<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
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
MORGAN'S FOODS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MORGAN'S FOODS, INC.
Suite 126
24200 Chagrin Boulevard
Beachwood, Ohio 44122
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 25, 1999
------------------
TO THE SHAREHOLDERS:
You are hereby notified that the Annual Meeting of Shareholders of Morgan's
Foods, Inc., an Ohio corporation (the "Company"), will be held at the Cleveland
Marriott East, 3663 Park East Dr., Beachwood, Ohio, on Friday, June 25, 1999, at
10:00 a.m., Eastern Daylight Time, for the following purposes:
1. To elect the Board of Directors of the Company.
2. To approve the Key Employees Nonqualified Stock Option Plan.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on May 12, 1999 will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
KENNETH L. HIGNETT
Secretary
June 4, 1999
- --------------------------------------------------------------------------------
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE TO ENSURE THAT THEIR SHARES ARE REPRESENTED AT THE MEETING
OR ANY ADJOURNMENT THEREOF.
<PAGE> 3
MORGAN'S FOODS, INC.
24200 Chagrin Blvd., Suite 126
Beachwood, Ohio 44122
------------------------
PROXY STATEMENT
------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of Morgan's Foods, Inc., an
Ohio corporation (the "Company"), for use at the Annual Meeting of Shareholders
of the Company (the "Meeting") to be held at the Cleveland Marriott East, 3663
Park East Dr., Beachwood, Ohio, on Friday, June 25, 1999 at 10:00 a.m., Eastern
Daylight Time, and at any adjournment thereof.
This proxy statement and accompanying notice and form of proxy are being
mailed to shareholders on or about June 4, 1999. A copy of the Company's Annual
Report to Shareholders, including financial statements, for the fiscal year
ended February 28, 1999 (the "1999 fiscal year") is enclosed with this proxy
statement.
The presence of any shareholder at the Meeting will not operate to revoke
his proxy. Any proxy may be revoked, at any time before it is exercised, in open
meeting, or by giving notice to the Company in writing, or by filing a duly
executed proxy bearing a later date.
If the enclosed proxy is executed and returned to the Company, the persons
named therein will vote the shares represented by it at the Meeting. The proxy
permits specification of a vote for the election of directors, or the
withholding of authority to vote in the election of directors, or the
withholding of authority to vote for one or more specified nominees. The proxy
also permits specification of a vote for or against, or abstention with respect
to, the proposal to approve the Key Employees Nonqualified Stock Option Plan.
Where a choice is specified in the proxy, the shares represented thereby
will be voted in accordance with such specification. If no specification is
made, such shares will be voted at the Meeting FOR the election as directors of
the nominees set forth herein under "Election of Directors" and FOR the proposal
to approve the Key Employees Nonqualified Stock Option Plan.
Under Ohio law and the Company's Articles of Incorporation, broker
non-votes and abstaining votes will not be counted in favor of or against
election of any nominee, and any holder of Common Shares who abstains from
voting on the proposal to approve the Key Employees Nonqualified Stock Option
Plan will, in effect, be voting against such proposal.
The close of business on May 12, 1999, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Meeting. As of May 6, 1999, the Company's outstanding voting securities
consisted of 2,910,839 Common Shares, without par value, each of which is
entitled to one vote on all matters to be presented to the shareholders at the
Meeting.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
At the Meeting, shares represented by proxies will be voted, unless
otherwise specified in such proxies, for the election of the seven nominees for
directors named in this proxy statement and the enclosed proxy. These nominees
will, if elected, serve as directors of the Company until the next annual
meeting of the shareholders and until their successors are elected and shall
qualify. All of the nominees are currently members of the Board of Directors and
have consented to be nominated and to serve if elected. If, for any reason, any
one or more nominees
1
<PAGE> 4
becomes unavailable for election, it is expected that proxies will be voted for
the election of such substitute nominees as may be designated by the Board of
Directors.
If notice in writing is given by any shareholder to the President or the
Secretary of the Company, not less than 48 hours before the time fixed for
holding the Meeting, that such shareholder desires that the voting for the
election of directors shall be cumulative, and if an announcement of the giving
of such notice is made upon the convening of the Meeting by the President or
Secretary or by or on behalf of the shareholder giving such notice, each
shareholder shall have the right to cumulate such voting power as he possesses
at such election and to give one candidate an amount of votes equal to the
number of directors to be elected multiplied by the number of his shares, or to
distribute his votes on the same principle among two or more candidates, as he
sees fit.
If voting for the election of directors is cumulative, the persons named in
the enclosed proxy will vote the shares represented by proxies given to them in
such fashion as to elect as many of the nominees as possible.
