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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K
(Mark One)

  [X]            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended October 31, 1999

                                      OR

  [_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                      For the Transition period from to

                          Commission File No. 0-23420

                             QUALITY DINING, INC.
            (Exact name of registrant as specified in its charter)


               Indiana                                 35-1804902
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
   incorporation or organization)

      4220 Edison Lakes Parkway                           46545
         Mishawaka, Indiana                            (zip Code)
   (Address of principal executive
              offices)

(Registrant's telephone number, including area code) (219) 271-4600

Securities registered pursuant to Section 12(b) of the Act: NONE

          Securities registered pursuant to Section 12(g) of the Act:

                        COMMON STOCK, WITHOUT PAR VALUE

   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

                                  $24,095,790

   Aggregate market value of the voting stock held by nonaffiliates of the
Registrant based on the last sale price for such stock at November 25, 1999
(assuming solely for the purposes of this calculation that all Directors and
executive officers of the Registrant are "affiliates").

                                  12,474,009

   Number of shares of Common Stock, without par value, outstanding at January
14, 2000.

                      DOCUMENT INCORPORATED BY REFERENCE

   Portions of the following document have been incorporated by reference into
this Annual Report on Form 10-K

<TABLE>
<S>                         <C>
IDENTITY OF DOCUMENT        PART OF FORM 10-K INTO WHICH DOCUMENT IS INCORPORATED

Definitive Proxy Statement  PART III
 for the Annual Meeting of
 Shareholders to be held
 March 7, 2000.
</TABLE>
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                             QUALITY DINING, INC.
                              Mishawaka, Indiana
              Annual Report to Securities and Exchange Commission
                               October 31, 1999

                                    PART I

ITEM 1. BUSINESS.

General

   Quality Dining, Inc. (the "Company") operates four distinct restaurant
concepts. It owns the Grady's American Grill(R) and two Italian Dining
concepts and 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. 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)). As of October 31, 1999, the Company operated 142 restaurants,
including 70 Burger King restaurants, 28 Chili's, 36 Grady's American Grill
restaurants, four Spageddies and four Papa Vino's.

   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 restaurants, (iii) strategic
acquisitions of Burger King restaurants, Chili's restaurants and the Grady's
American Grill concept, 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 "Offering"), the
business of the Company was transacted by the Company and eight affiliated
corporations. As a result of a reorganization effected prior to the Offering,
the Company became a management holding company. The Company, as used herein,
means Quality Dining, Inc. and all of its subsidiaries.

Disposition of Bagel-Related Businesses

   On October 20, 1997, the Company sold its bagel-related businesses to Mr.
Nordahl L. Brue, Mr. Michael J. Dressell and an entity controlled by them and
their affiliates. The Company's board of directors determined to sell the
bagel-related businesses after a careful evaluation of the future prospects
for the bagel business, the competitive environment that then existed in the
bagel segment, and the historical performance of the Company's bagel-related
businesses. The sale included the stock of Bruegger's Corporation and the
stock of all of the other bagel-related businesses. The total proceeds from
the sale were $45,164,000. The consideration included the issuance by
Bruegger's Corporation of a junior subordinated note in the amount of
$10,000,000, which was recorded as $6,000,000 due to a $4,000,000 reserve for
legal indemnification, the transfer of 4,310,740 shares of the Company's
common stock valued at $21,823,000, owned by Messrs. Brue and Dressell, which
were retired, a receivable for purchase price adjustment of $500,000, and
$16,841,000 in cash. The subordinated note has an annual interest rate of 12%
and matures in October 2004. Interest will be accrued and added to the
principal amount of the note through October 2000 and will be paid in cash for
the remaining life of the note. The Company has not recognized any interest
income from this note. The Company will continue to review the financial
condition of Bruegger's Corporation based upon available information to assess
the collectability of the note. The cash component of the proceeds included an
adjustment for the calculation of the net working capital deficit. The
calculation used was subject to final adjustment and is being disputed by
Messrs. Brue and Dressell. See ITEM 3--Legal Proceedings.

   During the second quarter of fiscal 1997, the Company recorded a non-cash
impairment charge of $185,000,000 and a store closing charge of $15,513,000 as
a result of its decision to divest its bagel-related businesses. The
consummation of the sale of the bagel-related businesses in fiscal 1997 did
not result in any additional gain or loss.

                                       2
<PAGE>

Business Strategy

   The Company's fundamental business strategy is to optimize the cash flow of
its operations through proven operating management, reduce debt and
appropriately grow the Company's restaurant concepts in a manner focusing on
total customer satisfaction, while maximizing the long term value of the
Company for its shareholders. 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 the Company'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 and optimize operating income.

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

   Use of Technology. The Company actively tracks the performance of its
business utilizing computer and point-of-sale technology. In addition, the
Company's voice and data communications systems provide timely and accurate
reporting.

Expansion

   The Company currently plans to open three to five Burger King restaurants
and two to three full service restaurants in fiscal 2000. The Company's long
term expansion strategy is focused on the development of restaurants in
existing markets in order to achieve increased market penetration. In
addition, the Company may consider strategic acquisitions in the Burger King
system. During fiscal 1999, the Company added one new Burger King restaurant,
closed one Burger King restaurant, closed one Grady's American Grill
restaurant and sold two Grady's American Grill restaurants. At the end of
fiscal 1999, the Company operated 36 Grady's American Grill restaurants, four
Spageddies, four Papa Vino's, 70 Burger King restaurants and 28 Chili's
restaurants.

   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.

   The Company's ability to manage the diverse operations resulting from its
past growth will be essential to its ability to succeed. Prior to fiscal 1996,
the Company's business historically was focused primarily on the development
and operation of Burger King restaurants and Chili's restaurants. The Grady's
American Grill and Italian Dining concepts have varying degrees of name
recognition. Although the Company opened its first Spageddies in 1994, the
Company's Italian Dining concepts are not yet time proven. In addition, the
Company's acquisitions of Grady's American Grill and Spageddies have caused it
to assume many functions performed by the previous owners, requiring increased
staffing and expenditures in various areas including advertising and
marketing, purchasing, management information systems.

                                       3
<PAGE>

Burger King Restaurants

   General. Headquartered in Miami, Florida, Burger King Corporation is an
indirect wholly-owned subsidiary of Diageo, PLC. Burger King Corporation has
been franchising Burger King restaurants since 1954 and has since expanded to
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 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 provide a
significant competitive advantage.

   Advertising and Marketing. As required by its franchise agreements, the
Company contributes 4% 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, efficient and friendly table service designed to minimize
customer waiting and facilitate table turnover. Service personnel are dressed
casually to reinforce the casual, informal environment. Chili's restaurants
feature a diverse menu of broadly appealing food items, including a variety of
hamburgers, fajitas, 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 bar serving beer, wine and cocktails.

   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 has agreed that for the period beginning
September 1, 1999 and ending August 30, 2000, it will pay an additional
advertising fee of 0.375% of sales. The Company is also required to spend 2%
of sales from each restaurant on local advertising. The Company'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 ("Cooperatives") for geographic areas where one or
more restaurants are located. Any restaurants located in areas subject to a
Cooperative are required to contribute 3% of sales to the Cooperative in lieu
of contributing 1/2% of sales to Brinker. Each such restaurant is also
required to directly spend 1/2% of sales on local advertising. To date, no
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. Prior to the
Company's acquisition of the concept from Brinker on December 21, 1995,
Brinker owned and operated 35 of the 36 Grady's American Grill restaurants now
owned and operated by

                                       4
<PAGE>

the Company. The Company's Grady's American Grill concept is proprietary and
provides the Company with flexibility for expansion and development.

   Menu. The Grady's American Grill menu features signature prime rib, high-
quality steaks, daily servings of 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 expects to focus advertising and marketing efforts in local print
media, use of direct mail programs, television and radio, with total
expenditures estimated to range between 2% and 3% of the sales for its Grady's
American Grill restaurants.

Italian Dining Concepts

   General. The Company's Italian Dining concept consists of Papa Vino's
Italian Kitchen and Spageddies Italian Kitchen. The first Papa Vino's
restaurant was opened in 1996 and the first Spageddies restaurant was opened
in 1994. The Company had been a franchisee of Spageddies since 1994, and
became the owner of the concept in October 1995. 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 wines casks and
wine racks lining the walls and exhibition cooking in an inviting, comfortable
environment. The Company's Italian Dining concepts are proprietary and provide
the Company with flexibility for expansion and development.

   Menu. A fundamental component of the Italian Dining concept 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 serving beer, wine
and cocktails.

   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
expenditures estimated to range between 2% and 3% of the sales for these
restaurants.

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). The Company 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(TM)
are a registered trademark and trademark, respectively, of Brinker.

Administrative Services

   From its headquarters in Mishawaka, Indiana, the Company provides
accounting, cash management, information technology, purchasing and
procurement, human resources, finance, marketing, advertising, menu
development, budgeting and 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.

                                       5
<PAGE>

   During fiscal 1999, the Company decreased the span of control within each
of its concepts by adding additional multi-unit managers. This action lowered,
on average, the number of restaurants for which each multi-unit manager is
responsible.

   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. The Company'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 and outside "shopper services" to
visit restaurants periodically 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. The Company'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. The Company 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. This
information enables the Company to analyze customer purchasing habits,
operating trends and promotional results. During fiscal 1999 and early fiscal
2000, the Company replaced the point of sale equipment in all of its full
service restaurants.

   Training. The Company 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

                                       6
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  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.

     Full Service Dining. The Company 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 managed by a dedicated purchasing
function and are generally contracted with full-service distributors. Unit-
level purchasing decisions from an approved list of suppliers are made by each
of the Company's restaurant managers based on their assessment of the
provisioning needs of the particular location. Purchase orders and invoices
are reviewed by restaurant general managers and by concept management.

   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 commodities.

Impact of Year 2000

   The term "Year 2000" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery and equipment as the
year 2000 is approached and thereafter. These problems generally arise from
the fact that most of the world's computer hardware and software has
historically used only two digits to identify the year in a date, often
meaning that the computer will fail to distinguish dates in the "2000's" from
dates in the "1900's."

   The Company's State of Readiness. The Company established and implemented a
formal plan ("Year 2000 Plan") to (i) test its information technology systems
to evaluate Year 2000 compliance, (ii) assess the Year 2000 compliance of its
information technology vendors, (iii) assess its non-information technology
systems that utilize embedded technology such as micro-controllers and (iv)
determine the readiness of third parties such as government agencies, utility
companies, telecommunication companies, suppliers and other "non-technology"
third party vendors ("Third Party Vendors"). As of January 21, 2000, the
Company had not experienced any Year 2000 related disruptions to its own
internal systems nor have any Third Party Vendors experienced any Year 2000
disruptions that have materially affected their ability to do business with
the Company.

   Costs to Address the Company's Year 2000 Issues. The Company expensed costs
associated with its Year 2000 Plan as the costs were incurred except for costs
that the Company would have otherwise capitalized.

   Remaining Risks Presented by Year 2000 Problems. To operate its businesses,
the Company relies upon its Third Party Vendors. The Company's ability to
conduct its business is dependent upon the ability of its Third Party Vendors
to continue to avoid Year 2000 related disruption. Though the Company and its
Third Party Vendors do not appear to have suffered any significant Year 2000
related disruptions as a result of the roll over from 1999 to 2000, it is
possible that certain Year 2000 problems may exist but have not yet
materialized.

   If the Company or its Third Party Vendors have not adequately addressed
their Year 2000 issues, the Company's business may be materially affected
which could result in a materially adverse effect on the Company's results of
operations and financial condition.

   Independent of the Company's Year 2000 Plan, the Company had previously
determined it would replace its point of sale equipment in as many as 75 of
its full service dining restaurants. This determination was part of the
Company's ongoing efforts to enhance financial controls through a centralized,
computerized, accounting system to enhance the tracking of data to enable the
Company to better manage its operations. The Company

                                       7
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completed the process of replacing the point of sale equipment in its full
service restaurants in November of 1999. The Company has determined that the
replacement systems are Year 2000 compliant. The replacement of the point of
sale equipment in its full service restaurants cost approximately $3 million.
During the third quarter of fiscal 1999, the Company recorded a non-cash
charge of $650,000 in connection with the disposition of certain of its
obsolete point of sale equipment that the Company identified as a result of
installing its new point of sale system. The Company has determined that the
point of sale equipment in its 70 Burger King restaurants is Year 2000
compliant.

Franchise and Development Agreements

   Burger King. The Company and Burger King Corporation entered into a
development agreement on December 24, 1993 (the "Burger King Agreement"). The
Burger King Agreement reserves for the Company 25 specifically defined limited
geographic areas ("Areas") and grants the Company the exclusive right to
select and develop one Burger King restaurant in each of up to 18 of those
Areas. The Company paid a $90,000 fee for the exclusivity provided by the
Burger King Agreement. The Company's exclusive right in an Area expires with
the opening by the Company of a Burger King restaurant in that Area.

   As of October 31, 1999, the Company had developed 17 Burger King
restaurants under the Burger King Agreement. In January of 2000, the Company
developed its 18th and final restaurant under the Burger King Agreement. In
addition, the Company had opened one additional Burger King restaurant under a
separate agreement with Burger King in December of 1999.

   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.

   Burger King Corporation's franchise agreements convey the right to use its
trade names, trademarks and service marks with respect to specific Burger King
restaurants. The franchise fee for a free-standing Burger King restaurant is
currently $40,000. In addition, each franchise agreement requires the Company
to pay a monthly royalty fee of 3 1/2% of sales and advertising fees of 4% of
sales.

   Beginning in July, 2000, Burger King Corporation will increase its royalty
and franchise fees for most new restaurants. At that time, the franchise fee
for new restaurants will increase from $40,000 to $50,000 for a 20 year
agreement and the royalty rate will increase from 3 1/2% of sales to 4 1/2% of
sales, after a transitional period. For franchise agreements entered into
during the transitional period, the royalty rate will be 4% of sales for the
first 10 years and 4 1/2% of sales for the balance of the term.

   For new restaurants, the transitional period will be from July 1, 2000 to
June 30, 2003. As of July 1, 2003, the royalty rate will become 4 1/2% of
sales for the full term of new restaurant franchise agreements. For renewals
of existing franchise agreements, the transitional period will be 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 1/2% of sales for the
full term of the renewed agreement. The advertising contribution will remain
the same at 4% of sales. Royalties payable under existing franchise agreements
are not affected by these changes until the time of renewal.

   Burger King Corporation is also offering a voluntary program to incent
franchisees to renew their franchise agreements prior to the scheduled
expiration date ("Early Renewal Program"). Franchisees that elect to
participate in the Early Renewal Program will be 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

                                       8
<PAGE>

leases. Franchise agreements entered into under the Early Renewal Program will
have special provisions regarding the royalty payable during the term,
including a reduction in the royalty for a period of time. The Company is
currently evaluating which, if any, of its restaurants would be suitable for
the Early Renewal Program. In conducting its evaluation, the Company will
consider, among other things, the applicable royalty reductions, the nature,
extent and resulting impact on sales from the required capital investment as
well as the Company's ability to extend its occupancy leases, where required.
The Company intends to decide which, if any, of its restaurants it will
include in the Early Renewal Program by March 15, 2000.

   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.

   Chili's. The Company has a development agreement with Brinker (the "Chili's
Agreement") to develop 37 Chili's restaurants in two regions encompassing
counties in Indiana, Michigan, Ohio, Kentucky ("Midwest Region"), Delaware,
New Jersey and Pennsylvania ("Philadelphia Region"). The Company paid
development fees totaling $260,000 for the right to develop the restaurants in
the regions. Each franchise agreement requires the Company to pay an initial
franchise fee of $40,000, a monthly royalty fee of 4% of sales and advertising
fees of 0.5% of sales. As part of a system-wide promotional effort, the
Company has agreed that for the period beginning September 1, 1999 and ending
August 30, 2000, it will pay an additional advertising fee of 0.375% of sales.
As of October 31, 1999, the Company operated 28 Chili's.

   The Company may develop up to 41 Chili's without specific approval of the
franchisor, but is obligated to satisfy the following development schedule:

<TABLE>
<CAPTION>
                                                    Minimum Cumulative Number
                                                          of Restaurants
                                                  ------------------------------
                                                  Midwest Philadelphia  Entire
                                                  Region     Region    Territory
                                                  ------- ------------ ---------
      <S>                                         <C>     <C>          <C>
      December 31, 1999..........................    13        14          28(1)
      December 31, 2000..........................    14        15          31(1)
      December 31, 2001..........................    15        16          33(1)
      December 31, 2002..........................    15        16          35(1)
      December 31, 2003..........................    15        16          37(1)
</TABLE>
--------
(1) Two of the restaurants to be opened in this year may be located in either
    region at the Company's discretion.

   Failure to adhere to this schedule constitutes a default under the Chili's
Agreement and Brinker could terminate the Chili's Agreement. The Chili's
Agreement prohibits 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 term of the Chili's Agreement expires when the
Company has completed the development schedule. 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 such 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 10-mile radius of the Chili's restaurant which was the
subject of such agreement.

                                       9
<PAGE>

   Under the Chili's Agreement, the Company 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 may terminate the Chili's
Agreement if the Company defaults in its performance thereunder or under any
franchise agreement. 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, certain
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 T.G.I. Friday's,
Applebee's, Bennigan's, Olive Garden and Red Lobster restaurants. The primary
competitors to Grady's American Grill are Houston's, J. Alexander's, Outback
Steakhouse, Houlihan's, Cooker Bar & Grille, 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.

   The Company 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 the Company'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 and Grady's American Grill
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.

                                      10
<PAGE>

   Alcoholic beverage control regulations require each of the Company's
Chili's, Italian Dining and Grady's American Grill 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 or
Chili's restaurant would most likely result in the closing of the restaurant.

   The Company may be subject in certain states to "dramshop" statutes, 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 and
has never been named as a defendant in a lawsuit involving "dramshop"
liability.

   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.

   The Company 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, the Company's operations have
not been materially adversely affected by the cost of compliance with
applicable environmental laws.

Employees

   As of October 31, 1999, the Company employed approximately 9,000 persons.
Of those employees, approximately 96 held management or administrative
positions, approximately 510 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.

                                      11
<PAGE>

ITEM 2. PROPERTIES.

   The following table sets forth, as of October 31, 1999, the 18 states in
which the Company operated restaurants and the number of restaurants in each
state. Of the 142 restaurants which the Company operated as of October 31,
1999, the Company owned 49 and leased 93. 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.

