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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14A-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Additional Materials Commission Only (as permitted)
[ ] Soliciting Material Pursuant to by Rule 14a-6(e)(2)
Rule 14a-11(c) or Rule 14a-12
QUALITY DINING, INC.
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(Name of Registrant as Specified In Its Charter)
NBO, LLC
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not applicable
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(2) Aggregate number of securities to which transaction applies: Not
applicable.
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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): Not
applicable.
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(4) Proposed maximum aggregate value of transaction: Not applicable.
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(5) Total Fee Paid: Not applicable.
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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: Not applicable.
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(2) Form, Schedule or Registration Statement No.: Not applicable.
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(3) Filing Party: Not applicable.
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(4) Date Filed: Not applicable.
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72816\0003
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PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED JANUARY 13, 2000
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PROXY STATEMENT OF
NBO, LLC
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IN CONNECTION WITH THE
2000 ANNUAL MEETING OF SHAREHOLDERS
OF QUALITY DINING, INC.
To the Shareholders of Quality Dining, Inc.:
This Proxy Statement is being furnished to holders of common stock,
without par value ("Common Stock"), of Quality Dining, Inc. (the "Company" or
"Quality Dining") in connection with a solicitation by NBO, LLC ("NBO," "we" or
"us") and the other participants described below under "Certain Information
Concerning NBO and the Other Participants in the Solicitation." NBO, as the
owner of 9.4% of the Company's outstanding Common Stock, is the Company's
largest nonmanagement shareholder and the second largest shareholder overall.
This Proxy Statement is for use at the 2000 Annual Meeting of Shareholders of
the Company and at any adjournments thereof (the "2000 Annual Meeting").
We are soliciting proxies in connection with the 2000 Annual Meeting:
o for the election of David W. Schostak, Mark S. Schostak and
Christopher G. Ellis (collectively, the "NBO Nominees") as
directors of the Company, and
o in favor of a proposal recommending that the Quality Dining
Board of Directors redeem the rights distributed under the
Company's "Poison Pill" Rights Agreement dated as of March
27, 1997 ("Poison Pill"), terminate such Rights Agreement
and not adopt any new rights agreement unless approved by
the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock (the "Poison Pill
Termination Proposal").
The proposed election of the NBO Nominees and the Poison Pill Termination
Proposal are referred to herein collectively as the "Proposals."
We are making the Proposals to you because we believe that the
Company's current business strategy is not the best course of action for you --
the owners of the Company. The continued operation of the Company's assets as a
public company is not
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now producing, and we have no reason to believe that it is capable of producing
in the foreseeable future, a fair return for the Company's shareholders. In
addition, we are dismayed at the Company's recent entry into agreements with
corporate insiders effectively repricing "underwater" options and granting them
the right to substantial cash payments upon various "change in control" events,
including, among others, a sale or other disposition of the Company (after we
recommended such a disposition to the Company's management), as well as various
other "corporate goodies" upon a "change in control." We are suggesting that
shareholders be given the opportunity to receive a premium for their Common
Stock through a sale of the Company.
WE BELIEVE THAT A VOTE IN FAVOR OF THE
PROPOSALS WILL FACILITATE A SALE OF THE COMPANY
AND ALLOW SHAREHOLDERS TO EARN A CASH PREMIUM
ON THE COMMON STOCK THEY CURRENTLY HOLD.
We believe that the current market price of the Common Stock does not
reflect the underlying value of the Company's assets for a variety of reasons.
We believe that the Company's low stock price impairs its ability to raise
capital using equity or use its equity as a currency for strategic acquisitions
without unacceptable dilution of shareholders. We believe that the ability to
make strategic acquisitions, in the case of this Company specifically, is vital
to produce efficiencies and margins that will offset some of the inherent
limitations that have made franchisees less attractive investments to some
investors. In addition, such acquisitions could provide contributions to
revenues and profits that the Company needs but cannot now achieve, and would
allow the Company to update concepts such as its Grady's and Italian food
business lines, which we believe are needed. An acquisition partner for the
Company would likely have the capital necessary to appropriately grow this
business and make capital investments in it. As a consequence, we believe that
your investment in the Company is not as fully or fairly valued by the public
markets as it would be in a negotiated transaction with a private strategic
buyer. In light of the Company's implementation of the "goodies" described
above, perhaps the Quality Dining Board shares our view that a "change in
control" might, indeed, be in the best interests of the Company.
Our objective in sponsoring the Proposals is to cause the Company to
deliver this now-unrealized value to shareholders by auctioning itself to the
highest bidder through a sale, merger or other disposition, rather than
remaining an independent public company. NBO (or one of its affiliates) would
expect to be a bidder in any sales process, but would not expect any
preferential treatment. The NBO Nominees believe that the Company's existing
operations cannot produce satisfactory results for its shareholders, and that,
despite what the Company has told you recently, there are no meaningful
prospects for improvement.
NBO RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE NBO NOMINEES AND
THE POISON PILL TERMINATION PROPOSAL.
If elected to the Company's Board of Directors (the "Quality Dining
Board"), the NBO Nominees will attempt, subject to their fiduciary duties to the
Company, to influence the majority of the Quality Dining Board to:
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o remove unwarranted barriers to a sale of the Company, such
as the Poison Pill; and
o auction the Company to the highest bidder through a sale,
merger or other disposition of the Company or its assets.
We believe that your Board of Directors should be committed to creating the
greatest possible return on your investment. It is our objective that the
Quality Dining Board consider any bid made by NBO (or one of its affiliates) or
any unrelated third party to acquire the Company or its assets that provides a
significant premium over the current market prices of the Common Stock and
accept any such bid that creates the greatest value for shareholders. The NBO
Nominees would expect such bids to be generated through a diligently conducted
auction process. If NBO (or any affiliate) determines to be a bidder in any such
process, it would not expect to receive any preferential treatment.
WHY SHOULD YOU VOTE FOR OUR PROPOSALS?
WE SEE NO VIABLE ALTERNATIVE.
The NBO Nominees and our other principals have many years of
ownership and operating experience in the restaurant industry, including
currently operating, as a franchisee, 63 Burger King restaurants. We believe
that we understand the Company's business and that a sale of the Company to the
highest bidder would afford you the only practical opportunity to obtain a
significant premium over the current market price. A sale of the Company
represents an attractive alternative to awaiting a reversal of the Company's
long history of dismal earnings and stock market performance. We have no reason
to believe that there is any significant likelihood of substantial market
appreciation for your Common Stock in the foreseeable future. We reach this
conclusion in light of management's lackluster performance, the absence of any
announced change in strategy and the apparent inability of the Company to
implement a new strategy in the future given its weak balance sheet (as shown in
the Company's most recently filed Form 10-Q, the Company's capital is comprised
of nearly three-quarters debt) and feeble stock price.
