<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
Max & Erma's Restaurants, Inc.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Max & Erma's Restaurants, Inc.
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(1)Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:________________________________________________
(2) Form, Schedule or Registration Statement No.: _________________________
(3) Filing Party:__________________________________________________________
(4) Date Filed:____________________________________________________________
<PAGE> 2
MAX & ERMA'S RESTAURANTS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held
MARCH 15, 1996
and
PROXY STATEMENT
IMPORTANT
Please mark, sign and date your proxy
and promptly return it in the enclosed envelope
<PAGE> 3
MAX & ERMA'S RESTAURANTS, INC.
P.O. BOX 297830
4849 EVANSWOOD DRIVE
COLUMBUS, OHIO 43229
(614) 431-5800
February 5, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Max & Erma's Restaurants, Inc. on March 15, 1996, at 2:30 p.m.,
at the Greater Columbus Convention Center, 400 North High Street, Columbus,
Ohio. We look forward to greeting those stockholders who are able to attend.
At the meeting, you are being asked to elect Mark F. Emerson,
Donald W. Kelley, and Michael D. Murphy for three-year terms as Class I members
of the Board of Directors, to ratify and approve the Company's 1996 Stock
Option Plan, and to ratify the selection of Deloitte & Touche LLP as the
Company's independent auditors for the 1996 fiscal year.
It is very important that your shares are represented and
voted at the meeting, whether or not you plan to attend. Accordingly, please
sign, date and return your proxy in the enclosed envelope at your earliest
convenience.
Your interest and participation in the affairs of the Company
are greatly appreciated. Thank you for your continued support.
Sincerely,
Todd B. Barnum
Chairman of the Board,
Chief Executive Officer and President
<PAGE> 4
MAX & ERMA'S RESTAURANTS, INC.
P.O. BOX 297830
4849 EVANSWOOD DRIVE
COLUMBUS, OHIO 43229
(614) 431-5800
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 15, 1996
February 5, 1996
To the Stockholders of
Max & Erma's Restaurants, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
of Max & Erma's Restaurants, Inc., a Delaware corporation (the "Company"), will
be held at the Greater Columbus Convention Center, 400 North High Street,
Columbus, Ohio, on the 15th day of March, 1996, at 2:30 p.m., local time, for
the following purposes:
1. To elect three Class I Directors, each for a term of three
years and until their successors are duly elected and
qualified.
2. To ratify and approve the Company's 1996 Stock Option
Plan.
3. To ratify the selection of Deloitte & Touche LLP as the
Company's independent public accountants for the 1996
fiscal year.
4. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Owners of Common Stock of the Company of record at the close
of business on January 26, 1996, will be entitled to vote at the meeting.
Whether or not you plan to attend the meeting, please date,
sign and mail the enclosed proxy in the envelope provided. Thank you for your
cooperation.
By Order of the Board of Directors
Todd B. Barnum
Chairman of the Board,
Chief Executive Officer and President
- -------------------------------------------------------------------------------
PLEASE SIGN AND MAIL THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
- --------------------------------------------------------------------------------
<PAGE> 5
MAX & ERMA'S RESTAURANTS, INC.
P.O. BOX 297830
4849 EVANSWOOD DRIVE
COLUMBUS, OHIO 43229
(614) 431-5800
February 5, 1996
PROXY STATEMENT FOR
1996 ANNUAL MEETING OF STOCKHOLDERS
INTRODUCTION
This Proxy Statement is furnished to the stockholders of Max & Erma's
Restaurants, Inc., a Delaware corporation (the "Company"), in connection with
the solicitation by the Board of Directors of the Company of proxies to be used
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on
March 15, 1996, and at any adjournment thereof, and is being mailed to the
stockholders on or about the date set forth above.
All shares represented by properly executed proxies received by the
Board of Directors pursuant to this solicitation will be voted in accordance
with the stockholder's directions specified on the proxy or, in the absence of
specific instructions to the contrary, will be voted in accordance with the
Board of Directors' unanimous recommendations, which are FOR the election of
Mark F. Emerson, Donald W. Kelley, and Michael D. Murphy as Class I Directors
of the Company; FOR ratification and approval of the Company's 1996 Stock
Option Plan; FOR the ratification of the selection of Deloitte & Touche LLP as
the independent public accountants of the Company for the 1996 fiscal year;
and, at the discretion of the persons acting under the proxy, to transact such
other business as may properly come before the meeting or any adjournment
thereof. A proxy may be revoked, without affecting any vote previously taken,
by written notice mailed to the Company (attention William C. Niegsch, Jr.) or
delivered in person at the meeting, by filing a duly executed, later dated
proxy, or by attending the meeting and voting in person.
-1-
<PAGE> 6
VOTING RIGHTS
Only stockholders of record at the close of business on January 26,
1996, are entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof. Each share so held entitles the holder thereof to one
vote upon each matter to be voted on. As of December 31, 1995, the Company had
outstanding 4,120,109 shares of Common Stock, $.10 par value. There are no
cumulative voting rights in the election of directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the only persons known by the Company
to be the beneficial owners of more than five percent (5%) of the outstanding
shares of Common Stock of the Company on December 31, 1995 (unless otherwise
noted):
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS(2)
------------------- --------------------- -----------
<S> <C> <C>
Todd B. Barnum
4849 Evanswood Drive
Columbus, Ohio 43229 447,918(3) 10.6%
Mark F. Emerson
4849 Evanswood Drive
Columbus, Ohio 43229 300,559(4) 7.3%
Roger D. Blackwell
3380 Tremont Road
Columbus, Ohio 43221 512,022(5) 12.4%
Roger Lipton
540 Madison Avenue
New York, New York 10022 268,805(6) 6.5%
</TABLE>
- ----------------------
(1) For purposes of the above table, a person is considered to "beneficially
own" any shares with respect to which he exercises sole or shared voting or
investment power or of which he has the right to acquire the beneficial
ownership within 60 days of December 31, 1995. Unless otherwise indicated,
voting power and investment power are exercised solely by the person named
above or shared with members of his household.