<TABLE>
<CAPTION>
                                                Number of Company-Operated
                                                        Restaurants
                                           -------------------------------------
                                                          Grady's
                                           Burger         American Italian
                                            King  Chili's  Grill   Dining  Total
                                           ------ ------- -------- ------- -----
      <S>                                  <C>    <C>     <C>      <C>     <C>
      Alabama.............................                    1               1
      Arkansas............................                    1               1
      Colorado............................                    3               3
      Delaware............................            2                       2
      Florida.............................                    6               6
      Georgia.............................                    5               5
      Illinois............................                    1               1
      Indiana.............................   39       5                2     46
      Michigan............................   31       6       1        4     42
      Mississippi.........................                    1               1
      New Jersey..........................            5       1               6
      New Mexico..........................                    1               1
      North Carolina......................                    2               2
      Ohio................................            3       1        2      6
      Oklahoma............................                    1               1
      Pennsylvania........................            7                       7
      Tennessee...........................                    5               5
      Texas...............................                    6               6
                                            ---     ---     ---      ---    ---
        Total.............................   70      28      36        8    142
                                            ===     ===     ===      ===    ===
</TABLE>

   Burger King. As of October 31, 1999, 41 of the Company's Burger King
restaurants were leased from real estate partnerships owned by certain of the
Company's founding shareholders. In addition, the Company leased two of its
Burger King restaurants from William R. Schonsheck, a former director and
executive officer of the Company, or entities controlled by him. See ITEM 13,
"Certain Relationships and Related Transactions." The Company also leased
seven Burger King restaurants directly from Burger King Corporation and eight
restaurants from unrelated third parties. The seven leases with Burger King
Corporation are subject to the renewal of the franchise agreements for those
locations. The Company owned 12 of its Burger King restaurants as of October
31, 1999.

   Chili's Grill & Bar. As of October 31, 1999, the Company owned 10 of its
Chili's restaurants and leased 18 other restaurants from unrelated parties.

   Grady's American Grill. As of October 31, 1999, the Company owned 22 of its
Grady's American Grill restaurants. The Company leased one Grady's American
Grill restaurant from a limited partnership of which a subsidiary of the
Company is the general partner. The Company's other 13 Grady's American Grill
restaurants were leased from unrelated parties.

   Italian Dining. As of October 31, 1999, the Company owned five of the
Italian Dining restaurants and leased the three other restaurants from
unrelated parties.

                                      12
<PAGE>

   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 12 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 five, six and eight years,
respectively.

ITEM 3. LEGAL PROCEEDINGS.

   The Company and certain of its officers and directors are parties to
various legal proceedings relating to the Company's purchase, operation and
financing of the Company's bagel-related businesses.

   Quality Baking, LLC, a franchisee of Bruegger's Franchise Corporation, and
Mark Ratterman, Chris Galloway and Peter Shipman, principals of Quality
Baking, LLC, commenced an action on July 9, 1997 filed in the United States
District Court, for the Eastern District of Missouri, Eastern Division,
against the Company, Bruegger's Corporation, Bruegger's Franchise Corporation,
Nordahl Brue, Michael Dressell, Daniel B. Fitzpatrick and John Firth.

   On April 22, 1998, the Court granted the defendants' Motion to Transfer
this matter to the United States District Court for the Northern District of
Indiana. The complaint alleges that the plaintiffs purchased their franchises
based upon financial representations that did not materialize, that they
purchased preferred stock in Bruegger's Corporation based upon false
representations, that the defendants falsely represented their intentions with
respect to repurchasing bakeries from the plaintiffs, and that the defendants
violated implied covenants of good faith and fair dealing. On July 28, 1999,
the court dismissed all counts against all of the individual defendants,
dismissed the count alleging violations of implied covenants of good faith and
fair dealing and dismissed all fraud claims against the Company. The case
continues to proceed against the Company on allegations that the Company
breached an agreement to repurchase bakeries from the plaintiffs and against
the Bruegger's entities on allegations that the plaintiffs purchased their
franchises and preferred stock of Bruegger's Corporation based upon false
representations and on allegations that Bruegger's Franchise Corporation
breached the plaintiffs' franchise and development agreements.

   D & K Foods, Inc., Pacific Capital Ventures, Inc., and PLB Enterprises,
Inc., franchisees of Bruegger's Franchise Corporation, and Ken Wagnon, Dan
Carney, Jay Wagnon and Patrick Beatty, principals of the foregoing
franchisees, commenced an action on July 16, 1997 in the United States
District Court for the District of Maryland, against Bruegger's Corporation,
Bruegger's Franchise Corporation, Quality Dining, Inc., Daniel B. Fitzpatrick,
Michael J. Dressell and Nordahl L. Brue, alleging that the plaintiffs
purchased their franchises based upon financial representations that did not
materialize, that they purchased preferred stock in Bruegger's Corporation
based upon false representations, that Bruegger's Corporation falsely
represented its intentions with respect to purchasing bakeries from the
plaintiffs or providing financing to the plaintiffs, and that the defendants
violated implied covenants of good faith and fair dealing.

   On or about April 15, 1997, Texas Commerce Bank National Association
("Texas Commerce") made a loan of $4,200,000 (the "Loan") to BFBC Ltd., a
Florida limited partnership ("BFBC"). At the time of the Loan, BFBC was a
franchisee under franchise agreements with Bruegger's Franchise Corporation
(the "Franchisor"). The Company at that time was an affiliate of the
Franchisor. In connection with the Loan and as an accommodation of BFBC, the
Company executed to Texas Commerce a "Guaranty". By the terms of the Guaranty
the Company agreed that upon maturity of the Loan by default or otherwise that
it would either (1) pay the Loan obligations or (2) buy the Loan and all of
the related loan documents (the "Loan Documents") from Texas Commerce or its
successors. In addition several principals of BFBC (the "Principal
Guarantors") guaranteed repayment of the Loan by each executing a "Principal
Guaranty". On November 10, 1998, Texas Commerce (1) declared that the Loan was
in default, (2) notified BFBC, the Principal Guarantors and the Company that
all of the Loan obligations were due and payable, and (3) demanded payment.

                                      13
<PAGE>

   The Company elected to satisfy its obligations under the Guaranty by
purchasing the Loan from Texas Commerce. On November 24, 1998, the Company
bought the Loan for $4,294,000. Thereafter, the Company sold the Loan to its
Texas affiliate Grady's American Grill, L.P. ("Grady's"). On November 30, 1998
Grady's commenced an action seeking to recover the amount of the Loan from one
of the Principal Guarantors, Michael K. Reilly ("Reilly"). As part of this
action Grady's also seeks to enforce a Subordination Agreement that was one of
the Loan Documents against MKR Investments, L.P., a partnership ("MKR").
Reilly is the general partner of MKR. This action is pending in the United
States District Court for the Southern District of Texas Houston Division as
Case No. H-98-4015. Reilly has denied liability and filed a counterclaim
against Grady's alleging that Grady's engaged in unfair trade practices,
violated Florida's "Rico" statute, engaged in a civil conspiracy and violated
state and federal securities laws in connection with the Principal Guaranty
(the "Counterclaims"). Reilly also filed a third party complaint against
Quality Dining, Inc., Grady's American Grill Restaurant Corporation, David M.
Findlay, Daniel Fitzpatrick, Bruegger's Corporation, Bruegger's Franchise
Corporation, Champlain Management Services, Inc., Nordahl Brue, Michael
Dressell and Ed Davis ("Third Party Defendants") alleging that Reilly invested
in BFBC based upon false representations, that the Third Party Defendants
violated state franchise statutes, committed unfair trade practices, violated
covenants of good faith and fair dealing, violated the state "Rico" statute
and violated state and federal securities laws in connection with the
Principal Guaranty. In addition, BFBC and certain of its affiliates, including
the Principal Guarantors ("Intervenors") have intervened and asserted claims
against Grady's and the Third Party Defendants that are similar to those
asserted in the counter claims and the third party complaint. In addition, the
Company and Bruegger's Corporation are currently disputing the nature and
extent of their indemnity obligations, if any, to the other with respect to
this litigation. Based upon the currently available information, the Company
does not believe that these matters will have a materially adverse effect on
the Company's financial position or results of operations. However, there can
be no assurance that the Company will be able to realize sufficient value from
Reilly to satisfy the amount of the Loan or that the Company will not incur
any liability as a result of the Counterclaims or third party complaints filed
by Reilly and the Intervenors.

   In each of the above cases, one or more present or former officers and
directors of the Company were named as party defendants and the Company has
and/or is advancing defense costs on their behalf. Pursuant to the Share
Exchange Agreement by and among Quality Dining, Inc., Bruegger's Corporation,
Nordahl L. Brue and Michael J. Dressell, ("Share Exchange Agreement") the
Agreement and Plan of Merger by and among Quality Dining, Inc., Bagel
Disposition Corporation and Lethe, LLC, and certain other related agreements
entered into as part of the disposition of the Company's bagel-related
businesses, the Company is responsible for 50% of the first $14 million of
franchise related litigation expenses, inclusive of attorney's fees, costs,
expenses, settlements and judgments (collectively "Franchise Damages").
Bruegger's Corporation and certain of its affiliates are obligated to
indemnify the Company from all other Franchise Damages. The Company is
obligated to pay the first $3 million of its share of Franchise Damages in
cash. Through October 31, 1999, the Company had paid approximately $1.8
million in cash and assigned its $1.2 million note from BruWest to Bruegger's
Corporation which together have satisfied the Company's remaining obligation
to pay cash in respect of Franchise Damages. The remaining $4 million of the
Company's share of Franchise Damages is payable by crediting amounts owed to
the Company pursuant to the $10 million junior subordinated note issued to the
Company by Bruegger's Corporation. Through October 31, 1999, the outstanding
balance due under the junior subordinated note has been reduced by $600,000 in
respect of Franchise Damages. Based upon the currently available information,
the Company does not believe that these cases individually or in the aggregate
will have a material adverse effect on the Company's financial position and
results of operations but there can be no assurance thereof. Such assessment
is based in part upon the Company's belief that Bruegger's Corporation has and
will continue to have the ability to perform its indemnity obligations.

   On or about September 10, 1999, Bruegger's Corporation, Lethe LLC, Nordahl
L. Brue, and Michael J. Dressel commenced an action against the Company in the
United States District Court for the District of Vermont alleging that the
Company breached various provisions of the Share Exchange Agreement which
arise out of the ongoing dispute concerning the net working capital adjustment
contemplated by the Share Exchange Agreement. See Item I BUSINESS--Disposition
of Bagel-Related Businesses. Additionally, on or about September 13, 1999,
Messrs. Brue and Dressell asserted a claim for breach of representations and
warranties under the Share

                                      14
<PAGE>

Exchange Agreement. The Company does not expect the ultimate resolution of
these disputes to have a material adverse effect on the Company's financial
position or results of operations but there can be no assurance thereof.

   James T. Bies filed a shareholder derivative action in the United States
District Court for the Southern District of Michigan on October 14, 1997. A
derivative action is an action on behalf of the Company in which any recovery
against the defendants would be payable to the Company. The complaint named as
defendants 12 individuals who are current or former directors or officers of
the Company. The complaint alleged that the individual defendants as directors
breached fiduciary duties to the Company by approving certain transactions in
1997 involving loans to Bagel Acquisition Corporation that allegedly benefited
Daniel B. Fitzpatrick, the Company's Chairman, President and Chief Executive
Officer. The plaintiff also alleged that individual defendants participated in
a "conspiracy to waste, dissipate, and improperly use funds, property and
assets" of the Company for the benefit of Bagel Acquisition Corporation and
Mr. Fitzpatrick. The plaintiff alleged that the Company and its shareholders
had been damaged in an amount in excess of $28,000,000. The relief sought also
included the appointment of a receiver, an accounting and attorney's fees. On
April 27, 1998, the Court dismissed the complaint without prejudice, for
failure to make a "demand" upon the Company's board of directors that the
Company institute the action. By letter dated May 12, 1998, Mr. Bies demanded
that the Company pursue these claims against the defendants. In accordance
with the Indiana Business Corporation Law ("IBCL"), the board of directors
appointed a special committee of three disinterested outside directors and one
other disinterested person to investigate the allegations. The three
disinterested outside directors are Messrs. Decio, Lewis and Murphy (named
defendants in the action) and the disinterested person is David T. Link, Dean
of the University of Notre Dame Law School. As required by the IBCL, the
special committee was charged with evaluating the claim and determining
whether it is in the best interests of the Company to pursue this matter.
Subsequent to the establishment of the special committee, Mr. Bies refiled his
action on July 30, 1998. As a result of its investigation of Mr. Bies' demand,
the special committee has determined that the claims identified by Mr. Bies
are without merit and therefore it would not be in the Company's best
interests to pursue them. As a result, on January 6, 1999, the special
committee filed a motion to dismiss or alternatively for summary judgment,
which was denied on April 20, 1999 essentially because the Court was unable to
determine, on the record before it, whether the special committee was
disinterested. The Court has denied the Company's subsequent request to
schedule an evidentiary hearing to assist in this determination. The Company
does not believe this matter will have a material adverse effect on the
Company's financial position or results of operations.

   The Company and certain of its executive officers were defendants in a
class action lawsuit filed in the United States District Court for the
Northern District of Indiana. The complaint alleged, among other things, that
the defendants violated Section 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended, and Rule 10b-5 thereunder by failing to disclose various
matters in connection with the Company's acquisition, development, financing
and disposition of its bagel-related businesses. The putative class period in
such action was from June 7, 1996 to May 13, 1997 on which dates the price of
the Company's common stock closed at $34.25 and $6.56, respectively. The
plaintiffs were seeking, among other things, an award of unspecified
compensatory damages, interest, costs and attorney's fees. The Company filed a
motion to dismiss the complaint which was granted by the Court on September
28, 1999. The plaintiffs have not filed an appeal and the period for filing an
appeal has expired.

   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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

   The Company did not submit any matters to a vote of security holders during
the fourth quarter of the 1999 fiscal year.

                                      15
<PAGE>

Executive Officers of the Company

<TABLE>
<CAPTION>
Name                     Age                             Position
----                     ---                             --------
<S>                      <C> <C>
Daniel B. Fitzpatrick...  42 Chairman of the Board, President and Chief Executive Officer

John C. Firth...........  42 Executive Vice President, General Counsel and Secretary

James K. Fitzpatrick....  44 Senior Vice President, Chief Development Officer and Director

Patrick J. Barry........  37 Senior Vice President--Administration and Information Technology

Lindley E. Burns........  45 Senior Vice President--Full Service Dining

David M. Findlay........  38 Chief Financial Officer and Treasurer

Gerald O. Fitzpatrick...  39 Senior Vice President--Burger King Division

Robert C. Hudson........  43 Vice President--Grady's American Grill Division

Jeanne M. Yoder.........  33 Vice President, Controller
</TABLE>

   Daniel B. Fitzpatrick has served as 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.

   John C. Firth serves as Executive Vice President, General Counsel and
Secretary. 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.

   James K. Fitzpatrick has served as Senior Vice President and Chief
Development Officer of the Company since August 1995. Prior to that, Mr.
Fitzpatrick 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.

   Patrick J. Barry joined the Company in October 1996 and serves as the
Company's Senior Vice President--Administration and Information Technology.
Prior to joining the Company, Mr. Barry was a management consultant with The
Keystone Group and Andersen Consulting.

   Lindley E. Burns joined the Company in June of 1995. Prior to joining the
Company he worked for Brinker as a multi-unit manager in its Chili's division
for two years and was a Chili's franchisee for eight years prior to joining
Brinker. He has over 20 years of experience in the restaurant business.

   David M. Findlay has served as Chief Financial Officer and Treasurer since
January 2000. He joined the Company in May 1995 and has served in various
positions, most recently as Senior Vice President--Finance and Treasurer.
Prior to joining the Company, Mr. Findlay spent 10 years at The Northern Trust
Company of Chicago, Illinois, specializing in commercial lending to large
companies and financial institutions.

   Gerald O. Fitzpatrick serves as a Senior Vice President in the Company's
Burger King Division. Mr. Fitzpatrick 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.

   Robert C. Hudson joined the Company in December of 1995 when the Company
acquired Grady's American Grill. From 1992 until joining the Company, Mr.
Hudson held various operational positions at Brinker, most recently as an area
director in its Grady's American Grill division.

                                      16
<PAGE>

   Jeanne M. Yoder joined the Company in March of 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.

   The above information includes business experience during the past five
years for each of the Company's executive officers. Executive officers of the
Company serve at the discretion of the Board of Directors. Messrs. Daniel B.
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
Daniel B. Fitzpatrick, President and Chief Executive Officer of the Company.
The Company maintains key man life insurance on the life of Mr. Fitzpatrick in
the principal amount of $1.0 million. The loss of the services of Mr.
Fitzpatrick would have a material adverse effect upon the Company.

   (Pursuant to General Instruction G(3) of Form 10-K, the foregoing
information is included as an unnumbered Item in Part I of this Annual Report
in lieu of being included in the Company's Proxy Statement for its 2000 Annual
Meeting of Shareholders.)

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

   The Company's Common Stock is traded on the NASDAQ Stock Market's National
Market under the symbol QDIN. The prices set forth below reflect the high and
low sales quotations for the Company's Common Stock as reported by NASDAQ for
the calendar periods indicated. As of January 17, 2000, there were 414 holders
of record and approximately 4,450 beneficial owners.

<TABLE>
<CAPTION>
                                                     Calendar 1999 Calendar 1998
                                                     ------------- -------------
                                                      High   Low    High   Low
                                                     ------ ------ ------ ------
      <S>                                            <C>    <C>    <C>    <C>
      First Quarter................................. $4.219 $2.500 $6.094 $3.625
      Second Quarter................................  4.188  2.500  5.500  3.625
      Third Quarter.................................  3.000  2.375  4.000  2.625
      Fourth Quarter................................  3.000  1.875  5.094  1.938
</TABLE>

   The Company does not pay cash dividends on its Common Stock. The Company
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 October 31, 2002.

   No unregistered equity securities were sold by the Company during fiscal
1999.

                                      17
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

                              QUALITY DINING, INC.