We believe that the skill with which the Company's assets are
operated is reflected by the Company's performance. The Company's Quarterly and
Annual results for fiscal 1999 show that management was unable to earn a profit,
either before or after tax expense; that total revenues, operating income,
income before taxes and net income all declined from 1998 results and that
operating expenses increased. The Company expressed no comment on these results
other than to indicate that the CEO was pleased with cash flow (which was not
among the data released). We think that these results indicate the lack of skill
with which the Company's assets are managed, and that the comments of the
Company's chief executive suggest a disturbing smugness. We do not think that
management of this Company has demonstrated anything about which to be smug. We,
apparently unlike management, are disturbed by the performance and gloomy future
of our Company and by the complacency and lack of vision shown by its
management. We believe that this further demonstrates the need for a change in
our Company's structure and operations.
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YOUR VOTE IS IMPORTANT!
TO VOTE FOR OUR PROPOSALS PLEASE NOTE THE FOLLOWING:
No proxy card for use at the 2000 Annual Meeting is included with
this Proxy Statement but a gold proxy card will be provided by NBO after the
Company notifies shareholders of the matters to be voted upon at the 2000 Annual
Meeting. The GOLD PROXY CARD distributed by NBO will be accompanied or preceded
by a revised Proxy Statement setting forth the time and location of the 2000
Annual Meeting as announced by the Company.
ONLY YOUR LATEST DATED PROXY CARD WILL COUNT AT
THE 2000 ANNUAL MEETING. THEREFORE, PLEASE
DO NOT COMPLETE OR RETURN ANY PROXY CARD
SENT TO YOU BY THE COMPANY'S MANAGEMENT OR
BOARD OF DIRECTORS.
ONLY SUBMIT THE GOLD PROXY CARD.
You can revoke your proxy (whether such proxy was solicited by NBO or
the Company) at any time prior to its use at the 2000 Annual Meeting by
submitting to NBO or the Company a written revocation or duly executed proxy
bearing a later date. In addition, if you attend the 2000 Annual Meeting in
person, you can vote by ballot, thereby canceling any proxy previously given.
Proxies may be delivered to NBO, by hand or by mail, at:
NBO, LLC
c/o MacKenzie Partners
156 Fifth Avenue, P.H. 3
New York, New York 10010
THIS SOLICITATION IS BEING MADE BY NBO IN OPPOSITION TO THE INCUMBENT
QUALITY DINING BOARD AND MANAGEMENT OF THE COMPANY.
This Proxy Statement is first being sent or given to one or more
shareholders on or about January 13, 2000. The Company reported in its quarterly
report on Form 10-Q for the fiscal quarter ended August 1, 1999, that there were
12,754,996 shares of Common Stock outstanding on September 14, 1999. Unless
otherwise indicated, any reference in this Proxy Statement to the percentage of
outstanding shares of Common Stock owned by any person was computed based upon
this number of outstanding shares. Each share of Common Stock is entitled to one
vote.
The Proxy Statement and a form of proxy will be delivered to holders
of at least the percentage of the Company's Common Stock required under
applicable law to carry the Proposals. See "Vote Required."
The Company has indicated in "search notices" distributed to notify
brokers of the 2000 Annual Meeting that the 2000 Annual Meeting will take place
on Tuesday, March 14, 2000 and that the record date for shareholders to vote at
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the 2000 Annual Meeting will be January 19, 2000. The Company's By-laws (the
"By-laws") provide that the annual meeting of shareholders shall be held at
11:00 a.m. local time at the principal office of the Company or such other place
and time as may be fixed by the Quality Dining Board. The Company has not yet
announced any place or time for the 2000 Annual Meeting, but we expect that the
Company will provide this information in due course. Only shareholders of record
at the close of business on the record date for the 2000 Annual Meeting will be
entitled to notice of, or to vote at, the 2000 Annual Meeting.
The By-laws provide that the Quality Dining Board shall be comprised
of seven directors. The Quality Dining Board currently consists of six
directors. At the 2000 Annual Meeting, two of the Company's directors will be
elected for three-year terms or until the election and qualification of each of
their successors. In addition, it is our understanding that a vacancy on the
Quality Dining Board was created when William R. Schonsheck chose not to stand
for reelection at the 1999 Annual Meeting. At the 2000 Annual Meeting we
anticipate nominating three people for election to the Quality Dining Board. We
are soliciting proxies pursuant to this Proxy Statement to elect to the Quality
Dining Board: (i) David W. Schostak and Mark S. Schostak to serve the three-year
terms, replacing Arthur J. Decio and Daniel B. Fitzpatrick, both current
directors whose terms will expire at the 2000 Annual Meeting, and (ii) a third
nominee of NBO, Christopher G. Ellis, to fill the vacancy described above and
serve the remainder of that three-year term expiring in 2002.
As indicated under "Background and Reasons for the Solicitation"
below, the Company's incumbent directors have rejected our proposals to consider
a sale of the Company.
We have not solicited any offers from any potential acquirers of the
Company. We have not been given access to any non-public materials of the
Company and have not conducted any other appraisal of the assets of the Company
in order to determine a fair price for such a sale. We have not made or
undertaken any analyses or reports as to whether shareholder value will be
maximized as a result of this solicitation or obtained reports from consultants
or other outside parties as to whether the Proposals would have an effect on
shareholder value. No assurance can be given that the NBO Nominees would be able
to implement their plan if elected to the Quality Dining Board. The NBO Nominees
could, in the future, based upon an evaluation of the Company's operations and
future plans, decide to pursue another course of action. IF YOU HAVE ANY
QUESTIONS ABOUT EXECUTING YOUR PROXY OR REQUIRE ASSISTANCE, PLEASE CONTACT:
MACKENZIE PARTNERS
156 FIFTH AVENUE, P.H. 3
NEW YORK, NEW YORK 10010
CALL: (800) 322-2885
OR (212) 929-5500
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IMPORTANT
At the 2000 Annual Meeting, NBO seeks to elect three nominees as
directors of the Company.
A VOTE FOR OUR NOMINEES WILL PROVIDE YOU -- THE OWNERS OF THE COMPANY
- -- WITH AT LEAST THREE REPRESENTATIVES ON THE QUALITY DINING BOARD WHO ARE
COMMITTED TO INCREASING SHAREHOLDER VALUE THROUGH A SALE, MERGER OR OTHER
DISPOSITION OF THE COMPANY OR ITS ASSETS TO THE HIGHEST BIDDER PURSUANT TO AN
AUCTION.
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OUR REASONS FOR THE SOLICITATION
ECONOMIC VALUE NOT REFLECTED IN MARKET PRICE.
Quality Dining concluded its initial public offering on March 8,
1994. Trading in the Common Stock closed on that date at a price of $12.25 per
share and the Company completed subsequent offerings at $18 and $25 per share.
