SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12

Quality Dining, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ ] No fee required.

[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

(1) Title of each class of securities to which transaction applies:

Common Stock, no par value per share

(2) Aggregate number of securities to which transaction applies:
6,635,098(A)

(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):

$3.20 per share in cash out merger

(4) Proposed maximum aggregate value of transaction: $20,882,142(B)

(5) Total fee paid: $2,457.83(C)

[x] 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.:

--------------------------------------------------------------------

3) Filing Party:

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4) Date Filed:

- ----------

(A) Includes (1) 6,437,989 shares of common stock and (2) shares issuable upon
(a) the exercise of outstanding options with respect to 131,150 shares of common
stock and (b) the vesting and lapse of restrictions on 65,959 shares of
restricted common stock. Such amounts exclude 4,905,139 shares of common stock,
options to purchase 246,002 shares of common stock and 200,012 restricted
shares, in each case which are held by persons not being cashed out in the
merger.

(B) Pursuant to Rule 0-11 of the Securities Exchange Act of 1934, as amended,
and solely for purposes of calculating the filing fee, the transaction value is
based upon the sum of (1) the product of (a) 6,503,948, which is the maximum
number of shares of common stock that may be outstanding immediately prior to
the effective time of the merger (which figure excludes (i) any shares
underlying options, and (ii) any shares owned by persons not being cashed out in
the merger), and (b) $3.20 per share and (2) the product of (a) 131,150, which
is the number of shares of common stock underlying options that will be
outstanding immediately prior to the effective time of the merger, less any
shares of common stock underlying options that will not be cashed out in the
merger and (b) $0.53 ($3.20 per share minus $2.67, the weighted average exercise
price of the options to be cashed out in the merger).

(C) The amount of the filing fee calculated in accordance with Rule 0-11(c) of
the Securities Exchange Act of 1934 was determined based on a fee of $117.70 per
$1,000,000 (prorated for amounts less than $1,000,000) of the proposed cash
payments to be made in the transaction.

QUALITY DINING, INC.
4220 Edison Lakes Parkway
Mishawaka, Indiana 46545

[ ], 2005

Dear Quality Dining Shareholder:

You are cordially invited to attend a special meeting of the shareholders
of Quality Dining, Inc. to be held on [ ], 2005 at [10:00
a.m.] local time at [ ].

At the special meeting, you will be asked to consider and vote upon a
proposal to approve an agreement and plan of merger entered into between Quality
Dining, Inc. and QDI Merger Corp. The merger agreement provides for the merger
of QDI Merger Corp. into Quality Dining with Quality Dining continuing as a
privately-owned corporation not subject to regulation by the Securities and
Exchange Commission.

Together with a group of five other shareholders (three of whom are members
of management (including one who is a director) and one of whom is a director),
I have formed QDI Merger Corp. solely for the purpose of taking the company
private through the acquisition of all of the outstanding shares of Quality
Dining not already owned by me and the other members of my group. In the merger
each outstanding share of Quality Dining common stock not owned by members of my
group will be converted into $3.20 in cash. This represents a premium of 39%
over the trading price of the Common Stock on June 15, 2004, the day before I
first announced my going private proposal. The total cash consideration payable
in the merger to shareholders and optionholders will be approximately $20
million.

The attached notice of meeting and proxy statement describe the merger
agreement and the merger, including our reasons for proposing to take the
company private at this time. I urge you to read these materials carefully as
they set forth the specifics of the merger and other important information
related to the merger.

The Quality Dining board of directors, based on the recommendation of a
special committee of the board consisting solely of independent directors, has
approved and adopted the merger agreement and the merger, has determined that
the approval of the merger agreement and the merger are advisable and that the
proposed merger is fair to, and in the best interests of, Quality Dining and the
unaffiliated shareholders of Quality Dining. The board and special committee
have received the opinion of Houlihan Lokey Howard & Zukin stating that the
price to be paid in the merger is fair, from a financial point of view, to the
unaffiliated shareholders of Quality Dining.

Accordingly, the board of directors recommends that the Quality Dining
shareholders vote "FOR" the approval of the merger agreement and the merger.

Under Indiana law, the affirmative vote of the holders of shares of Quality
Dining common stock representing a majority of all the votes entitled to be cast
on the merger agreement and the merger is required at the special meeting to
approve the merger agreement and the merger. The members of my group, who
together own approximately 49.3% of the outstanding shares of Quality Dining
common stock, have agreed to vote our shares for and against approval of the
merger agreement and the merger in the same proportion as the votes cast by all
other shareholders voting at the special meeting (with abstentions being deemed
to be votes against approval of the merger agreement and the merger). For
purposes of this proportional voting requirement, only votes actually cast by
the unaffiliated shareholders of Quality Dining at the special meeting will be
counted in determining how the members of my group vote our shares (with
abstentions being deemed to be votes against approval), and shares that are not
voted at the special meeting (including broker non-votes) will not be considered
in determining how the members of my group vote our shares.

It is important that your shares be represented at the special meeting.
Whether or not you expect to be present, please fill in, date, sign and return
the enclosed proxy card in the accompanying addressed, postage-prepaid envelope.
If you attend the meeting, you may revoke your proxy and vote in person.

Sincerely,

--------------------------------------
Daniel B. Fitzpatrick
Chairman, President and Chief
Executive Officer

NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, NOR HAS ANY SUCH
COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

THIS PROXY STATEMENT IS DATED [ ], 2005, AND IS BEING MAILED, ALONG
WITH A PROXY CARD, TO QUALITY DINING SHAREHOLDERS BEGINNING ON OR ABOUT
[ ], 2005.

QUALITY DINING, INC.
4220 Edison Lakes Parkway
Mishawaka, Indiana 46545

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ], 2005

NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of
Quality Dining, Inc., an Indiana corporation, has been called by the Quality
Dining board of directors. The details of the meeting are as follows:

PLACE: [ ]

DATE: [ ], 2005

TIME: [10:00] a.m. local time

The purposes of the special meeting are:

1. To consider and vote on the proposal to approve the agreement and
plan of merger, dated as of November 9, 2004, between Quality Dining and
QDI Merger Corp. and the merger of QDI Merger Corp. with and into Quality
Dining.

2. In the event that there are insufficient votes for approval of the
merger agreement and the merger, to consider and vote on a proposal to
grant our board of directors discretionary authority to adjourn or postpone
the special meeting to solicit additional votes for approval of the merger
agreement and the merger.

3. To consider and vote on such other matters as may be properly
presented incident to the conduct of the special meeting.

Only shareholders of record at the close of business on [ ], 2005
are entitled to notice of, and to vote at, the special meeting. A list of
shareholders will be available for inspection by shareholders of record during
business hours at Quality Dining, Inc., 4220 Edison Lakes Parkway, Mishawaka,
Indiana 46545 for ten days prior to the date of the special meeting and will
also be available at the special meeting.

Accordingly, the board of directors recommends that the Quality Dining
shareholders vote "FOR" the approval of the merger agreement and the merger. Any
abstentions from voting will be deemed to be votes against approval of the
merger agreement and the merger.

We urge you to read the attached proxy statement. If you are a shareholder
of record, you should receive a proxy card with the attached proxy statement.
Whether or not you plan to attend the special meeting, you can be sure your
shares are represented at the special meeting if you promptly submit your proxy
by completing, signing, dating and returning your proxy card in the enclosed
postage-prepaid envelope. Prior to being voted, your proxy may be withdrawn in
the manner described in the attached proxy statement. Proxies forwarded by or
for brokers or fiduciaries should be returned as requested by them.

By Order of the Board of Directors,

--------------------------------------
John C. Firth
Secretary

YOUR VOTE IS VERY IMPORTANT

IN ORDER TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, YOU ARE REQUESTED
TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE (TO WHICH NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES). PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR
PROXY CARD.

TABLE OF CONTENTS

<Table>

SUMMARY TERM SHEET.......................................... 1
Transaction Participants.................................. 1
Fitzpatrick Group......................................... 1
Transaction Structure..................................... 1
Capitalization............................................ 2
Vote Required............................................. 2
Recommendations of the Quality Dining Board of Directors
and the Special Committee.............................. 3
Fairness Opinion of Houlihan Lokey Howard & Zukin......... 3
No Appraisal Rights....................................... 3
Interests of Certain Persons in the Merger................ 4
Termination of the Merger Agreement....................... 4
Financing................................................. 4
Material U.S. Federal Income Tax Consequences............. 4
Litigation Related to the Merger.......................... 5
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL
MEETING................................................... 6
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... 10
INFORMATION CONCERNING THE SPECIAL MEETING.................. 11
Date, Time and Place...................................... 11
Purpose................................................... 11
Record Date and Quorum Requirement........................ 11
Voting Procedures; Voting by Proxy........................ 11
Revoking Your Proxy....................................... 11
Assistance................................................ 12
Voting at the Special Meeting............................. 12
How Shares are Voted...................................... 12
Vote Required............................................. 12
Voting on Other Matters................................... 14
Proxy Solicitation........................................ 14
SPECIAL FACTORS............................................. 16
Structure of the Transaction.............................. 16
Capitalization............................................ 16
Purposes of the Going Private Transaction; Certain Effects
of the Merger and Going Private........................ 17
Background of the Merger.................................. 20
Recommendation of the Special Committee; Reasons for
Recommending Approval of the Merger.................... 31
Recommendation of the Board of Directors; Reasons for
Recommending Approval of the Merger.................... 33
Opinion of Financial Advisor to Special Committee......... 35
Summary of Financial Analyses Performed by Houlihan
Lokey.................................................. 37
Position of the Fitzpatrick Group......................... 41
Presentations of Banc of America Securities to the
Fitzpatrick Group...................................... 43
Certain Financial Projections............................. 49
Interests of Certain Persons in the Merger................ 52
Plans for Quality Dining Following the Merger............. 55
Conduct of the Business of Quality Dining if the Merger is
not Completed.......................................... 55
</Table>

<Table>

Fees and Expenses......................................... 55
Anticipated Accounting Treatment of the Merger............ 56
Material U.S. Federal Income Tax Consequences............. 56
No Appraisal Rights of Shareholders....................... 58
Regulatory Requirements................................... 58
Franchisor Approvals...................................... 58
Litigation Related to the Merger.......................... 58
FINANCING FOR THE MERGER.................................... 58
Financing Requirements.................................... 58
Sources of Financing...................................... 59
THE MERGER AGREEMENT........................................ 60
The Merger................................................ 60
Conversion of Capital Stock in the Merger................. 60
Time of Closing........................................... 60
Exchange and Payment Procedures........................... 60
Transfers of Shares....................................... 61
Treatment of Stock Options; Restricted Shares............. 61
Representations and Warranties............................ 61
Covenants................................................. 62
Conditions................................................ 66
Termination of the Merger Agreement....................... 67
Expenses.................................................. 68
Amendments; Waivers....................................... 68
QUALITY DINING SELECTED HISTORICAL CONSOLIDATED FINANCIAL
DATA...................................................... 69
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION.......... 72
INFORMATION REGARDING QUALITY DINING COMMON STOCK
TRANSACTIONS.............................................. 74
Purchases by Quality Dining............................... 74
Transactions by QDI Merger Corp. and the Fitzpatrick
Group.................................................. 74
Securities Transactions Within 60 Days.................... 77
CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF QUALITY
DINING.................................................... 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 80
INFORMATION ABOUT THE TRANSACTION PARTICIPANTS.............. 81
QDI Merger Corp. ......................................... 81
Fitzpatrick Group......................................... 81
Criminal Proceedings and Injunctions or Prohibitions
Involving Securities Laws.............................. 81
Past Contacts, Transactions, Negotiations and
Agreements............................................. 82
QUALITY DINING BUSINESS DESCRIPTION......................... 83
General................................................... 83
Business Strategy......................................... 83
Expansion................................................. 84
Burger King............................................... 84
Chili's Grill & Bar....................................... 85
Grady's American Grill.................................... 85
Italian Dining Concept.................................... 87
Porterhouse Steaks and Seafood(TM)........................ 87
</Table>

<Table>

Trademarks................................................ 87
Administrative Services................................... 87
Franchise and Development Agreements...................... 89
Competition............................................... 91
Government Regulation..................................... 92
Employees................................................. 92
PROPERTIES.................................................. 93
LEGAL PROCEEDINGS........................................... 93
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 96
Forward-Looking Statements................................ 96
Restatement............................................... 96
Critical Accounting Policies.............................. 97
Results of Operations..................................... 99
Management Outlook........................................ 106
Liquidity and Capital Resources........................... 107
Recently Issued Accounting Standards...................... 110
Impact of Inflation....................................... 111
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 111
FUTURE SHAREHOLDER PROPOSALS................................ 111
MISCELLANEOUS OTHER INFORMATION............................. 112
Shareholder Proposals..................................... 112
Where You Can Find More Information....................... 112
APPENDICES
Appendix A -- Merger Agreement
Appendix B -- Fairness Opinion of Houlihan Lokey Howard &
Zukin
Appendix F -- Financial Statements
</Table>

iii

SUMMARY TERM SHEET

This summary term sheet highlights selected information included in this
proxy statement and should be read together with the questions and answers that
follow this summary term sheet. Because this is a summary term sheet, it may not
contain all of the information that is important to you. To more fully
understand the merger and for a more complete description of the legal terms of
the merger, you should read carefully this entire proxy statement, including the
documents attached to this proxy statement as appendices. The actual terms of
the merger are contained in the merger agreement, a copy of which is attached as
Appendix A to this proxy statement. For more details regarding where you can
find additional information, see "Miscellaneous Other Information -- Where You
Can Find More Information".

TRANSACTION PARTICIPANTS (PAGE 81)

Quality Dining, Inc.
4220 Edison Lakes Parkway
Mishawaka, Indiana 46545
(574) 271-4600

Quality Dining, Inc. ("Quality Dining," the "company," "we," "us" or "our")
is a multi-concept restaurant operator that operates four distinct restaurant
concepts. Quality Dining owns the Grady's American Grill(R) concept and an
Italian Dining concept. The company operates its Italian Dining restaurants
under the tradenames of Spageddies Italian Kitchen(R) ("Spageddies"(R)) and Papa
Vino's Italian Kitchen(R) ("Papa Vino's"(R)). The company operates one of its
Grady's American Grill restaurants under the tradename Porterhouse Steaks and
Seafood(TM.) The company also operates Burger King(R) restaurants and Chili's
Grill & Bar(TM)("Chili's"(R)) as a franchisee of Burger King Corporation and
Brinker International, Inc. ("Brinker"), respectively. As of October 31, 2004,
the company operated 176 restaurants, including 124 Burger King restaurants, 39
Chili's, three Grady's American Grill restaurants, one Porterhouse Steaks and
Seafood(TM) restaurant, three Spageddies and six Papa Vino's.

QDI Merger Corp.
4220 Edison Lakes Parkway
Mishawaka, Indiana 46545
(574) 271-4600

QDI Merger Corp. was incorporated on October 29, 2004 for purposes of
merging with and into Quality Dining. It has not carried on any activities to
date other than those incident to its incorporation and completion of the
merger. All of the outstanding shares of common stock of QDI Merger Corp. are
currently owned by the members of the Fitzpatrick group. For purposes of this
proxy statement, the term "the Fitzpatrick group" refers to Daniel B.
Fitzpatrick, Gerald O. Fitzpatrick, James K. Fitzpatrick, Ezra H. Friedlander,
John C. Firth and William R. Schonsheck and any other shareholder of the company
who might, after the date of this proxy statement, agree to become a member of
that group.

FITZPATRICK GROUP (PAGE 81)

Daniel B. Fitzpatrick ("Mr. Fitzpatrick") (the company's chairman,
president and chief executive officer and a member of the board), Gerald O.
Fitzpatrick (a senior vice president), James K. Fitzpatrick (a senior vice
president and a member of the board), Ezra H. Friedlander (a member of the
board), John C. Firth (the executive vice president, general counsel and
secretary) and William R. Schonsheck (a significant shareholder) are currently
the members of the Fitzpatrick group. The members of the Fitzpatrick group, who
together own approximately 49.3% of the outstanding common stock of the company,
will retain an investment in Quality Dining following completion of the merger.
It is possible that other company employees may be given the opportunity to
obtain an equity interest in the company following consummation of the merger.

TRANSACTION STRUCTURE (PAGE 16)

Immediately prior to the closing date of the merger, each member of the
Fitzpatrick group will contribute all of his shares of Quality Dining common
stock to QDI Merger Corp. (other than in the case of Messrs. Firth and
Friedlander, respectively, 4,500 shares and 56,000 shares held in individual
retirement accounts and 228,388 shares held by Mr. Schonsheck) in exchange for a
proportionate number of shares of QDI Merger Corp.

On the closing date, QDI Merger Corp. will merge with and into Quality
Dining, with Quality Dining as the surviving corporation. The holders

of shares of Quality Dining common stock at the time of the merger (other than
treasury shares and shares owned by QDI Merger Corp.) will receive $3.20 in
cash, without interest, in exchange for each share of Quality Dining common
stock that they own at the effective time of the merger. Treasury shares and
shares of Quality Dining common stock held by QDI Merger Corp. will be cancelled
without any consideration being paid therefor. Each outstanding share of QDI
Merger Corp. common stock will be converted into one share of the surviving
corporation.

The merger agreement provides that holders of options to purchase shares of
Quality Dining common stock (other than options held by those persons permitted
by QDI Merger Corp. to retain their options and have them converted into options
to purchase shares of common stock of the surviving corporation in the merger)
will receive, for each share of Quality Dining common stock underlying an
option, the right to an amount in cash equal to the amount, if any, by which
$3.20 exceeds the per share exercise price for the option. In addition, each
restricted share of Quality Dining common stock will vest and the restrictions
thereon will lapse, and the shares (other than shares held by those persons
permitted by QDI Merger Corp. to retain such shares and have them converted into
shares of common stock of the surviving corporation in the merger) will be
converted in the merger into the right to receive $3.20 in cash.

As a result of the merger, the unaffiliated shareholders of Quality Dining
will no longer have any interest in, and will no longer be shareholders of,
Quality Dining and will not participate in any future earnings or growth of
Quality Dining. For purposes of this proxy statement, the term "unaffiliated
shareholders" refers to the holders of shares of Quality Dining common stock who
are not members of the Fitzpatrick group. After the merger, Quality Dining will
be a private corporation owned by the members of the Fitzpatrick group.

CAPITALIZATION (PAGE 16)

Immediately following the merger:

- Daniel B. Fitzpatrick will own approximately 72.47% of the outstanding
shares of Quality Dining common stock;

- Gerald O. Fitzpatrick will own approximately 4.31% of the outstanding
shares of Quality Dining common stock, and hold stock options to purchase
an additional 41,732 shares;

- James K. Fitzpatrick will own approximately 6.41% of the outstanding
shares of Quality Dining common stock, and hold stock options to purchase
an additional 42,304 shares;

- Ezra H. Friedlander will own approximately 7.84% of the outstanding
shares of Quality Dining common stock, and hold stock options to purchase
an additional 20,000 shares;

- John C. Firth will own approximately 3.13% of the outstanding shares of
Quality Dining common stock, and hold stock options to purchase an
additional 105,736 shares; and

- William R. Schonsheck will own approximately 5.84% of the outstanding
shares of Quality Dining common stock.

In addition, it is expected that other company employees will be given the
opportunity following the merger to purchase shares and/or be awarded restricted
stock or options to purchase shares of common stock of Quality Dining.

VOTE REQUIRED (PAGE 12)

Quality Dining has one class of common stock, no par value per share. Each
share of Quality Dining common stock is entitled to one vote.

Under Indiana law, approval of the merger agreement and the merger requires
the affirmative vote of a majority of the votes entitled to be cast at the
special meeting. The members of the Fitzpatrick group, who together own
approximately 49.3% of the outstanding shares of Quality Dining common stock,
have agreed to vote their shares for and against approval of the merger
agreement and the merger in the same proportion as the votes cast by the
unaffiliated shareholders voting at the special meeting, with abstentions being
deemed to be votes against approval of the merger agreement and the merger. For
purposes of this proportional voting requirement, only votes actually cast by
unaffiliated shareholders at the special meeting will be counted in determining

how the Fitzpatrick group votes its shares (with abstentions being deemed to be
votes against approval), and shares that are not voted at the special meeting
(including broker non-votes) will not be considered in determining how the
Fitzpatrick group votes its shares.

Because of the proportional voting requirement, shareholder approval of the
merger agreement and the merger is dependent upon two variables, (i) the total
number of votes cast by the unaffiliated shareholders at the meeting and (ii) of
such total votes cast, the number cast in favor of the merger agreement and the
merger. Since shareholder approval is dependent upon these two variables, there
is no single number or percentage of outstanding shares held by the unaffiliated
shareholders that need to be voted in favor of the merger agreement and the
merger to approve the merger. The minimum number of votes that need to be cast
by the unaffiliated shareholders in order to constitute a quorum at the special
meeting (when combined with the number of shares held by the Fitzpatrick group)
is 87,520 votes, and if only the minimum number of votes is cast by the
unaffiliated shareholders, 100% of such votes must be voted in favor of the
merger agreement and the merger in order to obtain shareholder approval.
Accordingly, even if a majority of the votes cast at the special meeting by the
unaffiliated shareholders are voted for the merger, because the members of the
Fitzpatrick group have agreed to vote their shares proportionately, the merger
will not be approved unless the total votes cast for the merger by members of
the Fitzpatrick group and by the unaffiliated shareholders constitute a majority
of a total number of shares entitled to vote at the special meeting. Please
consult the graphic presentation on page 13 of this proxy statement for a
depiction of how different combinations of unaffiliated shareholder turnout and
voting patterns at the special meeting can affect the outcome of the vote on the
merger agreement and the merger.

In the event that the special committee withdraws or modifies its approval
or recommendation in favor of the merger and the merger agreement is not
terminated, the merger agreement and the merger will nevertheless be presented
to the Quality Dining shareholders for their approval.

In the event there are insufficient votes for approval of the merger
agreement and the merger, the shareholders will consider and vote on a proposal
to grant the Quality Dining board of directors discretionary authority to
adjourn or postpone the special meeting and solicit additional votes for
approval of the merger agreement and the merger.

RECOMMENDATIONS OF THE QUALITY DINING BOARD OF DIRECTORS AND THE SPECIAL
COMMITTEE (PAGE 31)

The board of directors and the special committee of the board of directors
have determined that the terms of the proposed merger and the terms and
provisions of the merger agreement are fair to, and in the best interests of,
Quality Dining and the unaffiliated shareholders and recommend that Quality
Dining shareholders vote "FOR" the approval of the merger agreement and the
merger. In each case, one member of the board and the special committee,
Christopher J. Murphy, III, voted against approving the merger agreement and the
merger. See "Special Factors -- Recommendation of the Special Committee; Reasons
for Recommending Approval of the Merger" and "Special Factors -- Recommendation
of the Board of Directors; Reasons for Recommending Approval of the Merger".

FAIRNESS OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN (PAGE 35)

The special committee and the board of directors received a written opinion
from Houlihan Lokey Howard & Zukin as to the fairness, as of the date of that
opinion, from a financial point of view of the merger consideration to be
received pursuant to the merger by the unaffiliated shareholders of Quality
Dining. The full text of the written opinion of Houlihan Lokey Howard & Zukin,
dated November 9, 2004, is attached to this proxy statement as Appendix B, and
you should read it carefully in its entirety.

NO APPRAISAL RIGHTS (PAGE 58)

Holders of shares of Quality Dining common stock who do not vote in favor
of the merger agreement and the merger do not have appraisal rights under
Indiana law.

INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 52)

In considering the recommendations of the special committee and the board
of directors, you should be aware that some of Quality Dining's officers and
directors (including the members of the Fitzpatrick group) have interests in the
merger that are different from or in addition to your interests as a shareholder
generally, including the following:

- the members of the Fitzpatrick group (Daniel B. Fitzpatrick, Gerald O.
Fitzpatrick, James K. Fitzpatrick, Ezra H. Friedlander, John C. Firth and
William R. Schonsheck), will retain substantially all of their shares of
Quality Dining common stock and their options to purchase shares of
Quality Dining common stock following the merger;

- following the merger, the management of Quality Dining will include
persons who are currently members of the management of Quality Dining,
some of whom are also directors of Quality Dining;

- it is expected that certain employees of Quality Dining will be offered
the opportunity to purchase shares and/or be granted shares of restricted
stock or options to purchase shares, of common stock of Quality Dining
following consummation of the merger in connection with their continuing
service as employees of Quality Dining,

- each member of the special committee (Phillip J. Faccenda, Bruce M.
Jacobson, Steven M. Lewis and Christopher J. Murphy, III) has been
compensated for serving as a member of the special committee; and

- Quality Dining will be obligated to continue to provide indemnification
and related insurance coverage to former directors and officers of
Quality Dining following the merger.

The special committee and the board of directors were aware of these
different or additional interests and considered them along with other matters
in approving the merger.

TERMINATION OF THE MERGER AGREEMENT (PAGE 67)

The merger agreement may be terminated before the merger is completed,
before or after approval by the Quality Dining shareholders, in several
different circumstances. Quality Dining has agreed to reimburse QDI Merger Corp.
in an amount not to exceed $750,000 for reasonable expenses incurred by QDI
Merger Corp. or its affiliates upon the termination of the merger agreement
under specified circumstances.

FINANCING (PAGE 58)

Completion of the merger will require total funding of approximately $52.6
million. The Fitzpatrick group has received commitment letters from J.P. Morgan
Securities Inc. and the other members of the company's bank group to provide
(subject to certain conditions) a new revolving credit facility of $23 million,
of which approximately $17.6 million is currently expected to be funded upon
completion of the merger, and a new term loan of $35 million. In connection with
the merger, approximately $30 million of the proceeds from the new revolving
credit facility and new term loan will be used to repay existing indebtedness of
Quality Dining, approximately $20 million of the proceeds will be used to pay
the $3.20 per share payable in the merger (including amounts payable to cash out
outstanding stock options) and approximately $2.6 million of the proceeds will
be used to pay merger-related fees and expenses.

QDI Merger Corp. has no alternative financing arrangements or alternative
financing plans in the event that the financing arrangements described above are
not consummated.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (PAGE 56)

The exchange of your shares of Quality Dining common stock for cash in the
merger will be a taxable event for U.S. federal income tax purposes and may also
be a taxable transaction under state, local and foreign tax laws. For U.S.
federal income tax purposes, you generally will recognize gain or loss in an
amount equal to the difference between the cash you receive and your tax basis
in the shares of Quality Dining common stock you surrender in the merger. That
gain or loss will be capital gain or loss if you hold the shares of Quality
Dining common stock as a

capital asset. This summary term sheet does not describe the tax consequences to
QDI Merger Corp. or the members of the Fitzpatrick group. You should consult
your own tax advisor with respect to the particular tax consequences to you of
the merger, including the applicability and effect of any state, local or
foreign tax laws, and of changes in applicable tax laws.

LITIGATION RELATED TO THE MERGER (PAGE 93)

A purported class action lawsuit was filed against Quality Dining, the
members of the board of directors and the Fitzpatrick group on behalf of Quality
Dining common shareholders on June 22, 2004. The action seeks to enjoin the
merger transaction, and in the event the merger is consummated, to rescind the
merger and unspecified damages. Quality Dining publicly announced that the
defendants believe that the lawsuit is without merit and that it intends to
defend against it vigorously. The defendants filed motions to dismiss in the
action and a hearing was held on December 17, 2004. On February 3, 2005, the
court granted the defendants' motions and dismissed the plaintiff's amended
complaint. On February 22, 2005, the plaintiff filed a motion to correct errors
or for reconsideration, and on March 11, 2005, the defendants filed a response
requesting the court to deny the plaintiff's motion. In addition, on February
18, 2005, lawyers representing the plaintiff delivered to the Quality Dining
board of directors a demand letter relating to the merger and related matters.
The board has appointed a special committee to investigate the demands.

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

The following questions and answers are intended to briefly address some
commonly asked questions that unaffiliated shareholders might have regarding the
merger and the special meeting. It should be read together with the Summary Term
Sheet that preceded this section. These questions and answers may not address
all questions that may be important to you as a Quality Dining shareholder.
Please refer to the more detailed information contained elsewhere in this proxy
statement and the appendices to this proxy statement.

Q: WHAT AM I BEING ASKED TO VOTE ON?

A: You are being asked to vote to approve a merger agreement and the merger
pursuant to which QDI Merger Corp. will merge with and into Quality Dining.
In addition, if there are not enough votes for approval of the merger
agreement, you will be asked to vote on a proposal to grant our board of
directors discretionary authority to adjourn or postpone the special meeting
to solicit additional votes for approval of the merger agreement and the
merger.

Q: WHAT WILL HAPPEN IN THE MERGER?

A: Pursuant to the terms of the merger agreement, QDI Merger Corp. will merge
with and into Quality Dining, and Quality Dining will be the surviving
corporation. After the merger, Quality Dining will be a privately held
company owned by Daniel B. Fitzpatrick, Gerald O. Fitzpatrick, James K.
Fitzpatrick, Ezra H. Friedlander, John C. Firth and William R. Schonsheck.
Following the merger, Daniel B. Fitzpatrick will continue as chairman of the
board of directors, president and chief executive officer of Quality Dining.

Q: WHAT WILL I RECEIVE IN THE MERGER?

A: As an unaffiliated shareholder of Quality Dining, you will be entitled to
receive $3.20 in cash, without interest, in exchange for each of your shares
of Quality Dining common stock outstanding at the time of the merger.

Q: WHY DID THE QUALITY DINING BOARD OF DIRECTORS FORM THE SPECIAL COMMITTEE?

A: The board of directors formed a special committee consisting of independent
directors because some of our directors will have economic interests in
Quality Dining following the merger. The board of directors formed the
special committee to evaluate the terms of the proposed transaction, to
consider other alternatives available to Quality Dining and to make a
recommendation to the full board of directors on the transaction proposal
and any other alternatives.

Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE MERGER
AGREEMENT AND THE MERGER?

A: The board of directors, based on the recommendation of the special
committee, believes that the terms of the proposed merger and the terms and
provisions of the merger agreement are fair to, and in the best interests
of, Quality Dining and the unaffiliated shareholders. ACCORDINGLY, THE BOARD
OF DIRECTORS, WITH ONE DISSENTING VOTE, APPROVED AND ADOPTED THE MERGER
AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT
AND MERGER. To review the background and reasons for the merger in greater
detail, see "Special Factors -- Background of the Merger", "Special
Factors -- Recommendation of the Special Committee; Reasons for Recommending
Approval of the Merger" and "Special Factors -- Recommendation of the Board
of Directors; Reasons for Recommending Approval of the Merger."

Q: DO ANY OF THE OFFICERS, DIRECTORS OR SIGNIFICANT QUALITY DINING SHAREHOLDERS
HAVE INTERESTS IN THE MERGER THAT DIFFER FROM THOSE OF OTHER SHAREHOLDERS?

A: Yes. Several officers, directors and shareholders of Quality Dining have
interests that differ from those of other shareholders because, among other
things, they will retain equity interests in Quality Dining following the
merger, including rights or options to acquire shares of Quality Dining
common stock.

Q: WHAT WILL HAPPEN TO STOCK OPTIONS IN THE MERGER?

A: Following the effective time of the merger, holders of options to purchase
shares of Quality Dining common stock (other than options held by members of
the Fitzpatrick group) will receive, for each share of Quality Dining common
stock underlying an option, the right to an amount in cash equal to the
amount, if any, by which $3.20 exceeds the per share exercise price for the
option.

Q: WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF THE MERGER TO ME?

A: Soon after the merger, you will receive a cash payment for your shares of
Quality Dining common stock that you may not otherwise have received. The
merger consideration of $3.20 per share represents an approximate 39%
premium over the $2.30 per share closing price of Quality Dining common
stock on June 15, 2004, the last trading day prior to the public
announcement of the transaction proposal by the Fitzpatrick group, an
approximate 9% premium over the $2.93 per share closing price of Quality
Dining common stock on October 12, 2004, the last trading day before the
public announcement of the Fitzpatrick group's reaching an agreement in
principle with the special committee with respect to the $3.20 merger price,
and an approximate 4% premium over the $3.08 per share closing price of
Quality Dining common stock on November 8, 2004, the last trading day before
the public announcement that Quality Dining entered into a definitive merger
agreement with QDI Merger Corp. and the Fitzpatrick group. In addition, you
will not bear the risk of any decrease in the value of Quality Dining and
will be able to dispose of your shares of Quality Dining common stock
without incurring any brokerage fees. You will not, however, have the
opportunity to participate in Quality Dining's future earnings and growth,
if any. In addition, the exchange of shares of Quality Dining common stock
for cash in the merger will be a taxable event for you for U.S. federal
income tax purposes and may also be a taxable transaction for you under
state, local and foreign tax laws.

Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?

A: We are working toward completing the merger as quickly as possible. Subject
to satisfaction of all closing conditions, including satisfaction of the
conditions contained in the financing commitment letters, we expect to
complete the merger immediately following the special meeting. However, we
cannot assure you that all closing conditions will be satisfied by this
time.

Q: WHAT HAPPENS IF I SELL MY SHARES OF QUALITY DINING COMMON STOCK BEFORE THE
SPECIAL MEETING?

A: The record date for the special meeting is earlier than the expected date of
the merger. If you transfer your shares of Quality Dining common stock after
the record date but before the merger, you will retain your right to vote at
the special meeting but will transfer the right to receive the $3.20 in cash
per share to the person to whom you transfer your shares.

Q: WHAT DO I NEED TO DO NOW?

A: After carefully reading and considering the information contained in this
proxy statement, please vote by completing, dating and signing your proxy
card and then mailing it in the enclosed postage-prepaid envelope as soon as
possible so that your shares are represented at the special meeting. If your
shares are held in a street name account, you must instruct your bank,
broker or other nominee on how to vote your shares. If you sign, date and
mail your proxy card without specifying how you want to vote, your proxy
will be voted "FOR" approval of the merger agreement and the merger and
"FOR" granting the board of directors discretionary authority to adjourn or
postpone the special meeting to solicit additional votes. Your failure to
vote in person or return your signed and dated proxy card will have the same
effect as a vote "AGAINST" approval of the merger agreement and the merger.
If you return your signed and completed proxy card but mark "abstain," your
proxy will have the same effect as a vote "AGAINST" approval of the merger
agreement and the merger.

Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A: No. If the merger is completed, we will send you written instructions
explaining how to exchange your Quality Dining share certificates for cash.

Q: WHAT IS THE DATE, TIME AND PLACE OF THE SPECIAL MEETING?

A: The special meeting of shareholders will be held on [ ], 2005, at
[10:00 a.m.] local time at [ ].

Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?

A: Shareholders as of the close of business on [ ], 2005, are entitled
to vote at the special meeting.

Q: HOW MANY SHARES OF QUALITY DINING COMMON STOCK NEED TO BE REPRESENTED AT THE
MEETING?

A: The holders of a majority of the votes entitled to be cast at the special
meeting, which is equal to 5,798,391 shares of Quality Dining common stock
(and the Fitzpatrick group owns 5,710,871), must be present in person or
represented by proxy to constitute a quorum for the transaction of business.
If you vote by proxy card or in person at the special meeting, you will be
considered present for the purpose of determining whether the quorum
requirement has been satisfied.

Q: HOW MANY VOTES ARE REQUIRED TO APPROVE THE MERGER AGREEMENT AND THE MERGER?

A: Each share of Quality Dining common stock is entitled to one vote. Under the
Indiana Business Corporation Law, the affirmative vote of a majority of the
votes entitled to be cast at the special meeting is necessary to approve the
merger agreement and the merger. For purposes of this proxy statement, the
term "Indiana law" refers to the Indiana Business Corporation Law. In
addition, the members of the Fitzpatrick group, who together own
approximately 49.3% of the outstanding shares of Quality Dining common
stock, have agreed in the merger agreement to vote their shares for and
against approval of the merger agreement and the merger in the same
proportion as the votes cast by the unaffiliated shareholders voting at the
special meeting, with abstentions being deemed to be votes against approval
of the merger agreement and the merger. For purposes of this proportional
voting requirement, only votes actually cast by unaffiliated shareholders at
the special meeting will be counted in determining how the Fitzpatrick group
votes its shares (with abstentions being deemed to be votes against
approval), and shares that are not voted at the special meeting (including
broker non-votes) will not be considered in determining how the Fitzpatrick
group votes its shares.

The special committee required that the Fitzpatrick group vote its shares
proportionately to the vote of the unaffiliated shareholders to provide the
unaffiliated shareholders who disagree with the price or other terms of the
merger the opportunity to express that disagreement. Therefore, if a
majority of the unaffiliated shareholders vote against the merger agreement
and the merger or if not enough unaffiliated shareholders vote, the merger
will not be approved.

Because of the proportional voting requirement, shareholder approval of the
merger agreement and the merger is dependent on two variables, (i) the
total number of votes cast by the unaffiliated shareholders at the meeting
and (ii) of such total votes cast, the number cast in favor of the merger
agreement and the merger. Since shareholder approval is dependent upon
these two variables, there is no single number or percentage of outstanding
shares held by the unaffiliated shareholders that need to be voted in favor
of the merger agreement and the merger to approve the merger. The minimum
number of votes that need to be cast by the unaffiliated shareholders in
order to constitute a quorum at the special meeting (when combined with the
number of shares held by the Fitzpatrick group) is 87,520 votes, and if
only the minimum number of votes is cast by the unaffiliated shareholders,
100% of such votes must be voted in favor of the merger agreement and the
merger in order to obtain shareholder approval. Accordingly, even if a
majority of the votes cast at the special meeting by the unaffiliated
shareholders are voted for the merger, because the members of the
Fitzpatrick group have agreed to vote their shares proportionately, the
merger will not be approved unless the total votes cast for the merger by
members of the Fitzpatrick group and by the unaffiliated shareholders
8

constitute a majority of the total number of shares entitled to vote at the
special meeting. Please consult the graphic presentation on page 13 of this
proxy statement for a depiction of how different combinations of
unaffiliated shareholder turnout and voting patterns at the special meeting
can affect the outcome of the vote on the merger agreement and the merger.

Q: HOW DO I VOTE?

A: If you are a shareholder of record, you can vote by signing and mailing your
proxy card in the enclosed postage-paid envelope. See the proxy card for
specific instructions. You may also vote in person at the special meeting.

Q: IF MY SHARES ARE HELD IN "STREET NAME," WILL MY BANK, BROKER OR OTHER
NOMINEE VOTE MY SHARES FOR ME?

A: Generally, your bank, broker or other nominee will not have the power to
vote your shares. The nominee, generally, will vote your shares ONLY if you
provide your nominee with instructions on how to vote. Any failure to
instruct your nominee on how to vote with respect to the merger will have
the effect of a vote "AGAINST" the merger agreement and the merger for
purposes of determining whether the approval requirement under Indiana law
has been satisfied. You should follow the directions provided by your
nominee on how to instruct your nominee to vote your shares.

Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

A: Yes. You may revoke your vote at any time before the special meeting by:

- giving written notice of your revocation to the secretary of Quality
Dining;

- filing a revoking instrument or a duly executed proxy bearing a later
date with the secretary of Quality Dining; or

- attending the special meeting and voting in person.

If your shares are held in street name, you must contact your bank, broker
or other nominee to change your vote.

Q: WHAT HAPPENS IF I DON'T RETURN A PROXY CARD?

A: If you fail to return a proxy card, it will have the same effect as a vote
"AGAINST" the merger agreement and the merger for purposes of Indiana law.
However, for purposes of the proportional voting requirement agreed to by
the Fitzpatrick group in the merger agreement, the failure of an
unaffiliated shareholder to return a proxy card or otherwise cast a vote at
the special meeting (including broker non-votes) will not be counted as a
vote cast in respect of the merger agreement and the merger and, therefore,
will have no effect on the manner in which votes are cast by members of the
Fitzpatrick group for and against the proposal to approve the merger
agreement and the merger.

Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?

A: If you oppose the merger and do not vote in favor of it and the merger is
completed, you will be entitled to the merger consideration of $3.20 per
share. Under Indiana law, holders of shares of Quality Dining common stock
who do not vote in favor of the merger agreement and the merger do not have
dissenters' appraisal rights.

Q: CAN I CHOOSE TO CONTINUE TO BE A SHAREHOLDER?

A: No. Only Daniel B. Fitzpatrick, Gerald O. Fitzpatrick, James K. Fitzpatrick,
Ezra H. Friedlander, John C. Firth and William R. Schonsheck, the members of
the Fitzpatrick group, will continue as shareholders of Quality Dining.

Q: WHO CAN HELP ANSWER MY QUESTIONS?

A: If you have any questions about the merger or if you need additional copies
of this proxy statement or the enclosed proxy card, you should contact
Georgeson Shareholder Communications, Inc. at the following address and
phone number:

GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
17 STATE STREET, 10TH FLOOR
NEW YORK, NY 10004
(800) 903-4377

BANK AND BROKERAGE FIRMS
PLEASE CALL (212) 440-9800

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This proxy statement includes forward-looking statements. These
forward-looking statements include statements relating to Quality Dining's
plans, intentions and expectations to complete the merger and to operate the
company's businesses following the merger, as well as the sufficiency of Quality
Dining's liquidity and the availability of capital. Although Quality Dining
believes that its plans, intentions and expectations reflected in the
forward-looking statements are reasonable, it can give no assurance that it will
achieve its plans, intentions or expectations. The forward-looking statements
are subject to a number of factors and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. These factors and uncertainties include, but are not limited to, the
following:

- the satisfaction of the conditions to complete the merger;

- the availability of financing to complete the merger on acceptable terms,
if at all;

- our ability to successfully forecast sales at our restaurants;

- the future profitability of Quality Dining;

- competition and pricing in Quality Dining's market areas;

- government regulations and enforcement;

- Quality Dining's ability to manage its long-term indebtedness;

- the favorable resolution of certain pending and future litigation;

- the availability and cost of suitable locations for new restaurants;

- the availability and cost of capital to the company;

- the ability of the company to develop and operate its restaurants;

- the hiring, training and retention of skilled corporate and restaurant
management and other restaurant personnel;

- the overall success of the company's franchisors;

- weather and other acts of God;

- general economic conditions; and

- the extensive and costly burdens of complying with the internal audit and
control requirements of the Sarbanes-Oxley Act of 2002.

In addition, actual results could differ materially from the
forward-looking statements contained in this proxy statement as a result of the
timing of the completion of the merger or the impact of the merger on operating
results, capital resources, profitability, cash requirements and liquidity.

Except to the extent required under the U.S. federal securities laws,
Quality Dining undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. You should not place undue reliance on any forward-looking
statements.

INFORMATION CONCERNING THE SPECIAL MEETING

DATE, TIME AND PLACE

The special meeting will be held on [ ], 2005 at [10:00 a.m.]
local time at [ ].

PURPOSE

At the special meeting, you will be asked:

- to consider and vote on the proposal to approve the merger agreement and
the merger;

- in the event that there are insufficient votes for approval of the merger
agreement and the merger, to consider and vote on a proposal to grant our
board of directors discretionary authority to adjourn the special meeting
to solicit additional votes for approval of the merger agreement and the
merger; and

- to consider and vote on such other matters as may be properly presented
incident to the conduct of the special meeting.

RECORD DATE AND QUORUM REQUIREMENT

We have fixed the close of business on [ ], 2005 as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the special meeting. At the close of business on [ ], 2005, there
were [ ] shares of Quality Dining common stock issued and outstanding
held by approximately holders of record.

Each holder of record of Quality Dining common stock at the close of
business on [ ], 2005 is entitled to one vote for each share then held
on each matter submitted to a vote of shareholders at the special meeting.

The holders of shares of Quality Dining common stock representing a
majority of the votes entitled to be cast at the special meeting, which is equal
to 5,798,391 shares of Quality Dining common stock (and the Fitzpatrick group
owns 5,710,871), must be present in person or represented by proxy to constitute
a quorum for the transaction of business. If you vote by proxy card or in person
at the special meeting, you will be counted for purposes of determining whether
a quorum is present at the special meeting.

VOTING PROCEDURES; VOTING BY PROXY

Holders of record can ensure that their shares are voted at the special
meeting by completing, signing, dating and delivering the enclosed proxy card in
the enclosed postage-prepaid envelope. Submitting instructions by any of these
methods will not affect your right to attend the special meeting and vote.

If you return a signed proxy card but do not provide voting instructions,
the persons named as proxies on the proxy card will vote "FOR" the approval of
the merger agreement and the merger.

REVOKING YOUR PROXY

You may revoke your proxy at any time before it is voted by:

- giving notice in writing to the Secretary of Quality Dining, Inc., 4220
Edison Lakes Parkway, Mishawaka, Indiana 46545;

- delivering to the secretary of Quality Dining a revoking instrument or a
duly executed proxy indicating a contrary vote bearing a later date; or

- attending the special meeting and voting in person (attendance without
casting a ballot will not, by itself, constitute revocation of a proxy).

ASSISTANCE

If you need assistance, including help in changing or revoking your proxy,
please contact Georgeson Shareholder Communications, Inc. at the following
address and phone number:

GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
17 STATE STREET, 10TH FLOOR
NEW YORK, NY 10004
(800) 903-4377

BANK AND BROKERAGE FIRMS
PLEASE CALL (212) 440-9800

VOTING AT THE SPECIAL MEETING

Submitting a proxy now will not limit your right to vote at the special
meeting if you decide to attend in person. If your shares are held in the name
of a bank, broker or other nominee and you wish to vote in person at the special
meeting, you must obtain a proxy, executed in your favor, from such bank, broker
or other nominee.

HOW SHARES ARE VOTED

Subject to revocation, all shares represented by each properly executed
proxy received by the secretary of Quality Dining will be voted in accordance
with the instructions indicated thereon. If no instructions are indicated, the
shares will be voted to approve the merger agreement and the merger and, in the
event that there are insufficient votes for approval of the merger agreement and
the merger, the shares will be voted in favor of a proposal to grant the board
of directors discretion to adjourn the special meeting to obtain additional
votes for approval of the merger agreement and the merger.

VOTE REQUIRED

Under Indiana law, approval by Quality Dining shareholders of the merger
agreement and the merger will require the affirmative vote of a majority of the
votes entitled to be cast at the special meeting. Pursuant to the terms of the
merger agreement, the members of the Fitzpatrick group have agreed to vote for
and against approval of the merger agreement and the merger in the same
proportion as the votes cast by all other shareholders voting at the meeting,
with abstentions being deemed to be votes against approval of the merger
agreement and the merger. For purposes of this proportional voting requirement,
only votes actually cast by unaffiliated shareholders at the special meeting
will be counted in determining how the Fitzpatrick group votes its shares, and
shares that are not voted at the special meeting (including broker non-votes)
will not be considered in determining how the Fitzpatrick group votes its
shares.

Abstentions and broker non-votes will be counted for the purpose of
determining if a quorum is present but will not be included in the vote total
and therefore, will have the same effect as a vote "AGAINST" the merger
agreement and the merger for purposes of determining whether the approval
requirement under Indiana law has been satisfied. A broker non-vote occurs when
a bank, broker or other nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have discretionary
voting power for that particular item and has not received instructions from the
beneficial owner. However, for purposes of the proportional voting requirement
agreed to by the Fitzpatrick group in the merger agreement, the failure of an
unaffiliated shareholder to return a proxy card or otherwise cast a vote at the
special meeting (including broker non-votes) will not be counted as a vote cast
in respect of the merger agreement and the merger and, therefore, will have no
effect on the manner in which votes are cast by members of the Fitzpatrick group
for and against the proposal to approve the merger agreement and the merger.

proportionate voting requirement, if a majority of the shares held by
unaffiliated shareholders are voted against the merger or, even if a majority of
the shares held by unaffiliated shareholders are voted in favor of the merger
but the total votes cast by unaffiliated shareholders and the members of the
Fitzpatrick group in favor of the merger do not represent a majority of the
shares entitled to vote at the special meeting, the merger will not be approved.

Because of the proportional voting requirement, shareholder approval of the
merger agreement and the merger is dependent on two variables: (i) the total
number of votes cast by the unaffiliated shareholders at the meeting and (ii) of
such total votes cast, the number cast in favor of the merger agreement and the
merger. Since shareholder approval is dependent upon these two variables, there
is no single number or percentage of outstanding shares held by the unaffiliated
shareholders that need to be voted in favor of the merger agreement and the
merger to approve the merger. The minimum number of votes that need to be cast
by the unaffiliated shareholders in order to constitute a quorum at the special
meeting (when combined with the number of shares held by the Fitzpatrick group)
is 87,520 votes, and if only the minimum number of votes is cast by the
unaffiliated shareholders, 100% of such votes must be voted in favor of the
merger agreement and the merger in order to obtain shareholder approval.
Accordingly, even if a majority of the votes cast at a special meeting by the
unaffiliated shareholders are voted for the merger, because the members of the
Fitzpatrick group have agreed in the merger agreement to vote their shares
proportionately, the merger will not be approved unless the total votes cast for
the merger by members of the Fitzpatrick group and by the unaffiliated
shareholders constitute a majority of the total number of shares entitled to
vote at the special meeting. The line graph below demonstrates the relationship
between the total number of votes cast by the unaffiliated shareholders at the
meeting and, of such total votes cast by the unaffiliated shareholders, the
percentage that must be cast in favor of the merger in order to obtain
shareholder approval. It should be noted that the percentage of votes required
to be voted by unaffiliated shareholders in favor of the merger in order for the
merger to be approved decreases as the total number of votes cast by the
unaffiliated shareholders increases.

(LINE GRAPH)

<Table>
<Caption>
% REQUIRED TO VOTE IN FAVOR UNAFFILIATED VOTES CAST
- --------------------------- -----------------------

100.00% 87,520
86.21% 1,000,000
75.05% 2,000,000
66.45% 3,000,000
59.62% 4,000,000
54.06% 5,000,000
50.00% 5,885,910
</Table>

- ---------------

* In order to constitute a quorum for the transaction of business at the special
meeting, the minimum number of votes that must be cast by the unaffiliated
shareholders (when combined with the shares held by the members of the
Fitzpatrick group) is 87,520. The total number of shares held by the
unaffiliated shareholders is 5,885,910.

If the special meeting is adjourned for any reason, at any subsequent
reconvening of the special meeting, all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the meeting
(except for any proxies that have been revoked or withdrawn).

VOTING ON OTHER MATTERS

Indiana law and the Quality Dining by-laws only permit matters set forth in
the notice of meeting to be acted upon at a special meeting of shareholders.
Accordingly, no other matters other than those set forth in the "Notice of
Special Meeting of Shareholders" attached to this proxy statement will be
presented for action at the special meeting.

PROXY SOLICITATION

This proxy statement is being furnished in connection with the solicitation
of proxies by the Quality Dining board of directors. Quality Dining will bear
the cost of soliciting proxies. These costs include the preparation, assembly
and mailing of this proxy statement, the notice of the special meeting of
shareholders and the enclosed proxy card, as well as the cost of forwarding
these materials to the beneficial owners of Quality Dining common stock. Our
directors, officers and regular employees may, without compensation other than
their regular compensation, solicit proxies by telephone, e-mail, the internet,
facsimile or personal conversation.

No person is authorized to give any information or make any representation
not contained in this proxy statement, and if given or made, such information or
representation should not be relied upon as having been authorized with respect
to the merger agreement and the merger, or other matters addressed in this proxy
statement.

FOR A DESCRIPTION OF PROCEDURES FOR EXCHANGING CERTIFICATES REPRESENTING
SHARES OF QUALITY DINING COMMON STOCK FOR THE MERGER CONSIDERATION FOLLOWING
COMPLETION OF THE MERGER, SEE "THE MERGER AGREEMENT -- EXCHANGE AND PAYMENT
PROCEDURES" AND "THE MERGER AGREEMENT -- TRANSFERS OF SHARES." PLEASE DO NOT
SEND ANY CERTIFICATES REPRESENTING SHARES OF QUALITY DINING COMMON STOCK WITH
YOUR PROXY CARD. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS AND A
LETTER OF TRANSMITTAL REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.

IF YOU HAVE QUESTIONS ABOUT THE PROCEDURES FOR VOTING YOUR SHARES, YOU
SHOULD CONTACT:

GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
17 STATE STREET, 10TH FLOOR
NEW YORK, NY 10004
(800) 903-4377

BANK AND BROKERAGE FIRMS
PLEASE CALL (212) 440-9800

SPECIAL FACTORS

STRUCTURE OF THE TRANSACTION

Immediately prior to the closing date of the merger, each member of the
Fitzpatrick group will contribute his shares of Quality Dining common stock to
QDI Merger Corp. (other than in the case of Messrs. Firth and Friedlander,
respectively, 4,500 shares and 56,000 shares held in individual retirement
accounts, and 228,388 shares held by Mr. Schonsheck) in exchange for a
proportionate number of shares of common stock of QDI Merger Corp.

On the closing date, QDI Merger Corp. will merge with and into Quality
Dining, with Quality Dining as the surviving corporation. The holders of shares
of Quality Dining common stock at the time of the merger (other than treasury
shares and shares held by QDI Merger Corp.) will receive $3.20 in cash, without
interest, in exchange for each share of Quality Dining common stock that they
own at the effective time of the merger. Treasury shares and shares of Quality
Dining common stock held by QDI Merger Corp. will be cancelled without any
consideration being paid therefor. Each share of QDI Merger Corp. common stock,
all of which will be owned by the members of the Fitzpatrick group, will be
converted into one share of common stock of the surviving corporation.

Also, in connection with the merger, outstanding options to purchase shares
of Quality Dining common stock will be converted in the merger into the right to
receive, for each share of Quality Dining common stock underlying an option, an
amount in cash equal to the amount, if any, by which $3.20 exceeds the per share
exercise price for the option (other than options held by members of the
Fitzpatrick group, who will retain their options and have them converted into
options to purchase shares of the surviving corporation in connection with the
merger). In addition, each restricted share of Quality Dining common stock will
vest and the restrictions thereon will lapse, and the shares will be converted
in the merger into the right to receive $3.20 per share in cash (other than
shares held by members of the Fitzpatrick group, who will retain such shares and
have them converted into shares of common stock of the surviving corporation in
connection with the merger).

As a result of the merger, the unaffiliated shareholders will no longer
have any interest in, and will no longer be shareholders of, Quality Dining and
will not participate in any future earnings or growth of Quality Dining, if any.
Quality Dining will be a private corporation owned by the members of the
Fitzpatrick group.

A special committee of the Quality Dining board of directors, consisting
solely of directors independent from the members of the Fitzpatrick group, and
the Quality Dining board of directors have approved the merger agreement and the
terms of the merger.

CAPITALIZATION

The below table sets forth the number of shares of Quality Dining common
stock and number of stock options held by each member of the Fitzpatrick group
as of January 31, 2005. Immediately prior to the closing date of the merger,
each member of the Fitzpatrick group will contribute his shares of Quality
Dining common stock to QDI Merger Corp. (except as described in the footnote to
the table below) in exchange for a proportionate number of shares of common
stock of QDI Merger Corp. On the closing date, each share of QDI Merger Corp.
common stock will be converted into one share of common stock of Quality Dining,
the surviving corporation in the merger. On the closing date, options held by
members of the Fitzpatrick group will be converted into options to purchase
shares of common stock of Quality Dining, the surviving corporation in the
merger. Therefore, the number of shares of Quality Dining common stock and
number of shares of Quality Dining common stock underlying stock options held by
each member of the Fitzpatrick group will (except as described in the footnote
to the table below) remain the same before and immediately after the
consummation of the merger. The table below sets forth the percentage ownership
of common stock that each member of the Fitzpatrick group owns before the

merger, and will own after the merger in Quality Dining, giving effect to all
the transactions described under "-- Structure of the Transaction":

<Table>
<Caption>
SHARES OF
COMMON
STOCK OWNERSHIP OWNERSHIP
SHARES OF UNDERLYING PRIOR TO THE AFTER THE
SHAREHOLDER COMMON STOCK STOCK OPTIONS MERGER MERGER
- ----------- ------------ ------------- ------------ ---------

Daniel B. Fitzpatrick................ 3,929,073 0 33.88% 72.47%
Gerald O. Fitzpatrick................ 233,746 41,732 2.02% 4.31%
James K. Fitzpatrick................. 347,445 42,304 3.00% 6.41%
Ezra H. Friedlander*................. 481,031 20,000 4.15% 7.84%
John C. Firth*....................... 174,356 105,736 1.50% 3.13%
William R. Schonsheck*............... 545,220 0 4.70% 5.84%
--------- ------- ----- -----
5,710,871 209,772 49.25% 100.0%
</Table>

- ---------------

* Messrs. Firth, Friedlander and Schonsheck will not be contributing to QDI
Merger Corp. 4,500 shares held in an individual retirement account, 56,000
shares held in an individual retirement account and 228,388 shares held
directly, respectively, which shares instead will be converted into the right
to receive $3.20 per share in cash in the merger.

It is expected that other company employees may be given the opportunity
following the merger to purchase shares and/or be awarded shares of restricted
stock or options to purchase shares of common stock of the company.

Prior to and following the merger, Quality Dining will have no shares of
preferred stock outstanding.

PURPOSES OF THE GOING PRIVATE TRANSACTION; CERTAIN EFFECTS OF THE MERGER AND
GOING PRIVATE

The principal purpose of the merger is to transform Quality Dining from a
publicly held company subject to the public reporting and other obligations of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") into a
privately held company owned 100% by the Fitzpatrick group and, perhaps, certain
of its employees. The Fitzpatrick group believes that as a private company,
Quality Dining will be able to enhance its operating flexibility and performance
as the burdens and demands of public ownership as well as the compliance with
rules and regulations adopted under the Exchange Act are removed. The merger
will enable the Fitzpatrick group to own all of the shares of Quality Dining
common stock, while providing a liquidity event for the unaffiliated
shareholders that provides them with an opportunity to receive a cash price for
their shares representing a premium over the market price at which the shares
traded prior to the public announcement of the transaction proposal.

On the one hand, the merger presents several benefits to the unaffiliated
shareholders. In particular, if the merger is consummated, the unaffiliated
shareholders will receive $3.20 per share in cash, which represents an
approximate premium of 39% over the closing market price of the shares of
Quality Dining common stock on June 15, 2004, the last trading day prior to the
initial public announcement of the transaction proposal by the Fitzpatrick
group. The merger will provide a source of liquidity not otherwise available to
the unaffiliated shareholders and will eliminate the unaffiliated shareholders'
future exposure to fluctuations in the market value of the shares of Quality
Dining common stock. The total cash consideration payable to Quality Dining's
shareholders and optionholders in connection with the merger will be
approximately $20 million.

On the other hand, there are certain potential detriments to the
unaffiliated shareholders that are inherent in the merger. In particular, if the
merger is consummated, the unaffiliated shareholders will no longer have an
equity interest in Quality Dining and, as a result, no opportunity to
participate in future earnings growth, if any, of Quality Dining. In addition,
the exchange of the shares of Quality Dining common stock for cash in the merger
will be a taxable event for U.S. federal income tax purposes and may also be a
taxable transaction under state, local and foreign tax laws.

In contrast to the unaffiliated shareholders, if the merger is consummated,
the Fitzpatrick group, including any employees that are given the opportunity to
purchase shares of common stock in the surviving corporation after the merger or
receive shares pursuant to the exercise of options or the award of restricted
shares, will have a 100% interest in Quality Dining's net book value and tax
attributes and the opportunity to participate in Quality Dining's future growth
and earnings, if any. In addition, the Fitzpatrick group will receive a variety
of other benefits. For a description of these benefits, see "-- Interests of
Certain Persons in the Merger".

The following table sets forth the interests of each member of the
Fitzpatrick group in the net book value and net income of Quality Dining as of
October 31, 2004, based upon the percentage of their ownership of Quality Dining
common stock as of October 31, 2004:

<Table>
<Caption>
OWNERSHIP NET BOOK NET
PERCENT VALUE(1) INCOME(2)
--------- ---------- ---------

Daniel B. Fitzpatrick............................... 33.88% $8,006,522 $752,475
Gerald O. Fitzpatrick............................... 2.02% $ 477,366 $ 44,864
James K. Fitzpatrick................................ 3.00% $ 708,960 $ 66,630
Ezra H. Friedlander................................. 4.15% $ 980,728 $ 92,172
John C. Firth....................................... 1.50% $ 354,480 $ 33,315
William R. Schonsheck............................... 4.70% $1,110,704 $104,387
</Table>

- ---------------

(1) Based on Quality Dining's stockholders' equity as of October 31, 2004.

(2) Based on Quality Dining's net income for the year ended October 31, 2004.

The following table sets forth the interests of each of the members of the
Fitzpatrick group in the net book value and net income of Quality Dining
immediately after the merger, based upon the percentage of their expected
ownership of common stock of Quality Dining as the surviving corporation:

<Table>
<Caption>
OWNERSHIP NET BOOK NET
PERCENT VALUE(1) INCOME(2)
--------- -------- ----------

Daniel B. Fitzpatrick............................... 72.47% $747,890 $1,609,559
Gerald O. Fitzpatrick............................... 4.31% $ 44,479 $ 95,725
James K. Fitzpatrick................................ 6.41% $ 66,151 $ 142,366
Ezra H. Friedlander................................. 7.84% $ 80,909 $ 174,126
John C. Firth....................................... 3.13% $ 32,302 $ 69,517
William R. Schonsheck............................... 5.84% $ 60,269 $ 129,706
</Table>

- ---------------

(1) Based on Quality Dining's stockholders' equity as of October 31, 2004 (pro
forma for $22.6 million of incremental debt to be incurred to finance the
merger).

(2) Based on Quality Dining's net income for the year ended October 31, 2004.

The Fitzpatrick group believes that as a privately held company, Quality
Dining will have greater operating flexibility to focus on enhancing value by
reducing debt and optimizing operating cash flow without the constraint of the
public market's emphasis on quarterly earnings and growth. The Fitzpatrick group
believes that the public markets tend to focus on quarterly earnings and growth,
while the owners of private companies are less sensitive to quarter-to-quarter
results and therefore emphasize long-term business strategies. Although Quality
Dining will initially have a higher debt burden following the merger due to the
financing required by the Fitzpatrick group, the Fitzpatrick group believes that
the company will be able to focus more on debt reduction as a private company.
Debt reduction has not been a priority while Quality Dining has been a public
company. In addition, because shares of Quality Dining common stock will cease
to be registered under the Exchange Act, Quality Dining will enjoy increased
operating efficiencies resulting from the reduction in time that Quality Dining
executives and other employees must devote to compliance with SEC reporting
requirements, including the extensive and costly burdens of complying with the
internal audit and control requirements of the Sarbanes-Oxley Act of 2002.
Quality
18

Dining will further benefit from the fact that its directors and officers and
beneficial owners of more than ten percent of the shares of Quality Dining
common stock will be relieved of the reporting requirements and restrictions on
insider trading under Section 16 of the Exchange Act, since these reporting
requirements and restrictions are burdensome and time-consuming. Quality Dining
estimates that, by not being subject to public company reporting requirements
and other obligations of a public company, it could save up to approximately
$500,000 per year. These savings include reduced accounting fees, legal fees and
premiums on directors' and officers' liability insurance, as well as the
elimination of Nasdaq fees, fees of its transfer agent, corporate communications
costs, annual report printing costs and director fees and expenses. Such
estimated savings do not include what would likely be substantial costs in
connection with complying with the internal audit and control requirements of
the Sarbanes-Oxley Act of 2002, which were to have become applicable to Quality
Dining in connection with its annual report for the current fiscal year if the
merger is not completed, although on March 2, 2005 the SEC granted
non-accelerated filers such as Quality Dining an additional year to comply.

Although the Fitzpatrick group will continue to participate in Quality
Dining's business opportunities and benefit from Quality Dining's earnings,
there are substantial risks that Quality Dining will not realize upon these
opportunities. Among other factors, in connection with the merger, Quality
Dining and its subsidiaries will incur approximately $52.6 million in long-term
debt on a consolidated basis (approximately $30 million of which will be used to
repay existing indebtedness) that will constrain the operational flexibility of
Quality Dining and its subsidiaries. For example, Quality Dining and its
subsidiaries will be subject to restrictive covenants under the terms of that
indebtedness and those restrictions may impede Quality Dining from taking full
advantage of any available business opportunities. In addition, following the
merger, Quality Dining will cease to have publicly traded securities that it can
use as acquisition currency and will no longer have the ability to grant to its
employees stock options exercisable for publicly traded securities. These
factors may further limit the ability of Quality Dining to take advantage of
business opportunities following the merger.

The transaction has been structured as a merger, with Quality Dining
continuing as the surviving corporation, in order to preserve Quality Dining's
corporate identity, good will and existing contractual arrangements with third
parties. As a result of the merger, Quality Dining will be a privately held
company and there will be no public market for shares of Quality Dining common
stock. Shares of Quality Dining common stock will cease to be traded on the
Nasdaq National Market or any other securities exchange or market system.

The Fitzpatrick group currently anticipates that management will conduct
the business of Quality Dining in substantially the same manner as it has
historically conducted the business. The Fitzpatrick group is evaluating Quality
Dining's business, assets, practices, operations, properties, corporate
structure, capitalization and personnel and will seek to cause changes as it
deems appropriate. Other than as described in this proxy statement, the
Fitzpatrick group has no present intention to dispose of its equity investment
in Quality Dining or to cause Quality Dining to engage in a significant business
combination or disposition.

