<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
QUALITY DINING, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
QUALITY DINING, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 26, 1997
The annual meeting of shareholders of Quality Dining, Inc. will be held at the
Century Center, 120 South St. Joseph Street, South Bend, Indiana, on Wednesday,
March 26, 1997, at 10:00 a.m., South Bend time, for the following purposes:
(1) To elect three Directors to serve until the 2000 annual meeting of
shareholders and until their successors are elected and have qualified;
(2) To approve the appointment of Coopers & Lybrand L.L.P. as auditors for the
Company for 1997;
(3) To approve or disapprove the adoption of the Company's 1997 Stock Option
and Incentive Plan; and
(4) To transact such other business as may properly come before the meeting.
All shareholders of record at the close of business on January 20, 1997 will
be eligible to vote.
It is important that your shares be represented at this meeting. Whether or
not you expect to be present, please fill in, date, sign and return the enclosed
proxy form in the accompanying addressed, postage-prepaid envelope. If you
attend the meeting, you may revoke your proxy and vote in person.
John C. Firth, Secretary
(ANNUAL REPORT CONCURRENTLY MAILED)
<PAGE>
QUALITY DINING, INC.
4220 EDISON LAKES PARKWAY
MISHAWAKA, INDIANA 46545
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 26, 1997
This statement is being furnished to shareholders on or about February 28,
1997, in connection with a solicitation by the Board of Directors of Quality
Dining, Inc. (the "Company") of proxies to be voted at the annual meeting of
shareholders to be held at 10:00 a.m., South Bend time, Wednesday, March 26,
1997, at the Century Center, 120 South St. Joseph Street, South Bend, Indiana,
for the purposes set forth in the accompanying Notice.
At the close of business on January 20, 1997, the record date for the
meeting, there were 16,909,609 shares of Common Stock of the Company outstanding
and entitled to vote at the meeting. On all matters, including the election of
Directors, each shareholder will have one vote for each share held.
If the enclosed form of proxy is executed and returned, it may nevertheless
be revoked at any time insofar as it has not been exercised. If a shareholder
executes more than one proxy, the proxy having the latest date will revoke any
earlier proxies. A shareholder attending the meeting will be given the
opportunity to revoke his or her proxy and vote in person.
Unless revoked, a proxy will be voted at the meeting in accordance with the
instructions of the shareholder in the proxy, or, if no instructions are given,
for the election as Directors of all nominees listed under Proposal 1 and for
Proposals 2 and 3. Election of Directors will be determined by the vote of the
holders of a plurality of the shares voting on such election. Approval of
Proposals 2 and 3 will be subject to the vote of the holders of a greater number
of shares favoring approval than those opposing it. A proxy may indicate that
all or a portion of the shares represented by such proxy are not being voted
with respect to a specific proposal. This could occur, for example, when a
broker is not permitted to vote shares held in street name on certain proposals
in the absence of instructions from the beneficial owner. Shares that are not
voted with respect to a specific proposal will be considered as not present and
entitled to vote on such proposal, even though such shares will be considered
present for purposes of determining a quorum and voting on other proposals.
Abstentions on a specific proposal will be considered as present, but not as
voting in favor of such proposal. As a result, with respect to all of the
proposals, neither broker non-votes nor abstentions on such proposals will
affect the determination of whether such proposals will be approved.
The Board of Directors knows of no matters, other than those described in
the attached Notice of Annual Meeting, which are to be brought before the
meeting. If other matters properly come before the meeting, it is the intention
of the persons named in the enclosed form of proxy to vote such proxy in
accordance with their judgment on such matters.
The cost of the solicitation of proxies will be borne by the Company.
<PAGE>
ELECTION OF DIRECTORS
NOMINEES
Currently, the Board of Directors of the Company consists of eight
Directors divided into three classes. Two classes contain three Directors each,
with the remaining class containing two Directors. The term of one class of
Directors expires each year. Generally, each Director serves until the annual
meeting of shareholders held in the year that is three years after such
Director's election and until such Director's successor is elected and has
qualified.
Three Directors are to be elected at the meeting. It is the intention of
the persons named in the accompanying form of proxy to vote such proxy for the
election to the Board of Directors of Messrs. Arthur J. Decio, Stephen A. Finn
and Daniel B. Fitzpatrick, whose terms expire this year. Each has been nominated
by the Board of Directors for reelection as a Director for a term to expire at
the 2000 annual meeting of shareholders and until his successor is elected and
has qualified. If any such person is unable or unwilling to accept nomination or
election, it is the intention of the persons named in the accompanying form of
proxy to nominate such other person as Director as they may in their discretion
determine, in which event the shares will be voted for such other person.
The Company's By-Laws provide for a Board of Directors consisting of eleven
members. Following the meeting, and assuming the election of Messrs. Decio, Finn
and Daniel B. Fitzpatrick, eight Directors will continue to serve on the Board
of Directors and three vacancies will exist. The accompanying form of proxy
cannot be voted for a greater number of persons than the three nominees for
Director listed below. Although the Board of Directors may elect other Directors
to the Board at a later date, there is no present intention to do so.
Unless otherwise indicated in a footnote to the following table, the
principal occupation of each Director or nominee has been the same for the last
five years, and such person possesses sole voting and investment power with
respect to the shares of Common Stock indicated as beneficially owned by such
person. Messrs. Daniel B. Fitzpatrick, James K. Fitzpatrick and Gerald O.
Fitzpatrick are brothers. There is no family relationship between any other of
the Directors or executive officers of the Company.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned on
Principal Director December 9, Percent
Name Age Occupation Since 1996 of Class
- ------------------------ --- ------------------------------------------------------ -------- ------------------ --------
NOMINEES FOR DIRECTOR
(Nominees for three-year term to expire at the annual meeting of shareholders in 2000)
<S> <C> <C> <C> <C> <C>
Arthur J. Decio 66 Chairman of the Board, Chief Executive Officer and 1994 9,000 (1) *
director of Skyline Corporation (publicly held
manufacturer of manufactured housing and recreational
vehicles) (2)
Stephen A. Finn 50 President and Chief Executive Officer of Bruegger's 1996 267,620 (3) 1.6%
Corporation (4)(5)
Daniel B. Fitzpatrick 39 Chairman of the Board, President and Chief Executive 1990 2,280,184 (3)(6) 13.5%
Officer of the Company (7)
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Owned on
Principal Director December 9, Percent
Name Age Occupation Since 1996 of Class
- ------------------------ --- ------------------------------------------------------ -------- ---------------- --------
DIRECTORS CONTINUING IN OFFICE
(Term expiring at annual meeting of shareholders in 1998)
<S> <C> <C> <C> <C> <C>
James K. Fitzpatrick 41 Senior Vice President, Chief Administrative Officer 1990 330,688 (3)(8) 2.0%
and Chief Development Officer of the Company
Ezra H. Friedlander 55 Judge, Indiana Court of Appeals (9) 1995 379,931 (10)(11) 2.2%
Steven M. Lewis 47 President, Chief Executive Officer and director of 1994 9,250 (1)(12) *
U.S. Restaurants, Inc. (restaurant management company)
(13)
(Term expiring at annual meeting of shareholders in 1999)
Christopher J. Murphy III 50 President, Chief Executive Officer and director of 1st 1994 21,292 (1)(14) *
Source Corporation (multi-bank diversified financial
services corporation) (15)
William R. Schonsheck 46 Senior Vice President of the Company and Chief 1996 334,284 (3)(16) 2.0%
Operating Officer of Burger King Division (17)
</TABLE>
- ----------------
* Less than 1%.
(1) Includes presently exercisable stock options to purchase 6,000 shares,
granted under the Company's Outside Directors Stock Option Plan ("Outside
Directors Plan").
(2) Mr. Decio also serves on the Board of Directors of NIPSCO Industries, Inc.,
a public utility holding company, and of St. Joseph Capital Corporation, a
bank holding company.
(3) Does not include shares subject to stock options which are not exercisable
within 60 days.
(4) Prior to joining Bruegger's Corporation in August 1992, and since 1982, Mr.
Finn served in a variety of senior management positions for Burger King
Corporation, most recently as Senior Vice President and General Manager for
Europe and the Middle East.
(5) The Agreement and Plan of Merger among the Company, BAC, Inc. (a wholly-
owned subsidiary of the Company) and Bruegger's Corporation provided that
Nordahl L. Brue and Michael J. Dressell, the co-founders of Bruegger's
Corporation, and Mr. Finn, its President, be elected to the Board of
Directors of the Company upon the consummation of the merger with Bruegger's
Corporation. Messrs. Brue, Dressell and Finn were so elected, but Messrs.
Brue and Dressell resigned as Directors of the Company in February of 1997.
See "Certain Transactions."
(6) Includes presently exercisable stock options to purchase 26,175 shares,
granted under the Company's 1993 Stock Option and Incentive Plan ("1993
Stock Option Plan").
-3-
<PAGE>
(7) Mr. Daniel B. Fitzpatrick also serves on the Board of Directors of 1st
Source Corporation, a multi-bank diversified financial services
corporation.
(8) Includes presently exercisable stock options to purchase 20,200 shares,
granted under the Company's 1993 Stock Option Plan.
(9) From January 1991 to January 1993, Mr. Friedlander was an attorney with
Ezra H. Friedlander, P.C., a law firm in Indianapolis, Indiana. Mr.
Friedlander has been a significant shareholder of the Company or certain of
its predecessors since 1982.
(10) Includes presently exercisable stock options to purchase 4,000 shares,
granted under the Company's Outside Directors Plan.
(11) Includes 15,000 shares held in a trust of which Mr. Friedlander is the
trustee with investment control and the income beneficiary.
(12) Includes 500 shares held in a trust for the benefit of Mr. Lewis' minor
children.
(13) Mr. Lewis also serves on the Board of Directors of Commerce Bancorp, Inc.,
a bank holding company.
(14) Includes 2,940 shares held by Mr. Murphy's minor children and 1,000 shares
held by certain retirement plans in which Mr. Murphy is a participant. Also
includes 5,000 shares held in a trust over which Mr. Murphy has investment
control.
(15) Mr. Murphy also serves on the Board of Directors of Comair Holdings, Inc.,
an air transportation holding company, and of Titan Holdings, Inc., an
insurance holding company.
(16) Includes presently exercisable stock options to purchase 15,000 shares,
granted under the Company's 1993 Stock Option Plan.
(17) Prior to joining the Company in August of 1995 and for at least the five
preceding years, Mr. Schonsheck held various positions in the Burger King
system, most recently as a franchisee in Detroit, Michigan. In connection
with the Company's acquisition of the capital stock and/or assets of 11
corporations (the "SHONCO Companies") owned or controlled by Mr.
Schonsheck, the Company agreed, for so long as he remains an executive
officer of the Company, to nominate Mr. Schonsheck for election to the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED
ABOVE.