The price of the Common Stock closed at an all-time high of $38.75 per share on
May 23, 1996. The Company's market capitalization has lost more than 91% of its
1996 high, plunging from approximately $343 million on May 23, 1996, to
approximately $28 million on January 11, 2000. In light of what we believe to be
the remote likelihood of significant appreciation of the Common Stock in the
public market, we believe that a sale of the Company would be the best way for
shareholders to realize the maximum value on their investments. We believe that
a sale of the Company to the highest bidder would afford you the most attractive
opportunity to obtain a significant premium to the current market prices for
your Common Stock.
DISMAL STOCK PRICE.
This Company's stock price has spiraled downward for far too long.
Statistically speaking, we believe the hypothetical monkey throwing darts at a
list of investments should have done better, while simple index fund investments
have significantly outperformed the "managed" capital of this Company. BASED ON
THE COMPANY'S OWN CALCULATION OF CUMULATIVE TOTAL SHAREHOLDER RETURN PRESENTED
IN THE COMPANY'S 1999 PROXY STATEMENT, $100 HYPOTHETICAL INVESTMENTS MADE ON
MARCH 2, 1994 IN THE NASDAQ MARKET INDEX AND IN AN INDEX OF NASDAQ COMPANIES IN
SIC MAJOR GROUP 58 WOULD HAVE GROWN TO $208.68 AND $152.59, RESPECTIVELY, BY
OCTOBER 23, 1998. IN CONTRAST, A $100 INVESTMENT IN THE COMPANY MADE ON MARCH 2,
1994 DECLINED, AND WOULD BE WORTH ONLY $20.88 BY OCTOBER 23, 1998 AND WOULD HAVE
DECLINED FURTHER, TO $16.61, BY JANUARY 11, 1999. Based on the number of
currently outstanding shares, this reflects a destruction of market value, from
the close on the date the Company concluded its IPO, of more than $51 million by
January 11, 2000. This disturbing deterioration in value represents nearly 185
percent of the Company's present market capitalization. Perhaps most disturbing
is that this performance occurred during a period when the values represented by
the S&P 500 INDEX, DOW JONES INDUSTRIAL AVERAGE
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AND NASDAQ COMPOSITE INDEX ROSE TO 309%, 298% AND 495% of their respective
levels on the date the Company concluded its IPO.
THE SOLUTION IS TO EXIT THE PUBLIC MARKETS.
We believe that the recent phenomenon of formerly public restaurant
businesses having left the public markets supports our view that the potential
for future market appreciation of the Common Stock is limited. In the last three
years, at least 16 public restaurant companies have left the public markets by
being acquired. In our view Quality Dining should do likewise.
YOU HAVE A VOTE IN THE FUTURE OF YOUR INVESTMENT. VOTE FOR THE NBO NOMINEES AND
THE POISON PILL TERMINATION PROPOSAL.
As described below in "Background of this Solicitation," the Quality
Dining Board and management have repeatedly rejected our suggestions for
increasing shareholder value and dismissed our offers and requests to meet and
provide the benefit of our extensive experience to the Quality Dining Board.
By running our own slate of nominees, we believe we are giving you,
the Company's shareholders, a choice. If you are satisfied with the performance
of your Company and its stock price, no doubt you will reelect management's
nominees. But, if you - like us - are not satisfied and believe that the
Company's shareholders would benefit from diligent efforts to sell the Company
at a premium to its current market value through an auction process, and by
adding three directors unaffiliated with the Company's management, we urge you
to support the NBO Nominees.
BACKGROUND OF THIS SOLICITATION
NBO, whose members have many years of experience in the real estate
and restaurant businesses, acquired the Company's shares with the belief that
such shares were undervalued and represented a favorable investment opportunity.
While we continue to believe that the shares are undervalued, we do not believe
that operating the Company as a public company in the current market climate --
or with the current management team -- can recognize this value.
MARCH 22 MEETING WITH MANAGEMENT.
On March 22, 1999, David W. Schostak and Mark S. Schostak met with
Daniel B. Fitzpatrick, Chairman, President and Chief Executive Officer of the
Company, and John C. Firth, Executive Vice President, General Counsel and
Secretary of the Company, to discuss the Company's businesses and operations
(the "March 22 Meeting"). Messrs. David and Mark Schostak left that meeting
concerned as to whether the Company was taking all steps possible to increase
shareholder value. On March 26, 1999, we filed a Schedule 13D with respect to
our shares of Common Stock and voiced our displeasure with the results of our
meeting with Mr. Fitzpatrick and Mr. Firth as well as the poor financial
performance of the Company.
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COMPANY REWARDS INSIDERS WITH VALUABLE "GOODIES".
Instead of engaging our assistance and tapping our substantial
experience in the restaurant industry as a resource to aid in enhancement of
shareholder value, we believe that management focused on protecting their own
positions, making a sale of the Company less appealing to possible suitors by
making it more expensive. For example, on June 1, 1999, the Company without
prior notice to shareholders:
o entered into Noncompete Agreements with four members of
management that provide for substantial lump sum payments to
those individuals in the event of a change in control of the
Company;
o repurchased stock options that were "underwater" from eight
officers of the Company and granted them new stock options
at much, much lower exercise prices; and
o granted 103,114 restricted shares that vest immediately upon
a change in control, to eight officers of the Company.
In addition, on August 24, 1999 the Company entered into an
employment agreement with John Firth, its Executive Vice President and General
Counsel. This agreement provides, among other things, that if Mr. Firth, at his
election, terminates his employment within one year of a change in control, he
is entitled to a lump sum payment equal to: twice the sum of (a) his then
current base salary and (b) the maximum bonus he was then eligible to receive.
At his base salary in effect on the date of this agreement, Mr. Firth would be
entitled to receive a lump sum of $720,000 if he made such an election after a
change of control.
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WERE RECENT INSIDER DEALS IN THE SHAREHOLDERS' BEST INTERESTS?
Two of the Noncompete Agreements were entered into by the Company
with James K. Fitzpatrick and Gerald O. Fitzpatrick, the CEO's brothers. Based
upon their 1998 compensation, upon a change in control, James and Gerald
Fitzpatrick would each be entitled to a payment of no less than $554,000. In
order to fully understand this in perspective, consider that such payments to
these two individuals and the severance payment to John Firth described above
would, in the aggregate, constitute 7% of the Company's entire market
capitalization as of January 11, 2000 and would exceed the Company's net income
for fiscal 1998 or 1999. Did the Company's shareholders realize any value from
these new agreements? We are certain that you did not. In addition, all
restricted shares and stock options held by either of these executives would
immediately vest upon a change in control, increasing the number of shares that
a potential acquiror would be required to purchase in order to acquire the
Company (and the cost of doing so), while further enriching these individuals at
the expense of the shareholders -- you.