(2) "Percentage of Class" is calculated on the basis of the number of
outstanding shares plus the number of shares a person has the right to
acquire within 60 days of December 31, 1995.
(3) Includes 97,625 shares which Mr. Barnum has a right to purchase under
presently exercisable options. Also includes 402 shares owned by Mr.
Barnum's spouse and 21,450 shares owned by Mr. Barnum's children, as to
which Mr. Barnum disclaims beneficial ownership.
(4) Includes 11,000 shares which may be purchased under presently exercisable
options.
(5) Includes 20,350 shares which may be purchased under presently exercisable
options.
(6) Based on information supplied to the Company on November 28, 1995.
-2-
<PAGE> 7
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of December 31, 1995, the
beneficial ownership of the Company's Common Stock by each officer and/or
director of the Company and by all officers and directors as a group:
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS(2)
---------------- --------------------- -----------
<S> <C> <C> <C>
Todd B. Barnum 447,918(3) 10.6%
Mark F. Emerson 300,559(3) 7.3%
William C. Niegsch, Jr. 162,000(4) 3.9%
Karen A. Brennan 112,751(5) 2.7%
Gregory L. Heywood 62,901(6) 1.5%
William E. Arthur 59,253(7) 1.4%
Roger D. Blackwell 512,022(3) 12.4%
Donald W. Kelley 51,989(8) 1.3%
Robert A. Rothman 59,400(9) 1.4%
Michael D. Murphy -- 0.0%
All directors and officers
as a group (10 persons) 1,768,793(10) 40.1%
</TABLE>
- -------------------------
(1) For purposes of the above table, a person is considered to "beneficially
own" any shares with respect to which he exercises sole or shared voting or
investment power or of which he has the right to acquire the beneficial
ownership within 60 days of December 31, 1995. Unless otherwise indicated,
voting power and investment power are exercised solely by the person named
above or shared with members of his household.
(2) "Percentage of Class" is calculated on the basis of the number of
outstanding shares plus the number of shares a person has the right to
acquire within 60 days of December 31, 1995.
(3) See preceding table and notes thereto.
(4) Includes 52,250 shares which may be purchased under presently exercisable
options. Also includes 11,000 shares owned by Mr. Niegsch's spouse and
9,900 shares owned by Mr. Niegsch's children, as to which Mr. Niegsch
disclaims beneficial ownership.
(5) Includes 41,250 shares which may be purchased under presently exercisable
options.
(6) Includes 6,188 shares which may be purchased under presently exercisable
options.
(7) Includes 20,350 shares which may be purchased under presently exercisable
options. Also includes 31,572 shares owned by Mr. Arthur's spouse, as to
which Mr. Arthur disclaims beneficial ownership.
(8) Includes 20,350 shares which may be purchased under presently exercisable
options. Also includes 5,775 shares owned by Mr. Kelley's spouse, as to
which Mr. Kelley disclaims beneficial ownership and 11,201 shares owned by
a corporation controlled by Mr. Kelley.
(9) Includes 20,350 shares which may be purchased under presently exercisable
options. Also includes 2,475 shares owned by Mr. Rothman's spouse, as to
which Mr. Rothman disclaims beneficial ownership.
(10) Includes 289,713 shares which may be purchased pursuant to presently
exercisable options or warrants.
-3-
<PAGE> 8
ELECTION OF DIRECTORS
The Board of Directors has designated Mark F. Emerson, Donald W.
Kelley, and Michael D. Murphy as nominees for election as Class I Directors of
the Company to serve for terms of three years and until their successors are
duly elected and qualified. If for any reason any nominee should not be a
candidate for election at the time of the meeting, the proxies may be voted for
a substitute nominee at the discretion of those named as proxies. The Board of
Directors has no reason to believe that any nominee will be unavailable. The
shares represented by the enclosed proxy, if returned duly executed and unless
instructions to the contrary are indicated thereon, will be voted for the
nominees listed below. The affirmative vote of a majority of the votes
entitled to be cast by the holders of the Company's Common Stock present in
person or represented by proxy is required to elect each nominee. Abstentions
and broker non-votes are not counted in the election of directors and thus have
no effect.
The following table sets forth (i) the nominees for election as Class
I Directors of the Company, and (ii) the Class II and Class III Directors of
the Company whose terms in office will continue.
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NAME AND AGE SINCE PRINCIPAL OCCUPATION
------------ ------------ --------------------
<S> <C> <C>
NOMINEES - TERMS TO EXPIRE 1999 (CLASS I)
Mark F. Emerson, 48 1982 Chief Operating Officer
Donald W. Kelley, 66 1986 Owner of Donald W. Kelley & Associates, a
Columbus real estate appraisal and consulting
firm
Michael D. Murphy, 51 1995 Private Investor
CONTINUING DIRECTORS - TERMS TO EXPIRE 1997 (CLASS II)
Roger D. Blackwell, 55 1984 Professor of Marketing, The Ohio State
University
William C. Niegsch, Jr., 43 1982 Executive Vice President, Chief
Financial Officer, Treasurer and Secretary
Robert A. Rothman, 54 1982 President, Amusement Concepts, Inc., a
corporation engaged in the video and
electronic games business
Karen A. Brennan, 47 1988 Vice President, Marketing and Strategic
Development
CONTINUING DIRECTORS - TERMS TO EXPIRE 1998 (CLASS III)
William E. Arthur, 67 1982 Of Counsel, Porter, Wright, Morris & Arthur,
Attorneys at Law
Todd B. Barnum, 53 1982 Chairman of the Board, Chief Executive
Officer and President
</TABLE>
-4-
<PAGE> 9
INFORMATION CONCERNING BOARD OF DIRECTORS
During fiscal 1995, four meetings of the Board of Directors were held.