The exchange of shares of Quality Dining common stock by the unaffiliated
shareholders for cash in the merger will be a taxable transaction for U.S.
federal income tax purposes for the unaffiliated shareholders who are U.S.
holders or, in certain circumstances, non-U.S. holders, and may also be a
taxable transaction under state, local and foreign tax laws. For U.S. federal
income tax purposes, no gain or loss will be recognized by the members of the
Fitzpatrick group solely as a result of the merger (except for their shares that
are converted into cash in the merger as described elsewhere in this proxy
statement). For a more detailed description of the tax consequences of the
merger, see "-- Material U.S. Federal Income Tax Consequences". Messrs. Firth,
Friedlander and Schonsheck will receive $14,400.00 $179,200.00 and $730,841.60,
respectively, for their shares of common stock to be cashed out in the merger.

The Fitzpatrick group believes there is considerable uncertainty in the
company's ability to utilize its net operating loss carryforwards ("NOLs")
following the consummation of the merger for two reasons.

The first relates to the company's ability to generate sufficient taxable income
to utilize its NOLs before they expire. Currently, the company has concluded
that, more likely than not, it will not be able to utilize all of its NOLs prior
to their expiration. Consistent with this judgment, as of the end of fiscal
2004, the company recorded a $25,200,000 valuation allowance against its
deferred tax assets of $33,500,000 in accordance with SFAS No. 109, leaving a
net deferred tax asset of $8,300,000. To the extent the proposed transaction has
any effect on this issue, it could be to reduce future taxable income due to the
increased interest expense associated with the additional indebtedness required
to finance the transaction (see "Financing for the Merger"). In turn, this could
have the effect of requiring an increase in the company's valuation allowance
and a corresponding decrease in the company's net deferred tax asset following
the merger. The second area of uncertainty relates to the company's ability to
utilize its NOLs due to the potential application of Section 382 of the Internal
Revenue Code. Section 382 imposes severe limitations on the amount of NOLs that
may be utilized to offset taxable income in the event of an "ownership change."
The provisions of Section 382 and the regulations promulgated thereunder are
highly technical and complex and there is some uncertainty as to the extent, if
any, that Section 382 may limit the company's ability to utilize its NOLs
following consummation of the merger. The Fitzpatrick group has made a judgment
that the structure of the transaction will not constitute an "ownership change"
for purposes of Section 382. Consequently, the financial projections provided by
the Fitzpatrick group to the special committee and its financial advisor assumed
that the company would have sufficient NOLs available to offset all taxable
income generated in all covered periods. However, in light of the uncertainties
described above, there can be no assurance that the company's ability to utilize
its NOLs will not be adversely affected by the consummation of the merger.

BACKGROUND OF THE MERGER

General. Quality Dining was incorporated in Indiana in 1981 and became a
public company following its initial public offering and the listing of its
common stock on the Nasdaq National Market in 1994. At the time, Quality Dining
operated three distinct restaurant concepts. Quality Dining subsequently
acquired the Grady's American Grill concept, Spageddies Italian Kitchen(R)
concept and Bruegger's Corporation, the largest bagel bakery chain in the United
States. In October 1997, the company sold its interest in its bagel business in
order to refocus its efforts on improving its other restaurant businesses. In
addition, Quality Dining has recently sold or closed all but two of its Grady's
American Grill restaurants.

In connection with the company's 2000 annual meeting of shareholders, NBO,
LLC, a holder of just under 10% of the outstanding shares of common stock,
conducted a proxy contest in which NBO (i) nominated two individuals to stand
for election as directors in opposition to the two incumbent directors standing
for reelection and (ii) proposed a non-binding resolution to terminate the
company's shareholders rights plan. In connection with its proxy contest, NBO
proposed a business combination transaction pursuant to which it would purchase
all the outstanding shares of common stock of the company at a price of $5.00
per share. The board of directors of the company opposed NBO's proxy contest and
rejected NBO's business combination proposal on the grounds, among others, that
the price was not adequate and NBO would not be able to obtain financing for its
proposed transaction. Both of NBO's candidates and its proposal were defeated by
company shareholders at the annual meeting held on March 7, 2000.

Following the defeat of its candidates and proposal at the 2000 annual
meeting, NBO announced on April 18, 2000 that it would commence a hostile tender
offer to acquire all of the outstanding shares of common stock of Quality Dining
at a price of $5.00 per share. The company's board of directors opposed NBO's
hostile tender offer on the same grounds that it rejected NBO's earlier business
combination proposal; specifically, that the price was inadequate and NBO would
not be able to arrange financing for its purchase of shares. Because the
conditions to its offer were not satisfied, NBO's tender offer expired without
NBO purchasing any shares of company common stock. NBO subsequently allowed
litigation commenced by it in federal district court against the company and its
directors and certain officers in connection with the hostile tender offer to be
dismissed without a final resolution of NBO's claims.

From time to time following the expiration of NBO's hostile tender offer
and prior to June 2003, Mr. Fitzpatrick and the principals of NBO discussed
possible transactions in which Quality Dining or Mr. Fitzpatrick would purchase
NBO's interest in Quality Dining in exchange for a combination of cash and
Burger King restaurants and NBO and its principals would enter into a standstill
agreement with Quality Dining. On June 27, 2003, Mr. Fitzpatrick entered into a
stock sale agreement with NBO providing for Mr. Fitzpatrick's purchase of the
1,148,014 shares of Quality Dining common stock owned by NBO for a cash purchase
price of $3,672,610, or $3.20 per share. In connection with the purchase of its
shares and in consideration for the payment by Mr. Fitzpatrick of an additional
$400,000, or $0.35 per share, NBO and its principals executed a standstill
agreement for the benefit of the company under which they agreed not to attempt
to seek control of Quality Dining for a period of ten years. The parties also
executed mutual releases. The stock sale agreement provided that if, within 18
months following June 27, 2003, either (i) Quality Dining management acquired
all or substantially all of the outstanding common stock of the company or (ii)
a third party acquired a majority interest in the company, Mr. Fitzpatrick would
pay NBO a topping fee equal to the product of 1,148,014 (i.e., the number of
shares purchased from NBO) multiplied by the amount, if any, by which the per
share price paid in any such acquisition exceeded $3.55 (i.e., the sum of the
per share amounts paid to NBO for its shares of common stock ($3.20) and for its
standstill agreement ($0.35)). Because the merger will not close within 18
months of June 27, 2003 and the per share consideration of $3.20 payable in the
proposed merger with QDI Merger Corp. is less than $3.55, no topping fee will be
payable to NBO in respect of that transaction.

Background of the Going Private Proposal. In early 2004, in recognition of
the increasing burden and expense associated with Quality Dining's being a
public company and the need to comply with new Securities and Exchange
Commission regulations adopted under the Sarbanes-Oxley Act of 2002, and
particularly the internal control requirements of Section 404 of that Act that
were to become applicable to the company for its annual report for the current
fiscal year (although on March 2, 2005 the SEC granted non-accelerated filers
such as Quality Dining an additional year to comply with such internal control
requirements), the general consensus of the non-management directors was that
the company would operate better as a private company not subject to the public
reporting and other requirements of the Exchange Act. Accordingly, they
suggested that Daniel B. Fitzpatrick, the Chairman, President and Chief
Executive Officer and a director of the company and its largest shareholder,
should consider leading a transaction in which Quality Dining would become a
privately held company and the unaffiliated shareholders would receive cash in
exchange for their shares. Beginning in March 2004, Mr. Fitzpatrick, together
with his brothers Gerald (a Senior Vice President of the company) and James (a
Senior Vice President and a director of the company), John C. Firth (the
Executive Vice President, General Counsel and Secretary of the company) and Ezra
H. Friedlander (a director of the company), began serious discussions among
themselves regarding a potential going private transaction for the company.
Thereafter, the Fitzpatrick group also contacted the members of the company's
bank group to determine their willingness to arrange the financing necessary for
the Fitzpatrick group to complete a going private transaction.

In connection with these efforts, Messrs. Fitzpatrick and Firth invited
representatives of Banc of America Securities, LLC and Bank of America to a
meeting on May 25, 2004 to discuss the possible engagement of Banc of America
Securities to provide financial advisory services to the Fitzpatrick group in
connection with a potential going private transaction. At this meeting, the
participants discussed the qualifications of Banc of America Securities to act
as financial advisor to the Fitzpatrick group in connection with a potential
going private transaction and general matters related to a potential going
private transaction involving Quality Dining, including selected process and
timing considerations and the roles and responsibilities of the parties likely
to be involved. The participants also discussed the historical stock trading
performance of Quality Dining common stock, an analysis of implied transaction
statistics at various illustrative purchase prices (selected solely for
illustrative purposes as a range of premiums to the then current market price
for shares of Quality Dining common stock) and selected valuation methodologies
that a financial advisor might use when analyzing Quality Dining.
Representatives of Bank of America also discussed the potential availability and
terms of financing the Fitzpatrick group could expect to obtain in connection
with a potential going private transaction. The information provided by

Banc of America Securities did not influence the price or other terms in the
initial proposal delivered by the Fitzpatrick group to the Quality Dining board
of directors.

Following this meeting, representatives of Banc of America Securities
participated in several telephonic conversations with Mr. Fitzpatrick and Mr.
Firth regarding the possible terms and conditions of the engagement of Banc of
America Securities as financial advisor to the Fitzpatrick group. Following
these conversations, the Fitzpatrick group retained Banc of America Securities
as its financial advisor on June 10, 2004, pursuant to a written engagement
letter.

On May 26, 2004, Messrs. Fitzpatrick and Firth met with a partner in the
law firm of Milbank, Tweed, Hadley & McCloy LLP for the purpose of engaging the
firm to provide legal advice to the Fitzpatrick group if they decided to go
ahead with a going private transaction. Milbank, Tweed represented Quality
Dining in connection with NBO's proxy contest and hostile tender offer described
above, and subsequently represented Mr. Fitzpatrick in the 2003 purchase of
NBO's shares of common stock.

On June 13, 2004, Mr. Fitzpatrick, Mr. Firth and representatives of Banc of
America Securities participated in a telephonic meeting to discuss further the
potential going private transaction. During this meeting, Mr. Fitzpatrick
informed Banc of America Securities about the range of offer prices that were
then being considered by the Fitzpatrick group. Representatives of Banc of
America Securities discussed with Messrs. Fitzpatrick and Firth selected
valuation methodologies that a financial advisor might use to analyze Quality
Dining and the participants discussed how the Quality Dining board and its
advisors might react to an offer by the Fitzpatrick group. The participants also
discussed the written proposal the Fitzpatrick group was considering delivering
to the Quality Dining board of directors outlining the terms of a potential
going private transaction. Banc of America Securities did not perform any
valuation or appraisal of the value of Quality Dining.

On June 15, 2004, the members of the Fitzpatrick group (other than William
R. Schonsheck, who joined the Fitzpatrick group in February 2005) entered into a
shareholders agreement providing for them to work together to pursue a going
private transaction. On that same day, the Fitzpatrick group delivered a written
proposal to the Quality Dining board of directors outlining the terms of a
transaction in which a new company to be organized by the Fitzpatrick group
would acquire all of the outstanding shares of Quality Dining common stock not
held by the Fitzpatrick group for $2.75 per share in cash. Prior to establishing
this offer price, the Fitzpatrick group first derived a per share equity value
for the company of $1.18, which was determined by (i) multiplying the sum of (x)
the $22,720,000 projected EBITDA for the fiscal year ending October 31, 2004
plus (y) the $500,000 projected savings from the company's ceasing to be subject
to the reporting and other requirements of the Exchange Act, by a multiple of
4.75x, which yielded an enterprise value for the company of $110,295,000, (ii)
subtracting from that enterprise value $78,640,000 of projected debt and
$18,000,000 of negative working capital, which yielded an equity value for the
company of $13,560,000, and (iii) dividing that equity value by the 11,596,781
shares of common stock outstanding. The 4.75x multiple used by the Fitzpatrick
group to compute enterprise value was selected on a subjective basis, taking
into account their understanding of then current market multiples for Burger
King restaurants (2.0x to 3.0x) and Chili's Bar and Grill restaurants (5.0x to
5.5x), and unknown, but certainly lesser, multiples for the Italian Dining
restaurants and Grady's American Grill restaurants. In view of the facts that
the company's common stock was at the time trading in the $2.30 per share range
and that a premium to that trading price would likely have to be paid in order
to successfully complete a going private transaction, the Fitzpatrick group
disregarded the $1.18 per share equity value described above and worked with the
company's bank group to determine the highest per share price for which funding
would be available. Based on these discussions, the Fitzpatrick group determined
that they could offer $2.75 per share to the unaffiliated shareholders of the
company, reflecting a 20% premium to the $2.30 trading price.

As a result of the proposed transaction, Quality Dining would become a
privately-held company owned by the members of the Fitzpatrick group and no
longer subject to Securities and Exchange Commission reporting requirements. The
members of the Fitzpatrick group indicated in the written proposal that they had
no interest in selling their stake in the company to a third party. The written

proposal specified that the Fitzpatrick group's obligation to complete the
transaction was subject, among other things, to the receipt of financing.
Attached to the written proposal were commitment letters for a $20 million
revolving credit facility and a $30 million term loan issued by members of the
company's current bank group with respect to $50 million of the cash amount
needed to purchase all shares owned by the company's unaffiliated shareholders
at a price of $2.75 per share (representing a total purchase price of
approximately $17.7 million) and to refinance the company's existing bank debt.
The written proposal also indicated that the Fitzpatrick group would provide an
additional $5 million in financing in the form of subordinated debt and/or
equity and that Mr. Fitzpatrick would personally guarantee repayment of the
revolving credit facility and term loan until such time as the company's ratio
of funded debt to cash flow falls below 3.50 for two consecutive quarters.

Upon receipt of the written proposal from the Fitzpatrick group, the
Quality Dining board of directors established a special committee of independent
directors, consisting of Phillip J. Faccenda, Bruce M. Jacobson, Steven M. Lewis
and Christopher J. Murphy, III, none of whom is affiliated with any member of
the Fitzpatrick group. The board of directors authorized the special committee
to:

- evaluate the Fitzpatrick group's transaction proposal;

- consider other alternatives available to Quality Dining;

- take such other action as the special committee, in its sole discretion,
deemed necessary, proper or advisable to make a recommendation to the
Quality Dining board of directors regarding whether to approve the
transaction proposal or any other alternative available to Quality
Dining; and

- retain, at Quality Dining's expense, legal and financial advisors to
assist the special committee in the fulfillment of its duties.

The company thereafter issued a press release announcing the board's receipt of
the written proposal from the Fitzpatrick group and the formation of the special
committee, and the members of the Fitzpatrick group filed a Schedule 13D with
the SEC summarizing the terms of their proposal.

On June 22, 2004, a purported shareholder class action lawsuit was filed by
Milberg, Weiss, Bershad & Schulman LLP in state court in Indiana against the
company, its directors and two of its officers alleging that the individual
defendants breached their fiduciary duty by advancing their individual interests
at the expense of the unaffiliated shareholders in connection with the
Fitzpatrick group's going private proposal. The action sought to enjoin the
transaction, to rescind the transaction, if consummated, and unspecified
damages. The company issued a press release on July 9, 2004 indicating that the
defendants believed that the lawsuit was without merit and intended to defend
against it vigorously, and that the special committee was continuing its
evaluation of the going private proposal. For a more detailed description of
this litigation, see "Legal Proceedings".

Immediately after the appointment of the special committee, its members
elected Mr. Jacobson as chairman. During the next week, he solicited indications
of interest from investment banking firms to act as financial advisor to the
special committee. On June 22nd, 23rd and 24th, Mr. Jacobson, typically with Mr.
Murphy, another member of the special committee, conducted telephone interviews
with the investment banking firms that had expressed interest. On June 29th, Mr.
Jacobson and Mr. Murphy selected three firms to invite to a meeting of the
special committee to discuss their possible engagement.

During the same period, Mr. Jacobson and Mr. Murphy interviewed
representatives of two law firms to act as counsel to the special committee.
After these interviews, Mr. Jacobson solicited the concurrence of the other
members and selected the law firm of Sommer Barnard Attorneys, PC.

On July 15, 2004, the special committee met with the three finalists to act
as financial advisor. Following these meetings, the special committee
deliberated and unanimously authorized the chairman to engage Houlihan Lokey.
Mr. Jacobson executed engagement letters with Houlihan Lokey on July 23, 2004.

On July 16, 2004, Banc of America Securities delivered by electronic mail
to Mr. Firth and Christopher Collier, Vice President -- Finance of Quality
Dining, a summary of publicly available financial and other information for 22
publicly traded restaurant companies. The summary included general information
on the restaurant industry and financial, share price and other information,
including a summary of recent events, analyst recommendations and investment
highlights, for each of the 22 publicly traded restaurant companies. The summary
information provided by Banc of America Securities did not influence the price
or other terms being offered by the Fitzpatrick group.

Following conversations between legal counsel to the Fitzpatrick group and
the special committee, on July 23, 2004, Milbank, Tweed sent two versions of a
draft merger agreement relating to the Fitzpatrick group's going private
proposal to Sommer Barnard on behalf of the special committee. One version
contemplated that the company and the Fitzpatrick group would sign a definitive
merger agreement prior to the special committee conducting a "market check" to
determine whether a third party proposal superior to the Fitzpatrick group's
going private proposal could be obtained. This version permitted the company to
terminate the merger agreement in the event of a superior proposal. The second
version assumed that a pre-signing "market check" would be conducted by the
special committee and therefore did not contemplate a termination of the merger
agreement if a third party proposal arose after the date that the merger
agreement is signed but prior to shareholder approval. In forwarding these
drafts, Milbank, Tweed indicated that the Fitzpatrick group preferred for the
special committee to engage immediately in direct negotiations with the
Fitzpatrick group concerning the terms of a merger and the related merger
agreement, thereby deferring its "market check" for a superior proposal until
the period between the signing of the merger agreement and the shareholders
meeting called to approve the transaction.

On or about July 25, 2004, the Fitzpatrick group provided to Houlihan
Lokey, the special committee and the company's bank group a version of the
company's five-year plan dated June 10, 2004, that contained certain financial
projections for the company. See "-- Certain Financial Projections." On July 28,
2004, Houlihan Lokey commenced its due diligence review and analysis of Quality
Dining at a meeting with members of management covering customary business and
financial due diligence topics, including the history of the company, the recent
and current operating and financial performance of the company, and the expected
future operating and financial performance of the company. Over the next several
weeks, Houlihan Lokey performed its review and analysis of Quality Dining,
including, among other things, conducting follow up discussions with members of
Quality Dining's management, primarily telephonically, visiting Quality Dining's
headquarters and reviewing Quality Dining's public filings, financial forecasts
and current and historical stock data.

On August 27, 2004, Seth Rigrodski of Milberg, Weiss contacted Richard
Nussbaum, Quality Dining's legal counsel in connection with the class action
litigation. Mr. Rigrodski indicated that the plaintiffs were interested in
settling the litigation if the Fitzpatrick group increased the price per share
payable in the going private transaction from $2.75 to $3.00 and if Milberg,
Weiss could provide input in the preparation of the proxy statement to be used
in connection with seeking shareholder approval for the transaction. Mr.
Nussbaum indicated that he represented the company and that Mr. Rigrodski's
offer should be communicated to the special committee and its counsel.

On September 3, 2004, the special committee met telephonically with
representatives of Houlihan Lokey and Sommer Barnard. Houlihan Lokey summarized
the preliminary results of its valuation analysis of Quality Dining. Houlihan
Lokey briefly discussed the results of its due diligence investigation thus far,
the preliminary valuation multiples implied by the offer price and its
preliminary valuation conclusions, which indicated a range of $2.86 to $4.05 per
share for the common stock of Quality Dining. This analysis was consistent with
the November 9, 2004 analysis that is described in detail below (see "Special
Factors -- Opinion of Financial Advisor to the Special Committee"), other than
in respect of the revised offer price and changes in stock prices and resulting
valuation multiples occurring over time that resulted in minimal changes to the
valuations presented. The special committee discussed Houlihan Lokey's summary
in connection with its valuation analysis of Quality Dining and the fairness of
the $2.75 per share offer price. Since the $2.75 per share offer price was below
the low end of the preliminary valuation range

of Houlihan Lokey, the special committee concluded that it should attempt to
obtain a higher offer price from the Fitzpatrick group.

On September 9, 2004, representatives of the special committee's financial
and legal advisors met with Mr. Fitzpatrick, Mr. Firth and representatives of
the Fitzpatrick group's financial and legal advisors at Houlihan Lokey's offices
in New York City. Houlihan Lokey led off the meeting by describing its
preliminary financial analysis of Quality Dining and the factors that the
special committee was considering in evaluating the going private proposal.
Houlihan Lokey reported that, although it was continuing to evaluate all
financial aspects of Quality Dining, its preliminary analysis indicated a value
range for the company with the high end at approximately $4.00 per share.
Houlihan Lokey also stated that it was continuing to evaluate the impact of the
proposed transaction on Quality Dining's net operating loss carryforward,
indicating that the continued availability of the net operating loss
carryforward after consummation of a going private transaction could cause
Houlihan Lokey to increase its valuation above $4.00 per share. It also noted
that management of Quality Dining indicated that there was considerable
uncertainty as to the preservation of the net operating loss carryforward in the
proposed transaction. Houlihan Lokey noted that the ability of a third-party
purchaser to utilize an acquired company's net operating loss carryforward is
typically very limited and, thus, value assigned to the net operating loss
carryforward is often low. If, however, the Fitzpatrick group were able to
utilize the net operating loss carryforward without material limitations, it
could be possible for the special committee to negotiate a sharing of the
potential value with the unaffiliated shareholders.

Houlihan Lokey also indicated that the special committee would conduct a
pre-signing "market check" in order to determine whether there were any third
parties who would be willing to acquire the company for a price higher than
$2.75 per share and, in order to facilitate the "market check", asked Mr.
Fitzpatrick at what price he would be willing to sell his interest in Quality
Dining. Finally, Houlihan Lokey explained that the special committee was
focusing, among other things, on the 2003 transaction between Mr. Fitzpatrick
and NBO and its principals described above and, as part of this focus,
considered the $3.55 per share price paid to NBO for its shares and standstill
agreement (which was also the base price established in connection with NBO's
topping fee as described above) as a material reference price for the price to
be paid by the Fitzpatrick group in any going private transaction.

After meeting separately with the Fitzpatrick group's advisors, Mr.
Fitzpatrick returned to the meeting to deliver his response to Houlihan Lokey's
presentation, indicating that:

- he disagreed with Houlihan Lokey's valuation of Quality Dining, including
the valuation multiples and comparables that it had used to evaluate the
company;

- he had actually paid NBO $3.20 per share for its shares in the 2003
transaction, while the $3.55 figure was only used in connection with
establishing the base price for the topping fee to give effect to the
additional $0.35 per share paid to NBO in consideration of the standstill
agreement negotiated on behalf of the company by Mr. Fitzpatrick;

- Quality Dining's operating performance had declined significantly in the
period since Mr. Fitzpatrick purchased NBO's shares;

- the company's net operating loss carryforward could be subject to an
annual limitation on use following consummation of the going private
proposal and that, even if all or a portion of the net operating loss
carryforward were not subject to such annual limitation on use, there
could be no assurance that the company would be able to utilize this loss
carryforward in the foreseeable future following consummation of the
going private transaction; and

- as indicated when the Fitzpatrick group initially delivered its written
proposal to the board of directors, Mr. Fitzpatrick and the other members
of the Fitzpatrick group were not interested in selling their stake in
the company at any price.

After a brief recess, Houlihan Lokey explained again its analysis of the
company's value but indicated a willingness to meet with the Fitzpatrick group's
financial advisor to review its valuation analysis.

Houlihan Lokey also reiterated that the special committee likely considered
$3.55 per share to be a material reference price for any going private
transaction for the reasons enunciated earlier. The special committee's legal
advisor added that if the Fitzpatrick group and the special committee could not
reach agreement on an acceptable price for the going private transaction, the
Fitzpatrick group might want to consider conducting a tender offer for the
company shares held by the public.

On September 16, 2004, representatives of Banc of America Securities spoke
with representatives of Houlihan Lokey to discuss valuation analyses of Quality
Dining and various alternative methodologies, including comparable companies,
precedent transactions, discounted cash flow, leveraged buyout and premiums paid
analyses. This meeting was largely a session to discuss the firms' differing
views as to value. Banc of America Securities expressed its view that restaurant
companies that are primarily franchisees, such as Quality Dining, are generally
less valued in the marketplace. In particular, franchisees of Burger King, many
of which have encountered financial hardship including bankruptcy, were, at the
time, generally viewed less favorably by public investors. Banc of America
Securities also noted that the original offer of $2.75 per share was
approximately a 20% premium to Quality Dining's pre-offer trading price, which
was in its view a reasonable premium at that time. Both financial advisors
agreed that it was reasonable for Houlihan Lokey to apply standard valuation
approaches to Quality Dining including (i) a market multiple methodology, (ii) a
comparable transaction methodology, and (iii) a discounted cash flow
methodology. In addition, Banc of America Securities concurred with Houlihan
Lokey's assessment that there were not any ideal public comparable companies or
industry transactions on which Houlihan Lokey might base its valuation and,
thus, substantial judgment was necessary on the part of Houlihan Lokey in its
valuation process. Following this discussion, both parties agreed to reflect on
insights gained from the conversation and to provide each other with additional
information, including their respective inputs used to calculate certain trading
multiples for selected comparable companies. Representatives of Houlihan Lokey
also reiterated that the special committee still intended to conduct a
pre-signing "market check" for a superior third party proposal.

From September 16(th) through early October, Houlihan Lokey conducted a
"market check". Houlihan Lokey identified approximately 60 buyers for Quality
Dining, including both industry participants and financial sponsors. Over this
period, Houlihan Lokey attempted to contact each of the potential buyers in
order to determine whether there were any who might be willing to acquire the
company for a price greater than $2.75 per share. During the course of
communicating with these third parties, Houlihan Lokey provided certain publicly
available financial data for Quality Dining and discussed the public statement
made by the Fitzpatrick group that they were not interested in selling their
Quality Dining shares. Houlihan Lokey did not receive any formal expressions of
interest to acquire the company from any third parties.

On September 16, 2004, Mr. Fitzpatrick contacted the chairman of the
special committee, Mr. Jacobson, to seek a meeting with the special committee
and their respective advisors to discuss the Fitzpatrick group's proposal. After
conferring with the other members of the special committee, Mr. Jacobson agreed
to a meeting at the company's offices on September 22, 2004.

At the September 22(nd) meeting, Mr. Fitzpatrick and Mr. Firth met with the
special committee, and Mr. Fitzpatrick led the special committee through a
presentation of the Fitzpatrick group's business model for the company,
discussing current data and future projections regarding sales, general and
administrative expenses, capital expenditures and cash flows. Following up on a
suggestion that the Fitzpatrick group could fund an increase in its offer price
by reducing the company's future capital expenditures, Mr. Fitzpatrick explained
that the company was contractually obligated to make certain capital
expenditures under its franchise agreements and there was no possibility for the
company to reduce these expenditures in order for the Fitzpatrick group to
increase the price. Mr. Fitzpatrick also reiterated the reasons for his belief
that the reference price of $3.55 per share established for the NBO topping fee
was not a relevant valuation point for the special committee to consider in
assessing the fairness of the going private transaction. In particular, Mr.
Fitzpatrick emphasized that the NBO transaction involved the settlement of a
long-running dispute between NBO and Quality Dining, the consideration paid to
NBO included an amount for NBO's standstill agreement and reimbursement of its
expenses in the transaction
26

and the company's operating performance and prospects had declined significantly
over the period since Mr. Fitzpatrick purchased NBO's shares.

Following Mr. Fitzpatrick's presentation, Mr. Jacobson reported that the
special committee was having a difficult time conducting a "market check"
because of Mr. Fitzpatrick's position that he would not sell his shares in the
company at any price. Mr. Jacobson also indicated that, based upon the
preliminary valuation range provided by Houlihan Lokey, the special committee
believed that the Fitzpatrick group's $2.75 offer price was inadequate and that,
particularly in light of the $3.55 per share price paid to NBO (inclusive of the
standstill agreement payment), the price that the Fitzpatrick group should pay
in connection with a going private transaction should be higher than their
current offer price. Following further discussion, Mr. Jacobson recommended to
Mr. Fitzpatrick that the financial advisors meet again to see if they could
narrow the range between the parties' respective valuations.

Following the September 22nd meeting, in an effort to resolve the
differences between the Fitzpatrick group and the special committee, members of
the Fitzpatrick group discussed with the group's advisors the possibility of
raising the price offered in the going private transaction. On September 24,
2004, Banc of America Securities contacted Houlihan Lokey with a verbal proposal
on behalf of the Fitzpatrick group to increase the offer price to the
unaffiliated shareholders to $3.15 per share from the original offer of $2.75. A
few days later, Houlihan Lokey suggested a meeting among the financial and legal
advisors to discuss the Fitzpatrick group's increased offer.

On September 29, 2004, the financial and legal advisors to the Fitzpatrick
group and the special committee met at Houlihan Lokey's offices in New York
City. The special committee's advisors stated that a majority of the special
committee could not recommend a going private transaction at $3.15 per share as
being fair to the unaffiliated shareholders from a financial point of view. They
also indicated, however, that the committee would be willing, subject to a
number of conditions, to recommend that the company enter into a merger
agreement with the Fitzpatrick group with respect to a going private transaction
at that price, and to allow the merger agreement to be submitted to company
shareholders for their approval, as permitted by Indiana law, without a special
committee recommendation. This proposal was expressly made subject to the
Fitzpatrick group's agreeing with the following conditions:

- the merger agreement would contain only limited representations and
warranties on the part of the company;

- the merger agreement would contain representations from the Fitzpatrick
group as to the absence of material misstatements and omissions from the
company's previous filings with the Securities and Exchange Commission
and in the information furnished on behalf of the Fitzpatrick group to
the special committee and its advisors;

- the company's representations and warranties contained in the merger
agreement would not survive the closing of the merger, no indemnity would
be provided to the Fitzpatrick group in the event that any company
representations or warranties proved to be untrue and no portion of the
merger consideration would be escrowed;

- the merger agreement would contain customary post-closing indemnification
and insurance protections for the company's directors in respect of
events occurring prior to the effective date of the merger, including
their negotiation and approval of the going private transaction;

- the merger agreement would permit the special committee to conduct a full
"market check" during the period prior to the shareholders meeting and to
terminate the merger agreement on 24 hours' prior notice if a superior
third party proposal were obtained;

- the members of the Fitzpatrick group would agree to vote their Quality
Dining shares in favor of any superior third party proposal that may be
negotiated by the special committee and submitted to the company
shareholders for their approval prior to shareholder approval of the
merger;

- the members of the Fitzpatrick group would agree to vote their shares of
company stock at any shareholders meeting called to consider the going
private transaction in the same proportions, for and against the
proposal, as the votes cast by the unaffiliated shareholders at such
meeting; and

- the company would not be required to pay any break up fee if the merger
agreement were terminated in favor of a superior third party transaction
but that, in such event, the company would reimburse the Fitzpatrick
group for its reasonable expenses incurred in connection with bringing
the going private proposal to the company.

Houlihan Lokey also indicated that (i) the revised $3.15 per share was at the
lower end of their preliminary valuation range, and (ii) the committee would be
willing to unanimously recommend a going private transaction (with fewer
conditions) to the unaffiliated shareholders if the Fitzpatrick group raised its
offer to within a range of $3.65 to $3.75 per share.

Following this presentation by the special committee's advisors, the
representatives of the Fitzpatrick group's advisors called Mr. Fitzpatrick and
Mr. Firth to discuss the conditions proposed by the special committee.
Thereafter, the Fitzpatrick group's advisors rejoined the meeting and informed
the special committee's advisors that the Fitzpatrick group was willing to agree
to all of the conditions proposed by the special committee for a $3.15 merger
price, except that the Fitzpatrick group would not proceed with the transaction
unless:

- the special committee issued its recommendation to the company's
unaffiliated shareholders that the transaction is fair, which
recommendation would be supported by a fairness opinion issued by
Houlihan Lokey;

- the company agreed to reimburse the Fitzpatrick group for its expenses
incurred in connection with bringing the going private proposal to the
company if the merger agreement and the merger are not approved at any
meeting of company shareholders called for the purpose; and

- the special committee withdrew its requirement that the Fitzpatrick group
vote their company shares in connection with a third party transaction
proposal deemed superior to the going private proposal by the special
committee.

This meeting concluded with the special committee's advisors indicating that
they would communicate the Fitzpatrick group's revised proposal to the special
committee.

A few days later, Mr. Jacobson called Mr. Fitzpatrick to request a meeting
between the special committee and the Fitzpatrick group, together with their
respective financial and legal advisors, to discuss the Fitzpatrick group's
revised proposal. Mr. Fitzpatrick and Mr. Jacobson agreed to hold such a meeting
at the company's offices on October 12, 2004. The location of the meeting was
subsequently moved to the South Bend, Indiana offices of one of the members of
the special committee.

When the parties arrived at the October 12th meeting, Mr. Jacobson met
privately with Mr. Fitzpatrick and Mr. Firth. Mr. Jacobson then informed Mr.
Fitzpatrick and Mr. Firth that the special committee would unanimously approve
the going private transaction if (a) the Fitzpatrick group would increase the
price per share to $3.30 and (b) the members of the Fitzpatrick group would
agree to vote their shares in the same proportion as shares voted by the
unaffiliated shareholders at a special meeting called to approve the going
private transaction. Mr. Jacobson also indicated that if the Fitzpatrick group's
revised $3.15 per share proposal were put to a vote of the special committee,
two members would vote to recommend the transaction but the other two would vote
against it. The respective advisors then met separately and the special
committee's advisors reiterated the position communicated by Mr. Jacobson to Mr.
Fitzpatrick and Mr. Firth. In response to questions from the Fitzpatrick group's
advisors, the special committee's advisors indicated that (i) the special
committee had withdrawn the condition that the members of the Fitzpatrick group
agree to sell their shares in connection with any superior third party proposal
negotiated by the committee and (ii) Houlihan Lokey had not been requested by
the special committee to opine as to the fairness from a financial point of view
of a going private transaction at $3.30 per share. Following discussions with
their advisors, the members of the Fitzpatrick group present at

the meeting concluded that, due to the added risks and expense of proceeding
with a going private transaction not recommended by the special committee, Mr.
Fitzpatrick should raise their offer from $3.15 per share to $3.20 per share in
order to obtain a favorable recommendation from the special committee.

Mr. Fitzpatrick and Mr. Firth then met with the special committee, without
advisors from either side present, to convey the increased offer price of $3.20
per share and the agreement of the members of the Fitzpatrick group to vote
their shares in the same proportion as the unaffiliated shareholders for and
against the going private transaction at a shareholders meeting called to
consider the matter. Mr. Fitzpatrick advised the committee that the Fitzpatrick
group was prepared to abandon the going private proposal and continue operating
Quality Dining as a public company if the special committee could not recommend
the transaction at $3.20 per share. After Mr. Fitzpatrick and Mr. Firth were
excused from the meeting, the special committee voted, by a vote of three to
one, to approve the going private transaction and recommend its acceptance to
the full board and to the unaffiliated shareholders, subject to the negotiation
of a definitive merger agreement and receipt of a fairness opinion from Houlihan
Lokey. Mr. Murphy voted against the recommendation because he believed the price
was too low.

On October 13, 2004, Quality Dining publicly announced that the Fitzpatrick
group and the special committee had reached an agreement in principle on a going
private transaction in which the unaffiliated shareholders of the company would
receive $3.20 in exchange for each of their shares. According to the company's
release, this agreement in principle was subject to approval by the special
committee and the full board of a definitive merger agreement and receipt of a
fairness opinion from Houlihan Lokey. The release also indicated that the merger
agreement would contain customary conditions for a transaction of this nature,
including the obtaining by the Fitzpatrick group of the necessary financing for
the merger, the refinancing of the company's outstanding bank debt, the approval
of transaction by the company's franchisors and the approval of the transaction
by the company's shareholders. On the same day, the members of the Fitzpatrick
group amended their Schedule 13D filing with the SEC to reflect the terms of the
agreement in principle.

Between the date of the company's announcement of the agreement in
principle with the Fitzpatrick group and November 4, 2004, redrafts of the
merger agreement originally prepared by the Fitzpatrick group's legal advisors
were circulated and negotiated. The revised merger agreement reflected, among
other things, the conditions first proposed by the special committee through its
advisors at the September 29th meeting in New York, as modified during the
course of the meetings in South Bend. During this period, the Fitzpatrick group
provided to the special committee, Houlihan Lokey and the company's bank group
updated financial projections (see "-- Certain Financial Projections") sought
and received increased commitments in the form of a $23 million revolving credit
facility and a $35 million term loan from the lenders to provide the additional
debt financing needed to fund the increased offer price. In order to obtain
these increased commitments, instead of agreeing to provide an additional $5
million of financing in the form of subordinated debt and/or equity as required
under the original commitments described above, Mr. Fitzpatrick agreed to
strengthen his personal guarantee of the revolving credit facility and term loan
so that it would continue until such time as the company's ratio of funded debt
to cash flow falls below 3.25 for two consecutive quarters, rather than 3.50 as
in the prior commitment. Mr. Fitzpatrick also agreed not to pledge his interests
in certain real estate entities to secure other indebtedness. See "Financing For
The Merger". The revised commitment letters were delivered by the Fitzpatrick
group to Houlihan Lokey on behalf of the special committee on November 3, 2004.

On November 4, 2004, the special committee met with its financial and legal
advisors to discuss the revised merger agreement and to receive a report from
Houlihan Lokey on the status of its fairness review. Houlihan Lokey stated that
there was no material change to its valuation range or other analyses relating
to Quality Dining from those previously presented to the special committee and
that, subject to the negotiation of several outstanding issues contained in the
latest draft of the merger agreement, it was prepared to issue a fairness
opinion relating to the current $3.20 price offered by the Fitzpatrick group. In
particular, the members of the special committee unanimously objected to the
absence of a cap on the expenses in the event the shareholders turned down the
transaction. In addition, they expressed surprise
29

that the revised commitment letters continued to contain a "due diligence out",
despite the length of time that had passed since the original commitments had
been issued, and that the lenders retained the ability to refuse to fund if the
capital markets decreased materially. In light of these contingencies, the
special committee believed it would be inappropriate to ask company shareholders
to approve a merger agreement that was subject to a financing contingency.
Following that meeting, legal counsel for the special committee communicated
these objections to the draft merger agreement raised by the special committee
to legal counsel for the Fitzpatrick group.

Thereafter, Houlihan Lokey circulated a draft of its fairness opinion to
the special committee. During the course of the day on November 8th and 9th,
representatives of the special committee and the Fitzpatrick group, together
with their legal advisors, discussed the objections raised by the special
committee to the draft merger agreement. The Fitzpatrick group agreed to limit
its reimbursable expenses to $750,000, to arrange for the bank group to remove
conditions contained in their commitment letters relating to further due
diligence on the company and adverse developments in the financial markets and
to modify the financing contingency contained in the merger agreement to relate
solely to satisfaction of the conditions contained in the revised commitment
letters. Revised drafts of the merger agreement and commitment letters were
provided by the Fitzpatrick group to the special committee and its advisors on
the afternoon of November 9th.

On the afternoon of November 9, 2004, the special committee met again
telephonically to receive Houlihan Lokey's final opinion, to discuss the final
terms of the merger agreement and to vote on whether or not to recommend the
going private transaction. At the conclusion of this meeting, the special
committee, by a vote of three to one, voted to approve the going private
transaction and the merger agreement with the Fitzpatrick group and to recommend
it to the full board and to the unaffiliated shareholders of the company.
Immediately thereafter, at a meeting of the full board of directors, the special
committee presented its findings to the board, which, by a vote of six to one,
with Mr. Murphy, a member of the special committee, opposed, voted to approve
the transaction, to authorize the company's officers to enter into the merger
agreement on behalf of the company with QDI Merger Corp., to approve QDI Merger
Corp's acquisition of shares of common stock in the merger for purposes of the
company's shareholder rights plan and the Indiana Business Combinations statute
and to deem the approval by the company's shareholders of the merger agreement
to constitute a "Change in Control" under the company's employee equity
incentive plans. Later that day, the merger agreement was signed by Quality
Dining and QDI Merger Corp. On November 10, 2004, the company issued a press
release announcing the approval of the going private transaction by the special
committee and the board and the signing of the merger agreement. In addition,
the company filed a report on Form 8-K with the SEC containing its press release
and a copy of the merger agreement and the members of the Fitzpatrick group
amended their Schedule 13D filing to reflect the signing of the merger agreement
and receipt of the new commitment letters.

On February 3, 2005, the original members of the Fitzpatrick group entered
into an amended and restated shareholders agreement setting forth the terms of
their relationship as shareholders of Quality Dining following the merger.
Pursuant to the amended and restated shareholders agreement, the members of the
Fitzpatrick group have agreed to certain transfer restrictions on their shares
of common stock following the merger, including rights of first refusal, tag
along rights, drag along rights, company call rights and shareholder put rights.
The amended and restated shareholders agreement also addresses organizational
matters, supermajority shareholder approval of certain significant business
decisions and access to financial information.

Also, on February 3, 2005, Mr. Schonsheck became a member of the
Fitzpatrick group by entering into the amended and restated shareholders
agreement. On that date he also entered into a joinder agreement with Quality
Dining and QDI Merger Corp. pursuant to which he has agreed to contribute a
significant portion of his shares of Quality Dining common stock to QDI Merger
Corp. and to vote all of his shares of common stock (including those not so
contributed) in the same manner as the original members of the Fitzpatrick
group, that is, for and against approval of the merger agreement and the merger
in the same proportion as the votes cast by the unaffiliated shareholders voting
at the special

meeting to be held to vote on the merger (with abstentions being deemed to be
votes against approval of the merger agreement and the merger).

Mr. Schonsheck was employed by Quality Dining until his retirement in
August 1999. At the time of his retirement, he served as the company's Senior
Vice President, Chief Operating Officer, Burger King Division. Although Mr.
Schonsheck had previously expressed a potential interest in remaining an
investor in Quality Dining if Mr. Fitzpatrick ever decided to take the company
private, Mr. Fitzpatrick decided not to invite Mr. Schonsheck into the original
Fitzpatrick group because he believed that including Mr. Schonsheck (who, unlike
the other members of the group, was not a company officer or director) at that
time would further complicate the planning process for the going private
transaction and the expected negotiations with the special committee. Following
the June 16, 2004 public announcement of the Fitzpatrick group's proposal for
taking Quality Dining private, Mr. Schonsheck contacted Mr. Fitzpatrick to again
express his possible interest in remaining an investor in Quality Dining. The
Fitzpatrick group decided not to explore Mr. Schonsheck's interest until the
negotiations with the special committee were concluded and the terms of the
transaction were finalized. Following the execution of the merger agreement and
finalization of the amended and restated shareholders agreement among the
original members of the Fitzpatrick group, in January 2005, Mr. Fitzpatrick
offered Mr. Schonsheck the opportunity to join the Fitzpatrick group. Mr.
Schonsheck agreed to become a member of the Fitzpatrick group with respect to
approximately 58% of his shares of Quality Dining common stock, which was
acceptable to the Fitzpatrick group. The remainder of his shares will be
converted into cash in the merger.

RECOMMENDATION OF THE SPECIAL COMMITTEE; REASONS FOR RECOMMENDING APPROVAL OF
THE MERGER

In arriving at its recommendation of the proposed transaction to the board
of directors and the shareholders, a majority of the special committee
considered the following factors as positive in terms of its favorable
recommendation:

- the fairness, from a financial point of view, of the price to be paid to
the unaffiliated shareholders, supported by the opinion of the special
committee's financial advisor, which was an important factor;

- the market price of the company's common stock before the initial
announcement of the proposed transaction;

- the historical market prices of the company's common stock;

- the uncertainty of the financial effect on the company of new management
at Burger King Corporation and the belief that the new management's early
steps would not lead to improving sales at the franchisee level, which
was an important factor not only in terms of the fairness of the price,
but also in terms of the timing of the transaction;

- the significant negative trend of same store sales and customer counts in
the Burger King restaurants operated by the company, which was an
important factor;

- the persistent negative same store sales results in the company's Italian
dining division and concerns about its future prospects;

- the ownership by members of the Fitzpatrick group of many of the parcels
of real estate on which the company's restaurants are located;

- the increased capital expenditures the company is facing in the next
several years, which was an important factor in terms of the timing of
the transaction since these capital expenditures were likely to have a
continuing adverse impact on cash flows and stock price;

- the uncertainty of Chili's market position in the casual dining market
following a national television expose of difficulties with that
franchise;

- the recent sales and other challenges affecting the future prospects of
the Chili's system in general and the company's Chili's division in
particular;
31

- the absence of growth in the other company-owned, non-franchise
restaurants;

- the terms and conditions of the merger agreement, including:

- the Fitzpatrick group's agreement to vote its shares in the same
proportion as the unaffiliated shareholders, thereby giving the
majority of the unaffiliated shareholders who vote on the transaction a
deciding voice;

- the absence of any significant contingencies to the consummation of the
transaction;

- the existence of a financing contingency, which mirrored the language
in the commitment letter obtained by the Fitzpatrick group; and

- the limited circumstances in which the company would have to pay the
Fitzpatrick group's expenses if the merger is not consummated (capped
at $750,000), including if the special committee withdraws its
recommendation in the face of a Superior Transaction, as defined, or
the unaffiliated shareholders do not cast enough favorable votes to
approve the proposal;

- because Quality Dining is not an "accelerated filer", the extensive and
costly burdens of complying with the internal audit and control
requirements of the Sarbanes-Oxley Act of 2002 that were, at the time of
the special committee's deliberations (and much prior to the SEC's March
2, 2005 extension of the compliance deadline for non-accelerated filers
such as Quality Dining for an additional year), about to affect the
company's earnings for the first time and were believed by the special
committee likely to adversely affect the company's stock price for years
to come, making a transaction at this time more advantageous to the
unaffiliated shareholders than one that would be priced after the effects
of full implementation of Sarbanes-Oxley were reflected in the stock
price, which was an important factor both substantively and with respect
to timing;

- the expressed concern of some members of the special committee that the
stock price could return to the pre-announcement price or lower if the
transaction were not recommended and consummated; and

- the special committee was not aware of any firm offer within the last two
years for the purchase of the company, its assets or its stock.

While the special committee also received information about the company's
net book value, going concern value and liquidation value, those metrics were
not believed by the special committee to contribute to the relationship between
the transaction price and either the short or long-term market value of the
company's stock.

The majority of the special committee also considered the potential adverse
factors relating to the proposed transaction, including:

- the fact that the announcement by the Fitzpatrick group of its
unwillingness to sell its stake in the company made it virtually
impossible to conduct a credible "market check", despite the efforts of
the special committee's financial advisor, and created a strong
likelihood that there would be no alternative transaction was a strong
procedural negative to the transaction even though the merger agreement
did not prohibit the solicitation of other offers;

- the fact that the price being offered was near the top of the bottom
third of the range of values derived by the special committee's financial
advisers and could not be measured by a "market check" since the
Fitzpatrick group publicly announced that its shares of Quality Dining
common stock were not for sale was a strong substantive negative to the
transaction;

- the effect that the post-transaction leverage would have on the company
and its operations if the transaction were successful, which, while
irrelevant to the unaffiliated shareholders who will be cashed out, is
relevant to the special committee's duty to the company;

- the third-quarter earnings report of the company, which on a simple
annualization and typical multiples indicated a higher potential market
value for the company's stock than the price offered by the Fitzpatrick
group;

- the inability of the special committee to obtain a credible prediction of
the company's stock price one year or more from the date of its
deliberations assuming the transaction did not occur was a substantive
negative to the transaction since, if the transaction is completed, the
unaffiliated shareholders will cease to participate in the company's
future earnings or growth, if any, or benefit from increases, if any, in
the company's value;

- the payment by Mr. Fitzpatrick of $3.56 per share, including certain
expenses, to repurchase shares from NBO in June 2003 was a strong
substantive negative to the price being offered in the transaction, but
the special committee, by a vote of three to one, was persuaded that the
business and prospects of the company had changed sufficiently to warrant
recommending the transaction to the unaffiliated shareholders;

- if the merger is approved, the unaffiliated shareholders will be required
to surrender their shares of Quality Dining common stock;

- the fact that the transaction is a taxable transaction for the
unaffiliated shareholders; and

- even if the merger is not completed, the company is required to pay
legal, accounting and investment banking fees.

The special committee members unanimously agreed that, because the price
per share being offered to the unaffiliated shareholders could not be tested by
a "market check" and was not at the high end of the preliminary valuation range,
it would not be appropriate for the Fitzpatrick group to so heavily influence
the outcome of the shareholders' vote on the merger by voting their significant
ownership stake in the company's common stock in favor of the transaction.
Accordingly, the special committee considered that the Fitzpatrick group's
agreement to vote its shares proportionally to the vote of the unaffiliated
shareholders would provide a real opportunity for shareholders who disagreed
with the price to express that disagreement. Furthermore, given the
uncertainties facing the business of the company and the sizable premium of the
offer price, a majority of the special committee did believe it was appropriate
to recommend the proposed merger transaction to the unaffiliated shareholders in
order to give them the opportunity to realize liquidity in their stock and
reinvest the cash proceeds.

In addition, members of the special committee did not believe it
appropriate to send a transaction contingent on financing to the shareholders
for approval. Thus, the special committee considered that the financing
commitment obtained by the Fitzpatrick group had been revised to remove the due
diligence and capital market contingencies, and that the financing contingency
contained in the merger agreement had been reworded to incorporate only those
conditions contained in the commitment letters. Since those objections were
addressed to their satisfaction, a majority of the special committee was willing
to recommend the transaction to the full board and to the shareholders.

The special committee did not find it practicable to, and did not, quantify
the factors considered in reaching their opinion as to the fairness of the
merger to Quality Dining and the unaffiliated shareholders although, as
indicated above, some factors were considered by the special committee to be
more important than others. However, a majority of the special committee
believes that the positive factors considered by them outweighed the negative
factors and that the factors considered by them provide a reasonable basis for
their belief that the merger agreement and the merger are fair to, and in the
best interests of, Quality Dining and the unaffiliated shareholders. Mr. Murphy
dissented because he believed the price was too low, especially in light of the
absence of a "market check" and in light of the price paid by Mr. Fitzpatrick to
NBO to purchase its shares of common stock of the company in June 2003.

RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR RECOMMENDING APPROVAL OF
THE MERGER

After careful consideration, based on the recommendation of the special
committee, the board of directors, by a vote of six to one (with Mr. Murphy
opposed), has approved and adopted the merger agreement and the merger, has
determined that the approval of the merger agreement and the merger are
advisable and that the merger is fair to, and in the best interests of, Quality
Dining and the unaffiliated shareholders. Accordingly, the board of directors
recommends that the Quality Dining shareholders vote "FOR" the approval of the
merger agreement and the merger. The board of directors considered the following
factors in deciding to recommend that shareholders vote "FOR" the approval of
the merger agreement and the merger:

- the recommendation of the special committee;

- the written opinion of Houlihan Lokey delivered to the special committee
and the board of directors on November 9, 2004, stating that, as of
November 9, 2004, and based upon and subject to the matters and
assumptions contained in such opinion, the consideration to be received
by the unaffiliated shareholders of Quality Dining in connection with the
merger and merger agreement was fair to such shareholders from a
financial point of view. See "-- Opinion of Financial Advisor to Special
Committee" and the copy of the opinion attached as Appendix B to this
proxy statement;

- if the merger is approved, the unaffiliated shareholders will be required
to surrender their shares of Quality Dining common stock in exchange for
the cash price of $3.20 per share; however, the board of directors
believed that such circumstances were offset by (i) the proportional
voting requirement which will permit the unaffiliated shareholders to
make their own determination as to whether the merger agreement and the
merger are approved, (ii) the fairness of the cash price payable in the
merger from a financial point of view to the unaffiliated shareholders,
and (iii) the uncertain prospects for the future if Quality Dining
continues as a public company;

- the factors referred to above as having been taken into account by the
special committee; and

- the procedural factors described below.

The board of directors concluded that the merger is procedurally fair
because, among other things:

- the special committee consisted entirely of independent, non-employee
directors appointed by the board of directors to represent solely the
interests of the unaffiliated shareholders of Quality Dining;

- the special committee retained and was advised by its own independent
financial advisor to assist it in evaluating the merger and provide it
with financial advice;

- the special committee retained and was advised by its own independent
legal counsel;

- the special committee engaged in extensive negotiations and deliberations
in evaluating the merger and merger consideration;

- the merger consideration and the other terms and conditions of the merger
agreement resulted from active arm's length bargaining between the
special committee and representatives of the Fitzpatrick group and their
respective advisors, which resulted in an increased price per share from
$2.75 to $3.20;

- even though the special committee consisted of directors of Quality
Dining and was therefore not completely unaffiliated with Quality Dining,
committees of independent directors are a commonly used mechanism that is
recognized under applicable law to ensure fairness in transactions of
this type;

- the ability of the special committee and the board of directors to
consider any alternative proposal and terminate the merger agreement if
they determine that the failure to do so would be inconsistent with their
fiduciary duties under applicable law; and

- the members of the Fitzpatrick group have agreed in the merger agreement
to vote their shares for and against approval of the merger agreement and
the merger in the same proportion as the votes cast by the unaffiliated
shareholders voting at the special meeting, with abstentions being deemed
to be votes against approval of the merger agreement and the merger.

In view of the foregoing, the board of directors believes that sufficient
procedural safeguards exist to ensure fairness of the merger and to permit the
special committee to effectively represent the interests of Quality Dining's
unaffiliated shareholders.

In evaluating the fairness of the merger to the unaffiliated shareholders,
the board of directors did not consider or deem relevant:

- the net book value of Quality Dining, because they believed that net book
value is not a material indicator of the value of Quality Dining as a
going concern but rather is indicative of historical costs; or

- the liquidation value of Quality Dining, because they considered Quality
Dining as a viable, going concern business and therefore did not consider
the liquidation value as a relevant valuation methodology.

The board of directors did not find it practicable to, and it did not,
quantify or otherwise attach relative weight to the factors considered in
reaching their opinion as to the fairness of the merger to Quality Dining and
the unaffiliated shareholders. However, the board of directors believes that the
factors considered by them provide a reasonable basis for their belief that the
merger agreement and the merger are fair to, and in the best interests of,
Quality Dining and the unaffiliated shareholders.

OPINION OF FINANCIAL ADVISOR TO SPECIAL COMMITTEE

On November 9, 2004, Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
("Houlihan Lokey") rendered its opinion to the special committee and the board
of directors that, as of that date and based upon and subject to the matters and
assumptions contained in such opinion, the consideration to be received by the
unaffiliated shareholders of the company in connection with the merger and
merger agreement was fair to such shareholders from a financial point of view.

THE COMPLETE TEXT OF HOULIHAN LOKEY'S OPINION IS ATTACHED HERETO AS
APPENDIX B, AND THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH OPINION. SHAREHOLDERS ARE URGED TO READ THE
OPINION CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
THE LIMITATIONS ON THE REVIEW MADE, THE FACTORS CONSIDERED AND THE ASSUMPTIONS
MADE BY HOULIHAN LOKEY. THE OPINION WAS PROVIDED FOR THE INFORMATION AND
ASSISTANCE OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS IN CONNECTION
WITH THEIR CONSIDERATION OF THE GOING PRIVATE PROPOSAL AND DOES NOT CONSTITUTE A
RECOMMENDATION AS TO HOW QUALITY DINING SHAREHOLDERS SHOULD VOTE ON THE MERGER
PROPOSAL.

A copy of the written materials that Houlihan Lokey reviewed with members
of the special committee on November 9, 2004 has been filed as an exhibit to the
Schedule 13E-3 filed by the transaction parties. A copy of these materials will
also be made available for inspection and copying at Quality Dining's principal
executive offices during regular business hours by any interested shareholder or
his or her representative who has been so designated in writing.

Houlihan Lokey's opinion and analyses were only one of many factors
considered by the special committee and the board of directors in their
evaluation of the transaction and should not be viewed as determinative of the
views of the special committee or the board of directors with respect to the
transaction. The special committee retained Houlihan Lokey based upon Houlihan
Lokey's experience in the valuation of businesses and their securities in
connection with going private transactions, recapitalizations and similar
transactions. Houlihan Lokey is a nationally recognized investment banking firm
that is continually engaged in providing financial advisory services and
rendering fairness opinions in connection with mergers and acquisitions,
leveraged buyouts, and business and securities valuations for a variety of
regulatory and planning purposes, recapitalizations, financial restructurings
and private

placements of debt and equity securities. Houlihan Lokey has no material prior
relationship with Quality Dining or its affiliates. The fairness opinion is
directed only to the fairness, from a financial point of view, of the
consideration to be received in cash in the merger by the unaffiliated
shareholders and is not intended to constitute and does not constitute a
recommendation as to whether the unaffiliated shareholders should vote for or
against the merger. The consideration to be received by the unaffiliated
shareholders was determined on the basis of negotiations between the special
committee and the Fitzpatrick group, and was recommended by the special
committee, by a vote of three to one, and approved by the board of directors by
a vote of six to one. Quality Dining shareholders are urged to read the text of
Houlihan Lokey's fairness opinion, which is attached hereto as Appendix B,
carefully in its entirety.

Quality Dining has agreed to pay Houlihan Lokey a fee of $300,000 for its
services, plus reasonable out-of-pocket expenses. No portion of Houlihan Lokey's
fee is contingent upon the conclusions reached in the Houlihan Lokey opinion.
Quality Dining has agreed to indemnify and hold harmless Houlihan Lokey, or any
employee, agent, officer, director, attorney, shareholders or any person who
controls Houlihan Lokey, against and from all losses arising out of or in
connection with its engagement by the special committee.

In connection with its opinion, Houlihan Lokey had made such reviews,
analyses and inquiries as it deemed necessary and appropriate under the
circumstances. Among other things, Houlihan Lokey:

1. met with members of the special committee and its counsel to
discuss the transaction;

2. met with certain members of the senior management of the company to
discuss the operations, financial condition, future prospects, and
projected operations and performance of the company;

3. visited the company's headquarters located in Mishawaka, Indiana;

4. reviewed the company's filings with the SEC of annual reports on
Form 10-K for the five fiscal years ended October 26, 2003 and the
quarterly report on Form 10-Q for the fiscal quarter ended August 1, 2004,
which the company's management identified as being the most current
quarterly financial statements available at the time;

5. reviewed internally prepared financial statements for the three
fiscal years ended October 26, 2003 and the year-to-date periods ended
September 28, 2003 and September 26, 2004 for each of Quality Dining's
individual segments;

6. reviewed forecasts and projections prepared by the Fitzpatrick
group with respect to the company, and its individual segments, for its
fiscal years ending in 2004 through 2008;

7. reviewed the Confidential Information Memorandum dated October 19,
2004 presented to the company's bank group by the Fitzpatrick group;

8. reviewed the company's Schedule 14A Proxy Statement dated February
5, 2004;

9. reviewed the company's Schedule 14D-9 Solicitation/Recommendation
Statement dated May 22, 2000 in response to an unsolicited hostile tender
offer by NBO;

10. reviewed board of directors minutes from October 24, 2001 through
June 8, 2004;

11. reviewed presentations prepared by the company for meeting with
its bank group dated March 20, 2002, March 25, 2003 and March 16, 2004;

12. reviewed the package prepared by the company for its bank group
for the four quarters of fiscal 2002 and 2003 and the first and second
quarters of fiscal 2004;

13. reviewed the historical market prices and trading volume for the
company's publicly traded securities;

14. reviewed commitment letters dated October 29, 2004 from J.P.
Morgan Securities Inc. and the other members of the company's bank group
pertaining to the debt financing for the transaction;

15. reviewed a draft dated November 9, 2004 of the merger agreement by
and between QDI Merger Corp. and the company;

16. reviewed certain other publicly available financial data for
certain companies that Houlihan Lokey deemed comparable to the company; and

17. identified and contacted additional potential buyers of the
company in order to gauge interest in a potential transaction.

SUMMARY OF FINANCIAL ANALYSES PERFORMED BY HOULIHAN LOKEY

In this summary, the range of enterprise value from operations is the value
of the Quality Dining business as derived by Houlihan Lokey using three
valuation methods (as described below in further detail). The ranges from each
of the three approaches were similar and no approach was assigned a greater
weight than any other approach. Based on these ranges, Houlihan Lokey concluded
an enterprise value from operations of $110.1 million to $124.0 million. From
this range, Houlihan Lokey added Quality Dining's cash (including cash that
could be received from the exercise of in-the-money stock options) and deducted
current debt outstanding. The result of this calculation was a range of equity
values of approximately $33.4 million to $48.7 million. This equity value range
was then divided by the number of shares of common stock outstanding in order to
determine value on a per share basis. The per share value range was estimated to
be $2.86 per share to $4.03 per share. This per share value range was then
compared to the offer price of $3.20 per share by the Fitzpatrick group when
determining the fairness of the consideration to be paid in the merger.

Houlihan Lokey used several methodologies to assess the fairness of the
consideration to be received by the unaffiliated shareholders in connection with
the merger. The following is a summary of the material financial analyses used
by Houlihan Lokey in connection with providing its opinion in connection with
the merger. This summary is qualified in its entirety by reference to the full
text of such opinion, which is attached as Appendix B to this proxy statement
and incorporated into this proxy statement by reference. Houlihan Lokey utilized
each of the following analyses based upon its view that each is appropriate and
reflective of generally accepted valuation methodologies given Quality Dining's
trading volume relative to total shares outstanding, the accessibility of
comparable publicly traded companies, the availability of forecasts from
management of Quality Dining and available information regarding similar
transactions in the restaurant industry. Each analysis provides an indication of
Quality Dining's per share equity value in order to assess the fairness of the
consideration to be received by the unaffiliated shareholders in connection with
the merger. No one methodology was considered to be more appropriate than any
other methodology, and therefore Houlihan Lokey utilized all of the
aforementioned methodologies in arriving at its conclusions.

Houlihan Lokey's analyses included a valuation, as of the date of its
opinion, of the enterprise value ("EV", equity value of the company in question
plus all of its interest-bearing debt and minority interests less cash and cash
equivalents) and per share equity value of Quality Dining utilizing (i) a market
multiple methodology, (ii) a comparable transaction methodology, and (iii) a
discounted cash flow methodology. Houlihan Lokey also performed a premiums paid
analysis in order to compare the premium offered in this transaction to premiums
observed in other similar transactions.

Market Multiple Methodology. Houlihan Lokey reviewed certain financial
information of publicly traded comparable companies and established two groups
of comparable companies. Houlihan Lokey deemed the selected companies to be
reasonably comparable to Quality Dining based on the industry in which Quality
Dining operates, its principal competitors and its business risk profile.
Comparable Group I included Main Street Restaurant Group Inc., Meritage
Hospitality Group Inc. and Worldwide Restaurant Concepts, Inc. Comparable Group
II included Applebee's International, Inc., Brinker International, Inc., Jack In
The Box Inc., McDonald's Corporation, O'Charley's Inc., The Steak-n-Shake
Company, Triarc Companies, Inc., Wendy's International, Inc. and YUM! Brands,
Inc. Houlihan Lokey considered
37

Comparable Group I to be more relevant to Quality Dining than Comparable Group
II as comparable Group I is comprised of companies which are primarily
franchisees as compared to comparable Group II, which is comprised of companies
which are primarily franchisors.

Houlihan Lokey calculated certain financial ratios of the comparable
companies based on the most recent publicly available information, including the
multiples of:

(i) EV to latest twelve months ("LTM") and next fiscal year ("NFY")
earnings before interest, taxes, depreciation and amortization ("EBITDA");
and

(ii) EV to projected LTM and NFY revenues.

The analysis showed that the multiples exhibited by the comparable
companies as of approximately November 3, 2004 were as follows:

<Table>
<Caption>
EV/ EV/ EV/ EV/
EBITDA REVENUE EBITDA REVENUE
(LTM) (LTM) (NFY) (NFY)
------ ------- ------ -------

Comparable Group I
Companies
Low............................................ 4.9x 0.30x 4.5x NA
High........................................... 13.3x 1.24x 4.5x NA
Median......................................... 5.2x 0.31x 4.5x NA
Mean........................................... 7.8x 0.62x 4.5x NA
Comparable Group II
Companies
Low............................................ 6.7x 0.66x 5.6x 0.57x
High........................................... 9.7x 2.50x 9.6x 2.43x
Median......................................... 7.7x 1.33x 7.1x 1.13x
Mean........................................... 8.1x 1.42x 7.5x 1.26x
</Table>

Houlihan Lokey's selection of market multiples for Quality Dining was based
upon a comparative analysis of the comparable companies and Quality Dining that
generally focused on qualitative considerations as well as quantitative
considerations such as size, profitability, growth history and expectations. No
one factor was determinative in the analysis. Houlihan Lokey derived indications
of the EV of Quality Dining by applying selected EBITDA and revenue multiples to
Quality Dining's LTM results as well as to expected operating results for the
next fiscal year ending October 30, 2005. Houlihan Lokey selected EV to revenue
multiples in the range of 0.45x to 0.50x for both the LTM period and the NFY
period. Houlihan Lokey selected EV to EBITDA multiples in the range of 4.50x to
5.00x for the LTM period and in the range of 4.25x to 4.75x for the NFY period.
The resulting indications of the EV of the operations of Quality Dining,
inclusive of a premium of 15% based on premiums observed in the marketplace,
ranged from approximately $110.1 million to $123.7 million. The resulting
indicated range of equity value from the market multiple methodology was $2.86
to $4.00 per share.