REPEATED REQUESTS TO MEET WITH QUALITY DINING BOARD REJECTED.
Subsequent to the March 22 Meeting, we made repeated requests for a
meeting with the Quality Dining Board to discuss the future of our Company and
possible strategic alternatives, including a suggestion made in a discussion
with the CEO in August 1999 that the Company consider engineering a strategic
transaction with NBO or an affiliated party. Notwithstanding the Company's
continued poor performance and our status as its largest independent
shareholder, each and every such request was either ignored or promptly
rebuffed.
In response to the Quality Dining Board's continuing refusal to meet
with us, the Company's largest independent shareholder, on October 1, 1999 we
sent the following letter:
NBO, LLC
25800 Northwestern Highway
Suite 750
Southfield, Michigan 48075
(248) 357-6126
(248) 357-6116 (Fax)
October 1, 1999
Board of Directors
Quality Dining, Inc.
4220 Edison Lakes Parkway
Mishawaka, Indiana 46545
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Dear Directors:
As you know, NBO, LLC is the holder of 1,200,000 shares, or
approximately 9.5%, of Quality Dining's common stock, making us the Company's
largest outside shareholder. The principals of NBO are members of the Schostak
family who also own a full service real estate development and management
company that currently owns and manages more than 7.5 million square feet of
retail, commercial and industrial properties in the Midwest, and an entity that
owns and operates a Burger King franchise presently consisting of 63 restaurants
in the State of Michigan.
Since March of this year, our representatives have had several
discussions with Dan Fitzpatrick, the Company's Chairman, President and Chief
Executive Officer, to express their disappointment with Quality Dining's
financial performance and stock price and to discuss possible strategic
alternatives that we believe would enable Quality Dining to enhance shareholder
value. Based upon these discussions and our review of the Company's operating
results, it is clear to us that the existing restaurant operations cannot
produce a satisfactory result to the shareholders - and there are no meaningful
prospects for improvement. It is apparent that the public market has recognized
these same realities by according the Company a very dismal stock price. We
strongly believe that if a public company cannot enhance shareholder value as an
ongoing concern, its Board of Directors is obligated to pursue appropriate "exit
strategy" alternatives.
We are prepared to discuss with you just such a strategic alternative
to enhance shareholder value - the acquisition of the Company by NBO or its
affiliates. We believe that we could conclude an acquisition of the entire
Company at a price per share substantially in excess of current trading prices.
We are hereby formally requesting that you meet with us with a view
toward exploring this alternative for the benefit of all shareholders.
Although we do not regard our interest in Quality Dining as anything
other than "friendly", in view of the importance of these strategic issues, we
reserve our right to make an acquisition proposal directly to Quality Dining's
shareholders, initiate shareholder proposals in favor of a sale or other
disposition of the Company or its assets and/or nominate a slate of directors
who would pursue such alternatives.
We hope that you will grant us a meeting and give due consideration
to any proposals we might advance. It bears reiteration that we wish to work
with you in developing a plan that will benefit all shareholders and that such a
result can best be achieved through mutual cooperation and the exchange of
ideas. We look forward to hearing from you at your earliest convenience.
Very truly yours,
/s/ David W. Schostak
David W. Schostak
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CC: Christopher J. Murphy III
Daniel B. Fitzpatrick
Ezra H. Friedlander
Arthur J. Decio
James K. Fitzpatrick
Steven M. Lewis
The Quality Dining Board tersely rejected our request for such a
meeting, indicating that the Company was not for sale. In light of the Company's
financial and stock price performance, we believe the Quality Dining Board
failed to adequately and appropriately address our overtures. We believe that
the Quality Dining Board should aggressively consider any and all strategic
alternatives to benefit all of the shareholders.
QUALITY DINING SHOULD BE SOLD.
As a result of the Company's repeated rejections of NBO's requests
for meetings to discuss an acquisition proposal, the Quality Dining Board's
authorization of Noncompete/Employment Agreements providing for change of
control payments and grants of restricted shares and stock options with
accelerated vesting on a change in control, and the failure of the Company's
management to implement any steps that have resulted, or that NBO believes are
reasonably likely to result, in a significant enhancement to the Company's share
price, we have determined to seek your votes in support of the Proposals. Each
NBO Nominee is committed to maximizing shareholder value by seeking, subject to
his fiduciary duties, to promptly effect a negotiated sale, merger or other
disposition of the Company (or all or substantially all of its assets) to the
highest bidder. Each presently intends to urge the Company's other Directors to
do so, to redeem the Poison Pill and to remove any other barriers to the
consummation of such a transaction. The NBO Nominees, if elected, intend to
establish an orderly bidding process and diligently pursue the sale, merger or
other disposition of the Company in a process that allows all viable bidders
full and fair access to information and the opportunity to bid, and would not
seek to provide NBO or its affiliates with preferential treatment.
INFORMATION REGARDING THE PROPOSALS
PROPOSAL 1: ELECTION OF DIRECTORS
We are soliciting your proxy for the election of the NBO Nominees as
directors of the Company after we nominate them at the 2000 Annual Meeting to
serve until their successors are duly elected and qualified.
In accordance with the Company's Articles of Incorporation and
By-laws and the Indiana Business Corporation Law, the Company's Board of
Directors is to consist of seven directors, or as may be otherwise determined by
a By-Law adopted by a majority of the Quality Dining Board as provided in the
Company's Articles of Incorporation. The directors are to be divided into three
classes as nearly equal in number as possible.
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At each annual meeting of shareholders, members of one of the classes, on a
rotating basis, are elected for a three-year term. Based on information
contained in reports publicly filed by the Company with the Securities and
Exchange Commission, six Directors currently serve on the Quality Dining Board.
Two of these Directors have terms that expire in 2000 and, according to the
Company's 1999 proxy statement, two directors are to be elected at the 2000
Annual Meeting. In addition, the Quality Dining Board currently has one vacancy
for a term to expire in 2002, created when William R. Schonsheck chose not to
stand for reelection at the 1999 Annual Meeting. David W. Schostak and Mark S.
Schostak, if elected, would serve for the term expiring at the Company's annual
meeting of shareholders in 2003. Christopher G. Ellis, if elected, would serve
for the term expiring at the Company's annual meeting of shareholders in 2002.
If any additional directorships are to be voted upon at the 2000 Annual Meeting,
we reserve the right to nominate additional persons to fill such positions.
If the NBO Nominees are elected and take office as Directors, they
intend to discharge their duties as Directors of the Company in compliance with
all applicable legal requirements, including the general fiduciary obligations
imposed upon corporate directors.
NBO NOMINEES.