<TABLE>
<CAPTION>
                                           Fiscal Year Ended(1)
                         ----------------------------------------------------------
                         October 31, October 25, October 26, October 27, October 29,
                            1999        1998        1997        1996        1995
                         ----------- ----------- ---------- ----------- -----------
                              (In thousands, except unit and per share data)
<S>                      <C>         <C>         <C>        <C>         <C>
Statement of Operations
 Data(2):
Revenues:
Restaurant sales:
  Burger King...........   $82,650     $80,391   $  74,616    $70,987     $57,013
  Grady's American
   Grill................    75,198      81,241      85,403     85,101         --
  Chili's Grill & Bar...    56,837      55,572      54,277     41,913      38,267
  Italian Dining
   Division.............    16,066      15,040      12,973      8,388       4,741
  Bruegger's Bagel
   Bakery...............       --          --       64,928     25,967       5,270
                           -------     -------   ---------    -------     -------
Total restaurant sales..   230,751     232,244     292,197    232,356     105,291
                           -------     -------   ---------    -------     -------
  Franchise related
   revenue..............       --          --       10,055      5,274         --
                           -------     -------   ---------    -------     -------
Total revenues..........   230,751     232,244     302,252    237,630     105,291
                           -------     -------   ---------    -------     -------
Operating expenses
  Restaurant operating
   expenses
    Food and beverage...    67,732      69,102      88,629     72,201      31,176
    Payroll and
     benefits...........    67,073      66,404      87,905     66,176      27,191
    Depreciation and
     amortization.......    11,002      11,475      17,691     11,635       5,109
    Other operating
     expenses...........    55,890      55,644      74,691     52,452      24,057
                           -------     -------   ---------    -------     -------
Total restaurant
 operating expenses.....   201,697     202,625     268,916    202,464      87,533
  General and
   administrative.......    15,912      15,488      28,718     11,229       5,285
  Amortization of
   intangibles..........     1,032       1,085       3,112      2,537         682
  Impairment of assets
   and facility closing
   costs................     2,501         250     200,813        --          --
  Franchise operating
   partner expense......       --          --        2,066        --          --
  Restructuring and
   integration costs....       --          --          --       9,938         --
                           -------     -------   ---------    -------     -------
Total operating
 expenses...............   221,142     219,448     503,625    226,168      93,500
                           -------     -------   ---------    -------     -------
Operating income
 (loss)(3)(4)...........     9,609      12,796    (201,373)    11,462      11,791
                           -------     -------   ---------    -------     -------
Other income (expense):
  Interest expense......   (10,709)    (11,962)    (10,599)    (6,340)     (2,699)
  Gain (loss) on sale of
   property and
   equipment............      (188)       (345)        362          4         343
  Interest income.......       103         190         221        206         127
  Other income
   (expense), net.......        43         541          32        154         (12)
                           -------     -------   ---------    -------     -------
Total other expense.....   (10,751)    (11,576)     (9,984)    (5,976)     (2,241)
                           -------     -------   ---------    -------     -------
Income (loss) before
 income taxes...........    (1,142)      1,220    (211,357)     5,486       9,550
Income tax provision
 (benefit)..............       815       1,107     (14,869)     2,816       3,661
                           -------     -------   ---------    -------     -------
Net income (loss).......   $(1,957)    $   113   $(196,488)   $ 2,670     $ 5,889
                           -------     -------   ---------    -------     -------
Basic net income (loss)
 per share..............   $ (0.15)    $  0.01   $  (11.68)   $  0.23     $  0.85
                           -------     -------   ---------    -------     -------
Diluted net income
 (loss) per share.......   $ (0.15)    $  0.01   $  (11.68)   $  0.22     $  0.84
                           -------     -------   ---------    -------     -------
Weighted average shares
 outstanding
                           -------     -------   ---------    -------     -------
  Basic.................    12,668      12,599      16,820     11,855       6,925
                           -------     -------   ---------    -------     -------
  Diluted...............    12,668      12,654      16,820     11,947       6,987
                           -------     -------   ---------    -------     -------
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>
                                            Fiscal Year Ended(1)
                         -----------------------------------------------------------
                         October 31, October 25, October 26, October 27, October 29,
                            1999        1998        1997        1996        1995
                         ----------- ----------- ----------- ----------- -----------
                               (In thousands, except unit and per share data)
<S>                      <C>         <C>         <C>         <C>         <C>
Restaurant Data:
Units open at end of
 period:
  Grady's American
   Grill................        36          39         40         42         --
  Italian Dining
   Division.............         8           8          8          6           5
  Burger King...........        70          70         66         63          59
  Chili's Grill & Bar...        28          28         28         22          18
  Bruegger's Bagel
   Bakery Division:
    Company-owned.......       --          --         --         100          12
    Franchised..........       --          --         --         325         --
                          --------    --------   --------   --------     -------
      Totals............       142         145        142        558          94
                          ========    ========   ========   ========     =======
Balance Sheet Data:
Working capital
 (deficiency)...........  $(17,962)   $(14,747)  $ (8,239)  $ (3,383)    $(1,826)
Total assets............   189,037     196,275    215,973    388,014      99,247
Long-term debt,
 capitalized lease and
 non-competition
 obligations............   112,815     118,605    133,111     85,046      14,298
Total stockholders'
 equity.................    49,002      50,926     50,813    269,123      71,401
</TABLE>
--------
(1) All fiscal years presented consisted of 52 weeks except fiscal 1999 which
    had 53 weeks.
(2) The selected statement of operations data include the operations of
    Bruegger's Corporation from June 7, 1996 until October 19, 1997; the
    Grady's American Grill restaurants from December 21, 1995; SHONCO, Inc.
    and certain affiliated companies from August 14, 1995; and Grayling
    Corporation and certain affiliated companies from November 10, 1994.
(3) Operating loss for the fiscal year ended October 26, 1997 includes an
    impairment of asset charge of $185.0 million, store closing costs of $15.5
    million and franchise operating partner expense of $2.1 million which all
    relate to the divestiture by the Company of its bagel-related companies.
    Operating income for the fiscal year ended October 27, 1996 includes
    restructuring and integration charges of $1.9 million associated with
    costs related to the acquisitions of the Grady's American Grill concept
    and restaurants and Spageddies Italian Kitchen concept and $8.0 million
    associated with costs related to the acquisition of Bruegger's
    Corporation.
(4) Operating income for the fiscal year ended October 31, 1999 includes non-
    cash charges for the impairment of assets and facility closings totaling
    $2,501,000. The non-cash charges consisted primarily of $650,000 for the
    disposal of obsolete point of sale equipment that the Company identified
    as a result of installing its new point of sale system in its full service
    dining restaurants, $1,047,000 for the estimated costs and losses
    associated with the anticipated closing of two regional offices and three
    restaurant locations and $804,000 primarily for a non-cash asset
    impairment write down for two under-performing restaurants.

                                      19
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

Quality Dining, Inc.

   For an understanding of the significant factors that influenced the
Company's performance during the past three fiscal years, the following
discussion should be read in conjunction with the consolidated financial
statements appearing elsewhere in this Annual Report.

Results of Operations

   The following table reflects the percentages that certain items of revenue
and expense bear to total revenues, except restaurant operating expenses,
which are expressed as a percentage of total restaurant sales. The Company
sold Bruegger's Corporation on October 20, 1997. During fiscal 1997 the
Company had asset impairment charges, store closing costs and franchise
operating partner expenses all relating to its bagel businesses.
<TABLE>
<CAPTION>
                                                     Fiscal Year Ended
                                            -----------------------------------
                                            October 31, October 25, October 26,
                                               1999        1998        1997
                                            ----------- ----------- -----------
<S>                                         <C>         <C>         <C>
Revenues:
Restaurant sales:
  Burger King..............................     35.8%       34.6%       24.7%
  Grady's American Grill...................     32.6        35.0        28.3
  Chili's Grill & Bar......................     24.6        23.9        18.0
  Italian Dining Division..................      7.0         6.5         4.2
  Bruegger's Bagel Bakery..................      --          --         21.5
                                               -----       -----       -----
Total restaurant sales.....................    100.0       100.0        96.7
                                               -----       -----       -----
  Franchise related revenue................      --          --          3.3
                                               -----       -----       -----
Total revenues.............................    100.0       100.0       100.0
                                               -----       -----       -----
Operating expenses:
  Restaurant operating expenses (as % of
   restaurant sales):
    Food and beverage......................     29.4        29.8        30.3
    Payroll and benefits...................     29.1        28.6        30.1
    Depreciation and amortization..........      4.8         4.9         6.1
    Other operating expenses...............     24.2        24.0        25.6
                                               -----       -----       -----
Total restaurant operating expenses........     87.5        87.3        92.1
  General and administrative...............      6.9         6.7         9.5
  Amortization of intangibles..............      0.4         0.5         1.0
  Impairment of assets and facility closing
   costs...................................      1.1         0.1        66.4
  Franchise operating partner expense......      --          --          0.7
                                               -----       -----       -----
Total operating expenses...................     95.9        94.6       166.6
                                               -----       -----       -----
Operating income (loss)....................      4.1         5.4       (66.6)
                                               -----       -----       -----
Other income (expense):
  Interest expense.........................     (4.6)       (5.2)       (3.5)
  Gain (loss) on sale of property and
   equipment...............................      --         (0.1)        0.1
  Interest income..........................      --          0.1         0.1
  Other income (expense), net..............      --          0.2         --
                                               -----       -----       -----
Total other expense, net...................     (4.6)       (5.0)       (3.3)
                                               -----       -----       -----
Income (loss) before income taxes..........     (0.5)        0.4       (69.9)
Income tax provision (benefit).............      0.4         0.4        (4.9)
                                               -----       -----       -----
Net income (loss)..........................     (0.9)%       -- %      (65.0)%
                                               -----       -----       -----
</TABLE>

                                      20
<PAGE>

Fiscal Year 1999 Compared to Fiscal Year 1998

   Results for fiscal 1999 include 53 weeks compared to 52 weeks for fiscal
1998. Restaurant sales in fiscal 1999 were $230,751,000, a decrease of 0.6% or
$1,493,000, compared to restaurant sales of $232,244,000 in fiscal 1998.

   The Company's Burger King restaurant sales increased $2,259,000 to
$82,650,000 in fiscal 1999 compared to restaurant sales of $80,391,000 in
fiscal 1998. The Company's Burger King restaurants had average weekly sales of
$22,164 in fiscal 1999 versus $22,806 in the same period in fiscal 1998. The
decrease in average weekly sales was offset by revenues of $2,543,000 due to
additional sales weeks from one new restaurant opened during fiscal 1999 and
four restaurants opened in fiscal 1998 which were open for their first full
year in fiscal 1999. The decline in average weekly sales for fiscal 1999
resulted primarily from inclement weather during the first quarter of fiscal
1999 and the intense competition in the quick service restaurant market.

   The Company's Grady's American Grill restaurant sales were $75,198,000 in
fiscal 1999 compared to restaurant sales of $81,241,000 in fiscal 1998. The
decrease of $6,043,000 was attributable in part to the sale of one unit in
fiscal 1998 and two units in fiscal 1999 and the closing of one unit in fiscal
1999. The absence of these units contributed approximately $3,264,000 to the
sales decrease. The units that were disposed of did not fit the Company's long
term strategic plan as they were located in geographically remote markets and
were not meeting the Company's performance expectations. The Company's Grady's
American Grill restaurants had average weekly sales of $37,769 in fiscal 1999
versus $39,096 in the same period in fiscal 1998. The Company implemented
expanded marketing, operational and menu initiatives intended to stimulate
sales at its Grady's American Grill restaurants. The marketing initiatives
include the use of radio and television advertising in targeted markets,
direct mail promotional programs and enhanced local marketing programs within
each unit's specific market. Included in the menu initiatives were the review
of all menu items and the addition of new and seasonal items. Operational
initiatives included enhanced employee training programs, increased commitment
to the appearance and image of the Company's restaurants and heightened focus
on guest satisfaction. Due to the competitive nature of the restaurant
industry, these initiatives have not to date achieved the intended results and
there can be no assurances that these initiatives will achieve the intended
results.

   The Company's Chili's Grill & Bar restaurant sales increased $1,265,000 to
$56,837,000 in fiscal 1999 when compared to restaurant sales of $55,572,000 in
fiscal 1998. The Company's marketing and operational initiatives implemented
during fiscal 1999 increased average weekly sales to $38,300 in fiscal 1999
versus $38,168 in fiscal 1998.

   The Company's Italian Dining Division's restaurant sales increased
$1,026,000 to $16,066,000 in fiscal 1999 when compared to restaurant sales of
$15,040,000 in fiscal 1998. The increase was due to the success of operational
and marketing initiatives which increased average weekly sales to $37,893 in
fiscal 1999 from $36,153 in fiscal 1998.

   Total restaurant operating expenses were $201,697,000 in fiscal 1999,
compared to $202,625,000 in fiscal 1998. As a percentage of restaurant sales,
total restaurant operating expenses increased slightly to 87.5% in fiscal 1999
from 87.3% in fiscal 1998. The following factors influenced the operating
margins:

   Food and beverage costs were $67,732,000, or 29.4% of total restaurant
sales in fiscal 1999, compared to $69,102,000, or 29.8% of total restaurant
sales in fiscal 1998. The decrease as a percentage of total revenue was mainly
due to increased efficiencies and favorable commodity prices that resulted in
decreased food costs at the Company's Burger King, Chili's and Italian Dining
restaurants.

   Payroll and benefits were $67,073,000 in fiscal 1999, compared to
$66,404,000 in fiscal 1998. As a percentage of total restaurant sales, payroll
and benefits increased 0.5% to 29.1% in fiscal 1999 from 28.6% in fiscal 1998.
Payroll and benefits increased as a percentage of total revenues in the
Company's Burger King, Grady's American Grill and Chili's divisions. Overall,
the Company has increased hourly wages at each of its restaurant concepts due
to the high level of competition to attract qualified employees.

                                      21
<PAGE>

   Depreciation and amortization decreased $473,000 to $11,002,000 in fiscal
1999 compared to $11,475,000 in fiscal 1998. As a percentage of total
restaurant sales, depreciation and amortization remained relatively consistent
at 4.8% in fiscal 1999 compared to 4.9% in fiscal 1998.

   Other restaurant operating expenses include rent and utilities, royalties,
promotional expense, repairs and maintenance, property taxes and insurance.
Other restaurant operating expenses were $55,890,000 in fiscal 1999 compared
to $55,644,000 in 1998. Other restaurant operating expenses as a percentage of
total restaurant sales increased in fiscal 1999 to 24.2% from 24.0% in fiscal
1998. The increase was primarily due to a $337,000 increase in workers
compensation expense and a $168,000 increase in advertising expense in fiscal
1999 versus fiscal 1998.

   General and administrative expenses, which include corporate and district
management costs, were $15,912,000 in fiscal 1999, compared to $15,488,000 in
fiscal 1998. As a percentage of total revenues, general and administrative
expenses increased to 6.9% in fiscal 1999 compared to 6.7% in fiscal 1998. The
increase is mainly due to an increased number of multi-unit restaurant
managers and a decrease in sales performance.

   Amortization of intangibles was $1,032,000 in fiscal 1999, compared to
$1,085,000 in fiscal 1998. As a percentage of total revenues, amortization of
intangibles remained relatively consistent at 0.4% in fiscal 1999 compared to
0.5% in fiscal 1998.

   The Company recorded non-cash charges for the impairment of assets and
facility closings totaling $2,501,000 during the third quarter of fiscal 1999.
The non-cash charges consisted primarily of $650,000 for the disposal of
obsolete point of sale equipment that the Company identified as a result of
installing its new point of sale system in its full service dining
restaurants, $1,047,000 for the estimated costs and losses associated with the
anticipated closing of two regional offices and three restaurant locations and
$804,000 primarily for a non-cash asset impairment write down for two under-
performing restaurants. This non-cash asset impairment charge resulted from
the Company's determination that an impairment write down should be considered
when there is a sustained trend of negative operating performance as measured
by restaurant level cash flow. The non-cash facility closure charges include
amounts for the write off of fixed assets and other costs related to the
closing of these facilities. Each of these non-cash charges represents a
reduction of the carrying amount of the assets to their estimated fair market
value.

   The Company had operating income of $9,609,000 in fiscal 1999 compared to
operating income of $12,796,000 in fiscal 1998. The decrease is mainly due to
the $2,501,000 in non-cash charges for the impairment of assets and facility
closings.

   Total other expenses, as a percentage of total revenues, decreased to 4.7%
in fiscal 1999 compared to 5.0% in fiscal 1998. The decrease was primarily due
to a decrease in interest expense resulting from decreased borrowings under
the Company's revolving credit agreement. The decrease in interest expense
occurred despite a higher interest rate associated with the Company's fixed
rate mortgage facility.

   Income tax expense of $815,000 was recorded in fiscal 1999 compared to
$1,107,000 in fiscal 1998. The decrease in the income tax provision for fiscal
1999 was mainly due to the implementation of state tax strategies to reduce
state income tax expense and to lower taxable income.

   The Company has net operating loss carryforwards of approximately $51
million as well as FICA tip credits and alternative minimum tax credits of
$2.7 million. Net operating loss carryforwards of $48 million expire in 2012
and $3.0 million expire in 2018. FICA tip credits of $1.3 million expire in
2012, $477,000 expire in 2013 and $572,000 expire in 2014. The alternative
minimum tax credits of $300,000 carryforward indefinitely. During fiscal 1999,
the Company increased its valuation reserve against its net operating loss
carryforwards to $11.5 million leaving a net deferred tax asset of $10.0
million. 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. Based on this
assessment, the Company's management believes it is more likely

                                      22
<PAGE>

than not that the net deferred tax benefit recorded will be realized. Such
evidence will be reviewed prospectively and should the Company's operating
performance continue to improve, the Company may recognize additional tax
benefits related to its net deferred tax asset position in the future.

   The net loss in fiscal 1999 was $1,957,000, or $0.15 per share, compared to
net income of $113,000, or $0.01 per share, in fiscal 1998.

Fiscal Year 1998 Compared to Fiscal Year 1997

   Total revenues were $232,244,000 in fiscal 1998, a decrease of $70,008,000
or 23.2% when compared to the total revenues of $302,252,000 in fiscal 1997.
This decrease was primarily attributable to the divestiture of the Company's
bagel-related businesses on October 20, 1997. Total revenues in fiscal 1997
included $10,055,000 of franchise related revenues from the Company's bagel-
related operations.

   Restaurant sales in fiscal 1998 decreased $59,953,000 or 20.5% to
$232,244,000, when compared to restaurant sales of $292,197,000 in fiscal
1997. This decrease was primarily attributable to the divestiture of the
Company's bagel-related businesses on October 20, 1997. Restaurant sales in
fiscal 1997 included $64,928,000 of revenue from the Company's bagel-related
operations. Due to the sale of the bagel-related businesses in fiscal 1997,
the Company no longer has any bagel related revenues.

   The Company's Grady's American Grill restaurant sales decreased $4,162,000
to $81,241,000 in fiscal 1998 compared to restaurant sales of $85,403,000 in
fiscal 1997. The decrease was due to the sale of three units in fiscal 1997,
one unit during fiscal 1998 and a decrease in average weekly sales to $39,096
in fiscal 1998 from $39,741 in fiscal 1997. The units which were sold did not
fit the Company's long term strategic plan as they were located in
geographically remote markets and were not meeting the Company's performance
expectations. These divestitures did not have a material impact on revenues or
average weekly sales in fiscal 1998 versus fiscal 1997 for the Grady's
division. The Company has implemented marketing, operational and menu
initiatives intended to stimulate sales at its Grady's American Grill
restaurants.

