<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
MAX & ERMA'S RESTAURANTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of Securities to which transaction applies:
_______________________________________________________________
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 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
_______________________________________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
5) Total fee paid:
_______________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_______________________________________________________________
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
APRIL 10, 1997
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 20, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Max & Erma's Restaurants, Inc. on April 10, 1997, at 2:30 p.m.,
at the Hyatt Regency Columbus 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 Roger D. Blackwell,
William C. Niegsch, Jr., and Robert A. Rothman for three-year terms as Class II
members of the Board of Directors and to ratify the selection of Deloitte &
Touche LLP as the Company's independent auditors for the 1997 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 APRIL 10, 1997
February 20, 1997
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 Hyatt Regency Columbus at the Greater Columbus Convention Center,
400 North High Street, Columbus, Ohio, on the 10th day of April, 1997, at 2:30
p.m., local time, for the following purposes:
1. To elect three Class II Directors, each for a term
of three years and until their successors are duly
elected and qualified.
2. To ratify the selection of Deloitte & Touche LLP as
the Company's independent public accountants for the
1997 fiscal year.
3. 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 February 12, 1997, 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 20, 1997
PROXY STATEMENT FOR
1997 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 April
10, 1997, 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
Roger D. Blackwell, William C. Niegsch, Jr., and Robert A. Rothman as Class II
Directors of the Company; FOR the ratification of the selection of Deloitte &
Touche LLP as the independent public accountants of the Company for the 1997
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.
VOTING RIGHTS
Only stockholders of record at the close of business on February 12,
1997, 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, 1996, the Company had
outstanding 4,169,337 shares of Common Stock, $.10 par value. There are no
cumulative voting rights in the election of directors.
<PAGE> 6
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, 1996 (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 417,757(3) 9.9%
Mark F. Emerson
4849 Evanswood Drive
Columbus, Ohio 43229 315,108(4) 7.5%
Roger D. Blackwell
3380 Tremont Road
Columbus, Ohio 43221 515,022(5) 12.3%
Roger Lipton
399 Park Avenue
New York, New York 10022 275,805(6) 6.6%
Wellington Management Company
75 State Street
Boston, Massachusetts 02109 404,415(7) 9.7%
<FN>
_________________________
(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, 1996.
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, 1996.
(3) Includes 64,625 shares which Mr. Barnum has a right to purchase under
presently exercisable options. Also includes 402 shares owned by Mr.
Barnum's spouse, as to which Mr. Barnum disclaims beneficial ownership.
(4) Includes 21,500 shares which may be purchased under presently
exercisable options.
(5) Includes 16,475 shares which may be purchased under presently
exercisable options.
(6) Based on information supplied to the Company on November 27, 1996.
(7) Based on Schedule 13G filed with the Securities and Exchange Commission
on January 31, 1996.
</TABLE>
-2-
<PAGE> 7
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of December 31, 1996, 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>
Todd B. Barnum 417,757(3) 9.9%
Mark F. Emerson 315,108(3) 7.5%
Bonnie J. Brannigan 166 0.0%
William C. Niegsch, Jr. 168,280(4) 4.0%
Karen A. Brennan 108,031(5) 2.6%
Gregory L. Heywood 61,210(6) 1.5%
Larry B. Fournier 12,350(7) .3%
William E. Arthur 56,253(8) 1.3%
Roger D. Blackwell 515,022(3) 12.3%
Donald W. Kelley 54,989(9) 1.3%
Robert A. Rothman 62,400(10) 1.5%
Michael D. Murphy 6,500(11) 0.2%
Thomas R. Green 8,549(12) 0.2%
All directors and officers
as a group (13 persons) 1,786,615(13) 40.7%
_____________________
<FN>
(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 or she has the right to acquire the
beneficial ownership within 60 days of December 31, 1996. Unless
otherwise indicated, voting power and investment power are exercised
solely by the person named above or shared with members of his or her
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, 1996.
(3) See preceding table and notes thereto.