Comparable Transaction Methodology. Houlihan Lokey reviewed comparable
transactions with announcement dates between January 1, 2002 and November 9,
2004 that had publicly-disclosed information and for which purchase price
multiples could be derived. Target companies were required to have SIC codes of
5812 or the business description must have included restaurant and franchise,
franchisor, or franchisee. Houlihan Lokey also considered certain other
comparable transactions for which it possessed non-public information. Because
Houlihan Lokey had acted as financial advisor to certain companies that it deems
comparable to Quality Dining, it was in possession of certain information
(including implied valuation multiples) that were not publicly disclosed
regarding transactions involving such companies. It utilized this information in
the comparable transaction approach and gave that information the same weight as
if it had been publicly disclosed.

Debt-free implied multiples for the selected transactions were derived by
dividing the value of each of the transaction values by LTM revenue and EBITDA.
Transaction value is defined as total consideration paid for the target company,
including any assumption of debt. Transaction multiples vary, reflecting

differing financial performance of the underlying company and differing
transaction dynamics, including expected synergies. EV/revenue multiples had a
median of 0.55x, a mean of 0.62x and a range of 0.13x to 1.56x. EV/EBITDA
multiples had a median of 5.3x, a mean of 6.2x and a range of 3.1x to 11.8x.
Houlihan Lokey derived indications of the EV of Quality Dining by applying
selected revenue and EBITDA multiples to Quality Dining's LTM results. Houlihan
Lokey selected a revenue multiple range of 0.45x to 0.50x and an EBITDA multiple
range of 4.75x to 5.25x for the valuation of Quality Dining. The resulting
indications of the EV of the operations of Quality Dining ranged from
approximately $111.2 million to $123.3 million. The resulting indicated range of
value from the comparable transaction methodology was $2.96 to $3.97 per share.

Discounted Cash Flow Methodology. Houlihan Lokey utilized certain
financial projections prepared by Quality Dining's management with respect to
fiscal years 2004 through 2008. Houlihan Lokey determined Quality Dining's EV by
first deriving adjusted free cash flow (by adjusting for capital expenditures as
well as working capital requirements and any taxes) and discounting free cash
flow to the present. Houlihan Lokey applied risk-adjusted discount rates ranging
from 10.0% to 14.0% to the projected adjusted free cash flow. Houlihan Lokey
understands that the forecasts it used were the same ones provided to the
lenders providing the financing for the transaction. To determine the value of
Quality Dining at the end of the projection period, Houlihan Lokey applied
terminal EBITDA multiples of 3.75x to 5.75x in the calculation of the terminal
value, discounted to the present. The summation of the present value of the free
cash flows for years 2004 through 2008 plus the present value of the terminal
value resulted in an indicated EV range for Quality Dining. The discount rate
used in the discounted cash flow analysis was calculated based on Quality
Dining's weighted average cost of capital, which represents the blended,
after-tax costs of debt and equity. Houlihan Lokey focused on the range of EV
exhibited by discount rates in the middle of the selected range, or 12.0%, and
terminal EBITDA multiples in the middle of the selected range, or 4.25x to
5.25x, which resulted in an EV range of $109.0 million to $125.1 million. The
resulting indicated range of equity value from the discounted cash flow
methodology was $2.77 to $4.12 per share.

Determination of Equity Value. As set forth above, Houlihan Lokey
determined the EV of the operations of Quality Dining based on (i) the market
multiple approach, (ii) the comparable transaction approach and (iii) the
discounted cash flow approach. These valuation indications are summarized as
follows:

<Table>
<Caption>
METHODOLOGY LOW INDICATION OF EV HIGH INDICATION OF EV
- ----------- -------------------- ---------------------

Market Multiple Approach........................ $110.1 million $123.7 million
Transaction Multiple Approach................... $111.2 million $123.3 million
Discounted Cash Flow Approach................... $109.0 million $125.1 million
</Table>

Based upon the aforementioned analyses, Houlihan Lokey selected a range of
Quality Dining's EV of $110.1 million to $124.0 million.

Houlihan Lokey then made certain adjustments to the range of selected EV to
determine Quality Dining's equity value. Such adjustments included adding
Quality Dining's current holdings of cash and cash equivalents ($1.917 million),
adding the proceeds from the exercise of in-the-money stock options ($0.180
million on the low end and $1.560 million on the high end) and subtracting
Quality Dining's debt of $78.769 million. The aforementioned analyses resulted
in a range of equity value for Quality Dining of $33.4 million to $48.7 million,
or $2.86 to $4.03 per share.

In the course of discussions between Houlihan Lokey and the Fitzpatrick
group concerning the company's NOLs, the Fitzpatrick group pointed out that in
addition to the considerable uncertainty relating to the ability of the company
to fully utilize its NOLs following the proposed transaction, the recognition of
any financial benefits from the NOLs requires positive taxable income. In that
connection, the Fitzpatrick group indicated that the level of taxable income in
future years would be highly uncertain. Based on these discussions, Houlihan
Lokey did not specifically assign value to the NOLs and thus the valuation
ranges presented to the special committee excluded potential value relating to
the NOLs.

However, in the discussions and negotiations with the Fitzpatrick group and its
advisors, the special committee and Houlihan Lokey did point out that, if the
company was able to utilize a substantial portion of its NOLs after the
transaction, the Fitzpatrick group may recognize a material financial benefit.
Houlihan Lokey advised the special committee that due to (i) the uncertainty
relating to the company's ability to realize material financial benefits from
its NOLs after the transaction, and (ii) the fact that third party purchasers
would be subject to Section 382, which would severely limit their ability to
utilize the NOLs, the ability to negotiate the sharing of potential value of the
NOLs with the unaffiliated shareholders through an increase in purchase price
was weakened. Nevertheless, the special committee believes that its negotiations
relating to the NOLs was a factor in the Fitzpatrick group's decision to
increase its offer price from $2.75 to $3.20 per share.

Premiums Paid Analysis. Houlihan Lokey reviewed the historical market
prices and trading volume for Quality Dining's publicly held common stock and
reviewed publicly available news articles and press releases relating to Quality
Dining. Houlihan Lokey analyzed Quality Dining's closing stock price as of June
15, 2004, the date prior to the Fitzpatrick group's announcement of its
intention to propose a going private transaction. In addition, Houlihan Lokey
reviewed Quality Dining's closing stock price on a 20-day and 30-day average
basis as of June 15, 2004, with such pricing ranging from $2.27 to $2.30 per
share. Houlihan Lokey also considered Quality Dining's 52-week high, 52-week low
and the average closing price over the 52 weeks prior to June 15, 2004, with
such pricing ranging from $2.19 to $3.20 per share. Finally, Houlihan Lokey
analyzed the 1-day, 5-day and 20-day premiums paid in other recent going private
transactions with observed premiums of 29.7% to 41.2%, 33.0% to 43.8% and 33.5%
to 51.6% respectively. Applying the observed premiums to Quality Dining's
unaffected stock price (as measured by the aforementioned averages and spot
prices), the resulting indications of value for Quality Dining's stock ranged
from a low of $2.98 per share to a high of $3.41 per share.

Houlihan Lokey also noted that the offering price of $3.20 for each share
in the transaction represents a premium of (a) 39.1% over the closing price as
of June 15, 2004 for Quality Dining common stock, and (b) approximately 40.7%
and 39.8% over the average closing prices over the 20 trading days and 30
trading days, respectively, prior to June 15, 2004, the date prior to the
Fitzpatrick group's initial announcement of its going private proposal. Houlihan
Lokey noted that the premium implied by the consideration provided for in the
transaction is within the range of premiums paid in comparable transactions.

Determination of Fairness. After determining the equity value of Quality
Dining, and after consideration of multiples and premiums paid in comparable
transactions, Houlihan Lokey noted that the consideration of $3.20 per share as
provided for in the merger is within the range of the indications of value that
are the result of Houlihan Lokey's analyses. Accordingly, Houlihan Lokey
determined that the consideration to be received by the unaffiliated
shareholders in connection with the merger is fair to them from a financial
point of view.

As a matter of course, the company does not publicly disclose
forward-looking financial information. Nevertheless, in connection with its
review, Houlihan Lokey considered financial projections prepared by the
Fitzpatrick group. The initial financial projections presented to Houlihan Lokey
were prepared under market conditions as they existed as of approximately June
10, 2004 and were subsequently updated and revised to reflect conditions as of
October 22, 2004. The financial projections do not take into account any
circumstances or events occurring after the date they were prepared. In
addition, factors such as industry performance and general business, economic,
regulatory, market and financial conditions, as well as changes to the business,
financial condition or results of operation of the company, may cause the
financial projections or the underlying assumptions to be inaccurate. As a
result, the financial projections should not be relied upon as necessarily
indicative of future results.

In arriving at its fairness opinion, Houlihan Lokey reviewed key economic
and market indicators, including, but not limited to, growth in the U.S. Gross
Domestic Product, inflation rates, interest rates, consumer spending levels,
manufacturing productivity levels, unemployment rates and general stock market
performance. Houlihan Lokey's opinion is based on the business, economic, market
and other conditions as

they existed as of November 9, 2004, and on the financial projections of Quality
Dining provided to Houlihan Lokey. In rendering its opinion, Houlihan Lokey
relied upon and assumed, without independent verification, that the financial
and other information provided to Houlihan Lokey by the management of Quality
Dining, including the financial projections, was accurate, complete and
reasonably prepared and reflects the best currently available estimates of the
financial results and condition of Quality Dining; that no material changes have
occurred in the information reviewed between the date the information was
provided and the date of the Houlihan Lokey opinion; and that there were no
facts or information regarding Quality Dining that would cause the information
supplied by Houlihan Lokey to be incomplete or misleading in any material
respect. Houlihan Lokey did not independently verify the accuracy or
completeness of the information supplied to it with respect to Quality Dining
and does not assume responsibility for it. Houlihan Lokey also assumed that the
transaction will be consummated in all material respects as described in the
merger agreement. Houlihan Lokey did not make any independent appraisal of the
specific properties or assets of Quality Dining.

HOULIHAN LOKEY WAS NOT ASKED TO OPINE AND DOES NOT EXPRESS ANY OPINION AS
TO: (i) THE TAX OR LEGAL CONSEQUENCES OF THE MERGER; (ii) THE REALIZABLE VALUE
OF QUALITY DINING'S COMMON STOCK OR THE PRICES AT WHICH QUALITY DINING'S COMMON
STOCK MAY TRADE; AND (iii) THE FAIRNESS OF ANY ASPECT OF THE TRANSACTION NOT
EXPRESSLY ADDRESSED IN ITS FAIRNESS OPINION.

THE HOULIHAN LOKEY OPINION DOES NOT ADDRESS THE FITZPATRICK GROUP'S
UNDERLYING BUSINESS DECISION TO EFFECT THE MERGER OR THE UNDERLYING BUSINESS
DECISION OF THE SPECIAL COMMITTEE OR THE BOARD OF DIRECTORS TO ENDORSE THE
MERGER, NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO WHETHER
THE SHAREHOLDER SHOULD VOTE FOR THE TRANSACTION.

The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth herein must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses and factors, or portions of this summary, could create an incomplete
and/or inaccurate view of the processes underlying the analyses set forth in
Houlihan Lokey's fairness opinion. In its analyses, Houlihan Lokey made numerous
assumptions with respect to Quality Dining, the transaction, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the respective entities.
The estimates contained in such analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be more or
less favorable than suggested by such analyses. Additionally, analyses relating
to the value of businesses or securities of Quality Dining are not appraisals.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.

POSITION OF THE FITZPATRICK GROUP

The Fitzpatrick group believes that the merger and the terms of the merger
agreement are fair to, and in the best interests of Quality Dining and the
unaffiliated shareholders of Quality Dining. In forming its belief as to the
fairness of the terms of the merger and the merger agreement, the Fitzpatrick
group did not independently consider the fairness of the merger consideration to
the unaffiliated shareholders, but rather reviewed and considered the analysis
of the special committee and the board of directors as to the fairness of the
merger consideration to be received by the unaffiliated shareholders (see
"-- Recommendation of the Special Committee; Reasons for Recommending Approval
of the Merger" and "-- Recommen-

dation of the Board of Directors; Reasons for Recommending Approval of the
Merger") and considered certain other substantive factors, as follows:

- the special committee, which was comprised exclusively of independent
directors, recommended to the board of directors by a vote of three to
one that the merger agreement and the merger be approved;

- the written opinion of Houlihan Lokey delivered to the special committee
and the board of directors stating that as of November 9, 2004, and based
upon and subject to the matters and assumptions contained in such
opinion, the consideration to be received by the unaffiliated
shareholders of Quality Dining in connection with the merger and merger
agreement was fair to such shareholders from a financial point of view.

- the relationship between the $3.20 per share merger consideration and
historical market prices for Quality Dining's common stock and,
specifically, that $3.20 per share in cash represented an approximate 39%
premium over the closing price on June 15, 2004 (the last day of trading
before the initial public announcement of the Fitzpatrick group's
proposal);

- the benefits to the unaffiliated shareholders in receiving a cash premium
for their shares if the merger is consummated versus the benefits of
remaining shareholders in the company as a publicly traded entity; and

- the procedural factors described below.

The Fitzpatrick group believes that the merger is procedurally fair
because, among other things:

- the financial and other terms of the merger were determined through
arm's-length negotiations between the Fitzpatrick group and the special
committee and its legal and financial advisors, all of whom are
independent of the Fitzpatrick group;

- the merger agreement permits (i) Quality Dining to provide information to
and to participate in negotiations with third parties who submit bona
fide, unsolicited acquisition proposals in the circumstances provided in
the merger agreement, (ii) the special committee to change or withdraw
its recommendation of the merger to the Quality Dining shareholders if
the special committee determines that failure to withdraw the
recommendation is reasonably expected to result in a breach of its
fiduciary duties, and (iii) the special committee to terminate the merger
agreement and enter into a binding acquisition agreement for a superior
proposal if the special committee determines that such proposal is more
favorable to the shareholders of Quality Dining and the failure to do so
is reasonably expected to result in a breach of its fiduciary duties; and

- the agreement by the members of the Fitzpatrick group that they would
vote their shares in the same proportion as the unaffiliated shareholders
for and against the merger and the merger agreement.

In evaluating the fairness of the merger to the unaffiliated shareholders,
the Fitzpatrick group did not consider or deem relevant:

The Fitzpatrick group did not find it practicable to, and did not, quantify
or otherwise attach relative weight to the factors considered by them in
reaching their opinion as to the fairness of the merger to Quality Dining and
the unaffiliated shareholders. However, the Fitzpatrick group believes that the
factors

considered by them provide a reasonable basis for their belief that the merger
agreement and the merger are fair to, and in the best interests of, Quality
Dining and the unaffiliated shareholders.

The unaffiliated shareholders should not construe the Fitzpatrick group's
belief as to the fairness of the merger as a recommendation by the Fitzpatrick
group to vote to approve the merger agreement and the merger. The Fitzpatrick
group (except, in the case of members of the Fitzpatrick group who serve on the
Quality Dining board of directors, for their recommendation in their capacity as
directors) makes no recommendation as to how the unaffiliated shareholders
should vote their shares of Quality Dining common stock. The members of the
Fitzpatrick group, who together own approximately 49.3% of the outstanding
shares of Quality Dining common stock entitled to vote, have agreed in the
merger agreement to vote for and against approval of the merger agreement and
the merger in the same proportion as the other shareholders voting at the
special meeting, with abstentions being deemed to be votes against approval of
the merger agreement and the merger. See "Information Concerning the Special
Meeting -- Vote Required".

PRESENTATIONS OF BANC OF AMERICA SECURITIES TO THE FITZPATRICK GROUP

On June 10, 2004, the Fitzpatrick group formally retained Banc of America
Securities to act as sole financial advisor to the Fitzpatrick group in
connection with any proposed going private transaction. Prior to retaining Banc
of America Securities, members of the Fitzpatrick group met with representatives
of Banc of America Securities on May 25, 2004. During this meeting, the
participants discussed written materials prepared by Banc of America Securities
containing the financial analysis described below and the concept of a going
private transaction involving Quality Dining, including process and timing and
the roles and responsibilities of the parties to be involved. In addition, on
July 16, 2004, Banc of America Securities distributed to Mr. Firth and Mr.
Collier an overview of publicly available financial and other information for 22
publicly traded restaurant companies and an overview of Quality Dining's current
stock price performance, historical trading volume, ownership profile and other
analyses of Quality Dining. BANC OF AMERICA SECURITIES WAS NOT ASKED TO RENDER
OR DELIVER, NOR HAS BANC OF AMERICA SECURITIES RENDERED OR DELIVERED, ANY
OPINION WITH RESPECT TO THE FAIRNESS OF THE MERGER OR THE MERGER CONSIDERATION.
As indicated elsewhere in this proxy statement, the information presented by
Banc of America Securities did not influence the price or the terms of the going
private transaction proposal by the Fitzpatrick group to the company's board of
directors.

The following is a summary of the material financial analyses that Banc of
America Securities reviewed with members of the Fitzpatrick group at the May 25,
2004 meeting, prior to the Fitzpatrick group formally retaining Banc of America
Securities. THE FINANCIAL ANALYSES THAT BANC OF AMERICA SECURITIES REVIEWED WITH
MEMBERS OF THE FITZPATRICK GROUP AT THIS MEETING WERE NOT VALUATIONS OR
APPRAISALS OF THE VALUE OF QUALITY DINING OR SHARES OF QUALITY DINING COMMON
STOCK, DID NOT REFLECT ANY OPINION OF BANC OF AMERICA SECURITIES AS TO THE VALUE
OF QUALITY DINING OR SHARES OF QUALITY DINING COMMON STOCK AND SHOULD NOT BE
VIEWED AS DETERMINATIVE OF THE OPINION OF BANC OF AMERICA SECURITIES, THE
FITZPATRICK GROUP, THE QUALITY DINING BOARD OF DIRECTORS, THE SPECIAL COMMITTEE
OR QUALITY DINING'S MANAGEMENT WITH RESPECT TO THE VALUE OF QUALITY DINING OR
WHETHER THE FITZPATRICK GROUP OR THE SPECIAL COMMITTEE WOULD HAVE BEEN WILLING
TO AGREE TO A DIFFERENT MERGER CONSIDERATION. THE ANALYSES DO NOT CONSTITUTE A
RECOMMENDATION TO THE FITZPATRICK GROUP, THE QUALITY DINING BOARD OF DIRECTORS
OR THE SPECIAL COMMITTEE WITH RESPECT TO THE FAIRNESS OF THE MERGER, THE
TRANSACTIONS CONTEMPLATED THEREBY OR THE MERGER CONSIDERATION. IN ADDITION, THE
BANC OF AMERICA SECURITIES' ANALYSES DO NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER OF QUALITY DINING ON HOW TO VOTE OR ACT WITH RESPECT TO THE MERGER.

The analyses were based on economic, monetary, market and other conditions
in effect on, and information publicly available to, Banc of America Securities
at the time of the May 25, 2004 meeting. Accordingly, although subsequent
developments may affect its analyses, Banc of America Securities did not assume
any obligation to update, revise or reaffirm its analyses. Banc of America
Securities assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information reviewed for
the purposes of its analyses.

Certain of the following summaries of analyses that were reviewed at the
May 25, 2004 meeting include information presented in tabular format. In order
to understand fully the analyses, the tables should be read together with the
text of each summary. The tables alone do not constitute a complete description
of the analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the analyses that Banc of America Securities
reviewed with the Fitzpatrick group.

A copy of the written materials that Banc of America Securities reviewed
with members of the Fitzpatrick group at the meeting on May 25, 2004 has been
filed as an exhibit to the Schedule 13E-3 filed by the transaction parties. A
copy of these materials will also be made available for inspection and copying
at Quality Dining's principal executive offices during regular business hours by
any interested shareholder or his or her representative who has been so
designated in writing.

Analysis of Implied Transaction Statistics at Various Illustrative Purchase
Prices. Banc of America Securities calculated several values implied by
illustrative purchase prices per share of Quality Dining common stock ranging
from $2.29 to $4.12. The illustrative purchase prices were selected to reflect
premiums to the closing share price of Quality Dining common stock on May 21,
2004 ranging from 0% to 80% and were not selected to indicate any appropriate
purchase price for the proposed merger consideration. The following table
summarizes the results of this analysis:

<Table>
<Caption>
ILLUSTRATIVE PURCHASE PRICE PER SHARE OF QUALITY DINING COMMON STOCK
--------------------------------------------------------------------------------------
$2.29 $2.52 $2.75 $2.98 $3.21 $3.44 $3.67 $3.89 $ 4.12
------ ------ ------ ------ ------ ------ ------ ------ ------
($ IN MILLIONS, EXCEPT PER SHARE DATA)

Premium to share price on
May 21, 2004................ 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%
Premium/(discount) to 52-Week
high share price............ (29.5)% (22.5)% (15.4)% (8.4)% (1.3)% 5.7% 12.8% 19.8% 26.9%
Premium/(discount) to 52-Week
low share price............. 28.0% 40.8% 53.6% 66.4% 79.2% 92.0% 104.8% 117.6% 130.4%
Implied equity purchase
price....................... $ 26.6 $ 29.2 $ 31.9 $ 34.5 $ 37.3 $ 40.0 $ 42.8 $ 45.5 $ 48.3
Implied enterprise value...... $129.2 $131.9 $134.5 $137.2 $139.9 $142.7 $145.4 $148.2 $150.9
</Table>

Banc of America Securities calculated enterprise value as:

- equity value, defined as the fully diluted number of shares outstanding
multiplied by the illustrative purchase price; plus

- outstanding total debt; plus

- minority interest; minus

- cash and cash equivalents.

Based on the results of this analysis, Banc of America Securities
calculated the multiples of implied enterprise value to the following financial
data for the 12 months ended February 15, 2004: (i) net sales, (ii) earnings
before interest, taxes, depreciation and amortization (EBITDA), (iii) EBITDA
adjusted to reflect annual cost savings of $1 million resulting from the
elimination of public reporting company expenses estimated by Banc of America
Securities, and (iv) earnings before interest and taxes (EBIT). In addition,
Banc of America Securities calculated the multiples of share price to
fully-diluted earnings per

share (EPS) for the 12 months ended February 15, 2004. The following table
summarizes the results of this analysis:

<Table>
<Caption>
ILLUSTRATIVE PURCHASE PRICE PER QUALITY DINING SHARE
---------------------------------------------------------------------
$2.29 $2.52 $2.75 $2.98 $3.21 $3.44 $3.67 $3.89 $4.12
----- ----- ----- ----- ----- ----- ----- ----- -----

Enterprise Value as a multiple of
the following financial data for
12 months ended February 15, 2004:
Net Sales......................... 0.57x 0.58x 0.60x 0.61x 0.62x 0.63x 0.64x 0.66x 0.67x
EBITDA............................ 6.1x 6.3x 6.4x 6.5x 6.7x 6.8x 6.9x 7.0x 7.2x
EBITDA as adjusted................ 5.9x 6.0x 6.1x 6.2x 6.3x 6.5x 6.6x 6.7x 6.9x
EBIT.............................. 11.8x 12.1x 12.3x 12.5x 12.8x 13.0x 13.3x 13.5x 13.8x
Share price as a multiple of:
Diluted EPS for 12 months ended
February 15, 2004.............. 9.6x 10.5x 11.5x 12.5x 13.4x 14.4x 15.3x 16.3x 17.3x
</Table>

Banc of America Securities also calculated certain leverage metrics on a
pro forma basis assuming the consummation of the merger at share prices ranging
from $2.29 to $4.12, representing indicative premiums of 0% to 80% to the
closing share price of Quality Dining common stock on May 21, 2004. The leverage
metrics calculated by Banc of America Securities included multiples of senior
debt to EBITDA, total debt to EBITDA and total debt to adjusted EBITDA, as
described above. In calculating these multiples, Banc of America Securities used
Quality Dining EBITDA and adjusted EBITDA for the 12 months ended February 15,
2004 and assumed that a going private transaction would be financed with a
senior term loan of up to $4.6 million (representing a multiple of Quality
Dining's EBITDA for the 12 months ended February 15, 2004 of 4.5x), with the
balance of the debt financing consisting of mezzanine debt (ranging from $9.9
million in mezzanine debt for an illustrative purchase price of $2.29 per
Quality Dining share to $20.6 million in mezzanine debt for an illustrative
purchase price of $4.12 per Quality Dining share). The following table
summarizes the results of this analysis:

Pro forma senior debt as a multiple of
EBITDA for 12 months ended February 15,
2004...................................... 4.5x 4.5x 4.5x 4.5x 4.5x 4.5x 4.5x 4.5x 4.5x
Pro forma total debt as a multiple of EBITDA
for 12 months ended February 15, 2004..... 5.0x 5.0x 5.1x 5.2x 5.2x 5.3x 5.3x 5.4x 5.5x
Pro forma total debt as a multiple of
Adjusted EBITDA for 12 months ended
February 15, 2004......................... 4.7x 4.8x 4.9x 4.9x 5.0x 5.0x 5.1x 5.2x 5.2x
</Table>

Historical Stock Trading Performance. Banc of America Securities analyzed
the prices at which Quality Dining common stock traded from May 21, 2003 through
May 21, 2004. Banc of America Securities noted that the high closing price of
Quality Dining common stock during this period was $3.25 on September 16, 2003,
and that the low closing price of Quality Dining common stock during this period
was $1.79 on May 21, 2003. Banc of America Securities also noted the average
closing price of Quality Dining common stock over various periods prior to and
including May 21, 2004 as summarized below:

<Table>
<Caption>
PERIOD PRIOR TO AND INCLUDING MAY 21, 2004 AVERAGE CLOSING PRICE
- ------------------------------------------ ---------------------

May 21, 2004................................................ $2.29
Last 30 days................................................ $2.31
Last 60 days................................................ $2.36
Last 90 days................................................ $2.48
Last 360 days............................................... $2.58
</Table>

Banc of America Securities also reviewed the recent stock price performance
of Quality Dining and compared its performance with the Standard & Poor's 500
Index, the Nasdaq National Market and an index comprised of the eleven companies
used in the comparable companies analysis summarized below over the period from
May 21, 2003 through May 21, 2004. The following table sets forth the changes in
stock prices over various periods prior to and including May 21, 2004:

<Table>
<Caption>
STOCK PRICE INCREASE/(DECREASE) FOR THE FOLLOWING PERIODS
----------------------------------------------------------
LAST 12 LAST SIX LAST THREE
MONTHS MONTHS MONTHS LAST MONTH
--------- ---------- ------------ ------------

Quality Dining.......................... 16.9% (16.7)% (11.9)% (0.4)%
S&P 500................................. 18.4% 3.3% (5.1)% (3.2)%
NASDAQ.................................. 28.3% (2.8)% (7.8)% (5.8)%
Restaurant Peer Index................... 31.5% 2.8% (3.1)% (8.2)%
</Table>

Banc of America Securities also analyzed the historical trading range for
Quality Dining common stock over the 12 month period prior to May 21, 2004
reviewing the volume of Quality Dining common stock traded within specified
price ranges, allocating the total number of shares traded per day according to
the average of high and low prices on the respective day. The results of these
calculations are as follows:

<Table>
<Caption>
PERCENT OF SHARES
TRADED WITHIN
AVERAGE DAILY CLOSING PRICE RANGE
- --------------------------- -------------------

$1.75 -- $2.00.............................................. 2.0%
$2.00 -- $2.25.............................................. 6.3%
$2.25 -- $2.50.............................................. 36.6%
$2.50 -- $2.75.............................................. 30.8%
$2.75 -- $3.00.............................................. 19.9%
$3.00 -- $3.25.............................................. 4.4%
</Table>

Selected Comparable Companies. Banc of America Securities compared certain
financial information of Quality Dining with that of other companies in certain
sectors of the restaurant industry, including:

<Table>
<Caption>
MODERATE GROWTH RESTAURANT COMPANIES MATURE RESTAURANT COMPANIES
- ------------------------------------ ---------------------------

Applebee's International Inc. Wendy's International Inc.
Brinker International Inc. Yum! Brands, Inc.
Darden Restaurants Inc. McDonald's Corporation
Jack in the Box Inc.
Outback Steakhouse Inc.
Rare Hospitality International Inc.
Ruby Tuesday, Inc.
Sonic Corp.
</Table>

No company used in the comparable companies analysis is identical to Quality
Dining. Mathematical analysis, such as determining the average or the median, is
not in itself a meaningful method of using comparable company data.

Such information included, among other things, the average and median of
several financial metrics for the companies in each category, including
enterprise value as multiples of actual revenues, EBITDA and EBIT for the last
12 months publicly reported by each such company. In addition, Banc of America
Securities calculated the average and median of certain margins for the
companies in each category,

including EBITDA and EBIT as a percentage of last 12 months revenues. The
multiples and ratios were calculated using publicly available information. The
following table summarizes the results of this analysis:

<Table>
<Caption>
MODERATE GROWTH
RESTAURANT MATURE RESTAURANT
COMPANIES COMPANIES
QUALITY ---------------- ------------------
DINING AVERAGE MEDIAN AVERAGE MEDIAN
------- ------- ------ -------- -------

Multiple of enterprise value to last 12 months:
Revenues.......................................... 0.57x 1.45x 1.18x 1.80x 1.45x
EBITDA............................................ 6.1x 8.2x 8.0x 8.6x 8.0x
EBIT.............................................. 11.8x 11.5x 11.6x 11.7x 11.0x
Last 12 months margins:
EBITDA............................................ 9.3% 17.0% 13.7% 20.7% 18.5%
EBIT.............................................. 4.8% 12.4% 9.6% 15.1% 13.3%
</Table>

Banc of America Securities also reviewed the average and median of certain
comparable company leverage metrics, including the ratios of total debt to total
capitalization and total debt to last twelve months EBITDA. Banc of America
compared such comparable company leverage metrics to the metrics for Quality
Dining. The following table summarizes the results of this analysis:

Total debt as a percentage of total
capitalization.................................... 70.3% 22.3% 24.2% 46.4% 46.5%
Multiple of total debt to last 12 months EBITDA..... 4.3x 0.7x 0.7x 1.6x 1.3x
</Table>

Recent Selected Going Private Transaction Analysis. Banc of America
Securities reviewed the premium to prevailing market prices represented by the
initial price offered in 56 selected going private transactions of U.S.
companies with an enterprise value of $25 million to $1 billion announced from
January 24, 2001 through May 12, 2004. This analysis indicated the following
average and median premiums initially offered in such transactions:

<Table>
<Caption>
INITIAL PREMIUM OFFERED TO AVERAGE STOCK PRICE
PRIOR TO ANNOUNCEMENT
------------------------------------------------
ONE DAY PRIOR ONE WEEK PRIOR ONE MONTH PRIOR
------------- -------------- ---------------

Average................................... 36.6% 40.3% 44.1%
Median.................................... 32.5% 33.7% 39.7%
</Table>

Recent Selected Precedent Restaurant Transaction Analysis. Banc of America
Securities calculated the average and median of several metrics for 21 precedent
transactions in the restaurant industry, including the enterprise value of each
target company as a multiple of revenues, EBITDA and EBIT for the last 12 months
period prior to the announcement of the transaction and the equity value of each
target company as a multiple of net income for the last 12 months period prior
to the announcement of the transaction and the book value of each target
company. The following table summarizes the results of this analysis:

<Table>
<Caption>
AVERAGE MEDIAN
------- ------

Enterprise Value as a Multiple of:
Last 12 Months Sales...................................... 0.64x 0.64x
Last 12 Months EBITDA..................................... 6.1x 5.9x
Last 12 Months EBIT....................................... 11.6x 9.9x
Equity Value as a Multiple of:
Last 12 Months Net Income................................. 22.0x 15.7x
Book Value................................................ 1.46x 1.55x
</Table>

No transaction utilized as a comparison in the precedent transactions analysis
is identical to the merger. Mathematical analysis, such as determining the
average or the median, is not in itself a meaningful method of using comparable
transaction data.

In addition, on July 16, 2004, Banc of America Securities distributed to
Mr. Firth and Mr. Collier an overview of publicly available financial and other
information for 22 publicly traded restaurant companies. The overview included
general information on the restaurant industry and financial, share price and
other information, including a summary of recent events, analyst recommendations
and investment highlights, for each of the 22 publicly traded restaurant
companies. All financial information for the companies was based on information
publicly disclosed by the companies and on publicly available forecasts prepared
by securities research analysts. The restaurants included in the overview were:

<Table>
<Caption>
LARGE CAP COMPANIES SMALL CAP COMPANIES
- ------------------- -------------------

- - Applebee's International Inc. - Back Yard Burgers Inc.
- - Brinker International Inc. - Buffalo Wild Wings Inc.
- - Darden Restaurants Inc. - Champps Entertainment Inc.
- - Landry's Restaurants Inc. - Checkers Drive In Restaurants Inc.
- - O'Charley's Inc. - Famous Dave's Amercia Inc.
- - Outback Steakhouse Inc. - Main Street & Main Inc.
- - Rare Hospitality International Inc. - Meritage Hospitality Group Inc.
- - Ruby Tuesday Inc. - Morgan's Foods Inc.
- - Jack in the Box Inc. - Worldwide Restaurant Concepts, Inc.
- - McDonald's Corporation
- - Sonic Corp.
- - Wendy's International Inc.
- - Yum! Brands, Inc.
</Table>

The materials distributed by Banc of America Securities on July 16, 2004
also included brief case studies on the owner of Burger King Corporation (Texas
Pacific Group) and the following five franchisees or franchisors of Burger King
and Chili's Grill & Bar:

- AmeriKing Corporation

- Carrols Corporation

- Sydran Services, Inc.

- The Westwind Group Holdings, Inc.

- Brinker International Inc.

These case studies included only publicly available information about each
company.

The materials distributed by Banc of America Securities on July 16, 2004
were based on economic, monetary, market and other conditions in effect on, and
information publicly available to, Banc of America Securities at the time of
such meeting. Accordingly, although subsequent developments may affect the
information presented, Banc of America Securities did not assume any obligation
to update, revise or reaffirm such information. Banc of America Securities
assumed and relied upon, without independent verification, the accuracy and
completeness of the financial and other information used by it the purposes of
its presentation. THE INFORMATION THAT BANC OF AMERICA SECURITIES DISTRIBUTED TO
MR. FIRTH AND MR. COLLIER ON JULY 16, 2004 WERE NOT VALUATIONS OR APPRAISALS OF
THE VALUE OF THE RESTAURANTS OR FRANCHISEES PRESENTED OR OF THE SHARES OF THEIR
COMMON STOCK, AND DID NOT REFLECT ANY OPINION OF BANC OF AMERICA SECURITIES AS
TO THE VALUE OF SUCH RESTAURANTS OR FRANCHISEES OR THE SHARES OF THEIR COMMON
STOCK.

A copy of the written materials that Banc of America Securities distributed
to Mr. Firth and Mr. Collier on July 16, 2004 has been filed as an exhibit to
the Schedule 13E-3 filed by the transaction parties. A copy of these materials
will also be made available for inspection and copying at Quality Dining's
principal executive offices during regular business hours by any interested
shareholder or his or her representative who has been so designated in writing.

Banc of America Securities is a nationally recognized investment banking
firm. Banc of America Securities is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
The Fitzpatrick group selected Banc of America Securities on the basis of, among
other things, Banc of America Securities' qualifications, experience, expertise
and reputation in investment banking.

Pursuant to the engagement letter between Banc of America Securities and
Mr. Fitzpatrick, Mr. Fitzpatrick has agreed to pay Banc of America Securities
customary fees for its financial advisory services in connection with the
merger. Mr. Fitzpatrick has also agreed to reimburse Banc of America Securities
for its reasonable expenses, including reasonable fees and disbursements of Banc
of America Securities' legal counsel, and to indemnify Banc of America
Securities, any controlling person of Banc of America Securities and each of
their respective directors, officers, employees, agents, affiliates and
representatives against particular liabilities, including liabilities under the
federal securities laws.

CERTAIN FINANCIAL PROJECTIONS

Quality Dining does not, as a matter of course, make public forecasts as to
future net sales, earnings or other financial information. Management is
especially wary of making projections for extended earnings periods due to the
unpredictability of earnings in what is a very cyclical business.

The projections set forth below are included in this proxy statement solely
because certain financial information was utilized in the evaluation of the
proposed transaction and in obtaining the financing for the proposed
transaction. The projections necessarily make many assumptions that are
inherently subject to significant uncertainties and contingencies and many of
which are beyond Quality Dining's control. Factors such as industry performance
and general business, economic, regulatory, market and financial conditions, all
of which are difficult to predict, may cause the projections or the underlying
assumptions to be inaccurate. Accordingly, it is expected that there will be
differences between actual and projected results, and actual results may be
materially different from those contained in the projections.

Significant assumptions made in connection with the projections include the
following:

- the projections were not prepared in accordance with Quality Dining's
accounting policies with respect to FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities," as revised by the FASB in
December 2003 (FIN 46R);

- Burger King comparable store sales are projected to increase by 2% in
fiscal year 2005 and 1% each year thereafter;

- Chili's comparable store sales are projected to increase by 2% in each of
fiscal years 2005 through 2008;

- Italian Dining and Grady's American Grill comparable store sales are flat
for all projected years;

- store level cash flow margins are projected to increase 0.7% in fiscal
year 2005, an additional 0.6% in fiscal year 2006, decrease 0.1% in
fiscal year 2007 and remain constant in fiscal year 2008;

- two Chili's units are projected to be built in each of fiscal years 2005,
2007 and 2008;

- gross profit margins as a percent of sales are expected to improve 0.7%
in fiscal year 2005, an additional 0.2% in fiscal year 2006, and remain
constant in fiscal years 2007 and 2008;

- general and administrative expense is projected to rise between 1.0% and
2.1% each year; and

- interest rates on the company's revolving credit facility are projected
to remain constant at 5.75% each year.

THIS PROSPECTIVE FINANCIAL INFORMATION WAS NOT PREPARED WITH A VIEW TOWARD
COMPLIANCE WITH PUBLISHED GUIDELINES OF THE SECURITIES AND EXCHANGE COMMISSION
OR THE GUIDELINES ESTABLISHED BY THE AMERICAN
49

INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS FOR PREPARATION AND PRESENTATION OF
PROSPECTIVE FINANCIAL INFORMATION. THE PROSPECTIVE FINANCIAL INFORMATION
INCLUDED IN THIS PROXY STATEMENT HAS BEEN PREPARED BY, AND IS THE RESPONSIBILITY
OF, THE COMPANY'S MANAGEMENT. PRICEWATERHOUSECOOPERS LLP HAS NEITHER EXAMINED
NOR COMPILED THE ACCOMPANYING PROSPECTIVE FINANCIAL INFORMATION AND,
ACCORDINGLY, PRICEWATERHOUSECOOPERS LLP DOES NOT EXPRESS AN OPINION OR ANY OTHER
FORM OF ASSURANCE WITH RESPECT THERETO. THE PRICEWATERHOUSECOOPERS LLP REPORT
INCLUDED IN THIS PROXY STATEMENT RELATES TO THE COMPANY'S HISTORICAL FINANCIAL
INFORMATION. IT DOES NOT EXTEND TO THE PROSPECTIVE FINANCIAL INFORMATION AND
SHOULD NOT BE READ TO DO SO.

THE INCLUSION OF THE PROJECTIONS IN THIS PROXY STATEMENT SHOULD NOT BE
REGARDED AS AN INDICATION THAT QUALITY DINING OR QDI MERGER CORP., OR ANY OF
THEIR RESPECTIVE OFFICERS AND DIRECTORS, OR THE FITZPATRICK GROUP, OR ANY OF
THEIR RESPECTIVE REPRESENTATIVES, CONSIDER SUCH INFORMATION TO BE AN ACCURATE
PREDICTION OF FUTURE EVENTS OR NECESSARILY ACHIEVABLE. IN LIGHT OF THE
UNCERTAINTIES INHERENT IN FORWARD LOOKING INFORMATION OF ANY KIND, QUALITY
DINING CAUTIONS AGAINST RELIANCE ON SUCH INFORMATION. QUALITY DINING DOES NOT
INTEND TO UPDATE OR REVISE THE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING
AFTER THE DATE WHEN PREPARED OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS,
EXCEPT TO THE EXTENT REQUIRED BY LAW. SEE "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION."

The financial projections set forth below include "EBITDA", which is
defined as net income (loss) before income tax expense (benefit), interest
expense, depreciation and amortization and certain other non-cash income and
expense items. EBITDA is a non-GAAP measure and should not be considered an
alternative to any other measure of performance presented in accordance with
GAAP. You should not consider EBITDA in isolation from, or as a substitute for,
net income (loss), cash flows from operating activities and other consolidated
income or cash flow statement data prepared in accordance with GAAP, or as a
measure of profitability or liquidity. EBITDA is presented in the projections
because management utilizes it in assessing projected operating performance and
projected performance relative to financial obligations. Additionally, EBITDA is
a measure commonly used by financial analysts because of its usefulness in
evaluating operating performance. EBITDA, as used by Quality Dining, is not
necessarily comparable with similarly titled measures of other companies because
all companies do not calculate EBITDA in the same fashion. Following the
financial projections presented below is a table presenting a reconciliation of
EBITDA to net income.

Quality Dining management produces five-year plans as part of its ongoing
strategic planning process. These five-year plans are periodically updated by
Quality Dining's management. On or about July 25, 2004, the Fitzpatrick group
provided a version of this five-year plan dated June 10, 2004, to the special

committee, Houlihan Lokey and the company's bank group containing, except as
noted below, the following key financial projections:

<Table>
<Caption>
FISCAL YEAR ENDED
---------------------------------------------------------------
HISTORICAL* PROJECTIONS
----------- ---------------------------------------------------------------
10/26/2003 10/31/2004* 10/30/2005 10/29/2006 10/28/2007 10/26/2008
----------- ----------- ---------- ---------- ---------- ----------
($ IN THOUSANDS)

Net Sales.................. $235,580 $240,468 $241,146 $245,051 $250,513 $257,991
Net Income**............... $ 872 $ 3,343 $ 4,447 $ 4,823 $ 5,435 $ 6,320
EBITDA..................... $ 23,597 $ 22,720 $ 24,354 $ 24,588 $ 24,814 $ 25,615
EBITDA RECONCILIATION
Net Income................. $ 872 $ 3,343 $ 4,447 $ 4,823 $ 5,435 $ 6,320
Income Tax Expense......... 1,989 2,027 2,652 2,859 3,196 3,682
Interest Expense........... 7,479 6,627 7,148 7,113 6,386 5,678
Depreciation and
amortization............. 11,210 9,763 10,107 9,794 9,797 9,935
Recovery on Note
Receivable............... (3,459) -- -- -- -- --
Stock Purchase Expense..... 1,294 -- -- -- -- --
Impairment of assets --
Continuing Operations.... 3,771 -- -- -- -- --
Facility Closing Expense --
Continuing Operations.... (90) -- -- -- -- --
Impairment of assets --
Discontinued
Operations............... 640 670 -- -- -- --
Facility Closing Expense --
Discontinued
Operations............... 220 (790) -- -- -- --
Loss on sale of assets --
Continuing Operations.... 53 -- -- -- -- --
Gain on sale of assets --
Discontinued
Operations............... (352) (500) -- -- -- --
Other...................... (30) -- -- -- -- --
-------- -------- -------- -------- -------- --------
EBITDA..................... $ 23,597 $ 22,720 $ 24,354 $ 24,588 $ 24,814 $ 25,615
======== ======== ======== ======== ======== ========
</Table>

On October 22, 2004, the Fitzpatrick group provided an updated five-year
plan containing, except as noted below, the following key financial projections:

Net Sales.................. $235,580 $240,863 $237,846 $241,023 $246,409 $253,811
Net Income**............... $ 872 $ 3,370 $ 3,738 $ 4,627 $ 5,313 $ 6,277
EBITDA..................... $ 23,597 $ 23,208 $ 23,812 $ 24,428 $ 24,725 $ 25,603
EBITDA RECONCILIATION
Net Income................. $ 872 $ 3,370 $ 3,738 $ 4,627 $ 5,313 $ 6,277
Income Tax Expense......... 1,989 2,040 2,287 2,758 3,134 3,660
Interest Expense........... 7,479 6,656 7,774 7,176 6,447 5,732
Depreciation and
amortization............. 11,210 9,998 10,013 9,867 9,831 9,934
Recovery on Note
Receivable............... (3,459) -- -- -- -- --
Stock Purchase Expense..... 1,294 -- -- -- -- --
Impairment of assets --
Continuing Operations.... 3,771 670 -- -- -- --
Facility Closing Expense --
Continuing Operations.... (90) -- -- -- -- --
</Table>

Impairment of assets --
Discontinued
Operations............... 640 939 -- -- -- --
Facility Closing Expense --
Discontinued
Operations............... 220 (465) -- -- -- --
Loss on sale of assets --
Continuing Operations.... 53 -- -- -- -- --
Gain on sale of assets --
Discontinued Operations.... (352) -- -- -- -- --
Other...................... (30) -- -- -- -- --
-------- -------- -------- -------- -------- --------
EBITDA..................... $ 23,597 $ 23,208 $ 23,812 $ 24,428 $ 24,725 $ 25,603
======== ======== ======== ======== ======== ========
</Table>

- ---------------

* The presentation of the historical financial data in fiscal 2003 (and
portions of fiscal 2004) above is consistent with Quality Dining's internal
modeling and budgeting practices and is not intended to, and does not,
conform to U.S. Generally Accepted Accounting Principles. Fiscal year 2003
financial information was restated by Quality Dining after the preparation of
the financial projections set forth in this section.

** Net income includes a provision for federal income taxes. Because,
historically, Quality Dining has had sufficient net operating loss
carryforwards so that it has not been obligated to pay federal income taxes,
the Fitzpatrick group did not include a provision for federal income taxes in
the June 2004 and October 2004 financial projections provided to the special
committee, Houlihan Lokey and the company's bank group. However, there can be
no assurance that, following consummation of the merger, Quality Dining will
be able to continue to utilize these net operating loss carryforwards in the
periods covered by the projections. Accordingly, the net income included in
such financial projections was higher by the amount of the estimated federal
tax provision than the amounts indicated in the tables above. Specifically,
the amounts of net income set forth in the projections given to the special
committee, Houlihan Lokey and the company's bank group were as follows (in
thousands):

<Table>
<Caption>
FY03 FY04 FY05 FY06 FY07 FY08
---- ------ ------ ------ ------ ------

June Projections................... $872 $4,413 $6,123 $6,690 $7,617 $8,959
October Projections................ $872 $3,822 $5,050 $6,397 $7,437 $8,897
</Table>

The various annual projections set forth above should be read together with
"Quality Dining Selected Historical Consolidated Financial Data" included in
this proxy statement and Quality Dining's historical financial statements and
other financial information as set forth in and attached hereto as Appendix F.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

General. In considering the recommendations of the special committee and
the board of directors, you should be aware that the members of the Fitzpatrick
group and certain of Quality Dining's other officers and directors have
interests in the merger that are different from or in addition to your interests
as a shareholder generally. The special committee and the board of directors
were aware of these interests and considered them along with other matters
described under "Special Factors -- Recommendation of the Special Committee and
the Board of Directors; Reasons for Recommending Approval of the Merger" and
"-- Recommendation of the Board of Directors; Reasons for Recommending Approval
of the Merger".

Continuing Ownership. The members of the Fitzpatrick group will retain
substantially all of their investment in Quality Dining following the merger.
After giving effect to the merger, the Fitzpatrick group, plus any employees
that are given the opportunity to purchase shares of common stock in the
surviving corporation after the merger or receive shares pursuant to the
exercise of stock options or awards of restricted shares of common stock, will
own 100% of the outstanding shares of Quality Dining common

stock. Accordingly, the Fitzpatrick group will have the opportunity to
participate in any future earnings growth of Quality Dining following the merger
and will benefit from any increase in value of Quality Dining. See
"-- Capitalization" for information regarding the number of shares of Quality
Dining common stock that each member of the Fitzpatrick group will own following
the merger. It is possible that other company employees may be given the
opportunity to obtain an equity interest in the company following consummation
of the merger.

Amounts to be Received by Members of the Fitzpatrick group. Messrs. Firth,
Friedlander and Schonsheck will receive $14,400.00, $179,200.00 and $730,841.60,
respectively, for their shares of common stock to be cashed out in the merger.

Board of Directors. The members of the Fitzpatrick group will be members
of the board of directors of Quality Dining following the merger.

Management of Quality Dining Following the Merger. The management of
Quality Dining immediately following the merger will consist of persons who,
immediately prior to the merger, were members of management of Quality Dining
and, in some instances, were also directors of Quality Dining. The executive
officers of Quality Dining immediately following the merger are expected to be
as follows:

<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------

Daniel B. Fitzpatrick..................... 47 President and Chief Executive Officer
John C. Firth............................. 47 Executive Vice President, General Counsel
and Secretary
James K. Fitzpatrick...................... 49 Senior Vice President and Chief Development
Officer
Gerald O. Fitzpatrick..................... 44 Senior Vice President, Burger King Division
Lindley E. Burns.......................... 50 Senior Vice President -- Full Service
Dining
Christopher L. Collier.................... 43 Vice President -- Finance
Jeanne M. Yoder........................... 38 Vice President and Controller
</Table>

The employment agreements currently in effect regarding Mr. Fitzpatrick's
and Mr. Firth's employment with the company are expected to continue with the
surviving corporation. See "Current Executive Officers and Directors of Quality
Dining -- Employment Agreements." The independent members of Quality Dining's
board of directors (Messrs. Faccenda, Jacobson, Lewis and Murphy) will not
continue as directors, and will have no other involvement with Quality Dining,
following the merger.

Voting. Each of the company's directors, other than Mr. Murphy, and the
executive officers listed above have indicated that they intend to vote to
approve the merger agreement and the merger.

Amounts to be Received by Directors and Officers in the Merger. Upon
consummation of the merger, the directors and officers of Quality Dining who are
not members of the Fitzpatrick group will receive the same merger consideration
and option cash-out amount as the unaffiliated shareholders. The table below
sets forth, for each such director and officer who is not a member of the
Fitzpatrick group, as of January 31, 2005, the number of shares of Quality
Dining common stock (including restricted shares) owned by him or her, the
amount of merger consideration that such shares represent, and the approximate

cash payment to which he or she will be entitled in respect of options held by
him or her, and the aggregate merger consideration to be received by him or her:

<Table>
<Caption>
MERGER
CONSIDERATION AGGREGATE
COMMON STOCK FOR COMMON OPTION CASH MERGER
NAME AND POSITION OWNED STOCK OWNED PAYMENT CONSIDERATION
- ----------------- ------------ ------------- ----------- -------------

Philip J. Faccenda, Director................ 15,000 $ 48,000.00 $6,330.00 $ 54,330.00
Bruce M. Jacobson, Director................. 7,500 $ 24,000.00 $6,330.00 $ 30,330.00
Steven M. Lewis, Director................... 3,250 $ 10,400.00 $6,980.00 $ 17,380.00
Christopher J. Murphy, III, Director........ 45,500 $145,600.00 $6,980.00 $152,580.00
Lindley E. Burns, Senior Vice
President -- Full Service Dining.......... 21,302 $ 68,166.40 $5,790.00 $ 73,956.40
Christopher L. Collier, Vice
President -- Finance...................... 29,566 $ 94,611.20 $3,319.00 $ 97,930.20
Jeanne M. Yoder, Vice President and
Controller................................ 10,732 $ 34,342.40 $3,220.00 $ 37,562.40
</Table>

Treatment of Existing Options. As of January 31, 2005, the executive
officers and directors of Quality Dining held options to purchase an aggregate
of 314,172 shares of Quality Dining common stock, 15,000 of which have not yet
vested but will become fully vested immediately prior to the effective time of
the merger. As of January 31, 2005, 79,772 options held by executive officers
and directors had an exercise price below the $3.20 per share consideration
payable in the merger and 285,630 options had an exercise price equal to or in
excess of $3.20 per share. The members of the Fitzpatrick group will retain
options to purchase 209,772 shares of Quality Dining common stock following the
merger.

Indemnification and Insurance. Pursuant to the merger agreement, for six
years after the merger, Quality Dining will indemnify and hold harmless the
current officers and directors of Quality Dining for acts or omissions occurring
at or before the completion of the merger, including in connection with the
merger, in their capacity as officers or directors of Quality Dining. In
addition, following consummation of the merger, the current directors and
officers will have any rights to indemnification as are available under the
articles of incorporation and by-laws of Quality Dining and any of its
subsidiaries and under Indiana law or any other applicable law. Furthermore, for
six years after the merger, Quality Dining will be required to provide or
maintain directors' and officers' and corporate liability insurance covering
those individuals who are covered by the existing directors' and officers' and
corporate liability insurance policy provided for directors and officers of
Quality Dining and its subsidiaries on terms comparable to the existing policy;
provided, however, that Quality Dining will not have to pay in any one year more
than 300% of the annual premium currently paid to obtain the coverage and if the
premiums exceed such amount, Quality Dining will be obligated to obtain a policy
with the greatest coverage available at a cost not exceeding 300% of the annual
premium currently paid.

Special Committee Compensation. Each of the members of the special
committee has been compensated for serving as a member of the special committee.
The Quality Dining board of directors authorized these payments in order to
compensate the members of the special committee for the significant additional
time commitment required of them in connection with their duties and
responsibilities as members of the special committee. Each member of the special
committee received fees of $750 (or $1,125 in the case of the chairman) for each
meeting of the special committee attended. As of the date of this proxy
statement, Mr. Faccenda has received $6,000, Mr. Jacobson has received $23,625,
Mr. Lewis has received $9,750 and Mr. Murphy has received $16,500 for attending
meetings of the special committee. In addition, each member of the special
committee has been reimbursed for travel and other related expenses incurred in
connection with special committee service. If the special committee holds
additional meetings, its members will receive additional fees in the amounts
specified above, and will be reimbursed for travel and other related expenses.
Quality Dining made (and will make if applicable) the foregoing payments without
regard to whether the special committee recommended the transaction proposal or
whether the merger is consummated.

Fitzpatrick Group Involvement in Preparation of Projections. Messrs.
Fitzpatrick and Firth were involved in preparing the projections that were used
by Houlihan Lokey in rendering their fairness opinion and by the special
committee and the board of directors in considering the fairness of the merger.

PLANS FOR QUALITY DINING FOLLOWING THE MERGER

Except as described in this proxy statement, Quality Dining has not
approved any:

- specific plans or proposals for any extraordinary corporate transaction
involving Quality Dining;

- purchase, sale or transfer of a material amount of assets currently held
by Quality Dining or any of its subsidiaries after the completion of the
merger; or

- specific plans or arrangements regarding the dividend rate or policy,
indebtedness or capitalization of Quality Dining.

For a more detailed description of the company's business plan, see "Quality
Dining Business Description".

It is contemplated that after the merger, the Quality Dining board of
directors will consist of the six members of the Fitzpatrick group: Daniel B.
Fitzpatrick, James K. Fitzpatrick, Gerald O. Fitzpatrick, Ezra H. Friedlander,
John C. Firth and William R. Schonsheck.

Although the Fitzpatrick group believes it is unlikely that they will do
so, they reserve the right to change their plans at any time. Accordingly, they
may elect to sell, transfer or otherwise dispose of all or any portion of the
shares of capital stock owned by them after the merger or may decide that, in
lieu of the continuation of the business plan, Quality Dining should sell,
transfer or otherwise dispose of all or any portion of its assets, in any case
to one or more of Quality Dining's affiliates or to any other parties as
warranted by future conditions. Although the Fitzpatrick group believes it is
unlikely that they will do so, they also reserve the right to make whatever
personnel changes to the present management of Quality Dining they deem
necessary after completion of the merger.

CONDUCT OF THE BUSINESS OF QUALITY DINING IF THE MERGER IS NOT COMPLETED

If the merger is not completed, the Quality Dining board of directors
expects to retain the current management team. In the event the merger is not
completed, it is expected that management would operate the business in a manner
similar to the manner in which it is operated today. From time to time, Quality
Dining will evaluate and review its business operations, properties, dividend
policy and capitalization, among other things, make such changes as are deemed
appropriate and continue to seek to identify strategic alternatives to maximize
shareholder value.

FEES AND EXPENSES

Assuming the merger is completed, Quality Dining estimates that it will
incur, and will be responsible for paying, transaction-related fees and expenses
totaling approximately $2.6 million, consisting primarily of debt financing
fees, fees and expenses of investment bankers, fees and expenses of attorneys
and accountants, SEC filing fees and other related charges, which amount
includes an estimated $1.1 million

of fees and expenses incurred by the Fitzpatrick group. This amount consists of
the following estimated fees and expenses:

<Table>
<Caption>
DESCRIPTION AMOUNT
- ----------- ----------
(DOLLARS
IN
THOUSANDS)

Debt financing fees and expenses............................ 750
Legal fees and expenses..................................... 750
Accounting fees and expenses................................ 100
Investment banking fees and expenses........................ 900
SEC filing fees............................................. 3
Printing, solicitation and mailing costs.................... 90
Miscellaneous and other expenses............................ 7
-----
Total....................................................... 2,600
=====
</Table>

If the merger agreement is terminated in certain circumstances, Quality Dining
has agreed in the merger agreement to pay the reasonable expenses incurred by
the Fitzpatrick group in connection with bringing the going private proposal to
the company in an amount not to exceed $750,000. See "The Merger Agreement
-- Expenses". In addition, if the merger agreement is terminated, no fees and
expenses will be payable with respect to the debt financing commitments.

ANTICIPATED ACCOUNTING TREATMENT OF THE MERGER

For U.S. accounting purposes, the merger will be accounted for under the
treasury stock method and the acquired shares will be retired.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of material U.S. federal income tax
consequences of the merger to (i) our shareholders whose shares of Quality
Dining common stock are held as capital assets and converted in the merger into
the right to receive $3.20 in cash per share in the merger, (ii) Quality Dining
and (iii) the Fitzpatrick group. Because this is a summary, it does not include
an analysis of all potential tax effects of the merger.

For example, this summary:

- does not consider the effect of any applicable state, local or foreign
tax laws;

- does not address all aspects of U.S. federal income taxation that may
affect particular shareholders in light of their particular
circumstances, such as alternative minimum taxes;

- is not intended for shareholders that may be subject to special U.S.
federal income tax rules, such as:

- insurance companies;

- tax-exempt organizations;

- financial institutions or broker-dealers;

- "pass through entities";

- shareholders who hold their shares of Quality Dining common stock as
part of a hedge, straddle or conversion transaction; and

- does not address tax consequences to holders of stock options or
incentive awards or holders of stock who received their stock through the
exercise of a stock option or through another compensatory arrangement.

This summary assumes that shareholders hold their shares of Quality Dining
common stock as a "capital asset" under the Internal Revenue Code. This summary
is based on the current provisions of the Internal Revenue Code, applicable
Treasury Regulations, judicial authorities and administrative rulings and

practice. Future legislative, judicial or administrative changes or
interpretations could modify the tax consequences discussion in this summary.
Any such changes or interpretations could be retroactive and could affect the
tax consequences of the merger to you.

As used in this section, a "U.S. holder" means a beneficial owner of shares
of Quality Dining common stock who exchanges shares of Quality Dining common
stock for cash in the merger and who is:

- a citizen or resident of the United States;

- a corporation, partnership or other entity, other than a trust, created
or organized in or under the laws of the United States or any political
subdivision thereof;

- an estate whose income is subject to U.S. federal income tax regardless
of its source; or

- a trust, if (i) a court within the United States is able to exercise
primary supervision over its administration and one or more U.S. persons
have authority to control all of its substantial decisions or (ii) the
trust has a valid election in effect under applicable Treasury
Regulations to be treated as a domestic trust.

As used in this section, a "non-U.S. holder" means a beneficial owner of
shares of Quality Dining common stock who exchanges shares of Quality Dining
common stock for cash in the merger and who is not a U.S. holder.

You should consult your own tax advisor with respect to the particular tax
consequences to you of the merger, including the applicability and effect of any
state, local or foreign tax laws, and of changes in applicable tax laws.

Treatment of U.S. Holders of Shares of Quality Dining Common Stock. If you
are a U.S. holder, the exchange of your shares of Quality Dining common stock
for $3.20 per share in cash in the merger will be taxable to you. You will
recognize a capital gain or loss equal to the difference between the amount of
cash you receive in the merger and your adjusted tax basis in the shares of
Quality Dining common stock. Generally, your adjusted tax basis in your shares
of Quality Dining common stock will be equal to what you paid for your shares of
Quality Dining common stock.

If you are an individual, capital gain will be taxable at a maximum capital
gains rate of 15% if you held your shares of Quality Dining common stock for
more than one year at the time of the merger and capital loss may generally only
be offset against capital gains, up to $3,000 per year of ordinary income, with
a carryover of capital loss to the extent unused.

Treatment of Non-U.S. Holders of Shares of Quality Dining Common Stock. In
general, if you are a non-U.S. holder, you will not be subject to U.S. federal
income or withholding tax on gain realized upon the disposition of shares of
Quality Dining common stock in the merger, unless either:

- the gain is effectively connected with your conduct of a trade or
business in the United States, in which case the gain generally will be
subject to regular U.S. federal income tax in the same manner as if the
gain were realized by a U.S. holder and, if you are a non-U.S.
corporation, the gain may also be subject to a branch profits tax at a
rate of 30.0%, or such lower rate as may be prescribed by a treaty; or

- the gain is not described in the preceding clause and you are an
individual present in the United States for 183 days or more in the
taxable year of the sale and certain other conditions are met, in which
case the gain generally will be subject to tax at a rate of 30.0%, or
such lower rate as may be prescribed by a treaty.

Treatment of Quality Dining. For U.S. federal income tax purposes, no gain
or loss will be recognized by Quality Dining as a result of the merger.

Treatment of members of the Fitzpatrick Group. For U.S. federal income tax
purposes, no gain or loss will be recognized by the members of the Fitzpatrick
group solely as a result of the merger.

Backup Withholding. You may be subject to backup withholding at the rate
of 28% with respect to the proceeds you receive from the exchange of your shares
of Quality Dining common stock in the merger unless you:

- are a corporation or other exempt recipient, including certain non-U.S.
holders, and, when required, establish this exemption; or

- provide your correct taxpayer identification number, certify that you are
not currently subject to backup withholding and otherwise comply with
applicable requirements of the backup withholding rules.

If you do not provide us with your correct taxpayer identification number,
you may be subject to penalties imposed by the Internal Revenue Service. Any
amount withheld under these rules will be creditable against your U.S. federal
income tax liability, provided that you forward appropriate information to the
Internal Revenue Service. We will report to you and to the Internal Revenue
Service the amount of any reportable payment made to you and any amount withheld
pursuant to the merger.

NO APPRAISAL RIGHTS OF SHAREHOLDERS

Under Indiana law, Section 23-1-44-8(b)(2) of the Indiana Code,
shareholders do not have the right to dissent and seek a judicial appraisal of
the "fair value of shares" involved in a merger if the shares of the company
that is a target in the merger are traded on the Nasdaq National Market System.
Quality Dining common stock is traded on the Nasdaq National Market System and,
accordingly, pursuant to Indiana law, company shareholders do not have appraisal
rights in connection with the merger.

REGULATORY REQUIREMENTS

Quality Dining does not believe that any material federal or state
regulatory approvals, filings or notices are required in connection with the
merger other than approvals, filings or notices required under federal
securities laws and the filing of articles of merger, together with the merger
agreement, with the Secretary of State of the State of Indiana. Should any such
approval or other action be required, it is the company's and QDI Merger Corp.'s
present intentions to seek such approval or action. There can be no assurance
that any such approval or other action, if needed, would be obtained without
substantial effort or that adverse consequences might not result to the
company's business in the event that such approval was not obtained or such
other action was not taken.

In addition, the merger will not require a filing or approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

FRANCHISOR APPROVALS

The company operates its Burger King(R) restaurants and Chili's(R)
restaurants pursuant to franchise agreements with Burger King Corporation and
Brinker International, Inc, respectively. The franchise agreements require the
company to obtain the consent of Burger King Corporation and Brinker
International, Inc. prior to consummating the merger.

LITIGATION RELATED TO THE MERGER

For a discussion of litigation related to the merger, see "Legal
Proceedings".

FINANCING FOR THE MERGER

FINANCING REQUIREMENTS

Completion of the merger will require total funding of approximately $52.6
million for the following uses:

- the payment of approximately $20 million in cash to shareholders in
exchange for their shares of Quality Dining common stock (including
amounts payable to cash out outstanding stock options in connection with
the merger);

- the repayment of approximately $30 million of existing bank indebtedness
of Quality Dining; and

- the payment of other fees and expenses of approximately $2.6 million
related to the merger.

