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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
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)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14A-11(c) or Section 240.14a-12
Quality Dining, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED IN THIS
FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB
CONTROL NUMBER.
SEC 1913 (11-01)
QUALITY DINING, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 11, 2003
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 11, 2003 at 9:00 a.m., Mishawaka time, for the following purposes:
(1) To elect two Directors to serve until the 2006 annual meeting of
shareholders and until their successors are elected and have qualified;
(2) To ratify the appointment of PricewaterhouseCoopers LLP as auditors for
the Company for fiscal 2003; and
(3) To transact such other business as may properly come before the
meeting.
All shareholders of record at the close of business on January 14, 2003
will be eligible to vote.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. WHETHER OR
NOT YOU EXPECT TO BE PRESENT, PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED
PROXY FORM IN THE ACCOMPANYING ADDRESSED POSTAGE-PREPAID ENVELOPE. IF YOU ATTEND
THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
John C. Firth, Secretary
QUALITY DINING, INC.
4220 EDISON LAKES PARKWAY
MISHAWAKA, INDIANA 46545
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 11, 2003
This statement is being furnished to shareholders of Quality Dining, Inc.
(the "Company") on or about February 3, 2003, 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 9:00 a.m., Mishawaka time, Tuesday, March
11, 2003, at Quality Dining, Inc., 4220 Edison Lakes Parkway, Mishawaka,
Indiana, for the purposes set forth in the accompanying Notice.
VOTING
At the close of business on January 14, 2003, the record date for the
meeting, there were 11,609,099 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 listed under Proposal 1 relating
to the election of Directors and for Proposal 2 relating to ratification of the
appointment of PricewaterhouseCoopers LLP as auditors for the Company for fiscal
2003. 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 Proposal 2 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.
2
The cost of the solicitation of proxies will be borne by the Company.
YOUR VOTE AT THIS YEAR'S ANNUAL MEETING IS IMPORTANT.
PLEASE SIGN AND DATE THE ENCLOSED WHITE PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY.
3
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.
Two Directors are to be elected at the meeting. 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 Messrs. Daniel B. Fitzpatrick and Philip
J. Faccenda, whose terms expire this year. They have been nominated by the Board
of Directors for reelection as Directors for terms to expire at the 2006 annual
meeting of shareholders and until their successors are elected and have
qualified. If Messrs. Fitzpatrick and Faccenda are 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).
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE
TWO NOMINEES DESCRIBED BELOW.
4
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.
Shares
Beneficially
Owned on
Principal Director November 27, Percent
Name Age Occupation Since 2002 of Class
- ------------------------ -------------- ------------------------ ---------------- -------------- -----------
NOMINEES FOR DIRECTOR
(Nominees for three-year term to expire at the annual meeting of shareholders in 2006)
Daniel B. Fitzpatrick 45 Chairman of the Board, President and 1990 2,732,759(1) 23.5%
Chief Executive Officer of the Company (2)
Philip J. Faccenda 73 Vice President and General Counsel 2000 21,000(3)(4) *
Emeritus, University of Notre Dame (5)
DIRECTORS CONTINUING IN OFFICE
(Term expiring at annual meeting of shareholders in 2004)
James K. Fitzpatrick 47 Senior Vice President and Chief 1990 408,349(6)(7) 3.5%
Development Officer of the Company
Ezra H. Friedlander 61 Judge, Indiana Court of Appeals (8) 1995 513,131(9)(10) 4.4%
Steven M. Lewis 53 President of U.S. Restaurants, Inc. 1994 21,250(11)(12) *
(restaurant management company) (13)
(Term expiring at annual meeting of shareholders in 2005)
Christopher J. Murphy III 56 Chairman, President and Chief Executive 1994 63,500(11)(14) *
Officer of 1st Source Corporation (publicly
held diversified bank holding company) and
Chairman and Chief Executive Officer of 1st
Source Bank
Bruce M. Jacobson 53 Partner, Katz, Sapper & Miller, LLP 2000 13,500(3) *
(certified public accountants) (15)
- --------------
* Less than 1%.
(1) Includes presently exercisable stock options to purchase 23,200 shares,
granted by the Company.
(2) Mr. Daniel B. Fitzpatrick has been a significant shareholder and Director
of certain of the Company's
5
predecessors since 1982 and also serves on the Board of Directors of 1st
Source Corporation, a publicly held diversified bank holding company.
(3) Includes presently exercisable stock options to purchase 6,000 shares
granted under the Company's 1999 Outside Directors Plan.
(4) Includes 15,000 shares held by Philip J. Faccenda, Inc., a holding company
of which Mr. Faccenda is the majority shareholder and has investment
control.
(5) Mr. Faccenda is also a Life Trustee at the University of Notre Dame, a
Regent at the University of Portland and a Regional Trustee at Ivy Tech
State College.
(6) Does not include shares subject to stock options which are not exercisable
within 60 days.
(7) Includes presently exercisable stock options to purchase 60,904 shares,
granted by the Company.
(8) Mr. Friedlander has been a significant shareholder of the Company or
certain of its predecessors since 1982.
(9) Includes presently exercisable stock options to purchase 8,000 shares
granted under the 1993 Outside Directors Plan and 8,000 shares granted
under the 1999 Outside Directors Plan.
(10) 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.