All directors attended 75% or more of the total Board of Directors' meetings.
The members of the Compensation Committee are Messrs. Arthur,
Blackwell, and Rothman. Its function is to recommend to the directors the
annual compensation of the five executive officers, the number and terms of any
stock options to be granted under the Company's stock option plans, and any
other actions or policies with respect to compensation. The Compensation
Committee met once during fiscal 1995. All Compensation Committee members
were in attendance at such meetings.
The members of the Audit Committee are Messrs. Kelley and Murphy. Its
function is to recommend to the directors a firm of accountants to serve as the
Company's auditors and to review with the independent auditors and the
appropriate corporate officers on matters relating to corporate financial
reporting and accounting procedures and policies, adequacy of financial,
accounting and operating controls, and the scope of the audit. The Audit
Committee met once during fiscal 1995. All Audit Committee members were in
attendance.
For 1995, each outside director was paid $1,250 per quarter. In
addition, in October 1995, each outside director was granted an option to
purchase 3,000 shares of Common Stock. Under the 1992 Stock Option Plan, each
director who is not an officer or employee of the Company is automatically
granted on each October 15th an option to purchase 3,000 shares of Common Stock
at fair market value on the date of grant. Such options are exercisable for a
four-year period beginning on the first anniversary of the date of grant. In
addition, upon his election to the Board of Directors, Mr. Murphy was granted
an option to purchase 3,300 shares of Common Stock at fair market value, as
adjusted for stock splits and stock dividends. Directors who are also
employees of the Company do not receive additional compensation for serving as
directors. All directors are reimbursed for any reasonable expenses incurred
in connection with their duties as directors of the Company.
The Company has entered into indemnification contracts with each of
its present directors, which contracts were ratified and authorized by the
stockholders on September 9, 1986. The indemnification contracts with the
directors (i) confirm the present indemnity provided to them by the Company's
By-laws and give them assurances that this indemnity will continue to be
provided despite future changes in the By-laws, and (ii) provide that, in
addition, the directors shall be indemnified to the fullest possible extent
permitted by law against all expenses (including attorneys' fees), judgments,
fines and settlement amounts, paid or incurred by them in any action or
proceeding, including any action by or in the right of the Company, on account
of their service as a director of the Company or as a director or officer of
any subsidiary of the Company or as a director or officer of any other company
or enterprise when they are serving in such capacities at the request of the
Company. No indemnity will be provided under the indemnification contract to
any director on account of willful misconduct or conduct which is adjudged to
have been knowingly fraudulent or deliberately dishonest.
Mr. Blackwell is also a director of Worthington Foods, Inc., Paul
Harris Stores, Inc., CheckPoint Systems, Inc., Intimate Brands, Inc., and the
Flex - Funds, each with a class of equity securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended.
-5-
<PAGE> 10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Rothman, a member of the Compensation Committee, owns a 40% equity
interest in Amusement Concepts, Inc. Mr. Rothman is President of Amusement
Concepts, Inc., which has exclusive licenses to install and operate
coin-operated amusement games in seven Max & Erma's restaurants. Under the
licenses, the restaurant owner receives a license fee equal to 50% of the gross
revenues generated by the games installed in the restaurant. All of the
licenses are presently on a year-to-year basis. The Company received game
revenues of $83,119 during the fiscal year ended October 29, 1995, under
various licenses with Amusement Concepts, Inc.
Mr. Arthur, a member of the Compensation Committee, is Of Counsel in
the law firm of Porter, Wright, Morris & Arthur, Columbus, Ohio, which firm
serves as general counsel to the Company.
The Company believes that the terms of all of the transactions and
existing arrangements set forth above are no less favorable to the Company, its
subsidiaries and affiliated partnerships than similar transactions and
arrangements which might have been entered into with unrelated parties.
EXECUTIVE COMPENSATION
The table below sets forth all compensation paid for each of the
Company's last three completed fiscal years ended October 29, 1995, to the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers. The Company has no other executive
officers who received compensation (based on salary and bonus) exceeding
$100,000.
-6-
<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------- ------------
(e) (i)
Other All
Annual Other
(a) (c) (d) Compen- (g) Compen-
Name and (b) Salary Bonus sation Options sation
Principal Position Year ($) ($)(1) ($)(2) (#) ($)(3)
---------------------- ---- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Todd B. Barnum 1995 $134,050 $120,000 $5,739 40,000 $22,570
Chairman, Chief Executive 1994 127,111 144,000 5,393 -- 22,570
Officer and President 1993 127,527 86,000 4,305 40,000 21,516
Mark F. Emerson 1995 $121,738 $ 60,000 $2,407 20,000 $ 6,264
Chief Operating Officer 1994 117,446 72,000 1,276 -- 6,264
1993 115,829 43,000 -- 20,000 6,264
William C. Niegsch, Jr. 1995 $104,712 $ 60,000 $2,181 20,000 $ 6,264
Executive Vice President, 1994 101,733 72,000 1,130 -- 6,264
Chief Financial Officer, 1993 100,309 43,000 -- 20,000 6,264
Treasurer and Secretary
Karen A. Brennan 1995 $ 81,440 $ 60,000 $1,881 20,000 $ 6,372
Vice President, Marketing 1994 77,954 72,000 948 -- 6,372
and Strategic Development 1993 76,403 43,000 -- 20,000 6,372
Gregory L. Heywood 1995 $ 71,539 $ 51,611 $1,160 -- --
Regional Vice President 1994 64,181 21,490 718 11,000 --
of Operations 1993 55,845 15,834 -- -- --
</TABLE>
- ------------------
(1) Amounts paid as bonuses are included for the year in which the bonus is
earned, whether or not it is paid in that year or in a subsequent year.