SOURCES OF FINANCING

Commitment; Structure; Amortization; Interest; Maturity. QDI Merger Corp.
has received a commitment from JPMorgan Chase Bank, LaSalle Bank, Bank of
America, Northern Trust and National City Bank of Indiana (collectively, the
"bank group") to provide an aggregate of $58 million in financing, consisting of
a $35 million term loan and a $23 million revolving credit facility. The term
loan will amortize at $6 million per year with the balance due at maturity. The
term loan and the revolving credit facility will bear interest at the London
inter-bank offered rate ("LIBOR") plus a contractual spread and will mature five
years after completion of the merger.

Guarantees; Security. The term loan and revolving credit facility will be
guaranteed by all current and future wholly-owned subsidiaries of Quality
Dining, except those subsidiaries with assets of less than $500,000. Initially,
Mr. Fitzpatrick will personally guarantee the term loan and revolving credit
facility until such time as the company's senior leverage ratio has remained
less than 3.25x for two consecutive quarters (and is no higher than 3.75x when
the guaranty is released), provided that no default exists. As further security
for Mr. Fitzpatrick's guarantee, he will agree not to pledge his interest in any
real estate entity that leases real estate to Quality Dining. The company's
obligations under the term loan and revolving credit facility will be secured by
a first priority, perfected security interest in:

- all existing and acquired collateral including, but not limited to,
substantially all of the personal property of Quality Dining and its
subsidiaries and the capital stock of Quality Dining's subsidiaries,
except where prohibited by certain franchise agreements; and

- all currently unencumbered and all new restaurant properties and
associated assets.

Availability. The availability of the term loan and revolving credit
facility will be subject to various conditions precedent, including:

- the senior leverage ratio on the date of closing of the merger does not
exceed 4.00x;

- the pro forma consolidated cash flow for the trailing 12 months, measured
at the end of the quarter immediately preceding closing of the merger, is
at least $24.5 million;

- the lenders' satisfaction with the terms of the merger and the loan
documentation;

- the receipt of a borrowing notice;

- the representations and warranties of Quality Dining in the loan
documents being true and correct;

- no default, event of default or material adverse occurrence shall have
occurred and be continuing; and

- the making of any advances shall not be in violation of any law,
regulation or similar provision.

As of the date of this proxy statement, QDI Merger Corp. expects that it
will be able to satisfy the conditions precedent, including the senior leverage
ratio and the pro forma consolidated cash flow conditions described above, on or
prior to the date of the closing of the merger.

Representations and Warranties; Covenants; Events of Default. The term
loan and revolving credit facility will contain customary representations and
warranties and customary affirmative and negative covenants, including covenants
related to the delivery of financial information, conduct of business,
compliance with laws and sale of assets, as well as financial covenants,
including covenants related to maximum leverage, fixed charge coverage and
capital expenditures. The term loan and revolving credit facility will contain
customary default provisions, including the nonpayment of principal or interest
when due, cross defaults, non-compliance with covenants, breach of
representations and warranties, bankruptcy and changes in control.

No Alternative Financing Arrangements. QDI Merger Corp. has no alternative
financing arrangements or alternative financing plans in the event that the
financing arrangements discussed above are not consummated.

THE MERGER AGREEMENT

On November 9, 2004, Quality Dining entered into the merger agreement with
QDI Merger Corp. The following is a summary of the material provisions of the
merger agreement. Because it is a summary, it does not include all of the
information that is included in the merger agreement. The text of the merger
agreement, which is attached as Appendix A to this proxy statement, is
incorporated into this section by reference. We encourage you to read the merger
agreement carefully in its entirety.

THE MERGER

At the effective time of the merger, QDI Merger Corp. will merge with and
into Quality Dining, and Quality Dining will continue as the surviving
corporation. Pursuant to the merger agreement, the holders of shares of Quality
Dining common stock at the time of the merger (other than treasury shares and
shares owned by QDI Merger Corp.) will be entitled to receive $3.20 in cash for
each of their shares of Quality Dining common stock outstanding at the time of
the merger.

As the surviving corporation in the merger, Quality Dining will have all
the property, rights and powers of both Quality Dining and QDI Merger Corp.
before the merger, and it will be liable for all of the debts, liabilities and
obligations of both Quality Dining and QDI Merger Corp. after the merger. After
the merger, the separate corporate existence of QDI Merger Corp. will cease.

The articles of incorporation of Quality Dining immediately prior to the
merger will be the articles of the surviving corporation after the merger, and
the bylaws of QDI Merger Corp. immediately prior to the merger will be the
bylaws of the surviving corporation after the merger. The officers of Quality
Dining prior to the merger will be the same immediately after the merger. The
directors of QDI Merger Corp. immediately prior to the merger will become the
directors of the company after the merger.

CONVERSION OF CAPITAL STOCK IN THE MERGER

At the effective time of the merger:

- each outstanding share of Quality Dining common stock (other than
treasury shares and shares owned by QDI Merger Corp.) will be converted
in the merger into the right to receive $3.20 in cash;

- each share of Quality Dining common stock held by QDI Merger Corp. will
be cancelled;

- each share of Quality Dining common stock held in treasury will be
cancelled; and

- each outstanding share of QDI Merger Corp. common stock will be converted
into one new share of Quality Dining common stock.

TIME OF CLOSING

The merger will close as soon as possible after satisfaction or waiver of
the conditions to the merger. To complete the merger, Quality Dining will file
articles of merger with the Secretary of State of the State of Indiana.

EXCHANGE AND PAYMENT PROCEDURES

Quality Dining will appoint a paying agent to handle the exchange of share
certificates in the merger for cash. Soon after the merger becomes effective,
the paying agent will mail to you a letter of transmittal and instructions
explaining how to exchange your share certificates for cash. Upon surrender to
the exchange agent of a valid share certificate and a properly completed letter
of transmittal, along with such
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other documents as the paying agent may reasonably require, you will be entitled
to receive $3.20 in cash per share. Until surrendered in this manner, each share
certificate will represent only the right to receive the merger consideration.

You should not send your stock certificates now. You should send them only
after you receive a letter of transmittal from the paying agent. A letter of
transmittal will be mailed to you soon after the merger becomes effective.

Any merger consideration made available to the paying agent that remains
unclaimed by Quality Dining shareholders for one year after the time the merger
becomes effective will be returned to Quality Dining, as the surviving
corporation in the merger, and any Quality Dining shareholder who has not by
that time made an exchange must then look directly to Quality Dining for payment
of its merger consideration.

TRANSFERS OF SHARES

No transfers of shares of Quality Dining common stock that are entitled to
receive $3.20 in cash per share in the merger will be made on Quality Dining's
share transfer books after the merger becomes effective.

TREATMENT OF STOCK OPTIONS; RESTRICTED SHARES

At the time the merger becomes effective, each outstanding option to
purchase shares of Quality Dining common stock shall be converted in the merger
into the right to receive, for each share underlying an option, an amount in
cash equal to the amount, if any, by which $3.20 exceeds the per share exercise
price for the option (other than options held by members of the Fitzpatrick
group, who will retain their options and have them converted into options to
purchase shares of the surviving corporation in connection with the merger).
Also, immediately following shareholder approval of the merger agreement and the
merger, each outstanding restricted share shall vest and the restrictions
thereon shall lapse and Quality Dining shall deliver to the holder thereof a
certificate representing such share, which shall, at the time the merger becomes
effective, represent the right to receive $3.20 per share in cash (other than
the formerly restricted shares held by members of the Fitzpatrick group, who
will retain such shares and have them converted into shares of common stock of
the surviving corporation in connection with the merger).

REPRESENTATIONS AND WARRANTIES

In the merger agreement, Quality Dining has represented and warranted
certain matters to QDI Merger Corp., including with respect to:

- its organization and similar corporate matters;

- its capital structure;

- its authority to enter into, and the legal and binding nature of, the
merger agreement;

- the accuracy of information (other than information relating to QDI
Merger Corp.) contained in this proxy statement and other SEC filings in
respect of the merger agreement and the merger;

- required regulatory consents;

- non-contravention of and compliance with its agreements in connection
with its entering into the merger agreement and the consummation of the
merger;

- non-contravention of applicable laws and orders in connection with it
entering into the merger agreement and the consummation of the merger;

- inapplicability of state takeover statutes to the merger;

- matters relating to the company's rights agreement;

- broker fees and expenses; and

- the receipt of the opinion of the special committee's financial advisor,
Houlihan Lokey.

The merger agreement also contains representations and warranties of QDI
Merger Corp. to Quality Dining, including with respect to:

- its organization and similar corporate matters;

- its authority to enter into, and the legal and binding nature of, the
merger agreement;

- required regulatory consents;

- non-contravention of and compliance with its agreements in connection
with its entering into the merger agreement and the consummation of the
merger;

- non-contravention of applicable laws and orders in connection with it
entering into the merger agreement and the consummation of the merger;

- its capital structure;

- the accuracy of information supplied by it contained in this proxy
statement and other SEC filings in respect of the merger agreement and
the merger;

- its ownership of shares of Quality Dining common stock;

- the financing commitments it received in connection with the merger;

- broker fees and expenses; and

- accuracy and completeness of information in SEC filings and provided to
the special committee and its advisors.

The representations and warranties in the merger agreement do not survive
the closing of the merger.

COVENANTS

Vote on Approval of Merger Agreement. Quality Dining has agreed to call a
special meeting of its shareholders to vote on the merger agreement and the
merger. Quality Dining has also agreed that the special committee and the board
of directors will recommend approval of the merger agreement and the merger to
the Quality Dining shareholders and that neither the special committee nor the
board of directors will withdraw its recommendation, unless the special
committee or board of directors determines that making the recommendation would
create a reasonable likelihood of breaching its fiduciary duties under
applicable law.

If the special committee withdraws or modifies its approval or
recommendation of the merger, Quality Dining is still obligated to present the
merger agreement and the merger to its shareholders for approval (unless the
merger agreement is terminated).

Proxy Statement and Schedule 13E-3. Quality Dining must prepare and mail
this proxy statement promptly and take all action reasonably necessary to obtain
shareholder approval of the merger agreement and the merger. QDI Merger Corp.
has agreed to cooperate with Quality Dining in preparing this proxy statement.
In particular, Quality Dining and QDI Merger Corp. have each agreed that the
information they have supplied for inclusion or incorporation by reference in
this proxy statement and the Schedule 13E-3 to be filed with the SEC in
connection with the merger will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated in these documents
or necessary to make the statements in these documents, in light of the
circumstances under which they were made, not misleading. Quality Dining has
also agreed to ensure that this proxy statement and the Schedule 13E-3 comply as
to form in all material respects with the requirements of the Exchange Act.

Conduct of Business. Quality Dining has agreed that from the date of the
merger agreement, until the merger becomes effective, unless QDI Merger Corp.
shall otherwise consent in writing, the board of
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directors of Quality Dining will not authorize or direct the officers of Quality
Dining or any of its subsidiaries to take any action or fail to take any action
that would cause Quality Dining or any of its subsidiaries to fail to: conduct
its business in the ordinary course consistent with past practice; use its
commercially reasonable efforts to preserve its business organization, maintain
its rights and franchises, retain the services of its principal officers and key
employees and maintain its relationships with principal suppliers and third
parties with which it has significant business relations; use commercially
reasonable efforts to maintain its properties and assets in as good repair and
condition as at present; and renew or extend the term of any real property lease
as is necessary and advisable.

Quality Dining has also agreed that during this period the board of
directors will not authorize or direct the officers of the company to take
certain actions, subject to the exceptions described in the merger agreement,
including activities relating to:

- amending its organizational documents;

- issuing, delivering, selling or authorizing any shares of its common
stock or any options or proposing to do any of the foregoing except
pursuant to existing company benefit plans;

- splitting, combining or reclassifying its stock, declaring dividends or
redeeming or otherwise acquiring any of its securities or any securities
of its subsidiaries;

- incurring any long-term or short-term debt or materially amending its
existing debt agreements;

- making significant loans or guarantees;

- pledging or encumbering shares of its subsidiaries' stock or pledging,
mortgaging or encumbering any material assets;

- adopting a plan of liquidation or adopting resolutions for a plan of
liquidation, dissolution, consolidation, restructuring or
recapitalization of Quality Dining or any of its subsidiaries;

- except in the ordinary course of business or as required by law or
existing agreements or plans, paying, agreeing to pay, granting, issuing
or accelerating payments or benefits pursuant to any benefit plan in
excess of the payments or benefits currently provided under such benefit
plan;

- except in the ordinary course of business or as required under existing
agreements, agreeing to increase any salary or fees or benefits of any
director, officer, consultant or employee;

- except as may be required by law, amending or terminating any benefit
plan or establishing, adopting or entering into any arrangement that
would be considered a benefit plan;

- acquiring, selling, transferring, leasing, encumbering or disposing of
any assets outside the ordinary course of business;

- changing any financial accounting principles, except as may be required
as a result of a change in law or U.S. generally accepted accounting
principles;

- materially revaluing any assets, inventory or accounts receivable other
than in the ordinary course of business;

- acquiring any corporation, partnership or other business organization;

- entering into any new material contract outside the ordinary course of
business;

- changing its tax elections or settling any material income tax liability;

- paying, discharging or satisfying any material claim, liability or
obligation other than in the ordinary course or to the extent provided
for in reserves;

- permitting any material insurance policy to lapse without a comparable
replacement policy or entering into any new material insurance policies;

- terminating, amending or modifying in any material respect (or waiving
any material provision of) any material contract except in the ordinary
course of business;

- amending, modifying or changing in any material respect any material
policies or procedures governing product sales or returns or the
treatment of accounts receivable;

- settling or compromising any pending or threatened material suit or
action; and

- entering any agreement that limits in any material respect Quality
Dining's ability to sell any products or services, engage in any line of
business, compete with or obtain products or services from any person or
that limits any party from providing products or services to Quality
Dining.

Notification of Certain Matters. The merger agreement provides that each
party shall give prompt notice to the other of any occurrence that would likely
cause any representation or warranty in the merger agreement to be untrue or
inaccurate or any covenant or condition contained in the merger agreement not to
be complied with or satisfied.

Access to Information. Quality Dining will give QDI Merger Corp.
reasonable access during normal business hours to employees, offices, warehouses
and other facilities and properties and to all books and records of Quality
Dining and its subsidiaries and to make reasonable inspections. Quality Dining
will also use commercially reasonable efforts to cause its accountants, counsel,
agents and other representatives to cooperate in providing QDI Merger Corp.
information in connection with the preparation of the financing information. In
addition, Quality Dining will provide to QDI Merger Corp. financial and
operating data of Quality Dining from time to time and upon reasonable request.

Additional Agreements and Commercially Reasonable Efforts. The parties to
the merger agreement have agreed to use their commercially reasonable efforts to
do or cause to be done anything necessary, proper or advisable to consummate the
merger and the transactions contemplated thereby. The parties to the merger
agreement have also agreed to cooperate with each other in relation to certain
matters, including making the necessary SEC filings, obtaining regulatory and
other consents and making public announcements. Quality Dining and QDI Merger
Corp. have agreed that it will not enter into any amendment to or modification
or waiver of any provision of any related agreement or take any action to
terminate any related agreement that will prevent or delay the closing of the
merger. Finally, Quality Dining has agreed not to settle or compromise any claim
relating to the merger agreement or the merger without the prior written consent
of QDI Merger Corp.

Financing. QDI Merger Corp. has agreed to use its commercially reasonable
efforts to obtain the financing required to complete the merger.

Indemnification and Insurance of Quality Dining's Directors and
Officers. Pursuant to the merger agreement, Quality Dining will indemnify and
hold harmless the current officers and directors of Quality Dining for acts or
omissions occurring at or before the completion of the merger in their capacity
as officers or directors of Quality Dining. In addition, for six years after the
merger, Quality Dining will maintain the existing director and officer
indemnification provisions (or equally protective provisions) in its articles of
incorporation and by-laws. Furthermore, for six years after the merger, Quality
Dining will be required to provide or maintain directors' and officers' and
corporate liability insurance covering those individuals who are covered by the
current directors' and officers' and corporate liability insurance policy
provided for directors and officers of Quality Dining and its subsidiaries on
terms comparable to the existing policy; provided, however, that Quality Dining
will not have to pay in any one year more than 300% of the annual premium
currently paid by Quality Dining to obtain the coverage and if the premium
exceeds such amount, Quality Dining will be obligated to obtain a policy with
the greatest coverage available at a cost not exceeding 300% of the annual
premium currently paid.

Contributions to QDI Merger Corp. QDI Merger Corp. has agreed to cause,
prior to the effective time of the merger, the members of the Fitzpatrick group
to sell and/or contribute the shares of Quality Dining common stock held by them
to QDI Merger Corp. (other than in the case of Messrs. Firth and Friedlander,
respectively, 4,500 shares and 56,000 shares held in individual retirement
accounts and

228,388 shares held by Mr. Schonsheck) in exchange for a proportionate number of
shares of common stock of QDI Merger Corp.

Withdrawal of Recommendation; Company Competing Transactions. The merger
agreement does not contain restrictions on the company's ability to solicit or
receive or facilitate offers for a Company Competing Transaction (as defined
below). The merger agreement does provide that neither the special committee nor
the board of directors may withdraw or modify its recommendation in favor of the
merger agreement or approve or recommend any Company Competing Transaction
except as provided below. The special committee may, in its good faith judgment,
after receiving the advice of outside legal counsel, withdraw or modify its
approval or recommendation in favor of the merger agreement and the merger and,
if applicable, recommend to Quality Dining shareholders a Company Competing
Transaction, if the special committee determines that failing to do so would
create a reasonable likelihood of breaching its fiduciary duty under applicable
law.

If the special committee determines in good faith that a bona fide written
proposal from a third party for a Company Competing Transaction is a Superior
Transaction (as defined below), and that failing to terminate the merger
agreement and enter into the Superior Transaction would create a reasonable
likelihood of breaching its and the board's fiduciary duties, the special
committee may terminate the merger agreement, provided that, prior to any
termination:

- the company provides QDI Merger Corp. written notice identifying the
Superior Transaction and delivering a copy of the agreement for such
Superior Transaction;

- the company provides QDI Merger Corp. with a 24 hour period to propose
amendments to the terms and conditions of the merger agreement in
response to the Superior Transaction; and

- after reviewing any such amendments proposed by QDI Merger Corp., the
special committee determines that such Superior Transaction is still more
favorable than the amended proposal, if any, delivered by QDI Merger
Corp.

The merger agreement requires Quality Dining to promptly advise QDI Merger
Corp. orally and in writing of any request for information or any proposal in
connection with a Competing Company Transaction, including the material terms of
the request or proposal. The merger agreement also requires Quality Dining to
keep QDI Merger Corp. reasonably apprised of the status of any Competing Company
Transaction, including promptly providing copies of any written communications
between Quality Dining and the party making the Competing Company Transaction.

For purposes of the merger agreement, the term "Competing Company
Transaction" means any:

- recapitalization, merger, consolidation or other business combination
involving Quality Dining;

- direct or indirect acquisition of shares or securities representing 15.0%
or more of Quality Dining's voting power;

- acquisition of a material portion of the assets of Quality Dining and its
subsidiaries (outside the ordinary course of business); or

- combination of the foregoing.

For purposes of the merger agreement, the term "Superior Transaction" means
a bona fide written proposal from a third-party for a Company Competing
Transaction that is more favorable to the shareholders of Quality Dining (taking
into account all the terms and conditions of the Company Competing Transaction
and the merger agreement that the special committee in good faith deems relevant
and all other legal, financial, regulatory and other aspects of the proposal)
than the transactions contemplated by the merger agreement (taking into account
any amendments proposed in writing by QDI Merger Corp. in response to the
Company Competing Transaction).

Resignation of Directors. Quality Dining has agreed that it will deliver
to QDI Merger Corp. the resignation of all directors of Quality Dining (other
than those who are members of the Fitzpatrick group) immediately prior to the
effective time of the merger.

Exemption from Liability under Section 16(b). QDI Merger Corp. and Quality
Dining have agreed to take all reasonable steps to cause the transactions and
any other dispositions in connection with the merger agreement by each
individual who is a director, officer or ten percent shareholder of the company
to be exempt from liability under Section 16(b) of the Exchange Act.

Vote on Approval of Merger Agreement and the Merger. Each member of the
Fitzpatrick group has agreed to vote his shares for and against the merger
agreement and the merger in the same proportion as the votes cast by the
unaffiliated shareholders voting at the special meeting, with abstentions being
deemed to be votes against approval of the merger agreement and the merger. See
"Information Concerning the Special Meeting -- Vote Required".

CONDITIONS

The obligations of the parties to consummate the merger are subject to the
satisfaction or, if legally permissible, waiver at or before the time the merger
becomes effective, of the following conditions:

- the receipt of the approval by the shareholders of the company of the
merger agreement and the merger in accordance with Indiana law;

- the absence of any legal prohibition preventing or restricting completion
of the merger; and

- the receipt of material approvals of any governmental body or franchisor
in relation to the merger.

The obligation of Quality Dining to complete the merger is subject to the
satisfaction or, if legally permissible, waiver of the following additional
conditions:

- QDI Merger Corp.'s representations and warranties, disregarding
materiality qualifications otherwise governing the representation or
warranty, being true and correct, except as would not reasonably be
expected to have a material adverse effect on QDI Merger Corp.'s ability
to consummate the merger;

- QDI Merger Corp.'s performance in all material respects of its
obligations and agreements and compliance in all material respects with
its covenants under the merger agreement; and

- receipt by QDI Merger Corp. of financing necessary to pay the merger
consideration and related expenses and to refinance the indebtedness of
Quality Dining.

The obligation of QDI Merger Corp. to complete the merger is subject to the
satisfaction or, if legally permissible, waiver of the following additional
conditions:

- Quality Dining's representations and warranties, disregarding materiality
qualifications otherwise governing the representation or warranty, being
true and correct except as would not reasonably be expected to have a
material adverse effect on Quality Dining;

- Quality Dining's performance in all material respects of its obligations
and agreements and compliance in all material respects with its covenants
under the merger agreement;

- the absence of any new suit, action or proceeding, or any development in
any existing suit, action or proceeding, that is more likely than not,
individually or in the aggregate, to have a material adverse effect on
Quality Dining; and

- satisfaction of the conditions contained in the financing commitment
letters delivered by QDI Merger Corp. to the special committee prior to
the execution and delivery of the merger agreement.

TERMINATION OF THE MERGER AGREEMENT

The merger agreement may be terminated and the merger abandoned at any time
before the effective time of the merger in any of the following ways:

- By mutual written consent of the Quality Dining board of directors
(provided that such termination has been approved by the special
committee) and the QDI Merger Corp. board of directors.

- By either Quality Dining or QDI Merger Corp. if:

- completion of the merger is permanently enjoined, legally restricted or
subject to an order prohibiting its completion;

- the merger is not consummated by April 9, 2005 (the "Outside Date");
provided that a party may not exercise its termination right pursuant to
this provision if its failure to perform any of its obligations caused,
or resulted in, the delay in closing of the merger; or

- shareholder approval of the merger agreement and the merger is not
obtained; provided that QDI Merger Corp. may not exercise its
termination right pursuant to this provision if the Fitzpatrick group
fails to vote its shares of Quality Dining common stock in the same
proportion as the votes cast by the unaffiliated shareholders.

- By QDI Merger Corp. if:

- Quality Dining materially breaches any of its representations,
warranties or covenants that would give rise to the failure of a
condition to QDI Merger Corp.'s obligations to consummate the merger
under the merger agreement, and the breach is not capable of being cured
prior to the Outside Date or, if curable, has not been cured within 20
business days following notice of the breach;

- the Quality Dining board of directors or the special committee
withdraws, modifies or changes its recommendation of the merger
agreement and the merger in a manner adverse to QDI Merger Corp., or so
resolves to withdraw, modify or change its recommendation; or

- the Quality Dining board of directors or the special committee
recommends any proposal in respect of a Company Competing Transaction.

- By Quality Dining if:

- QDI Merger Corp. materially breaches any of its representations,
warranties or covenants that would give rise to the failure of a
condition to Quality Dining's obligations to consummate the merger under
the merger agreement, and the breach is not capable of being cured prior
to the Outside Date or, if curable, has not been cured within 20
business days following notice of the breach; or

- the special committee determines in good faith that a bona fide Company
Competing Transaction that was received in compliance with the terms of
the merger agreement is more favorable to the Quality Dining
shareholders and the special committee determines in good faith that
failure to terminate the merger agreement would create a reasonable
likelihood of breaching the fiduciary duties of the special committee
and the board of directors.

If the merger agreement is terminated, it will become void and have no
effect, without any liability on the part of any of Quality Dining or QDI Merger
Corp. or their respective affiliates, directors, officers, employees or
shareholders. However, termination will not relieve any party from liability for
any willful and material breach of the merger agreement. As described below,
Quality Dining may be obligated to pay the expenses of QDI Merger Corp. (in an
amount not to exceed $750,000) following termination of the merger agreement
under certain circumstances.

EXPENSES

Except as otherwise described below, all costs and expenses incurred in
connection with the merger will be paid by the party incurring the costs and
expenses.

Quality Dining will be required to reimburse QDI Merger Corp. for all
documented out-of-pocket fees and expenses reasonably incurred in connection
with the merger, not to exceed $750,000, if:

- Quality Dining or QDI Merger Corp. terminates the merger agreement
because of the failure to consummate the merger by the Outside Date,
where Quality Dining's failure to fulfill any obligation under the merger
agreement causes, or results in, the failure to consummate;

- QDI Merger Corp. terminates the merger agreement because:

-- the Quality Dining board of directors or the special committee
withdraws, modifies or changes its recommendation of the merger
agreement and the merger in a manner adverse to QDI Merger Corp., or so
resolves to withdraw, modify or change its recommendation; or

-- the special committee or the board of directors recommends a Company
Competing Transaction;

- Quality Dining terminates the merger agreement in connection with its
acceptance of a Superior Transaction under the circumstances provided in
the merger agreement; or

- Either Quality Dining or QDI Merger Corp. terminates the merger agreement
because shareholder approval of the merger agreement and the merger is
not obtained at the special meeting (or any postponement or adjournment
thereof), other than due to the failure of the members of the Fitzpatrick
group to vote their shares of Quality Dining common stock in the manner
provided in the merger agreement.

AMENDMENTS; WAIVERS

The merger agreement may be amended at any time before or after approval by
the Quality Dining shareholders by an action taken by or on behalf of the
respective boards of directors of Quality Dining (but in the case of Quality
Dining, only if such amendment has been approved by the special committee) and
QDI Merger Corp., provided that, following shareholder approval of the merger
agreement and the merger, the parties may amend the agreement only to the extent
permitted by Indiana law.

At any time prior to the effective time of the merger, any party, by action
taken by or on behalf of its board of directors (but in the case of Quality
Dining, only if such extension or waiver has been approved by the special
committee) may:

- extend the time for the performance of any of the obligations or other
acts of the other party;

- waive any inaccuracies in the representations and warranties of the other
party contained in the merger agreement; or

- waive compliance by the other party with any of the agreements or
conditions contained in the merger agreement;

provided that any such extension or waiver must be set forth in writing by or on
behalf of the party extending such waiver or extension.

QUALITY DINING SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table provides selected historical financial data for Quality
Dining. Quality Dining prepared this information using its audited consolidated
financial statements for each of the years in the five-year period ended October
31, 2004, which have been audited by PricewaterhouseCoopers LLP. You should read
this information in conjunction with Quality Dining's audited consolidated
financial statements and notes attached to this proxy statement as Exhibit F, as
well as Management's Discussion and Analysis of Financial Condition and Results
of Operations included in this proxy statement. The selected consolidated
financial data do not necessarily indicate the results to be expected in the
future.

<Table>
<Caption>
FISCAL YEAR ENDED(1)
---------------------------------------------------------------------------
OCTOBER 31, OCTOBER 26, OCTOBER 27, OCTOBER 28, OCTOBER 29,
2004 2003(2) 2002(2) 2001(3) 2000(3)
----------- ------------- ------------- ------------- -------------
(AS RESTATED) (AS RESTATED) (AS RESTATED) (AS RESTATED)
(IN THOUSANDS, EXCEPT UNIT AND PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales:
Burger King............................. $122,183 $114,983 $123,795 $ 80,791 $ 83,228
Chili's Grill & Bar..................... 87,717 80,710 75,760 69,727 60,921
Italian Dining Division................. 16,407 17,560 17,052 17,126 16,756
Grady's American Grill.................. 5,789 6,078 21,113 32,969 39,288
-------- -------- -------- -------- --------
Total revenues.............................. 232,096 219,331 237,720 200,613 200,193
-------- -------- -------- -------- --------
Operating expenses:
Restaurant operating expenses:
Food and beverage..................... 64,409 59,271 65,912 55,636 55,562
Payroll and benefits.................. 67,182 63,923 69,571 59,101 58,046
Depreciation and amortization......... 9,599 10,158 10,069 10,756 10,302
Other operating expenses.............. 60,279 56,893 59,469 49,495 47,449
-------- -------- -------- -------- --------
Total restaurant operating expenses:........ 201,469 190,245 205,021 174,988 171,359
General and administrative(4)(5)........ 15,997 16,068 18,715 15,167 17,112
Amortization of intangibles............. 169 364 431 892 910
Facility closing costs.................. -- (90) 355 898 --
Impairment of assets.................... -- -- -- 14,487 --
-------- -------- -------- -------- --------
Total operating expenses.................... 217,635 206,587 224,522 206,432 189,381
-------- -------- -------- -------- --------
Operating income (loss)(6).................. 14,461 12,744 13,198 (5,819) 10,812
Other income (expense):
Interest expense........................ (6,546) (7,143) (7,916) (9,873) (10,589)
Minority interest in earnings........... (2,397) (2,678) (3,010) (2,886) (2,933)
Provision for uncollectible note
receivable(7)......................... -- -- -- -- (10,000)
Recovery of note receivable............. -- 3,459 -- -- --
Stock purchase expense.................. -- (1,294) -- -- --
Gain (loss) on sale of property and
equipment............................. (125) (42) 1,034 (269) (878)
Other income, net....................... 260 997 697 1,197 1,030
-------- -------- -------- -------- --------
Total other expense......................... (8,808) (6,701) (9,195) (11,831) (23,370)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes....................... 5,653 6,043 4,003 (17,650) (12,558)
Income tax provision (benefit).............. 2,342 3,293 522 330 (22)
Income (loss) from continuing operations.... 3,311 2,750 3,481 (17,980) (12,536)
Income (loss) from discontinued
operations(8)............................. (1,090) (2,351) 1,250 2,180 2,593
-------- -------- -------- -------- --------
Net income (loss)........................... $ 2,221 $ 399 $ 4,731 $(15,800) $ (9,943)
-------- -------- -------- -------- --------
Basic net income (loss) per share:
Continuing operations..................... 0.33 0.25 0.31 (1.58) (1.02)
Discontinued operations................... (0.11) (0.21) 0.11 0.19 0.21
-------- -------- -------- -------- --------
</Table>

Basic net income (loss) per share........... $ 0.22 $ 0.04 $ 0.42 $ (1.39) $ (0.81)
-------- -------- -------- -------- --------
Diluted net income (loss) per share:
Continuing operations..................... 0.32 0.25 0.31 (1.58) (1.02)
Discontinued operations................... (0.10) (0.21) 0.11 0.19 0.21
-------- -------- -------- -------- --------
Diluted net income (loss) per share......... $ 0.22 $ 0.04 $ 0.42 $ (1.39) $ (0.81)
-------- -------- -------- -------- --------
Weighted average shares outstanding:
Basic....................................... 10,163 10,897 11,248 11,356 12,329
-------- -------- -------- -------- --------
Diluted..................................... 10,272 10,921 11,306 11,356 12,329
-------- -------- -------- -------- --------
Ratio of earnings to fixed charges(9)....... 1.85 1.84 1.50 -- --
-------- -------- -------- -------- --------
RESTAURANT DATA:
Units open at end of period:
Burger King(10)........................... 124 118 115 116 71
Chili's Grill & Bar....................... 39 37 34 33 31
Grady's American Grill.................... 3 11 15 33 35
Italian Dining Division................... 9 9 9 8 8
Porterhouse Steaks and Seafood(11)........ 1 1 1 1
-------- -------- -------- -------- --------
176 176 174 191 145
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital (deficiency).............. $(27,601) $(16,861) $(21,167) $(22,303) $(21,624)
Total assets.............................. 148,542 158,096 169,686 180,185 192,256
Long-term debt obligations................ 69,838 85,335 96,814 109,819 102,837
Total stockholders' equity................ 23,632 21,279 23,593 18,573 36,447
Book value per share...................... 2.33 2.19 2.29 1.79 3.08
</Table>

- ---------------

(1) All fiscal years presented consist of 52 weeks except fiscal 2004 which had
53 weeks.

(2) Fiscal years 2002 and 2003 have been restated from amounts previously
reported to reflect certain adjustments as discussed in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Restatement" and Note 1A to the consolidated financial
statements attached as Appendix F to this proxy statement.

(3) Fiscal years 2000 and 2001 have been restated from amounts previously
reported to reflect certain adjustments as discussed in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Restatement" and Note 1A to the consolidated financial
statements attached as Appendix F to this proxy statement.

As a result of the changes, the company's financial statements as of
October 28, 2001 and October 29, 2000 and for the fiscal years then ended
have been adjusted as follows:

<Table>
<Caption>
OCTOBER 28, 2001
--------------------------
AS
PREVIOUSLY
AS RESTATED REPORTED
------------ -----------
(IN THOUSANDS, EXCEPT UNIT
AND PER SHARE DATA)

Depreciation and Amortization............................... $ 10,756 $ 10,613
Other operating expenses.................................... 49,495 49,368
Total restaurant operating expenses......................... 174,988 174,718
Income from restaurant operations........................... 25,625 25,895
Operating loss.............................................. (5,819) (5,549)
Loss income from continuing operations before income
taxes..................................................... (17,650) (17,380)
Net loss.................................................... $ (15,800) $ (15,530)
</Table>

<Table>
<Caption>
OCTOBER 28, 2001
--------------------------
AS
PREVIOUSLY
AS RESTATED REPORTED
------------ -----------
(IN THOUSANDS, EXCEPT UNIT
AND PER SHARE DATA)

Basic net loss per share:
Continuing operations....................................... $ (1.58) $ (1.56)
Net loss.................................................... $ (1.39) $ (1.37)
Diluted net loss per share:
Continuing operations....................................... $ (1.58) $ (1.56)
Net loss.................................................... $ (1.39) $ (1.37)
Property & Equipment........................................ 132,026 132,812
Total assets................................................ 180,185 180,971
Accrued liabilities......................................... 20,105 20,932
Deferred rent............................................... 1,848 --
Total liabilities........................................... 144,288 143,267
Accumulated deficit......................................... (214,277) (212,470)
Total stockholders' equity.................................. 18,573 20,380
Total stockholders' equity and liabilities.................. $ 180,185 $ 180,971
</Table>

<Table>
<Caption>
OCTOBER 29, 2000
--------------------------
AS
PREVIOUSLY
AS RESTATED REPORTED
------------ -----------
(IN THOUSANDS, EXCEPT UNIT
AND PER SHARE DATA)

Depreciation and Amortization............................... $ 10,302 $ 10,174
Other operating expenses.................................... 47,449 47,345
Total restaurant operating expenses......................... 171,359 171,127
Income from restaurant operations........................... 28,834 29,066
Operating income............................................ 10,812 11,044
Loss income from continuing operations before income
taxes..................................................... (12,558) (12,326)
Net loss.................................................... $ (9,943) $ (9,711)
Basic net loss per share:
Continuing operations....................................... $ (1.02) $ (1.00)
Net loss.................................................... $ (0.81) $ (0.79)
Diluted net loss per share:
Continuing operations....................................... $ (1.02) $ (1.00)
Net loss.................................................... $ (0.81) $ (0.79)
Property & Equipment........................................ 139,405 140,048
Total assets................................................ 192,256 192,899
Accrued liabilities......................................... 20,259 20,964
Deferred rent............................................... 1,627 --
Total liabilities........................................... 138,009 137,115
Accumulated deficit......................................... (198,447) (196,940)
Total stockholders' equity.................................. 36,447 37,984
Total stockholders' equity and liabilities.................. $ 192,256 $ 192,899
</Table>

(4) General and administrative costs in fiscal 2000 include approximately $1.25
million in unanticipated expenses related to the litigation, proxy contest
and tender offer initiated by NBO, LLC.

(5) General and administrative costs in fiscal 2002 include $1,527,000 of
expense related to the litigation with BFBC, Ltd.

(6) Operating income (loss) for the fiscal year ended October 28, 2001 includes
non-cash charges for the impairment of assets and facility closings
totaling $15,385,000. The non-cash charges consist

primarily of $14,487,000 for the impairment of certain long-lived assets of
under-performing Grady's American Grill restaurants and $898,000 for store
closing expenses and lease guarantee obligations.

(7) During fiscal 2000 the company recorded a $10,000,000 non-cash charge to
fully reserve for the Subordinated Note. See "Legal Proceedings."

(8) Loss from discontinued operations for the fiscal year ended October 26,
2003 includes non-cash charges for the impairment of assets totaling
$4,411,000. The non-cash charges are primarily for the impairment of
certain long-lived assets of under-performing Grady's American Grill
restaurants.

(9) The ratio of earnings to fixed charges is computed by dividing the
company's fixed charges (interest, expensed and capitalized, plus
capitalized loan expenses) into income from continuing operations before
income taxes plus interest expense. No effect has been given to preferred
stock dividends because no shares of preferred stock have been issued.
Earnings were not sufficient to cover fixed charges by $17,668 and $12,662,
respectively, in fiscal years 2001 and 2000.

(10) On October 15, 2001, the company acquired 42 restaurants from BBD Business
Consultants, Ltd. and its affiliates. The company's financial statements
include the operating results from the date of acquisition.

(11) For reporting purposes, Porterhouse Steaks and Seafood is included in the
Grady's American Grill operating segment.

COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION

Quality Dining's common stock began trading on The Nasdaq National Market
on March 8, 1994 in connection with the initial public offering of Quality
Dining's common stock. Shares of common stock are traded under the symbol
"QDIN." The following table sets forth, for the fiscal quarters and period
indicated below, the high and low sale prices as reported by The Nasdaq National
Market:

<Table>
<Caption>
QUARTER HIGH LOW
- ------- ----- -----

August 4, 2002 through October 27, 2002..................... $3.98 $2.93
October 28, 2002 through February 16, 2003.................. $3.50 $2.11
February 17, 2003 through May 11, 2003...................... $2.35 $1.94
May 12, 2003 through August 3, 2003......................... $2.99 $1.79
August 4, 2003 through October 26, 2003..................... $3.25 $2.50
October 27, 2003 through February 15, 2004.................. $2.93 $2.20
February 16, 2004 through May 9, 2004....................... $2.91 $2.15
May 10, 2004 through August 1, 2004......................... $2.88 $2.18
August 2, 2004 through October 31, 2004..................... $3.64 $2.67
November 1, 2004 through January 31, 2005................... $3.17 $2.78
</Table>

As of January 31, 2005, there were 11,596,781 shares of Quality Dining
common stock outstanding with approximately 425 owners of record.

The merger consideration of $3.20 per share represents an approximate 39%
premium over the $2.30 closing price of Quality Dining common stock on June 15,
2004, the last trading day before the public announcement of the transaction
proposal delivered by the Fitzpatrick group to the Quality Dining board of
directors, an approximate 9% premium over the $2.93 closing price of Quality
Dining common stock on October 12, 2004, the last trading day prior to the
public announcement of the agreement in principle being reached between the
Fitzpatrick group and the special committee, and an approximate 4% premium over
the $3.08 closing price of Quality Dining common stock on November 8, 2004, the
last trading day prior to the public announcement of the execution of the
definitive merger agreement. On [ ] 2005, the most recent practicable
date before the printing of this document, the closing price of Quality Dining
common stock was $[ ].

The company does not pay cash dividends on its common stock and does not
anticipate paying cash dividends in the foreseeable future. The company's
revolving credit agreement prohibits the payment of cash dividends and restricts
other distributions. The agreement expires November 1, 2005. The merger
agreement prohibits Quality Dining from declaring, setting aside or paying
dividends or distributions until the effective date of the merger without the
prior written consent of QDI Merger Corp.

YOU SHOULD OBTAIN CURRENT MARKET PRICE QUOTATIONS FOR QUALITY DINING COMMON
STOCK IN CONNECTION WITH THE VOTING OF YOUR QUALITY DINING COMMON STOCK.

Following the merger, Quality Dining common stock will no longer be traded
on The Nasdaq National Market and will not be eligible for listing or trading on
any exchange or market system, and the registration of Quality Dining common
stock under the Exchange Act will terminate. In addition, Quality Dining will no
longer have any obligation to file reports under Sections 13 or 15(d) of the
Exchange Act.

INFORMATION REGARDING QUALITY DINING
COMMON STOCK TRANSACTIONS

PURCHASES BY QUALITY DINING

Quality Dining has not purchased any shares of its common stock in the past
two years.

TRANSACTIONS BY QDI MERGER CORP. AND THE FITZPATRICK GROUP

Except as set forth below, neither of QDI Merger Corp., nor any member of
the Fitzpatrick group has transacted in any shares of Quality Dining common
stock during the past two years.

<Table>
<Caption>
PURCHASE (P),
NAME, BUSINESS ADDRESS DATE OF TRANSACTION SALE (S) TYPE AND AMOUNT PRICE PAID*
- ---------------------- ------------------- ------------- ------------------- -----------

Daniel B. Fitzpatrick June 27, 2003 P 1,148,014 shares of $3.20
Quality Dining, Inc. common stock
4220 Edison Lakes
Parkway
Mishawaka, Indiana
46545

William R. Schonsheck February 10, 2003 P 100 shares of $2.46
common stock
14891 N. Northsight February 11, 2003 P 100 shares of $2.44
Suite 121 common stock
Scottsdale, Arizona
85260
February 12, 2003 P 100 shares of $2.34
common stock
February 14, 2003 P 200 shares of $2.33
common stock
February 18, 2003 P 60 shares of common $2.33
stock
November 5, 2003 P 1000 shares of $2.78
common stock
November 5, 2003 P 500 shares of $2.77
common stock
November 5, 2003 P 400 shares of $2.79
common stock
November 5, 2003 P 890 shares of $2.80
common stock
November 6, 2003 P 1000 shares of $2.79
common stock
November 14, 2003 P 500 shares of $2.82
common stock
November 17, 2003 P 800 shares of $2.84
common stock
November 21, 2003 P 200 shares of $2.77
common stock
November 21, 2003 P 500 shares of $2.81
common stock
November 21, 2003 P 300 shares of $2.78
common stock
November 24, 2003 P 550 shares of $2.76
common stock
</Table>

November 24, 2003 P 450 shares of $2.78
common stock
November 24, 2003 P 500 shares of $2.69
common stock
November 24, 2003 P 300 shares of $2.74
common stock
November 25, 2003 P 100 shares of $2.69
common stock
November 25, 2003 P 200 shares of $2.70
common stock
November 26, 2003 P 300 shares of $2.59
common stock
November 26, 2003 P 300 shares of $2.70
common stock
November 26, 2003 P 300 shares of $2.69
common stock
December 2, 2003 P 1500 shares of $2.67
common stock
December 3, 2003 P 1000 shares of $2.74
common stock
December 3, 2003 P 1100 shares of $2.75
common stock
December 3, 2003 P 100 shares of $2.83
common stock
December 3, 2003 P 100 shares of $2.84
common stock
December 3, 2003 P 46 shares of $2.85
common stock
March 23, 2004 P 2000 shares of $2.54
common stock
March 24, 2004 P 1000 shares of $2.49
common stock
March 29, 2004 P 1000 shares of $2.50
common stock
March 30, 2004 P 1000 shares of $2.60
common stock
March 30, 2004 P 250 shares of $2.49
common stock
April 6, 2004 P 500 shares of $2.49
common stock
April 8, 2004 P 1228 shares of $2.50
common stock
April 8, 2004 P 1200 shares of $2.28
common stock
April 8, 2004 P 100 shares of $2.29
common stock
April 8, 2004 P 300 shares of $2.30
common stock
</Table>

April 8, 2004 P 100 shares of $2.34
common stock
April 8, 2004 P 500 shares of $2.49
common stock
April 8, 2004 P 800 shares of $2.50
common stock
April 8, 2004 S 3290 shares of $2.25
common stock
April 8, 2004 S 4410 shares of $2.20
common stock
April 8, 2004 S 200 shares of $2.26
common stock
April 8, 2004 S 2100 shares of $2.27
common stock
April 12, 2004 P 800 shares of $2.50
common stock
April 12, 2004 P 500 shares of $2.49
common stock
April 12, 2004 P 800 shares of $2.31
common stock
April 12, 2004 P 500 shares of $2.32
common stock
April 13, 2004 P 2000 shares of $2.32
common stock
April 29, 2004 P 300 shares of $2.31
common stock
April 29, 2004 P 800 shares of $2.33
common stock
April 29, 2004 P 3900 shares of $2.34
common stock
May 4, 2004 S 4900 shares of $2.30
common stock
May 4, 2004 S 300 shares of $2.31
common stock
May 4, 2004 S 1800 shares of $2.36
common stock
June 3, 2004 P 2000 shares of $2.28
common stock
June 7, 2004 P 400 shares of $2.32
common stock
June 7, 2004 P 800 shares of $2.33
common stock
June 7, 2004 P 800 shares of $2.35
common stock
June 8, 2004 P 2000 shares of $2.32
common stock
</Table>

- ---------------

* The average price paid for shares during the second fiscal quarter of 2003 was
$2.38 per share.
The average price paid for shares during the first fiscal quarter of 2004 was
$2.76 per share.
The average price paid for shares during the second fiscal quarter of 2004 was
$2.39 per share.
The average price paid for shares during the third fiscal quarter of 2004 was
$2.32 per share.

SECURITIES TRANSACTIONS WITHIN 60 DAYS

There have been no transactions with respect to Quality Dining common stock
effected during the 60 days prior to the date of this proxy statement by QDI
Merger Corp. or any member of the Fitzpatrick group or any of the respective
executive officers or directors of Quality Dining or QDI Merger Corp.

CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF QUALITY DINING

The following persons are the executive officers and directors of Quality
Dining as of the date of this proxy statement. Each executive officer will serve
until a successor is elected by the board of directors or until the earlier of
his resignation or removal. Directors serve until the annual meeting of
shareholders held on the year that is three years after such director's election
and until such director's successor is elected and has been certified. The
directors and executive officers of Quality Dining are all citizens of the
United States of America and can be reached c/o Quality Dining, Inc., 4220
Edison Lakes Parkway, Mishawaka, Indiana 46545, telephone number (574) 271-4600.
Unless otherwise indicated below, the principal occupation of each director and
executive officer has been the same for the last five years.

<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------

Daniel B. Fitzpatrick..................... 47 Director, Chairman of the Board, President
and Chief Executive Officer
James K. Fitzpatrick...................... 49 Director, Senior Vice President and Chief
Development Officer
Gerald O. Fitzpatrick..................... 44 Senior Vice President -- Burger King
Division
John C. Firth............................. 47 Executive Vice President, General Counsel
and Secretary
Philip J. Faccenda........................ 75 Director
Ezra H. Friedlander....................... 63 Director
Bruce M. Jacobson......................... 55 Director
Steven M. Lewis........................... 55 Director
Christopher J. Murphy, III................ 58 Director
Lindley E. Burns.......................... 50 Senior Vice President -- Full Service
Dining
Christopher L. Collier.................... 43 Vice President -- Finance
Jeanne M. Yoder........................... 38 Vice President and Controller
</Table>

Daniel B. Fitzpatrick has served as Chairman of the Board, President and
Chief Executive Officer and a director of the company since 1982. Prior to
founding the company, Mr. Fitzpatrick worked for a franchisee of Burger King
Corporation, rising to the level of regional director of operations. He has over
25 years of experience in the restaurant business. Mr. Fitzpatrick also serves
as a director of 1st Source Corporation, a publicly held diversified bank
holding company based in South Bend, Indiana.

James K. Fitzpatrick has served as director of the company since 1990 and
as Senior Vice President and Chief Development Officer of the company since
August 1995. Prior to that, he served as Vice President or Senior Vice President
of the company in charge of the company's Fort Wayne, Indiana Burger King
restaurant operations since 1984. Prior to joining the company, he served as a
director of operations for a franchisee of Burger King Corporation. He has over
25 years of experience in the restaurant business.

Gerald O. Fitzpatrick serves as the Senior Vice President of the company's
Burger King Division. He has served in various capacities in the company's
Burger King operations since 1983. Prior to joining the company, he served as a
district manager for a franchisee of Burger King Corporation. He has over 20
years of experience in the restaurant business.

John C. Firth has served as Executive Vice President, General Counsel and
Secretary of Quality Dining since 1996. Prior to joining the company in June
1996, he was a partner with the law firm of

Sopko and Firth. Beginning in 1985, he represented the company as outside legal
counsel with responsibility for the company's legal affairs.

Philip J. Faccenda has served as a director of the company since 2000. Mr.
Faccenda is Vice President and General Counsel Emeritus of Notre Dame
University.

Ezra H. Friedlander has served as director of the company since 1995. Mr.
Friedlander is a judge on the Indiana Court of Appeals.

Bruce M. Jacobson has served as director of the company since 2000. Mr.
Jacobson is a partner at Katz, Sapper & Miller, LLP, a certified public
accounting firm. Mr. Jacobson is also a director of Windrose Medical Properties
Trust, a publicly held real estate investment trust.

Steven M. Lewis has served as director of the company since 1994. Mr. Lewis
is president of U.S. Restaurants, Inc., a restaurant management company. Mr.
Lewis also serves on the Board of Directors of Commerce Bancorp. Inc, a bank
holding company.

Christopher J. Murphy III has served as director of the company since 1994.
Mr. Murphy is Chairman, President and Chief Executive Officer of 1st Source
Corporation, a publicly held diversified bank holding company, and is Chairman
and Chief Executive Officer of 1st Source Bank.

Lindley E. Burns joined Quality Dining in June 1995. Prior to joining the
company, he worked for Brinker International, Inc. as a multi-unit manager in
its Chili's division for two years and, for eight years prior to that, was a
Chili's franchisee. He has over 25 years of experience in the restaurant
business.

Christopher L. Collier joined Quality Dining in July 1996. Since that time,
he has served in various capacities in the Finance Department, most recently as
the Vice President of Financial Reporting. Prior to joining the company, he
served as the Vice President -- Finance at a regional restaurant chain. Mr.
Collier is a certified public accountant.

Jeanne M. Yoder joined Quality Dining in March 1996. Since that time, she
has served in various capacities in the Accounting Department, most recently as
Assistant Controller. Prior to joining the company, she served as Controller at
a regional travel agency. Ms. Yoder is a certified public accountant.

Mr. Fitzpatrick, James K. Fitzpatrick and Gerald O. Fitzpatrick are
brothers. There is no family relationship between any other directors or
executive officers of the company.

The success of the company's business is dependent upon the services of Mr.
Fitzpatrick, and the loss of his services would have a material adverse effect
upon the company. The company maintains key man life insurance on the life of
Mr. Fitzpatrick in the principal amount of $3.0 million.

Employment Agreements. In October 2000, the company entered into an
employment agreement with Mr. Fitzpatrick. 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 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.

In September 2002, the company amended the employment agreement it had
previously entered into with Mr. Firth. 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 years 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 Quality Dining 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.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of January 31, 2005, 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 five percent of the common
stock of Quality Dining, by each of the directors and named executive officers,
and by all directors and executive officers of Quality Dining as a group. Unless
otherwise indicated in a footnote, each individual or group possesses sole
voting and investment power with respect to the shares indicated as beneficially
owned.

<Table>
<Caption>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF INDIVIDUAL OF IDENTITY OF GROUP OWNED CLASS
- --------------------------------------------------- ---------------- -----------

Daniel B. Fitzpatrick(1)............................... 3,929,073(2)(3) 33.88%
James K. Fitzpatrick(1)................................ 389,749(4) 3.35%
Gerald O. Fitzpatrick(1)............................... 275,478(5) 2.37%
John C. Firth(1)....................................... 265,092(6)(7) 2.27%
Philip J. Faccenda(1).................................. 25,000(8)(9) *
Ezra H. Friedlander(1)................................. 516,031(10)(11) 4.44%
Bruce M. Jacobson(1)................................... 17,500(8) *
Steven M. Lewis(1)..................................... 23,250(10)(12) *
Christopher J. Murphy III(1)........................... 65,500(10)(13) *
Lindley E. Burns(1).................................... 51,170(14) *
Christopher L. Collier(1).............................. 49,443(15) *
Jeanne M. Yoder(1)..................................... 20,387(16) *
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401**............................... 733,246 6.32%
William R. Schonsheck
14891 N. Northsight, Suite 121
Scottsdale, Arizona 85260.............................. 545,220(17) 4.70%
Nanette M. Schonsheck
14891 N. Northsight, Suite 121
Scottsdale, Arizona 85260.............................. 60,778(17) *
All current directors and executive officers as a group
(12 persons)......................................... 5,627,673(6)(18) 47.25%
</Table>

- ---------------

* Less than 1%.

** Information is based solely on reports filed by such shareholder under
Section 13(g) of the Exchange Act.

(1) The business address and phone number of this shareholder is c/o Quality
Dining, Inc., 4220 Edison Lakes Parkway, Mishawaka, Indiana 46545 and the
business telephone number is (574) 271-4600.

(2) Includes 13,333 shares of restricted stock.

(3) 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.

(4) Includes presently exercisable stock options to purchase 42,304 shares,
granted by the company. Also includes 20,921 shares of restricted stock.

(5) Includes presently exercisable stock options to purchase 41,732 shares
granted by the company. Also includes 20,444 shares of restricted stock.

(6) Does not include shares subject to stock options which are not exercisable
within 60 days.

(7) Includes presently exercisable stock options to purchase 90,736 shares
granted by the company. Also includes 145,314 shares of restricted stock
and 4,500 shares held in an individual retirement account.

(8) Includes presently exercisable stock options to purchase 10,000 shares
granted by the company.
80

(9) 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.

(10) Includes presently exercisable stock options to purchase 20,000 shares
granted by the company.

(11) Includes 14,200 shares held in a trust of which Mr. Friedlander is the
trustee with investment control and the income beneficiary, 15,000 shares
owned by Mr. Friedlander's spouse and 56,000 shares held in an individual
retirement account.

(12) Includes 500 shares held in a trust for the benefit of Mr. Lewis' minor
children.

(13) Includes 1,000 shares held by certain retirement plans in which Mr. Murphy
is a participant.

(14) Includes presently exercisable stock options to purchase 29,868 shares
granted by the company. Also includes 12,056 shares of restricted stock.

(15) Includes presently exercisable stock options to purchase 19,877 shares
granted by the company. Also includes 6,480 shares of restricted stock.

(16) Includes presently exercisable stock options to purchase 9,655 shares
granted by the company. Also includes 5,963 shares of restricted stock.

(17) Each of Mr. Schonsheck and Mrs. Schonsheck disclaims beneficial ownership
of the shares of the company's common stock owned by the other.

(18) Includes presently exercisable stock options to purchase 314,172 shares
granted by the company. Also includes 224,511 shares of restricted stock.

INFORMATION ABOUT THE TRANSACTION PARTICIPANTS

QDI MERGER CORP.

QDI Merger Corp., an Indiana corporation, is based in Indiana and was
organized for the principal purpose of completing the merger. QDI Merger Corp.
is wholly owned by the members of the Fitzpatrick group. The directors and
executive officers of QDI Merger Corp. are Daniel B. Fitzpatrick, President, and
John C. Firth, Executive Vice President, Treasurer and Secretary. Because each
is also a member of Quality Dining's board of directors and/or an executive
officer of Quality Dining, their biographical information appears above. The
principal executive office for QDI Merger Corp. and its directors and executive
officers is located at 4220 Edison Lakes Parkway, Mishawaka, Indiana 46545. The
business telephone number for QDI Merger Corp. and its executive officers and
directors is (574) 271-4600.

FITZPATRICK GROUP

The Fitzpatrick group is currently comprised of Mr. Fitzpatrick, Gerald O.
Fitzpatrick, James K. Fitzpatrick, Ezra H. Friedlander, John C. Firth and
William R. Schonsheck. For information regarding Mr. Fitzpatrick, Gerald O.
Fitzpatrick, James K. Fitzpatrick, Ezra H. Friedlander and John C. Firth, see
"Current Executive Officers and Directors of Quality Dining".

William Roy Schonsheck is the managing partner of BW3, LLC, a day spa
operating company. His business address is 14891 N. Northsight, Suite 121,
Scottsdale, Arizona 85260 and his business telephone number is (702) 243-0921.
The members of the Fitzpatrick group together own approximately 49.3% of the
common stock of the company.

CRIMINAL PROCEEDINGS AND INJUNCTIONS OR PROHIBITIONS INVOLVING SECURITIES LAWS

Neither any of the members of the Fitzpatrick group, Quality Dining, QDI
Merger Corp. nor any of their respective directors or executive officers has
been convicted in a criminal proceeding (other than traffic violations or
similar misdemeanors) during the past five years.

Neither any of the members of the Fitzpatrick group, Quality Dining, QDI
Merger Corp. nor any of their respective directors or executive officers has
been a party to any judicial or administrative proceeding during the past five
years that resulted in a judgment, decree or final order enjoining that person
or entity

from future violations of, or prohibiting activities subject to, federal or
state securities laws, or a finding of any violation of federal or state
securities laws.

PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS

Purchases of Quality Dining Common Stock. In June 2003, Mr. Fitzpatrick
purchased 1,148,014 shares of Quality Dining from NBO. For more information
regarding this transaction, see "Special Factors -- Background of the Merger".

Leases of Restaurant Facilities. Of the Burger King restaurants operated
by the company as of December 15, 2004, 43 were leased from a series of entities
owned, in various percentages, by Mr. Fitzpatrick, Ezra H. Friedlander, Gerald
O. Fitzpatrick, James K. Fitzpatrick and two unrelated persons (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 and 2004, the
company incurred rent expense in the amounts of $3,620,000 and $3,981,000,
respectively, under these leases.

Transportation Services. Burger Management South Bend No. 3, Inc., and its
subsidiary, BMSB, Inc., (collectively the "Airplane Company"), owned by Mr.
Daniel B. Fitzpatrick, Ezra H. Friedlander and James K. Fitzpatrick, have
provided the service of its Beechjet airplane to the company. In fiscal 2003 and
2004, the company incurred $232,000 and $304,000, respectively, 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 and 2004, 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, Mr. Fitzpatrick and Ezra H. Friedlander were billed $31,816 and $2,425,
respectively, for pilot services. During fiscal 2004, Mr. Fitzpatrick and Mr.
Friedlander were billed $30,070 and $1,843, 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.

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 and
2004 was $12,000 and $13,000, respectively. 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 Mr.
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.

Other than as set forth in this proxy statement, during the past two years,
no member of the Fitzpatrick group, nor QDI Merger Corp., has been involved in a
transaction with Quality Dining in which the aggregate value of the transaction
exceeds more than one percent of Quality Dining's consolidated
82

revenues during the fiscal year when the transaction occurred. Except as
described above and as more fully under "Special Factors -- Background of the
Merger," there have not been any negotiations, transactions or material contacts
during the past two years between Quality Dining or any of its subsidiaries, on
the one hand, and the Fitzpatrick group or QDI Merger Corp., on the other hand,
concerning any merger, consolidation, acquisition, tender offer or other
acquisition of any class of Quality Dining's securities, election of Quality
Dining's directors or sale or other transfer of a material amount of Quality
Dining's assets. Except for the stock sale agreement between Mr. Fitzpatrick and
NBO and the merger agreement, as described more fully under "The Merger
Agreement," there have been no agreements involving Quality Dining common stock
entered into by the Fitzpatrick group.

For a description of the interests of the Quality Dining officers and
directors in the merger that are different from or in addition to your interests
as a shareholder generally, see "Special Factors -- Interests of Certain Persons
in the Merger".

QUALITY DINING BUSINESS DESCRIPTION

GENERAL

Quality Dining, Inc. operates five distinct restaurant concepts. It owns
the Grady's American Grill(R) concept, Porterhouse Steaks and Seafood(TM)
concept and an Italian Dining concept. The company operates its Italian Dining
restaurants under the tradenames of Spageddies Italian Kitchen(R)
("Spageddies"(R)) and Papa Vino's Italian Kitchen(R)("Papa Vino's"(R)). The
company also operates Burger King(R) restaurants and Chili's Grill & Bar(TM)
("Chili's"(R)) as a franchisee of Burger King Corporation and Brinker
International, Inc. ("Brinker"), respectively. As of October 31, 2004, the
company operated 176 restaurants, including 124 Burger King restaurants, 39
Chili's, three Grady's American Grill restaurants, one Porterhouse Steaks and
Seafood restaurant, three Spageddies and six Papa Vino's. Summarized financial
information concerning the company's reportable segments is included in Note 15
to the company's financial statements attached as Appendix F to this proxy
statement.

The company was founded in 1981 and has grown from a two-unit Burger King
franchisee to a multi-concept restaurant operator. The company has grown by
capitalizing on (i) its significant presence in targeted markets, (ii) the
stable operating performance of its Burger King and Chili's restaurants, (iii)
strategic acquisitions of Burger King restaurants and Chili's restaurants and
(iv) management's extensive experience.

The company is an Indiana corporation, which is the indirect successor to a
corporation that commenced operations in 1981. Prior to the consummation of the
company's initial public offering on March 8, 1994, the business of the company
was transacted by the company and eight affiliated corporations. As a result of
a reorganization effected prior to the initial public offering, the company
became a management holding company. The "company" and "Quality Dining", as used
in this Business Description section, means Quality Dining, Inc. and all of its
subsidiaries.

BUSINESS STRATEGY

Quality Dining's fundamental business strategy is to optimize the cash flow
of its operations through proven operating management. The company plans to use
the majority of its cash flow to refurbish existing restaurants, build or
acquire new restaurants and reduce debt. Management's operating philosophy,
which is shared by all of the company's concepts, is comprised of the following
key elements:

Value-Based Concepts. Value-based restaurant concepts are important to the
company's business strategy. Accordingly, in each of its restaurants, the
company seeks to provide customers with value, which is a product of
high-quality menu selections, reasonably priced food, prompt, courteous service
and a pleasant dining atmosphere.

Focus on Customer Satisfaction. Through its comprehensive management
training programs and experienced management team, the company seeks to ensure
that its employees provide customers with an enjoyable dining experience on a
consistent basis.

Hands-On Management Style. Members of Quality Dining's senior management
are actively involved in the operations of each of the company's restaurant
concepts. This active management approach is a key factor in the company's
efforts to control costs, enhance training and development of employees and
optimize operating income.

Quality Franchise Partners. Quality Dining has partnered with franchisors
with established reputations for leadership in their segments of the restaurant
industry who have proven integrity and share the company's focus on value,
customer service and quality.

Use of Technology. Quality Dining actively tracks the performance of its
business utilizing computer and point-of-sale technology to provide timely and
accurate reporting.

EXPANSION

Quality Dining currently plans to build one Chili's restaurant in fiscal
2005. The company does not plan to develop any new Burger King restaurants in
fiscal 2005. The company's long-term expansion strategy is focused on the
development of restaurants in existing markets in order to optimize market
penetration. In addition, the company will consider strategic acquisitions in
the Burger King system that meet certain acquisition criteria.

During fiscal 2004, the company built one new Burger King restaurant,
purchased five existing Burger King restaurants and built two new Chili's
restaurants. The company closed eight Grady's American Grill restaurants in
fiscal 2004. (See "-- Grady's American Grill" and Note 14 and Note 15 to the
company's financial statements.)

During fiscal 2003, the company built one new Burger King restaurant and
three new Chili's restaurants. The company also replaced two Burger King
restaurant buildings with new buildings at the same locations and opened two
additional Burger King restaurants in facilities leased from a related party.
The company sold four Grady's American Grill restaurants in fiscal 2003. (See
"-- Grady's American Grill" and Note 14 and Note 15 to the company's financial
statements.)

During fiscal 2001, Quality Dining purchased 42 Burger King restaurants in
the Grand Rapids, Michigan metropolitan area. The company paid $4.2 million in
cash and assumed certain liabilities of approximately $1.8 million. Three of
these restaurants were closed in fiscal 2002.

The amount of the company's total investment to develop new restaurants
depends upon various factors, including prevailing real estate prices and lease
rates, raw material costs and construction labor costs in each market in which a
new restaurant is to be opened. The company may own or lease the real estate for
future development.

BURGER KING

General. Prior to December, 2002, Burger King Corporation was an indirect
wholly-owned subsidiary of Diageo, PLC. In July, 2002, Diageo, PLC agreed to
sell Burger King Corporation to an investment group led by Texas Pacific Group
for $2.26 billion. In December, 2002, Diageo, PLC announced that it had
completed the sale of Burger King Corporation to an equity sponsor group led by
Texas Pacific Group, although the purchase price had been reduced to $1.5
billion due in part to the highly competitive environment in which Burger King
operates. Burger King Corporation has been franchising Burger King restaurants
since 1954 and has locations throughout the world.

