QUALITY DINING INC, PRER14A, 2000-02-03

QUALITY DINING INC
PRER14A, 2000-02-03
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<PAGE>

SCHEDULE 14A
(Rule 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 3)

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement

[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[_] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Rule 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:

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(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):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] 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>

February , 2000

Dear Shareholder:

You are cordially invited to attend the 2000 Annual Meeting of Shareholders
of Quality Dining, Inc. The meeting will be held at Quality Dining, Inc., 4220
Edison Lakes Parkway, Mishawaka, Indiana, on Tuesday, March 7, 2000, at 10:00
a.m., Mishawaka time.

At this year's shareholders meeting you are being asked to elect two
directors, consider a non-binding shareholder proposal relating to the
Company's Rights Plan and ratify the appointment of PricewaterhouseCoopers LLP
as independent auditors. The Board of Directors unanimously recommends a vote
FOR the directors named in the attached Proxy Statement and AGAINST the non-
binding shareholder proposal. Accordingly, please give careful attention to
these proxy materials. Quality Dining's 1999 Annual Report is being mailed
along with these materials.

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE ANNUAL
MEETING REGARDLESS OF THE SIZE OF YOUR HOLDINGS. WHETHER OR NOT YOU PLAN TO
ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING WHITE PROXY CARD IN THE ENCLOSED ENVELOPE IN ORDER TO MAKE CERTAIN
THAT YOUR SHARES WILL BE REPRESENTED AT THE ANNUAL MEETING.

If you have any questions or comments, please contact our proxy solicitors,
Georgeson Shareholder Communications, Inc. at (800) 223-2064.

Thank you for your continued support and interest in Quality Dining.

Sincerely,

/s/ Daniel B. Fitzpatrick

Daniel B. Fitzpatrick
Chairman, President & CEO
<PAGE>

REVISED PRELIMINARY COPY, SUBJECT TO COMPLETION DATED FEBRUARY 3, 2000

QUALITY DINING, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 7, 2000

The annual meeting of shareholders of Quality Dining, Inc. will be held at
Quality Dining, Inc., 4220 Edison Lakes Parkway, Mishawaka, Indiana, on
Tuesday, March 7, 2000, at 10:00 a.m., Mishawaka time, for the following
purposes:

(1) To elect two Directors to serve until the 2003 annual meeting of
shareholders and until their successors are elected and qualified. The
Board of Directors recommends a vote FOR the election of the Director
nominees proposed for election by the Board, as further described in the
accompanying Proxy Statement.

(2) To vote upon a non-binding proposal, if submitted by NBO, LLC, a
shareholder of the Company, relating to the termination of the Company's
Rights Agreement. The Board of Directors recommends a vote AGAINST this
proposal.

(3) To approve the appointment of PricewaterhouseCoopers LLP as auditors
for the Company for fiscal 2000. The Board of Directors recommends a vote
FOR this proposal.

(4) To transact such other business as may properly come before the
meeting.

All shareholders of record at the close of business on January 19, 2000
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 WHITE PROXY CARD IN THE ACCOMPANYING ADDRESSED, POSTAGE-PREPAID
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN
PERSON

YOUR BOARD OF DIRECTORS ALSO URGES YOU NOT TO SIGN ANY PROXY CARD SENT TO
YOU BY NBO, LLC. EVEN IF YOU HAVE PREVIOUSLY SIGNED A PROXY CARD SENT TO
YOU BY NBO, LLC, YOU CAN REVOKE THAT EARLIER PROXY BY SIGNING, DATING, AND
MAILING THE ENCLOSED WHITE PROXY CARD IN THE ENVELOPE PROVIDED

John C. Firth, Secretary

Mishawaka, Indiana

February , 2000
<PAGE>

QUALITY DINING, INC.
4220 Edison Lakes Parkway
Mishawaka, Indiana 46545

PROXY STATEMENT

Annual Meeting of Shareholders
March 7, 2000

INTRODUCTION

This statement is being furnished to shareholders of Quality Dining, Inc.
(the "Company") on or about February , 2000, in connection with a
solicitation by the Board of Directors of the Company of proxies to be voted
at the annual meeting of shareholders to be held at 10:00 a.m., Mishawaka
time, on Tuesday, March 7, 2000, at Quality Dining, Inc., 4220 Edison Lakes
Parkway, Mishawaka, Indiana. At the meeting, the Board of Directors will
propose that Company shareholders (i) elect Daniel B. Fitzpatrick and Philip
J. Faccenda to the Board of Directors of the Company to serve until the 2003
annual meeting of shareholders and until their successors are elected and
qualified, (ii) vote against a non-binding shareholder proposal relating to
the termination of the Company's Rights Agreement and (iii) approve the
appointment of PricewaterhouseCoopers LLP as auditors for the Company for
fiscal 2000.

NBO, LLC ("NBO"), which owns approximately 9.6% of the Common Stock of the
Company, has filed proxy materials with the Securities and Exchange Commission
("SEC") which indicate that it will propose its own slate of nominees for
election to the Company's Board of Directors at the meeting in opposition to
the Board of Directors' nominees. NBO has also stated that it intends to
present a proposal concerning a non-binding recommendation that the Board of
Directors redeem the rights distributed under the Rights Agreement, dated as
of March 27, 1997, between the Company and ChaseMellon Shareholder Services,
L.L.C. (the "Rights Agreement"), terminate the Rights Agreement and not adopt
any new rights agreement unless approved by the shareholders of the Company
(collectively, the "Rights Agreement Proposal").

The Board of Directors is soliciting votes FOR the Company's slate of
nominees for election to the Board of Directors and AGAINST the Rights
Agreement Proposal. A WHITE proxy card is enclosed for your use. THE BOARD OF
DIRECTORS URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE WHITE PROXY CARD IN
THE ACCOMPANYING ENVELOPE, which is postage-paid if mailed in the United
States.

If you have any questions or need further assistance in voting your shares,
please call:

Georgeson Shareholder Communications, Inc.

17 State Street, 10th Floor

New York, NY 10004

Call Toll Free (800) 223-2064

THE BOARD OF DIRECTORS URGES YOU NOT TO SIGN ANY PROXY CARD SENT TO YOU BY
NBO. IF YOU HAVE ALREADY DONE SO, YOU MAY REVOKE YOUR PREVIOUSLY SIGNED PROXY
BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY CARD IN
THE ENCLOSED ENVELOPE.

Remember, it will not help your Board of Directors to return the NBO proxy
card voting to "abstain." Do not return any card sent to you by NBO. The only
way to support your Board of Directors' nominees is to vote "FOR" those
nominees on the WHITE proxy card.

IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER, OR OTHER NOMINEE,
ONLY YOUR BANK OR BROKER OR OTHER NOMINEE CAN VOTE YOUR SHARES AND ONLY UPON
YOUR SPECIFIC INSTRUCTIONS. PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR
ACCOUNT AND INSTRUCT HIM OR HER TO VOTE THE WHITE PROXY CARD AS SOON AS
POSSIBLE.
<PAGE>

Voting

At the close of business on January 19, 2000, the record date for the
meeting, there were 12,478,856 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 by the person giving it any time before the vote at the meeting
either by filing with the Secretary of the Company a written notice of
revocation or a proxy bearing a later date than the most recently submitted
proxy or by attending the meeting and voting in person. The execution of a
proxy will not affect a shareholder's right to attend the meeting and vote in
person, but attendance at the meeting will not, by itself, revoke a proxy.

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 proposed for election by the
Board of Directors listed under Proposal 1 relating to the election of
Directors, against Proposal 2 relating to the Rights Agreement Proposal and in
favor of Proposal 3 relating to the appointment of PricewaterhouseCoopers LLP
as auditors for the Company for fiscal 2000. The 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.

YOUR VOTE AT THIS YEAR'S ANNUAL MEETING IS ESPECIALLY IMPORTANT.
PLEASE SIGN AND DATE THE ENCLOSED WHITE PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY

PROPOSAL NO. 1

ELECTION OF DIRECTORS

Board of Directors' Nominees

Currently, the Board of Directors of the Company consists of seven
Directors divided into three classes. Two classes contain two Directors each,
with the remaining class containing three Directors. The term of one

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<PAGE>

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.