MEETINGS AND COMMITTEES
During fiscal 1996, the Board of Directors of the Company held six
meetings. During the period in fiscal 1996 for which he served as a Director,
each of the Company's Directors attended at least 75% of the
-4-
<PAGE>
meetings of the Board of Directors and each committee on which he served. The
Board of Directors does not have a nominating committee.
The Company has an Executive Committee, an Audit Committee and a Compensation
and Stock Option Committee (the "Compensation Committee"). The Executive
Committee consists of Messrs. Daniel B. Fitzpatrick, James K. Fitzpatrick,
Steven M. Lewis, Christopher J. Murphy and William R. Schonsheck. The Audit
Committee consists of Messrs. Decio, Lewis and Murphy. The Compensation
Committee consists of Messrs. Decio, Friedlander, Lewis and Murphy. The
Executive Committee has authority to act on behalf of the Board of Directors
between meetings and, with certain exceptions, the authority to take all actions
that the full Board could take. The Audit Committee is responsible for
recommending independent auditors, reviewing with the independent auditors the
scope and results of the audit engagement, establishing and monitoring the
Company's financial policies and control procedures, reviewing and monitoring
the provision of non-audit services by the Company's auditors and reviewing all
potential conflict of interest situations. See "Certain Transactions." The
Compensation Committee is responsible for reviewing, determining and
establishing the salaries, bonuses and other compensation of the executive
officers of the Company and for administering the 1993 Stock Option Plan. If
approved, the 1997 Stock Option and Incentive Plan will also be administered by
the Compensation Committee.
During fiscal 1996, the Audit Committee held four meetings and the
Compensation Committee held four meetings. The Executive Committee held one
meeting in fiscal 1996.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and Directors, and persons who own more than 10% of Common
Stock, to file reports of ownership with the Securities and Exchange Commission.
Such persons also are required to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of copies of such forms received by it, or written
representations from certain reporting persons that no Forms 5 were required for
those persons, the Company believes that during fiscal 1996, all filing
requirements applicable to its executive officers, Directors and greater than
10% shareholders were complied with.
EXECUTIVE OFFICERS
As used throughout this Proxy Statement, the term "executive officers" refers
to Daniel B. Fitzpatrick, President and Chief Executive Officer, John C. Firth,
Senior Vice President, General Counsel and Secretary, James K. Fitzpatrick,
Senior Vice President, Chief Administrative Officer and Chief Development
Officer, William R. Schonsheck, Senior Vice President, Chief Operating Officer
of Burger King Division, Gerald O. Fitzpatrick, Senior Vice President, Burger
King Division, W. Clark Knippers, Senior Vice President - Director of
Development, Scott C. Smith, Senior Vice President - Full Service Dining
Division, David M. Findlay, Vice President and Treasurer, Marti'n L. Miranda,
Vice President, Controller and Assistant Secretary, Bruce A. Phillips, Vice
President - Bruegger's Advertising and Marketing, and Michael J. Wargo, Vice
President - Director of Human Resources.
-5-
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation paid
or accrued during each of the Company's last three fiscal years to the Company's
Chief Executive Officer and each of the Company's four other most highly
compensated executive officers, based on salary and bonus earned during fiscal
1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------- ------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus (1) Options (2) Compensation (3)
- --------------------------- ------ ------------ --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Daniel B. Fitzpatrick, 1996 $336,538 $200,000 117,550 $ 158
President and 1995 310,000 120,000 23,200 1,129
Chief Executive Officer 1994 270,000 105,000 0 4,245
James K. Fitzpatrick, 1996 $160,288 $ 50,000 16,500 $ 158
Senior Vice President, 1995 145,000 45,000 6,600 1,129
Chief Administrative 1994 115,000 45,000 12,000 1,597
Officer and Chief
Development Officer
William R. Schonsheck, 1996 $169,231 $ 80,000 7,000 $200,000 (4)
Senior Vice President, 1995 0 0 60,000 0
Chief Operating Officer 1994 0 0 0 0
of Burger King Division
Gerald O. Fitzpatrick, 1996 $137,998 $ 68,750 13,310 $ 158
Senior Vice President, 1995 127,500 38,000 6,430 1,129
Burger King Division 1994 115,000 41,000 12,000 2,023
Arthur J. DeAngelis, Vice 1996 $161,049 $ 25,000 10,000 $ 0
President - Grady's 1995 0 0 0 0
American Grill Division (5) 1994 0 0 0 0
</TABLE>
- ---------------
(1) Represents awards under the Company's bonus plan. In the event that
performance targets established for the areas of the Company's operations
under the supervision of the Named Executive Officer are met, the officer
may receive a discretionary bonus. For fiscal 1996 and fiscal 1995, targeted
performance levels and potential bonus awards were approved by the
Compensation Committee. Bonus awards are accrued in the fiscal year earned,
but typically paid in the following fiscal year.
(2) Options to acquire shares of Common Stock. The Company has no SAR plan and
has never granted restricted stock awards.
(3) Except as otherwise indicated, amounts reported under the caption "All Other
Compensation" reflect Company contributions under its discretionary,
noncontributory profit sharing plan. The Company's contributions to the plan
on behalf of participants are determined at the discretion of the Board of
Directors.
(4) This amount represents payments to Mr. Schonsheck pursuant to his
non-competition agreement with the Company. See "--Employment and
Non-Competition Agreements."
(5) Mr. DeAngelis joined the Company on December 21, 1995, and resigned as an
employee of the Company effective at the end of October 27, 1996.
-6-
<PAGE>
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
On August 14, 1995, the Company entered into separate employment and non-
competition agreements with Mr. Schonsheck. Pursuant to the employment
agreement, Mr. Schonsheck is to serve as Chief Operating Officer of the
Company's Burger King Division. The employment agreement has a term of four
years and provides for an initial annual base salary of $160,000, which is
increased by at least $25,000 per year on August 14 of each of 1996, 1997 and
1998. In addition, Mr. Schonsheck is entitled to an annual bonus at least equal
to 25% of his then annual base salary. Pursuant to the non-competition
agreement, Mr. Schonsheck is prohibited from competing with the Company for a
period of four years and is entitled to receive $200,000 per year. In connection
with the execution of the agreements, the Company granted Mr. Schonsheck options
to purchase an aggregate of 60,000 shares of Common Stock at an exercise price
of $18.25 per share. The options are exercisable for a period of 10 years and
vest in quarters on each of the first four anniversaries of the date of the
employment agreement. The Company also agreed to nominate Mr. Schonsheck for
election to the Board of Directors at the Company's 1996 annual meeting of
shareholders and for each year thereafter that he remains an executive officer
of the Company.
The Company does not have employment agreements with any other Named Executive
Officer.
COMPENSATION OF DIRECTORS
During fiscal 1996, the Company paid Directors who are not employees of the
Company an annual retainer of $6,000, in addition to $500 for each meeting of
the Board attended and for each meeting of a committee of the Board attended if
the committee met on a day other than a Board meeting. In fiscal 1997, the
Company will pay Directors who are not employees of the Company an annual
retainer of $8,000, plus $500 for each regular Board meeting attended and $750
for each special Board meeting attended and each committee meeting attended if
the committee meets on a day other than a Board meeting. All Directors receive
reimbursement of reasonable out-of-pocket expenses incurred in connection with
meetings of the Board. No Director who is an officer or employee of the Company
receives compensation for services rendered as a Director.
In addition, under the Company's Outside Directors Plan, on May 1 of each
year, each then non-employee Director of the Company automatically receives an
option to purchase 2,000 shares of Common Stock with an exercise price equal to
the fair market value of the Common Stock on the date of grant. Each option
will have a term of 10 years and will be exercisable six months after the date
of grant. On May 1, 1996, each of Messrs. Decio, Friedlander, Lewis and Murphy
received an option to purchase 2,000 shares of Common Stock at an exercise price
of $32.875 per share. Following the election of Messrs. Brue, Dressell and Finn
to the Board of Directors on June 7, 1996, there were six non-employee Directors
during fiscal 1996--Messrs. Brue, Decio, Dressell, Friedlander, Lewis and
Murphy. Messrs. Brue and Dressell resigned from the Board of Directors of the
Company in February, 1997.
STOCK OPTIONS
On December 17, 1993, the Directors and shareholders of the Company adopted
the 1993 Stock Option Plan. The 1993 Stock Option Plan provides for awards of
incentive and non-qualified stock options and shares of restricted stock to the
officers and key employees of the Company. An aggregate of 1,000,000 shares of
Common Stock are subject to the 1993 Stock Option Plan (subject to adjustment in
certain events).
7
<PAGE>
As of October 27, 1996, options to purchase 681,117 shares of Common Stock were
outstanding under the 1993 Stock Option Plan.
The Company's Board of Directors has proposed the approval of the 1997 Stock
Option and Incentive Plan (the "1997 Stock Option Plan"). See "Approval of the
Company's 1997 Stock Option Plan." In the event the shareholders approve the
1997 Stock Option Plan, no awards for additional shares of Common Stock will be
made under the 1993 Stock Option Plan after the date of shareholder approval,
although the terms of options granted pursuant to the 1993 Stock Option Plan may
be modified after such time.
The Company's Board of Directors and shareholders approved the Outside
Directors Plan effective December 17, 1993. The Company's Outside Directors
Plan reserves for issuance 40,000 shares of the Company's Common Stock (subject
to adjustment for subsequent stock splits, stock dividends and certain other
changes in the Common Stock) pursuant to non-qualified stock options to be
granted to non-employee Directors of the Company. See "--Compensation of
Directors."
No option granted under the Outside Directors Plan may be exercised less than
six months or more than 10 years from the date it is granted. In addition, no
option may be exercised unless the grantee has served continuously on the Board
of Directors at all times beginning on the date of grant and ending on the date
of exercise of the option. Nevertheless, all options held by a grantee who
ceases to be a non-employee Director due to death, permanent disability or
retirement with the consent of the Board may be exercised, to the extent they
were exercisable at the date of cessation, at any time within one year after the
date of cessation. Options held by a deceased grantee may be exercised by the
grantee's estate or heirs. If a grantee ceases to be a non-employee Director
for any other reason, such grantee's options will expire three months after
cessation.
