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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 [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, For Use of the
Commission Only as permitted by
Rule 14a-6(e)(2)
[_] Definitive Proxy Statement
[X] 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)
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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 Rule 14a-6(i)(1) 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:
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[_] 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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(4) Date Filed:
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Dear Fellow Shareholder:
Accompanying this letter are the Company's proxy statement and a WHITE proxy
card relating to the upcoming 2000 Annual Meeting of Shareholders scheduled for
March 7, 2000.
You may also receive proxy materials from NBO, LLC soliciting your vote. We
do not believe that it is in the best interest of the Company or its
shareholders for you to vote in favor of NBO's proposals. The Company
recommends that you ignore NBO's GOLD Proxy Card.
We ask you to support your Board and management by returning the WHITE proxy
card. Consider the following:
. We have reduced our debt from approximately $141 million to $109
million.
. We have reengineered our support structure by reducing the number of
home office employees from approximately 220 to 70.
. We have installed state of the art point of sale equipment in all of our
full service restaurants.
. We have been actively pursuing a long-term strategy designed to maximize
the value of the Company for all of its shareholders. This strategy is
working and the Company is positioned for moderate growth.
. This is not the right time to sell the Company.
. We believe that NBO should not be trusted. It is a direct competitor of
the Company acting in its own interest.
. NBO mischaracterizes your Board and management.
. NBO admits that it has no formal analyses or reports as to whether
shareholder value will be maximized as a result of its solicitation.
We have attached a Position Statement explaining in detail why you should
reject what we believe are reckless and self-serving proposals on the part of
NBO and ignore NBO's GOLD proxy card. We urge you to support your Board and
management and their long-term strategy by signing, dating and returning the
accompanying WHITE proxy card, using the enclosed postage-paid envelope.
We greatly appreciate your continued support.
On Behalf of your Board of Directors,
[LOGO]
Daniel B. Fitzpatrick
Chairman, President & CEO
February 4, 2000
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
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QUALITY DINING POSITION STATEMENT
Accompanying this Position Statement are the Company's proxy materials
relating to the upcoming 2000 Annual Meeting of Shareholders. It is crucial
that you read these materials carefully and in their entirety because the
matters to be addressed at the meeting will directly impact the future of the
Company.
You may also receive proxy materials from NBO, LLC soliciting your vote in
favor of (i) the election of NBO's nominees to the Company's Board of
Directors in opposition to the Board's nominees and (ii) a non-binding
proposal recommending that the Board terminate the Company's Shareholder
Rights Plan. For the reasons set forth in this Position Statement, we do not
believe it is the best interest of the Company or its shareholders for you to
vote in favor of either of these proposals and, accordingly, we urge you NOT
to sign and return NBO's GOLD Proxy Card.
YOUR BOARD IS ACTIVELY PURSUING A LONG-TERM
STRATEGY DESIGNED TO MAXIMIZE THE VALUE OF THE
COMPANY FOR ALL OF ITS SHAREHOLDERS
The Board recognizes that the past few years have not been easy for the
Company's shareholders. As we have acknowledged, the acquisition of the
Bruegger's bagel business was a transaction that, in retrospect, did not work
out as planned for the Company or its shareholders. After determining that
this business could not be fixed in a manner that made sense for the Company's
shareholders, we made the difficult decision to cut our losses and sell the
business. However, as a result of these events, the Company was left with a
weak stock price and high debt.
Faced with this unpleasant reality, the Board implemented a long-term
strategy to rebuild the Company and to maximize shareholder value by
optimizing cash flow, aggressively reducing debt, improving our restaurant
operations and disposing of underperforming assets, coupled with measured
growth and a moderate stock repurchase program. Applying this strategy, the
Company has made significant progress in getting itself back on its feet, even
though this has been a very difficult period for the restaurant industry as a
whole. We are now in a position to initiate moderate growth. Despite this
progress, much work remains to be done and we respectfully ask for your
patience and support.
THE BOARD'S STRATEGY IS WORKING
Consider the progress the Company has made in a relatively short time:
. We have reduced our debt from approximately $141 million to $109 million
and replaced expensive short-term floating rate bank debt with a fixed
rate mortgage facility and a bank credit facility.