(11) Includes presently exercisable stock options to purchase 10,000 shares
granted under the 1993 Outside Directors Plan and 8,000 shares granted
under the 1999 Outside Directors Plan.
(12) Includes 500 shares held in a trust for the benefit of Mr. Lewis' minor
children.
(13) Mr. Lewis also serves on the Board of Directors of Commerce Bancorp, Inc.,
a bank holding company.
(14) Includes 1,000 shares held by certain retirement plans in which Mr. Murphy
is a participant.
(15) Mr. Jacobson is also a director of Windrose Medical Properties Trust, a
publicly held real estate investment trust.
MEETINGS AND COMMITTEES
During fiscal 2002, the Board of Directors of the Company held five
meetings. During the period in fiscal 2002 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.
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. Fitzpatrick (Daniel B.), Lewis 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 could take.
The Audit Committee consists of Messrs. Murphy (Chairman), Jacobson and
Lewis. Among its current functions, the Audit Committee is directly responsible
for the appointment (subject to
6
shareholder ratification), compensation and oversight of the work of the
Company's independent auditors; evaluates the qualifications, performance and
independence of the independent auditors; preapproves all auditing services and
permitted non-audit services (subject to a de minimus exception) provided by the
independent auditors; reviews and discusses with management and the independent
auditors the Company's annual and quarterly financial statements; discusses with
management the Company's major financial risk exposures and the steps management
takes to monitor and control such exposures; discusses with management and the
independent auditors major issues regarding accounting principles and financial
statement presentations and the adequacy of the Company's internal controls;
reviews and approves all related-party transactions; and advises the Board with
respect to the Company's policies and procedures regarding compliance with
applicable laws and regulations and with the Company's ethics and corporate
compliance program. See "Audit Committee Report" and "Certain Transactions." The
Board of Directors has adopted a written Charter of the Audit Committee, which
is attached to this proxy statement as an appendix.
The Compensation Committee consists of Messrs. Lewis (Chairman), Faccenda
and Jacobson. 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 2002, the Audit Committee held five meetings, the
Compensation Committee held two 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 2002, 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 of the Board, 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; Gerald O. Fitzpatrick, Senior Vice President, Burger King Division;
Lindley E. Burns, Senior Vice President, Full Service Dining Division; Patrick
J. Barry, Senior Vice President, Administration and Information Technology;
Christopher L. Collier, Vice President, Finance; Jeanne M. Yoder, Vice President
and Controller; and Robert C. Hudson, Vice President, Grady's American Grill
Division.
7
PROPOSAL NO. 2
RATIFICATION OF AUDITORS
The ratification of PricewaterhouseCoopers LLP as auditors for the Company
during fiscal 2003 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 Audit
Committee. 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 ratification
by the shareholders, the Audit Committee reserves the right to replace the
auditors at any time.
THE AUDIT COMMITTEE AND THE BOARD OF DIRECTORS RECOMMEND A VOTE FOR THE
RATIFICATION OF PRICEWATERHOUSECOOPERS LLP.
8
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 2002 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
----------------------- -------------------------
Securities Restricted
Name and Principal Position Fiscal Underlying Stock All Other
Year Salary Bonus (1) Options (2) Awards (3) Compensation
- ------------------------------------- ------------------- ----------- ------------------------- ----------------
Daniel B. Fitzpatrick, Chairman, 2002 $388,500 $169,969 0 0 $ 5,000 (4)
President and Chief Executive Officer 2001 370,000 511,661(5) 0 0 5,000 (4)
2000 340,000 170,000 0 0 5,000 (4)
John C. Firth, Executive Vice 2002 $272,308 $219,134(6) 60,000 $421,200 (7) $8,925 (8)
President, General Counsel and Secretary 2001 258,076 53,056 0 25,993 (9) 5,425 (8)
2000 245,192 190,951(10) 6,434 25,736 (11) 5,425 (8)
James K. Fitzpatrick, Senior Vice 2002 $220,000 $ 96,250 0 $ 0 $ 8,500 (4)
President and Chief Development Officer 2001 215,000 35,833 0 22,529 (9) 5,000 (4)
2000 205,000 161,000(10) 5,576 22,304 (11) 5,000 (4)
Gerald O. Fitzpatrick, Senior Vice 2002 $215,000 $104,062 0 $ 0 $ 4,705 (4)
President, Burger King Division 2001 210,000 26,250 0 21,951 (9) 1,807 (4)
2000 200,000 151,500(10) 5,433 21,732 (11) 1,292 (4)
Patrick J. Barry, Senior Vice 2002 $210,000 $ 91,875 0 $ 0 $ 9,920 (12)
President, Administration and 2001 205,000 34,167 0 21,374 (9) 6,460 (12)
Information Technology 2000 195,000 132,500(10) 5,290 21,160 (11) 6,420 (12)
9
- ---------------
(1) Except as specifically noted, 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 2002, fiscal 2001 and fiscal
2000, 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) As of October 27, 2002, the total number and value (based on the closing
market price of the Company's Common Stock on October 27, 2002) of the
restricted stock awards held by the Named Executive Officers were as
follows: Daniel B. Fitzpatrick - 13,333 shares ($44,132); John C. Firth -
136,735 shares ($452,593); James K. Fitzpatrick - 20,921 shares ($69,249);
Gerald O. Fitzpatrick - 20,444 shares ($67,670); and Patrick J. Barry -
19,967 shares ($66,091).
