================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14A-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Additional Materials Commission Only (as permitted)
[ ] Soliciting Material Pursuant to by Rule 14a-6(e)(2)
Rule 14a-11(c) or Rule 14a-12
QUALITY DINING, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NBO, LLC
- --------------------------------------------------------------------------------
(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:
Not applicable
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: Not
applicable.
------------------------------------------------------------------------
(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): Not
applicable.
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: Not applicable.
------------------------------------------------------------------------
(5) Total Fee Paid: Not applicable.
------------------------------------------------------------------------
[ ] 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: Not applicable.
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Not applicable.
------------------------------------------------------------------------
(3) Filing Party: Not applicable.
------------------------------------------------------------------------
(4) Date Filed: Not applicable.
------------------------------------------------------------------------
#865784
<PAGE>
REVISED PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED JANUARY 28, 2000
-------------------------------
PROXY STATEMENT OF
NBO, LLC
-------------------------------
IN CONNECTION WITH THE
2000 ANNUAL MEETING OF SHAREHOLDERS
OF QUALITY DINING, INC.
To the Shareholders of Quality Dining, Inc.:
This Proxy Statement is being furnished to holders of common stock, without par
value ("Common Stock"), of Quality Dining, Inc. (the "Company" or "Quality
Dining") in connection with a solicitation by NBO, LLC ("NBO," "we" or "us") and
the other participants described below under "Certain Information Concerning NBO
and the Other Participants in the Solicitation." NBO, as the owner of 9.6% of
the Company's outstanding Common Stock, is the Company's largest nonmanagement
shareholder and the second largest shareholder overall. This Proxy Statement is
for use at the 2000 Annual Meeting of Shareholders of the Company and at any
adjournments thereof (the "2000 Annual Meeting"). The Company has announced that
the 2000 Annual Meeting will be held on Tuesday, March 7, 2000, at 10:00 a.m.,
local time, at the headquarters of Quality Dining, Inc., located at 4200 Edison
Lakes Parkway, Mishawaka, Indiana, and that the record date for shareholders
entitled to vote at the 2000 Annual Meeting is January 19, 2000. Only
shareholders of record at the close of business on such date will be entitled to
notice of and to vote at the 2000 Annual Meeting.
We are soliciting proxies in connection with the 2000 Annual Meeting:
o for the election of David W. Schostak and Mark S. Schostak
(together, the "NBO Nominees") as Directors of the Company,
and
o in favor of a proposal recommending that the Quality Dining
Board of Directors redeem the rights distributed under the
Company's "Poison Pill" Rights Agreement dated as of March 27,
1997 ("Poison Pill"), terminate such Rights Agreement and not
adopt any new rights agreement unless approved by the
affirmative vote of the holders of a majority of the
outstanding shares of Common Stock (the "Poison Pill
Termination Proposal").
NY2:\854942\11\$B_#11!.DOC\72816.0003
<PAGE>
The proposed election of the NBO Nominees and the Poison Pill Termination
Proposal are referred to herein collectively as the "Proposals."
YOU WILL SOON RECEIVE A PROXY CARD FROM MANAGEMENT. PLEASE RETURN
ONLY NBO'S GOLD PROXY CARD AND DO NOT RETURN ANY MANAGEMENT PROXY CARD UNDER ANY
CIRCUMSTANCES, EVEN TO VOTE "AGAINST." IF YOU RETURN BOTH PROXY CARDS THERE IS A
DANGER THAT YOUR SHARES WILL NOT BE VOTED AS YOU DESIRE, BECAUSE ONLY THE LATEST
DATED PROXY CARD YOU SUBMIT COUNTS.
IF YOUR SHARES ARE HELD BY A BROKER, BANK OR ANOTHER NOMINEE, ONLY
THAT NOMINEE CAN VOTE YOUR SHARES. PLEASE CONTACT YOUR BROKER OR OTHER NOMINEE
AND INSTRUCT IT TO RETURN ONLY NBO'S GOLD PROXY CARD.
We are making the Proposals to you because we believe that the
Company's current business strategy is not the best course of action for you --
the owners of the Company. The continued operation of the Company's assets as a
public company is not now producing, and we have no reason to believe that it is
capable of producing in the foreseeable future, a satisfactory return for the
Company's shareholders in comparison to either major market indicators or even
the "peer group" index chosen by the Company for presentation in its proxy
statement. In addition, we are dismayed at the Company's recent entry into
agreements with corporate insiders effectively repricing "underwater" options
(purchasing from such insider options with exercise prices in excess of the
current market price of the Company's shares and issuing to them new options
exercisable at the lower, current market price), granting them the right to
substantial cash payments at the conclusion of fiscal year 2000 as well as the
vesting of recently-granted restricted stock and granting rights to receive
additional substantial cash payments upon various "change in control" events,
including, among others, a sale or other disposition of the Company (which, as
discussed below, we have repeatedly suggested). We are suggesting that
shareholders be given the opportunity to receive a premium for their Common
Stock through a sale of the Company.
WE BELIEVE THAT A VOTE IN FAVOR OF THE PROPOSALS
IS A STEP TOWARD A SALE OF THE COMPANY THAT
WILL ALLOW SHAREHOLDERS TO EARN A
CASH PREMIUM ON THE COMMON
STOCK THEY CURRENTLY HOLD.
We believe that the current market price of the Common Stock does not
reflect the underlying value of the Company's assets. The Company's principal
assets are its Burger Kings(R), Chili's(R), Gradys's(R), and Italian dining
restaurants and its rental properties. In our view, if these assets were
separately valued, the sum of their values (less the Company's debt) would
exceed the Company's market capitalization (i.e., that the sum of the parts
would have substantially greater value than the whole). We cannot demonstrate
this belief to be a fact - that would take an auction of the Company and/or its
assets - and that is what we hope to achieve. The principals of NBO have
extensive real estate experience and, through an affiliate, operate 63 Burger
King(R) restaurants. Our experience and the sales data made publicly available
by the Company with respect to its separate restaurant concepts lead us to
2
<PAGE>
believe that, if efficiently run, these restaurants should have substantial
value. Because the Company does not report earnings by restaurant concept, we
cannot at this time make a meaningful estimate of their separate values. Our
belief that such combined value (less the Company's debt) substantially exceeds
the Company's market capitalization, however, has led us to acquire 9.6% of the
Company's shares, and we think such value can best be unlocked through a sale of
the Company.
In addition, we believe that the Company's low stock price impairs
its ability to raise capital through the sale of equity or use its equity as a
currency for strategic acquisitions without unacceptable dilution of
shareholders. We believe that the Company's ability to make strategic
acquisitions is vital to increase efficiencies, margins and cash flows that will
offset some of the limitations faced by the Company in its operations as a
franchisee (including the fact that franchisors can impose limitations on
expansion and marketing as well as other controls). Accordingly, we believe that
an acquisition of the Company by a party with the resources to grow the business
and make capital investments is needed to fully realize the value of the
Company's assets.
Our objective in sponsoring the Proposals is to influence the Company
to deliver this now-unrealized value to shareholders by auctioning itself to the
highest bidder through a sale, merger or other disposition, rather than
remaining an independent public company. NBO (or one of its affiliates) would
expect to be a bidder in any sales process. Although conflicts of interest could
arise if the NBO Nominees are elected to the Company's Board of Directors (the
"Quality Dining Board"), the NBO Nominees, in their capacity as Directors,
intend to act fully in accordance with their fiduciary duties and would not
oppose (and would favor) an active auction process that includes appropriate
procedural safeguards to ensure that NBO would not receive any preferential
treatment. The NBO Nominees believe that the Company's existing operations
cannot produce satisfactory results for its shareholders, and that, despite what
the Company has told you recently, there are no meaningful prospects for
improvement.
Because the NBO Nominees, if elected, will not constitute a majority
of the Quality Dining Board, they cannot assure you that they will succeed in
causing an auction of the Company. However, if elected, they would argue to the
Board that they have the shareholders' mandate to cause a Company sale. If the
Board rejects a sale, at the next annual meeting of shareholders we would seek
to elect additional nominees that, together with the NBO Nominees, would
constitute a majority of the Quality Dining Board. Similarly, your vote in favor
of the Poison Pill Termination Proposal should send a message to the Board that
shareholders want impediments to a sale removed.
