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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 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:
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PRELIMINARY COPY
MAX & ERMA'S RESTAURANTS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
APRIL 5, 2001
AND
PROXY STATEMENT
IMPORTANT
PLEASE MARK, SIGN AND DATE YOUR PROXY
AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE
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MAX & ERMA'S RESTAURANTS, INC.
P.O. BOX 297830
4849 EVANSWOOD DRIVE
COLUMBUS, OHIO 43229
(614) 431-5800
February 21, 2001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Max & Erma's Restaurants, Inc. on April 5, 2001, at 9:30 a.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 William E.
Arthur, Todd B. Barnum and Thomas R. Green for three-year terms as Class III
members of the Board of Directors, to approve and adopt an amendment to the
Company's Certificate of Incorporation to reduce the number of authorized shares
of common stock of the Company from 10,000,000 shares to 5,000,000 shares, and
to ratify the selection of Deloitte & Touche LLP as the Company's independent
public accountants for the 2001 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
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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 5, 2001
February 21, 2001
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 5th day of April, 2001, at 9:30 a.m., local time, for the following
purposes:
1. To elect three Class III Directors, each for a term of three years
and until their successors are duly elected and qualified.
2. To approve and adopt an amendment to the Company's Certificate of
Incorporation to reduce the number of authorized shares of common
stock from 10,000,000 shares to 5,000,000 shares.
3. To ratify the selection of Deloitte & Touche LLP as the Company's
independent public accountants for the 2001 fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Owners of Common Stock of the Company of record at the close
of business on February 9, 2001, 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
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PRELIMINARY COPY
MAX & ERMA'S RESTAURANTS, INC.
P.O. BOX 297830
4849 EVANSWOOD DRIVE
COLUMBUS, OHIO 43229
(614) 431-5800
February 21, 2001
PROXY STATEMENT FOR
2001 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
5, 2001, 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
William E. Arthur, Todd B. Barnum and Thomas R. Green as Class III Directors of
the Company; FOR the approval and adoption of an amendment to the Company's
Certificate of Incorporation to reduce the number of authorized shares of common
stock of the Company from 10,000,000 shares to 5,000,000 shares; FOR the
ratification of the selection of Deloitte & Touche LLP as the independent public
accountants of the Company for the 2001 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 9,
2001, 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 February 9, 2001, the Company had
outstanding [2,415,314] shares of Common Stock, $.10 par value. There are no
cumulative voting rights in the election of directors.
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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, 2000 (unless otherwise
noted):
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS(2)
------------------- --------------------- -----------
Todd B. Barnum 454,708(3) 17.8%
4849 Evanswood Drive
Columbus, Ohio 43229
Mark F. Emerson 357,108(4) 14.3%
4849 Evanswood Drive
Columbus, Ohio 43229
Roger D. Blackwell 530,422(5) 21.8%
3380 Tremont Road
Columbus, Ohio 43221
William C. Niegsch, Jr. 177,627(6) 7.1%
4849 Evanswood Drive
Columbus, Ohio 43229
Dimensional Fund Advisors Inc. 184,944(7) 7.7%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
---------------------------
(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 beneficial
ownership of within 60 days of December 31, 2000. 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, 2000.
(3) Includes 143,000 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 22,000 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
February 11, 2000.
2
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of December 31, 2000, the beneficial
ownership of the Company's Common Stock by each executive officer and/or
director of the Company and by all executive officers and directors as a group:
NAME OF NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS(2)
---------------- --------------------- -----------
Todd B. Barnum 454,708(3) 17.8%
Mark F. Emerson 357,108(3) 14.3%
Bonnie J. Brannigan 18,666(4) 0.8%
William C. Niegsch, Jr. 177,627(3) 7.1%
Gregory L. Heywood 66,476(5) 2.7%
Larry B. Fournier 20,172(6) 0.8%
William E. Arthur 76,653(7) 3.1%
Roger D. Blackwell 530,422(3) 21.8%
Robert A. Rothman 74,800(8) 3.1%
Michael D. Murphy 22,500(9) 0.9%
Thomas R. Green 38,686(10) 1.6%
All directors and executive
officers as a group (11 persons) 1,837,818(11) 64.3%
---------------------------
(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 beneficial
ownership of within 60 days of December 31, 2000. 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, 2000.