Each of the NBO Nominees has consented to serve as a Director if
elected. There are no arrangements or understandings between any such nominee
and any other person pursuant to which he was selected as a NBO Nominee, except
that NBO has agreed to indemnify Mr. Ellis against certain potential liabilities
that could arise out of his serving as an NBO Nominee. The information below
concerning age, principal occupation, directorships and beneficial ownership of
Common Stock has been furnished by the respective NBO Nominees.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND PRINCIPAL NUMBER OF SHARES OF PERCENT OF
NAME, BUSINESS OCCUPATIONS DURING LAST FIVE (5) YEARS; COMMON STOCK COMMON
ADDRESS AND AGE DIRECTORSHIPS OWNED STOCK
- --------------- ------------- ----- -----
<S> <C> <C> <C>
David W. Schostak Co-President, Secretary and Director of 1,200,000(1) 9.4%
c/o Schostak Brothers & Company Schostak Brothers & Company, Inc. (a full
25800 Northwestern Highway service real estate development and
Suite 750 management company) for more than the past
Southfield, Michigan 48075 five years; Member of NBO (a company formed
Age 42. to invest in securities of the Company) since
its formation in December 1998; Vice
President, Secretary and Director of King
Venture, Inc. (a franchisee, owner and
operator of Burger King restaurants) for more
than the past five years.
12
<PAGE>
<S> <C> <C> <C>
Mark S. Schostak President and Chief Executive Officer of King 1,200,000(1) 9.4%
c/o Schostak Brothers & Company Venture, Inc. for more than the past five
25800 Northwestern Highway years; Member of NBO since its formation in
Suite 750 December 1998; Senior Vice President and
Southfield, Michigan 48075 Director of Schostak Brothers & Company, Inc.
Age 38 for more than the past five years.
Christopher G. Ellis Capital Structuring Consultant with Savill 0 N/A
The Old Laundry Bevan Butler, Ltd., a financial advisory and
c/o Savill Bevan Butler, Ltd. management firm, ("Savill") for more than the
Ossington Buildings past five years. Prior to that, from 1984
No. 6 Grotto Passage until joining Savill in 1992, Mr. Ellis was
London W1M 3JD a principal of Ellis Blaker & Co. Ltd. (a
United Kingdom financial management firm). Each of these
Age 36 firms is located in London, United Kingdom.
- ------------------
(1) Includes 1,200,000 shares of Common Stock beneficially
owned by NBO (as described in "Certain Information
Concerning NBO and the Other Participants in the
Solicitation" below), representing approximately 9.4% of
the outstanding shares of Common Stock.
</TABLE>
All transactions in securities of the Company engaged in by any
proposed NBO Nominee herein during the past two years are summarized in Appendix
A.
PROPOSAL 2: POISON PILL TERMINATION PROPOSAL
NBO proposes, for the reasons stated herein, the adoption by the
shareholders of the following resolution:
RESOLVED, that it is hereby recommended that the Board of
Directors redeem the rights distributed under the Rights Agreement
dated as of March 27, 1997, terminate such Rights Agreement, and that
any new Rights Agreement shall not be adopted unless approved by the
affirmative vote of the holders of a majority of the outstanding
shares of the Company.
The Rights Agreement would cause substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the Board or
deemed "qualified" under that agreement. Although often described as protecting
shareholders from coercive or unfair acquisition offers, it has also been argued
that poison pill plans have the capacity to deter all acquisition offers that
have not been approved by the board, not just coercive offers. NBO believes that
these devices, often called "poison pills," serve to insulate management from
direct shareholder accountability by making an acquisition or other control
transaction unlikely. Our Poison Pill Termination Proposal merely asks that when
the Company seeks to "protect" its shareholders through such a "rights plan"
that it first asks its shareholders' opinion.
13
<PAGE>
CERTAIN ADVANTAGES AND DISADVANTAGES OF THE POISON PILL TERMINATION PROPOSAL.
Non-binding. The Poison Pill Termination Proposal is non-binding on
the Quality Dining Board; even if it is adopted by the shareholders, the Quality
Dining Board would have no obligation to take any action. Further, even if the
Quality Dining Board were to follow all of the recommendations contained in the
Poison Pill Termination Proposal by terminating the Rights Agreement and not
adopting a new rights agreement without shareholder approval, the Quality Dining
Board could subsequently seek shareholder approval for a new rights agreement
when faced with an uninvited offer to acquire the Company (or even in the
absence of such an offer) by calling a special meeting of shareholders for this
purpose. The Company would simply incur the modest expenses of calling such a
meeting and soliciting shareholder votes.
Shareholders Oppose Poison Pills. In recent years, shareholders of
other public companies have, with increased frequency, taken steps to oppose the
unilateral adoption of rights plans by management.
According to a 1999 report by the Investor Responsibility Research
Center, a provider of corporate research ("IRRC"), shareholder proponents
submitted 26 anti-pill proposals in 1998, resulting in then-record support by an
average of 57.4 percent of shares voted. This report indicated that, as of early
1999, 35 anti-pill proposals had been submitted for 1999. A report by Georgeson
Shareholder Communications, Inc. ("Georgeson") reported that among the 17 poison
pill recission proposals voted upon that it monitored in 1999, results were
available in 16, and on average 59 percent of votes cast were in favor of the
proposals. Georgeson is a proxy solicitor and monitored proposals sponsored by
institutions and shareholder groups such as labor unions. According to a 1998
report of the IRRC, in 1997, proposals to redeem or permit shareholder voting on
poison pills were passed at 13 companies, including Bausch & Lomb, CSX,
Columbia/HCA Healthcare, Consolidated Natural Gas, Digital Equipment, Fleming,
Fluor, Lukens, Mallinckrodt, PLM International, SuperValu, Talley Industries and
Wellman. According to the 1999 IRRC report, in 1998, proposals to redeem or
permit shareholder voting on poison pills were passed at nine companies,
including Avondale Industries, CSX, Consolidated Natural Gas, GRC International,
Venator Group, Inc., Jostens and Quaker Oats. Shareholders have opposed poison
pills on the grounds that poison pills force potential investors to negotiate
potential acquisitions with management, instead of making their offer directly
to the shareholders. Shareholder proponents further assert that poison pills can
pose such an obstacle to a takeover that management becomes entrenched. NBO
believes that such entrenchment and the consequential lack of management
accountability to shareholders adversely affects shareholder value.
NBO Believes Poision Pills Insulate Management from Desirable
Acquisition Offers that Would be in the Shareholders' Best Interests. NBO
believes that it is essential to prevent management entrenchment and that
shareholders be given an opportunity to determine whether a poison pill is an
appropriate mechanism for defending the Company against hostile bids. NBO
believes that:
14
<PAGE>
o Poison pills insulate management from the threat of a change
in control because they interpose the target's board and
provide it with veto power over takeover bids made directly
to shareholders, even when the shareholders believe that
such bids are in their best interests;
o A management group that is responsive to its shareholders
and, accordingly, is seeking to foster corporate growth and
shareholder value may be the most effective tool in fighting
off abusive takeover bids; and that
o Recent actions of the Quality Dining Board indicate that
management is determined to protect its position, even at
the expense of shareholder concerns.