3
<PAGE>
NBO RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE NBO NOMINEES AND
THE POISON PILL TERMINATION PROPOSAL.
If elected to the Quality Dining Board, the NBO Nominees will
attempt, subject to their fiduciary duties to the Company, to influence the
majority of the Quality Dining Board to:
o remove unwarranted barriers to a sale of the Company, such as
the Poison Pill; and
o auction the Company to the highest bidder through a sale,
merger or other disposition of the Company or its assets.
We believe that your Board of Directors should be committed to
creating the greatest possible return on your investment. It is our objective
that the Quality Dining Board consider any bid made by NBO (or one of its
affiliates) or any unrelated third party to acquire the Company or its assets
that provides a significant premium over the current market prices of the Common
Stock and accept any such bid that creates the greatest value for shareholders.
WHY SHOULD YOU VOTE FOR OUR PROPOSALS?
WE SEE NO VIABLE ALTERNATIVE.
Messrs. David and Robert Schostak, the NBO Nominees, and NBO's other
principals have many years of ownership and operating experience in the
restaurant industry, including currently operating, as a franchisee, 63 Burger
King restaurants. We believe that we understand the Company's business. As a
result of this experience and, for the other reasons described herein, we
believe that a sale of the Company to the highest bidder would afford you the
only practical opportunity to obtain a significant premium over the current
market price. A sale of the Company represents an attractive alternative to
awaiting a reversal of the Company's long history of dismal earnings and stock
market performance or, perhaps, further declines. We have no reason to believe
that there is any significant likelihood of substantial market appreciation for
your Common Stock in the foreseeable future. We reach this conclusion in light
of management's lackluster performance to date, the absence of any announced
change in strategy and what we believe to be the inability of the Company to
implement new strategies in the future because of its weak balance sheet (as
shown in the Company's Annual Report on Form 10-K, for the fiscal year ended
October 31, 1999, its capital is comprised of nearly three-quarters debt) and
feeble stock price.
We believe that the skill with which the Company's assets are
operated is reflected by the Company's performance. The Company's quarterly and
annual results for fiscal 1999 show that management was unable to earn a profit,
either before or after tax expense; that total revenues, operating income,
income before taxes and net income all declined from 1998 results and that
operating expenses increased. The Company expressed no comment on these results
other than to indicate that the CEO was pleased with cash flow (which was not
4
<PAGE>
among the data released). We think that these results indicate the lack of skill
with which the Company's assets are managed, and that the comments of the
Company's chief executive suggest misplaced satisfaction and a disturbing
insensitivity to the continuing losses of shareholders. We are not satisfied and
we do not think that management of this Company has demonstrated anything about
which to be satisfied. To the contrary, we are disturbed by the Company's
performance, what we believe to be the gloomy future of our Company and the
complacency and lack of vision shown by its management. We believe that this
further demonstrates the need for a change in our Company's structure and
operations.
YOUR VOTE IS IMPORTANT!
TO VOTE FOR OUR PROPOSALS PLEASE NOTE THE FOLLOWING:
ONLY YOUR LATEST DATED PROXY CARD WILL COUNT AT THE 2000 ANNUAL MEETING.
THEREFORE, PLEASE DO NOT COMPLETE OR RETURN ANY PROXY CARD SENT TO YOU BY
THE COMPANY'S MANAGEMENT OR BOARD OF DIRECTORS.
ONLY SUBMIT THE GOLD PROXY CARD.
You are urged to sign and date the enclosed GOLD PROXY CARD and
return it in the enclosed envelope whether or not you attend the meeting.
You can revoke your proxy (whether such proxy was solicited by NBO or
the Company) at any time prior to its use at the 2000 Annual Meeting by
submitting to NBO or the Company a written revocation or duly executed proxy
bearing a later date. In addition, if you attend the 2000 Annual Meeting in
person, you can vote by ballot, thereby canceling any proxy previously given.
Proxies may be delivered to NBO, by hand or by mail, at:
NBO, LLC
c/o MacKenzie Partners
156 Fifth Avenue, PH 3
New York, New York 10010
THIS SOLICITATION IS BEING MADE BY NBO IN OPPOSITION TO THE INCUMBENT
QUALITY DINING BOARD AND MANAGEMENT OF THE COMPANY.
This Proxy Statement is first being sent or given to one or more
shareholders on or about January [ ], 2000. The Company reported in its annual
report on Form 10-K for the fiscal year ended October 31, 1999, that there were
12,474,009 shares of Common Stock outstanding on January 14, 2000. Unless
otherwise indicated, any reference in this Proxy Statement to the percentage of
outstanding shares of Common Stock owned by any person, and all such references
with respect to shares of Common Stock owned by NBO and its members, were
computed based upon this number of outstanding shares. Each share of Common
Stock is entitled to one vote.
5
<PAGE>
NBO's Proxy Statement and a form of proxy will be delivered to
holders of at least the percentage of the Company's Common Stock required under
applicable law to carry the Proposals. See "Vote Required."
The Quality Dining Board currently consists of seven Directors. At
the 2000 Annual Meeting, two Directors will be elected for three-year terms or
until the election and qualification of each of their successors. A vacancy was
created in 1999 when William R. Schonsheck, then chief operating officer of the
Company's Burger King division, chose not to stand for reelection at the 1999
Annual Meeting. We had previously indicated our intent to nominate, and seek
your vote in favor of, a third director to fill this vacancy at the 2000 Annual
Meeting, as the By-laws then permitted. HOWEVER, ON JANUARY 24, JUST WEEKS
BEFORE YOU WOULD HAVE HAD THE OPPORTUNITY TO VOTE ON IT, THE QUALITY DINING
BOARD FILLED THIS VACANCY, WITHOUT SUBJECTING ITS NOMINATION TO YOUR VOTE, BY
APPOINTING BRUCE JACOBSON AS A DIRECTOR WITH A TERM EXPIRING IN 2002. ON THAT
DATE, THE BOARD ALSO AMENDED THE COMPANY'S BY-LAWS TO ELIMINATE THE PROVISION
PURSUANT TO WHICH WE URGED THAT YOU - THE SHAREHOLDERS - FILL THIS VACANCY.
Although pursuant to the now-previous By-law, you shared this right with the
Board, in its proxy statement for the 1999 Annual Meeting, the Board indicated
that it then had no intention of using its power to elect additional directors.
The Board evidently acted on changed intentions after we urged that you exercise
your rights as shareholders.
Like Mr. Schonsheck in 1999, Arthur Decio, an outside director of the
Company since 1994, whose term expires at the 2000 Annual Meeting, has elected
not to stand for reelection. The Quality Dining Board has announced that it will
nominate Daniel Fitzpatrick, the Company's chief executive officer and a current
Director whose term expires at the 2000 Annual Meeting and Philip J. Faccenda,
who is not an officer or director of the Company, for election as Directors.
WE ARE SOLICITING PROXIES PURSUANT TO THIS PROXY STATEMENT TO ELECT
TO THE QUALITY DINING BOARD: (I) DAVID W. SCHOSTAK AND (II) MARK S. SCHOSTAK TO
SERVE THREE-YEAR TERMS, REPLACING ARTHUR J. DECIO AND DANIEL B. FITZPATRICK.
As indicated under "Background and Reasons for the Solicitation"
below, the Company's incumbent Directors have rejected our proposals to consider
a sale of the Company.
We have not solicited any offers from any potential acquirers of the
Company. We have not been given access to any non-public materials of the
Company and have not conducted any other appraisal of the assets of the Company
in order to determine a fair price for such a sale. Although, as indicated
above, we believe the value of the Company's assets (less indebtedness) exceeds
the Company's stock market valuation, we have not made or undertaken any formal
analyses or reports as to whether shareholder value will be maximized as a
result of this solicitation or obtained reports from consultants or other
outside parties as to whether the Proposals would have an effect on shareholder
value. No assurance can be given that the NBO Nominees would be able to
implement their plan if elected to the Quality Dining Board. The NBO Nominees
could, in the future, based upon an evaluation of the Company's operations and
6
<PAGE>
future plans, decide to pursue another course of action. IF YOU HAVE ANY
QUESTIONS ABOUT EXECUTING YOUR PROXY OR REQUIRE ASSISTANCE, PLEASE CONTACT:
MACKENZIE PARTNERS
156 FIFTH AVENUE, PH 3
NEW YORK, NEW YORK 10010
CALL: (800) 322-2885
OR (212) 929-5500
- --------------------------------------------------------------------------------
IMPORTANT
At the 2000 Annual Meeting, NBO seeks to elect two nominees as Directors of the
Company.