(4) Represents Company allocations to its discretionary, non-qualified deferred
compensation plan. The Company's allocations to this plan on behalf of
participants are determined at the discretion of the Board of Directors.
(5) Includes a one-time bonus in the amount of $450,000 granted to Mr.
Fitzpatrick in connection with his employment agreement. See "Employment
and Non-Competition Agreements."
(6) Includes a one-time bonus in the amount of $100,000 paid in connection with
the September 9, 2002 amendment to Mr. Firth's Employment Agreement. See
"Employment and Non-Competition Agreements."
(7) Represents the market value of 120,000 restricted shares awarded in
connection with the September 9, 2002 amendment to Mr. Firth's Employment
Agreement based on the closing market price of the Company's common stock
($3.51) on that date. See "Employment and Non-Competition Agreements."
(8) Includes Company allocations to its discretionary, non-qualified deferred
compensation plan and life insurance premiums of $425.
(9) Represents the market value of restricted shares awarded on December 20,
2000 under the Company's 1997 Stock Option Plan based on the closing market
price of the Company's Common Stock ($2.02) 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 2001 were: John
C. Firth - 12,868 shares; James K. Fitzpatrick - 11,153 shares; Gerald O.
Fitzpatrick - 10,867 shares; and Patrick J. Barry - 10,581 shares. These
restricted shares vest on December 20, 2007, subject to accelerated vesting
in one-third increments when the Company's share price closes at or above
$3.02 $4.02 and $6.02, 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.
(10) Includes a one-time cash retention bonus paid pursuant to the Company's
Strategic Executive Long Term Incentive Compensation Plan in the following
amounts: John C. Firth - $68,355; James K. Fitzpatrick - $58,500; Gerald O.
Fitzpatrick - $56,500; and Patrick J. Barry - $54,500.
(11) Represents the market value of restricted shares awarded on December 15,
1999 under the Company's 1997 Stock Option Plan based on the closing market
price of the Company's Common Stock ($2.00) 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 2000 were: John
C. Firth - 12,868 shares; James K. Fitzpatrick - 11,152 shares; Gerald O.
Fitzpatrick - 10,866 shares; and Patrick J. Barry - 10,580 shares. These
restricted shares vest on December 15, 2006, subject to accelerated vesting
in one-third increments when the Company's
10
share price closes at or above $3.00, $4.00 and $6.00, respectively, for at
least 10 out of 20 consecutive trading days. During fiscal 2000, one-third
of each Named Executive Officer's restricted share award vested. Holders of
restricted stock are eligible to vote the shares and to receive dividends,
if any.
(12) Includes Company allocations to its discretionary, non-qualified deferred
compensation plan and life insurance premiums of $1,460 in fiscal year 2001
and $1,420 in each of fiscal years 2000 and 2002.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
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.
In September 2002, the Company amended the Employment Agreement it had
previously entered into with John C. Firth, its Executive Vice President and
General Counsel. 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 base salary of $285,000, $300,000 and $315,000 in fiscal year
2003, 2004 and 2005, respectively. Mr. Firth is also entitled to annual 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 the amendment, Mr.
Firth received a one-time cash bonus of $100,000 and was awarded 120,000
restricted shares of Company Common Stock, valued at $421,200 based upon the
closing market price of the Company's Common Stock on the date of grant. The
restricted shares vest on the 10th anniversary of the date of grant, subject to
accelerated vesting in one-third increments as and when the Company's common
stock closes at or above $4.51, $5.51 and $7.51. The Company also agreed to
maintain a life insurance policy on Mr. Firth's life during his employment in
the amount of $500,000 for the benefit of Mr. Firth or his designee. Pursuant to
the agreement, Mr. Firth is prohibited from competing with the Company or
soliciting Company employees for a period of one year after the termination of
his employment. If the agreement is terminated by the Company, other than for
cause, or by Mr. Firth with good reason (which includes the termination of Mr.
Firth's employment for any reason within one year following a change in control
of the Company), Mr. Firth is entitled to two times his base salary and maximum
bonus, additional and accelerated vesting and exercisability as to the portion
of any outstanding option scheduled to vest on the next following vesting date
and the Company will continue to provide health and welfare benefits for one
year. The agreement also provides for gross-up payments necessary to cover
possible excise tax payments by Mr. Firth and to reimburse him for legal fees
that might be expended in enforcing the agreement's provisions or contesting tax
issues relating to the agreement's gross-up provisions.
In October 2000, the Company entered into an Employment Agreement with
Daniel B. Fitzpatrick, its Chairman of the Board, President and Chief Executive
Officer. The agreement is for a period of three years and extends automatically
for one year on each anniversary date. Mr. Fitzpatrick's agreement provides for
a $370,000 base salary which shall be reviewed at least annually for a minimum
5% increase. Mr. Fitzpatrick is also entitled to annual cash bonus payments of
up to 50% of his base salary determined in a manner similar to other senior
executives of the Company. Pursuant to the agreement, the Company agreed to pay
Mr. Fitzpatrick a one-time cash bonus of $450,000 payable in three equal
installments on October 30, 2000, January 31, 2001 and January 31, 2002. The
agreement prohibits Mr.
