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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 [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))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
QUALITY DINNING, 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 Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
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):
- --------------------------------------------------------------------------------
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 POTENTIALLY 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 (02-02)
QUALITY DINING, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 9, 2004
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 9, 2004 at 9:00 a.m., Mishawaka time, for the following purposes:
(1) To elect three Directors to serve until the 2007 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 2004; 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 12, 2004
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 9, 2004
This statement is being furnished to shareholders of Quality Dining,
Inc. (the "Company") on or about February 5, 2004, 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 9, 2004, 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 12, 2004, the record date for the
meeting, there were 11,596,781 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 2004. 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 both 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.
Three 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. James K. Fitzpatrick, Ezra H.
Friedlander and Steven M. Lewis, all of whom are current Directors whose terms
expire this year. They have been nominated by the Board of Directors for
reelection as Directors for terms to expire at the 2007 annual meeting of
shareholders and until their successors are elected and have qualified. If
Messrs. Fitzpatrick, Friedlander and Lewis 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
the Nominating and Corporate Governance Committee may in its 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 THREE NOMINEES DESCRIBED BELOW.
4
INFORMATION WITH RESPECT TO THE DIRECTORS
A majority of the Directors are "independent directors" as defined by
the listing standards of the Nasdaq Stock Market, and the Board of Directors has
determined that such independent directors have no relationship with the Company
that would interfere with the exercise of their independent judgment in carrying
out the responsibilities of a director. The independent Directors are Messrs.
Faccenda, Jacobson, Lewis and Murphy.
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 2003 of Class
- ------------------------- ----- -------------------------------------- -------- ------------------ --------
NOMINEES FOR DIRECTOR
(Nominees for three-year term to expire at the annual meeting of shareholders in 2007)
James K. Fitzpatrick 48 Senior Vice President and Chief 1990 408,349(1) 3.5%
Development Officer of the Company
Ezra H. Friedlander 62 Judge, Indiana Court of Appeals (2) 1995 515,131(3)(4) 4.4%
Steven M. Lewis 54 President of U.S. Restaurants, Inc. 1994 23,250(5)(6) *
(restaurant management company) (7)
DIRECTORS CONTINUING IN OFFICE
(Term expiring at annual meeting of shareholders in 2005)
Christopher J. Murphy III 57 Chairman, President and Chief 1994 65,500(5)(8) *
Executive Officer of 1st Source
Corporation (publicly held diversified
bank holding company) and Chairman and
Chief Executive Officer of 1st Source
Bank
Bruce M. Jacobson 54 Partner, Katz, Sapper & Miller, LLP 2000 15,500(9) *
(certified public accountants) (10)
(Term expiring at annual meeting of shareholders in 2006)
Daniel B. Fitzpatrick 46 Chairman of the Board, President and 1990 3,952,273(11)(12) 34.0%
Chief Executive Officer of the Company (13)
Philip J. Faccenda 74 Vice President and General Counsel 2000 23,000(9)(14) *
Emeritus, University of Notre Dame (15)
5
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* Less than 1%.
(1) Includes presently exercisable stock options to purchase 60,904 shares
granted by the Company.
(2) Mr. Friedlander has been a significant shareholder of the Company or
certain of its predecessors since 1982.
(3) Includes presently exercisable stock options to purchase 8,000 shares
granted under the 1993 Outside Directors Plan and 10,000 shares granted
under the 1999 Outside Directors Plan.
(4) 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.
(5) Includes presently exercisable stock options to purchase 10,000 shares
granted under the 1993 Outside Directors Plan and 10,000 shares granted
under the 1999 Outside Directors Plan.
(6) Includes 500 shares held in a trust for the benefit of Mr. Lewis' minor
children.
(7) Mr. Lewis also serves on the Board of Directors of Commerce Bancorp, Inc.,
a bank holding company.
(8) Includes 1,000 shares held by certain retirement plans in which Mr. Murphy
is a participant.
(9) Includes presently exercisable stock options to purchase 8,000 shares
granted under the Company's 1999 Outside Directors Plan.
(10) Mr. Jacobson is also a director of Windrose Medical Properties Trust, a
publicly held real estate investment trust.