   The Company's Burger King restaurant sales increased $5,775,000 to
$80,391,000 in fiscal 1998 when compared to restaurant sales of $74,616,000 in
fiscal 1997. The sales increase was primarily due to an increase in average
weekly sales to $22,806 in fiscal 1998 from $21,972 in fiscal 1997. Sales also
increased due to additional sales weeks from four new restaurants opened
during fiscal 1998 and three restaurants opened in fiscal 1997 which were open
for their first full year in fiscal 1998.

   The Company's Chili's Grill & Bar restaurant sales increased $1,295,000 to
$55,572,000 in fiscal 1998 when compared to restaurant sales of $54,277,000 in
fiscal 1997. The increase was due to six restaurants opened in fiscal 1997
being open for their first full year in fiscal 1998. Average weekly sales were
$38,168 in fiscal 1998 versus $40,596 in fiscal 1997. The Company has
implemented marketing and operational initiatives intended to stimulate sales
at its Chili's Grill & Bar restaurants. The marketing initiatives included the
use of direct mail promotional programs, targeted use of radio and television
advertising and enhanced marketing programs on a local basis within each
unit's specific market. The operational initiatives included enhanced employee
training programs, increased commitment to the appearance and image of the
Company's restaurants and heightened focus on guest satisfaction.

   The Company's Italian Dining Division restaurant sales increased $2,067,000
to $15,040,000 in fiscal 1998 when compared to restaurant sales of $12,973,000
in fiscal 1997. The increase was due to an increase in average weekly sales to
$36,153 in fiscal 1998 from $34,321 in fiscal 1997 and additional sales weeks
from two restaurants opened in fiscal 1997 being open for their first full
year in fiscal 1998.

                                      23
<PAGE>

   Total restaurant operating expenses were $202,625,000 in fiscal 1998,
compared to $268,916,000 in fiscal 1997. As a percentage of restaurant sales,
total restaurant operating expenses decreased to 87.3% in fiscal 1998 from
92.1% in fiscal 1997. The following factors influenced the operating margins:

   Food and beverage costs were $69,102,000, or 29.8% of total restaurant
sales in fiscal 1998, compared to $88,629,000, or 30.3%, of total restaurant
sales in fiscal 1997. The decrease was primarily due to the sale of the bagel-
related operations.

   Payroll and benefits were $66,404,000 in fiscal 1998, compared to
$87,905,000 in fiscal 1997. As a percentage of total restaurant sales, payroll
and benefits decreased 1.5% to 28.6% in fiscal 1998 from 30.1% in fiscal 1997.
Of the 1.5% decrease 0.9% of the decrease was due to the sale of the bagel-
related businesses and 0.6% was due to operational improvements. The Company
expects to experience continued pressure to raise wages due to competition by
all retail businesses to attract qualified employees.

   Depreciation and amortization decreased $6,216,000 to $11,475,000 in fiscal
1998 compared to $17,691,000 in fiscal 1997. As a percentage of total
restaurant sales, depreciation and amortization decreased to 4.9% in fiscal
1998 from 6.1% in fiscal 1997. The decrease was mainly due to the sale of the
bagel-related companies.

   Other restaurant operating expenses include rent and utilities, royalties,
promotional expense, repairs and maintenance, property taxes and insurance.
Other restaurant operating expenses were $55,644,000 in fiscal 1998 compared
to $74,691,000 in 1997. Other restaurant operating expenses as a percentage of
total restaurant sales decreased in fiscal 1998 to 24.0% from 25.6% in fiscal
1997. This decrease was primarily due to the Company's divestiture of its
bagel-related businesses and improvements in these expense categories at the
Company's Burger King, Chili's and Italian Dining concepts.

   General and administrative expenses, which include corporate and district
management costs, were $15,488,000 in fiscal 1998, compared to $28,718,000 in
fiscal 1997. As a percentage of total revenues, general and administrative
expenses decreased to 6.7% in fiscal 1998 from 9.5% in fiscal 1997. This
decrease was primarily due to the Company's divestiture of its bagel-related
businesses.

   Amortization of intangibles was $1,085,000 in fiscal 1998, compared to
$3,112,000 in fiscal 1997. The decrease was mainly due to the elimination of
Bruegger's related goodwill in connection with the Bruegger's asset impairment
charge taken during fiscal 1997.

   The Company executed an agreement during the fourth quarter of fiscal 1998
to sell one Grady's American Grill restaurant. As a result of this agreement
the Company recorded a non-cash impairment charge of $250,000 to reduce the
carrying amounts of related assets to their estimated fair value. The sale was
completed during the first quarter of fiscal 1999.

   During the second quarter of fiscal 1997, the Company recorded a non-cash
impairment charge of $185,000,000 as a result of the decision to divest its
bagel-related businesses. The non-cash impairment charge represented a
reduction of the carrying amounts of bagel-related assets to their estimated
fair value. The impairment charge included non-cash charges for the write-off
of goodwill and the write-down of notes receivable and property and equipment.
On October 20, 1997 the Company sold the bagel-related businesses and no
further charges were recorded.

   In fiscal 1997, the Company elected not to build two Burger King
restaurants which it had acquired the development rights to as part of the
SHONCO acquisition. In conjunction with this decision the Company recorded a
non-cash impairment charge of $300,000 to write-off the capitalized
development rights associated with these two locations.

   During the second quarter of fiscal 1997, the Company recorded a $2,066,000
charge for expenses related to the Franchise Operating Partner Program. These
costs were primarily related to the professional services of

                                      24
<PAGE>

financial advisors involved in negotiating with potential equity investors for
the Franchise Operating Partner Program. The Franchise Operating Partner
Program was canceled due to the Company's decision to divest itself of its
bagel-related businesses.

   In fiscal 1997, the Company recorded a $15,513,000 charge for closing
under-performing Bruegger's units and other Bruegger's units which were at
various stages of development when the decision was made to divest the bagel-
related businesses. The charge included amounts for terminating occupancy
leases, write-offs of fixed assets and pre-opening costs, restaurant
management severance costs and other store closing costs. Through fiscal 1998
the Company had incurred $12,916,000 of these costs, of which $2,123,000 were
cash payments and $10,793,000 were non-cash charges, primarily the write-down
of assets.

   The Company had operating income of $12,796,000 in fiscal 1998 compared to
an operating loss of $201,373,000 in fiscal 1997. The increase in income was
mainly due to the special charges in fiscal 1997 relating to the divestiture
of the bagel-related businesses.

   Total other expenses, as a percentage of total revenues, increased to 5.0%
in fiscal 1998 compared to 3.3% in fiscal 1997. The increase was primarily due
to an increase in interest expense resulting from increased borrowings and
higher borrowing rates under the Company's revolving credit agreement.

   Income tax expense of $1,107,000 was recorded in fiscal 1998 compared to a
benefit of $14,869,000 in fiscal 1997. The fiscal 1997 benefit was due to the
pre-tax loss in fiscal 1997, resulting primarily from the special charges
noted above. The Company's effective income tax rate in fiscal 1998 was 90.7%
compared to an income tax rate of 7.0% (benefit) in fiscal 1997. The high
effective income tax rate for fiscal 1998 was mainly due to a large portion of
state taxes being based on criteria other than income. The fiscal 1997 benefit
was primarily due to the operating losses which resulted in a federal income
tax benefit and a nominal state income tax provision. The low income tax
benefit rate was a result of a significant portion of the $185,000,000 non-
cash charge for asset impairment being non-deductible for tax purposes.

   The net income in fiscal 1998 was $113,000, or $0.01 per share, compared to
a net loss of $196,488,000, or $11.68 per share, in fiscal 1997. The increase
in net income was mainly due to the lack of special charges in fiscal 1998
relating to the divestiture of the bagel-related assets.

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 25, October 26,
                                                1999        1998        1997
                                             ----------- ----------- -----------
                                                   (Dollars in thousands)
   <S>                                       <C>         <C>         <C>
   Net cash provided by operations.........   $ 13,762    $ 14,899    $  3,700
   Nonoperating sources of cash:
     Borrowings of long-term debt..........     63,566         --       62,500
     Proceeds from the sale of assets......      2,790       2,453       2,073
     Disposition of businesses, net of cash
      sold.................................        --          --       15,720
   Nonoperating uses of cash:
     Purchase of property and equipment....     (8,262)     (6,205)    (32,080)
     Repayment of long-term debt...........    (67,884)    (14,350)    (14,004)
     Advances to affiliates................        --          --      (26,515)
     Purchase of note receivable...........     (4,294)        --          --
     Loan financing fees...................     (1,327)       (290)       (387)
</TABLE>

   In fiscal 1999 cash provided by operations was $13,762,000 compared to
$14,899,000 in fiscal 1998.

   On November 24, 1998, the Company purchased a note receivable for
$4,294,000 from Texas Commerce Bank, to satisfy its obligations under its
Guaranty to Texas Commerce. See Note 10--Commitments and Contingencies.

                                      25
<PAGE>

   On August 3, 1999 the Company completed the refinancing of its existing
debt with a financing package totaling $125,066,000, consisting of a
$76,000,000 revolving credit agreement and a $49,066,000 mortgage facility, as
described below. The revolving credit agreement was executed with Chase Bank
of Texas, as agent for a group of six banks, providing for borrowings of up to
$76,000,000 with interest payable at the adjusted LIBOR rate plus a
contractual spread. The Company had $16,544,000 available under its revolving
credit agreement as of October 31, 1999. The revolving credit agreement is
collateralized by the stock of certain subsidiaries of the Company, the $10
million junior subordinated note issued by Bruegger's Corporation, 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 financing. The revolving credit agreement will mature
on October 31, 2002, at which time all amounts outstanding thereunder are due.

   The revolving credit agreement contains, among other provisions, certain
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, 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 $49,066,000 mortgage facility has 34 separate mortgage notes and the
term of each mortgage note is 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 Company used the proceeds of the mortgage
facility to repay indebtedness under its existing revolving credit agreement.

   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.
The mortgage notes contain, among other provisions, certain restrictive
covenants including maintenance of a consolidated fixed charge coverage ratio
for the financed properties.

   During fiscal 1999 the Company paid fees and expenses totaling $1,327,000
related to the refinancing of its existing debt. These costs related primarily
to transaction and legal expenses for the mortgage facility and up-front fees
to the bank group and legal expenses for the revolving credit agreement.

   The Company's primary cash requirements in fiscal 2000 will be capital
expenditures in connection with the opening of new restaurants, remodeling of
existing restaurants, maintenance expenditures, purchases of the Company's
stock and the reduction of debt under the Company's debt agreements. The
Company's capital expenditures for fiscal 2000 are expected to range from
$10,000,000 to $12,000,000. During fiscal 2000, the Company anticipates
opening three to five Burger King restaurants and two to three full service
restaurants. The actual amount of the Company's cash requirements for capital
expenditures depends in part on the number of new restaurants opened, if the
Company owns or leases new units and the actual expense related to remodeling
and maintenance of existing units.

   The Company anticipates that its cash flow from operations, together with
the $16,544,000 available under its revolving credit agreement, will be
sufficient to fund its planned internal expansion and other internal operating
cash requirements through the end of fiscal 2000.

Recently Issued Accounting Standards

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. This statement is effective for the
Company for periods beginning in fiscal year 2001. The Company is currently
not involved in derivative instruments or hedging activities, and therefore,
will measure the impact of this statement as it becomes necessary.

                                      26
<PAGE>

Impact of Year 2000

   The term "Year 2000" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery and equipment as the
year 2000 is approached and thereafter. These problems generally arise from
the fact that most of the world's computer hardware and software has
historically used only two digits to identify the year in a date, often
meaning that the computer will fail to distinguish dates in the "2000's" from
dates in the "1900's."

   The Company's State of Readiness. The Company established and implemented a
formal plan ("Year 2000 Plan") to (i) test its information technology systems
to evaluate Year 2000 compliance, (ii) assess the Year 2000 compliance of its
information technology vendors, (iii) assess its non-information technology
systems that utilize embedded technology such as micro-controllers and (iv)
determine the readiness of third parties such as government agencies, utility
companies, telecommunication companies, suppliers and other "non-technology"
third party vendors ("Third Party Vendors"). As of January 21, 2000, the
Company had not experienced any Year 2000 related disruptions to its own
internal systems nor have any Third Party Vendors experienced any Year 2000
disruptions that have materially affected their ability to do business with
the Company.

   Costs to Address the Company's Year 2000 Issues. The Company expensed costs
associated with its Year 2000 Plan as the costs were incurred except for costs
that the Company would have otherwise capitalized.

   Remaining Risks Presented by Year 2000 Problems. To operate its businesses,
the Company relies upon its Third Party Vendors. The Company's ability to
conduct its business is dependent upon the ability of its Third Party Vendors
to continue to avoid Year 2000 related disruption. Though the Company and its
Third Party Vendors do not appear to have suffered any significant Year 2000
related disruptions as a result of the roll over from 1999 to 2000, it is
possible that certain Year 2000 problems may exist but have not yet
materialized.

   If the Company or its Third Party Vendors have not adequately addressed
their Year 2000 issues, the Company's business may be materially affected
which could result in a materially adverse effect on the Company's results of
operations and financial condition.

   Independent of the Company's Year 2000 Plan, the Company had previously
determined it would replace its point of sale equipment in as many as 75 of
its full service dining restaurants. This determination was part of the
Company's ongoing efforts to enhance financial controls through a centralized,
computerized, accounting system to enhance the tracking of data to enable the
Company to better manage its operations. The Company completed the process of
replacing the point of sale equipment in its full service restaurants in
November of 1999. The Company has determined that the replacement systems are
Year 2000 compliant. The replacement of the point of sale equipment in its
full service restaurants cost approximately $3 million. During the third
quarter of fiscal 1999, the Company recorded a non-cash charge of $650,000 in
connection with the disposition of certain of its obsolete point of sale
equipment that the Company identified as a result of installing its new point
of sale system. The Company has determined that the point of sale equipment in
its 70 Burger King restaurants is Year 2000 compliant.

Burger King Franchise and Development Agreements

   Beginning in July, 2000, Burger King Corporation will increase its royalty
and franchise fees for most new restaurants. At that time, the franchise fee
for new restaurants will increase from $40,000 to $50,000 for a 20 year
agreement and the royalty rate will increase from 3 1/2% of sales to 4 1/2% of
sales, after a transitional period. For franchise agreements entered into
during the transitional period, the royalty rate will be 4% of sales for the
first 10 years and 4 1/2% of sales for the balance of the term.

   For new restaurants, the transitional period will be from July 1, 2000 to
June 30, 2003. As of July 1, 2003, the royalty rate will become 4 1/2% of
sales for the full term of new restaurant franchise agreements. For renewals
of existing franchise agreements, the transitional period will be from July 1,
2000 through June 30, 2001. As of

                                      27
<PAGE>

July 1, 2001, existing restaurants that renew their franchise agreements will
pay a royalty of 4 1/2% of sales for the full term of the renewed agreement.
The advertising contribution will remain the same at 4% of sales. Royalties
payable under existing franchise agreements are not effected by these changes.

   Burger King Corporation is also offering a voluntary program to incent
franchisees to renew their franchise agreements prior to the scheduled
expiration date ("Early Renewal Program"). Franchisees that elect to
participate in the Early Renewal Program will be 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 Early Renewal Program will have
special provisions regarding the royalty payable during the term, including a
reduction in the royalty for a period of time. The Company is currently
evaluating which, if any, of its restaurants would be suitable for the Early
Renewal Program. In conducting its evaluation, the Company will consider,
among other things, the applicable royalty reductions, the nature, extent and
resulting impact on sales from the required capital investment as well as the
Company's ability to extend its occupancy leases, where required. The Company
intends to decide which, if any, of its restaurants it will include in the
Early Renewal Program by March 15, 2000.

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 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.

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 hiring, training and retention of
skilled corporate and restaurant management and other restaurant personnel;
the integration and assimilation of acquired concepts; 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   Not Applicable.