(3) See preceding table and notes thereto.
(4) Includes 10,000 shares which may be purchased under presently exercisable
options.
(5) Includes 7,000 shares which may be purchased under presently exercisable
options.
(6) Includes 10,000 shares which may be purchased under presently exercisable
options.
3
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(7) Includes 22,000 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 22,000 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 22,000 shares which may be purchased under presently exercisable
options.
(10) Includes 22,000 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 444,000 shares which may be purchased pursuant to presently
exercisable options.
4
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ELECTION OF DIRECTORS
The Board of Directors has designated William E. Arthur, Todd B. Barnum
and Thomas R. Green as nominees for election as Class III 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
III Directors of the Company, and (ii) the Class I and Class II 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 2004 (CLASS III)
William E. Arthur, 72 1982 Of Counsel, Porter, Wright, Morris & Arthur, LLP
Attorneys at Law
Todd B. Barnum, 58 1982 Chairman of the Board, Chief Executive
Officer and President
Thomas R. Green, 46 1996 Chief Executive Officer
Lancaster Pollard & Company
CONTINUING DIRECTORS - TERMS TO EXPIRE 2002 (CLASS I)
Mark F. Emerson, 53 1982 Chief Operating Officer
Michael D. Murphy, 56 1995 Private Investor
CONTINUING DIRECTORS - TERMS TO EXPIRE 2003 (CLASS II)
Roger D. Blackwell, 60 1984 Professor of Marketing, The Ohio State University
William C. Niegsch, Jr., 48 1982 Executive Vice President, Chief
Financial Officer, Treasurer and Secretary
Robert A. Rothman, 59 1982 President, Amusement Concepts, Inc., a corporation engaged in
the video and electronic
games business
</TABLE>
5
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INFORMATION CONCERNING BOARD OF DIRECTORS
During fiscal 2000, four meetings of the Board of Directors were held.
All directors attended 75% or more of the total Board of Directors' meetings.
In fiscal 2000, the members of the Compensation Committee were Messrs.
Arthur, Blackwell and Green. The Compensation Committee's function is to
recommend to the directors the annual compensation of the Company's executive
officers, to grant options under the Company's stock option plans, and to
establish other policies with respect to compensation. The Compensation
Committee met twice during fiscal 2000. All Compensation Committee members were
in attendance at such meetings, except Mr. Blackwell, who missed one meeting.
In fiscal 2000, the members of the Audit Committee were Messrs.
Rothman, Murphy and Green. 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 twice during fiscal 2000. All Audit
Committee members were in attendance at each meeting.
For fiscal 2000, each outside director was paid $2,000 per quarter.
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 trustee of The Flex-Funds and a director of
CheckPoint Systems, Inc., Intimate Brands, Inc., AirNet Systems, Inc., Applied
Industrial Technologies, Inc., Anthony & Sylvan Pools Corporation, The Banc
Stock Group and Frontstep Inc., each with a class of equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
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EXECUTIVE OFFICERS
In addition to Messrs. Barnum, Emerson, and Niegsch, the following
persons are executive officers of the Company.
GREGORY L. HEYWOOD, age 49, 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.
BONNIE BRANNIGAN, age 37, 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.
LARRY FOURNIER, age 54, 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.
