of any new restaurant locations during any fiscal year that exceed, in the aggregate, $7,000,000 per fiscal year, or (b) Capital Expenditures in any fiscal year that exceed, in the aggregate, the amount set forth below opposite such fiscal year and such amount shall include any Growth Capital Expenditures during such fiscal year but shall, solely for the 2006 fiscal year, exclude Capital Expenditures arising under the York Sale-Leaseback Transaction:

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Fiscal Year	Capital Expenditures
2004	$	23,500,000
2005	$	23,500,000
2006	$	24,000,000
2007	$	26,000,000

provided, that if the Borrower and its Subsidiaries do not utilize the entire amount of Capital Expenditures permitted in any one fiscal year, so long as no Default exists or would be caused thereby, the Borrower may carry forward to the immediately succeeding fiscal year $1,000,000 of such unutilized amount (with Capital Expenditures made by the Borrower or any Subsidiary of the Borrower in such succeeding fiscal year applied last to such unutilized amount).

10.3        Minimum EBITDA.

(a)           The Borrower will not permit Consolidated EBITDA for any Reference Period ending during any period described in the table below to be less than the amount set forth opposite such period in such table:

Period	Amount
Fourth Fiscal Quarter of 2005	$	42,000,000
First Fiscal Quarter of 2006	$	38,800,000
Second, Third and Fourth Fiscal Quarters of 2006 and each Fiscal Quarter thereafter	$	40,500,000

(b)           [Intentionally Omitted].

10.4        Leverage Ratio.  The Borrower will not permit the Leverage Ratio for any Reference Period ending during any period described in the table set forth below to exceed the ratio set forth opposite such period in such table:

Period	Ratio
Fourth Fiscal Quarter of 2005	5.80:1.00
First Fiscal Quarter of 2006	6.35:1.00
Second Fiscal Quarter of 2006	5.95:1.00
Third Fiscal Quarter of 2006	5.85:1.00
Fourth Fiscal Quarter of 2006	5.75:1.00
First Fiscal Quarter of 2007 and each Fiscal Quarter thereafter	5.95:1.00

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10.5        [Intentionally Omitted]

10.6        Fixed Charge Coverage Ratio  The Borrower will not permit the Fixed Charge Coverage Ratio for any Reference Period to be less than 1.05:1.00.

11.CLOSING CONDITIONS.

The obligations of the Lenders to continue to make Revolving Credit Loans and of the Administrative Agent to continue to issue any initial Letters of Credit after the date hereof shall be subject to the satisfaction of the following conditions precedent on or prior to March 15, 2006; upon the satisfaction of the conditions in this section 11 (or waiver thereof by WFF), the amendments to section 10 hereof shall become effective retroactive to December 30, 2005.

11.1        Delivery of Documents.  Each of the Loan Documents shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Lenders.

11.2        Validity of Liens.  The Security Documents shall be effective to create in favor of the Administrative Agent a legal, valid and enforceable first (except for Permitted Liens entitled to priority under applicable law) security interest in and Lien upon the Collateral.  All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Administrative Agent to protect and preserve such security interests shall have been duly effected.  The Administrative Agent shall have received evidence thereof in form and substance satisfactory to the Administrative Agent.

11.3        Certificates of Insurance.  The Administrative Agent shall have received (a) a certificate of insurance from an independent insurance broker dated as of the Closing Date, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with the provisions of the Security Agreements and (b) certified copies of all policies evidencing such insurance (or certificates therefor signed by the insurer or an agent authorized to bind the insurer).

11.4        Administrative Agent’s Fee Letter.  The Administrative Agent shall have received the Administrative Agent’s Fee Letter in form and substance reasonably satisfactory to the Administrative Agent.

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11.5        Assignment Agreements.  The Administrative Agent shall have received the Assignment Agreements in form and substance reasonably satisfactory to the Administrative Agent.

11.6        Revolving Credit Notes.  Borrower shall have delivered executed Revolving Credit Notes in favor of each of the Lenders.

11.7        Pledge of Subordinated Promissory Note.  Borrower shall have pledged to Administrative Agent an original executed copy of the Subordinated Promissory Note.

11.8        Patriot Act Searches.  The Administrative Agent shall have completed such Patriot Act searches as it shall require, the results of which shall be satisfactory to Administrative Agent.

11.9        Payment of Fees, Etc.  The Borrower shall have paid all fees, costs, expenses and taxes then payable pursuant to the Loan Documents.

11.10      Miscellaneous.  The Administrative Agent shall have received such other documents and instruments as shall be reasonably required by it in connection with this Credit Agreement and the transactions contemplated thereby.

12.CONDITIONS TO ALL BORROWINGS.

The obligations of the Lenders to make any Loan, including any Revolving Credit Loan, and of the Administrative Agent to issue, extend or renew any Letter of Credit, in each case whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent:

12.1        Representations True; No Event of Default.  Each of the representations and warranties of any of the Borrower and its Subsidiaries contained in this Credit Agreement and the other Loan Documents shall be true in all material respects as of the date as of which they were made and shall also be true in all material respects at and as of the time of the making of such Loan or the issuance, extension or renewal of such Letter of Credit, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing.  The Administrative Agent shall have received a certificate of the Borrower signed by an authorized officer of the Borrower to such effect.

12.2        No Legal Impediment.  No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of any Lender would make it illegal for such Lender to make such Loan or to participate in the issuance, extension or renewal of such Letter of Credit or in the reasonable opinion of the Administrative Agent would make it illegal for the Administrative Agent to issue, extend or renew such Letter of Credit.

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12.3        Proceedings and Documents.  All proceedings in connection with the transactions contemplated by this Credit Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Lenders and to the Administrative Agent and the Administrative Agent’s Special Counsel, and the Lenders, the Administrative Agent and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Administrative Agent may reasonably request.

13.EVENTS OF DEFAULT; ACCELERATION; ETC.

13.1        Events of Default and Acceleration.  If any of the following events (“Events of Default”) shall occur:

(a)           the Borrower shall fail to pay any principal of the Loans or any Reimbursement Obligation when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment;

(b)           the Borrower or any of its Subsidiaries shall fail to pay any interest on the Loans, any Fees, or other sums due hereunder or under any of the other Loan Documents, within three (3) days of such sum becoming due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment;

(c)           the Borrower shall fail to comply with any of its covenants contained in §§8.5, 8.6.1, 8.12, 8.14, 8.18, 8.20, 9 or 10;

(d)           the Borrower or any of its Subsidiaries shall (i) fail to comply with the covenants contained in §8.4 for five (5) days, or (ii) fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this §13.1 (including §13.1(a), (b), and (c))) for twenty (20) days after written notice of such failure has been given to the Borrower by the Administrative Agent;

(e)           any representation or warranty of the Borrower or any of its Subsidiaries in this Credit Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Credit Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated;

(f)            the Borrower or any of its Subsidiaries (other than the SPVs) shall (i)(A) fail to pay at maturity, or within any applicable period of grace, any obligation for borrowed money (including the obligations of the Borrower and its Subsidiaries, as the case may be, under the New Senior Note Indenture or the Sale-Leaseback Transaction but excluding (subject to clause (i)(B) hereof) the FFCA Mortgage Financing Documents), credit received or in respect of any Capitalized Leases which obligation exceeds $1,000,000, or (B) fail to observe or perform any material term, covenant or agreement contained in the FFCA Master Leases or the FFCA Amended and Restated Master Lease, or (ii) fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money (including the New Senior Note Indenture and the Sale-Leaseback Transaction Documents but excluding the FFCA Mortgage Financing Documents) or credit received or in

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respect of any Capitalized Leases which obligation exceeds $1,000,000 for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof or to require the Borrower, to prepay, redeem or repurchase such obligations in whole or in part or offer to prepay, redeem or repurchase such obligations in whole or in part;

(g)           the Borrower or any of its Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Borrower or any of its Subsidiaries or of any substantial part of the assets of the Borrower or any of its Subsidiaries or shall commence any case or other proceeding relating to the Borrower or any of its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against the Borrower or any of its Subsidiaries and the Borrower or any of its Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have been dismissed within sixty (60) days following the filing thereof;

(h)           a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Borrower or any of its Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Borrower or any Subsidiary of the Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted;

(i)            there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty days any final judgment against the Borrower or any of its Subsidiaries that, with other outstanding final judgments, undischarged, against the Borrower or any of its Subsidiaries exceeds in the aggregate (exclusive of any amounts fully covered by insurance (less any applicable deductible)) $1,000,000;

(j)            if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded or the Administrative Agent’s security interests, mortgages or liens in a substantial portion of the Collateral shall cease to be perfected, or shall cease to have the priority contemplated by the Security Documents, in each case otherwise than in accordance with the terms thereof or pursuant to any transaction permitted hereunder or with the express prior written agreement, consent or approval of the Lenders, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of the Borrower or any of its Subsidiaries party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof;

(k)           the Borrower or any ERISA Affiliate incurs any termination liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an

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aggregate amount exceeding $1,000,000, or the Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding $100,000, or any of the following occurs with respect to a Guaranteed Pension Plan:  (i) an ERISA Reportable Event, or a failure to make a required installment or other payment (within the meaning of §302(f)(1) of ERISA), provided that such event (A) could reasonably be expected to result in liability of the Borrower or any of its Subsidiaries to the PBGC or such Guaranteed Pension Plan in an aggregate amount exceeding $100,000 and (B) could reasonably be expected to constitute grounds for the termination of such Guaranteed Pension Plan by the PBGC, for the appointment by the appropriate United States District Court of a trustee to administer such Guaranteed Pension Plan or for the imposition of a lien in favor of such Guaranteed Pension Plan; or (ii) the appointment by a United States District Court of a trustee to administer such Guaranteed Pension Plan; or (iii) the institution by the PBGC of proceedings to terminate such Guaranteed Pension Plan;

(l)            there shall occur any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty, or any eviction of the Borrower from any Units, which in any such case causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities of the Borrower or any of its Subsidiaries which would have a Material Adverse Effect; or

(m)          a Change of Control shall occur; then, and in any such event, so long as the same may be continuing, the Administrative Agent may, and upon the request of the Required Lenders shall, by notice in writing to the Borrower declare all amounts owing with respect to this Credit Agreement, the Revolving Credit Notes and the other Loan Documents and all Reimbursement Obligations to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; provided that in the event of any Event of Default specified in §§13.1(g) or 13.1(h), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Administrative Agent or any Lender.

13.2        Termination of Commitments.  If any one or more of the Events of Default specified in §13.1(g) or §13.1(h) shall occur, any unused portion of the credit hereunder shall forthwith terminate and each of the Lenders shall be relieved of all further obligations to make Loans to the Borrower and the Administrative Agent shall be relieved of all further obligations to issue, extend or renew Letters of Credit.  If any other Event of Default shall have occurred and be continuing, the Administrative Agent may and, upon the request of the Required Lenders, shall, by notice to the Borrower, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and each of the Lenders shall be relieved of all further obligations to make Loans and the Administrative Agent shall be relieved of all further obligations to issue, extend or renew Letters of Credit.  No termination of the credit hereunder shall relieve the Borrower or any of its Subsidiaries of any of the Obligations.

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13.3        Remedies.  In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Lenders shall have accelerated the maturity of the Loans pursuant to §13.1, each Lender, if owed any amount with respect to the Loans or the Reimbursement Obligations, may, with the consent of the Required Lenders but not otherwise, proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Lender are evidenced, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of such Lender.  No remedy herein conferred upon any Lender or the Administrative Agent or the holder of any Revolving Credit Note or purchaser of any Letter of Credit Participation is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law.

13.4        Distribution of Collateral Proceeds.  In the event that, following the occurrence or during the continuance of any Event of Default, the Administrative Agent or any Lender, as the case may be, receives any monies in connection with the enforcement of any of the Security Documents, or otherwise with respect to the realization upon any of the Collateral, such monies shall be distributed for application as follows:

(a)           First, to the payment of, or (as the case may be) the reimbursement of the Administrative Agent for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Administrative Agent in connection with the collection of such monies by the Administrative Agent, for the exercise, protection or enforcement by the Administrative Agent of all or any of the rights, remedies, powers and privileges of the Administrative Agent under this Credit Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Administrative Agent against any taxes or liens which by law shall have, or may have, priority over the rights of the Administrative Agent to such monies;

(b)           Second, to all other Obligations in such order or preference as the Administrative Agent may reasonably determine in good faith; provided, however, that (i) distributions shall be made (A) pari passu among Obligations with respect to the Administrative Agent’s Fee and all other Obligations and (B) with respect to each type of Obligation owing to the Lenders, such as interest, principal, fees and expenses, among the Lenders pro rata, and (ii) the Administrative Agent may in its discretion make proper allowance to take into account any Obligations not then due and payable;

(c)           Third, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Lenders and the Administrative Agent of all of the Obligations, to the payment of any obligations required to be paid pursuant to §9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the Commonwealth of Massachusetts; and

(d)           Fourth, the excess, if any, shall be returned to the Borrower or to such other Persons as are entitled thereto.

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14.THE ADMINISTRATIVE AGENT.

14.1        Authorization.

(a)           The Administrative Agent is authorized to take such action on behalf of each of the Lenders and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to the Administrative Agent, together with such powers as are reasonably incident thereto, including the authority, without the necessity of any notice to or further consent of the Lenders, from time to time to take any action with respect to any Collateral or the Security Documents which may be necessary to perfect, maintain perfected or insure the priority of the security interest in and liens upon the Collateral granted pursuant to the Security Documents, provided that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Administrative Agent.

(b)           The relationship between the Administrative Agent and each of the Lenders is that of an independent contractor.  The use of the term “Administrative Agent” is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Administrative Agent and each of the Lenders.  Nothing contained in this Credit Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between the Administrative Agent and any of the Lenders.

(c)           As an independent contractor empowered by the Lenders to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, the Administrative Agent is nevertheless a “representative” of the Lenders, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Lenders and the Administrative Agent with respect to all collateral security and guaranties contemplated by the Loan Documents.  Such actions include the designation of the Administrative Agent as “secured party,” “mortgagee” or the like on all financing statements and other documents and instruments, whether recorded or otherwise, relating to the attachment, perfection, priority or enforcement of any security interests, mortgages or deeds of trust in collateral security intended to secure the payment or performance of any of the Obligations, all for the benefit of the Lenders and the Administrative Agent.

14.2        Employees and Administrative Agents.  The Administrative Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents.  The Administrative Agent may utilize the services of such Persons as the Administrative Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrower.

14.3        No Liability.  Neither the Administrative Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences

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of any oversight or error of judgment whatsoever, except that the Administrative Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence.

14.4        No Representations.

14.4.1           General.  The Administrative Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement, the Revolving Credit Notes, the Letters of Credit, any of the other Loan Documents or any instrument at any time constituting, or intended to constitute, collateral security for the Revolving Credit Notes, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Revolving Credit Notes, or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of the Borrower or any of its Subsidiaries, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Revolving Credit Notes or to inspect any of the properties, books or records of the Borrower or any of its Subsidiaries.  The Administrative Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by the Borrower or any holder of any of the Revolving Credit Notes shall have been duly authorized or is true, accurate and complete.  The Administrative Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Lenders, with respect to the creditworthiness or financial conditions of the Borrower or any of its Subsidiaries.  Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement.

14.4.2           Closing Documentation, etc.  For purposes of determining compliance with the conditions set forth in §11, each Lender that has executed this Credit Agreement shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document and matter either sent, or made available, by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender.

14.5        Payments.

14.5.1           Payments to Administrative Agent.  A payment by the Borrower to the Administrative Agent hereunder or any of the other Loan Documents for the account of any Lender shall constitute a payment to such Lender.  The Administrative Agent agrees promptly to distribute to each Lender such Lender’s pro rata share of payments received by the Administrative Agent for the account of the Lenders except as otherwise expressly provided herein or in any of the other Loan Documents.

14.5.2           Distribution by Administrative Agent.  If in the opinion of the Administrative Agent the distribution of any amount received by it in such capacity hereunder, under the Revolving Credit Notes or under any of the other Loan Documents might involve it in

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liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction.  If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Administrative Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Administrative Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court.

14.5.3           Delinquent Lenders.  Notwithstanding anything to the contrary contained in this Credit Agreement or any of the other Loan Documents, any Lender that fails (a) to make available to the Administrative Agent its pro rata share of any Loan or to purchase any Letter of Credit Participation or (b) to comply with the provisions of §16.1 with respect to making dispositions and arrangements with the other Lenders, where such Lender’s share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and payable to all of the Lenders, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a “Delinquent Lender”) and shall be deemed a Delinquent Lender until such time as such delinquency is satisfied.  A Delinquent Lender shall be deemed to have assigned any and all payments due to it from the Borrower, whether on account of outstanding Loans, Unpaid Reimbursement Obligations, interest, fees or otherwise, to the remaining nondelinquent Lenders for application to, and reduction of, their respective pro rata shares of all outstanding Loans and Unpaid Reimbursement Obligations.  The Delinquent Lender hereby authorizes the Administrative Agent to distribute such payments to the nondelinquent Lenders in proportion to their respective pro rata shares of all outstanding Loans and Unpaid Reimbursement Obligations.  A Delinquent Lender shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans and Unpaid Reimbursement Obligations of the nondelinquent Lenders, the Lenders’ respective pro rata shares of all outstanding Loans and Unpaid Reimbursement Obligations have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency.

14.6        Holders of Revolving Credit Notes.  The Administrative Agent may deem and treat the payee of any Revolving Credit Note or the purchaser of any Letter of Credit Participation as the absolute owner or purchaser thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder, assignee or transferee.

14.7        Indemnity.  The Lenders ratably agree hereby to indemnify and hold harmless the Administrative Agent and its affiliates from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Administrative Agent or such affiliate has not been reimbursed by the Borrower as required by §16.2), liabilities and payments of every nature and character (collectively, the “Indemnified Liabilities”) arising out of or related to this Credit Agreement, the Revolving Credit Notes, or any of the other Loan Documents (including any and all payments made by Administrative Agent pursuant to the terms of the Transitional Arrangements Agreement) or the transactions contemplated or evidenced hereby or thereby, or the Administrative Agent’s actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Administrative Agent’s willful misconduct or gross negligence.  Without limitation of the

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foregoing, each Lender shall pay to Administrative Agent promptly upon demand an amount equal to such Lender’s Commitment Percentage of any Indemnified Liabilities incurred by Administrative Agent.

14.8        Administrative Agent as Lender.  In its individual capacity, WFF shall have the same obligations and the same rights, powers and privileges in respect to its Commitment and the Loans made by it, and as the holder of any of the Revolving Credit Notes and as the purchaser of any Letter of Credit Participations, as it would have were it not also the Administrative Agent.

14.9        Resignation.  The Administrative Agent may resign at any time by giving sixty (60) days’ prior written notice thereof to the Lenders and the Borrower.  Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent.  Unless an Event of Default shall have occurred and be continuing, such successor Administrative Agent shall be reasonably acceptable to the Borrower.  If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a financial institution having a rating of not less than A or its equivalent by S&P.  Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder.  After any retiring Administrative Agent’s resignation, the provisions of this Credit Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.

14.10      Notification of Defaults and Events of Default.  The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Administrative Agent has received a written notice from a Lender or the Borrower specifying such Default and stating that such notice is a “Notice of Default.”  In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Lenders.  Each Lender hereby agrees that, upon learning of the existence of a Default or an Event of Default, it shall promptly notify the Administrative Agent thereof.

14.11      Duties in the Case of Enforcement.  In case one or more Events of Default have occurred and shall be continuing, and whether or not acceleration of the Obligations shall have occurred, the Administrative Agent shall, if (a) so requested by the Required Lenders and (b) the Lenders have provided to the Administrative Agent such additional indemnities and assurances against expenses and liabilities as the Administrative Agent may reasonably request, proceed to enforce the provisions of the Security Documents authorizing the sale or other disposition of all or any part of the Collateral and exercise all or any such other legal and equitable and other rights or remedies as it may have in respect of such Collateral.  The Required Lenders may direct the Administrative Agent in writing as to the method and the extent of any such sale or other disposition, the Lenders hereby agreeing to indemnify and hold the Administrative Agent,

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harmless from all liabilities incurred in respect of all actions taken or omitted in accordance with such directions; provided that the Administrative Agent need not comply with any such direction to the extent that the Administrative Agent reasonably believes the Administrative Agent’s compliance with such direction to be unlawful or commercially unreasonable in any applicable jurisdiction.

14.12      Release of Collateral.  The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon any Collateral:  (a) upon termination of the Commitments and payment in full of all Loans and all other obligations known to the Administrative Agent and payable under this Agreement or any other Loan Document; (b) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; (c) constituting property in which the Borrower or any Restricted Subsidiary owned no interest at the time the Lien was granted or at any time thereafter; (d) constituting property leased to the Borrower or any Restricted Subsidiary under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Borrower or such Restricted Subsidiary to be, renewed or extended; (e) consisting of an instrument evidencing Indebtedness or other debt instrument, if the indebtedness thereby has been paid in full in cash; or (f) if approved, authorized or ratified in writing by the Required Lenders or, if required by §16.12, all the Lenders.  Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent’s authority to release particular types or items of Collateral pursuant to this §14.12.

15.ASSIGNMENT AND PARTICIPATION.

15.1        Conditions to Assignment by Lenders.  Except as provided herein, each Lender may assign to one or more commercial banks, other financial institutions or other Persons, all or a portion of its interests, rights and obligations under this Credit Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Loans at the time owing to it, the Revolving Credit Notes held by it and its participating interest in the risk relating to any Letters of Credit); provided that (a) each of the Administrative Agent and, unless a Default or Event of Default shall have occurred and be continuing, the Borrower shall have given its prior written consent to such assignment, which consent, in the case of the Administrative Agent and the Borrower, will not be unreasonably withheld; except that the consent of the Borrower or the Administrative Agent shall not be required in connection with any assignment by a Lender to (i) an existing Lender or (ii) a Lender Affiliate of such Lender, (b) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Lender’s rights and obligations under this Credit Agreement, it being understood that non-pro rata assignments of the Commitments and the Revolving Credit Loans are not permitted, (c) each assignment (or, in the case of assignments by a Lender to its Lender Affiliates, the aggregate holdings of such Lender and its Lender Affiliates after giving effect to such assignments), shall be in an amount not less than $2,500,000 and in whole multiple increments of $500,000 in excess thereof (or such lesser amount as shall constitute the aggregate holdings of such Lender), and (d) the parties to such assignment shall execute and deliver to the Administrative Agent, for recording in the Register (as hereinafter defined), an Assignment and Acceptance, together with any Revolving Credit Notes subject to such assignment.  Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and

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Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (y) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder, and (z) the assigning Lender shall, to the extent provided in such assignment and upon payment to the Administrative Agent of the assignment fee referred to in §15.3, be released from its obligations under this Credit Agreement.

15.2        Certain Representations and Warranties; Limitations; Covenants.  By executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows:

(a)           other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Lender makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or the attachment, perfection or priority of any security interest or mortgage;

(b)           the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations of any of their obligations under this Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto;

(c)           such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements referred to in §§7.4 and 8.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance;

(d)           such assignee will, independently and without reliance upon the assigning Lender, the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement;

(e)           such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto;

(f)            such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Credit Agreement are required to be performed by it as a Lender;

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(g)such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance;

(h)such assignee acknowledges that it has made arrangements with the assigning Lender satisfactory to such assignee with respect to its pro rata share of Letter of Credit Fees in respect of outstanding Letters of Credit; and

(i)such assignee acknowledges that it has complied with the provisions of §5.2.3 to the extent applicable;

provided, that no assignment and delegation may be made to any Person if, at the time of such assignment and delegation, the Borrower would be obligated to pay any greater amount under §§5.2.2, 5.6 or 5.7 to the assignee than the Borrower is then obligated to pay to the assigning Lender under such Sections (and if any assignment is made in violation of the foregoing, the Borrower will not be required to pay the incremental amounts).

15.3Register.  The Administrative Agent shall maintain a copy of each Assignment and Acceptance delivered to it and a register or similar list (the “Register”) for the recordation of the names and addresses of the Lenders and the Commitment Percentage of, and principal amount of the Revolving Credit Loans owing to and Letter of Credit Participations purchased by, the Lenders from time to time.  The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Credit Agreement.  The Register shall be available for inspection by the Borrower and the Lenders at any reasonable time and from time to time upon reasonable prior notice.  Upon each such recordation, the assigning Lender agrees to pay to the Administrative Agent an assignment fee in the sum of $3,500.

15.4New Revolving Credit Notes.  Upon its receipt of an Assignment and Acceptance executed by the parties to such assignment, together with each Revolving Credit Note subject to such assignment, the Administrative Agent shall (a) record the information contained therein in the Register, and (b) give prompt notice thereof to the Borrower and the Lenders (other than the assigning Lender).  Within five (5) Business Days after receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent, in exchange for each surrendered Revolving Credit Note, a new Revolving Credit Note to the order of such Assignee in an amount equal to the amount assumed by such Assignee pursuant to such Assignment and Acceptance and, if the assigning Lender has retained some portion of its obligations hereunder, a new Revolving Credit Note to the order of the assigning Lender in an amount equal to the amount retained by it hereunder.  Such new Revolving Credit Notes shall provide that they are replacements for the surrendered Revolving Credit Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Revolving Credit Notes, shall be dated the effective date of such Assignment and Acceptance, and shall otherwise be in substantially the form of the assigned Revolving Credit Notes.  The surrendered Revolving Credit Notes shall be cancelled and returned to the Borrower.

15.5Participations.  Each Lender may sell participations to one or more Lenders or other entities in all or a portion of such Lender’s rights and obligations under this Credit

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Agreement and the other Loan Documents; provided that (a) each such participation shall be in an amount of not less than $2,500,000, (b) any such sale or participation shall not affect the rights and duties of the selling Lender hereunder to the Borrower, (c) the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under each Loan Document, and (d) the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on any Loans, extend the term or increase the amount of the Commitment of such Lender as it relates to such participant, reduce the amount of any Commitment Fee or Letter of Credit Fees to which such participant is entitled, extend any regularly scheduled payment date for principal or interest, release all or substantially all of the Collateral or release all or substantially all of the Guarantors from their guaranty obligations under the Guaranties.

15.6Assignee or Participant Affiliated with the Borrower.  If any assignee Lender is an Affiliate of the Borrower, then any such assignee Lender shall have no right to vote as a Lender hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Administrative Agent pursuant to §13.1 or §13.2, and the determination of the Required Lenders shall for all purposes of this Credit Agreement and the other Loan Documents be made without regard to such assignee Lender’s interest in any of the Loans or Reimbursement Obligations.  If any Lender sells a participating interest in any of the Loans or Reimbursement Obligations to a participant, and such participant is the Borrower or an Affiliate of the Borrower, then such transferor Lender shall promptly notify the Administrative Agent of the sale of such participation.  A transferor Lender shall have no right to vote as a Lender hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Administrative Agent pursuant to §13.1 or §13.2 to the extent that such participation is beneficially owned by the Borrower or any Affiliate of the Borrower, and the determination of the Required Lenders shall for all purposes of this Credit Agreement and the other Loan Documents be made without regard to the interest of such transferor Lender in the Loans or Reimbursement Obligations to the extent of such participation.