(11) Includes presently exercisable stock options to purchase 23,200 shares,
granted by the Company.
(12) Includes 1,148,014 shares held by Fitzpatrick Properties, LLC, a limited
liability company of which Mr. Fitzpatrick is the sole member and has
investment control.
(13) Mr. Daniel B. Fitzpatrick has been a significant shareholder and Director
of certain of the Company's predecessors since 1982 and also serves on the
Board of Directors of 1st Source Corporation, a publicly held diversified
bank holding company.
(14) 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.
(15) 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.
MEETINGS AND COMMITTEES
During fiscal 2003, the Board of Directors of the Company held five
meetings. During fiscal 2003, 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. All of the Company's Directors attended the Company's 2003 annual
meeting of shareholders. Directors are expected to attend the Company's annual
meeting of shareholders.
6
The Company has an Executive Committee, an Audit Committee, a
Nominating and Corporate Governance Committee ("Nominating 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 was established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934 and consists of Messrs.
Murphy (Chairman), Jacobson and Lewis. The Board of Directors and the Audit
Committee believe that the Audit Committee's current member composition
satisfies the rules of the Nasdaq Stock Market that govern audit committee
composition, including the requirement that audit committee members all be
"independent" as that term for audit committee members is defined by the Nasdaq
Stock Market rules and Rule 10A-3 of the Securities and Exchange Act of 1934.
The Board of Directors has determined that Messrs. Jacobson and Murphy meet the
Securities and Exchange Commission's definition of "audit committee financial
expert." Among its current functions, the Audit Committee is directly
responsible for the appointment (subject to 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
can be viewed on the Company's website at www.qdi.com.
The Compensation Committee consists of Messrs. Lewis (Chairman),
Faccenda and Jacobson. Each member of the Compensation Committee is
"independent" as such term for compensation committee members is defined in the
listing standards of the Nasdaq Stock Market. 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").
The Board of Directors has adopted a written charter of the Compensation
Committee, which can be viewed on the Company's website at www.qdi.com.
The Nominating and Corporate Governance Committee (the "Nominating
Committee") consists of Messrs. Faccenda (Chair), Jacobson and Lewis. Each
member of the Nominating Committee is "independent," as such term for nominating
committee members is defined in the listing standards of the Nasdaq Stock
Market. The Board of Directors has adopted a written Charter of the Nominating
Committee, which is available on the Company's website at www.qdi.com. The
Committee exercises a leadership role in shaping the corporate governance of the
Company and recommends to the Board corporate governance principles on a number
of topics, including (i) board organization, membership and function, (ii)
committee structure and membership, and (iii) oversight of evaluation of the
Board. As the
7
nominating body of the Board, the Committee also interviews, evaluates,
nominates and recommends individuals for membership on the Board and on the
various committees of the Board. The Committee also will consider shareholder
nominations for Directors. For a description of the requirements regarding
shareholder nominations and other proposals, see "Shareholder Proposals for 2005
Annual Meeting" and the Company's By-Laws, a copy of which may be obtained from
the Secretary of the Company.
The Nominating Committee will identify potential nominees for Director
based on specified objectives in terms of the composition of the Board, taking
into account such factors as areas of expertise and geographic, occupational,
gender, race and age diversity. Nominees will be evaluated on the basis of their
experience, judgment, integrity, ability to make independent inquiries,
understanding of the Company and willingness to devote adequate time to Board
duties.
During fiscal 2003, the Audit Committee held six meetings, the
Compensation Committee held two meetings and the Executive Committee did not
meet. The Nominating Committee was established after the end of fiscal 2003, and
therefore did not meet in fiscal 2003.
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Business Conduct and Ethics (the
"Code") that applies to all of the Company's Directors, officers and employees,
including its principal executive officer, principal financial officer,
principal accounting officer and controller. The Code is posted on the Company's
website at www.qdi.com. The Company intends to disclose any amendments to the
Code by posting such amendments on its website. In addition, any waivers of the
Code for Directors or executive officers of the Company will be disclosed in a
report on Form 8-K.
