<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
MAX & ERMA's Restaurants, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(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)(1) 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: ...........................................................
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<PAGE> 2
MAX & ERMA'S RESTAURANTS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
APRIL 8, 1999
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 22, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Max & Erma's Restaurants, Inc. on April 8, 1999, at 2:30 p.m.,
at the Company's corporate office at 4849 Evanswood Drive, 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
and Michael D. Murphy for three-year terms as Class I members of the Board of
Directors and to ratify the selection of Deloitte & Touche LLP as the Company's
independent public accountants for the 1999 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 8, 1999
February 22, 1999
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 Company's corporate office at 4849 Evanswood Drive, Columbus,
Ohio, on the 8th day of April, 1999, at 2:30 p.m., local time, for the following
purposes:
1. To elect two Class I 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 1999 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, 1999, 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 22, 1999
PROXY STATEMENT FOR
1999 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
8, 1999, 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 and Michael D. Murphy as Class I Directors of the Company; FOR
the ratification of the selection of Deloitte & Touche LLP as the independent
public accountants of the Company for the 1999 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,
1999, 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, 1998, the Company had
outstanding 3,683,822 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, 1998 (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 472,126(3) 12.3%
4849 Evanswood Drive
Columbus, Ohio 43229
Mark F. Emerson 357,108(4) 9.5%
4849 Evanswood Drive
Columbus, Ohio 43229
Roger D. Blackwell 521,722(5) 14.1%
3380 Tremont Road
Columbus, Ohio 43221
William C. Niegsch, Jr 194,841(6) 5.2%
4849 Evanswood Drive
Columbus, Ohio 43229
Wellington Management Company 345,000(7) 9.4%
75 State Street
Boston, Massachusetts 02109
- ----------
</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, 1998.
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, 1998.
(3) Includes 145,000 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 82,000 shares which may be purchased under presently
exercisable options.
(5) Includes 16,300 shares which may be purchased under presently
exercisable options.
(6) Includes 82,000 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.
(7) Based on Schedule 13G filed with the Securities and Exchange Commission
on January 14, 1998; reduced by 60,000 shares repurchased from the
shareholder by the Company on September 17, 1998.
-2-
<PAGE> 7
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of December 31, 1998, 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 472,126(3) 12.3%
Mark F. Emerson 357,108(3) 9.5%
Bonnie J. Brannigan 15,666(4) 0.4%
William C. Niegsch, Jr 194,841(3) 5.2%
Gregory L. Heywood 77,476(5) 2.1%
Larry B. Fournier 22,372(6) 0.6%
William E. Arthur 62,953(7) 1.7%
Roger D. Blackwell 521,722(3) 14.1%
Robert A. Rothman 69,100(8) 1.9%
Michael D. Murphy 16,500(9) 0.4%
Thomas R. Green 18,689(10) 0.5%
All directors and officers
as a group (11 persons) 1,828,553(11) 44.5%
- ----------
</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 or she has the
right to acquire the beneficial ownership within 60 days of December
31, 1998. 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, 1998.
(3) See preceding table and notes thereto.
(4) Includes 10,000 shares which may be purchased under presently
exercisable options.
(5) Includes 18,000 shares which may be purchased under presently
exercisable options.
-3-
<PAGE> 8
(6) Includes 12,200 shares which may be purchased under presently
exercisable options.
(7) Includes 16,300 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.
(8) Includes 16,300 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.
(9) Includes 16,300 shares which may be purchased under presently
exercisable options.
(10) Includes 10,000 shares which may be purchased under presently
exercisable options. Also 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.
(11) Includes 424,400 shares which may be purchased pursuant to presently
exercisable options.
-4-
<PAGE> 9
ELECTION OF DIRECTORS
The Board of Directors has designated Mark F. Emerson 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 2002 (CLASS I)
Mark F. Emerson, 51 1982 Chief Operating Officer
Michael D. Murphy, 54 1995 Private Investor
CONTINUING DIRECTORS - TERMS TO EXPIRE 2000 (CLASS II)
Roger D. Blackwell, 58 1984 Professor of Marketing, The Ohio State University
William C. Niegsch, Jr., 46 1982 Executive Vice President, Chief
Financial Officer, Treasurer and Secretary
Robert A. Rothman, 57 1982 President, Amusement Concepts, Inc., a
corporation engaged in the video and electronic
games business
CONTINUING DIRECTORS - TERMS TO EXPIRE 2001 (CLASS III)
William E. Arthur, 70 1982 Of Counsel, Porter, Wright, Morris & Arthur,
Attorneys at Law
Todd B. Barnum, 56 1982 Chairman of the Board, Chief Executive
Officer and President
Thomas R. Green, 44 1996 Chief Executive Officer
Lancaster Pollard & Company
</TABLE>
-5-
<PAGE> 10
INFORMATION CONCERNING BOARD OF DIRECTORS
During fiscal 1998, five meetings of the Board of Directors were held.