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EXECUTIVE COMPENSATION
The table below sets forth all compensation paid for each of the
Company's last three completed fiscal years ended October 29, 2000, 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 $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------ ------------
(e) (i)
Other All
Annual Other
(a) (c) (d) Compen- (g) Compen-
Name and (b) Salary Bonus sation Options sation
Position Principal Year ($) ($)(1) ($)(2) (#) ($)(3)
------------------ ---- ------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Todd B. Barnum 2000 $265,809 $96,000 $10,006 11,000 $30,000
Chairman, Chief Executive 1999 245,500 80,000 10,111 -- 30,000
Officer and President 1998 220,000 134,421 6,653 -- 30,000
Mark F. Emerson 2000 $186,674 $48,000 $4,693 5,000 $10,000
Chief Operating Officer 1999 170,575 40,000 4,143 -- 10,000
1998 150,000 54,000 2,790 -- 10,000
William C. Niegsch, Jr. 2000 $164,708 $48,000 $4,254 5,000 $10,000
Executive Vice President, 1999 152,250 40,000 3,721 -- 10,000
Chief Financial Officer, 1998 130,000 66,460 2,677 -- 10,000
Treasurer and Secretary
Gregory L. Heywood 2000 $112,759 $61,361 $3,482 11,000 $2,000
Regional Vice President 1999 92,179 54,672 2,438 -- 2,000
of Operations 1998 82,000 37,312 1,666 3,000 2,000
2000 $99,125 $55,500 $3,093 -- $2,000
Bonnie J. Brannigan 1999 79,390 33,625 2,249 10,000 2,000
Vice President, Marketing 1998 70,000 59,656 1,581 10,000 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 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; fifteen percent of net income before tax from
$2,974,001 to $4,461,000; and twenty percent of net income before tax over
$4,461,000. For the 1999 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 $1,783,000; seven percent of net income before tax
from $1,783,001 to $3,566,000; fifteen percent of net income before tax
from $3,566,001 to $5,349,000; and twenty-five percent of net income before
tax over $5,349,000. For the 2000 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 four percent of
operating income from $1 to $4,650,000, thirteen percent of operating
income from $4,650,001 to $6,200,000, and twenty percent of operating
income over $6,200,000. The aggregate bonus was shared forty percent by Mr.
Barnum and twenty percent by each of Messrs. Emerson and Niegsch for 1998,
1999, and 2000. Ms. Brannigan received fifteen percent of the bonus pool in
1998 and 1999 and twenty percent of the bonus pool in 2000. In addition,
for the 1998 and 1999 fiscal years, the Compensation Committee capped the
bonus pool at an amount equal to one hundred twenty-five percent,
respectively, of the aggregate base salaries of Messrs. Barnum, Emerson and
Niegsch, and Ms.
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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 $7,500,
$3,625 and $19,156, which represented fifty percent of the purchase price
of common stock acquired by her during 2000, 1999 and 1998, respectively.
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)
and Supplemental Deferred Compensation Plans, in amounts for Mr. Barnum of
$7,236, $6,404 and $4,380, Mr. Emerson of $4,693, $4,143 and $2,790, Mr.
Niegsch of $4,254, $3,721 and $2,677, Mr. Heywood of $3,482, $2,438 and
$1,666, and Ms. Brannigan of $3,093, $2,249 and $1,581, for fiscal 2000,
1999 and 1998, 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.
SEVERANCE AGREEMENTS
On January 10, 2000, the Company entered into severance agreements in
the event of a change in control with Todd B. Barnum, Mark F. Emerson and
William C. Niegsch, Jr., (collectively the "Senior Executives"), and with
Gregory L. Heywood and Bonnie J. Brannigan, (collectively the "Officers"). The
agreements provide that in the event of the Senior Executive's or Officer's
termination of employment under certain circumstances during the "Effective
Period" (as defined in the agreement) following a "Change in Control" (as
defined in the agreement) of the Company, he or she will be entitled to
severance benefits. The "Effective Period" is the 12-month period following a
Change in Control, except for the Senior Executives who have a 13-month
Effective Period, including a "Window Period" in the 13th month following a
Change in Control in which the Senior Executives may terminate their employment
for any reason and be entitled to severance benefits.
If an Officer terminates employment during the Effective Period for
"Good Reason" (as defined in the agreement), or if a Senior Executive terminates
his employment during the Effective Period for Good Reason or during the Window
Period for any reason, or if the Company terminates employment during such
period for any reason other than for Cause (as defined in the agreement) or as a
result of death, retirement or disability, the Company will be obligated to pay
his base salary and prorated bonus through the date of termination and to make a
lump-sum payment equal to 2.99 times (for Senior Executives) or 1.5 times (for
Officers) the average annual compensation (including salary and bonus) which was
payable to such executive for the five taxable years ending prior to the date on
which the Change of Control occurred.