A VOTE FOR OUR NOMINEES WILL PROVIDE YOU -- THE OWNERS OF THE COMPANY -- WITH AT
LEAST TWO REPRESENTATIVES ON THE QUALITY DINING BOARD WHO ARE COMMITTED TO
INCREASING SHAREHOLDER VALUE THROUGH A SALE, MERGER OR OTHER DISPOSITION OF THE
COMPANY OR ITS ASSETS TO THE HIGHEST BIDDER PURSUANT TO AN AUCTION.
- --------------------------------------------------------------------------------
OUR REASONS FOR THE SOLICITATION
ECONOMIC VALUE NOT REFLECTED IN MARKET PRICE.
Quality Dining concluded its initial public offering on March 8,
1994. Trading in the Common Stock closed on that date at a price of $12.25 per
share and the Company completed subsequent offerings at $18 and $25 per share.
The price of the Common Stock closed at an all-time high of $38.75 per share on
May 23, 1996. The Company's market capitalization has lost more than 92% of its
1996 high, plunging from approximately $343 million on May 23, 1996, to
approximately $27 million on January 26, 2000. In light of our belief that the
value of the Company's assets (less indebtedness) exceeds the Company's stock
market valuation and what we believe to be the remote likelihood of significant
appreciation of the Common Stock in the public market, we believe that a sale of
the Company would be the best way for shareholders to realize the maximum value
on their investments. We believe that a sale of the Company to the highest
bidder would afford you the most attractive opportunity to obtain a significant
premium to the current market prices for your Common Stock.
DISMAL STOCK PRICE.
We believe that this Company's stock price has spiraled downward for
far too long. We believe a random choice of investments would have done better,
while simple index fund investments have significantly outperformed the
"managed" capital of this Company. BASED ON THE COMPANY'S OWN CALCULATION OF
CUMULATIVE TOTAL SHAREHOLDER RETURN PRESENTED IN THE COMPANY'S 2000 PROXY
STATEMENT, $100 HYPOTHETICAL INVESTMENTS MADE ON OCTOBER 28, 1994 IN THE NASDAQ
MARKET INDEX AND IN AN INDEX OF "EATING AND DRINKING PLACES" CHOSEN BY THE
COMPANY WOULD HAVE GROWN TO $340.72 AND $190.25, RESPECTIVELY, BY OCTOBER 29,
1999. IN CONTRAST, A $100 INVESTMENT IN THE COMPANY MADE ON THE SAME DATE WOULD
7
<PAGE>
HAVE DECLINED, AND WOULD BE WORTH ONLY $20.00 BY OCTOBER 29, 1999, AS REPORTED
BY THE COMPANY. THIS HYPOTHETICAL INVESTMENT IN THE COMPANY WOULD HAVE DECLINED
FURTHER, TO $16.43, BY JANUARY 26, 2000. This reflects a destruction of market
value, from the close on October 28, 1994 (assuming shares outstanding as
reported by the Company as of the date nearest each valuation), of more than $58
million by January 26, 2000. This disturbing loss in shareholder value alone
represents 215 percent of the Company's present market capitalization. Perhaps
most disturbing is that this performance occurred during a period when the
values represented by the S&P 500 INDEX, DOW JONES INDUSTRIAL AVERAGE AND NASDAQ
COMPOSITE INDEX ROSE TO 296%, 281% AND 524% of their respective levels on
October 28, 1994.
THE SOLUTION IS TO EXIT THE PUBLIC MARKETS.
We believe that the recent phenomenon of formerly public restaurant
businesses having left the public markets supports our view that the potential
for future market appreciation of the Common Stock is limited. In the last three
years, at least 16 public restaurant companies have left the public markets by
being acquired. In our view Quality Dining should do likewise.
YOU HAVE A VOTE IN THE FUTURE OF YOUR INVESTMENT.
VOTE FOR THE NBO NOMINEES AND FOR THE
POISON PILL TERMINATION PROPOSAL.
As described below in "Background of this Solicitation," the Quality
Dining Board and management have repeatedly rejected our suggestions for
increasing shareholder value and dismissed our offers and requests to meet with
the Quality Dining Board and provide the benefit of our extensive experience to
the Quality Dining Board.
By running our own slate of nominees, we believe we are giving you,
the Company's shareholders, a choice. If you are satisfied with the performance
of your Company and its stock price, no doubt you will reelect the Board's
nominees. But, if you - like us - are not satisfied and believe that the
Company's shareholders would benefit from diligent efforts to sell the Company
at a premium to its current market value through an auction process, and by
adding two Directors unaffiliated with the Company's management, we urge you to
support the NBO Nominees.
8
<PAGE>
BACKGROUND OF THIS SOLICITATION
NBO, whose members have many years of experience in the real estate
and restaurant businesses, acquired the Company's shares with the belief that
such shares were undervalued and represented a favorable investment opportunity.
While we continue to believe that the shares are undervalued, we do not believe
that operating the Company as a public company in the current market climate --
or with the current management team -- can recognize this value.
MARCH 22 MEETING WITH MANAGEMENT.
On March 22, 1999, David W. Schostak and Mark S. Schostak met with
Daniel B. Fitzpatrick, Chairman, President and Chief Executive Officer of the
Company, and John C. Firth, Executive Vice President, General Counsel and
Secretary of the Company, to discuss the Company's businesses and operations
(the "March 22 Meeting"). Messrs. David and Mark Schostak left that meeting
concerned as to whether the Company was taking all steps possible to increase
shareholder value. On March 26, 1999, we filed a Schedule 13D with respect to
our shares of Common Stock and voiced our displeasure with the results of our
meeting with Mr. Fitzpatrick and Mr. Firth as well as the poor financial
performance of the Company.
COMPANY REWARDS INSIDERS WITH VALUABLE BENEFITS.
Instead of engaging our assistance and tapping our substantial
experience in the restaurant industry as a resource to aid in enhancement of
shareholder value, we believe that management focused on protecting their own
positions, making a sale of the Company less appealing to possible suitors by
making it more expensive and directing value to management. For example, on June
1, 1999, the Company, without prior notice to shareholders:
o entered into Noncompete Agreements with four members of
management that provide for substantial lump sum payments to
those individuals in the event of a change in control of the
Company;
o repurchased stock options that were "underwater" (i.e., with
exercise prices in excess of the current market prices of the
Company's shares) from eight officers of the Company and
granted them new stock options at much, much lower exercise
prices; and
o granted 150,405 restricted shares that all vest immediately
upon a change in control, to certain executive officers of the
Company.
In addition, on August 24, 1999 the Company entered into an
employment agreement with John Firth, its Executive Vice President and General
Counsel. This agreement provides, among other things, that if Mr. Firth, at his
election, terminates his employment at any time within one year of a change in
control, he is entitled to a lump sum payment equal to: twice the sum of (a) his
then current base salary and (b) the maximum bonus he was then eligible to
9
<PAGE>
receive. At his base salary in effect on the date of this agreement, Mr. Firth
would be entitled to receive a lump sum of $720,000 if he made such an election
after a change of control.
On December 15, 1999, the Company granted 102,360 restricted shares
in addition to those granted in June 1999. These restricted shares vest (i) in
their entirety upon a change in control of the Company and, (ii) in part upon
the market value of the Common Stock achieving certain target levels. These
target levels were reduced by as much as 25% from the targets applying to the
June restricted shares.
WERE RECENT INSIDER DEALS IN THE SHAREHOLDERS' BEST INTERESTS?
Two of the Noncompete Agreements were entered into by the Company
with James K. Fitzpatrick and Gerald O. Fitzpatrick, the CEO's brothers. Based
upon their 1999 compensation, upon a change in control, James and Gerald
Fitzpatrick would, together, be entitled to a payment of no less than $875,625.