The following table sets forth information with respect to options granted by
the Company under the 1993 Stock Option Plan to the Named Executive Officers
during fiscal 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
% of
Total Potential Realizable Value
Options at Assumed Annual Rates of
Number of Granted Stock Price Appreciation
Securities to for Option Term (1)
Underlying Employees Exercise --------------------------
Options in Fiscal or Base Expiration
Name Granted Year Price Date 5% 10%
- --------------------- ------------ --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Daniel B. Fitzpatrick 17,550 (2) 2.9% $23.750 12/28/05 $ 262,131 $ 664,292
100,000 (3) 16.7% $31.375 05/29/06 1,973,160 5,000,370
James K. Fitzpatrick 6,500 (4) 1.1% $23.750 12/28/05 97,085 246,034
10,000 (5) 1.7% $31.375 05/29/06 197,316 500,037
William R. Schonsheck 7,000 (6) 1.2% $31.375 05/29/06 138,121 350,026
Gerald O. Fitzpatrick 5,810 (7) 1.0% $23.750 12/28/05 86,779 219,917
7,500 (8) 1.3% $31.375 05/29/06 147,987 375,028
Arthur J. DeAngelis 5,000 (9) 0.8% $24.500 12/21/05 77,040 195,233
5,000 (10) 0.8% $31.375 05/29/06 98,658 250,019
</TABLE>
-8-
<PAGE>
- ------------------
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, of the Company's stock price. The Company did not use an alternative
formula for a grant date valuation, as the Company is not aware of any
formula which will determine with reasonable accuracy a present value based
on future unknown or volatile factors.
(2) Non-qualified stock options granted at 100% of the fair market value of the
stock on the date of grant. The options are exercisable 50% on December 29,
1996, 25% on December 29, 1997 and 25% on December 29, 1998.
(3) Non-qualified stock options granted at 100% of the fair market value of the
stock on the date of grant. The options are exercisable one-third on May
30, 1997, one-third on May 30, 1998 and one-third on May 30, 1999.
(4) Consists of 1,176 incentive stock options and 5,324 non-qualified stock
options, all of which were granted at 100% of the fair market value of the
stock on the date of grant. The options are exercisable 50% on December 29,
1996, 25% on December 29, 1997 and 25% on December 29, 1998.
(5) Consists of 7,841 incentive stock options and 2,159 non-qualified stock
options, all of which were granted at 100% of the fair market value of the
stock on the date of grant. The options are exercisable one-third on May
30, 1997, one-third on May 30, 1998 and one-third on May 30, 1999.
(6) Incentive stock options granted at 100% of the fair market value of the
stock on the date of grant. The options are exercisable one-third on May
30, 1997, one-third on May 30, 1998 and one-third on May 30, 1999.
(7) Consists of 1,265 incentive stock options and 4,545 non-qualified stock
options, all of which were granted at 100% of the fair market value of the
stock on the date of grant. The options are exercisable 50% on December 29,
1996, 25% on December 29, 1997 and 25% on December 29, 1998.
(8) Consists of 7,152 incentive stock options and 348 non-qualified stock
options, all of which were granted at 100% of the fair market value of the
stock on the date of grant. The options are exercisable one-third on May
30, 1997, one-third on May 30, 1998 and one-third on May 30, 1999.
(9) Incentive stock options granted at 100% of the fair market value of the
stock on the date of grant. The options were exercisable 50% on December
22, 1996, 25% on December 22, 1997 and 25% on December 22, 1998. All of
such options were canceled, effective upon Mr. DeAngelis' resignation at
the end of October 27, 1996.
(10) Incentive stock options granted at 100% of the fair market value of the
stock on the date of grant. The options were exercisable one-third on May
30, 1997, one-third on May 30, 1998 and one-third on May 30, 1999. All of
such options were canceled, effective upon Mr. DeAngelis' resignation at
the end of October 27, 1996.
-9-
<PAGE>
The following table sets forth information with respect to the exercise of
options by the Named Executive Officers during fiscal 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying Value of Unexercised In-the-
Unexercised Options at Money Options at
Fiscal Year-End Fiscal Year-End (1)
Shares Acquired Value ----------------------------- ------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel B. Fitzpatrick --- --- 11,600 129,150 $114,550 $114,550
James K. Fitzpatrick --- --- 11,300 23,800 116,587 74,587
William R. Schonsheck --- --- 15,000 52,000 56,250 168,750
Gerald O. Fitzpatrick --- --- 11,215 20,525 115,748 73,748
Arthur J. DeAngelis --- --- 0 10,000 0 0
- ---------------------
</TABLE>
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market System on October 25, 1996 was $22.00. Value is calculated
on the basis of the difference between the Common Stock option exercise
price and $22.00, multiplied by the number of "In-the-Money" shares of
Common Stock underlying the option.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Prior to the Initial Public Offering (the "Offering") in March 1994, the
Company's Board of Directors (which then consisted of Messrs. Daniel B.
Fitzpatrick, James K. Fitzpatrick and Michael G. Sosinski) was responsible for
setting executive compensation for, and granting stock options to, the Company's
executive officers, based principally on the recommendations of Daniel B.
Fitzpatrick. Upon completion of the Offering, the Company established the
Compensation Committee to determine executive compensation and administer the
Company's 1993 Stock Option Plan.
The Company's compensation programs are designed to attract, retain and
motivate the finest talent possible for all levels of the organization. In
addition, the programs are designed to treat all employees fairly and to be
cost-effective. To that end, all compensation programs for management, including
those for executive officers, have the following characteristics.
- Compensation is based on the individual's level of job responsibility
and level of performance, the performance of the restaurant, division
or concept supervised by such individual and/or the performance of the
Company. Executive officers have a greater portion of their pay based
on Company performance than do other management employees.
- Compensation also takes into consideration the value assigned to the
job by the marketplace. To retain a highly skilled management team,
the Company strives to remain competitive with the pay of employers of
a similar stature who compete with the Company for talent.
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- Through the grant of stock options, the Company offers the opportunity
for equity ownership to executive officers and other key employees.
Consistent with these programs, the compensation of executive officers has
been and will be related in substantial part to Company performance.
Compensation for executive officers consists of salary, bonus and stock option
grants. Both bonuses and stock option grants are based in part on Company
performance.
Stock options and equity ownership in the Company provide a direct link
between executive compensation and shareholder value. Stock options also create
an incentive to remain with the Company for the long term; the options are not
immediately exercisable and, if not exercised, are forfeited immediately if the
employee leaves voluntarily or is terminated for cause, and are forfeited within
three months if employment is terminated before retirement for any reason other
than death or disability.
Stock options are granted pursuant to the Company's 1993 Stock Option Plan
at the discretion of the Company's Compensation Committee. In determining the
number of options to be granted to the Company's employees, the Compensation
Committee relies in large part on the recommendation of the Company's Chairman
and Chief Executive Officer, which recommendation is made in the context of
guidelines established by the Compensation Committee. These guidelines were
established in December 1994 when the Compensation Committee adopted performance
standards for the grant of stock options to executive officers and other
management personnel. Each executive officer has a designated award level based
on a specified percentage of his total cash compensation for the year. For
executive officers, these levels range from 33% to 75% of total cash
compensation for the year. For example, if the percentage for an executive
officer was 50% and his total cash compensation (salary plus bonus) for the year
was $300,000, the designated award level would be stock options with an
aggregate exercise price of $150,000. If the fair market value of the Company's
Common Stock on the date of grant was $12 per share, the designated award level
would be stock options to purchase 12,500 shares. In addition to the options
granted to the executive officers and management personnel, the Compensation
Committee has the discretion to grant, and has granted, options to other
employees of the Company, including administrative staff and restaurant and
store managers.
In December 1994, the Compensation Committee also adopted guidelines for
annual bonus awards, which guidelines are used by the Company's Chairman and
Chief Executive Officer in his recommendations to the Compensation Committee
regarding the annual bonus awards. Under the bonus program adopted by the
Compensation Committee, executive officers are eligible for an annual bonus in
an amount up to a specified percentage of the executive officer's salary. These
percentages range from 20% to 100%. Within these parameters, the bonuses are at
the discretion of the Compensation Committee. In setting bonuses for the 1996
fiscal year, the Compensation Committee focused primarily on the Company's
achievement of its internal net earnings goal for fiscal 1996. The annual bonus
award determinations are also based on: an assessment of the executive officer's
individual achievement and performance during the past year; the executive
officer's impact on the Company's accomplishments over a number of years; and
the Company's achievement of nonfinancial goals.
Daniel B. Fitzpatrick's salary and bonus for fiscal 1996 were determined in
accordance with the same procedures and standards as for the other executive
officers of the Company. He made recommendations to the Board of Directors with
respect to his salary and recommendations to the Compensation Committee with
respect to his bonus and the bonuses for the other executive officers. The Board
of Directors and Compensation Committee approved the respective recommendations
for the reasons set forth above. In
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addition, on May 30, 1996, the Compensation Committee granted Daniel B.
Fitzpatrick non-qualified stock options to purchase 100,000 shares of the
Company's Common Stock at 100% of the fair market value of the stock on the date
of grant, exercisable in thirds on each of the first three anniversaries of the
date of grant. This grant was based upon the extraordinary services which Daniel
B. Fitzpatrick rendered in connection with the Bruegger's Corporation and the
Grady's American Grill acquisitions.
Compensation and Stock Option Committee
---------------------------------------
Steven M. Lewis, Chairman
Arthur J. Decio
Ezra H. Friedlander
Christopher J. Murphy III
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<PAGE>
PERFORMANCE GRAPH
The performance graph set forth below compares the cumulative total
shareholder return on the Company's Common Stock with the Nasdaq Market Index
and an Index of Nasdaq Companies in SIC Major Group 58 for the period from March
2, 1994 through October 25, 1996. The Company's Common Stock commenced trading
on the Nasdaq National Market System on March 2, 1994.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
NASDAQ MARKET INDEX AND INDEX OF NASDAQ COMPANIES IN SIC MAJOR GROUP 58
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
March 2, 1994 October 28, 1994 October 27, 1995 October 25, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Quality Dining 100 108 160 181
- -------------------------------------------------------------------------------------------
Nasdaq Stock Market 100 100 120 140
- -------------------------------------------------------------------------------------------
Nasdaq SIC 58 Stocks 100 85 108 119
- -------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that may incorporate future filings (including
this Proxy Statement, in whole or in part), the preceding Compensation Committee
Report on Executive Compensation and the stock price Performance Graph shall not
be incorporated by reference in any such filings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On March 8, 1994, the Board of Directors established the Compensation
Committee to approve compensation and stock option grants for the Company's
executive officers. The Compensation Committee members are Messrs. Decio,
Friedlander, Lewis and Murphy. Except for Mr. Murphy and Mr. Friedlander,
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<PAGE>
none of the Compensation Committee members are involved in a relationship
requiring disclosure as an interlocking executive officer/director or under Item
404 of Regulation S-K or as a former officer or employee of the Company. Mr.
Murphy is the President of 1st Source Corporation, a multi-bank diversified
financial services corporation. Daniel B. Fitzpatrick is a director of 1st
Source Corporation. Mr. Murphy is not involved in any relationships requiring
disclosure under Item 404 of Regulation S-K. Mr. Friedlander is a shareholder or
partner of various real estate entities which lease the former headquarters
building and certain restaurant facilities to the Company and of an entity which
provides air transportation services to the Company. See "Certain Transactions."
CERTAIN TRANSACTIONS
Related party transactions are subject to the review and approval of the
Company's Audit Committee, which is composed exclusively of the Company's
disinterested Directors.
