<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
AND 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>
[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 Rule 14a-11(c) or Rule 14a-12.
</TABLE>
MERITAGE HOSPITALITY GROUP 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)(1) and 0-11.
Title of each class of securities to which transaction applies:
___________________________________________________________________
Aggregate number of securities to which transaction applies:
___________________________________________________________________
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):
___________________________________________________________________
Proposed maximum aggregate value of transaction:
___________________________________________________________________
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 this filing.
Amount previously paid:
___________________________________________________________________
Form, Schedule or Registration Statement No.:
___________________________________________________________________
Filing Party:
___________________________________________________________________
Date Filed:
___________________________________________________________________
<PAGE> 2
MERITAGE HOSPITALITY GROUP INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 16, 2000
Dear Shareholder:
We invite you to attend our Annual Meeting of Shareholders at 9:00 a.m. Eastern
Time on May 16, 2000 at the Peninsular Club, 120 Ottawa N.W., Grand Rapids,
Michigan. The purposes of this Annual Meeting are:
- to elect six directors to serve for the next fiscal year;
- to approve an amendment to the Articles of Incorporation to repeal
Article VII which allows shareholder action by written consent;
- to approve an amendment to the Articles of Incorporation to enact
Article IX concerning limitations on the personal liability of
directors;
- to approve an amendment to the Articles of Incorporation to enact
Article X providing that shareholders can remove directors only for
cause;
- to ratify the appointment of Grant Thornton LLP as the Company's
independent public accountants for fiscal 2000; and
- to transact such other business as may properly come before the
meeting or any adjournment thereof.
At the meeting, you will also hear a report on our operations and have
a chance to meet your directors and executives.
This booklet includes the formal notice of the Annual Meeting and the
Proxy Statement. The Proxy Statement tells you more about the agenda and
procedures for the meeting. It also describes how the Board of Directors
operates and provides personal information about our directors and officers.
Even if you own only a few shares, we want your shares to be represented at the
meeting. I urge you to complete, sign, date and return your Proxy Card promptly
in the enclosed envelope.
Dated: March 21, 2000 Very truly yours,
/s/ Robert E. Schermer, Sr.
Robert E. Schermer, Sr.
Chairman of the Board of Directors
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE, SIGN AND PROMPTLY
RETURN YOUR PROXY CARD IN THE ENCLOSED ENVELOPE. PROXIES MAY BE REVOKED BY
WRITTEN NOTICE OF REVOCATION, THE SUBMISSION OF A LATER PROXY, OR BY ATTENDING
THE MEETING AND VOTING IN PERSON.
<PAGE> 3
MERITAGE HOSPITALITY GROUP INC.
40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
Telephone: (616) 776-2600
--------------------------------------------------
P R O X Y S T A T E M E N T
Annual Meeting of Shareholders
May 16, 2000
INTRODUCTION
The Board of Directors of Meritage Hospitality Group Inc. is requesting
your Proxy for use at the Annual Meeting of Shareholders on May 16, 2000 and at
any adjournment thereof, pursuant to the foregoing Notice. The approximate
mailing date of this Proxy Statement and the accompanying Proxy Card is April
10, 2000.
VOTING AT ANNUAL MEETING
GENERAL
- -------
Shareholders may vote in person or by Proxy. Proxies given may be
revoked at any time by filing with the Company either a written revocation or a
duly executed Proxy Card bearing a later date, or by appearing at the Annual
Meeting and voting in person. All shares will be voted as specified on each
properly executed Proxy Card. If no choice is specified, the shares will be
voted as recommended by the Board of Directors, and in the discretion of the
named proxies on any other matters voted on at the meeting. Abstentions and
shares not voted for any reason, including broker non-votes, will have no effect
on the outcome of any vote taken at the Annual Meeting.
As of March 20, 2000, the record date for determining shareholders
entitled to notice of and to vote at the Annual Meeting, the Company had
5,737,717 common shares outstanding. Each share is entitled to one vote. Only
shareholders of record at the close of business on March 20, 2000 will be
entitled to vote at the Annual Meeting.