In order to fully understand this in perspective, consider that such payments to
these two individuals and the severance payment to John Firth described above
would, in the aggregate, constitute approximately 6% of the Company's entire
market capitalization on January 26, 2000 and would exceed the Company's net
income for fiscal 1998 or 1999. In addition, all restricted shares and stock
options held by either of these executives would immediately vest upon a change
in control, increasing the number of shares that a potential acquiror would be
required to purchase in order to acquire the Company (and the cost of doing so),
while further enriching these individuals at the expense of the shareholders --
you.
Did the Company's shareholders realize any value from these new
agreements? We are of the firm belief that you did not. The only arguable value
we could see would be (i) if such change of control arrangements were necessary
to retain these employees and (ii) if it were valuable to retain them. While we
cannot demonstrate whether or not such arrangements were necessary to retain
these employees, we have our doubts. In any event, in view of the Company's
performance under their leadership, we do not believe their retention provides
any significant value to us as shareholders of the Company.
REPEATED REQUESTS TO MEET WITH QUALITY DINING BOARD REJECTED.
Subsequent to the March 22 Meeting, we made several requests in
discussions with executives of the Company seeking a meeting with the Quality
Dining Board to discuss the future of our Company and possible strategic
alternatives. We made one such request during a meeting with the CEO in August
1999, asking that the Company consider engineering a strategic transaction with
NBO or an affiliated party. Notwithstanding the Company's continued poor
performance and our status as its largest independent shareholder, each and
every such request was either ignored or promptly rebuffed.
In response to the Quality Dining Board's continuing refusal to meet
with us, the Company's largest independent shareholder, on October 1, 1999 we
sent the following letter:
10
<PAGE>
NBO, LLC
25800 Northwestern Highway
Suite 750
Southfield, Michigan 48075
(248) 357-6126
(248) 357-6116 (Fax)
October 1, 1999
Board of Directors
Quality Dining, Inc.
4220 Edison Lakes Parkway
Mishawaka, Indiana 46545
Dear Directors:
As you know, NBO, LLC is the holder of 1,200,000 shares, or
approximately 9.5%, of Quality Dining's common stock, making us the Company's
largest outside shareholder. The principals of NBO are members of the Schostak
family who also own a full service real estate development and management
company that currently owns and manages more than 7.5 million square feet of
retail, commercial and industrial properties in the Midwest, and an entity that
owns and operates a Burger King franchise presently consisting of 63 restaurants
in the State of Michigan.
Since March of this year, our representatives have had several
discussions with Dan Fitzpatrick, the Company's Chairman, President and Chief
Executive Officer, to express their disappointment with Quality Dining's
financial performance and stock price and to discuss possible strategic
alternatives that we believe would enable Quality Dining to enhance shareholder
value. Based upon these discussions and our review of the Company's operating
results, it is clear to us that the existing restaurant operations cannot
produce a satisfactory result to the shareholders - and there are no meaningful
prospects for improvement. It is apparent that the public market has recognized
these same realities by according the Company a very dismal stock price. We
strongly believe that if a public company cannot enhance shareholder value as an
ongoing concern, its Board of Directors is obligated to pursue appropriate "exit
strategy" alternatives.
We are prepared to discuss with you just such a strategic alternative
to enhance shareholder value - the acquisition of the Company by NBO or its
affiliates. We believe that we could conclude an acquisition of the entire
Company at a price per share substantially in excess of current trading prices.
We are hereby formally requesting that you meet with us with a view
toward exploring this alternative for the benefit of all shareholders.
11
<PAGE>
Although we do not regard our interest in Quality Dining as anything
other than "friendly", in view of the importance of these strategic issues, we
reserve our right to make an acquisition proposal directly to Quality Dining's
shareholders, initiate shareholder proposals in favor of a sale or other
disposition of the Company or its assets and/or nominate a slate of directors
who would pursue such alternatives.
We hope that you will grant us a meeting and give due consideration
to any proposals we might advance. It bears reiteration that we wish to work
with you in developing a plan that will benefit all shareholders and that such a
result can best be achieved through mutual cooperation and the exchange of
ideas. We look forward to hearing from you at your earliest convenience.
Very truly yours,
/s/ David W. Schostak
David W. Schostak
CC: Christopher J. Murphy III
Daniel B. Fitzpatrick
Ezra H. Friedlander
Arthur J. Decio
James K. Fitzpatrick
Steven M. Lewis
THE COMPANY RESPONDS.
The Quality Dining Board tersely rejected our request for such a
meeting. In a letter, dated October 13, 1999, from John C. Firth, the Company's
Executive Vice President and General Counsel, to David W. Schostak, the Company
stated that a meeting would not be productive in that the "Board believes that
our existing strategic plan . . . represents the best opportunity to maximize
long-term shareholder value." We disagree. In light of the Company's financial
and stock price performance, we believe the Quality Dining Board failed to
adequately and appropriately address our overtures. We believe that the Quality
Dining Board should aggressively consider any and all strategic alternatives to
benefit all of the shareholders.
SHAREHOLDER VOTING RIGHTS NARROWED BY THE BOARD.
On October 20, 1999, three weeks after we proposed that the Quality
Dining Board consider an acquisition of the Company by NBO - and reserved our
right to make a related shareholder proposal - the Board amended its By-laws. As
amended, the By-laws require delivery to the Company of advance written notice
of any shareholder proposal (including proposals for the election of Directors),
no later than 70 days before the anniversary of the previous year's annual
meeting or such business may not be brought before any annual meeting of
shareholders. The Board has the ability to waive compliance with this By-law.
Also on October 20, 1999, the Board amended the By-laws to increase,
from 25% to 80%, the number of shares required to call a special meeting of
shareholders (at which shareholders can act to exercise their voting rights).
According to the Company's Preliminary Proxy Statement filed on
12
<PAGE>
January 24, 2000, Daniel, James and Gerald Fitzpatrick together beneficially own
just over 20% of the Company's outstanding Common Stock - just enough to veto
any such special meeting. To the knowledge of NBO, the Company first publicly
disclosed these By-law amendments on January 24, 2000 (45 days before the
anniversary of the previous year's annual meeting).
QUALITY DINING SHOULD BE SOLD.
As a result of the Company's repeated rejections of NBO's requests
for meetings to discuss an acquisition proposal, the Quality Dining Board's
authorization of Noncompete/Employment Agreements providing for change of
control payments and grants of restricted shares and stock options with
accelerated vesting on a change in control, and the failure of the Company's
management to implement any steps that have resulted, or that NBO believes are
reasonably likely to result, in a significant enhancement to the Company's share
price, we have determined to seek your votes in support of the Proposals. Each
NBO Nominee is committed to maximizing shareholder value by seeking, subject to
his fiduciary duties, to promptly effect a negotiated sale, merger or other
disposition of the Company (or all or substantially all of its assets) to the
highest bidder. Each presently intends to urge the Company's other Directors to
do so, to redeem the Poison Pill and to remove any other barriers to the
consummation of such a transaction. The NBO Nominees, if elected, intend to
establish an orderly bidding process and diligently pursue the sale, merger or
other disposition of the Company in a process that allows all viable bidders
full and fair access to information and the opportunity to bid, and would not
seek to provide NBO or its affiliates with preferential treatment.
INFORMATION REGARDING THE PROPOSALS
PROPOSAL 1: ELECTION OF DIRECTORS
We are soliciting your proxy for the election of the NBO Nominees as
Directors of the Company after we nominate them at the 2000 Annual Meeting to
serve until their successors are duly elected and qualified.
In accordance with the Company's Articles of Incorporation and
By-laws and the Indiana Business Corporation Law, the Company's Board of
Directors is to consist of seven Directors, or as may be otherwise determined by
a By-Law adopted by a majority of the Quality Dining Board as provided in the
Company's Articles of Incorporation. The Directors are to be divided into three
classes as nearly equal in number as possible. At each annual meeting of
shareholders, members of one of the classes, on a rotating basis, are elected
for a three-year term. Based on information contained in reports publicly filed
by the Company with the Securities and Exchange Commission, seven Directors
currently serve on the Quality Dining Board. Two of these Directors have terms
that expire in 2000 and, according to the Company's proxy statement for the 2000
Annual Meeting, two Directors are to be elected at the 2000 Annual Meeting.