ACQUISITION OF BRUEGGER'S CORPORATION
On June 7, 1996, the Company acquired Bruegger's Corporation ("Bruegger's")
by means of the merger of BAC, Inc., a wholly-owned subsidiary of the Company,
into Bruegger's. As a result of the merger, Bruegger's became a wholly-owned
subsidiary of the Company. The acquisition was made pursuant to an Agreement and
Plan of Merger which resulted from arms-length negotiation. The purchase price
consisted of the issuance of 5,127,121 shares of the Company's Common Stock,
valued at $123.1 million, and direct acquisition and estimated post-merger
integration costs aggregating $6.9 million. The Company also issued 117,800
shares of its Series A Convertible Cumulative Preferred Stock, without par value
(the "Quality Dining Preferred Stock") in exchange for a like number of issued
and outstanding shares (exclusive of those shares held by the Company, which
were canceled) of Bruegger's Class A Cumulative Convertible Preferred Stock.
Subsequent to the acquisition, 101,150 shares of Quality Dining Preferred Stock
were converted into an aggregate of 285,531 shares of the Company's Common
Stock. Prior to the merger, Messrs. Brue and Dressell each owned approximately
42% of the outstanding shares of Bruegger's common stock. Mr. Finn was the
President and Chief Executive Officer of Bruegger's and Messrs. Brue, Dressell,
Finn and Daniel B. Fitzpatrick served on the Board of Directors of Bruegger's.
Pursuant to the Agreement and Plan of Merger, Messrs. Brue, Dressell and
Finn became Directors of the Company, and Mr. Brue became the Co-Chairman of the
Company. Messrs. Brue and Dressell resigned from the Board of Directors in
February of 1997, but Mr. Finn continues to serve as a Director of the Company
and as the President and Chief Executive Officer of Bruegger's. The Company also
agreed to provide Messrs. Brue and Dressell certain registration rights with
respect to the Company's Common Stock issued to them in the merger.
Prior to the merger with Bruegger's, the Company developed and operated
Bruegger's Bagel Bakeries as a franchisee of Bruegger's and paid development
fees, franchise fees, royalties and other amounts to Bruegger's in the ordinary
course of business.
LEASES OF HEADQUARTERS BUILDING AND RESTAURANT FACILITIES
In February 1997, the Company moved into a new headquarters facility, which
is leased from a limited liability company in which the Company has a 50%
interest. The Company leases its former headquarters
-14-
<PAGE>
facility from B.K. Main Street Properties, a partnership owned by Messrs.
Daniel B. Fitzpatrick, Ezra H. Friedlander and James K. Fitzpatrick. The lease
is a five-year triple net lease with monthly rental payments calculated on the
basis of $12.00 per square foot annually. The lease provides for renewals of up
to five years at then prevailing market rates. The Company believes that this
lease is on terms at least as favorable as could be obtained from an unrelated
third party. The Company's former headquarters facility has been subleased to a
local financial institution for a term extending through the expiration of the
Company's lease.
Of the Burger King restaurants operated by the Company as of October 27,
1996, 40 were leased from a series of entities owned, in various percentages, by
Messrs. Daniel B. Fitzpatrick, Ezra H. Friedlander and James K. Fitzpatrick
(the "Real Estate Partnerships"). The Company believes that these leases are on
terms at least as favorable as leases that could be obtained from unrelated
third parties. Each of the leases between the Company and a Real Estate
Partnership are triple net leases which provide for an annual base rent equal to
13 1/2% of the total cost (land and building) of the leased restaurant, together
with additional rent of 7% of restaurant sales, to the extent that amount
exceeds the base rental. These terms are substantially identical to those which
were offered by Burger King Corporation to its franchisees at the time the
leases were entered into. Burger King Corporation currently requires rental
payments equal to an annual base rent of 12 1/2% of total restaurant cost,
together with additional rent of 8 1/2% of restaurant sales, to the extent that
amount exceeds the base rental payments.
In connection with the acquisition of the SHONCO Companies, the Company
acquired two Burger King restaurants which it leases from Mr. Schonsheck or
entities controlled by him. Each of the leases is a triple net lease which
provides for an annual base rent, together with additional rent of 8 1/2% of
restaurant sales, to the extent that amount exceeds the base rental. The Company
believes that these leases are on terms no less favorable to the Company than
those that could be obtained from unaffiliated third parties.
Of the Bruegger's Bagel Bakeries operated by the Company as of October 27,
1996, one was leased from an entity with which Messrs. Brue and Dressell are
affiliated. The lease is a triple net lease which provides for an annual base
rent, together with additional rent of 4% of restaurant sales in excess of
$510,241 per year. The Company believes that the lease is on terms no less
favorable to the Company than those that could be obtained from unaffiliated
third parties.
During fiscal 1996, the Company paid an aggregate of $4.1 million under
these related party leases. The Company does not intend to enter into additional
leases with related parties.
RELATED PARTY FRANCHISEES
As of October 27, 1996, certain entities owned by Messrs. Brue and Dressell
and/or by Richard Brue, the brother of Mr. Brue (the "Original Franchisees")
owned and operated 152 franchised Bruegger's Bagel Bakeries. Under their
Bruegger's development agreements, the Original Franchisees have exclusive
territories, but are not obligated to develop a minimum number of bakeries. The
franchise agreements with the Original Franchisees differ from the standard
Bruegger's franchise agreements in that the Original Franchisees are not
required to pay initial franchise or development fees and pay franchise
royalties of 4% of sales. During fiscal 1996, the Company earned an aggregate of
$1.7 million in franchise royalties from the Original Franchisees.
During fiscal 1996, the Company loaned $9.9 million to Bagel Acquisition
Corporation, an Indiana corporation ("BAC") owned by Mr. Daniel B. Fitzpatrick,
which used the funds to acquire a number of
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<PAGE>
Bruegger's Bagel Bakeries from independent franchisees. The $9.9 million
promissory note bears interest at 11%, is due April 15, 1997, and is
collateralized by substantially all assets of BAC. Interest income recognized by
the Company on the note in fiscal 1996 amounted to $119,000. As of October 27,
1996, the amount outstanding under the note was $9.9 million, which was the
largest amount outstanding under the note during fiscal 1996. Subsequent to
October 27, 1996, and through February 3, 1997, the Company loaned BAC an
additional $18.1 million to acquire additional Bruegger's Bagel Bakeries from
independent franchisees and for working capital purposes. As of February 3,
1997, the amount outstanding under the note was $28 million. The Company
anticipates that all of the bakeries acquired by BAC will be sold to unrelated
franchisees of Bruegger's in fiscal 1997. The Company and BAC have not entered
into any development agreements. The franchise agreements with BAC are in the
form of the standard Bruegger's franchise agreement. During fiscal 1996, the
Company earned an aggregate of $26,460 in franchise royalties from BAC.
As franchisees of the Company, the Original Franchisees and BAC transact
certain other business activities with the Company. During fiscal 1996, the
Company sold the Original Franchisees $1.7 million of bagel dough and related
products, and the Company earned $748,000 in marketing fees pursuant to
franchise agreements with the Original Franchisees. In fiscal 1996, the Company
sold BAC $252,000 of bagel dough and related products, and the Company earned
$16,000 in marketing fees pursuant to franchise agreements with BAC. In
addition, the Company earned $410,000 for the installation of point-of-sale
registers in BAC stores and $424,000 for the provision of management,
accounting, legal and computer support services to BAC during fiscal 1996. The
Company also rendered services related to BAC's acquisition of various
Bruegger's Bagel Bakeries, for which the Company billed BAC $210,000 in fiscal
1996.
OTHER LEASE AGREEMENTS AND GUARANTEES
In October 1996, the Company entered into an agreement with an entity with
which Messrs. Brue and Dressell are affiliated to terminate two leases for
office space located in Vermont. Pursuant to the terms of the agreement, on
January 17, 1997 the Company paid the entity $900,000. Of such amount,
approximately $836,000 was to terminate the two leases on January 17, 1997, and
approximately $64,000 was to prepay the annual base rent under the related party
bakery lease. See "--Leases of Headquarters Building and Restaurant Facilities."
The estimated cost for the termination of the two leases was accrued as part of
the cost of the purchase of Bruegger's at the time of the acquisition. During
fiscal 1996, the Company paid an aggregate of $126,813 under the two office
leases.
The Company guarantees future minimum lease payments for the leases of 26
Bruegger's Bagel Bakeries operated by entities owned by the Original
Franchisees, and for the leases of 12 Bruegger's Bagel Bakeries operated by BAC.
During fiscal 1996, the Company paid no amounts under its guarantees of these
leases. As of October 27, 1996, future minimum lease payments related to these
leases were approximately $1.7 million through the end of fiscal 1997 and a
total of $9.9 million through the entire term of the leases. The Company, the
Original Franchisees, Mr. Brue and Mr. Dressell have entered into an agreement
whereby the Original Franchisees, and Mr. Brue and Mr. Dressell personally, have
agreed to indemnify the Company if it is required to make any payments related
to its guarantees of the Original Franchisees' leases.
-16-
<PAGE>
TRANSPORTATION SERVICES
Burger Management South Bend No. 3, Inc., an Indiana corporation ("SB No. 3"),
owned by Messrs. Daniel B. Fitzpatrick, Ezra H. Friedlander and James K.
Fitzpatrick, has provided the service of its King Air turbo-prop aircraft to the
Company. In fiscal 1996, SB No. 3 billed the Company $399,140. The Company
believes that the amounts paid for air services were no greater than amounts
which would have been paid to unrelated third parties for similar services.
Consequently, the Company intends to continue to utilize SB No. 3 to provide air
transportation services.
Since January 1, 1996, SB No. 3 has leased two employees from the Company to
act as a pilot and co-pilot of the aircraft. SB No. 3 reimburses the Company
for the Company's full cost of such employees.
ADMINISTRATIVE SERVICES
The Company provides certain accounting, tax and other administrative services
to the Real Estate Partnerships and SB No. 3 on a fee for services basis. The
aggregate amount of fees paid to the Company for administrative services by
these entities during fiscal 1996 was $14,500. Management believes that these
fees are comparable to fees charged by unaffiliated third parties for comparable
services.
OTHER OBLIGATIONS AND PAYMENTS BY AND TO THE COMPANY
The Company purchases cream cheese for its Bruegger's Bagel Bakeries from
Franklin County Cheese Corporation ("Franklin County Cheese"), an entity owned
by Messrs. Brue and Dressell. During fiscal 1996, the amount of the Company's
purchases of cream cheese from Franklin County Cheese was $2.0 million.
Mr. Brue is a principal in Sheehey Brue Gray & Furlong, P.C., a law firm which
the Company retained during fiscal 1996. During fiscal 1996, the Company paid
an aggregate of approximately $110,000 in legal fees to Sheehey Brue Gray &
Furlong, P.C.
During fiscal 1996, Mr. John Fitzpatrick, the brother of Daniel B.