Menu. Each Burger King restaurant offers a diverse menu containing a
variety of traditional and innovative food items, featuring the Whopper(R)
sandwich and other flame-broiled hamburgers and sandwiches, which are prepared
to order with the customer's choice of condiments. The menu also typically
includes breakfast entrees, french fries, onion rings, desserts and soft drinks.
The Burger King
84

system philosophy is characterized by its "Have It Your Way"(R) service,
generous portions and competitive prices, resulting in high value to its
customers. Management believes these characteristics distinguish Burger King
restaurants from their competitors and have the potential to provide a
competitive advantage.

Advertising and Marketing. As required by its franchise agreements, the
company contributes 4.0% of its restaurant sales to an advertising and marketing
fund controlled by Burger King Corporation. Burger King Corporation uses this
fund primarily to develop system-wide advertising, sales promotions and
marketing materials and concepts. In addition to its required contribution to
the advertising and marketing fund, the company makes local advertising
expenditures intended specifically to benefit its own Burger King restaurants.
Typically, the company spends its local advertising dollars on television and
radio.

CHILI'S GRILL & BAR

General. The Chili's concept is owned by Brinker, a publicly-held
corporation headquartered in Dallas, Texas. The first Chili's Grill & Bar
restaurant opened in 1975.

Menu. Chili's restaurants are full service, casual dining restaurants
featuring quick and friendly table service designed to minimize customer waiting
and facilitate table turnover. Service personnel are dressed casually to
reinforce the casual environment. Chili's restaurants feature a diverse menu of
broadly appealing food items, including a variety of hamburgers, fajitas, steak,
chicken and seafood entrees and sandwiches, barbecued ribs, salads, appetizers
and desserts, all of which are prepared fresh daily according to recipes
specified by Chili's. Emphasis is placed on serving substantial portions of
quality food at modest prices. Each Chili's restaurant has a full-service bar.

Advertising and Marketing. Pursuant to its franchise agreements with
Brinker, the company contributes 0.5% of sales from each restaurant to Brinker
for advertising and marketing to benefit all restaurants. As part of a
system-wide promotional effort, the company paid an additional advertising fee
as follows:

<Table>
<Caption>
PERIOD % OF SALES
- ------ ----------

September 1, 1999 through August 30, 2000................... 0.375%
September 1, 2000 through June 27, 2001..................... 1.0%
June 28, 2001 through June 26, 2002......................... 1.2%
June 27, 2002 through June 25, 2003......................... 2.0%
June 26, 2003 through June 30, 2004......................... 2.25%
July 1, 2004 through June 29, 2005.......................... 2.65%
</Table>

The company is also required to spend two percent of sales from each
restaurant on local advertising which, since June, 2002, is considered to be met
by the additional fees described in the preceding table. Quality Dining's
advertising expenditures typically exceed the levels required under its
agreements with Brinker and the company spends substantially all of its
advertising dollars on television and radio advertising. The company also
conducts promotional marketing efforts targeted at its various local markets.

The Chili's franchise agreements provide that Brinker may establish
advertising cooperatives for geographic areas where one or more restaurants are
located. Any restaurants located in areas subject to advertising cooperatives
are required to contribute 3.0% of sales to the advertising cooperatives in lieu
of contributing 0.5% of sales to Brinker. Each such restaurant is also required
to directly spend 0.5% of sales on local advertising. To date, no advertising
cooperatives have been established in any of the company's markets.

GRADY'S AMERICAN GRILL

General. Grady's American Grill restaurants feature high-quality food in a
classic American style, served in a warm and inviting setting. The company sold
15 and closed three Grady's American Grill restaurants during fiscal 2002, sold
four restaurants in fiscal 2003 and closed eight restaurants in fiscal

2004. These units did not fit the company's long-term strategic plan and were
not meeting the company's performance expectations.

Fiscal 2003 Impairment Charge. In light of the disposals and the continued
decline in sales and cash flow in its Grady's American Grill division, Quality
Dining reviewed the carrying amounts for the balance of its Grady's American
Grill Restaurant assets in the second quarter of fiscal 2003. Quality Dining
estimated the future cash flows expected to result from the continued operation
and the residual value of the remaining restaurant locations in the division and
concluded that, for the division as a whole, and in particular with respect to
eight locations, the undiscounted estimated future cash flows were less than the
carrying amount of the related assets. Accordingly, Quality Dining concluded
that these assets had been impaired. The company measured the impairment and
recorded an impairment charge related to these assets aggregating $4,411,000 in
the second quarter of fiscal 2003, consisting of a reduction in the net book
value of the Grady's American Grill trademark of $2,882,000 and a reduction in
the net book value of certain fixed assets in the amount of $1,529,000. In
accordance with SFAS 144, this amount has been classified as discontinued
operations in the Consolidated Statement of Operations for fiscal 2003. In
determining the fair value of the aforementioned restaurants, the company relied
primarily on discounted cash flow analyses that incorporated an investment
horizon of five years and utilized a risk adjusted discount factor.

As part of the impairment analysis discussed above, the company also
reviewed the remaining useful life of the Grady's American Grill trademark. In
light of the continuing negative trends in both sales and cash flows, the
increase in the pervasiveness of these declines amongst individual stores, and
the accelerating rate of decline in both sales and cash flow, the company also
determined that the useful life of the Grady's American Grill trademark should
be reduced from 15 to five years.

Quality Dining continues to pursue various management actions in response
to the negative trend in its Grady's business, including evaluating strategic
business alternatives for the division both as a whole and at each of its
restaurant locations.

Fiscal 2001 Impairment Charge. During the second half of fiscal 2001, the
company experienced a significant decrease in sales and cash flow in its Grady's
American Grill division. The company initiated various management actions in
response to this declining trend, including evaluating strategic business
alternatives for the division both as a whole and at each of its restaurant
locations. Subsequently, the company entered into an agreement to sell nine of
its Grady's American Grill restaurants for approximately $10.4 million. Because
the carrying amount of the related assets as of October 28, 2001 exceeded the
estimated net sale proceeds, the company recorded an impairment charge of $4.1
million related to these nine restaurants. As a consequence of this loss and in
connection with the aforementioned evaluation, the company estimated the future
cash flows expected to result from the continued operation and the residual
value of the remaining restaurant locations in the division and concluded that,
in 12 locations, the undiscounted estimated future cash flows were less than the
carrying amount of the related assets. Accordingly, the company concluded that
these assets had been impaired. The company measured the impairment and recorded
an impairment charge related to these assets aggregating $10.4 million,
consisting of a reduction in the net book value of the Grady's American Grill
trademark of $4.9 million and a reduction in the net book value of certain fixed
assets in the amount of $5.5 million.

Menu. The Grady's American Grill menu features signature prime rib,
high-quality steaks, seafood, inviting salads, sandwiches, soups and high
quality desserts. Entrees emphasize on-premise scratch preparation in a classic
American style.

Advertising and Marketing. As the owner of the Grady's American Grill
concept, the company has full responsibility for marketing and advertising. The
company focuses advertising and marketing efforts in local print media and the
use of direct mail programs, with total annual expenditures of approximately two
percent of the sales for its Grady's American Grill restaurants.

ITALIAN DINING CONCEPT

General. Quality Dining's Italian Dining concepts operate under the
tradenames Papa Vino's Italian Kitchen and Spageddies Italian Kitchen. The
company had been a franchisee of Spageddies since 1994, and became the owner of
the concept in October 1995. The first Papa Vino's restaurant was opened in 1996
and the first Spageddies restaurant was opened in 1994. Papa Vino's and
Spageddies each offers a casual dining atmosphere with high-quality food,
generous portions and moderate prices, all enjoyed in a setting featuring the
ambiance of a traditional Italian trattoria with stone archways, large wine
casks and wine racks lining the walls and exhibition cooking in an inviting,
comfortable environment. The company's Italian Dining concept is proprietary and
provides the company with flexibility for expansion and development.

Menu. A fundamental component of the Italian Dining concepts is to provide
the customer with a wide variety of high-quality, value-priced Italian food. The
restaurant menu includes an array of entrees, including traditional Italian
pasta, grilled meats and freshly prepared selections of pizzas, soups, salads
and sandwiches. The menu also includes specialty appetizers, fresh baked bread
and desserts, together with a full-service bar.

Advertising and Marketing. As the owner of these concepts, the company has
full responsibility for marketing and advertising its Italian Dining
restaurants. The company focuses its advertising and marketing efforts in local
print media, use of direct mail programs and radio, with total annual
expenditures estimated to range between two percent and three percent of the
sales for these restaurants.

PORTERHOUSE STEAKS AND SEAFOOD(TM)

General. Porterhouse Steaks and Seafood is the newest addition to the
family of Quality Dining concepts and is located in Cherry Hill, New Jersey.
This restaurant features choice-cut steaks, fresh seafood, an exclusive a la
carte menu, an extensive wine selection, and an upscale and elegant dining
atmosphere. For reporting purposes, Porterhouse Steaks and Seafood is included
in the Grady's American Grill operating segment.

Advertising and Marketing. As the exclusive owner of this dining concept,
Quality Dining has full responsibility for marketing and advertising this
restaurant. The company focuses its advertising and marketing efforts in local
print media and use of direct mail programs, with total expenditures of
approximately two percent of restaurant sales.

TRADEMARKS

The company owns the following registered trademarks: Grady's American
Grill(R), Spageddies Italian Kitchen(R), Spageddies(R), Papa Vino's(R) and Papa
Vino's Italian Kitchen(R). Quality Dining also owns a number of other trademarks
and service marks which are used in connection with its owned concepts. The
company believes its marks are valuable and intends to maintain its marks and
any related registrations. Burger King(R) is a registered trademark of Burger
King Corporation. Chili's(R) and Chili's Grill & Bar(R) are registered
trademarks of Brinker International, Inc.(R)

ADMINISTRATIVE SERVICES

From its headquarters in Mishawaka, Indiana, the company provides
accounting, treasury management, information technology, purchasing, human
resources, finance, marketing, advertising, menu development, budgeting,
planning, legal, site selection and development support services for each of its
operating subsidiaries.

Management. The company is managed by a team of senior managers who are
responsible for the establishment and implementation of a strategic plan. The
company believes that its management team possesses the ability to manage its
diverse operations. The company has an experienced management team in place for
each of its concepts. Each concept's operations are managed by geographic region
with a senior manager responsible for each specific region of operations.
87

Site Selection. Site selection for new restaurants is made by the
company's senior management under the direction of the company's Chief
Development Officer, subject in the case of the company's franchised restaurants
to the approval of its franchisors. Within a potential market area, the company
evaluates high-traffic locations to determine profitable trading areas.
Site-specific factors considered by the company include traffic generators,
points of distinction, visibility, ease of ingress and egress, proximity to
direct competition, access to utilities, local zoning regulations and various
other factors. In addition, in evaluating potential full service dining sites,
the company considers applicable laws regulating the sale of alcoholic
beverages. The company regularly reviews potential sites for expansion. Once a
potential site is selected, the company utilizes demographic and site selection
data to assist in final site selection.

Quality Control. Quality Dining's senior management and restaurant
management staff are principally responsible for assuring compliance with the
company's and its franchisors' operating procedures. The company and its
franchisors have uniform operating standards and specifications relating to the
quality, preparation and selection of menu items, maintenance and cleanliness of
the premises and employee conduct. Compliance with these standards and
specifications is monitored by frequent on-site visits and inspections by the
company's senior management. Additionally, the company employs the use of toll
free customer feedback telephone services to ensure that the restaurants meet
the company's operating standards. The company's operational structure
encourages all employees to assume a proprietary role ensuring that such
standards and specifications are met.

Burger King. Quality Dining's Burger King operations are focused on
achieving a high level of customer satisfaction with speed, accuracy and
quality of service closely monitored. The company's senior management and
restaurant management staff are principally responsible for ensuring
compliance with the company's and Burger King Corporation's operating
procedures. The company and Burger King Corporation have uniform operating
standards and specifications relating to the quality, preparation and
selection of menu items, maintenance and cleanliness of the premises and
employee conduct. These standards include food preparation rules regarding,
among other things, minimum cooking times and temperatures, sanitation and
cleanliness.

Full Service Dining. Quality Dining has uniform operating standards
and specifications relating to the quality, preparation and selection of
menu items, maintenance and cleanliness of the premises and employee
conduct in its full service dining concepts. At the company's Chili's
restaurants, compliance with these standards and specifications is
monitored by representatives of Brinker. Each full service dining
restaurant typically has a general manager and three to four assistant
managers who together train and supervise employees and are, in turn,
overseen by a multi-unit manager.

Information Technology Systems. Financial controls are maintained through
a centralized accounting system, which allows the company to track the operating
performance of each restaurant. The company has a point-of-sale system in each
of its restaurants which is linked directly to the company's accounting system,
thereby making information available on a timely basis. During fiscal 2002, the
company replaced its financial and accounting system with integrated, web-based
software operating in a client/server hardware environment. This information
system enables the company to analyze customer purchasing habits, operating
trends and promotional results.

Training. Quality Dining maintains comprehensive training programs for all
of its restaurant management personnel. Special emphasis is placed on quality
food preparation, service standards and total customer satisfaction.

Burger King. The training program for the company's Burger King
restaurant managers features an intensive hands-on training period followed
by classroom instruction and simulated restaurant management activities.
Upon certification, new managers work closely with experienced managers to
solidify their skills and expertise. The company's existing restaurant
managers regularly participate in the company's ongoing training efforts,
including classroom programs, off-site training and other
training/development programs, which the company's senior concept
management designs from time to time. The company generally seeks to
promote from within to fill Burger King restaurant management positions.
88

Full Service Dining. Quality Dining requires all general and
restaurant managers of its full service dining concepts to participate in a
system-wide, comprehensive training program. These programs teach
management trainees detailed food preparation standards and procedures for
each concept. These programs are designed and implemented by the company's
senior concept management teams.

Purchasing. Purchasing and procurement for the company's Grady's American
Grill and Italian Dining concepts are generally contracted with full-service
distributors. Unit-level purchasing decisions from an approved list of suppliers
are made by each of Quality Dining's restaurant managers based on their
assessment of the provisioning needs of the particular location. Purchase orders
and invoices are reviewed and approved by restaurant managers. The company
participates in system-wide purchasing and distribution programs with respect to
its Chili's and Burger King restaurants, which have been effective in reducing
store-level expenditures on food and paper packaging.

FRANCHISE AND DEVELOPMENT AGREEMENTS

Burger King. The company is responsible for all costs and expenses
incurred in locating, acquiring and developing restaurant sites. The company
must also satisfy Burger King Corporation's development criteria, which include
the specific site, the related purchase contract or lease agreement and
architectural and engineering plans for each of the company's new Burger King
restaurants. Burger King Corporation may refuse to grant a franchise for any
proposed Burger King restaurant if the company is not conducting the operations
of each of its Burger King restaurants in compliance with Burger King
Corporation's franchise requirements. Burger King Corporation periodically
monitors the operations of its franchised restaurants and notifies its
franchisees of failures to comply with franchise or development agreements that
come to its attention.

On January 27, 2000, the company executed a "Franchisee Commitment"
pursuant to which it agreed to undertake certain "Transformational Initiatives"
including capital improvements and other routine maintenance in all of its
Burger King restaurants. The capital improvements include the installation of
signage bearing the new Burger King logo and the installation of a new
drive-through ordering system. The initial deadline for completing these capital
improvements, December 31, 2001, was extended to December 31, 2002, although the
company met the initial deadline with respect to 66 of the 70 Burger King
restaurants subject to the Franchisee Commitment. The company completed the
capital improvements to the remaining four restaurants prior to December 31,
2002. In addition, the company agreed to perform, as necessary, certain routine
maintenance such as exterior painting, sealing and striping of parking lots and
upgraded landscaping. The company completed this maintenance prior to September
30, 2000, as required. In consideration for executing the Franchisee Commitment,
the company received "Transformational Payments" totaling approximately $3.9
million during fiscal 2000. In addition, the company received supplemental
Transformational Payments of approximately $135,000 in fiscal 2001 and $180,000
in fiscal 2002. The portion of the Transformational Payments that corresponds to
the amount required for capital improvements ($1,966,000) was recorded as a
reduction in the costs of the assets acquired. Consequently, the company has not
and will not incur depreciation expense over the useful life of these assets
(which range between five and 10 years). The portion of the Transformational
Payments that corresponds to the required routine maintenance was recognized as
a reduction in maintenance expense over the period during which maintenance was
performed. The remaining balance of the Transformational Payments was recognized
as other income ratably through December 31, 2001, the term of the initial
Franchisee Commitment, except that the supplemental Transformational Payments
were recognized as other income when received.

During fiscal 2000, Burger King Corporation increased its royalty and
franchise fees for most new restaurants. The franchise fee for new restaurants
increased from $40,000 to $50,000 for a 20 year agreement and the royalty rate
increased from 3.5% of sales to 4.5% of sales, after a transitional period. For
franchise agreements entered into during the transitional period, the royalty
rate will be 4.0% of sales for the first ten years and 4.5% of sales for the
balance of the term.

For new restaurants, the transitional period was from July 1, 2000 to June
30, 2003. Since July 1, 2003, the royalty rate is 4.5% of sales for the full
term of new restaurant franchise agreements. For renewals of existing franchise
agreements, the transitional period was from July 1, 2000 through June 30, 2001.
As of July 1, 2001, existing restaurants that renew their franchise agreements
will pay a royalty of 4.5% of sales for the full term of the renewed agreement.
The advertising contribution remains at 4.0% of sales. Royalties payable under
existing franchise agreements are not affected by these changes until the time
of renewal, at which time the then prevailing rate structure will apply.

Burger King Corporation offered a voluntary program as an incentive for
franchisees to renew their franchise agreements prior to the scheduled
expiration date ("2000 Early Renewal Program"). Franchisees that elected to
participate in the 2000 Early Renewal Program are required to make capital
investments in their restaurants by, among other things, bringing them up to
Burger King Corporation's current image, and to extend occupancy leases.
Franchise agreements entered into under the 2000 Early Renewal Program have
special provisions regarding the royalty payable during the term, including a
reduction in the royalty to 2.75% over five years beginning April, 2002 and
concluding in April, 2007.

The company included 36 restaurants in the 2000 Early Renewal Program. The
company paid franchise fees of $877,000 in the third quarter of fiscal 2000 to
extend the franchise agreements of the selected restaurants for 16 to 20 years.
In fiscal 2001 and 2002 the company invested approximately $6.6 million to
remodel the selected restaurants to Burger King Corporation's current image.

Burger King Corporation offered an additional voluntary program as an
incentive to franchisees to renew their franchise agreements prior to the
scheduled expiration date ("2001 Early Renewal Program"). Franchisees that
elected to participate in the 2001 Early Renewal Program are required to make
capital investments in their restaurants by, among other things, bringing them
up to Burger King Corporation's current image (Image 99), and to extend
occupancy leases. Franchise agreements entered into under the 2001 Early Renewal
Program have special provisions regarding the royalty payable during the term,
including a reduction in the royalty to 2.75% over five years commencing 90 days
after the semi-annual period in which the required capital improvements are
made.

The company included three restaurants in the 2001 Early Renewal Program.
The company paid franchise fees of $144,925 in fiscal 2001 to extend the
franchise agreements of the selected restaurants for 17 to 20 years. The company
invested approximately $1.7 million in fiscal 2003 to remodel two participating
restaurants to Burger King Corporation's current image. The company withdrew one
restaurant from the 2001 Early Renewal Program in fiscal 2004.

Through participation in the various early renewal plans, the company has
been able to reduce its royalty expense by $421,000, $301,000 and $146,000 in
fiscal 2004, 2003 and 2002, respectively.

Burger King Corporation also provides general specifications for designs,
color schemes, signs and equipment, formulas for preparation of food and
beverage products, marketing concepts, inventory, operations and financial
control methods, management training, technical assistance and materials. Each
franchise agreement prohibits the company from transferring a franchise without
the prior approval of Burger King Corporation.

Burger King Corporation's franchise agreements prohibit Quality Dining,
during the term of the agreements, from owning or operating any other hamburger
restaurant. For a period of one year following the termination of a franchise
agreement, the company remains subject to such restriction within a two mile
radius of the Burger King restaurant which was the subject of the franchise
agreement.

Chili's. Quality Dining's development agreement with Brinker (the "Chili's
Agreement") expired on December 31, 2003. The development agreement entitled the
company to develop up to 41 Chili's restaurants in two regions encompassing
counties in Indiana, Michigan, Ohio, Kentucky, Delaware, New Jersey and
Pennsylvania. The company paid development fees totaling $260,000 for the right
to develop the restaurants in the regions. Each Chili's franchise agreement
requires the company to pay an initial franchise fee of $40,000, a monthly
royalty fee of 4.0% of sales and certain advertising fees. See "-- Chili's

Grill & Bar, Advertising and Marketing", above. The company completed all of its
obligations under the Chili's Agreement prior to its expiration.

The Chili's Agreement prohibited Brinker or any other Chili's franchisee
from establishing a Chili's restaurant within a specified geographic radius of
the company's Chili's restaurants. The Chili's Agreement and the franchise
agreements prohibit the company, for the term of the agreements, from owning or
operating other restaurants which are similar to a Chili's restaurant. The
Chili's Agreement extends this prohibition, but only within the company's
development territories, for a period of two years following the termination of
the Chili's Agreement. In addition, each franchise agreement prohibits the
company, for the term of the franchise agreement and for a period of two years
following its termination, from owning or operating such other restaurants
within a ten-mile radius of the Chili's restaurant which was the subject of such
agreement.

Quality Dining is responsible for all costs and expenses incurred in
locating, acquiring and developing restaurant sites. Each proposed restaurant
site, the related purchase contract or lease agreement and the architectural and
engineering plans for each of the company's new Chili's restaurants are subject
to Brinker's approval. Brinker may refuse to grant a franchise for any proposed
Chili's restaurant if the company is not conducting the operations of each of
its Chili's restaurants in compliance with the Chili's restaurant franchise
requirements. Brinker periodically monitors the operations of its franchised
restaurants and notifies the franchisees of any failure to comply with franchise
or development agreements that comes to its attention.

The franchise agreements convey the right to use the franchisor's trade
names, trademarks and service marks with respect to specific restaurant units.
The franchisor also provides general specifications for designs, color schemes,
signs and equipment, formulas for preparation of food and beverage products,
marketing concepts, inventory, operations and financial control methods,
management training and technical assistance and materials. Each franchise
agreement prohibits the company from transferring a franchise without the prior
approval of the franchisor.

Risks and Requirements of Franchisee Status. Due to the nature of
franchising and the company's agreements with its franchisors, the success of
the company's Burger King and Chili's concepts is, in large part, dependent upon
the overall success of its franchisors, including the financial condition,
management and marketing success of its franchisors and the successful operation
of restaurants opened by other franchisees. Certain matters with respect to the
company's franchised concepts must be coordinated with, and approved by, the
company's franchisors. In particular, the company's franchisors must approve the
opening by the company of any new franchised restaurant, including franchises
opened within the company's existing franchised territories, and the closing of
any of the company's existing franchised restaurants. The company's franchisors
also maintain discretion over the menu items that may be offered in the
company's franchised restaurants.

COMPETITION

The restaurant industry is intensely competitive with respect to price,
service, location and food quality. The industry is mature and competition can
be expected to increase. There are many well-established competitors with
substantially greater financial and other resources than the company, some of
which have been in existence for a substantially longer period than the company
and may have substantially more units in the markets where the company's
restaurants are, or may be, located. McDonald's and Wendy's restaurants are the
principal competitors to the company's Burger King restaurants. The competitors
to the company's Chili's and Italian Dining restaurants are other casual dining
concepts such as Applebee's, T.G.I. Friday's, Bennigan's, Olive Garden and Red
Lobster restaurants. The primary competitors to Porterhouse Steaks and Seafood
and Grady's American Grill are Houston's, Outback Steakhouse, Houlihan's, and
O'Charley's Restaurant & Lounge, as well as a large number of locally-owned,
independent restaurants. The company believes that competition is likely to
become even more intense in the future.

Quality Dining and the restaurant industry in general are significantly
affected by factors such as changes in local, regional or national economic
conditions, changes in consumer tastes, weather conditions and various other
consumer concerns. In addition, factors such as increases in food, labor and
energy costs, the availability and cost of suitable restaurant sites,
fluctuating insurance rates, state and local regulations and the availability of
an adequate number of hourly-paid employees can also adversely affect the
restaurant industry.

GOVERNMENT REGULATION

Each of Quality Dining's restaurants is subject to licensing and regulation
by a number of governmental authorities, which include alcoholic beverage
control in the case of the Chili's, Italian Dining, Grady's American Grill and
Porterhouse Steaks and Seafood restaurants, and health, safety and fire agencies
in the state or municipality in which the restaurant is located. Difficulties or
failures in obtaining the required licenses or approvals could delay or prevent
the opening of a new restaurant in a particular area.

Alcoholic beverage control regulations require each of Quality Dining's
Chili's, Italian Dining, Grady's American Grill and Porterhouse Steaks and
Seafood restaurants to apply to a state authority and, in certain locations,
county or municipal authorities for a license or permit to sell alcoholic
beverages on the premises and to provide service for extended hours and on
Sundays. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of the daily operations of the company's restaurants,
including minimum age of patrons and employees, hours of operation, advertising,
wholesale purchasing, inventory control and handling, storage and dispensing of
alcoholic beverages. The loss of a liquor license for a particular Grady's
American Grill, Italian Dining, Chili's or Porterhouse Steaks and Seafood
restaurant would most likely result in the closing of the restaurant.

The company may be subject in certain states to "dramshop" laws, which
generally provide a person injured by an intoxicated patron the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. The company carries liquor liability coverage as part of its
existing comprehensive general liability insurance.

The company's restaurant operations are also subject to federal and state
minimum wage laws governing such matters as working conditions, overtime and tip
credits. Significant numbers of the company's food service and preparation
personnel are paid at rates related to the federal minimum wage and,
accordingly, increases in the minimum wage could increase the company's labor
costs.

Quality Dining is also subject to various local, state and federal laws
regulating the discharge of pollutants into the environment. The company
believes that it conducts its operations in substantial compliance with
applicable environmental laws and regulations. In an effort to prevent and, if
necessary, to correct environmental problems, the company conducts environmental
audits of a proposed restaurant site in order to determine whether there is any
evidence of contamination prior to purchasing or entering into a lease with
respect to such site. To date, Quality Dining's operations have not been
materially adversely affected by the cost of compliance with applicable
environmental laws.

EMPLOYEES

As of October 31, 2004, the company had approximately 7,176 employees. Of
those employees, approximately 93 held management or administrative positions,
574 were involved in restaurant management, and the remainder were engaged in
the operation of the company's restaurants. None of the company's employees is
covered by a collective bargaining agreement. The company considers its employee
relations to be good.

PROPERTIES

The following table sets forth, as of October 31, 2004, the eight states in
which the company operated restaurants and the number of restaurants in each
state. Of the 176 restaurants which the company operated as of October 31, 2004,
the company owned 36 and leased 140. Many leases provide for base rent plus an
additional rent based upon sales to the extent the additional rent exceeds the
base rent, while other leases provide for only a base rent.

NUMBER OF COMPANY-OPERATED RESTAURANTS

<Table>
<Caption>
GRADY'S
BURGER AMERICAN PORTERHOUSE ITALIAN
KING CHILI'S GRILL STEAK DINING TOTAL
------ ------- -------- ----------- ------- -----

Delaware........................... 2 2
Georgia............................ 1 1
Indiana............................ 44 5 2 51
Michigan........................... 80 12 1 5 98
New Jersey......................... 6 1 7
Ohio............................... 4 2 6
Pennsylvania....................... 10 10
Tennessee.......................... 1 1
--- -- ---- ---- ---- ---
Total............................ 124 39 3 1 9 176
=== == ==== ==== ==== ===
</Table>

Burger King. As of October 31, 2004, 43 of the company's Burger King
restaurants were leased from real estate partnerships owned by certain of the
company's founding shareholders. See "Information About the Transaction
Participants -- Past Contacts, Transactions, Negotiations and Agreements". The
company also leased six Burger King restaurants directly from Burger King
Corporation and 58 restaurants from unrelated third parties. The company owned
17 of its Burger King restaurants as of October 31, 2004.

Chili's Grill & Bar. As of October 31, 2004, the company owned 12 of its
Chili's restaurants and leased the 27 other restaurants from unrelated parties.

Grady's American Grill. As of October 31, 2004, the company owned two of
its Grady's American Grill restaurants and leased the other Grady's American
Grill restaurant from an unrelated party.

Porterhouse Steaks and Seafood. As of October 31, 2004, the company's one
Porterhouse Steaks and Seafood restaurant shared an owned property with one of
the company's Chili's Grill & Bar restaurants.

Italian Dining. As of October 31, 2004, the company owned five of the
Italian Dining restaurants and leased the four other restaurants from unrelated
parties.

Office Lease. The company leases approximately 53,000 square feet for its
headquarters facility in an office building located in Mishawaka, Indiana that
was constructed in 1997 and is leased from a limited liability company in which
the company owns a 50% interest. The remaining term of the lease agreement is
seven years. Approximately 4,500 square feet, 12,400 square feet and 5,200
square feet of the company's headquarters building have been subleased to three
tenants with remaining terms of three years, six months and three years,
respectively.

LEGAL PROCEEDINGS

Quality Dining is involved in various legal proceedings incidental to the
conduct of its business, including employment discrimination claims. Based upon
currently available information, the company does not expect that any such
proceedings will have a material adverse effect on the company's financial
position or results of operations but there can be no assurance thereof.

During fiscal 2003, Quality Dining was party to a lawsuit with BFBC Ltd
("BFBC"), a former franchisee of Bruegger's Bagels, and certain principals of
BFBC (the "Franchisee Parties"). During the second quarter of fiscal 2003, the
company entered into a settlement agreement with the Franchisee Parties that
provided for a cash payment by the Franchisee Parties to the company in the
amount of $3.75 million and the dismissal of all remaining claims in the
lawsuit. The company recorded a gain of $3,459,000 in the second quarter of
fiscal 2003 as a result of this settlement. Subsequent to the end of the second
quarter of fiscal 2003, and ancillary to the BFBC settlement, the company
transferred to Bruegger's Corporation's senior secured lender the company's
interest in the $10.7 million Subordinated Note issued by Bruegger's Corporation
to the company in connection with the divestiture of the company's bagel-
related businesses in 1997. Quality Dining received payment of $55,000 for the
Subordinated Note. The company had reserved for the full $10,000,000 amount of
the Subordinated Note in fiscal 2000. Accordingly, the company recorded a
$55,000 gain in respect of this payment in the third quarter of fiscal 2003.

On June 22, 2004, a purported class action lawsuit was filed on behalf of
the unaffiliated shareholders of the company by Milberg, Weiss, Bershad &
Schulman LLP against the company, its directors and two of its officers alleging
that the individual defendants breached fiduciary duties by acting to cause or
facilitate the acquisition of the company's publicly-held shares for unfair and
inadequate consideration, and colluding in the Fitzpatrick group's going private
proposal. The action, Bruce Alan Crown Grantors Trust v. Daniel B. Fitzpatrick,
et al., Cause No. 71-D04-0406-PL00299, was filed in the St. Joseph Superior
Court in South Bend, Indiana. The action sought to enjoin the transaction or, if
consummated, to rescind the transaction or award rescissory damages, and for
defendants to account to the putative class for unspecified damages.

On August 19, 2004, the company and the individual defendants filed motions
to dismiss the action. The defendants argued that the claims were not ripe
because the transaction proposed by the Fitzpatrick group required approval by
the company's board of directors and its shareholders, neither of which had
occurred, and that in any event, as a matter of Indiana corporate law,
shareholders who dissent from such a transaction that receives the approval of a
majority of the shares entitled to vote are not permitted to enjoin or otherwise
challenge the transaction. On September 24, 2004, the plaintiff filed a response
to defendants' motions to dismiss arguing that the claim was timely because the
proposed transaction allegedly was a fait accompli and that Indiana law permits
minority shareholders to challenge such a transaction.

On October 12, 2004, three days before the hearing on the defendants'
motions to dismiss, the plaintiff amended its complaint. The amended complaint
continues to challenge the adequacy of the Fitzpatrick group's proposal and to
allege that the individual defendants have breached fiduciary duties. In
addition, citing the company's September 15, 2004 announcements of (a) third
quarter earnings and (b) a correction in the calculation of weighted average
shares outstanding which increased earnings per share in the first two quarters
of 2004 by a fraction of a penny, the plaintiff alleges that from March 31, 2004
until September 15, 2004, the defendants violated the antifraud provisions of
Indiana Securities Act by disseminating misleading information to "artificially
deflate" the price of Quality Dining shares, and thereby induce investors to
hold their Quality Dining shares. Finally, the plaintiff alleges that the
failure of the company's directors to pursue a forfeiture action under Section
304 of the Sarbanes-Oxley Act of 2002, which requires a chief executive officer
and chief financial officer, under certain circumstances, to reimburse the
company for certain types of compensation if the company is required to issue a
restatement due to material noncompliance with any financial reporting
requirement under the securities laws, constitutes a breach of fiduciary duties.

On October 13, 2004, the company announced that the special committee of
the board of directors had approved in principle, by a vote of three to one, a
transaction by which the Fitzpatrick group would purchase the outstanding shares
held by the company's unaffiliated shareholders for $3.20 per share. The
agreement in principle was subject to several contingencies. With respect to
shareholder approval of the merger, the Fitzpatrick group agreed to vote its
shares in the same proportion as the unaffiliated shareholders vote their
shares.
94

On November 3, 2004, Quality Dining and the individual defendants filed
motions to dismiss the amended complaint. Defendants argue as before that as a
matter of Indiana corporate law, the plaintiff cannot enjoin or otherwise
challenge the proposed transaction. Defendants contend that plaintiff's claims
challenging the proposed transaction should be dismissed for the additional
reason that the merger is subject to approval by a majority of the putative
class that the plaintiff seeks to represent. Defendants also argue that there is
no cause of action under the Indiana Securities Act for persons who "hold" their
securities purportedly because of misleading information, and no basis for a
claim that reports filed by the company with the SEC violate a section of the
Indiana Securities Act that prohibits the filing of misleading reports with the
Indiana Securities Division. Finally, defendants contend that the plaintiff has
no private right of action under Section 304 of the Sarbanes-Oxley Act and
cannot maintain a direct action as a shareholder of the company to pursue a
forfeiture of certain executive compensation.

A hearing on the defendants' motions to dismiss was held on December 17,
2004. On February 3, 2005, the court granted the defendants' motions and
dismissed the plaintiff's amended complaint. On February 22, 2005, the plaintiff
filed a motion to correct errors or for reconsideration, and on March 11, 2005,
the defendants filed a response requesting the court to deny the plaintiff's
motion. Based upon currently available information, the company does not expect
that such actions will have a material adverse effect on the company's financial
position or results of operations.

By letter dated February 18, 2005, lawyers representing the Bruce Alan
Crown Grantor's Trust, the plaintiff in the litigation described above,
delivered to the Quality Dining board of directors a demand that the company's
directors (1) take "all appropriate steps to effectively expose Quality Dining
to the marketplace in an effort to create an active auction of the Company"; (2)
ensure that no conflicts of interest exist between the company's directors' own
interests and "their fiduciary obligation to maximize shareholder value" or
ensure that any such conflicts of interest are resolved "in the best interests
of the public shareholders of the Company"; and (3) enforce a provision of the
Sarbanes-Oxley Act concerning compensation of executive officers and accounting
restatements. The board of directors referred the shareholder's letter to a
special committee comprised of the company's independent directors (Messrs.
Faccenda, Jacobson, Lewis and Murphy). The special committee currently is
investigating the demands.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the "Quality Dining Selected Historical Consolidated Financial Data" and
consolidated financial statements, including the notes thereto, attached to this
proxy statement as Appendix F. The following discussion and analysis contains
forward-looking statements which are subject to risks, uncertainties and
contingencies, including, without limitation, those set forth below, which could
cause our actual business, results of operations or financial condition to
differ materially from those expressed in or implied by, such statements. See
"Cautionary Statement Concerning Forward-Looking Information".

FORWARD-LOOKING STATEMENTS

This report contains and incorporates forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements about the company's development plans and trends in the company's
operations and financial results. Forward-looking statements can be identified
by the use of words such as "anticipates," "believes," "plans," "estimates,"
"expects," "intends," "may," and other similar expressions. Forward-looking
statements are made based upon management's current expectations and beliefs
concerning future developments and their potential effects on the company. There
can be no assurance that the company will actually achieve the plans, intentions
and expectations discussed in these forward-looking statements. Actual results
may differ materially. Among the risks and uncertainties that could cause actual
results to differ materially are the following: the availability and cost of
suitable locations for new restaurants; the availability and cost of capital to
the company; the ability of the company to develop and operate its restaurants;
the ability of the company to sustain sales and margins in the increasingly
competitive environment; the hiring, training and retention of skilled corporate
and restaurant management and other restaurant personnel; the integration and
assimilation of acquired restaurants; the overall success of the company's
franchisors; the ability to obtain the necessary government approvals and
third-party consents; changes in governmental regulations, including increases
in the minimum wage; the results of pending litigation; and weather and other
acts of God. The company undertakes no obligation to update or revise any
forward-looking information, whether as a result of new information, future
developments or otherwise.

RESTATEMENT

Following a review of its accounting policy and in consultation with its
independent registered public accounting firm, PricewaterhouseCoopers LLP, the
company has determined that it had incorrectly calculated its straight-line rent
expense and related deferred rent liability. As a result, on February 9, 2005,
the company's Board of Directors concluded that the company's previously filed
financial statements for fiscal years through 2003 and the first three interim
periods in 2004 should be restated. Historically, when accounting for leases
with renewal options, the company recorded rent expense on a straight-line basis
over the initial non-cancelable lease term without regard for renewal options.
The company depreciated its buildings, leasehold improvements and other
long-lived assets on those properties over a period that included both the
initial non-cancelable term of the lease and all option periods provided for in
the lease (or the useful life of the assets if shorter). The company has
restated its financial statements to recognize rent expense on a straight-line
basis over the entire lease term, including cancelable option periods where
failure to exercise such options would result in an economic penalty such that
at lease inception the renewal option is reasonably assured of exercise. The
company has also restated its financial statements to recognize depreciation on
its buildings, leasehold improvements and other long-lived assets over the
expected lease term, where the lease term is shorter than the useful life of the
assets.

The company also determined that $2,599,000 in fixed assets were improperly
classified as Assets Held for Sale on October 26, 2003. The company has
reclassified these assets from Held for Sale to Property and Equipment on the
October 26, 2003 balance sheet. This change did not affect results of
operations, cash flows or total assets of the company.

The restatement did not have any impact on the company's previously
reported total net cash flows, sales or same-restaurant sales or compliance with
any covenant under its credit facility or other debt instruments.

CRITICAL ACCOUNTING POLICIES

Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon the company's consolidated financial statements, which
were prepared in accordance with accounting principles generally accepted in the
United States of America. These principles require management to make estimates
and assumptions that affect the reported amounts in the consolidated financial
statements and notes thereto. Actual results may differ from these estimates,
and such differences may be material to the consolidated financial statements.
Management believes that the following significant accounting policies involve a
higher degree of judgment or complexity.

Property and equipment. Property and equipment are depreciated on a
straight-line basis over the estimated useful lives of the assets. The useful
lives of the assets are based upon management's expectations for the period of
time that the asset will be used for the generation of revenue. Management
periodically reviews the assets for changes in circumstances that may impact
their useful lives.

Impairment of long-lived assets. Management periodically reviews property
and equipment for impairment using historical cash flows as well as current
estimates of future cash flows. This assessment process requires the use of
estimates and assumptions that are subject to a high degree of judgment. In
addition, at least annually, or as circumstances dictate, management assesses
the recoverability of goodwill and other intangible assets which requires
assumptions regarding the future cash flows and other factors to determine the
fair value of the assets. In determining fair value, the company relies
primarily on discounted cash flow analyses that incorporate an investment
horizon of five years and utilize a risk adjusted discount factor. If these
assumptions change in the future, management may be required to record
impairment charges for these assets.

The company operates in a very competitive industry that can be
significantly affected by changes in local, regional or national economic
conditions, changes in consumer tastes, weather conditions and various other
consumer concerns. Accordingly, the amount of the deferred tax asset considered
by management to be realizable, more likely than not, could change in the near
term if estimates of future taxable income change. This could result in a charge
to, or increase in, income in the period such determination is made.

Other estimates. Management is required to make judgments and/or estimates
in the determination of several of the accruals that are reflected in the
consolidated financial statements. Management believes that the following
accruals are subject to a higher degree of judgment.

Management uses estimates in the determination of the required accruals for
general liability, workers' compensation and health insurance. These estimates
are based upon a detailed examination of historical and industry claims
experience. The claims experience may change in the future and may require
management to revise these accruals.

The company is periodically involved in various legal actions arising in
the normal course of business. Management is required to assess the probability
of any adverse judgments as well as the potential ranges
97

of any losses. Management determines the required accruals after a careful
review of the facts of each legal action and assistance from outside legal
counsel. The accruals may change in the future due to new developments in these
matters.

Management continually reassesses its assumptions and judgments and makes
adjustments when significant facts and circumstances dictate. Historically,
actual results have not been materially different than the estimates that are
described above.

For an understanding of the significant factors that influenced the
company's performance during the 2004, 2003 and 2002 fiscal years the following
discussion should be read in conjunction with the consolidated financial
statements attached to this proxy statement as Appendix F.

RESULTS OF OPERATIONS

The following table reflects the percentages that certain items of revenue
and expense bear to total revenues.

<Table>
<Caption>
FISCAL YEAR ENDED
-------------------------------------------
OCTOBER 31, OCTOBER 26, OCTOBER 27,
2004 2003 2002
----------- ------------- -------------
(AS RESTATED) (AS RESTATED)
------------- -------------
(1) (1)

Restaurant sales:
Burger King.................................... 52.6% 52.4% 52.1%
Chili's Grill & Bar............................ 37.8 36.8 31.8
Italian Dining Division........................ 7.1 8.0 7.2
Grady's American Grill......................... 2.5 2.8 8.9
----- ----- -----
Total revenues................................... 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Restaurant operating expenses:
Food and beverage........................... 27.8 27.0 27.7
Payroll and benefits........................ 28.9 29.1 29.3
Depreciation and amortization............... 4.1 4.6 4.2
Other operating expenses.................... 26.0 26.0 25.0
----- ----- -----
Total restaurant operating expenses.............. 86.8 86.7 86.2
----- ----- -----
Income from restaurant operations................ 13.2 13.3 13.8
----- ----- -----
General and administrative..................... 6.9 7.3 7.9
Amortization of intangibles.................... 0.1 0.2 0.2
Facility closing costs......................... -- -- 0.1
----- ----- -----
Operating income................................. 6.2 5.8 5.6
----- ----- -----
Other income (expense):
Interest expense............................... (2.8) (3.3) (3.3)
Minority interest in earnings.................. (1.0) (1.2) (1.3)
Recovery of note receivable.................... -- 1.6 --
Stock purchase expense......................... -- (0.6) --
Gain (loss) on sale of property and
equipment................................... (0.1) -- 0.4
Other income, net.............................. 0.1 0.5 0.3
----- ----- -----
Total other expense, net......................... (3.8) (3.0) (3.9)
----- ----- -----
Income from continuing operations before income
taxes.......................................... 2.4 2.8 1.7
Income tax provision............................. 1.0 1.5 0.2
----- ----- -----
Income from continuing operations................ 1.4 1.3 1.5
Income (loss) from discontinued operations, net
of tax......................................... (0.5) (1.1) 0.5
----- ----- -----
Net income....................................... 0.9% 0.2% 2.0%
----- ----- -----
</Table>

- ---------------

(1) See Note 1A to the consolidated financial statements attached to this proxy
statement as Appendix F.

FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003

Restaurant sales in fiscal 2004 were $232,096,000, an increase of 5.8% or
$12,765,000, compared to restaurant sales of $219,331,000 in fiscal 2003. The
company had increased revenue of $3,798,000 due to an additional sales week in
fiscal 2004 (53 week year) versus fiscal 2003 (52 week year). Additionally, the
increase was due to a $7,200,000 increase in restaurant sales in the company's
quick service segment and a $5,565,000 increase in restaurant sales in the
company's full service segment. As a result of the adoption of Statement of
Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", the company has classified the revenues,
expenses and related assets and liabilities of four Grady's American Grill
restaurants sold during fiscal 2003, four restaurants that met the criteria for
'held for sale' treatment in fiscal 2003, and five that met the criteria in
fiscal 2004, as discontinued operations.

The company's Burger King restaurant sales were $122,183,000 in fiscal 2004
compared to sales of $114,983,000 in fiscal 2003, an increase of $7,200,000. The
company had increased revenue of $2,189,000 due to an additional sales week in
fiscal 2004 (53 week year) versus fiscal 2003 (52 week year). The company had
increased revenue of $3,958,000 from the three new restaurants opened in fiscal
2003, the five restaurants purchased from a third party in the third quarter of
fiscal 2004, and the one new restaurant opened in the fourth quarter of fiscal
2004. The company's Burger King restaurants' average weekly sales increased to
$19,234 in fiscal 2004 versus $18,998 in fiscal 2003. Sales at restaurants open
for more than one year increased 0.6% in fiscal 2004 when compared to the same
period in fiscal 2003. During the third quarter of fiscal 2004 Burger King
introduced some appealing new products and had improved promotional campaigns.
The company believes these actions were responsible for the positive same store
sales results.

The company's Chili's Grill & Bar restaurant sales increased $7,007,000 to
$87,717,000 in fiscal 2004 compared to restaurant sales of $80,710,000 in fiscal
2003. The company had increased revenue of $1,202,000 due to an additional sales
week in fiscal 2004 (53 week year) versus fiscal 2003 (52 week year). The
company had increased revenue of $7,084,000 due to additional sales weeks from
two new restaurants opened in fiscal 2004 and three restaurants opened in fiscal
2003 that were open for a first full year in fiscal 2004. The company's Chili's
Grill & Bar restaurants average weekly sales decreased to $43,662 in fiscal 2004
versus $44,518 in fiscal 2003. Sales at restaurants open for more than one year
decreased 2.0% in fiscal 2004 when compared to the same period in fiscal 2003.
The company believes that the sales decrease it experienced in fiscal 2004 was
mainly due to increased competition in the full service restaurant segment.

The company's Grady's American Grill restaurant sales were $5,789,000 in
fiscal 2004 compared to sales of $6,078,000 in fiscal 2003, a decrease of
$289,000. The company had increased revenue of $120,000 due to an additional
sales week in fiscal 2004 (53 week year) versus fiscal 2003 (52 week year). As a
result of the adoption of Statement of Financial Accounting Standard ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the
company has classified the revenues of four Grady's American Grill restaurants
sold during fiscal 2003, four restaurants that met the criteria for "held for
sale" treatment in fiscal 2003 and five that met the criteria in fiscal 2004, as
discontinued operations. The remaining three Grady's American Grill restaurants
had average weekly sales of $36,416 in fiscal 2004 versus $38,961 in fiscal
2003, a decrease of 6.5%. The company believes sales declines in its Grady's
American Grill division resulted from competitive intrusion and the company's
inability to efficiently market this concept.

The company's Italian Dining division's restaurant sales decreased
$1,153,000 to $16,407,000 in fiscal 2004 when compared to restaurant sales of
$17,560,000 in fiscal 2003. The company had increased revenue of $287,000 due to
an additional sales week in fiscal 2004 (53 week year) versus fiscal 2003 (52
week year). The Italian Dining division's average weekly sales decreased to
$34,396 in fiscal 2004 from $37,522 in fiscal 2003. Sales at restaurants open
for more than one year decreased 8.6% in fiscal 2004 when

100

compared to the same period in fiscal 2003. The company believes that the sales
declines it experienced in its Italian Dining division resulted primarily from
competitive intrusion.

Total restaurant operating expenses were $201,469,000 in fiscal 2004,
compared to $190,245,000 in fiscal 2003. As a percentage of total restaurant
sales, total restaurant operating expenses increased 0.1% to 86.8% in fiscal
2004 from 86.7% in fiscal 2003. The following factors influenced the operating
margins:

Food and beverage costs were $64,409,000 in fiscal 2004, compared to
$59,271,000 in fiscal 2003. As a percentage of total restaurant sales, food and
beverage costs increased 0.8% to 27.8% in fiscal 2004 from 27.0% in fiscal 2003.
During fiscal 2004 food and beverage costs, as a percentage of sales, increased
in both the quick service segment and the full service segment. The increases
were mainly due to higher dairy, produce and beef costs.

Payroll and benefits were $67,182,000 in fiscal 2004, compared to
$63,923,000 in fiscal 2003. As a percentage of total restaurant sales, payroll
and benefits decreased to 28.9% in fiscal 2004 versus 29.1% in fiscal 2003.
Payroll and benefits, as a percentage of sales, decreased in the quick service
segment and in the Chili's division within the full service segment. The
decrease, as a percent of sales, was mainly due to the company's continued focus
on reducing payroll costs.

Depreciation and amortization decreased $559,000 to $9,599,000 in fiscal
2004 compared to $10,158,000 in fiscal 2003. As a percentage of total restaurant
sales, depreciation and amortization decreased to 4.1% in fiscal 2004 compared
to 4.6% in fiscal 2003. The decrease in depreciation expense was mainly due to
an increased portion of the fixed assets being fully depreciated.

Other restaurant operating expenses include rent and utilities, royalties,
promotional expense, repairs and maintenance, property taxes and insurance.
Other restaurant operating expenses increased $3,386,000 to $60,279,000 in
fiscal 2004 compared to $56,893,000 in fiscal 2003. The increase was mainly due
to the increased number of Chili's and Burger King restaurants operating in
fiscal 2004 versus fiscal 2003. Other restaurant operating expenses, as a
percentage of total restaurant sales, remained consistent at 26.0% in fiscal
2004 and fiscal 2003.

Income from restaurant operations increased $1,541,000 to $30,627,000, or
13.2% of revenues, in fiscal 2004 compared to $29,086,000, or 13.3% of revenues,
in fiscal 2003. Income from restaurant operations in the company's quick service
segment increased $1,162,000 and the company's full service segment increased
$46,000 from the prior year.

General and administrative expenses, which include corporate and district
management costs, were $15,997,000 in fiscal 2004, compared to $16,068,000 in
fiscal 2003, a decrease of $71,000. As a percentage of total restaurant sales,
general and administrative expenses decreased to 6.9% in fiscal 2004 compared to
7.3% in fiscal 2003. The decrease in general and administrative costs, as a
percentage of sales, was mainly due to the company being able to increase sales
while slightly reducing general and administrative costs.

The company had operating income of $14,461,000 in fiscal 2004 compared to
operating income of $12,744,000 in fiscal 2003.

Total interest expense decreased to $6,546,000 in fiscal 2004 from
$7,143,000 in fiscal 2003. The decrease was mainly due to lower debt levels.

Minority interest in earnings pertains to certain related party affiliates
that are variable interest entities, or VIEs. The company holds no direct
ownership or voting interest in any VIE. Minority interest in earnings was
$2,397,000 in fiscal 2004 versus $2,678,000 in fiscal 2003. See Note 2 in the
company's consolidated financial statements attached to this proxy statement as
Appendix F for further discussion.

During the third quarter of fiscal 2003, one of the consolidated VIE's (See
Note 2 in the company's consolidated financial statements) purchased all
1,148,014 shares of the company's common stock owned by NBO, LLC, for
approximately $4.1 million. As a result of this transaction, the company
incurred a one-time, non-cash charge of $1,294,000, which is equal to the
premium to the market price that the VIE paid for the shares. The company did
not have any similar charges in fiscal 2004.

101

During the second quarter of fiscal 2003, the company recorded a $3,459,000
gain on the collection of a note receivable that had previously been written
off. The company did not have any similar gain in fiscal 2004.

Income tax expense of $2,342,000 was recorded in fiscal 2004 compared to
$3,293,000 in fiscal 2003. This decrease was due to a decrease in income from
continuing operations and a decrease in the effective tax rate. The effective
tax rate in fiscal 2003 was higher than fiscal 2004 primarily due to the tax
effect of the stock purchase expense incurred in fiscal 2003, which is a
permanent difference, and the increase to the valuation allowance recorded in
fiscal 2003. At the end of fiscal 2004, the company reviewed its valuation
reserve against its deferred tax asset consistent with its historical practice.
The company's assessment of its ability to realize the net deferred tax asset
was based on the weight of both positive and negative evidence, including the
taxable income of its current operations. The company believes the positive
evidence includes the company's profitability in 2004, 2003 and 2002, consistent
historical profitability of its Chili's and Burger King divisions, and the
resolution of substantially all of its bagel-related contingent liabilities. The
company believes the negative evidence includes the persistent negative trends
in its Grady's American Grill division, recent same store sales declines in its
Italian Dining division and statutory limitations on available carryforward tax
benefits. In estimating its deferred tax asset, management used its 2005
operating plan as the basis for a forecast of future taxable earnings.
Management did not incorporate growth assumptions and limited the forecast to
five years, the period that management believes it can project results that are
more likely than not achievable. Absent a significant and unforeseen change in
facts or circumstances, management re-evaluates the realizability of its tax
assets in connection with its annual budgeting cycle.

Based on its assessment and using the methodology described above,
management believes more likely than not the net deferred tax asset will be
realized. The company is currently profitable and management believes the issues
that gave rise to historical losses have been substantially resolved with no
impact on its continuing businesses. Moreover, the company's Burger King and
Chili's businesses have been historically, and continue to be, profitable.
Nonetheless, realization of the net deferred tax asset will require
approximately $27 million of future taxable income. The company operates in a
very competitive industry that can be significantly affected by changes in
local, regional or national economic conditions, changes in consumer tastes,
weather conditions and various other consumer concerns. Accordingly, the amount
of the deferred tax asset considered by management to be realizable, more likely
than not, could change in the near term if estimates of future taxable income
change. This could result in a charge to, or increase in, income in the period
such determination is made.

The company has net operating loss carryforwards of approximately $53.4
million as well as FICA tip credits and alternative minimum tax credits of $5.8
million. At the end of fiscal 2004 the company had a valuation reserve against
its deferred tax asset of $25.2 million resulting in a net deferred tax asset of
$8.3 million.

Discontinued operations includes four Grady's American Grill restaurants
sold during fiscal 2003, four restaurants that met the criteria for 'held for
sale' treatment in fiscal 2003 and five that met the criteria in fiscal 2004.
The decision to dispose of these locations reflects the company's ongoing
process of evaluating the performance and cash flows of its various restaurant
locations and using the proceeds from the sale of closed restaurants to reduce
outstanding debt. The net loss from discontinued operations for fiscal 2004 was
$1,090,000 versus a net loss of $2,351,000 in fiscal 2003. Discontinued
operations for the fiscal year ended October 31, 2004 includes charges for the
impairment of assets and facility closing costs totaling $2,357,000.
Discontinued operations for the fiscal year ended October 26, 2003 includes
charges for the impairment of assets and facility closing costs totaling
$4,631,000. The total restaurant sales from discontinued operations for fiscal
2004 were $8,179,000 versus $16,249,000 in fiscal 2003.

The net income in fiscal 2004 was $2,221,000, or $0.22 per share on a
diluted basis, compared to a net income of $399,000, or $0.04 per share on a
diluted basis, in fiscal 2003.

102

FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002

Restaurant sales in fiscal 2003 were $219,331,000, a decrease of 7.7% or
$18,389,000, compared to restaurant sales of $237,720,000 in fiscal 2002. The
decrease was due to a $8,812,000 decrease in restaurant sales in the company's
quick service segment and a $9,577,000 decrease in restaurant sales in the
company's full service segment. As a result of the adoption of Statement of
Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", the company has classified the revenues,
expenses and related assets and liabilities of four Grady's American Grill
restaurants that were sold in fiscal 2003, four Grady's American Grill
restaurants that met the criteria for 'held for sale' treatment in fiscal 2003
and five that met the criteria in fiscal 2004, as discontinued operations in the
accompanying consolidated financial statements.

The company's Burger King restaurant sales were $114,983,000 in fiscal 2003
compared to sales of $123,795,000 in fiscal 2002, a decrease of $8,812,000. The
company had increased revenue of $2,594,000 due to additional sales weeks from
three restaurants opened in fiscal 2003 and two restaurants opened in fiscal
2002 that were open for their first full year in fiscal 2003. The company's
Burger King restaurants' average weekly sales decreased to $18,998 in fiscal
2003 versus $20,668 in fiscal 2002. Sales at restaurants open for more than one
year decreased 8.2% in fiscal 2003 when compared to the same period in fiscal
2002. The company believes that the sales decline it experienced in fiscal 2003
resulted primarily from ineffective marketing and unsuccessful new product
introductions.

The company's Chili's Grill & Bar restaurant sales increased $4,950,000 to
$80,710,000 in fiscal 2003 compared to restaurant sales of $75,760,000 in fiscal
2002. The company had increased revenue of $3,716,000 due to additional sales
weeks from three new restaurants opened in fiscal 2003 and one restaurant opened
in fiscal 2002 that was open for its first full year in fiscal 2003. The
company's Chili's Grill & Bar restaurants average weekly sales increased to
$44,518 in fiscal 2003 versus $43,868 in fiscal 2002. Sales at restaurants open
for more than one year increased 2.1% in fiscal 2003 when compared to the same
period in fiscal 2002. The company believes that the sales increases it
experienced in fiscal 2003 resulted from the application of the company's
disciplined operating systems and successful marketing and menu strategies by
the franchisor.

The company's Grady's American Grill restaurant sales were $6,078,000 in
fiscal 2003 compared to sales of $21,113,000 in fiscal 2002, a decrease of
$15,035,000. The company sold or closed 18 units in fiscal 2002. The absence of
these units accounted for $14,061,000 of the sales decrease during fiscal 2003.
The company sold four units in fiscal 2003, had four additional units that met
the criteria for 'held for sale' treatment in fiscal 2003 and five that met the
criteria in fiscal 2004. As required by SFAS 144, the results of operations for
these restaurants have been classified as discontinued operations for all
periods reported. The remaining three Grady's American Grill restaurants had
average weekly sales of $38,961 in fiscal 2003 versus $44,807 in fiscal 2002, a
decrease of 13.0%. The company believes sales declines in its Grady's American
Grill division resulted from competitive intrusion and the company's inability
to efficiently market this concept.

During the second quarter of fiscal 2003 the company closed three Grady's
American Grill restaurants. The company sold four Grady's American Grill
restaurants in fiscal 2003 receiving net proceeds of $4.8 million. In light of
these disposals and the continued decline in sales and cash flow in its Grady's
American Grill division, in the second quarter of fiscal 2003, the company
reviewed the carrying amounts for the balance of its Grady's American Grill
restaurant assets. The company estimated the future cash flows expected to
result from the continued operation and the residual value of the remaining
restaurant locations in the division and concluded that, in eight locations, the
undiscounted estimated future cash flows were less than the carrying amount of
the related assets. Accordingly, the company concluded that these assets had
been impaired. The company measured the impairment and recorded an impairment
charge related to these assets aggregating $4,411,000 in the second quarter of
fiscal 2003, consisting of a reduction in the net book value of the Grady's
American Grill trademark of $2,882,000 and a reduction in the net book value of
certain fixed assets in the amount of $1,529,000. The impairment charge was
recorded as a component of discontinued operations. In determining the fair
value of the

103

aforementioned restaurants, the company relied primarily on discounted cash flow
analyses that incorporated an investment horizon of five years and utilized a
risk adjusted discount factor.

In light of the continuing negative trends in both sales and cash flows,
the increase in the pervasiveness of these declines amongst individual stores,
and the accelerating rate of decline in both sales and cash flow, the company
also determined that the useful life of the Grady's American Grill trademark
should be reduced from 15 to five years.

The company continues to pursue various management actions in response to
the negative trend in its Grady's business, including evaluating strategic
business alternatives for the division both as a whole and at each of its
restaurant locations.

The company's Italian Dining division's restaurant sales increased $508,000
to $17,560,000 in fiscal 2003 when compared to restaurant sales of $17,052,000
in fiscal 2002. The company had increased revenue of $1,730,000 due to
additional sales weeks from one new restaurant opened in fiscal 2002. The
Italian Dining division's average weekly sales decreased to $37,522 in fiscal
2003 from $40,122 in fiscal 2002. Sales at restaurants open for more than one
year decreased 7.3% in fiscal 2003 when compared to the same period in fiscal
2002. The company believes that the sales declines it experienced in its Italian
Dining division resulted primarily from competitive intrusion and the company's
inability to efficiently market this concept.

Total restaurant operating expenses were $190,245,000 in fiscal 2003,
compared to $205,021,000 in fiscal 2002. As a percentage of restaurant sales,
total restaurant operating expenses increased to 86.7% in fiscal 2003 from 86.2%
in fiscal 2002. The following factors influenced the operating margins:

Food and beverage costs were $59,271,000 in fiscal 2003, compared to
$65,912,000 in fiscal 2002. As a percentage of total restaurant sales, food and
beverage costs decreased 0.7% to 27.0% in fiscal 2003 from 27.7% in fiscal 2002.
During fiscal 2003 food and beverage costs, as a percentage of sales, improved
in both the quick service segment and the full service segment. The improvement
in the quick service segment was mainly due to improved margins in the company's
Grand Rapids, Michigan Burger King market. The company acquired these
restaurants on October 15, 2001, and has implemented new procedures that have
reduced food costs as a percentage of sales. The decrease in the full service
segment was mainly due to the reduced number of Grady's American Grill
restaurants, which historically have had higher food and beverage costs, as a
percentage of total restaurant sales, than the company's other full service
concepts.

Payroll and benefits were $63,923,000 in fiscal 2003, compared to
$69,571,000 in fiscal 2002. As a percentage of total restaurant sales, payroll
and benefits decreased to 29.1% in fiscal 2003 from 29.3% in fiscal 2002.
Payroll and benefits, as a percentage of sales, increased in the quick service
segment and decreased in the full service segment. The increase in the quick
service segment was mainly due to a decrease in average weekly sales. The
decrease in the full service segment was mainly due to the reduced number of
Grady's American Grill restaurants, which historically have had higher payroll
and benefit costs, as a percentage of total restaurant sales, than the company's
other full service concepts.

Depreciation and amortization increased $89,000 to $10,158,000 in fiscal
2003 compared to $10,069,000 in fiscal 2002. As a percentage of total restaurant
sales, depreciation and amortization increased to 4.6% in fiscal 2003 compared
to 4.2% in fiscal 2002. The increase, as a percentage of revenues, was mainly
due to the decrease in average weekly sales at the company's Burger King,
Italian Dining and Grady's American Grill restaurants.

Other restaurant operating expenses include rent and utilities, royalties,
promotional expense, repairs and maintenance, property taxes and insurance.
Other restaurant operating expenses decreased $2,576,000 to $56,893,000 in
fiscal 2003 compared to $59,469,000 in 2002. The decrease was mainly due to the
reduced number of Grady's American Grill restaurants operating in fiscal 2003
versus fiscal 2002. Other restaurant operating expenses, as a percentage of
total restaurant sales, increased to 26.0% in fiscal 2003 versus 25.0% in fiscal
2002. The increase, as a percentage of revenues, was mainly due to the decrease
in

104

average weekly sales at the company's Burger King, Italian Dining and Grady's
American Grill restaurants.

Income from restaurant operations decreased $3,613,000 to $29,086,000, or
13.3% of revenues, in fiscal 2003 compared to $32,699,000, or 13.8% of revenues,
in fiscal 2002. Income from restaurant operations in the company's quick service
segment decreased $3,372,000 while the company's full service segment decreased
$159,000 from the prior year.

General and administrative expenses, which include corporate and district
management costs, were $16,068,000 in fiscal 2003, compared to $18,715,000 in
fiscal 2002. As a percentage of total restaurant sales, general and
administrative expenses decreased to 7.3% in fiscal 2003 compared to 7.9% in
fiscal 2002. In fiscal 2002 the company incurred approximately $1,527,000 in
legal expense for bagel-related litigation compared to $289,000 in legal expense
in fiscal 2003. The company also had $1,059,000 less in bonus expense in fiscal
2003 than in fiscal 2002.

Amortization of intangibles was $364,000 in fiscal 2003, compared to
$431,000 in fiscal 2002. The decrease was due to the decreased number of Grady's
American Grill restaurants operated by the company. As a percentage of total
restaurant sales, amortization of intangibles remained consistent at 0.2% in
fiscal 2003 and fiscal 2002.

The company incurred $220,000 in facility closing costs in fiscal 2003 that
have been recorded in discontinued operations and reversed $90,000 in facility
closing costs, which have been recorded in continuing operations, because actual
facility closing costs were lower than the company's original estimates.

The company had operating income of $12,744,000 in fiscal 2003 compared to
operating income of $13,198,000 in fiscal 2002.

Total interest expense decreased to $7,143,000 in fiscal 2003 from
$7,916,000 in fiscal 2002. The decrease was due to lower interest rates and
lower debt levels.