PRINCIPAL SHAREHOLDERS
- ----------------------
The following persons are the only shareholders known by the Company to
own beneficially 5% or more of its outstanding common shares as of March 20,
2000:
<TABLE>
<CAPTION>
=============================== ============================================= ==================
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------- --------------------------------------------- ------------------
<S> <C> <C>
Robert E. Schermer, Sr. 505,153 (1) 8.8%
- ------------------------------- --------------------------------------------- ------------------
James R. Saalfeld 1,424,084 (2) 24.6%
=============================== ============================================= ==================
</TABLE>
(1) Includes options for 8,000 common shares which are immediately exercisable
and 4,000 common shares owned by Mr. Schermer's wife.
(2) Includes options for 23,139 common shares which are either vested or
exercisable within 60 days, and 1,392,868 common shares which are owned by
CBH Capital Corp. but for which Mr. Saalfeld holds an irrevocable proxy to
vote.
1
<PAGE> 4
The business address of Mr. Schermer is 333 Bridge Street, N.W., Suite
1000, Grand Rapids, Michigan 49504. The business address of Mr. Saalfeld is 40
Pearl Street, N.W., Suite 900, Grand Rapids, Michigan 49503.
ELECTION OF DIRECTORS
- ---------------------
The Company's Bylaws require that the Board of Directors consist of not
less than 5 nor more than 15 directors, with the exact number to be established
by the Board of Directors. The Board has established the number of directors to
be elected at the Annual Meeting at six. The Board is nominating for reelection
the following directors: James P. Bishop, Christopher P. Hendy, Joseph L.
Maggini, Jerry L. Ruyan, Robert E. Schermer, Sr., and Robert E. Schermer, Jr.
All directors elected at the Annual Meeting will be elected to hold
office until the next Annual Meeting. Shareholders are not entitled to cumulate
their votes in the election of directors. If any nominee should be unable to
serve, proxies will be voted for a substitute nominated by the Board of
Directors. Nominees receiving the highest number of votes cast for the positions
to be filed will be elected.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEES
FOR DIRECTOR.
AMENDMENT OF THE ARTICLES OF INCORPORATION
- ------------------------------------------
The Board of Directors is proposing three amendments to the Articles of
Incorporation in the interest of (i) modernizing and updating the Articles if
Incorporation and (ii) increasing the stability in the Board of Directors and
the Company's management.
The first proposed amendment is to repeal Article VII which permits
action that is otherwise required or permitted to be taken at a shareholder
meeting to be taken without a meeting, without notice and without a vote, if a
written consent is signed by the minimum votes necessary to authorize such
action. By repealing Article VII, all shareholder action must take place in an
open meeting. The Board believes this format provides a better forum for
shareholder action than a unilateral consent procedure, and permits minority
shareholders to express their views on every issue properly before the
shareholders.
THE BOARD RECOMMENDS A VOTE FOR AMENDING THE ARTICLES OF INCORPORATION
TO REPEAL ARTICLE VII.
The second proposal is to enact a new Article IX which would provide
that directors shall not be personally liable to the Company or its shareholders
for monetary damages for a breach of the director's fiduciary duty except where
the director (i) derived an improper personal benefit, (ii) intentionally
inflicted harm on the Company or its shareholders, (iii) violated certain
statutory provisions concerning unauthorized dividends and distributions, or
(iv) committed an intentional criminal act. This proposal is utilizing Michigan
statutory authority enacted since the Company's incorporation in 1986.
Provisions limiting liability of this nature are found in many jurisdictions.
The Board believes that such a provision will enhance the ability of the Company
to attract and retain directors who can actively proceed with the direction of
the Company's business without fear of incurring personal liability.
THE BOARD RECOMMENDS A VOTE FOR AMENDING THE ARTICLES OF INCORPORATION
TO ENACT ARTICLE IX.
2
<PAGE> 5
The third proposal is to enact a new Article X which would provide that
the Company's shareholders may remove members of the Board of Directors only for
cause. This proposal, which utilizes Michigan statutory authority, is being made
to promote the stability of the Board. The Board believes that directors should
be elected annually by shareholders at annual meetings and not subject to
removal or recall except in extreme cases for cause. The Board believes that
such a provision will enhance the ability of the Company to attract and retain
directors who can actively proceed with the direction of the Company's business
without fear of being removed except for cause.
THE BOARD RECOMMENDS A VOTE FOR AMENDING THE ARTICLES OF INCORPORATION
TO ENACT ARTICLE X.
The affirmative vote of a majority of all shares entitled to vote at
the Annual Meeting is required for the passage of each of these proposed
amendments to the Articles of Incorporation. The adoption of these amendments
could have the effect of enabling the Board of Directors to delay or defer
changes in control of the Company by persons seeking changes in the majority of
the Board of Directors.