A vacancy was created in the class of Directors whose term expires at the
2002 annual meeting of shareholders when William R. Schonsheck, a Senior Vice
President of the Company and the Chief Operating Officer of the Burger King
Division, whose term as Director expired in 1999, decided not to stand for
reelection at the 1999 annual meeting of shareholders. In the Company's proxy
statement relating to the 1999 annual meeting, the Board indicated that, while
it had no present intention to do so, it might elect a new Director to fill
this vacancy at a later date. In accordance with the Company's By-Laws, the
Board of Directors filled this vacancy on January 24, 2000 by appointing Bruce
M. Jacobson to serve as a Director with a term expiring at the 2002 annual
meeting of shareholders. Following NBO's announcement that it intended to
propose a nominee for election at the 2000 annual meeting to fill this
position (in addition to its two nominees for election to the class of
Directors whose term will expire in 2003), the Board exercised its right under
the Company's By-Laws to fill the vacancy rather than selecting a nominee to
oppose NBO's candidate at the 2000 annual meeting. This action was based on
the Board's belief that, for the reasons described below under "--NBO's
Nominees", it is not in the best interests of the Company or its shareholders
for any of NBO's Nominees to become members of the Board of Directors and
that, in the exercise of its fiduciary duties, it should act to preclude NBO's
third nominee from being elected at the 2000 annual meeting to fill the
vacancy. Instead of reducing the size of the Board to six or filling the
vacancy with another employee to replace Mr. Schonsheck--each of which the
Board is entitled to do under the Company's By-Laws--the Board elected Mr.
Jacobson, who is not an employee of the Company, thereby increasing the number
of Directors to seven, five of whom are not employees of the Company.

Also on January 24, 2000, the Board of Directors amended the Company's By-
Laws to eliminate a provision permitting shareholders to fill a vacancy on the
Board of Directors if the remaining Directors are unable to agree upon a
successor or determine not to select a successor. The Board determined, based
on advice of counsel, that this By-Law provision was unusual and not required
under the Indiana Business Corporation Law, and that it could create confusion
whether, in the case of any particular vacancy, the Board had triggered the
right of shareholders to fill the vacancy by not being able to agree upon a
successor or determining not to select a successor to fill the vacancy. As
stated above, when Mr. Schonsheck decided not to stand for reelection, the
Board reserved the right to appoint a new Director at a later date rather than
reducing the size of the Board of Directors to six or nominating a replacement
to stand for election at the 1999 annual meeting, either of which the Board
was empowered to do under the Company's By-Laws. By taking this action, the
Board had not intended to trigger the By-Law authorizing shareholders to fill
a vacancy when the Board is unable to agree upon a successor or determines not
to select a successor. In order to avoid this confusion in the future, and in
light of the Board's concern that NBO was seeking to take advantage of this
confusion for its own benefit and to the detriment of the Company's other
shareholders, the Board determined that it was in the best interests of the
Company and its shareholders to eliminate the provision from the By-Laws.

Two Directors are to be elected at the meeting for a term expiring at the
2003 annual meeting of shareholders. 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 Daniel B. Fitzpatrick, whose term as Director expires
this year, and Philip J. Faccenda. Mr. Faccenda has been nominated in place of
Arthur J. Decio, whose term as Director expires this year and who is retiring
after serving two three-year terms on the Board of Directors. Messrs.
Fitzpatrick and Faccenda have been nominated by the Board of Directors for a
term to expire at the 2003 annual meeting of shareholders and until their
successors are elected and qualified. If either Mr. Fitzpatrick or Mr.
Faccenda 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(s) as Director(s) as they may in their discretion determine,
in which event the shares will be voted for such other person(s).

NBO's Nominees

NBO's proxy materials indicate that it intends to nominate two individuals
for election to the Company's Board of Directors at the 2000 annual meeting in
opposition to the Board's candidates for election as Directors to serve until
the 2003 annual meeting. NBO's proxy materials contain information regarding
its nominees.

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<PAGE>

The Board of Directors is convinced that the election of the individuals
nominated by NBO would run directly counter to the best interests of the
Company and its shareholders. The current Directors are intimately familiar
with the Company and the industry in which it operates. The Board of Directors
is fully committed to maximizing value for all of the Company's shareholders.
NBO's proxy materials indicate that its nominees, if elected, will seek to
convince the Board to arrange for the sale of the Company as soon as possible.
Thus, the Board of Directors believes that a change in the Board of Directors
at this time involving NBO's nominees would be highly disruptive to the
Board's current strategy for maximizing long-term shareholder value (which it
is actively pursuing) of optimizing cash flow, reducing debt and disposing of
underperforming assets, coupled with measured growth and a moderate stock
repurchase program. In fact, the Board believes that the uncertainties that
could arise from the election of NBO's nominees could raise significant
concerns with current and future business partners and franchisors and result
in the loss of key personnel who are unique and important to the Company.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE TWO
NOMINEES OF THE BOARD OF DIRECTORS DESCRIBED BELOW AND
NOT VOTE IN FAVOR OF ANY NOMINEES OF NBO

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Information with Respect to the Directors

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
Director Owned on Percent
Name Age Principal Occupation Since November 25, 1999 of Class
---- --- -------------------- -------- ----------------- --------
NOMINEES FOR DIRECTOR
(Nominee for three-year term to expire at the annual meeting of shareholders
in 2003)

<C> <C> <S> <C> <C> <C>
Daniel B. Fitzpatrick 42 Chairman of the Board, 1990 2,297,209(1)(2) 18.2%
President and Chief
Executive Officer of
the Company (3)

Philip J. Faccenda 70 Vice President and -- 5,000(4) *
General Counsel
Emeritus, University of
Notre Dame (5)

DIRECTOR NOT STANDING FOR REELECTION
(Term expiring at annual meeting of shareholders in 2000)

Arthur J. Decio 69 Chairman of the Board 1994 13,000(6) *
and Director of Skyline
Corporation (publicly
held manufacturer of
manufactured housing
and recreational
vehicles) (7)

DIRECTORS CONTINUING IN OFFICE
(Term expiring at annual meeting of shareholders in 2001)

James K. Fitzpatrick 44 Senior Vice President 1990 353,740(1)(8) 2.8%
and Chief Development
Officer of the Company

Ezra H. Friedlander 58 Judge, Indiana Court of 1995 505,131(10)(11) 4.0%
Appeals (9)

Steven M. Lewis 50 President, Chief 1994 13,250(6)(12) *
Executive Officer and
Director of U.S.
Restaurants, Inc.
(restaurant management
company) (13)
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
Shares
Beneficially
Director Owned on Percent
Name Age Principal Occupation Since November 25, 1999 of Class
---- --- -------------------- -------- ----------------- --------
(Term expiring at annual meeting of shareholders in 2002)

<C> <C> <S> <C> <C> <C>
Christopher J. Murphy III 53 Chairman, President and 1994 60,700(6)(14) *
Chief Executive
Officer of 1st Source
Corporation (publicly
held diversified bank
holding company)

Bruce M. Jacobson 50 Partner, Katz, Sapper & 2000 -- --
Miller, LLP (certified
public accountants)
</TABLE>
- --------
*Less than 1%.
(1) Does not include shares subject to stock options which are not
exercisable within 60 days.
(2) Includes presently exercisable stock options to purchase 23,200 shares,
granted by the Company.
(3) Mr. Daniel B. Fitzpatrick has been a significant shareholder and Director
of certain of the Company's predecessors since 1982 and also serves on
the Board of Directors of 1st Source Corporation, a publicly held
diversified bank holding company.

(4) These shares are held by Philip J. Faccenda, Inc., a holding company of
which Mr. Faccenda is the majority shareholder and has investment
control.

(5) Mr. Faccenda is also a Life Trustee at the University of Notre Dame and a
Regent at the University of Portland. In addition, Mr. Faccenda serves on
the Board of Directors of Hilb, Rogal and Hamilton, a publicly traded
insurance brokerage company and 1st Source Corporation, a publicly held
diversified bank holding company.

(6) Includes presently exercisable stock options to purchase 10,000 shares
granted under the Company's Outside Directors Stock Option Plan adopted
in December 1993 ("1993 Outside Directors Plan").

(7) Mr. Decio also serves on the Board of Directors of NiSource Industries,
Inc., a public utility holding company, and as Director Emeritus of St.
Joseph Capital Corporation, a bank holding company.
(8) Includes presently exercisable stock options to purchase 28,600 shares,
granted by the Company.
(9) 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 8,000 shares,
granted under the Company's 1993 Outside Directors Plan.
(11) 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.
(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 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.