Although since the initial adoption of poison pills in the 1980's there have
been several studies of poison pills, there is a lack of consensus that such
"rights plans" are effective in obtaining maximum value for shareholders. We
believe that the shareholders, as the owners of the Company, should have the
right to consider whether a rights plan is appropriate for this Company and the
adoption of the Poison Pill Termination Proposal would send a message to the
Quality Dining Board that the shareholders believe that the Rights Agreement
impedes the creation of shareholder value.
Other Protections Against Unfair Offers. The Company's Articles of
Incorporation (the "Articles") and the Indiana Business Corporation Law provide
significant impediments to many forms of unsolicited offers for the Company. The
Articles provide that: (i) Directors serve staggered terms, preventing any
insurgent shareholder or group of shareholders from gaining a majority of the
seats on the Quality Dining Board in a single year; (ii) certain transactions,
including business combinations, are in most cases subject to approval by an
Independent Majority of Shareholders (as defined in the Articles); and (iii) the
Company has authorized for issuance a "blank check" preferred stock that can be
used to dilute the ownership or voting power of an acquiror not approved by the
corporation's board of directors. The Indiana Business Corporation Law provides:
(a) significant limitations on business combinations with a beneficial owner of
10% of a corporation's stock (an "Interested Shareholder") that has not been
approved by the corporation's board of directors or, in the case of a person
that has been an Interested Shareholder for five years or more, by disinterested
shareholders; (b) that once a potential acquirer notifies a corporation of its
intention to purchase 20%, 33 1/3% or 50% of its shares, a shareholders' meeting
must be held within 50 days for shareholders other than the potential acquiror
to vote on whether these "control shares" may exercise voting rights; and (c)
that directors may consider certain corporate constituencies other than
shareholders in taking action that may relate to a change of control. The
Indiana "control share" statute is so strongly worded, in fact, that its effect
has been described as a "lethal dose" for acquisition offers made to
shareholders without approval of the directors. Vast powers are granted to
directors under the "control share" statute as well, including the power to
bypass the effect of the statute by approving a merger or to set the date of the
meeting at which shareholders could provide voting rights. In addition, under
Indiana law, the fiduciary duties that the directors owe to shareholders are
extremely weak. Not only may directors, in making decisions, consider
15
<PAGE>
the welfare of any group that they deem pertinent, but even where the duties do
exist, no director is liable for a breach of those duties except upon his or her
willful acts or recklessness. In fact, under Indiana law, no matter how high the
price of a takeover offer, directors would never be under an obligation to e.g.,
redeem a poison pill, based on the premium it would provide shareholders. These
reductions in director responsibility truly seem to typify "the exception that
swallowed the rule." Clearly, this also makes a director nominee's personal
points of view and interests of heightened importance in Indiana director
elections.
Suggested Benefits of Poison Pills. It is established under Indiana
law that a board of directors may generally adopt a rights plan without
shareholder approval and many companies have, in fact, put rights plans in place
without shareholder approval. Poison pills are considered extremely potent
corporate takeover defense mechanisms. NBO believes that poison pills provide
boards of directors vast discretion to effectively reject unsolicited offers
made to shareholders and that they thereby provide an opportunity for management
entrenchment. It has, however, been argued, that this discretion plays a role in
providing boards of directors greater flexibility to act in the interest of
their companies. This ability could, in some respects, be aligned with
shareholder interests. Commentators and corporate governance experts disagree on
the propriety and utility of poison pills, and it is possible that, should the
Quality Dining Board follow the recommendations contained in the Poison Pill
Termination Proposal, the Quality Dining Board's ability to adopt a poison pill
to repel acquisition offers may be impeded due to the procedural constraints on
the adoption of rights plans imposed by the Poison Pill Termination Proposal.
Proponents of poison pills assert that rights plans enable the board to respond
in an orderly manner to unsolicited bids by providing sufficient time to
carefully evaluate the fairness of an unsolicited offer and the credibility of
the bidder, thereby giving the board flexibility to explore alternative
strategies for maximizing shareholder value. Studies have been reported that
support these positions, including studies, cited by IRRC, of the investment
banking firm J.P. Morgan Securities, proxy solicitor Georgeson, and professors
Robert Comment and G. William Schwert of the William E. Simon School of Business
at the University of Rochester, each of which concluded that poison pills are
associated with higher premiums to selling shareholders in takeovers. It has
been argued that poison pills deter abusive takeover tactics. They also assert
that rights plans provide incentives for a potential acquiror to negotiate in
good faith with the board, and that such negotiations are likely to maximize
value for shareholders by soliciting the highest possible price from the bidder.
Possible Limits to Takeover Defense. If the Quality Dining Board
implemented the Poison Pill Termination Proposal, the Company could subsequently
receive an acquisition offer while there is no rights plan in place. For
example, a tender offer made to the Company's shareholders could be consummated,
if enough shareholders decide to accept the offer, after as few as 20 business
days. To adopt such a new rights plan that would give the Quality Dining Board
power to veto such an offer under this proposal, if the Poison Pill Termination
proposal were adopted in its entirety, the Quality Dining Board would be faced
with the procedural necessity of calling a special meeting of shareholders to
approve the rights plan. Under the Company's By-laws, the Quality Dining Board
would establish a record date of shareholders entitled to vote at such
16
<PAGE>
meeting, and the Company would be required to provide such shareholders with at
least ten days' prior written notice of the meeting. As a result, to adopt a new
poison pill, the Company could have as few as ten days to act. The presence of
holders of a majority of the shares entitled to vote at the special meeting
would be needed to establish a quorum, and the rights plan would be adopted if
the votes cast favoring it exceed the votes cast opposing it. Of course, the
Poison Pill Termination Proposal is non-binding, both now and in the future.
Accordingly, even if the Quality Dining Board adopted the proposal and
eliminated the Company's poison pill at this time, it would not be required to
follow such proposal in the future and could therefore adopt a new poison pill
without shareholder approval.
* * *
NBO RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE POISON PILL TERMINATION
PROPOSAL.
IF OUR NOMINEES ARE ELECTED THEY INTEND TO SUPPORT A REDEMPTION OF RIGHTS
DISTRIBUTED UNDER, AND A TERMINATION OF, THE POISON PILL RIGHTS AGREEMENT,
TOGETHER WITH A PROHIBITION ON THE ADOPTION OF A NEW RIGHTS AGREEMENT WITHOUT
SHAREHOLDER APPROVAL.
NATURE OF OUR PROPOSALS
As stated above, the Poison Pill Termination Proposal is a
non-binding recommendation; even if the shareholders adopt the proposal, the
Quality Dining Board would not be required to take the recommended action.