11
Fitzpatrick from competing with the Company or soliciting Company employees for
a period of one year after the termination of his employment except for any
business in which Mr. Fitzpatrick was engaged on the date of the agreement or
which is expressly approved by the Company's Board of Directors. If the
agreement is terminated by the Company, other than for cause, or by Mr.
Fitzpatrick with good reason (which includes the termination of Mr.
Fitzpatrick's employment for any reason within one year following a change in
control of the Company), Mr. Fitzpatrick is entitled to 2.99 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. The agreement also provides for gross-up payments
necessary to cover possible excise tax payments by Mr. Fitzpatrick and to
reimburse him for legal fees that might be expended in enforcing the agreement's
provisions or contesting tax issues relating to the agreement's gross-up
provisions.
Because the Company's compensation guidelines for non-operations employees
generally provide for salary increases of up to 2%, Mssrs. Fitzpatrick and Firth
volunteered to forego $11,655 and $3,000, respectively, of their fiscal 2003
compensation so they would be treated similarly with other non-operations
employees of the Company.
The Board of Directors believed that these agreements, together with awards
under the Long Term Incentive Plans described below, would encourage these key
employees to remain with the Company at a critical stage in the implementation
of the Board's long-term strategy. In the case of the change of control
payments, the Board believed that these officers would be better able to act in
the interests of all shareholders in the face of a hostile takeover attempt or
in the event that the Board of Directors determined that the Company should be
sold if they were assured of receiving sizable payments following a change of
control. The Board was advised that such arrangements were prevalent among
publicly-traded companies and concluded that such arrangements would foster,
rather than impair, the ability of the Company to be sold. The Board of
Directors believed that these considerations were as applicable to Daniel, James
and Gerald Fitzpatrick as they were to the other key officers of the Company who
were provided with comparable arrangements.
COMPENSATION OF DIRECTORS
During fiscal 2002, the Company paid Directors who are not employees of the
Company an annual retainer of $8,000, plus $500 for each regular Board meeting
attended and $750 for each special Board meeting attended and each committee
meeting attended if the committee met on a day other than a Board 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. On May 1, 2002, Messrs.
Friedlander, Lewis, Murphy, Faccenda and Jacobson each received an option to
purchase 2,000 shares of Common Stock, all at an exercise price of $3.76 per
share.
12
STOCK OPTIONS
On December 17, 1993, the Board of 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). As of October 27, 2002, options to
purchase 106,735 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
27, 2002 options to purchase 490,764 shares of Common Stock were outstanding
under the 1997 Stock Option Plan and 446,292 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 27, 2002,
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 automatically received 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. As of October 27, 2002, options to purchase
36,000 shares of Common Stock were outstanding under the 1999 Outside Directors
Plan. See "--Compensation of Directors."
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
13
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.
The following table sets forth information with respect to options granted
by the Company under the 1997 Stock Option Plan to Mr. Firth who was the only
Named Executive Officer to receive an option grant during fiscal 2002.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------------------------------------------------- Potential Realizable Value
% of Total 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 (1)
Name Granted Fiscal Year Price Date 5% 10%
- ------------------ -------------------- ----------------- ---------- ------------ --------- -------------
John C. Firth 60,000(2) 100% $3.51 9/8/12 $132,445 $335,642
- ---------------
(1) 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.
(2) Consists of incentive stock options and non-qualified 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 50% on September 9, 2003, 25% on
September 9, 2004 and 25% on September 9, 2005.
14
The following table sets forth information with respect to the exercise of
options by the Named Executive Officers during fiscal 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying Value of Unexercised In-the-
Unexercised Options at Money Options at
Fiscal Year-End Fiscal Year-End (1)
-----------------------------------------------------------
Name Shares Acquired Value
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
Daniel B. Fitzpatrick 0 0 23,200 0 0(2) -
John C. Firth 0 0 42,519 63,217 $ 10,198 $ 4,214
James K. Fitzpatrick 0 0 58,116 2,788 $ 8,838 $ 3,652
Gerald O. Fitzpatrick 0 0 57,445 2,717 $ 8,611 $ 3,559
Patrick J. Barry 0 0 38,516 2,645 $ 8,385 $ 3,465
- ---------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market System on October 27, 2002 was $3.31. Value is calculated
on the basis of the difference between the Common Stock option exercise
price and $3.31, multiplied by the number of "In-the-Money" shares of
common stock underlying the option.
(2) The exercise price of the "Exercisable" options exceeded $3.31 and
therefore were not "In the Money."
401(K) AND DEFERRED COMPENSATION SAVINGS PLAN
On October 27, 1986, the Company implemented the Quality Dining, Inc.
Retirement Plan and Trust ("Plan I"). Plan I is designed to provide all of the
Company's employees with a tax-deferred long-term savings vehicle. 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. In fiscal 2003, the Company made an
additional discretionary allocation of $3,500 to each Plan II participant's
deferred account other than Daniel B. Fitzpatrick's. Company allocations vest
25% annually, beginning in the participant's second year of eligibility since
Plan I inception.
15
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 were 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 were
eight other senior officers of the Company.