                                      28
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                              QUALITY DINING, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                         October 31, October 25,
                                                            1999        1998
                                                         ----------- -----------
                                                         (Dollars in thousands)
<S>                                                      <C>         <C>
Assets
Current assets:
  Cash and cash equivalents............................   $  1,019    $  3,351
  Accounts receivable..................................      1,946       2,358
  Inventories..........................................      1,876       1,872
  Deferred income taxes................................      2,630       2,848
  Other current assets.................................      1,787       1,568
                                                          --------    --------
Total current assets...................................      9,258      11,997
                                                          --------    --------
Property and equipment, net............................    128,349     136,764
                                                          --------    --------
Other assets:
  Deferred income taxes................................      7,370       7,152
  Trademarks, net......................................     11,988      12,320
  Franchise fees and development fees, net.............      8,748       9,259
  Goodwill, net........................................      8,053       8,594
  Notes receivable, less allowance.....................     10,294       6,000
  Liquor licenses, net.................................      2,686       2,859
  Other................................................      2,291       1,330
                                                          --------    --------
Total other assets.....................................     51,430      47,514
                                                          --------    --------
Total assets...........................................   $189,037    $196,275
                                                          ========    ========
Liabilities and Stockholders' Equity
Current liabilities:
  Current portion of capitalized lease and long-term
   debt................................................   $  1,471    $    370
  Accounts payable.....................................      8,673       7,086
  Accrued liabilities..................................     17,076      19,288
                                                          --------    --------
Total current liabilities..............................     27,220      26,744
Long-term debt.........................................    107,384     112,756
Capitalized leases principally to related parties, less
 current portion.......................................      5,431       5,849
                                                          --------    --------
Total liabilities......................................    140,035     145,349
                                                          --------    --------
Commitments and contingencies (Notes 9, 10 and 12)
Stockholders' equity:
  Preferred stock, without par value: 5,000,000 shares
   authorized; none issued.............................        --          --
  Common stock, without par value: 50,000,000 shares
   authorized; 12,773,849 and 12,619,444 shares issued,
   respectively........................................         28          28
  Additional paid-in capital...........................    236,881     236,420
  Accumulated deficit..................................   (187,229)   (185,272)
  Unearned compensation................................       (428)        --
                                                          --------    --------
                                                            49,252      51,176
  Less treasury stock, at cost, 20,000 shares..........        250         250
                                                          --------    --------
Total stockholders' equity.............................     49,002      50,926
                                                          --------    --------
Total liabilities and stockholders' equity.............   $189,037    $196,275
                                                          ========    ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       29
<PAGE>

                              QUALITY DINING, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                     Fiscal Year Ended
                                            -----------------------------------
                                            October 31, October 25, October 26,
                                               1999        1998        1997
                                            ----------- ----------- -----------
                                              (In thousands, except per share
                                                           data)
<S>                                         <C>         <C>         <C>
Revenues:
  Restaurant sales:
    Burger King............................  $ 82,650    $ 80,391    $  74,616
    Grady's American Grill.................    75,198      81,241       85,403
    Chili's Grill & Bar....................    56,837      55,572       54,277
    Italian Dining Division................    16,066      15,040       12,973
    Bruegger's Bagel Bakery................       --          --        64,928
                                             --------    --------    ---------
Total restaurant sales.....................   230,751     232,244      292,197
                                             --------    --------    ---------
  Franchise related revenue................       --          --        10,055
                                             --------    --------    ---------
Total revenues.............................   230,751     232,244      302,252
                                             --------    --------    ---------
Operating expenses:
  Restaurant operating expenses:
    Food and beverage......................    67,732      69,102       88,629
    Payroll and benefits...................    67,073      66,404       87,905
    Depreciation and amortization..........    11,002      11,475       17,691
    Other operating expenses...............    55,890      55,644       74,691
                                             --------    --------    ---------
Total restaurant operating expenses........   201,697     202,625      268,916
  General and administrative...............    15,912      15,488       28,718
  Amortization of intangibles..............     1,032       1,085        3,112
  Impairment of assets and facility closing
   costs...................................     2,501         250      200,813
  Franchise operating partner expense......       --          --         2,066
                                             --------    --------    ---------
Total operating expenses...................   221,142     219,448      503,625
                                             --------    --------    ---------
Operating income (loss)....................     9,609      12,796     (201,373)
                                             --------    --------    ---------
Other income (expense):
  Interest expense.........................   (10,709)    (11,962)     (10,599)
  Gain (loss) on sale of property and
   equipment...............................      (188)       (345)         362
  Interest income..........................       103         190          221
  Other income, net........................        43         541           32
                                             --------    --------    ---------
Total other expense........................   (10,751)    (11,576)      (9,984)
                                             --------    --------    ---------
Income (loss) before income taxes..........    (1,142)      1,220     (211,357)
Income tax provision (benefit).............       815       1,107      (14,869)
                                             --------    --------    ---------
Net income (loss)..........................  $ (1,957)   $    113    $(196,488)
                                             --------    --------    ---------
Basic net income (loss) per share..........  $  (0.15)   $   0.01    $  (11.68)
                                             --------    --------    ---------
Diluted net income (loss) per share........  $  (0.15)   $   0.01    $  (11.68)
                                             --------    --------    ---------
Weighted average shares outstanding
  Basic....................................    12,668      12,599       16,820
                                             --------    --------    ---------
  Diluted..................................    12,668      12,654       16,820
                                             --------    --------    ---------
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       30
<PAGE>

                              QUALITY DINING, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                         Shares         Additional Retained                           Stock-
                         Common  Common  Paid-in   Earnings     Unearned   Treasury  holders'
                         Stock   Stock   Capital   (Deficit)  Compensation  Stock     Equity
                         ------  ------ ---------- ---------  ------------ --------  ---------
                                         (Dollars and shares in thousands)
<S>                      <C>     <C>    <C>        <C>        <C>          <C>       <C>
Balance, October 27,
 1996................... 16,929   $ 28   $258,242  $  11,103     $ --      $   (250) $ 269,123
  Net loss, fiscal 1997.    --     --         --    (196,488)      --           --    (196,488)
  Exercise of stock
   options..............      1    --           1        --        --           --           1
Bruegger's Disposition:
  Redemption of shares.. (4,311)   --         --         --        --       (21,823)   (21,823)
  Retirement of common
   stock................    --     --     (21,823)       --        --        21,823        --
                         ------   ----   --------  ---------     -----     --------  ---------
Balance, October 26,
 1997................... 12,619     28    236,420   (185,385)      --          (250)    50,813
  Net income, fiscal
   1998.................    --     --         --         113       --           --         113
                         ------   ----   --------  ---------     -----     --------  ---------
Balance, October 25,
 1998................... 12,619     28    236,420   (185,272)      --          (250)    50,926
  Restricted stock
   grants...............    155    --         461        --       (461)         --         --
  Amortization of
   unearned
   compensation.........    --     --         --         --         33          --          33
  Net loss, fiscal 1999.    --     --         --      (1,957)      --           --      (1,957)
                         ------   ----   --------  ---------     -----     --------  ---------
Balance, October 31,
 1999................... 12,774   $ 28   $236,881  $(187,229)    $(428)    $   (250) $  49,002
                         ------   ----   --------  ---------     -----     --------  ---------
</TABLE>




   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       31
<PAGE>

                              QUALITY DINING, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                     Fiscal Year Ended
                                             -----------------------------------
                                             October 31, October 25,  October 26
                                                1999        1998         1997
                                             ----------- ----------- -----------
                                                  (Dollars in thousands)
<S>                                          <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss).........................  $ (1,957)   $    113   $(196,488)
  Adjustments to reconcile net income (loss)
   to net cash provided by operating
   activities:
    Depreciation and amortization of
     property and equipment.................    11,353      11,381      16,094
    Amortization of other assets............     2,375       2,877       7,187
    Impairment of assets and facility
     closing costs..........................     2,501         250     200,813
    Loss (gain) on sale of property and
     equipment..............................       188         345        (362)
    Amortization of unearned compensation...        33         --          --
    Deferred income taxes...................       --          --      (11,748)
    Changes in operating assets and
     liabilities, excluding effects of
     acquisitions and dispositions:
      Accounts receivable...................       412         279          65
      Inventories...........................        (4)         40          16
      Other current assets..................      (219)      4,374      (4,024)
      Accounts payable......................     1,292      (2,174)       (432)
      Accrued liabilities...................    (2,212)     (2,586)     (7,421)
                                              --------    --------   ---------
        Net cash provided by operating
         activities.........................    13,762      14,899       3,700
                                              --------    --------   ---------
Cash flows from investing activities:
  Disposition of businesses, net of cash
   sold.....................................       --          --       15,720
  Increase in notes receivable..............    (4,294)        --          --
  Proceeds from sales of property and
   equipment................................     2,790       2,453       2,073
  Purchase of property and equipment........    (8,262)     (6,205)    (32,080)
  Advances to affiliates....................       --          --      (26,515)
  Payment of other assets...................      (112)       (235)     (3,319)
  Other, net................................      (200)        (88)       (198)
                                              --------    --------   ---------
        Net cash used for investing
         activities.........................   (10,078)     (4,075)    (44,319)
                                              --------    --------   ---------
Cash flow from financing activities:
  Proceeds from exercise of stock options...       --          --            1
  Borrowings of long-term debt..............    63,566         --       62,500
  Repayment of long-term debt...............   (67,884)    (14,350)    (14,004)
  Repayment of capitalized lease and non-
   competition obligations..................      (371)       (333)       (435)
  Loan financing fees.......................    (1,327)       (290)       (387)
                                              --------    --------   ---------
        Net cash (used for) provided by
         financing activities...............    (6,016)    (14,973)     47,675
                                              --------    --------   ---------
Net increase (decrease) in cash and cash
 equivalents................................    (2,332)     (4,149)      7,056
Cash and cash equivalents, beginning of
 year.......................................     3,351       7,500         444
                                              --------    --------   ---------
Cash and cash equivalents, end of year......  $  1,019    $  3,351   $   7,500
                                              ========    ========   =========
Supplemental disclosures of cash flow
 information:
  Cash paid for interest, net of amounts
   capitalized..............................  $ 11,277    $ 11,157   $   8,367
  Cash paid for income taxes................     1,099       1,106         757
Noncash investing and financing activities:
  Common stock received in disposition......       --          --       21,823
  Property and equipment purchased and
   related liability included in accounts
   payable..................................     1,041         746         136
  Note receivable acquired in disposition of
   restaurants, net.........................       --          --        6,000
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       32
<PAGE>

                             QUALITY DINING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS, DISPOSITION OF BUSINESS AND PUBLIC OFFERINGS

   Nature of Business--Quality Dining, Inc. and its subsidiaries (the
"Company") develop and operate both quick service and full service restaurants
in 18 states. The Company owns and operates 36 Grady's American Grill
restaurants, four restaurants under the tradename of Spageddies Italian
Kitchen and four restaurants under the tradename Papa Vino's Italian Kitchen.
The Company also operates, as a franchisee, 70 Burger King restaurants and 28
Chili's Grill & Bar restaurants.

   Disposition of Bagel-Related Businesses--On October 20, 1997, the Company
sold its bagel-related businesses to Mr. Nordahl L. Brue, Mr. Michael J.
Dressell and an entity controlled by them and their affiliates. The Company's
board of directors determined to sell the bagel-related businesses after a
careful evaluation of the future prospects for the bagel business, the
competitive environment that then existed in the bagel segment, and the
historical performance of the Company's bagel-related businesses. The sale
included the stock of Bruegger's Corporation and the stock of all of the other
bagel-related businesses. The total proceeds from the sale were $45,164,000.
The consideration included the issuance by Bruegger's Corporation of a junior
subordinated note in the amount of $10,000,000, which was recorded as
$6,000,000 due to a $4,000,000 reserve for legal indemnification, the transfer
of 4,310,740 shares of the Company's common stock valued at $21,823,000, owned
by Messrs. Brue and Dressell, which were retired, a receivable for purchase
price adjustment of $500,000, and $16,841,000 in cash. The subordinated note
has an annual interest rate of 12% and matures in October 2004. Interest will
be accrued and added to the principal amount of the note through October 2000
and will be paid in cash for the remaining life of the note. The Company has
not recognized any interest income from this note. The Company will continue
to review the financial condition of Bruegger's based upon available
information to assess the collectability of the note. The cash component of
the proceeds included an adjustment for the calculation of the net working
capital deficit. The calculation used was subject to final adjustment and is
being disputed by Messrs. Brue and Dressell. (See Note 10)

   During the second quarter of fiscal 1997, the Company recorded a non-cash
impairment charge of $185,000,000 and a store closing charge of $15,513,000 as
a result of its decision to divest the bagel related businesses (see Note 11).
The consummation of the sale of the bagel-related businesses did not result in
any additional gain or loss.

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, 1999
(fiscal 1999) contained 53 weeks. The fiscal years ended October 25, 1998
(fiscal 1998) and October 26, 1997 (fiscal 1997) each contained 52 weeks.

   Basis of Presentation--The accompanying consolidated financial statements
include the accounts of Quality Dining, Inc. and its wholly-owned
subsidiaries. As of May 11, 1997, the Company also consolidated its controlled
affiliate, Bagel Acquisition Corporation, into its consolidated financial
statements and recorded Bagel Acquisition Corporation's revenues and expenses
from May 11, 1997 to October 19, 1997. All significant intercompany balances
and transactions have been eliminated. Investments in unconsolidated
affiliates are accounted for using the equity method.

   Use of Estimates in the Preparation of Financial Statements--The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and 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.

   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.

                                      33
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Property and Equipment--Property and equipment, including capitalized
leased properties, 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
                                             ------
             <S>                             <C>
             Capitalized Lease Property..... 17-20
             Buildings and Leasehold
              Improvements..................  15-31 1/2
             Furniture and Equipment........  4-7
             Computer Equipment and
              Software......................  5
</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 income. Normal repairs and maintenance
costs are expensed as incurred.

   Impairment of Long-Lived Assets and Facility Closure Expense--Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets," established accounting standards for the
impairment of long-lived assets, certain intangibles and goodwill related to
those assets. The Company reviews long-lived assets related to each restaurant
annually for impairment, or whenever events or changes in circumstances
indicate that the carrying amount of a restaurant may not be recoverable. An
impaired restaurant is written down to its estimated fair market value based
on the best information available to the Company. Considerable management
judgment is necessary to estimate the fair market value. Accordingly, actual
results could vary significantly from such estimates.

   The Company recorded non-cash charges totaling $2,501,000 during the third
quarter of fiscal 1999 consisting primarily of $650,000 for the disposal of
obsolete point of sale equipment in its full service dining restaurants that
the Company identified as a result of installing its new point of sale system,
$1,047,000 for the estimated costs and losses associated with the anticipated
closing of two regional offices and three restaurant locations and $804,000
primarily for a non-cash asset impairment write down for two under-performing
restaurants.

   The Company recorded a $250,000 non-cash impairment charge in fiscal 1998
in connection with its decision to sell a Grady's American Grill Restaurant.

   In fiscal 1997, the Company recorded a $185,000,000 non-cash impairment
charge in connection with its decision to sell its bagel-related businesses
(see Note 11). In fiscal 1997, the Company decided not to build two Burger
King restaurants which it had acquired the development rights to as part of
the SHONCO acquisition. In conjunction with this decision the Company recorded
a non-cash impairment charge of $300,000 to write-off the capitalized
development rights associated with these two locations.

   Goodwill and Trademarks--Goodwill arising from the excess of the purchase
price over the acquired tangible and intangible net assets acquired in
acquisitions and trademarks are being amortized on a straight-line basis,
principally over 40 years. Accumulated amortization of goodwill as of October
31, 1999 and October 25, 1998 was $2,710,000 and $2,169,000, respectively.
Accumulated amortization of trademarks as of October 31, 1999 and October 25,
1998 was $1,275,000 and $943,000, respectively. The Company wrote-off all of
the goodwill related to its bagel businesses as part of the $185,000,000 non-
cash impairment charge recorded during fiscal 1997 (See Note 11).

                                      34
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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. The excess of the purchase price
over the acquired tangible and intangible assets acquired in the SHONCO
acquisition has been allocated to franchise rights. The franchise agreements
generally provide for a term of 20 years with renewal options upon expiration.
Franchise fees are being amortized on a straight-line basis, principally over
20 years. Accumulated amortization of franchise fees and development costs as
of October 31, 1999 and October 25, 1998 was $3,312,000 and $2,704,000,
respectively.

   Franchise Related Revenue Recognition--Franchise related revenue includes
royalties, franchise fees, development fees, net commissary revenue, interest
income and other miscellaneous fees related to the Company's bagel business,
which was divested on October 20, 1997. Franchisees were required to pay
monthly royalties, generally 4% to 5% of restaurant sales, which the Company
recognized as earned. Each franchisee also paid an initial franchise fee for
each bakery opened. Development fees, which resulted from area development
agreements with franchisees, were deferred and recognized as revenue when all
material conditions had been substantially completed by the Company, which
generally occurred when the bakeries under the related area development
agreements were opened.

   Advertising--The Company incurs advertising expense related to its concepts
under franchise agreements (see Note 5) or through local advertising.
Advertising costs are expensed at the time the related advertising first takes
place. Advertising costs were $6,975,000, $6,807,000 and $7,381,000 for fiscal
years 1999, 1998 and 1997, respectively. The Company had maintained an
advertising fund for national and regional advertising for the Bruegger's
Bagel Bakery ("Bruegger's") concept. The advertising fund collected fees paid
by Company-owned and franchised bakeries, and disbursed funds relating to
costs associated with maintaining, administering and preparing advertising,
marketing, public relations and promotional programs for the Bruegger's
concept. Contributions to the fund were based on a specified percentage of
sales, generally 2%. Such contributions were recorded as earned and were
reflected as a reduction of advertising expenses.

   Pre-Opening Costs--Effective with fiscal 1999, the Company expenses pre-
opening costs as incurred in accordance with SOP 98-5 "Reporting on the Costs
of Start-up Activities". Prior to fiscal 1999 direct costs incurred in
connection with opening new restaurants were deferred and amortized on a
straight-line basis over a 12-month period following the opening of a
restaurant. Amortization of pre-opening costs aggregated $577,000 and
$2,953,000 for fiscal years 1998 and 1997, 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, 1999 and October 25, 1998 was $800,000 and $618,000, 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 and amortized over a five-year period using
the straight-line method. As of October 31, 1999 and October 25, 1998,
capitalized computer software costs, net of related accumulated amortization,
aggregated $655,000 and $1,276,000, respectively. Amortization of computer
software costs was $476,000, $445,000 and $411,000 for fiscal years 1999, 1998
and 1997 respectively.

                                      35
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Capitalized Interest--Interest costs capitalized during the construction
period of new restaurants and major capital projects were $24,000, $57,000 and
$125,000 for fiscal years 1999, 1998 and 1997 respectively.

   Stock-Based Compensation--The Company has adopted the disclosure provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation." The Statement
encourages rather than requires 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. The Company has elected to
continue to apply APB Opinion No. 25 and has disclosed the pro forma net
income (loss) per share, determined as if the new method had been applied, in
Note 8.

   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 net income per share assumes the exercise of stock
options using the treasury stock method, if 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, 1999 were concentrated with a bank located in
Michigan City, Indiana.

   Cash and Cash Equivalents--The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.

   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 bases 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 likely.

   Segment Information--The Company adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") in fiscal
1999. SFAS 131 establishes standards for the reporting of information about
operating segments in annual and interim financial statements and requires
restatement of prior year information. Operating segments are defined as
components of an enterprise for which separate financial information is
available that is evaluated regularly by the chief operating decision maker(s)
in deciding how to allocate resources and in assessing performance. SFAS 131
also requires disclosures about products and services, geographic areas and
major customers. The adoption of SFAS 131 did not affect the Company's
consolidated financial position or results of operations but did change the
disclosure of segment information, as presented in Note 14.

   Comprehensive Income--The Company adopted SFAS 130, "Reporting
Comprehensive Income" ("SFAS 130") in fiscal 1999. SFAS 130 requires that
other comprehensive income items be displayed in financial statements and that
the accumulated balance of other comprehensive income be displayed separately
from retained earnings and additional paid-in capital in the equity section of
a statement of financial position. The Company did not have any comprehensive
income items that were required to be reported under SFAS 130.

   Recently Issued Accounting Standards--In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires that

                                      36
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for the Company for periods beginning in fiscal
year 2001. The Company is currently not involved in derivative instruments or
hedging activities, and therefore, will measure the impact of this statement
as it becomes necessary.

   Reclassifications--Certain information in the consolidated financial
statements for fiscal 1997 has been reclassified to conform with the current
reporting format. The reclassifications had no effect on stockholders' equity
or net loss as previously reported.