For the 1993 fiscal year, the Company paid an aggregate bonus to its four
senior officers comprised (calculated cumulatively) of one percent of net
income before tax from $1 to $600,000; five percent of net income before
tax from $600,001 to $1,200,000; ten percent of net income before tax from
$1,200,001 to $1,800,000 and 25% of net income before tax over $1,800,000.
For the 1994 fiscal year, the Company paid an aggregate bonus to its four
senior officers comprised (calculated cumulatively) of one percent of net
income before tax from $1 to $720,000; five percent of net income before
tax from $720,001 to $1,440,000; ten percent of net income before tax from
$1,440,001 to $2,160,000 and 25% of net income before tax over $2,160,000.
For the 1995 fiscal year, the Company paid an aggregate bonus to its four
senior officers comprised (calculated cumulatively) of one percent of net
income before tax from $1 to $860,000; five percent of net income before
tax from $860,001 to $1,720,000; ten percent of net income before tax from
$1,720,001 to $2,580,000 and 25% of net income before tax over $2,580,000.
The aggregate bonus was shared 40% by Mr. Barnum and 20% by each of Messrs.
Emerson and Niegsch and Ms. Brennan for each of the fiscal years. In
addition, for the 1994 and 1995 fiscal years, the Compensation Committee
capped the bonus pool at an amount equal to 100% and 115%, respectively, of
the aggregate base salaries of the four senior officers. Mr. Heywood's
bonus is based upon the performance of the restaurant and regional managers
reporting to him.
(2) The Company maintains a medical reimbursement plan which provides for the
reimbursement of substantially all of the uninsured medical and dental
expenses of the Chief Executive Officer and President of the Company and
his immediate family. The amount shown is the amount of reimbursements
made by the Company during the fiscal year. The amount shown also includes
amounts allocated for the 1995 and 1994 fiscal years to the executive
officer pursuant to the Company's 401(k) Plan, which became effective on
January 1, 1994, in amounts for Mr. Barnum of $3,390 and $1,667, Mr.
Emerson of $2,407 and $1,276, Mr. Niegsch of $2,181 and $1,130, Ms. Brennan
of $1,881 and $948, and Mr. Heywood of $1,160 and $718.
(3) Amounts shown represent the annual full amount of premiums paid by the
Company on split dollar life insurance policies on the lives of each of the
four senior officers. Premiums paid by the Company will be repaid from the
death benefit and the balance will be paid to the employee's beneficiaries.
In the event of termination of employment, other than for cause or on
death, the employee has the right to purchase the policy from the Company
for the Company's cash value; provided, however, that beginning in 1993,
ownership of the Company's cash value of the policy vests in the employee
at the rate of 10% per year, so that the employee will only be required to
pay the unvested portion of the Company's cash value on termination.
-7-
<PAGE> 12
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements dated December 12,
1984, with Messrs. Barnum, Emerson and Niegsch, and June 20, 1989, with Ms.
Brennan, pursuant to which each such executive officer, upon a change of
control of the Company, as defined, shall remain in the employ of the Company
for three years thereafter with the equivalent offices, responsibilities,
duties and salaries as were in effect prior to the change of control. Upon
termination of employment, the employees are restricted in their right to
compete with the Company and are prohibited from disclosing confidential
information of the Company.
STOCK OPTION PLANS
The Company's 1984 Incentive Stock Option Plan (the "Incentive Plan")
and 1984 Non-Statutory Stock Option Plan (the "Non-Statutory Plan") were
terminated in December 1992 after adoption of the 1992 Stock Option Plan.
Options to purchase 208,000 shares granted under the Incentive Plan and options
to purchase 55,000 shares granted under the Non-Statutory Plan, however, remain
outstanding.
The Company's 1992 Stock Option Plan provides for the issuance of
options to purchase up to 412,500 shares of the Common Stock, $.10 par value
per share, of the Company, subject to adjustment for stock splits and other
changes in the Company's capitalization, which options either meet the
requirements of Section 422A of the Internal Revenue Code of 1986, as amended
("Incentive Options"), or do not meet such requirements ("Nonqualified
Options"). Key employees of the Company, officers and directors of the Company
and certain other persons who provide services to the Company are eligible to
receive options under the 1992 Stock Option Plan. Options are granted to
persons selected by the Compensation Committee of the Company's Board of
Directors (the "Committee"). Except for options automatically granted to
outside directors, the Committee determines the number of shares subject to
option, the exercise price and exercise period of such option and whether the
option is intended to be a Nonqualified Option or an Incentive Option. The
Committee also has the discretion under the 1992 Stock Option Plan to make cash
grants to optionholders that are intended to offset a portion of the taxes
payable upon the exercise of Nonqualified Options or upon certain dispositions
of shares acquired under Incentive Options. The tables set forth below provide
additional information with respect to the grants and exercises of stock
options by the five executive officers of the Company. As of December 31,
1995, the Company has granted options for 341,450 shares of Common Stock of
which none have been exercised.