Meetings and Committees

During fiscal 1999, the Board of Directors of the Company held five
meetings. During the period in fiscal 1999 for which he served as a Director,
each of the Company's Directors attended at least 75% of the meetings of the
Board of Directors and each committee on which he served. The Board of
Directors does not have a nominating committee.

5
<PAGE>

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, Steven M. Lewis
and Christopher J. Murphy III. The Audit Committee consists of Messrs. Murphy
(Chairman), Decio and Lewis. The Compensation Committee consists of Messrs.
Lewis (Chairman), Decio 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 of Directors
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 and Incentive Plan ("1993 Stock Option
Plan") and the 1997 Stock Option and Incentive Plan ("1997 Stock Option
Plan").

During fiscal 1999, the Audit Committee and the Compensation Committee each
held five meetings and the Executive Committee did not meet.

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 1999, 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, Chairman, President and Chief Executive
Officer; John C. Firth, Executive Vice President, General Counsel and
Secretary; James K. Fitzpatrick, Senior Vice President and Chief Development
Officer; David M. Findlay, Chief Financial Officer and Treasurer; Patrick J.
Barry, Senior Vice President, Administration and Information Technology;
Gerald O. Fitzpatrick, Senior Vice President, Burger King Division; Lindley E.
Burns, Senior Vice President, Full Service Dining Division; Jeanne M. Yoder,
Vice President and Controller; and Robert C. Hudson, Vice President, Grady's
American Grill Division.

Legal Proceedings

James T. Bies filed a shareholder derivative action in the United States
District Court for the Southern District of Michigan on October 14, 1997. A
derivative action is an action on behalf of the Company in which any recovery
against the defendants would be payable to the Company. The complaint named as
defendants 12 individuals who are current or former directors or officers of
the Company. The complaint alleged that the individual defendants as directors
breached fiduciary duties to the Company by approving certain transactions in
1997 involving loans to Bagel Acquisition Corporation that allegedly benefited
Daniel B. Fitzpatrick, the Company's Chairman, President and Chief Executive
Officer. The plaintiff also alleged that individual defendants participated in
a "conspiracy to waste, dissipate, and improperly use funds, property and
assets" of the Company for the benefit of Bagel Acquisition Corporation and
Mr. Fitzpatrick. The plaintiff alleged that the Company and its shareholders
had been damaged in an amount in excess of $28,000,000. The relief sought also
included the appointment of a receiver, an accounting and attorney's fees. On
April 27, 1998, the Court dismissed the

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<PAGE>

complaint without prejudice, for failure to make a "demand" upon the Company's
Board of Directors that the Company institute the action. By letter dated May
12, 1998, Mr. Bies demanded that the Company pursue these claims against the
defendants. In accordance with the Indiana Business Corporation Law ("IBCL"),
the Board of Directors appointed a special committee of three disinterested
outside directors and another disinterested person to investigate the
allegations. The three disinterested outside directors were Messrs. Decio,
Lewis and Murphy (named defendants in the action) and the other disinterested
member of the committee was David T. Link, Dean of the University of Notre
Dame Law School. As required by the IBCL, the special committee was charged
with evaluating the claim and determining whether it was in the best interests
of the Company to pursue this matter. Subsequent to the establishment of the
special committee, Mr. Bies refiled his action on July 30, 1998. As a result
of its investigation of Mr. Bies' demand, the special committee determined
that the claims identified by Mr. Bies were without merit and therefore it was
not in the Company's best interests to pursue them. As a result, on January 6,
1999, the special committee filed a motion to dismiss or alternatively for
summary judgment, which was denied on April 20, 1999 essentially because the
Court was unable to determine, on the record before it, whether the special
committee was disinterested. The Court has denied the Company's subsequent
request to schedule an evidentiary hearing to assist in this determination.
The Company does not believe this matter will have a material adverse effect
on the Company's financial position or results of operations.

In addition to the matter described above, the Company and certain of its
officers and directors are parties to various other legal proceedings relating
to the Company's purchase, operation and financing of the Company's bagel-
related businesses. These proceedings are described in more detail in the
Company's Annual Report on Form 10-K and its Annual Report to Shareholders, a
copy of which is being furnished to the Company's shareholders herewith. The
Company is indemnifying its officers and directors with respect to all of the
aforementioned proceedings.

PROPOSAL 2

RIGHTS AGREEMENT PROPOSAL

In its proxy materials, NBO indicates that it will make a non-binding
proposal for adoption by the shareholders at the meeting recommending that the
Board of Directors terminate the Rights Agreement. For the reasons set forth
below, the Board of Directors unanimously recommends a vote "AGAINST" the
Rights Agreement Proposal. The text of the Rights Agreement Proposal is as
follows:

"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 BOARD OF DIRECTORS OPPOSES THIS RESOLUTION AND RECOMMENDS A
VOTE AGAINST THE RIGHTS AGREEMENT PROPOSAL

In adopting the Rights Agreement in 1997, the Board of Directors considered
carefully the Rights Agreement's limited purposes. The Board believes that the
Rights Agreement is designed to discourage attempts to acquire control of the
Company that are not in the best interests of all the shareholders of the
Company. The overriding objective of the Board of Directors in adopting the
Rights Agreement was, and continues to be, the preservation and maximization
of the Company's value for all shareholders.

The Board believes that the Rights Agreement creates an incentive for a
potential acquirer to negotiate in good faith with the Board of Directors. The
Board of Directors believes that keeping the Rights Agreement in place allows
the Company to improve its financial performance, while, if necessary, using
the Rights Agreement

7
<PAGE>

to either deter short term speculators and/or to negotiate a higher offer
price if the Company is put up for sale and the Company receives a fair
acquisition proposal. Of course, the Board of Directors can redeem the rights
in order to approve a transaction for the sale of the Company and, in deciding
whether to do so in connection with any unsolicited offer, the Board of
Directors will be bound by its fiduciary obligations to act in the best
interests of the Company and the shareholders.

The Board of Directors does not intend the Rights Agreement to prevent a
bidder from making a tender offer or other takeover-type transaction, nor does
the Board believe that the Rights Agreement will impede any effort to replace
the Board of Directors or propose and elect alternate nominees for the class
of directors to be elected each year, as evidenced by NBO's solicitation of
proxies for the election of the individuals to be nominated by NBO. The Board
believes that the Rights Agreement is, however, a fundamental negotiating tool
that inhibits abusive conduct and is designed to protect against practices
that do not treat all shareholders equally. The Board believes that the Rights
Agreement is substantially identical to the shareholder rights agreements
employed by thousands of other public companies, which, according to the
Investor Responsibility Research Center, includes approximately 60% of S&P 500
companies as of year-end 1998. The Board believes that the Rights Agreement
strengthens the Company's negotiating power and positions the Board of
Directors to negotiate the best price for shareholders when the Board
determines that the sale of the Company is in the best interest of the
shareholders.

The benefits of shareholder rights agreements have been validated by a
study of Georgeson & Company, Inc., in November 1997. The study found that:
(i) premiums paid to target companies with shareholder rights agreements were
on average 8% higher than premiums paid to purchase target companies that did
not have shareholder rights agreements; (ii) the presence of a shareholder
rights agreement did not increase the likelihood that a hostile takeover bid
would be defeated or that a friendly bid would be withdrawn; and (iii) a
shareholder rights agreement did not reduce the likelihood that a company
would become a takeover target (the takeover rate was similar for companies
with and without shareholder rights agreements). This conclusion has been
supported by Patrick McGurn, director of corporate programs for Institutional
Shareholder Services, who was quoted as saying that "companies with poison
pills in place tend to get higher premiums paid on average than companies that
don't have pills." (Wall Street Journal, January 29, 1999.)

The Company's Articles of Incorporation and the Indiana Business
Corporation Law provide certain additional mechanisms designed to deter
abusive takeover practices that do not treat all shareholders equally.
However, the Board does not believe that these additional measures protect the
shareholders of the Company as effectively as the Rights Agreement, which
automatically causes a raider to suffer substantial dilution of its holdings
if it purchases shares of Common Stock of the Company in excess of the amount
permitted in the Rights Agreement without first obtaining the approval of the
Board of Directors. The Board of Directors believes that the continued
presence of the Rights Agreement provides the Board of Directors with an
additional and necessary degree of control, giving the Board of Directors
sufficient time to evaluate a potential buyer and to consider the impact of a
proposed transaction upon the Company and its shareholders.