The Strategic Long Term Plan consists of three components: (i) restricted
stock awards during fiscal 1999, 2000 and 2001; (ii) stock option grants during
fiscal 1999; and (iii) a one-time 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, which cash bonus was paid at the conclusion of the fiscal
year 2000 to those participants still employed by the Company at that time. The
restricted stock awards under the Strategic Long Term Plan will vest seven years
from the date of grant, subject to accelerating vesting terms if the Company's
Common Stock price reaches certain benchmarks for at least 10 out of 20
consecutive trading days. The stock option grants under the Strategic Long Term
Plan vest in three annual increments of 25%, 25% and 50%, respectively.
The Senior Long Term Plan consists of restricted stock awards and stock
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 stock options granted to the participants of the Long
Term Plans are issued under the Company's 1997 Stock Option Plan.
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.
16
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 and Restricted Stock
During fiscal 2002, the Compensation Committee only made isolated grants of
options and restricted stock only one of which was to a Named Executive Officer
of the Company, Mr. Firth, in connection with the amendment to his Employment
Agreement.
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 2002
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 2002, 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 Incentive Plans."
17
CEO Compensation
Daniel B. Fitzpatrick's cash bonus for fiscal 2002 in the amount of
$169,969 was generally determined in accordance with the same procedures and
standards as for the other executive officers of the Company. Mr. Fitzpatrick's
salary for fiscal 2002 was established in his Employment Agreement. See "-
Compensation of Executive Officers and Directors - Employment and
Non-Competition Agreements." Mr. Fitzpatrick is not a participant in either the
Strategic Long Term Plan or the Senior Long Term Plan.
Compensation and Stock Option Committee
Steven M. Lewis, Chairman
Philip J. Faccenda
Bruce M. Jacobson
AUDIT COMMITTEE REPORT
The Board of Directors maintains an Audit Committee comprised of three of
the Company's outside directors. The Board of Directors and the Audit Committee
believe that the Audit Committee's current member composition satisfies the rule
of the National Association of Securities Dealers, Inc. ("NASD") that governs
audit committee composition, including the requirement that audit committee
members all be "independent directors" as that term is defined by NASD Rule 4200
(a)(14).
The Audit Committee oversees the Company's financial process on behalf of
the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the committee reviewed
the audited financial statements in the Annual Report with management including
a discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements. The Board has adopted a written Charter
of the Audit Committee, which is attached to this proxy statement as an
appendix.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards, including
Statement on Auditing Standards No. 61. In addition, the Audit Committee has
discussed with the independent auditors the auditors' independence from
management and the Company including the matters in the written disclosures and
the letter from the independent auditors required by the Independence Standards
Board, Standard No. 1 and has considered whether the provision of non-audit
services by the auditors is compatible with maintaining the auditor's
independence.
The Audit Committee discussed with the Company's independent auditors the
overall scope and plans for their audit. The Audit Committee meets with the
independent auditors, with and without
18
management present, to discuss the results of their examination, their
evaluation of the Company's internal controls, and the overall quality of the
Company's financial reporting. The Audit Committee held five meetings during
fiscal 2002. The Company incurred the following fees for services performed by
PricewaterhouseCoopers LLP in fiscal 2002.
AUDIT FEES
Fees for the fiscal year 2002 audit services and the review of Forms 10-K
and 10-Q are $174,500, of which an aggregate amount of $120,000 has been billed
through October 27, 2002.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PricewaterhouseCoopers LLP did not render any services related to financial
information systems design and implementation for the fiscal year ended October
27, 2002.
ALL OTHER FEES
Aggregate fees billed for all other services rendered by
PricewaterhouseCoopers LLP for the fiscal year ended October 27, 2002 are
$50,850 primarily for the preparation and review of state and federal tax
returns.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the fiscal year ended October 27, 2002 for filing with the
Securities and Exchange Commission. The Audit Committee has selected and also
recommended to shareholders for ratification, the selection of
PricewaterhouseCoopers, LLP as the Company's independent auditors for fiscal
2003.
Christopher J. Murphy III, Audit Committee Chair
Bruce M. Jacobson, Audit Committee Member
Steven M. Lewis, Audit Committee Member
19
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
October 26, 1997 through October 27, 2002. 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
----------------------------------------FISCAL YEAR ENDING---------------------------------------------
COMPANY/INDEX/MARKET 10/24/1997 10/30/1998 10/29/1999 10/27/2000 10/26/2001 10/25/2002
Quality Dining 100.00 52.60 54.55 44.16 47.38 68.78
Eating & Drinking Places 100.00 122.03 135.98 115.55 117.52 102.76
NASDAQ Market Index 100.00 113.07 186.63 219.50 110.07 88.57
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, Audit Committee Report and the stock price
Performance Graph shall not be incorporated by reference in any such filings.
20
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On March 8, 1994, the Board of Directors established the Compensation
Committee to approve compensation and stock option grants for the Company's
executive officers. The Compensation Committee members are Messrs. Lewis,
Faccenda and Jacobson. 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.
CERTAIN TRANSACTIONS
Related party transactions are subject to the review and approval of the
Company's Audit Committee, which is composed exclusively of independent
Directors.
LEASES OF RESTAURANT FACILITIES
Of the Burger King restaurants operated by the Company as of October 27,
2002, 41 were leased from a series of entities owned, in various percentages, by
Messrs. Daniel B. Fitzpatrick, Ezra H. Friedlander, Gerald O. Fitzpatrick 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 2002, the
Company paid $3,739,000 under these leases.