-8-
<PAGE> 13
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (f)
--------------------------------------------- POTENTIAL REALIZABLE VALUE
(c) AT ASSUMED ANNUAL RATES
% OF TOTAL OF STOCK PRICE APPRECIATION
OPTIONS FOR OPTION TERM(3)
GRANTED ---------------------------
(b) TO (d)
OPTIONS EMPLOYEES EXERCISE (e)
(a) GRANTED IN FISCAL PRICE EXPIRATION
NAME (#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
- ----------------------- ------- --------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Todd B. Barnum 11,000 7.6% $8.00 10/23/00 $21,856 $50,624
10,000 7.0 9.00 10/23/01 14,862 48,625
10,000 7.0 10.00 10/23/02 10,106 52,487
9,000 6.2 11.00 10/23/03 5,050 51,962
------- -------
51,874 193,698
Mark F. Emerson 5,000 3.5% $8.00 10/23/00 $9,935 $23,011
5,000 3.5 9.00 10/23/01 7,431 24,312
5,000 3.5 10.00 10/23/02 5,053 26,244
5,000 3.5 11.00 10/23/03 2,806 28,868
------- -------
25,225 102,435
William C. Niegsch, Jr. 5,000 3.5% $8.00 10/23/00 $9,935 $23,011
5,000 3.5 9.00 10/23/01 7,431 24,312
5,000 3.5 10.00 10/23/02 5,053 26,244
5,000 3.5 11.00 10/23/03 2,806 28,868
------- -------
25,225 102,435
Karen A. Brennan 5,000 3.5% $8.00 10/23/00 $9,935 $23,011
5,000 3.5 9.00 10/23/01 7,431 24,312
5,000 3.5 10.00 10/23/02 5,053 26,244
5,000 3.5 11.00 10/23/03 2,806 28,868
------- -------
25,225 102,435
Gregory L. Heywood -- -- -- -- -- --
</TABLE>
- ---------------------------
(1) With respect to the four options granted to each of Messrs. Barnum,
Emerson, and Niegsch and Ms. Brennan, the first option in each series first
becomes exercisable on October 23, 1996, and each successive option in each
series first becomes exercisable on October 23 of 1997, 1998, and 1999,
respectively. Options not exercisable as of the date of a change in
control of the Company will become exercisable immediately as of such date.
Options not yet exercised are cancelled after 30 days following termination
of employment other than by death or for cause. In the event of
termination of employment by death, the option may be exercised for up to
one year but not later than the expiration date. Options not yet exercised
are immediately cancelled upon the termination of employment for cause.
Generally, the exercise price of options may be paid for in cash or in
shares of Common Stock of the Company with the consent of the Committee.
In addition, any tax which the Company is required to withhold in
connection with the exercise of any stock option may be satisfied by the
optionholder by electing, with the consent of the Committee, to have the
number of shares to be delivered on the exercise of the option reduced by,
or otherwise by delivering to the Company, such number of shares of Common
Stock having a fair market value equal to the amount of the withholding
requirements.
(2) In all cases, the exercise price was equal to or greater than the closing
market price of the underlying shares on the date immediately prior to the
date of grant.
(3) The assumed rates of growth were selected by the Securities and Exchange
Commission for illustration purposes only and are not intended to predict
or forecast future stock prices.
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<PAGE> 14
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
(e)
Value of
(d) Unexercised
Number of In-the-Money
Unexercised Options at
(b) (c) Options at FY-End(#) FY-End($)(1)
Shares Value
(a) Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Todd B. Barnum -- -- 97,625/62,000 $358,492/0
Mark F. Emerson -- -- 11,000/31,000 3,042/0
William C. Niegsch, Jr. -- -- 52,250/31,000 192,084/0
Karen A. Brennan -- -- 41,250/31,000 137,007/0
Gregory L. Heywood 2,750 $15,844 6,188/11,000 28,358/0
</TABLE>
- -------------------------
(1) As of October 29, 1995, not all unexercised options that were exercisable
were in-the-money, meaning that the fair market value of the underlying
securities exceeded the exercise price of the option at that date.
The following Board Compensation Committee Report on Executive
Compensation and Performance Graph will not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any of the Company's filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and will not
otherwise be deemed filed under such Acts.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee reviews and evaluates individual senior
executive officers and determines the compensation for each. In general,
compensation is designed to attract and retain qualified key executives, reward
individual performance, relate compensation to Company goals and objectives and
enhance shareholder value.
Compensation for the executive officers includes base salary, bonus
and stock option awards. Base salary is reviewed annually in light of the
Committee's perception of individual performance, performance of the Company as
a whole and industry analysis and comparison. No specific weight is given to
any of these factors in the evaluation of an executive officer's base salary.
However, since 1991, the Committee has felt that a significant portion of each
senior executive officer's compensation should be in the form of bonuses based
upon Company performance. Accordingly, since 1991, base salaries have been
adjusted only for approximate increases in the cost of living. Executive
officers' base salaries generally correspond to the low end of industry and
similarly sized public company salaries as reported in local business and trade
publications.
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<PAGE> 15
Beginning for fiscal 1991, a formula was established in advance for
determining the amount of bonus to be paid to the Company's senior officers.
In 1992, that formula was modified to allow for the creation of a bonus pool.
