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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended October 26, 2003
Commission File Number: 0-11514
Max & Erma's Restaurants, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 31-1041397
- -------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4849 Evanswood Drive Columbus, Ohio 43229
- -------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 431-5800
-------------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.10 Par Value
-----------------------------
(title of class)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days. YES X NO
--- ---
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by checkmark whether the registrant is an accelerated filed (as
defined in Exchange Act Rule 12b-2) Yes ( ) No (X)
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value has been computed by reference to
the closing bid price of such stock, as of December 31, 2003.
Total shares outstanding 2,452,814
Number of shares owned beneficially 1,264,259
and/or of record by directors and officers (1)
Number of shares held by persons 1,326,755
other than directors or officers
Closing bid price $ 18.25
Market value of shares held by $ 24,213,279
persons other than directors or officers
(1) For purposes of this computation all officers and directors are included.
Includes options to purchase 138,200 shares of common stock, all of which are
presently exercisable.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
2,452,814 Common Shares
were outstanding at December 31, 2003
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Shareholders for the Fiscal Year Ended October 26, 2003
(in pertinent parts, as indicated).....Parts II and IV.
2. Proxy Statement for 2004 Annual Meeting of Shareholders (in pertinent
parts, as indicated).....Part III.
PART I
Item 1. BUSINESS
- ----------------
Max & Erma's Restaurants, Inc. (the "Company"), owns, operates and
franchises (sixteen) a chain of eighty-nine Max & Erma's restaurants at December
31, 2003. The Company is a Delaware corporation organized in 1982, as the
successor to a restaurant business founded in 1971. The Company has registered
the phrase "Max & Erma's - The Hometown Favorite" and its associated logo as a
service mark with the United States Patent and Trademark Office.
The Company's executive offices are located at 4849 Evanswood Drive,
Columbus, Ohio 43229, and its telephone number is (614) 431-5800.
Description of Business
- -----------------------
Max & Erma's restaurants are famous for gourmet burgers, overstuffed
sandwiches, homemade pasta dishes, chargrilled steak and chicken specialties,
super salads and taste-tempting munchies. Unique to the Max & Erma's concept is
the Build-Your-Own-Sundae Bar, a bathtub filled with vanilla ice cream, special
sauces and lots of toppings along with baked while you eat chocolate chip
cookies. In addition, the restaurants offer a full complement of alcoholic and
non-alcoholic beverages. Management believes that the decor and theme of Max &
Erma's restaurants allow the introduction of a broad range of menu items, thus
permitting rapid adjustment to changing customer preferences.
Antique artifacts and local paraphernalia make Max & Erma's a fun,
unique place to take friends and family. The use of brick, a combination of
light and dark colors, and dropped lighting creates a roomy, yet cozy feel for
customers to enjoy while dining. The neighborhood atmosphere of each restaurant
is enhanced by inclusion of local items in each restaurant's decor, including
sports team paraphernalia and historical artifacts. Additional decor items
include a giant bubble gum machine, a three-dimensional burger, an antique love
tester and many other things. Giant murals, both inside and outside the
restaurant, combine the history and tradition of each market with the Max &
Erma's story.
Max & Erma's restaurants are open for both lunch and dinner seven days
a week. Hours of operation are generally 11:00 a.m. to midnight. During fiscal
2003, the average check was approximately $10.55 at lunch and $11.36 at dinner.
The lunch and dinner meal periods accounted for approximately 39% and 61% of net
sales, respectively. Alcoholic beverages constituted approximately 10.3% of net
sales in fiscal 2003. Generally, the Company's business does not experience
seasonal fluctuations of sales.
The Company's strategy is to compete in the casual dining segment of
the restaurant industry by offering a variety of high quality food in a casual,
comfortable and fun atmosphere and with a uniquely personable service style. The
philosophy of the Company is to focus on the details of the customer experience
that instill customer loyalty and promote repeat business. The purpose of every
associate is to "help our guests enjoy their total dining experiences so they
can't wait to come back." The Company believes the dining experience starts with
the food and therefore uses only the freshest, high quality ingredients in every
menu item.