3. OTHER CURRENT ASSETS AND ACCRUED LIABILITIES

   Other current assets and accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                         October 31, October 25,
                                                            1999        1998
                                                         ----------- -----------
                                                         (Dollars in thousands)
      <S>                                                <C>         <C>
      Other current assets:
        Deposits........................................   $ 1,131     $ 1,222
        Prepaid expenses and other......................       656         346
                                                           -------     -------
                                                           $ 1,787     $ 1,568
                                                           =======     =======
      Accrued liabilities:
        Accrued salaries, wages and severance...........   $ 3,587     $ 3,277
        Accrued advertising and royalties...............     1,184       1,314
        Accrued property taxes..........................     1,345       1,030
        Accrued sales taxes.............................       878         664
        Accrued disposition costs.......................     1,521       2,059
        Accrued store closing costs.....................       804       1,770
        Accrued insurance costs.........................     1,857       1,809
        Other accrued liabilities.......................     5,900       7,365
                                                           -------     -------
                                                           $17,076     $19,288
                                                           =======     =======
</TABLE>

4. PROPERTY AND EQUIPMENT

   Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                        October 31, October 25,
                                                           1999        1998
                                                        ----------- -----------
                                                        (Dollars in thousands)
      <S>                                               <C>         <C>
      Land.............................................  $ 37,116    $ 37,660
      Capitalized lease property.......................     7,644       7,644
      Buildings and leasehold improvements.............    77,471      77,646
      Furniture and equipment..........................    59,568      59,083
      Construction in progress.........................       573         285
                                                         --------    --------
                                                          182,372     182,318
                                                         --------    --------
      Less, accumulated depreciation and capitalized
       lease amortization..............................    54,023      45,554
                                                         --------    --------
      Property and equipment, net......................  $128,349    $136,764
                                                         ========    ========
</TABLE>

                                      37
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5. 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
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
royalty and advertising fees equal to 3.5% and 4.0% of Burger King restaurant
sales, respectively. 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% of sales from each of its Chili's restaurants on local advertising. As part
of a system-wide promotional effort, the Company has agreed that for the
period beginning September 1, 1999 and ending August 30, 2000, it will pay
Brinker an additional advertising fee of 0.375% of sales from each of its
Chili's restaurants.

   The Company has entered into development agreements to develop additional
restaurants in each of the two concepts. Each of the development agreements
requires the Company to pay a development fee. In addition, the development
agreements contain certain requirements regarding the number of units to be
opened in the future. Each restaurant opened will be subject to a separate
franchise agreement, which requires the payment of an initial franchise fee
(currently $40,000) for each such restaurant. Should the Company fail to
comply with the required development schedules or with the requirements of the
agreements for restaurants within areas covered by the development agreements,
the franchisors have the right to terminate the Company's development
agreements and the exclusivity provided by the development agreements. As of
December 31, 1999, the Company developed its 18th and final restaurant under
its development agreement with Burger King Corporation.

   Beginning in July, 2000, Burger King Corporation will increase its royalty
and franchise fees for most new restaurants. At that time, the franchise fee
for new restaurants will increase from $40,000 to $50,000 for a 20 year
agreement and the royalty rate will increase from 3 1/2% of sales to 4 1/2% of
sales, after a transitional period. For franchise agreements entered into
during the transitional period, the royalty rate will be 4% of sales for the
first 10 years and 4 1/2% of sales for the balance of the term.

   For new restaurants, the transitional period will be from July 1, 2000 to
June 30, 2003. As of July 1, 2003, the royalty rate will become 4 1/2% of
sales for the full term of new restaurant franchise agreements. For renewals
of existing franchise agreements, the transitional period will be 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 1/2% of sales for the
full term of the renewed agreement. The advertising contribution will remain
the same at 4% of sales. Royalties payable under existing franchise agreements
are not effected by these changes.

   Burger King Corporation is also offering a voluntary program to incent
franchisees to renew their franchise agreements prior to the scheduled
expiration date ("Early Renewal Program"). Franchisees that elect to
participate in the Early Renewal Program will be 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 Early Renewal Program will have
special provisions regarding the royalty payable during the term, including a
reduction in the royalty for a period of time. The Company is currently
evaluating which, if any, of its restaurants would be suitable for the Early
Renewal Program. In conducting its evaluation, the Company will consider,
among other things, the applicable royalty reductions, the nature, extent and
resulting impact on sales from the required capital investment as well as the
Company's ability to extend its occupancy leases, where required. The Company
intends to decide which, if any, of its restaurants it will include in the
Early Renewal Program by March 15, 2000.

                                      38
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6. INCOME TAXES

   The provision (benefit) for income taxes for the fiscal years ended October
31, 1999, October 25, 1998 and October 26, 1997 is summarized as follows:

<TABLE>
<CAPTION>
                                          Fiscal Year Ended
                                 -----------------------------------
                                 October 31, October 25, October 26,
                                    1999        1998        1997
                                 ----------- ----------- -----------
      <S>                        <C>         <C>         <C>
      Current:
        Federal.................    $--        $  --      $ (4,243)
        State...................     815        1,107        1,122
                                    ----       ------     --------
                                     815        1,107       (3,121)
                                    ----       ------     --------
      Deferred:
        Provision (benefit) for
         the period.............     --           --       (11,748)
                                    ----       ------     --------
        Total...................    $815       $1,107     $(14,869)
                                    ====       ======     ========
</TABLE>

   The components of the deferred tax asset and liability are as follows:

<TABLE>
<CAPTION>
                                                         October 31, October 25,
                                                            1999        1998
                                                         ----------- -----------
                                                         (Dollars in thousands)
      <S>                                                <C>         <C>
      Deferred tax asset:
        Net operating loss carryforwards................   $17,930     $18,682
        Restructuring and integration costs.............       992       1,629
        FICA tip credit and minimum tax credit..........     2,661       2,164
        Accrued liabilities.............................     2,971       1,557
        Capitalized lease obligations...................       807         771
        Other...........................................       320         153
                                                           -------     -------
        Deferred tax asset..............................    25,681      24,956
        Less: Valuation allowance.......................   (11,510)    (10,490)
                                                           -------     -------
                                                            14,171      14,466
                                                           -------     -------
      Deferred tax liability:
        Property and equipment..........................    (2,636)     (3,109)
        Franchise fees, trademarks and goodwill.........    (1,488)     (1,304)
        Other...........................................       (47)        (53)
                                                           -------     -------
        Deferred tax liability..........................    (4,171)     (4,466)
                                                           -------     -------
        Net deferred tax asset (liability)..............   $10,000     $10,000
                                                           =======     =======
</TABLE>

   The Company has net operating loss carryforwards of approximately $51
million as well as FICA tip credits and alternative minimum tax credits of
$2.7 million. Net operating loss carryforwards of $48 million expire in 2012
and $3 million expire in 2018. FICA tip credits of $1.3 million expire in
2012, $477,000 expire in 2013 and $572,000 expire in 2014. The alternative
minimum tax credits of $300,000 carryforward indefinitely.

   During fiscal 1999, the Company increased its valuation reserve against its
net operating loss carryforwards to $11.5 million leaving a net deferred tax
asset of $10.0 million. 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. Based on
this assessment, the Company's management believes it is more likely than not
that the net deferred tax benefit recorded will be realized. Such evidence
will be reviewed

                                      39
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

prospectively and should the Company's operating performance continue to
improve, the Company may recognize additional tax benefits related to its net
deferred tax asset position in the future.

   Differences between the effective income tax rate and the U.S. statutory
tax rate were as follows:

<TABLE>
<CAPTION>
                                                     Fiscal Year Ended
                                            -----------------------------------
                                            October 31, October 25, October 26,
      (Percent of pretax income)               1999        1998        1997
      --------------------------            ----------- ----------- -----------
      <S>                                   <C>         <C>         <C>
      Statutory tax rate...................    (34.0)%      34.0%      (34.0)%
      State income taxes, net of federal
       income tax benefit..................     47.1        59.0          .5
      FICA tax credit......................    (50.1)      (39.8)       (0.2)
      Write off and amortization of
       goodwill............................      --          --         22.3
      Change in valuation allowance........     89.3        20.5         4.8
      Other, net...........................     19.1        17.0        (0.4)
                                               -----       -----       -----
      Effective tax rate...................     71.4%       90.7%       (7.0)%
                                               =====       =====       =====
</TABLE>

7. LONG-TERM DEBT AND CREDIT AGREEMENTS

   On August 3, 1999 the Company completed the refinancing of its existing
debt with a financing package totaling $125,066,000, consisting of a
$76,000,000 revolving credit agreement and a $49,066,000 mortgage facility, as
described below. The revolving credit agreement was executed with Chase Bank
of Texas, as agent for a group of six banks, providing for borrowings of up to
$76,000,000 with interest payable at the adjusted LIBOR rate plus a
contractual spread. The Company had $16,544,000 available under its revolving
credit agreement as of October 31, 1999. The revolving credit agreement is
collateralized by the stock of certain subsidiaries of the Company, the $10
million junior subordinated note issued by Bruegger's Corporation, 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 financing. The revolving credit agreement will mature
on October 31, 2002, at which time all amounts outstanding thereunder are due.

   The revolving credit agreement contains, among other provisions, certain
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, 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 $49,066,000 mortgage facility has 34 separate mortgage notes and the
term of each mortgage note is 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 Company used the proceeds of the mortgage
facility to repay indebtedness under its existing revolving credit agreement.
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.
The mortgage notes contain, among other provisions, certain restrictive
covenants including maintenance of a consolidated fixed charge coverage ratio
for the financed properties.

   During fiscal 1999 the Company paid fees and expenses totaling $1,327,000
related to the refinancing of its existing debt. These costs related primarily
to transaction and legal expenses for the mortgage facility and up-front fees
to the bank group and legal expenses for the revolving credit agreement.

                                      40
<PAGE>


                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The aggregate maturities of long-term debt subsequent to October 31, 1999
are as follows:

<TABLE>
<CAPTION>
             Fiscal Year
             -----------        (Dollars in thousands)
             <S>                <C>
             2000..............        $  1,054
             2001..............           1,163
             2002..............           1,283
             2003..............          60,872
             2004..............           1,562
             2005 and
              thereafter.......          42,504
                                       --------
               Total...........        $108,438
                                       ========
</TABLE>

8. EMPLOYEE BENEFIT PLANS

Stock Options

   The Company has three stock option plans: the 1993 Stock Option and
Incentive Plan, the 1997 Stock Option and Incentive Plan and the 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.

   Under the Outside Directors Stock Option Plan, 40,000 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, 1994 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. As of October 31, 1999 there were 38,000 options
outstanding under the Outside Directors Stock Option Plan.

   On June 1, 1999, the Company repurchased 298,340 options, that had
previously been issued under its 1993 Stock Option and Incentive Plan at
strike prices ranging from $13.60 to $34.50, for their fair value of $44,751,
or $0.15 per option. These options are not available to be reissued. The
Company recorded $44,751 in compensation expense related to this repurchase.

   On June 1, 1999, the Company also 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 stock on June 1, 1999, which vest over three years; (b)
restricted stock awards of 155,552 shares which vest on June 1, 2006, 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. 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.

   As a result of these grants, the Company recorded an increase to additional
paid in capital and an offsetting deferred charge of approximately $461,000
for unearned compensation. The deferred charge is equal to the number of
shares granted multiplied by a share price of $3.00, which was the Company's
closing share price on

                                      41
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

   The Company accounts for all of its plans in accordance with 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 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.

   Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value method as prescribed by SFAS 123 (see Note
2), the Company's net earnings (loss) and net earnings (loss) per share would
have been the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                             October 31, October 25, October 26,
                                                1999        1998        1997
                                             ----------- ----------- -----------
                                                   (in thousands, except
                                                    per share amounts)
      <S>                                    <C>         <C>         <C>
      Net income (loss), as reported........   $(1,957)     $ 113    $(196,488)
      Net income (loss), pro forma..........   $(2,190)     $(826)   $(197,410)
      Basic net income (loss) per common
       share, as reported...................   $  (.15)     $ .01    $  (11.68)
      Basic net income (loss) per common
       share, pro forma.....................   $  (.17)     $(.07)   $  (11.74)
</TABLE>

   The weighted average fair value at the date of grant for options granted
during fiscal 1999, 1998 and 1997 was $1.47, $1.67 and $6.80 per share,
respectively, which, for the purposes of this disclosure, is assumed to be
amortized over the respective vesting period of the grants. 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 1999, 1998 and 1997: dividend yield of 0% for all
years; expected volatility of 48.10%, 47.7% and 40.1%, respectively; risk-free
interest rate of 5.53%, 5.7% and 6.5%, respectively; and expected lives of
5.00, 4.98 and 4.39 years, respectively.

   Activity with respect to the Company's stock option plans for fiscal years
1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
                                                    Number of  Weighted Average
                                                     Shares     Exercise Price
                                                    ---------  ----------------
      <S>                                           <C>        <C>
      Outstanding, October 27, 1996................   703,117       $23.24
        Granted....................................   300,795        14.46
        Canceled...................................  (237,512)       22.33
        Exercised..................................      (610)        2.66
                                                    ---------       ------
      Outstanding, October 26, 1997................   765,790        20.12
        Granted....................................   526,600         3.41
        Canceled...................................  (187,005)       10.08
        Exercised..................................      (385)         .10
                                                    ---------       ------
      Outstanding, October 25, 1998................ 1,105,000        13.83
        Granted....................................   161,261         3.00
        Canceled...................................  (494,271)       20.19
        Exercised..................................       --           --
                                                    ---------       ------
      Outstanding, October 31, 1999................   771,990       $ 7.55
                                                    ---------       ------
      Exercisable, October 31, 1999................   330,843
                                                    ---------
      Available for future grants at October 31,
       1999........................................   411,595
                                                    ---------
</TABLE>


                                      42
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The following table summarizes information relating to fixed-priced stock
options outstanding for all plans as of October 31, 1999.

<TABLE>
<CAPTION>
                             Options Outstanding                Options Exercisable
                 ------------------------------------------- --------------------------
                             Weighted Average    Weighted                   Weighted
    Range of       Number       Remaining        Average       Number       Average
 Exercise Price  Outstanding Contractual Life Exercise Price Exercisable Exercise Price
 --------------  ----------- ---------------- -------------- ----------- --------------
 <S>             <C>         <C>              <C>            <C>         <C>
  $.10-
 $10.00            533,905      8.57 years        $ 3.38       108,565       $ 3.82
 $10.01-
 $20.00            173,800      5.43 years        $12.55       157,993       $12.43
 $20.01-
 $32.875            64,285      6.41 years        $28.64        64,285       $28.64
</TABLE>

Retirement Plans

   The Company maintains a discretionary, noncontributory profit sharing plan
for its eligible employees. Plan contributions are determined by the Company's
Board of Directors.

   Employees are also eligible to participate in either a 401(k) plan or a
deferred compensation program after one year of service in which the employee
has worked a minimum of 1,000 hours. The Company matches a portion of the
employee's contribution to the plans and provides investment choices for the
employee.

   The Company's contributions under both plans aggregated $265,000, $173,000
and $99,000 for fiscal years 1999, 1998 and 1997, respectively.

9. 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 $970,000, $1,054,000 and $986,000 for fiscal years 1999, 1998 and
1997, respectively.

   As of October 31, 1999, future minimum lease payments related to these
leases were as follows:

<TABLE>
<CAPTION>
                                                      Capital Operating
                                                      Leases   Leases    Total
                                                      ------- --------- -------
      Fiscal Year
      -----------                                      (Dollars in thousands)
      <S>                                             <C>     <C>       <C>
      2000........................................... $ 1,152  $ 7,878  $ 9,030
      2001...........................................   1,152    7,747    8,899
      2002...........................................   1,110    7,607    8,717
      2003...........................................   1,081    7,464    8,545
      2004...........................................   1,081    6,898    7,979
      2005 and thereafter............................   4,569   26,936   31,505
                                                      -------  -------  -------
                                                       10,145  $64,530  $74,675
                                                               -------  -------
      Less: Amount representing interest.............   4,297
                                                      -------
      Present value of future minimum lease payments
       of which $417 is included in current
       liabilities at October 31, 1999............... $ 5,848
                                                      -------
</TABLE>

   Rent expense, including percentage rentals based on sales, was $9,453,000,
$9,518,000 and $15,198,000 for fiscal years 1999, 1998 and 1997, respectively.

                                      43
<PAGE>

                             QUALITY DINING, INC.

              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)


10. COMMITMENTS AND CONTINGENCIES

   The Company is self-insured for the portion of its employee health care
costs not covered by insurance. The Company is liable for medical claims up to
$100,000 per eligible employee annually, and aggregate annual claims up to
approximately $2,500,000. The aggregate annual deductible is determined by the
number of eligible covered employees during the year and the coverage they
elect.

   At October 31, 1999, the Company had commitments aggregating $921,000 for
the construction of restaurants.

   The Company is self-insured with respect to any worker's compensation
claims not covered by insurance. The Company maintains a $250,000 annual
deductible per occurrence and is liable for aggregate claims up to $2,300,000
for the three year insurance plan period beginning March 1, 1998 and ending
April 30, 2001.

   The Company and certain of its officers and directors are parties to
various legal proceedings relating to the Company's purchase, operation and
financing of the Company's bagel-related businesses.

   Quality Baking, LLC, a franchisee of Bruegger's Franchise Corporation, and
Mark Ratterman, Chris Galloway and Peter Shipman, principals of Quality
Baking, LLC, commenced an action on July 9, 1997 filed in the United States
District Court, for the Eastern District of Missouri, Eastern Division,
against the Company, Bruegger's Corporation, Bruegger's Franchise Corporation,
Nordahl Brue, Michael Dressell, Daniel B. Fitzpatrick and John Firth.

   On April 22, 1998, the Court granted the defendants' Motion to Transfer
this matter to the United States District Court for the Northern District of
Indiana. The complaint alleges that the plaintiffs purchased their franchises
based upon financial representations that did not materialize, that they
purchased preferred stock in Bruegger's Corporation based upon false
representations, that the defendants falsely represented their intentions with
respect to repurchasing bakeries from the plaintiffs, and that the defendants
violated implied covenants of good faith and fair dealing. On July 28, 1999,
the court dismissed all counts against all of the individual defendants,
dismissed the count alleging violations of implied covenants of good faith and
fair dealing and dismissed all fraud claims against the Company. The case
continues to proceed against the Company on allegations that the Company
breached an agreement to repurchase bakeries from the plaintiffs and against
the Bruegger's entities on allegations that the plaintiffs purchased their
franchises and preferred stock of Bruegger's Corporation based upon false
representations and on allegations that Bruegger's Franchise Corporation
breached the plaintiffs' franchise and development agreements.

   D & K Foods, Inc., Pacific Capital Ventures, Inc., and PLB Enterprises,
Inc., franchisees of Bruegger's Franchise Corporation, and Ken Wagnon, Dan
Carney, Jay Wagnon and Patrick Beatty, principals of the foregoing
franchisees, commenced an action on July 16, 1997 in the United States
District Court for the District of Maryland, against Bruegger's Corporation,
Bruegger's Franchise Corporation, Quality Dining, Inc., Daniel B. Fitzpatrick,
Michael J. Dressell and Nordahl L. Brue, alleging that the plaintiffs
purchased their franchises based upon financial representations that did not
materialize, that they purchased preferred stock in Bruegger's Corporation
based upon false representations, that Bruegger's Corporation falsely
represented its intentions with respect to purchasing bakeries from the
plaintiffs or providing financing to the plaintiffs, and that the defendants
violated implied covenants of good faith and fair dealing.