-3-
<PAGE> 8
(4) Includes 35,250 shares which may be purchased under presently exercisable
options. Also includes 11,000 shares owned by Mr. Niegsch's spouse and
10,494 shares owned by Mr. Niegsch's children, as to which Mr. Niegsch
disclaims beneficial ownership.
(5) Includes 21,500 shares which may be purchased under presently exercisable
options. Ms. Brennan resigned from her position as Vice President,
Marketing and Strategic Development of the Company effective October 22,
1996.
(6) Includes 2,063 shares which may be purchased under presently exercisable
options.
(7) Includes 3,300 shares which may be purchased under presently exercisable
options.
(8) Includes 16,475 shares which may be purchased under presently exercisable
options. Also includes 25,572 shares owned by Mr. Arthur's spouse, as to
which Mr. Arthur disclaims beneficial ownership.
(9) Includes 16,475 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.
(10) Includes 16,475 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.
(11) Includes 6,300 shares which may be purchased under presently exercisable
options.
(12) Includes 962 shares owned by Mr. Green's spouse and 150 shares owned by
Mr. Green's children, as to which Mr. Green disclaims beneficial
ownership.
(13) Includes 220,439 shares which may be purchased pursuant to presently
exercisable options or warrants.
</TABLE>
-4-
<PAGE> 9
ELECTION OF DIRECTORS
The Board of Directors has designated Roger D. Blackwell, William C.
Niegsch, Jr., and Robert A. Rothman as nominees for election as Class II
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
II Directors of the Company, and (ii) the Class I and Class III Directors of the
Company whose terms in office will continue.
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NAME AND AGE SINCE PRINCIPAL OCCUPATION
------------ ------------- ---------------------
NOMINEES - TERMS TO EXPIRE 2000 (CLASS II)
<S> <C> <C>
Roger D. Blackwell, 56 1984 Professor of Marketing, The Ohio State University
William C. Niegsch, Jr., 44 1982 Executive Vice President, Chief
Financial Officer, Treasurer and Secretary
Robert A. Rothman, 55 1982 President, Amusement Concepts, Inc., a corporation
engaged in the video and electronic games business
CONTINUING DIRECTORS - TERMS TO EXPIRE 1999 (CLASS I)
Mark F. Emerson, 49 1982 Chief Operating Officer
Donald W. Kelley, 67 1986 Owner of Donald W. Kelley & Associates, a Columbus
real estate appraisal and consulting firm
Michael D. Murphy, 52 1995 Private Investor
CONTINUING DIRECTORS - TERMS TO EXPIRE 1998 (CLASS III)
William E. Arthur, 68 1982 Of Counsel, Porter, Wright, Morris & Arthur,
Attorneys at Law
Todd B. Barnum, 54 1982 Chairman of the Board, Chief Executive Officer
and President
Thomas R. Green, 42 1996 Executive Vice President, Central Benefits
Insurance Company
</TABLE>
-5-
<PAGE> 10
INFORMATION CONCERNING BOARD OF DIRECTORS
During fiscal 1996, 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 Company's 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 1996. All Compensation Committee members were
in attendance at such meeting.
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 1996. All Audit Committee members were in
attendance.
For 1996, each outside director was paid $1,250 per quarter. In
addition, in October 1996, each outside director was granted an option to
purchase 5,000 shares of Common Stock. Such options are exercisable for a
four-year period beginning on the first anniversary of the date of grant.
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., CheckPoint
Systems, Inc., Intimate Brands, Inc., Abercrombie & Fitch Co., AirNet Systems,
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.
-6-
<PAGE> 11
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 twelve 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
$81,778 during the fiscal year ended October 27, 1996, 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 OFFICERS
In addition to Messrs. Barnum, Emerson, and Niegsch, the following
persons are executive officers of the Company.
GREGORY L. HEYWOOD, age 45, has been the Company's Regional Vice
President of Operations since March 1994. Prior to becoming the Company's
Regional Vice President of Operations, Mr. Heywood had been a Regional Manager
of the Company since September 1983.