. We have reengineered our support structure by reducing the number of
home office employees from approximately 220 to 70.
. We have installed state of the art point of sale and information
management systems in all of our full service restaurants, allowing us
to analyze customer purchasing habits, operating trends and promotional
results.
. We have retained ownership of our valuable real estate, enabling us to
participate in cost-saving incentive programs offered by our
franchisors, rather than engaging in sale leaseback transactions that
might improve our balance sheet in the near term but will not provide
long-term benefits.
. We have improved the consolidated cash flow margins (as a percentage of
sales) of our Burger King and Chili's restaurants to a level which we
believe are significantly better than those of our larger competitors.
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. We have bolstered the development pipeline for future expansion.
. We have repurchased 562,500 shares of Company Common Stock at an
aggregate purchase price of approximately $1.3 million.
. We have made progress toward satisfactorily resolving the costly and
distracting litigation arising out of the sale of the bagel business.
. We have expanded the Board of Directors to seven members, five of whom
are independent of management.
In addition to these achievements, the Board is pleased that it has been
able to retain its excellent management team despite a difficult and
competitive market and to provide them with the proper incentives to support
our long-term strategy. Take a close look at the experience and qualifications
of some of the people who comprise the management of the Company:
. Our President and CEO has over 25 years of experience in the restaurant
business and with Burger King.
. Our Chief Development Officer has over 25 years of experience in the
restaurant business and with Burger King.
. Our Senior Vice President of the Burger King Division has over 20 years
of experience in the restaurant business and with Burger King.
. Our Senior Vice President of Full Service Dining has over 20 years of
experience in the restaurant business and with Burger King.
. Our eight senior operations managers together have an average of 23
years of experience in the restaurant business.
Not only does our management have significant experience, but it is
dedicated to serving the interests of our shareholders, making personal
financial sacrifices and remaining loyal during a trying period. The Board
recognizes the need to keep its management team intact. High turnover is
disastrous in the restaurant industry. Consequently, we have revamped the
Company's incentive and bonus programs all the way through our management
structure down to the store manager level.
THE COMPANY IS POSITIONED TO
BEGIN A PERIOD OF MODERATE GROWTH
FOR THE BENEFIT OF ALL SHAREHOLDERS
The Board's strategy has enabled the Company to return to a position where
it can take advantage of its intrinsic strengths and initiate moderate growth.
We have now established a capital structure that supports our long-term
strategic plan. In the first fiscal quarter of this year we opened two new
Burger King restaurants and, in a few weeks, we will open one new full-service
restaurant. We also plan to open one to three additional Burger King
restaurants and one or two additional full-service restaurants later this
year. In addition, the Company is making the improvements to operations and
capital expenditures necessary to sustain its resurgence. We also plan to
continue our stock repurchase program. The Board is committed to staying the
course of its long-term strategy in order to give our shareholders the best
chance to realize the greatest possible return on their investments. We
believe that to deviate from this course now in order to obtain a mediocre
cash payment--which no one can guarantee would even be available at this
time--would be foolhardy!
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THIS IS NOT THE RIGHT TIME TO SELL THE COMPANY
Despite what NBO might tell you, the Board is not opposed to a sale of the
Company--for the right price. BUT NOW IS NOT THE TIME TO SELL. Don't be misled
by NBO's hollow promises; NBO cannot offer you one iota of proof that the
Company can be sold for a premium to its market value at this time.
No one will deny that the stock of the Company is undervalued. That is why
we have been repurchasing shares. But the Board has not received one offer for
the Company in the last three years, not even from NBO. It does not make sense
to try to auction the Company, when no indications of interest exist and when
the stock price is so low. Such a course of action is, we believe, unlikely to
produce any premium for the shareholders.
Even worse, we believe that an auction of the Company at this time will
have a destabilizing effect on the Company's employees and franchisors. It
would be devastating for the Company and its shareholders to conduct an
unsuccessful auction. The slim possibility that an auction could produce a
modest return for our shareholders can in no way outweigh the very real risk
that a failed auction will reverse all the progress that the Company has made
since we disposed of the bagel business.