During the third quarter of fiscal 2003, one of the consolidated VIE's (see
Note 2 to the company's consolidated financial statements) purchased all
1,148,014 shares of the company's common stock owned by NBO, LLC, for
approximately $4.1 million. As a result of this transaction, the company
incurred a one-time, non-cash charge of $1,294,000, which is equal to the
premium to the market price that the VIE paid for the shares.

Minority interest in earnings pertains to certain related party affiliates
that are VIEs. The company holds no direct ownership or voting interest in the
VIEs. Minority interest in earnings was $2,678,000 in fiscal 2003 versus
$3,010,000 in fiscal 2002. See Note 2 in the company's consolidated financial
statements for further discussion.

Income tax expense of $3,293,000 was recorded in fiscal 2003 compared to
$522,000 in fiscal 2002. The company recognized $2,317,000 in federal tax
expense in fiscal 2003 versus a tax benefit of $826,000 in fiscal 2002. At the
end of fiscal 2003, the company reviewed its valuation reserve against its
deferred tax asset consistent with its historical practice. The company's
assessment of its ability to realize the net deferred tax asset was based on the
weight of both positive and negative evidence, including the taxable income of
its current operations. The company operates in a very competitive industry that
can be significantly affected by changes in local, regional or national economic
conditions, changes in consumer tastes, weather conditions and various other
consumer concerns. Accordingly, the amount of the deferred tax asset considered
by management to be realizable, more likely than not, could change in the near
term if estimates of future taxable income change. This could result in a charge
to, or increase in, income in the period such determination is made.

105

The company has net operating loss carryforwards of approximately $56.9
million as well as FICA tip credits and alternative minimum tax credits of $5.1
million. The alternative minimum tax credits of $191,000 do not expire. At the
end of fiscal 2003 the company had a valuation reserve against its deferred tax
asset of $25.2 million resulting in a net deferred tax asset of $9.0 million.

Discontinued operations includes four Grady's American Grill restaurants
sold during fiscal 2003, four restaurants that met the criteria for 'held for
sale' treatment in fiscal 2003 and five that met the criteria in fiscal 2004.
The decision to dispose of these locations reflects the company's ongoing
process of evaluating the performance and cash flows of its various restaurant
locations and using the proceeds from the sale of closed restaurants to reduce
outstanding debt. The net loss from discontinued operations for fiscal 2003 was
$2,351,000 versus income of $1,250,000 in fiscal 2002. Discontinued operations
for the fiscal year ended October 26, 2003 includes non-cash charges for the
impairment of assets totaling $4,411,000. The total restaurant sales from
discontinued operations for fiscal 2003 were $16,249,000 versus $23,805,000 in
fiscal 2002.

The net income in fiscal 2003 was $399,000, or $0.04 per diluted share,
compared to a net income of $4,731,000, or $0.42 per diluted share, in fiscal
2002.

MANAGEMENT OUTLOOK

The following section contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements about trends in and the impact of certain initiatives upon the
company's operations and financial results. Forward-looking statements can be
identified by the use of words such as "anticipates," "believes," "plans,"
"estimates," "expects," "intends," "may," and other similar expressions.
Forward-looking statements are made based upon management's current expectations
and beliefs concerning future developments and their potential effects on the
company. There can be no assurance that the company will actually achieve the
plans, intentions and expectations discussed in these forward-looking
statements. Actual results may differ materially.

Quick Service. The quick service segment of the restaurant industry is a
very mature and competitive segment, which is dominated by several national
chains. Market share is gained through national media campaigns promoting
specific sandwiches, usually at a discounted price. The national chains extend
marketing efforts to include nationwide premiums and movie tie-ins. During
fiscal 2004, the quick service hamburger segment of the restaurant industry
experienced positive growth. The fast food hamburger segment moved away from
deep discounting and has focused more on full priced products. To date in fiscal
2005, the positive sales momentum has continued in the quick service hamburger
segment. The company believes that Burger King must continue to introduce
appealing new products and promotional campaigns to successfully compete for
market share in the quick service segment.

Full Service. The full service segment of the restaurant industry is also
mature and competitive. This segment has a few national companies that utilize
national media efficiently. This segment also has numerous regional and local
chains that provide service and products comparable to the national chains but
which cannot support significant marketing campaigns.

During fiscal 2004, the company experienced lower average unit volumes in
its Chili's division. While the comparable store sales trends were not as good
as the company had expected, the company expects average unit volumes to
stabilize in fiscal 2005.

During fiscal 2004, the company experienced deterioration in its Italian
Dining division's profitability. The company has experienced significant
competitive intrusion in the markets where it has Italian Dining restaurants.
The company expects the competitive pressures to continue in fiscal 2005.

During fiscal 2004, the results of the company's Grady's American Grill
division did not meet the company's expectations. The company believes that the
results in this division were negatively affected by competitive intrusion in
the company's markets and limitations in the company's ability to efficiently
market its Grady's American Grill restaurants. The company expects the
competitive pressures to continue in fiscal 2005.
106

Income taxes. The company has recorded a valuation allowance to reduce its
deferred tax assets since it is more likely than not that some portion of the
deferred assets will not be realized. Management has considered all available
evidence, both positive and negative, including the company's historical
operating results, estimates of future taxable income and ongoing feasible tax
strategies in assessing the need for the valuation allowance. The company
believes the positive evidence includes the company's profitability in 2004,
2003 and 2002, the consistent historical profitability of its Chili's and Burger
King divisions, and the resolution of substantially all of its bagel-related
contingent liabilities. The company believes the negative evidence includes the
persistent negative trends in its Grady's American Grill division, the recent
same store sales declines in its Italian Dining division and statutory limits on
available carryforward tax benefits. In estimating its deferred tax asset,
management used its 2005 operating plan as the basis for a forecast of future
taxable earnings. Management did not incorporate growth assumptions and limited
the forecast to five years, the period that management believes it can project
results that are more likely than not achievable. Absent a significant and
unforeseen change in facts or circumstances, management re-evaluates the
realizability of its tax assets in connection with its annual budgeting cycle.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the company's principal sources and uses of
cash:

<Table>
<Caption>
FISCAL YEAR ENDED
---------------------------------------
OCTOBER 31, OCTOBER 26, OCTOBER 27,
2004 2003 2002
----------- ----------- -----------
(DOLLARS IN THOUSANDS)

Net cash provided by operating activities........... $ 18,594 $14,187 $ 16,087
Cash flows from investing activities:
Purchase of property and equipment................ (8,804) (9,570) (16,102)
Purchase of other assets.......................... (863) (892) (1,013)
Proceeds from the sale of assets.................. 8,672 4,782 15,517
Cash flow from financing activities:
Repayment of long-term debt, net.................. (14,831) (3,078) (13,268)
Purchase of treasury stock........................ -- (4,073) --
Loan financing fees............................... -- -- (619)
Cash distributions to minority interest........... (3,235) (3,451) (3,758)
Cash provided by discontinued operations............ 327 2,366 2,266
</Table>

The company requires capital principally for building or acquiring new
restaurants, replacing equipment and remodeling existing restaurants. During the
three year period ended October 31, 2004, the company financed these activities
principally using cash flows from operations and proceeds from the sale of
assets. The company's restaurants generate cash immediately through sales. As is
customary in the restaurant industry, the company does not have significant
assets in the form of trade receivables or inventory, and customary payment
terms generally result in several weeks of trade credit from its vendors.
Therefore, the company's current liabilities have historically exceeded its
current assets.

In fiscal 2004, net cash provided by operating activities was $18,594,000
compared to $14,187,000 in fiscal 2003. The increase in net cash provided by
operating activities was due to higher income from restaurant operations, lower
interest expense and changes in operating liabilities that provided cash.

During fiscal 2004, the company had $8,804,000 in capital expenditures in
connection with the opening of new restaurants and the refurbishing of existing
restaurants. During fiscal 2004, the company purchased the leasehold
improvements and restaurant equipment of six existing quick service restaurants
for $1,076,000 and built two new full service restaurants.

During fiscal 2004, the company received $8,672,000 in net proceeds from
the sale of assets, mainly from the sale of six Grady's American Grill
restaurants.

107

The company had a net repayment of $12,975,000 under its revolving credit
agreement during fiscal 2004. As of October 31, 2004, the company's revolving
credit agreement had an additional $7,395,000 available for future borrowings.
The company's average borrowing rate on October 31, 2004 was 4.66%. The
revolving credit agreement is subject to certain restrictive covenants that
require the company, among other things, to achieve agreed upon levels of cash
flow. Under the revolving credit agreement the company's funded debt to
consolidated cash flow ratio may not exceed 3.50 and its fixed charge coverage
ratio may not be less than 1.50 on October 31, 2004. The company was in
compliance with these requirements with a funded debt to consolidated cash flow
ratio of 3.13 and a fixed charge coverage ratio of 1.70 as of and for the period
ended October 31, 2004.

The company's primary cash requirements in fiscal 2005 will be capital
expenditures in connection with the opening of new restaurants, remodeling of
existing restaurants, maintenance expenditures, and the reduction of debt under
the company's debt agreements. During fiscal 2005, the company anticipates
opening one full service restaurant. The company does not plan to open any new
quick service restaurants. The company also plans to renovate approximately six
quick service restaurants and six full service restaurants during fiscal 2005.
While the company's capital expenditures for fiscal 2005 are expected to range
from $8,000,000 to $10,000,000, if the company has alternative uses or needs for
its cash, the company believes it could reduce such planned expenditures without
affecting its current operations. The actual amount of the company's cash
requirements for capital expenditures depends in part on the number of new
restaurants opened, whether the company owns or leases new units and the actual
expense related to the renovation and maintenance of existing units. The company
has debt service requirements of approximately $1,792,000 in fiscal 2005,
consisting primarily of the principal payments required under its mortgage
facility.

The company anticipates that its cash flow from operations, together with
the $7,395,000 available under its revolving credit agreement as of October 31,
2004, will provide sufficient funds for its operating, capital expenditure, debt
service and other requirements through the end of fiscal 2005.

As of October 31, 2004, the company had a financing package totaling
$89,066,000, consisting of a $40,000,000 revolving credit agreement (the "Bank
Facility") and a $49,066,000 mortgage facility (the "Mortgage Facility"), as
described below.

The Mortgage Facility currently includes 34 separate mortgage notes, with
initial terms of either 15 or 20 years. The notes have fixed rates of interest
of either 9.79% or 9.94%. The notes require equal monthly interest and principal
payments. The mortgage notes are collateralized by a first mortgage/deed of
trust and security agreement on the real estate, improvements and equipment on
19 of the company's Chili's restaurants (nine of which the company mortgaged its
leasehold interest) and 15 of the company's Burger King restaurants (three of
which the company mortgaged its leasehold interest). These restaurants had a net
book value of $33,107,000 at October 31, 2004. The mortgage notes contain, among
other provisions, financial covenants that require the company to maintain a
consolidated fixed charge coverage ratio of at least 1.30 for each of six
subsets of the financed properties.

The company was not in compliance with the required consolidated fixed
charge coverage ratio for one of the subsets of the financed properties as of
October 31, 2004. This subset is comprised solely of Burger King restaurants and
had a fixed charge coverage ratio of 1.09. Outstanding obligations under this
subset totaled $8,966,000 at October 31, 2004. The company sought and obtained a
waiver for this covenant default from the mortgage lender through November 27,
2005. If the company is not in compliance with the covenant as of November 27,
2005, the company will most likely seek an additional waiver. The company
believes it would be able to obtain such waiver but there can be no assurance
thereof. If the company is unable to obtain such waiver, it is contractually
entitled to pre-pay the outstanding balances under one or more of the separate
mortgage notes such that the remaining properties in the subset would meet the
required ratio. However, any such prepayments would be subject to prepayment
premiums and to the company's ability to maintain its compliance with the
financial covenants in its revolving credit agreement. Alternatively, the
company is contractually entitled to substitute one or more better performing
restaurants for under-performing restaurants such that the reconstituted subsets
of

108

properties would meet the required ratio. However, any such substitutions would
require the consent of the lenders in the revolving credit agreement. For these
reasons, the company believes that its rights to prepay mortgage notes or
substitute properties, where reasonably possible, may be impractical depending
on the circumstances existing at the time.

On June 10, 2002, the company refinanced its Bank Facility with a
$60,000,000 revolving credit agreement with JP Morgan Chase Bank, as agent, and
four other banks. During the third quarter of fiscal 2004 the company exercised
its right to unilaterally reduce the capacity under the revolving credit
agreement to $40,000,000. The Bank Facility is collateralized by the stock of
certain subsidiaries of the company, certain interests in the company's
franchise agreements with Brinker and Burger King Corporation and substantially
all of the company's personal property not pledged in the Mortgage Facility.

The Bank Facility contains restrictive covenants including maintenance of
certain prescribed debt and fixed charge coverage ratios, limitations on the
incurrence of additional indebtedness, limitations on consolidated capital
expenditures, cross-default provisions with other material agreements,
restrictions on the payment of dividends (other than stock dividends) and
limitations on the purchase or redemption of shares of the company's capital
stock.

The Bank Facility provides for borrowings at the adjusted LIBOR rate plus a
contractual spread which is as follows:

<Table>
<Caption>
RATIO OF FUNDED DEBT TO CASH FLOW LIBOR MARGIN
- --------------------------------- ------------

Greater than or equal to 3.5x............................... 3.00%
Less than 3.5x but greater than or equal to 3.0x............ 2.75%
Less than 3.0x but greater than or equal to 2.5x............ 2.25%
Less than 2.5x.............................................. 1.75%
</Table>

The Bank Facility also contains covenants requiring maintenance of funded
debt to cash flow and fixed charge coverage ratios as follows:

<Table>
<Caption>
MAXIMUM FUNDED DEBT TO CASH FLOW RATIO COVENANT
- -------------------------------------- --------

Fiscal 2002
Q2 through Q4............................................... 4.00
Fiscal 2003
Q1 through Q3............................................... 4.00
Q4.......................................................... 3.75
Fiscal 2004
Q1 through Q3............................................... 3.75
Q4.......................................................... 3.50
Fiscal 2005
Q1 through Q2............................................... 3.50
Thereafter.................................................. 3.00
Fixed Charge Coverage Ratio................................. 1.50
</Table>

The company's funded debt to consolidated cash flow ratio may not exceed
3.50 through the second quarter of fiscal 2005 and 3.00 by the end of fiscal
2005 and thereafter. The company's funded debt to consolidated cash flow ratio
on October 31, 2004 was 3.13. To maintain the required ratios throughout fiscal
2005, the company plans to continue its efforts to optimize cash flow from its
restaurant operations. If the company does not maintain the required funded debt
to consolidated cash flow ratio, that would constitute an event of default under
the Bank Facility. The company would then need to seek waivers from its lenders
or amendments to the covenants.

The company has adopted FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities", as revised by the FASB in December 2003 (FIN 46R),
(See Note 2 to the company's consolidated

109

financial statements). As a result of the adoption of this Interpretation, the
company changed its consolidation policy whereby the accompanying consolidated
financial statements now include the accounts of Quality Dining, Inc., its
wholly owned subsidiaries, and certain related party affiliates that are VIEs.
The company holds no direct ownership or voting interest in any VIE.
Additionally, the creditors and beneficial interest holders of each VIE have no
recourse to the general credit of the company. The VIE bank debt totaled
$7,204,000 at October 31, 2004, and $5,430,000 of that debt was classified as
current debt.

The company has long-term contractual obligations primarily in the form of
lease and debt obligations. The following table summarizes the company's
contractual obligations and their aggregate maturities as of October 31, 2004:

<Table>
<Caption>
PAYMENT DUE BY FISCAL YEAR
-----------------------------------------------------------------------
2010 AND
CONTRACTUAL OBLIGATIONS 2005 2006 2007 2008 2009 THEREAFTER TOTAL
- ----------------------- ------- ------- ------- ------- ------- ---------- --------
(DOLLARS IN THOUSANDS)

Mortgage
debt -- principal........ $ 1,792 $ 1,985 $ 2,175 $ 2,316 $ 2,555 $31,907 $ 42,730
Mortgage
debt -- interest......... 4,383 4,199 3,998 3,527 3,288 16,463 35,858
Revolver debt.............. -- 30,625 -- -- -- -- 30,625
Variable interest entity
debt..................... 5,429 234 220 1,321 -- -- 7,204
Operating leases........... 7,217 6,533 6,231 5,654 5,419 19,592 50,646
Construction commitments... 50 -- -- -- -- -- 50
------- ------- ------- ------- ------- ------- --------
Total contractual cash
obligations.............. $18,871 $43,576 $12,624 $12,818 $11,262 $67,962 $167,113
------- ------- ------- ------- ------- ------- --------
</Table>

RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities". This Interpretation was
subsequently revised by the FASB in December 2003 (FIN 46R). The objective of
this Interpretation is to provide guidance on how to identify a VIE and
determine when the assets, liabilities, noncontrolling interests, and results of
operations of a VIE need to be included in a company's consolidated financial
statements. A company that holds variable interests in an entity will need to
consolidate the entity if the company's interest in the VIE is such that the
company will absorb a majority of the VIE's expected losses and/or receive a
majority of the entity's expected residual returns, if they occur. FIN 46R also
requires additional disclosures by primary beneficiaries and other significant
variable interest holders. FIN 46R is effective for periods after June 15, 2003
for variable interest entities in which a company holds a variable interest it
acquired before February 1, 2003. For entities acquired or created after
February 1, 2003, this Interpretation is effective no later than the end of the
first reporting period that ends after March 15, 2004, except for those variable
interest entities that are considered to be special-purpose entities, for which
the effective date is no later than the end of the first reporting period that
ends after December 31, 2003. The company adopted this statement in fiscal 2004,
see Note 2 of the company's consolidated financial statements.

110

apply a fair-value-based measurement method in accounting for share-based
payment transactions with employees. This Statement is effective for public
entities that file as small business issuers as of the beginning of the first
interim or annual reporting period that begins after December 15, 2005, and for
nonpublic entities as of the beginning of the first annual reporting period that
begins after December 15, 2005. The company is still assessing the impact, if
any, the Statement will have on the company's financial statements.

In December 2004, the FASB issued FASB Statement No. 153 (SFAS 153),
"Exchanges of Nonmonetary Assets" an amendment of APB Opinion No. 29 (APB 29).
This Statement addresses the measurement of exchanges of nonmonetary assets. It
eliminates the exception from fair value measurement for nonmonetary exchanges
of similar productive assets in paragraph 21(b) of APB 29 and replaces it with
an exception for exchanges that do not have commercial substance. This Statement
is effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The company does not believe the adoption of this
Statement will have any material impact on the company's financial statements.

IMPACT OF INFLATION

Management does not believe that inflation has had a material effect on the
company's operations during the past several years. Increases in labor, food,
and other operating costs could adversely affect the company's operations. In
the past, however, the company generally has been able to modify its operating
procedures or increase menu prices to substantially offset increases in its
operating costs.

Many of the company's employees are paid hourly rates related to federal
and state minimum wage laws and various laws that allow for credits to that
wage. Although the company has been able to and will continue to attempt to pass
along increases in labor costs through food and beverage price increases, there
can be no assurance that all such increases can be reflected in its prices or
that increased prices will be absorbed by customers without diminishing, to some
degree, customer spending at the company's restaurants.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company is exposed to interest rate risk in connection with its $40.0
million revolving credit facility that provides for interest payable at the
LIBOR rate plus a contractual spread. The company's variable rate borrowings
under this revolving credit facility totaled $30,625,000 at October 31, 2004.
The impact on the company's annual results of operations of a one-point interest
rate change would be approximately $306,250.

FUTURE SHAREHOLDER PROPOSALS

An annual meeting of shareholders will be held in 2005 only if the merger
agreement is not approved and the merger is not consummated as described in this
proxy statement. If, however, an annual meeting of shareholders is held in 2005,
and if it is held on or prior to April 8, 2005, then the date by which
shareholder proposals must have been received by the company for inclusion in
proxy materials relating to the 2005 annual meeting of shareholders was October
8, 2004, as disclosed in the company's proxy statement relating to the company's
2004 annual meeting. If the date of the 2005 annual meeting of shareholders is
after April 8, 2005, then the date by which shareholder proposals must be
received by the company for inclusion in proxy materials relating to such 2005
annual meeting of shareholders will be a reasonable date before the company
begins to print and mail its proxy materials in connection with such annual
meeting. Such proposals should be submitted in writing to the secretary of the
company at its principal executive offices.

If a shareholder intends to submit a proposal at the 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
111

meeting by a shareholder, 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 all of the information required by the company's
by-laws, a copy of which is available from the company's secretary. 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.

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 the Exchange Act. 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.

MISCELLANEOUS OTHER INFORMATION

SHAREHOLDER PROPOSALS

The Indiana Business Corporation Law and Quality Dining's by-laws only
permit matters set forth in the notice of meeting to be acted upon at a special
meeting of shareholders. Accordingly, no other matters other than those set
forth in the "Notice of Special Meeting of Shareholders" will be presented for
action at the Special Meeting.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
documents with the U.S. Securities and Exchange Commission under the Exchange
Act. Our SEC filings made electronically through the SEC's EDGAR system are
available to the public at the SEC's website at http://www.sec.gov. You may also
read and copy any document we file with the SEC at the SEC's public reference
room located at:

450 FIFTH STREET, NW
WASHINGTON, DC 20549

You may also obtain copies of this information by mail from the Public
Reference Room of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet world wide web site that contains reports, proxy
statements and other information about issuers, including Quality Dining, who
file electronically with the SEC. The address of that site is
http://www.sec.gov. You can also inspect reports, proxy statements and other
information about Quality Dining at the offices of The Nasdaq Stock Market, Inc.

112

Quality Dining, QDI Merger Corp. and each member of the Fitzpatrick group
have filed with the SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3
with respect to the merger. As permitted by the SEC, this proxy statement omits
certain information contained in the Schedule 13E-3. The Schedule 13E-3,
including any amendments and exhibits filed or incorporated by reference as a
part thereof, is available for inspection or copying as set forth above.

---------------------

You should rely only on the information contained in this proxy statement
to vote your shares at the special meeting. Quality Dining has not authorized
anyone to provide you with information that is different. This proxy statement
is dated [ ], 2005. You should not assume that the information
contained in this proxy statement is accurate as of any date other than that
date, and the mailing of this proxy statement to shareholders does not create a
solicitation of a proxy in any jurisdiction where, or to or from any person to
whom, it is unlawful to make such proxy solicitation in such jurisdiction.

By Order of the Board of Directors

John C. Firth
Secretary

[ ], 2005

113

APPENDIX A

AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 9, 2004
BY AND BETWEEN
QDI MERGER CORP.
AND
QUALITY DINING, INC.

TABLE OF CONTENTS

<Table>
<Caption>
PAGE
----

ARTICLE I
CERTAIN DEFINITIONS........................................................ A-2

ARTICLE II
THE MERGER................................................................. A-6
SECTION 2.1 The Merger.................................................. A-6
SECTION 2.2 Effective Time.............................................. A-6
SECTION 2.3 Effects of the Merger....................................... A-6
SECTION 2.4 Articles of Incorporation and Bylaws........................ A-6
SECTION 2.5 Directors................................................... A-6
SECTION 2.6 Officers.................................................... A-6
SECTION 2.7 Subsequent Actions.......................................... A-6
SECTION 2.8 Effect on the Capital Stock................................. A-7
SECTION 2.9 Treatment of Options and Restricted Shares.................. A-7
SECTION 2.10 Payment for Shares.......................................... A-8

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. A-10
SECTION 3.1 Organization and Qualification.............................. A-10
SECTION 3.2 Capitalization of the Company............................... A-10
SECTION 3.3 Authority Relative to this Agreement........................ A-11
SECTION 3.4 SEC Filings................................................. A-11
SECTION 3.5 Consents and Approvals, No Violations....................... A-11
SECTION 3.6 State Takeover Statute Inapplicable......................... A-12
SECTION 3.7 Company Rights Agreement.................................... A-12
SECTION 3.8 Brokers..................................................... A-12
SECTION 3.9 Opinion of Financial Advisor................................ A-12

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER CORP. ............................ A-12
SECTION 4.1 Organization................................................ A-12
SECTION 4.2 Authority Relative to this Agreement........................ A-13
SECTION 4.3 Consents and Approvals; No Violations....................... A-13
SECTION 4.4 Capitalization.............................................. A-13
SECTION 4.5 SEC Filings................................................. A-13
SECTION 4.6 Ownership of Shares......................................... A-13
SECTION 4.7 Financing................................................... A-13
SECTION 4.8 Brokers..................................................... A-14
SECTION 4.9 Disclosure.................................................. A-14

ARTICLE V
COVENANTS.................................................................. A-14
SECTION 5.1 Shareholders Meeting........................................ A-14
SECTION 5.2 SEC Filings................................................. A-14
SECTION 5.3 Conduct of Business of the Company.......................... A-15
SECTION 5.4 Notification of Certain Matters............................. A-17
</Table>

A-i

<Table>
<Caption>
PAGE
----

SECTION 5.5 Access to Information....................................... A-17
SECTION 5.6 Additional Agreements; Commercially Reasonable Efforts...... A-18
SECTION 5.7 Public Announcements........................................ A-19
SECTION 5.8 Indemnification............................................. A-19
SECTION 5.9 Contributions to Merger Corp................................ A-20
SECTION 5.10 Withdrawal of Recommendation; Company Competing
Transactions................................................ A-20
SECTION 5.11 Resignation of Directors.................................... A-21
SECTION 5.12 Exemption from Liability Under Section 16(b)................ A-21
SECTION 5.13 Voting by Shareholder Group................................. A-22

ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER................................... A-22
SECTION 6.1 Conditions to the Merger.................................... A-22
SECTION 6.2 Conditions to Each Party's Obligations to Effect the
Merger...................................................... A-23

ARTICLE VII
TERMINATION; AMENDMENT; WAIVER............................................. A-23
SECTION 7.1 Termination................................................. A-23
SECTION 7.2 Effect of Termination....................................... A-24
SECTION 7.3 Expense Reimbursement....................................... A-24
SECTION 7.4 Amendment................................................... A-24
SECTION 7.5 Waiver...................................................... A-25

ARTICLE VIII
MISCELLANEOUS.............................................................. A-25
SECTION 8.1 Nonsurvival of Representations and Warranties............... A-25
SECTION 8.2 Entire Agreement; Assignment................................ A-25
SECTION 8.3 Severability................................................ A-25
SECTION 8.4 Notices..................................................... A-25
SECTION 8.5 Governing Law............................................... A-26
SECTION 8.6 Specific Performance........................................ A-26
SECTION 8.7 Interpretation.............................................. A-26
SECTION 8.8 Parties in Interest......................................... A-26
SECTION 8.9 Counterparts................................................ A-26

EXHIBIT A -- Shares of Common Stock owned by members of the Shareholder
Group...................................................................... A-28
</Table>

A-ii

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, dated as of November 9, 2004 ("this
Agreement"), is made by and between QDI Merger Corp., an Indiana corporation
("Merger Corp."), and Quality Dining, Inc., an Indiana corporation (the
"Company").

WHEREAS, the Company has authority to issue 55,000,000 shares of capital
stock consisting of: (1) 50,000,000 shares of common stock, no par value (the
"Common Stock"), of which 11,609,099 were outstanding as of November 1, 2004,
and (2) 5,000,000 shares of preferred stock, no par value (the "Preferred
Stock"), of which (a) 141,450 shares are designated Series A Convertible
Cumulative Preferred Stock (the "Series A Preferred Stock"), none of which are
outstanding, and (b) 180,000 shares are designated Series B Participating
Cumulative Preferred Stock (the "Series B Preferred Stock"), none of which are
outstanding;

WHEREAS, Daniel B. Fitzpatrick, Gerald O. Fitzpatrick, James K.
Fitzpatrick, Ezra H. Friedlander and John C. Firth, who together with certain
controlled entities (collectively, and together with any other shareholder of
the Company who becomes a party to the Shareholders Agreement (as defined below)
prior to the Shareholders Meeting (as defined below) the "Shareholder Group")
collectively own the number of shares of Common Stock set forth on Exhibit A
attached hereto, have entered into a Shareholders Agreement dated as of June 15,
2004 (as the same may be amended from time to time, the "Shareholders
Agreement"), pursuant to which (i) the Shareholder Group has proposed to the
board of directors of the Company (the "Company Board") a transaction pursuant
to which Merger Corp. would acquire the outstanding shares of Common Stock not
owned by the Shareholder Group, and (ii) the members in the Shareholder Group
have agreed to cause shares of Common Stock beneficially owned by them to be
voted in favor of the transactions contemplated by this Agreement and to
contribute their shares of Common Stock to Merger Corp. in order to facilitate
such transactions;

WHEREAS, the Company Board has established a special committee of the
Company Board comprised solely of directors unaffiliated with the Shareholder
Group (the "Special Committee") to consider such proposal and make a
recommendation to the Company Board with respect thereto;

WHEREAS, the Special Committee, following extensive negotiations with the
Shareholder Group and its advisors concerning the Shareholder Group's proposal,
and the Company Board, based on the recommendation of the Special Committee, (a)
have determined that the merger of Merger Corp. with and into the Company, with
the Company as the surviving corporation (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement, is advisable, fair to and
in the best interests of the Company and its shareholders (other than Merger
Corp. and its Affiliates), (b) have approved and adopted this Agreement and the
Merger, pursuant to which each share of Common Stock issued and outstanding
immediately prior to the Effective Time (as defined below), except for shares of
Common Stock owned, directly or indirectly, by Merger Corp. or the Company, will
be converted into the right to receive $3.20 in cash (the "Per Share Amount"),
and (c) have recommended that the Company's shareholders approve this Agreement
and the Merger;

WHEREAS, the board of directors of Merger Corp. has determined that this
Agreement and the Merger are advisable, fair to and in the best interests of
Merger Corp. and its shareholders and have approved and adopted this Agreement
and the Merger; and

WHEREAS, Merger Corp. and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;

A-1

NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:

ARTICLE I

CERTAIN DEFINITIONS

(a) As used in this Agreement, the following terms shall have the
respective meanings set forth below:

"Acquisition Agreement" shall have the meaning set forth in Section
5.10(d).

"Affiliate" of a specified Person means a Person who, directly or
indirectly, through one or more intermediaries controls, is controlled by
or is under common control with such specified Person; provided that as
used in this Agreement with respect to Merger Corp., the term "Affiliate"
or "Affiliates" of Merger Corp. does not include the Company and its
Subsidiaries. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether
through the ownership of voting shares, by contract or otherwise.

"Agreement" shall have the meaning set forth in the preamble.

"Articles of Merger" shall have the meaning set forth in Section 2.2.

"Award List" shall have the meaning set forth in Section 2.9(a).

"Benefit Plans" means all material employee, consultant or director
benefit plans, arrangements or agreements, including any employee welfare
benefit plan within the meaning of Section 3.1 of ERISA, any employee
pension benefit plan within the meaning of Section 3(2) of ERISA (whether
or not such plan is subject to ERISA) and any material bonus, incentive,
deferred compensation, vacation, stock purchase, stock option, severance,
termination, indemnity, employment, change of control or fringe benefit
plan, program, arrangement or agreement that provides benefits to any
current or former employee or director of the Company or any of its
Subsidiaries or any beneficiary or dependant thereof or with respect to
which the Company or any of its Subsidiaries could have a material
liability.

"Certificate" shall have the meaning set forth in Section 2.8(d).

"Closing" shall have the meaning set forth in Section 2.2.

"Closing Date" shall have the meaning set forth in Section 2.2.

"Common Stock" shall have the meaning set forth in the recitals.

"Company" shall have the meaning set forth in the preamble.

"Company Board" shall have the meaning set forth in the recitals.

"Company Competing Transaction" means any recapitalization, merger,
consolidation or other business combination involving the Company, or any
direct or indirect acquisition of shares of Common Stock representing 15%
or more of the voting power of the Company or any material portion of the
assets (except for acquisitions of assets in the ordinary course of
business consistent with past practice) of the Company and its
Subsidiaries, or any combination of the foregoing (other than the Merger).

"Company Disclosure Schedule" means the schedule of disclosures
delivered by the Company to Merger Corp. concurrent with the execution of
this Agreement.

"Company Material Adverse Effect" means any event, change,
circumstance, effect or state of facts that is or is reasonably expected to
be materially adverse to (a) the business, results of

A-2

operations, condition (financial or otherwise), assets or liabilities of
the Company and its Subsidiaries, taken as a whole, or (b) the ability of
the Company to consummate any of the transactions contemplated by this
Agreement and the Shareholders Agreement, including the Merger, except to
the extent that such adverse effect results from (i) general economic
conditions or changes therein, (ii) changes in, or events or conditions
affecting, the businesses in which the Company and its Subsidiaries
operate, but only to the extent that such changes, events or conditions do
not disproportionately affect the Company and its Subsidiaries, or (iii)
the announcement or execution of the transactions contemplated by this
Agreement.

"Company Permits" means all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities necessary for the Company
and its Subsidiaries to own, lease or operate their properties and assets
and to carry on their businesses as now conducted.

"Company Rights" shall have the meaning set forth in Section 3.2(a).

"Company Rights Agreement" shall have the meaning set forth in Section
3.2(a).

"Company SEC Documents" means all forms, schedules, statements and
other documents filed by the Company under the Securities Act or the
Exchange Act since October 27, 2002 and prior to the Closing Date,
collectively, as the same may have been amended or restated and including
all exhibits and schedules thereto and documents incorporated by reference
therein.

"Company Securities" shall have the meaning set forth in Section
3.2(a).

"Company Shareholder Approval" means the vote for the approval of this
Agreement and the Merger by a majority of all the votes entitled to be cast
at the Shareholders Meeting.

"Company Stock Plans" means, collectively, (i) the Quality Dining,
Inc. 1993 Stock Option Plan, (ii) the Quality Dining, Inc. 1993 Outside
Directors Plan, (iii) the Quality Dining, Inc. 1997 Stock Option and
Incentive Plan, and (iv) the Quality Dining, Inc. 1999 Outside Directors
Plan.

"Debt Financing" shall have the meaning set forth in Section 4.7.

"Effective Time" shall have the meaning set forth in Section 2.2.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

"Existing Policy" shall have the meaning set forth in Section 5.8(c).

"Financing Commitment Letters" shall have the meaning set forth in
Section 4.7.

"Financing Documents" shall have the meaning set forth in Section
5.5(b).

"GAAP" means U.S. generally accepted accounting principles.

"Governmental Entity" shall have the meaning set forth in Section 3.5.

"IBCL" means the Indiana Business Corporation Law, as amended and in
effect from time to time.

"Indemnified Parties" shall have the meaning set forth in Section
5.8(b).

"Lenders" shall have the meaning set forth in Section 4.7.

"Lien" means, with respect to any asset (including any security), any
security interests, liens, claims, charges, title defects, deficiencies or
exceptions (including, with respect to Real Property Leases, subleases,
assignments, licenses or other agreements granting to any third party any
interest in a Real Property Lease or any right to the use or occupancy of
any real property subject to such lease), mortgages, pledges, easements,
encroachments, restrictions on use, rights-of-way, rights of first refusal,
options, conditional sales or other title retention agreements, covenants,
conditions or other

A-3

similar restrictions (including restrictions on transfer) or other
encumbrances of any nature whatsoever in respect of such asset.

"Material Contract" means all of the contracts required to be
described in or filed as exhibits to the annual report on Form 10-K filed
by the Company with the SEC in respect of the fiscal year ended October 26,
2003.

"Merger" shall have the meaning set forth in the recitals.

"Merger Consideration" shall have the meaning set forth in Section
2.8(d).

"Merger Corp." shall have the meaning set forth in the preamble.

"Merger Corp. Expenses" means all documented out-of-pocket fees and
expenses actually and reasonably incurred by Merger Corp. and its
Affiliates or on their behalf in connection with any of the transactions
contemplated by this Agreement and the Shareholders Agreement (including
fees and expenses payable to financing sources, investment bankers,
consultants, counsel to any of the foregoing, accountants and legal
counsel), not to exceed $750,000.

"Merger Corp. Material Adverse Effect" means any event, change,
circumstance, effect or state of facts that is or is reasonably expected to
be materially adverse to the ability of Merger Corp. to consummate the
transactions contemplated by this Agreement or by the Shareholders
Agreement.

"Outside Date" shall mean April 9, 2005.

"Paying Agent" shall have the meaning set forth in Section 2.10(a).

"Per Share Amount" shall have the meaning set forth in the recitals.

"Permitted Liens" means (a) Liens for Taxes or governmental
assessments or similar obligations the payment of which is not yet due and
payable or delinquent, or for Taxes the validity of which are being
contested in good faith by appropriate proceedings, (b) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics, materialmen, and
other similar Liens imposed by applicable law incurred in the ordinary
course of business for sums not yet delinquent or being contested in good
faith, (c) Liens relating to deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance,
and other types of social security, and (d) Liens securing executory
obligations under any lease, regardless of whether it constitutes an
"operating lease" or a "capitalized lease" under GAAP.

"Person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity
or "group" (as defined in the Exchange Act).

"Preferred Stock" shall have the meaning set forth in the recitals.

"Proxy Statement" shall have the meaning set forth in Section 5.2.

"Real Property Lease" shall mean any contract or agreement to which
the Company or any of its Subsidiaries is a party relating to the lease of
real property used by the Company or its Subsidiaries.

"Representatives" means a Person's directors, officers, employees,
investment bankers, consultants, attorneys, agents and other
representatives.

"Retained Restricted Share Participant" shall have the meaning set
forth in Section 2.9(a).

"Retained Restricted Shares" shall have the meaning set forth in
Section 2.9(a).

"Restricted Shares" means shares of restricted stock granted under any
of the Company Stock Plans.

"Retained Option Participants" shall have the meaning set forth in
Section 2.9(a).

"Retained Options" shall have the meaning set forth in Section 2.9(a).

A-4

"Schedule 13E-3" means the Schedule 13E-3 to be filed by the Company,
Merger Corp. and the members of the Shareholder Group with the SEC in
connection with the Merger and the other transactions contemplated hereby,
including any and all amendments thereto.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

"Series A Preferred Stock" shall have the meaning set forth in the
recitals.

"Series B Preferred Stock" shall have the meaning set forth in the
recitals.

"Shareholders Agreement" shall have the meaning set forth in the
recitals.

"Shareholder Group" shall have the meaning set forth in the recitals.

"Shareholders Meeting" shall have the meaning set forth in Section
5.1.

"Special Committee" shall have the meaning set forth in the recitals.

"Stock Option" means an option to purchase shares of Common Stock.

"Subsidiary" means, with respect to any Person, any other Person,
whether incorporated or unincorporated, of which (a) such first Person or
any other Subsidiary of such first Person is a general partner (excluding
such partnerships where such first Person or any Subsidiary of such first
Person does not have a majority of the voting interest in such partnership)
or (b) at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is, directly or indirectly, owned or
controlled by such first Person or by any one or more of its Subsidiaries,
or by such first Person and one or more of its Subsidiaries.

"Superior Transaction" shall have the meaning set forth in Section
5.10(d).

"Surviving Corporation" shall have the meaning set forth in Section
2.1.

"Tail Period" shall have the meaning set forth in Section 5.8(c).

"Tax Returns" means all reports, returns, information returns,
statements, declarations and certifications required to be filed with
respect to Taxes.

"Taxes" means any income, alternative or add-on minimum tax, gross
receipts, sales, use, transfer, gains, ad valorem, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax, or other like assessment or charge, together
with any related interest, penalty, addition to tax or additional amount.

"Transmittal Documents" shall have the meaning set forth in Section
2.10(b).

(b) Construction of Certain Terms and Phrases. Unless the context of this
Agreement otherwise requires, (i) words of any gender include each other gender;
(ii) words using the singular or plural number also include the plural or
singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement; (iv) the words
"include," "includes" and "including" shall be deemed to be followed by the
words "without limitation"; (v) the term "lease" also includes subleases, the
term "lessor" also includes any sublessor, and the term "lessee" also includes
any sublessee; and (vi) the phrases "ordinary course of business" and "ordinary
course of business consistent with past practice" refer to the business and
practice of the Company or a Subsidiary. Whenever this Agreement refers to a
number of days, such number shall refer to calendar days unless otherwise
specified. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them under GAAP.

A-5

ARTICLE II

THE MERGER

SECTION 2.1. The Merger. Subject to the conditions of this Agreement and
in accordance with the IBCL, the parties hereto shall consummate the Merger
pursuant to which (a) Merger Corp. shall merge with and into the Company and the
separate corporate existence of Merger Corp. shall thereupon cease, (b) the
Company shall be the surviving corporation in the Merger (sometimes referred to
as the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Indiana, and (c) the corporate existence of the Company, with all
of its rights, privileges, immunities, powers and franchises, shall continue
unaffected by the Merger.

SECTION 2.2. Effective Time. As soon as practicable after the
satisfaction or waiver (to the extent permitted by applicable law) of the
conditions set forth in Article VI, the parties hereto shall cause articles of
merger in such form as required by, and executed in accordance with, the
relevant provisions of the IBCL (the "Articles of Merger") to be executed and
filed on the Closing Date (or on such other date as Merger Corp. and the Company
may agree) with the Secretary of State of the State of Indiana. The closing of
the Merger (the "Closing") will take place (a) at the offices of the Company,
4220 Edison Lakes Parkway, Mishawaka, Indiana 46545, at 10:00 a.m. Indiana time
on a date as soon as reasonably practicable (but in any event no later than the
third business day) after satisfaction or waiver (to the extent permitted by
applicable law) of the conditions set forth in Article VI (other than those
conditions that are to be satisfied at the Closing, but subject to the
satisfaction or waiver (to the extent permitted by applicable law) of such other
conditions), or (b) at such other place or time and/or such other date as the
parties may agree. The date on which the Closing occurs is referred to in this
Agreement as the "Closing Date." The Merger shall become effective at such time
as the Articles of Merger are duly filed with the Secretary of State of the
State of Indiana or at such later date and time as the parties shall agree and
as shall be specified in the Articles of Merger (the time the Merger becomes
effective, the "Effective Time").

SECTION 2.3. Effects of the Merger. The Merger shall have the effects as
set forth in Section 23-1-40-6 of the IBCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and Merger Corp. shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Corp. shall become the debts, liabilities and duties of the
Surviving Corporation.

SECTION 2.4. Articles of Incorporation and Bylaws.

(a) The articles of incorporation of the Company in effect immediately
prior to the Effective Time, as amended in accordance with the Articles of
Merger, shall be the articles of incorporation of the Surviving Corporation
until amended in accordance with its terms and applicable law.

(b) The bylaws of Merger Corp. in effect immediately prior to the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance with its terms and applicable law.

SECTION 2.5. Directors. The directors of Merger Corp. immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the articles of
incorporation and bylaws of the Surviving Corporation until such director's
successor is duly elected or appointed and qualified.

SECTION 2.6. Officers. The officers of the Company immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation,
each to hold office in accordance with the articles of incorporation and bylaws
of the Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.

SECTION 2.7. Subsequent Actions. If, at any time after the Effective
Time, the Surviving Corporation shall determine in good faith or be advised that
any deeds, bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or otherwise in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, properties

A-6

or assets of either of the Company or Merger Corp. acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of either the Company or Merger Corp., all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of each of such corporations or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.

SECTION 2.8. Effect on the Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof:

(a) Each issued and outstanding share of common stock of Merger Corp.
immediately prior to the Effective Time shall be converted into one fully
paid and nonassessable share of common stock, no par value, of the
Surviving Corporation following the Merger.

(b) Each share of Common Stock that is owned by Merger Corp. or any of
its Affiliates immediately prior to the Effective Time shall automatically
be canceled and retired and shall cease to exist, and no cash, Common Stock
or other consideration, including the Merger Consideration, shall be
delivered or deliverable in exchange therefor.

(c) Each share of Common Stock that is owned by or held in the
treasury of the Company immediately prior to the Effective Time shall
automatically be canceled and retired and shall cease to exist, and no
cash, Common Stock or other consideration, including the Merger
Consideration, shall be delivered or deliverable in exchange therefor.

(d) Shares of Common Stock issued and outstanding immediately prior to
the Effective Time (other than any shares to be canceled pursuant to
Sections 2.8(b) and 2.8(c)) held by each shareholder of the Company shall
be converted into the right to receive an amount in cash (the "Merger
Consideration") equal to the product of (A) the number of shares of Common
Stock owned by such shareholder immediately prior to the Effective Time,
and (B) the Per Share Amount. The Merger Consideration shall be payable to
the holder of shares of Common Stock, without interest thereon, upon the
surrender of the certificate or certificates formerly representing such
shares of Common Stock (each, a "Certificate") in the manner provided in
Section 2.10, less any required withholding of U.S. federal, state, local
or foreign Taxes. From and after the Effective Time, all such shares of
Common Stock shall no longer be outstanding and shall be deemed to be
canceled and retired and shall cease to exist, and each holder of shares of
Common Stock shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration therefor in accordance with
Section 2.10.

SECTION 2.9. Treatment of Options and Restricted Shares.

(a) Section 2.9(a) of the Company Disclosure Schedule contains a true and
complete list (the "Award List") of each Stock Option (along with the number of
shares of Common Stock underlying the Stock Options, the exercise prices thereof
and the vesting schedule thereof) and each award of Restricted Shares (along
with the number of shares of Common Stock underlying the Restricted Shares and
the vesting schedule thereof), in either case granted under the Company Stock
Plans and outstanding as of the date hereof. Stock Options held by any Person
permitted by Merger Corp. in writing on or after the date hereof to convert his
or her Stock Options into options to purchase shares of common stock of the
Surviving Corporation following the Effective Time (collectively, the "Retained
Option Participants"), to the extent such Person agrees to have such Stock
Options treated as Retained Options hereunder on terms mutually satisfactory to
Merger Corp. and such Person, are referred to as "Retained Options". Restricted
Shares held by any Person permitted by Merger Corp. in writing on or after the
date hereof to convert his or her Restricted Shares into shares of common stock
of the Surviving Corporation following the Effective Time (collectively,
"Retained Restricted Share Participants"), to the extent such Person agrees to
have such Restricted Shares treated as Retained Restricted Shares hereunder on
terms mutually satisfactory to

A-7

Merger Corp. and such Person, are referred to as "Retained Restricted Shares".
Merger Corp. may require that a Retained Option Participant, as a condition to
having the Stock Options held by such Retained Option Participant treated as
Retained Options, and that a Retained Restricted Share Participant, as a
condition to having the Restricted Shares held by such Retained Restricted Share
Participant treated as Retained Restricted Shares, agree in writing to be
subject to certain restrictions on the transferability of any shares of common
stock of the Surviving Corporation that are acquired after the Effective Time
upon the exercise of such Retained Options or the vesting of such Retained
Restricted Shares, as the case may be.

(b) As provided in the Company Stock Plans and the individual award
agreements, (i) as of the Effective Time, each outstanding Stock Option, other
than any Retained Options, shall represent the right to receive the excess of
the Per Share Amount over the exercise price per share, if any, multiplied by
the number of shares of Common Stock subject to such Stock Option, and (ii) as
of the time of the Company Shareholder Approval, each outstanding Restricted
Share, other than any Retained Restricted Shares, shall vest and the
restrictions thereon shall lapse, the Company will deliver to the holder thereof
a Certificate representing such Restricted Share and such Restricted Share shall
represent the right to receive the Merger Consideration subject to compliance
with the terms of Section 2.10.

(c) As soon as practicable following the Effective Time, the Surviving
Corporation shall pay to the holder of each outstanding Stock Option (other than
Retained Options) with an option exercise price that is less than the Per Share
Amount, in full satisfaction of such Stock Option, an amount in cash (less any
required withholding of U.S. federal, state, local or foreign Taxes) determined
in accordance with Section 2.9(b)(i).

(d) The Company shall take all actions reasonably necessary, with Merger
Corp.'s assistance, to ensure that, effective as of the Effective Time, no
holder of (i) Stock Options, other than the Retained Option Participants, will
have any right to receive any shares of capital stock of the Company or, if
applicable, the Surviving Corporation, upon exercise of any Stock Option or any
other event, or (ii) Restricted Shares, other than Retained Restricted Share
Participants, will have any right to receive any shares of capital stock of the
Company or, if applicable, the Surviving Corporation, upon vesting of any
Restricted Shares or any other event, in either case following the Effective
Time.

SECTION 2.10. Payment for Shares.

(a) Prior to the Effective Time, Merger Corp. shall designate a bank or
trust company reasonably acceptable to the Company to act as paying agent in
connection with the Merger (the "Paying Agent") pursuant to a paying agent
agreement providing for the matters set forth in this Section 2.10 and otherwise
reasonably satisfactory to the Company. At or promptly following the Effective
Time, Merger Corp. shall, or shall cause the Surviving Corporation to, make
available to the Paying Agent for the benefit of holders of shares of Common
Stock (including Restricted Shares, other than Retained Restricted Shares), as
needed, the aggregate consideration to which such holders of shares of Common
Stock (including such Restricted Shares) shall be entitled at the Effective Time
pursuant to Section 2.8(d) and Section 2.9(b)(ii). Such funds shall be invested
in time deposits, treasury bills, or money market or other similar instruments
as directed by the Surviving Corporation pending payment thereof by the Paying
Agent to holders of the shares of Common Stock (including such Restricted
Shares). Earnings from such investments shall be the sole and exclusive property
of the Surviving Corporation, and no part thereof shall accrue to the benefit of
the holders of shares of Common Stock (including such Restricted Shares).

(b) Promptly after the Effective Time, the Paying Agent shall mail to each
record holder, as of the Effective Time, of an outstanding Certificate(s), whose
shares of Common Stock were converted pursuant to Section 2.8(d) into the right
to receive the Merger Consideration (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificate(s) shall pass, only upon proper delivery of the Certificate(s) to
the Paying Agent and shall be in such form and have such other provisions not
inconsistent with this Agreement as Merger Corp. may reasonably specify), and
(ii) instructions for use in effecting the surrender of the Certificate(s) in
exchange for payment of the Merger Consideration (together, the "Transmittal
Documents"). Upon surrender of a Certificate or

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Certificates for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by Merger Corp., together with such letter of
transmittal and any other required documents, duly executed, the holder of such
Certificate(s) shall be entitled to receive in exchange therefor (as promptly as
practicable) the Merger Consideration in respect of all shares of Common Stock
formerly represented by such surrendered Certificate(s), without any interest
thereon, pursuant to Section 2.8(d). The Certificate(s) so surrendered shall
forthwith be canceled. If payment of the Merger Consideration is to be made to a
Person other than the Person in whose name the surrendered Certificate(s) is
registered, it shall be a condition of payment that the Certificate(s) so
surrendered shall be properly endorsed or shall otherwise be in proper form for
transfer, that the signatures on the Certificate(s) or any related stock power
shall be properly guaranteed and that the Person requesting such payment shall
have established to the satisfaction of Merger Corp. that any transfer and other
Taxes required by reason of the payment of the Merger Consideration to a Person
other than the registered holder of the Certificate(s) surrendered have been
paid or are not applicable. Until surrendered in accordance with the provisions
of and as contemplated by this Section 2.10, any Certificate(s) (other than
Certificate(s) representing shares of Common Stock subject to Sections 2.8(b)
and (c)) shall be deemed, at any time from and after the Effective Time, to
represent only the right to receive the Merger Consideration in cash without
interest as contemplated by this Section 2.10. Upon the surrender of a
Certificate(s) in accordance with the terms and instructions contained in the
Transmittal Documents, the Surviving Corporation shall cause the Paying Agent to
pay to the holder of such Certificate(s) in exchange therefor cash in an amount
equal to the Merger Consideration (other than Certificate(s) representing shares
of Common Stock subject to Sections 2.8(b) and (c)).

(c) At the Effective Time, the stock transfer books of the Company shall be
closed and there shall not be any further registration of transfers of any
shares of capital stock thereafter on the records of the Company. If, after the
Effective Time, a Certificate (other than those subject to Sections 2.8(b) and
(c)) is presented to the Surviving Corporation, it shall be canceled and
exchanged for the consideration provided for, and in accordance with the
procedures set forth, in this Section 2.10. No interest shall accrue or be paid
on any cash payable upon the surrender of a Certificate.

(d) From and after the Effective Time, the holders of Certificates shall
cease to have any rights with respect to shares of Common Stock represented by
such Certificate except as otherwise provided herein or by applicable law.

(e) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed, the Surviving Corporation shall pay or cause to be
paid in exchange for such lost, stolen or destroyed Certificate the relevant
portion of the Merger Consideration in accordance with Section 2.8(d) for shares
of Common Stock represented thereby. When authorizing such payment of any
portion of the Merger Consideration in exchange therefor, the board of directors
of the Surviving Corporation may, in its discretion and as a condition precedent
to the payment thereof, require the owner of such lost, stolen or destroyed
Certificate to give the Surviving Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Surviving
Corporation with respect to the Certificate alleged to have been lost, stolen or
destroyed.

(f) Promptly following the date that is one year after the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any cash (including any interest received with respect thereto),
Certificates and other documents in its possession relating to the Merger, that
had been made available to the Paying Agent and that have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to look
to the Surviving Corporation (subject to abandoned property, escheat or similar
laws) only as a general creditor thereof with respect to any portion of the
Merger Consideration payable upon due surrender of their Certificates, without
any interest thereon.

(g) The Merger Consideration paid in the Merger shall be net to the holder
of shares of Common Stock in cash, subject to reduction only for any applicable
federal, state, local or foreign withholding Taxes. To the extent that amounts
are so withheld, such amounts shall be treated for all purposes of this
Agreement as having been paid to the Person in respect of which such withholding
was made.

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(h) Anything to the contrary in this Section 2.10 notwithstanding, to the
fullest extent permitted by law, none of the Paying Agent, Merger Corp. or the
Surviving Corporation shall be liable to any holder of a Certificate for any
amount properly delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If Certificates are not surrendered
prior to two years after the Effective Time, unclaimed funds payable with
respect to such Certificates shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any Person previously entitled thereto.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the Company SEC Documents filed on or prior to the
date hereof or in the Company Disclosure Schedule (it being understood that any
matter set forth in any section of the Company Disclosure Schedule shall be
deemed disclosed with respect to any other section of the Company Disclosure
Schedule to the extent such matter is disclosed in a way as to make its
relevance to the information called for by such other section reasonably clear
on its face), the Company hereby represents and warrants to Merger Corp. as
follows:

SECTION 3.1. Organization and Qualification. The Company is a corporation
validly existing under the laws of the State of Indiana and has all requisite
corporate power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its businesses as now being
conducted, except where the failure to have such power, authority and
governmental approvals, would not, individually or in the aggregate, have a
Company Material Adverse Effect. The Company SEC Documents include accurate and
complete copies of the Company's articles of incorporation and bylaws, as
currently in effect.

SECTION 3.2. Capitalization of the Company.

(a) The authorized capital stock of the Company consists of: (i) 50,000,000
shares of Common Stock and (ii) 5,000,000 shares of Preferred Stock, (A) 141,450
shares of which are designated as shares of Series A Preferred Stock and (B)
180,000 shares of which are designated as shares of Series B Preferred Stock. As
of November 1 2004, (i) 11,609,099 shares of Common Stock were issued and
outstanding and 1,360,573 shares were held in treasury and (ii) no shares of
Preferred Stock were issued and outstanding or held in treasury. All of the
outstanding shares of Common Stock have been validly issued, and are fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section
2.9(a) of the Company Disclosure Schedule, no shares of Common Stock are subject
to issuance pursuant to the Company Stock Plans. Other than as contemplated in
this Agreement, since November 1, 2004 no shares of capital stock of the Company
have been issued other than pursuant to the exercise of Stock Options set forth
on the Award List, and no Stock Options or Restricted Shares have been granted.
Except as set forth above or in the next succeeding sentence, there are no
outstanding (i) shares of capital stock (including Restricted Shares) or other
voting securities of the Company, (ii) securities of the Company or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (iii) options or other rights to acquire from
the Company or any of its Subsidiaries, or obligations of the Company or any of
its Subsidiaries to issue or sell, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company, or (iv) equity equivalents, interests in the
ownership or earnings of the Company or other similar rights (collectively,
"Company Securities"). Each share of Common Stock carries with it an associated
share purchase right (collectively, the "Company Rights") issued pursuant to the
Rights Agreement between the Company and KeyCorp. Shareholder Services, Inc. as
Rights Agent, dated as of March 27, 1997 (as heretofore amended, the "Company
Rights Agreement"), which entitles the holder thereof to purchase, on the
occurrence of certain events, shares of Series B Preferred Stock or Common
Stock. Other than as contemplated by this Agreement, there are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities.

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(b) The shares of Common Stock constitute the only class of equity
securities of the Company or any of its Subsidiaries registered or required to
be registered under the Exchange Act. No Subsidiary of the Company owns any
Company Securities.

SECTION 3.3. Authority Relative to this Agreement.

(a) The Company has all the necessary corporate power and authority to
execute and deliver this Agreement and, subject to obtaining Company Shareholder
Approval, to consummate the transactions contemplated hereby in accordance with
the terms hereof. The execution, delivery and performance of this Agreement by
the Company and the consummation by it of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action (other
than obtaining the Company Shareholder Approval), and, except for obtaining the
Company Shareholder Approval, no other corporate action or corporate proceeding
on the part of the Company is necessary to authorize the execution and delivery
by the Company of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and, assuming due and valid authorization, execution
and delivery by Merger Corp., constitutes a valid, legal and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except that such enforcement may be subject to (i) any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding of law or equity).

(b) The Special Committee (i) has been duly authorized and constituted, and
(ii) at a meeting thereof duly called and held on November 9, 2004, by a vote of
three (3) to one (1), (A) determined that this Agreement and the Merger are fair
to and in the best interests of the Company and its shareholders (other than
Merger Corp. and its Affiliates), (B) determined that this Agreement and the
Merger should be approved and declared advisable by the Company Board and (C)
resolved to recommend that the Company's shareholders approve this Agreement and
the Merger.

(c) The Company Board, at a meeting thereof duly called and held on
November 9, 2004, based on the recommendation of the Special Committee, by a
vote of six (6) to one (1), (i) determined that this Agreement and the Merger
are fair to and in the best interests of the Company and its shareholders (other
than Merger Corp. and its Affiliates), (ii) approved, adopted and declared
advisable this Agreement and the Merger, and (iii) resolved to recommend that
the Company's shareholders approve this Agreement and the Merger.

SECTION 3.4. SEC Filings. None of the information included in the Proxy
Statement or the Schedule 13E-3 will (in the case of the Schedule 13E-3) at the
time of its filing with the SEC or (in the case of the Proxy Statement) at the
time mailed to the Company's shareholders or at the time of the Shareholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which such statements
are made, not misleading, except that no representation is made by the Company
with respect to statements made in or omitted from the Proxy Statement or the
Schedule 13E-3 relating to Merger Corp. or any of its Affiliates based on
information supplied by Merger Corp. or any of its Affiliates for inclusion or
incorporation by reference in the Proxy Statement or the Schedule 13E-3. The
Proxy Statement and the Schedule 13E-3 will comply as to form in all material
respects with the requirements of the Exchange Act.

SECTION 3.5. Consents and Approvals, No Violations. No filing with or
notice to, and no permit, authorization, consent or approval of, any federal,
state, local or foreign court or tribunal or administrative, governmental,
arbitral or regulatory body, agency or authority (a "Governmental Entity"), is
required on the part of the Company or any of its Subsidiaries for the
execution, delivery and performance by the Company of this Agreement or the
consummation by the Company of the transactions contemplated hereby, except (a)
pursuant to the applicable requirements of the Securities Act and the Exchange
Act, (b) the filing of the Schedule 13E-3 and the Proxy Statement, (c) the
filing of the Articles of Merger pursuant to the IBCL, or (d) where the failure
to obtain such permits, authorizations, consents or

A-11

approvals or to make such filings or give such notice would not, individually or
in the aggregate, have a Company Material Adverse Effect. Neither the execution,
delivery and performance of this Agreement by the Company, nor the consummation
by the Company of the transactions contemplated hereby, will (i) conflict with
or result in any breach of any provision of the respective articles of
incorporation or bylaws (or similar governing documents) of the Company or of
any its Subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation, alteration or acceleration,
or result in the creation of a Lien on any property or asset of the Company or
any of its Subsidiaries, or trigger any rights of first refusal) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of them or any
of their respective properties, capital stock or assets may be bound, or (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) above for violations,
breaches, defaults or other occurrences that would not, individually or in the
aggregate, have a Company Material Adverse Effect.

SECTION 3.6. State Takeover Statute Inapplicable. The Company Board and
the Special Committee have approved and adopted this Agreement and the
transactions contemplated hereby as required under any applicable state takeover
laws or any of the Company's organizational documents so that the provisions of
any "anti-takeover", "fair price", "moratorium", "control share acquisition" or
similar laws or regulations contained in the IBCL will not apply to this
Agreement or any of the transactions contemplated hereby.

SECTION 3.7. Company Rights Agreement. The Company Rights Agreement has
been amended to (a) render the Company Rights Agreement inapplicable to the
Merger and the other transactions contemplated by this Agreement, (b) ensure
that (i) neither Merger Corp. nor any of its Affiliates is an Acquiring Person
(as defined in the Company Rights Agreement) pursuant to the Company Rights
Agreement, (ii) a Distribution Date (as such term is defined in the Company
Rights Agreement) does not occur solely by reason of the approval, execution or
delivery of this Agreement, the consummation of the Merger or the consummation
of the other transactions contemplated by this Agreement and (iii) all
outstanding Company Rights will expire or otherwise terminate immediately prior
to the Effective Time.

SECTION 3.8. Brokers. Other than Houlihan Lokey Howard & Zukin Financial
Advisers, Inc. and Houlihan Lokey Howard & Zukin Capital, true and complete
copies of whose engagement agreements have been delivered to Merger Corp., no
broker, finder, investment banker or other intermediary is or might be entitled
to any brokerage, finders' or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company, the Company Board or the Special Committee.

SECTION 3.9. Opinion of Financial Advisor. Houlihan Lokey Howard & Zukin
Financial Advisers, Inc. and Houlihan Lokey Howard & Zukin Capital have
delivered their opinion to the effect that, as of the date of such opinion, the
consideration to be received in the Merger by the holders of Common Stock (other
than Merger Corp. and its Affiliates) is fair from a financial point of view to
such holders.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF MERGER CORP.

Merger Corp. hereby represents and warrants to the Company as follows:

SECTION 4.1. Organization. Merger Corp. is a corporation validly existing
under the laws of the State of Indiana and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to have such power and
authority would not, individually or in the aggregate, have a Merger Corp.
Material Adverse Effect. Merger Corp. was formed solely for the purpose of
engaging in the transactions contemplated by

A-12

this Agreement. Merger Corp. has not engaged in any activities, owned any assets
or been subject to any liabilities, except as is necessary to effect the Merger.

SECTION 4.2. Authority Relative to this Agreement. Merger Corp. has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the board of directors and the
shareholders of Merger Corp., and no other corporate or similar proceedings on
the part of Merger Corp. are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Merger Corp. and, assuming due and valid
authorization, execution and delivery by the other parties thereto, constitutes
a valid, legal and binding agreement of Merger Corp., enforceable against Merger
Corp. in accordance with its terms, except that such enforcement may be subject
to (a) any bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other laws, now or hereafter in effect, affecting creditors' rights
generally, and (b) the effect of general principles of equity (regardless of
whether enforceability is considered in a proceeding of law or equity).

SECTION 4.3. Consents and Approvals; No Violations. (a) No filing with or
notice to, and no permit, authorization, consent or approval of, any
Governmental Entity is required on the part of Merger Corp. for the execution
and delivery by Merger Corp. of this Agreement or the consummation by Merger
Corp. of the transactions contemplated hereby, except (a) pursuant to the
applicable requirements of the Securities Act and the Exchange Act, (b) the
filing of the Schedule 13E-3, (c) the filing of the Articles of Merger pursuant
to the IBCL, or (d) where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice would not,
individually or in the aggregate, have a Merger Corp. Material Adverse Effect.
Neither the execution, delivery and performance of this Agreement by Merger
Corp. nor the consummation by Merger Corp. of the transactions contemplated
hereby will (a) conflict with or result in any breach of any provision of the
articles of incorporation or bylaws of Merger Corp., (b) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration, or result in the creation of a Lien on any
property or asset of Merger Corp., or trigger any rights of first refusal)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which Merger Corp. is a party or by which Merger Corp. or its properties or
assets may be bound, or (c) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to Merger Corp. or any of its properties
or assets, except in the case of (b) or (c) above for violations, breaches,
defaults or other occurrences that would not, individually or in the aggregate,
have a Merger Corp. Material Adverse Effect.

SECTION 4.4. Capitalization. All the issued and outstanding shares of
common stock of Merger Corp. have been duly authorized, validly issued and are
fully paid and nonassessable and are owned by the members of the Shareholder
Group free and clear of all Liens.