All directors attended 75% or more of the total Board of Directors' meetings.
Mr. Donald W. Kelley, a Class I director since 1986, has elected not to be
nominated for re-election to the Board of Directors. As of the date of this
Proxy Statement, the Board of Directors has not appointed a replacement for Mr.
Kelley.
In fiscal 1998, the members of the Compensation Committee were Messrs.
Arthur, Blackwell, and Rothman. The Compensation Committee's 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 1998. All
Compensation Committee members were in attendance at such meeting. In December
1998, Mr. Green was appointed as a member of the Compensation Committee to
replace Mr. Rothman, who joined the Audit Committee.
In fiscal 1998, the members of the Audit Committee are Messrs. Kelley
and Murphy. The Board of Directors has not determined who will replace Mr.
Kelley on the Audit Committee. The Audit Committee's 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 1998. All Audit
Committee members were in attendance at such meeting. In December 1998, Mr.
Rothman was appointed as a member of the Audit Committee.
For 1998, each outside director was paid $1,250 per quarter. In
addition, in October 1998, each outside director was granted an option to
purchase 6,000 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.
-6-
<PAGE> 11
Mr. Blackwell is also a director of Worthington Foods, Inc., CheckPoint
Systems, Inc., Intimate Brands, Inc., AirNet Systems, Inc., Applied Industrial
Technologies, 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Rothman, a member of the Compensation Committee in fiscal 1998,
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
$87,486 during the fiscal year ended October 26, 1997, 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 47, 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 52, has been the Company's Vice President of
Development since 1996. Prior to becoming the Company's Vice President of
Development, Mr. Fournier served as the Director of Development of the Company
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 35, 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 26, 1998, to the
Company's Chief Executive Officer and each of the Company's other most highly
compensated executive officers who received compensation (based on salary and
bonus) exceeding $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------- ------------
(e) (i)
Other All
Annual Other
(a) (c) (d) Compen- (g) Compen-
Name and (b) Salary Bonus sation Options sation
Principal Position Year ($) ($)(1) ($)(2) (#) ($)(3)
------------------ ---- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Todd B. Barnum 1998 $220,000 $134,421 $6,653 -- $30,000
Chairman, Chief Executive 1997 200,000 70,000 4,875 50,000 22,570
Officer and President 1996 139,560 100,000 8,801 20,000 22,570
Mark F. Emerson 1998 $150,000 $ 54,000 $2,790 -- $10,000
Chief Operating Officer 1997 137,500 35,000 2,818 25,000 6,264
1996 126,194 50,000 2,793 20,000 6,264
William C. Niegsch, Jr 1998 $130,000 $ 66,460 $2,677 -- $10,000
Executive Vice President, 1997 115,400 35,000 2,505 25,000 6,264
Chief Financial Officer, 1996 109,138 50,000 2,537 20,000 6,264
Treasurer and Secretary
Bonnie J. Brannigan(4) 1998 $ 70,000 $ 59,656 $1,581 10,000 $ 2,000
Vice President, Marketing 1997 65,500 17,500 -- 10,000 --
Gregory L. Heywood 1998 $ 82,000 $ 37,312 $1,666 3,000 $ 2,000
Regional Vice President 1997 77,000 30,403 1,605 5,000 --
of Operations 1996 74,752 34,143 1,763 2,000 --
- ----------
</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 1996 fiscal year, the Company paid an aggregate bonus to
Messrs. Barnum, Emerson and Niegsch out of a bonus pool 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. For the
1997 fiscal year, the Company paid an aggregate bonus to Messrs.