The Board of Directors also believes, for these reasons, that it should
retain the flexibility to adopt a new shareholder rights agreement in the
future. The Board believes that any commitment by it to seek shareholder
approval prior to the adoption or implementation of a shareholder rights
agreement would impede the Board of Director's flexibility to respond to
market conditions and would remove the incentive for a potential acquirer to
negotiate with the Board of Directors so that shareholders are treated fairly.
In fact, as recognized by NBO in its proxy materials, if the Board of
Directors implemented the Rights Agreement Proposal, the Company could
subsequently receive an unwelcome tender offer while there is no shareholder
rights agreement in place. The requirement that the Company seek shareholder
approval for the adoption of a new shareholder rights agreement could place
the Company in the position of being unable, given the time requirements, to
adopt a new shareholder rights agreement. The Board of Directors does not
believe that this is a risk that is in the best interests of the shareholders
or the Company.

8
<PAGE>

The Board of Directors was aware when it adopted the Rights Agreement of
arguments similar to those made in NBO's proxy materials. The Board of
Directors fully considered those views, but concluded that the Rights
Agreement represented a sound, reasonable and appropriate means of addressing
the complex issues associated with the threat of coercive takeovers. The Board
of Directors continues to firmly believe that its view is the correct one.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF
THE RIGHTS AGREEMENT PROPOSAL

PROPOSAL 3

APPOINTMENT OF AUDITORS

The appointment of PricewaterhouseCoopers LLP as auditors for the Company
during fiscal 2000 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 PricewaterhouseCoopers LLP 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
PRICEWATERHOUSECOOPERS LLP

9
<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 1999 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
---------------------- ---------------------
Securities Restricted
Name and Principal Fiscal Underlying Stock All Other
Position Year Salary Bonus(1) Options(2) Awards(3) Compensation
------------------ ------ ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Daniel B. Fitzpatrick... 1999 $346,538(4) $ 0 0 $60,000 $ 5,000(5)
Chairman, President and 1998 340,000 0 0 0 4,773(6)
Chief Executive Officer 1997 340,750 0 40,440 0 1,413(7)

John C. Firth........... 1999 $234,635(4) $97,486(8) 19,302 $66,004(9) $ 5,425(10)
Executive Vice 1998 230,328 91,800 20,000 0 4,905(11)
President, General 1997 184,038 50,000 15,000 0 0
Counsel and Secretary

James K. Fitzpatrick.... 1999 $198,750(4) $49,687 16,728 $43,956 $ 5,000(5)
Senior Vice President 1998 185,288 92,500 20,000 0 7,440(12)
and Chief Development 1997 170,942 75,000 4,670 0 1,524(7)
Officer

Gerald O. Fitzpatrick... 1999 $194,231(4) $58,270 16,299 $43,098 $ 1,638(5)
Senior Vice President, 1998 181,346 96,250 20,000 0 6,056(13)
Burger King Division 1997 155,000 75,000 3,980 0 1,298(7)

Patrick J. Barry........ 1999 $188,558(4) $47,712 15,871 $42,240 $ 6,420(14)
Senior Vice President, 1998 165,288 78,525 20,000 0 4,910(15)
Administration and 1997 150,000 75,000 0 0 76,420(16)
Information Technology
</TABLE>
- --------
(1) Represents awards under the Company's bonus plan. To the extent the
Company meets certain financial targets and performance targets
established for the areas of the Company's operations under the
supervision of the Named Executive Officer, the officer may receive a
discretionary bonus. For fiscal 1999, fiscal 1998 and fiscal 1997,
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 never granted
SAR's.

(3) Represents the market value of restricted shares awarded on June 1, 1999
under the Company's 1997 Stock Option Plan based on the closing market
price of the Company's Common Stock ($3.00) on that date. The total
number of shares of restricted stock awarded to the Named Executive
Officers pursuant to the Company's 1997 Stock Option Plan in fiscal 1999
were: Daniel B. Fitzpatrick--20,000 shares; John C. Firth--18,668 shares;
James K. Fitzpatrick--14,652 shares; Gerald O. Fitzpatrick--14,366
shares; and Patrick J. Barry--14,080 shares. The restricted shares
awarded under the 1997 Stock Option Plan vest on June 1, 2006, subject to
accelerated vesting in one-third increments when the Company's share
price closes at or above $4.00, $5.00 and $7.00, respectively, for at
least 10 out of 20 consecutive trading days. Holders of restricted stock
are eligible to vote the shares and to receive dividends, if any. As of
October 31, 1999, the total number and value (based on the closing market
price of the Company's Common Stock on October 31, 1999) of the unvested
restricted stock awards held by the Named Executive Officers were as

10
<PAGE>

follows: Daniel B. Fitzpatrick--20,000 shares ($52,500); John C. Firth--
22,668 shares ($59,504); James K. Fitzpatrick--14,652 shares ($38,462);
Gerald O. Fitzpatrick--14,366 shares ($37,711); and Patrick J. Barry--
14,080 shares ($36,960).

(4) Represents compensation paid over the Company's 53 week fiscal year.

(5) Represents Company allocations to its discretionary, non-qualified
deferred compensation plan. The Company's allocations to this plan on
behalf of participants are determined at the discretion of the Board of
Directors.

(6) Includes Company allocations to its discretionary, non-qualified deferred
compensation plan of $2,158 and Company contributions to its
discretionary, noncontributory profit sharing plan of $2,615. The
Company's allocations and contributions to these plans on behalf of
participants are determined at the discretion of the Board of Directors.

(7) Represents Company contributions under its discretionary, noncontributory
profit sharing plan.

(8) Includes a one-time bonus which Mr. Firth received in connection with his
employment agreement.

(9) Of this amount, (i) $56,004 represents the market value of restricted
shares awarded on June 1, 1999 under the Company's 1997 Stock Option Plan
based on the closing market price of the Company's Common Stock ($3.00)
on that date and (ii) $10,000 represents the market value of 4,000
restricted shares awarded pursuant to Mr. Firth's Employment Agreement
with the Company based on the closing market price of the Company's
Common Stock on the date of the award. The restricted shares awarded
pursuant to Mr. Firth's Employment Agreement vest on February 24, 2000.
As of October 31, 1999, the market value of these 4,000 restricted shares
(based on the closing market price of the Company's Common Stock on that
date) was $10,500.

(10) Includes Company allocations to its discretionary, non-qualified deferred
compensation plan of $5,000 and life insurance premiums of $425.

(11) Includes Company allocations to its discretionary, non-qualified deferred
compensation plan of $4,480 and life insurance premiums of $425.

(12) Includes Company allocations to its discretionary, non-qualified deferred
compensation plan of $4,269 and Company contributions to its
discretionary, noncontributory profit sharing plan of $3,171.

(13) Includes Company allocations to its discretionary, non-qualified deferred
compensation plan of $2,554 and Company contributions to its
discretionary, noncontributory profit sharing plan of $3,502.

(14) Includes Company allocations to its discretionary non-qualified deferred
compensation plan of $5,000 and life insurance premiums of $1,420.

(15) Includes Company allocations to its discretionary non-qualified deferred
compensation plan of $3,490 and life insurance premiums of $1,420.

(16) Includes a $75,000 payment to Mr. Barry pursuant to his letter agreement
with the Company (See "Employment Agreements") and life insurance
premiums of $1,420.

Employment Agreements

In August 1996, Patrick J. Barry entered into a letter agreement with the
Company in connection with his appointment as Vice President of the Company,
pursuant to which the Company agreed to pay Mr. Barry an annual base salary of
$150,000 for fiscal year 1997 and $165,000 for fiscal year 1998. In addition,
the Company granted Mr. Barry options to purchase 15,000 shares of the
Company's Common Stock at an exercise price of $21.25 which was equal to the
fair market value of the Company's stock on the date of grant. The Company
also agreed to pay Mr. Barry a bonus of $75,000 which was paid to him in
fiscal 1997. The Company further agreed that in the event Mr. Barry is
terminated by the Company, other than for cause, it would pay him severance
benefits equal to one year's base salary if the termination occurs in his
first three years of employment and 75% of one year's base salary if the
termination occurs in his fourth year of employment. As part of his employment
arrangement, the Company also agreed to pay Mr. Barry $75,000 to compensate
him for financial losses incurred by him in connection with his resignation
from his former employer, which amount was determined and paid to him in
fiscal 1997.