The only approach that makes sense is to follow the Board's strategy--
reduce debt, optimize cash flow, dispose of underperforming assets, retain
experienced management and, as a result, grow the Company moderately and
increase the returns for our shareholders. When the stock price has improved,
the Board will have many more options to consider, including strategic
acquisitions or combinations or a sale at a BETTER TIME.
WE BELIEVE THAT NBO SHOULD NOT BE TRUSTED. ITS PROXY MATERIALS DO NOT PRESENT
AN ACCURATE PICTURE OF THE COMPANY OR ITS MANAGEMENT TEAM.
NBO Mischaracterizes Itself
NBO depicts itself as an unbiased, neutral shareholder only interested in
maximizing the value of its fellow shareholders' investments. What NBO fails
to fully and clearly disclose is that it is a DIRECT COMPETITOR of the
Company. NBO operates Burger King franchises in the Detroit area, competing
directly, and fiercely, with the Company for sites, customers and employees.
Consider whether you want two directors from a direct competitor on your Board
with the ability to receive confidential information about the Company.
NBO also accuses the Company's management of being "family-dominated." The
fact that NBO makes such a statement is ironic, especially considering that
NBO is a limited liability company whose members are Mr. Jerome L. Schostak
and his three sons, and that NBO is nominating two of the Schostak's to serve
on the Company's Board! A vote for NBO's proposals could result in two members
of the Schostak family serving on the Board, a result which NBO admits in its
proxy materials could produce "conflicts of interest."
NBO Mischaracterizes its Motives
NBO states that its goal is to maximize shareholder value by forcing
management to effect a sale of the Company through an auction of the entire
Company. It also states that "NBO (or one of its affiliates) would expect to
be a bidder in any sales process."
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WHY IS NBO INCITING A PROXY FIGHT INSTEADOF APPROACHING THE COMPANY AND
ITSSHAREHOLDERS WITH A BONA FIDE OFFER AT AN ATTRACTIVE PRICE?
We believe the answer is clear--NBO is trying to secure a bargain for
itself at the expense of its fellow shareholders. We can see no other
explanation for its actions. We believe that NBO is seeking to deprive the
shareholders of an opportunity to share in the value that will be realized
from the turnaround in the Company's business. If NBO wants to purchase the
Company, fairness and honesty require NBO to disclose its motives to its
fellow shareholders. It should either publicly disclose the price that it
would be willing to pay for the Company and explain how it would finance such
a transaction, or admit that it is not really prepared to be a bidder with an
attractive offer.
NBO Mischaracterizes its Past Contacts with the Board and Management
NBO claims that the Company's Board and management have dismissed its
requests to meet and give serious consideration to a business combination or a
merger transaction either with NBO or a third party. This statement is simply
not true. NBO (or any other third party for that matter) has never approached
the Company with a bona fide proposal to effect any sort of sale or other
business combination type transaction. During the Company's two meetings with
NBO, NBO did not make a proposal for a business combination--it only requested
confidential, non-public information concerning the Company and suggested that
management cooperate with it to structure a going private transaction that
would, in effect, deprive shareholders of their opportunity to share in the
benefits of our turnaround. Your Board and management were obviously very
reluctant to share confidential information with a direct competitor, and we
have absolutely no interest in pursuing a transaction that does not benefit
all shareholders tangibly and equally.
NBO Mischaracterizes Management
NBO claims that the Company focuses only on the "personal welfare of its
family-dominated management." What NBO fails to mention is that the Company's
CEO, Daniel B. Fitzpatrick, has not received a pay raise or a bonus in the
past three years. Nor does NBO disclose the fact that the salaries and bonuses
of three of the Company's other executive officers, including Mr.
Fitzpatrick's two brothers, James K. Fitzpatrick and Gerald O. Fitzpatrick,
declined from 1998 to 1999. In addition, we believe that any related party
contracts are at least as favorable, and in some instances more favorable, to
the Company than could be obtained from unrelated third parties.