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 2003, all
filing requirements applicable to its executive officers, Directors and greater
than 10% shareholders were complied with except that Daniel B. Fitzpatrick
failed to timely report one transaction on Form 4 pursuant to which he acquired
1,148,014 shares of the Company's common stock. This transaction was disclosed
by the Company in a press release issued on the date of the transaction.
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; and Jeanne M. Yoder, Vice
President and Controller.
8
PROPOSAL NO. 2
RATIFICATION OF AUDITORS
The ratification of PricewaterhouseCoopers LLP as auditors for the
Company during fiscal 2004 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.
9
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 2003 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
------------------- -------------------------
Securities Restricted
Fiscal Underlying Stock All Other
Name and Principal Position Year Salary Bonus (1) Options (2) Awards (3) Compensation
- ---------------------------------------- ------ -------- --------- ------------ ----------- ------------
Daniel B. Fitzpatrick, Chairman, 2003 $396,270 $ 74,300 0 0 $ 5,000 (4)
President and Chief Executive Officer 2002 388,500 169,969 0 0 5,000 (4)
2001 370,000 511,661 (5) 0 0 5,000 (4)
John C. Firth, Executive Vice 2003 $281,970 $ 52,881 0 $ 0 $ 5,425 (6)
President, General Counsel and Secretary 2002 272,308 219,134 (7) 60,000 421,200 (8) 8,925 (6)
2001 258,076 53,056 0 25,993 (9) 5,425 (6)
James K. Fitzpatrick, Senior Vice 2003 $224,400 $ 42,076 0 $ 0 $ 5,000 (4)
President and Chief Development Officer 2002 220,000 96,250 0 0 8,500 (4)
2001 215,000 35,833 0 22,529 (9) 5,000 (4)
Gerald O. Fitzpatrick, Senior Vice 2003 $219,300 $ 32,982 0 $ 0 $ 1,673 (4)
President, Burger King Division 2002 215,000 104,062 0 0 4,705 (4)
2001 210,000 26,250 0 21,951 (9) 1,807 (4)
Patrick J. Barry, Senior Vice 2003 $214,200 $ 40,162 0 $ 0 $ 6,420 (10)
President, Administration and 2002 210,000 91,875 0 0 (9) 9,920 (10)
Information Technology 2001 205,000 34,167 0 21,374 6,460 (10)
10
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(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 2003, fiscal 2002 and fiscal
2001, 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 26, 2003, the total number and value (based on the closing
market price of the Company's Common Stock on October 26, 2003) of the
unvested restricted stock awards held by the Named Executive Officers were
as follows: Daniel B. Fitzpatrick - 13,333 shares ($36,932); John C. Firth
- 145,314 shares ($402,520); James K. Fitzpatrick - 20,921 shares
($57,951); Gerald O. Fitzpatrick - 20,444 shares ($56,630); and Patrick J.
Barry - 20,147 shares ($55,807).
(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 Company allocations to its discretionary, non-qualified deferred
compensation plan and life insurance premiums of $425.
(7) 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."
(8) 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."
(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. As of October 26, 2003, the total number
of shares of restricted stock that had vested were: John C. Firth - 4,289
shares; James K. Fitzpatrick - 3,718 shares; Gerald O. Fitzpatrick - 3,622
shares; and Patrick J. Barry - 3,527 shares.
(10) Includes Company allocations to its discretionary, non-qualified deferred
compensation plan and life insurance premiums of $1,420 in each of fiscal
years 2003 and 2002 and $1,460 in fiscal year 2001.
11
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. 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
12
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.
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 2003, the Company paid Directors who are not employees of
the Company an annual retainer of $12,000 for members of the Audit Committee and
$10,000 for non-Audit Committee members, plus $750 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, 2003, 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 $2.11 per
share.
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 26, 2003, options to
purchase 105,935 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.
13
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
26, 2003 options to purchase 461,083 shares of Common Stock were outstanding
under the 1997 Stock Option Plan and 433,974 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 26, 2003,
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 26, 2003, options to purchase
46,000 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 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.
No stock options were granted to the Named Executive Officers in fiscal
2003.
14
The following table sets forth information with respect to the exercise
of options by the Named Executive Officers during fiscal 2003.