15.7Miscellaneous Assignment Provisions.  Any assigning Lender shall retain its rights to be indemnified pursuant to §16.3 with respect to any claims or actions arising prior to the date of such assignment.  If the Reference Lender transfers all of its interest, rights and obligations under this Credit Agreement, the Administrative Agent shall, in consultation with the Borrower and with the consent of the Borrower and the Required Lenders, appoint another Lender to act as the Reference Lender hereunder.  Anything contained in this §15 to the contrary notwithstanding, any Lender may at any time pledge or assign a security interest in all or any portion of its interest and rights under this Credit Agreement (including all or any portion of its Revolving Credit Notes) to secure obligations of such Lender, including any pledge or assignment to secure obligations to (a) any of the twelve Federal Reserve Banks organized under §4 of the Federal Reserve Act, 12 U.S.C. §341 and (b) with respect to any Lender that is a fund that invests in bank loans, to any lender or any trustee for, or any other representative of, holders of obligations owed or securities issued by such fund as security for such obligations or

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securities or any institutional custodian for such fund or for such lender.  Any foreclosure or similar action by any Person in respect of such pledge or assignment shall be subject to the other provisions of this §15.  No such pledge or the enforcement thereof shall release the pledgor Lender from its obligations hereunder or under any of the other Loan Documents, provide any voting rights hereunder to the pledgee thereof, or affect any rights or obligations of the Borrower or Administrative Agent hereunder.

15.8Assignment by Borrower.  The Borrower shall not assign or transfer any of its rights or obligations under any of the Loan Documents without the prior written consent of each of the Lenders.

16.PROVISIONS OF GENERAL APPLICATIONS.

16.1Setoff.  The Borrower hereby grants to the Administrative Agent and each of the Lenders a continuing lien, security interest and right of setoff as security for all liabilities and obligations to the Administrative Agent and each Lender, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Administrative Agent or such Lender or any Lender Affiliate and their successors and assigns or in transit to any of them.  Regardless of the adequacy of any collateral, if any of the Obligations are due and payable and have not been paid or any Event of Default shall have occurred, any deposits or other sums credited by or due from any of the Lenders to the Borrower and any securities or other property of the Borrower in the possession of such Lender may, after giving prior written notice thereof to the Borrower, be applied to or set off by such Lender against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due and owing, now existing or hereafter arising, of the Borrower to such Lender.  ANY AND ALL RIGHTS TO REQUIRE ANY LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.  Each of the Lenders agree with each other Lender that (a) if an amount to be set off is to be applied to Indebtedness of the Borrower to such Lender, other than Indebtedness evidenced by the Revolving Credit Notes held by such Lender or constituting Reimbursement Obligations owed to such Lender, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Revolving Credit Notes held by such Lender or constituting Reimbursement Obligations owed to such Lender, and (b) if such Lender shall receive from the Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Revolving Credit Notes held by, or constituting Reimbursement Obligations owed to, such Lender by proceedings against the Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Revolving Credit Note or Revolving Credit Notes held by, or Reimbursement Obligations owed to, such Lender any amount in excess of its ratable portion of the payments received by all of the Lenders with respect to the Revolving Credit Notes held by, and Reimbursement Obligations owed to, all of the Lenders, such Lender will make such disposition and arrangements with the other Lenders with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each

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Lender receiving in respect of the Revolving Credit Notes held by it or Reimbursement Obligations owed it, its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Lender, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest.

16.2Expenses.  The Borrower agrees to pay (a) any taxes (including any interest and penalties in respect thereto) payable by the Administrative Agent or any of the Lenders (other than franchise taxes and taxes based upon the Administrative Agent’s or any Lender’s net income, profits or receipts) on or with respect to the transactions contemplated by this Credit Agreement (the Borrower hereby agreeing to indemnify the Administrative Agent and each Lender with respect thereto), (b) the reasonable fees, expenses and disbursements of the Administrative Agent’s Special Counsel or any local counsel to the Administrative Agent incurred in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, any amendments, modifications, approvals, consents or waivers hereto or hereunder, or the cancellation of any Loan Document upon payment in full in cash of all of the Obligations or pursuant to any terms of such Loan Document for providing for such cancellation, (c) the fees, expenses and disbursements of the Administrative Agent or any of its affiliates incurred by the Administrative Agent or such affiliate in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, including all title insurance premiums and surveyor, engineering, appraisal, environmental reports to the extent required by this Credit Agreement (including Phase I environmental assessments) and examination charges, (d) any fees, costs, expenses and bank charges, including bank charges for returned checks, incurred by the Administrative Agent in establishing, maintaining or handling agency accounts, lock box accounts and other accounts for the collection of any of the Collateral, (e) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys’ fees and costs, which attorneys may be employees of any Lender (provided, that there is no duplication of effort in respect of the expenses which are charged to the Borrower) or the Administrative Agent, and reasonable consulting, accounting, appraisal, investment bankruptcy and similar professional fees and charges) incurred by any Lender or the Administrative Agent in connection with (i) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or any of its Subsidiaries or the administration thereof after a Default or an Event of Default has occurred and is continuing (including the negotiation of any restructuring or “work-out” with the Borrower, whether or not consummated) and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Lender’s or the Administrative Agent’s relationship with the Borrower or any of its Subsidiaries and (f) all reasonable fees, expenses and disbursements of any Lender or the Administrative Agent incurred in connection with UCC searches, UCC filings, intellectual property searches, intellectual property filings or mortgage recordings.  The covenants contained in this §16.2 shall survive payment or satisfaction in full of all other obligations.  In respect of §16.2(e), prior to the occurrence and continuance of a Default, the Administrative Agent will notify (telephonically or otherwise, as determined by the Administrative Agent in its reasonable discretion) the Borrower prior to the engagement of any outside business consulting or audit services.  Borrower acknowledges that Administrative Agent has engaged CTS Capital Advisors, LLC for consulting services.

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16.3Indemnification.  The Borrower agrees to indemnify and hold harmless the Administrative Agent, its affiliates and the Lenders (collectively, the “Indemnitees”) from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the transactions contemplated hereby including, without limitation, (a) any actual or proposed use by the Borrower or any of its Subsidiaries of the proceeds of any of the Loans or Letters of Credit, (b) any and all payments made by Administrative Agent or any Lender pursuant to the terms of the Transitional Arrangements Agreement, (c) the reversal or withdrawal of any provisional credits granted by the Administrative Agent upon the transfer of funds from lock box, bank agency, concentration accounts or otherwise under any cash management arrangements with the Borrower or any Subsidiary or in connection with the provisional honoring of funds transfers, checks or other items, (d) any actual or alleged infringement of any patent, copyright, trademark, service mark or similar right of the Borrower or any of its Subsidiaries comprised in the Collateral, (e) the Borrower or any of its Subsidiaries entering into or performing this Credit Agreement or any of the other Loan Documents or (f) with respect to the Borrower and its Subsidiaries and their respective properties and assets, the violation of any Environmental Law, the handling, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to, claims with respect to wrongful death, personal injury or damage to property) (all of the foregoing, the “Indemnified Liabilities”), in each case including, without limitation, the reasonable fees and disbursements of counsel and, without duplication of effort, allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding; provided, that the Borrower shall have no obligation hereunder to any Indemnitee with respect to any Indemnified Liabilities to the extent such Indemnitee’s liabilities result from the gross negligence or willful misconduct of such Indemnitee as determined by a final non-appealable adjudication by a court of competent jurisdiction.  In litigation, or the preparation therefor, the Lenders and the Administrative Agent and its affiliates shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel.  If, and to the extent that the obligations of the Borrower under the first sentence of this §16.3 are unenforceable for any reason (other than due to the operation of the proviso to such first sentence), the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law.  The covenants contained in this §16.3 shall survive payment or satisfaction in full of all other Obligations.

16.4Treatment of Certain Confidential Information.

16.4.1Confidentiality.  Each of the Lenders and the Administrative Agent agrees, on behalf of itself and each of its affiliates, directors, officers, employees and representatives, to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Borrower or any of its Subsidiaries pursuant to this Credit Agreement that is identified by such Person as being confidential at the time the same is delivered to the Lenders or the Administrative Agent, provided that nothing herein shall limit the disclosure of any such

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information (a) after such information shall have become public other than through a violation of this §16.4, or becomes available to any of the Lenders or the Administrative Agent on a nonconfidential basis from a source other than the Borrower, (b) to the extent required by statute, rule, regulation or judicial process, (c) to counsel for any of the Lenders or the Administrative Agent, (d) to bank examiners or any other regulatory authority having jurisdiction over any Lender or the Administrative Agent, or to auditors or accountants, (e) to the Administrative Agent, any Lender or any Financial Affiliate, (f) in connection with any litigation to which any one or more of the Lenders, the Administrative Agent or any Financial Affiliate is a party, or in connection with the enforcement of rights or remedies hereunder or under any other Loan Document, (g) to a Lender Affiliate or a Subsidiary or affiliate of the Administrative Agent, (h) to any actual or prospective assignee or participant or any actual or prospective counterparty (or its advisors) to any swap or derivative transactions referenced to credit or other risks or events arising under this Credit Agreement or any other Loan Document so long as such assignee, participant or counterparty, as the case may be, agrees to be bound by the provisions of §16.4 or (i) with the consent of the Borrower.  Moreover, each of the Administrative Agent, the Lenders and any Financial Affiliate is hereby expressly permitted by the Borrower to refer to any of the Borrower and its Subsidiaries in connection with any advertising, promotion or marketing undertaken by the Administrative Agent, such Lender or such Financial Affiliate and, for such purpose, the Administrative Agent, such Lender or such Financial Affiliate may utilize any trade name, trademark, logo or other distinctive symbol associated with the Borrower or any of its Subsidiaries or any of their businesses.

16.4.2Prior Notification.  Unless specifically prohibited by applicable law or court order, each of the Lenders and the Administrative Agent shall, prior to disclosure thereof, notify the Borrower of any request for disclosure of any such non-public information by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) or pursuant to legal process.

16.4.3Other.  In no event shall any Lender or the Administrative Agent be obligated or required to return any materials furnished to it or any Financial Affiliate by the Borrower or any of its Subsidiaries.  The obligations of each Lender under this §16.4 shall supersede and replace the obligations of such Lender under any confidentiality letter in respect of this financing signed and delivered by such Lender to the Borrower prior to the date hereof and shall be binding upon any assignee of, or purchaser of any participation in, any interest in any of the Loans or Reimbursement Obligations from any Lender.

16.5Survival of Covenants, etc.  All covenants, agreements, representations and warranties made herein, in the Revolving Credit Notes, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have been relied upon by the Lenders and the Administrative Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Lenders of any of the Loans and the issuance, extension or renewal of any Letters of Credit, as herein contemplated, and shall continue in full force and effect so long as any Letter of Credit or any amount due under this Credit Agreement or the Revolving Credit Notes or any of the other Loan Documents remains outstanding or any Lender has any obligation to make any Loans or the Administrative Agent has any obligation to

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issue, extend or renew any Letter of Credit, and for such further time as may be otherwise expressly specified in this Credit Agreement.  All statements contained in any certificate or other paper delivered to any Lender or the Administrative Agent at any time by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower or such Subsidiary hereunder.

16.6Notices.  Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Revolving Credit Notes or any Letter of Credit Applications shall be in writing and shall be delivered in hand, mailed by United States registered or certified first-class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy or facsimile and confirmed by delivery via courier or postal service, addressed as follows:

(a)if to the Borrower, at 1855 Boston Road, Wilbraham, Massachusetts 01095, Attention:  Paul Hoagland, with a mandatory copy to Aaron Parker at the same address, or, in each case, at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice;

(b)if to the Administrative Agent, at: Wells Fargo Foothill, Inc., 2450 Colorado Avenue, Suite 3000 West, Santa Monica, California 90404, Attn: Business Finance Division Manager; and

(c)if to any Lender, at such Lender’s address set forth on Schedule 1 hereto, or such other address for notice as such Lender shall have last furnished in writing to the Person giving the notice.

Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile, and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof.

16.7Governing Law.  THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).  THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS  OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN §16.6.  THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY

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SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

16.8Headings.  The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof.

16.9Counterparts.  This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when executed and delivered shall be an original, and all of which together shall constitute one instrument.  In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought.  Delivery by facsimile by any of the parties hereto of an executed counterpart hereof or of any amendment or waiver hereto shall be as effective as an original executed counterpart hereof or of such amendment or waiver and shall be considered a representation that an original executed counterpart hereof or such amendment or waiver, as the case may be, will be delivered.

16.10Entire Agreement, etc.  The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby.  Neither this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in §16.12.

16.11Waiver of Jury Trial.  EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS CREDIT AGREEMENT, THE REVOLVING CREDIT NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER RELATING TO THE ADMINISTRATION OF THE LOANS OR ENFORCEMENT OF THE LOAN DOCUMENTS AND AGREES THAT IT WILL NOT SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.  Except as prohibited by law, the Borrower hereby waives any right it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages.  The Borrower (a) certifies that no representative, agent or attorney of any Lender or the Administrative Agent has represented, expressly or otherwise, that such Lender or the Administrative Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that the Administrative Agent and the Lenders have been induced to enter into this Credit Agreement, the other Loan Documents to which it is a party by, among other things, the waivers and certifications contained herein.

16.12Consents, Amendments, Waivers, etc.  Any consent or approval required or permitted by this Credit Agreement to be given by the Lenders may be given, and any term of this Credit Agreement, the other Loan Documents or any other instrument related hereto or

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mentioned herein may be amended, and the performance or observance by the Borrower or any of its Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrower and the written consent of the Required Lenders; provided, that the Borrower may unilaterally amend Schedule 7.19 as required by §7.19 or Schedule 1(f). Notwithstanding the foregoing, no amendment, modification or waiver shall:

(a)without the written consent of the Borrower and each Lender directly affected thereby:

(i)reduce or forgive the principal amount of any Loans or Reimbursement Obligations, or reduce the rate of interest on the Revolving Credit Notes or the amount of the Commitment Fee or Letter of Credit Fees (other than (A) interest accruing pursuant to §5.10 following the effective date of any waiver by the Required Lenders of the Default or Event of Default relating thereto or (B) as a result of a change in the definition of Leverage Ratio or any of the components thereof or the method of calculation thereto);

(ii)increase the amount of such Lender’s Commitment or extend the expiration date of such Lender’s Commitment;

(iii)postpone or extend the Revolving Credit Loan Maturity Date or any other regularly scheduled dates for payments of principal of, or interest on, the Loans or Reimbursement Obligations or any Fees or other amounts payable to such Lender (it being understood that (A) a waiver of the application of the default rate of interest pursuant to §5.10, and (B) any vote to rescind any acceleration made pursuant to §13.1 of amounts owing with respect to the Loans and other Obligations shall require only the approval of the Required Lenders); and

(iv)other than pursuant to a transaction permitted by the terms of this Credit Agreement, release all or substantially all of the Collateral or release all or substantially all of the Guarantors from their guaranty obligations under the Guaranties (excluding, if the Borrower or any Subsidiary of a Borrower becomes a debtor under the federal Bankruptcy Code, the release of “cash collateral,” as defined in Section 363(a) of the federal Bankruptcy Code pursuant to a cash collateral stipulation with the debtor approved by the Required Lenders);

(b)without the written consent of all of the Lenders, amend or waive this §16.12 or the definition of Required Lenders;

(c)without the written consent of the Administrative Agent, amend or waive §2.6.2, §14, the amount or time of payment of the Administrative Agent’s Fee or any Letter of Credit Fees payable for the Administrative Agent’s account or any other provision applicable to the Administrative Agent.

No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon.  No course of dealing or delay or omission on the part of the Administrative Agent or any Lender in exercising any right shall operate as a waiver thereof or otherwise be

91

prejudicial thereto.  No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances.

16.13Severability.  The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction.

16.14No Novation.  This Agreement does not extinguish the obligations for the payment of money outstanding under the Original Credit Agreement or discharge or release the obligations or the liens or priority of any mortgage, pledge, security agreement or any other security therefor.  Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Original Credit Agreement  or instruments securing the same, which shall remain in full force and effect, except as modified hereby or by instruments executed concurrently herewith.  Nothing expressed or implied in this Agreement shall be construed as a release or other discharge of the Borrower from any of their obligations or liabilities under the Original Credit Agreement or any of the security agreements, pledge agreements, mortgages, guaranties or other loan documents executed in connection therewith.  Each signatory to this Amended and Restated Credit Agreement hereby (a) confirms and agrees that each Loan Document to which it is a party that is not being amended and restated concurrently herewith is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the Restatement Effective Date all references in any such Loan Document to “the Revolving Credit Agreement”, “the Credit Agreement”, “thereto,” “thereof,” “thereunder” or words of like import referring to the Original Credit Agreement shall mean the Original Credit Agreement as amended and restated by this Agreement; and (b) confirms and agrees that to the extent that any such Loan Document purports to assign or pledge to the Administrative Agent or to grant to the Administrative Agent a security interest in or lien on, any collateral as security for the obligations of the Borrower from time to time existing in respect of the Original Credit Agreement, such pledge or assignment or grant of the security interest or lien is hereby ratified and confirmed in all respects.

92

IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as a sealed instrument as of the date first set forth above.

FRIENDLY ICE CREAM CORPORATION
By:	/s/ PAUL V. HOAGLAND
	Name: Paul V. Hoagland
	Title: VP Administration & CFO
WELLS FARGO FOOTHILL, INC, as Administrative Agent and as a Lender
By:	/s/ STACY HOPKINS
	Name: Stacy Hopkins
	Title: Vice President

EXHIBIT A

FORM OF
ASSIGNMENT AND ACCEPTANCE

Dated as of            

Reference is made to the Amended and Restated Revolving Credit Agreement, dated as of March 15, 2006 (as from time to time amended and in effect, the “Credit Agreement”), by and among FRIENDLY ICE CREAM CORPORATION, a Massachusetts corporation (the “Borrower”), the financial institutions referred to therein as Lenders (collectively, the “Lenders”), and WELLS FARGO FOOTHILL, INC., a California corporation, as agent (in such capacity, the “Administrative Agent”) for the Lenders.  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.

                            (the “Assignor”) and                        (the “Assignee”) hereby agree as follows:

1.Assignment.  Subject to the terms and conditions of this Assignment and Acceptance, the Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes without recourse to the Assignor, a $                        interest in and to the rights, benefits, indemnities and obligations of the Assignor under the Credit Agreement equal to              % in respect of the Total Commitment immediately prior to the Effective Date (as hereinafter defined).

2.Assignor’s Representations.  The Assignor (i) represents and warrants that (A) it is legally authorized to enter into this Assignment and Acceptance, (B) as of the date hereof, its Commitment is $                   , its Commitment Percentage is           %, the aggregate outstanding principal balance of its Revolving Credit Loans equals $               the aggregate amount of its Letter of Credit Participations equals $              (in each case after giving effect to the assignment contemplated hereby but without giving effect to any contemplated assignments which have not yet become effective), and (C) immediately after giving effect to all assignments which have not yet become effective, the Assignor’s Commitment Percentage will be sufficient to give effect to this Assignment and Acceptance; (ii) makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or any of the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any of the other Loan Documents or any other instrument or document furnished pursuant thereto or the attachment, perfection or priority of any security interest or mortgage, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder free and clear of any claim or encumbrance; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any of its [Restricted] Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by the Borrower or any of its [Restricted] Subsidiaries or any other

Person primarily or secondarily liable in respect of any of the Obligations of any of its obligations under the Credit Agreement or any of the other Loan Documents or any other instrument or document delivered or executed pursuant thereto; and (iv) attaches hereto the Revolving Credit Note delivered to it under the Credit Agreement.

The Assignor requests that the Borrower exchange the Assignor’s Revolving Credit Note for new Revolving Credit Notes payable to the Assignor and the Assignee as follows:

Notes Payable to the Order of:	Amount of Revolving Credit Note:
Assignor	$
Assignee	$

3.Assignee’s Representations.  The Assignee (i) represents and warrants that (A) it is duly and legally authorized to enter into this Assignment and Acceptance, (B) the execution, delivery and performance of this Assignment and Acceptance do not conflict with any provision of law or of the charter or by-laws of the Assignee, or of any agreement binding on the Assignee, (C) it has delivered or is delivering concurrently herewith, the forms required by § 5.2.3 of the Credit Agreement, and (D) all acts, conditions and things required to be done and performed and to have occurred prior to the execution, delivery and performance of this Assignment and Acceptance, and to render the same the legal, valid and binding obligation of the Assignee, enforceable against it in accordance with its terms, have been done and performed and have occurred in due and strict compliance with all applicable laws; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to § 8.4 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (iii) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iv) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (v) agrees that it will perform in accordance with their terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender.

4.Effective Date.  The effective date for this Assignment and Acceptance shall be                             (the “Effective Date”).  Following the execution of this Assignment and Acceptance and, unless a Default or an Event of Default shall have occurred and be continuing, the consent of the Borrower hereto having been obtained, each party hereto shall deliver its duly executed counterpart hereof to the Administrative Agent for consent by the Administrative Agent and recording in the Register by the Administrative Agent.

2

5.Rights Under Credit Agreement.  Upon such acceptance and recording, from and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder, and (ii) the Assignor shall, with respect to that portion of its interest under the Credit Agreement assigned hereunder, relinquish its rights and be released from its obligations under the Credit Agreement; provided, however, that the Assignor shall retain its rights to be indemnified pursuant to §§ 5.9, 14.7, and 16.3 of the Credit Agreement with respect to any claims or actions arising prior to the Effective Date.

6.Payments.  Upon such acceptance of this Assignment and Acceptance by the Administrative Agent and such recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the rights and interests assigned hereby (including payments of principal, interest, fees and other amounts) to the Assignee.  The Assignor and the Assignee shall make any appropriate adjustments in payments for periods prior to the Effective Date by the Administrative Agent or with respect to the making of this assignment directly between themselves.

7.Governing Law.  THIS ASSIGNMENT AND ACCEPTANCE IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT TO BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS).

8.Counterparts.  This Assignment and Acceptance may be executed in any number of counterparts which shall together constitute but one and the same agreement.

IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Assignment and Acceptance to be executed on its behalf by its officer thereunto duly authorized, as of the date first above written.

3

		[NAME OF ASSIGNOR]
		By:
			Name:
			Title:
		[NAME OF ASSIGNEE]
		By:
			Name:
			Title:
CONSENTED TO:
WELLS FARGO FOOTHILL, INC.,
As Administrative Agent
By:
	Name:
	Title:

4

EXHIBIT B

FORM OF REVOLVING CREDIT NOTE

$                                                                                                                                                                    0;                  as of       , 20  

FOR VALUE RECEIVED, the undersigned, FRIENDLY ICE CREAM CORPORATION, a Massachusetts corporation (the “Borrower”), hereby absolutely and unconditionally promises to pay to the order of [PAYEE LENDER] (the “Lender”) at the Administrative Agent’s Office (as defined in the Credit Agreement referred to below):

(a)prior to or on [PAYMENT DATE] the principal amount of [               Dollars ($           )] or, if less, the aggregate unpaid principal amount of Revolving Credit Loans advanced by the Lender to the Borrower pursuant to the Amended and Restated Revolving Credit Agreement, dated as of March 15, 2006 (as amended and in effect from time to time, the “Credit Agreement”), among the Borrower, the Lenders and Fleet National Bank, as Administrative Agent for the Lenders;

(b)interest on the principal balance hereof from time to time outstanding from the Closing Date under the Credit Agreement through and including the maturity date hereof at the times and at the rates provided in the Credit Agreement; and

(c)all fees and other Obligations due to the Lender.

This Revolving Credit Note evidences borrowings under, is subject to the terms and conditions of, and has been issued by the Borrower in accordance with the terms of the Credit Agreement, and is a Revolving Credit Note referred to therein.  The Lender and any holder hereof is entitled to the benefits and subject to the conditions of the Credit Agreement and the other Loan Documents, and may enforce the agreements of the Borrower contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof.  All capitalized terms used in this Revolving Credit Note and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement.

The Borrower irrevocably authorizes the Lender to make or cause to be made, at or about the time of the Drawdown Date of any Revolving Credit Loan or at the time of receipt of any payment of principal of this Revolving Credit Note, an appropriate notation on the record attached hereto, or the continuation of such record, or any other similar record, including computer records, reflecting the making of such Revolving Credit Loan or (as the case may be) the receipt of such payment.  The outstanding amount of the Revolving Credit Loans set forth on such record, or the continuation of such record, or any other similar record, including computer records, maintained by the Lender with respect to any Revolving Credit Loans shall be prima facie evidence of the principal amount thereof owing and unpaid to the Lender, but the failure to record, or any error in so recording, any such amount on any such record, continuation or other record shall not limit or otherwise affect the obligation of the Borrower hereunder or under the Credit Agreement to make payments of principal of and interest on this Revolving Credit Note when due.

5

The Borrower has the right in certain circumstances and the obligation under certain other circumstances to prepay the whole or part of the principal of this Revolving Credit Note on the terms and conditions specified in the Credit Agreement.

If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Revolving Credit Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement.

No delay or omission on the part of the Lender or any holder hereof in exercising any right hereunder shall operate as a waiver of such right or of any other rights of the Lender or such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any further occasion.

The Borrower and every endorser and guarantor of this Revolving Credit Note or the obligation represented hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Revolving Credit Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person primarily or secondarily liable.

THIS REVOLVING CREDIT NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).  THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS REVOLVING CREDIT NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN § 16.6(a) OF THE CREDIT AGREEMENT.  THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

6

This Revolving Credit Note shall be deemed to take effect as a sealed instrument under the laws of the Commonwealth of Massachusetts.

IN WITNESS WHEREOF, the undersigned has caused this Revolving Credit Note to be signed in its corporate name and its corporate seal to be impressed thereon by its duly authorized officer as of the day and year first above written.