11
<PAGE>

In August 1999, the Company entered into an Employment Agreement with John
C. Firth, its Executive Vice President and General Counsel. Mr. Firth's
previous Employment Agreement expired in June 1999. The agreement is for a
period of three years and extends automatically for one year on each
anniversary date. Mr. Firth's agreement provides for a $240,000 base salary
which shall be reviewed at least annually for increase and cash bonus payments
of up to 50% of his base salary determined in a manner similar to other senior
executives of the Company. In connection with entering into the agreement, Mr.
Firth received a one-time cash bonus of $40,000 and was awarded 4,000
restricted shares of Company Common Stock, valued at $10,000 based upon the
closing market price of the Company's Common Stock on the date of grant. The
restricted shares vest on February 24, 2000. The Company also agreed to
maintain a life insurance policy on Mr. Firth's life during his employment in
the amount of $500,000 for the benefit of Mr. Firth or his designee. Pursuant
to the agreement, Mr. Firth is prohibited from competing with the Company or
soliciting Company employees for a period of one year after the termination of
his employment. If the agreement is terminated by the Company, other than for
cause or by Mr. Firth with good reason (which includes the termination of Mr.
Firth's employment for any reason within one year following a change in
control of the Company), Mr. Firth is entitled to two times his base salary
and maximum bonus, additional and accelerated vesting and exercisability as to
the portion of any outstanding option scheduled to vest on the next following
vesting date and the Company will continue to provide health and welfare
benefits for one year.

In June 1999, the Company entered into non-compete agreements with certain
of its officers, including James K. Fitzpatrick and Gerald O. Fitzpatrick. The
agreements prohibit such officers from competing with the Company or
soliciting employees of the Company for a period of one year following the
termination of their employment. The agreements also provide that in the event
of a change of control of the Company, such officers will receive two times
(in the case of James K. Fitzpatrick) or one and one-half times (in the case
of Gerald O. Fitzpatrick) their base salary and maximum bonus potential at the
time of the change of control. The Board of Directors believed that these
agreements, together with awards under the Long Term Incentive Plans described
below, would encourage these key employees to remain with the Company at a
critical stage in the implementation of the Board's long-term strategy. In the
case of the change of control payments, the Board believed that these officers
would be better able to act in the interests of all shareholders in the face
of a hostile takeover attempt or in the event that the Board of Directors
determined that the Company should be sold if they were assured of receiving
sizable payments following a change of control. The Board was advised that
such arrangements were prevalent among publicly-traded companies and concluded
that such arrangements would foster, rather than impair, the ability of the
Company to be sold. The Board of Directors believed that these considerations
were as applicable to James and Gerald Fitzpatrick as they were to the other
key officers of the Company who were provided with comparable arrangements.

Compensation of Directors

During fiscal 1999, the Company paid Directors who are not employees of the
Company an annual retainer of $8,000, plus $500 for each regular Board of
Director's meeting attended and $750 for each special Board of Director's
meeting attended and each committee meeting attended if the committee met on a
day other than a Board of Director's 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 1993 Outside Directors Plan and the
Company's 1999 Outside Directors Stock Option Plan ("1999 Outside Directors
Plan"), generally 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. No options were
granted on May 1, 1999 to non-employee Directors; however, under the 1999
Outside Directors Plan, on May 1, 2000 each then non-employee Director will
automatically receive an option to purchase 4,000 shares of Common Stock. See
"--Stock Options".

12
<PAGE>

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 were originally subject to the 1993 Stock Option Plan
(subject to adjustment in certain events). In fiscal 1999, the Company
repurchased 298,340 options previously issued under the 1993 Stock Option
Plan. See "--Long Term Incentive Plans." These options were permanently
retired and are not available to be reissued. As of October 31, 1999, options
to purchase 197,990 shares of Common Stock were outstanding under the 1993
Stock Option Plan. No awards for additional shares of Common Stock will be
made under the 1993 Stock Option Plan, although the terms of options granted
pursuant to the 1993 Stock Option Plan may be modified.

On February 14, 1997, the Board of Directors adopted, subject to
shareholder approval, the 1997 Stock Option Plan. On March 26, 1997, the
shareholders of the Company approved the adoption of the 1997 Stock Option
Plan at the 1997 annual meeting of shareholders. The 1997 Stock Option Plan
provides for awards of incentive and non-qualified stock options, shares of
restricted stock, SAR's and performance stock to the officers and key
employees of the Company. An aggregate of 1,100,000 shares of Common Stock are
subject to the 1997 Stock Option Plan (subject to adjustment in certain
events). As of October 31, 1999, options to purchase 536,000 shares of Common
Stock were outstanding under the 1997 Stock Option Plan and 155,552 restricted
shares had been issued and were outstanding under the 1997 Stock Option Plan.

The Company's Board of Directors and shareholders approved the 1993 Outside
Directors Plan effective December 17, 1993. The Company's 1993 Outside
Directors Plan reserved 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. As of October
31, 1999, options to purchase 38,000 shares of Common Stock were outstanding
under the 1993 Outside Directors Plan. See "--Compensation of Directors."

On December 15, 1999, the Board of Directors adopted the 1999 Outside
Directors Plan. The 1999 Outside Directors Plan reserves for issuance 80,000
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. The 1999 Outside Directors Plan provides that on May
1, 2000, each non-employee Director will automatically receive an option to
purchase 4,000 shares of Common Stock and on May 1 of each year thereafter,
each non-employee Director will automatically receive an option to purchase
2,000 shares of Common Stock. Each option will have an exercise price equal to
the fair market value of the Common Stock on the date of grant.

No option granted under the 1993 Outside Directors Plan or the 1999 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 of Directors 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.

13
<PAGE>

The following table sets forth information with respect to options granted
by the Company under the 1997 Stock Option Plan to the Named Executive
Officers during fiscal 1999.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (2)
-------------------------------------------------------- ---------------------
% of Total
Options
Number of Securities Granted to Exercise or
Underlying Options Employees in Base Expiration
Name Granted (1) Fiscal Year Price Date 5% 10%
- ---- -------------------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Daniel B. Fitzpatrick... 0 0% -- -- -- --
John C. Firth........... 19,302 12.0% $3.00 5/31/09 $ 36,417 $ 92,287
James K. Fitzpatrick.... 16,728 10.4% $3.00 5/31/09 $ 31,560 $ 79,980
Gerald O. Fitzpatrick... 16,299 10.1% $3.00 5/31/09 $ 30,751 $ 77,929
Patrick J. Barry........ 15,871 9.8% $3.00 5/31/09 $ 29,944 $ 75,883
</TABLE>
- --------
(1) Consists of incentive 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 25% on June 1, 2000, 25% on June 1, 2001 and 50% on June 1,
2002.
(2) 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.

The following table sets forth information with respect to the exercise of
options by the Named Executive Officers during fiscal 1999.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options at
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... 0 0 23,200 0 -- --
John C. Firth........... 0 0 5,000 34,302 -- --
James K. Fitzpatrick.... 0 0 23,600 31,728 -- --
Gerald O. Fitzpatrick... 0 0 23,430 31,299 -- --
Patrick J. Barry........ 0 0 5,000 30,871 -- --
</TABLE>
- --------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market System on October 31, 1999 was $2.625. The exercise prices
of the options in the table exceeded $2.625 and therefore were not "In the
Money."

401(k) and Deferred Compensation Savings Plan

On October 27, 1986, the Company implemented the Quality Dining, Inc.
Retirement Plan and Trust ("Plan I"). Plan I is designed to provide all of the
Company's employees with a tax-deferred long-term savings vehicle.

14
<PAGE>

The Company provides a matching cash contribution equal to 50% of a
participant's contribution, up to a maximum of 5% of such participant's
compensation. Plan I is a qualified 401(k) plan. Participants in Plan I elect
the percentage of pay they wish to contribute as well as the investment
alternatives in which their contributions are to be invested. Participant's
contributions vest immediately while Company contributions vest 25% annually
beginning in the participant's second year of eligibility since Plan I
inception.

On May 18, 1998, the Company implemented the Quality Dining, Inc.
Supplemental Deferred Compensation Plan ("Plan II"). Plan II is a non-
qualified deferred compensation plan. Plan II participants are considered a
select group of management and highly compensated employees according to
Department of Labor guidelines. Since the implementation of Plan II, Plan II
participants are no longer eligible to contribute to Plan I. Plan II
participants elect the percentage of their pay they wish to defer into their
Plan II account. They also elect the percentage of their account to be
allocated among various investment options. The Company makes matching
allocations to the Plan II participants' deferral accounts equal to 50% of a
participant's contribution, up to a maximum of 5% of such participant's
compensation. Company allocations vest 25% annually, beginning in the
participant's second year of eligibility since Plan I inception.