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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,
$.10 par value per share, of the Company, respectively, subject to adjustment
for stock splits and other changes in the Company's capitalization, which
options either meet the requirements of Section 422A of the Internal Revenue
Code of 1986, as amended ("Incentive Options"), or do not meet such requirements
("Nonqualified Options"). Key employees of the Company, officers and directors
of the Company, and certain other persons who provide services to the Company
are eligible to receive options under the 1996 and 1992 Stock Option Plans.
Options are granted to persons selected by the Compensation Committee of the
Company's Board of Directors (the "Committee"). The Committee determines the
number of shares subject to option, the exercise price, and exercise period of
such option and whether the option is intended to be a Nonqualified Option or an
Incentive Option. The Committee also has the discretion under the 1996 and 1992
Stock Option Plans to make cash grants to optionholders that are intended to
offset a portion of the taxes payable upon the exercise of Nonqualified Options
or upon certain dispositions of shares acquired under Incentive Options. The
tables set forth below provide additional information with respect to the grants
and exercises of stock options by the named executive officers of the Company.
As of December 31, 2000, the Company had options for 34,000 and 17,050 shares of
Common Stock, respectively, under the 1996 and 1992 Stock Option Plans
outstanding.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------------------------------------------
(f)
Potential Realizable Value
(c) At Assumed Annual Rates
% of Total Of Stock Price Appreciation
Options For Option Term(3)
Granted ---------------------------
(b) To (d)
Options Employees Exercise (e)
(a) Granted In Fiscal Price Expiration
Name (#)(1) Year ($/Sh)(2) Date 5%($) 10%($)
------------------- -------- --------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Todd B. Barnum 11,000 19.9% $8.38 10/20/06 $31,350 $71,170
Mark F. Emerson 5,000 9.1% $8.38 10/20/06 $14,249 $32,347
William C. Niegsch 5,000 9.1% $8.38 10/20/06 $14,249 $32,347
Gregory L. Heywood 11,000 19.9% $8.38 10/20/06 $31,350 $71,170
Bonnie J. Brannigan -- -- -- -- -- --
</TABLE>
---------------------------
(1) All options are first exercisable October 20, 2003. Options not exercisable
as of the date of a change in control of the Company will become
exercisable immediately as of such date. Options not yet exercised are
cancelled after 30 days following termination of employment other than by
death or for cause. In the event of termination of employment by death, the
option may be exercised for up to one year but not later than the
expiration date. Options not yet exercised are immediately cancelled upon
the termination of employment for cause. Generally, the exercise price of
options may be paid for in cash or in shares of Common Stock of the Company
with the consent of the Committee. In addition, any tax which the Company
is required to withhold in connection with the exercise of any stock option
may be satisfied by the optionholder by electing, with the consent of the
Committee, to have the number of shares to be delivered on the exercise of
the option reduced by, or otherwise
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by delivering to the Company, such number of shares of Common Stock having
a fair market value equal to the amount of the withholding requirements.
(2) In all cases, the exercise price was equal to or greater than the closing
market price of the underlying shares on the date immediately prior to the
date of grant.
(3) The assumed rates of growth were selected by the Securities and Exchange
Commission for illustration purposes only and are not intended to predict
or forecast future stock prices.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
(e)
Value of
(d) Unexercised
Number of In-the-Money
Unexercised Options at
(b) (c) Options at FY-End(#) FY-end($)(1)
Shares Value
(a) Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---------------------- ------------ --------- -------------------- -------------
<S> <C> <C> <C> <C>
Todd B. Barnum -- -- 143,000/11,000 $142,852/0
Mark F. Emerson -- -- 82,000/5,000 $90,226/0
William C. Niegsch, Jr. -- -- 82,000/5,000 $90,226/0
Gregory L. Heywood -- -- 7,000/14,000 $12,847/6,390
Bonnie J. Brannigan -- -- 10,000/20,000 $18,175/31,300
</TABLE>
---------------------------
(1) As of October 29, 2000, 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.
11
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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.
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
1999. 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%. From 1996, through
1999, the Committee capped the bonus pool at an amount equal to 125% of the
aggregate base salaries of the four senior officers. For fiscal 2000, the bonus
formula was changed. In Fiscal 2000, the bonus pool was equal to 4% of operating
income up to $4,650,000, 13% of operating income between $4,650,001 and
$6,200,000, and 20% of operating income in excess of $6,200,000. In addition,
there was no cap imposed on the bonus pool for Fiscal 2000, which was shared 40%
by Mr. Barnum and 20% by each of Messrs. Emerson and Niegsch and Ms. Brannigan.