LARRY FOURNIER, age 50, has been the Company's Director of Development
since 1993. Prior to joining the Company in 1993, Mr. Fournier served as the
Regional Manager of Land Development for M/I Schottenstein Homes, Inc., a
homebuilder/land developer.
BONNIE BRANNIGAN, age 33, has been the Company's Vice President -
Marketing and Planning, since November 1996. From November 1994 to July 1996,
Ms. Brannigan served as the General Manager of The Executive Gallery, a
catalog/direct mail company. From March 1990 to August 1994, Ms Brannigan served
as the Sales Development Manager of McMaster-Carr Supply Company, an industrial
supply company.
-7-
<PAGE> 12
EXECUTIVE COMPENSATION
The table below sets forth all compensation paid for each of the
Company's last three completed fiscal years ended October 27, 1996, 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
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------- ------------
(e) (i)
Other All
Annual Other
(a) (c) (d) Compen- (g) Compen-
Name and (b) Salary Bonus sation Options sation
Principal Position Year ($) ($)(1) ($)(2) (#) ($)(3)
- ------------------ ----------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Todd B. Barnum 1996 $139,560 $100,000 $8,801 20,000 $22,570
Chairman, Chief Executive 1995 134,050 120,000 5,739 40,000 22,570
Officer and President 1994 127,111 144,000 5,393 -- 22,570
Mark F. Emerson 1996 $126,194 $50,000 $2,793 20,000 $6,264
Chief Operating Officer 1995 121,738 60,000 2,407 20,000 6,264
1994 117,446 72,000 1,276 -- 6,264
William C. Niegsch, Jr. 1996 $109,138 $50,000 $2,537 20,000 $6,264
Executive Vice President, 1995 104,712 60,000 2,181 20,000 6,264
Chief Financial Officer, 1994 101,733 72,000 1,130 -- 6,264
Treasurer and Secretary
Karen A. Brennan(4) 1996 $84,316 $50,000 $2,165 20,000 $6,372
Vice President, Marketing 1995 81,440 60,000 1,881 20,000 6,372
and Strategic Development 1994 77,954 72,000 948 -- 6,372
Gregory L. Heywood 1996 $74,752 $34,143 $1,763 2,000 --
Regional Vice President 1995 71,539 51,611 1,160 -- --
of Operations 1994 64,181 21,490 718 11,000 --
_________________________
<FN>
(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 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. For the
1996 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 $1,032,000; five percent of net income
before tax from $1,032,001 to $2,064,000; ten percent of net income
before tax from $2,064,000 to $3,095,000; and 25% of net income before
tax over $3,095,000. 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, 1995, and 1996 fiscal
years, the Compensation 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. Mr. Heywood's bonus is based upon
the performance of the restaurant and regional managers reporting to
him.
-8-
<PAGE> 13
(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 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 $3,893, $3,390 and $1,667, Mr.
Emerson of $2,793, $2,407, and $1,276, Mr. Niegsch of $2,537, $2,181,
and $1,130, Ms. Brennan of $2,165, $1,881, and $948, and Mr. Heywood of
$1,763, $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.
(4) Ms. Brennan resigned from her position as Vice President, Marketing and
Strategic Development of the Company effective October 22, 1996.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements dated December 12, 1984,
with Messrs. Barnum, Emerson and Niegsch, 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 81,075 shares granted under the Incentive Plan and options
to purchase 27,500 shares granted under the Non-Statutory Plan, however, remain
outstanding.