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)
-------------------------- -------------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable(2)
- ---------------------- --------------- -------- ----------- ------------- ----------- ----------------
Daniel B. Fitzpatrick 0 0 23,200 0 $ - (2) $ -
John C. Firth 0 0 75,736 30,000 4,954 -
James K. Fitzpatrick 0 0 60,904 0 4,294 -
Gerald O. Fitzpatrick 0 0 60,162 0 4,183 -
Patrick J. Barry 0 0 41,161 0 4,073 -
- ---------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market System on October 26, 2003 was $2.77. Value is calculated
on the basis of the difference between the Common Stock option exercise
price and $2.77 multiplied by the number of "In-the-Money" shares of common
stock underlying the option.
(2) The exercise price of these options exceeded $2.77 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.
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 2003, the Compensation Committee did not make any grants
of options or restricted stock.
Cash Bonuses
In December 1994, the Compensation Committee adopted guidelines for
annual cash bonus awards, which guidelines, as revised, 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
2003 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 2003, 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 2003 in the amount of
$74,300 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 2003 was established in his Employment Agreement except that
Mr. Fitzpatrick volunteered to a $11,655 reduction in his compensation so that
he would be treated similarly to other non-operations employees who were
generally subject to a salary increase cap of 2% during fiscal 2003. 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 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 Audit Committee
reviewed the audited financial statements 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 can be viewed on the Company's website at www.qdi.com.
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 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 six meetings during fiscal 2003.
18
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 26, 2003 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
2004.
Christopher J. Murphy III, Audit Committee Chair
Bruce M. Jacobson, Audit Committee Member
Steven M. Lewis, Audit Committee Member
AUDITORS' SERVICES AND FEES
The Company incurred the following fees for services performed
by PricewaterhouseCoopers LLP in fiscal 2003 and 2002.
Audit Fees
Fees for professional services provided in connection with the audit of
the Company's annual financial statements and review of financial statements
included in the Company's Forms 10-Q were $206,700 (of which an aggregate amount
of $98,300 had been billed through October 26, 2003) for fiscal year 2003 and
$184,254 (of which an aggregate amount of $124,817 had been billed through
October 27, 2002) for fiscal 2002.
Audit-Related Fees
No fees for audit-related services were incurred or paid in fiscal 2003
nor in fiscal 2002.
Tax Fees
Fees for services rendered to the Company for tax compliance, tax
advice and tax planning, including assistance in the preparation and filing of
tax returns were $61,730 for fiscal year 2003 and $78,030 for fiscal year 2002.
All Other Fees
No fees for all other permissible services that do not fall within the
above categories were incurred or paid in fiscal 2003 nor in fiscal 2002.
Pre-Approval Policy
The Audit Committee's policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditor. These
services may include audit services, audit-related services, tax services and
other services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. The independent auditor and
management are required to periodically report to the Audit Committee regarding
the extent of services provided by the independent auditor in accordance with
this pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve
19
particular services on a case-by-case basis.
For fiscal 2003, pre-approved non-audit services included only those
services described above for "Tax Fees." The aggregate amount of all such
pre-approved services constitutes approximately 23% of the total amount of fees
paid by the Company to PricewaterhouseCoopers.
20
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 25, 1998 through October 26, 2003. 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
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
OCTOBER 2003
[PERFORMANCE GRAPH]
10/25/1998 10/31/1999 10/29/2000 10/28/2001 10/27/2002 10/26/2003
---------- ---------- ---------- ---------- ---------- ----------
Quality Dining, Inc. $100.00 $ 91.31 $ 73.95 $ 79.15 $ 114.91 $ 96.17
NASDAQ US $100.00 $ 168.80 $ 190.50 $ 95.71 $ 75.65 $ 110.45
Peer Group Only $100.00 $ 90.99 $ 105.52 $ 128.72 $ 152.98 $ 185.56
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.
21
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 entirely of independent Directors.