1
Freshness and quality are truly the foundations upon which Max & Erma's
was built. The Company strives to do things the right way, not the easy way. It
believes this dedication makes it better and that its guests return more often.
Market research indicates that customers often know what they are going to order
before they get to the restaurants because they crave certain signature items.
Being a "purpose-driven" company requires an ability to understand what
guests want, and a dedication to focus all associates' energies on exceeding
those expectations. Management believes that the best expressions of guests'
desires can be translated to a phrase that captures Max & Erma's character.
Specifically, the concept of the "Hometown Favorite" evokes images of trust,
friendliness and wholesomeness. This means that associates treat guests with
respect, like friends or neighbors, and provide them with the kind of food,
service and atmosphere that will make them want to return often.
Management believes that Max & Erma's reputation is built every day
with every customer served and that a key to customer loyalty is the server.
Food is delivered to the table by the server instead of a food runner, and
servers are required to recheck the table two minutes after delivering the meal.
Moreover, the wait staff is empowered to address customer problems without the
assistance of restaurant management.
Max & Erma's restaurants have always been known for gourmet hamburgers
and specialty sandwiches; however, one part of the Company's focus on the
customer is an evolving menu that changes to meet consumer tastes. The Company
believes its menu should be fun as well as innovative, and reviews and revises
the menu twice each year, and in addition offers seasonal menu inserts at
various times of the year. By periodically modifying its menu through the
introduction of a broad range of appealing new menu items the Company has
achieved a more diversified sales mix.
The Company makes use of consumer focus groups to conduct marketing
research. Management incorporates the findings of this market research in its
advertising, menu development, employee training, and building design and decor.
According to customers, the major point of difference between the Company and
its competitors is that Max & Erma's restaurants are perceived as being more of
a "fun place," an image the Company tries to foster in its advertising. The
Company spent approximately 1.9% of sales on advertising in 2003. It primarily
uses special events and localized store marketing designed to increase customer
awareness and repeat business and to a lesser extent billboards, direct mail and
radio.
The Company owns the business, exclusive of the real estate, for
seventy-two of the Max & Erma's restaurants in operation at December 31, 2003.
The business and real estate for one restaurant is owned by a separate
affiliated partnership. In addition to a 60% interest in the profits and losses
of the affiliated partnership, the Company is paid an annual fee equal to 6% of
gross revenues for managing the Max & Erma's restaurant owned by the
partnership. The management contract provides for monthly payments to the
Company for an initial term of two years and renewal terms aggregating 20
additional years upon the mutual agreement of the parties. As general partner
the Company is potentially liable for 100% of the partnership losses.
The Company franchises sixteen restaurants to unaffiliated franchisees
at October 26, 2003. The first two franchised restaurants opened in 1998 in the
Columbus and Cleveland, Ohio airports. Beginning in fiscal 2000, and each year
thereafter, three to four franchised restaurants have opened annually.
2
In fiscal 2003 franchised locations opened in Philadelphia, Pennsylvania;
Edinburgh, Indiana; Green Bay, Wisconsin and the Cleveland, Ohio airport. Terms
of the agreements call for an initial franchise fee plus a monthly royalty
generally equal to 4% of sales.
Subsequent to October 26, 2003, a franchised restaurant opened in
Philadelphia, Pennsylvania. At December 31, 2003 one franchised restaurants was
under construction in the Cincinnati, Ohio airport. In addition to the
franchised restaurant that opened early in fiscal 2004 and the restaurant under
construction at December 31, 2003, the Company anticipates the opening of three
to five additional franchised restaurants during fiscal 2004. At December 31,
2003, the company had six multi-unit franchised agreements signed, requiring the
total development of an additional 26 restaurants over the next nine years. At
December 31, 2003, several additional multi-unit franchise agreements were being
negotiated.