VOTE REQUIRED
The proposed election of directors requires the affirmative vote of a
plurality of the shares of Common Stock of the Company having voting power
present in person or represented by proxy and entitled to vote thereon at the
2000 Annual Meeting. Each other proposal voted on at the 2000 Annual Meeting
will be approved if the votes cast favoring the proposal exceed the votes cast
opposing the proposal.
METHOD OF COUNTING VOTES
Votes will be counted and certified by independent inspectors of
election. Under the rules of the Securities and Exchange Commission, boxes and a
designated blank space are provided on the proxy card for you to mark if you
wish to vote "for" or "against" or "abstain" from voting on one or more of the
proposals, or to withhold authority to vote for one or more of the nominees for
director. Indiana law and the Company's By-laws require the presence of a quorum
at the 2000 Annual Meeting. Votes withheld in connection with the election of
one or more of the nominees for director will not be counted as votes cast for
those individuals. Broker non-votes, which occur when brokers do not receive
voting instructions from their customers on non-routine matters and,
consequently, have no discretion to vote on those matters, and
17
<PAGE>
abstentions, are counted as shares present to establish a quorum, but are not
counted as votes cast for or against any proposal.
The Company's Articles of Incorporation and By-laws do not contain
any provisions with respect to the effect of abstentions or broker non-votes.
CERTAIN INFORMATION CONCERNING NBO AND THE OTHER
PARTICIPANTS IN THE SOLICITATION
Information concerning NBO, David W. Schostak, Mark S. Schostak,
Jerome L. Schostak, Robert I. Schostak and Christopher G. Ellis, who are each
"participants in the solicitation" as defined in the proxy rules promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, is set forth on Appendix A hereto.
CERTAIN INTERESTS IN THE PROPOSALS AND WITH RESPECT
TO SECURITIES OF THE ISSUER
To our knowledge, there are no contracts, arrangements,
understandings or relationships (legal or otherwise) among NBO, the other
participants in the solicitation or their respective associates or controlling
persons or between NBO or any of the foregoing persons with respect to any
securities of the Company except as follows: as described in Appendix A hereto,
the limited liability company agreement of NBO contains provisions whereby its
members (i.e., David W. Schostak, Mark S. Schostak, Jerome L. Schostak and
Robert I. Schostak, each affiliates of NBO) will receive annually a certain
percentage of realized and unrealized profits, if any, derived from NBO's
investments.
NBO, the other participants in the solicitation, and each of their
affiliates and associates, intend to vote any shares of Common Stock that they
beneficially own in accordance with the recommendations of NBO set forth herein.
PRINCIPAL OWNERS OF COMMON STOCK
The following table sets forth, as of November 25, 1998, based
solely, except as otherwise indicated herein, on the information contained in
the Company's definitive Proxy Statement for the 1999 Annual Meeting, the number
of outstanding shares of Common Stock beneficially owned by each person known to
NBO as of such date to be the beneficial owner of more than five percent (5%) of
the outstanding shares of Common Stock, each director, each of the executive
officers named in the executive compensation table of such definitive Proxy
Statement and all executive officers and directors as a group. For purposes of
the following table, Daniel B. Fitzpatrick, John C. Firth, James K. Fitzpatrick,
William R. Schonsheck and Gerald O. Fitzpatrick are referred to as the "named
executive officers."
Except as otherwise noted in a footnote below, each director, nominee
and executive officer has sole voting and investment power with respect to the
number of shares of Common Stock set forth opposite his or her name in the
table. The information
18
<PAGE>
with respect to NBO and its affiliates has been provided by the members thereof
as of January 12, 2000.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF INDIVIDUAL NUMBER OF SHARES BENEFICIALLY PERCENT OF
OR IDENTITY OF GROUP OWNED CLASS
- ------------------------------ ----------------------------- ----------
<S> <C> <C>
Daniel B. Fitzpatrick (1) 2,391,755 (2)(3) 18.8%
John C. Firth 27,202 (2)(4) *
Gerald O. Fitzpatrick 234,872 (2)(5) 1.9%
James K. Fitzpatrick 350,756 (2)(6) 2.8%
William R. Schonsheck 432,050 (2)(7) 3.4%
Jerome L. Schostak
Robert I. Schostak
David W. Schostak
Mark S. Schostak
NBO, LLC
25800 Northwestern Highway
Southfield, MI 48075 1,200,000 (8) 9.4%
All current Directors and executive officers
as a group (15 persons) 4,100,184 (2)(9) 31.5%
- ------------------------
* Less than 1%.
(1) The address of this shareholder is 4220 Edison Lakes Parkway, Mishawaka,
Indiana 46545.
(2) Does not include shares subject to stock options which are not exercisable
within 60 days.
(3) Includes presently exercisable stock options to purchase 137,746 shares,
granted by the Company.
(4) Includes presently exercisable stock options to purchase 21,250 shares,
granted by the Company.
(5) Includes presently exercisable stock options to purchase 37,225 shares,
granted by the Company.
(6) Includes presently exercisable stock options to purchase 40,268 shares,
granted by the Company.
(7) Includes presently exercisable stock options to purchase 57,816 shares,
granted by the Company. Also includes 25,000 shares owned by Mr.
Schonsheck's spouse.
(8) The individuals listed are members of NBO, a Michigan limited liability
company. These individuals share voting and dispositive power with respect
to all 1,200,000 shares reported.
(9) Includes presently exercisable stock options to purchase 434,556 shares,
granted by the Company.
</TABLE>
19
<PAGE>
PROXY SOLICITATION; EXPENSES
Proxies may be solicited by members of NBO and partners and employees
of members of NBO by mail, telephone, telecopier, the Internet and personal
solicitation. Regular employees of members of NBO and their affiliates may be
used to solicit proxies and, if used, will not receive additional compensation
for such efforts. Banks, brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward the solicitation material of NBO to
their customers for whom they hold shares of Common Stock, and NBO will
reimburse them for their reasonable out-of-pocket expenses. In addition, NBO has
retained MacKenzie Partners ("MacKenzie") to assist in the solicitation of
proxies for a fee of $ plus out of pocket expenses. MacKenzie will employ
approximately 25 people to solicit the Company's shareholders.
The entire expense of preparing, assembling, printing and mailing
this Proxy Statement and related materials, and the cost of soliciting proxies
for the proposals endorsed by NBO, will be borne by NBO. NBO estimates such
expenses to be $ (including professional fees and expenses, but excluding any
costs represented by salaries and wages of regular employees of NBO and its
affiliates). The total expenditures incurred to date have been approximately $ ,
to be paid by NBO. NBO does not intend to seek reimbursement from the Company
for NBO's expenses.