For Fiscal 2001, a bonus equal to 10%, 2.5%, 2.5% and 2.5% of Adjusted
Operating Earnings in excess of $5,550,000 will be paid to Messrs. Barnum,
Emerson and Niegsch and Mrs. Brannigan, respectively. Adjusted Operating
Earnings is defined as operating income, plus the accrual for this executive
bonus program, plus any nonrecurring charges for the fiscal year, less any
nonrecurring gains.
In addition, the Committee established individual bonus programs for
Messrs. Emerson,
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Niegsch and Heywood and Mrs. Brannigan. Mr. Emerson's individual bonus program
is based on store level operating income. Mr. Niegsch's individual bonus program
is based on budgeted administration expense. Mr. Heywood's individual bonus is
based on the bonuses of managers reporting to him. Mrs. Brannigan's individual
bonus is based on same store sales and advertising expenses.
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 2000 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. Options to purchase 11,000 shares were
awarded to Mr. Barnum in fiscal 2000.
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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PERFORMANCE GRAPH
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
-------------------------------- --------------------------------
COMPANY/INDEX/MARKET 10/27/1995 10/31/1996 10/24/1997 10/23/1998 10/29/1999 10/27/2000
<S> <C> <C> <C> <C> <C> <C>
Max & Erma's Rest 100.00 86.89 82.79 83.61 86.89 109.84
Eating Places 100.00 109.96 115.64 141.14 157.27 127.83
NASDAQ Market Index 100.00 117.43 153.90 174.02 287.23 354.69
</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 29, 2000,
and during the entire five-year period illustrated on the Performance Graph.
14
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BOARD AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors, composed entirely of
independent directors, met twice in Fiscal 2000. The Committee assists the Board
in fulfilling its responsibility for oversight of the quality and integrity of
the accounting, auditing and reporting practices of the corporation and such
other duties as directed by the Board. The full responsibilities of the
Committee are set forth in its charter, as adopted by the Board of Directors, a
copy of which is attached to this proxy statement as Appendix A.
In fulfilling its responsibilities, the Committee recommended to the
Board, subject to shareholder approval, the selection of Deloitte & Touche LLP
as the Company's independent public accountants. The Committee:
- Discussed and considered the independence of Deloitte & Touche LLP,
reviewing as necessary all relationships and services which might bear on
the objectivity of the independent public accountants;
- Received written affirmation that Deloitte & Touche LLP is in fact
independent;
- Discussed the overall audit process, receiving and reviewing all reports;
- Involved Deloitte & Touche LLP in the Committee's review of the Company's
financial statements and related reports with management;
- Provided to Deloitte & Touche LLP full access to the Committee and the
Board to report on any and all appropriate matters.
- Discussed with Deloitte & Touche LLP all matters required to be reviewed by
generally accepted auditing standards.
The Committee provided guidance and oversight to the internal audit
function of the Company including review of the organization, plans and results
of this activity. Both the Chief Financial Officer and Deloitte & Touche LLP
were afforded the routine opportunity to meet privately with the Committee and
were encouraged to discuss any matters they desired.
The Committee also met with selected members of management and the
independent public accountants to review financial statements (including
quarterly reports), discussing such matters as the quality of earnings;
estimates, reserves, and accruals; suitability of accounting principles; highly
judgmental areas; and audit adjustments whether or not recorded.
In addition, the Committee considered the quality and adequacy of the
Company's internal controls and the status of pending litigation, taxation
matters and other areas of oversight to the financial reporting and audit
process that the Committee felt appropriate.
Management's responsibility for financial reporting and the report and
opinion of Deloitte & Touche LLP are filed separately in the annual report and
should be read in conjunction with this letter and review of the financial
statements. The Company's audited financial statements included in the annual
report on Form 10-K were, after the Committee's review, approved by the Board of
Directors for filing with the Securities and Exchange Commission.
15
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Based upon its work and the information received in the inquiries
outlined above, the Committee is satisfied that its responsibilities under the
charter for the period October 29, 2000, were met and that the financial
reporting and audit processes of the Company are functioning effectively.