LEASES OF RESTAURANT FACILITIES
Of the Burger King restaurants operated by the Company as of October 26,
2003, 43 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. The leases between the Company and the Real Estate
Partnerships are triple net leases which generally 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 2003, the Company paid $3,620,000 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 airplane to the Company. In fiscal 2003, the Company incurred $232,000
in expenses for the use of the airplane. The Company believes that the amounts
paid for air transportation 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. During fiscal 2003, the Company employed the pilots for
the airplane. On occasion, these pilot employees of the Company have and will
continue to fly the Airplane Company's airplane for related parties other than
for the business of Quality Dining, Inc. In these circumstances, the Company is
reimbursed for the full value of the pilots' services. During fiscal 2003,
Daniel B. Fitzpatrick and Ezra H. Friedlander were billed $31,816 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.
22
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 2003 was $12,000. 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
For part of fiscal 2003, the Company provided 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 provided 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 2003, the Company received $39,790 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. As of the end of the third quarter of fiscal 2003, the
Company ceased providing these services.
23
PRINCIPAL OWNERS OF COMMON STOCK
The following table sets forth, as of November 27, 2003, 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 23,000(1)(2) *
Daniel B. Fitzpatrick (3) 3,952,273(4)(5) 34.0%
James K. Fitzpatrick 408,349(6) 3.5%
Ezra H. Friedlander 515,131(7)(8) 4.4%
Bruce M. Jacobson 15,500(1) *
Steven M. Lewis 23,250(9)(10) *
Christopher J. Murphy III 65,500(9)(11) *
Patrick J. Barry 81,402(12) *
John C. Firth 250,092(13)(14) 2.1%
Gerald O. Fitzpatrick 293,908(15) 2.5%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 ** 843,900 7.3%
24
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 (13 persons) 5,749,405(13)(16) 47.9%
- ----------------
* Less than 1%.
** 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 8,000 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) Includes 1,148,014 shares held by Fitzpatrick Properties, LLC, a limited
liability company of which Mr. Fitzpatrick is the sole member and has
investment control.
(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 10,000 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 10,000 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) Does not include shares subject to stock options which are not exercisable
within 60 days.
(14) Includes presently exercisable stock options to purchase 75,736 shares
granted by the Company.
(15) Includes presently exercisable stock options to purchase 60,162 shares,
granted by the Company.
(16) Includes presently exercisable stock options to purchase 394,563 shares
granted by the Company.
SHAREHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
The date by which shareholder proposals must be received by the Company for
inclusion in proxy materials relating to the 2005 Annual Meeting of Shareholders
is October 8, 2004. Such proposals should be submitted in writing to the
Secretary of the Company at its principal executive offices.
25
If a shareholder intends to submit a proposal at the 2005 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.
The procedures described above apply to any matter that a shareholder
wishes to raise at the 2005 Annual Meeting, including those matters raised other
than pursuant to Rule 14a-8 of Securities Exchange Act of 1934. A shareholder
proposal that does not meet the above requirements will be considered untimely,
and any proxy solicited by the Company may confer discretionary authority to
vote on such proposal.
26
SHAREHOLDER COMMUNICATIONS
The Board of Directors of the Company has implemented a process whereby
shareholders may send communications to the Board's attention. Any shareholder
desiring to communicate with the Board, or one or more specific members thereof,
should communicate in a writing addressed to Quality Dining, Inc., Board of
Directors, c/o Secretary, 4220 Edison Lakes Parkway, Mishawaka, Indiana 46545.
The Secretary of the Company has been instructed by the Board to promptly
forward all such communications to the specified addressees thereof.
John C. Firth, Secretary
February 5, 2004
27
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 9, 2004 at 9:00 a.m., Mishawaka
time, and at any adjournment, as follows:
(change of address)
---------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1 Please mark your votes
as in this example [X].
1. Election of Directors Nominees: James K. Fitzpatrick, Ezra H. Friedlander
and Steven M. Lewis
<Table>
[ ] FOR the nominees listed above (except as [ ] WITHHOLD AUTHORITY to vote for the
marked to the contrary in the space nominees listed above
below)
</Table>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW:)
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 2
2. Ratify Appointment of PricewaterhouseCoopers LLP as Auditors for fiscal 2004
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, on any other matters that may properly come before the
meeting.
See Reverse Side.
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.
<Table>
Date
--------------------------------
---------------------------------------
(SIGNATURE)
---------------------------------------
(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.
</Table>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.