<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. 1)
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.
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(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>
REVISED PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED JANUARY 27, 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.
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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
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John C. Firth, Secretary
<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 9.4% of the Common Stock of the Company, has
filed a preliminary proxy statement with the Securities and Exchange Commission
("SEC") which indicates 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.
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.
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>
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 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
-----------------------------
Voting
At the close of business on January 19, 2000, the record date for the
meeting, there were [________] 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.
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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
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2
<PAGE>
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 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 a Director whose term expired in 1999
decided not to stand for reelection at the 1999 annual meeting of shareholders.
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. At the
same time, 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.
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 filed a preliminary proxy statement with the SEC on January 13, 2000
indicating that it intends to nominate three individuals for election to the
Company's Board of Directors and containing information regarding its nominees.
NBO's preliminary proxy statement stated that NBO intends to nominate two
individuals to stand for election at the 2000 annual meeting in opposition to
the Board's candidates for election as Directors to serve until the 2003 annual
meeting, and a third director to stand for election to fill the vacancy created
when a former director whose term expired in 1999 chose not to stand for
reelection. Because the Board of Directors has filled that vacancy in accordance
with the Company's By-Laws as described above, the third NBO nominee will not be
entitled to be nominated to stand for election at the meeting.
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's 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. The Board
of Directors believes that a change in the
3
<PAGE>
Board of Directors at this time involving NBO's nominees would be highly
disruptive to the strategy the Company is actively pursuing and could raise
significant concerns with current and future business partners and franchisors.
Moreover, uncertainties arising from such a change could result in the loss of
key personnel who are unique and important to the Company.
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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
Principal Director Owned on Percent
Name Age 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)
<S> <C> <C> <C> <C> <C>
Daniel B. Fitzpatrick 42 Chairman of the Board, President and 1990 2,297,209 (1)(2) 18.2%
Chief Executive Officer of the Company (3)
Philip J. Faccenda 70 Vice President and General Counsel -- 5,000 (5) *
Emeritus, University of Notre Dame (4)
DIRECTORS CONTINUING IN OFFICE
(Term expiring at annual meeting of shareholders in 2001)
James K. Fitzpatrick 44 Senior Vice President and Chief 1990 353,740 (1)(6) 2.8%
Development Officer of the Company
Ezra H. Friedlander 58 Judge, Indiana Court of Appeals (7) 1995 505,131 (8)(9) 4.0%
Steven M. Lewis 50 President, Chief Executive Officer and 1994 13,250 (10)(11) *
director of U.S. Restaurants, Inc.
(restaurant management company) (12)
(Term expiring at annual meeting of shareholders in 2002)
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Christopher J. Murphy III 53 Chairman, President and Chief Executive 1994 60,700 (10)(13) *
Officer of 1st Source Corporation
(publicly held diversified bank holding
company)
Bruce M. Jacobson 50 Partner, Katz, Sapper & Miller, LLP 2000 -- --
</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) 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.
(5) Includes 5,000 shares held by Philip J. Faccenda, Inc., a holding company
of which Mr. Faccenda is the majority shareholder and has investment
control.
(6) Includes presently exercisable stock options to purchase 28,600 shares,
granted by the Company.
(7) Mr. Friedlander has been a significant shareholder of the Company or
certain of its predecessors since 1982.
(8) Includes presently exercisable stock options to purchase 8,000 shares,
granted under the Company's Outside Directors Stock Option Plan adopted in
December 1993 ("1993 Outside Directors Plan").
(9) 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.
(10) Includes presently exercisable stock options to purchase 10,000 shares
granted under the Company's 1993 Outside Directors Plan.
(11) Includes 500 shares held in a trust for the benefit of Mr. Lewis' minor
children.
(12) Mr. Lewis also serves on the Board of Directors of Commerce Bancorp, Inc.,
a bank holding company.