[Corporate Seal]

THE BORROWER:
FRIENDLY ICE CREAM CORPORATION
By:
	Name:
	Title:

7

Date Amount of Loan Amount of
Principal Paid or
Prepaid Balance of
Principal Unpaid Notation Made
By:

EXHIBIT C

LOAN AND LETTER OF CREDIT REQUEST

FRIENDLY ICE CREAM CORPORATION

Pursuant to the
Revolving. Credit Agreement
(the “Credit Agreement”),

dated as of March 15, 2006

Revolving Credit Loan Request Under § 2.6

Total Commitment:	$
(a)Amount of this Revolving Credit Loan Request:	$
Requested Drawdown Date:
Requested Loan Type (Eurodollar or Base Rate):
Requested Interest Period (Eurodollar Loans only):
(b)Aggregate of all Revolving Credit Loans and Swing Line Loans outstanding:	$
(c)Maximum Drawing Amount (of all Letters of Credit outstanding) plusamount of any Letter of Credit requested herewith:	$
(d)Unpaid Reimbursement Obligations	$
Sum of (a) plus (b) plus (c) plus (d): Not to exceed Total Commitment	$

8

Letter of Credit Request Under § 4.1

Total Commitment:	$
(e)Amount of this Letter of Credit Request from Letter of Credit Application (attached):	$
(f)Maximum Drawing Amount (of all Letters of Credit outstanding):	$
Sum of (e) plus (f):	$
(g)Not to exceed $20,000,000	$
(h)Aggregate of all Revolving Credit Loans outstanding plus all Swing Line Loans outstanding plus amount of any Revolving Credit Loan requested herewith:	$
Sum of (g) Plus (h): Not to exceed Total Commitment	$

9

The undersigned certifies that, as of the date hereof, (i) the above information is true and correct, (ii) no Default or Event of Default exists and (iii) all of the representations and warranties contained in §7 of the Credit Agreement are true and correct in all material respects (except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and changes occurring in the ordinary course of business which singly or in the aggregate are not materially adverse, or to the extent that such representations and warranties relate solely and expressly to an earlier date).

THE BORROWER:

FRIENDLY ICE CREAM CORPORATION

By:

10

Schedule A-1

Administrative Agent’s Account

An account at a bank designated by Administrative Agent from time to time as the account into which Borrower shall make all payments to Administrative Agent for the benefit of the Lender Group and into which the Lender Group shall make all payments to Administrative Agent under this Credit Agreement and the other Loan Documents; unless and until Administrative Agent notifies Borrower and the Lender Group to the contrary, Administrative Agent’s Account shall be that certain deposit account bearing account number 323-266193 and maintained by Administrative Agent with JPMorgan Chase Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, ABA  #021000021.

SCHEDULE 1(a)

Lender	Commitment Amount		Commitment Percentage
Wells Fargo Foothill, Inc.	$	35,000,000	100	%
Total:	$	35,000,000	100	%

SCHEDULE 1(b)

Core Mortgaged Properties

RESTAURANT #	PROPERTY ADDRESS	CITY	STATE
536	72 PORTSMOUTH AVE.	EXETER	NH
611	70 BROAD STREET, ROUTE 80	BRIDGEWATER	MA
652	25600 CENTER RIDGE ROAD	WESTLAKE	OH
	3
L/O

REST #	PROPERTY ADDRESS	CITY	ST
470	275 BOSTON POST ROAD	DARIEN	CT
729	103 TALCOTTVILLE ROAD	VERNON	CT
759	497 FARMINGTON AVE	BRISTOL	CT
934	89 ENFIELD STREET	ENFIELD	CT
955	48 BERLIN ROAD	CROMWELL	CT
1213	240 BUCKLAND ST	MANCHESTER	CT
1229	SOPHIA’S PLAZA, RTS 140&5	EAST WINDSOR	CT
1244	1040 BOSTON POST ROAD	MILFORD	CT
1251	230 NEW BRITAIN AVENUE	PLAINVILLE	CT
	9
331	70 CENTRAL STREET	FOXBORO	MA
443	P.O. BOX 402	STURBRIDGE	MA
496	PO BOX 698	LENOX	MA
538	1536 MAIN STREET	MEDFIELD	MA
689	MARIANNO S. BISHOP BLVD	FALL RIVER	MA
845	560 ARSENAL ST	WATERTOWN	MA
859	18 PEARSON BLVD	GARDNER	MA
896	777 BROADWAY	SAUGUS	MA
1027	146 CHURCH STREET	PEMBROKE	MA
1203	2 DAVIS STRAITS RD	FALMOUTH	MA
	10
1065	210 MAINE MALL ROAD	SO PORTLAND	ME
1224	373 MAIN ST	WATERVILLE	ME
1242	789 ROOSEVELT TRAIL	WINDHAM	ME
	3
283	804 MAIN STREET	TOMS RIVER	NJ
343	114 COUNTY ROAD	TENAFLY	NJ
752	505 ROUTE 130	CINNAMINSON	NJ
771	1230 HIGHWAY 35	MIDDLETOWN	NJ

RESTAURANT #	PROPERTY ADDRESS	CITY	STATE
918	451 N HURFFVILLE ROAD	DEPTFORD	NJ
	5
774	17505 EAST BAGLEY RD	MIDDLEBURG HEIGHTS	OH
777	2345 E DUBLIN-GRANVILLE-RT161	COLUMBUS	OH
1041	27751 CHARDON ROAD	WILLOUGHBY HILLS	OH
	3
362	897 WEST TRENTON AVENUE	MORRISVILLE	PA
776	ROOSEVELT AVE & RED LION RD	PHILADELPHIA	PA
1058	717 EAST MAIN ST	PALMYRA	PA
1236	5360 LINCOLN HIGHWAY	GAP	PA
1237	1701 QUENTIN RD	LEBANON	PA
4005	706 NO. BLAKELY STREET	DUNMORE	PA
	6
672	1177 RESERVOIR AVE	CRANSTON	RI
885	1883 MINERAL SPRING AVENUE	N PROVIDENCE	RI
1017	45 NEWPORT AVENUE	PAWTUCKET	RI
	3
617	P.O. BOX 1093, DEPOT STA. RTE. 30	MANCHESTER	VT
874	RFD # 5 BOX 148A	BRATTLEBORO	VT
1082	310 WILLISTON ROAD	WILLISTON	VT
	3
	CORPORATE HEADQUARTERS		MA
	1
	TOTALS

SCHEDULE 1(c)

Encumbered Properties

Store #	ADDRESS*
73	1946 Wilbraham Rd., Springfield, MA
62	519 N. Main St., Palmer, MA
162	435 Speedwell Ave., Morris Plains, NJ
206	415 Washington St., Weymouth, MA
211	441 Hillsdale Ave., Hillsdale, NJ
214	96 E. Main St., Westboro, MA
227	511 Main St., Stoneham, MA
231	445 Main St., RT #117, Mt. Kisco, NY
236	741 Brick Blvd., Bricktown, NJ
237	1243 Broad St., Bloomfield, NJ
241	247 Saratoga Rd., Glenville, NY
242	2944 Main St., Glastonbury, CT
244	1206 River Rd., Fairlawn, NJ
302	1229 South Willow St., Manchester, NH
337	300 South St., Bennington, VT
342	1835 Farmington Ave., Unionville, CT
376	81 Wolf Rd., Albany, NY
399	195 Godwin Ave., Midland Park, NJ
406	1549 North Broad St., Lansdale, PA
421	708 Belmont St., Brockton, MA
437	1655 Columbia Ave. Lancaster, PA
438	380 West Street Rd., Warminster, PA
516	1985 Washington St., Hanover, MA
520	1021 Main St., South Weymouth, MA
548	400 North Park Ave., Wyomissing, PA
595	166 West Street, Keene, NH
647	2150 Lincoln Highway, E., Lancaster, PA
655	77 South Main St., Rochester, NH
664	304 Mountain Ave., Hackettstown, NJ
725	Andover St., Peabody, MA
728	55 Sumner Ave., Springfield, MA
745	544 Reidville Dr., Waterbury, CT
794	140 Franklin St., Westerly, RI
812	199 Spencer St., Manchester, CT
814	748 G.A.R. Highway-Rts., Swansea, MA
818	Colonial Heights-2960 Blvd, VA
825	Route #16, North Conway, NH
832	1811 Boston Rd., Springfield, MA
863	360 route 211 East, Middletown, NY
870	841 Dalton Ave., Pittsfield, MA
873	1180 Union Ave, Laconia, NH
946	2 Stoneleigh Ave., Carmel, NY
982	445 SteiinWehr Ave., Gettsburg, PA
1232	10 Washington St., Attleboro, MA
4225	81 Newtown Rd., Danbury, CT
45	Sale-Leasebacks

The sale-Leaseback list may be increased by one or more of the properties on Schedule 1.D.

Store #	Address	City	State
3	697 Southbridge St.	Auburn	MA
25	562 N. Main St.	East Longmeadow	MA
31	240 Stockbridge Rd.	Great Barrington	MA
41	109 Housatonic St.	Lee	MA
53	221 State Rd.	North Adams	MA
57	620 W. Main St.	Norwich	CT
105	368 Federal St.	Greenfield	MA
154	966 Grafton St.	Worcester	MA
155	213 Independence Ave.	Quincy	MA
172	1745 Northampton St	Holyoke	MA
175	1463 Raritan Rd.	Clark	NJ
183	661 Upper Glen St.	Glens Falls	NY
189	1671 Western Ave.	Albany	NY
192	255 Broadway	Methuen	MA
204	270 Delaware Ave.	Elsmere	NY
228	105 W. Town St.	Norwich	CT
238	173 Chestnut St.	Needham	MA
263	471 Sabattus Street	Lewiston	ME
268	462 E. Main St.	Torrington	CT
275	631 South Dartmouth St.	South Dartmouth	MA
315	580 Park Ave	Worcester	MA
332	111 Main St.	Fishkill	NY
333	9 Troy Rd.	East Greenbush	NY
369	630 Washington St.	Stoughton	MA
315	580 Park Ave	Worcester	MA
403	403-409 Washington Ave.	Kingston	NY
433	203 N. Main St.	Concord	NH
462	43 Lancaster Ave.	Frazer	PA
465	1901 W Main St	Troy	OH
514	699 Hancock St.	Wollaston	MA
565	524 Pleasant St.	Attleboro	MA
571	204 E Broad St	Elyria	OH
581	435 Livingston St.	Norwood	NJ
588	808 Coshocton Ave	Mount Vernon	OH
632	564 W National Rd	Vandalia	OH
641	9165 Ridge Pike	Philadelphia	PA
642	6400 York Rd	Parma Heights	OH
671	1803 Richmond Rd.	Williamsburg	VA
690	550 Middlesex Ave.	Metuchen	NJ
706	288 S. Main St	Rutland	VT
723	737 New Loudon Rd.	Latham	NY
724	427 Rt. 44	Raynham	MA
731	438 Route 28	West Yarmouth	MA
736	1090 Iyanough Rd.	Hyannis	MA
737	4010 Jonestown Rd.	Harrisburg	PA
743	10 Canal RSt (Buzzards Bay)	Bourne	MA
754	3921 Medina Rd	Akron	OH
760	4490 Everhard Rd	North Canton	OH
784	1502 Reynolds Rd	Maumee	OH
788	2 Corporate Dr.	Windsor Locks	CT
790	200 Mohawk Trail	Greenfield	MA
809	10601 Patterson Ave.	Richmond	VA
810	5220 Brook Rd.	Richmond	VA
815	24 Monument Square	Leominster	MA
816	529 Memorial Dr.	Chicopee	MA
822	RT. #9W 1354 Ulster Ave.	Kingston	NY
824	168 Easton Rd.	Horsham	PA
830	1160 Main St.	Haverhill	MA
846	81 Central Dr	Plattsburgh	NY
847	1094 Riverdale St.	West Springfield	MA
854	1700 Burrstone Rd.	New Hartford	NY
868	815 Route 146	Clifton Park	NY
869	2520 W. Hundred Rd.	Chester	VA
900	1060 Page Blvd.	Springfield	MA
904	60 Nott Terrace	Schenectady	NY
945	871 Central Ave.	Dover	NH
959	3281 Dayton Xenia Rd	Beaver Creek	OH
962	2934 S Arlington Rd	Akron	OH
967	2456 Lafayette Rd.	Portsmouth	NH
995	1151 Fall River Avenue	Seekonk	MA
1003	147 Loudon Rd	Concord	NH
1016	95 Main St.	Ware	MA
1053	981 Rt. 37 West	Toms River	NJ
1059	3201 State Highway 35	Hazlet	NJ
1235	13800 Fribble Way	Midlothian	VA
75	Mortgaged

SCHEDULE 1(d)

Excess Properties

Store #	ADDRESS*
37	313 W. Housatonic St., Pittsfield, MA
60	247 Broadway, Taunton, MA
97	1405 Main Street, Wilamantic, CT
329	52 W. Main St., Clinton, CT
800	1261 Westfield St., W. Springfield, MA.
925	340 Sawmill Rd., West Haven, CT.
6	Excess Properties

SCHEDULE 1(e)

Non-Encumbered Properties

UNENCUMBERED PROPERTIES

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
00022	757 Providence Pike	Dedham	MA	02026	NORFOLK	REST
00028	464 John Fitch Highway	Fitchburg	MA	01420	WORCESTER	REST
00083	White City Shopping Center	Shrewsbury	MA	01545	WORCESTER	REST
00085	Northgate Shopping Center	Revere	MA	02151	SUFFOLK	REST
00087	133 East Main Street	Webster	MA	01570	WORCESTER	REST
00090	431 East Main Street	Westfield	MA	01085	HAMPDEN	REST
00091	1045 Silas Deane Highway	Wethersfield	CT	06109	HARTFORD	REST
00102	Salem Plaza	Salem	NH	03079	ROCKINGHAM	REST
00126	361 Central Street	Hartsdale	NY	10530	WESTCHESTER	REST
00132	Colonie Shopping Center	Colonie	NY	12205	ALBANY	REST
00152	477 Tuckahoe Road	Yonkers	NY	10710	WESTCHESTER	REST
00156	4545 North Main Street	Bridgeport	CT	06606	FAIRFIELD	REST
00161	866 North Main Street	Randolph	MA	02368	NORFOLK	REST
00180	20 Boston Road	Chelmsford	MA	01824	MIDDLESEX	REST
00190	Searstown Shopping Center	Leominster	MA	01453	WORCESTER	REST
00194	632 Bloomfield Avenue	West Caldwell	NJ	07006	ESSEX	REST
00215	956 North Colony Road	Wallingford	CT	06492	NEW HAVEN	REST
00234	357 Main Street	Southbridge	MA	01550	WORCESTER	REST
00281	139 North Dartmouth Mall	North Dartmouth	MA	02747	BRISTOL	REST
00284	170 Bath Road	Brunswick	ME	04011	CUMBERLAND	REST
00286	192 Madison Avenue	Convent Station	NJ	07961	MORRIS	REST
00320	Hanover Mall	Hanover	MA	02339	PLYMOUTH	REST
00371	510 Boston Road	Billerica	MA	01821	MIDDLESEX	REST
00391	Westmont Plaza	Westmont	NJ	08108	CAMDEN	REST
00392	1001 Whitehorse-Mercervil	Trenton	NJ	08610	MERCER	REST
00402	27 Temple Street	Framingham	MA	01701	MIDDLESEX	REST
00408	387 Massachusetts Avenue	Acton	MA	01720	MIDDLESEX	REST
00439	1983 Commerce Street Heights	Yorktown	NY	10598	WESTCHESTER	REST
00457	Eastchester Mall	Scarsdale	NY	10583	WESTCHESTER	REST
00489	1250 Baltimore Pike	Springfield	PA	19064	DELAWARE	REST
00559	300 North Almonesson Avenue	Deptford	NJ	08096	GLOUCESTER	REST
00560	Monmouth Mall	Eatontown	NJ	07724	MONMOUTH	REST
00563	11 Main Street	West Harwich	MA	02671	BARNSTABLE	REST
00567	188 Quaker Bridge Mall	Lawrenceville	NJ	08648	MERCER	REST
00576	106 Neshaminy Mall	Cornwells	PA	19020	BUCKS	REST
00616	699 Ocean County Mall	Toms River	NJ	08753	OCEAN	REST
00693	325 Pennsylvania Avenue	Fort Washington	PA	19034	MONTGOMERY	REST
00710	8040 West Broad Street	Richmond	VA	23229	HENRICO	REST
00711	1060 Waltham Street	Lexington	MA	02173	MIDDLESEX	REST
00712	1184 Shelburne Road	South Burlington	VT	05401	CHITTENDEN	REST
00720	Town Square Mall	Rockaway	NJ	07866	MORRIS	REST
00727	1462 East Lincoln Highway	Langhorne	PA	19047	BUCKS	REST
00735	Holyoke Mall	Holyoke	MA	01040	HAMPDEN	REST
00742	Newburgh Mall	Newburgh	NY	12550	ORANGE	REST
00747	3850 Mystic Valley Parkway	Medford	MA	02155	MIDDLESEX	REST

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
00748	3000 Lycoming Mall Circle	Pennsdale	PA	17756	LYCOMING	REST
00753	1200 Carlisle Street	Hanover	PA	17331	YORK	REST
00756	1000 Reese Avenue	Hershey	PA	17033	DAUPHIN	REST
00789	1210 Hooper Avenue	Tom’s River	NJ	08753	OCEAN	REST
00781	160 North Gulph Road	King of Prussia	PA	19406	MONTGOMERY	REST
00782	1300 Ulster Avenue ML-HUD	Kingston	NY	12401	ULSTER	REST
00797	6226 West Manchester Mall	York	PA	17404	YORK	REST
00799	1100 North Delsea Drive	Glassboro	NJ	08028	GLOUCESTER	REST
00807	11603 Midlothian Turnpike	Midlothian	VA	23113	CHESTERFIELD	REST
00818	2960 Boulevard	Colonial Heights	VA	23834	COLONIAL H	REST
00823	820 Central Avenue	Albany	NY	12206	ALBANY	REST
00841	120 Washington Avenue Ext	Albany	NY	12203	ALBANY	REST
00842	44 Aviation Road	Glens Falls	NY	12801	WARREN	REST
00848	800 East Main Street	Meriden	CT	06450	NEW HAVEN	REST
00850	1098 Mantua Pike	Wenonah	NJ	08090	GLOUCESTER	REST
00852	307 State Road	North Dartmouth	MA	02747	BRISTOL	REST
00861	2546 South Road	Poughkeepsie	NY	12601	DUTCHESS	REST
00864	423 Loucks Road	York	PA	17404	YORK	REST
00876	697 Troy-Schenectady Road	Latham	NY	12110	ALBANY	REST
00883	248 North Comrie Avenue	Johnstown	NY	12095	FULTON	REST
00898	2369 Street Road	Bensalem	PA	19020	BUCKS	REST
00916	408 Queen Street	Southington	CT	06489	HARTFORD	REST
00930	247 Greenmanville Avenue	Mystic	CT	06355	NEW LONDON	REST
00947	642 Chandler Street	Worcester	MA	01602	WORCESTER	REST
00952	15 North Airmont Road	Suffern	NY	10901	ROCKLAND	REST
00963	Route 724 & 100 Bypass	Pottstown	PA	19464	MONTGOMERY	REST
00991	1145 West Baltimore Pike	Media	PA	19063	DELAWARE	REST
01000	4753 South Kirkman Road	Orlando	FL	32811	ORANGE	REST
01006	31 Matthews Street	Goshen	NY	10924	ORANGE	REST
01008	Troy Plaza – Hoosick Street	Troy	NY	12180	RENSSELAER	REST
01011	85 Seymour Street	Hartford	CT	06106	HARTFORD	REST
01046	21 Southampton Road	Westfield	MA	01085	HAMPDEN	REST
01050	Route 12A	West Lebanon	NH	03784	GRAFTON	REST
01086	2 Campbell Road – P.O. 604	Schenectady	NY	12306	SCHENECTADY	REST
01202	3125 Market Street	Camp Hill	PA	17011	CUMBERLAND	REST
01214	3710 Route 9 Raceway Mall	Freehold	NJ	07228	MONMOUTH	REST
01215	1245 Worcester Street	Natick	MA	01760	MIDDLESEX	REST
01216	194 Buckland Hills Drive	Manchester	CT	06040	HARTFORD	REST
01217	40 Bedford Road	Middleboro	MA	02346	PLYMOUTH	REST
01226	1 Dorset Street	South Burlington	VT	05403	CHITTENDEN	REST
01227	Susquehanna Mall Routes 1	Selinsgrove	PA	17870	SNYDER	REST
01228	505 Montpelier Rd.	Berlin	VT	05641	WASHINGTON	REST
01234	3420 Berlin Turnpike	Newington	CT	06111	HARTFORD	REST
01241	253 High Street	Ellsworth	ME	04605	HANCOCK	REST
01247	2102 Mt. Holly Road	Burlington	NJ	08016	BURLINGTON	REST
01248	936 Walnut Bottom Road	Carlisle	PA	17013	CUMBERLAND	REST
01249	600 Mountainview Drive	Colchester	VT	05446	CHITTENDEN	REST
01254	Route 140	Wrentham	MA		NORFOLK	REST
04002	Northern Blvd Rts 6 & 11	Clarks Summit	PA	18411	LACKAWANNA	REST
04004	Route 309 & 415	Dallas	PA	18612	LUZERNE	REST
04007	310 Red Roof Road	Danville	PA	17821	MONTOUR	REST
04010	2811 Cottman Avenue	Philadelphia	PA	19149	PHILADELPHIA	REST

04101	Shopping Plaza	Springfield	VT	05156	WINDSOR	REST
04108	463 West Street Plaza	Keene	NH	03431	CHESHIRE	REST
04122	1300 Altamont Avenue	Schenectady	NY	12303	SCHENECTADY	REST
04123	2303 Nott Street East	Niskayuna	NY	12309	SCHENECTADY	REST
04125	68 Congress Street	Saratoga Springs	NY	12866	SARATOGA	REST
04214	13 South Main Street	West Hartford	CT	06107	HARTFORD	REST
04220	130 Rubber Ave.	Naugatuck	CT	06770	NEW HAVEN	REST
04238	851 Washington Street	Middletown	CT	06457	MIDDLESEX	REST
04239	347 West Main Street	Avon	CT	06001	HARTFORD	REST

SCHEDULE 1(f)

Permitted Units:

RESTAURANT PROPERTIES:

#0484 Rocky Point, NY
#0295 Rochester, NY
#0230 New London, CT
#0805 Burlington, NJ
#1048 Niagara Falls, NY
#1042 Bristol, CT
#0016 Brockton, MA
#0891 Mamaroneck, NY
#0913 New Windsor, NY
#0220 Stoughton, MA
#0076 Brockton, MA
#0480 Elmira, NY
#0233 Ludlow, MA	Sale/Leaseback to Adjacent Landowner
#0030 Westfield, MA
#0151 Somerset, MA
#0232 New Britain, CT
#0579 North Syracuse, NY
#0722 Hadley, MA
#4221 Waterbury, CT

NON-RESTAURANT PROPERTIES:

Wilbraham, Stony Hill Road	Under Contract
Wilbraham, Hilltop Park Road	Under Contract
Troy, OH Surplus Land
Wilbraham, Verge St.

SCHEDULE 1(g)

Units

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
00001	19 Springfield Street	Agawam	MA	01001	HAMPDEN	REST
00003	697 Southbridge Street	Auburn	MA	01501	WORCESTER	REST
00022	757 Providence Pike	Dedham	MA	02026	NORFOLK	REST
00024	Eastbound Frontage Road	East Haven	CT	06512	NEW HAVEN	REST
00025	562 North Main Street	E Longmeadow	MA	01028	HAMPDEN	REST
00028	464 John Fitch Highway	Fitchburg	MA	01420	WORCESTER	REST
00031	240 Stockbridge Road	Great Barrington	MA	01230	BERKSHIRE	REST
00037	313 West Housatonic Street	Pittsfield	MA	01202	BERKSHIRE	REST
00041	145 Housatonic Street	Lee	MA	01238	BERKSHIRE	REST
00043	451 Lincoln Street	Worcester	MA	01605	WORCESTER	REST
00045	1420 Main Street	Worcester	MA	01603	WORCESTER	REST
00053	221 State Road	North Adams	MA	01247	BERKSHIRE	REST
00057	620 West Main Street	Norwich	CT	06360	NEW LONDON	REST
00060	247 Broadway	Taunton	MA	02780	BRISTOL	REST
00062	1519 North Main Street	Palmer	MA	01069	HAMPDEN	REST
00073	1946 Wilbraham Road	Springfield	MA	01129	HAMPDEN	REST
00083	White City Shopping Center	Shrewsbury	MA	01545	WORCESTER	REST
00085	Northgate Shopping Center	Revere	MA	02151	SUFFOLK	REST
00087	133 East Main Street	Webster	MA	01570	WORCESTER	REST
00090	431 East Main Street	Westfield	MA	01085	HAMPDEN	REST
00091	1045 Silas Deane Highway	Wethersfield	CT	06109	HARTFORD	REST
00092	306 West Boylston Street	West Boylston	MA	01583	WORCESTER	REST
00094	141 Church Street	Whitinsville	MA	01588	WORCESTER	REST
00097	1405 Main Street	Willimantic	CT	06226	WINDHAM	REST
00102	Salem Plaza	Salem	NH	03079	ROCKINGHAM	REST
00105	368 Federal Street	Greenfield	MA	01301	FRANKLIN	REST
00106	489 Newton Street	South Hadley	MA	01075	HAMPSHIRE	REST
00116	6 Sarahs Way	Fairhaven	MA	02719	BRISTOL	REST
00118	411 East Street	Chicopee Falls	MA	01020	HAMPDEN	REST
00126	361 Central Street	Hartsdale	NY	10530	WESTCHESTER	REST
00130	457 Boston Post Road	Sudbury	MA	01776	MIDDLESEX	REST
00132	Colonie Shopping Center	Colonie	NY	12205	ALBANY	REST
00152	477 Tuckahoe Road	Yonkers	NY	10710	WESTCHESTER	REST
00154	966 Grafton Street	Worcester	MA	01604	WORCESTER	REST
00155	213 Independence Avenue	Quincy	MA	02169	NORFOLK	REST
00156	4545 North Main Street	Bridgeport	CT	06606	FAIRFIELD	REST
00161	866 North Main Street	Randolph	MA	02368	NORFOLK	REST
00162	435 Speedwell Avenue	Morris Plains	NJ	07950	MORRIS	REST
00172	1745 Northampton Street	Holyoke	MA	01040	HAMPDEN	REST
00175	1463 Raritan Road	Clark	NJ	07066	UNION	REST
00180	20 Boston Road	Chelmsford	MA	01824	MIDDLESEX	REST
00183	661 Upper Glen Street	Glens Fall	NY	12801	WARREN	REST
00189	1671 Western Avenue	Albany	NY	12203	ALBANY	REST
00190	Searstown Shopping Center	Leominster	MA	01453	WORCESTER	REST
00192	255 Broadway	Methuen	MA	01844	ESSEX	REST
00194	632 Bloomfield Avenue	West Caldwell	NJ	07006	ESSEX	REST