The Company's 1996 and 1992 Stock Option Plans provide for the issuance
of options to purchase up to 400,000 and 412,500 shares of the Common Stock,
$.10 par value per share, of the Company, respectively, subject to adjustment
for stock splits and other changes in the Company's capitalization, which
options either meet the requirements of Section 422A of the Internal Revenue
Code of 1986, as amended ("Incentive Options"), or do not meet such requirements
("Nonqualified Options"). Key employees of the Company, officers and directors
of the Company and certain other persons who provide services to the Company are
eligible to receive options under the 1996 and 1992 Stock Option Plans. Options
are granted to persons selected by the Compensation Committee of the Company's
Board of Directors (the "Committee"). Except for options automatically granted
to outside directors, the Committee determines the number of shares subject to
option, the exercise price and exercise period of such option and whether the
option is intended to be a Nonqualified Option or an Incentive Option. The
Committee also has the discretion under the 1996 and 1992
-9-
<PAGE> 14
Stock Option Plans to make cash grants to optionholders that are intended to
offset a portion of the taxes payable upon the exercise of Nonqualified Options
or upon certain dispositions of shares acquired under Incentive Options. The
tables set forth below provide additional information with respect to the grants
and exercises of stock options by the five executive officers of the Company. As
of December 31, 1996, the Company had options for 67,000 and 411,975 shares of
Common Stock, respectively, under the 1996 and 1992 Stock Option Plans
outstanding.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
---------------------------------------------- (f)
Potential Realizable Value
At Assumed Annual Rates
Of Stock Price Appreciation
(c) For Option Term(3)
% of Total ----------------------------
Options
(b) Granted To (d)
Options Employees Exercise (e)
(a) Granted In Fiscal Price Expiration
Name (#)(1) Year ($/Sh)(2) Date 5%($) 10%($)
- ---------------------- ------- ----------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Todd B. Barnum 20,000 16.7% $6.50 10/08/01 $35,920 $79,360
Mark F. Emerson 20,000 16.7% $6.50 10/08/01 $35,920 $79,360
William C. Niegsch, Jr. 20,000 16.7% $6.50 10/08/01 $35,920 $79,360
Karen A. Brennan(4) -- -- -- -- -- --
Gregory L. Heywood 2,000 1.7% $6.50 10/08/02 $4,422 $10,030
______________________
<FN>
(1) With respect to the options granted to each of Messrs. Barnum, Emerson,
and Niegsch, the options first become exercisable on October 8, 1997.
The option to Mr. Heywood first becomes exercisable on October 8, 1999.
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.
(4) Ms. Brennan resigned from her position as Vice President, Marketing and
Strategic Development of the Company effective October 22, 1996.
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
(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> <C>
Todd B. Barnum 55,000 $216,260 53,625/71,000 $52,274/2,500
Mark F. Emerson -- -- 16,000/46,000 $0/2,500
William C. Niegsch, Jr. 27,500 $108,130 29,750/46,000 $34,849/2,500
Karen A. Brennan(2) 16,500 $64,878 29,750/26,000 $34,849/0
Gregory L. Heywood 4,125 $16,735 2,063/13,000 $5,229/250
<FN>
__________________
(1) As of October 27, 1996, 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.
(2) Ms. Brennan resigned from her position as Vice President, Marketing and
Strategic Development of the Company effective October 22, 1996.
</TABLE>
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. 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. 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
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<PAGE> 16
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.
Beginning in 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 each year
through 1996. For fiscal 1997, the increments will again be increased 20% to 1%
of pre-tax earnings up to $1,238,000; 5% of pre-tax earnings between $1,238,001
and $2,477,000; 10% of pre-tax earnings between $2,477,001 and $3,715,000 and
25% of pre-tax earnings in excess of $3,715,000. In addition, for 1994, 1995,
1996, and 1997 the Committee capped the bonus pool at an amount equal to 100%,
115%, 125% and 125%, respectively, of the aggregate base salaries of the four
senior officers. In 1997, the bonus pool will be shared 40% by Mr. Barnum, 20%
by each of Messrs. Emerson and Niegsch, 10% by Ms. Brannigan and 10%
unallocated. Since adoption of this bonus formula, net income has grown from
$429,000 in 1991 to almost $2.2 million in 1996. Mr. Heywood's bonus is based
upon the performance of the restaurant and regional managers reporting to him.