Fitzpatrick, James K. Fitzpatrick and Gerald O. Fitzpatrick, purchased items for
Burger King restaurants that he operates through the Company's volume discount
arrangements with Burger King Corporation. In connection with such purchases,
Mr. John Fitzpatrick was indebted to the Company in the amount of $319,000 at
the end of fiscal 1996, which was also the largest aggregate amount outstanding
during the 1996 fiscal year. As of February 3, 1997, the amount due from Mr.
John Fitzpatrick to the Company was $0.
APPROVAL OF THE COMPANY'S 1997 STOCK OPTION PLAN
On February 14, 1997, the Board of Directors of the Company adopted the 1997
Stock Option Plan, and directed that the 1997 Stock Option Plan be submitted to
the shareholders for consideration at the annual meeting. The following is a
summary of the principal features of the 1997 Stock Option Plan. The summary is
qualified in its entirety by reference to the complete text of the 1997 Stock
Option Plan as set forth as Exhibit A to this Proxy Statement. Shareholders are
urged to read the actual text of the 1997 Stock Option Plan as set forth in
Exhibit A.
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<PAGE>
PURPOSE
The purpose of the 1997 Stock Option Plan is to promote the long-term
interests of the Company by providing a means of attracting and retaining
officers and key employees of the Company. The Company believes that employees
who own shares of the Company's Common Stock will have a closer identification
with the Company and greater motivation to work for the Company's success by
reason of their ability as shareholders to participate in the Company's growth
and earnings.
ADMINISTRATION OF THE 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan will be administered by the Compensation Committee.
The members of the Compensation Committee must qualify as "non-employee
directors" under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, and as "outside directors" under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). Subject to the terms of the 1997 Stock
Option Plan, the Compensation Committee has the sole discretion to determine the
officers and key employees who shall be granted awards; to designate the number
of shares to be covered by each award; to establish vesting schedules; subject
to certain restrictions, to specify all other terms of the awards, including the
status of awards subsequent to the termination of a grantee's employment with
the Company; and to construe and interpret the 1997 Stock Option Plan.
ELIGIBLE PERSONS
Recipients of incentive awards under the 1997 Stock Option Plan must be
officers or key employees of the Company or its subsidiaries as determined by
the Compensation Committee. The Company presently has approximately 300
officers and employees who fall within the category of key employees and may be
considered for incentive awards under the 1997 Stock Option Plan. No awards may
be granted under the 1997 Stock Option Plan to Directors who are not also
employees of the Company or its subsidiaries.
SHARES SUBJECT TO THE 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan permits the granting of awards of stock options,
stock appreciation rights, restricted shares and performance shares. The total
number of shares of Common Stock that may be issued under the 1997 Stock Option
Plan is 1,100,000, subject to adjustment as provided in the 1997 Stock Option
Plan.
The number of shares covered by an award under the 1997 Stock Option Plan
reduces the number of shares available for future awards under the 1997 Stock
Option Plan. However, if any award expires, terminates, or is surrendered or
canceled without having been exercised in full, or in the case of restricted
shares forfeited to the Company, the number of shares then subject to awards is
added back to the number of remaining available shares under the 1997 Stock
Option Plan.
The total number of shares of Common Stock which may be granted to any
individual during any calendar year of the 1997 Stock Option Plan may not exceed
150,000 shares.
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<PAGE>
STOCK OPTIONS
With respect to the stock options under the 1997 Stock Option Plan that are
intended to qualify as "incentive stock options" under Section 422 of the Code,
the option price will be at least 100% (or, in the case of a holder of 10% or
more of the Company's voting stock, 110%) of the fair market value of a share of
Common Stock on the date of the grant of the stock option. The aggregate fair
market value (determined on the date of grant) of the shares subject to
incentive stock options that become exercisable for the first time by a grantee
in any calendar year may not exceed $100,000.
The Compensation Committee will establish the exercise price of options that
do not qualify as incentive stock options ("non-qualified stock options") at the
time the options are granted.
No incentive stock option granted under the 1997 Stock Option Plan may be
exercised more than ten years (or, in the case of a holder of 10% of the
Company's voting stock, five years) or such shorter period as the Compensation
Committee may determine from the date it is granted. Non-qualified stock
options may be exercised during such period as the Compensation Committee
determines at the time of grant.
Stock options granted under the 1997 Stock Option Plan become exercisable in
one or more installments in the manner and at the time or times specified by the
Compensation Committee at the time of grant. Subject to the discretion of the
Compensation Committee, generally if a grantee's employment with the Company or
a subsidiary is terminated for cause or voluntarily by the grantee for any
reason other than death, disability or retirement, such grantee's options expire
at the date of termination.
The exercise price of each option together with an amount sufficient to
satisfy any tax withholding requirement must be paid in full at the time of
exercise. The Compensation Committee may permit payment through the tender of
shares of Common Stock already owned by the participant, withholding of shares
issuable under the award or by any other means which the Compensation Committee
determines to be consistent with the 1997 Stock Option Plan's purpose.
RESTRICTED SHARES
The Compensation Committee may grant awards of restricted shares, in which
case the grantee would be granted shares of Common Stock, subject to such
forfeiture provisions and transfer restrictions as the Compensation Committee
determines. Pending the lapse of such forfeiture provisions and transfer
restrictions, certificates representing restricted shares would be held by the
Company, but the grantee generally would have all of the rights of a
shareholder, including the right to vote the shares and the right to receive all
dividends thereon.
While restricted shares would be subject to forfeiture provisions and transfer
restrictions for a period or periods of time, the 1997 Stock Option Plan does
not set forth any minimum or maximum duration for such provisions and
restrictions. It is expected that the terms of an award of restricted shares
ordinarily will provide that the restricted shares will be terminated and
returned to the Company if the grantee ceases to be employed by the Company
prior to the lapse of the forfeiture provisions and transfer restrictions. It
is also expected that a specified percentage of the restricted shares will
become free of the forfeiture provisions and transfer restrictions on each
anniversary of the date of grant of the restricted stock award.
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PERFORMANCE SHARES
The Compensation Committee may grant awards of performance shares, in which
case the grantee would be granted shares of Common Stock, subject to
satisfaction of specified performance goals established by the Compensation
Committee. Performance goals may be established on one or more of the following
business criteria: earnings per share; return on equity; return on assets;
operating income; earnings before interest, taxes, depreciation and
amortization; or number of restaurants operated or franchised. The applicable
performance goals and all other terms and conditions of the award will be
determined in the discretion of the Compensation Committee. After an award of
performance shares has vested (that is, after the applicable performance goal or
goals have been achieved), the participant will be entitled to a payment of
shares of Common Stock, cash or a combination thereof. If a grantee terminates
employment prior to attaining the specified goals for any reason other than
death, disability or retirement, all of such grantee's rights with respect to
the award of performance shares shall be forfeited.
STOCK APPRECIATION RIGHTS
Stock appreciation rights ("SARs") may be granted as a separate award or
together with an option. The number of shares covered by such SAR will be
determined by the Compensation Committee. Upon exercise of an SAR, the
participant will receive a payment from the Company equal to: (1) the excess of
the fair market value of a share of Common Stock on the date of exercise over
the base price which, in the case of an SAR granted in connection with a stock
option, will equal the exercise price of the underlying option, times (2) the
number of shares with respect to which the SAR is exercised. SARs may be paid
in cash, shares of Common Stock, or a combination thereof as determined by the
Compensation Committee.
ADJUSTMENTS IN AWARDS
In the event of any reorganization, recapitalization, stock split, stock
dividend, combination or exchange of stock, merger, consolidation or any change
in the corporate structure of the Company affecting shares of Common Stock, the
Compensation Committee shall adjust the number and class of shares which may be
delivered under the 1997 Stock Option Plan, and the number and class of shares
subject to outstanding awards, in such manner as the Compensation Committee (in
its sole discretion) shall determine to be appropriate to prevent the dilution
or diminution of such awards.
CHANGE OF CONTROL
In general, if the employment of a recipient of restricted shares is
involuntarily terminated within 12 months following a "change in control" (as
defined in the 1997 Stock Option Plan) of the Company, the forfeiture provisions
and transfer restrictions applicable to such shares lapse. If the employment of
a recipient of performance shares is involuntarily terminated within 12 months
following a "change in control," the performance shares may be paid on a pro
rata basis. In addition, in the event of a tender offer or exchange offer for
Common Stock or upon the occurrence of certain other events, all option and SAR
awards granted under the 1997 Stock Option Plan shall become exercisable in
full, unless otherwise provided by the Compensation Committee.
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<PAGE>
NONTRANSFERABILITY OF AWARDS
Except as otherwise expressly provided by the Compensation Committee, awards
granted under the 1997 Stock Option Plan may not be assigned, encumbered or
transferred other than by will or by the applicable laws of descent and
distribution.
AMENDMENT AND TERMINATION OF THE 1997 STOCK OPTION PLAN
Unless previously terminated by or with the approval of the Board of
Directors, the 1997 Stock Option Plan will terminate February 13, 2007. The
Board may at any time terminate or amend the 1997 Stock Option Plan; however,
shareholder approval shall be obtained to the extent necessary and desirable to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
Code Section 422, or any other applicable law or regulation, including
requirements of any stock exchange or quotation system on which the Company's
Common Stock is listed or quoted.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of awards under the 1997 Stock Option Plan. The summary is based
on current federal income tax laws and interpretations thereof, all of which are
subject to change at any time, possibly with retroactive effect. The summary is
not intended to be exhaustive.
Limitation on Amount of Deduction. The Company generally will be entitled to
a tax deduction for awards under the Plan only to the extent that the
participants recognize ordinary income from the award. Section 162(m) of the
Code contains special rules regarding the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly compensated executive officers of the Company. The
general rule is that annual compensation paid to any of these specified
executives will be deductible only to the extent that it does not exceed
$1,000,000 or it qualifies as "performance-based compensation" under Section
162(m). The 1997 Stock Option Plan has been designed to permit the Compensation
Committee to grant awards which qualify for deductibility under Section 162(m).
Non-Qualified Stock Options. An employee who is granted a non-qualified
option does not recognize taxable income upon the grant of the option, and the
Company is not entitled to a tax deduction. The employee will recognize
ordinary income upon the exercise of the option in an amount equal to the excess
of the fair market value of the option shares on the exercise date over the
option price. Such income will be treated as compensation to the employee
subject to applicable withholding requirements. The Company is generally
entitled to a tax deduction in an amount equal to the amount taxable to the
employee as ordinary income in the year the income is taxable to the employee.
Any appreciation in value after the time of exercise will be taxable to the
employee as capital gain and will not result in a deduction by the Company.
Incentive Stock Options. An employee who receives an incentive stock option
does not recognize taxable income upon the grant or exercise of the option, and
the Company is not entitled to a tax deduction. The difference between the
option price and the fair market value of the option shares on the date of
exercise, however, will be treated as a tax preference item for purposes of
determining the alternative minimum tax
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<PAGE>
liability, if any, of the employee in the year of exercise. The Company will not
be entitled to a deduction with respect to any item of tax preference.