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
- ------------------------------------------
The Board of Directors appointed Grant Thornton LLP as the Company's
independent public accountants for the fiscal year ending November 30, 2000.
Grant Thornton LLP has been the independent accounting firm for the Company
since fiscal 1993. Although not required by law, the Board is seeking
shareholder ratification of this selection. The affirmative vote of a majority
of shares voting at the Annual Meeting is required for ratification.
Representatives of Grant Thornton LLP are expected to be present at the
Annual Meeting and will be given an opportunity to comment if they desire, and
to respond to appropriate questions that may be asked by shareholders.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF GRANT THORNTON LLP
AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING NOVEMBER 30,
2000.
OTHER MATTERS
- -------------
Any other matters considered at the Annual Meeting which have properly
come before the meeting, including adjournment of the meeting, will require the
affirmative vote of a majority of shares voting.
VOTING BY PROXY
- ---------------
All Proxy Cards properly signed will, unless a different choice is
indicated, be voted (i) "FOR" election of all nominees for director proposed by
the Board of Directors, (ii) "FOR" amending the Articles of Incorporation to
repeal Article VII, (iii) "FOR" amending the Articles of Incorporation to enact
Article IX, (iv) "FOR" amending the Articles of Incorporation to enact Article
X, and (v) "FOR" ratification of the selection of independent public
accountants. If any other matters come before the Annual Meeting or any
adjournment thereof, each Proxy will be voted in the discretion of the
individual named as proxy.
3
<PAGE> 6
SHAREHOLDER PROPOSALS
- ---------------------
Shareholders who desire to include proposals in the Notice for the 2001
Annual Shareholders' Meeting must submit the written proposals to the Company's
Secretary no later than December 14, 2000.
The form of Proxy for this meeting grants authority to the designated
proxies to vote in their discretion on any matters that come before the meeting
except those set forth in the Company's Proxy Statement and except for matters
as to which adequate notice is received. For notice to be deemed adequate for
the 2001 Annual Shareholders' Meeting, it must be received prior to February 23,
2001. If there is a change in the anticipated date of next year's Annual
Shareholders' Meeting or these deadlines by more than 30 days, we will notify
you of this change through our Form 10-Q filings.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
- --------------------------------------------------------
The following is information concerning the current directors,
executive officers and significant employees of the Company as of March 20,
2000:
<TABLE>
<CAPTION>
===================================== ==================================== =====================================
COMMON SHARES
BENEFICIALLY OWNED
------------------
NAME AND AGE (1) POSITION AMOUNT (2) PERCENTAGE
------------------------------------- ------------------------------------ ------------------- -----------------
<S> <C> <C> <C>
Robert E. Schermer, Sr. (3) (4) (5) Chairman of the Board of Directors 505,153 8.8%
64
------------------------------------- ------------------------------------ ------------------- -----------------
Robert E. Schermer, Jr. (3) (6) (7) President, Chief Executive Officer 240,893 4.1%
41 and Director
------------------------------------- ------------------------------------ ------------------- -----------------
Ray E. Quada (6) Senior Vice President & Chief 28,389 *
55 Operating Officer
------------------------------------- ------------------------------------ ------------------- -----------------
Pauline M. Krywanski (6) Vice President, Treasurer & Chief 16,416 *
39 Financial Officer
------------------------------------- ------------------------------------ ------------------- -----------------
James R. Saalfeld (6) (8) Vice President, Secretary and 1,424,084 24.6%
32 General Counsel
------------------------------------- ------------------------------------ ------------------- -----------------
James P. Bishop (4) (9) Director 12,909 *
59
------------------------------------- ------------------------------------ ------------------- -----------------
Christopher P. Hendy (9) Director 13,114 *
42
------------------------------------- ------------------------------------ ------------------- -----------------
Joseph L. Maggini (3) (4) (10) Director 175,304 3.0%
60
------------------------------------- ------------------------------------ ------------------- -----------------
Jerry L. Ruyan (9) Director 242,296 4.2%
53
------------------------------------- ------------------------------------ ------------------- -----------------
All Current Executive Officers and 2,658,558 45.1%
Directors as a Group (9 persons)
===================================== ==================================== =================== =================
* Less than 1%
</TABLE>
(1) Unless otherwise indicated, the persons named have sole voting and
investment power and beneficial ownership of the securities.