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
00198	156 Main Avenue	Passaic	NJ	07055	PASSAIC	REST
00204	270 Delaware Avenue	Elsmere	NY	12054	ALBANY	REST
00206	415 Washington Street	Weymouth	MA	02188	NORFOLK	REST
00211	441 Hillsdale Avenue	Hillsdale	NJ	07642	BERGEN	REST
00214	96 Turnpike Road	Westboro	MA	01581	WORCESTER	REST
00215	956 North Colony Road	Wallingford	CT	06492	NEW HAVEN	REST
00227	611 Main Street	Stoneham	MA	02180	MIDDLESEX	REST
00228	105 West Town Street	Norwich	CT	06360	NEW LONDON	REST
00231	445 Main Street	Mount Kisco	NY	10549	WESTCHESTER	REST
00233	471 Center Street	Ludlow	MA	01056	HAMPDEN	REST
00234	357 Main Street	Southbridge	MA	01550	WORCESTER	REST
00236	741 Brick Boulevard	Bricktown	NJ	08723	OCEAN	REST
00237	1243 Broad Street	Bloomfield	NJ	07003	ESSEX	REST
00238	173 Chestnut Street	Needham	MA	02192	NORFOLK	REST
00241	247 Saratoga Road	Glenville	NY	12302	SCHENECTADY	REST
00242	2944 Main Street	Glastonbury	CT	06033	HARTFORD	REST
00243	15 Sandwich Street	Plymouth	MA	02360	PLYMOUTH	REST
00244	1206 River Road	Fairlawn	NJ	07410	BERGEN	REST
00260	2080 Warwick Avenue	Warwick	RI	02889	KENT	REST
00268	462 East Main Street	Torrington	CT	06790	LITCHFIELD	REST
00275	631 South Dartmouth Street	South Dartmouth	MA	02748	BRISTOL	REST
00276	471 Sabattus Street	Lewiston	ME	04240	ANDROSCOGG	REST
00283	804 Main Street	Toms River	NJ	08753	OCEAN	REST
00284	170 Bath Road	Brunswick	ME	04011	CUMBERLAND	REST
00286	192 Madison Avenue	Convent Station	NJ	07961	MORRIS	REST
00302	1229 South Willow Street	Manchester	NH	03103	HILLSBOROUGH	REST
00310	1060 Main Street	Holden	MA	01520	WORCESTER	REST
00315	580 Park Avenue	Worcester	MA	01603	WORCESTER	REST
00320	Hanover Mall	Hanover	MA	02339	PLYMOUTH	REST
00328	192 Woodbridge Center	Woodbridge	NJ	07095	MIDDLESEX	REST
00329	62 W. Main Street	Clinton	CT	06413	MIDDLESEX	REST
00331	70 Central Street	Foxboro	MA	02035	NORFOLK	REST
00332	111 Main Street	Fishkill	NY	12524	DUTCHESS	REST
00333	9 Troy Road	East Greenbush	NY	12061	RENSSELAER	REST
00337	300 South Street	Bennington	VT	05201	BENNINGTON	REST
00342	1835 Farmington Avenue	Unionville	CT	06085	HARTFORD	REST
00343	114 County Road	Tenafly	NJ	07670	BERGEN	REST
00359	575 Pompton Turnpike	Pompton Plains	NJ	07444	MORRIS	REST
00362	897 West Trenton Avenue	Morrisville	PA	19067	BUCKS	REST
00369	630 Washington Street	Stoughton	MA	02072	NORFOLK	REST
00371	510 Boston Road	Billerica	MA	01821	MIDDLESEX	REST
00376	81 Wolf Road	Albany	NY	12205	ALBANY	REST
00379	232 West Main Street	Moorestown	NJ	08057	BURLINGTON	REST
00382	460 North Main Street	Doylestown	PA	18901	BUCKS	REST
00387	759 Main Street	Tewksbury	MA	01876	MIDDLESEX	REST
00391	Westmont Plaza	Westmont	NJ	08108	CAMDEN	REST
00392	1001 Whitehorse-Mercervil	Trenton	NJ	08610	MERCER	REST
00399	195 Godwin Avenue	Midland Park	NJ	07432	BERGEN	REST
00402	27 Temple Street	Framingham	MA	01701	MIDDLESEX	REST
00403	403-409 Washington Avenue	Kingston	NY	12401	ULSTER	REST
00406	1649 North Broad Street	Lansdale	PA	19446	MONTGOMERY	REST
00408	387 Massachusetts Avenue	Acton	MA	01720	MIDDLESEX	REST

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
00421	708 Belmont Street	Brockton	MA	02301	PLYMOUTH	REST
00433	203 North Main Street	Concord	NH	03301	MERRIMACK	REST
00437	1655 Columbia Avenue	Lancaster	PA	17603	LANCASTER	REST
00438	380 West Street Road	Warminster	PA	18974	BUCKS	REST
00439	1983 Commerce Street	Yorktown Heights	NY	10598	WESTCHESTER	REST
00443	P.O. Box 402	Sturbridge	MA	01566	WORCESTER	REST
00457	Eastchester Mall	Scarsdale	NY	10583	WESTCHESTER	REST
00462	43 Lancaster Pike	Frazer	PA	19355	CHESTER	REST
00470	275 Boston Post Road	Darien	CT	06820	FAIRFIELD	REST
00489	1250 Baltimore Pike	Springfield	PA	19064	DELAWARE	REST
00496	PO Box 698	Lenox	MA	01240	BERKSHIRE	REST
00514	699 Hancock Street	Wollaston	MA	02170	NORFOLK	REST
00516	1985 Washington Street	Hanover	MA	02339	PLYMOUTH	REST
00520	1021 Main Street	South Weymouth	MA	02190	NORFOLK	REST
00536	72 Portsmouth Avenue	Exeter	NH	03833	ROCKINGHAM	REST
00538	536 Main Street	Medfield	MA	02052	NORFOLK	REST
00559	300 North Almonesson Avenue	Deptford	NJ	08096	GLOUCESTER	REST
00560	Monmouth Mall	Eatontown	NJ	07724	MONMOUTH	REST
00563	11 Main Street	West Harwich	MA	02671	BARNSTABLE	REST
00565	524 Pleasant Street	Attleboro	MA	02703	BRISTOL	REST
00566	2895-A Cranberry Highway,	East Wareham	MA	02538	PLYMOUTH	REST
00567	188 Quaker Bridge Mall	Lawrenceville	NJ	08648	MERCER	REST
00576	106 Neshaminy Mall	Cornwells	PA	19020	BUCKS	REST
00585	961 Boston Post Road	Guilford	CT	06437	NEW HAVEN	REST
00587	94 Elm Street	Enfield	CT	06082	HARTFORD	REST
00595	166 West Street	Keene	NH	03431	CHESHIRE	REST
00611	70 Broad Street	Bridgewater	MA	02324	PLYMOUTH	REST
00616	699 Ocean County Mall	Toms River	NJ	08753	OCEAN	REST
00617	351 Depot Street	Manchester	VT	05254	BENNINGTON	REST
00635	108 Morristown Road	Bernardsville	NJ	07924	SOMERSET	REST
00641	9165 Ridge Pike	Philadelphia	PA	19128	PHILADELPHIA	REST
00647	2150 Lincoln Highway East	Lancaster	PA	17602	LANCASTER	REST
00655	77 South Main Street	Rochester	NH	03867	STRAFFORD	REST
00664	304 Mountain Avenue	Hackettstown	NJ	07840	WARREN	REST
00671	1803 Richmond Road	Williamsburg	VA	23185	YORK	REST
00672	1177 Reservoir Avenue	Cranston	RI	02920	PROVIDENCE	REST
00689	Marianno S. Bishop Boulevard	Fall River	MA	02722	BRISTOL	REST
00690	550 Middlesex Avenue	Metuchen	NJ	08840	MIDDLESEX	REST
00693	325 Pennsylvania Avenue	Fort Washington	PA	19034	MONTGOMERY	REST
00706	South Main Street	Rutland	VT	05701	RUTLAND	REST
00710	8040 West Broad Street	Richmond	VA	23229	HENRICO	REST
00711	1060 Waltham Street	Lexington	MA	02173	MIDDLESEX	REST
00712	1184 Shelburne Road	South Burlington	VT	05401	CHITTENDEN	REST
00720	Town Square Mall	Rockaway	NJ	07866	MORRIS	REST
00723	737 New Loudon Road	Latham	NY	12110	ALBANY	REST
00724	427 Route 44	Raynham	MA	02767	BRISTOL	REST
00725	250 Andover Street	Peabody	MA	01960	ESSEX	REST
00727	1462 East Lincoln Highway	Langhorne	PA	19047	BUCKS	REST
00728	65 Sumner Avenue	Springfield	MA	01108	HAMPDEN	REST
00729	103 Talcottville Road	Vernon	CT	06066	TOLLAND	REST
00731	438 Route 28	West Yarmouth	MA	02673	BARNSTABLE	REST
00733	1469 Providence Highway	Norwood	MA	02062	NORFOLK	REST

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
00735	Holyoke Mall	Holyoke	MA	01040	HAMPDEN	REST
00736	1090 Iyanough Road	Hyannis	MA	02601	BARNSTABLE	REST
00737	4010 Jonestown Road	Harrisburg	PA	17109	DAUPHIN	REST
00742	Newburgh Mall	Newburgh	NY	12550	ORANGE	REST
00743	10 Canal Street-Buzzards	Bourne	MA	02532	BARNSTABLE	REST
00744	27 Airport Square	North Wales	PA	19454	MONTGOMERY	REST
00745	544 Reidville Drive	Waterbury	CT	06705	NEW HAVEN	REST
00747	3850 Mystic Valley Parkway	Medford	MA	02155	MIDDLESEX	REST
00748	3000 Lycoming Mall Circle	Pennsdale	PA	17756	LYCOMING	REST
00752	505 Route 130	Cinnaminson	NJ	08077	BURLINGTON	REST
00753	1200 Carlisle Street	Hanover	PA	17331	YORK	REST
00756	1000 Reese Avenue	Hershey	PA	17033	DAUPHIN	REST
00759	497 Farmington Avenue	Bristol	CT	06010	HARTFORD	REST
00771	1230 Highway 35	Middletown	NJ	07748	MONMOUTH	REST
00776	11291 Roosevelt Blvd. & R	Philadelphia	PA	19154	PHILADELPHIA	REST
00781	160 North Gulph Road	King of Prussia	PA	19406	MONTGOMERY	REST
00782	1300 Ulster Avenue ML-HUD	Kingston	NY	12401	ULSTER	REST
00788	2 Corporate Drive	Windsor Locks	CT	06096	HARTFORD	REST
00789	1210 Hooper Avenue	Toms River	NJ	08753	OCEAN	REST
00790	200 Mohawk Trail	Greenfield	MA	01301	FRANKLIN	REST
00794	140 Franklin Street	Westerly	RI	02891	WASHINGTON	REST
00797	6226 West Manchester Mall	York	PA	17404	YORK	REST
00799	1100 North Delsea Drive	Glassboro	NJ	08028	GLOUCESTER	REST
00800	1261 Westfield Street	West Springfield	MA	01089	HAMPDEN	REST
00807	11603 Midlothian Turnpike	Midlothian	VA	23113	CHESTERFIELD	REST
00809	10601 Patterson Avenue	Richmond	VA	23233	HENRICO	REST
00810	5220 Brook Road	Richmond	VA	23227	HENRICO	REST
00812	199 Spencer Street	Manchester	CT	06040	HARTFORD	REST
00814	748 G.A.R. Highway	Swansea	MA	02777	BRISTOL	REST
00815	24 Monument Square	Leominster	MA	01453	WORCESTER	REST
00816	529 Memorial Drive	Chicopee	MA	01020	HAMPDEN	REST
00818	2960 Boulevard	Colonial Heights	VA	23834	COLONIAL H	REST
00822	Route 9W	Kingston	NY	12401	ULSTER	REST
00823	820 Central Avenue	Albany	NY	12206	ALBANY	REST
00824	168 Easton Road	Horsham	PA	19044	MONTGOMERY	REST
00825	PO Box 3005	North Conway	NH	03860	CARROLL	REST
00830	1160 Main Street	Haverhill	MA	01830	ESSEX	REST
00832	1811 Boston Road	Springfield	MA	01129	HAMPDEN	REST
00834	1235 Hamburg Turnpike	Wayne	NJ	07470	PASSAIC	REST
00841	120 Washington Avenue Ext	Albany	NY	12203	ALBANY	REST
00842	44 Aviation Road	Glens Falls	NY	12801	WARREN	REST
00845	560 Arsenal Street	Watertown	MA	02172	MIDDLESEX	REST
00846	473 State Route 3	Plattsburgh	NY	12901	CLINTON	REST
00847	1094 Riverdale Road	West Springfield	MA	01089	HAMPDEN	REST
00848	800 East Main Street	Meriden	CT	06450	NEW HAVEN	REST
00850	1098 Mantua Pike	Wenonah	NJ	08090	GLOUCESTER	REST
00852	307 State Road	North Dartmouth	MA	02747	BRISTOL	REST
00853	343A Great Road	Bedford	MA	01730	MIDDLESEX	REST
00859	18 Pearson Boulevard	Gardner	MA	01440	WORCESTER	REST
00861	2546 South Road	Poughkeepsie	NY	12601	DUTCHESS	REST
00863	364 Route 211	Middletown	NY	10940	ORANGE	REST
00864	423 Loucks Road	York	PA	17404	YORK	REST

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
00868	815 Route 146	Clifton Park	NY	12065	SARATOGA	REST
00869	2520 West Hundred Road	Chester	VA	23831	CHESTERFIELD	REST
00870	841 Dalton Avenue	Pittsfield	MA	01201	BERKSHIRE	REST
00873	1160 Union Avenue	Laconia	NH	03246	BELKNAP	REST
00874	RFD #5 – Box 148A	Brattleboro	VT	05301	WINDHAM	REST
00876	697 Troy-Schenectady Road	Latham	NY	12110	ALBANY	REST
00883	248 North Comrie Avenue	Johnstown	NY	12095	FULTON	REST
00885	1883 Mineral Spring Avenue	North Providence	RI	02904	PROVIDENCE	REST
00887	222 Winthrop Avenue	Lawrence	MA	01843	ESSEX	REST
00896	777 Broadway	Saugus	MA	01906	ESSEX	REST
00897	150 W. Germantown Pike	Norristown	PA	19401	MONTGOMERY	REST
00898	2369 Street Road	Bensalem	PA	19020	BUCKS	REST
00900	1060 Page Boulevard	Springfield	MA	01104	HAMPDEN	REST
00904	60 Nott Terrace	Schenectady	NY	12308	SCHENECTADY	REST
00916	408 Queen Street	Southington	CT	06489	HARTFORD	REST
00918	12120 Hurffville Road	Deptford	NJ	08096	CLOUCHESTER	REST
00922	1232 Storrs Road	Storrs	CT	06268	TOLLAND	REST
00925	340 Saw Mill Road	West Haven	CT	06516	NEW HAVEN	REST
00927	778 Kidder Street	Wilkes/Barre	PA	18702	LUZERNE	REST
00930	247 Greenmanville Avenue	Mystic	CT	06355	NEW LONDON	REST
00934	89 Enfield Street	Enfield	CT	06082	HARTFORD	REST
00945	871 Central Avenue	Dover	NH	03820	STRAFFORD	REST
00946	2 Stoneleigh Avenue	Carmel	NY	10512	PUTNAM	REST
00947	642 Chandler Street	Worcester	MA	01602	WORCESTER	REST
00952	15 North Airmont Road	Suffem	NY	10901	ROCKLAND	REST
00955	48 Berlin Road	Cromwell	CT	06416	MIDDLESEX	REST
00963	Route 724 & 100 Bypass	Pottstown	PA	19464	MONTGOMERY	REST
00967	2456 Lafayette Road	Portsmouth	NH	03801	ROCKINGHAM	REST
00982	445 Steinwehr Avenue	Gettysburg	PA	17325	ADAMS	REST
00991	1145 West Baltimore Pike	Media	PA	19063	DELAWARE	REST
00995	1151 Fall River Avenue	Seekonk	MA	02771	BRISTOL	REST
01003	147 Loudon Road	Concord	NH	03301	MERRIMACK	REST
01006	31 Matthews Street	Goshen	NY	10924	ORANGE	REST
01008	Troy Plaza – Hoosick Street	Troy	NY	12180	RENSSELAER	REST
01011	85 Seymour Street	Hartford	CT	06106	HARTFORD	REST
01014	30 Leetes Island Road	Branford	CT	06405	NEW HAVEN	REST
01016	95 Main Street	Ware	MA	01082	HAMPSHIRE	REST
01017	45 Newport Avenue	Pawtucket	RI	02861	PROVIDENCE	REST
01019	48 Western Avenue	Augusta	ME	04330	KENNEBEC	REST
01027	146 Church Street	Pembroke	MA	02359	PLYMOUTH	REST
01040	149 Daniel Webster Highway	Nashua	NH	03060	HILLSBOROUGH	REST
01046	21 Southampton Road	Westfield	MA	01085	HAMPDEN	REST
01050	Route 12A	West Lebanon	NH	03784	GRAFTON	REST
01051	226 Washington Street	Gloucester	MA	01930	ESSEX	REST
01053	981 Route 37 West	Toms River	NJ	08753	OCEAN	REST
01057	1745 Easton Road	Doylestown	PA	18901	BUCKS	REST
01058	717 East Main Street	Palmyra	PA	17078	LEBANON	REST
01059	3201 State Hwy 35	Hazlet	NJ	07730	MONMOUTH	REST
01065	210 Maine Mall Road	South Portland	ME	04106	CUMBERLAND	REST
01072	111 Macy Street – Rt. 110	Amesbury	MA	01913	ESSEX	REST
01082	5876 Williston Road	Williston	VT	05495	CHITTENDEN	REST
01085	5304 Carlisle Pike	Mechanicsburg	PA	17055	CUMBERLAND	REST

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
01086	2 Campbell Road – P 0 604	Schenectady	NY	12306	SCHENECTADY	REST
01087	490 North Main Street	Leominster	MA	01453	WORCESTER	REST
01202	3125 Market Street	Camp Hill	PA	17011	CUMBERLAND	REST
01203	5 Davis Straits Road	Falmouth	MA	02540	BARNSTABLE	REST
01213	240 Buckland Street	Manchester	CT	06040	HARTFORD	REST
01214	3710 Route 9 Raceway Mall	Freehold	NJ	07728	MONMOUTH	REST
01215	1245 Worcester Street	Natick	MA	01760	MIDDLESEX	REST
01216	194 Buckland Hills Drive	Manchester	CT	06040	HARTFORD	REST
01217	40 Bedford Road	Middleboro	MA	02346	PLYMOUTH	REST
01221	147 Main Street	Freeport	ME	04032	CUMBERLAND	REST
01224	373 Main Street	Waterville	ME	04901	KENNEBEC	REST
01226	1 Dorset Street	South Burlington	VT	05403	CHITTENDEN	REST
01227	Susquehanna Mall Routes 1	Selinsgrove	PA	17870	SNYDER	REST
01228	505 Montpelier Road	Berlin	VT	05641	WASHINGTON	REST
01229	122 Prospect Hill Road	East Windsor	CT	06088	HARTFORD	REST
01232	10 Washington Street	Attleboro	MA	02703	BRISTOL	REST
01233	555 High Street	Mt. Holly	NJ	08060	BURLINGTON	REST
01234	3420 Berlin Turnpike	Newington	CT	06111	HARTFORD	REST
01235	13800 Fribble Way	Midlothian	VA	23112	CHESTERFIELD	REST
01236	The Village At Gap	Gap	PA	17527	LANCASTER	REST
01237	1701 Quentin Road	Lebanon	PA	17042	LEBANON	REST
01238	Whiting Farms Road	Holyoke	MA	01040	HAMPDEN	REST
01241	253 High Street	Ellsworth	ME	04605	HANCOCK	REST
01242	Route 320 – 791 Roosevelt	North Windham	ME	04062	CUMBERLAND	REST
01244	1040 Boston Post Road	Milford	CT	06460	NEW HAVEN	REST
01246	139 Riverside Street	Portland	ME	04103	CUMBERLAND	REST
01247	2102 Mt. Holly Road	Burlington	NJ	08016	BURLINGTON	REST
01248	936 Walnut Bottom Road	Carlisle	PA	17013	CUMBERLAND	REST
01249	600 Mountainview Drive	Colchester	VT	05446	CHITTENDEN	REST
01251	230 New Britain Avenue	Plainville	CT	06062	HARTFORD	REST
01254	Route 140	Wrentham	MA	02093	NORFOLK	REST
01255	Whitney Memorial Highway	Saratoga Springs	NY	12866		REST
01256	5 Austin Street	Charlestown	MA	02129		REST
01258	600 Kingstown Road	Wakefield	RI	02879		REST
01259	17 Medway Road	Milford	MA	01757		REST
01260	303 Turnpike Road	Westborough	MA	01581		REST
01261	835 Wolcott Street	Waterbury	CT	06705		REST
01262	17 Medway Road	New Milford	CT	06776		REST
01263	430 Cooley Street	Springfield	MA	01128		REST
01265	140 Universal Drive North	North Haven	CT	06473		REST
04002	Northern Blvd Rts 6 & 11	Clarks Summit	PA	18411	LACKAWANNA	REST
04004	Route 309 & 415	Dallas	PA	18612	LUZERNE	REST
04005	708 North Blakely Street	Dunmore	PA	18512	LACKAWANNA	REST
04006	RD #1 Box 314	Hazleton	PA	18201	LUZERNE	REST
04007	310 Red Roof Road	Danville	PA	17821	MONTOUR	REST
04010	2811 Cottman Avenue	Philadelphia	PA	19149	PHILADELPHIA	REST
04101	Shopping Plaza	Springfield	VT	05156	WINDSOR	REST
04108	463 West Street Plaza	Keene	NH	03431	CHESHIRE	REST
04122	1300 Altamont Avenue	Schenectady	NY	12303	SCHENECTADY	REST
04123	2303 Nott Street East	Niskayuna	NY	12309	SCHENECTADY	REST
04125	68 Congress Street	Saratoga Springs	NY	12866	SARATOGA	REST
04201	579 Watertown Avenue	Waterbury	CT	06708	NEW HAVEN	REST

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
04214	13 South Main Street	West Hartford	CT	06107	HARTFORD	REST
04220	130 Rubber Avenue	Naugatuck	CT	06770	NEW HAVEN	REST
04225	81 Newtown Road	Danbury	CT	06810	FAIRFIELD	REST
04227	173 Washington Avenue	North Haven	CT	06473	NEW HAVEN	REST
04229	Heritage Village	Southbury	CT	06488	NEW HAVEN	REST
04233	3671 Post Road	Southport	CT	06490	FAIRFIELD	REST
04238	851 Washington Street	Middletown	CT	06457	MIDDLESEX	REST
04239	347 West Main Street	Avon	CT	06001	HARTFORD	REST

SCHEDULE 1(h)

Existing Letters of Credit

Beneficiary	Issue Date	Expiration Date	Amount		Purpose
Letters of Credit Issued by Fleet Bank
1. Hershey Foods Corporation 100 Crystal A Drive Hershey, PA 17033	1/15/02	11/15/06	$	2,145,000.00	Lease Guaranty by Hershey Foods Corporation.
2. National Union Fire Insurance Company of Pittsburgh, PA P.O. Box 923 Wall Street Station New York, NY 10268 Attn: Art Stillwell	2/11/02	10/02/06	$	2,450,000.00
3. National Union Fire Insurance Company of Pittsburgh PA PO Box 923 Wall Street Station New York, NY 10268 Attn: Art Stillwell	2/11/02	10/01/06	$	3,147,177.00
4. National Union Fire Insurance Company of Pittsburgh PA PO Box 923 / Wall Street Station New York, NY 10268 Attn: Art Stillwell	2/11/02	11/15/06	$	3,382,698.00
5. Ohio Bureau of Workers Compensation 30 West Spring St. Columbus, OH 43215-2256	02/16/02	02/27/07	$	350,000.00
6. Equity Industrial Chicopee LLC C/O Midland Loan Services Inc. 210 West 10th Street Kansas City, MO 64105	4/18/02	06/25/06	$	239,940.00
7. National Union Fire Insurance Company of Pittsburgh PA PO Box 923 / Wall Street Station New York, NY 10268 Attn: Art Stillwell	9/11/02	9/11/06	$	912,000.00
8. National Union Fire Insurance Company of Pittsburgh PA PO Box 923 / Wall Street Station New York, NY 10268 Attn: Art Stillwell	9/11/03	9/04/06	$	1,846,788.00
9. National Union Fire Insurance Company of Pittsburgh PA PO Box 923 / Wall Street Station New York, NY 10268 Attn: Art Stillwell	9/29/04	9/29/06	$	1,500,000.00

SCHEDULE 7.3

Title to Properties; Leases

Carrying Value of Property Held By
Capital Lease

Location	Net Book Value
Leased POS Equipment:
1	$	11,029.46
3	7,955.85
22	8.617.22
24	8,362.86
25	7,197.37
26	7.951.42
28	8,212.57
31	894.90
37	894.90
40	8,453.41
41	894.90
43	7,024.84
45	8,212.57
53	894.90
57	894.90
60	7,237.78
62	894.90
67	7,476.22
70	8,280.59
73	849.27
85	8,303.79
87	8,377.03
90	7,476.22
91	11,288.85
92	8,322.85
94	7,850.43
97	894.90
105	9,361.84
106	8,159.39
108	9,271.37
116	6,086.58
117	894.90
118	6,043.85
125	7,619.15

Location	Net Book Value
126	9,485.99
128	7,476.22
130	6,208.33
132	894.90
154	894.90
155	894.90
156	8,949.88
160	7,850.43
161	8,196.89
162	8,284.17
165	10,294.59
172	8,816.73
175	9,153.98
180	7,128.94
181	7,519.09
183	942.05
189	942.05
192	8,105.93
194	942.05
195	6,824.09
196	8,419.37
198	942.05
204	942.05
206	10,079.43
211	942.05
214	9,495.77
215	9,152.40
219	7,319.68
223	7,128.94
224	8,752.60
227	7,974.42
228	942.05
231	7,102.01
232	1,171.74
233	9,849.64
234	894.90
236	989.21
237	9,015.51
238	942.05
241	942.05

Location	Net Book Value
242	8,268.05
243	7,677.00
244	7,595.98
251	7,819.26
260	6,043.85
263	8,838.27
268	7,945.89
275	8,168.22
276	7,985.63
278	11,225.61
281	7,955.85
284	8,811.23
286	942.05
287	9,397.85
288	942.05
302	9,233.26
306	7,880.21
310	8,212.57
315	8,212.57
316	7,590.79
320	7,633.33
321	8,928.78
329	942.05
331	7,955.85
332	7,590.79
333	894.90
337	989.21
342	7,576.61
343	942.05
348	894.90
349	8,928.78
358	7,237.78
359	942.05
361	7,850.43
365	6,824.09
369	7,850.43
371	6,913.77
376	989.21
379	989.21
382	989.21