An employee will recognize gain or loss upon the disposition of shares
acquired from the exercise of incentive stock options. The nature of the gain or
loss depends on how long the option shares were held. If the option shares are
not disposed of pursuant to a "disqualifying disposition" (i.e., no disposition
occurs within two years from the date the option was granted nor one year from
the date of exercise), the employee will recognize long-term capital gain or
capital loss depending on the selling price of the shares. If option shares are
sold or disposed of as part of a disqualifying disposition, the employee must
recognize ordinary income in an amount equal to the lesser of the amount of gain
recognized on the sale, or the difference between the fair market value of the
option shares on the date of exercise and the option price. Any additional gain
will be taxable to the employee as a long-term or short-term capital gain,
depending on how long the option shares were held. The Company is generally
entitled to a deduction in computing its federal income taxes for the year of
disposition in an amount equal to any amount taxable to the employee as ordinary
income.
Stock Appreciation Rights. An employee who receives SARs does not recognize
taxable income at the time of the award, nor will the Company be entitled to a
deduction at that time. Instead, the employee will recognize additional
compensation taxable as ordinary income and subject to withholding, and the
Company will be entitled to a tax deduction at the time the SARs are exercised.
Other Stock-Based Awards. The income tax consequences of other stock-based
awards will depend on how such awards are structured. Generally, the Company
will be entitled to a tax deduction with respect to such awards only to the
extent that the employee recognizes ordinary income in connection with such
awards. It is anticipated that other stock-based awards will result in ordinary
income to the participant in some amount.
The closing sale price of the Company's Common Stock on January 23, 1997,
as quoted on the Nasdaq National Market System and reported in The Wall Street
Journal, was $16.50 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPANY'S
1997 STOCK OPTION PLAN.
APPOINTMENT OF AUDITORS
The appointment of Coopers & Lybrand L.L.P. as auditors for the Company
during 1997 will be submitted to the meeting in order to permit the shareholders
to express their approval or disapproval. In the event of a negative vote, a
selection of other auditors will be made by the Board. A representative of
Coopers & Lybrand L.L.P. is expected to be present at the meeting, will be given
an opportunity to make a statement if he desires and will respond to appropriate
questions. Notwithstanding approval by the shareholders, the Board of Directors
reserves the right to replace the auditors at any time upon the recommendation
of the Audit Committee of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF COOPERS &
LYBRAND L.L.P.
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<PAGE>
PRINCIPAL OWNERS OF COMMON STOCK
The following table sets forth, as of December 9, 1996, the number of shares
of Common Stock of the Company owned by any person (including any group) known
by management to beneficially own more than 5% of the Common Stock of the
Company, by each of the Named Executive Officers, and by all Directors and
executive officers of the Company as a group. Unless otherwise indicated in a
footnote, each individual or group possesses sole voting and investment power
with respect to the shares indicated as beneficially owned.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent
Individual or Beneficially of
Identity of Group Owned Class
- ------------------------- ------------------- -------
<S> <C> <C>
Daniel B. Fitzpatrick (1) 2,280,184 (2)(3) 13.5%
James K. Fitzpatrick 330,688 (2)(4) 2.0%
William R. Schonsheck 334,284 (2)(5) 2.0%
Gerald O. Fitzpatrick 217,374 (2)(6) 1.3%
Arthur J. DeAngelis 150 *
Nordahl L. Brue (7) 2,149,625 (8) 12.7%
Michael J. Dressell (9) 2,163,701 12.8%
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051** 1,970,000 (10) 11.7%
Richard S. Strong
100 Heritage Reserve
Menomonee Falls, WI 53051** 1,970,000 (11) 11.7%
Investment Advisers, Inc.
3700 First Bank Place
Minneapolis, MN 55440** 858,163 (12) 5.1%
All current Directors and executive
officers as a group (16 persons) 3,878,619 (2)(13) 22.8%
</TABLE>
- ---------------
* Less than 1%
** Information is based solely on reports filed by such shareholders under
Section 13(d) of the Securities Exchange Act of 1934.
(1) The address of this shareholder is 4220 Edison Lakes Parkway, Mishawaka,
Indiana 46545.
(2) Does not include shares subject to stock options which are not exercisable
within 60 days.
(3) Includes presently exercisable stock options to purchase 26,175 shares,
granted under the Company's 1993 Stock Option Plan.
(4) Includes presently exercisable stock options to purchase 20,200 shares,
granted under the Company's 1993 Stock Option Plan.
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<PAGE>
(5) Includes presently exercisable stock options to purchase 15,000 shares,
granted under the Company's 1993 Stock Option Plan.
(6) Includes presently exercisable stock options to purchase 19,727 shares,
granted under the Company's 1993 Stock Option Plan.
(7) The address of this shareholder is 49 Oakledge Drive, Burlington, Vermont
05401.
(8) Includes 2,586 shares held by Mr. Brue as custodian for a minor child.
(9) The address of this shareholder is 154 Harbor Road, Shelburne, Vermont
05482.
(10) The shareholder is a registered investment adviser and has sole voting
power with respect to 1,599,125 of such shares.
(11) Includes 1,970,000 shares beneficially owned by Strong Capital Management,
Inc. Mr. Strong is the Chairman of the Board and principal shareholder of
Strong Capital Management, Inc.
(12) The shareholder is a registered investment adviser and has sole voting
power and sole dispositive power with respect to 750,263 of such shares.
(13) Includes presently exercisable stock options to purchase 98,566 shares,
granted under the Company's 1993 Stock Option Plan, and 22,000 shares,
granted under the Company's Outside Directors Plan.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
The date by which shareholder proposals must be received by the Company for
inclusion in proxy materials relating to the 1998 Annual Meeting of Shareholders
is October 31, 1997.
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<PAGE>
APPENDIX A
QUALITY DINING, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Company and its shareholders by providing a means for
attracting and retaining officers and key employees of the Company and its
Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
-----------
"Affiliate" -- means any "parent corporation" or "subsidiary corporation"
of the Company as such terms are defined in Code Sections 424(e) and (f),
respectively.
"Affiliated SAR" -- means a SAR that is granted in connection with a
related Option, and which automatically will be deemed to be exercised at the
same time that the related Option is exercised. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.
"Award" -- means the grant by the Committee of Incentive Stock Options,
Non-Qualified Stock Options, SARs, Restricted Shares, Performance Shares or any
combination thereof, as provided in the Plan.
"Award Agreement" -- means the written agreement setting forth the terms
and provisions applicable to each Award granted under the Plan.
"Base Price" -- means the amount over which the appreciation in value of a
Share will be measured upon exercise of an SAR.
"Board" -- means the Board of Directors of the Company.
"Change in Control" -- means each of the events specified in the following
clauses (i) through (iii): (i) any third person, including a "group" as defined
in Section 13(d)(3) of the Exchange Act after the date of the adoption of the
Plan by the Board, first becomes the beneficial owner of shares of the Company
with respect to which 25% or more of the total number of votes for the election
of the Board of Directors of the Company may be cast, (ii) as a result of, or in
connection with, any cash tender offer, exchange offer, merger or other business
combination, sale of assets or contested election, or combination of the
foregoing, the persons who were directors of the Company shall cease to
constitute a majority of the Board of Directors of the Company or (iii) the
shareholders of the Company shall approve an agreement providing either for a
transaction in which the Company will cease to be an independent publicly owned
entity or for a sale or other disposition of all or substantially all the assets
of the Company; provided, however, that the occurrence of any of such events
shall not be deemed a Change in Control if, prior to such occurrence, a
resolution specifically approving such occurrence shall have been adopted by at
least a majority of the Board of Directors of the Company.
"Code" -- means the Internal Revenue Code of 1986, as amended.
"Committee" -- means the Committee appointed by the Board pursuant to
Section 3 of the Plan.
<PAGE>
"Company" -- means Quality Dining, Inc., an Indiana corporation.
"Continuous Service" -- means the absence of any interruption or
termination of service as an Employee of the Company or an Affiliate. Service
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Company or in the case of any
transfer between the Company and an Affiliate or any successor to the Company.
"Director" -- means any individual who is a member of the Board.
"Disability" -- means total and permanent disability as determined by the
Committee pursuant to Code Section 22(e)(3).
"Employee" -- means any person, including an officer or Director, who is
employed by the Company or any Affiliate.
"Exchange Act" -- means the Securities Exchange Act of 1934, as amended.
"Exercise Price" -- means the price per Share at which the Shares subject
to an Option may be purchased upon exercise of the Option.
"Freestanding SAR" -- means a SAR that is granted independently of any
Option.
"Incentive Stock Option" -- means an option to purchase Shares granted by
the Committee pursuant to the terms of the Plan which is intended to qualify
under Code Section 422.
"Market Value" -- means the last reported sale price on the date in
question (or, if there is no reported sale on such date, on the last preceding
date on which any reported sale occurred) of one Share on the principal exchange
on which the Shares are listed for trading, or if the Shares are not listed for
trading on any exchange, on the Nasdaq National Market or any similar system
then in use, or, if the Shares are not listed on the Nasdaq National Market, the
mean between the closing high bid and low asked quotations of one Share on the
date in question as reported by Nasdaq or any similar system then in use, or, if
no such quotations are available, the fair market value on such date of one
Share as the Committee shall determine.
"Non-Qualified Stock Option" -- means an option to purchase Shares granted
by the Committee pursuant to the terms of the Plan, which option is not intended
to qualify under Code Section 422.
"Option" -- means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" -- means any Employee of the Company or any Affiliate who is
selected by the Committee to receive an Award.
"Performance Cycle" -- means the period of time, designated by the
Committee, over which Performance Shares may be earned.
"Performance Shares" -- means Shares awarded pursuant to Section 12 of the
Plan.
"Plan" -- means the Quality Dining, Inc. 1997 Stock Option and Incentive
Plan.
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<PAGE>
"Reorganization" -- means the liquidation or dissolution of the Company or
any merger, consolidation or combination of the Company (other than a merger,
consolidation or combination in which the Company is the continuing entity and
which does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property or any combination
thereof).
"Restricted Period" -- means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 10
of the Plan with respect to Restricted Shares.
"Restricted Shares" -- means Shares which have been contingently awarded to
a Participant by the Committee subject to the restrictions referred to in
Section 10 of the Plan, so long as such restrictions are in effect.
"Retirement" -- means a Participant's cessation of Continuous Service on or
after age 65 or such other age as is set forth in the Company's retirement
policy as in effect from time to time.
"Stock Appreciation Right" or "SAR" -- means an Award, granted alone or in
connection with a related Option, pursuant to Section 11 of the Plan.
"Securities Act" -- means the Securities Act of 1933, as amended.
"Shares" -- means the shares of common stock, no par value, of the Company.
"Tandem SAR" -- means a SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to purchase
an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).