(2) Includes options held by all non-employee directors to acquire 6,000 or
8,000 shares pursuant to the 1996 Directors' Share Option Plan.
(3) Executive Committee Member.
(4) Compensation Committee Member.
(5) Includes 4,000 shares held directly by Mr. Schermer, Sr.'s wife.
(6) Includes options presently exercisable, or exercisable within 60 days, for
Mr. Schermer, Jr. of 82,000 shares, Mr. Quada of 6,389 shares, Ms.
Krywanski of 11,666 shares, and Mr. Saalfeld of 23,139 shares.
(7) Includes 3,250 shares held by Mr. Schermer, Jr. as custodian for his minor
children.
4
<PAGE> 7
(8) Includes 1,392,868 shares owned by CBH Capital Corp. but for which Mr.
Saalfeld holds a proxy to vote. See "Certain Relationships and Related
Transactions."
(9) Audit Committee Member.
(10) Includes 1,100 shares held directly by Mr. Maggini's wife, and 1,000 shares
held directly by Mr. Maggini's son.
Robert E. Schermer, Sr. has been a director of the Company since
January 25, 1996. He is currently Senior Vice President and a Managing Director
of Robert W. Baird & Co. Incorporated, an investment banking and securities
brokerage firm headquartered in Milwaukee, Wisconsin. Mr. Schermer has held this
position for more than five years. He is the father of Robert E. Schermer, Jr.
Robert E. Schermer, Jr. has been a director of the Company since
January 25, 1996. He has been President and Chief Executive Officer of the
Company since October 6, 1998. Mr. Schermer also served as Treasurer of the
Company from January 1996 until September 1996, and as Executive Vice President
from January 1996 until October 1998.
Ray E. Quada has been the Senior Vice President and Chief Operating
Officer of the Company since May 19, 1998. From 1990 through 1998, Mr. Quada was
the Chief Executive Officer of the previous owner of the Company's Wendy's
operations. From 1994 through 1997, Mr. Quada was a director of First Michigan
Bank.
Pauline M. Krywanski has been Vice President, Treasurer and Chief
Financial Officer of the Company since May 20, 1997. From 1988 to 1997, Ms.
Krywanski was with American Medical Response, a healthcare transportation
provider, where she was Director of Financial Operations for the Midwest Region.
Ms. Krywanski is a Certified Public Accountant.
James R. Saalfeld has been Vice President, Secretary and General
Counsel of the Company since March 20, 1996. From 1992 until 1996, Mr. Saalfeld
was with Dykema Gossett PLLC, a law firm headquartered in Detroit, Michigan. Mr.
Saalfeld is a licensed member of the Michigan Bar.
James P. Bishop has been a director of the Company since July 16, 1998.
He is a CPA and the President and majority owner of the Bishop, Gasperini &
Flipse, P.C. accounting firm in Kalamazoo, Michigan, where he has worked since
1973. Mr. Bishop was appointed by Michigan's Governor to the Administrative
Committee on Public Accountancy in 1993.
Christopher P. Hendy has been a director of the Company since July 16,
1998. Since August 1996, Mr. Hendy has been a partner in Redwood Holdings, Inc.,
an investment/venture capital company located in Cincinnati, Ohio. Between 1991
and August, 1996, Mr. Hendy was the Vice President Manager - Asset Based Lending
with Fifth Third Bank. Mr. Hendy is also a director of Hemagen Diagnostics, Inc.
(HMGN: NAS), a manufacturer of medical diagnostic test kits, and Schonstedt
Instrument Company, a manufacturer of magnetic field detecting and measuring
instruments.
Joseph L. Maggini has been a director of the Company since January 25,
1996. Since he founded it in 1974, Mr. Maggini has served as President and
Chairman of the Board of the Magic Steel Corporation, a steel service center
located in Grand Rapids, Michigan.
Jerry L. Ruyan has been a director of the Company since October 24,
1996. In September 1999, Mr. Ruyan was appointed Chairman and CEO of Hemagen
Diagnostics, Inc. Since 1995, Mr. Ruyan has been a partner in Redwood Holdings,
Inc. He is also a founder, and a former officer and director, of
5
<PAGE> 8
Meridian Diagnostics, Inc., a producer of medical diagnostic products. In
addition, Mr. Ruyan is Chairman of the Board of Schonstedt Instrument Company,
and a director of Popmail.com (POPM:NAS), an Internet permission based marketing
company.