NBO also discusses various compensation arrangements entered into between
the Company and certain of the Company's officers, and states "[d]id the
Company's shareholders realize any value from these new agreements? We are of
the firm belief that you did not". The insinuation that the Company did not
and will not receive anything of value in exchange is preposterous. In fact,
as we describe in greater detail in the accompanying proxy materials, our
present compensation was developed under the guidance of an independent
professional consultant. After reading the consultant's report, our
Compensation Committee, which consists of independent directors, concluded
that the Company's long-term compensation program was neither effective nor
competitive. Obviously, we expect these individuals to continue to perform
valuable services for the Company. Moreover, the Company has received non-
compete agreements from its senior officers, an effective tool to protect the
Company and its shareholders in the long run.
NBO Mischaracterizes the Board of Directors
NBO suggests that your Board of Directors is not independent. This could
not be further from the truth. Five out of the seven current members of the
Board are nonmanagement directors without any employment relationship with the
Company, including Bruce M. Jacobson, who was recently appointed to fill a
Board vacancy
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created when a former Company executive resigned from the Board. Moreover, the
Board's new nominee, Philip J. Faccenda, is also not affiliated with Company.
If Mr. Faccenda is elected to the Board at the upcoming annual meeting, the
Board would continue to be comprised of five outside Directors.
If on the other hand, NBO's nominees are elected, as NBO admits, "conflicts
of interest could arise."
NBO Mischaracterizes the Shareholder Rights Plan
NBO claims that the Shareholder Rights Plan is an "unwanted barrier to a
sale of the Company." This assertion completely distorts the purpose and
effect of the Plan. The Shareholder Rights Plan does not preclude any third
party, including NBO, from making a proposal to the Board or the shareholders
to purchase the Company, nor does it impede any effort to replace the Board of
Directors or propose and elect alternative nominees for the class of directors
to be elected each year.
The Shareholder Rights Plan 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. As is typical, the Shareholder Rights Plan only
prevents the accumulation of shares of the Company's Common Stock beyond the
15% threshold without Board approval. The Shareholder Rights Plan is designed
to prohibit the exact conduct that NBO is displaying. It seems to us that
NBO's proposal to terminate the Shareholder Rights Plan could simply be a
self-serving maneuver designed to facilitate its accumulation of additional
shares of the Common Stock of the Company at current market prices rather than
at the premium which NBO claims should be available to all shareholders.
NBO Mischaracterizes the Effect of an Auction on Share Value
NBO attempts to induce you to vote in favor of its proposals by promising a
full-fledged auction of the Company that will produce a "significant premium"
for shareholders. However, NBO has never presented any evidence that a bidding
competition will arise if its proposals are approved. In fact, NBO admits that
it "cannot assure you that [it] will succeed in causing an auction of the
Company" nor does it have "any formal analyses or reports as to whether
shareholder value will be maximized as a result of its solicitation."
Furthermore, NBO does not indicate whether NBO is aware of any expressions of
interest from third parties who may want to acquire the Company.
NBO has also indicated that it will be a bidder if an auction can be
arranged. What if no other bidders emerge--will NBO still be a bidder? More
important, NBO should state the price it would be willing to pay for the
Company and how it would obtain the financing for an acquisition. This is
vital given that NBO has presented no evidence of its ability to structure and
finance a transaction and every action NBO has taken, and failed to take,
indicates that NBO is not a viable bidder. We suspect that NBO understands
that this is not the right time to conduct a successful auction of the
Company, and that NBO would like an opportunity to try to get control of the
Company "on the cheap". Shareholders can stop this effort in its tracks by
voting against NBO's proposals at the annual meeting.
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IMPORTANT
1. Be sure to vote on the WHITE proxy card. We urge you not to sign any
proxy card which is sent to you by NBO.
2. If any of your shares are held in the name of a bank, broker or other
nominee, please contact the person responsible for your account and
direct him or her to vote on the WHITE proxy "FOR" the Board of
Directors' nominees, "AGAINST" the Rights Agreement Proposal and "FOR"
approval of PricewaterhouseCoopers LLP as accountants.
3. If you have any questions or need assistance in voting your shares,
please call toll free:
17 State Street, 10th Floor
New York, NY 10004
Call Toll Free (800) 223-2064
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