3. Administration. The Plan shall be administered by the Committee, which
shall consist of two or more members of the Board, each of whom shall be a "non-
employee director" as provided under Rule 16b-3 of the Exchange Act, and an
"outside director" as provided under Code Section 162(m). The members of the
Committee shall be appointed by the Board. Except as limited by the express
provisions of the Plan, the Committee shall have sole and complete authority and
discretion to (a) select Participants and grant Awards; (b) determine the number
of Shares to be subject to types of Awards generally, as well as to individual
Awards granted under the Plan; (c) determine the terms and conditions upon which
Awards shall be granted under the Plan; (d) prescribe the form and terms of
Award Agreements; (e) establish procedures and regulations for the
administration of the Plan; (f) interpret the Plan; and (g) make all
determinations deemed necessary or advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by all members of the Committee without a meeting,
shall be acts of the Committee. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive, and
binding on all persons, and shall be given the maximum deference permitted by
law.
4. Participants. The Committee may select from time to time Participants
in the Plan from those officers and key Employees of the Company or its
Affiliates who, in the opinion of the Committee, have the capacity for
contributing in a substantial measure to the successful performance of the
Company or its Affiliates.
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<PAGE>
5. Shares Subject to Plan, Limitations on Grants and Exercise Price.
Subject to adjustment by the operation of Section 13 hereof:
(a) The maximum number of Shares which may be issued with respect to Awards
made under the Plan is 1,100,000 Shares. The Shares with respect to which
Awards may be made under the Plan may either be authorized and unissued
shares or unissued shares heretofore or hereafter reacquired and held as
treasury shares. Any Award which expires, terminates or is surrendered for
cancellation or with respect to Restricted Shares which is forfeited (so long
as any cash dividends paid on such Shares are also forfeited), may be subject
to new Awards under the Plan with respect to the number of Shares as to which
a termination or forfeiture has occurred.
(b) The number of Shares which may be granted under the Plan to any
Participant during any calendar year of the Plan under all forms of Awards
shall not exceed 150,000 Shares.
6. General Terms and Conditions of Options. The Committee shall have full
and complete authority and discretion, except as expressly limited by the Plan,
to grant Options and to prescribe the terms and conditions (which need not be
identical among Participants) of the Options. Each Option shall be evidenced by
an Award Agreement that shall specify: (a) the Exercise Price, (b) the number of
Shares subject to the Option, (c) the expiration date of the Option, (d) the
manner, time and rate (cumulative or otherwise) of exercise of the Option, (e)
the restrictions, if any, to be placed upon the Option or upon Shares which may
be issued upon exercise of the Option, (f) the conditions, if any, under which a
Participant may transfer or assign Options, and (g) any other terms and
conditions as the Committee, in its sole discretion, shall determine. The
Committee may, as a condition of granting any Option, require that a Participant
agree to surrender for cancellation one or more Options previously granted to
such Participant.
7. Exercise of Options.
-------------------
(a) Except as provided in Section 16, an Option granted under the Plan
shall be exercisable during the lifetime of the Participant to whom such Option
was granted only by such Participant, and except as provided in Section 8 of the
Plan, no Option may be exercised unless at the time the Participant exercises
the Option, the Participant has maintained Continuous Service since the date of
the grant of the Option.
(b) To exercise an Option under the Plan, the Participant must give written
notice to the Company specifying the number of Shares with respect to which the
Participant elects to exercise the Option together with full payment of the
Exercise Price. The date of exercise shall be the date on which the notice is
received by the Company. Payment may be made either (i) in cash (including
check, bank draft or money order), (ii) by tendering Shares already owned by the
Participant and having a Market Value on the date of exercise equal to the
Exercise Price, (iii) by requesting that the Company withhold Shares issuable
upon exercise of the Option having a Market Value equal to the Exercise Price,
or (iv) by any other means determined by the Committee in its sole discretion.
8. Termination of Options. Unless otherwise specifically provided by the
Committee in the Award Agreement or an amendment thereto, Options shall
terminate as provided in this Section.
(a) Unless sooner terminated under the provisions of this Section, Options
shall expire on the earlier of the date specified in the Award Agreement or
the expiration of ten (10) years from the date of grant.
A-4
<PAGE>
(b) If the Continuous Service of a Participant is terminated for cause, or
voluntarily by the Participant for any reason other than death, Disability or
Retirement, all rights under any Options granted to the Participant shall
terminate immediately upon the Participant's cessation of Continuous Service.
(c) If the Continuous Service of a Participant is terminated by reason of
Retirement or terminated by the Company without cause, the Participant may
exercise outstanding Options to the extent that the Participant was entitled
to exercise the Options at the date of cessation of Continuous Service, but
only within the period of three (3) months immediately succeeding the
Participant's cessation of Continuous Service, and in no event after the
applicable expiration dates of the Options.
(d) In the event of the Participant's death or Disability, the Participant
or the Participant's beneficiary, as the case may be, may exercise
outstanding Options to the extent that the Participant was entitled to
exercise the Options at the date of cessation of Continuous Service, but only
within the one-year period immediately succeeding the Participant's cessation
of Continuous Service by reason of death or Disability, and in no event after
the applicable expiration date of the Options.
9. Incentive Stock Options. Incentive Stock Options may be granted only to
Participants who are Employees. Any provisions of the Plan to the contrary
notwithstanding, (a) no Incentive Stock Option shall be granted more than ten
years from the earlier of the date the Plan is adopted by the Board of Directors
of the Company or approved by the Company's Shareholders, (b) no Incentive Stock
Option shall be exercisable more than ten years from the date the Incentive
Stock Option is granted, (c) the Exercise Price of any Incentive Stock Option
shall not be less than the Market Value per Share on the date such Incentive
Stock Option is granted, (d) any Incentive Stock Option shall not be
transferable by the Participant to whom such Incentive Stock Option is granted
other than by will or the laws of descent and distribution and shall be
exercisable during such Participant's lifetime only by such Participant, (e) no
Incentive Stock Option shall be granted which would permit a Participant to
acquire, through the exercise of Incentive Stock Options in any calendar year,
under all plans of the Company and its Affiliates, Shares having an aggregate
Market Value (determined as of the time any Incentive Stock Option is granted)
in excess of $100,000 (determined by assuming that the Participant will exercise
each Incentive Stock Option on the date that such Option first becomes
exercisable), and (f) no Incentive Stock Option may be exercised more than three
(3) months after the Participant's cessation of Continuous Service (one (1) year
in the case of Disability) for any reason other than death. Notwithstanding the
foregoing, in the case of any Participant who, at the date of grant, owns shares
possessing more than 10% of the total combined voting power of all classes of
capital stock of the Company or any Affiliate, the Exercise Price of any
Incentive Stock Option shall not be less than 110% of the Market Value per Share
on the date such Incentive Stock Option is granted and such Incentive Stock
Option shall not be exercisable more than five years from the date such
Incentive Stock Option is granted.
10. Terms and Conditions of Restricted Shares. The Committee shall have
full and complete authority, subject to the limitations of the Plan, to grant
Awards of Restricted Shares and to prescribe the terms and conditions (which
need not be identical among Participants) in respect of the Awards. Unless the
Committee otherwise specifically provides in the Award Agreement, an Award of
Restricted Shares shall be subject to the following provisions:
(a) At the time of an Award of Restricted Shares, the Committee shall
establish for each Participant a Restricted Period during which, or at the
expiration of which, the Restricted Shares shall vest. Subject to paragraph
(e) of this Section, the Participant shall have all the rights of a
A-5
<PAGE>
shareholder with respect to the Restricted Shares, including but not limited
to, the right to receive all dividends paid on the Restricted Shares and the
right to vote the Restricted Shares. The Committee shall have the authority,
in its discretion, to accelerate the time at which any or all of the
restrictions shall lapse with respect to any Restricted Shares prior to the
expiration of the Restricted Period, or to remove any or all restrictions,
whenever it may determine that such action is appropriate by reason of
changes in applicable tax or other laws or other changes in circumstances
occurring after the commencement of the Restricted Period.
(b) If a Participant ceases Continuous Service for any reason, including
death, before the Restricted Shares have vested, a Participant's rights with
respect to the unvested portion of the Restricted Shares shall terminate and
be returned to the Company.
(c) Each certificate issued in respect to Restricted Shares shall be
registered in the name of the Participant and deposited by the Participant,
together with a stock power endorsed in blank, with the Company and shall
bear the following (or a similar) legend:
"The transferability of this certificate and the shares represented
hereby are subject to the terms and conditions (including forfeiture)
contained in the 1997 Stock Option and Incentive Plan of Quality Dining,
Inc. and an Award Agreement entered into between the registered owner and
Quality Dining, Inc. Copies of the Plan and Award Agreement are on file in
the office of the Secretary of the Company."
(d) At the time of an Award of Restricted Shares, the Participant shall
enter into an Award Agreement with the Company in a form specified by the
Committee agreeing to the terms and conditions of the Award.
(e) At the time of an Award of Restricted Shares, the Committee may, in its
discretion, determine that the payment to the Participant of dividends
declared or paid on the Restricted Shares by the Company, or a specified
portion thereof, shall be deferred until the earlier to occur of (i) the
lapsing of the restrictions imposed with respect to the Restricted Shares, or
(ii) the forfeiture of such Restricted Shares under paragraph (b) of this
Section, and shall be held by the Company for the account of the Participant
until such time. In the event of deferral, there shall be credited at the end
of each year (or portion thereof) interest on the amount of the account at
the beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends, together with
accrued interest, shall be made upon the earlier to occur of the events
specified in (i) and (ii) of this paragraph.
(f) At the expiration of the restrictions imposed by this Section, the
Company shall redeliver to the Participant the certificate(s) and stock power
deposited with the Company pursuant to paragraph (c) of this Section and the
Shares represented by the certificate(s) shall be free of all restrictions.
(g) No Award of Restricted Shares may be assigned, transferred or
encumbered.
11. Grant of SARs. Subject to the terms and conditions of the Plan, a SAR
Award may be made to Participants at any time and from time to time as shall be
determined by the Committee, in its sole
A-6
<PAGE>
discretion. The Committee may grant Affiliated SARs, Freestanding SARs, Tandem
SARs, or any combination thereof as follows:
(a) The Committee, subject to the limitations of the Plan, shall have
complete discretion to determine the Exercise Price and other terms and
conditions of SARs granted under the Plan. Each SAR Award shall be evidenced
by an Award Agreement specifying the terms and conditions of the Award,
including its term, the Base Price and the conditions of exercise.
(b) The Base Price of Shares with respect to a Tandem or Affiliated SAR
Award shall equal the Exercise Price of the Shares under the related Option.