Barnum, Emerson, and Niegsch, and Ms. Brannigan, out of a bonus pool
comprised (calculated cumulatively) of one percent of net income before
tax from $1 to 1,238,000; five percent of net income before tax from
$1,238,001 to $2,477,000; ten percent of net income before tax from
$2,477,001 to $3,715,000; and 25% of net income before tax over
$3,715,001. For the 1998 fiscal year, the Company paid an aggregate
bonus to Messrs. Barnum, Emerson and Niegsch, and Ms. Brannigan, out of
a bonus pool comprised (calculated cumulatively) of one percent of net
income before tax from $1 to $1,486,000; five percent of net income
before tax from $1,486,001 to $2,974,000; 15% of net income before tax
from $2,974,001 to $4,461,000; and 20% of net income before tax over
$4,461,000. The aggregate bonus was shared 40% by Mr. Barnum and 20% by
each of Messrs. Emerson and Niegsch for 1995, 1996, and 1997. Ms.
Brannigan received 10% and 15% of the bonus pool in 1997 and 1998,
respectively. In addition, for the 1996, 1997, and 1998 fiscal years,
the Compensation Committee capped the bonus pool at an amount equal to
125%, respectively, of the
-8-
<PAGE> 13
aggregate base salaries of Messrs. Barnum, Emerson and Niegsch, and Ms.
Brannigan. In addition to the bonus paid under the above formula,
Messrs. Barnum and Niegsch received a tax offset bonus, under the
Company's Incentive Stock Option Plan, equal to $26,421 and $12,460,
respectively, during 1998. Ms. Brannigan received an additional bonus
equal to $19,156, which represented 50% of the purchase price of common
stock acquired by her during 1998. 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 to the executive officer pursuant
to the Company's 401(k) Plan, in amounts for Mr. Barnum of $4,380,
$4,343, and 3,893, Mr. Emerson of $2,790, $2,818, and $2,793, Mr.
Niegsch of $2,677, $2,505, and $2,537, Mr. Heywood of $1,666, $1,605,
and $1,763, and Ms. Brannigan of $1,581, $.00, and $.00, for fiscal
1998, 1997, and 1996, respectively.
(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
Messrs. Barnum, Emerson, Niegsch and Heywood and Ms. Brannigan.
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 for
Messrs. Barnum, Emerson and Niegsch, and in 1998 for Mr. Heywood and
Ms. Brannigan, 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. Brannigan joined the Company in November, 1997.
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 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,
$.10 par value per share, of the Company, respectively, subject to adjustment
for stock splits and other changes in the Company's capitalization, which
options either meet the requirements of Section 422A of the Internal Revenue
Code of 1986, as amended ("Incentive Options"), or do not meet such requirements
("Nonqualified Options"). Key employees of the Company, officers and directors
of the Company, and certain other persons who provide services to the Company
are eligible to receive options under the 1996 and 1992 Stock Option Plans.
Options are granted to persons selected by the Compensation Committee of the
Company's Board of Directors (the "Committee"). Except for options automatically
granted to outside directors, the Committee determines the number of shares
subject to option, the exercise price, and exercise period of such option and
whether the option is intended to be a Nonqualified Option or an Incentive
Option. The Committee also has the discretion under the 1996 and 1992
-9-
<PAGE> 14
Stock Option Plans to make cash grants to optionholders that are intended to
offset a portion of the taxes payable upon the exercise of Nonqualified Options
or upon certain dispositions of shares acquired under Incentive Options. The
tables set forth below provide additional information with respect to the grants
and exercises of stock options by the named executive officers of the Company.
As of December 31, 1998, the Company had options for 380,000 and 373,050 shares
of Common Stock, respectively, under the 1996 and 1992 Stock Option Plans
outstanding.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
(c) (f)
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS AT ASSUMED ANNUAL RATES
GRANTED OF STOCK PRICE APPRECIATION
(b) TO (d) FOR OPTION TERM(3)
OPTIONS EMPLOYEES EXERCISE (e) ---------------------------
(a) GRANTED IN FISCAL PRICE EXPIRATION
NAME (#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
- -------------------- ------- ----------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Bonnie J. Brannigan 10,000 7.1% $6.25 10/20/04 $21,300 $48,200
Gregory L. Heywood 3,000 2.1% $6.25 10/20/04 $ 6,390 $14,460
- ----------
</TABLE>
(1) All options are first exercisable October 20, 2001. Options not
exercisable as of the date of a change in control of the Company will
become exercisable immediately as of such date. Options not yet
exercised are cancelled after 30 days following termination of
employment other than by death or for cause. In the event of
termination of employment by death, the option may be exercised for up
to one year but not later than the expiration date. Options not yet
exercised are immediately cancelled upon the termination of employment
for cause. Generally, the exercise price of options may be paid for in
cash or in shares of Common Stock of the Company with the consent of
the Committee. In addition, any tax which the Company is required to
withhold in connection with the exercise of any stock option may be
satisfied by the optionholder by electing, with the consent of the
Committee, to have the number of shares to be delivered on the exercise
of the option reduced by, or otherwise by delivering to the Company,
such number of shares of Common Stock having a fair market value equal
to the amount of the withholding requirements.