Competition
- -----------
The restaurant business, particularly in the casual dining segment, is
highly competitive in terms of quality and value of products served, type and
variety of menu offered, quality and efficiency of service, ambiance and
attractiveness of facilities and site location. Max & Erma's restaurants compete
with food service operations of various types within their respective locations,
including national and regional chains as well as locally-owned and operated
restaurants. Many of the Company's competitors are substantially larger and have
greater financial resources than the Company.
Employees
- ---------
At October 26, 2003, the Company had 5,251 employees, of which 1,763
were full-time restaurant employees, 3,142 were part-time restaurant employees,
91 were corporate staff personnel and 255 were restaurant managerial personnel.
None of the Company's employees are represented by a labor union or a collective
bargaining unit. The Company considers relations with its employees to be good.
Restaurant Operations
- ---------------------
The Company strives to maintain quality and uniformity in its
restaurants through careful training and supervision of personnel. All
restaurants are operated in accordance with uniform Company specifications,
which are set forth in detailed operating manuals relating to food and beverage
preparation, maintenance of premises and employee conduct. The Company utilizes
an independent shopping service to monitor implementation of Company operating
standards. The Company and the shopping service have developed testing standards
for the major aspects of restaurant operation, including physical appearance,
cleanliness, wait staff and food quality. The shopping service has "mystery
shoppers" visit each restaurant four times each quarter to evaluate and grade
the restaurant. A report is prepared by the shopping service for each visit and
is reviewed by the
3
Company's Vice President, Operations and the respective regional and general
managers. A portion of the bonus for each regional and general manager is based
on the scores received on the shopping service reports. The Company also makes
available at each table postage-paid comment cards addressed to the restaurant's
Regional Manager, who responds to any negative comments.
Restaurant operations are administered by a management staff headed by
the Vice President, Operations. Two Regional Vice Presidents of Operations
report directly to the Vice President, Operations. Seventeen regional managers,
each of whom supervises the operations of four to five restaurants, report to
either the Vice President, Operations or to one of the Regional Vice President
of Operations. Each restaurant has a general manager, who is responsible for
training and supervising approximately 40 to 100 employees, and two or three
assistant managers. Regional managers are responsible for hiring their general
and assistant managers. General managers, with the assistance of the regional
manager, are responsible for hiring restaurant employees. The Company seeks to
hire experienced restaurant personnel who must complete a 14-week training
program conducted by the Company before becoming an assistant manager. The
Company has historically promoted from within to fill its regional and general
manager positions.
Both regional and general managers receive a base salary plus a bonus
based upon performance against budget and average independent shopping service
scores. General managers prepare quarterly budgets for their stores and regional
managers prepare quarterly budgets for their regions. Bonuses are based on
specific goals derived from these quarterly budgets. Both regional and general
managers are eligible for a cash bonus equal to one-half of the purchase price
of the first 1,000 shares of the Company's common stock they purchase each
quarter. Management believes that its bonus system and the ability to purchase
common stock promote loyalty and highly motivate managers to meet Company goals.
Management believes that the combination of the authority delegated to
its regional and general managers, particularly with respect to hiring
employees, together with its goal-specific bonus plans, results in a positive
work environment and has contributed to relatively low management turnover.
Managing Partner Program
- ------------------------
At the start of 1999 the Company introduced its Managing Partner
Program. Under this program an eligible general manager and the Company entered
into a five-year agreement in which the general manager places either 500 or
1,000 shares of Max & Erma's common stock which he or she owns in escrow with
the Company and agrees to manage their restaurant for a five year period. The
shares of stock are forfeited if the general manager terminates their employment
during the term of the agreement. In return the Company agrees to not relocate
the general manager during the term of the agreement. During the term of the
agreement the general manager's base salary is fixed. As additional compensation
they receive 25% of the increase in profit before fixed expenses over a
pre-established base profit (generally the average of profit before fixed
expenses for the most recent three fiscal years). The Company believes the
program encourages the general manager to both build sales and control margins,
creates a sense of ownership, reduces management turnover and promotes a
longer-term perspective. At the end of fiscal 2003, the Company had a total of
21 Managing Partners, two of whom renewed agreements which were at the end of
their initial five-year term. The Company also added six additional Managing
Partners at the start of fiscal 2004.