Location	Net Book Value
387	9,066.23
391	989.21
399	7,697.17
402	7,504.58
403	942.05
406	989.21
408	7,333.15
409	9,507.68
419	989.21
421	7,476.22
422	8,643.08
425	989.21
432	989.21
433	7,831.58
434	942.05
437	989.21
438	989.21
439	7,944.27
446	989.21
462	989.21
465	9,484.50
470	7,970.74
480	1,266.04
489	989.21
492	5,680.33
496	894.90
503	4,861.12
514	8,144.90
516	7,590.79
520	10,224.06
536	7,504.58
538	8,369.00
543	4,832.35
548	989.21
559	989.21
563	942.05
565	7,128.94
566	7,921.28
571	7,266.19
576	989.21

Location	Net Book Value
581	942.05
585	7,102.01
588	7,231.92
611	942.05
617	989.21
625	7,294.22
630	6,444.51
632	7,983.46
635	8,727.36
641	989.21
642	7,720.80
647	989.21
651	7,250.61
652	7,682.47
655	8,852.87
664	10,244.59
672	10,187.75
689	11,398.71
693	989.21
706	989.21
709	8,407.44
711	942.05
712	989.21
718	8,369.00
720	11,002.88
723	942.05
724	11,347.32
725	10,159.13
727	989.21
728	849.27
731	1,884.10
733	11,456.99
736	10,445.22
737	989.21
742	7,576.61
743	10,574.91
744	989.21
745	942.05
747	7,505.65
748	942.05

Location	Net Book Value
753	989.21
754	989.21
756	989.21
759	12,321.80
760	7,817.06
772	989.21
774	7,833.38
777	8,407.44
781	942.05
782	942.05
784	7,720.80
788	894.90
791	11,125.88
797	7,887.40
799	989.21
800	7,476.22
803	8,407.44
812	11,427.85
814	11,560.96
815	8,369.57
816	9,386.34
822	942.05
823	1,884.10
824	989.21
825	942.05
830	12,194.42
832	849.27
834	7,809.22
841	942.05
842	942.05
846	989.21
847	849.27
848	12,286.04
852	11,135.34
853	7,197.37
854	942.05
861	11,662.82
863	942.05
864	7,180.23
870	942.05

Location	Net Book Value
873	942.05
876	942.05
877	942.05
878	942.05
883	942.05
885	10,792.63
887	10,828.41
896	9,845.11
897	989.21
898	989.21
904	942.05
907	849.27
913	7,504.58
916	10,120.36
918	989.21
922	8,838.27
925	12,103.75
927	942.05
930	942.05
934	894.90
941	942.05
945	10,862.01
946	11,248.11
947	8,660.39
952	9,012.22
955	11,954.38
959	7,631.43
962	989.21
963	989.21
967	8,377.03
974	849.27
982	989.21
983	849.27
985	849.27
990	6,309.94
991	989.21
995	10,398.59
1000	849.27
1003	11,408.43
1006	11,484.67

Location	Net Book Value
1008	942.05
1011	10,588.33
1014	9,033.81
1016	8,928.78
1017	10,669.80
1019	10,391.99
1023	849.27
1027	9,934.63
1029	849.27
1030	849.27
1032	849.27
1037	942.05
1040	11,003.45
1041	6,797.70
1044	849.27
1045	849.27
1051	11,977.10
1054	989.21
1057	989.21
1058	6,696.81
1059	942.05
1062	989.21
1065	942.05
1072	8,722.80
1082	989.21
1085	989.21
1086	942.05
1201	8,608.58
1202	989.21
1203	10,271.44
1216	11,209.57
1217	942.05
1221	942.05
1224	942.05
1226	989.21
1227	942.05
1229	894.90
1233	989.21
1234	894.90
1236	989.21

Location	Net Book Value
1237	989.21
1238	1,034.84
1239	849.27
1241	942.05
1242	942.05
1244	942.05
1246	942.05
1247	989.21
1248	989.21
1249	989.21
4002	942.05
4004	942.05
4005	942.05
4006	942.05
4007	942.05
4010	989.21
4101	942.05
4105	8,243.72
4122	942.05
4123	942.05
4125	942.05
4201	7,957.73
4214	7,921.28
4220	7,585.12
4225	10,835.41
4227	9,302.66
4229	10,960.90
4233	7,590.79
4235	1,079.46
4238	9,319.35
4239	10,216.28
Total:	$	1,765,883.76
FoodService Equipment:
Wilb., MA	$	33,164.91
York, PA	121,914.50
Total:	$	155,079.41

Location	Net Book Value
Lease Restaurant Real Property:
842	$	8,230.63
848	30,553.49
850	44,338.40
852	8,345.03
883	44,878.51
913	21.75
1019	11,443.69
1039	8,662.80
1040	2,233.60
1062	51,471.59
4002	179,958.40
4004	148,011.38
4007	149,454.34
4220	23,537.22
4235	69,978.80
Total:	$	781,119.63
Grand Total:	$	2,702,082.80

SCHEDULE 7.6

Intellectual Property

None

SCHEDULE 7.7

Litigation

None.

SCHEDULE 7.14

Perfection of Security Interest

Disputes, deductions, claims, offsets, defenses, withholdings and counterclaims of any kind arising or accrued in connection with the operation of the business of the Borrower and its Subsidiaries in the ordinary course of business.

SCHEDULE 7.18

Environmental Compliance

Underground storage tanks containing Hazardous Substances (as defined in Section 7.18 of the Agreement) are known to exist at the following locations:

Wilbraham, MA (location 837):

•              one 1,000-gallon fuel oil tank;

•              one 1,000-gallon waste engine oil tank;

•              one 1,000-gallon engine oil tank

•              one 10,000-gallon gasoline tank

•              one 10,000-gallon diesel fuel tank;

•              one 10,000-gallon fuel oil tank; and

•              one 1,000-gallon propane tank.

West Springfield, MA (location 800)

•              one 500-gallon heating oil tank

Berlin, VT (location 1228)

•              one propane and one oil tank

SCHEDULE 7.19(a)

Restricted Subsidiaries

Friendly’s Restaurants Franchise, Inc.

Friendly’s International, Inc.

SCHEDULE 7.19(b)

Unrestricted Subsidiaries

Restaurant Insurance Corporation

Friendly’s Realty I, LLC

Friendly’s Realty II, LLC

Friendly’s Realty III, LLC

SCHEDULE 7.19(c)

Joint Ventures; Partnerships

None.

SCHEDULE 7.19(d)

Jurisdiction of Incorporation/Formation and Principal Place of Business

Company	Jurisdiction of Incorporation/ Formation	Principal Place of Business Address
Friendly’s Restaurants Franchise, Inc.	Delaware	1855 Boston Rd., Wilbraham, MA 01095
Friendly’s International, Inc.	Delaware	1855 Boston Rd., Wilbraham, MA 01095
Restaurant Insurance Corporation	Vermont	1855 Boston Rd., Wilbraham, MA 01095
Friendly’s Realty I, LLC	Delaware	1855 Boston Rd., Wilbraham, MA 01095
Friendly’s Realty II, LLC	Delaware	1855 Boston Rd., Wilbraham, MA 01095
Friendly’s Realty III, LLC	Delaware	1855 Boston Rd., Wilbraham, MA 01095

SCHEDULE 7.21

Bank Accounts

Corporate Bank Name	Bank Address	Bank Account #
Bank of America (Fleet Bank)
Concentration Account	100 Federal Street, Boston, MA 02106	9360758318
Funding Account	100 Federal Street, Boston, MA 02106	9360686481
Restaurant Payroll Account	100 Federal Street, Boston, MA 02106	9427649432
Corporate Payroll Account	100 Federal Street, Boston, MA 02106	9427649440
Friendly Franchise Account	100 Federal Street, Boston, MA 02106	9360758713
Marketing Escrow Account	100 Federal Street, Boston, MA 02106	9369246394
Flex Spending Account	100 Federal Street, Boston, MA 02106	22287567
Operating Account	100 Federal Street, Boston, MA 02106	55079297
Corporate Accounts Payable	100 Federal Street, Boston, MA 02106	80062817
Friendly’s Realty I LLC	100 Federal Street, Boston, MA 02106	9429140699
Friendly’s Realty II LLC	100 Federal Street, Boston, MA 02106	9429140680
Friendly’s Realty III LLC	100 Federal Street, Boston, MA 02106	9429140672
Friendly’s Realty III Collateral Account	100 Federal Street, Boston, MA 02106	4602289089
Medical Disbursement Account	100 Federal Street, Boston, MA 02106	80219642
Friendly Gift Card Account	100 Federal Street, Boston, MA 02106	9429245538
Restaurant Concentration Account	100 Federal Street, Boston, MA 02106	9429417379
US Bank
Workmen’s Compensation Account	910 West Main Street, Troy, OH 45373	980044002
Salomon Smith Barney
Smith Barney	1345 Avenue of the Americas, New York, NY 10195	9076443812
Smith Barney	1345 Avenue of the Americas, New York, NY 10195	4012198612058
Citizens Bank — New England
Money Market Account 10	28 State Street, Boston, MA 02109	1139924904
Money Market Account 10	28 State Street, Boston, MA 02109	1139924890
Credit Card Settlement Account	28 State Street, Boston, MA 02109	1305744982
Restaurant Concentration Account	28 State Street, Boston, MA 02109	1304762200
Citizens Bank — Mid-Atlantic
Restaurant Concentration Account	53 State Street, Boston, MA 02109	6210240848
Bank North
Restaurant Concentration Account	1441 Main Street, 7th Floor, Springfield, MA 1103	8242793186
Sovereign New England
Restaurant Concentration Account	2 Morrisey Blvd., MA1-MB5-01-02, Dorchester, MA 02125	97300056774

SCHEDULE 8.19

Non-Core Mortgaged Properties

SITE #	ADDRESS	CITY	ST	ZIP	COUNTY	USE
00001	19 Springfield Street	Agawam	MA	01001	HAMPDEN	REST
00024	Eastbound Frontage Road	East Haven	CT	06512	NEW HAVEN	REST
00026	1129 New Britain Avenue	West Hartford	CT	06110	HARTFORD	REST
00043	451 Lincoln Street	Worcester	MA	01605	WORCESTER	REST
00045	1420 Main Street	Worcester	MA	01603	WORCESTER	REST
00092	306 West Boylston Street	West Boylston	MA	01583	WORCESTER	REST
00094	141 Church Street	Whitinsville	MA	01588	WORCESTER	REST
00106	489 Newton Street	South Hadley	MA	01075	HAMPSHIRE	REST
00116	6 Sarahs Way	Fairhaven	MA	02719	BRISTOL	REST
00118	411 East Street	Chicopee Falls	MA	01020	HAMPDEN	REST
00130	457 Boston Post Road	Sudbury	MA	01776	MIDDLESEX	REST
00160	1240 Sumner Avenue	Springfield	MA	01118	HAMPDEN	REST
00198	156 Main Avenue	Passaic	NJ	07055	PASSAIC	REST
00223	278 Winthrop Avenue	Taunton	MA	02780	BRISTOL	REST
00243	15 Sandwich Street	Plymouth	MA	02360	PLYMOUTH	REST
00260	2080 Warwick Avenue	Warwick	RI	02889	KENT	REST
00310	1060 Main Street	Holden	MA	01520	WORCESTER	REST
00316	1408 Congress Street	Portland	ME	04102	CUMBERLAND	REST
00328	192 Woodbridge Center	Woodbridge	NJ	07095	MIDDLESEX	REST
00359	575 Pompton Turnpike	Pompton Plains	NJ	07444	MORRIS	REST
00382	460 North Main Street	Doylestown	PA	18901	BUCKS	REST
00387	759 Main Street	Tewksbury	MA	01876	MIDDLESEX	REST
00425	2301 West Market Street	York	PA	17404	YORK	REST
00566	2895-A Cranberry Highway	East Wareham	MA	02538	PLYMOUTH	REST
00585	961 Boston Post Road	Guilford	CT	06437	NEW HAVEN	REST
00587	94 Elm Street	Enfield	CT	06082	HARTFORD	REST
00635	108 Morristown Road	Bernardsville	NJ	07924	SOMERSET	REST
00733	1469 Providence Highway	Norwood	MA	02062	NORFOLK	REST
00744	27 Airport Square	North Wales	PA	19454	MONTGOMERY	REST
00815	24 Monument Square	Leominster	MA	01453	WORCESTER	REST
00834	1235 Hamburg Turnpike	Wayne	NJ	07470	PASSAIC	REST
00853	343A Great Road	Bedford	MA	01730	MIDDLESEX	REST
00887	222 Winthrop Avenue	Lawrence	MA	01843	ESSEX	REST
00897	150 W. Germantown Pike	Norristown	PA	19401	MONTGOMERY	REST
00922	1232 Storrs Road	Storrs	CT	06268	TOLLAND	REST
00927	778 Kidder Street	Wilkes/Barre	PA	18702	LUZERNE	REST
01014	30 Leetes Island Road	Branford	CT	06405	NEW HAVEN	REST
01019	48 Western Avenue	Augusta	ME	04330	KENNEBEC	REST
01040	149 Daniel Webster Highway	Nashua	NH	03060	HILLSBOROU	REST
01051	226 Washington Street	Gloucester	MA	01930	ESSEX	REST
01057	1745 Easton Road	Doylestown	PA	18901	BUCKS	REST
01072	111 Macy Street – Rt. 110	Amesbury	MA	01913	ESSEX	REST
01085	5304 Carlisle Pike	Mechanicsburg	PA	17055	CUMBERLAND	REST
01087	490 North Main Street	Leominster	MA	01453	WORCESTER	REST
01221	147 Main Street	Freeport	ME	04032	CUMBERLAND	REST

01233	555 High Street	Mt. Holly	NJ	08060	BURLINGTON	REST
01238	Whiting Farms Road	Holyoke	MA	01040	HAMPDEN	REST
01246	139 Riverside Street	Portland	ME	04103	CUMBERLAND	REST
04006	RD #1 Box 314	Hazleton	PA	18201	LUZERNE	REST
04201	579 Watertown Avenue	Waterbury	CT	06708	NEW HAVEN	REST
04227	173 Washington Avenue	North Haven	CT	06473	NEW HAVEN	REST
04229	Heritage Village	Southbury	CT	05488	NEW HAVEN	REST
04233	3671 Post Road	Southport	CT	06490	FAIRFIELD	REST

SCHEDULE 9.1

Existing Indebtedness

	November 25, 2001
Indebtedness under the Letters of Credit listed on Schedule 9.2
Insurance Loans	183,230
Capital Leases – Leased Restaurants:
772	5,056
842	20,738
848	74,702
850	101,276
852	21,299
883	98,548
1062	62,153
4002	503,654
4004	458,192
4007	468,202
4220	47,429
4235	107,856
Finance Obligations:
194	542,741
563	599,366
712	409,385
807	357,437
876	1,014,941
916	330,469
941	798,379
POS Equipment (see Schedule 7.3 for list of restaurant locations)	2,134,190
Foodservice Trailers and equipment:
ThermoKing 456179	2,543
ThermoKing 456180	2,543
ThermoKing 456181	2,543
ThermoKing 456182	2,543
ThermoKing 456183	3,771
ThermoKing 456184	3,771
ThermoKing 456185	3,771
ThermoKing 709757	33,890
ThermoKing 709758	33,890
ThermoKing 709759	33,890

Existing Indebtedness – Intercompany

	At November 25, 2001
	Indebtedness		Investment
Friendly Ice Cream Corporation (FICC) (1)	$	8,814,345
Restaurant Insurance Corporation (RIC) (1)			$	8,814,345
Interest Receivable – (RIC)			117,525
Interest Payable – (FICC)	117,525
Friendly Ice Cream Corporation (2)	5,787,074
Friendly’s Restaurant Franchise, Inc. (2)			5,787,074
Friendly’s International, Inc. (2)	4,120,489
Friendly Ice Cream Corporation (2)			4,120,489
Friendly Ice Cream Corporation (3)			1,157,840
Restaurant Insurance Corporation (3)	80,000
Friendly’s Restaurants Franchise, Inc. (3)	1,077,840		—
	$	19, 997,273	$	19,997,273

(1) Notes

(2) Due To/From

(3) Income taxes

SCHEDULE 9.2

Existing Liens

A.Liens described on the attached Annex 1

B.Liens granted pursuant to the New Senior Note Indenture in and to any money (if any) held by the trustee under the New Senior Note Indenture other than money held in trust to pay principal of and interest on the New Senior Notes.

C.The following Liens relating to Existing Letters of Credit:

Beneficiary	Issue Date	Expiration Date	Amount		Purpose
Letters of Credit Issued by Fleet Bank
10.  Hershey Foods Corporation 100 Crystal A Drive Hershey, PA 17033	1/15/02	11/15/06	$	2,145,000.00	Lease Guaranty by Hershey Foods Corporation.
11.  National Union Fire Insurance Company of Pittsburgh, PA P.O. Box 923 Wall Street Station New York, NY 10268 Attn: Art Stillwell	2/11/02	10/02/06	$	2,450,000.00
12.  National Union Fire Insurance Company of Pittsburgh PA PO Box 923 Wall Street Station New York, NY 10268 Attn: Art Stillwell	2/11/02	10/01/06	$	3,147,177.00
13.  National Union Fire Insurance Company of Pittsburgh PA PO Box 923 / Wall Street Station New York, NY 10268 Attn: Art Stillwell	2/11/02	11/15/06	$	3,382,698.00
14.  Ohio Bureau of Workers Compensation 30 West Spring St. Columbus, OH 43215-2256	02/16/02	02/27/07	$	350,000.00
15.  Equity Industrial Chicopee LLC C/O Midland Loan Services Inc. 210 West 10th Street Kansas City, MO 64105	4/18/02	06/25/06	$	239,940.00
16.  National Union Fire Insurance Company of Pittsburgh PA PO Box 923 / Wall Street Station New York, NY 10268 Attn: Art Stillwell	9/11/02	9/11/06	$	912,000.00
17.  National Union Fire Insurance Company of Pittsburgh PA PO Box 923 / Wall Street Station New York, NY 10268 Attn: Art Stillwell	9/11/03	9/04/06	$	1,846,788.00
18.  National Union Fire Insurance Company of Pittsburgh PA PO Box 923 / Wall Street Station New York, NY 10268 Attn: Art Stillwell	9/29/04	9/29/06	$	1,500,000.00

D.Other Liens

ANNEX 1

SCHEDULE 9.2.2

Restrictions on Negative Pledges

None.

SCHEDULE 9.3

Existing Investments

Investments listed on Schedule 7.19

Other Investments:

	Due Date	Rate		At Nov. 25, 2001 Outstanding			Interest Outstanding
Franchisee Notes Receivable:
SW Friends, LLC	6/15/01	12.00	%	23,005			$	329
Planet Kidz, Inc.	1/01/02	12.00	%	257,064			14,200
Friendship 1, LLC	9/20/01	12.00	%	133,542			1,335
Jask Foods, Inc	1/15/02	12.00	%	23,244			162
J&B Restaurant Partners	4/15/06	11.00	%	4,214,673
JEMM Restaurants, LLC	4/8/02	11.00	%	12,929
Kessler Family, LLC	Pd. from excess earnings			187,000
Kessler Family, LLC	2/01/15	10.30	%	390,000
RRC Restaurants	11/07/01	12.00	%	5,025			50
				5,246,482			16,076
Other Notes Receivable:
Store 313				50,000			—
Peak Foods	1/01/07	7.75	%	575,247			—
				625,247			—
				$	5,896,379		$	16,076
Allowance for Uncollectible Notes Receivable				$	(523,330	)

EX-4.15

Exhibit 4.15

LOAN AGREEMENT

THIS LOAN AGREEMENT (this “Agreement”) is made as of December 30, 2005 (the “Closing Date”), by and between GE CAPITAL FRANCHISE FINANCE CORPORATION, a Delaware corporation (“Lender”), and FRIENDLY’S REALTY I, LLC, a Delaware limited liability company (“Borrower”).

AGREEMENT:

In consideration of the mutual covenants and provisions of this Agreement, the parties agree as follows:

1.         Definitions.The following terms shall have the following meanings for all purposes of this Agreement:

“ADA”means the Americans with Disabilities Act of 1990, as such act may be amended from time to time.

“Affiliate”means any Person that directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, “controls”, “under common control with” and “controlled by” mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or otherwise.

“Anti-Money Laundering Laws”means all applicable laws, regulations and government guidance on the prevention and detection of money laundering, including 18 U.S.C. § § 1956 and 1957, and the BSA.

“Applicable Regulations”means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of each Governmental Authority having jurisdiction over the Premises, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements, all applicable standards of the National Board of Fire Underwriters and the ADA and all policies or rules of common law, in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment applicable to any of the Borrower Parties or any of the Lessee Parties.

“Borrower Parties”means, collectively, Borrower and any guarantors of the Loan (including, in each case, any predecessors-in-interest).

“BSA” means the Bank Secrecy Act (31 U.S.C. §§5311 et. seq.), and its implementing regulations, Title 31 Part 103 of the U.S. Code of Federal Regulations.

“Business Day”means any day on which Lender is open for business other than a Saturday, Sunday or a legal holiday, ending at 5:00 P.M. Phoenix, Arizona time.

“Closing”means the disbursement of the Loan Amount by Title Company as contemplated by this Agreement.

“Code”means Title 11 of the United States Code, 11 U.S.C. Sec. 101 et seq., as amended.

“Corporate Fixed Charge Coverage Ratio”has the meaning set forth in Section 6.J.

“Default Rate” has the meaning set forth in the Note.

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“Entity” means any entity that is not a natural person.

“Environmental Indemnity Agreement” means the environmental indemnity agreement dated as of the date of this Agreement executed by Borrower for the benefit of the Indemnified Parties and such other parties as are identified in such agreement with respect to the Premises, as the same may be amended from time to time.

“Event of Default”has the meaning set forth in Section 9.

“Fee”means an underwriting, site assessment, valuation, processing and commitment fee equal to 1.0% of the Loan Amount.

“GAAP”means generally accepted accounting principles consistently applied.

“Governmental Authority”means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi-governmental authority having jurisdiction or supervisory or regulatory authority over the Premises or any of the Borrower Parties.

“Indemnified Parties”means Lender, the trustees under the Mortgage, if applicable, and any person or entity who is or will have been involved in the origination of the Loan, any person or entity who is or will have been involved in the servicing of the Loan, any person or entity in whose name the encumbrance created by the Mortgage is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan (including, but not limited to, investors or prospective investors in any Securitization, Participation or Transfer, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefits of third parties), as well as the respective directors, officers, shareholders, partners, members, employees, lenders, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including, but not limited to, any other person or entity who holds or acquires or will have held a participation or other full or partial interest in the Loan or the Premises, whether during the term of the Loan or as a part of or following a foreclosure of the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Lender’s assets and business).

“Indemnity Agreements”means all indemnity agreements executed for the benefit of any of the Borrower Parties, Lessee Parties or any prior owner, lessee or occupant of the Premises in connection with Hazardous Materials, including, without limitation, the right to receive payments under such indemnity agreements.

“Lease”means the lease between Borrower, as lessor, and Lessee, as lessee, with respect to the Premises together with all amendments, modifications and supplements thereto.

“Lender Entities”means, collectively, Lender (including any predecessor-in-interest to Lender) and any Affiliate of Lender (including any Affiliate of any predecessor-in-interest to Lender).

“Lessee”means Friendly Ice Cream Corporation, a Massachusetts corporation, and its successors.

“Lessee Parties”means, collectively, Lessee and any guarantors of the Lease (including, in each case, any predecessors in interest).

“Loan”means the loan for the Premises described in Section 2.

“Loan Amount”means $930,000.00.

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“Loan Documents”means, collectively, this Agreement, the Note, the Mortgage, the Environmental Indemnity Agreement, the Subordination Agreement, the UCC-1 Financing Statements, the Authorization Regarding Information form previously delivered on behalf of the Borrower Parties to Lender and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, as the same may be amended from time to time.

“Loan Pool”means: (a) in the context of a Securitization, any pool or group of loans that are a part of such Securitization; (b) in the context of a Transfer, all loans which are sold, transferred or assigned to the same transferee; and (c) in the context of a Participation, all loans as to which participating interests are granted to the same participant.

“Material Adverse Effect”means a material adverse effect on (a) the Premises, including, without limitation, the operation of the Premises as a Permitted Concept, or (b) Borrower’s ability to perform its obligations under the Loan Documents.

“Mortgage”means the deed of trust, deed to secure debt or mortgage dated as of the date of this Agreement executed by Borrower for the benefit of Lender with respect to the Premises, as the same may be amended from time to time.

“Note”means the promissory note dated as of the date of this Agreement executed by Borrower in favor of Lender evidencing the Loan, as the same may be amended, restated or substituted from time to time.

“Obligations” has the meaning set forth in the Mortgage.

“OFAC Laws and Regulations”means Executive Order 13224 issued by the President of the United States of America, the Terrorism Sanctions Regulations (Title 31 Part 595 of the U.S. Code of Federal Regulations), the Terrorism List Governments Sanctions Regulations (Title 31 Part 596 of the U.S. Code of Federal Regulations), the Foreign Terrorist Organizations Sanctions Regulations (Title 31 Part 597 of the U.S. Code of Federal Regulations), and the Cuban Assets Control Regulations (Title 31 Part 515 of the U.S. Code of Federal Regulations), and all other present and future federal, state and local laws, ordinances, regulations, policies, lists (including, without limitation, the Specially Designated Nationals and Blocked Persons List) and any other requirements of any Governmental Authority (including, without limitation, the United States Department of the Treasury Office of Foreign Assets Control) addressing, relating to, or attempting to eliminate, terrorist acts and acts of war, each as hereafter supplemented, amended or modified from time to time, and the present and future rules, regulations and guidance documents promulgated under any of the foregoing, or under similar laws, ordinances, regulations, policies or requirements of other states or localities.

“Other Agreements”means, collectively, all agreements and instruments between, among or by (a) any of the Borrower Parties or any Affiliate of any of the Borrower Parties (including any Affiliate of any predecessor-in-interest to any of the Borrower Parties), and, or for the benefit of, (b) any of the Lender Entities, including, without limitation, promissory notes and guaranties; provided, however, the term “Other Agreements” shall not include the agreements and instruments defined as the Loan Documents.

“Participation”means one or more grants by Lender or any of the other Lender Entities to a third party of a participating interest in notes evidencing obligations to repay secured or unsecured loans owned by Lender or any of the other Lender Entities or any or all servicing rights with respect thereto.

“Permitted Concept”means a Friendly’s restaurant.