   On or about April 15, 1997, Texas Commerce Bank National Association
("Texas Commerce") made a loan of $4,200,000 (the "Loan") to BFBC Ltd., a
Florida limited partnership ("BFBC"). At the time of the Loan, BFBC was a
franchisee under franchise agreements with Bruegger's Franchise Corporation
(the "Franchisor"). The Company at that time was an affiliate of the
Franchisor. In connection with the Loan and as an

                                      44
<PAGE>

                             QUALITY DINING, INC.

              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

accommodation of BFBC, the Company executed to Texas Commerce a "Guaranty". By
the terms of the Guaranty the Company agreed that upon maturity of the Loan by
default or otherwise that it would either (1) pay the Loan obligations or (2)
buy the Loan and all of the related loan documents (the "Loan Documents") from
Texas Commerce or its successors. In addition several principals of BFBC (the
"Principal Guarantors") guaranteed repayment of the Loan by each executing a
"Principal Guaranty". On November 10, 1998, Texas Commerce (1) declared that
the Loan was in default, (2) notified BFBC, the Principal Guarantors and the
Company that all of the Loan obligations were due and payable, and (3)
demanded payment.

   The Company elected to satisfy its obligations under the Guaranty by
purchasing the Loan from Texas Commerce. On November 24, 1998, the Company
bought the Loan for $4,294,000. Thereafter, the Company sold the Loan to its
Texas affiliate Grady's American Grill, L.P. ("Grady's"). On November 30, 1998
Grady's commenced an action seeking to recover the amount of the Loan from one
of the Principal Guarantors, Michael K. Reilly ("Reilly"). As part of this
action Grady's also seeks to enforce a Subordination Agreement that was one of
the Loan Documents against MKR Investments, L.P., a partnership ("MKR").
Reilly is the general partner of MKR. This action is pending in the United
States District Court for the Southern District of Texas Houston Division as
Case No. H-98-4015. Reilly has denied liability and filed a counterclaim
against Grady's alleging that Grady's engaged in unfair trade practices,
violated Florida's "Rico" statute, engaged in a civil conspiracy and violated
state and federal securities laws in connection with the Principal Guaranty
(the "Counterclaims"). Reilly also filed a third party complaint against
Quality Dining, Inc., Grady's American Grill Restaurant Corporation, David M.
Findlay, Daniel Fitzpatrick, Bruegger's Corporation, Bruegger's Franchise
Corporation, Champlain Management Services, Inc., Nordahl Brue, Michael
Dressell and Ed Davis ("Third Party Defendants") alleging that Reilly invested
in BFBC based upon false representations, that the Third Party Defendants
violated state franchise statutes, committed unfair trade practices, violated
covenants of good faith and fair dealing, violated the state "Rico" statute
and violated state and federal securities laws in connection with the
Principal Guaranty. In addition, BFBC and certain of its affiliates, including
the Principal Guarantors ("Intervenors") have intervened and asserted claims
against Grady's and the Third Party Defendants that are similar to those
asserted in the counter claims and the third party complaint. In addition, the
Company and Bruegger's Corporation are currently disputing the nature and
extent of their indemnity obligations, if any, to the other with respect to
this litigation. Based upon the currently available information, the Company
does not believe that these matters will have a materially adverse effect on
the Company's financial position or results of operations. However, there can
be no assurance that the Company will be able to realize sufficient value from
Reilly to satisfy the amount of the Loan or that the Company will not incur
any liability as a result of the Counterclaims or third party complaints filed
by Reilly and the Intervenors.

   In each of the above cases, one or more present or former officers and
directors of the Company were named as party defendants and the Company has
and/or is advancing defense costs on their behalf. Pursuant to the Share
Exchange Agreement by and among Quality Dining, Inc., Bruegger's Corporation,
Nordahl L. Brue and Michael J. Dressell, ("Share Exchange Agreement") the
Agreement and Plan of Merger by and among Quality Dining, Inc., Bagel
Disposition Corporation and Lethe, LLC, and certain other related agreements
entered into as part of the disposition of the Company's bagel-related
businesses, the Company is responsible for 50% of the first $14 million of
franchise related litigation expenses, inclusive of attorney's fees, costs,
expenses, settlements and judgments (collectively "Franchise Damages").
Bruegger's Corporation and certain of its affiliates are obligated to
indemnify the Company from all other Franchise Damages. The Company is
obligated to pay the first $3 million of its share of Franchise Damages in
cash. Through October 31, 1999, the Company had paid approximately $1.8
million in cash and assigned its $1.2 million note from BruWest to Bruegger's
Corporation which together have satisfied the Company's remaining obligation
to pay cash in respect of Franchise Damages. The remaining $4 million of the
Company's share of Franchise Damages is payable by crediting amounts owed to
the Company pursuant to the $10 million junior subordinated note issued to the
Company by Bruegger's Corporation. Through October 31, 1999, the outstanding
balance due under the junior subordinated note has been

                                      45
<PAGE>

                             QUALITY DINING, INC.

              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

reduced by $600,000 in respect of Franchise Damages. Based upon the currently
available information, the Company does not believe that these cases
individually or in the aggregate will have a material adverse effect on the
Company's financial position and results of operations but there can be no
assurance thereof. Such assessment is based in part upon the Company's belief
that Bruegger's Corporation has and will continue to have the ability to
perform its indemnity obligations.

   On or about September 10, 1999, Bruegger's Corporation, Lethe LLC, Nordahl
L. Brue, and Michael J. Dressel commenced an action against the Company in the
United States District Court for the District of Vermont alleging that the
Company breached various provisions of the Share Exchange Agreement which
arise out of the ongoing dispute concerning the net working capital adjustment
contemplated by the Share Exchange Agreement. Additionally on or about
September 13, 1999, Messrs. Brue and Dressell asserted a claim for breach of
representations and warranties under the Share Exchange Agreement. The Company
does not expect the ultimate resolution of these disputes to have a material
adverse effect on the Company's financial position or results of operations
but there can be no assurance thereof.

   James T. Bies filed a shareholder derivative action in the United States
District Court for the Southern District of Michigan on October 14, 1997. A
derivative action is an action on behalf of the Company in which any recovery
against the defendants would be payable to the Company. The complaint named as
defendants 12 individuals who are current or former directors or officers of
the Company. The complaint alleged that the individual defendants as directors
breached fiduciary duties to the Company by approving certain transactions in
1997 involving loans to Bagel Acquisition Corporation that allegedly benefited
Daniel B. Fitzpatrick, the Company's Chairman, President and Chief Executive
Officer. The plaintiff also alleged that individual defendants participated in
a "conspiracy to waste, dissipate, and improperly use funds, property and
assets" of the Company for the benefit of Bagel Acquisition Corporation and
Mr. Fitzpatrick. The plaintiff alleged that the Company and its shareholders
had been damaged in an amount in excess of $28,000,000. The relief sought also
included the appointment of a receiver, an accounting and attorney's fees. On
April 27, 1998, the Court dismissed the complaint without prejudice, for
failure to make a "demand" upon the Company's board of directors that the
Company institute the action. By letter dated May 12, 1998, Mr. Bies demanded
that the Company pursue these claims against the defendants. In accordance
with the Indiana Business Corporation Law ("IBCL"), the board of directors
appointed a special committee of three disinterested outside directors and one
other disinterested person to investigate the allegations. The three
disinterested outside directors are Messrs. Decio, Lewis and Murphy (named
defendants in the action) and the disinterested person is David T. Link, Dean
of the University of Notre Dame Law School. As required by the IBCL, the
special committee was charged with evaluating the claim and determining
whether it is in the best interests of the Company to pursue this matter.
Subsequent to the establishment of the special committee, Mr. Bies refiled his
action on July 30, 1998. As a result of its investigation of Mr. Bies' demand,
the special committee has determined that the claims identified by Mr. Bies
are without merit and therefore it would not be in the Company's best
interests to pursue them. As a result, on January 6, 1999, the special
committee filed a motion to dismiss or alternatively for summary judgment,
which was denied on April 20, 1999 essentially because the Court was unable to
determine, on the record before it, whether the special committee was
disinterested. The Court has denied the Company's subsequent request to
schedule an evidentiary hearing to assist in this determination. The Company
does not believe this matter will have a material adverse effect on the
Company's financial position or results of operations.

   The Company and certain of its executive officers were defendants in a
class action lawsuit filed in the United States District Court for the
Northern District of Indiana. The complaint alleged, among other things, that
the defendants violated Section 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended, and Rule 10b-5 thereunder by failing to disclose various
matters in connection with the Company's acquisition, development, financing
and disposition of its bagel-related businesses. The putative class period in
such action was from June 7, 1996 to May 13, 1997 on which dates the price of
the Company's common stock closed at

                                      46
<PAGE>

                             QUALITY DINING, INC.

              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

$34.25 and $6.56, respectively. The plaintiffs were seeking, among other
things, an award of unspecified compensatory damages, interest, costs and
attorney's fees. The Company filed a motion to dismiss the complaint which was
granted by the Court on September 28, 1999. The plaintiffs have not filed an
appeal and the period for filing an appeal has expired.

   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.

11. IMPAIRMENT OF LONG-LIVED ASSETS

   The Company recorded non-cash charges totaling $2,501,000 during the third
quarter of fiscal 1999 consisting primarily of $650,000 for the disposal of
obsolete point of sale equipment in its full service dining restaurants that
the Company identified as a result of installing its new point of sale system,
$1,047,000 for the estimated costs and losses associated with the anticipated
closing of two regional offices and three restaurant locations and $804,000
primarily for a non-cash asset impairment write down for two under-performing
restaurants. This non-cash asset impairment charge resulted from the Company's
determination that an impairment write down should be considered for certain
locations when there is a sustained trend of negative operating performance as
measured by restaurant level cash flow. The non-cash facility closure charges
include amounts for the write off of fixed assets and other costs related to
the closing of these facilities. Each of these non-cash charges represents a
reduction of the carrying amount of the assets to their estimated fair market
values. All facility closures were completed during the fourth quarter of
fiscal 1999 except for one restaurant which was closed early in fiscal 2000.

   The Company recorded a $250,000 non-cash impairment charge in fiscal 1998
in connection with its decision to sell a Grady's American Grill Restaurant.

   On May 10, 1997, the Company's Board of Directors committed the Company to
a plan of action to divest the Bruegger's bagel-related businesses. During the
second quarter of fiscal 1997 the Company recorded a non-cash impairment
charge of $185,000,000 and a store closing charge of $15,513,000 as a result
of this decision. The non-cash impairment charge represents a reduction of the
carrying amounts of bagel-related assets to their estimated fair values. The
impairment charge includes non-cash charges for the write-off of goodwill and
the write-down of notes receivable and property and equipment. During the
second quarter of fiscal 1997 the Company received non-binding offers to
purchase its bagel-related assets and used these offers, less estimated costs
to sell, to determine the current fair value of the bagel-related assets. On
October 20, 1997 the Company sold all its bagel-related assets and no further
charges were incurred.

   The store closing charge represents the estimated costs associated with
closing under-performing Bruegger's units and other Bruegger's units which
were at various stages of development when the decision was made to divest the
Bruegger's bagel-related businesses. The charge includes amounts for
terminating leases, the write-off of fixed assets and pre-opening costs,
restaurant management severance costs and other store closing costs. During
the third quarter of fiscal 1997 the Company closed a total of 22 Bruegger's
units in eight markets. As of October 31, 1999, $14,709,000 in costs related
to these activities had been incurred, of which $3,916,000 were cash payments
and $10,793,000 were non-cash charges, primarily for the write-down of fixed
assets. The remaining costs are primarily associated with terminating
occupancy leases which the Company expects to be substantially complete by the
end of fiscal 2000. The Company believes that the remaining reserve is
adequate to cover all future expenses relating to the closed stores.

                                      47
<PAGE>

                             QUALITY DINING, INC.

              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)


12. RELATED PARTY TRANSACTIONS

   The Company leases a substantial number of its Burger King restaurants from
entities that are substantially owned by certain directors, officers and
stockholders of the Company. Amounts paid for leases with these related
entities are as follows:

<TABLE>
<CAPTION>
                                                      Fiscal Year Ended
                                             -----------------------------------
                                             October 31, October 25, October 26,
                                                1999        1998        1997
                                             ----------- ----------- -----------
                                                   (Dollars in thousands)
      <S>                                    <C>         <C>         <C>
      Operating leases:
        Base rentals........................   $2,456      $2,513      $2,502
        Percentage rentals..................      456         451         349
                                               ------      ------      ------
                                                2,912       2,964       2,851
                                               ------      ------      ------
      Capitalized leases:
        Interest............................      725         761         793
        Reduction of lease obligations......      300         264         233
        Percentage rentals..................      222         246         192
                                               ------      ------      ------
                                                1,247       1,271       1,218
                                               ------      ------      ------
          Total.............................   $4,159      $4,235      $4,069
                                               ======      ======      ======
</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 1999, 1998
and 1997 were $14,000, $14,000 and $14,000, respectively.

   During the fiscal years 1999, 1998 and 1997, the Company made payments to
companies owned by certain directors, stockholders and officers of the Company
of $260,000, $185,000 and $327,000, respectively, for air transportation
services.

   During fiscal 1997 and fiscal 1996, the Company loaned a total of
$38,000,000 to Bagel Acquisition Corporation, a company owned by a director
and officer of the Company, which used the funds to acquire a number of
Bruegger's Bagel Bakeries from independent franchisees. Interest income
recognized by the Company on this note in fiscal 1997 was $1,317,000. The
interest income from the note was included as part of franchise related
revenue on the Consolidated Statement of Operations. In connection with the
Company's decision to divest its bagel-related businesses, the Company began
consolidating the assets and liabilities of Bagel Acquisition Corporation as
of May 11, 1997 and Bagel Acquisition Corporation became a wholly owned
subsidiary on August 21, 1997, when the Company exercised its option to
acquire the stock of Bagel Acquisition Corporation for $1,000. The note
receivable from Bagel Acquisition Corporation was eliminated as part of the
consolidation. As of May 11, 1997, the Company consolidated Bagel Acquisition
Corporation into its consolidated financial statements and recorded Bagel
Acquisition Corporation's revenues and expenses from May 11, 1997 to October
19, 1997.

   The Company and its Bruegger's concept transacted certain business
activities with Bagel Acquisition Corporation and certain other entities whose
principal shareholders were directors and/or officers of the Company. A
summary of these transactions for fiscal year 1997 included: purchases of
cream cheese $1,784,000; sales of bagels and related products $4,054,000;
royalties earned $4,485,000; marketing fees earned $2,016,000; installation of
point-of-sale registers $100,000; management, accounting, legal and computer
support services $677,000; and transaction fees $200,000.

                                      48
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


13. ACQUISITIONS AND DISPOSITIONS

   On October 20, 1997, the Company sold its bagel-related businesses to Mr.
Nordahl L. Brue, Mr. Michael J. Dressell and an entity controlled by them and
their affiliates. The sale included the stock of Bruegger's Corporation and
the stock of all of the other bagel-related businesses. The total proceeds
from the sale were $45,164,000. The consideration included the issuance by
Bruegger's Corporation of a junior subordinated note in the amount of
$10,000,000, which was recorded as $6,000,000 due to a $4,000,000 reserve for
legal indemnification, the transfer of 4,310,740 shares of the Company's
common stock valued at $21,823,000, owned by Messrs. Brue and Dressell, which
were retired, a receivable for purchase price adjustment of $500,000, and
$16,841,000 in cash. The subordinated note has an annual interest rate of 12%
and will mature in seven years. Interest will be accrued and added to the
principal amount of the note for the first three years and will be paid in
cash for the remaining life of the note. The Company will continue to review
the financial condition of Bruegger's based upon available information to
assess the collectability of the note. The cash component of the proceeds
included an adjustment for the calculation of the net working capital deficit.
The calculation used was subject to final adjustment and is being disputed by
Messrs. Brue and Dressell. The Company does not expect the ultimate resolution
of this dispute to have a material adverse effect on the Company's financial
position or results of operations but there can be no assurance thereof.

   Prior to the transaction, Messrs. Brue and Dressell were directors of the
Company and owned approximately 25% of the Company's common stock. In
connection with the sale of the bagel-related businesses, Mr. Nordahl L. Brue,
Mr. Michael J. Dressell and Mr. David T. Austin resigned from the Company's
Board of Directors.

14. SEGMENT REPORTING

   The Company adopted SFAS 131, "Disclosure about Segments of an Enterprise
and Related Information" (SFAS 131") in its fiscal year ending October 31,
1999.

   The Company operates four distinct restaurant concepts in the food-service
industry. It owns the Grady's American Grill and two Italian Dining concepts
and operates Burger King restaurants and Chili's Grill & Bar 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. For purposes of applying SFAS
131, the Company considers the Grady's American Grill, the two Italian
Concepts and Chili's Grill & Bar to be similar and have aggregated them into a
single reportable operating segment (Full Service). The Company considers the
Burger King restaurants as a separate reportable segment (Quick Service).

                                      49
<PAGE>

                             QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "other" column includes
corporate related items and income and expense not allocated to reportable
segments. The bagel-related companies, which were sold on October 27, 1997,
have been included in "other" for fiscal 1997.

<TABLE>
<CAPTION>
                                  Full       Quick
                                Service     Service      Other         Total
                                --------    -------    ---------     ---------
                                       (Dollars in thousands)
<S>                             <C>         <C>        <C>           <C>
Fiscal 1999
Revenues....................... $148,101    $82,650    $     --      $ 230,751
Income from restaurant
 operations(1).................   15,134     13,794          126        29,054
Operating income (loss)........    5,038(2)   6,731(3)    (2,160)(4) $   9,609
Interest expense...............                                         10,709
Other expense..................                                             42
                                                                     ---------
Loss before income taxes.......                                      $  (1,142)
                                                                     =========
Total assets...................  127,512     33,571       27,954     $ 189,037
Depreciation and amortization..    8,572      3,202        1,954        13,728
Fiscal 1998
Revenues....................... $151,853    $80,391    $     --      $ 232,244
Income from restaurant
 operations(1).................   16,048     13,559           12        29,619
Operating income (loss)........    8,014(5)   7,121       (2,339)    $  12,796
Interest expense...............                                         11,962
Other income...................                                            386
                                                                     ---------
Income before income taxes.....                                      $   1,220
                                                                     =========
Total assets...................  134,973     33,572       27,730     $ 196,275
Depreciation and amortization..    8,914      3,000        2,344        14,258
Fiscal 1997
Revenues....................... $152,653    $74,616    $  74,983     $ 302,252
Income from restaurant
 operations(1).................   14,420     12,275       (3,414)       23,281
Operating income (loss)........    6,569      5,752     (213,694)(6) $(201,373)
Interest expense...............                                         10,599
Other income...................                                            615
                                                                     ---------
Loss before income taxes.......                                      $(211,357)
                                                                     =========
Total assets...................  143,602     29,845       41,898     $ 215,345
Depreciation and amortization..    6,952      2,817       13,512        23,281
</TABLE>
--------
(1) Income from restaurant operations is restaurant sales minus total
    restaurant operating expenses.
(2) Includes charges for the impairment of assets and facility closing costs
    totaling $2,174,000.
(3) Includes charges for the impairment of assets and facility closing costs
    totaling $159,000.
(4) Includes charges for the impairment of assets and facility closing costs
    totaling $168,000.
(5) Includes charges for the impairment of assets totaling $250,000.
(6) Includes operating losses of the bagel-related companies and bagel-related
    charges of $200,813,000 for the impairment of assets and facility closing
    costs.