BOARD ACTIONS
- -------------
During fiscal 1999, the Board of Directors met four times and took
action in writing on three occasions.
The Executive Committee, comprised of Messrs. Schermer, Sr. (Chairman),
Maggini and Schermer, Jr., possesses and may exercise all of the powers of the
Board of Directors in the management and control of the business of the Company
to the extent permitted by law. The Executive Committee took action in writing
on four occasions during fiscal 1999.
The Audit Committee, comprised of Messrs. Ruyan (Chairman), Bishop and
Hendy, all of whom are non-employee directors, reviews the audit reports
submitted by the Company's independent accountants, reviews the Company's
internal accounting operations, and recommends the employment of the Company's
independent accountants. The Audit Committee met once during fiscal 1999.
The Compensation Committee, comprised of Messrs. Maggini (Chairman),
Bishop and Schermer, Sr., all of whom are non-employee directors (i) establishes
the Company's general compensation policies, (ii) recommends and establishes the
compensation and incentives awards for management, and (iii) administers the
1996 Management Equity Incentive Plan, the 1996 Directors' Share Option Plan,
and the 1999 Directors' Compensation Plan. The Compensation Committee met once,
and took action in writing on four occasions, during fiscal 1999.
Directors who are not employed by the Company receive a retainer of
$1,000 for each meeting of the Board of Directors attended, and $500 for each
committee meeting attended. These fees are reduced by 50% if participation is by
telephone. Compensation is paid by the Company quarterly in arrears, in the form
of Company common shares which are priced at the average fair market value
during the five trading days prior to the end of each fiscal quarter.
Each non-employee director is also granted an option for 5,000 common
shares upon initial election to the Board of Directors, and another option for
1,000 shares upon each subsequent election. The exercise price of options
granted pursuant to the 1996 Directors' Share Option Plan is the last closing
sale price reported on the date of grant. Directors who are employees of the
Company are not separately compensated for serving as directors.
In fiscal 1999, each incumbent director attended all of the meetings of
the Board of Directors and the committees on which the director served.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who own more than ten percent of the
Company's common shares to file reports of ownership with the SEC and to furnish
the Company with copies of these reports. Based solely upon its review of
reports received by it, or upon written representation from certain reporting
persons that no reports were required, the Company believes that during fiscal
1999 all filing requirements were met.
6
<PAGE> 9
EXECUTIVE COMPENSATION
- ----------------------
This table sets forth information regarding compensation paid to the to
Company's Chief Executive Officer and the executive officers or significant
employees earning in excess of $100,000 in fiscal 1999:
<TABLE>
<CAPTION>
===============================================================================================================
SUMMARY COMPENSATION TABLE
- -------------------------------- ---------- ------------------------------ ------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
SECURITIES UNDER- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS LYING OPTIONS COMPENSATION
- -------------------------------- ---------- --------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Robert E. Schermer, Jr. 1999 $127,000 $27,782 50,000 ---
President & Chief Executive 1998 $164,773 $25,000 45,000 ---
Officer 1997 $157,500 $17,500 45,000 ---
- -------------------------------- ---------- --------------- -------------- ------------------- ----------------
Ray E. Quada 1999 $122,470 $25,884 25,768 ---
Senior Vice President & Chief 1998 $120,941 $36,649 12,500 ---
Operating Officer 1997 $105,666 $20,707(1) --- ---
- -------------------------------- ---------- --------------- -------------- ------------------- ----------------
Pauline M. Krywanski 1999 $101,600 $22,225 24,496 ---
Vice President, Treasurer & 1998 $ 98,958 $20,000(2) 10,000 ---
Chief Financial Officer 1997 $ 59,564 $ 0 10,000 ---
- -------------------------------- ---------- --------------- -------------- ------------------- ----------------
James R. Saalfeld 1999 $ 91,440 $20,003 27,741 ---
Vice President, General 1998 $ 87,917 $20,000(2) 10,000 ---
Counsel & Secretary 1997 $ 80,000 $ 0 10,000 ---
================================ ========== =============== ============== =================== ================
</TABLE>
(1) Includes 2,000 shares of Meritage Common Stock which were valued at $5.00
per share.
(2) Includes $10,000 for fiscal 1997 performance.