The dollar amount of the pool, shared 40% by Mr. Barnum and 20% by each of
Messrs. Emerson and Niegsch and Ms. Brennan, was originally equal to 1% of the
first $500,000 in pre-tax earnings; 5% of the next $500,000; 10% of the next
$500,000 and 25% of pre-tax earnings in excess of $1,500,000. In line with the
Committee's established goal of a 20% annual growth in earnings, the
breakpoints for each earnings increment in the bonus formula was increased 20%
for 1993, 1994, and 1995. For fiscal 1996, the increments will again be
increased 20% to 1% of pre-tax earnings up to $1,032,000; 5% of pre-tax
earnings between $1,032,001 and $2,064,000; 10% of pre-tax earnings between
$2,064,001 and $3,095,000 and 25% of pre-tax earnings in excess of $3,095,000.
In addition, for 1994, 1995, and 1996, the Committee capped the bonus pool at
an amount equal to 100%, 115%, and 125%, respectively, of the aggregate base
salaries of the four senior officers. Since adoption of this bonus formula,
net income has grown from $429,000 in 1991 to $2.1 million in 1995. Mr.
Heywood's bonus is based upon the performance of the restaurant and regional
managers reporting to him.
The Committee also awards stock options to executive officers to
encourage share ownership and to give them a stake in the performance of the
Company's stock. Stock option awards are considered annually. The specific
number of stock options granted to individual executive officers is determined
by the Committee's perception of relative contributions or anticipated
contributions to overall corporate performance. The Committee also reviews the
total number of options already held by individual executive officers at the
time of grant.
Compensation for Mr. Barnum, the Company's CEO, during the 1995 fiscal
year included salary and bonus. Mr. Barnum's base salary was determined by
reviewing the previous level of his base salary, industry analysis and
comparison and increases in the cost of living. No specific weight was given
to any of these factors in the evaluation of Mr. Barnum's base salary. Mr.
Barnum's bonus was determined solely by the formula established in advance for
determining executive officers' bonuses.
Stock options were awarded to Mr. Barnum in 1995 primarily to
encourage future long-term appreciation in the Company's stock price. This was
done by granting a series of options, exercisable from one year to four years
after the date of grant at prices increasing from 102% of the market price at
the date of grant to 140% of the market price at the date of grant.
Compensation Committee:
William E. Arthur
Roger D. Blackwell
Robert A. Rothman
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<PAGE> 16
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
- ---------------------------FISCAL YEAR ENDING-------------------------------
COMPANY 1990 1991 1992 1993 1994 1995
MAX & ERMA'S RESTAURANT, INC. 100 90.91 136.36 253.79 257.58 231.06
INDUSTRY INDEX 100 147.74 187.60 230.80 218.40 264.28
BROAD MARKET 100 127.20 123.22 161.70 171.91 203.93
The above Performance Graph compares the performance of the
Company with that of the NASDAQ Market Index and a Peer Group Index, which
is an index of SIC Code 5812 - Eating Places. Both the NASDAQ Market Index and
the Peer Group Index include stocks of companies that were public as of October
29, 1995, and during the entire five-year period illustrated on the Performance
Graph.
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<PAGE> 17
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and greater than 10%
shareholders, to file reports of ownership and changes in ownership of the
Company's securities with the Securities and Exchange Commission. Copies of
the reports are required by SEC regulation to be furnished to the Company.
Based on its review of such reports and written representations from reporting
persons, the Company believes that all filing requirements were complied with
during fiscal 1995.
CERTAIN TRANSACTIONS
Mr. Donald Kelley and a third party are general partners of a
partnership which owns and leases the land and building in which the Max &
Erma's restaurant in Dublin, Ohio is located. The property is leased at an
annual rent equal to the greater of $146,178 or 5% of gross sales, plus taxes,
utilities, insurance and other expenses relating to the leased premises, under
a lease expiring December 11, 2009, subject to three five-year renewal options.
Mr. Rothman owns a 40% equity interest in, and is President of,
Amusement Concepts, Inc., which has exclusive licenses to install and operate
coin-operated amusement games in seven Max & Erma's restaurants. Under the
licenses, the restaurant owner receives a license fee equal to 50% of the gross
revenues generated by the games installed in the restaurant. All of the
licenses are presently on a year-to-year basis. The Company received games
revenues of $83,119 during the fiscal year ended October 29, 1995, under the
various licenses with Amusement Concepts, Inc.
Mr. Arthur, a director of the Company, is Of Counsel in the law firm
of Porter, Wright, Morris & Arthur, Columbus, Ohio, which firm serves as
general counsel to the Company.
The Company believes that the terms of all of the transactions and
existing arrangements set forth above are no less favorable to the Company, its
subsidiaries and affiliated partnerships than similar transactions and
arrangements which might have been entered into with unrelated parties.
RATIFICATION AND APPROVAL OF
THE COMPANY'S 1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan was adopted by the Board of
Directors on December 12, 1995, subject to approval by the stockholders. The
1996 Stock Option Plan provides for the grant of options to purchase up to an
aggregate of 400,000 shares of the Common Stock of the Company (subject to
adjustment for stock splits and stock dividends). The options may either meet
the requirements of Section 422 ("Incentive Options") of the Internal Revenue
Code of 1986, as amended (the "Code"), or not meet such requirements
("Nonqualified Options"). Key employees, officers, and directors of, and
consultants and advisors who render services to, the Company are eligible to
receive options under the 1996 Stock Option Plan. As of December 31, 1995,
there were 10 officers and directors, 80 additional key employees, and an
indeterminable number of consultants and advisors who are eligible to receive
options under the 1996 Stock Option Plan.