Audit Committee:
Robert A. Rothman
Michael D. Murphy
Thomas R. Green
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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 2000.
CERTAIN TRANSACTIONS
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 $75,450 during the fiscal year ended October
29, 2000, under the various licenses with Amusement Concepts, Inc.
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.
APPROVAL AND ADOPTION OF AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
GENERAL
On December 12, 2000, the Company's Board of Directors unanimously
approved, and for the reasons described below, unanimously recommends that the
Company's shareholders approve, an amendment to Article 4 of the Company's
Amended Certificate of Incorporation to reduce the number of authorized shares
of common stock of the Company from 10,000,000 to 5,000,000 shares, to be
effective at the time a Certificate of Amendment is filed with the Secretary of
State of the State of Delaware (the "Share Reduction"). Under the amendment,
Article 4 of the Amended Certificate of Incorporation would read:
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is Five Million Five
Hundred Thousand (5,500,000) of which Five Million (5,000,000)
shares shall be Common Stock of Ten Cents ($0.10) par value,
and Five Hundred Thousand (500,000) shares shall be Preferred
Stock of Ten Cents ($0.10) par value.
As of December 31, 2000, of the 10,000,000 shares of common stock
authorized, the Company had 2,415,314 issued and outstanding shares of common
stock and an additional
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698,000 shares of common stock subject to issuance upon the exercise of
outstanding options and warrants issued by the Company, for an aggregate of
3,113,314 shares of common stock issued and outstanding or subject to issuance.
By implementing the Share Reduction, the number of authorized, but unissued
shares of common stock will be reduced from 6,886,686 to 1,886,686.
EFFECT OF THE SHARE REDUCTION
If the Share Reduction is approved, the rights of the holders of the
common stock as stockholders will not be affected. The Share Reduction will not
affect the number of shares owned by any shareholder or any shareholder's
proportionate equity interest in the Company. Nor will the Share Reduction
affect the number of shares of common stock issuable upon the exercise of
outstanding warrants and options.
The Share Reduction will not change the par value of shares of common
stock. Under applicable Delaware law, the total capital of the Company will not
be reduced as a result of the Share Reduction, even though the aggregate par
value of all authorized shares will be reduced to approximately one half of the
aggregate par value prior to the Share Reduction.
If the amendment is approved by the Company's shareholders, the Share
Reduction will also limit the number of shares of common stock available to the
Company in the future for purposes such as:
- acquisitions;
- strategic investments;
- corporate transactions, such as stock splits or stock
dividends;
- financing transactions, such as public offerings of common
stock or convertible securities;
- incentive and employee benefit plans; and
- otherwise for corporate purposes that have not yet been
identified.
This limitation will become enhanced as the number of shares of common stock
issued and outstanding or subject to issuance subsequently approaches or totals
5,000,000 shares. In the event the Board determines that additional shares of
common stock are required, it will be necessary to solicit and receive the
affirmative vote of a majority of the holders of the Company's common stock in
order to amend the articles and thereby increase the number of authorized
shares. In addition, the Board is aware that such a reduction may reduce the
ability of the Company to issue additional shares to inhibit persons, or
otherwise dilute the stock ownership of shareholders, seeking to control the
Company without negotiating with the Board of Directors.
PURPOSE OF THE PROPOSED SHARE REDUCTION
The principal reason for the Share Reduction is that the Company's
overall state tax liability would decrease by approximately $21,000 annually.
Presently, the Company pays approximately $44,000 annually pursuant to the
Delaware Franchise Tax. The method employed
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by the Company for computing its tax liability is based in part upon its total
number of authorized shares. As a result, a reduction in the total number of
authorized shares will have a direct impact on the amount of Franchise Tax which
must be paid by the Company on an annual basis.
The Board believes that a reduction in the amount of authorized shares
of Company common stock will provide an annual tax savings, while causing little
or no complications or hindrances to other corporate purposes.
VOTE REQUIRED
In accordance with Delaware law, the Share Reduction, which requires an
amendment to the Certificate of Incorporation, must be approved by a majority of
the votes entitled to be cast on the matter. For this purpose, the holders of
the common stock will vote on the matter as a class. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" THE SHARE REDUCTION.