4
Purchasing and Inventory
- ------------------------
Meat and most other food and restaurant supply items are purchased
through one major distributor in order to obtain favorable prices and to ensure
consistent quality and delivery. For major items, the Company typically
negotiates prices directly with producers. For other items, the Company provides
the distributor with specifications and receives monthly prices for such items,
generally based upon a "cost plus" formula. Restaurant managers purchase these
items directly from the distributor, and each restaurant is billed directly for
its purchases. Although most of the Company's food and supplies are presently
furnished by one distributor, the Company believes alternate food suppliers are
available and has not experienced a shortage of food or supplies. A daily
inventory is taken for high cost items, such as steaks, ground meat, seafood and
liquor. A physical inventory of all items is made at the end of each four-week
accounting period.
Government Regulation
- ---------------------
The Company is subject to Federal, state and local laws affecting the
operation of its restaurants, including zoning, health, sanitation and safety
regulations and alcoholic beverage licensing requirements. Each restaurant is
operated in accordance with standardized procedures designed to assure
compliance with all applicable codes and regulations. The suspension of a food
service or liquor license could cause an interruption of operations at affected
restaurants.
5
Future Expansion
- ----------------
The Company intends to open four to five additional Max & Erma's
restaurants during fiscal 2004, two of which were under construction at October
26, 2003. All but four of the existing Max & Erma's restaurants are located in
suburban areas. Of the existing Company-owned Max & Erma's restaurants, 56 are
freestanding and 17 are in-line shopping center/mall locations. The following
table sets forth the location of each Company-owned Max & Erma's restaurant as
of December 31, 2003 and the locations of restaurants currently under
negotiation or development and scheduled to open during fiscal 2004 and 2005:
Max & Erma's
------------
Existing Under Development
-------- -----------------
GEORGIA
Atlanta 2 ---
ILLINOIS
Chicago 8 ---
INDIANA
Indianapolis 5 ---
KENTUCKY
Lexington 2 ---
Louisville 3 ---
MICHIGAN
Ann Arbor 1 ---
Detroit 8 2
Grand Rapids 2 ---
Lansing 1 ---
NORTH CAROLINA
Charlotte 2 1
OHIO
Akron 1 ---
Canton --- 1
Cincinnati 4 1
Cleveland 5 ---
Columbus 12 2
Dayton 3 ---
Toledo 2 1
Niles 1 ---
PENNSYLVANIA
Pittsburgh 9 ---
Erie 1 ---
VIRGINIA
Norfolk 1 ---
Virginia Beach --- 1
TOTAL 73 9
6
The Company's preference is to acquire the land and build new
freestanding restaurants for Max & Erma's. However, in order to acquire suitable
sites, the Company will utilize ground leases, or lease and convert existing
premises. All sites under development are freestanding. Management believes that
the clustering of three or more restaurants in markets of sufficient size
increases customer awareness, enhances the effectiveness of advertising and
improves management efficiency.
Business Risks
- --------------
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Many
of the following important factors have been discussed in the Company's prior
filings with the Securities and Exchange Commission.
In addition to the other information in this Report, readers should
carefully consider that the following important factors, among others, in some
cases have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual results of operations for fiscal
2004 and beyond, to differ materially from those expressed in any
forward-looking statements made by, or on behalf of the Company.
1. Dependence on Senior Management. The Company's two senior management
officials have over 56 years combined experience with the Company. Although the
Company has attempted to develop additional management capabilities, the loss of
one or both of the two senior executives could have a material adverse effect on
the Company.