STOCK OPTIONS
- -------------
The following tables contain information concerning the grant of stock
options to the executives and employees identified in the Summary Compensation
Table and the appreciation of such options:
<TABLE>
<CAPTION>
===================================================================================================================
OPTION GRANTS IN FISCAL 1999
- -------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE PRICE EXPIRATION
NAME OPTIONS GRANTED EMPLOYEES IN ($ PER SHARE) DATE 5% 10%
FISCAL 1999
- ---------------------------- ---------------- --------------- ------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Schermer, Jr. 50,000 31.0% $ 1.50 2/16/2009 $47,175 $119,550
- ---------------------------- ---------------- --------------- ------------- ----------- ------------ --------------
Ray E. Quada 25,768 16.0% (1) (1) $36,534 $92,583
- ---------------------------- ---------------- --------------- ------------- ----------- ------------ --------------
Pauline M. Krywanski 24,496 15.2% (2) (2) $33,606 $85,163
- ---------------------------- ---------------- --------------- ------------- ----------- ------------ --------------
James R. Saalfeld 27,741 17.2% (3) (3) $35,618 $90,263
============================ ================ =============== ============= =========== ============ ==============
</TABLE>
(1) Mr. Quada received three separate option grants during fiscal 1999: (a)
6,944 shares with an exercise price of $1.50 and an expiration date of
2/16/09, (b) 7,059 shares with an exercise price of $2.69 and an expiration
date of 5/31/09, and (c) 11,765 shares with an exercise price of $2.4375
and an expiration date of 11/30/09.
7
<PAGE> 10
(2) Ms. Krywanski received three separate option grants during fiscal 1999: (a)
8,333 shares with an exercise price of $1.50 and an expiration date of
2/16/09, (b) 6,061 shares with an exercise price of $2.69 and an expiration
date of 5/31/09, and (c) 10,102 shares with an exercise price of $2.4375
and an expiration date of 11/30/09.
(3) Mr. Saalfeld received three separate option grants during fiscal 1999: (a)
13,194 shares with an exercise price of $1.50 and an expiration date of
2/16/09, (b) 5,455 shares with an exercise price of $2.69 and an expiration
date of 5/31/09, and (c) 9,092 shares with an exercise price of $2.4375 and
an expiration date of 11/30/09.
<TABLE>
<CAPTION>
===================================================================================================================
FISCAL 1999 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR END YEAR END
SHARES
ACQUIRED ON
NAME EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- --------------- ----------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C>
Robert E. Schermer, Jr. --- --- 54,000/131,000 (1) $0/$46,875
- --------------------------- --------------- ----------------- ------------------------- ---------------------------
Ray E. Quada --- --- 2,500/35,768 (1) $0/$6,510
- --------------------------- --------------- ----------------- ------------------------- ---------------------------
Pauline M. Krywanski --- --- 6,000/38,496 (1) $0/$7,812
- --------------------------- --------------- ----------------- ------------------------- ---------------------------
James R. Saalfeld --- --- 16,500/48,741 (1) $0/$12,369
=========================== =============== ================= ========================= ===========================
</TABLE>
(1) There is no value associated with the exercisable portion of the options
because the exercise price for these options was established at either
$3.50 or $7.00 per share, and the price of the stock at year end was less
than $3.50 per share.
REPORT OF THE COMPENSATION COMMITTEE
- ------------------------------------
The Compensation Committee establishes compensation for executive
officers by setting salaries, establishing bonus ranges, making bonus awards and
granting stock options on an annual basis. The Committee believes it is
important to provide competitive levels of compensation that will enable the
Company to attract and retain the most qualified executives and to provide
incentive plans that emphasize stock ownership, thereby aligning the interests
of management with the shareholders of the Company.
At a meeting held on February 16, 1999, the Committee established
fiscal 1999 base salaries and the means by which incentives would be awarded to
the Company's officers in fiscal 1999. In setting the officers' salaries, the
Committee subjectively evaluated each officer's (i) performance, (ii) level of
responsibility, (iii) potential for continued employment, (iv) duties for the
upcoming fiscal year, and (v) contribution in conjunction with the Company's
accomplishments during the past year. The Committee took into account the
recommendations of the President and Chief Executive Officer in establishing the
salaries for officers other than himself. The President's salary was determined
separately but in the same manner as all other officers of the Company (but
without the President's participation). Each officer was granted a 1.6% raise
from their 1998 salary.