20
<PAGE>
SHAREHOLDERS' PROPOSALS IN COMPANY'S PROXY STATEMENT
Pursuant to Rule 14a-8(e)(2) under the Exchange Act, any proposal by
a shareholder at the 2001 Annual Meeting, to be included in the Company's proxy
statement, must be received in writing at the Company's principal executive
offices not less than 120 calendar days in advance of the date that the
Company's proxy statement was released to security holders in connection with
its 2000 Annual Meeting of Shareholders. However, if the date of the meeting is
changed by more than 30 days from the date of the previous year's meeting, then
the deadline is a reasonable time before the Company begins to print and mail
its proxy materials.
Proposals should be addressed to the Secretary, 4220 Edison Lakes
Parkway, Mishawaka, Indiana 46545.
Dated: January 13, 2000
Sincerely,
Your Fellow Shareholders,
NBO, LLC
David W. Schostak
Mark S. Schostak
Jerome L. Schostak
Robert I. Schostak
Christopher G. Ellis
21
<PAGE>
APPENDIX A
Information is being given herein for (i) NBO, LLC ("NBO"), (ii)
David W. Schostak, a natural person and nominee for the Board of Directors of
the Company, (iii) Mark S. Schostak, a natural person and nominee for the Board
of Directors of the Company, (iv) Jerome L. Schostak, a natural person, (v)
Robert I. Schostak, a natural person, and (vi) Christopher G. Ellis, a natural
person and nominee for the Board of Directors, who are each a "participant in a
solicitation" as defined under the proxy rules (collectively, the
"Participants"). Information is also given for Schostak Brothers & Company, Inc.
("Schostak Brothers") and King Venture, Inc. ("KVI"), who are each "associates",
as defined under the proxy rules, of one or more of the participants
("Associates").
NBO is a Michigan limited liability company. NBO is principally
engaged in the business of investing in securities of the Company.
The present principal occupation of each of David W. Schostak, Jerome
L. Schostak and Robert I. Schostak (collectively with, Mark S. Schostak the
"Schostaks") is participating in the management of Schostak Brothers. The
present principal occupation of Mark S. Schostak is participating in the
management of KVI. The present principal occupation of Mr. Ellis is as a Capital
Structuring Consultant of Savill Bevan Butler, Ltd. In addition, each of the
Schostaks is a member of NBO and an officer and a director of KVI. The business
address of each of the Participants and the Associates except Mr. Ellis is c/o
Schostak Brothers & Company, Inc., 25800 Northwestern Highway, Suite 750,
Southfield, Michigan 48075. The business address of Mr. Ellis is The Old
Laundry, Ossington Buildings, No. 6 Grotto Passage, London W1M 3JD, United
Kingdom.
David W. Schostak, Mark S. Schostak and Robert I. Schostak are
brothers and each is the son of Jerome L. Schostak.
The Participants and their Associates may be deemed to have direct
beneficial ownership of the Company's Common Stock ("Shares") as follows:
NAME NUMBER OF SHARES
---- ----------------
NBO 1,200,000
David W. Schostak 0
Mark S. Schostak 0
Jerome L. Schostak 0
Robert I. Schostak 0
Schostak Brothers 0
KVI 0
Christopher G. Ellis 0
A-1
<PAGE>
Each of the Schostaks, as a member of NBO, may be deemed to own
beneficially (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) Shares which NBO may be deemed to possess direct
beneficial ownership. Each of the Schostaks disclaims beneficial ownership of
such Shares for all other purposes.
None of the Associates indirectly beneficially owns any Shares.
To the best of the knowledge of the Participants, none has been,
within the past year, a party to any contract, arrangement or understanding with
any person with respect to any securities of the Company, including but not
limited to joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profits, division of losses or profits,
or the giving or withholding of proxies, except as follows: the limited
liability company agreement of NBO contains provisions whereby its members
(i.e., each of the Schostaks) will receive annually a certain percentage of
realized and unrealized profits, if any, derived from NBO's investments.
No Participant or Associate owns any securities of the Company of
record but not beneficially.
None of the Participants or Associates has any arrangement or
understanding with any person with respect to (i) any future employment with the
Company or its affiliates or (ii) any future transactions to which the Company
or any of its affiliates may be a party.
The following is a summary of all transactions in Company securities
by the Participants over the last two years.
DATE OF TRANSACTION NATURE OF TRANSACTION NUMBER OF SHARES
- ------------------- --------------------- ----------------
08/11/98 Purchase of Shares by NBO 50,000
08/13/98 Purchase of Shares by NBO 12,000
08/17/98 Purchase of Shares by NBO 15,000
08/18/98 Purchase of Shares by NBO 15,000
08/19/98 Purchase of Shares by NBO 15,000
08/20/98 Purchase of Shares by NBO 5,000
08/25/98 Purchase of Shares by NBO 5,000
08/27/98 Purchase of Shares by NBO 20,000
08/28/98 Purchase of Shares by NBO 15,000
08/31/98 Purchase of Shares by NBO 50,000
09/01/98 Purchase of Shares by NBO 10,000
09/03/98 Purchase of Shares by NBO 10,000
09/04/98 Purchase of Shares by NBO 50,000
09/08/98 Purchase of Shares by NBO 35,000
A-2
<PAGE>
DATE OF TRANSACTION NATURE OF TRANSACTION NUMBER OF SHARES
- ------------------- --------------------- ----------------
09/09/98 Purchase of Shares by NBO 60,000
09/10/98 Purchase of Shares by NBO 25,000
09/14/98 Purchase of Shares by NBO 30,000
09/15/98 Purchase of Shares by NBO 20,000
09/16/98 Purchase of Shares by NBO 5,000
09/17/98 Purchase of Shares by NBO 10,000
09/21/98 Purchase of Shares by NBO 35,000
09/23/98 Purchase of Shares by NBO 5,000
09/24/98 Purchase of Shares by NBO 20,000
09/25/98 Purchase of Shares by NBO 5,000
09/29/98 Purchase of Shares by NBO 5,000
09/30/98 Purchase of Shares by NBO 5,000
10/01/98 Purchase of Shares by NBO 18,000
10/02/98 Purchase of Shares by NBO 10,000
10/05/98 Purchase of Shares by NBO 10,000
10/06/98 Purchase of Shares by NBO 30,000
12/02/98 Purchase of Shares by NBO 25,000
12/07/98 Purchase of Shares by NBO 20,000
12/08/98 Purchase of Shares by NBO 28,000
12/09/98 Purchase of Shares by NBO 27,000
12/10/98 Purchase of Shares by NBO 6,000
12/11/98 Purchase of Shares by NBO 201,500
12/14/98 Purchase of Shares by NBO 105,000
12/15/98 Purchase of Shares by NBO 65,000
12/16/98 Purchase of Shares by NBO 32,000
12/17/98 Purchase of Shares by NBO 35,000
12/18/98 Purchase of Shares by NBO 55,500
A-3