2. Competition. The casual dining segment of the restaurant industry is highly
competitive with respect to price, service, food quality, location, and
employees, including restaurant managers. Many of the Company's competitors are
larger in size, have greater financial and other resources, and have longer
operating histories.
3. Restaurant Industry Changes. The restaurant industry is affected by changes
in consumer tastes and attitudes, economic conditions, traffic patterns and
changes, and other factors, which requires regular changes in the operation of
restaurants to remain competitive. There is a risk that the Company will not
effectively adapt to changes in the industry.
4. Cost of Doing Business. The restaurant business is subject to sudden
cost changes, particularly for food, energy, labor and insurance. The
Company may not be able to recover cost increases from increase prices for
its menu items.
5. Legal. The Company is exposed to various tort and other claims,
including notably liability claims resulting from the sale of alcoholic
beverages. While the Company currently maintains insurance for such claims,
there can be no assurance that such insurance will be adequate or available
7
in the future. An uninsured or excess claim could have a material adverse
effect on the Company.
6. Government Regulation. The restaurant industry is subject to extensive
government regulations relating to the sale of food and alcoholic beverages, and
sanitation, fire and building codes. Suspension or inability to renew any of the
related license and permits could adversely affect the Company's operations.
Also, government actions affecting minimum wages, payroll tax rates, and
mandated benefits could adversely affect operating results.
7. Franchising. The Company intends to expand the franchising of the Max &
Erma's concept. Failure to properly select, train, and supervise
franchisees could have a detrimental effect on the overall reputation and
results of operations of the restaurants owned by the Company.
8. Unfavorable Publicity. Adverse publicity resulting from poor food quality,
illness, injury or other health concerns or operations at one or a limited
number of the Company's or franchisee's restaurants could have a material
adverse effect on the Company's business, results of operations and financial
condition.
9. Acts of God, Terrorism. The Company's business could be materially adversely
affected by acts of God, including extremely harsh weather or natural disasters,
and by terrorist acts such as the events of September 11, 2001.
10. Consumer Perceptions of Food Safety. The Company's business could be
materially adversely affected by consumer perceptions of food safety in the
United States or in the market areas in which the Company operates, whether such
perceptions are based on fact or not and whether such perceptions are caused by
acts of terrorism or other events.
Item 2. PROPERTIES
- ------- ----------
All but one of the Company's restaurants are occupied under leases
expiring from 2004 to 2025, with most leases having renewal options for five to
twenty additional years. Restaurant leases are generally collateralized by liens
on leasehold improvements, equipment, furniture and fixtures. The Company leases
its executive offices (30,000 square feet) and general warehouse and storage
facilities (17,000 square feet) in Columbus, Ohio under an operating lease
expiring in January 2009.
The last 55 Max & Erma's restaurants to open are based on one of three
similar prototype designs. The prototype gives Max & Erma's restaurants a
distinct identity and emphasizes an unpretentious neighborhood ambiance. The
prototype design downplays the use of brass, Tiffany lamps and other design
features common to many other casual dining restaurants. Max & Erma's
restaurants established prior to the introduction of the prototype vary in
design and appearance, but average 6,000 square feet and seat an average of 160
customers. Most of the older restaurants have been remodeled or redecorated to
the prototype look. The majority of the freestanding prototypes are
8
approximately 6,800 or 5,500 square feet depending on the size of the site and
its sales potential and seat 210 or 175 patrons, respectively, for dining in
addition to the bar area. A 30 to 40 seat seasonal patio area is optional
depending on the site and location. The prototype design is readily adaptable to
a variety of sites including shopping center and mall locations. During 2002, a
third version of the prototype building was designed. It is approximately 5,700
square feet, and seats approximately 190. Eight prototype buildings of this
design were built during 2002 and 2003. It is anticipated that this design will
be used for all future restaurants.
The Company believes that its focus on selecting high profile
restaurant sites is critical to its success. The Company's present site
selection strategy is to locate its restaurants in prime, high visibility, high
traffic suburban locations. Management believes that selection of high profile
sites along with the implementation of its prototype restaurant will result in
improved unit economics.