Long Term Incentive Plans

On June 1, 1999 the Company implemented two plans for its senior officers,
a Strategic Executive Long Term Incentive Compensation Plan (the "Strategic
Long Term Plan") and a Senior Executive Long Term Incentive Compensation Plan
(the "Senior Long Term Plan" and, together with the Strategic Long Term Plan,
the "Long Term Plans"). The participants in the Strategic Long Term Plan are
seven of the Company's executive officers (including each of the Named
Executive Officers other than Daniel Fitzpatrick, the Chief Executive Officer)
and one other senior officer, and the participants in the Senior Long Term
Plan are eight other senior officers of the Company.

The Strategic Long Term Plan consists of three components: (i) restricted
stock awards which vest on June 1, 2006, subject to accelerated vesting in
one-third increments when the Company's share price closes at or above $4.00,
$5.00 and $7.00, respectively, for at least 10 out of 20 consecutive trading
days; (ii) options granted with an exercise price equal to the closing price
of the Common Stock on June 1, 1999, of which 25% will vest on June 1, 2000,
25% will vest on June 1, 2001 and 50% will vest on June 1, 2002; and (iii) a
cash bonus equal to the product of (A) 10% and (B) the sum of the actual base
salary paid to a participant in fiscal years 1998, 1999 and 2000, payable at
the conclusion of the fiscal year 2000 so long as the participant is still
employed by the Company at that time. In the event of death or disability
prior to the payment date, a participant (or their legal representative) in
the Strategic Long Term Plan will receive the amount of the cash bonus that
had accrued up to the date of the participant's death or disability.

The Senior Long Term Plan consists of restricted stock awards and options
that are identical to the restricted stock awards and options contained in the
Strategic Long Term Plan, but does not contain a cash bonus component. The
restricted stock and options issued to the participants of the Long Term Plans
were issued under the Company's 1997 Stock Option Plan.

The Company also repurchased 298,340 options previously issued, at strike
prices ranging from $13.60 to $34.50, to certain executives and non-executive
officers of the Company under the Company's 1993 Stock Option Plan for their
fair value of $44,751, or $0.15 per option. The purchase price was determined
using the Black-Scholes methodology. These options were permanently retired
and are not available to be reissued. As part of this purchase, Daniel B.
Fitzpatrick, John C. Firth, James K. Fitzpatrick, Gerald O. Fitzpatrick and
Patrick J. Barry sold to the Company 157,990, 35,000, 21,170, 17,290 and
15,000 options, respectively, and were paid $23,699, $5,250, $3,175, $2,593
and $2,250, respectively.

Compensation Committee Report On Executive Compensation

The Compensation Committee determines executive compensation and
administers the Company's 1993 Stock Option Plan and the 1997 Stock Option
Plan.

15
<PAGE>

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.

Through the grant of stock options and restricted stock awards, 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, restricted
stock awards and stock option grants. Bonuses, restricted stock awards and
stock option grants are based in part on Company performance.

Stock Options

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 since the
options are not immediately exercisable. In addition, pursuant to the 1993
Stock Option Plan, unexercised options are forfeited immediately if the
employee leaves voluntarily (for any reason other than death, disability or
retirement) 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; pursuant to the 1997 Stock Option Plan, unexercised options
terminate immediately if employment is terminated for cause or voluntarily by
the employee for any reason other than death, disability or retirement.

Stock options are granted pursuant to the Company's 1997 Stock Option Plan
at the discretion of the Company's Compensation Committee. It has been the
Compensation Committee's practice to grant options on an annual basis at the
conclusion of the Company's fiscal year. 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. Following the conclusion of fiscal 1997, the
Compensation Committee suspended its past practice of relying on a formulaic
approach of granting options in order to give greater emphasis to the
individual's potential for future responsibility and promotion over the option
term. The Compensation Committee has established guidelines that provide for
various levels of option grants to classes of employees based upon the level
of responsibility within the Company. However, the Compensation Committee does
not adhere strictly to the guidelines and may occasionally vary the size of
the option grant made to particular individuals.

Cash Bonuses

In December 1994, the Compensation Committee adopted guidelines for annual
cash 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 currently range from 25% to 50%. Within these parameters,
the bonuses are at the discretion of the Compensation Committee.

16
<PAGE>

In making bonus recommendations to the Compensation Committee for the 1999
fiscal year, the Chief Executive Officer evaluated each bonus-eligible
employee's performance against targets established for the areas of the
Company's operations under their supervision, the Company's performance
against its financial targets and the executive officer's impact on the
Company's performance over a number of years. In setting bonuses for fiscal
1999, the Compensation Committee considered the recommendations of the Chief
Executive Officer.

Long Term Incentive Plans

In fiscal 1999, the Compensation Committee engaged an outside executive
consulting firm to review its short and long term compensation plans. After
considering the consulting firm's report, the Compensation Committee concluded
that the Company's long term compensation program was neither effective nor
competitive, in part, because previously granted stock options had exercise
prices significantly higher than the fair market value of the Company's Common
Stock. As a result, "underwater" stock options were no longer providing
sufficient incentive to induce employees to remain with the Company or
motivate them towards improving the Company's overall financial performance
during a critical transition period for the Company. In view of the diminished
value of the stock options, and in light of the significant role stock options
have played in employees' overall compensation, the Compensation Committee
determined that it would be in the best interest of the Company's shareholders
to implement the Long Term Plans that were designed and recommended by its
outside consultants. The Long Term Plans give significant weight to "equity-
based" components which directly align long term executive compensation with
the Company's strategic plan to enhance shareholder value. After weighing the
benefits and detriments of implementing the Long Term Plans, the Compensation
Committee decided to adopt the Long Term Plans because it believed that they
were a necessary tool to induce employees, including executive officers, to
remain with the Company and provide the additional efforts needed during this
very critical time in the Company's history. See "--Compensation of Executive
Officers and Directors--Long Term Plans."

CEO Compensation

Daniel B. Fitzpatrick's salary and cash bonus for fiscal 1999 were
generally determined in accordance with the same procedures and standards as
for the other executive officers of the Company. Mr. Fitzpatrick did not
receive any cash bonus or stock options for fiscal 1999 and is not a
participant in either the Strategic Long Term Plan or the Senior Long Term
Plan, although he was granted 20,000 restricted shares of Common Stock under
the 1997 Stock Option Plan in June 1999.

Compensation and Stock Option Committee

Steven M. Lewis, Chairman
Arthur J. Decio
Christopher J. Murphy III

17
<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 581 for the period from
March 2, 1994 through October 31, 1999. 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 581

<TABLE>
<CAPTION>
FISCAL YEAR ENDING
-----------------------------------------------------------------
10/28/1994 10/27/1995 10/25/1996 10/24/1997 10/30/1998 10/29/1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
COMPANY/INDEX/MARKET
Quality Dining........ 100.00 147.62 167.62 36.67 19.29 20.00
Eating & Drinking
Places............... 100.00 121.00 133.06 139.91 170.73 190.25
NASDAQ Market Index... 100.00 118.62 139.30 182.56 206.42 340.72
</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 for the Company's executive officers. The
Compensation Committee members are Messrs. Lewis,

18
<PAGE>

Decio and Murphy. Except for Mr. Murphy, 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 currently the Chairman,
President and Chief Executive Officer of 1st Source Corporation, a publicly
held diversified bank holding company. Daniel B. Fitzpatrick, a current
Director, and Philip Faccenda, a nominee for the Board of Directors of the
Company, are directors of 1st Source Corporation; however, Mr. Faccenda will
be stepping down from his position in April, 2000. Mr. Murphy is not involved
in any relationships requiring disclosure under Item 404 of Regulation S-K.
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.

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 leased its former headquarters facility from B.K. Main
Street Properties, a partnership owned by Messrs. Daniel B. Fitzpatrick, Ezra
H. Friedlander and James K. Fitzpatrick. This lease was a triple net lease
with monthly rental payments calculated on the basis of $12.00 per square foot
annually. The lease provided for renewals of up to five years at then
prevailing market rates. The Company believes that this lease was on terms at
least as favorable as could be obtained from an unrelated third party. In May
1997, the Company subleased its former headquarters facility to a local
financial institution for a term extending through the expiration of the
Company's lease. On May 5, 1999, the financial institution exercised its
option to purchase the Company's former headquarters facility from B.K. Main
Street Properties which resulted in the termination of the Company's lease.
During fiscal 1999, the Company paid $64,234 under this lease and received
$40,781 from the sublessee.