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 28, 2001. 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 29, 2000, 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
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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 2002 must be received by the Company (addressed to
the attention of the Secretary) on or before December 7, 2001. 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.
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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
21
<PAGE> 26
Appendix A
----------
AUDIT COMMITTEE CHARTER
Max & Erma's Restaurants, Inc., a Company Listed on NASDAQ
As Adopted May 18, 2000
This Charter sets forth the role and responsibilities of the Audit Committee of
the Company in its financial reporting system. The Audit Committee generally
oversees and monitors management's and the independent outside auditors'
participation in the financial reporting process. The independent outside
auditor for the Company is ultimately accountable to the Board and Audit
Committee, as representatives of the shareholders. The Board and the Audit
Committee have the ultimate authority and responsibility to select, evaluate
and, where appropriate, replace the outside auditor (or to nominate the outside
auditor proposed for shareholder approval in any proxy statement).
Responsibilities
----------------
The Audit Committee is appointed by the Board to assist the Board in, among
other things: (1) Monitoring the integrity of the financial statements of the
Company, (2) Requiring that the outside auditor submits on a periodic basis, but
at least annually, to the Audit Committee a formal written statement delineating
all relationships between the auditor and the Company, consistent with
Independence Standards Board Standard I, and actively engaging in a dialogue
with the outside auditor with respect to any disclosed relationships or services
that may impact the objectivity and independence of the auditor and for taking,
or recommending that the Board of Directors take, appropriate action, to oversee
the independence, (3) Reviewing and assessing the adequacy of this Charter, at
least annually, (4) Making such reports as are required by the Securities and
Exchange Commission and (5) Making recommendations to the Board with respect to
the selection, evaluation, and where appropriate, replacement of the Company's
outside auditors. The Audit Committee shall have such other responsibilities as
are required by the NASDAQ Stock Market and the Securities and Exchange
Commission.
Membership Requirements
-----------------------
The Audit Committee shall consist of three members. Each member of the Audit
Committee shall meet the independence standards and financial literacy
requirements as established from time to time by the American Stock Exchange.
The members of the Audit Committee shall be appointed by the Board on the
recommendation of the Nominating Committee. The Audit Committee members shall
select a Chair, who shall be an "Independent Director", as defined in the
listing standards of the NASDAQ Stock Market.
Authority
---------
The Audit Committee shall have the authority to retain special legal,
accounting, or other consultants to advise the Committee with respect to its
responsibilities and authority hereunder
A-1
<PAGE> 27
Max & Erma's Restaurants, Inc., a NASDAQ Listed Company
and to retain professionals and advisors to assist the Audit Committee in
improving its financial literacy, and incur any expenses related to any of the
foregoing. The Audit Committee may require any officer or employee of the
Company or the Company's internal or outside counsel or independent auditor to
attend a meeting of the Committee or to meet with any members of, or consultants
to, the Audit Committee. The Audit Committee may not, however, knowingly cause
the Company's counsel to make any disclosure in a manner that would cause a loss
of the attorney-client privilege or a waiver of the work product doctrine.
Processes
---------
In fulfilling its responsibilities and in the exercise of its authority, during
each of the periods indicated the Audit Committee
A. QUARTERLY
1. Shall maintain minutes of its meetings (which may, if needed to protect
privilege, be confidential) and make regular reports to the Board.
2. Review with management and the outside auditor the financial statement
review completed by the outside auditor prior to the release of
quarterly earnings.
3. Review an analysis prepared by management and the independent auditor
of significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial statements.
4. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor
and control such exposures.
B. ANNUALLY
1. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices as well as the adequacy of internal controls that could
significantly affect the Company's financial statements.
2. Discuss with the outside auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of
the audit.