SECTION 4.5. SEC Filings. None of the information supplied by or on
behalf of Merger Corp. or its Affiliates in writing specifically for inclusion
or incorporation by reference in the Proxy Statement or the Schedule 13E-3 will
(in the case of the Schedule 13E-3) at the time of its filing with the SEC or
(in the case of the Proxy Statement) at the time filed with the SEC, at the time
mailed to the Company's shareholders or at the time of the Shareholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

SECTION 4.6. Ownership of Shares. On the Closing Date, Merger Corp. will
beneficially and of record own at least the number of shares of Common Stock set
forth on Exhibit A attached hereto, free and clear of any Liens or any other
limitation or restriction (including any restriction on the right to vote or
sell the same, except as may be provided as a matter of law or as described on
Exhibit A).

SECTION 4.7. Financing. The Special Committee has previously been
provided with fully-executed commitment letters and related documentation (the
"Financing Commitment Letters") from lenders (the

A-13

"Lenders") relating to such debt financing as is necessary to (x) pay the cash
amounts payable to the holders of shares of Common Stock pursuant to Section
2.8(d) (including Restricted Shares other than the Retained Restricted Shares
pursuant to Section 2.9(b)(ii)) and to the holders of Stock Options pursuant to
Section 2.9(c), (y) effect all refinancings of outstanding indebtedness of the
Company and its Subsidiaries required as a result of the Merger or as required
by the Financing Commitment Letters and (z) pay the anticipated fees and
expenses related to the Merger (the "Debt Financing"). On the date hereof, the
Financing Commitment Letters are in full force and effect and have not been
amended or modified in any respect and the Lenders have not advised Merger Corp.
or any of its Affiliates of any facts which cause them to believe the financings
contemplated by the Financing Commitment Letters will not be consummated
substantially in accordance with the terms thereof.

SECTION 4.8. Brokers. Except for Banc of America Securities, LLC, whose
fees and expenses are the sole obligation of Merger Corp., no broker, finder,
investment banker or other intermediary is or might be entitled to any
brokerage, finder's or other fee or commission payable by the Company in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Merger Corp. or its Affiliates.

SECTION 4.9. Disclosure. To the knowledge of Merger Corp. and its
Affiliates, neither any Company SEC Document nor any representation or warranty
of the Company contained in this Agreement nor any other information furnished
by or on behalf of the Shareholder Group to the Special Committee or its
advisors contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.

ARTICLE V

COVENANTS

SECTION 5.1. Shareholders Meeting. The Company, acting through the
Company Board in accordance with its articles of incorporation and bylaws,
shall, as promptly as practicable following the date of this Agreement and in
consultation with Merger Corp., take all action reasonably necessary, except as
otherwise provided for herein, to seek approval of this Agreement and the Merger
at a duly called and noticed meeting of the Company's shareholders (the
"Shareholders Meeting").

SECTION 5.2. SEC Filings. Promptly following the date of this Agreement,
the Company and Merger Corp. shall, except as otherwise provided for herein, (i)
cooperate in preparing and filing with the SEC the Schedule 13E-3 and (ii)
cooperate in preparing a proxy statement that meets the requirements of the
Exchange Act (together with any amendments thereof or supplements thereto, the
"Proxy Statement") to seek the approval of this Agreement and the Merger by the
Company's shareholders at the Shareholders Meeting and to cause the Proxy
Statement to be filed with the SEC and mailed to the Company's shareholders as
promptly as reasonably practicable. All filings with the SEC, including the
Proxy Statement and the Schedule 13E-3, and all mailings to the Company's
shareholders in connection with the Merger, including the Proxy Statement, shall
be subject to the prior review and comment by Merger Corp., and shall be
reasonably acceptable to Merger Corp. Merger Corp. will furnish (or cause to be
furnished) to the Company the information relating to it and its Affiliates
required by the Exchange Act to be set forth in the Proxy Statement or the
Schedule 13E-3. The Company and Merger Corp. each shall correct any information
provided by it for use in the Proxy Statement and the Schedule 13E-3 that shall
have become false or misleading. The Company and Merger Corp. will promptly
notify the other party of the receipt of any comments from the SEC and any
request by the SEC for any amendment to the Proxy Statement or the Schedule
13E-3 or for additional information. The Company and Merger Corp. shall use
their commercially reasonable efforts, after consultation with the other party
hereto, to respond promptly to any comments made by the SEC with respect to the
Proxy Statement or the Schedule 13E-3 and any preliminary version thereof filed
by it. Subject to Section 5.10, the Company shall include in the Proxy Statement
the recommendation of the Special Committee and the recommendation of

A-14

the Company Board that the Company's shareholders vote in favor of the approval
of this Agreement and the Merger (as the same may be amended, modified or
withdrawn in accordance with Section 5.10).

SECTION 5.3. Conduct of Business of the Company. The Company hereby
covenants and agrees that, prior to the Effective Time, unless Merger Corp.
shall otherwise consent in writing (which consent shall not be unreasonably
withheld or delayed) or except as otherwise expressly contemplated by this
Agreement, the Company Board shall not authorize or direct the officers of the
Company or any of its Subsidiaries to take any action or fail to take any action
that would cause the Company or such Subsidiary to fail to, (i) operate its
business in the usual and ordinary course consistent with past practice, (ii)
use its commercially reasonable efforts to preserve substantially intact its
business organization, maintain its rights and franchises, retain the services
of its respective principal officers and key employees and maintain its
relationships with its respective principal suppliers and other persons with
which it or any of its Subsidiaries has significant business relations, (iii)
use its commercially reasonable efforts to maintain and keep its properties and
assets in as good repair and condition as at present, ordinary wear and tear
excepted, and (iv) exercise within the time prescribed in each Real Property
Lease any option provided therein to extend or renew the term thereof to the
extent such Real Property Lease is still necessary and advisable for the conduct
of the business of the Company and its Subsidiaries, unless, since such time, an
alternate lease has been entered into with terms, in the aggregate, generally
not less favorable to the Company or its Subsidiaries. Without limiting the
generality of the foregoing, and except as otherwise expressly contemplated by
this Agreement or consented to in writing by Merger Corp. (which consent shall
not be unreasonably withheld or delayed), the Company Board shall not authorize
or direct the officers of the Company or any of its Subsidiaries to do any of
the following:

(a) amend or propose to amend its articles of incorporation or bylaws
(or other governing documents) or the Company Rights Agreement;

(b) authorize for issuance, issue, sell, deliver, or agree or commit
to issue, sell or deliver, dispose of, encumber or pledge (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any stock of any class or any securities,
except as required by agreements with the Company's employees under any of
the Company Stock Plans as in effect as of the date hereof, or amend any of
the terms of any such securities or agreements outstanding as of the date
hereof;

(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, or redeem or otherwise acquire any of its securities or any
securities of its Subsidiaries;

(d) other than in the ordinary course of business consistent with past
practice, (i) incur or assume any long-term or short-term indebtedness or
issue any debt securities; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other Person; (iii) make any loans, advances or
capital contributions to, or investments in, any other Person (other than
to wholly owned Subsidiaries of the Company) or make any change in its
existing borrowing or lending arrangements for or on behalf of any such
Person, whether pursuant to an employee benefit plan or otherwise; (iv)
pledge or otherwise encumber shares of capital stock of any of its
Subsidiaries; or (v) mortgage, pledge or otherwise encumber any of its
material assets, tangible or intangible, or create or suffer to exist any
material Lien thereupon other than Permitted Liens in the ordinary course
of business, consistent with past practice;

(e) adopt a plan of complete or partial liquidation or adopt
resolutions providing for the complete or partial liquidation, dissolution,
restructuring or recapitalization of the Company or any of its
Subsidiaries;

(f) (i) except as may be required by law or existing agreements, plans
or arrangements as in effect as of the date hereof, or in the ordinary
course of business consistent with past practice, pay, agree to pay, grant,
issue or accelerate payments or benefits pursuant to any Benefit Plan in
excess of

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the payments or benefits provided under such Benefit Plan as of the date
hereof, (ii) except (A) for increases in the ordinary course of business
consistent with past practice for employees other than officers and
directors of the Company that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company, or
(B) as required under existing agreements or in the ordinary course of
business consistent with past practice, increase in any manner the salary
or fees or benefits of any director, officer, consultant or employee, or
(iii) except as may be required by law, amend (other than amendments made
in the ordinary course of business consistent with past practice) or
terminate any Benefit Plan or establish, adopt or enter into any plan,
agreement, program, policy, trust, fund or other arrangement that would be
a Benefit Plan if it were in existence as of the date of this Agreement;

(g) acquire, sell, transfer, lease, encumber or dispose of any assets
outside the ordinary course of business or any assets (other than inventory
in the ordinary course consistent with past practice) that, in the
aggregate, are material to the Company and its Subsidiaries taken as a
whole, or enter into any commitment or transaction outside the ordinary
course of business consistent with past practice that would be material to
the Company and its Subsidiaries taken as a whole;

(h) except as may be required as a result of a change in law or in
GAAP, change any of the financial accounting principles or practices used
by it or revalue in any material respect any of its assets, including
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;

(i) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; or (ii) enter into any
contract or agreement other than in the ordinary course of business
consistent with past practice that would be material to the Company and its
Subsidiaries taken as a whole;

(j) make any material Tax election, change any material method of Tax
accounting or settle or compromise any material Tax liability of the
Company or any of its Subsidiaries, and, in any event, the Company shall
consult with Merger Corp. before filing or causing to be filed any material
Tax Return of the Company or any of its Subsidiaries, except to the extent
such Tax Return is filed in the ordinary course of business consistent with
past practice, and before executing or causing to be executed any agreement
or waiver extending the period for assessment or collection of any material
Taxes of the Company or any of its Subsidiaries;

(k) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practice or to the extent
provided for in reserves specific to such claim, liability or obligation;

(l) (i) permit any insurance policy or policies naming it as a
beneficiary or a loss payable payee, which policy or policies, individually
or in the aggregate, is or are material to the Company and the Subsidiaries
taken as a whole, to be canceled or terminated without notice to Merger
Corp. unless the Company or one of its Subsidiaries shall have obtained a
comparable replacement policy, or (ii) enter into any insurance policy or
policies naming it as a beneficiary or a loss payable payee, which policy
or policies, individually or in the aggregate, is or are material to the
Company and the Subsidiaries taken as a whole;

(m) except in the ordinary course of business consistent with past
practice, (i) terminate, amend or modify (in any material respect), or
waive any material provision of, any Material Contract, or (ii) amend,
modify or change (in any material respect) any material policies or
procedures governing product sales or returns or the treatment of accounts
receivable;

(n) settle or compromise any pending or threatened material suit,
action or claim;

(o) enter into any agreement containing any provision or covenant
limiting in any material respect the ability of the Company or any of its
Subsidiaries to (i) sell any products or services of or

A-16

to any other Person, (ii) engage in any line of business, or (iii) compete
with or obtain products or services from any Person or limiting the ability
of any Person to provide products or services to the Company or any of its
Subsidiaries, in each case, in any geographic area or during any period of
time; or

(p) take, or agree in writing or otherwise to take, any of the actions
prohibited in Sections 5.3(a) through (o).

SECTION 5.4. Notification of Certain Matters. The Company and Merger
Corp. each shall give prompt notice to the other of (a) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause (i) any representation or warranty contained in this Agreement
to be untrue or inaccurate, or (ii) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied, and (b) any
failure of a party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.4 shall not affect
the representations, warranties, covenants or agreements of the parties hereto
or limit or otherwise affect the remedies available to the Company or Merger
Corp. hereunder.

SECTION 5.5. Access to Information.

(a) Between the date hereof and the Effective Time, the Company will, upon
reasonable request, give Merger Corp. and its authorized Representatives and
Persons providing or committed or proposing to provide the Company with
financing and their Representatives, reasonable access during normal business
hours to employees, plants, offices, warehouses and other facilities and
properties and to all books and records (including Tax Returns and work papers
of the Company's independent auditors, when available) of the Company and its
Subsidiaries, will permit Merger Corp. and its authorized Representatives to
make such inspections as they may reasonably request and will instruct the
officers and employees of the Company and those of its Subsidiaries to furnish
to Merger Corp. and its authorized Representatives such financial and operating
data and other information with respect to the business and properties of the
Company and any of its Subsidiaries as Merger Corp. may from time to time
reasonably request; provided that the Company shall not be required to provide
any such information if the Person receiving such information is not subject to
a confidentiality agreement in customary form for the benefit of the Company.

(b) Prior to the Effective Time, the Company shall use commercially
reasonable efforts to, and shall cause members of senior management and other
employees and Representatives to, provide reasonable cooperation to Merger Corp.
in its efforts to obtain the Debt Financing, including by providing information
about the Company and its Subsidiaries and their respective businesses, assets
and properties which is reasonably requested by Merger Corp. and its
Representatives for inclusion or incorporation by reference in any syndication
and other materials to be delivered to potential financing sources in connection
with the transactions contemplated by this Agreement (the "Financing
Documents"). Notwithstanding anything in this Agreement to the contrary, to the
extent reasonably appropriate to assist the success of the Debt Financing,
Merger Corp. may disclose, or cause its Representatives to disclose, and at the
request of Merger Corp., the Company shall disclose, information concerning the
Company and its Subsidiaries and their respective businesses, assets and
properties to prospective financing sources in connection with the Merger,
subject to the prior execution of a customary confidentiality agreement approved
by the Company (which approval shall not be unreasonably withheld or delayed)
executed by the recipient of any such information.

(c) The parties agree and acknowledge that the disclosure, provision or
furnishing of information, directly or indirectly, by the Company under this
Agreement shall not be deemed a waiver of any privilege under applicable law
that has been or may be asserted, including privileges arising under or relating
to the attorney-client relationship (which shall include the attorney-client and
work product privileges).

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SECTION 5.6. Additional Agreements; Commercially Reasonable Efforts.

(a) Prior to the Effective Time, upon the terms and subject to the
conditions of this Agreement, each of Merger Corp. and the Company shall use its
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable under any
applicable laws, rules or regulations to consummate and make effective as
promptly as practicable the Merger and the other transactions contemplated by
this Agreement, including (i) the preparation and filing of all forms,
registrations and notices required to be filed to consummate the Merger and the
other transactions contemplated hereby and the taking of such actions as are
necessary to obtain any requisite approvals, consents, orders, exemptions or
waivers by any third party, including any Governmental Entity or franchisor, and
(ii) the satisfaction of the other party's conditions to the consummation of the
Merger. Without limiting this Section 5.6, Merger Corp. and the Company shall
each use its commercially reasonable efforts to avoid the entry of, or to have
vacated or terminated, any decree, order, or judgment that would restrain,
prevent or delay the Closing, on or before the Outside Date. In addition, no
party hereto shall take any action after the date hereof that would reasonably
be expected to materially delay the obtaining of, or result in not obtaining,
any permission, approval or consent from any Governmental Entity or franchisor
necessary to be obtained prior to the consummation of the Merger. In furtherance
of and not in limitation of the foregoing, the Company shall permit Merger Corp.
to reasonably participate (subject to the Company's right to control) in the
defense and settlement of any claim, suit or cause of action relating to this
Agreement, the Merger or the other transactions contemplated hereby, and the
Company shall not settle or compromise any such claim, suit or cause of action
without Merger Corp.'s prior written consent (which consent shall not be
unreasonably withheld or delayed).

(b) Prior to the Effective Time, the Company or its Subsidiaries, on the
one hand, and Merger Corp. or its Affiliates, on the other hand, shall permit
the other parties hereto to review and discuss in advance, and consider in good
faith the views of the other parties in connection with, any proposed written
(or any material proposed oral) communication with any Governmental Entity or
franchisor regarding any of the transactions contemplated by this Agreement. The
Company or its Subsidiaries, on the one hand, and Merger Corp. or its
Affiliates, on the other hand, shall promptly inform the other parties hereto
of, and if in writing, furnish the other parties with copies of (or, in the case
of material oral communication, advise the other parties orally of) any
communication from any Governmental Entity or franchisor regarding any of the
transactions contemplated by this Agreement. If the Company or its Subsidiaries,
on the one hand, or Merger Corp. or its Affiliates, on the other hand, receives
a request for additional information or documentary material from any such
Governmental Entity or franchisor with respect to the Merger, then such party
will endeavor in good faith to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other parties hereto, an appropriate
response in compliance with such request. None of the Company or its
Subsidiaries, on the one hand, or Merger Corp. or its Affiliates, on the other
hand, shall participate in any meeting with any Governmental Entity or
franchisor with respect to the Merger unless it consults with the other parties
hereto in advance and, to the extent permitted by such Governmental Entity,
gives the other parties the opportunity to attend and participate thereat. To
the extent not otherwise provided in this Section 5.6(b), the Company or its
Subsidiaries, on the one hand, and Merger Corp. or its Affiliates, on the other
hand, shall furnish the other parties hereto with copies of all correspondence,
and communications between it and any such Governmental Entity or franchisor
with respect to the Merger, provided that either the Company or Merger Corp. or
an Affiliate of Merger Corp. may redact any information from such correspondence
and communications that discusses or reflects its valuation of the Merger. The
Company or its Subsidiaries, on the one hand, and Merger Corp. or its
Affiliates, on the other hand, shall furnish the other parties hereto with such
necessary information and reasonable assistance as such other parties may
reasonably request in connection with their preparation of necessary
communications or submissions of information to any Governmental Entity or
franchisor.

(c) Merger Corp. shall use its commercially reasonable efforts to obtain
the financing contemplated by Section 4.7. Notwithstanding any other provision
of this Agreement to the contrary, Merger Corp. may amend or revise the
Financing Commitment Letters referred to in Section 4.7, or enter into new,
replacement or additional financing arrangements, through itself or any of its
Affiliates, in connection with

A-18

the financing referred to in Section 4.7 or otherwise to facilitate the
transactions contemplated by this Agreement, provided that (i) any such action
would not, individually or in the aggregate, have a Merger Corp. Material
Adverse Effect or materially delay the Closing, and (ii) any such amendment or
revision or new, replacement or additional financing arrangements are upon terms
and conditions that are substantially equivalent to those set forth in the
Financing Commitment Letters, and to the extent any of the terms or conditions
are not substantially equivalent to those set forth in the Financing Commitment
Letters, on terms and conditions reasonably satisfactory to the Special
Committee.

(d) Between the date hereof and the Closing, (i) to the extent that
transfers of Company Permits are required as a result of the execution of this
Agreement or the consummation of the Merger, the Company and Merger Corp. shall
use all commercially reasonable efforts to effect such transfers, and (ii) the
Company shall use its commercially reasonable efforts to identify and secure or
provide any other consents or notices required as a result of the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.

SECTION 5.7. Public Announcements. Merger Corp. and the Company, as the
case may be, will consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement, the
Merger or the other transactions contemplated hereby, and shall not issue any
such press release or make any such public statement without the prior consent
of the other parties hereto (which consent shall not be unreasonably withheld or
delayed), except as may be required by applicable law or by obligations pursuant
to any listing agreement with any national securities exchange or national
market system to which Merger Corp., its Affiliates, the Company or its
Subsidiaries is a party. The parties hereto have agreed on the text of the joint
press release by which announcement of the execution of this Agreement will be
made.

SECTION 5.8. Indemnification.

(a) Merger Corp. agrees that all rights to indemnification or exculpation
now existing in favor of the directors, officers, employees and agents of the
Company and its Subsidiaries as provided in their respective articles of
incorporation or bylaws (or other governing documents) or otherwise in effect as
of the date hereof with respect to matters occurring prior to the Effective Time
shall survive the Merger and shall continue in full force and effect after the
Effective Time. Any rights to indemnification or exculpation pursuant to this
Section 5.8(a) shall not be amended, repealed or otherwise modified for a period
of six (6) years from the Effective Time in a manner that would adversely affect
the rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of the Company.

(b) From and after the Effective Time, the Surviving Corporation shall, to
the fullest extent permitted under the IBCL, indemnify and hold harmless each
present and former director and officer of the Company and its Subsidiaries and
each such individual who served at the request of the Company or its
Subsidiaries as a director, officer, trustee, partner, fiduciary, employee or
agent of another corporation, partnership, joint venture, trust, pension or
other employee benefit plan or enterprise (collectively, the "Indemnified
Parties") against all costs and expenses (including attorneys' fees), judgments,
fines, losses, claims, damages, liabilities and settlement amounts paid in
connection with any claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), whether civil, administrative or
investigative, based on the fact that such individual is or was a director or
officer of the Company or any of its Subsidiaries and arising out of or
pertaining to any action or omission occurring at or before the Effective Time
(including the transactions contemplated hereby). The Surviving Corporation
shall be entitled to assume the defense of any such claim, action, suit,
investigation or proceeding with counsel reasonably satisfactory to the
Indemnified Party and the Surviving Corporation shall not be liable to any
Indemnified Party for any legal expenses of separate counsel or any other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof, except that if the Surviving Corporation elects not to assume
such defense or counsel or the Indemnified Party advises that there are issues
that raise conflicts of interest between the Surviving Corporation and the
Indemnified Party or such Indemnified Party shall have legal defenses available
to it that are different from or in addition to those available to the Surviving
Corporation, the Indemnified Party may retain counsel reasonably satisfactory to

A-19

the Surviving Corporation, and the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Party promptly
as statements therefor are received; provided that the Surviving Corporation
shall not be liable for the fees of more than one counsel with respect to a
particular claim, action, suit, investigation or proceeding for all Indemnified
Parties, other than local counsel, unless a conflict of interest shall be caused
thereby; and provided further that the Surviving Corporation shall not be liable
for any settlement effected without its written consent (which consent shall not
be unreasonably withheld or delayed).

(c) The Surviving Corporation shall provide or maintain in effect for six
(6) years from the Effective Time (the "Tail Period") directors' and officers'
and corporate liability insurance covering those individuals who are covered by
the directors' and officers' and corporate liability insurance policy provided
for directors and officers of the Company and its Subsidiaries as of the date
hereof (the "Existing Policy") on terms comparable to the Existing Policy;
provided, however, that in no event shall the Surviving Corporation be required
to expend in any one year an amount in excess of 300% of the annual premium
currently paid by the Company for such insurance, and if the premiums of such
insurance coverage exceed such amount, the Surviving Corporation shall be
obligated to maintain or obtain a policy with the greatest coverage available
for a cost not exceeding such amount.

(d) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any Person, then, in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation, as the case may be, shall assume the obligations of the Surviving
Corporation set forth in this Section 5.8.

(e) The rights of each Indemnified Party under this Section 5.8 shall be in
addition to any rights such individual may have under the articles of
incorporation or bylaws (or other governing documents) of the Company or any of
its Subsidiaries, under the IBCL or any other applicable laws or under any
agreement of any Indemnified Party with the Company or any of its Subsidiaries.
These rights shall survive consummation of the Merger and are intended to
benefit, and shall be enforceable by, each Indemnified Party.

SECTION 5.9. Contributions to Merger Corp. Merger Corp. shall cause,
prior to the Effective Time, the members of the Shareholder Group to sell and/or
contribute the number of shares of Common Stock set forth next to such
shareholder's name on Exhibit A attached hereto to Merger Corp. in exchange for
a proportionate number of shares of common stock of Merger Corp. (which shares
of common stock shall be issued by Merger Corp. prior to the Effective Time),
all in accordance with the Shareholders Agreement. The shares of Common Stock
contributed to Merger Corp. shall be canceled and retired in the Merger in
accordance with Section 2.8(b).

SECTION 5.10. Withdrawal of Recommendation; Company Competing
Transactions.

(a) Except as permitted by Section 5.10(b), neither the Special Committee
nor the Company Board shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Merger Corp., its recommendation in favor of this
Agreement and the Merger, or (ii) approve or recommend, or propose publicly to
approve or recommend, any Company Competing Transaction. Nothing contained in
this Agreement shall prevent the Special Committee or the Company Board from
complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act.

(b) In the event that, prior to the Shareholders Meeting, the Special
Committee determines, in its good faith judgment, after receiving the advice of
its outside legal counsel, that failing to do so would create a reasonable
likelihood of breaching its fiduciary duties under applicable law, the Special
Committee (and the Company Board acting on the recommendation of the Special
Committee) may (subject to this Section 5.10(b) and to Section 5.10(c)) withdraw
or modify its approval, adoption or recommendation in favor, of this Agreement
and the Merger and, if applicable, recommend to Company shareholders a Company
Competing Transaction; provided that the Special Committee gives Merger Corp.

A-20

at least twenty four (24) hours' prior written notice of its intention to do so.
Any such withdrawal or modification of the recommendation shall not change the
approval of the Special Committee and the Company Board for purposes of (i) the
amendment to the Company Rights Agreement described in Section 3.7 or (ii)
causing any state takeover statute or other state law to be inapplicable to the
transactions contemplated hereby, or, unless this Agreement is terminated
pursuant to Section 5.10(d), release the Company from its obligation under
Section 5.1 to present this Agreement and the Merger for the consideration of
Company shareholders at the Shareholders Meeting.

(c) From and after the execution of this Agreement, the Company shall
promptly advise Merger Corp., orally and in writing, of any request for
information or of any proposal in connection with a Company Competing
Transaction, the material terms and conditions of such request or proposal and
the identity of the Person making such request or proposal. The Company shall
keep Merger Corp. reasonably apprised of the status (including amendments and
proposed amendments) of any proposal relating to a Company Competing Transaction
on a current basis, including promptly providing to Merger Corp. copies of any
written communications between the Company and any Person relating to a Company
Competing Transaction.

(d) If, prior to the Shareholders Meeting, (A) the Special Committee
determines in good faith, after consultation with its outside financial and
legal advisors, that any bona fide written proposal from a third party for a
Company Competing Transaction received after the date hereof is more favorable
to the shareholders of the Company (taking into account (x) all the terms and
conditions of the Company Competing Transaction and this Agreement that the
Special Committee in good faith deems relevant, including any conditions to and
expected timing and risks of consummation, and the ability of the party making
such proposal to obtain financing for such Company Competing Transaction, and
(y) all other legal, financial, regulatory and other aspects of such proposal)
than the transactions contemplated by this Agreement (taking into account any
amendment to the terms and conditions of this Agreement proposed in writing by
Merger Corp. in response to such Company Competing Transaction) (a "Superior
Transaction"), and (B) the Special Committee determines in good faith, after
receiving advice of its outside legal counsel, that failing to terminate this
Agreement and enter into such Superior Transaction would create a reasonable
likelihood of breaching its and the Company Board's fiduciary duties under
applicable law, the Special Committee and the Company Board may cause the
Company to terminate this Agreement and enter into a binding acquisition
agreement (an "Acquisition Agreement") with respect to such Superior
Transaction; provided that, prior to any such termination, (i) the Company has
provided Merger Corp. written notice that it has made the determination referred
to in clause (B) above, identifying the Superior Transaction then determined to
be more favorable and the parties thereto and delivering to Merger Corp. a copy
of the Acquisition Agreement for such Superior Transaction in the form to be
entered into, (ii) the Company has provided Merger Corp. with the opportunity,
for a period of twenty four (24) hours, to propose to the Special Committee in
writing amendments to the terms and conditions of this Agreement in response to
such Company Competing Transaction, (iii) after taking into account any such
amendments proposed by Merger Corp., the Special Committee determines in good
faith, after consultation with its outside financial and legal advisors, that
its determinations under clauses (A) and (B) above with respect to such Company
Competing Transaction continue, (iv) the Company delivers to Merger Corp. a
written notice of termination of this Agreement pursuant to this Section 5.10(d)
and (v) the Company and the other party to the Superior Transaction deliver to
Merger Corp. a written acknowledgement that the Company and such other party
have irrevocably waived any right to contest payment of the Merger Corp.
Expenses as provided in Section 7.3.

SECTION 5.11. Resignation of Directors. Immediately prior to the
Effective Time, the Company shall deliver to Merger Corp. evidence satisfactory
to Merger Corp. of the resignation of all directors of the Company (other than
those directors who are members of the Shareholder Group), such resignations to
become effective as of the Effective Time.

SECTION 5.12. Exemption from Liability Under Section 16(b). Merger Corp.
and the Company shall take all such steps as may be required or reasonably
requested to cause the transactions contemplated by this Agreement and any other
dispositions of Company equity securities (including derivative

A-21

securities) in connection with this Agreement by each individual who is a
director, officer or ten percent (10%) shareholder of the Company to be exempt
from liability under Section 16(b) of the Exchange Act pursuant to Rule 16b-3
thereunder.

SECTION 5.13. Voting by Shareholder Group. Merger Corp. and the members
of the Shareholder Group will, and will cause their respective Affiliates to,
vote all shares of Common Stock beneficially owned by them at the Shareholders
Meeting, for and against approval of this Agreement and the Merger, in the same
proportion as the votes cast by all other shareholders voting at the
Shareholders Meeting for and against approval of this Agreement and the Merger
(with abstentions being deemed to be votes against approval of this Agreement
and the Merger for this purpose).

ARTICLE VI

CONDITIONS TO CONSUMMATION OF THE MERGER

SECTION 6.1. Conditions to the Merger.

(a) The obligation of the Company to consummate the Merger and the other
transactions contemplated hereby is subject to the satisfaction or waiver (to
the extent permitted by applicable law) at or prior to the Effective Time of
each of the following conditions:

(i) Accuracy of Representations and Warranties. The representations
and warranties made by Merger Corp. herein, disregarding all qualifications
and exceptions contained herein relating to materiality or Merger Corp.
Material Adverse Effect or words of similar import, shall be true and
correct on the Closing Date as if made on and as of such dates (except for
representations and warranties that are made as of a specified date, which
shall be true and correct only as of such specified date) with only such
exceptions as would not, individually or in the aggregate, have a Merger
Corp. Material Adverse Effect.

(ii) Compliance with Covenants. Merger Corp. and its Affiliates shall
have performed in all material respects (or with respect to any obligation
or agreement qualified by materiality or Merger Corp. Material Adverse
Effect, in all respects) all obligations and agreements, and complied in
all material respects (or with respect to any covenant qualified by
materiality or Merger Corp. Material Adverse Effect, in all respects) with
all covenants, contained in this Agreement to be performed or complied with
by it prior to or on the Closing Date.

(iii) Officer's Certificate. The Company shall have received a
certificate of Merger Corp., dated as of the Closing Date, signed by an
executive officer of Merger Corp. to evidence satisfaction of the
conditions set forth in Sections 6.1(a)(i) and (ii).

(iv) Financing. The Debt Financing shall have been obtained and, to
the extent required, the existing indebtedness of the Company shall be
concurrently refinanced.

(b) The obligation of Merger Corp. to consummate the Merger and the other
transactions contemplated hereby is subject to the satisfaction or waiver (to
the extent permitted by applicable law) at or prior to the Effective Time of
each of the following conditions:

(i) Accuracy of Representations and Warranties. The representations
and warranties made by the Company herein, disregarding all qualifications
and exceptions contained herein relating to materiality or Company Material
Adverse Effect or words of similar import, shall be true and correct on the
Closing Date as if made on and as of such dates (except for representations
and warranties that are made as of a specified date, which shall be true
and correct only as of such specified date) with only such exceptions as
would not have, individually or in the aggregate, a Company Material
Adverse Effect.

(ii) Compliance with Covenants. The Company shall have performed in
all material respects (or with respect to any obligation or agreement
qualified by materiality or Company Material Adverse Effect, in all
respects) all obligations and agreements, and complied in all material
respects (or with

A-22

respect to any covenant qualified by materiality or Company Material
Adverse Effect, in all respects) with all covenants, contained in this
Agreement to be performed or complied with by it prior to or on the Closing
Date.

(iii) Officer's Certificate. Merger Corp. shall have received a
certificate of the Company, dated as of the Closing Date, signed by an
executive officer of the Company to evidence satisfaction of the conditions
set forth in Sections 6.1(b)(i) and (ii).

(iv) No Litigation. After the date hereof, there shall not be (A) any
new suit, action or proceeding by any Governmental Entity or any other
Person or (B) any development in any existing suit, action or proceeding by
any Governmental Entity or any other Person that in any such case is more
likely than not, individually or in the aggregate, to have a Company
Material Adverse Effect.

(v) Financing. The conditions to the Financing Commitment Letters
substantially on the terms set forth therein (or the alternative commitment
letter referred to in Section 5.6(c)).

SECTION 6.2. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
and the other transactions contemplated hereby are further subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any and all of which may be waived in whole or in part by the
parties hereto to the extent permitted by applicable law:

(a) Shareholder Approval. The Company Shareholder Approval shall have
been validly obtained under the IBCL, this Agreement and the Company's
articles of incorporation and bylaws.

(b) Statutes; Court Orders. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated, issued or enforced by any Governmental Entity that prohibits,
restrains, enjoins, precludes or restricts the consummation of the Merger.

(c) Governmental and Franchisor Approvals. All clearances or
approvals required from any Governmental Entity or franchisor shall have
been received in connection with the Merger, other than those clearances or
approvals the failure of which to obtain would not have, individually or in
the aggregate, a Company Material Adverse Effect, on terms that could not
reasonably be expected to have a Company Material Adverse Effect.

ARTICLE VII

TERMINATION; AMENDMENT; WAIVER

SECTION 7.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time notwithstanding receipt
of the Company Shareholder Approval:

(a) by mutual written consent duly authorized by the Company Board
(provided such termination has been approved by the Special Committee) and
the board of directors of Merger Corp.;

(b) by Merger Corp. or the Company, if (i) any Governmental Entity
shall have enacted, entered, promulgated, issued or enforced a final
statute, rule, regulation, executive order, decree, ruling or injunction
(which statute, rule, regulation, executive order, decree, ruling or
injunction the parties hereto shall use their commercially reasonable
efforts to reverse, overturn or lift) or taken any other final action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action is or shall have become final and
nonappealable, or (ii) the Effective Time shall not have occurred on or
before the Outside Date; provided, however, that the right to terminate
this Agreement under this clause (ii) shall not be available to any party
hereto whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time to
occur on or before the Outside Date;

A-23

(c) by Merger Corp., if (i) there shall have been a material breach of
any of the Company's representations, warranties or covenants, which breach
(A) would give rise to the failure of a condition set forth in Section
6.1(b) or Section 6.2 and (B) is not capable of being cured prior to the
Outside Date or, if curable, has not been cured within twenty (20) business
days following receipt by the Company of written notice from Merger Corp.
of such breach; (ii) the Special Committee or the Company Board shall
withdraw, modify or change (including by amendment of the Proxy Statement)
its recommendation with respect to this Agreement and the Merger in a
manner adverse to Merger Corp., or shall have resolved to do any of the
foregoing; or (iii) the Special Committee or the Company Board shall have
recommended any proposal in respect of a Company Competing Transaction;

(d) by the Company, if there shall have been a material breach of any
of Merger Corp.'s representations, warranties or covenants, which breach
(i) would give rise to the failure of a condition set forth in Section
6.1(a) or Section 6.2 and (ii) is not capable of being cured prior to the
Outside Date or, if curable, has not been cured within twenty (20) business
days following receipt by Merger Corp. of written notice from the Company
of such breach;

(e) by the Company, pursuant to and in compliance with Section
5.10(d); or

(f) by either Merger Corp. or the Company, if at the Shareholders
Meeting (including any postponement or adjournment thereof), the Company
Shareholder Approval shall have not been obtained other than (in the case
of Merger Corp.) by reason of a failure of Merger Corp. or the members of
the Shareholder Group or their Affiliates to vote their shares of Common
Stock in the manner provided in Section 5.13.

SECTION 7.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, written notice thereof
shall forthwith be given to the other party or parties in accordance with
Section 8.4, specifying the provision hereof pursuant to which such termination
is made, and this Agreement shall forthwith become void and have no effect,
without any liability on the part of any of the Company or its Subsidiaries or
its Affiliates or Merger Corp. or its Affiliates or their respective directors,
officers, employees or shareholders, other than as provided in this Section 7.2
and Section 7.3; provided, however, that nothing contained in this Section 7.2
shall relieve any party from liability for any willful and material breach of
this Agreement.

SECTION 7.3. Expense Reimbursement.

(a) Upon the termination of this Agreement (i) by Merger Corp. or the
Company pursuant to Section 7.1(b)(ii) where the failure of the Company to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before the Outside Date;
(ii) by Merger Corp. pursuant to Section 7.1(c)(ii) or Section 7.1(c)(iii);
(iii) by the Company pursuant to Section 7.1(e); or (iv) by Merger Corp. or the
Company pursuant to Section 7.1(f), the Company shall pay to Merger Corp., by
wire transfer of immediately available funds, the Merger Corp. Expenses not
later than two (2) business days after submission of statements therefor, less
any such expenses previously reimbursed by the Company.

(b) Except as specifically provided in this Section 7.3, all costs and
expenses incurred in connection with this Agreement, the Merger and the other
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses, regardless of whether the Merger or any other transaction
contemplated by this Agreement is consummated.

SECTION 7.4. Amendment. This Agreement may be amended, supplemented or
modified by action taken by or on behalf of the respective boards of directors
of the parties hereto (but in the case of the Company Board, only if such
amendment, supplement or modification has been approved by the Special
Committee) at any time prior to the Effective Time, whether prior to or after
the Company Shareholder Approval shall have been obtained, but after such
approval only to the extent permitted by applicable law. No such amendment,
supplement or modification shall be effective unless set forth in a written
instrument duly executed by or on behalf of each party hereto.

A-24

SECTION 7.5. Waiver. At any time prior to the Effective Time any party
hereto, by action taken by or on behalf of its board of directors (but in the
case of the Company Board, only if such extension or waiver has been approved by
the Special Committee), may to the extent permitted by applicable law (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties or compliance with the covenants or agreements of the other parties
hereto contained herein or in any document delivered pursuant hereto or (c)
waive compliance with any of the conditions of such party contained herein. No
such extension or waiver shall be effective unless set forth in a written
instrument duly executed by or on behalf of the party extending the time of
performance or waiving any such inaccuracy or non-compliance. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time.

SECTION 8.2. Entire Agreement; Assignment. This Agreement (including the
Schedules and Exhibits hereto) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof. This Agreement shall not be
assigned by operation of law or otherwise, except that Merger Corp. may assign
any or all of its rights and obligations under this Agreement to an Affiliate of
Merger Corp., but no such assignment shall relieve Merger Corp. of its
obligations hereunder if such assignee does not perform such obligations.

SECTION 8.3. Severability. If any provision of this Agreement, or the
application thereof to any Person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other Persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement shall be severable. Upon such
determination that any provision is invalid or unenforceable, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties hereto as closely as possible in a manner
acceptable to all parties hereto.

SECTION 8.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing (including by facsimile with
written confirmation thereof) and unless otherwise expressly provided herein,
shall be delivered during normal business hours by hand, by Federal Express or
other nationally recognized overnight commercial delivery service, or by
facsimile notice, confirmation of receipt received, addressed as follows, or to
such other address as may be hereafter notified by the respective parties
hereto:

(a) If to Merger Corp.:

QDI Merger Corp.
4220 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: Daniel B. Fitzpatrick
Facsimile: 574-243-4377

With copies, which will not constitute notice, to:

Milbank, Tweed, Hadley & McCloy LLP
One Chase Manhattan Plaza
New York, New York 10005
Attention: Robert S. Reder, Esq.

A-25

Facsimile: 212-822-5680

(b) If to the Company:

Bruce M. Jacobson, Chairman of the Special
Committee of the Board of Directors of Quality Dining, Inc.
c/o Katz, Sapper & Miller
800 E. 96th Street
Suite 500
Indianapolis, Indiana 46240
Facsimile: 317-580-2117

With copies, which will not constitute notice, to:

Sommer Barnard Attorneys, PC
One Indiana Square, Suite 3500
Indianapolis, Indiana 46204
Attention: James A. Strain, Esq.
Facsimile: 317-713-3699

SECTION 8.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana, without regard to
the principles of conflicts of law thereof.

SECTION 8.6. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled, without posting a bond or similar indemnity, to an injunction or
injunctions to prevent breaches of this Agreement or to enforce specifically the
performance of the terms and provisions hereof in any federal court located in
the State of Indiana or any Indiana state court, in addition to any other remedy
to which they are entitled at law or in equity.

SECTION 8.7. Interpretation. When a reference is made in this Agreement
to Articles, Sections, Exhibits or Schedules, such reference shall be to an
Article or Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

SECTION 8.8. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Section 5.8(e) and as otherwise
explicitly provided in this Agreement, nothing in this Agreement, express or
implied, is intended to or shall confer upon any other Person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.

SECTION 8.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.

A-26

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the day and year first above written.

QDI MERGER CORP.

By: /s/ DANIEL B. FITZPATRICK
------------------------------------
Name: Daniel B. Fitzpatrick
Title: President

QUALITY DINING, INC.

By: /s/ JOHN C. FIRTH
------------------------------------
Name: John C. Firth
Title: Executive Vice President

The undersigned members of the Shareholder Group hereby agree to vote, or
cause to be voted, all their shares of Common Stock at the Shareholders Meeting
in accordance with the provisions of Section 5.13:

/s/ DANIEL B. FITZPATRICK
--------------------------------------
Name: Daniel B. Fitzpatrick

/s/ GERALD O. FITZPATRICK
--------------------------------------
Name: Gerald O. Fitzpatrick

/s/ JAMES K. FITZPATRICK
--------------------------------------
Name: James K. Fitzpatrick

/s/ EZRA H. FRIEDLANDER
--------------------------------------
Name: Ezra H. Friedlander

/s/ JOHN C. FIRTH
--------------------------------------
Name: John C. Firth

A-27

EXHIBIT A

<Table>
<Caption>
SHARES OF
QUALITY DINING
COMMON
SHAREHOLDER STOCK
- ----------- --------------

Daniel B. Fitzpatrick....................................... 3,929,073
Gerald O. Fitzpatrick....................................... 233,746
James K. Fitzpatrick........................................ 347,445
Ezra H. Friedlander......................................... 496,031(a)
John C. Firth............................................... 174,356(b)
---------
5,180,651
=========
</Table>

- ---------------

(a) 56,000 of these shares are held in an individual retirement account and
might either be contributed to Merger Corp. or converted into the Merger
Consideration at the Effective Time of the Merger.

(b) 4,500 of these shares are held in an individual retirement account and
might either be contributed to Merger Corp. or converted into the Merger
Consideration at the Effective Time of the Merger.

A-28

APPENDIX B
November 9, 2004

The Board of Directors and the Special Committee of
the Board of Directors of Quality Dining, Inc.
4220 Edison Lakes Parkway
Mishawaka, Indiana 46545

Dear Members of the Board of Directors and the Special Committee:

We understand that a group led by Daniel Fitzpatrick (the "Shareholder Group"),
the Chief Executive Officer of Quality Dining, Inc. ("Quality Dining" or the
"Company") has issued a proposal expressing its interest in acquiring all of the
shares of common stock not already owned by the Shareholder Group and certain
other Company insiders (the "Unaffiliated Shareholders") for $3.20 per share in
cash and merging the Company with QDI Merger Corp. The Shareholder Group
currently owns approximately 45% of the Company's issued and outstanding shares
of common stock. We understand that the Shareholder Group proposes to effectuate
its acquisition of such shares by completing a long-form merger (the "Merger")
in which Quality Dining would survive as privately held corporation. In the
Merger, QDI Merger Corp. would merge with and into the Company and, as a result,
each outstanding share of the Company's common stock, no par value per share,
held by Unaffiliated Shareholders, would be converted into the right to receive
$3.20 per share in cash (the "Consideration"). The Merger, including the payment
of the Consideration, together with all related contemplated transactions, are
referred to collectively herein as the "Transaction."

We understand that the Company's Board of Directors has formed a committee
consisting of independent directors (the "Special Committee") to consider
matters relating to the Transaction. The Special Committee engaged us as its
exclusive financial advisor on July 19, 2004.

You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. Additionally, you have advised us that the
Shareholder Group has indicated that it has no intention of selling its shares
in the Company or engaging in any alternative to the Transaction. However, we
have been authorized to, and did, solicit third party indications of interest in
acquiring all or any part of the Company.

In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:

1. met with members of the Special Committee and its counsel to discuss
the Transaction;

2. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects, and
projected operations and performance of the Company;

3. visited the Company's headquarters located in Mishawaka, Indiana;

4. reviewed the Company's SEC filings on Form 10-K for the five fiscal
years ended October 26, 2003 and quarterly reports on Form 10-Q for the
quarter ended August 1, 2004, which the Company's management has
identified as being the most current quarterly financial statements
available;

5. reviewed internally prepared financial statements for the three fiscal
years ended October 26, 2003 and the year-to-date periods ended
September 28, 2003 and September 26, 2004 for each of Quality Dining's
individual segments;

6. reviewed forecasts and projections prepared by the Company's management
with respect to the Company, and its individual segments, for the
fiscal years ended October 26, 2004 through 2008;

7. reviewed the Company's Confidential Information Memorandum dated
October 19, 2004;

The Board of Directors and
the Special Committee of the Board of Directors of
Quality Dining, Inc.
November 9, 2004 Page 2

8. reviewed the Schedule 14-A Proxy Statement dated February 5, 2004;

9. reviewed the Schedule 14D-9 Solicitation/Recommendation Statement dated
May 22, 2000 in response to an unsolicited hostile tender offer by NBO,
LLC;

10. reviewed Board of Directors minutes from October 24, 2001 through June
8, 2004;

11. reviewed Bank Meeting presentations dated March 20, 2002, March 25,
2003 and March 16, 2004;

12. reviewed the Bank Package for the four quarters of fiscal 2002 and 2003
and the first and second quarters of fiscal 2004;

13. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;

14. reviewed a commitment letter dated October 29, 2004 from J.P. Morgan
Securities Inc. pertaining to the debt financing for the Transaction;

15. reviewed a draft of the Merger Agreement by and between QDI Merger
Corp. and the Company, dated November 9, 2004;

16. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company; and

17. identified and contacted additional potential buyers of the Company in
order to gauge interest in a potential transaction.

We have relied upon and assumed, without independent verification, that there
has been no material change in the assets, financial condition, business or
prospects of the Company since the date of the most recent financial statements
made available to us.

In preparing our Opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal, nor have we evaluated the solvency or fair value of the Company under
any state or federal laws relating to bankruptcy, insolvency or similar matters.
In addition, we have not assumed any obligation to conduct any physical
inspection of the properties or facilities of the Company. With respect to the
financial forecasts and projections furnished to or discussed with us by the
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the Company's management as
to the expected future financial performance of the Company. Our Opinion is
necessarily based on business, economic, market and other conditions as they
exist and can be evaluated by us at the date of this letter. We have also
assumed that the Transaction will be consummated in all material respects as
described in the Merger Agreement and that the final form of the Merger
Agreement will be substantially similar to the last draft reviewed by us.

We are acting as financial advisor to the Special Committee in connection with
the Merger and will receive a fee from the Company for our services, no portion
of which is contingent upon the consummation of the Merger. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of our
engagement.

The Board of Directors and
the Special Committee of the Board of Directors of
Quality Dining, Inc.
November 9, 2004 Page 3

It is understood that this letter is for the information of the Board of
Directors of the Company and the Special Committee only and may not be used for
any other purpose without our prior written consent, except that this letter may
be included in its entirety in any document filed by the Company with the
Securities and Exchange Commission in connection with the Transaction. Our
Opinion does not address the merits of the underlying decision by the Company to
engage in the Transaction and does not constitute a recommendation to any
shareholder as to how such shareholder should vote on the proposed Transaction
or any matters related thereto. It should be understood that subsequent events
may affect the conclusions set forth in the Opinion and we are under no
obligation to update, revise or reaffirm this opinion, except as otherwise
required under the terms of the engagement letter between the parties. In
addition, you have not asked us to address, and this Opinion does not address,
the fairness to, or any other consideration of, the holders of any class of
securities, creditors or other constituencies of the Company, other than the
Unaffiliated Shareholders.

Based upon the foregoing, and in reliance thereon, it is our opinion that, as of
the date hereof, the Consideration to be received by the Unaffiliated
Shareholders pursuant to the Transaction is fair, from a financial point of
view, to the Unaffiliated Shareholders.

HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.

APPENDIX F

QUALITY DINING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
PAGE
----

Consolidated Balance Sheets as of October 31, 2004 and
October 26, 2003.......................................... F-2
Consolidated Statements of Operations for the Years Ended
October 31, 2004, October 26, 2003 and October 27, 2002... F-3
Consolidated Statements of Stockholders' Equity for the
Years Ended October 31, 2004, October 26, 2003 and October
27, 2002.................................................. F-4
Consolidated Statements of Cash Flows for the Years Ended
October 31, 2004, October 26, 2003 and October 27, 2002... F-5
Notes to Consolidated Financial Statements.................. F-6
Report of Independent Registered Public Accounting Firm..... F-34
Schedule II................................................. F-35
</Table>

F-1

QUALITY DINING, INC.

CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
OCTOBER 26,
2003
------------
OCTOBER 31, (AS RESTATED
2004 SEE NOTE 1A)
----------- ------------
(DOLLARS IN THOUSANDS)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,570 $ 1,724
Accounts receivable....................................... 1,520 1,723
Inventories............................................... 1,770 1,670
Deferred income taxes..................................... 2,785 2,251
Assets held for sale...................................... -- 8,138
Other current assets...................................... 3,321 2,192
-------- --------
Total current assets........................................ 10,966 17,698
-------- --------
Property and equipment, net................................. 108,898 109,329
-------- --------
Other assets:
Deferred income taxes..................................... 5,563 6,749
Trademarks, net........................................... 446 1,285
Franchise fees and development fees, net.................. 8,250 8,801
Goodwill, net............................................. 7,960 7,960
Liquor licenses, net...................................... 2,846 2,820
Other..................................................... 3,613 3,454
-------- --------
Total other assets.......................................... 28,678 31,069
-------- --------
Total assets................................................ $148,542 $158,096
-------- --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 10,721 $ 10,055
Accounts payable.......................................... 7,077 6,182
Accrued liabilities....................................... 20,769 18,322
-------- --------
Total current liabilities................................... 38,567 34,559
Long-term debt.............................................. 69,838 85,335
Deferred rent............................................... 3,071 2,651
-------- --------
Total liabilities........................................... 111,476 122,545
-------- --------
Minority interest........................................... 13,434 14,272
Commitments and contingencies (Notes 10 and 11)
Stockholders' equity:
Preferred stock, without par value: 5,000,000 shares
authorized; none issued................................. -- --
Common stock, without par value: 50,000,000 shares
authorized; 12,955,781 shares issued and outstanding.... 28 28
Additional paid-in capital................................ 237,411 237,402
Accumulated deficit....................................... (206,926) (209,147)
Unearned compensation..................................... (452) (575)
-------- --------
30,061 27,708
Less treasury stock, at cost, 2,508,587 shares............ 6,429 6,429
-------- --------
Total stockholders' equity.................................. 23,632 21,279
-------- --------
Total liabilities and stockholders' equity.................. $148,542 $158,096
-------- --------
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.
F-2

QUALITY DINING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
FISCAL YEAR ENDED
-----------------------------------------
OCTOBER 31, OCTOBER 26, OCTOBER 27,
2004 2003 2002
----------- ------------ ------------
(AS RESTATED (AS RESTATED
SEE NOTE 1A) SEE NOTE 1A)
------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues:
Burger King............................................... $122,183 $114,983 $123,795
Chili's Grill & Bar....................................... 87,717 80,710 75,760
Italian Dining Division................................... 16,407 17,560 17,052
Grady's American Grill.................................... 5,789 6,078 21,113
-------- -------- --------
Total revenues.............................................. 232,096 219,331 237,720
-------- -------- --------
Operating expenses:
Restaurant operating expenses:
Food and beverage....................................... 64,409 59,271 65,912
Payroll and benefits.................................... 67,182 63,923 69,571
Depreciation and amortization........................... 9,599 10,158 10,069
Other operating expenses................................ 60,279 56,893 59,469
-------- -------- --------
Total restaurant operating expenses......................... 201,469 190,245 205,021
-------- -------- --------
Income from restaurant operations........................... 30,627 29,086 32,699
-------- -------- --------
General and administrative.............................. 15,997 16,068 18,715
Amortization of intangibles............................. 169 364 431
Facility closing costs.................................. -- (90) 355
-------- -------- --------
Operating income............................................ 14,461 12,744 13,198
-------- -------- --------
Other income (expense):
Interest expense........................................ (6,546) (7,143) (7,916)
Minority interest in earnings........................... (2,397) (2,678) (3,010)
Recovery of note receivable............................. -- 3,459 --
Stock purchase expense.................................. -- (1,294) --
Gain (loss) on sale of property and equipment........... (125) (42) 1,034
Other income, net....................................... 260 997 697
-------- -------- --------
Total other expense......................................... (8,808) (6,701) (9,195)
-------- -------- --------
Income from continuing operations before income taxes....... 5,653 6,043 4,003
Income tax provision........................................ 2,342 3,293 522
-------- -------- --------
Income from continuing operations........................... 3,311 2,750 3,481
Income (loss) from discontinued operations, net of tax...... (1,090) (2,351) 1,250
-------- -------- --------
Net income.................................................. $ 2,221 $ 399 $ 4,731
-------- -------- --------
Basic net income (loss) per share:
-------- -------- --------
Continuing operations................................. 0.33 0.25 0.31
Discontinued operations............................... (0.11) (0.21) 0.11
-------- -------- --------
Basic net income per share.................................. $ 0.22 $ 0.04 $ 0.42
Diluted net income (loss) per share:........................
-------- -------- --------
Continuing operations................................. 0.32 0.25 0.31
Discontinued operations............................... (0.10) (0.21) 0.11
-------- -------- --------
Diluted net income per share................................ $ 0.22 $ 0.04 $ 0.42
-------- -------- --------
Weighted average shares outstanding:
-------- -------- --------
Basic................................................. 10,163 10,897 11,248
-------- -------- --------
Diluted............................................... 10,272 10,921 11,306
-------- -------- --------
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.
F-3

QUALITY DINING, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<Table>
<Caption>
SHARES ADDITIONAL RETAINED
COMMON COMMON PAID-IN EARNINGS UNEARNED TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL (DEFICIT) COMPENSATION STOCK EQUITY
------ ------ ---------- --------- ------------ -------- -------------
(DOLLARS AND SHARES IN THOUSANDS)

Balance at October 28, 2001 (As
previously reported).......... 12,941 $28 $237,002 $(212,470) $(557) $(3,623) $20,380
Cumulative effect on prior year
of restatement................ (1,807) (1,807)
------ --- -------- --------- ----- ------- -------
Balance, October 28, 2001....... 12,941 28 237,002 (214,277) (557) (3,623) 18,573
------ --- -------- --------- ----- ------- -------
(As restated -- See Note 1A)
Restricted stock grants....... 125 432 -- (432) -- --
Retirement of common stock.... (96) -- -- -- -- -- --
Amortization of unearned
Compensation................ -- -- -- -- 289 -- 289
Net income, fiscal 2002....... 4,731 4,731
(As restated -- See Note 1A)
------ --- -------- --------- ----- ------- -------
Balance, October 27, 2002....... 12,970 28 237,434 (209,546) (700) (3,623) 23,593
Purchase of treasury stock.... -- -- -- -- -- (2,806) (2,806)
Restricted stock forfeited.... (14) -- (32) -- 32 -- --
Amortization of unearned
Compensation................ -- -- -- 93 -- 93
Net income, fiscal 2003....... -- -- -- 399 -- -- 399
(As restated -- See Note 1A)
------ --- -------- --------- ----- ------- -------
Balance, October 26, 2003....... 12,956 28 237,402 (209,147) (575) (6,429) 21,279
Modification of restricted
stock grant................. -- -- 9 -- (9) -- --
Amortization of unearned
Compensation................ -- -- -- 132 -- 132
Net income, fiscal 2004....... -- -- -- 2,221 -- -- 2,221
(As restated -- See Note 1A)
------ --- -------- --------- ----- ------- -------
Balance, October 31, 2004....... 12,956 $28 $237,411 $(206,926) $(452) $(6,429) $23,632
------ --- -------- --------- ----- ------- -------
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.
F-4

QUALITY DINING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:
Net income................................................ $ 2,221 $ 399 $ 4,731
Loss (income) from discontinued operations................ 1,090 2,351 (1,250)
Minority interest in earnings............................. 2,397 2,678 3,010
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and
equipment............................................ 9,092 9,773 9,806
Amortization of other assets............................ 1,412 1,572 1,617
Impairment of assets and facility closing costs......... -- (90) 355
Loss (gain) on sale of property and equipment........... 125 42 (1,034)
Deferred income taxes................................... 1,326 2,317 (496)
Deferred rent........................................... 420 403 400
Amortization of unearned compensation................... 132 93 289
Changes in operating assets and liabilities, excluding
effects of acquisitions and dispositions:
Accounts receivable.................................. 203 200 (50)
Inventories.......................................... (100) 173 199
Other current assets................................. (1,129) 64 (180)
Deferred income taxes................................ (674) (1,317) 496
Accounts payable..................................... 895 (3,614) (803)
Accrued liabilities.................................. 1,184 (857) (1,003)
-------- -------- ---------
Net cash provided by operating activities................... 18,594 14,187 16,087
-------- -------- ---------
Cash flows from investing activities:
Proceeds from sales of property and equipment............. 8,672 4,782 15,517
Purchase of property and equipment........................ (8,804) (9,570) (16,102)
Purchase of other assets.................................. (863) (892) (1,013)
Other, net................................................ (14) 279 --
-------- -------- ---------
Net cash used for investing activities...................... (1,009) (5,401) (1,598)
-------- -------- ---------
Cash flow from financing activities:
Purchase of treasury stock................................ -- (4,073) --
Borrowings of long-term debt.............................. 57,360 57,259 95,790
Repayment of long-term debt............................... (72,191) (60,337) (109,058)
Cash distributions to minority interest................... (3,235) (3,451) (3,758)
Loan financing fees....................................... -- -- (619)
Purchase of common stock subject to redemption............ -- -- (264)
-------- -------- ---------
Net cash used for financing activities...................... (18,066) (10,602) (17,909)
-------- -------- ---------
Cash provided by discontinued operations.................... 327 2,366 2,266
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents........ (154) 550 (1,154)
Cash and cash equivalents, beginning of year................ 1,724 1,174 2,328
-------- -------- ---------
Cash and cash equivalents, end of year...................... $ 1,570 $ 1,724 $ 1,174
-------- -------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized........ $ 6,243 $ 7,049 $ 8,084
-------- -------- ---------
Cash paid for income taxes................................ $ 1,223 $ 793 $ 1,131
-------- -------- ---------
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.
F-5

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) NATURE OF BUSINESS

Quality Dining, Inc. and its subsidiaries (the "Company") develop and
operate both quick service and full service restaurants in eight states. The
Company owns and operates three Grady's American Grill restaurants, one
Porterhouse Steaks and Seafood restaurant, three restaurants under the tradename
of Spageddies Italian Kitchen and six restaurants under the tradename Papa
Vino's Italian Kitchen. The Company also operates, as a franchisee, 124 Burger
King restaurants and 39 Chili's Grill & Bar restaurants.

(1A) RESTATEMENT

The Company has determined that it incorrectly calculated its straight-line
rent expense and related deferred rent liability. As a result, the Company
concluded that its previously filed financial statements for fiscal years
through 2003 and the first three interim periods in 2004 should be restated.
Historically, when accounting for leases with renewal options, the Company
recorded rent expense on a straight-line basis over the initial non-cancelable
lease term without regard for renewal options. In addition, the Company
depreciated its buildings, leasehold improvements and other long-lived assets on
those properties over a period that included both the initial non-cancelable
term of the lease and all option periods provided for in the lease (or the
useful life of the assets if shorter). As a result, the Company will restate its
financial statements to recognize (i) rent expense on a straight-line basis over
the lease term, including cancelable option periods where failure to exercise
such options would result in an economic penalty such that at lease inception
the renewal option is reasonably assured of exercise and (ii) to recognize
depreciation on its buildings, leasehold improvements and other long-lived
assets over the expected lease term, where the lease term is shorter than the
useful life of the assets.

The effect of this restatement decreased net income by $473,000 or $0.04
per diluted share and by $353,000 or $0.03 per diluted share for the fiscal
years ended October 26, 2003 and October 31, 2004, respectively.

The Company also determined that $2,599,000 in fixed assets were improperly
classified as Assets Held for Sale on October 26, 2003. The Company has
reclassified these assets from Held for Sale to Property and Equipment on the
October 26, 2003 balance sheet. This change did not affect results of
operations, cash flows or total assets of the Company.

As a result of the changes, the Company's financial statements as of
October 26, 2003 and for the fiscal years ended October 26, 2003 and October 27,
2002 have been adjusted as follows:

<Table>
<Caption>
OCTOBER 26, 2003
---------------------------
AS PREVIOUSLY
AS RESTATED REPORTED
----------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)

Depreciation and Amortization............................... $ 10,158 $ 9,940
Other operating expenses.................................... 56,893 56,638
Total restaurant operating expenses......................... 190,245 189,772
Income from restaurant operations........................... 29,086 29,559
Operating income............................................ 12,744 13,217
Income from continuing operations before income taxes....... 6,043 6,516
Net income.................................................. $ 399 $ 872
Basic net income per share:
Continuing operations....................................... $ 0.25 $ 0.30
</Table>

F-6

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
OCTOBER 26, 2003
---------------------------
AS PREVIOUSLY
AS RESTATED REPORTED
----------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)

Net income.................................................. $ 0.04 $ 0.08
Diluted net income per share:
Continuing operations....................................... $ 0.25 $ 0.30
Net Income.................................................. $ 0.04 $ 0.08
Assets held for sale........................................ $ 8,138 $ 10,737
Property & equipment........................................ 109,329 107,910
Total assets................................................ 158,096 159,276
Accrued liabilities......................................... 18,322 19,520
Deferred rent............................................... 2,651 --
Total liabilities........................................... 122,545 121,092
Accumulated deficit......................................... (209,147) (206,514)
Total stockholders' equity.................................. 21,279 23,912
Total stockholders' equity and liabilities.................. $ 158,096 $ 159,276
</Table>

<Table>
<Caption>
OCTOBER 27, 2002
---------------------------
AS PREVIOUSLY
AS RESTATED REPORTED
----------- -------------

Depreciation and Amortization............................... $ 10,069 $ 9,893
Other operating expenses.................................... 59,469 59,292
Total restaurant operating expenses......................... 205,021 204,668
Income from restaurant operations........................... 32,699 33,052
Operating income............................................ 13,198 13,551
Income from continuing operations before income taxes....... 4,003 4,356
Net income.................................................. $ 4,731 $ 5,084
Basic net income per share:
Continuing operations....................................... $ 0.31 $ 0.34
Net income.................................................. $ 0.42 $ 0.45
Diluted net income per share
Continuing operations....................................... $ 0.31 $ 0.34
Net income.................................................. $ 0.42 $ 0.45
Property & Equipment........................................ $ 123,489 $ 124,451
Total assets................................................ 169,686 170,648
Accrued liabilities......................................... 19,269 20,319
Deferred rent............................................... 2,248 --
Total liabilities........................................... 129,781 128,583
Accumulated deficit......................................... (209,546) (207,386)
Total stockholders' equity.................................. 23,593 25,753
Total stockholders' equity and liabilities.................. $ 169,686 $ 170,648
</Table>

The cumulative effect of the adjustments, net of tax, for all years prior
to fiscal year 2002 was $1,807,000 which was recorded as an adjustment to
opening accumulated deficit at October 28, 2001.

F-7

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's financial statements for the fiscal 2004 and 2003 interim
periods have also been adjusted. See Note 16.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year -- The Company maintains its accounts on a 52/53 week fiscal
year ending the last Sunday in October. The fiscal year ended October 31, 2004
(fiscal 2004) contained 53 weeks. The fiscal years ended October 26, 2003
(fiscal 2003) and October 27, 2002 (fiscal 2002) contained 52 weeks.

Basis of Presentation -- The Company has adopted FASB Interpretation No.
46, "Consolidation of Variable Interest Entities", as revised by the FASB in
December 2003 (FIN 46R). As a result of the adoption of this Interpretation, the
Company changed its consolidation policy whereby the accompanying consolidated
financial statements now include the accounts of Quality Dining, Inc., its
wholly owned subsidiaries, and certain related party affiliates that are
variable interest entities. Previously, the consolidated financial statements
included only the accounts of Quality Dining, Inc. and its wholly owned
subsidiaries. In accordance with FIN 46R the Company has elected to restate the
results of all periods presented to reflect this change. The Company determined
that certain affiliated real estate partnerships from which the Company leases
42 of its Burger King restaurants and that are substantially owned by certain
directors, officers, and stockholders of the Company meet the definition of
variable interest entities ("VIE's") as defined in FIN 46R. Furthermore, the
Company has determined that it is the primary beneficiary of these VIE's, based
on the criteria in FIN 46R. The Company holds no direct ownership or voting
interest in the VIE's. Additionally, the creditors and beneficial interest
holders of the VIE's have no recourse to the general credit of the Company.