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“Permitted Exceptions”means those recorded easements, restrictions, liens and encumbrances set forth as exceptions in the title insurance policy issued by Title Company to Lender and approved by Lender in its sole discretion in connection with the closing of the Loan.

“Person”means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity.

“Personal Property”has the meaning set forth in the Mortgage.

“Premises”means the parcel or parcels of real estate legally described on Exhibit A attached hereto, together with all rights, privileges and appurtenances associated therewith and all buildings, fixtures and other improvements now or hereafter located thereon (whether or not affixed to such real estate) and the Personal Property.

“Restoration”has the meaning set forth in the Mortgage.

“Securitization”means one or more sales, dispositions, transfers or assignments by Lender or any of the other Lender Entities to a special purpose corporation, trust or other entity identified by Lender or any of the other Lender Entities of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any of the other Lender Entities (and, to the extent applicable, the subsequent sale, transfer or assignment of such notes to another special purpose corporation, trust or other entity identified by Lender or any of the other Lender Entities), and the issuance of bonds, certificates, notes or other instruments evidencing interests in pools of such loans, whether in connection with a permanent asset securitization or a sale of loans in anticipation of a permanent asset securitization. Each Securitization shall be undertaken in accordance with all requirements which may be imposed by the investors or the rating agencies involved in each such sale, disposition, transfer or assignment or which may be imposed by applicable securities, tax or other laws or regulations.

“Subordination Agreement”means the subordination and attornment agreement dated as of the date of this Agreement executed by Borrower, Lessee and Lender with respect to the Lease as the same may be amended from time to time.

“Title Company”means Lawyers Title Insurance Corporation.

“Transfer”means one or more sales, transfers or assignments by Lender or any of the other Lender Entities to a third party of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any of the other Lender Entities or any or all servicing rights with respect thereto.

“UCC-1 Financing Statements”means such UCC-1 Financing Statements as Lender shall file with respect to the transactions contemplated by this Agreement.

“UCC”has the meaning set forth in the Mortgage.

“U.S. Publicly-Traded Entity”is an Entity whose securities are listed on a national securities exchange or quoted on an automated quotation system in the U.S. or a wholly-owned subsidiary of such an Entity.

2.         Transaction. On the terms and subject to the conditions set forth in the Loan Documents, Lender shall make the Loan. The Loan will be evidenced by the Note and secured by the Mortgage. Borrower shall repay the outstanding principal amount of the Loan together with interest thereon in the manner and in accordance with the terms and conditions of the Note and the other Loan Documents. The Premises shall be leased to the Lessee pursuant to the Lease and, at Closing, Borrower shall assign the Lease to Lender pursuant to the Mortgage. The Loan shall be advanced at the

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Closing in cash or otherwise immediately available funds subject to any prorations and adjustments required by this Agreement.

3.         Escrow Agent; Closing Costs. Borrower and Lender hereby employ Title Company to act as escrow agent in connection with the transactions described in this Agreement. Borrower and Lender will deliver to Title Company all documents, pay to Title Company all reasonable sums for the services rendered by the Title Company in connection with this transaction, and do or cause to be done all other things necessary or required by this Agreement, in the reasonable judgment of Title Company, to enable Title Company to comply herewith and to enable any title insurance policy provided for herein to be issued. Title Company shall not cause the transaction to close unless and until it has received written instructions from Lender and Borrower to do so. Title Company is authorized to pay, from any funds held by it for Lender’s or Borrower’s respective credit all amounts necessary to procure the delivery of such documents and to pay, on behalf of Lender and Borrower, all charges and obligations payable by them, respectively. Borrower will pay all charges payable by it to Title Company. Title Company is authorized, in the event any conflicting demand is made upon it concerning these instructions or the escrow, at its election, to hold any documents or funds deposited hereunder until an action shall be brought in a court of competent jurisdiction to determine the rights of Borrower and Lender or to interplead such documents or funds in an action brought in any such court. Deposit by Title Company of such documents and funds, after deducting therefrom its charges and its expenses and attorneys’ fees incurred in connection with any such court action, shall relieve Title Company of all further liability and responsibility for such documents and funds. Title Company’s receipt of this Agreement and opening of an escrow pursuant to this Agreement shall be deemed to constitute conclusive evidence of Title Company’s agreement to be bound by the terms and conditions of this Agreement pertaining to Title Company. Disbursement of any funds shall be made by check, certified check or wire transfer, as directed by Borrower and Lender. Title Company shall be under no obligation to disburse any funds represented by check or draft, and no check or draft shall be payment to Title Company in compliance with any of the requirements hereof, until it is advised by the bank in which such check or draft is deposited that such check or draft has been honored. Title Company is authorized to act upon any statement furnished by the holder or payee, or a collection agent for the holder or payee, of any lien on or charge or assessment in connection with the Premises, concerning the amount of such charge or assessment or the amount secured by such lien, without liability or responsibility for the accuracy of such statement. The employment of Title Company as escrow agent shall not affect any rights of subrogation under the terms of any title insurance policy issued pursuant to the provisions thereof.

4.        Closing Conditions. The obligation of Lender to consummate the transaction contemplated by this Agreement is subject to the fulfillment or waiver of each of the following conditions:

A.       Title Insurance Commitments. Lender shall have received for the Premises a preliminary title report and irrevocable commitment to insure title in the amount of the Loan, by means of a mortgagee’s, ALTA extended coverage policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the Premises is located) issued by Title Company showing Borrower vested with good and marketable fee title in the real property comprising such Premises, committing to insure Lender’s first priority lien upon and security interest in such real property subject only to Permitted Exceptions, and containing such endorsements as Lender may require.

B.        Survey. Lender shall have received a current ALTA survey of the Premises or its equivalent, the form and substance of which shall be satisfactory to Lender in its reasonable discretion. Lender shall have obtained a flood certificate indicating that the location of the Premises is not within the 100-year flood plain or identified as a special flood hazard area as defined by the Federal Emergency Management Agency, or if the Premises is in such a flood plain or special flood hazard area, Borrower shall have provided Lender with evidence of flood insurance maintained on the Premises in an amount and on terms and conditions reasonably satisfactory to Lender.

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C.        Environmental. Lender shall have completed such environmental due diligence of the Premises as it deems necessary or advisable in its sole discretion, and Lender shall have approved the environmental condition of the Premises in its sole discretion.

D.        Compliance With Representations, Warranties and Covenants. All of the representations and warranties set forth in Section 5 shall be true, correct and complete as of the Closing Date, and Borrower shall be in compliance with each of the covenants set forth in Section 6 as of the Closing Date. No event shall have occurred or condition shall exist or information shall have been disclosed by Borrower or discovered by Lender which has had or would be reasonably likely to have a Material Adverse Effect on the Premises, any of the Borrower Parties or Lessee Parties or Lender’s willingness to consummate the transaction contemplated by this Agreement, as determined by Lender in its sole and absolute discretion.

E.        Proof of Insurance. Borrower shall have delivered to Lender certificates of insurance and copies of insurance policies showing that all insurance required by the Loan Documents and providing coverage and limits satisfactory to Lender are in full force and effect.

F.        Legal Opinions. Borrower shall have delivered to Lender such legal opinions as Lender may reasonably require all in form and substance reasonably satisfactory to Lender and its counsel.

G.        Fee and Closing Costs. Borrower shall have paid the Fee to Lender and shall have paid all costs of the transactions described in this Agreement, including, without limitation, the cost of title insurance premiums and all endorsements required by Lender, survey charges, UCC and litigation search charges, the attorneys’ fees of Borrower, reasonable attorneys’ fees and expenses of Lender, the cost of the environmental due diligence undertaken pursuant to Section 4.C, Lender’s site inspection costs and fees, stamp taxes, mortgage taxes, transfer fees, escrow, filing and recording fees and UCC filing and recording fees (including preparation, filing and recording fees for UCC continuation statements). Borrower shall have also paid all real and personal property and other applicable taxes and assessments and other charges relating to the Premises which are due and payable on or prior to the Closing Date as well as taxes and assessments due and payable subsequent to the Closing Date but which Title Company requires to be paid at Closing as a condition to the issuance of the title insurance policy described in Section 4.A.

H.        Lease, Memorandum and Subordination Agreement. Borrower and Lessee shall have executed and delivered the Lease, and a memorandum of lease in recordable form for the Premises and the Subordination Agreement. The Lease, and the Memorandum and the Subordination Agreement shall be in form and substance reasonably satisfactory to Lender.

I.         Closing Documents. At or prior to the Closing Date, Lender or the Borrower Parties, as may be appropriate, shall have executed and delivered or shall have caused to be executed and delivered to Lender, or as Lender may otherwise direct, the Loan Documents and such other documents, payments, instruments and certificates, as Lender may require in form acceptable to Lender.

Upon fulfillment or waiver of all of the above conditions, Lender shall deposit funds necessary to close this transaction with the Title Company and this transaction shall close in accordance with the terms and conditions of this Agreement.

5.         Representations and Warranties of Borrower. The representations and warranties of Borrower contained in this Section are being made by Borrower as of the Closing Date to induce Lender to enter into this Agreement and consummate the transactions contemplated herein and shall survive the Closing. Borrower represents and warrants to Lender as follows:

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A.       Financial Information. Borrower has delivered to Lender certain financial statements and other information concerning the Borrower Parties in connection with the transaction described in this Agreement (collectively, the “Financial Information”). The Financial Information is true, correct and complete in all material respects; there have been no amendments to the Financial Information since the date such Financial Information was prepared or delivered to Lender. Borrower understands that Lender is relying upon the Financial Information and Borrower represents that such reliance is reasonable. All financial statements included in the Financial Information were prepared in accordance with GAAP and fairly present as of the date of such financial statements the financial condition of each individual or entity to which they pertain. No change has occurred with respect to the financial condition of any of the Borrower Parties or the Premises as reflected in the Financial Information, which has not been disclosed in writing to Lender or has had, or could reasonably be expected to result in, a Material Adverse Effect.

B.        Organization and Authority. Each of the Borrower Parties (other than individuals), as applicable, is duly organized or formed, validly existing and in good standing under the laws of its state of incorporation or formation. Borrower is qualified as a foreign corporation, partnership or limited liability company, as applicable, to do business in each state where the Premises is located, and each of the Borrower Parties is qualified as a foreign corporation, partnership or limited liability company, as applicable, to do business in any other jurisdiction where the failure to be qualified would reasonably be expected to result in a Material Adverse Effect. All necessary action has been taken to authorize the execution, delivery and performance by the Borrower Parties of this Agreement and the other Loan Documents. The person(s) who have executed this Agreement on behalf of Borrower are duly authorized so to do. Borrower is not a “foreign corporation”, “foreign partnership”, “foreign trust”, “foreign estate” or “foreign person” (as those terms are defined by the Internal Revenue Code of 1986, as amended). Borrower’s U.S. Federal Tax Identification number, Organization Identification number and principal place of business are correctly set forth on the signature page of this Agreement. None of the Borrower Parties, and no individual or entity owning directly or indirectly any interest in any of the Borrower Parties, is an individual or entity whose property or interests are subject to being blocked under any of the OFAC Laws and Regulations or is otherwise in violation of any of the OFAC Laws and Regulations; provided, however, the representation contained in this sentence shall not apply to any Person to the extent such Person’s interest is in or through a U.S. Publicly-Traded Entity.

C.        Enforceability of Documents. Upon execution by the Borrower Parties, this Agreement and the other Loan Documents shall constitute the legal, valid and binding obligations of the Borrower Parties, respectively, enforceable against the Borrower Parties in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and general principles of equity.

D.        Litigation. There are no suits, actions, proceedings or investigations pending, or to the best of its knowledge, threatened against or involving the Borrower Parties or the Premises before any arbitrator or Governmental Authority, except for such suits, actions, proceedings or investigations which, individually or in the aggregate, have not had, and would not reasonably be expected to result in, a Material Adverse Effect.

E.        Absence of Breaches or Defaults. The Borrower Parties are not, and the authorization, execution, delivery and performance of this Agreement and the other Loan Documents will not result, in any breach or default under any other document, instrument or agreement to which any of the Borrower Parties is a party or by which any of the Borrower Parties, the Premises or any of the property of any of the Borrower Parties is subject or bound, except for such breaches or defaults which, individually or in the aggregate, have not had, and would not reasonably be expected to result in, a Material Adverse Effect. The authorization, execution, delivery and performance of this Agreement and the other Loan Documents will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. The Premises is not subject to any right of first refusal, right of first offer or option to purchase or lease granted to a third party (other than the Lease).

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F.        Utilities. Adequate public utilities are available at the Premises to permit utilization of the Premises as a Permitted Concept and all utility connection fees and use charges will have been paid in full prior to delinquency.

G.        Zoning; Compliance With Laws. The Premises is in compliance with all applicable zoning requirements, and the use of the Premises as a Permitted Concept does not constitute a nonconforming use under applicable zoning requirements. The Borrower Parties and the Premises are in compliance with all Applicable Regulations except for such noncompliance which has not had, and would not reasonably be expected to result in, a Material Adverse Effect.

H.        Area Development; Wetlands. No condemnation or eminent domain proceedings affecting the Premises have been commenced or, to the best of Borrower’s knowledge without having made any independent investigations, are contemplated. Neither the Premises, nor to the best of Borrower’s knowledge, the real property bordering the Premises, are designated by any Governmental Authority as a wetlands.

I.         Licenses and Permits; Access. All required licenses and permits, both governmental and private, to use and operate the Premises as a Permitted Concept are in full force and effect, except for such licenses and permits the failure of which to obtain has not had, and would not reasonably be expected to result in, a Material Adverse Effect. Adequate rights of access to public roads and ways are available to the Premises for unrestricted ingress and egress and otherwise to permit utilization of the Premises for their intended purposes, and all such public roads and ways have been completed and dedicated to public use.

J.         Condition of Premises. The Premises, including the Personal Property, is in good condition and repair and well maintained, ordinary wear and tear excepted, fully equipped and operational, free from structural defects, safe and properly lighted.

K.        Environmental. The representations and warranties of Borrower set forth in Section 2 of the Environmental Indemnity Agreement, together with the corresponding definitions, are incorporated by reference into this Agreement as if stated in full in this Agreement.

L.        Title to Premises; First Priority Lien. Fee title to the real property comprising the Premises is vested in Borrower, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions. Borrower is owner of all Personal Property, except for certain leased equipment identified in Schedule 1 attached hereto, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, and no Affiliate of Borrower owns any of the Personal Property. Upon Closing, Lender shall have a first priority lien upon and security interest in Borrower’s right, title and interest in and to the Premises pursuant to the Mortgage and the UCC-1 Financing Statements.

M.       No Mechanics’ Liens. There are no delinquent accounts payable or mechanics’ liens in favor of any materialman, laborer, or any other person or entity in connection with labor or materials furnished to or performed on any portion of the Premises; and no work has been performed or is in progress nor have materials been supplied to the Premises or agreements entered into for work to be performed or materials to be supplied to the Premises prior to the date hereof, which will be delinquent on or before the Closing Date.

N.        Lease. Borrower has delivered to Lender a true, correct and complete copy of the Lease. The Lease is the only lease with respect to the Premises, and is in full force and effect, and constitutes the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and

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general principles of equity. Borrower has not assigned, transferred, mortgaged, hypothecated or otherwise encumbered the Lease or any rights thereunder or any interest therein, and Borrower has not received any notice that the Lessee has made any assignment, pledge or hypothecation of all or any part of its rights or interests in the Lease. Borrower has not received any notice of default from the Lessee which has not been cured or given any notice of default to the Lessee which has not been cured. No event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute a default by the Lessee or Borrower under the Lease.

O.        Money Laundering. (1) Borrower has taken all reasonable measures, in accordance with all applicable Anti-Money Laundering Laws, with respect to each holder of a direct or indirect interest in the Borrower Parties, to assure that funds invested by such holders in the Borrower Parties are derived from legal sources; provided, however, none of the foregoing shall apply to any Person to the extent that such Person’s interest is in or through a U.S. Publicly-Traded Entity.

(2)       To Borrower’s knowledge after making due inquiry, neither any of the Borrower Parties nor any holder of a direct or indirect interest in the Borrower Parties (a) is under investigation by any Governmental Authority for, or has been charged with, or convicted of, any violation of any Anti-Money Laundering Laws, or drug trafficking, terrorist-related activities or other money laundering predicated crimes or a violation of the BSA, (b) has been assessed civil penalties under these or related laws, or (c) has had any of its funds seized or forfeited in an action under these or related laws; provided, however, none of the foregoing shall apply to any Person to the extent that such Person’s interest is in or through a U.S. Publicly-Traded Entity.

(3)       Borrower has taken reasonable steps, consistent with industry practice for comparable organizations and in any event as required by law, to ensure that the Borrower Parties are and shall be in compliance with all (a) Anti-Money Laundering Laws and (b) OFAC Laws and Regulations.

6.         Covenants.Borrower covenants to Lender from and after the Closing Date and until all of the Obligations are satisfied in full, as follows:

A.       Payment of the Note. Borrower shall punctually pay, or cause to be paid, the principal, interest and all other sums to become due in respect of the Note and the other Loan Documents in accordance with the Note and the other Loan Documents. Borrower shall authorize Lender to establish arrangements whereby all scheduled payments made in respect of the Obligations are transferred by Automated Clearing House Debit initiated by Lender directly from an account at a U.S. bank in the name of Borrower to such account as Lender may designate or as Lender may otherwise designate.

B.        Title. Borrower shall maintain good and marketable fee simple title to the real property comprising the Premises, and title to the Personal Property except the leased personal property described on Schedule 1 attached hereto, and the remainder of the Premises, free and clear of all liens, encumbrances, charges and other exceptions to title, except the Permitted Exceptions. Lender shall have valid first liens upon and security interests in the Premises, including the Personal Property, pursuant to the Mortgage and the UCC-1 Financing Statements.

C.        Organization and Status of Borrower; Preservation of Existence. Each of the Borrower Parties (other than individuals), as applicable, shall be validly existing and in good standing under the laws of its state of incorporation or formation. Borrower shall be qualified as a foreign corporation, partnership or limited liability company to do business in each state where the Premises is located, and each of the Borrower Parties shall be qualified as a foreign corporation, partnership or limited liability company in any other jurisdiction where the failure to be qualified would reasonably be expected to result in a Material Adverse Effect. Borrower shall preserve its current form of organization and shall not change its legal name, its state of formation, nor, in one transaction or a series of related transactions, merge with or into, or consolidate with, any other entity without providing, in each case, Lender with 30

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days’ prior written notice and obtaining Lender’s prior written consent (to the extent such consent is required under Section 7 of this Agreement). In addition, Borrower shall require, and shall take reasonable measures to comply with the requirement, that no individual or entity owning directly or indirectly any interest in any of the Borrower Parties is an individual or entity whose property or interests are subject to being blocked under any of the OFAC Laws and Regulations or is otherwise in violation of any of the OFAC Laws and Regulations; provided, however, the covenant contained in this sentence shall not apply to any Person to the extent that such Person’s interest is in or through a U.S. Publicly-Traded Entity.

D.        Licenses and Permits. All required licenses and permits, both governmental and private, to use and operate the Premises as a Permitted Concept shall be maintained in full force and effect.

E.        Compliance With Laws Generally. The use and occupation of the Premises, and the condition thereof, including, without limitation, any Restoration, shall comply with all Applicable Regulations now or hereafter in effect, including, without limitation, the OFAC Laws and Regulations and Anti-Money Laundering Laws. In addition, the Borrower Parties shall comply with all Applicable Regulations now or hereafter in effect. Without limiting the generality of the other provisions of this Section, Borrower shall comply with the ADA, and all regulations promulgated thereunder, as it affects the Premises.

F.        Compliance With Environmental Provisions. The covenants, obligations and agreements of Borrower set forth in Sections 3 through 7 of the Environmental Indemnity Agreement, together with the corresponding definitions, are incorporated by reference into this Agreement as if stated in full in this Agreement.

G.        Financial Statements. Within 45 days after the end of each fiscal quarter and within 120 days after the end of each fiscal year of Borrower, Borrower shall deliver to Lender (1) complete financial statements of the Borrower Parties including a balance sheet, profit and loss statement, statement of cash flows and all other related schedules for the fiscal period then ended; (2) income statements for the business at the Premises; and (3) such other financial information as Lender may reasonably request in order to establish compliance with the financial covenants in the Loan Documents, including, without limitation, Section 6.J of this Agreement. All such financial statements shall be prepared in accordance with GAAP from period to period, and shall be certified to be accurate and complete by Borrower (or the Treasurer or other appropriate officer of Borrower). In the event the property and business at the Premises is ordinarily consolidated with other business for financial statement purposes, such financial statements shall be prepared on a consolidated basis showing separately the sales, profits and losses, assets and liabilities pertaining to the Premises with the basis for allocation of overhead of other charges being clearly set forth. The financial statements delivered to Lender need not be audited, but Borrower shall deliver to Lender copies of any audited financial statements of Borrower which may be prepared, as soon as they are available. Borrower shall also cause to be delivered to Lender copies of any financial statements required to be delivered to Borrower by any tenants of the Premises.

H.        Lost Note. Borrower shall, if the Note is mutilated, destroyed, lost or stolen (a “Lost Note”), promptly deliver to Lender, upon receipt from Lender of an affidavit and indemnity in a form reasonably acceptable to Lender and Borrower stipulating that the Note has been mutilated, destroyed, lost or stolen, in substitution therefor, a new promissory note containing the same terms and conditions as the Lost Note with a notation thereon of the unpaid principal and accrued and unpaid interest. Borrower shall provide fifteen (15) days’ prior notice to Lender before making any payments to third parties in connection with the Lost Note.

I.         Inspections. Borrower shall, during normal business hours (or at any time in the event of an emergency), (1) provide Lender and Lender’s officers, employees, agents, advisors, attorneys, accountants, architects, and engineers with access to the Premises, all drawings, plans, and

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specifications for the Premises in possession of any of the Borrower Parties, all engineering reports relating to the Premises in the possession of any of the Borrower Parties, the files, correspondence and documents relating to the Premises, and the financial books and records, including lists of delinquencies, relating to the ownership, operation, and maintenance of the Premises (including, without limitation, any of the foregoing information stored in any computer files), (2) allow such persons to make such inspections, tests, copies, and verifications as Lender considers necessary, and (3) if Borrower is in breach of the Corporate Fixed Charge Coverage Ratio requirement set forth in the following subsection J, pay expenses reasonably incurred by Lender from time to time in conducting such inspections, tests, copies and verifications upon demand (such amounts to bear interest at the Default Rate if not paid upon demand until paid).

J.         Corporate Fixed Charge Coverage Ratio. Borrower shall maintain a Corporate Fixed Charge Coverage Ratio of at least 1.20:1, as determined as of Borrower’s fiscal year end. For purposes of this Section, the term “Corporate Fixed Charge Coverage Ratio” shall mean with respect to the twelve month period of time immediately preceding the date of determination, the ratio calculated for such period of time, each as determined in accordance with GAAP, of (1) the sum of Net Income, Depreciation and Amortization, Interest Expense, income taxes, and Operating Lease Expense, plus or minus other non-cash adjustments or non-recurring items (as allowed by Lender), plus or minus changes in officer or shareholders loans and dividends or distributions not otherwise expensed on the Borrower’s income statement to (2) the sum of Operating Lease Expense, principal payments of long term Debt, maturities of all Capital Leases and Interest Expense (excluding non-cash interest expense and amortization of non-cash financing expenses).

For purposes of this Section, the following terms shall be defined as set forth below:

“Capital Lease” shall mean all leases of any properly, whether real, personal or mixed, by Borrower or any of the other Borrower Parties, as applicable, which lease would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of Borrower. The term “Capital Lease” shall not include any operating lease.

“Debt” shall mean with respect to Borrower and the other Borrower Parties, collectively, and for the period of determination (a) indebtedness for borrowed money, (b) obligations evidenced by bonds, indentures, notes or similar instruments, (c) obligations to pay the deferred purchase price of property or services, (d) obligations under leases which should be, in accordance with GAAP, recorded as Capital Leases, and (e) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (d) above.

“Depreciation and Amortization” shall mean the depreciation and amortization accruing during any period of determination with respect to Borrower and the other Borrower Parties, collectively, as determined in accordance with GAAP.

“Interest Expense” shall mean for any period of determination, the sum of all interest accrued or which should be accrued in respect of all Debt of Borrower and the other Borrower Parties, collectively, as determined in accordance with GAAP.

“Net Income” shall mean with respect to the period of determination, the net income or net loss of Borrower and the other Borrower Parties, collectively. In determining the amount of Net Income, (a) adjustments shall be made for nonrecurring gains and losses or non-cash items allocable to the period of determination, (b) deductions shall be made for, among other things, Depreciation and Amortization, Interest Expense, Operating Lease Expense and actual corporate overhead expense allocable to the period of determination, and (c) no deductions shall be made

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for income taxes or charges equivalent to income taxes allocable to the period of determination, as determined in accordance with GAAP.

“Operating Lease Expense” shall mean the sum of all payments and expenses incurred by Borrower and the other Borrower Parties, collectively, under any operating leases during the period of determination as determined in accordance with GAAP.

K.        Affiliate Transactions. Unless otherwise approved by Lender, all transactions between Borrower and any of its Affiliates shall be on terms substantially as advantageous to Borrower as those which could be obtained by Borrower in a comparable arm’s length transaction with a non-Affiliate of Borrower.

L.        Compliance Certificates. Within 60 days after the end of each fiscal year of Borrower, Borrower shall deliver a compliance certificate to Lender in a form to be provided by Lender in order to establish that Borrower is in compliance in all material respects with all of its obligations, duties and covenants under the Loan Documents.

M.       OFAC Laws and Regulations. Borrower shall promptly notify Lender in writing after Borrower has received notice if any individual or entity owning directly or indirectly any interest in any of the Borrower Parties or any director, officer, member, manager or partner of any of such holders is an individual or entity whose property or interests are subject to being blocked under any of the OFAC Laws and Regulations or is otherwise in violation of any of the OFAC Laws and Regulations, or is under investigation by any governmental entity for, or has been charged with, or convicted of, drug trafficking, terrorist-related activities or any violation of Anti-Money Laundering Laws, has been assessed civil penalties under these or related laws, or has had funds seized or forfeited in an action under these or related laws; provided, however, the covenant contained in this sentence shall not apply to any Person to the extent that such Person’s interest is in or through a U.S. Publicly-Traded Entity.