David W. Schostak and Mark S. Schostak, if elected, would serve for terms
expiring at the Company's annual meeting of shareholders in 2003. If any
13
<PAGE>
additional Directorships are to be voted upon at the 2000 Annual Meeting, we
reserve the right to nominate additional persons to fill such positions. NBO
does not expect that the NBO Nominees will be unable to stand for election but,
in the event that either NBO Nominee is unable to do so, shares represented by
GOLD PROXY CARDS will be voted for the other NBO Nominee. In addition, NBO
reserves the right to nominate substitute or additional persons if the Company
makes or announces any changes to its By-laws or takes or announces any other
action that has, or if consummated would have, the effect of disqualifying any
of the NBO Nominees.
If the NBO Nominees are elected and take office as Directors, they
intend to discharge their duties as Directors of the Company in compliance with
all applicable legal requirements, including the general fiduciary obligations
imposed upon corporate directors.
NBO NOMINEES.
Both of the NBO Nominees have consented to be named in NBO's Proxy
statement and serve as a Director if elected. There are no arrangements or
understandings between either such nominee and any other person pursuant to
which he was selected as a NBO Nominee. The information below concerning age,
principal occupation, directorships and beneficial ownership of Common Stock has
been furnished by the respective NBO Nominees.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND PRINCIPAL NUMBER OF SHARES OF PERCENT OF
NAME, BUSINESS OCCUPATIONS DURING LAST FIVE (5) YEARS; COMMON STOCK COMMON
ADDRESS AND AGE DIRECTORSHIPS OWNED STOCK
- --------------------------------- ---------------------------------------------- ------------------- -----------
<S> <C> <C> <C>
David W. Schostak Co-President, Secretary and Director of 1,200,000(1) 9.6%
c/o Schostak Brothers & Company Schostak Brothers & Company, Inc. (a full
25800 Northwestern Highway service real estate development and
Suite 750 management company) for more than the past
Southfield, Michigan 48075 five years; Member of NBO (a company formed
Age 42. to invest in securities of the Company) since
its formation in December 1998; Vice
President, Secretary and Director of King
Venture, Inc. (a franchisee, owner and
operator of Burger King restaurants) for more
than the past five years.
Mark S. Schostak President and Chief Executive Officer of King 1,200,000(1) 9.6%
c/o Schostak Brothers & Company Venture, Inc. for more than the past five
25800 Northwestern Highway years; Member of NBO since its formation in
Suite 750 December 1998; Senior Vice President and
Southfield, Michigan 48075 Director of Schostak Brothers & Company, Inc.
Age 38. for more than the past five years.
</TABLE>
- ------------------
(1) Includes 1,200,000 shares of Common Stock beneficially owned
by NBO (as described in "Certain Information Concerning NBO
and the Other Participants in the Solicitation" below),
representing approximately 9.6% of the outstanding shares of
Common Stock.
14
<PAGE>
All transactions in securities of the Company engaged in by any
proposed NBO Nominee herein during the past two years are summarized in Appendix
A, which is incorporated herein by reference.
PROPOSAL 2: POISON PILL TERMINATION PROPOSAL
NBO proposes, for the reasons stated herein, the adoption by the
shareholders of the following resolution:
RESOLVED, that it is hereby recommended that the Board of
Directors redeem the rights distributed under the Rights Agreement
dated as of March 27, 1997, terminate such Rights Agreement, and that
any new Rights Agreement shall not be adopted unless approved by the
affirmative vote of the holders of a majority of the outstanding
shares of the Company.
The Rights Agreement would cause substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the Board or
deemed "qualified" under that agreement. Although often described as protecting
shareholders from coercive or unfair acquisition offers, it has also been argued
that poison pill plans have the capacity to deter all acquisition offers that
have not been approved by the board, not just coercive offers. NBO believes that
these devices, often called "poison pills," serve to insulate management from
direct shareholder accountability by making an acquisition or other control
transaction unlikely. Our Poison Pill Termination Proposal merely asks that when
the Company seeks to "protect" its shareholders through such a "rights plan"
that it first asks its shareholders' opinion.
CERTAIN ADVANTAGES AND DISADVANTAGES OF THE POISON PILL TERMINATION PROPOSAL.
Non-binding. The Poison Pill Termination Proposal is non-binding on
the Quality Dining Board; even if it is adopted by the shareholders, the Quality
Dining Board would have no obligation to take any action. Further, even if the
Quality Dining Board were to follow all of the recommendations contained in the
Poison Pill Termination Proposal by terminating the Rights Agreement and not
adopting a new rights agreement without shareholder approval, the Quality Dining
Board could subsequently seek shareholder approval for a new rights agreement
when faced with an uninvited offer to acquire the Company (or even in the
absence of such an offer) by calling a special meeting of shareholders for this
purpose. The Company would simply incur the modest expenses of calling such a
meeting and soliciting shareholder votes.
Shareholders Oppose Poison Pills. The Company adopted the "Poison
Pill" on March 27, 1997 (one day after the 1997 annual meeting of shareholders)
without approval of the shareholders. As described below, in recent years,
shareholders of other public companies have, with increased frequency, taken
steps to demonstrate, through the shareholder proposal process, their opposition
to unilateral adoption of rights plans by management.
15
<PAGE>
According to a 1999 report by the Investor Responsibility Research
Center, a provider of corporate research ("IRRC"), shareholder proponents
submitted 26 anti-pill proposals in 1998, resulting in then-record support by an
average of 57.4 percent of shares voted. This report indicated that, as of early
1999, 35 anti-pill proposals had been submitted for 1999. A report by Georgeson
Shareholder Communications, Inc. ("Georgeson") reported that among the 17 poison
pill recission votes that it monitored in 1999, results were available in 16,
and 13 were approved by shareholders. On average, 59 percent of votes cast were
in favor of the proposals to rescind the pills. Georgeson is a proxy solicitor
and monitored proposals sponsored by institutions and shareholder groups such as
labor unions. According to a 1998 report of the IRRC, in 1997, proposals to
redeem or permit shareholder voting on poison pills were passed at 13 companies
of 23 that were put to a vote, including Bausch & Lomb, CSX, Columbia/HCA
Healthcare, Consolidated Natural Gas, Digital Equipment, Fleming, Fluor, Lukens,
Mallinckrodt, PLM International, SuperValu, Talley Industries and Wellman.
According to the 1999 IRRC report, in 1998, proposals to redeem or permit
shareholder voting on poison pills were passed at nine companies, including
Avondale Industries, CSX, Consolidated Natural Gas, GRC International, Venator
Group, Inc., Jostens and Quaker Oats. Shareholders have opposed poison pills on
the grounds that poison pills force potential investors to negotiate potential
acquisitions with management, instead of making their offer directly to the
shareholders. Shareholder proponents further assert that poison pills can pose
such an obstacle to a takeover that management becomes entrenched. NBO believes
that such entrenchment and the consequential lack of management accountability
to shareholders adversely affects shareholder value.
NBO Believes Poison Pills Insulate Management from Desirable
Acquisition Offers that Would be in the Shareholders' Best Interests. NBO
believes that it is essential to prevent management entrenchment and that the
Company's shareholders should be given an opportunity to determine whether or
not a poison pill encourages entrenchment and, at the current time is an
appropriate mechanism for defending the Company against acquisition bids.
o NBO believes that poison pills insulate management from the
threat of a change in control because they interpose the
target's board and provide it with veto power over takeover
bids made directly to shareholders, even when the shareholders
believe that such bids are in their best interests;
o NBO believes that a management group that is responsive to its
shareholders and, accordingly, seeks to foster corporate
growth and shareholder value may be the most effective tool in
fighting off abusive takeover bids; and
o NBO believes that recent actions of the Quality Dining Board
in granting change of control benefits to Company executives,
amending the By-laws and appointing its own nominee to the
Board, just weeks before the 2000 Annual Meeting, all protect
management's positions at the expense of shareholder
interests.