Item 3. LEGAL PROCEEDINGS
- ------- -----------------
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The information contained under the captions "SELECTED QUARTERLY
FINANCIAL DATA" and "SHAREHOLDER INFORMATION" is incorporated herein by
reference to the inside back cover of the Company's Annual Report to
Shareholders for the fiscal year ended October 26, 2003.
Item 6. SELECTED FINANCIAL DATA
- ------- -----------------------
Information required under this Item is incorporated herein by
reference to the Company's Annual Report to Shareholders for the fiscal year
ended October 26, 2003, page 4.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Information required under this Item is incorporated herein by
reference to the Company's Annual Report to Shareholders for the fiscal year
ended October 26, 2003, pages 5 through 9.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -------- ---------------------------------------------------------
As of October 26, 2003, the Company's total long-term indebtedness
(including current maturities) was approximately $26.2 million, which represents
the balance due under the Company's revolving credit agreement and bears
interest at variable rates. A one percentage point increase or
9
decrease in interest rates could increase or decrease the Company's pre-tax
income by approximately $262,000. Based upon quarter ending balances, the
average borrowings under the Company's revolving credit agreement during 2003
was $27.4 million. The high and low balance outstanding under the revolving
credit agreement during 2003 was $30.7 million and $26.2 million, respectively.
As required under the Company's revolving credit agreement, the Company has
entered into a $20,000,000 partial interest rate protection agreement. The
agreement converts $20,000,000 of the Company's borrowings from variable rate to
fixed rate beginning November 1, 2001, unless LIBOR exceeds 7.0%. If LIBOR
exceeds 7.0%, then the interest rate is increased by the excess. For a further
description of the Company's indebtedness, see Item 8, Financial Statements and
Supplementary Data - Notes 3 and 4 to the Consolidated Financial Statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The consolidated balance sheets as of October 26, 2003 and October 27,
2002, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended October 26, 2003,
and the related notes to the consolidated financial statements together with the
independent auditors' report thereon and the Selected Quarterly Financial Data
are incorporated by reference to the Company's Annual Report to Shareholders for
the fiscal year ended October 26, 2003, pages 10 through 20 and the inside back
cover.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- ------- ---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURES
---------------------------------------
None.
PART III
Items 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE
- ------------------------ ---------------------------------------
REGISTRANT: EXECUTIVE COMPENSATION: SECURITY OWNERSHIP OF
-----------------------------------------------------------
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: AND CERTAIN
------------------------------------------------------
RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------
Information required under these Items is incorporated herein by
reference to the Company's Proxy Statement for 2004 Annual Meeting of
Stockholders to be held on April 9, 2004, pursuant to Regulation 14A.
PART IV
Item 14. Controls and Procedures
- -------- -----------------------
As of a date within 90 days of the date of this report, the Company's Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon this evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that information required to be disclosed by the Company in the reports that it
files or submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time period specified by
the Securities and Exchange Commission's rules and forms.
10
Additionally, there were no significant changes in the Company's internal
controls that could significantly affect the Company's disclosure controls and
procedures subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in the Company's internal
controls. As a result, no corrective actions were required or undertaken.
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
- -------- ------------------------------------------------------------
8-K.
----
(a)(1) and (2) and (d): Financial Statements
The financial statements listed in the accompanying index to
financial statements on page 13 are filed as part of this
report.
(a)(3) and (c): Exhibits
The exhibits listed in the accompanying index to exhibits on
pages 14 through 16 are filed as part of this report.
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amended Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: January 16, 2004 Max & Erma's Restaurants, Inc.
By: */s/Todd B. Barnum
------------------------------
Todd B. Barnum
Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated and on the 16th day of January, 2004.