7.         Sales, Transfers, Assignments and Pledges.A. Without limiting the terms and conditions of Section 3.09 of the Mortgage, Borrower agrees that Borrower shall not, without the prior written consent of Lender not to be unreasonably withheld, sell, convey, mortgage, grant, bargain, encumber, pledge, assign, or otherwise transfer the Premises or any part thereof or permit the Premises or any part thereof to be sold, conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise transferred, other than sales from inventory in the ordinary course of business and the replacement of obsolete Personal Property. A sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Section shall be deemed to include, but not limited to, (a) an installment sales agreement wherein Borrower agrees to sell the Premises or any part thereof for a price to be paid in installments; (b) an agreement by Borrower leasing all or any part of the Premises or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower’s right, title and interest in and to any Lease or any Rents (as defined in the Mortgage); (c) any merger by or with any of the Borrower Parties or any equity owner of any of the Borrower Parties or any entity directly or indirectly controlling in any manner such equity owner or any of the Borrower Parties (collectively, “Borrower Equity Owners”) or any pledge, encumbrance, hypothecation or collateral assignment of the equity ownership of any of the Borrower Parties or any of the Borrower Equity Owners; (d) if any of the Borrower Parties or the Borrower Equity Owners is not a natural person, the voluntary or involuntary sale, conveyance or transfer of such entity’s equity interests, or the creation or issuance of new equity interests which in one or a series of transactions results in more than 49% of the equity interests of such entity being held by any party or parties who are not, as of the date of this Agreement, equity owners of any of the Borrower Parties or the Borrower Equity Owners; (e) if any of the Borrower Parties or the Borrower Equity Owners is a limited or general partnership or limited liability company, the change, removal or resignation of any general partner or managing member, as applicable; and (f) if any of the Borrower Entities or any Borrower Equity Owners is a corporation, limited liability company governed by a board of managers or trust, the change, removal or resignation, other than by death or incapacity, in one or a series of transactions of a majority of the board of directors, board of managers or

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trustees, as applicable. In addition, no interest in any of the Borrower Parties, or in any individual or person owning directly or indirectly any interest in any of the Borrower Parties, shall be transferred, assigned or conveyed to any individual or person whose property or interests are subject to being blocked under any of the OFAC Laws and Regulations or who is in violation of any of the OFAC Laws and Regulations, and any such transfer, assignment or conveyance shall not be effective until the transferee has provided written certification to Borrower and Lender that (x) the transferee or any person who owns directly or indirectly any interest in transferee, is not an individual or entity whose property or interests are subject to being blocked under any of the OFAC Laws and Regulations or is otherwise in violation of the OFAC Laws and Regulations, and (y) the transferee has taken reasonable measures to assure than any individual or entity who owns directly or indirectly any interest in transferee, is not an individual or entity whose property or interests are subject to being blocked under any of the OFAC Laws and Regulations or is otherwise in violation of the OFAC Laws and Regulations; provided, however, the covenant contained in this sentence shall not apply to any Person to the extent that such Person’s interest is in or through a U.S. Publicly-Traded Entity.

Notwithstanding the foregoing, a transfer by devise or descent or by operation of law upon thedeath of a member, partner or stockholder of any of the Borrower Parties or any general or limited partner or member thereof shall not be deemed to be a sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Section.

B. Lender’s consent to any matter contemplated by this Section shall be subject to the satisfaction of such conditions as Lender shall determine in its sole but reasonable discretion, including, without limitation, (1) the execution and delivery of such modifications to the terms of the Loan Documents as Lender shall request, and (2) the proposed transferee having agreed to comply with all of the terms and conditions of the Loan Documents (including any modifications requested by Lender pursuant to clause (1) above). In addition, any such consent shall be conditioned upon payment by Borrower to Lender of (a) a fee equal to one percent (1%) of the then outstanding principal balance of the Note and (b) all reasonable out-of-pocket costs and expenses incurred by Lender in connection with such consent, including, without limitation, reasonable attorneys’ fees. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Obligations immediately due and payable upon Borrower’s sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer as contemplated by this Section. The provisions of this Section shall apply to every such sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer regardless of whether voluntary or not, or whether or not Lender has consented to any previous sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer pursuant to this Section.

8.         Transaction Characterization.A. It is the intent of the parties hereto that this Agreement and the other Loan Documents are a contract to extend a financial accommodation (as such term is used in the Code) for the benefit of Borrower and that the Loan Documents evidence one unitary, unseverable transaction pertaining to the Premises.

B.        It is the intent of the parties hereto that the business relationship created by the Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership (either de jure or de facto) between Borrower and Lender, to make them joint venturers, to make Borrower an agent, legal representative, partner, subsidiary or employee of Lender, nor to make Lender in any way responsible for the debts, obligations or losses of Borrower.

9.         Default and Remedies.A. Each of the following shall be deemed an event of default by Borrower (each, an “Event of Default”);

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(1)       If any representation or warranty of any of the Borrower Parties set forth in any of the Loan Documents is false in any material respect when made, or if any of the Borrower Parties renders any statement or account which is false in any material respect.

(2)       If any principal, interest or other monetary sum due under the Note, the Mortgage or any other Loan Document is not paid within ten (1) days after the date when due; provided, however, notwithstanding the occurrence of such an Event of Default, Lender shall not be entitled to exercise its rights and remedies set forth below unless and until Lender shall have given Borrower notice thereof and a period of ten (10) days from the delivery of such notice shall have elapsed without such Event of Default being cured.

(3)       If Borrower fails to observe or perform any of the other covenants, conditions, or obligations of this Agreement; provided, however, if any such failure does not involve the payment of any monetary sum, is not willful or intentional, does not place any rights or interest in collateral of Lender in immediate jeopardy, and is within the reasonable power of Borrower to promptly cure after receipt of notice thereof, all as determined by Lender in its reasonable discretion, then such failure shall not constitute an Event of Default hereunder, unless otherwise expressly provided herein, unless and until Lender shall have given Borrower notice thereof and a period of 30 days shall have elapsed, during which period Borrower may correct or cure such failure, upon failure of which an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required. If such failure cannot reasonably be cured within such 30-day period, as determined by Lender in its reasonable discretion, and Borrower is diligently pursuing a cure of such failure, then Borrower shall have a reasonable period to cure such failure beyond such 30-day period, which shall not exceed 90 days after receiving notice of the failure from Lender. If Borrower shall fail to correct or cure such failure within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required.

(4)       If any of the Borrower Parties or Friendly Ice Cream Corporation becomes insolvent within the meaning of the Code, files or notifies Lender that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, an “Action”), becomes the subject of either a petition under the Code or an Action, or is not generally paying its debts as the same become due.

(5)       If there is an “Event of Default” or a breach or default by Borrower, after the passage of all applicable notice and cure or grace periods, under the Lease, any of the Other Agreements, or any other Loan Document.

(6)       If a final, nonappealable judgment is rendered by a court against any of the Borrower Parties which (a) has a Material Adverse Effect on the operation of the Premises as a Permitted Concept, or (b) is in an amount greater than $100,000.00 and not covered by insurance, and, in either case, is not discharged or provision made for such discharge within 60 days from the date of entry of such judgment.

B.        Upon the occurrence and during the continuance of an Event of Default, subject to the limitations set forth in subsection A, Lender may declare all or any part of the obligations of Borrower under the Note, this Agreement and any other Loan Document to be due and payable, and the same shall thereupon become due and payable without any presentment, demand, protest or notice of any kind except as otherwise expressly provided herein, and Borrower hereby waives notice of intent to accelerate the obligations secured by the Mortgage and notice of acceleration. Thereafter, Lender may exercise, at its option, concurrently, successively or in any combination, all remedies available at law or in equity, including without limitation any one or more of the remedies available under the Note, the Mortgage or any other Loan Document. Neither the acceptance of this Agreement nor its enforcement shall prejudice or in any manner affect Lender’s right to realize upon or enforce any other security now or hereafter held by Lender, it being agreed that Lender shall be entitled to enforce this Agreement and any other security now or hereafter held by Lender in such order and manner as it may in its absolute discretion determine.

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No remedy herein conferred upon or reserved to Lender is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to Lender, or to which Lender may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Lender.

10.       Indemnity; Release.A. Initially capitalized terms in this Section that are not otherwise defined in this Agreement shall have the meanings set forth in the Environmental Indemnity Agreement. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless each of the Indemnified Parties for, from and against any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, attorneys’ fees, court costs and other costs of defense) (collectively, “Losses”) (excluding Losses suffered by an Indemnified Party directly arising out of such Indemnified Party’s gross negligence or willful misconduct; provided, however, that the term “gross negligence” shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Borrower’s interest in the Premises or Borrower’s failure to act in respect of matters which are or were the obligation of Borrower under the Loan Documents), and costs of Remediation (whether or not performed voluntarily), engineers’ fees, environmental consultants’ fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (1) any presence of any Hazardous Materials in, on, above, or under the Premises; (2) any past, present or Threatened Release in, on, above, under or from the Premises; (3) any activity by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Premises of any Hazardous Materials at any time located in, under, on or above the Premises; (4) any activity by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises in connection with any actual or proposed Remediation of any Hazardous Materials at any time located in, under, on or above the Premises, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (5) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with the Premises or operations thereon, including but not limited to any failure by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises to comply with any order of any Governmental Authority in connection with any Environmental Laws; (6) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering the Premises; (7) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Agreement; (8) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Premises, including but not limited to costs to investigate and assess such injury, destruction or loss; (9) any acts of Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Materials owned or possessed by Borrower, any person or entity affiliated with Borrower or any tenant or other user, at any facility or incineration vessel owned or operated by another person or entity and containing such or similar Hazardous Materials; (10) any acts of Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises, in accepting any Hazardous Materials for transport to disposal or treatment facilities, incineration vessels or sites selected by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises, from which there is a Release, or a Threatened Release of any Hazardous Materials which causes the incurrence of costs for Remediation; (11) any personal injury, wrongful death, or property damage arising under any statutory or common law or tort law theory, including but not limited to damages assessed for the maintenance of a

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private or public nuisance or for the conducting of an abnormally dangerous activity on or near the Premises; (12) any disclosures of information, financial or otherwise, (x) made by Lender or Lender’s employees, officers, agents and designees to any third party as contemplated by Section 11.R of this Agreement, or (y) obtained from any credit reporting agency with respect to Borrower, any guarantor of the Loan, any Affiliate of Borrower, any of the other Borrower Parties or any operator or lessee of the Premises; or (13) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Agreement.

B.        Borrower fully and completely releases, waives and covenants not to assert any claims, liabilities, actions, defenses, challenges, contests or other opposition against Lender, however characterized, known or unknown, foreseen or unforeseen, now existing or arising in the future, relating to this Agreement and any Hazardous Materials, Releases or Remediation on, at or affecting the Premises.

11.       Miscellaneous Provisions.

A.       Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Agreement or any of the other Loan Documents shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next Business Day, if delivered by express overnight delivery service, or (d) the third Business Day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below. If to Borrower: Friendly’s Realty I, LLC, 1855 Boston Road, Wiibraham, Massachusetts 01095, Attention: General Counsel, Telephone: (413) 731-4000, Telecopy: (413) 543-0049; and if to Lender: GE Capital Franchise Finance Corporation, 17207 North Perimeter Drive, Scottsdale, AZ 85255, Attention: Collateral Management, Telephone: 480-585-4500, Telecopy: 480-585-2225.

B.        Real Estate Commission. Lender and Borrower represent and warrant to each other that they have dealt with no real estate or mortgage broker, agent, finder or other intermediary in connection with the transactions contemplated by this Agreement or the other Loan Documents. Lender and Borrower shall indemnify and hold each other harmless from and against any costs, claims or expenses, including attorneys’ fees, arising out of the breach of their respective representations and warranties contained within this Section.

C.        Waiver and Amendment; Document Review. (1) No provisions of this Agreement or the other Loan Documents shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion.

(2)       In the event Borrower makes any request upon Lender requiring Lender or Lender’s attorneys to review or prepare (or cause to be reviewed or prepared) any documents, plans, specifications or other submissions in connection with or arising out of this Agreement or any of the other Loan Documents, then Borrower shall (a) reimburse Lender promptly upon Lender’s demand for all out-of-pocket costs and expenses incurred by Lender in connection with such review or preparation, including, without limitation, reasonable attorneys’ fees, and (b) pay Lender a reasonable processing and review fee.

D.        Captions. Captions are used throughout this Agreement and the other Loan Documents for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof.

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E.        Lender’s Liability. Notwithstanding anything to the contrary provided in this Agreement or the other Loan Documents, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement and the other Loan Documents by Lender, that (1) there shall be absolutely no personal liability on the part of any shareholder, director, officer or employee of Lender, with respect to any of the terms, covenants and conditions of this Agreement or the other Loan Documents, (2) Borrower waives all claims, demands and causes of action against Lender’s officers, directors, employees and agents in the event of any breach by Lender of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by Lender and (3) Borrower shall look solely to the assets of Lender for the satisfaction of each and every remedy of Borrower in the event of any breach by Lender of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by Lender, such exculpation of liability to be absolute and without any exception whatsoever.

F.        Severability. The provisions of this Agreement and the other Loan Documents shall be deemed severable. If any part of this Agreement or the other Loan Documents shall be held invalid, illegal or unenforceable, the remainder shall remain in full force and effect, and such invalid, illegal or unenforceable provision shall be reformed by such court; so as to give maximum legal effect to the intention of the parties as expressed therein.

G.        Construction Generally. This Agreement and the other Loan Documents have been entered into by parties who are experienced in sophisticated and complex matters similar to the transaction contemplated by this Agreement and the other Loan Documents and are entered into by both parties in reliance upon the economic and legal bargains contained therein and shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Borrower and Lender were each represented by legal counsel competent in advising them of their obligations and liabilities hereunder.

H.        Further Assurances. Borrower will, at its sole cost and expense, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, documents, conveyances, notes, mortgages, deeds of trust, assignments, security agreements, financing statements and assurances as Lender shall from time to time reasonably require or deem advisable to carry into effect the purposes of this Agreement and the other Loan Documents, to perfect any lien or security interest granted in any of the Loan Documents and for the better assuring and confirming of all of Lender’s rights, powers and remedies under the Loan Documents.

I.         Attorneys’ Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Agreement or the other Loan Documents, the prevailing party shall be entitled to recover its attorneys’ fees and other costs in addition to any other relief to which it may be entitled.

J.         Entire Agreement. This Agreement and the other Loan Documents, together with any other certificates, instruments or agreements to be delivered in connection therewith, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements, written or oral, between Borrower and Lender with respect to the subject matter of this Agreement and the other Loan Documents. Notwithstanding anything in this Agreement and the other Loan Documents to the contrary, with respect to the Premises, upon the execution and delivery of this Agreement by Borrower and Lender, any bid proposals or loan commitments with respect to the transactions contemplated by this Agreement shall be deemed null and void and of no further force and effect and the terms and conditions of this Agreement shall control notwithstanding that such terms and conditions may be inconsistent with or vary from those set forth in such bid proposals or loan commitments.

K.        Forum Selection; Jurisdiction; Venue; Choice of Law. Borrower acknowledges that this Agreement and the other Loan Documents were substantially negotiated in the State of Arizona, this

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Agreement andthe other Loan Documents were executed by Lender in the State of Arizona and delivered by Borrower in the State of Arizona, all payments under the Note will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement or any of the other Loan Documents, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona and Borrower consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Borrower waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all provisions of this Agreement and the Note shall be governed by and construed under the laws of the State of Arizona, without giving effect to its principles of conflicts of law. To the extent that a court of competent jurisdiction finds Arizona law inapplicable with respect to any provisions of this Agreement or the Note, then, as to those provisions only, the laws of the state where the Premises is located shall be deemed to apply. Nothing in this Section shall limit or restrict the right of Lender to commence any proceeding in the federal or state courts located in the state in which the Premises is located to the extent Lender deems such proceeding necessary or advisable to exercise remedies available under this Agreement or the other Loan Documents.

L.        Counterparts. This Agreement and the other Loan Documents may be executed in one or more counterparts, each of which shall be deemed an original.

M.       Assignments by Lender; Binding Effect. Lender may assign in whole or in part its rights under this Agreement, including, without limitation, in connection with any Transfer, Participation or Securitization. Upon any unconditional assignment of Lender’s entire right and interest hereunder, Lender shall automatically be relieved, from and after the date of such assignment, of liability for the performance of any obligation of Lender contained herein. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and permitted assigns, including, without limitation, any United States trustee, any debtor in possession or any trustee appointed from a private panel.

N.        Survival. Except for the conditions of Closing set forth in Section 4, which shall be satisfied or waived as of the Closing Date, all representations, warranties, agreements, obligations and indemnities of Borrower and Lender set forth in this Agreement and the other Loan Documents shall survive the Closing.

O.        Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM THE OTHER AND ANY OF THE OTHER’S AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER OR ANY OF THE OTHER’S AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY

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BORROWER AND LENDER OF ANY RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.

P.        Transfers, Participations and Securitizations. (1) A material inducement to Lender’s willingness to complete the transactions contemplated by the Loan Documents is Borrower’s agreement that Lender may, at any time, complete a Transfer, Participation or Securitization with respect to the Note, Mortgage or any of the other Loan Documents or any or all servicing rights with respect thereto.

(2)       Borrower agrees to cooperate in good faith with Lender in connection with any such Transfer, Participation or Securitization of the Note, Mortgage or any of the other Loan Documents, or any or all servicing rights with respect thereto, including, without limitation (a) providing such documents, financial and other data, and other information and materials (the “Disclosures”) which would typically be required with respect to the Borrower Parties and the Lessee Parties by a purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation or Securitization, as applicable; provided, however, the Borrower Parties, the Lessee Parties shall not be required to make Disclosures of any confidential information or any information which has not previously been made public unless required by applicable federal or state securities laws; and (b) amending the terms of the transactions evidenced by the Loan Documents to the extent necessary so as to satisfy the requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfer, Participation or Securitization, so long as such amendments would not have a Material Adverse Effect upon the Borrower Parties, the Lessee Parties or the transactions contemplated hereunder. Lender shall be responsible for preparing at its expense any documents evidencing the amendments referred to in the preceding subitem (b).

(3)       Borrower consents to Lender providing the Disclosures, as well as any other information which Lender may now have or hereafter acquire with respect to the Premises or the financial condition of the Borrower Parties or the Lessee Parties to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to each Transfer, Participation or Securitization, as applicable. Lender and Borrower (and their respective Affiliates) shall each pay their own attorneys’ fees and other out-of-pocket expenses incurred in connection with the performance of their respective obligations under this Section.

(4)       Notwithstanding anything to the contrary contained in this Agreement or the other Loan Documents: (a) an Event of Default or a breach or default, after the passage of all applicable notice and cure or grace periods, under any Loan Document or Other Agreement which relates to a loan or sale/leaseback transaction which has not been the subject of a Securitization, Participation or Transfer shall not constitute an Event of Default or a breach or default, as applicable, under any Loan Document or Other Agreement which relates to a loan which has been the subject of a Securitization, Participation or Transfer; (b) an Event of Default or a breach or default, after the passage of all applicable notice and cure or grace periods, under any Loan Document or Other Agreement which relates to a loan which is included in any Loan Pool shall not constitute an Event of Default or a breach or default, as applicable, under any Loan Document or Other Agreement which relates to a loan which is included in any other Loan Pool; (c) the Loan Documents and Other Agreement corresponding to the loans in any Loan Pool shall not secure the obligations of any of the Borrower Parties contained in any Loan Document or Other Agreement which does not correspond to a loan in such Loan Pool; and (d) the Loan Documents and Other Agreement which do not correspond to a loan in any Loan Pool shall not secure the obligations of any of the Borrower Parties contained in any Loan Document or Other Agreement which does correspond to a loan in such Loan Pool.

Q.        Estoppel Certificate. At any time, and from time to time, each party agrees, promptly and in no event later than fifteen (15) days after a request from the other party, to execute, acknowledge and deliver to the other party a certificate in the form supplied by the other party, certifying: (a) to its knowledge, whether there are then any existing defaults by it or the other party in the performance of their

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respective obligations under this Agreement or any of the other Loan Documents, and, if there are any such defaults, specifying the nature and extent thereof; (b) that no notice of default has been given or received by it under this Agreement or any of the other Loan Documents which has not been cured, except as to defaults specified in the certificate; (c) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of it; and (d) any other information reasonably requested by the other party in connection with this Agreement and the other Loan Documents.

R.        Borrower authorizes Lender and its employees, officers, agents, representatives and designees to:

(1)       distribute to, or publish for the use by, any third-parties for statistical analysis purposes the unit-level or corporate level operating results for the Premises, Borrower, any guarantor of the Loan, any Affiliate of Borrower, any of the other Borrower Parties or any operator or lessee of the Premises prepared by Lender from financial statements obtained from Borrower, provided however, that such results shall not be identified as relating to Borrower or any of the other Borrower Parties or Lessee Parties; and

(2)       obtain personal credit reports, business credit reports or asset reports, as applicable, with respect to Borrower, any guarantor of the Loan, any Affiliate of Borrower, any of the other Borrower Parties or any operator or lessee of the Premises.

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IN WITNESS WHEREOF, Borrower and Lender have entered into this Agreement as of the date first above written.

LENDER:

GE CAPITAL FRANCHISE FINANCE

CORPORATION, a Delaware corporation

By	/s/ Michelle Underwood
Printed Name:		Michelle Underwood
Its:	Closing Manager

BORROWER:
FRIENDLY’S REALTY I, LLC,
a Delaware limited liability company
By	/s/ Paul V. Hoagland
	Paul V. Hoagland, Vice President and Treasurer

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STATE OF ARIZONA	)
	)	SS.
COUNTY OF MARICOPA	)

The foregoing instrument was acknowledged before me on December 30, 2005 by Michelle Underwood, Closing Manager of GE Capital Franchise Finance Corporation, a Delaware corporation, on behalf of the corporation.

/s/ Nicole R. Nelson

Notary Public

My Commission Expires:	OFFICIAL SEAL NICOLE R. NELSON NOTARY PUBLIC - STATE OF ARIZONA MARICOPA COUNTRY My Comm. Expires July 31, 2009
7-31-09

COMMONWEALTH OF MASSACHUSETTS	)
	)	SS.
COUNTY OF HAMPDEN	)

On this 29th day of December, 2005, before me, the undersigned notary public, personally appeared Paul V. Hoagland, as Vice President and Treasurer of Friendly’s Realty I, LLC, a Delaware limited liability company, and provided to me through satisfactory evidence of identification, which was personal knowledge to be the person whose name is signed on the preceding or attached document, and acknowledged to me that he signed voluntarily for its stated purpose.

/s/ Robert N. Fratar

Notary Public Robert N. Fratar

My Commission Expires:

January 29, 2010

ROBERT N. FRATAR
NOTARY PUBLIC
COMMONWEALTH OF MASSACHUSETTS
My Commission Expires Jan, 29, 2010

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SCHEDULE 1

NONE

EX-10.6

Exhibit 10.6

FRIENDLY ICE CREAM CORPORATION
ANNUAL INCENTIVE PLAN
CORPORATE

1.	DEFINITIONS:	The following terms shall have the meanings set forth in this section:
	AIP:	The Annual Incentive Plan.
	Board of Directors:	The Board of Directors of Friendly Ice Cream Corporation.
	Bonus Year:	The Bonus Year is the fiscal year 2005.
	Company:	The Company is Friendly Ice Cream Corporation.
	Eligible Employee:	Eligible Employees are Corporate Officers, Directors, Employees in pay grades 107 and 108, and others of the Company as so designated by the Review Committee and must be in good standing and employed in an approved AIP position on the bonus payment date. An employee in good standing is that which has a current performance rating of at least “Fully Satisfactory”, is not currently on probation, and has not received a disciplinary warning notice or letter during the current bonus period and up through the bonus payment date.
	Corporate EBITDA Target:	The Earnings Before Interest, Taxes, Depreciation and Amortization Target of the Company as identified in the operating plan approved by the Board of Directors, or Compensation Committee, if so designated, for the Bonus Year.
	Participating Employee:	A Participating Employee is an Eligible Employee who is approved by the Review Committee to participate in the plan.
	Qualified Base Salary:	The Qualified Base Salary is the base salary earned during the Bonus Year. Generally, this is W-2 earnings less executive match, incentive awards, and other non-salary payments.
	Review Committee:	The Review Committee consists of the CEO and President, the Executive Vice President of Administration and CFO, and the Vice President, Human Resources.
2.	PURPOSE:	To provide additional incentive to Eligible Employees that is directly tied to Corporate results.
3.	CORPORATE FINANCIAL PERFORMANCE FACTOR:	The Corporate Financial Performance Factor is a function of the Corporate Earnings Before Interest, Taxes, Depreciation and Amortization Target. The relationship between levels of achievement and company performance results is contained in a schedule developed each year based on the business plan approved by the Board of Directors or Compensation Committee, if so designated. The schedule identifies the minimum acceptable performance, which will generate incentive funds and scales upward to a maximum level. There is also a maximum level of performance for results over which there would be no additional incentive earned.

4.	TARGET BONUS PERCENTAGE:	The Review Committee, in its sole discretion, approves the Individual Target Bonus Percentage.
5.	BONUS AWARD FACTOR:	The Bonus Award Factor is determined by multiplying the Qualified Base Salary of the Participating Employee times the Target Bonus Percentage for such Participating Employee.
6.	BONUS AMOUNT:	The Bonus Amount is determined by multiplying the Bonus Award Factor by the Corporate Financial Performance Factor.
7.	CONDITIONS PRECEDENT TO ANY BONUS TO ANY PARTICIPATING EMPLOYEE:	Approval by the Board of Directors or Compensation Committee, if so designated, in its sole and exclusive discretion, of the actual Bonus Award for each Officer and the total pool to be awarded. If approved, bonuses will generally be paid on or before March 31, 2006.
8.	ADMINISTRATION OF AIP:	The Review Committee shall administer the AIP. Any and all disputes or disagreements arising under the AIP shall be presented to the Review Committee. The decision of the Review Committee shall be final.
9.	MODIFICATION OR TERMINATION OF AIP AND PARTICIPATION:	The AIP does not constitute a contract of employment or an unconditional promise of payment. Participation by an Eligible Employee in any one Bonus Year does not confer an unqualified right to participate in succeeding Bonus Years regardless of a modification, or absence thereof, in grade, salary, position or responsibility. The AIP is subject to modification, termination and annual renewal by the Board of Directors or the Compensation Committee, if so designated, in its sole discretion, without any notice to Participating Employees.
10.	DISABILITY, DEATH AND RETIREMENT:	Participating Employees who are disabled, die or retire during any Bonus Year may receive a pro rata bonus for the period during which such Participating Employee was actively employed.
11.	MISCELLANEOUS:	The Review Committee, the Board of Directors, Compensation Committee, the Company, and its officers and employees shall not be liable for any action taken in good faith in administering and interpreting the AIP.
		The payment you receive will be subject to appropriate statutory wage deductions and such other deductions normally made for employees of Friendly’s. In addition, any financial obligation you have to Friendly’s can be deducted.
		The Board of Directors or the Compensation Committee, if so designated, in its sole discretion, may modify, including, but not limited to, increasing or decreasing the Corporate Financial Performance Factor Target at any time during the Bonus Year.