(2) In all cases, the exercise price was equal to or greater than the
closing market price of the underlying shares on the date immediately
prior to the date of grant.
(3) The assumed rates of growth were selected by the Securities and
Exchange Commission for illustration purposes only and are not intended
to predict or forecast future stock prices.
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<PAGE> 15
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
(e)
Value of
(d) Unexercised
Number of In-the-Money
Unexercised Options at
(b) (c) Options at FY-End(#) FY-End($)(1)
Shares Value
(a) Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C>
Todd B. Barnum -- -- 143,900/10,100 $ 0/0
Mark F. Emerson -- -- 82,000/5,000 $ 0/0
William C. Niegsch, Jr -- -- 82,000/5,000 $ 0/0
Gregory L. Heywood -- -- 18,000/3,000 $0/1,250
Bonnie J. Brannigan -- -- 10,000/10,000 $ 0/375
- --------
</TABLE>
(1) As of October 25, 1998, no 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.
-11-
<PAGE> 16
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 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
1998. For fiscal 1999, the increments will again be increased 20%. For fiscal
1998, the 10% bonus level was increased to 15% and the 25% bonus level was
decreased to 20%. For fiscal 1999, the 5% bonus level was increased to 7% and
the 20% bonus level was increased to 25%. In fiscal 1999, the bonus pool will
equal 1% of pre-tax earnings up to $1,783,000; 7% of pre-tax earnings between
$1,783,001 and $3,566,000; 15% of pre-tax earnings between $3,566,001 and
$5,349,000; and 25% of pre-tax earnings in excess of $5,349,000. In addition,
since 1996, the Committee has capped the bonus pool at an amount equal to 125%
of the aggregate base salaries of the four senior officers. In 1999, the bonus
pool will be shared 40% by Mr. Barnum, 20% by each of Messrs. Emerson and
Niegsch, 15% by Ms. Brannigan and 5% unallocated. Since adoption of this bonus
formula, net income has grown from $429,000 in 1991 to over $2.3 million in
1998.
Mr. Heywood, the Company's Regional Vice President of Operations, will
be paid a bonus equal to the cash bonuses paid for fiscal 1998 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 of $5,000 for each new Max &
Erma's restaurant opened during 1999. Mr. Fournier's bonus may be paid in cash
or in the Company's common stock valued at one-half of fair market value under
the Company's Manager Stock Bonus Plan.
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 1998 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. No stock options were awarded to Mr.
Barnum in 1998.
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<PAGE> 17
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
Thomas R. Green
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<PAGE> 18
PERFORMANCE GRAPH
INSERT PERFORMANCE GRAPH
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 25, 1998,
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 1998.
CERTAIN TRANSACTIONS
Mr. Donald Kelley, who has elected not to be nominated for re-election
to the Board of Directors, 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, a director of the Company, 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 $87,486 during the fiscal year ended October
25, 1998, 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 31, 1999. 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 25, 1998, 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 2000 must be received by the Company (addressed to
the attention of
-16-
<PAGE> 21
the Secretary) on or before January 7, 2000. 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.
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 8, 1999
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 8, 1999 at 2:30 PM at 4849 Evanswood Drive, Columbus, Ohio, 43229, 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 I 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").
Mark F. Emerson - Michael D. Murphy
2. RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE CURRENT FISCAL YEAR.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side)
(Continued from other side.)
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.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders dated February 22, 1999, the Proxy Statement furnished
therewith, and the Annual Report to Stockholders of the Company for the fiscal
year ended October 25, 1998. Any proxy heretofore given to vote said shares is
hereby revoked.
Dated: , 1999
------------------
--------------------------------
(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
Proxy Card