Signature Title
- --------- -----
*/s/Todd B. Barnum Chairman of the Board, Chief Executive
- --------------------------- Officer and President, Director (Principal
Todd B. Barnum Executive Officer)
*/s/William C. Niegsch, Jr. Executive Vice President and Chief
- --------------------------- Financial Officer, Director, (Principal
William C. Niegsch, Jr. Financial and Accounting Officer)
*/s/William E. Arthur Director
- ---------------------------
William E. Arthur
*/s/Robert A. Rothman Director
- ---------------------------
Robert A. Rothman
*/s/Roger D. Blackwell Director
- ---------------------------
Roger D. Blackwell
*/s/Michael D. Murphy Director
- ---------------------------
Michael D. Murphy
*/s/Thomas R. Green Director
- ---------------------------
Thomas R. Green
*/s/William C. Niegsch, Jr.
- ---------------------------
William C. Niegsch, Jr.
Attorney-in-Fact
12
MAX & ERMA'S RESTAURANTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
ITEMS 8, 14(a)(1)
REFERENCE PAGE
ANNUAL REPORT
TO SHAREHOLDERS
---------------
The following items are required to be
included in Items 8 and 14(a)(1) and
are incorporated by reference from the
attached Annual Report to
Shareholders of Max & Erma's
Restaurants, Inc. for the fiscal year
ended October 26, 2003:
- -Consolidated Balance Sheets as of
October 26, 2003 and October 27, 2002 10-11
- -For the years ended October 26, 2003,
October 27, 2002 and October 28, 2001
-Consolidated Statements of Income 12
-Consolidated Statements of Stockholders' Equity 13
-Consolidated Statements of Cash Flows 14
- -Notes to Consolidated Financial Statements 15-19
- -Independent Auditors' Report 20
- -No financial statement schedules are required
to be filed because the conditions requiring
their filing do not exist or because the information is
given in the consolidated financial statements or
notes thereto.
13
REPORT ON FORM 10-K
MAX & ERMA'S RESTAURANTS, INC.
INDEX TO EXHIBITS
Exhibit Description Page No.
------- ----------- --------
No.
---
2 Plan and Agreement of Reorganization, as amended October 15, Reference is made to Exhibit 2 of
1991. Report on Form 10-K filed January
24, 1992.
3(a) Restated Certificate of Incorporation, as amended April 4, 1985. Reference is made to Exhibit 4(c) of
Report on Form 10-Q filed June 26,
1985.
3(b) Restated By-Laws, as amended April 4, 1985. Reference is made to Exhibit 4(d) of
Report on Form 10-Q filed June 26,
1985.
3(c) Certificate of Amendment of Certificate of Incorporation Reference is made to Exhibit 3(c) of
September 22, 1986. Report on Form 10-K filed January
23, 1987.
3(d) Certificate of Amendment of Certificate of Incorporation May Reference is made to Exhibit 3(d) of
30, 1990. Report on form 10-K filed January
25, 1991.
4 Form of Common Stock Certificate. Reference is made to Exhibit 4(a) of
Registration Statement on Form S-1
(Registration No. 2-85585).
10(a) Max & Erma's Ltd. Agreement of Limited Partnership, dated May Reference is made to Exhibit 10(b)
17, 1972. of Registration Statement on Form
S-1 (Registration No. 2-85585).
10(b) First Amendment to Agreement of Limited Partnership of Max & Reference is made to Exhibit 10(b)
Erma's Ltd., dated September 9, 1974. of Registration Statement on Form
S-1 (Registration No. 2-85585).
10(c) Letter Agreement between Nine Limited Leasing, Max & Erma's, Reference is made to Exhibit 10(bb)
Inc., and Max & Erma's Indianapolis, Ltd., dated April 24, 1977. of Registration Statement on Form
S-1 (Registration No. 2-85585).
10(d) Letter Agreement between Nine Limited Leasing, Max & Erma's, Reference is made to Exhibit 10(dd)
Inc., and Max & Erma's East, Ltd., dated May 27, 1977. of Registration Statement on Form
S-1 (Registration No. 2-85585).