-13-
<PAGE> 18
The 1996 Stock Option Plan is administered by the Compensation
Committee (the "Committee") which consists of directors who are not employees
of the Company. The members of the Committee and all other independent members
of the Board of Directors are only eligible to receive options under the 1996
Stock Option Plan pursuant to a formula set forth in the 1996 Stock Option Plan
which provides that, on October 15 of each year, each director who is not an
employee of the Company will be granted a Nonqualified Option to purchase 3,000
shares of the Company's Common Stock. There are currently five independent
directors eligible to receive options pursuant to the 1996 Stock Option Plan on
October 15, 1996. Directors who are not employees of the Company are not
eligible to receive any other options under the 1996 Stock Option Plan.
With respect to all other eligible persons, the Committee is
authorized to determine to whom and at what time options may be granted. The
Committee determines the number of shares subject to option, the duration of
the option, the per share exercise price, the rate and manner of exercise, and
whether the option is intended to be a Nonqualified Option or an Incentive
Option. An Incentive Option may not have an exercise price less than fair
market value of the Common Stock on the date of grant or an exercise period
that exceeds ten years from the date of grant and is subject to certain other
limitations which allow the optionholder to qualify for favorable tax
treatment. None of these restrictions applies to the grant of Nonqualified
Options, which may have an exercise price less than the fair market value of
the underlying Common Stock on the date of grant and may be exercisable for an
indeterminate period of time. The Committee also has the discretion under the
1996 Stock Option Plan to make cash grants to option holders that are intended
to offset a portion of the taxes payable upon exercise of Nonqualified Options
or on certain dispositions of shares acquired under Incentive Options.
The exercise price of the option may be paid in cash or, with the
consent of the Committee, (i) with previously acquired shares of Common Stock
valued at their fair market value on the date they are tendered, (ii) delivery
of a full recourse promissory note, the terms and conditions of which will be
determined by the Committee, (iii) any combination of the foregoing, or (iv) by
delivery of written instructions to forward the notice of exercise to a broker
or dealer and to deliver to a specified account a certificate for the shares
purchased upon exercise of the option and a copy of irrevocable instructions to
the broker or dealer to deliver the purchase price of the shares to the
Company.
Any option granted under the 1996 Stock Option Plan will terminate
automatically (i) 30 days after an employee's termination of employment with
the Company (other than by reason of death or disability or for cause), and
(ii) one year after the employee's death or termination of employment by reason
of disability, unless the option expires earlier by its terms. Options not
exercisable as of the date of a change in control of the Company will become
exercisable immediately as of such date. Options granted under the 1996 Stock
Option Plan are not transferable except by will or the laws of descent and
distribution. The 1996 Stock Option Plan terminates on December 12, 2005,
unless earlier terminated by the Board of Directors.
The Board of Directors may amend or modify the 1996 Stock Option Plan
at any time, provided that (a) no amendment may be made to the 1996 Stock
Option Plan which would cause the Incentive Options granted thereunder to fail
to qualify as incentive stock options under the Code; and (b) any amendment
which requires the approval of the stockholders of the Company under the Code
or Section 16 of the Securities Exchange Act of 1934, as amended, or the
regulations promulgated thereunder, will be subject to such approval in
accordance with the applicable law or
-14-
<PAGE> 19
regulations. No amendment, modification, or termination of the 1996 Stock
Option Plan may in any manner adversely affect any option previously granted
under the 1996 Stock Option Plan without the consent of the optionholder or a
permitted transferee of such optionholder.
The grant of an Incentive Option or a Nonqualified Option has no
immediate tax consequence to the optionholder or to the Company. The exercise
of an Incentive Option will generally have no immediate tax consequence to the
optionholder (except to the extent it is an adjustment in computing
alternative minimum taxable income) or to the Company. The exercise of a
Nonqualified Option will cause the optionholder to recognize ordinary income
in an amount equal to the excess of the fair market value on the date of the
exercise of the shares of Common Stock acquired pursuant to the exercise of the
Nonqualified Option ("Nonqualified Shares") over the exercise price. The
Company is entitled to a deduction for the amount included in the
optionholder's income.
Upon the sale of shares acquired pursuant to the exercise of an
Incentive Option ("Incentive Shares") after the required holding period, no
deduction will be allowable to the Company and the optionholder will generally
realize long-term capital gain or loss in an amount equal to the difference
between amount realized upon the sale and the exercise price of the Incentive
Shares. If, however, an optionholder disposes of the Incentive Shares prior
to the expiration of the required holding period (a "disqualifying
disposition"), the optionholder will recognize ordinary income, and the
Company will be entitled to a deduction, equal to the excess of the fair
market value of the Incentive Shares on the date of exercise (or the proceeds
of the disposition, if less) over the exercise price. If the amount realized
upon the disqualifying disposition exceeds the fair market value of the
Incentive Shares on the date of exercise, such excess is taxable to the
optionholder as capital gain income. Upon the sale of Nonqualified Shares, the
optionholder will generally realize long or short term capital gain or loss
(depending upon the holding period of the shares) in an amount equal to the
difference between the optionholder's tax basis in the Nonqualified Shares and
the amount realized on the sale.
The optionholder's tax basis in the Incentive Shares and Nonqualified
Shares will be the exercise price plus the amount of any ordinary income
recognized by the optionholder. The optionholder's holding period will
commence on the date that the Incentive Shares or Nonqualified Shares are
transferred to him or her.
Ratification and approval of the Company's 1996 Stock Option Plan
requires the affirmative vote of the holders of a majority of the shares of
Common Stock voting on the matter. The Board of Directors recommends a vote
FOR ratification and approval of the Company's 1996 Stock Option Plan.