3. Prepare the Audit Committee Report containing the name of each member
of the Audit Committee at the end thereof, as required by the rules of
the Securities and Exchange Commission, to be included in the Company's
annual proxy statement, stating whether:
(a) The Audit Committee reviewed and discussed the audited financial
statements with management;
A-2
<PAGE> 28
Max & Erma's Restaurants, Inc., a NASDAQ Listed Company
(b) The Audit Committee discussed with the outside auditors the matters
required to be discussed by SAS 61, as may be modified or supplemented;
(c) The Audit Committee received the written disclosures and the letter
from the outside accountants required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees), as may be modified or
supplemented, and has discussed with the outside accountant the outside
accountant's independence; and
(d) Based on the review and discussions referred to in paragraphs (a)
through (c) above, whether the Audit Committee recommended to the Board
of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-KSB (17 CFR 249.31b) for the last
fiscal year for filing with the Commission.
4. Provide the Board with such individual information and assurances as
are reasonably necessary to assure that each member is an Independent
Director.
5. Obtain from the outside auditor assurance that Section 10A of the
Private Securities Litigation Reform Act of 1995 has not been
implicated.
6. Meet with the outside auditor prior to the audit to review the planning
and staffing of the audit.
7. Obtain reports from management, the Company's senior internal auditing
executive and the outside auditor that the Company's subsidiary/foreign
affiliated entities are in conformity with applicable legal
requirements and the Company's Code of Conduct.
8. Review with the outside auditor any problems or difficulties the
auditor may have encountered and any management letter provided by the
outside auditor and the Company's response to that letter. Such review
should include:
(a) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or
access to required information.
(b) Any changes required in the planned scope of the internal
audit.
(c) The internal audit department responsibilities, budget and
staffing.
9. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations and with the
Company's Code of Conduct.
10. Review with the Company's inside General Counsel and principal outside
Counsel those legal matters that may have a material impact on the
financial statements, the Company's compliance policies and any
material reports or inquiries received from regulators or governmental
agencies.
A-3
<PAGE> 29
Max & Erma's Restaurants, Inc., a NASDAQ Listed Company
11. Meet at least annually with the chief financial officer, the senior
internal auditing executive and the independent auditor in separate
executive sessions.
12. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditor,
internal auditors or management.
13. Approve the fees to be paid to the independent auditor.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations and the Company's Code of Conduct.
A-4
<PAGE> 30
DETACH CARD
PROXY
MAX & ERMA'S RESTAURANTS, INC.
4849 Evanswood Drive
Columbus, Ohio 43229
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 5, 2001
The undersigned stockholder of Max & Erma's Restaurants, Inc. (the
"Company") hereby appoints, Todd B. Barnum and William C. Niegsch, Jr. or either
of them, as attorneys and proxies, with full power of substitution to each, to
vote all shares of Common Stock of the Company which the undersigned is entitled
to vote at the Annual Meeting of Stockholders of the Company to be held at the
Company's headquarters located at 4849 Evanswood Drive, Columbus, Ohio on
Thursday, April 5, 2001, at 9:30 a.m. local time, and at any adjournment or
adjournments thereof, with all of the powers such undersigned stockholder would
have if personally present, for the following purposes:
1. ELECTION OF WILLIAM E. ARTHUR, TODD B. BARNUM, AND THOMAS R. GREEN AS CLASS
III DIRECTORS.
[ ] FOR
[ ] WITHHOLD AUTHORITY FOR EACH NOMINEE
INSTRUCTION: TO WITHHOLD AUTHORITY FOR A SPECIFIC NOMINEE, WRITE THAT
NOMINEE'S NAME HERE:
-----------------------------------------------------------------
2. ADOPTION OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO REDUCE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 10,000,000 SHARES TO
5,000,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side.)
<PAGE> 31
DETACH CARD
(Continued from other side.)
3. RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT
PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE 2001 FISCAL YEAR
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, AND 3.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Stockholders, dated February 21, 2001, the Proxy Statement and the
Annual Report of the Company furnished therewith. Any proxy heretofore given to
vote said shares is hereby revoked.
PLEASE SIGN AND DATE THIS PROXY BELOW AND RETURN IN THE ENCLOSED ENVELOPE.
Dated: -----------, 2001
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(Signature)
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(Signature)
SIGNATURE(S) SHALL AGREE WITH
THE NAME(S) PRINTED ON THIS
PROXY. IF SHARES ARE
REGISTERED IN TWO NAMES, BOTH
STOCKHOLDERS SHOULD SIGN THIS
PROXY. IF SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE
GIVE YOUR FULL TITLE AS SUCH.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