10(e) Letter Agreement between Nine Limited Leasing, Max & Erma's, Reference is made to Exhibit 10(ee)
Inc., and Max & Erma's Dayton, Ltd., dated October 1, 1977. of Registration Statement on Form
S-1 (Registration No. 2-85585).
10(f) Letter Agreement between Nine Limited Leasing, Max & Erma's, Reference is made to Exhibit 10(gg)
Inc., and Max & Erma's North, Ltd., dated December 28, 1981. of Registration Statement on Form
S-1 (Registration No. 2-85585).
10(g)* 1992 Stock Option Plan. Reference is made to Exhibit 10(q)
of Report on Form 10-K filed January
25, 1993.
10(h)* 1996 Stock Option Plan. Reference is made to Exhibit 10(p)
of Report on Form 10-K filed January
1996.
10(i)* 2002 Stock Option Plan. Reference is made to Exhibit 4(a) of
Form S-8 filed June 28, 2002.
14
10(j)* Indemnification Agreement (form) between Max & Erma's Reference is made to Exhibit 10(y)
Restaurants, Inc. and each of its directors dated as of June of Report on Form 10-K filed January
18, 1986. 23, 1987.
10(k)* Written description of split dollar life insurance program for Reference is made to footnote 3 to
officers. the Summary Compensation Table
presented in the Company's Proxy
Statement for the 2003 Annual
Meeting of Shareholders, which is
incorporated by Reference herein.
10(l)* Board of Directors' Resolution adopted November 2, 1987 Reference is made to Exhibit 10(dd)
relating to split dollar life insurance program for officers. of Report on Form 10-K filed January
25, 1993.
10(m)* Board of Directors' Resolution adopted October 19, 1992 Reference is made to Exhibit 10(ee)
relating to split dollar life insurance program for officers. of Report on Form 10-K filed January
25, 1993.
10(n)* Form of Severance Agreement in Event of Change In Control for Reference is made to Exhibit 10(m)
Senior Executive Officers. of Report on Form 10-K filed January
18, 2000.
10(o)* List of Senior Executive Officers with Severance Agreements in
the form of Exhibit 10(n).
10(p)* Form of Severance Agreement in Event of Change In Control for Reference is made to Exhibit 10(o)
Officers. of Report on Form 10-K filed January
18, 2000.
10(q)* List of Officers with Severance Agreements in the form of Reference is made to Exhibit 10(q)
Exhibit 10(p). of Report on Form 10-K filed January
16, 2003.
10(r) Fourth Amended and Restated Revolving Credit Agreement dated Reference is made to Exhibit 10(q)
October 19, 2001, between Max & Erma's Restaurants, Inc. and of Report on Form 10-K filed January
The Provident Bank. 15, 2001.
10(s) Amendment to Fourth Amended and Restated Revolving Credit Reference is made to Exhibit 10(s)
Agreement between Max & Erma's Restaurants, Inc. and The of Report on Form-K filed January
Provident Bank. 16, 2003.
10(t) Fifth Amended and Restated Revolving Credit Agreement dated
September 22, 2003, between Max & Erma's Restaurants, Inc. and
The Provident Bank.
10(u)* Severance Agreement between Max & Erma's Restaurants, Inc. and
Mark Emerson dated October 20, 2003.
13 Portions of the Annual Report to Stockholders for the
Fiscal Year ended October 26, 2003, incorporated herein
by reference (except for those pages which are
specifically incorporated by reference, the Company's
Annual Report to stockholders is not to be deemed as
filed as part of this report).
23 Consents of Experts and Counsel.
24 Power of Attorney.
31.1 Certification of Chief Executive Officer under Section 302 of
the Sarbanes-Oxley Act of 2003.
31.2 Certification of Chief Financial Officer under Section 302 of
the Sarbanes-Oxley Act of 2003.
32.1 Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
15
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Report on Form 10-K pursuant to Item 14(c) of the Report on
Form 10-K.
16