In addition to the executive officer bonus program described above, the
Committee implemented specific bonus programs for certain individual executive
officers for fiscal 1997. At the end of each of the second and fourth quarters
of fiscal 1997, for each one point the Company's average price to earnings ratio
for the prior two quarters exceeds 14, Mr. Niegsch, the Company's Executive Vice
President, Chief Financial Officer, Treasurer and Secretary, will be paid a cash
bonus of $10,000, with fractional increases pro rated; provided, however, if the
Company's net income for fiscal 1997 is less than 90% of net income for fiscal
1996, the cash bonus hereunder shall not exceed $20,000 for fiscal year 1997. At
the end of the second and fourth quarters of fiscal 1997, for each 100 basis
points by which the Company's controllable profit (defined as profit before
interest, depreciation and rent) exceeds 25.75% of revenues, Mr. Emerson, the
Company's Chief Operating Officer, will receive a cash bonus of $20,000, with
fractional increases pro rated; provided, however, that if the Company's net
income for fiscal 1997 is less than 90% of net income for fiscal 1996, the cash
bonus shall not exceed $20,000 for fiscal 1997. Mr. Heywood, the Company's
Regional Vice President of Operations, will be paid a bonus equal to the cash
bonuses paid for fiscal 1997 to the regional managers assigned to report to Mr.
Heywood. Mr. Fournier, the Company's Vice President of Development, will be paid
a cash bonus for each new restaurant opened in the fiscal 1997, in an amount
equal to $25,000 divided by the number of planned new restaurants for fiscal
1997, which bonus may be taken under the Company's Manager Stock Bonus Plan in
cash or in the Company's common stock valued at one-half of fair market value.
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<PAGE> 17
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 1996 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.
The Budget Reconciliation Act of 1993 amended the Code to add Section
162(m) which bars a deduction to any publicly held corporation for compensation
paid to a "covered employee" in excess of $1,000,000 per year. The Committee
does not believe that this law will impact the Company in the near term because
the current level of compensation for each of the Company's executive officers
is well below the $1,000,000 salary limitation.
Compensation Committee:
William E. Arthur
Roger D. Blackwell
Robert A. Rothman
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<PAGE> 18
<TABLE>
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
<CAPTION>
-----------------------------FISCAL YEAR ENDING------------------------------
COMPANY 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
MAX & ERMAS RESTAURANT 100 150.00 279.17 283.33 254.17 220.83
INDUSTRY INDEX 100 126.98 156.22 147.82 178.88 196.69
BROAD MARKET 100 96.87 127.13 135.16 160.32 188.27
</TABLE>
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 27, 1996,
and during the entire five-year period illustrated on the Performance Graph.
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<PAGE> 19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 1996.
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
$81,788 during the fiscal year ended October 27, 1996, 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.
-15-
<PAGE> 20
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 26, 1997. It is
intended that persons acting under the accompanying proxy will 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 27, 1996, 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 1998 must be received by the Company (addressed to
the attention of the Secretary) on or before November 30, 1997. 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
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<PAGE> 21
otherwise conform to applicable requirements of the proxy rules of the
Securities and Exchange Commission.
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
APRIL 10, 1997
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 April 10, 1997, and at any adjournment thereof, with all of the
powers I would have if personally present, for the following purposes:
1. THE ELECTION OF CLASS II DIRECTORS.
[ ] FOR all nominees listed below (except as marked to the contrary).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(INSTRUCTIONS: Do not check "WITHOUT 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").
Roger D. Blackwell - William C. Niegsch, Jr. - Robert A. Rothman
2. RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS AUDITORS FOR
THE CURRENT FISCAL YEAR.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. 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(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
(Continued and to be signed on other side.)
<PAGE> 23
(Continued from other side.)
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders dated February 20, 1997, the Proxy Statement furnished
therewith, and the Annual Report to Stockholders of the Company for the fiscal
year ended October 27, 1996. Any proxy heretofore given to vote said shares is
hereby revoked.
DATED:________________________________, 1997
___________________________________________
(SIGNATURE)
___________________________________________
(SIGNATURE)
SIGNATURE(S) MUST 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