(13) 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
6
<PAGE>
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 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 preliminary proxy statement, 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
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7
<PAGE>
In adopting the Rights Agreement in 1997, the Board of Directors considered
carefully the Rights Agreement's limited purposes. 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 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 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 Rights Agreement is not intended to prevent a bidder from making a
tender offer or other takeover-type transaction, nor will it 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 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. It 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 Rights Agreement
strengthens the Company's negotiating power and positions the Board of Directors
to negotiate the best price for shareholders when 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 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 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, these
additional measures do not 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. Any commitment by the Board of Directors to seek shareholder approval
prior to the adoption or implementation of a shareholder rights agreement would
impede
8
<PAGE>
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.
The Board of Directors was aware when it adopted the Rights Agreement of
arguments similar to those made in NBO's preliminary proxy statement. 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 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
Fiscal Underlying Stock All Other
Name and Principal Position Year Salary Bonus (1) Options (2) Awards (3) Compensation
- --------------------------------------- -------- ---------- -------------------------------------- ---------------
<S> <C> <C>
Daniel B. Fitzpatrick, Chairman, 1999 $346,538(4) $ 0 0 $60,000 $ 5,000 (5)
President and Chief Executive Officer 1998 340,000 0 0 0 4,773 (6)
1997 340,750 0 40,440 0 1,413 (7)
John C. Firth, Executive Vice 1999 $234,635(4) $ 97,486(8) 19,302 $66,004(9) $ 5,425 (10)
President, General Counsel and Secretary 1998 230,328 91,800 20,000 0 4,905 (11)
1997 184,038 50,000 15,000 0 0
James K. Fitzpatrick, Senior Vice 1999 $198,750(4) $ 49,687 16,728 $43,956 $ 5,000 (5)
President and Chief Development Officer 1998 185,288 92,500 20,000 0 7,440 (12)
1997 170,942 75,000 4,670 0 1,524 (7)
Gerald O. Fitzpatrick - Senior Vice 1999 $194,231(4) $ 58,270 16,299 $43,098 $ 1,638 (5)
President, Burger King Division 1998 181,346 96,250 20,000 0 6,056 (13)
1997 155,000 75,000 3,980 0 1,298 (7)
Patrick J. Barry - Senior Vice 1999 $188,558(4) $ 47,712 15,871 $42,240 $ 6,420 (14)
President, Administration and 1998 165,288 78,525 20,000 0 4,910 (15)
Information Technology 1997 150,000 75,000 0 0 76,420 (16)
</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.
(4) Represents compensation paid over the Company's 53 week fiscal year.
10
<PAGE>
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 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).
(5) Represents Company allocations to its discretionary, non-qualified deferred
compensation. 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 allocation to its discretionary non-qualified deferred
compensation plan of $5,000 and life insurance premiums of $1,420.
(15) Includes Company allocation 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
11
<PAGE>
exercise price of $21.25 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 base salary if the termination
occurs in his first three years of employment and 75% of one year 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.
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 May 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 (as defined in the agreement) 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 as defined therein), 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.
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
12
<PAGE>
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".
Stock Options
On December 17, 1993, the Directors and shareholders of the Company adopted
the 1993 Stock Option Plan. The 1993 Stock Option Plan provides for awards of
incentive and non-qualified stock options and shares of restricted stock to the
officers and key employees of the Company. An aggregate of 1,000,000 shares of
Common Stock are subject to the 1993 Stock Option Plan (subject to adjustment in
certain events). 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>
Individual Grants
---------------------------------------------------------------
% of Total Potential Realizable Value at
Options Assumed Annual Rates of
Number of Securities Granted to Exercise or Stock Price Appreciation
Underlying Options Employees in Base Expiration for Option Term (2)
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 Value of Unexercised In-the-
Unexercised Options at Money Options at
Fiscal Year-End Fiscal Year-End (1)
-------------------------- -----------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ---------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel B. Fitzpatrick 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
14
<PAGE>
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. 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 and Incentive 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 and Incentive 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,
15
<PAGE>
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.
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 on the
individual's potential for future responsibility and promotion over the option
term. The Compensation Committee has established guidelines that provide for
various levels
16
<PAGE>
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.
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."