                                      50
<PAGE>

                              QUALITY DINING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


15. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

<TABLE>
<CAPTION>
                                                Year ended October 31, 1999
                                             ----------------------------------
                                              First  Second    Third    Fourth
                                             Quarter Quarter Quarter(1) Quarter
                                             ------- ------- ---------- -------
<S>                                          <C>     <C>     <C>        <C>
Total revenues.............................. $68,058 $53,709  $53,465   $55,519
Operating income ...........................   3,413   2,954      123     3,119
Income (loss) before income taxes...........     218     366   (2,136)      410
Net income (loss)........................... $    87 $   146  $(2,355)  $   165
                                             ======= =======  =======   =======
Basic net income (loss) per share........... $   .01 $   .01  $  (.19)  $  0.01
                                             ======= =======  =======   =======
Diluted net income (loss) per share......... $   .01 $   .01  $  (.19)  $  0.01
                                             ======= =======  =======   =======
Weighted average shares:
  Basic.....................................  12,599  12,599   12,712    12,759
  Diluted...................................  12,629  12,603   12,712    12,760

<CAPTION>
                                                Year ended October 25, 1998
                                             ----------------------------------
                                              First  Second    Third    Fourth
                                             Quarter Quarter  Quarter   Quarter
                                             ------- ------- ---------- -------
<S>                                          <C>     <C>     <C>        <C>
Total revenues.............................. $69,147 $55,838  $54,617   $52,642
Operating income ...........................   4,065   3,118    2,969     2,644
Income (loss) before income taxes...........     349     386      574       (89)
Net income (loss)........................... $   122 $   154  $   230   $  (393)
                                             ======= =======  =======   =======
Basic net income (loss) per share........... $   .01 $   .01  $   .02   $ (0.03)
                                             ======= =======  =======   =======
Diluted net income (loss) per share......... $   .01 $   .01  $   .02   $ (0.03)
                                             ======= =======  =======   =======
Weighted average shares:
  Basic.....................................  12,599  12,599   12,599    12,599
  Diluted...................................  12,663  12,749   12,601    12,599
</TABLE>
--------
(1) During the third quarter of fiscal 1999 the Company recorded asset
    impairment charges and a facility closing charge totaling $2,501,000.

                                       51
<PAGE>

                             QUALITY DINING, INC.

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Quality Dining, Inc.:

   In our opinion, the 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, 1999 and October 25, 1998 and
the results of their operations and their cash flows for each of the three
years in the period ended October 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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 the opinion expressed above.

                                          PricewaterhouseCoopers LLP

Chicago, Illinois
December 15, 1999

                                      52
<PAGE>

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
       FINANCIAL DISCLOSURE.

   There have been no changes in or disagreements with the Company's
independent accountants on accounting or financial disclosures.

                                   PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The information required by this Item concerning the Directors and nominees
for Director of the Company and concerning disclosure of delinquent filers is
incorporated herein by reference to the Company's definitive Proxy Statement
for its 2000 Annual Meeting of Shareholders, to be filed with the Commission
pursuant to Regulation 14A within 120 days after the end of the Company's last
fiscal year. Information concerning the executive officers of the Company is
included under the caption "Executive Officers of the Company" at the end of
Part I of this Annual Report. Such information is incorporated herein by
reference, in accordance with General Instruction G(3) to Form 10-K and
Instruction 3 to Item 401(b) of Regulation S-K.

Item 11. EXECUTIVE COMPENSATION

   The information required by this Item concerning remuneration of the
Company's officers and Directors and information concerning material
transactions involving such officers and Directors is incorporated herein by
reference to the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The information required by this Item concerning the stock ownership of
management and five percent beneficial owners is incorporated herein by
reference to the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information required by this Item concerning certain relationships and
related transactions is incorporated herein by reference to the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders which
will be filed pursuant to Regulation 14A within 120 days after the end of the
Company's last fiscal year.

                                      53
<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.


<TABLE>
 <C>    <S>
 (a) 1. Financial Statements:

        The following consolidated financial statements of the Company and its subsidiaries
        are set forth in
        Part II, Item 8.

        Consolidated Balance Sheets as of October 31, 1999 and October 25, 1998.

        Consolidated Statements of Operations for the fiscal years ended October 31, 1999,
        October 25, 1998 and October 26, 1997.

        Consolidated Statements of Stockholders' Equity for the fiscal years ended October
        31, 1999, October 25, 1998 and October 26, 1997.

        Consolidated Statements of Cash Flows for the fiscal years ended October 31, 1999,
        October 25, 1998 and October 26, 1997.

        Notes to Consolidated Financial Statements

        Report of Independent Accountants

     2. Financial Statement Schedules:

        None

     3. Exhibits:

    A list of exhibits required to be filed as part of this report is set
    forth in the Index to Exhibits, which immediately precedes such
    exhibits, and is incorporated herein by reference.

 (b)    Reports on Form 8-K
</TABLE>

    None.

                                       54
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                          Quality Dining, Inc.

                                               /s/ Daniel B. Fitzpatrick
                                          By___________________________________
                                                   Daniel B. Fitzpatrick
                                               President and Chief Executive
                                                          Officer

Date: January 25, 2000

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
             Signature                           Title                    Date
             ---------                           -----                    ----


<S>                                  <C>                           <C>
   /s/ Daniel B. Fitzpatrick         Chairman of the Board,         January 25, 2000
____________________________________  President, Chief Executive
       Daniel B. Fitzpatrick          Officer and Director
                                      (Principal Executive
                                      Officer)

      /s/ David M. Findlay           Chief Financial Officer and    January 25, 2000
____________________________________  Treasurer (Principal
          David M. Findlay            Financial Officer)

        /s/ Jeanne Yoder             Vice President, Controller     January 25, 2000
____________________________________  (Principal Accounting
            Jeanne Yoder              Officer)

    /s/ James K. Fitzpatrick         Senior Vice President, Chief   January 25, 2000
____________________________________  Development Officer and
        James K. Fitzpatrick          Director

      /s/ Arthur J. Decio            Director                       January 25, 2000
____________________________________
          Arthur J. Decio

    /s/ Ezra H. Friedlander          Director                       January 25, 2000
____________________________________
        Ezra H. Friedlander

      /s/ Steven M. Lewis            Director                       January 25, 2000
____________________________________
          Steven M. Lewis

 /s/ Christopher J. Murphy III       Director                       January 25, 2000
____________________________________
     Christopher J. Murphy III

</TABLE>

                                      55
<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                                          Page
                                                                         No. In
  Exhibit                                                                 This
    No.                            Description                           Filing
  -------                          -----------                           ------

 <C>       <S>                                                           <C>
 2-F       (1) Share Exchange Agreement, by and among Quality Dining,
               Inc., Bruegger's Corporation, Nordahl L. Brue and
               Michael J. Dressell, dated as of September 3, 1997.....
 2-G       (2) Agreement and Plan of Merger, by and among Quality
               Dining, Inc., Bagel Disposition Corporation and Lethe,
               LLC, dated as of September 3, 1997.....................
 3-A       (3) (i) Restated Articles of Incorporation of Registrant...
           (3) (ii) Amendment to Registrant's Restated Articles of
               Incorporation establishing the Series A Convertible
               Cumulative Preferred Stock of the Registrant...........
           (3) (iii) Amendment to Registrant's Restated Articles of
               Incorporation establishing the Series B Participating
               Cumulative Preferred Stock of the Registrant...........
 3-B           By-Laws of the Registrant, as amended to date..........
 4-A       (4) Form of Mortgage, Assignment of Rents, Fixture Filing
               and Security Agreement.................................
 4-B       (4) Form of Lease..........................................
 4-C       (4) Form of Promissory Note................................
 4-D       (4) Intercreditor Agreement by and among Burger King
               Corporation, the Company and Chase Bank of Texas,
               National Association, NBD Bank, N.A. and NationsBank,
               N.A. effective as of May 11, 1999......................
 4-E       (4) Intercreditor Agreement by and among Captec Financial
               Group, Inc., CNL Financial Services, Inc., Chase Bank
               of Texas, National Association and the Company dated
               August 3, 1999.........................................
 4-F       (4) Collateral Assignment of Lessee's Interest in Leases by
               and between Southwest Dining, Inc. and Chase Bank of
               Texas, National Association dated July 26, 1999........
 4-G       (4) Collateral Assignment of Lessee's Interest in Leases by
               and between Grayling Corporation and Chase Bank of
               Texas, National Association dated July 26, 1999........
 4-H       (4) Collateral Assignment of Lessee's Interest in Leases by
               and between Bravokilo, Inc. and Chase Bank of Texas,
               National Association dated July 26, 1999...............
 4-I       (4) Third Amended and Restated Revolving Credit Agreement
               dated as of May 11, 1999 by and between Quality Dining,
               Inc. and GAGHC, Inc., as Borrowers, Chase Bank of
               Texas, National Association, as Administrative Agent,
               NBD Bank, N.A., as Documentation Agent, NationsBank,
               N.A. (South) as Co-Agent, and LaSalle Bank, N.A., The
               Northern Trust Company, KeyBank National Association
               (successor in interest to Society National Bank),
               SunTrust Bank, Central Florida, N.A. (collectively the
               "Banks")...............................................
 4-J       (4) First Amendment to Third Amended and Restated Revolving
               Credit Agreement dated as of July 26, 1999 by and
               between Quality Dining, Inc., and GAGHC, Inc., as
               Borrowers and the Banks................................
 4-K       (4) Second Amendment to Third Amended and Restated
               Revolving Credit Agreement dated as of September 9,
               1999 by and between Quality Dining, Inc. and GAGHC,
               Inc., Banks which are Party thereto and Chase Bank of
               Texas, National Association............................
 4-L       (5) Rights Agreement, dated as of March 27, 1997, by and
               between Quality Dining, Inc. and KeyCorp Shareholder
               Services, Inc., with exhibits..........................
</TABLE>

                                       i
<PAGE>

<TABLE>
<CAPTION>
                                                                           Page
                                                                          No. In
  Exhibit                                                                  This
    No.                             Description                           Filing
  -------                           -----------                           ------

 <C>       <S>                                                            <C>
 10-A      (6) Form of Burger King Franchise Agreement.................
 10-B      (6) Form of Chili's Franchise Agreement.....................
 10-D      (4) Second Amendment to Development Agreement by and between
               Southwest Dining, Inc. and Brinker International, Inc.
               dated July 26, 1999.....................................
 10-E      (6) (i) Target Reservation Agreement between Burger King
               Corporation and the Registrant dated December 24, 1993;
               (ii) Side Letter Agreement to Target Reservation
               Agreement dated December 21, 1993.......................
 10-F      (6) Development Agreement between Chili's, Inc. and the
               Registrant dated June 27, 1990..........................
 10-G      (4) Employment Agreement between the Company and John C.
               Firth dated August 24, 1999.............................
 10-H      (7) *1997 Stock Option and Incentive Plan of the Registrant.
 10-I      (8) *1993 Stock Option and Incentive Plan, as amended of the
               Registrant..............................................
 10-J      (6) *Outside Directors Stock Option Plan of the Registrant..
 10-K      (6) Lease Agreement between B.K. Main Street Properties and
               the Registrant dated January 1, 1994....................
 10-L      (7) Schedule of Related Party Leases........................
 10-M      (6) Form of Related Party Lease.............................
 10-O          *1999 Outside Directors Stock Option Plan...............
 10-P      (7) *Letter Agreement between the Registrant and Patrick J.
               Barry dated August 30, 1996.............................
 10-Q      (4) Non Compete Agreement between the Company and James K.
               Fitzpatrick dated June 1, 1999..........................
 10-R      (4) Non Compete Agreement between the Company and Gerald O.
               Fitzpatrick dated June 1, 1999..........................
 10-S      (4) Non Compete Agreement between the Company and David M.
               Findlay dated June 1, 1999..............................
 10-T      (9) First Amendment dated May 2, 1995 to Development
               Agreement between Chili's, Inc. and the Registrant dated
               June 27, 1990...........................................
 10-U      (4) Non Compete Agreement between the Company and Robert C.
               Hudson dated June 1, 1999...............................
 10-V      (9) *Employment Agreement between the Registrant and William
               R. Schonsheck dated August 14, 1995.....................
 10-W      (9) Non-Competition Agreement between the Registrant and
               William R. Schonsheck dated August 14, 1995.............
 10-X      (9) Lease Agreement for Farmington Hills #509 between the
               Registrant and William R. Schonsheck dated August 14,
               1995....................................................
 10-Y      (9) Lease Agreement for Belleville #4814 between the
               Registrant and William R. Schonsheck dated August 14,
               1995....................................................
</TABLE>

                                       ii
<PAGE>

<TABLE>
<CAPTION>
                                                                          Page
                                                                         No. In
  Exhibit                                                                 This
    No.                            Description                           Filing
  -------                          -----------                           ------

 <C>       <S>                                                           <C>
 10-Z      (9)  Purchase and Sale Agreement between the Registrant and
                John D. Fitzpatrick dated July 10, 1995...............
 10-AD     (10) Priority Charter Agreement between the Registrant and
                Burger Management of South Bend #3 Inc., dated
                September 1, 1994.....................................
 10-AF     (10) Lease Agreement between the Registrant and Six Edison
                Lakes, L.L.C. dated September 19, 1996................
 10-AG     (11) Amended and Restated Priority Charter Agreement
                between the Registrant and Burger Management of South
                Bend #3 Inc., dated October 21, 1998..................
 10-AH     (4)  Agreement for Purchase of Options between the Company
                and Daniel B. Fitzpatrick dated June 1, 1999..........
 10-AI     (4)  Agreement for Purchase of Options between the Company
                and John C. Firth dated June 1, 1999..................
 10-AJ     (4)  Agreement for Purchase of Options between the Company
                and James K. Fitzpatrick dated June 1, 1999...........
 10-AK     (4)  Agreement for Purchase of Options between the Company
                and Gerald O. Fitzpatrick dated June 1, 1999..........
 10-AL     (4)  Agreement for Purchase of Options between the Company
                and David M. Findlay dated June 1, 1999...............
 10-AM     (4)  Agreement for Purchase of Options between the Company
                and Robert C. Hudson dated June 1, 1999...............
 10-AN     (4)  Agreement for Purchase of Options between the Company
                and Patrick J. Barry dated June 1, 1999...............
 10-AO     (4)  Agreement for Purchase of Options between the Company
                and Marti'n Miranda dated June 1, 1999................
 10-AP          Form of Agreement for Restricted Shares Granted under
                Quality Dining, Inc. 1997 Stock Option and Incentive
                Plan dated June 1, 1999 between the Company and
                certain executive officers identified on the schedule
                attached thereto......................................
 10-AQ          Severance Agreement and General Release between the
                Company and Marti'n Miranda dated January 14, 2000....
 10-AW          Severance Agreement and General Release between the
                Company and Michael J. Wargo dated October 1, 1999....
 10-AX     (4)  Consulting Agreement between the Company and William
                R. Schonsheck dated August 13, 1999...................
 10-AY          Form of Agreement for Restricted Shares Granted under
                Quality Dining, Inc. 1997 Stock Option and Incentive
                Plan dated December 15, 1999 between the Company and
                certain executive officers identified on the schedule
                attached thereto......................................
 10-AZ          Consulting and Resignation Agreement between the
                Company and Scott C. Smith dated November 1, 1999.....
 21             Subsidiaries of the Registrant........................
 23             Written consent of PricewaterhouseCoopers LLP.........
 27             Financial Data Schedule...............................
</TABLE>

                                      iii
<PAGE>

--------
  *  The indicated exhibit is a management contract, compensatory plan or
     arrangement required to be filed by Item 601 of Regulation S-K.
 (1) The copy of this exhibit filed as exhibit number 1 to Amendment No. 5 of
     Schedule 13D filed by Nordahl L. Brue, Michael J. Dressell, Steven P.
     Schonberg and David T. Austin, dated September 4, 1997, is incorporated
     herein by reference.
 (2) The copy of this exhibit filed as exhibit number 2 to Amendment No. 5 of
     Schedule 13D filed by Nordahl L. Brue, Michael J. Dressell, Steven P.
     Schonberg and David T. Austin, dated September 4, 1997, is incorporated
     herein by reference.
 (3) The copy of this exhibit filed as the same exhibit number to the Company's
     Registration Statement on Form 8-A filed on April 1, 1997 is incorporated
     herein by reference.
 (4) The copy of this exhibit filed as the same exhibit number to the Company's
     Quarterly Report on Form 10-Q for the quarterly period ended August 1,
     1999, is incorporated herein by reference.
 (5) The copy of this exhibit filed as Exhibit 10-AO to the Company's
     Registration Statement on Form 8-A filed on April 1, 1997 is incorporated
     herein by reference.
 (6) The copy of this exhibit filed as the same exhibit number to the Company's
     Registration Statement on Form S-1 (Registration No. 33-73826) is
     incorporated herein by reference.
 (7) The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-K for the year ended October 26, 1997 is incorporated
     herein by reference.
 (8) The copy of this exhibit filed as the same exhibit number to the Company's
     Quarterly Report on Form 10-Q for the quarterly period ended May 12, 1996
     is incorporated herein by reference.
 (9) The copy of this exhibit filed as the same exhibit number to the Company's
     Registration Statement on Form S-1 (Registration No. 33-96806) is
     incorporated herein by reference.
(10) The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-K for the year ended October 27, 1996 is incorporated
     herein by reference.
(11) The copy of this exhibit filed is the same exhibit number to the Company's
     Report on Form 10-K for the year ended October 25, 1998 is incorporated
     herein by reference.

                                       iv