(c) Tandem SARs may be exercised for all or part of the Shares subject to
the related Option upon the surrender of the right to exercise the equivalent
portion of the related Option. A Tandem SAR may be exercised only with
respect to the Shares for which its related Option is then exercisable. With
respect to a Tandem SAR granted in connection with an Incentive Stock Option:
(i) the Tandem SAR shall expire no later than the expiration of the
underlying Incentive Stock Option; (ii) the value of the payout with respect
to the Tandem SAR shall be for no more than one hundred percent (100%) of the
difference between the Exercise Price of the underlying Incentive Stock
Option and the Market Value of the Shares subject to the underlying Incentive
Stock Option at the time the Tandem SAR is exercised; and (iii) the Tandem
SAR shall be exercisable only when the Market Value of the Shares subject to
the Incentive Stock Option exceeds the Exercise Price of the Incentive Stock
Option.
(d) Upon exercise of a SAR, a Participant shall be entitled to receive
payment from the Company in an amount determined by multiplying:
(i) The difference between the Market Value of a Share on the date of
exercise over the Base Price; times
(ii) The number of Shares with respect to which the SAR Award is
exercised.
At the discretion of the Committee, payment for a SAR may be in cash,
Shares or a combination thereof.
12. Performance Shares. The Committee, in its sole discretion, may
from time to time authorize the grant of Performance Shares upon the achievement
of performance goals (which may be cumulative and/or alternative) as may be
established, in writing, by the Committee based on any one or any combination of
the following criteria: (a) earnings per Share; (b) return on equity; (c) return
on assets; (d) operating income; (e) earnings before interest, taxes,
depreciation and amortization; and (f) number of restaurants operated or
franchised. At the time as it is certified, in writing, by the Committee that
the performance goals established by the Committee have been attained or
otherwise satisfied within the Performance Cycle, the Committee shall authorize
the payment of cash in lieu of Performance Shares or the issuance of Performance
Shares registered in the name of the Participant, or a combination of cash and
Shares. The grant of an Award of Performance Shares shall be evidenced by an
Award Agreement containing the terms and conditions of the Award as determined
by the Committee.
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<PAGE>
If the Participant ceases Continuous Service before the end of a
Performance Cycle for any reason other than Retirement, Disability, or death,
the Participant shall forfeit all rights with respect to any Performance Shares
that were being earned during the Performance Cycle. The Committee, in its sole
discretion, may establish guidelines providing that if a Participant ceases
Continuous Service before the end of a Performance Cycle by reason of
Retirement, Disability, or death, the Participant shall be entitled to a
prorated payment with respect to any Performance Shares that were being earned
during the Performance Cycle.
13. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of stock, merger, consolidation or any change in the
corporate structure or Shares of the Company, the maximum aggregate number and
class of shares as to which Awards may be granted under the Plan and the number
and class of shares with respect to which Awards theretofore have been granted
under the Plan shall be appropriately adjusted by the Committee to prevent the
dilution or diminution of Awards. The Committee's determination with respect to
any adjustments shall be conclusive. Any shares or other securities received, as
a result of any of the foregoing, by a Participant with respect to Restricted
Shares shall be subject to the same restrictions and the certificate(s) or other
instruments representing or evidencing the shares or other securities shall be
legended and deposited with the Company in the manner provided in Section 10 of
this Agreement.
14. Effect of Reorganization. Unless otherwise provided by the Committee
in the Award Agreement, Awards will be affected by a Reorganization as follows:
(a) If the Reorganization is a dissolution or liquidation of the Company
then (i) the restrictions on Restricted Shares shall lapse and (ii) each
outstanding Option or SAR Award shall terminate, but each Participant to whom
the Option or SAR was granted shall have the right, immediately prior to the
dissolution or liquidation to exercise the Option or SAR in full,
notwithstanding the provisions of Section 9, and the Company shall notify
each Participant of such right within a reasonable period of time prior to
any dissolution or liquidation.
(b) If the Reorganization is a merger or consolidation, other than a Change
in Control subject to Section 15 of this Plan, upon the effective date of the
Reorganization (i) each Participant shall be entitled, upon exercise of an
Option in accordance with all of the terms and conditions of the Plan, to
receive in lieu of Shares, shares or other securities or consideration as the
holders of Shares shall be entitled to receive pursuant to the terms of the
Reorganization; and (ii) each holder of Restricted Shares shall receive
shares or other securities as the holders of Shares received which shall be
subject to the restrictions set forth in Section 10 unless the Committee
accelerates the lapse of such restrictions and the certificate(s) or other
instruments representing or evidencing the shares or other securities shall
be legended and deposited with the Company in the manner provided in Section
10 of this Plan.
The adjustments contained in this Section and the manner of application of
such provisions shall be determined solely by the Committee.
15. Effect of Change in Control. If the Continuous Service of any
Participant of the Company or any Affiliate is involuntarily terminated, for
whatever reason, at any time within twelve months after a Change in Control,
unless the Committee shall have otherwise provided in the Award Agreement, (a)
any
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Restricted Period with respect to an Award of Restricted Shares shall lapse upon
the Participant's termination of Continuous Service and all Restricted Shares
shall become fully vested in the Participant to whom the award was made; and (b)
with respect to Performance Shares, the Participant shall be entitled to receive
a prorata payment of Shares to the same extent as if the Participant ceases
Continuous Service by reason of Retirement under Section 12 of the Plan. If a
tender offer or exchange offer for Shares (other than such an offer by the
Company) is commenced, or if the event specified in clause (iii) of the
definition of a Change in Control contained in Section 2 shall occur, unless the
Committee shall have otherwise provided in the Award Agreement, all Option and
SAR Awards theretofore granted and not fully exercisable shall become
exercisable in full upon the happening of such event and shall remain
exercisable in accordance with their terms; provided, however, that no Option or
SAR shall be exercisable by a director or officer of the Company within six
months of the date of grant of the Option or SAR and no Option or SAR which has
previously been exercised or otherwise terminated shall become exercisable.
16. Assignments and Transfers. Except as otherwise expressly authorized by
the Committee in the Award Agreement or an amendment thereto, during the
lifetime of a Participant no Award nor any right or interest of a Participant in
any Award under the Plan may be assigned, encumbered or transferred otherwise
than by will or the laws of descent and distribution.
17. Employee Rights Under the Plan. No officer, Employee or other person
shall have a right to be selected as a Participant nor, having been so selected,
to be selected again as a Participant and no officer, Employee or other person
shall have any claim or right to be granted an Award under the Plan or under any
other incentive or similar plan of the Company or any Affiliate. Neither the
Plan nor any action taken under the Plan shall be construed as giving any
Employee any right to be retained in the employ of the Company or any Affiliate.
18. Delivery and Registration of Shares. The Company's obligation to
deliver Shares with respect to an Award shall, if the Committee requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act or any other applicable federal or state
securities laws. It may be provided that any representation requirement shall
become inoperative upon a registration of the Shares or other action eliminating
the necessity of the representation under the Securities Act or other state
securities laws. The Company shall not be required to deliver any Shares under
the Plan prior to (i) the admission of such Shares to listing on any stock
exchange or system on which Shares may then be listed, and (ii) the completion
of any registration or other qualification of the Shares under any state or
federal law, rule or regulation, as the Company shall determine to be necessary
or advisable.
19. Withholding Tax. Prior to the delivery of any Shares or cash pursuant
to an Award, the Company shall have the right and power to deduct or withhold,
or require the Participant to remit to the Company, an amount sufficient to
satisfy all applicable tax withholding requirements. The Committee, in its sole
discretion and pursuant to such procedures as it may specify from time to time,
may permit or require a Participant to satisfy all or part of the tax
withholding obligations in connection with an Award by (a) having the Company
withhold otherwise deliverable Shares, or (b) delivering to the Company Shares
already owned having a Market Value equal to the amount required to be withheld.
The amount of the withholding requirement shall be deemed to include any amount
which the Committee determines, not to exceed the amount determined by using the
maximum federal, state or local marginal income tax rates applicable to the
Participant with respect to the Award on the date that the amount of tax to be
withheld is
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to be determined for these purposes. For these purposes, the value of the Shares
to be withheld or delivered shall be equal to the Market Value as of the date
that the taxes are required to be withheld.
20. Termination, Amendment and Modification of Plan. The Board may at any
time terminate, and may at any time and from time to time and in any respect
amend or modify, the Plan; provided however, that to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act or Code Section 422
(or any other applicable law or regulation, including requirements of any stock
exchange or quotation system on which the Company's common stock is listed or
quoted) shareholder approval of any Plan amendment shall be obtained in the
manner and to the degree as is required by the applicable law or regulation; and
provided further, that no termination, amendment or modification of the Plan
shall in any manner affect any Award theretofore granted pursuant to the Plan
without the consent of the Participant to whom the Award was granted or
transferee of the Award.
21. Effective Date and Term of Plan. The Plan shall become effective upon
its adoption by the Board of Directors, subject to ratification by the
shareholders of the Company at the next annual meeting, and shall continue in
effect for a term of ten years from the date of adoption by the Board of
Directors unless sooner terminated under Section 20 of the Plan.
22. Governing Law. The Plan and Award Agreements shall be construed in
accordance with and governed by the laws of the State of Indiana.
ADOPTED BY THE BOARD OF DIRECTORS OF
QUALITY DINING, INC.
AS OF FEBRUARY 14, 1997
ADOPTED BY THE SHAREHOLDERS OF
QUALITY DINING, INC.
AS OF _________________, 1997
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APPENDIX B
QUALITY DINING, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I hereby appoint Daniel B. Fitzpatrick and John C. Firth, or either of them, my
proxies, with power of substitution, to vote all shares of common stock of the
Company which I am entitled to vote at the Annual Meeting of shareholders of the
Company, to be held at the Century Center, 120 South St. Joseph Street, South
Bend, Indiana, on Wednesday, March 26, 1997, at 10:00 a.m., South Bend time, and
at any adjournment, as follows:
Election of Directors, Nominees:
(change of address)
Arthur J. Decio, Stephen A. Finn, Daniel B.
Fitzpatrick ------------------------------
------------------------------
------------------------------
------------------------------
(If you have written in the
above space, please mark the
corresponding box on the
reverse side of this card.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION AS DIRECTORS OF ALL NOMINEES LISTED UNDER PROPOSAL 1 AND FOR
PROPOSALS 2 AND 3.
SEE REVERSE SIDE
<PAGE>
SHARES IN YOUR NAME
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
FOR WITHHELD
1. ELECTION OF DIRECTORS [ ] [ ]
(see reverse)
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
- --------------------------------------------------------
2. APPROVE APPOINTMENT OF COOPERS & FOR AGAINST ABSTAIN
LYBRAND L.L.P. AS AUDITORS FOR 1997 [ ] [ ] [ ]
3. APPROVE ADOPTION OF THE COMPANY'S
1997 STOCK OPTION AND INCENTIVE PLAN [ ] [ ] [ ]
4. IN THEIR DISCRETION, ON ANY OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE
MEETING
Signature(s) _______________________________ Date ___________________________
Signature(s) _______________________________ Date ___________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