16
<PAGE>
Although since the initial adoption of poison pills in the 1980's there have
been several studies of poison pills, there is a lack of consensus that such
"rights plans" are effective in obtaining maximum value for shareholders. We
believe that the shareholders, as the owners of the Company, should have the
right to consider whether a rights plan is appropriate for this Company and the
adoption of the Poison Pill Termination Proposal would send a message to the
Quality Dining Board that the shareholders believe that the Rights Agreement
impedes the creation of shareholder value.
Other Protections Against Unfair Offers. The Company's Articles of
Incorporation (the "Articles") and the Indiana Business Corporation Law provide
significant impediments to many forms of unsolicited offers for the Company. The
Articles provide that: (i) Directors serve staggered terms, preventing any
insurgent shareholder or group of shareholders from gaining a majority of the
seats on the Quality Dining Board in a single year; (ii) certain transactions,
including business combinations, are in most cases subject to approval by an
Independent Majority of Shareholders (as defined in the Articles); and (iii) the
Company has authorized for issuance a "blank check" preferred stock that can be
used to dilute the ownership or voting power of an acquiror not approved by the
Quality Dining Board. The Indiana Business Corporation Law provides: (a)
significant limitations on business combinations with a beneficial owner of 10%
of a corporation's stock (an "Interested Shareholder") that has not been
approved by the corporation's board of directors or, in the case of a person
that has been an Interested Shareholder for five years or more, by disinterested
shareholders; (b) that once a potential acquirer notifies a corporation of its
intention to purchase 20%, 33 1/3% or 50% of its shares, a shareholders' meeting
must be held within 50 days for shareholders other than the potential acquiror
to vote on whether these "control shares" may exercise voting rights; and (c)
that directors may consider certain corporate constituencies other than
shareholders in taking action that may relate to a change of control. The
Indiana "control share" statute is so strongly worded, in fact, that its effect
has been described by Richard A. Posner, a well-known United States Court of
Appeals judge, as a "lethal dose" for acquisition offers made to shareholders
without approval of the directors. Vast powers are granted to directors under
the "control share" statute as well, including the power to bypass the effect of
the statute by approving a merger or to set the date of the meeting at which
shareholders could provide voting rights. In addition, under Indiana law, the
fiduciary duties that the directors owe to shareholders are extremely weak. Not
only may directors, in making decisions, consider the welfare of any corporate
constituency other than shareholders that they deem pertinent, but even where
the duties do exist, no director is liable for a breach of those duties except
upon his or her willful misconduct or recklessness. In fact, under Indiana law,
no matter how high the price of a takeover offer, directors would never be under
an obligation to e.g., redeem a poison pill, based on the premium it would
provide shareholders. These reductions in director responsibility truly seem to
typify "the exception that swallowed the rule." Clearly, this also makes a
director nominee's personal points of view and interests of heightened
importance in Indiana director elections.
Suggested Benefits of Poison Pills. It is established under Indiana
law that a board of directors may generally adopt a rights plan without
shareholder approval and many other companies have, in fact, put rights plans in
place without shareholder approval. Poison pills are considered extremely potent
17
<PAGE>
corporate takeover defense mechanisms. NBO believes that poison pills provide
boards of directors vast discretion to effectively reject unsolicited offers
made to shareholders and that they thereby provide an opportunity for management
entrenchment. It has, however, been argued, that this discretion plays a role in
providing boards of directors greater flexibility to act in the interest of
their companies. This ability could, in some respects, be aligned with
shareholder interests. Commentators and corporate governance experts disagree on
the propriety and utility of poison pills, and it is possible that, should the
Quality Dining Board follow the recommendations contained in the Poison Pill
Termination Proposal, the Quality Dining Board's ability to adopt a poison pill
to repel acquisition offers may be impeded due to the procedural constraints on
the adoption of rights plans imposed by the Poison Pill Termination Proposal.
Proponents of poison pills assert that rights plans enable the board to respond
in an orderly manner to unsolicited bids by providing sufficient time to
carefully evaluate the fairness of an unsolicited offer and the credibility of
the bidder, thereby giving the board flexibility to explore alternative
strategies for maximizing shareholder value. Studies have been reported that
support these positions, including studies, cited by IRRC, of the investment
banking firm J.P. Morgan Securities, proxy solicitor Georgeson, and professors
Robert Comment and G. William Schwert of the William E. Simon School of Business
at the University of Rochester, each of which concluded that poison pills are
associated with higher premiums to selling shareholders in takeovers. It has
been argued that poison pills deter abusive takeover tactics. They also assert
that rights plans provide incentives for a potential acquiror to negotiate in
good faith with the board, and that such negotiations are likely to maximize
value for shareholders by soliciting the highest possible price from the bidder.
Possible Limits to Available Takeover Defenses. If the Quality Dining
Board implemented the Poison Pill Termination Proposal, the Company could
subsequently receive an acquisition offer while there is no rights plan in
place. For example, a tender offer made to the Company's shareholders could be
consummated, if enough shareholders decide to accept the offer, after as few as
20 business days. To adopt such a new rights plan that would give the Quality
Dining Board power to veto such an offer under this proposal, if the Poison Pill
Termination proposal were adopted in its entirety, the Quality Dining Board
would be faced with the procedural necessity of calling a special meeting of
shareholders to approve the rights plan. Under the Company's By-laws, the
Quality Dining Board would establish a record date of shareholders entitled to
vote at such meeting, and the Company would be required to provide such
shareholders with at least ten days' prior written notice of the meeting. As a
result, to adopt a new poison pill, the Company could have as few as ten days to
act. The presence of holders of a majority of the shares entitled to vote at the
special meeting would be needed to establish a quorum, and the rights plan would
be adopted if the votes cast favoring it exceed the votes cast opposing it. Of
course, the Poison Pill Termination Proposal is non-binding, both now and in the
future. Accordingly, even if the Quality Dining Board adopted the proposal and
eliminated the Company's poison pill at this time, it would not be required to
follow such proposal in the future and could therefore adopt a new poison pill
without shareholder approval.
* * *
18
<PAGE>
NBO RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE POISON PILL TERMINATION
PROPOSAL.
IF OUR NOMINEES ARE ELECTED THEY INTEND TO SUPPORT A REDEMPTION OF RIGHTS
DISTRIBUTED UNDER, AND A TERMINATION OF, THE POISON PILL RIGHTS AGREEMENT,
TOGETHER WITH A PROHIBITION ON THE ADOPTION OF A NEW RIGHTS AGREEMENT WITHOUT
SHAREHOLDER APPROVAL.
NATURE OF OUR PROPOSALS
As stated above, the Poison Pill Termination Proposal is a
non-binding recommendation; even if the shareholders adopt the proposal, the
Quality Dining Board would not be required to take the recommended action.
VOTE REQUIRED
The proposed election of Directors requires the affirmative vote of a
plurality of the shares of Common Stock of the Company having voting power
present in person or represented by proxy and entitled to vote thereon at the
2000 Annual Meeting. Each other proposal voted on at the 2000 Annual Meeting
will be approved if the votes cast favoring the proposal exceed the votes cast
opposing the proposal.
METHOD OF COUNTING VOTES AND PROXY PROCEDURES
Votes will be counted and certified by independent inspectors of
election. Under the rules of the Securities and Exchange Commission, boxes and a
designated blank space are provided on the proxy card for you to mark if you
wish to vote "for" or "against" or "abstain" from voting on one or more of the
proposals, or to withhold authority to vote for one or more of the nominees for
Director. Indiana law and the Company's By-laws require the presence of a
quorum, in person or by proxy, consisting of at least a majority of the
outstanding shares of Quality Dining Common at the 2000 Annual Meeting. Votes
withheld in connection with the election of one or more of the nominees for
Director will not be counted as votes cast for those individuals. Broker
non-votes, which occur when brokers do not receive voting instructions from
their customers on non-routine matters and, consequently, have no discretion to
vote on those matters, and abstentions, are counted as shares present to
establish a quorum, but are not counted as votes cast for or against any
proposal.
If no directions are given and the signed GOLD PROXY CARD is
returned, the attorneys-in-fact appointed in the proxy will vote the shares of
Quality Dining Common represented by any such GOLD PROXY CARD returned unsigned
FOR the election of the NBO Nominees, FOR the Poison Pill Termination Proposal
and FOR the appointment of PricewaterhouseCoopers LLP as the Company's auditors
for fiscal 2000. NBO knows of no other business to be presented at the 2000
Annual Meeting, but if other matters do properly come before the 2000 Annual
Meeting, the attorneys-in-fact appointed in the proxy will use their discretion
to vote the shares of Quality Dining Common represented by GOLD PROXY CARDS in
accordance with their best judgment on such matters.
