Lion Fund vs. Friendly Ice Cream, Round 2

In an amended 13D filing on Friendly Ice Cream Corp. (FRN), 14.92% holder The Lion Fund/Sardar Biglari disclosed a letter to shareholders discussing their concerns about the company and its current board of directors, as well as the their intention to nominate Mr. Biglari and Dr. Cooley to the board at the next annual meeting of shareholders.

The Lion Fund disclosed the release of the letter in a press release Monday afternoon.

In its letter to shareholders, the firm said, "Our concerns over Friendly's arise from its poor corporate governance, poor operational performance, poor stock performance, and its weak balance sheet. They also said, "We are taking the pro-active approach because we believe it is time for change at Friendly's and we see opportunities -- set in motion by sound change -- to create tremendous value. We believe the company has not achieved its full potential. But to reach that potential requires forward-looking leadership."

The firm also announced the launch of a website www.enhancefriendlys.com to communicate with shareholders on important matters.

A Copy of the Letter:

Dear Fellow Shareholder:

I want to express to you my concerns about Friendly Ice Cream Corp. and its current Board of Directors. I represent a group (composed of The Lion Fund,L.P., Biglari Capital Corp., Western Sizzlin Corp., and Sardar Biglari) that owns approximately 15% of the outstanding common stock of Friendly's, making us the largest shareholder of the company. We believe that now is a critical time for Friendly's and that change must be made at the board level. However, our efforts to discuss representation with the board have been fruitless. We are therefore appealing to you, the owners of Friendly's.

The optimal avenue to achieve good corporate governance and to envision wise means to enhance long-term value is to place very significant shareholders on the board to ensure a proper alignment of interests between the board and the shareholders.

Our concerns over Friendly's arise from its poor corporate governance, poor operational performance, poor stock performance, and its weak balance sheet. To illustrate, the company's escalating legal costs directly result from poor judgment on corporate governance issues, which has led to extensive litigation. Good corporate governance contributes to good corporate health. If you are a long-term stockholder, you care about the health of the corporation, which cares about all of its constituencies - franchisees, employees, creditors, customers, and shareholders. Good corporate health will support long-term shareholder value creation, the ultimate objective of a company. Friendly's must make better capital allocation decisions and improve its capital structure if it is going to survive and then thrive.

Towards that end, our group intends to nominate Dr. Philip L. Cooley - Lion Fund director and Western Sizzlin's Vice Chairman - and me for election to Friendly's board at the next annual meeting of shareholders to be held in 2007. We are taking the pro-active approach because we believe it is time for change at Friendly's and we see opportunities -- set in motion by sound change -- to create tremendous value. We believe the company has not achieved its full potential. But to reach that potential requires forward-looking leadership.

We seek alteration in the composition of the Board of Directors to provide greater presence of directors who are autonomous and who therefore are able to represent the best interests of all stockholders. As directors, Phil and I would be technically and psychologically independent.

Over the coming months we will be communicating with you regarding our ideas for Friendly's. Our Web site, www.enhancefriendlys.com, will be the prime source of information that we will communicate to you on important matters. Our guideline is to tell you the facts that we would want to know if our roles were reversed. We are applying this principle in our communications with you now and will apply no lower standard when we serve as stewards of your capital in our role as board members. Shareholders are entitled to no lesser standards and consideration; all shareholders of Friendly's should be treated equally. We encourage shareholders to visit our Web site regularly and to share their thoughts with us about Friendly's.

We look forward to serving your best interests.

Sincerely,

Sardar Biglari

Related: The Lion Fund Continues to Build Its Stake in Friendly Ice Cream, Friendly's 10q Reveals Some Unfriendly Relationships, Lion Fund Wants Seats on Friendly Ice Cream Board