EX-10.7

Exhibit 10.7

FRIENDLY ICE CREAM CORPORATION
ANNUAL INCENTIVE PLAN
CORPORATE AND COMPANY RESTAURANTS GROUP

1.	DEFINITIONS:	The following terms shall have the meanings set forth in this section:
	AIP:	The Annual Incentive Plan.
	Board of Directors:	The Board of Directors of Friendly Ice Cream Corporation.
	Bonus Year:	The Bonus Year is the fiscal year 2005.
	Company:	The Company is Friendly Ice Cream Corporation.
	Eligible Employee:	Eligible Employees are Officers, Directors, Corporate Employees in pay grades 107 and 108, in both the Corporate and Company Restaurants groups, and others of the Company as so designated by the Review Committee and must be in good standing and employed in an approved AIP position on the bonus payment date. An employee in good standing is that which has a current performance rating of at least “Fully Satisfactory”, is not currently on probation, and has not received a disciplinary warning notice or letter during the current bonus period and up through the bonus payment date.
	Corporate EBITDA Target:	The Earnings Before Interest, Taxes, Depreciation and Amortization Target of the Company as identified in the operating plan approved by the Board of Directors, or Compensation Committee, if so designated, for the Bonus Year.
	Company Restaurants EBITDA Target:	The Earnings Before Interest, Taxes, Depreciation and Amortization Target of the Company Restaurants Group as identified in the operating plan approved by the Board of Directors, or Compensation Committee, if so designated, for the Bonus Year.
	Participating Employee:	A Participating Employee is an Eligible Employee who is approved by the Review Committee to participate in the plan.
	Qualified Base Salary:	The Qualified Base Salary is the base salary earned during the Bonus Year. Generally, this is W-2 earnings less executive match, incentive awards and other non-salary payments.
	Review Committee:	The Review Committee consists of the CEO and President, Executive Vice President of Administration and CFO, and the Vice President, Human Resources.
2.	PURPOSE:	To provide additional incentive to Eligible Employees that is directly tied to the results of the Corporate and the Company Restaurants Groups.

3.	CORPORATE FINANCIAL PERFORMANCE FACTOR:	The Corporate Financial Performance Factor is a function of the Corporate Earnings Before Interest, Taxes, Depreciation and Amortization Target. The relationship between levels of achievement and company performance results is contained in a schedule developed each year based on the business plan approved by the Board of Directors or Compensation Committee, if so designated. The schedule identifies the minimum acceptable performance, which will generate incentive funds and scales upward to a maximum level. There is also a maximum level of performance for results over which there would be no additional incentive earned.
4.	COMPANY RESTAURANTS FINANCIAL PERFORMANCE FACTOR:	The Company Restaurants Financial Performance Factor is a function of the Company Restaurants’ Earnings Before Interest, Taxes, Depreciation and Amortization Target. The relationship between levels of achievement and the Company Restaurants group’s performance results is contained in the schedule developed each year based on the business plan approved by the Board of Directors or Compensation Committee, if so designated. The schedule identifies the minimum acceptable performance of the individual, which will generate incentive funds and scales upward to a maximum level. There is also a maximum level of performance for results over which there would be no additional incentive earned.
5.	TARGET BONUS PERCENTAGE:	The Review Committee, in its sole discretion approves the individual Target Bonus Percentage.
6.	BONUS AWARD FACTOR:	The Bonus Award Factor is determined by multiplying the Qualified Base Salary of the Participating Employee times the Target Bonus Percentage for such Participating Employee.
7.	BONUS AMOUNT:	The Bonus Amount is determined by multiplying the Bonus Award Factor by the Corporate Financial Performance Factor and the Company Restaurants Financial Performance Factor.
8.	CONDITIONS PRECEDENT TO ANY BONUS TO ANY PARTICIPATING EMPLOYEE:	Approval by the Board of Directors or Compensation Committee, if so designated, in its sole and exclusive discretion, of the actual Bonus Award for each Officer and the total pool to be awarded. If approved, bonuses will generally be paid on or before March 31, 2006.
9.	ADMINISTRATION OF AIP:	The Review Committee shall administer the AIP. Any and all disputes or disagreements arising under the AIP shall be presented to the Review Committee. The decision of the Review Committee shall be final.
10.	MODIFICATION OR TERMINATION OF AIP AND PARTICIPATION:	The AIP does not constitute a contract of employment or an unconditional promise of payment. Participation by an Eligible Employee in any one Bonus Year does not confer an unqualified right to participate in succeeding Bonus Years regardless of a modification, or absence thereof, in grade, salary, position or responsibility. The AIP is subject to modification, termination and annual renewal by the Board of Directors or the Compensation Committee, if so designated, in its sole discretion, without any notice to Participating Employees.

11.	DISABILITY, DEATH AND RETIREMENT:	Participating Employees who are disabled, die or retire during any Bonus Year may receive a pro rata bonus for the period during which such Participating Employee was actively employed.
12.	MISCELLANEOUS:	The Review Committee, the Board of Directors, Compensation Committee, the Company, and its officers and employees shall not be liable for any action taken in good faith in administering and interpreting the AIP.
		The payment you receive will be subject to appropriate statutory wage deductions and such other deductions normally made for employees of Friendly’s. In addition, any financial obligation you have to Friendly’s can be deducted.
		The Board of Directors or the Compensation Committee if so designated, in its sole discretion, may modify, including, but not limited to, increasing or decreasing the Financial Performance Factor Targets at any time during the Bonus Year.

EX-10.8

Exhibit 10.8

STOCK OPTION AWARD AGREEMENT

FRIENDLY ICE CREAM CORPORATION

1997 STOCK OPTION PLAN

THIS AGREEMENT, dated as of the [        ]  day of [             ] 2005 (the “Grant Date”) and entered into by and between Friendly Ice Cream Corporation (the “Company”) and [ Name ] (the “Participant”).

WITNESSETH THAT:

WHEREAS, the Company maintains the Friendly Ice Cream Corporation 1997 Stock Option Plan (the “Plan”), which is incorporated into and forms a part of this Agreement, for the benefit of employees of the Company and certain other Related Companies; and

WHEREAS, the Board has awarded the Participant an Option Award under the Plan;

NOW, THEREFORE, IT IS AGREED, by and between the Company and the Participant as follows:

1.             Award and Purchase Price. Subject to the terms of this Agreement and the Plan, the Participant is hereby granted an option (the “Option”) to purchase [              ]  shares of Stock (the “Award”). The price of each share of Stock subject to the Option shall be $[                ]. The Option is notintended to constitute an “incentive stock option” as that term is used in Code section 422.

2.             Vesting. The shares of Stock awarded hereunder shall become exercisable in accordance with the following schedule:

Vesting Date	# Options Available for Exercise
	% of Award
	% of Award
	% of Award

Notwithstanding the foregoing provisions of this paragraph 2, this Option may vest and become immediately exercisable if the Participant’s Date of Termination occurs by reason of death or Disability as determined by the Board in its sole discretion.

1

3.             Expiration; Forfeiture. This Option shall expire on the earliest to occur of:

(a)the five-year anniversary of the Grant Date;

(b)if the Participant’s Date of Termination occurs by reason of death or Disability, the one-year anniversary of such Date of Termination;

(c)if the Participant’s Date of Termination occurs by reason of Retirement, the three-year anniversary of such Date of Termination; or

(d)if the Participant’s Date of Termination occurs for reasons other than death, Disability or Retirement, the three-month anniversary of such Date of Termination;

which shall be the “Expiration Date” for the Option (as that term is described in subsection 2.6 of the Plan). Notwithstanding the foregoing provisions of this paragraph 3, except as provided in paragraph 2 above, no portion of the Option shall be exercisable after the Participant’s Date of Termination except to the extent that it is exercisable as of the date immediately prior to the Participant’s Date of Termination. Unvested Options shall be forfeited upon the Participant no longer being classified as an Eligible Individual, however the Board, in the sole discretion, may determine that forfeiture will not occur or may make a grant to any participant who is no longer classified as an Eligible Individual.

4.             Method of Option Exercise. Any portion of the Option that is exercisable may be exercised in whole or in part by filing a written notice with the Clerk of the Company at its corporate headquarters, provided that the notice is filed prior to the Expiration Date of the Option. Such notice shall specify the number of shares of Stock which the Participant elects to purchase, and shall be accompanied by payment of the purchase price for such shares indicated by the Participant’s election. Payment shall be by cash.

5.             Withholding. All Awards and payments under this Agreement are subject to withholding of all applicable taxes. At the election of the Participant, and with the consent of the Committee, such withholding obligations may be satisfied through the surrender of Stock which the Participant already owns or to which the Participant is otherwise entitled under the Plan; provided, however, that previously-owned shares that have been held by the Participant less than six months or Stock to which the Participant is entitled under the Plan may only be used to satisfy the minimum tax withholding required by applicable law.

6.             Transferability. This Option is not transferable except as designated by the Participant by will or by the laws of descent and distribution.

7.             Adjustment of Option. The number and type of shares awarded pursuant to this Option, and the exercise price thereof, may be adjusted by the Board in accordance with Section 4.4 of the Plan to reflect certain corporate transactions, which affect the number, type or value of the Stock.

2

8.             Change in Control. Upon the occurrence of a Change in Control, this Option shall become immediately exercisable. A “Change in Control” shall be deemed to occur on the earliest of the existence of one of the following events:

(a)(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;

(b)individuals who, as of the Plan’s effective date, 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 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 (as such term is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or

(c)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, respectively, 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, as the case may be, 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.

3

For purposes of this paragraph 8, the term “Permitted Holders” means Donald N. Smith, the Company’s then existing executive officers and their respective affiliates. 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.

9.             Definitions. Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in this Agreement.

10.           Administration. The authority to manage and control the operation and administration of the Plan and this Agreement shall be vested in the Board of Directors of the Company, and the Board shall have all the powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Board and any decision made by it with respect to the Agreement is final and binding on all persons. The Board, in its sole discretion, may delegate any or all of its authority under the Plan or this Agreement to a committee of the Board and, to the extent so delegated, references to the Board hereunder shall be deemed to refer such committee.

11.           Plan Governs. The terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Clerk of the Company.

12.           Amendment and Termination. The Board may at any time amend or terminate the Plan, provided that no such amendment or termination may materially adversely affect the rights of the Participant awarded hereunder.

IN WITNESS WHEREOF, the Participant has hereunto set his hand, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

PARTICIPANT

[ Name ]

FRIENDLY ICE CREAM CORPORATION

By

4

EX-10.9

Exhibit 10.9

BOARD OF DIRECTORS
STOCK OPTION AWARD AGREEMENT

FRIENDLY ICE CREAM CORPORATION

1997 STOCK OPTION PLAN

THIS AGREEMENT, dated as of the [       ] day of [            ] 2005 (the “Grant Date”) and entered into by and between Friendly Ice Cream Corporation (the “Company”) and [    Name    ] (the “Participant”).

WITNESSETH THAT:

WHEREAS, the Company maintains the Friendly Ice Cream Corporation 1997 Stock Option Plan (the “Plan”), which is incorporated into and forms a part of this Agreement, for the benefit of employees of the Company and certain other Related Companies; and

WHEREAS, the Board has awarded the Participant an Option Award under the Plan;

NOW, THEREFORE, IT IS AGREED, by and between the Company and the Participant as follows:

1.             Award and Purchase Price. Subject to the terms of this Agreement and the Plan, the Participant is hereby granted an option (the “Option”) to purchase [              ] shares of Stock (the “Award”). The price of each share of Stock subject to the Option shall be $[           ]. The Option is notintended to constitute an “incentive stock option” as that term is used in Code section 422.

2.             Vesting. The shares of Stock awarded hereunder shall become exercisable in accordance with the following schedule:

Vesting Date	# Options Available for Exercise
	% of Award
	% of Award
	% of Award

Notwithstanding the foregoing provisions of this paragraph 2, this Option may vest and become immediately exercisable if the Participant’s Date of Termination occurs by reason of death or Disability as determined by the Board in its sole discretion.

1

3.             Expiration; Forfeiture. This Option shall expire on the earliest to occur of:

(a)the five-year anniversary of the Grant Date;

(b)if the Participant’s Date of Termination occurs by reason of Retirement, the three-year anniversary of such Date of Termination; or

(c)if the Participant’s Date of Termination occurs by reason of death, Disability, or a reason other than Retirement, the one-year anniversary of such Date of Termination.

which shall be the “Expiration Date” for the Option (as that term is described in subsection 2.6 of the Plan). Notwithstanding the foregoing provisions of this paragraph 3, except as provided in paragraph 2 above, no portion of the Option shall be exercisable after the Participant’s Date of Termination except to the extent that it is exercisable as of the date immediately prior to the Participant’s Date of Termination. Unvested Options shall be forfeited upon the Participant no longer being classified as an Eligible Individual, however the Board, in the sole discretion, may determine that forfeiture will not occur or may make a grant to any participant who is no longer classified as an Eligible Individual.

4.             Method of Option Exercise. Any portion of the Option that is exercisable may be exercised in whole or in part by filing a written notice with the Clerk of the Company at its corporate headquarters, provided that the notice is filed prior to the Expiration Date of the Option. Such notice shall specify the number of shares of Stock which the Participant elects to purchase, and shall be accompanied by payment of the purchase price for such shares indicated by the Participant’s election. Payment shall be by cash.

5.             Withholding. All Awards and payments under this Agreement are subject to withholding of all applicable taxes. At the election of the Participant, and with the consent of the Committee, such withholding obligations may be satisfied through the surrender of Stock which the Participant already owns or to which the Participant is otherwise entitled under the Plan; provided, however, that previously-owned shares that have been held by the Participant less than six months or Stock to which the Participant is entitled under the Plan may only be used to satisfy the minimum tax withholding required by applicable law.

6.             Transferability. This Option is not transferable except as designated by the Participant by will or by the laws of descent and distribution.

7.             Adjustment of Option. The number and type of shares awarded pursuant to this Option, and the exercise price thereof, may be adjusted by the Board in accordance with Section 4.4 of the Plan to reflect certain corporate transactions, which affect the number, type or value of the Stock.

8.             Change in Control. Upon the occurrence of a Change in Control, this Option shall become immediately exercisable. A “Change in Control” shall be deemed to occur on the earliest of the existence of one of the following events:

2

(a)(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;

(b)individuals who, as of the Plan’s effective date, 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 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 (as such term is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or

(c)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, respectively, 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, as the case may be, 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.

3

For purposes of this paragraph 8, the term “Permitted Holders” means Donald N. Smith, the Company’s then existing executive officers and their respective affiliates. 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.

9.             Definitions. Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in this Agreement.

10.           Administration. The authority to manage and control the operation and administration of the Plan and this Agreement shall be vested in the Board of Directors of the Company, and the Board shall have all the powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Board and any decision made by it with respect to the Agreement is final and binding on all persons. The Board, in its sole discretion, may delegate any or all of its authority under the Plan or this Agreement to a committee of the Board and, to the extent so delegated, references to the Board hereunder shall be deemed to refer such committee.

11.           Plan Governs. The terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Clerk of the Company.

12.           Amendment and Termination. The Board may at any time amend or terminate the Plan, provided that no such amendment or termination may materially adversely affect the rights of the Participant awarded hereunder.

IN WITNESS WHEREOF, the Participant has hereunto set his hand, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

PARTICIPANT

[      Name     ]

FRIENDLY ICE CREAM CORPORATION

By

4

EX-10.10

Exhibit 10.10

STOCK OPTION AWARD AGREEMENT

FRIENDLY ICE CREAM CORPORATION

2003 INCENTIVE PLAN

THIS AGREEMENT, dated as of the [       ]  day of [               ] 2005 (the “Grant Date”) and entered into by and between Friendly Ice Cream Corporation (the “Company”) and [   Name   ] (the “Participant”).

WITNESSETH THAT:

WHEREAS, the Company maintains the Friendly Ice Cream Corporation 2003 Incentive Plan (the “Plan”), which is incorporated into and forms a part of this Agreement, for the benefit of employees of the Company and certain other Related Companies; and

WHEREAS, the Board has awarded the Participant an Option Award under the Plan;

NOW, THEREFORE, IT IS AGREED, by and between the Company and the Participant as follows:

1.             Award and Purchase Price. Subject to the terms of this Agreement and the Plan, the Participant is hereby granted an option (the “Option”) to purchase [        ] shares of Stock (the “Award”). The price of each share of Stock subject to the Option shall be $[      ]. The Option is notintended to constitute an “incentive stock option” as that term is used in Code section 422.

2.             Vesting. The shares of Stock awarded hereunder shall become exercisable in accordance with the following schedule:

Vesting Date	# Options Available for Exercise
	% of Award
	% of Award
	% of Award

Notwithstanding the foregoing provisions of this paragraph 2, this Option may vest and become immediately exercisable if the Participant’s Date of Termination occurs by reason of death or Disability as determined by the Board in its sole discretion.

1

3.             Expiration; Forfeiture. This Option shall expire on the earliest to occur of:

(a)the five-year anniversary of the Grant Date;

(b)if the Participant’s Date of Termination occurs by reason of death or Disability, the one-year anniversary of such Date of Termination;

(c)if the Participant’s Date of Termination occurs by reason of Retirement, the three-year anniversary of such Date of Termination; or

(d)if the Participant’s Date of Termination occurs for reasons other than death, Disability or Retirement, the three-month anniversary of such Date of Termination;

which shall be the “Expiration Date” for the Option (as that term is described in subsection 2.6 of the Plan). Notwithstanding the foregoing provisions of this paragraph 3, except as provided in paragraph 2 above, no portion of the Option shall be exercisable after the Participant’s Date of Termination except to the extent that it is exercisable as of the date immediately prior to the Participant’s Date of Termination. Unvested Options shall be forfeited upon the Participant no longer being classified as an Eligible Individual, however the Board, in the sole discretion, may determine that forfeiture will not occur or may make a grant to any participant who is no longer classified as an Eligible Individual.

4.             Method of Option Exercise. Any portion of the Option that is exercisable may be exercised in whole or in part by filing a written notice with the Clerk of the Company at its corporate headquarters, provided that the notice is filed prior to the Expiration Date of the Option. Such notice shall specify the number of shares of Stock which the Participant elects to purchase, and shall be accompanied by payment of the purchase price for such shares indicated by the Participant’s election. Payment shall be by cash.

5.             Withholding. All Awards and payments under this Agreement are subject to withholding of all applicable taxes. At the election of the Participant, and with the consent of the Committee, such withholding obligations may be satisfied through the surrender of Stock which the Participant already owns or to which the Participant is otherwise entitled under the Plan; provided, however, that previously-owned shares that have been held by the Participant less than six months or Stock to which the Participant is entitled under the Plan may only be used to satisfy the minimum tax withholding required by applicable law.

6.             Transferability. This Option is not transferable except as designated by the Participant by will or by the laws of descent and distribution.

7.             Adjustment of Option. The number and type of shares awarded pursuant to this Option, and the exercise price thereof, may be adjusted by the Board in accordance with Section 4.4 of the Plan to reflect certain corporate transactions, which affect the number, type or value of the Stock.

2

8.             Change in Control. Upon the occurrence of a Change in Control, this Option shall become immediately exercisable. A “Change in Control” shall be deemed to occur on the earliest of the existence of one of the following events:

(a)(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;

(b)individuals who, as of the Plan’s effective date, 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 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 (as such term is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or

(c)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, respectively, 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, as the case may be, 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.

3

For purposes of this paragraph 8, the term “Permitted Holders” means Donald N. Smith, the Company’s then existing executive officers and their respective affiliates. 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.

9.             Definitions. Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in this Agreement.

10.           Administration. The authority to manage and control the operation and administration of the Plan and this Agreement shall be vested in the Board of Directors of the Company, and the Board shall have all the powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Board and any decision made by it with respect to the Agreement is final and binding on all persons. The Board, in its sole discretion, may delegate any or all of its authority under the Plan or this Agreement to a committee of the Board and, to the extent so delegated, references to the Board hereunder shall be deemed to refer such committee.

11.           Plan Governs. The terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Clerk of the Company.

12.           Amendment and Termination. The Board may at any time amend or terminate the Plan, provided that no such amendment or termination may materially adversely affect the rights of the Participant awarded hereunder.

IN WITNESS WHEREOF, the Participant has hereunto set his hand, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

PARTICIPANT

[   Name        ]

FRIENDLY ICE CREAM CORPORATION

By

4

EX-10.11

Exhibit 10.11

Friendly Ice Cream Corporation 2003 Incentive Plan

Restricted Stock Unit Award

[ Name ]was awarded [ # ]Restricted Stock Units (“RSUs”)

Grant Date: [           ] Restriction Lapse Date:[ # of RSUs ] on [            ]

Restricted Stock Unit Grant – additional terms

1.             Grant. The Compensation Committee (“Committee”) of the Board of Directors of Friendly Ice Cream Corporation (“Company”) has granted [ # ]Restricted Stock Units  (“RSUs”) to [ Name ] (the “Grantee”). Each RSU entitles the Grantee to receive from the Company (i) one share of Friendly Ice Cream Corporation Company common stock, par value $0.01 per share, and (ii) the right to receive notional dividend equivalents, each in accordance with the terms of this Grant, Friendly Ice Cream Corporation 2003 Incentive Plan (“Plan”), and any rules and procedures adopted by the Committee.

2.             Restricted Stock Units. The Company will deliver to the Grantee one share of Friendly Ice Cream Corporation Company common stock, par value $0.01, for each RSU of the Grant for which the restrictions set forth in paragraph 4 have lapsed  (the “Issue Date”).

3.             Dividend Equivalents. Until the Grantee’s Issue Date, whenever dividends are paid or distributed, the Grantee shall be entitled to receive notional dividend equivalents in an amount equal in value to the amount of the dividend or property distributed on a single share of common stock multiplied by the number of RSUs credited to the Grantee’s account as of the record date for such dividend or distribution.  Payment of the notional dividend equivalents paid on RSUs will be held in escrow until the Issue Date.

4.             Restrictions. Restrictions on the number of RSUs specified herein will lapse or vest on the Restriction Lapse Date set forth above only if the Grantee remains a member of the Company’s or one of its affiliate’s Board of Directors on such date. Notwithstanding the foregoing, if the Grantee ceases to serve as a member of the Company’s Board of Directors or one of its affiliates due to death, disability, or retirement, then all restrictions shall fully lapse. If the Grantee resigns from the Board of Directors or is removed for cause prior to the Restriction Lapse Date, he will forfeit any unvested RSUs. For purposes of this Agreement, retirement shall be deemed to occur upon any termination of service from the Board after the Grantee’s attainment of age 60. Notwithstanding the foregoing, all restrictions shall fully lapse upon a Change of Control.

5.             Voting and other Rights. The Grantee shall have no rights of ownership in the RSUs and shall have no right to vote the RSUs or Company common stock until the date on which the restrictions described in Section 4 lapse.

6.             Alterations/Termination. The Company shall have the right at any time in its sole discretion to amend, alter, suspend, discontinue or terminate any RSUs without the consent of the Grantee. Also, any RSUs for which the restrictions do not lapse in accordance with the terms in paragraph 4 above shall be canceled.

7.             Plan Terms. All terms used in this Grant have the same meaning as given such terms in the Plan. This Grant incorporates and is subject to the provisions of the Plan, a copy of which will be furnished upon request, and such provisions shall be deemed a part of the Grant for all purposes.

8.             409A COMPLIANCE. Notwithstanding any terms to the contrary in Supplement A to the 2003 Incentive Plan, the Grantee shall not be permitted to make a deferral election to defer the issuance of shares of stock provided for under this Restricted Stock Unit Award.

9.             Entire Agreement. This Grant and the Friendly Ice Cream Corporation 2003 Incentive Plan, and any documents expressly incorporated herein, contain all of the provisions applicable to the RSUs and no other statements, documents or practices may modify, waive or alter such provisions unless expressly set forth in writing, signed by an authorized officer of the Company and delivered to the Grantee.

Director	Friendly Ice Cream Corporation
	By:
[ Name ]

EX-10.12

Exhibit 10.12

FRIENDLY ICE CREAM CORPORATION

BOARD OF DIRECTORS COMPENSATION

A.	Annual Retainer	Directors		$	30,000
		Chairman	Additional	$	100,000
B.	Regularly Scheduled Board of Directors Meetings	Directors		$	1,500
C.	Regularly Scheduled Committee Meetings	Members		$	1,000
D.	Special Teleconference Meetings	Directors		$	750

A.            Each director, including the Chairman, of the Company receives a fee of $2,500 per month. Mr. Donald Smith receives additional compensation of $8,333.34 per month for serving as Chairman of the Board.

B.            Each director of the Company receives $1,500, plus expenses, for each regularly scheduled meeting of the Board of Directors attended.

C.            Each member of the Audit Committee, Compensation Committee and Nominating Committee receives a fee of $1,000, plus expenses, for each regularly scheduled committee meeting attended. Each member of the Audit Committee receives a fee of $1,500, plus expenses, for attendance at the annual Audit Committee meeting.

D.            Each director receives a fee of $750 for participating in special teleconference meetings.

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-40195, 333-40197, 333-40199, 333-106405 and 333-106406) of Friendly Ice Cream Corporation of our reports dated March 15, 2006 with respect to the consolidated financial statements and schedule of Friendly Ice Cream Corporation, Friendly Ice Cream Corporation management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Friendly Ice Cream Corporation, included in the Annual Report (Form 10-K) for the year ended January 1, 2006.

/s/ Ernst & Young LLP

Boston, Massachusetts
March 15, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, John L. Cutter, Chief Executive Officer and President, certify that:

1.I have reviewed this annual report on Form 10-K of Friendly Ice Cream Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(e) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2006

/s/ JOHN L. CUTTER

Chief Executive Officer and President

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Paul V. Hoagland, Executive Vice President of Administration and Chief Financial Officer, certify that:

1.I have reviewed this annual report on Form 10-K of Friendly Ice Cream Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(e) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2006

/s/  PAUL V. HOAGLAND

Executive Vice President of Administration and

Chief Financial Officer
(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 10-K of Friendly Ice Cream Corporation (the “Company”) for the fiscal year ended January 1, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John L. Cutter, as Chief Executive Officer and President of the Company, and Paul V. Hoagland, as Executive Vice President of Administration and Chief Financial Officer, hereby certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ JOHN L. CUTTER
	Name: John L. Cutter
	Title: Chief Executive Officer and President
	(Principal Executive Officer)
Date: March 17, 2006

By:	/s/ PAUL V. HOAGLAND
	Name: Paul V. Hoagland
	Title: Executive Vice President of
	Administration and Chief Financial Officer
	(Principal Financial Officer)
Date: March 17, 2006