19
<PAGE>
CERTAIN INFORMATION CONCERNING NBO AND THE OTHER
PARTICIPANTS IN THE SOLICITATION
Information is being given herein for (i) NBO, LLC ("NBO"), (ii)
David W. Schostak, a natural person and nominee for the Board of Directors of
the Company, (iii) Mark S. Schostak, a natural person and nominee for the Board
of Directors of the Company, (iv) Jerome L. Schostak, a natural person and (v)
Robert I. Schostak, a natural person, who are each a "participant in a
solicitation" (collectively, the "Participants") as defined under the proxy
rules promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. Information is also given for Schostak
Brothers & Company, Inc. ("Schostak Brothers") and King Venture, Inc. ("KVI"),
who are each "associates", as defined under the proxy rules, of one or more of
the participants ("Associates").
NBO is a Michigan limited liability company. NBO is principally
engaged in the business of investing in securities of the Company.
The present principal occupation of each of David W. Schostak, Jerome
L. Schostak and Robert I. Schostak (collectively, with Mark S. Schostak, the
"Schostaks") is participating in the management of Schostak Brothers. The
present principal occupation of Mark S. Schostak is participating in the
management of KVI. In addition, each of the Schostaks is a member of NBO and an
officer and a director of KVI. The business address of each of the Participants
and the Associates is c/o Schostak Brothers & Company, Inc., 25800 Northwestern
Highway, Suite 750, Southfield, Michigan 48075.
David W. Schostak, Mark S. Schostak and Robert I. Schostak are
brothers and each is the son of Jerome L. Schostak.
The Participants and their Associates may be deemed to have direct
beneficial ownership of the Company's Common Stock ("Shares") as follows:
NAME NUMBER OF SHARES
---- ----------------
NBO 1,200,000
David W. Schostak 0
Mark S. Schostak 0
Jerome L. Schostak 0
Robert I. Schostak 0
Schostak Brothers 0
KVI 0
20
<PAGE>
Each of the Schostaks, as a member of NBO, may be deemed to
indirectly own beneficially (as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934) Shares which NBO may be deemed to possess
direct beneficial ownership. Each of the Schostaks disclaims beneficial
ownership of such Shares for all other purposes.
None of the Associates indirectly beneficially owns any Shares.
To the best of the knowledge of the Participants, none has been,
within the past year, a party to any contract, arrangement or understanding with
any person with respect to any securities of the Company, including but not
limited to joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profits, division of losses or profits,
or the giving or withholding of proxies, except as follows: the limited
liability company agreement of NBO to which the Schostaks are the sole parties
contains provisions whereby its members (i.e., each of the Schostaks) will
receive annually a certain percentage of realized and unrealized profits, if
any, derived from NBO's investments.
No Participant or Associate owns any securities of the Company of
record but not beneficially.
None of the Participants or Associates has any arrangement or
understanding with any person with respect to (i) any future employment with the
Company or its affiliates or (ii) any future transactions to which the Company
or any of its affiliates may be a party.
CERTAIN INTERESTS IN THE PROPOSALS AND WITH RESPECT
TO SECURITIES OF THE ISSUER
To our knowledge, there are no contracts, arrangements,
understandings or relationships (legal or otherwise) among NBO, the other
Participants or their respective associates or controlling persons or between
NBO or any of the foregoing persons with respect to any securities of the
Company except as follows: as described above, the limited liability company
agreement of NBO contains provisions whereby its members (i.e., David W.
Schostak, Mark S. Schostak, Jerome L. Schostak and Robert I. Schostak, each
affiliates of NBO) will receive annually a certain percentage of realized and
unrealized profits, if any, derived from NBO's investments.
NBO, the other Participants, and each of their affiliates and
associates, intend to vote any shares of Common Stock that they beneficially own
in accordance with the recommendations of NBO set forth herein.
PRINCIPAL OWNERS OF COMMON STOCK
The following table sets forth, as of November 25, 1999, based
solely, except as otherwise indicated herein, on the information contained in
the Company's preliminary Proxy Statement for the 2000 Annual Meeting, the
number of outstanding shares of Common Stock beneficially owned by each person
known to NBO as of such date to be the beneficial owner of more than five
percent (5%) of the outstanding shares of Common Stock, each Director, each of
21
<PAGE>
the executive officers named in the executive compensation table of such
definitive Proxy Statement and all executive officers, the Company's director
nominees and directors as a group. For purposes of the following table, Daniel
B. Fitzpatrick, John C. Firth, James K. Fitzpatrick, Gerald O. Fitzpatrick and
Patrick J. Barry are referred to as the "named executive officers."
Except as otherwise noted in a footnote below, each Director, nominee
and executive officer has sole voting and investment power with respect to the
number of shares of Common Stock set forth opposite his or her name in the
table. The information with respect to NBO and its affiliates has been provided
by the members thereof as of January 27, 2000.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF INDIVIDUAL OR IDENTITY OF GROUP NUMBER OF SHARES BENEFICIALLY OWNED PERCENT OF CLASS
--------------------------------------------------- ----------------------------------- ----------------
<S> <C> <C>
Arthur J. Decio 13,000 (1) *
Philip J. Faccenda 5,000 (2) *
Daniel B. Fitzpatrick (3) 2,297,209 (4) (5) 18.2%
James K. Fitzpatrick (3) 353,740 (4) (6) 2.8%
Ezra H. Friedlander 505,131 (7) (8) 4.0%
Bruce M. Jacobson 0 -
Steven M. Lewis 13,250 (9)(10) *
Christopher J. Murphy III 60,700 (9) (11) *
Patrick J. Barry (3) 24,080 (4) (12) *
John C. Firth (3) 38,620 (4) (13) *
Gerald O. Fitzpatrick (3) 240,443 (4) (14) 1.9%
Jerome L. Schostak
Robert I. Schostak
David W. Schostak
Mark S. Schostak
NBO, LLC
25800 Northwestern Highway
Southfield, MI 48075 1,200,000 (15) 9.6%
All current Directors, nominees as
Directors and executive
officers as a group (15 persons) 3,613,129 (4) (16) 28.3%
</TABLE>
- -----------------------------------
* Less than 1%.
(1) Includes presently exercisable stock options to purchase 10,000 shares,
granted under the Company's Outside Directors Stock Option Plan.
(2) Includes 5,000 shares held by Philip J. Faccenda, Inc., a holding
company of which Mr. Faccenda is the majority shareholder and has
investment control.
22
<PAGE>
(3) The address of this shareholder is 4220 Edison Lakes Parkway,
Mishawaka, Indiana 46545.
(4) Does not include shares subject to stock options which are not
exercisable within 60 days.
(5) Includes presently exercisable stock options to purchase 23,200 shares,
granted by the Company.
(6) Includes presently exercisable stock options to purchase 28,600 shares,
granted by the Company.
(7) Includes presently exercisable stock options to purchase 8,000 shares,
granted under the Company's Outside Directors Plan.
(8) Includes 14,200 shares held in a trust of which Mr. Friedlander is the
trustee with investment control and the income beneficiary and 15,000
shares owned by Mr. Friedlander's spouse.
(9) Includes presently exercisable stock options to purchase 10,000 shares,
granted under the Company's 1993 Outside Directors Plan.
(10) Includes 500 shares held in a trust for the benefit of Mr. Lewis minor
children.
(11) Includes 700 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 42,648 shares held in a trust over which Mr.
Murphy has investment control.
(12) Includes presently exercisable stock options to purchase 10,000 shares,
granted by the Company.
(13) Includes presently exercisable stock options to purchase 10,000 shares,
granted by the Company.
(14) Includes presently exercisable stock options to purchase 28,430 shares,
granted by the Company.
(15) The individuals listed are members of NBO, LLC, a Michigan limited
liability company. These individuals share voting and dispositive power
with respect to all 1,200,000 shares.
(16) Includes presently exercisable stock options to purchase 168,980 shares
granted by the Company.