17
<PAGE>
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
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 __________________________
<S> <C> <C> <C> <C> <C> <C>
COMPANY/INDEX/MARKET 10/28/1994 10/27/1995 10/25/1996 10/24/1997 10/30/1998 10/29/1999
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.
18
<PAGE>
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, 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.
19
<PAGE>
Transportation Services
Burger Management South Bend No. 3, Inc., an Indiana corporation ("SB No.
3"), owned by Messrs. Daniel B. Fitzpatrick, Ezra H. Friedlander and James K.
Fitzpatrick, has provided the service of its King Air turbo-prop aircraft to the
Company. In fiscal 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.
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 (3) 353,740(4)(6) 2.8%
Ezra H. Friedlander 505,131(7)(8) 4.0%
Bruce M. Jacobson 0 -
Steven M. Lewis 13,250(9)(10) *
Christopher J. Murphy III 60,700(9)(11) *
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
Patrick J. Barry (3) 24,080 (4)(12) *
John C. Firth (3) 38,620 (4)(13) *
Gerald O. Fitzpatrick (3) 240,443 (4)(14) 1.9%
Jerome L. Schostak
Robert I. Schostak
David W. Schostak
Mark S. Schostak
NBO, LLC
25800 Northwestern Highway
Southfield, MI 48075 ** 1,200,000 (15) 9.5%
All current Directors, nominees as
Directors and executive officers
as a group (15 persons) 3,613,129 (4)(16) 28.3%
</TABLE>
______________
* Less than 1%.
** 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 Outside Directors Stock Option Plan.
(2) Includes 5,000 shares held by Philip J. Faccenda, Inc., a holding company
of which Mr. Faccenda is the majority shareholder and has investment
control.
(3) The address of this shareholder is 4220 Edison Lakes Parkway, Mishawaka,
Indiana 46545.
(4) Does not include shares subject to stock options which are not exercisable
within 60 days.
(5) Includes presently exercisable stock options to purchase 23,200 shares,
granted by the Company.
(6) Includes presently exercisable stock options to purchase 28,600 shares,
granted by the Company.
(7) Includes presently exercisable stock options to purchase 8,000 shares,
granted under the Company's Outside Directors Plan.
(8) Includes 14,200 shares held in a trust of which Mr. Friedlander is the
trustee with investment control and the income beneficiary and 15,000
shares owned by Mr. Friedlander's spouse.
(9) Includes presently exercisable stock options to purchase 10,000 shares,
granted under the Company's 1993 Outside Directors Plan.
(10) Includes 500 shares held in a trust for the benefit of Mr. Lewis' minor
children.
(11) Includes 700 shares held by Mr. Murphy's minor children and 1,000 shares
held by certain retirement plans in which Mr. Murphy is a participant.
Also includes 42,648 shares held in a trust over which Mr. Murphy has
investment control.
(12) Includes presently exercisable stock options to purchase 10,000 shares,
granted by the Company.
(13) Includes presently exercisable stock options to purchase 10,000 shares,
granted by the Company.
(14) Includes presently exercisable stock options to purchase 28,430 shares,
granted by the Company.
(15) The individuals listed are members of NBO, LLC, a Michigan limited
liability company. The reporting persons share voting and dispositive
power with respect to all 1,200,000 shares reported.
(16) 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 $___________ 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 January
__,
21
<PAGE>
2000, the Company has incurred proxy solicitation expenses of approximately
$________. 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 __ employees of Georgeson
will be involved in the solicitation of proxies on behalf of the Company.
PARTICIPANTS IN THE SOLICITATION
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. Appendix A to this Proxy Statement provides certain additional
information with respect to the Company's Directors as well as any officers and
employees who may also be engaged in the solicitation of proxies.
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.