The Committee also approved an executive compensation package for
fiscal 1999 that objectively linked the officers' annual incentive awards
(bonuses and stock options) to the Company's actual financial performance. Under
this package, incentive awards were based on a comparison of the Company's
actual cash flow performance with the Company's financial forecast as approved
at the beginning of the fiscal year. If designated cash flow levels were
achieved, the amount of each incentive award was determined by multiplying each
officer's base compensation by percentages keyed to designated cash flow levels.
At a meeting held on December 14, 1999, the Committee confirmed that the
8
<PAGE> 11
cash flow targets contained in the package were achieved, and ratified the
bonuses and option grants established under the package and as reported in the
Summary Compensation Table and the Option Grants Table set forth in the
Company's Proxy Statement.
Adoption of the fiscal 1999 salaries and executive compensation package
was ratified by the entire Board of Directors. All salaries and cash bonuses
were fully deductible for federal income tax purposes for 1999.
Compensation Committee of the
Board of Directors
Joseph L. Maggini, Chairman
James P. Bishop
Robert E. Schermer, Sr.
CORPORATE PERFORMANCE GRAPH
- ---------------------------
The following graph demonstrates the yearly percentage change in
Meritage's cumulative total shareholder return on its common shares (as measured
by dividing (i) the sum of (a) the cumulative amount of dividends, assuming
dividend reinvestment during the periods presented, plus (b) the difference
between Meritage's share price at the beginning and end of the periods
presented; by (ii) the share price at the beginning of the periods presented)
from October 18, 1995 through November 30, 1999, with the cumulative total
return on the Russell 2000 Index and a Peer Group Index. Because the Company's
stock price was not published from May 1989 through October 18, 1995, the graph
does not reflect cumulative shareholder return prior to October 18, 1995. The
comparison assumes $100 was invested on October 18, 1995 in the Company's common
shares and in each of the indexes presented.
The Peer Group members include BAB Holdings Inc., Back Yard Burgers
Inc., Boston Restaurants Assocs. Inc., Chicago Pizza and Brewery Inc., Family
Steak Houses of Florida Inc., Flanigans Enterprises Inc., Grill Concepts Inc.,
MBC Holding Company (f/k/a Minnesota Brewing Co.), Morgans Foods Inc., Phoenix
Restaurant Group Inc. (f/k/a DenAmerica Corp.) and Tubby's Inc. Two companies
that were in the Peer Group in 1998 (Big City Bagels Inc. and Cafe Odyssey Inc.)
were dropped from the Peer Group in 1999 because they are no longer primarily
involved in the food service industry.
9
<PAGE> 12
COMPARISON OF CUMULATIVE TOTAL RETURN
[Graph of Comparison of Cumulative Total Return]
Meritage
Hospitality Peer Russell
Group Inc. Group 2000
10/18/1995 $100 $100 $100
11/30/1995 $ 90 $ 93 $100
11/30/1996 $ 94 $ 87 $121
11/30/1997 $ 39 $ 49 $159
11/30/1998 $ 21 $ 32 $149
11/30/1999 $ 36 $ 27 $147
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------
Management believes that the following transactions were on terms no
less favorable to the Company than those that could be obtained from
unaffiliated parties.
In October 1998, the Board of Directors authorized the Company to sell
participation interests (with recourse) in the $1,844,617 note payable received
from the sale of one of its former hotel properties. The Company sold $1,100,000
in total participation interests, including a $500,000 sale to Joseph L.
Maggini. Mr. Maggini entered into a participation agreement which contained the
same terms as the agreements entered into with third parties that purchased
interests. In August 1999, the note was paid in full. Mr. Maggini's
participation interest was thereafter paid in full and fully discharged.
At November 30, 1999, CBH Capital Corp. (which is owned by former
executive officer and director Christopher B. Hewett) owed the Company
$9,750,000 pursuant to a secured, non-interest bearing note in the original
amount of $10,500,000 issued to the Company in payment for 1,500,000 common
shares issued in September 1995. The note was analyzed by Roney & Co. (now known
as Raymond James & Associates), a nationally recognized investment banking firm,
before delivering its fairness opinion regarding the transaction. The note and
corresponding pledge agreement were amended in February 1999, such that the
principal amount of the note is due and payable on the expiration of the note
(September 19, 2000), rather than in installment payments over a five year
period. This amendment was part of a larger settlement agreement between Mr.
Hewett, CBH Capital Corp. and the Company.