PROXY SOLICITATION; EXPENSES
Proxies may be solicited by members of NBO and partners and employees
of members of NBO by mail, telephone, telecopier, the Internet and personal
solicitation. Regular employees of members of NBO and their affiliates may be
used to solicit proxies and, if used, will not receive additional compensation
for such efforts. Banks, brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward the solicitation material of NBO to
their customers for whom they hold shares of Common Stock, and NBO will
reimburse them for their reasonable out-of-pocket expenses. In addition, NBO has
retained MacKenzie Partners ("MacKenzie") to assist in the solicitation of
proxies for a fee of $50,000 plus out-of-pocket expenses. MacKenzie will employ
approximately 25 people to solicit the Company's shareholders. In addition to
the solicitation of proxies from, and delivery of information to, Quality Dining
shareholders, it is contemplated that MacKenzie will provide advisory services
23
<PAGE>
as requested pertaining to the solicitation of proxies. NBO also contemplates
indemnifying MacKenzie against certain liabilities and expenses relating to the
proxy solicitation.
The entire expense of preparing, assembling, printing and mailing
this Proxy Statement and related materials, and the cost of soliciting proxies
for the proposals endorsed by NBO, will be borne by NBO. NBO estimates such
expenses to be $200,000 (including professional fees and expenses, but excluding
any costs represented by salaries and wages of regular employees of NBO and its
affiliates). The total expenditures incurred to date have been approximately
$50,000, to be paid by NBO. NBO does not intend to seek reimbursement from the
Company for NBO's expenses.
24
<PAGE>
SHAREHOLDERS' PROPOSALS IN COMPANY'S PROXY STATEMENT
Information concerning the date by which proposals of security
holders intended to be presented at the next annual meeting of shareholders of
Quality Dining must be received by Quality Dining for inclusion in the Quality
Dining Proxy Statement and form of proxy for that meeting is contained in the
Quality Dining Proxy Statement and is incorporated herein by reference.
NBO assumes no responsibility for the accuracy or completeness of any
information contained herein which is based on, or incorporated by reference to,
Quality Dining public filings.
PLEASE INDICATE YOUR SUPPORT OF THE NBO NOMINEES BY COMPLETING,
SIGNING AND DATING THE ENCLOSED GOLD PROXY CARD AND RETURN IT PROMPTLY TO NBO IN
THE ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF THE ENVELOPE IS MAILED IN THE
UNITED STATES.
Dated: January , 2000
Sincerely,
Your Fellow Shareholders,
NBO, LLC
David W. Schostak
Mark S. Schostak
Jerome L. Schostak
Robert I. Schostak
25
<PAGE>
APPENDIX A
The following is a summary of all transactions in Company securities
by the Participants over the last two years.
<TABLE>
<CAPTION>
<S> <C> <C>
DATE OF TRANSACTION NATURE OF TRANSACTION NUMBER OF SHARES
------------------- --------------------- ----------------
08/11/98 Purchase of Shares by NBO 50,000
08/13/98 Purchase of Shares by NBO 12,000
08/17/98 Purchase of Shares by NBO 15,000
08/18/98 Purchase of Shares by NBO 15,000
08/19/98 Purchase of Shares by NBO 15,000
08/20/98 Purchase of Shares by NBO 5,000
08/25/98 Purchase of Shares by NBO 5,000
08/27/98 Purchase of Shares by NBO 20,000
08/28/98 Purchase of Shares by NBO 15,000
08/31/98 Purchase of Shares by NBO 50,000
09/01/98 Purchase of Shares by NBO 10,000
09/03/98 Purchase of Shares by NBO 10,000
09/04/98 Purchase of Shares by NBO 50,000
09/08/98 Purchase of Shares by NBO 35,000
09/09/98 Purchase of Shares by NBO 60,000
09/10/98 Purchase of Shares by NBO 25,000
09/14/98 Purchase of Shares by NBO 30,000
09/15/98 Purchase of Shares by NBO 20,000
09/16/98 Purchase of Shares by NBO 5,000
09/17/98 Purchase of Shares by NBO 10,000
09/21/98 Purchase of Shares by NBO 35,000
09/23/98 Purchase of Shares by NBO 5,000
09/24/98 Purchase of Shares by NBO 20,000
09/25/98 Purchase of Shares by NBO 5,000
09/29/98 Purchase of Shares by NBO 5,000
09/30/98 Purchase of Shares by NBO 5,000
10/01/98 Purchase of Shares by NBO 18,000
10/02/98 Purchase of Shares by NBO 10,000
10/05/98 Purchase of Shares by NBO 10,000
10/06/98 Purchase of Shares by NBO 30,000
12/02/98 Purchase of Shares by NBO 25,000
A-1
<PAGE>
DATE OF TRANSACTION NATURE OF TRANSACTION NUMBER OF SHARES
------------------- --------------------- ----------------
12/07/98 Purchase of Shares by NBO 20,000
12/08/98 Purchase of Shares by NBO 28,000
12/09/98 Purchase of Shares by NBO 27,000
12/10/98 Purchase of Shares by NBO 6,000
12/11/98 Purchase of Shares by NBO 201,500
12/14/98 Purchase of Shares by NBO 105,000
12/15/98 Purchase of Shares by NBO 65,000
12/16/98 Purchase of Shares by NBO 32,000
12/17/98 Purchase of Shares by NBO 35,000
12/18/98 Purchase of Shares by NBO 55,500
</TABLE>
A-2
<PAGE>
PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED JANUARY 28, 2000
PROXY
QUALITY DINING, INC.
PROXY SOLICITED ON BEHALF OF NBO, LLC AND THE OTHER PARTICIPANTS IDENTIFIED
IN THE PROXY STATEMENT FURNISHED HEREWITH (COLLECTIVELY, "NBO") FOR THE ANNUAL
MEETING OF SHAREHOLDERS OF QUALITY DINING, INC., MARCH 7, 2000 AT 10:00 A.M.
The undersigned shareholder of Quality Dining, Inc. (the "Company") hereby
appoints David W. Schostak and Mark S. Schostak and each of them, as attorneys
and proxies, each with power of substitution and revocation, to represent the
undersigned at the Annual Meeting of Shareholders of Quality Dining, Inc. to be
held at Quality Dining, Inc.'s headquarters, 4220 Edison Lakes Parkway,
Mishawaka, Indiana, on Tuesday, March 7, 2000 at 10:00 a.m. Mishawaka time and
at any adjournment or postponement thereof, with authority to vote all shares
held or owned by the undersigned in accordance with the directions indicated
herein.
Receipt of the Proxy Statement furnished herewith is hereby
acknowledged.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED SHAREHOLDER. ON MATTERS FOR WHICH YOU DO NOT SPECIFY
A CHOICE, YOUR SHARES WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE
NOMINEES LISTED UNDER PROPOSAL 1, FOR PROPOSAL 2 AND FOR PROPOSAL 3.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
<PAGE>
<TABLE>
<S> <C> <C>
NBO RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED BELOW.
---
1. Election of Directors
FOR all nominees listed on the right (except WITHHOLD AUTHORITY to vote for NOMINEES: David W. Schostak and Mark S. Schostak.
as marked to the contrary hereon). all nominees listed to the (Instructions: To withhold authority to vote for
right. any individual nominee, write that nominee's name
in the space provided below.)
[ ] [ ]
------------------------------------------------
NBO RECOMMENDS A VOTE "FOR" PROPOSALS 2 AND 3.
FOR AGAINST ABSTAIN
2. NBO PROPOSAL TO TERMINATE THE POISON [_] [_] [_]
PILL RIGHTS PLAN
FOR AGAINST ABSTAIN
3. APPROVE APPOINTMENT OF [_] [_] [_]
PRICEWATERHOUSECOOPERS LLP AS AUDITORS
FOR FISCAL 2000
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY BE PRESENTED TO THE MEETING OR ANY
ADJOURNMENT THEREOF.
</TABLE>
P Dated: _____________, 2000
R -----------------------------------
(Signature)
O
-----------------------------------
(Signature if held jointly)
X
Y Please sign exactly as your name appears
hereon. When shares are held by two or more
persons, all of them should sign. When
signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name
by authorized person.