The assets of the VIE's, which consist primarily of property and equipment,
totaled $17,816,000 and $18,599,000 at October 31, 2004 and October 26, 2003,
respectively. The liabilities of the VIE's, which consist primarily of bank
debt, totaled $7,338,000 and $7,493,000 at October 31, 2004 and October 26,
2003, respectively. Certain of the assets of the VIE's serve as collateral for
the debt obligations. Because certain of these assets were previously recorded
as capital leases by the Company, with a resulting lease obligation, the
consolidation of the VIE's served to increase total assets as reported by the
Company by $13,494,000 and $13,869,000 at October 31, 2004 and October 26, 2003,
respectively. The consolidation of the VIE's served to increase total
liabilities by $4,160,000 in fiscal 2004 and increase total liabilities by
$3,697,000 in fiscal 2003. Additionally, the consolidation of the VIE's
increased treasury stock by $2,806,000 at October 31, 2004 and October 26, 2003
as one of the VIE's purchased common stock of the Company in fiscal 2003. The
change had no impact on reported net income for the years ended October 31,
2004, October 26, 2003 and October 27, 2002. However, the change did decrease
weighted average shares outstanding, basic and diluted, for the years ending
October 31, 2004 and October 26, 2003, because one of the VIE's purchased
1,148,014 shares of the Company's common stock on June 27, 2003. This also had
the effect of increasing basic and diluted net income per share for the year
ended October 31, 2004.

F-8

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the effect of the consolidation of the VIE's
on depreciation and amortization expense, other operating expenses, general and
administrative expense, interest expense, other income (expense), net income per
share, and weighted average shares outstanding for fiscal 2004, 2003 and 2002:

Depreciation and amortization expense............ $9,475 $10,023 $9,882
Change in consolidation policy................... 124 135 187
------ ------- ------
Consolidated depreciation and amortization....... 9,599 10,158 10,069
------ ------- ------
Other operating expenses......................... 62,936 59,472 62,188
Change in consolidation policy................... (2,657) (2,579) (2,719)
------ ------- ------
Consolidated other operating expenses............ 60,279 56,893 59,469
------ ------- ------
General and administrative expenses.............. 15,922 15,961 18,638
Change in consolidation policy................... 75 107 77
------ ------- ------
Consolidated general and administrative
expenses....................................... 15,997 16,068 18,715
------ ------- ------
Interest expense................................. 6,760 7,479 8,429
Change in consolidation policy................... (214) (336) (513)
------ ------- ------
Consolidated interest expense.................... 6,546 7,143 7,916
------ ------- ------
Other income (expense)........................... 535 992 655
Change in consolidation policy................... (275) 5 42
------ ------- ------
Consolidated other income (expense).............. 260 997 697
------ ------- ------
Basic net income per share....................... 0.20 0.04 0.42
Change in consolidation policy................... 0.02 -- --
------ ------- ------
Consolidated basic net income per share.......... 0.22 0.04 0.42
------ ------- ------
Diluted net income per share..................... 0.20 0.04 0.42
Change in consolidation policy................... 0.02 -- --
------ ------- ------
Consolidated diluted net income per share........ 0.22 0.04 0.42
------ ------- ------
Weighted average shares outstanding:
Basic............................................ 11,311 11,311 11,248
Change in consolidation policy................... (1,148) (414) --
------ ------- ------
Consolidated basic............................... 10,163 10,897 11,248
------ ------- ------
Diluted.......................................... 11,420 11,335 11,306
Change in consolidation policy................... (1,148) (414) --
------ ------- ------
Consolidated diluted............................. 10,272 10,921 11,306
------ ------- ------
</Table>

Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and

F-9

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Revenue Recognition -- The Company recognizes revenue upon delivery of
products to its customers.

Inventories -- Inventories consist primarily of restaurant food and
supplies and are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.

Insurance/Self-Insurance -- The Company uses a combination of insurance,
self-insurance retention and self-insurance for a number of risks including
workers' compensation, general liability, employment practices, directors and
officers liability, vehicle liability and employee related health care benefits.
Liabilities associated with these risks are estimated in part by considering
historical claims experience, demographic factors, severity factors and other
actuarial assumptions.

Property and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are being recorded on the straight-line method
over the estimated useful lives of the related assets. Leasehold improvements
are amortized over the shorter of the estimated useful life or the lease term of
the related asset. The general ranges of original depreciable lives are as
follows:

<Table>
<Caption>
YEARS
---------

Buildings and Leasehold Improvements........................ 10-31 1/2
Furniture and Equipment..................................... 3-7
Computer Equipment and Software............................. 5-7
</Table>

Upon the sale or disposition of property and equipment, the asset cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in Other Expense. Normal repairs and maintenance costs
are expensed as incurred.

Long-Lived Assets -- Long-lived assets and intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of a
restaurant's long-lived asset group to be held and used is measured by a
comparison of the carrying amount of the assets to the future net cash flows
expected to be generated by the asset or asset group. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Considerable management judgment is necessary to estimate the fair value
of the assets, including a discounted value of estimated future cash flows and
fundamental analyses. Accordingly, actual results could vary from such
estimates. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less the cost to sell.

Adoption of Statement of Financial Accounting Standards No. 141 and No.
142. -- In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141
requires that the purchase method of accounting be used for business
combinations initiated after June 30, 2001. SFAS 141 also establishes criteria
that must be used to determine whether acquired intangible assets should be
recognized separately from goodwill in the Company's financial statements. Under
SFAS 142, amortization of goodwill, including goodwill recorded in past business
combinations, will discontinue upon adoption of this standard. In addition,
goodwill and indefinite-lived intangible assets will be tested for impairment in
accordance with the provisions of SFAS 142. SFAS 142 is effective for fiscal
years beginning after December 15, 2001. The Company early adopted the
provisions of SFAS 142, in the first quarter of fiscal 2002. SFAS 142 allows up
to six months from the date of adoption to complete the transitional goodwill
impairment test which requires the comparison of the fair value of a reporting
unit to its carrying value (using amounts measured as of the beginning of the
year of adoption) to determine

F-10

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

whether there is an indicated transitional goodwill impairment. The
quantification of an impairment requires the calculation of an "implied" fair
value for a reporting unit's goodwill. If the implied fair value of the
reporting unit's goodwill is less than its recorded goodwill, a transitional
goodwill impairment charge is recognized and reported as a cumulative effect of
a change in accounting principle. The Company completed the impairment testing
of goodwill during the second quarter of fiscal 2002 and determined that there
is no transitional goodwill impairment.

Amortized intangible assets consist of the following:

<Table>
<Caption>
AS OF OCTOBER 31, 2004
------------------------------------------
GROSS CARRYING ACCUMULATED NET BOOK
AMORTIZED INTANGIBLE ASSETS AMOUNT AMORTIZATION VALUE
- --------------------------- -------------- ------------ ----------
(DOLLARS IN THOUSANDS)

Trademarks...................................... $ 842 $ (396) $ 446
Franchise fees and development fees............. 14,985 (6,735) 8,250
------- ------- ------
Total......................................... $15,827 $(7,131) $8,696
------- ------- ------
</Table>

<Table>
<Caption>
AS OF OCTOBER 26, 2003
------------------------------------------
GROSS CARRYING ACCUMULATED NET BOOK
AMORTIZED INTANGIBLE ASSETS AMOUNT AMORTIZATION VALUE
- --------------------------- -------------- ------------ ----------
(DOLLARS IN THOUSANDS)

Trademarks...................................... $ 2,961 $(1,676) $ 1,285
Franchise fees and development fees............. 14,782 (5,981) 8,801
------- ------- -------
Total......................................... $17,743 $(7,657) $10,086
------- ------- -------
</Table>

The Company's intangible asset amortization expense was $922,000,
$1,113,000 and $1,150,000 for fiscal years 2004, 2003 and 2002, respectively.
The estimated intangible amortization expense for each of the next five years is
as follows:

<Table>
<Caption>
FISCAL YEAR
- -----------

2005........................................................ $866,000
2006........................................................ $866,000
2007........................................................ $866,000
2008........................................................ $866,000
2009........................................................ $780,000
</Table>

In the second quarter of fiscal 2003, the Company recorded an impairment
charge related to certain Grady's American Grill restaurants that resulted in a
reduction of the net book value of the Grady's American Grill trademark by
$2,882,000. In conjunction with the Company's impairment assessment, the Company
revised its estimate of the remaining useful life of the trademark from 15 to 5
years. Trademark amortization was $169,000, $334,000 and $421,000 for fiscal
years 2004, 2003 and 2002, respectively.

The Company operates five distinct restaurant concepts in the food-service
industry. It owns the Grady's American Grill concept, Porterhouse Steaks and
Seafood concept, an Italian Dining concept and it operates Burger King
restaurants and Chili's Grill & Bar restaurants as a franchisee of Burger King
Corporation and Brinker International, Inc., respectively. The Company has
identified each restaurant concept as an operating segment based on management
structure and internal reporting, with the exception of Porterhouse Steaks and
Seafood, which is included with the Grady's American Grill operating segment,
based on management structure and internal reporting. The Company has two
operating segments with goodwill -- Chili's Grill & Bar and Burger King. The
Company had a total of $7,960,000 in goodwill as of

F-11

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

October 31, 2004. The Chili's Grill and Bar operating segment had $6,902,000 of
goodwill and the Burger King operating segment had $1,058,000 of goodwill.

Franchise Fees and Development Fees -- The Company's Burger King and
Chili's franchise agreements require the payment of a franchise fee for each
restaurant opened. Franchise fees are deferred and amortized on the
straight-line method over the lives of the respective franchise agreements.
Development fees paid to the respective franchisors are deferred and expensed in
the period the related restaurants are opened. Franchise fees are being
amortized on a straight-line basis, generally over 20 years. Accumulated
amortization of franchise fees as of October 31, 2004 and October 26, 2003 was
$6,735,000 and $5,981,000, respectively.

Advertising -- The Company incurs advertising expense related to its
concepts under franchise agreements (See Note 6) or through local advertising.
Advertising costs are expensed at the time the related advertising first takes
place. Advertising costs were $8,528,000, $8,011,000 and $8,523,000 for fiscal
years 2004, 2003 and 2002, respectively.

Liquor Licenses -- Costs incurred in securing liquor licenses for the
Company's restaurants and the fair value of liquor licenses acquired in
acquisitions are capitalized and amortized on a straight-line basis, principally
over 20 years. Accumulated amortization of liquor licenses as of October 31,
2004 and October 26, 2003 was $1,720,000 and $1,514,000, respectively.

Deferred Financing Costs -- Deferred costs of debt financing included in
other non-current assets are amortized over the life of the related loan
agreements, which range from three to 20 years.

Computer Software Costs -- Costs of purchased and internally developed
computer software are capitalized in accordance with SOP 98-1 and amortized over
a five to seven year period using the straight-line method. As of October 31,
2004 and October 26, 2003, capitalized computer software costs, net of related
accumulated amortization, aggregated $618,000 and $890,000, respectively, and
are included as a component of property and equipment. Amortization of computer
software costs was $263,000, $265,000 and $259,000 for fiscal years 2004, 2003
and 2002 respectively.

Capitalized Interest -- Interest costs capitalized during the construction
period of new restaurants and major capital projects were $37,000, $18,000 and
$28,000 for fiscal years 2004, 2003 and 2002 respectively.

Stock-Based Compensation -- The Company has adopted the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition
and Disclosure -- an amendment of SFAS No. 123." These statements encourage
rather than require companies to adopt a new method that accounts for
stock-based compensation awards based on their estimated fair value at the date
they are granted. Companies are permitted, however, to continue accounting for
stock compensation awards under APB Opinion No. 25 which requires compensation
cost to be recognized based on the excess, if any, between the quoted market
price of the stock at the date of the grant and the amount an employee must pay
to acquire the stock. Under this method, no compensation cost has been
recognized for stock option awards. The Company has elected to continue to apply
APB Opinion No. 25.

F-12

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value method as prescribed by SFAS 123, the
Company's net earnings and net earnings per share would have been the pro forma
amounts indicated below:

<Table>
<Caption>
OCTOBER 31, OCTOBER 26, OCTOBER 27,
2004 2003 2002
----------- ------------ ------------
(AS RESTATED (AS RESTATED
SEE NOTE 1A) SEE NOTE 1A)
------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net income as reported........................... $2,221 $ 399 $4,731
Add: Stock-based compensation expense included in
reported net earnings, net of related tax
effects........................................ 87 61 191
Deduct: Total stock option based employee
compensation expense determined by using the
fair value based method, net of related tax
effects........................................ (124) (99) (239)
------ ----- ------
Net income, pro forma............................ $2,184 $ 361 $4,683
------ ----- ------
Basic net income per common share, as reported... $ 0.22 $0.04 $ 0.42
Basic net income per common share, pro forma..... $ 0.21 $0.03 $ 0.42
Diluted net income per common share, as
reported....................................... $ 0.22 $0.04 $ 0.42
Diluted net income per common share, pro forma... $ 0.21 $0.03 $ 0.41
------ ----- ------
</Table>

The weighted average fair value at the date of grant for options granted
during fiscal 2004, 2003 and 2002 was $1.17, $1.05 and $1.76 per share,
respectively. The fair value of each option grant is estimated on the date of
the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in fiscal 2004, 2003 and 2002:
dividend yield of 0% for all years; expected volatility of 52.2%, 53.5% and
55.0%, respectively; risk-free interest rate of 3.9%, 3.6% and 3.5%,
respectively; and expected lives of 5 years for all fiscal years.

Stock Purchase Expense/Treasury Stock -- During the third quarter of fiscal
2003, one of the VIE's purchased all 1,148,014 shares of the Company's common
stock owned by NBO, LLC ("NBO"), for approximately $4.1 million. The Company was
required to take a one-time non-cash charge of $1,294,000, which is equal to the
premium to the market price that the VIE paid for the shares. The balance of
$2,806,000, which reflected market price at the date of the acquisition, is
reflected as treasury stock at October 31, 2004 and October 26, 2003.

Net Income (Loss) Per Share -- Basic net income (loss) per share is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding. Diluted earnings per share is based on the weighted average
number of common shares outstanding plus all potential dilutive common shares
outstanding. For all years presented, the difference between basic and dilutive
shares represents options on common stock and unvested restricted stock. Options
were excluded from the diluted earnings per share calculations for the fiscal
years 2004, 2003 and 2002 in the amount of 490,082, 580,683 and 457,020 shares,
respectively; to include the shares would have been anti-dilutive.

Concentrations of Credit Risk -- Financial instruments, which potentially
subject the Company to credit risk, consist primarily of cash and cash
equivalents and notes receivable. Substantially all of the Company's cash and
cash equivalents at October 31, 2004 were concentrated with a bank located in
Chicago, Illinois.

Cash and Cash Equivalents -- The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.

F-13

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes -- The Company utilizes SFAS No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse. SFAS 109
requires the establishment of a valuation reserve against any deferred tax
assets if the realization of such assets is not deemed more likely than not.

Adoption of Statement of Financial Accounting Standards No. 144 -- As a
result of the adoption of Statement of Financial Accounting Standard ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the
Company has classified the revenues of four Grady's American Grill restaurants
sold during fiscal 2003, four restaurants that met the criteria for "held for
sale" treatment in fiscal 2003 and five that met the criteria in fiscal 2004, as
discontinued operations.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment". This Statement is a revision of FASB Statement No. 123, "Accounting
for Stock-Based Compensation". This Statement supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This Statement requires that the cost resulting from all
share-based payment transactions be recognized in the financial statements. This
Statement establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a
fair-value-based measurement method in accounting for share-based payment
transactions with employees. This Statement is effective for public entities
that file as small business issuers as of the beginning of the first interim or
annual reporting period that begins after December 15, 2005, and for nonpublic
entities as of the beginning of the first annual reporting period that begins
after December 15, 2005. The Company is still assessing the impact, if any, the
Statement will have on the Company's financial statements.

In December 2004, the FASB issued FASB Statement No. 153 (SFAS 153),
"Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29 (APB 29).
This Statement addresses the measurement of exchanges of nonmonetary assets. It
eliminates the exception from fair value measurement for nonmonetary exchanges
of similar productive assets in paragraph 21(b) of APB 29 and replaces it with
an exception for exchanges that do not have commercial substance. This Statement
is effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The Company does not believe the adoption of this
Statement will have any material impact on the Company's financial statements.

(3) DISCONTINUED OPERATIONS

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", the Company has classified the revenues, expenses and
related assets and liabilities of four Grady's American Grill restaurants that
were sold in 2003, four Grady's American Grill that met the criteria for 'held
for sale' treatment in fiscal 2003 and five that met the criteria in fiscal 2004
as discontinued operations in the accompanying consolidated financial
statements.

F-14

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At October 26, 2003, assets held for sale included property and equipment
totaling $8,138,000. The decision to dispose of these locations reflects the
Company's ongoing process of evaluating the performance of the Grady's American
Grill restaurants and using the proceeds from dispositions to reduce debt. Net
income (loss) from discontinued operations for the periods ended October 31,
2004, October 26, 2003, and October 27, 2002 were made up of the following
components:

<Table>
<Caption>
FISCAL YEAR ENDED
---------------------------------------
OCTOBER 31, OCTOBER 26, OCTOBER 27,
2004 2003 2002
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenue from discontinued operations................ $ 8,179 $16,249 $23,805
Income from discontinued restaurant operations...... 12 635 1,802
Facility closing costs.............................. (1,687) (220) --
Impairment of assets................................ (670) (4,411) --
Gain on sale of assets.............................. 606 341 --
------- ------- -------
Income before income taxes.......................... (1,739) (3,655) 1,802
Income tax provision (benefit)...................... (649) (1,304) 552
------- ------- -------
Income (loss) from discontinued operations.......... $(1,090) $(2,351) $ 1,250
======= ======= =======
Basic net income (loss) per share from discontinued
operations........................................ $ (0.11) $ (0.21) $ 0.11
======= ======= =======
Diluted net income (loss) per share from
discontinued operations........................... $ (0.10) $ (0.21) $ 0.11
======= ======= =======
</Table>

The cash flows associated with these restaurants have also been separately
identified in the consolidated statements of cash flows. The accompanying
footnotes to the financial statements have been reclassified as necessary to
conform to this presentation.

F-15

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) OTHER CURRENT ASSETS AND ACCRUED LIABILITIES

Other current assets and accrued liabilities consist of the following:

<Table>
<Caption>
OCTOBER 31, OCTOBER 26,
2004 2003
----------- ------------
(AS RESTATED
SEE NOTE 1A)
(DOLLARS IN THOUSANDS)

Other current assets:
Prepaid rent.............................................. $ 788 $ 214
Prepaid real estate taxes................................. 763 689
Prepaid insurance......................................... 661 589
Deposits.................................................. 684 406
Prepaid expenses and other current assets................. 425 294
------- -------
$ 3,321 $ 2,192
------- -------
Accrued liabilities:
Accrued salaries, wages and severance..................... $ 4,120 $ 3,711
Accrued insurance costs................................... 4,162 3,688
Unearned income........................................... 2,647 2,214
Accrued advertising and royalties......................... 1,375 1,324
Accrued property taxes.................................... 1,226 1,344
Accrued sales taxes....................................... 667 738
Other accrued liabilities................................. 6,572 5,303
------- -------
$20,769 $18,322
------- -------
</Table>

(5) PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<Table>
<Caption>
OCTOBER 31, OCTOBER 26,
2004 2003
----------- ------------
(AS RESTATED
SEE NOTE 1A)
(DOLLARS IN THOUSANDS)

Land and land improvements.................................. $ 32,940 $ 32,923
Buildings and leasehold improvements........................ 102,272 97,073
Furniture and equipment..................................... 61,849 58,914
Construction in progress.................................... 721 571
-------- --------
197,782 189,481
-------- --------
Less, accumulated depreciation.............................. 88,884 80,152
-------- --------
Property and equipment, net................................. $108,898 $109,329
-------- --------
</Table>

(6) FRANCHISE AND DEVELOPMENT RIGHTS

The Company has entered into franchise agreements with two franchisors for
the operation of two of its restaurant concepts, Burger King and Chili's. The
existing franchise agreements provide the franchisors with significant rights
regarding the business and operations of the Company's franchised restaurants.
The franchise agreements with Burger King Corporation require the Company to pay
royalties ranging from
F-16

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2.75% to 4.5% of sales and advertising fees of 4.0% of sales. The franchise
agreements with Brinker International, Inc. ("Brinker") covering the Company's
Chili's restaurant concept require the Company to pay royalty and advertising
fees equal to 4.0% and 0.5% of Chili's restaurant sales, respectively. In
addition, the Company is required to spend 2.0% of sales from each of its
Chili's restaurants on local advertising which is considered to be met by the
additional contributions described below. As part of a system-wide promotional
effort, the Company paid an additional advertising fee as follows:

<Table>
<Caption>
PERIOD % OF SALES
- ------ ----------

September 1, 1999 through August 30, 2000................... 0.375%
September 1, 2000 through June 27, 2001..................... 1.0%
June 28, 2001 through June 26, 2002......................... 1.2%
June 27, 2002 through June 25, 2003......................... 2.0%
June 26, 2003 through June 30, 2004......................... 2.25%
July 1, 2005 through June 29, 2005.......................... 2.65%
</Table>

The Company's development agreement with Brinker expired on December 31,
2003. The development agreement entitled the Company to develop up to 41 Chili's
restaurants in two regions encompassing counties in Indiana, Michigan, Ohio,
Kentucky, Delaware, New Jersey and Pennsylvania. The Company paid development
fees totaling $260,000 for the right to develop the restaurants in the regions.
Each Chili's franchise agreement requires the Company to pay an initial
franchise fee of $40,000, a monthly royalty fee of 4.0% of sales and advertising
fees of 0.5% of sales. The Company completed all of its obligations under its
development agreement prior to its expiration.

On January 27, 2000 the Company executed a "Franchisee Commitment" pursuant
to which it agreed to undertake certain "Transformational Initiatives" including
capital improvements and other routine maintenance in all of its Burger King
restaurants. The capital improvements include the installation of signage
bearing the new Burger King logo and the installation of a new drive-through
ordering system. The initial deadline for completing these capital
improvements -- December 31, 2001 -- was extended to December 31, 2002, although
the Company met the initial deadline with respect to 66 of the 70 Burger King
restaurants subject to the Franchisee Commitment. The Company completed the
capital improvements to the remaining four restaurants prior to December 31,
2002. In addition, the Company agreed to perform, as necessary, certain routine
maintenance such as exterior painting, sealing and striping of parking lots and
upgraded landscaping. The Company completed this maintenance prior to September
30, 2000, as required. In consideration for executing the Franchisee Commitment,
the Company received "Transformational Payments" totaling approximately $3.9
million during fiscal 2000. In addition, the Company received supplemental
Transformational Payments of approximately $135,000 in October of 2001 and
$180,000 in 2002. The portion of the Transformational Payments that corresponds
to the amount required for capital improvements ($1,966,000) was recorded as a
reduction in the cost of the assets acquired. Consequently, the Company has not
and will not incur depreciation expense over the useful life of these assets
(which range between five and ten years). The portion of the Transformational
Payments that corresponds to the required routine maintenance was recognized as
a reduction in maintenance expense over the period during which maintenance was
performed. The remaining balance of the Transformational Payments was recognized
as other income ratably through December 31, 2001, the term of the initial
Franchisee Commitment, except that the supplemental Transformational Payments
were recognized as other income when received.

F-17

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For franchise agreements entered into during the transitional period, the
royalty rate will be 4.0% of sales for the first 10 years and 4.5% of sales for
the balance of the term.

Burger King Corporation offered a voluntary program as an incentive for
franchisees to renew their franchise agreements prior to the scheduled
expiration date ("2000 Early Renewal Program"). Franchisees that elected to
participate in the 2000 Early Renewal Program were required to make capital
investments in their restaurants by, among other things, bringing them up to
Burger King Corporation's current image, and to extend occupancy leases.
Franchise agreements entered into under the 2000 Early Renewal Program have
special provisions regarding the royalty payable during the term, including a
reduction in the royalty to 2.75% over five years generally beginning April,
2002 and concluding in April, 2007.

The Company included 36 restaurants in the 2000 Early Renewal Program. The
Company paid franchise fees of $877,000 in the third quarter of fiscal 2000 to
extend the franchise agreements of the selected restaurants for 16 to 20 years.
In fiscal 2001 and 2002, the Company invested approximately $6.6 million to
remodel the selected restaurants to Burger King Corporation's current image.

The Company included three restaurants in the 2001 Early Renewal Program.
The Company paid franchise fees of $144,925 in fiscal 2001 to extend the
franchise agreements of the selected restaurants for 17 to 20 years. The Company
invested approximately $1.7 million in fiscal 2003 to remodel two participating
restaurants to Burger King Corporation's current image. The Company is
considering withdrawing the third restaurant from the 2001 Early Renewal
Program.

Through participation in the various early renewal plans, the Company has
been able to reduce its royalty expense by $421,000, $301,000 and $146,000 in
fiscal 2004, 2003 and 2002, respectively.

Burger King Corporation also provides general specifications for designs,
color schemes, signs and equipment, formulas for preparation of food and
beverage products, marketing concepts, inventory, operations and financial
control methods, management training, technical assistance and materials. Each
franchise agreement prohibits the Company from transferring a franchise without
the prior approval of Burger King Corporation.

Burger King Corporation's franchise agreements prohibit the Company, during
the term of the agreements, from owning or operating any other hamburger
restaurant. For a period of one year following the termination of a franchise
agreement, the Company remains subject to such restriction within a two mile
radius of the Burger King restaurant which was the subject of the franchise
agreement.

F-18

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) INCOME TAXES

The provision for income taxes for the fiscal years ended October 31, 2004,
October 26, 2003 and, October 27, 2002 is summarized as follows:

<Table>
<Caption>
FISCAL YEAR ENDED
---------------------------------------
OCTOBER 31, OCTOBER 26, OCTOBER 27,
2004 2003 2002
----------- ----------- -----------
(DOLLARS IN THOUSANDS)

Current:
Federal........................................... $ -- $ -- $ (330)
State............................................. 1,016 976 1,348
------ ------ ------
1,016 976 1,018
------ ------ ------
Deferred:
Provision (benefit) for the period................ 1,326 2,317 (496)
------ ------ ------
Total............................................. $2,342 $3,293 $ 522
------ ------ ------
</Table>

The components of the deferred tax assets and liabilities are as follows:

<Table>
<Caption>
OCTOBER 31, OCTOBER 26,
2004 2003
----------- -------------
(AS RESTATED
SEE NOTE 1A)
(DOLLARS IN THOUSANDS)

Deferred tax assets:
Net operating loss carryforwards....................... $ 18,683 $ 19,903
FICA tip credit and minimum tax credit................. 5,774 5,141
Accrued liabilities.................................... 2,835 2,531
Property and equipment................................. 2,806 3,301
Trademarks............................................. 1,752 1,767
Franchise fees......................................... 865 803
Other.................................................. 2,182 1,793
-------- --------
Deferred tax assets.................................... 34,897 35,239
Less: Valuation allowance.............................. (25,173) (25,173)
-------- --------
9,724 10,066
-------- --------
Deferred tax liabilities:
Goodwill............................................... (1,230) (958)
Other.................................................. (146) (108)
-------- --------
Deferred tax liabilities............................... (1,376) (1,066)
-------- --------
Net deferred tax assets................................ $ 8,348 $ 9,000
-------- --------
</Table>

The Company has net operating loss carryforwards of approximately $53.4
million as well as FICA tip credits and alternative minimum tax credits of $5.8
million.

F-19

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net operating loss carryforwards expire as follows:

<Table>
<Caption>
NET OPERATING LOSS
CARRYFORWARDS
------------------

Net operating loss carryforwards expiring 2012.............. $36,581,000
Net operating loss carryforwards expiring 2018.............. 3,000,000
Net operating loss carryforwards expiring 2021.............. 1,619,000
Net operating loss carryforwards expiring 2022.............. 12,181,000
-----------
Total net operating loss carryforwards...................... $53,381,000
-----------
</Table>

FICA tip credits expire as follows:

<Table>
<Caption>
FICA TIP CREDITS
----------------

FICA tip credit expiring in 2009............................ $ 61,000
FICA tip credit expiring in 2010............................ 209,000
FICA tip credit expiring in 2011............................ 569,000
FICA tip credit expiring in 2012............................ 501,000
FICA tip credit expiring in 2013............................ 477,000
FICA tip credit expiring in 2014 and thereafter............. 3,766,000
----------
Total FICA tip credits.................................... $5,583,000
----------
</Table>

The alternative minimum tax credits of $191,000 do not expire.

At October 31, 2004, the Company has deferred tax assets consisting
principally of carryforward tax losses and credits aggregating $34,897,000.
After considering the weight of available positive and negative evidence
regarding the realizability of these assets, the Company has recorded a
valuation allowance aggregating $25,173,000, for a net deferred tax asset of
$8,348,000, the amount management believes more likely than not will be
realized. The significant positive evidence considered by management in making
this judgment included the Company's profitability in 2002, 2003 and 2004, the
consistent historical profitability of the Company's Burger King and Chili's
divisions, and the resolution during 2003 of substantially all contingent
liabilities related to its sold bagel businesses. The negative evidence
considered by management includes persistent negative operating trends in its
Grady's American Grill division, recent same store sales declines in the Italian
Dining division, and statutory limitations on available carryforward tax
benefits.

In estimating its deferred tax asset, management used its 2005 operating
plan as the basis for a forecast of future taxable earnings. Management did not
incorporate growth assumptions and limited the forecast to five years, the
period that management believes it can project results that are more likely than
not achievable. Absent a significant and unforeseen change in facts or
circumstances, management re-evaluates the realizability of its tax assets in
connection with its annual budgeting cycle.

Based on its assessment and using the methodology described above,
management believes more likely than not the net deferred tax asset will be
realized. The Company is currently profitable and management believes the issues
that gave rise to historical losses have been substantially resolved with no
impact on its continuing businesses. Moreover, these core businesses have been
historically, and continue to be, profitable. Nonetheless, realization of the
net deferred tax asset will require approximately $27 million of future taxable
income. The Company operates in a very competitive industry that can be
significantly affected by changes in local, regional or national economic
conditions, changes in consumer tastes, weather conditions and various other
consumer concerns. Accordingly, the amount of the deferred tax asset considered
by management to be realizable, more likely than not, could change in the near
term if

F-20

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimates of future taxable income change. This could result in a charge to, or
increase in, income in the period such determination is made.

Differences between the effective income tax rate and the U.S. statutory
tax rate are as follows:

<Table>
<Caption>
FISCAL YEAR ENDED
-----------------------------------------
OCTOBER 31, OCTOBER 26, OCTOBER 27,
(PERCENT OF PRETAX INCOME) 2004 2003 2002
- -------------------------- ----------- ------------ ------------
(AS RESTATED (AS RESTATED
SEE NOTE 1A) SEE NOTE 1A)

Statutory tax rate............................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit........................................ 11.9 10.7 22.2
FICA tax credit.................................. (6.1) (4.9) (9.0)
Change in valuation allowance.................... -- 6.2 (38.3)
Stock purchase expense........................... -- 7.3 --
Other, net....................................... 1.6 1.2 4.1
---- ---- -----
Effective tax rate............................... 41.4% 54.5% 13.0%
---- ---- -----
</Table>

(8) LONG-TERM DEBT AND CREDIT AGREEMENTS

The Company has a financing package totaling $89,066,000, consisting of a
$40,000,000 revolving credit agreement and a $49,066,000 mortgage facility, as
described below. The revolving credit agreement executed with JP Morgan Chase
Bank, as agent for a group of five banks, provides for borrowings of up to
$40,000,000 with interest payable at the adjusted LIBOR rate plus a contractual
spread. The weighted average borrowing rate under the revolving credit agreement
on October 31, 2004 was 4.66%. The revolving credit agreement will mature on
November 1, 2005, at which time all amounts outstanding thereunder are due. The
Company had $7,395,000 available under its revolving credit agreement as of
October 31, 2004. The revolving credit agreement is collateralized by the stock
of certain subsidiaries of the Company, certain interests in the Company's
franchise agreements with Brinker and Burger King Corporation and substantially
all of the Company's real and personal property not pledged in the mortgage
financing.

The revolving credit agreement contains, among other provisions,
restrictive covenants including maintenance of certain prescribed debt and fixed
charge coverage ratios, limitations on the incurrence of additional
indebtedness, limitations on consolidated capital expenditures, cross-default
provisions with other material agreements, restrictions on the payment of
dividends (other than stock dividends) and limitations on the purchase or
redemption of shares of the Company's capital stock. Under the revolving credit
agreement the Company's funded debt to consolidated cash flow ratio could not
exceed 3.50 and its fixed charge coverage ratio could not be less than 1.50 on
October 31, 2004. The Company was in compliance with these requirements with a
funded debt to consolidated cash flow ratio of 3.13 and a fixed charge coverage
ratio of 1.70.

Letters of credit reduce the Company's borrowing capacity under its
revolving credit facility and represent purchased guarantees that ensure the
Company's performance or payment to third parties in accordance with specified
terms and conditions which amounted to $1,980,000 and $2,346,000 as of October
31, 2004 and October 26, 2003, respectively.

The $49,066,000 mortgage facility currently includes 34 separate mortgage
notes, with terms of either 15 or 20 years. The notes have fixed rates of
interest of either 9.79% or 9.94%. The notes require equal monthly interest and
principal payments. The mortgage notes are collateralized by a first
mortgage/deed of trust and security agreement on the real estate, improvements
and equipment on 19 of the Company's Chili's restaurants and 15 of the Company's
Burger King restaurants. These restaurants have a net book
F-21

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

value of $33,107,000 at October 31, 2004. The mortgage notes contain, among
other provisions, financial covenants that require the Company to maintain a
consolidated fixed charge coverage ratio of at least 1.30 for each of six
subsets of the financed properties.

The Company was not in compliance with the required consolidated fixed
charge coverage ratio for one of the subsets of the financed properties as of
October 31, 2004. This subset is comprised solely of Burger King restaurants and
had a fixed charge coverage ratio of 1.09. Outstanding obligations under this
subset totaled $8,966,000 at October 31, 2004. The Company sought and obtained a
waiver for this covenant default from the mortgage lender through November 27,
2005. If the Company is not in compliance with the covenant as of November 27,
2005, the Company will most likely seek an additional waiver. The Company
believes it would be able to obtain such waiver but there can be no assurance
thereof. If the Company is unable to obtain such waiver it is contractually
entitled to pre-pay the outstanding balances under one or more of the separate
mortgage notes such that the remaining properties in the subset would meet the
required ratio. However, any such prepayments would be subject to prepayment
premiums and to the Company's ability to maintain its compliance with the
financial covenants in its revolving credit agreement. Alternatively, the
Company is contractually entitled to substitute one or more better performing
restaurants for under-performing restaurants such that the reconstituted subsets
of properties would meet the required ratio. However, any such substitutions
would require the consent of the lenders in the revolving credit agreement. For
these reasons, the Company believes that its rights to prepay mortgage notes or
substitute properties, while reasonably possible, may be impractical depending
on the circumstances existing at the time.

The Company has adopted FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities", as revised by the FASB in December 2003 (FIN 46R)
(See Note 2). As a result of the adoption of this Interpretation, the Company
changed its consolidation policy whereby the accompanying consolidated financial
statements now include the accounts of Quality Dining, Inc., its wholly owned
subsidiaries, and certain related party affiliates that are variable interest
entities (VIE). The Company holds no direct ownership or voting interest in the
VIE's.

Additionally, the creditors and beneficial interest holders of the VIE's
have no recourse to the general credit of the Company. The VIE's bank debt
totaled $7,205,000 at October 26, 2003 and $5,430,000 of that debt was
classified as current debt.

The aggregate maturities of long-term debt subsequent to October 31, 2004
are as follows:

<Table>
<Caption>
(DOLLARS IN THOUSANDS)

FISCAL YEAR
2005........................................................ $10,721
2006........................................................ 29,344
2007........................................................ 2,395
2008........................................................ 3,637
2009........................................................ 2,555
2010 and thereafter......................................... 31,907
-------
Total....................................................... $80,559
-------
</Table>

F-22

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) EMPLOYEE BENEFIT PLANS

STOCK OPTIONS

The Company has four stock option plans: the 1993 Stock Option and
Incentive Plan, the 1997 Stock Option and Incentive Plan, the 1993 Outside
Directors Stock Option Plan and the 1999 Outside Directors Stock Option Plan.

On March 26, 1997 the Company's shareholders approved the 1997 Stock Option
and Incentive Plan and therefore no awards for additional shares of the
Company's common stock will be made under the 1993 Stock Option and Incentive
Plan. Under the 1997 Stock Option and Incentive Plan, shares of restricted stock
and options to purchase shares of the Company's common stock may be granted to
officers and other employees. An aggregate of 1,100,000 shares of common stock
has been reserved for issuance under the 1997 Stock Option and Incentive Plan.
As of October 31, 2004, there were 71,390 and 412,922 options outstanding under
the 1993 Stock Option and Incentive Plan and the 1997 Stock Option and Incentive
Plan, respectively. Typically, options granted under these plans have a term of
10 years and become exercisable incrementally over three years.

In December of 1999 the Company's Board of Directors approved the 1999
Outside Directors Stock Option Plan. Under the 1999 Outside Directors Stock
Option Plan, 80,000 shares of common stock have been reserved for the issuance
of nonqualified stock options to be granted to non-employee directors of the
Company. On May 1, 2001, and on each May 1 thereafter, each then non-employee
director of the Company will receive an option to purchase 2,000 shares of
common stock at an exercise price equal to the fair market value of the
Company's common stock on the date of grant. Each option has a term of 10 years
and becomes exercisable six months after the date of grant. During fiscal 2004,
the Company issued 10,000 shares under the 1999 Outside Directors Stock Option
Plan. As of October 31, 2004 there were 24,000 and 56,000 options outstanding
under the 1993 Outside Directors Stock Option Plan and the 1999 Outside
Directors Stock Option Plan, respectively.

On June 1, 1999, the Company implemented a Long Term Incentive Compensation
Plan (the "Long Term Plan") for seven of its executive officers and certain
other senior executives (the "Participants"). The Long Term Plan is designed to
incent and retain those individuals who are critical to achieving the Company's
long-term business objectives. The Long Term Plan consists of (a) options
granted with an exercise price equal to the closing price of the Company's
common stock on the grant date, which vest over three years; (b) restricted
stock awards of common shares which vest over seven years, subject to
accelerated vesting in the event the price of the Company's common stock
achieves certain targets; and, for certain Participants, (c) a cash bonus
payable at the conclusion of fiscal year 2000. Under the Long Term Plan, the
Company issued 102,557 restricted shares in fiscal 2001 and 104,360 restricted
shares in fiscal 2000. There were no shares of restricted stock forfeited in
fiscal 2004, 14,318 shares forfeited in fiscal 2003 and no shares of restricted
stock were forfeited in fiscal 2002.

During fiscal 2002, the Company issued 125,000 restricted shares and 75,000
options on similar terms as those that were issued under the Long Term Plan.
During fiscal 2003 and fiscal 2004 the Company did not issue any restricted
shares or stock options to employees.

As a result of the restricted stock grants, the Company recorded an
increase to additional paid in capital and an offsetting deferred charge for
unearned compensation. The deferred charge is equal to the number of shares
granted multiplied by the Company's closing share price on the day of the grant.
The deferred charge is classified in the equity section of the Company's
consolidated balance sheet as unearned compensation and is being amortized to
compensation expense on a straight-line basis over the vesting period, subject
to accelerated vesting if the Company's common stock reaches certain benchmarks.

F-23

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Activity with respect to the Company's stock option plans for fiscal years
2004, 2003 and 2002 was as follows:

<Table>
<Caption>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------

Outstanding, October 28, 2001......................... 608,454 $5.78
Granted............................................. 75,000 2.17
Canceled............................................ (11,955) 5.07
Exercised........................................... -- --
------- -----
Outstanding, October 27, 2002......................... 671,499 5.72
Granted............................................. 10,000 3.46
Canceled............................................ (30,481) 9.11
Exercised........................................... -- --
------- -----
Outstanding, October 26, 2003......................... 651,018 5.41
Granted............................................. 10,000 2.37
Canceled............................................ (96,706) 7.59
Exercised........................................... -- --
------- -----
Outstanding, October 31, 2004......................... 564,312 $5.03
------- -----
Exercisable, October 31, 2004......................... 539,312
-------
Available for future grants at October 31, 2004....... 328,345
-------
</Table>

The following table summarizes information relating to fixed-priced stock
options outstanding for all plans as of October 31, 2004.

<Table>
<Caption>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------------------- ----------- ---------------- -------------- ----------- --------------

$ 2.00 - $ 2.50 74,230 7.04 years $ 2.07 64,230 $ 2.07
$ 2.51 - $ 3.00 121,692 4.70 years $ 2.98 121,692 $ 2.98
$ 3.01 - $ 3.50 201,800 3.17 years $ 3.42 201,800 $ 3.42
$ 3.51 - $ 4.00 70,000 7.80 years $ 3.55 55,000 $ 3.56
$ 4.01 - $12.50 65,640 .80 years $11.04 65,640 $11.04
$12.51 - $32.875 30,950 1.46 years $21.30 30,950 $21.30
</Table>

Retirement Plans

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.

F-24

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, subject to the same limitations as are
applicable to Plan I participants. Company allocations vest 25% annually,
beginning in the participant's second year of eligibility since Plan I
inception.

The Company's contributions under Plan I and Plan II aggregated $242,000,
$246,000 and $197,000 for fiscal years 2004, 2003 and 2002, respectively.

Other Plans

The Company also entered into agreements with five of its executive
officers and two other senior executives pursuant to which the employees have
agreed not to compete with the Company for a period of time after the
termination of their employment and are entitled to receive certain payments in
the event of a change of control of the Company.

(10) LEASES

The Company leases its office facilities and a substantial portion of the
land and buildings used in the operation of its restaurants. The restaurant
leases generally provide for a noncancelable term of five to 20 years and
provide for additional renewal terms at the Company's option. Most restaurant
leases contain provisions for percentage rentals on sales above specified
minimums. Rental expense incurred under these percentage rental provisions
aggregated $187,000, $296,000 and $401,000 for fiscal years 2004, 2003 and 2002,
respectively.

As of October 31, 2004, future minimum lease payments related to these
operating leases were as follows:

<Table>
<Caption>
(DOLLARS IN THOUSANDS)

FISCAL YEAR
2005........................................................ $ 7,217
2006........................................................ 6,533
2007........................................................ 6,231
2008........................................................ 5,654
2009........................................................ 5,419
2010 and thereafter......................................... 19,592
-------
$50,646
=======
</Table>

Rent expense, including percentage rentals based on sales, was $9,545,000,
$9,077,000 and $9,983,000 for fiscal years 2004, 2003 and 2002, respectively.

The Company has six subleases at restaurants and four subleases at its
corporate headquarters building. As of October 31, 2004, future minimum lease
payments related to these subleases were $9,643,000. Sublease payments were
$798,000, $848,000 and $656,000 for fiscal years 2004, 2003 and 2002
respectively.

F-25

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) COMMITMENTS AND CONTINGENCIES

The Company is self-insured for a portion of its employee health care
costs. The Company is liable for medical claims up to $125,000 per eligible
employee annually, and aggregate annual claims up to approximately $3,953,000.
The aggregate annual deductible is determined by the number of eligible covered
employees during the year and the coverage they elect.

The Company is self-insured with respect to any worker's compensation
claims not covered by insurance. The Company maintains a $250,000 per occurrence
deductible and is liable for aggregate claims up to $2,400,000 for the
twelve-month period beginning September 1, 2004 and ending August 31, 2005.

The Company is self-insured with respect to any general liability claims
below the Company's self-insured retention of $150,000 per occurrence for the
twelve-month period beginning September 1, 2004 and ending August 31, 2005.

The Company has accrued $4,162,000 (see Note 4) for the estimated expense
for its self-insured insurance plans. These accruals require management to make
significant estimates and assumptions. Actual results could differ from
management's estimates.

At October 31, 2004, the Company had commitments aggregating $50,000 for
the construction of restaurants.

On June 15, 2004 a group of five shareholders led by Company CEO Daniel B.
Fitzpatrick ("Fitzpatrick Group") presented the Board with a proposal to
purchase all outstanding shares of common stock owned by the public
shareholders. In addition to Mr. Fitzpatrick, the other members of the
Fitzpatrick Group are James K. Fitzpatrick, Senior Vice President and Chief
Development Officer; Ezra H. Friedlander, Director; Gerald O. Fitzpatrick,
Senior Vice President, Burger King Division; John C. Firth, Executive Vice
President and General Counsel; and William R. Schonsheck, a significant
shareholder, who joined the Fitzpatrick Group on February 3, 2005. Under the
terms of the transaction as originally proposed, the public holders of the
outstanding shares of the Company would each receive $2.75 in cash in exchange
for each of their shares. The purchase would take the form of a merger in which
the Company would survive as a privately held corporation. The Fitzpatrick Group
advised the Board that it was not interested in selling its shares to a third
party, whether in connection with a sale of the Company or otherwise.

On June 22, 2004, a purported class action lawsuit was filed on behalf of
the public shareholders of the Company by Milberg, Weiss, Bershad & Schulman LLP
against the Company, its directors and two of its officers alleging that the
individual defendants breached fiduciary duties by acting to cause or facilitate
the acquisition of the Company's publicly-held shares for unfair and inadequate
consideration, and colluding in the Fitzpatrick group's going private proposal.
The action, Bruce Alan Crown Grantors Trust v. Daniel B. Fitzpatrick, et al.,
Cause No. 71-D04-0406-PL00299, was filed in the St. Joseph Superior Court in
South Bend, Indiana. The action sought to enjoin the transaction or if
consummated, to rescind the transaction or award rescisssory damages, and for
defendants to account to the putative class for unspecified damages.

On August 19, 2004, the Company and the individual defendants filed motions
to dismiss the action. The defendants argued that the claims were not ripe
because the transaction proposed by the Fitzpatrick group required approval by
the Company's board of directors and its shareholders, neither of which had
occurred, and that in any event, as a matter of Indiana corporate law,
shareholders who dissent from such a transaction that receives the approval of a
majority of the shares entitled to vote are not permitted to enjoin or otherwise
challenge the transaction. On September 24, 2004, the plaintiff filed a response
to defendants' motions to dismiss arguing that the claim was timely because the
proposed transaction

F-26

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

allegedly was a fait accompli and that Indiana law permits minority shareholders
to challenge such a transaction.

On October 12, 2004, three days before the hearing on the defendants'
motions to dismiss, the plaintiff amended its complaint. The amended complaint
continues to challenge the adequacy of the Fitzpatrick group's proposal and to
allege that the individual defendants have breached fiduciary duties. In
addition, citing the Company's September 15, 2004, announcements of (a) third
quarter earnings and (b) a correction in the calculation of weighted average
shares outstanding which increased earnings per share in the first two quarters
of 2004 by a fraction of a penny, the plaintiff alleges that from March 31,
2004, until September 15, 2004, the defendants violated the antifraud provisions
of Indiana Securities Act by disseminating misleading information to
"artificially deflate" the price of Quality Dining shares, and thereby induce
investors to hold Quality Dining shares. Finally, the plaintiff alleges that the
failure of the Company's directors to pursue a forfeiture action under Section
304 of the Sarbanes-Oxley Act of 2002, which requires the chief executive
officer and chief financial officer under certain circumstances to reimburse the
Company for certain types of compensation if the Company is required to issue a
restatement, would constitute a breach of fiduciary duties.

On October 13, 2004, the Company announced that the special committee of
the board of directors had approved in principle, by a vote of three to one, a
transaction by which the Fitzpatrick group would purchase the outstanding shares
held by Company's public shareholders for $3.20 per share. The agreement was
subject to several contingencies. With respect to shareholder approval, the
Fitzpatrick group agreed to vote its shares in the same proportion as the
Company's public shareholders vote their shares.

On November 3, 2004, Quality Dining and the individual defendants filed
motions to dismiss the amended complaint. Defendants argued as before that as a
matter of Indiana corporate law, the plaintiff cannot enjoin or otherwise
challenge the proposed transaction. Defendants contended that plaintiff's claims
challenging the proposed transaction should be dismissed for the additional
reason that the merger is subject to approval by a majority of the putative
class that the plaintiff seeks to represent. Defendants also argued that there
is no cause of action under the Indiana Securities Act for persons who "hold"
their securities purportedly because of misleading information, and no basis for
a claim that reports filed by the Company with the SEC violate a section of the
Indiana Act prohibiting the filing of misleading reports with the Indiana
Securities Division. Finally, defendants contended that the plaintiff has no
private right of action under Section 304 of the Sarbanes-Oxley Act and cannot
maintain a direct action as a shareholder of the Company to pursue a forfeiture
of certain executive compensation.

A hearing on the defendants' motion to dismiss was held on December 17,
2004. On February 3, 2005, the court granted the defendants' motions to dismiss
and dismissed the plaintiff's amended complaint. The plaintiff has not yet
commenced an appeal or sought to take any other action following the court's
ruling but its time to do so has not expired. Based upon currently available
information the Company does not expect the ultimate resolution of this matter
to have a materially adverse effect on the Company's financial position or
results of operations, but there can be no assurance thereof.

The Company is involved in various other legal proceedings incidental to
the conduct of its business, including employment discrimination claims. Based
upon currently available information, the Company does not expect that any such
proceedings will have a material adverse effect on the Company's financial
position or results of operations but there can be no assurance thereof.

(12) IMPAIRMENT OF LONG-LIVED ASSETS AND FACILITY CLOSING COSTS

During fiscal 2004, the Company sold or closed eight Grady's American Grill
restaurants. In connection with these actions, the Company recorded charges
totaling $2,357,000. The charges consisted of

F-27

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

long-lived asset impairments totaling $670,000 and facility closing costs
totaling $1,687,000, primarily related to lease obligations, severance payments
to certain restaurant employees, and the write-off of inventory. These charges
are recorded as a component of discontinued operations. Charges related to lease
obligations were recorded in accordance with SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities".

In addition, the Company made lease payments after the stores were closed
totaling $166,000 during fiscal 2004, reducing the lease obligation included in
accrued liabilities to $1.0 million at October 31, 2004.

During fiscal 2003 the Company closed four Grady's American Grill
restaurants. In light of these disposals and the continued decline in sales and
cash flow in its Grady's American Grill division the Company reviewed the
carrying amounts for the balance of its Grady's American Grill Restaurant
assets. The Company estimated the future cash flows expected to result from the
continued operation and the residual value of the remaining restaurant locations
in the division and concluded that, for the division as a whole, and in
particular with respect to eight locations, the undiscounted estimated future
cash flows were less than the carrying amount of the related assets.
Accordingly, the Company concluded that these assets had been impaired. The
Company measured the impairment and recorded an impairment charge related to
these assets aggregating $4,411,000 in the second quarter of fiscal 2003,
consisting of a reduction in the net book value of the Grady's American Grill
trademark of $2,882,000 and a reduction in the net book value of certain fixed
assets in the amount of $1,529,000. In accordance with SFAS 144, this amount has
been classified as discontinued operations in the Consolidated Statement of
Operations for fiscal 2003.

In determining the fair value of the aforementioned restaurants, the
Company relied primarily on discounted cash flow analyses that incorporated an
investment horizon of five years and utilized a risk adjusted discount factor.

In light of the continuing negative trends in both sales and cash flows,
the increase in the pervasiveness of these declines amongst individual stores,
and the accelerating rate of decline in both sales and cash flow, in fiscal
2003, the Company also determined that the useful life of the Grady's American
Grill trademark should be reduced from 15 to five years.

(13) RELATED PARTY TRANSACTIONS

The Company leases 43 of its Burger King restaurants from entities that are
substantially owned by certain directors, officers and stockholders of the
Company. 42 of these restaurants are owned by the real estate entities that have
been consolidated in accordance with FIN (See Note 2). Amounts paid for leases
with these related entities are as follows:

<Table>
<Caption>
FISCAL YEAR ENDED
---------------------------------------
OCTOBER 31, OCTOBER 26, OCTOBER 27,
2004 2003 2002
----------- ----------- -----------
(DOLLARS IN THOUSANDS)

Base rentals........................................ $3,475 $3,331 $3,213
Percentage rentals.................................. 506 289 526
------ ------ ------
$3,981 $3,620 $3,739
------ ------ ------
</Table>

Affiliated real estate partnerships and two other entities related through
common ownership pay management fees to the Company as reimbursement for
administrative services provided. Total management fees for fiscal 2004, 2003
and 2002 were $13,000, $12,000 and $14,000, respectively.

During the fiscal years 2004, 2003 and 2002, the Company made payments to
companies owned by certain directors, stockholders and officers of the Company
of $304,000, $232,000 and $301,000, respectively, for air transportation
services. These amounts exclude salary and related expenses paid to the

F-28

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pilots during fiscal years 2004, 2003 and 2002 in the amounts of $110,000,
$104,000 and $16,000, respectively. Prior to fiscal 2002, the pilots' salaries
and related expenses were borne by the Airplane Companies.

(14) ACQUISITIONS AND DISPOSITIONS

During fiscal 2004, the Company received net proceeds of $8,663,000 from
the sale of seven Grady's American Grill restaurants. The Company recorded a net
loss in discontinued operations of $1,751,000 related to the closure and
disposal of Grady's restaurants during fiscal 2004. Six of the restaurants sold
were sale-leaseback transactions. In each of the six sale-leaseback
transactions, the Company's lease obligations extend for less than one year.

The Company purchased the operating assets and franchise rights of five
existing Burger King restaurants from a Burger King franchisee in the third
quarter of fiscal 2004 for $1,150,000. The results of operations for these
Burger King restaurants have been included in the consolidated financial
statements since June 16, 2004.

During fiscal 2003, the Company sold four of its Grady's American Grill
restaurants for net proceeds of $4,779,000. The Company recorded a $341,000 gain
related to these sales.

During fiscal 2002, the Company sold 15 of its Grady's American Grill
restaurants for net proceeds of $15,512,000. The Company recorded a $1,360,000
gain related to these sales.

(15) SEGMENT REPORTING

The segment information has been prepared in accordance with SFAS 131,
"Disclosure about Segments of an Enterprise and Related Information" (SFAS 131).

The Company operates five distinct restaurant concepts in the food-service
industry. It owns the Grady's American Grill, Porterhouse Steaks and Seafood and
two Italian Dining concepts and operates Burger King and Chili's Grill & Bar
restaurants as a franchisee of Burger King Corporation and Brinker
International, Inc., respectively. The Company has identified each restaurant
concept as an operating segment based on management structure and internal
reporting, with the exception of Porterhouse Steaks and Seafood which is
included with the Grady's American Grill operating segment, based on management
structure and internal reporting. For purposes of applying SFAS 131, the Company
considers the Grady's American Grill, the two Italian Dining concepts and
Chili's Grill & Bar to be similar and has aggregated them into a single
reportable segment (Full Service). The Company considers the Burger King
restaurants as a separate reportable segment (Quick Service). Summarized
financial information concerning the Company's reportable segments is shown in
the following table. The "All Other" column is the VIE

F-29

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

activity (See Note 2). The "Other Reconciling Items" column includes corporate
related items and income and expense not allocated to reportable segments.

<Table>
<Caption>
OTHER
FULL QUICK ALL RECONCILING
SERVICE SERVICE OTHER ITEMS TOTAL
-------- -------- ------ ----------- --------
(DOLLARS IN THOUSANDS)

FISCAL 2004
Revenues.......................... $109,913 $122,183 $3,746 $(3,746) $232,096
Income from restaurant
operations(1)................... 14,275 13,742 3,079 (469) 30,627
Operating income.................. 8,569 3,984 3,004 (1,096) $ 14,461
Interest expense.................. 6,546
Other income (expense), net....... (2,262)
--------
Income from continuing operations
before income taxes............. $ 5,653
========
Total assets...................... 71,439 48,664 17,816 10,623 $148,542
Depreciation and amortization..... 4,803 4,749 489 463 10,504
FISCAL 2003 (AS RESTATED)(2)
Revenues.......................... $104,348 $114,983 $3,586 $(3,586) $219,331
Income from restaurant
operations(1)................... 14,229 12,580 2,942 (665) 29,086
Operating income.................. 8,561 3,076 2,835 (1,728) $ 12,744
Interest expense.................. 7,143
Other income (expense), net....... 442
--------
Income from continuing operations
before income taxes............. $ 6,043
========
Total assets...................... 67,647 50,886 18,599 20,964 $158,096
Depreciation and amortization..... 4,964 5,108 500 773 11,345
FISCAL 2002 (AS RESTATED)(2)
Revenues.......................... $113,925 $123,795 $3,890 $(3,890) $237,720
Income from restaurant
operations(1)................... 14,388 15,952 3,196 (837) 32,699
Operating income.................. 7,127 5,230 3,119 (2,278) $ 13,198
Interest expense.................. 7,916
Other income (expense), net....... (1,279)
--------
Income from continuing operations
before income taxes............. $ 4,003
========
Total assets...................... 90,981 50,897 16,065 11,743 $169,686
Depreciation and amortization..... 5,230 4,756 552 885 11,423
</Table>

- ---------------

(1)Income from operations is restaurant sales minus total operating expenses.

(2)See Note 1A.

F-30

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<Table>
<Caption>
SECOND
FIRST QUARTER QUARTER THIRD QUARTER FOURTH
(AS RESTATED) (AS RESTATED) (AS RESTATED) QUARTER
------------- ------------- ------------- -------
YEAR ENDED OCTOBER 31, 2004 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Total revenues....................... $64,063 $52,226 $56,939 $58,868
Operating income..................... 2,730 3,296 4,138 4,297
Income from continuing operations
before income taxes................ 230 1,301 2,047 2,075
Net income........................... $ 92 $ 185(1) $ 1,167 $ 777(2)
======= ======= ======= =======
Basic net income per share........... $ 0.01 $ 0.02 $ 0.11 $ 0.08
======= ======= ======= =======
Diluted net income per share......... $ 0.01 $ 0.02 $ 0.11 $ 0.08
======= ======= ======= =======
Weighted average shares:
Basic................................ 10,163 10,163 10,163 10,163
Diluted.............................. 10,195 10,189 10,212 10,292
</Table>

<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
YEAR ENDED OCTOBER 26, 2003 (AS RESTATED) ------- ------- ------- -------

Total revenues........................... $65,144 $49,690 $52,030 $52,467
Operating income......................... 2,736 2,737 3,025 4,246
Income (loss) from continuing operations
before income taxes.................... 132 4,175 (332)(4) 2,068
Net income (loss)........................ $ 33 $ (389)(3) $ (241) $ 996
======= ======= ======= =======
Basic net income (loss) per share........ $ -- $ (0.03) $ (0.02) $ 0.10
======= ======= ======= =======
Diluted net income (loss) per share...... $ -- $ (0.03) $ (0.02) $ 0.10
======= ======= ======= =======
Weighted average shares:
Basic.................................... 11,311 11,311 10,805 10,163
Diluted.................................. 11,358 11,316 10,805 10,208
</Table>

- ---------------

(1) Includes charges for the impairment of assets and facility closing costs
totaling $905,000.

(2) Includes charges for facility closing costs totaling $802,000.

(3) Includes charges for the impairment of assets and facility closing costs
totaling $4,411,000 and a recovery of note receivable in the amount of
$3,459,000.

(3) Includes stock purchase expense of $1,294,000.

RESTATEMENT

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

statements to recognize (i) rent expense on a straight-line basis over the lease
term, including cancelable option periods where failure to exercise such options
would result in an economic penalty such that at lease inception the renewal
option is reasonably assured of exercise and (ii) to recognize depreciation on
its buildings, leasehold improvements and other long-lived assets over the
expected lease term, where the lease term is shorter than the useful life of the
assets.

As a result of the changes, the Company's financial statements for the
fiscal 2003 and 2004 quarters have been adjusted as follows:

<Table>
<Caption>
AS PREVIOUSLY
AS RESTATED REPORTED
16 WEEKS ENDED FEBRUARY 15, 2004 ----------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Operating Income............................................ $2,730 $2,917
Income (loss) before tax.................................... 230 417
Net Income (loss)........................................... $ 92 $ 279
Basic net income per share.................................. $ 0.01 $ 0.03
Diluted net income per share................................ $ 0.01 $ 0.03
</Table>

<Table>
<Caption>
AS PREVIOUSLY
AS RESTATED REPORTED
12 WEEKS ENDED MAY 9, 2004 ----------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Operating Income............................................ $3,296 $3,436
Income (loss) before tax.................................... 1,301 1,441
Net Income (loss)........................................... $ 185 $ 254
Basic net income per share.................................. $ 0.02 $ 0.02
Diluted net income per share................................ $ 0.02 $ 0.02
</Table>

<Table>
<Caption>
AS PREVIOUSLY
AS RESTATED REPORTED
12 WEEKS ENDED AUGUST 1, 2004 ----------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Operating Income............................................ $4,138 $4,278
Income (loss) before tax.................................... 2,047 2,187
Income (loss)............................................... $1,167 $1,236
Basic net income per share.................................. $ 0.11 $ 0.12
Diluted net income per share................................ $ 0.11 $ 0.12
</Table>

<Table>
<Caption>
AS PREVIOUSLY
AS RESTATED REPORTED
16 WEEKS ENDED FEBRUARY 16, 2003 ----------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Operating Income............................................ $2,736 $2,887
Income (loss) before tax.................................... 132 283
Net Income (loss)........................................... $ 33 $ 179
Basic net income per share.................................. -- $ 0.02
Diluted net income per share................................ -- $ 0.02
</Table>

F-32

QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
AS PREVIOUSLY
AS RESTATED REPORTED
12 WEEKS ENDED MAY 11, 2003 ----------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Operating Income............................................ $2,737 $2,846
Income (loss) before tax.................................... 4,175 4,284
Net Income (loss)........................................... $ (389) $ (280)
Basic net loss per share.................................... $(0.03) $(0.02)
Diluted net loss per share.................................. $(0.03) $(0.02)
</Table>

<Table>
<Caption>
AS PREVIOUSLY
AS RESTATED REPORTED
12 WEEKS ENDED AUGUST 3, 2003 ----------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Operating Income............................................ $3,025 $3,128
Income (loss) before tax.................................... (332) (230)
Net Income (loss)........................................... $ (241) $ (133)
Basic net loss per share.................................... $(0.02) $(0.01)
Diluted net loss per share.................................. $(0.02) $(0.01)
</Table>

<Table>
<Caption>
AS PREVIOUSLY
AS RESTATED REPORTED
12 WEEKS ENDED OCTOBER 26, 2003 ----------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Operating Income............................................ $4,246 $4,361
Income (loss) before tax.................................... $2,068 $2,184
Net Income (loss)........................................... $ 996 $1,106
Basic net income per share.................................. $ 0.10 $ 0.11
Diluted net income per share................................ $ 0.10 $ 0.11
</Table>

F-33

QUALITY DINING, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
of Quality Dining, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Quality Dining, Inc. and its subsidiaries at October 31, 2004 and October 26,
2003, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended October 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 2 and 3 to the consolidated financial statements, the
Company adopted the provisions of FASB Interpretation No. 46-R, "Consolidation
of Variable Interest Entities" and adopted the provisions of FASB Statement No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets".

As discussed in Note 1A to the consolidated financial statements, the
Company has restated its consolidated financial statements for the fiscal years
ended October 26, 2003 and October 27, 2002.

PricewaterhouseCoopers LLP

Chicago, Illinois
February 15, 2005

F-34

II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<Table>
<Caption>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- -------- ---------- ---------
(IN THOUSANDS)

Year ended October 27, 2002
Income tax valuation
allowance....................... $26,330 -- -- (1,534)(1) $24,796
Year ended October 26, 2003
Income tax valuation
allowance....................... $24,796 377 -- -- $25,173
Year ended October 31, 2004
Income tax valuation
allowance....................... $25,173 -- -- -- $25,173
</Table>

- ---------------

(1) During fiscal 2002 the Company utilized NOL carryforwards to offset
current-year taxable income.

F-35

QUALITY DINING, INC.

SPECIAL MEETING OF SHAREHOLDERS TO BE HELD [______________], 2005

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

I appoint Daniel B. Fitzpatrick and John C. Firth, together and
separately, as proxies with power of substitution to vote all shares of Quality
Dining common stock that I have power to vote at the special meeting of
shareholders to be held on [_________], 2005 at [10:00] a.m. local time at
[_____], and at any adjournment or postponement thereof, in accordance with the
instructions on the reverse side of this card and with the same effect as though
I were present in person and voting such shares. The proxies may name others to
take their place.

Dated: , 2005
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Signature(s) of shareholder(s)

Please sign exactly as your name or names appear on this Proxy. When shares are
held jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is
a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.

PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD IN THE
ENVELOPE PROVIDED AS SOON AS POSSIBLE

THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED
"FOR" ITEMS 1 AND 2

1. Proposal to approve the Agreement and Plan of Merger between QDI Merger
Corp. and Quality Dining, Inc. and the merger of QDI Merger Corp. with and
into Quality Dining, Inc.

/_/ For /_/ Against /_/ Abstain

THE DIRECTORS RECOMMEND A VOTE "FOR" ITEM 1.

2. In the event there are insufficient votes for approval of the merger
agreement, to consider and vote on a proposal to grant Quality Dining
board of directors discretionary authority to adjourn or postpone the
special meeting and solicit additional votes for approval of the merger
agreement and the merger.

/_/ For /_/ Against /_/ Abstain

THE DIRECTORS RECOMMEND A VOTE "FOR" ITEM 2.

YOUR VOTE IS IMPORTANT!
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)