10
<PAGE> 13
Under the settlement agreement, 1,392,868 common shares owned of record by CBH
Capital Corp. are held by the Company as collateral pursuant to the note and
pledge agreement, recovery of which is the sole remedy in the event of a
default. Also as part of the settlement agreement, CBH Capital Corp. granted an
option to the Company to purchase the collateralized shares for $9,750,000 if
CBH Capital Corp. obtains the collateralized shares by making the full payment
under the note. Also, Mr. Hewett and CBH Capital Corp. entered into a voting
agreement with James R. Saalfeld (Vice President, General Counsel and Secretary
of the Company), pursuant to which Mr. Saalfeld received an irrevocable proxy
from Mr. Hewett and CBH Capital Corp. to vote the 1,392,868 common shares owned
by CBH Capital Corp. These shares, combined with the 8,077 common shares owned
of record by Mr. Saalfeld, shall be voted in accordance with the recommendation
of the Company's Board of Directors on all matters submitted to a vote of the
Company's shareholders or, if the Board fails to make a recommendation, as Mr.
Saalfeld deems proper. To facilitate these transactions, the Board (i) opted out
of Chapter 7A of the Michigan Business Corporation Act such that Chapter 7A did
not apply to the transactions, and (ii) amended the Company's Bylaws to
temporarily opt out of the Chapter 7B of the Michigan Business Corporation Act
such that Chapter 7B would not apply to any control share acquisitions involving
the Company's common shares between February 8, 1999 and February 11, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- -----------------------------------------------------------
None.
OTHER MATTERS
- -------------
Meritage is not aware of any other matters to be presented at the
Annual Meeting other than those specified in the Notice. If you have questions
or need more information about the Annual Meeting, please write or call:
James R. Saalfeld, Secretary
Meritage Hospitality Group Inc.
40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
(616) 776-2600
For more information about your record holdings, you may contact Fifth
Third Bank Shareholder Services at (800) 837-2755.
Dated: March 21, 2000 By Order of the Board of Directors,
/s/ James R. Saalfeld
James R. Saalfeld
Secretary
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<PAGE> 14
MERITAGE HOSPITALITY GROUP INC.
PROXY The undersigned hereby appoints ROBERT E. SCHERMER, JR. and JAMES R.
FOR SAALFELD, or either of them, proxies of the undersigned, each with the
ANNUAL power of substitution, to vote all shares of Common Stock which the
MEETING undersigned would be entitled to vote on the matters specified below
and in their discretion with respect to such other business as may
properly come before the Annual Meeting of Shareholders of Meritage
Hospitality Group Inc. to be held on Tuesday, May 16, 2000 at 9:00
a.m. Eastern Time at the Peninsular Club, 120 Ottawa N.W., Grand
Rapids, Michigan or any adjournment of such Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS:
1. Authority to elect as directors the six nominees listed below.
FOR __________ WITHHOLD AUTHORITY __________
JAMES P. BISHOP, CHRISTOPHER P. HENDY, JOSEPH L. MAGGINI, JERRY L.
RUYAN, ROBERT E. SCHERMER, SR. AND ROBERT E. SCHERMER, JR.
WRITE THE NAME OF ANY NOMINEE(S) FOR WHOM AUTHORITY TO VOTE IS
WITHHELD: ___________________________________________________________
_____________________________________________________________________
2. Approval of an amendment to the Articles of Incorporation to repeal
Article VII which allows shareholder action by written consent.
FOR __________ AGAINST __________ ABSTAIN __________
3. Approval of an amendment to the Articles of Incorporation to enact
Article IX concerning limitations on the personal liability of
directors.
FOR __________ AGAINST __________ ABSTAIN __________
4. Approval of an amendment to the Articles of Incorporation to enact
Article X providing that shareholders can remove directors only for
cause.
FOR __________ AGAINST __________ ABSTAIN __________
5. Ratification of the appointment of Grant Thornton LLP as
independent public accountants for the fiscal year ending
November 30, 2000.
FOR __________ AGAINST __________ ABSTAIN __________
THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS
UNLESS A CONTRARY CHOICE IS SPECIFIED.
(This proxy is continued and is to be signed on the reverse side)
<PAGE> 15
Date _____________________________, 2000
________________________________________
________________________________________
(Important: Please sign exactly as name
appears hereon indicating, where proper,
official position or representative
capacity. In the case of joint holders,
all should sign.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