TRANSPORTATION SERVICES
Burger Management South Bend No. 3, Inc., and its subsidiary, BMSB, Inc.,
(collectively the "Airplane Company"), owned by Messrs. Daniel B. Fitzpatrick,
Ezra H. Friedlander and James K. Fitzpatrick, have provided the service of its
Beechjet and King Air turbo-prop airplanes to the Company. In fiscal 2002, the
Airplane Company billed the Company $303,000. 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 the Airplane Company to provide air
transportation services. Since January 1, 1996 through September, 2002, the
Airplane Company leased two or three employees from the Company to act as a
pilot and co-pilot of the airplanes. The Airplane Company reimbursed the Company
for the Company's full cost of such employees. Commencing in August 2002, the
Airplane Company ceased leasing any employees from the Company. On occasion,
employees of the Company have and will continue to fly the Airplane Company's
airplanes for related parties other than for the business of Quality Dining,
Inc. In these circumstances, the Company is reimbursed for the full value of
their services. During fiscal 2002, Daniel B. Fitzpatrick and Ezra H.
Friedlander were billed $6,354 and $2,425, respectively, for pilot services. The
Company believes that the amounts charged for these pilot services were no less
than the amounts which would have been charged to unrelated third parties for
similar services.
21
ADMINISTRATIVE SERVICES
The Company provides certain accounting, tax and other administrative
services to the Real Estate Partnerships and the Airplane Company on a fee for
services basis. The aggregate amount of fees paid to the Company for
administrative services by these entities during fiscal 2002 was $14,000. The
Company believes that these fees are no less than amounts which would have been
charged to unaffiliated third parties for comparable services.
MANAGEMENT SERVICES
The Company provides district management services to an entity owned in
various percentages by Messrs. Daniel B. Fitzpatrick, James K. Fitzpatrick and
Gerald O. Fitzpatrick that operates Burger King restaurants in the State of
Arkansas. The Company provides these services through one of its employees for a
management fee equal to the entire cost of the employee's compensation, payroll
taxes, and benefits plus an additional $5,000 per month. During fiscal 2002, the
Company received $7,316 for these services. The Company believes that the amount
received for these services was no less than the amount which would have been
charged to unrelated third parties for similar services.
22
PRINCIPAL OWNERS OF COMMON STOCK
The following table sets forth, as of November 27, 2002, 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 and Named Executive Officers, and by all
Directors 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.
Name and Address of Number of Shares Percent
Individual or Beneficially of
Identity of Group Owned Class
- --------------------------------------------------------------------------------
Philip J. Faccenda 21,000 (1)(2) *
Daniel B. Fitzpatrick (3) 2,732,759 (4) 23.5%
James K. Fitzpatrick 408,349 (5)(6) 3.5%
Ezra H. Friedlander 513,131 (7)(8) 4.4%
Bruce M. Jacobson 13,500 (1) *
Steven M. Lewis 21,250 (9)(10) *
Christopher J. Murphy III 63,500 (9)(11) *
Patrick J. Barry 81,402 (5)(12) *
John C. Firth 220,092 (5)(13) 1.9%
Gerald O. Fitzpatrick 293,908 (5)(14) 2.5%
Jerome L. Schostak
Robert I. Schostak
David W. Schostak
Mark S. Schostak
NBO, LLC
25800 Northwestern Highway
Southfield, MI 48075 ** 1,159,014 (15) 10.0%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 *** 892,800 7.7%
23
William R. Schonsheck
Nanette M. Schonsheck
9024 Thornbury Lane
Las Vegas, NV 89134 ** 582,734 5.0%
All current Directors and executive officers
as a group (14 persons) 4,530,344 (5)(16) 37.8%
- ---------------
* Less than 1%.
** Information is based solely on reports filed by such shareholders under
Section 13(d) of the Securities Exchange Act of 1934.
*** Information is based solely on reports filed by such shareholder under
Section 13(G) of the Securities Exchange Act of 1934.
(1) Includes presently exercisable stock options to purchase 6,000 shares
granted under the Company's 1999 Outside Directors Plan.
(2) Includes 15,000 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) Includes presently exercisable stock options to purchase 23,200 shares,
granted by the Company.
(5) Does not include shares subject to stock options which are not exercisable
within 60 days.
(6) Includes presently exercisable stock options to purchase 60,904 shares,
granted by the Company.
(7) Includes presently exercisable stock options to purchase 8,000 shares
granted under the 1993 Outside Directors Plan and 8,000 shares granted
under the 1999 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 1993 Outside Directors Plan and 8,000 shares granted
under the 1999 Outside Directors Plan.
(10) Includes 500 shares held in a trust for the benefit of Mr. Lewis' minor
children.
(11) Includes 1,000 shares held by certain retirement plans in which Mr. Murphy
is a participant.
(12) Includes presently exercisable stock options to purchase 41,161 shares,
granted by the Company.
(13) Includes presently exercisable stock options to purchase 45,736 shares
granted by the Company.
(14) Includes presently exercisable stock options to purchase 60,162 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 1,159,014 shares reported.
(16) Includes presently exercisable stock options to purchase 376,144 shares
granted by the Company.
SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
The date by which shareholder proposals must be received by the Company for
inclusion in proxy materials relating to the 2004 Annual Meeting of Shareholders
is October 6, 2003. Such proposals should be submitted in writing to the
Secretary of the Company at its principal executive offices.