Of the Burger King restaurants operated by the Company as of October 31,
1999, 41 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 except that Burger King Corporation was
generally charging additional rent of 8 1/2% of restaurant sales. During
fiscal 1999, the Company paid $3,872,378 under these leases.

During fiscal 1999, the Company paid an aggregate of $3,936,612 under these
related party leases. The Company does not presently intend to enter into
additional leases with related parties.

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 1999, SB No. 3 billed the Company $260,000. 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 or
three 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.

19
<PAGE>

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 1999 was $14,000. The Company
believes that these fees are no lesser than amounts which would have been
charged to unaffiliated third parties for comparable services.

PRINCIPAL OWNERS OF COMMON STOCK

The following table sets forth, as of November 25, 1999, 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 Directors, nominees as Director and Named
Executive Officers, and by all Directors and nominees as Director 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>
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......................... 353,740(4)(6) 2.8%
Ezra H. Friedlander.......................... 505,131(7)(8) 4.0%
Bruce M. Jacobson............................ 0 --
Steven M. Lewis.............................. 13,250(1)(9) *
Christopher J. Murphy III.................... 60,700(1)(10) *
Patrick J. Barry............................. 24,080(4)(11) *
John C. Firth................................ 38,620(4)(11) *
Gerald O. Fitzpatrick........................ 240,443(4)(12) 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(13) 9.5%
All current Directors, nominees as Directors
and executive officers as a group (15
persons).................................... 3,613,129(4)(14) 28.3%
</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) Includes presently exercisable stock options to purchase 10,000 shares,
granted under the Company's 1993 Outside Directors Plan.

(2) These shares are held by Philip J. Faccenda, Inc., a holding company of
which Mr. Faccenda is the majority shareholder and has investment
control.
(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 1993 Outside Directors Plan.

20
<PAGE>

(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 500 shares held in a trust for the benefit of Mr. Lewis' minor
children.

(10) 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.

(11) Includes presently exercisable stock options to purchase 10,000 shares,
granted by the Company.

(12) Includes presently exercisable stock options to purchase 28,430 shares,
granted by the Company.

(13) The individuals listed are members of NBO, LLC, a Michigan limited
liability company. The reporting persons share voting and dispositive
power with respect to all 1,200,000 shares reported.

(14) Includes presently exercisable stock options to purchase 168,980 shares
granted by the Company.

COST AND METHOD OF SOLICITATION

The Company will bear the cost of this solicitation. While no precise
estimate of this cost can be made at the present time, the Company currently
estimates that it will spend a total of approximately $50,000 for its
solicitation of proxies, including expenditures for attorneys, solicitors and
advertising, printing, transportation and related expenses, but excluding the
salaries and wages of regular employees and officers and the normal expenses
of an uncontested proxy solicitation for the election of directors. As of
February , 2000, the Company has incurred proxy solicitation expenses of
approximately $2,000. In addition to soliciting proxies by mail, Directors and
officers may solicit proxies in person or by telephone or telecopy.

The Company will also reimburse brokers, fiduciaries, custodians and other
nominees, as well as persons holding stock for others who have the right to
give voting instructions, for out-of-pocket expenses incurred in forwarding
this proxy statement and related materials to, and obtaining instructions or
authorizations relating to such materials from, beneficial owners of the
Company's capital stock. The Company will pay for the cost of these
solicitations, but these individuals will receive no additional compensation
for these solicitation services. The Company has retained the proxy
solicitation firm of Georgeson Shareholder Communications Inc. ("Georgeson")
at estimated fees of not more than $25,000 in the aggregate, plus reasonable
out-of-pocket expenses, to participate in the solicitation of proxies and
revocations. The Company also has agreed to indemnify Georgeson against
certain liabilities and expenses. The Company estimates that approximately 50
employees of Georgeson will be involved in the solicitation of proxies on
behalf of the Company.

21
<PAGE>

INFORMATION CONCERNING DIRECTORS AND CERTAIN OFFICERS AND
EMPLOYEES OF THE COMPANY WHO MAY SOLICIT PROXIES

Under the applicable regulations of the SEC, each of the Directors of the
Company is deemed to be a "Participant" in the Company's solicitation of
proxies. The following table sets forth (a) the name, business address and
principal occupation of the Directors and nominees as Director of the Company
and any officers and employees of the Company who may also solicit proxies
from shareholders of the Company ("Participants") and (b) the dates, types and
amounts of each Participants' purchases and sales of the Company's Common
Stock within the past two years. Unless otherwise indicated, the principal
occupation refers to such person's position with the Company and the business
address is 4220 Edison Lakes Parkway, Mishawaka, Indiana 46545.

Except as otherwise indicated, shares of Common Stock of the Company owned
of record by each Participant are also owned beneficially by such Participant.
The number of shares of Common Stock of the Company owned by each Director or
nominee, Patrick J. Barry, John C. Firth and Gerald O. Fitzpatrick is set
forth in the table under "Principal Owners of Common Stock". The number of
shares of Common Stock of the Company owned by each other Participant is set
forth below.

Company Directors

<TABLE>
<CAPTION>
Names, Businesses Date of Purchase (P), Sale (S)
Addresses(1) Transaction Or Award (A) Type and Amount
----------------- ----------- ---------------------- ------------------------
<S> <C> <C> <C>
Arthur J. Decio......... -- -- --
Chairman of the Board
Skyline Corporation
2520 Bypass Road
Elkhart, IN 46514
Philip J. Faccenda...... -- -- --
Vice President and
General Counsel
Emeritus
University of Notre
Dame
600 First Source Bank
Center
100 North Michigan
South Bend, IN 46601
Daniel B. Fitzpatrick... 6/01/99 A 20,000 Restricted Shares
President and Chief
Executive Officer
James K. Fitzpatrick.... 6/01/99 A 14,652 Restricted Shares
Senior Vice President
and Chief 12/15/99 A 11,152 Restricted Shares
Development Officer
Ezra H. Friedlander..... 11/13/98 P 20,000 Common Stock
Judge, Indiana Court of
Appeals 2/03/98 P 1,000 Common Stock
200 W. Washington, Room
416 2/06/98 P 40,000 Common Stock
Indianapolis, IN 46204 2/09/98 P 25,000 Common Stock
2/17/98 P 15,000 Common Stock
10/15/98 P 8,300 Common Stock
10/16/98 P (2) 3,700 Common Stock
Bruce M. Jacobson....... -- -- --
Partner
Katz, Sapper & Miller,
LLP
17111 North Meridian
Suite 800
Carmel, IN 46932
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
Names, Businesses Date of Purchase (P), Sale (S)
Addresses(1) Transaction Or Award (A) Type and Amount
----------------- ----------- ---------------------- -----------------------
<S> <C> <C> <C>
Steven M. Lewis......... -- -- --
President, Chief
Executive Officer
Restaurants, Inc.
1780 Swede Road
Blue Bell, PA 19422
Christopher J. Murphy
III.................... 1/20/99 P 17,000 Common Stock
Chairman, President and
Chief Executive Officer 1/21/99 P 5,000 Common Stock
1st Source Corporation 1/22/99 P 15,000 Common Stock
100 N. Michigan St. 1/25/99 P 648 Common Stock
South Bend, IN 46601 12/28/99 S 5,000 Common Stock

Officers and Employees

<CAPTION>
Names, Businesses Date of Purchase (P), Sale (S)
Addresses(1) Transaction Or Award (A) Type and Amount
----------------- ----------- ---------------------- -----------------------
<S> <C> <C> <C>
Patrick J. Barry........ 6/01/99 A 14,080 Restricted Stock
Senior Vice President,
Administration and 12/15/99 A 10,580 Restricted Stock
Information Technology
Lindley E. Burns (3).... 6/01/99 A 8,434 Restricted Stock
Senior Vice President, 12/15/99 A 6,434 Restricted Stock
Full Service Dining
Division

Christopher Collier (4). 6/01/99 A 4,188 Restricted Stock
Vice President, Finance 12/15/99 A 3,689 Restricted Stock

David M. Findlay (5).... 6/01/99 A 9,505 Restricted Stock
Chief Financial Officer 12/15/99 A 6,756 Restricted Stock
and Treasurer