22
<PAGE>
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 the close of business on
the later of the 60th day 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
23
<PAGE>
APPENDIX A
INFORMATION CONCERNING DIRECTORS AND CERTAIN OFFICERS AND
EMPLOYEES OF THE COMPANY WHO MAY SOLICIT 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,
Bruce M. Jacobson, Patrick J. Barry, John C. Firth, and Gerald O. Fitzpatrick is
set forth in the "Principal Owners of Common Stock" table that is a part of the
Proxy Statement to which this Appendix is attached. The number of shares of
Common Stock of the Company owned by each other Participant is set forth below.
<TABLE>
<CAPTION>
Company Directors
Purchase (P), Sale (S)
Names, Businesses Addresses (1) Date of 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
President and Chief Executive 6/01/99 A 20,000 Restricted Shares
Officer
James K. Fitzpatrick
Senior Vice President and Chief 6/01/99 A 14,652 Restricted Shares
Development Officer 12/15/99 A 11,152 Restricted Shares
Ezra H. Friedlander
Judge, Indiana Court of Appeals 11/13/98 P 20,000 Common Stock
200 W. Washington, Room 416 2/03/98 P 1,000 Common Stock
Indianapolis, IN 46204 2/06/98 P 40,000 Common Stock
2/09/98 P 25,000 Common Stock
2/17/98 P 15,000 Common Stock
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
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
Steven M. Lewis
President, Chief Executive Officer
Restaurants, Inc. -- -- --
1780 Swede Road
Blue Bell, PA 19422
Christopher J. Murphy III
President and Chief Executive 1/20/99 P 17,000 Common Stock
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
</TABLE>
Officers and Employees
<TABLE>
<CAPTION>
Purchase (P), Sale (S)
Names, Businesses Addresses Date of Transaction or Award (A) Type and Amount
----------------------------- ------------------- ------------ ---------------
<S> <C> <C> <C>
Patrick J. Barry
Senior Vice President, 6/01/99 A 14,080 Restricted Stock
Administration and Information 12/15/99 A 10,580 Restricted Stock
Technology
Lindley E. Burns (3)
Senior Vice President, Full Service 6/01/99 A 8,434 Restricted Stock
Dining Division 12/15/99 A 6,434 Restricted Stock
Christopher Collier (4)
Vice President, Finance 6/01/99 A 4,188 Restricted Stock
12/15/99 A 3,689 Restricted Stock
David M. Findlay (5)
Chief Financial Officer and 6/01/99 A 9,505 Restricted Stock
Treasurer 12/15/99 A 6,756 Restricted Stock
John C. Firth
Executive Vice President, General 6/01/99 A 18,668 Restricted Stock
Counsel and Secretary 8/24/99 A 4,000 Restricted Stock
12/15/99 A 12,868 Restricted Stock
Gerald O. Fitzpatrick
Senior Vice President, Burger King 6/01/99 A 14,366 Restricted Stock
Division 12/15/99 A 10,866 Restricted Stock
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
Robert C. Hudson (6)
Vice President, Grady's American 6/01/99 A 7,290 Restricted Stock
Grill Division 12/15/99 A 5,791 Restricted Stock
Jeanne M. Yoder (7)
Vice President and Controller 6/01/99 A 3,577 Restricted Stock
12/15/99 A 3,577 Restricted Stock
</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.
(7) Ms. Yoder owns 8,404 shares of Company Common Stock, which includes
presently exercisable options to purchase 1,250 shares.
MISCELLANEOUS INFORMATION CONCERNING PARTICIPANTS
Except as described in this Appendix A or in the Proxy Statement to which
this Appendix is attached, 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 the Proxy Statement to which this Appendix A
is attached, 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 the Proxy Statement to which this Appendix is
attached, 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
Appendix A or in the Proxy Statement to which this Appendix is attached, 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.
A-3
<PAGE>
[BACK COVER PAGE OF PROXY STATEMENT]
===============================================================================
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:
[GEORGESON SHAREHOLDER COMMUNICATIONS, INC. GRAPHIC]
17 State Street, 10th Floor
New York, NY 10004
Call Toll Free (800) 223-2064
-----------------------------
===============================================================================
<PAGE>
REVISED PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED JANUARY 27, 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 right to vote for the nominees
listed to the right
[_] [_]
</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