24
If a shareholder intends to submit a proposal at the 2004 Annual Meeting of
Shareholders which is not eligible for inclusion in the proxy materials relating
to that meeting in accordance with the previous paragraph, the Company's By-Laws
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 date of the previous annual meeting. If, however, the
annual meeting is more than 30 days earlier or more than 60 days later than the
anniversary date of the prior annual meeting, notice by the shareholder must be
delivered or received not earlier than the 90th day prior to the annual meeting
and not later than the close of business on the later of the 70th day prior to
the annual meeting or the 10th day following the date on which public disclosure
of the meeting date was first made. The notice must set forth (a) a brief
description of the business proposed to be brought before the meeting and the
reasons for conducting such business at the meeting and, in the event that such
business includes a proposal to amend the Restated Articles of Incorporation of
the Company, the language of the proposed amendment, (b) the shareholder's name
and address, (c) a representation that the shareholder is a holder of record of
shares of the Company entitled to vote at the meeting and intends to appear in
person or by proxy at the meeting to propose such business, (d) any material
interest of the shareholder in such business, and (e) if the shareholder intends
to solicit proxies in support of such shareholder's proposal, a representation
to that effect. Such notice must be given to the Secretary of the Company,
either by personal delivery or by United States mail, postage prepaid, at the
principal executive offices of the Company. The foregoing requirements will be
deemed satisfied if the shareholder notifies the Company of its intention to
present a proposal at an annual meeting and such proposal has been included in
the Company's proxy statement for such annual meeting. Such shareholder's
proposal, however, will not be presented at the annual meeting unless the
shareholder appears or sends a qualified representative to present the proposal
at the meeting.
If the shareholder's proposal includes the nomination of a person to become
a director with respect to an election to be held at an annual meeting, the
shareholder's notice must be received by the Company in the manner and within
the time frame provided above for shareholder's proposals. If, however, the
nomination is with respect to an election to be held at a special meeting of
shareholders for the election of directors, notice must be received not earlier
than the 90th day prior to such meeting and not later than the close of business
on the later of the 60th day prior to such 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) 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 3, 2003
25
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
QUALITY DINING, INC.
PURPOSE
The Audit Committee of the Board of Directors of Quality Dining, Inc.
(the "Company") is appointed by the Board to assist the Board in monitoring (1)
the integrity of the Company's financial statements, (2) the independent
auditor's qualifications and independence, (3) the performance of the Company's
independent auditor, and (4) the Company's compliance with legal and regulatory
requirements.
The Audit Committee is also responsible for producing the annual report
required by the rules of the Securities and Exchange Commission (the "SEC") to
be included in the Company's proxy statement.
COMMITTEE MEMBERSHIP
The Audit Committee shall consist of at least three directors. The
members of the Audit Committee shall meet the independence and experience
requirements of the Nasdaq Stock Market, Section 10A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and SEC rules and regulations.
The members and the Chair of the Audit Committee shall be appointed by
the Board. Audit Committee members may be replaced by the Board.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to retain and
terminate the independent auditor (subject, if applicable, to shareholder
ratification), and to approve all audit engagement fees and terms and all
significant non-audit engagements with the independent auditor. The Audit
Committee may consult with management but shall not delegate these
responsibilities to management.
The Audit Committee shall preapprove all auditing services and
non-audit services (subject to a de minimus exception) provided to the Company
by the independent auditor and shall be directly responsible for the
appointment, compensation and oversight of the work of the independent auditor,
including resolution of disagreements between management and the auditor
regarding financial reporting, as required by Section 10A of the Exchange Act.
The Audit Committee may delegate its responsibility to preapprove auditing and
non-audit services to one or more of its members, whose decisions must be
presented to the full Audit Committee at each of its scheduled meetings.
The Audit Committee shall meet as often as it determines, but not less
frequently than quarterly. The Audit Committee may form and delegate authority
to subcommittees when appropriate.
The Audit Committee shall have the authority, to the extent it deems
necessary or appropriate and without seeking Board approval, to retain special
legal, accounting or other consultants to advise the Committee. The Audit
Committee may request any officer or employee of the Company or the Company's
outside counsel or independent auditor to attend a meeting of the Committee or
to meet with any members of, or consultants to, the Committee. The Audit
Committee shall meet with management, and the independent auditor in separate
executive sessions at least quarterly. The Audit Committee may also, to the
extent it deems necessary or appropriate, meet with the Company's investment
bankers or financial analysts who follow the Company.
The Audit Committee shall establish and maintain procedures for the
receipt, retention and treatment of complaints received by the Company regarding
accounting, internal accounting controls or auditing matters and the
confidential, anonymous submission by Company employees of concerns regarding
questionable accounting or auditing matters.
The Audit Committee shall review and approve all related-party
transactions.
The Audit Committee shall make regular reports to the Board which shall
include a review of any issues that arise with respect to the quality or
integrity of the Company's financial statements. The Audit Committee shall
review and reassess the adequacy of this Charter annually and recommend any
proposed changes to the Board for approval. The Audit Committee shall annually
review the Audit Committee's own performance.
The Audit Committee shall also perform the following functions:
Financial Statement and Disclosure Matters
Review and discuss with management and the independent auditor the
annual audited financial statements, including disclosures made in management's
discussion and analysis, and recommend to the Board whether the audited
financial statements should be included in the Company's Form 10-K.