John C. Firth........... 6/01/99 A 18,668 Restricted Stock
Executive Vice 8/24/99 A 4,000 Restricted Stock
President, General 12/15/99 A 12,868 Restricted Stock
Counsel and Secretary

Gerald O. Fitzpatrick... 6/01/99 A 14,366 Restricted Stock
Senior Vice President, 12/15/99 A 10,866 Restricted Stock
Burger King Division

Robert C. Hudson (6).... 6/01/99 A 7,290 Restricted Stock
Vice President, Grady's 12/15/99 A 5,791 Restricted Stock
American Grill Division

Jeanne M. Yoder (7)..... 6/01/99 A 3,577 Restricted Stock
Vice President and 12/15/99 A 3,577 Restricted Stock
Controller
</TABLE>
- --------
(1) The companies named in the table above, to the extent that the
Participants are officers of such companies, are deemed to be associates
of such Participants. The addresses of such associates are as given above.
(2) The 3,700 shares of Company Common Stock were purchased by Mr.
Friedlander's wife.
(3) Mr. Burns owns 24,368 shares of Company Common Stock, which includes
presently exercisable options to purchase 9,500 shares.
(4) Mr. Collier owns 14,127 shares of Company Common Stock, which includes
presently exercisable options to purchase 6,250 shares.
(5) Mr. Findlay owns 33,661 shares of Company Common Stock, 1,600 of which are
owned by his spouse. Mr. Findlay's shares include presently exercisable
options to purchase 15,000 shares.
(6) Mr. Hudson owns 18,081 shares of Company Common Stock, which includes
presently exercisable options to purchase 5,000 shares.

23
<PAGE>

(7) Ms. Yoder owns 8,404 shares of Company Common Stock, which includes
presently exercisable options to purchase 1,250 shares.

Except as described in this Proxy Statement, none of the Participants nor
any of their respective affiliates or associates (together, the "Participant
Affiliates"), (i) directly or indirectly beneficially owns any securities of
the Company or of any subsidiary of the Company or (ii) has had any
relationship with the Company in any capacity other than as a shareholder,
employee, officer or director. Furthermore, except as described in this Proxy
Statement, no Participant or Participant Affiliate is either a party to any
transaction or series of transactions since October 26, 1998, or has knowledge
of any currently proposed transaction or series of transactions, (i) to which
the Company or any of its subsidiaries was or is to be a party, (ii) in which
the amount involved exceeds $60,000, and (iii) in which any Participant or
Participant Affiliate had or will have, a direct or indirect material
interest.

Except as described in this Proxy Statement, no Participant or Participant
Affiliates has entered into any agreement or understanding with any person
respecting any (i) future employment by the Company or its affiliates or (ii)
any transactions to which the Company or any of its affiliates will or may be
a party. Except as described in this Proxy Statement, there are no contracts,
arrangements or understandings by any Participant or Participant Affiliates
within the past year with any person with respect to any capital stock of the
Company.

SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING

The date by which shareholder proposals must be received by the Company for
inclusion in the Company's proxy materials relating to the 2001 Annual Meeting
of Shareholders is October 8, 2000. Such proposals should be submitted in
writing to the Secretary of the Company at its principal executive offices.

If a shareholder intends to submit a proposal at the 2001 Annual Meeting of
Shareholders which is not eligible for inclusion in the proxy materials
relating to that meeting in accordance with the previous sentence, the
Company's By-Laws were amended in October, 1999 to require that, for business
to be properly brought before an annual meeting by a shareholder (other than
nominations of candidates for director), the Company must have received
written notice thereof not less than 70 nor more than 90 days prior to the
anniversary day of the previous annual meeting. If, however, the annual
meeting is more than 30 days earlier or more than 60 days later than the
anniversary date of the prior annual meeting, notice by the shareholder must
be delivered or received not earlier than the 90th day prior to the annual
meeting and not later than the close of business on the later of the 70th day
prior to the annual meeting or the 10th day following the date on which public
disclosure of the meeting date was first made. The notice must set forth (a) a
brief description of the business proposed to be brought before the meeting
and the reasons for conducting such business at the meeting and, in the event
that such business includes a proposal to amend the Restated Articles of
Incorporation of the Company, the language of the proposed amendment, (b) the
shareholder's name and address, (c) a representation that the shareholder is a
holder of record of shares of the Company entitled to vote at the meeting and
intends to appear in person or by proxy at the meeting to propose such
business, (d) any material interest of the shareholder in such business, and
(e) if the shareholder intends to solicit proxies in support of such
shareholder's proposal, a representation to that effect. Such notice must be
given to the Secretary of the Company, either by personal delivery or by
United States mail, postage prepaid, at the principal executive offices of the
Company. The foregoing requirements will be deemed satisfied if the
shareholder notifies the Company of its intention to present a proposal at an
annual meeting and such proposal has been included in the Company's proxy
statement for such annual meeting. Such shareholder's proposal, however, will
not be presented at the annual meeting unless the shareholder appears or sends
a qualified representative to present the proposal at the meeting.

If the shareholder's proposal includes the nomination of a person to become
a director with respect to an election to be held at an annual meeting, the
shareholder's notice must be received by the Company in the manner and within
the time frame provided above for shareholder's proposals. If, however, the
nomination is with respect to an election to be held at a special meeting of
shareholders for the election of directors, notice must be received not
earlier than the 90th day prior to such meeting and not later than the close
of business on the later of the 60th day

24
<PAGE>

prior to such meeting or the 10th day following the day on which public
disclosure of the meeting date was first made. The notice must set forth (a)
the shareholder's name and address, (b) a representation that the shareholder
is a holder of record of stock of the Company entitled to vote at the meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice, (c) a description of all
arrangements or understandings between the shareholder and each nominee and
any other person pursuant to which the nomination or nominations are to be
made by the shareholder, (d) such other information regarding each nominee
proposed by such shareholder as would be required under the federal proxy
rules, (e) the consent of each nominee to serve if so elected, and (f) if the
shareholder intends to solicit proxies in support of such shareholder's
nominees, a representation to that effect.

John C. Firth, Secretary

February , 2000

25
<PAGE>

IMPORTANT

1. Be sure to vote on the WHITE proxy card. We urge you not to sign any
proxy card which is sent to you by NBO.

2. If any of your shares are held in the name of a bank, broker or other
nominee, please contact the person responsible for your account and
direct him or her to vote on the WHITE proxy "FOR" the Board of
Directors' nominees, "AGAINST" the Rights Agreement Proposal and "FOR"
approval of PricewaterhouseCoopers LLP as accountants.

3. If you have any questions or need assistance in voting your shares,
please call toll free:

17 State Street, 10th Floor
New York, NY 10004

Call Toll Free (800) 223-2064

<PAGE>

REVISED PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED FEBRUARY 3, 2000

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 Company's headquarters, 4220 Edison Lakes Parkway,
Mishawaka, Indiana, on Tuesday, March 7, 2000 at 10:00 a.m., Mishawaka time, and
at any adjournment, as follows:

(change of address)

----------------------------

(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 THE NOMINEES LISTED UNDER PROPOSAL 1, AGAINST
PROPOSAL 2 AND FOR PROPOSAL 3.

SEE REVERSE SIDE
<PAGE>

[X] Please mark your votes as in this example.

- --------------------------------------------------------------------------------

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C> <C>
1. Election of Directors Nominees: Philip J. Faccenda and Daniel B. Fitzpatrick

FOR the nominees WITHHOLD AUTHORITY
listed to the left to vote for the nominees
(except as marked listed to the left
to the contrary)

[_] [_]

INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided below.

___________________________________________________________________
</TABLE>
- --------------------------------------------------------------------------------

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ITEM 2

- --------------------------------------------------------------------------------

2. Rights Agreement Proposal

FOR AGAINST ABSTAIN
[_] [_] [_]

- --------------------------------------------------------------------------------

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 3

- --------------------------------------------------------------------------------

3. Approve Appointment of PricewaterhouseCoopers LLP as Auditors for fiscal
2000

FOR AGAINST ABSTAIN
[_] [_] [_]

4. In their discretion, on any other Please sign exactly as your name
matters that may properly come appears hereon. When shares are
before the meeting. 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.

Date_______________________________

-----------------------------------
(SIGNATURE)

-----------------------------------
(SIGNATURE IF HELD JOINTLY)

Please mark, sign, date and return
the proxy card using the enclosed
envelope.

FOLD AND DETACH HERE