Abstentions have the same effect as votes cast against ratification, and broker
non-votes have no effect. Unless a contrary choice is specified, proxies
solicited by the Board of Directors will be voted for ratification and
approval of the Company's 1996 Stock Option Plan.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected, subject to the approval of the
stockholders of the Company, Deloitte & Touche LLP as independent public
accountants for the Company for the fiscal year ending October 27, 1996. It is
intended that persons acting under the accompanying proxy will
-15-
<PAGE> 20
vote the shares represented thereby in favor of ratification of such
appointment. It is anticipated that representatives of Deloitte & Touche LLP
will be present at the Annual Meeting to respond to appropriate questions and
to make a statement if such representatives so desire. Deloitte & Touche LLP
has performed audits of the Company's financial statements since 1980.
Ratification of the selection of the independent public accountants
requires the affirmative vote of the holders of a majority of the shares of
Common Stock voting on the matter. The Board of Directors recommends a vote
FOR ratification of the selection of the independent public accountants.
Abstentions have the same effect as votes cast against ratification, and broker
non-votes have no effect. Unless a contrary choice is specified, proxies
solicited by the Board of Directors will be voted for ratification of the
selection of the public accountants.
REPORTS TO BE PRESENTED AT THE MEETING
There will be presented at the meeting the Company's Annual Report to
Stockholders for the fiscal year ended October 29, 1995, containing financial
statements for such year and the signed opinion of Deloitte & Touche LLP,
independent public accountants, with respect to such financial statements. The
Annual Report is not to be regarded as proxy soliciting material and management
does not intend to ask, suggest or solicit any action from the stockholders
with respect to such report.
COST OF SOLICITATION OF PROXIES
The cost of this solicitation will be paid by the Company. In
addition to the solicitation of proxies by mail, the directors, officers and
employees of the Company may solicit proxies personally or by telephone or
telegraph. The Company may request persons holding shares in their names for
others to forward soliciting materials to their principals to obtain
authorization for the execution of proxies, and the Company may reimburse such
persons for their expenses in doing so. The Company may also retain a
professional proxy solicitation firm to assist in the solicitation of proxies
at a maximum total cost to be borne by the Company of $10,000 plus
out-of-pocket expenses.
STOCKHOLDER PROPOSALS
Each year the Board of Directors submits its nominations for election
of directors at the Annual Meeting of Stockholders. Other proposals may be
submitted by the Board of Directors or the stockholders for inclusion in the
Proxy Statement for action at the Annual Meeting. Any proposal submitted by a
stockholder for inclusion in the Proxy Statement for the Annual Meeting of
Stockholders to be held in 1997 must be received by the Company (addressed to
the attention of the Secretary) on or before November 30, 1996. To be
submitted at the meeting, any such proposal must be a proper subject for
stockholder action under the laws of the State of Delaware, and must otherwise
conform to applicable requirements of the proxy rules of the Securities and
Exchange Commission.
-16-
<PAGE> 21
OTHER MATTERS
The only business which the management intends to present at the
meeting consists of the matters set forth in this statement. The management
knows of no other matters to be brought before the meeting by any other person
or group. If any other matter should properly come before the meeting, the
proxy holders will vote thereon in their discretion.
All proxies received duly executed will be voted. You are requested
to sign and date the enclosed proxy and mail it promptly in the enclosed
envelope. If you later desire to vote in person, you may revoke your proxy,
either by written notice to the Company or in person at the meeting, without
affecting any vote previously taken.
BY ORDER OF THE BOARD OF DIRECTORS
TODD B. BARNUM
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
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<PAGE> 22
MAX & ERMA'S RESTAURANTS, INC.
P.O. Box 297830, 4849 Evanswood Drive
Columbus, Ohio 43229
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 15, 1996
The undersigned hereby appoints TODD B. BARNUM and WILLIAM C. NIEGSCH, JR.,
or either of them, my attorneys and proxies, with full power of substitution, to
vote at the annual meeting of stockholders of said corporation to be held on
March 15, 1996, and at any adjournment thereof, with all of the powers I would
have if personally present, for the following purposes:
1. ELECTION OF CLASS I DIRECTORS.
/ / FOR all nominees listed below (except as marked to the contrary).
/ / WITHHOLD AUTHORITY to vote for all nominees below.
(INSTRUCTIONS: Do not check "WITHHOLD AUTHORITY" to vote for only certain
individual nominees. To withhold authority to vote for any individual
nominee, strike a line through the nominee's name below and check "FOR").
Mark F. Emerson Donald W. Kelley Michael D. Murphy
2. RATIFICATION AND APPROVAL OF THE COMPANY'S 1996 STOCK OPTION PLAN.
FOR / / AGAINST / / ABSTAIN / /
3. RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS AUDITORS FOR THE
CURRENT FISCAL YEAR.
FOR / / AGAINST / / ABSTAIN / /
(Continued on Other Side)
4. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENT THEREOF.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, AND 3.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders dated February 5, 1996, the Proxy Statement furnished therewith,
and the Annual Report to Stockholders of the Company for the fiscal year ended
October 29, 1995. Any proxy heretofore given to vote said shares is hereby
revoked.
Dated: , 1996
---------------------------------
(Signature)
---------------------------------
(Signature)
Signature(s) shall agree with the
name(s) printed on this proxy. If
shares are registered in two
names, both stockholders should
sign this proxy.
If signing as attorney, executor,
administrator, trustee or
guardian, please give your full
title as such.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