Review and discuss with management and the independent auditor the
Company's quarterly financial statements, including disclosures made in
management's discussion and analysis, prior to the filing of its Form 10-Q,
including the results of the independent auditor's reviews of the quarterly
financial statements.
Discuss with management and the independent auditor major issues
regarding accounting principles and financial statement presentations, including
any significant changes in the Company's selection or application of accounting
principles, any major issues as to the adequacy of the Company's internal
controls and any special audit steps adopted in light of material control
deficiencies, as well as significant financial reporting issues and judgments
made in connection
with the preparation of the Company's financial statements, including the
development, selection and disclosure of critical accounting estimates, and
analyses of the effect of alternative assumptions, estimates or GAAP methods on
the Company's financial statements.
Discuss with management the Company's earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP information, as well as
financial information and earnings guidance provided to analysts and rating
agencies.
Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet structures on
the Company's financial statements.
Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies.
Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the conduct of
the audit. In particular, discuss:
The adoption of, or changes to, the Company's significant
auditing and accounting principles and practices as suggested by the
independent auditor, any internal auditors or management.
The management letter provided by the independent auditor and
the Company's response to that letter.
Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
requested information, and any significant disagreements with
management, including any accounting adjustments that were noted or
proposed by the auditor but were "passed" (as being immaterial or
otherwise).
Oversight of the Company's Relationship with the Independent Auditor
Review the experience and qualifications of the senior members of the
independent auditor team.
Obtain and review a report from the independent auditor at least
annually regarding (a) the auditor's internal quality-control procedures, (b)
any material issues raised by the most recent internal quality-control review,
or peer review, of the firm, or by any inquiry or investigation by governmental
or professional authorities within the preceding five years respecting one or
more independent audits carried out by the firm, (c) any steps taken to deal
with any such issues, and (d) all relationships between the independent auditor
and the Company.
Evaluate the qualifications, performance and independence of the
independent auditor, including considering whether the auditor's quality
controls are adequate and the provision of
non-audit services is compatible with maintaining the auditor's independence,
and taking into account the opinions of management. The Audit Committee shall
present its conclusions to the Board and, if so determined by the Audit
Committee, recommend that the Board take additional action to satisfy itself of
the qualifications, performance and independence of the auditor.
Assure the regular rotation of the lead audit partner of the
independent auditor as required by Section 10A of the Exchange Act.
Consider whether, in order to assure continuing auditor independence,
it is appropriate to adopt a policy of rotating the independent auditing firm on
a regular basis.
Set policies for the Company's hiring of employees or former employees
of the independent auditor who were engaged on the Company's account.
Where appropriate, discuss with the national office of the independent
auditor issues on which it was consulted by the Company's audit team and matters
of audit quality and consistency.
Meet with the independent auditor prior to the audit to discuss the
planning and staffing of the audit.
Obtain and review the report required under Section 10A of the Exchange
Act from the independent auditor.
Compliance Oversight Responsibilities
Obtain from the independent auditor assurance that the provisions of
Section 10A of the Exchange Act respecting the detection and reporting of
illegal acts have not been implicated.
Obtain reports from management and the independent auditor that the
Company is in conformity with applicable legal requirements and the Company's
ethics and corporate compliance program. Review reports and disclosures of
insider and affiliated party transactions. Advise the Board with respect to the
Company's policies and procedures regarding compliance with applicable laws and
regulations and with the Company's ethics and corporate compliance program.
Discuss with management and the independent auditor any correspondence
with regulators or governmental agencies and any employee complaints or
published reports which raise material issues regarding the Company's financial
statements or accounting policies.
Discuss with the Company's General Counsel legal matters that may have
a material impact on the financial statements or the Company's compliance
policies.
LIMITATION OF AUDIT COMMITTEE'S ROLE
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements and disclosures
are complete and accurate and are in accordance
with generally accepted accounting principles and applicable rules and
regulations. These are the responsibilities of management and the independent
auditor.
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 11, 2003 at 9:00 a.m., Mishawaka time, and
at any adjournment, as follows:
(change of address)
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(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 DIRECTOR OF THE NOMINEES LISTED UNDER PROPOSAL 1 AND FOR
PROPOSAL 2.
SEE REVERSE SIDE.
PLEASE MARK YOUR VOTES
AS
IN THIS EXAMPLE. [ x]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 2
"FOR" ITEM 1 FOR THE WITHHOLD 2. RATIFY APPOINTMENT OF PRICEWATERHOUSECOOPERS
1. ELECTION OF DIRECTORS NOMINEES: NOMINEES AUTHORITY LLP AS AUDITORS FOR FISCAL 2003
DANIEL B. FITZPATRICK AND PHILIP J. LISTED TO VOTE
FACCENDA ABOVE FOR THE FOR AGAINST ABSTAIN
(EXCEPT NOMINEES [ ] [ ] [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE AS MARKED LISTED
FOR ANY INDIVIDUAL NOMINEE, WRITE THAT TO THE ABOVE
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW: CONTRARY)
- --------------------------------------------- [ ] [ ]
I3. IN THEIR DISCRETION, ON ANY OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE MEETING.
Date
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(SIGNATURE)
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(SIGNATURE IF HELD JOINTLY)
Please sign exactly as your name appears hereon. When shares
are held by two or more persons, all of them should sign.
When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign
in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.