The table below sets forth, as of May 6, 1999, certain information about
each of the nominees for directors.
<TABLE>
<CAPTION>
DIRECTOR
OF THE
PRINCIPAL OCCUPATION COMPANY
NAME AGE FOR THE PAST FIVE YEARS SINCE
---- --- ----------------------- --------
<S> <C> <C> <C>
Richard A. Arons 61 Attorney 1985
Lawrence S. Dolin 55 Chairman, Noteworthy Medical Systems, Inc. 1981
(July 1998 to present); General Partner,
Mordo Partners (Investment
Management)(January 1996 to present);
President of The Front Row Theatre, Inc.
(entertainment facility) (July 1974 to
December 1994)
Kenneth L. Hignett 52 Senior Vice President, Chief Financial 1993
Officer and Secretary of the Company (March
1992 to present); Vice President, Secretary
and Treasurer of the Company (January 1991 to
March 1992); Vice President and Treasurer of
the Company (June 1989 to January 1991)
Steven S. Kaufman 49 President, Co-CEO and a founding shareholder, 1989
Kaufman & Cumberland Co. L.P.A. (law firm)
Bernard Lerner 72 President of Automated Packaging Systems, 1989
Inc. (manufacturer of packaging materials and
machinery)
James J. Liguori 50 President and Chief Operating Officer of the 1984
Company (July 1988 to present); Executive
Vice President of the Company (August 1987 to
July 1988); Vice President of the Company
(June 1979 to August 1987)
Leonard R. Stein-Sapir 60 Chairman of the Board and Chief Executive 1981
Officer of the Company (April 1989 to
present)
</TABLE>
2
<PAGE> 5
The Company has an Executive Committee, an Audit Committee, and a Stock
Option Plan Committee, the members of each of which are appointed by the Board
of Directors. The Company does not have a nominating committee.
The Executive Committee consists of James J. Liguori, Lawrence S. Dolin,
Bernard Lerner and Leonard R. Stein-Sapir. This committee has the authority,
between meetings of the Board of Directors, to exercise substantially all of the
powers of the Board in the management of the business of the Company.
The Audit Committee consists of Lawrence S. Dolin, Steven S. Kaufman and
Bernard Lerner. This committee considers and recommends to the Board of
Directors the appointment of independent accountants for the Company. It reviews
with such accountants the arrangements for and the scope of the audit to be
conducted by them. It also reviews the results of audits and various other
financial and accounting matters affecting the Company.
The members of the Stock Option Committee are Bernard Lerner, Steven S.
Kaufman, and Lawrence S. Dolin. This committee administers the Company's
incentive stock option plan.
The Board of Directors met four times, the Audit and Executive Committees
each met once and the Stock Option Plan Committee did not meet, during the 1999
fiscal year. Each director currently serving on the Board attended 75% or more
of the meetings held during such year by the Board and the committee(s) on which
he served.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets
forth certain information with respect to all persons known to the Company to be
the beneficial owners of more than 5% of the Company's outstanding Common Shares
as of May 6, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT
OF BENEFICIAL OWNER NUMBER OF SHARES OF CLASS
------------------- ---------------- --------
<S> <C> <C>
Leonard R. Stein-Sapir (1)
24200 Chagrin Blvd., Suite 126
Beachwood, Ohio 44122............. 473,529 16.3%
Richard A. Arons
24200 Chagrin Blvd., Suite 126
Beachwood, Ohio 44122............. 420,833 14.5%
Cramer Rosenthal McGlynn, Inc. (2)
707 Westchester Avenue
White Plains, NY 10604............ 188,989 6.5%
</TABLE>
- ---------------
(1) Includes 98 shares owned by Mr. Stein-Sapir's children and 1,666 shares
owned by his wife. Mr. Stein-Sapir disclaims any beneficial interest in the
shares owned by his wife and children.
(2) According to a report on Schedule 13G dated March 5, 1999, filed with the
Securities and Exchange Commission, Cramer Rosenthal McGlynn, Inc., an
investment advisory firm ("CRM"), beneficially owned 188,989 or 6.5% of the
outstanding Common Shares as of such date. CRM disclosed in such Schedule
13G that it shares the power to dispose of and vote such shares.
3
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth
information as of May 6, 1999, with respect to Common Shares beneficially owned
by all directors and nominees for election as directors of the Company and by
all officers and directors of the Company as a group. Each person owns
beneficially and of record the shares indicated and has sole voting and
investment power with respect thereto, except as otherwise set forth in the
footnotes to the table.
<TABLE>
<CAPTION>
PERCENT
NAME NUMBER OF SHARES OF CLASS
---- ---------------- --------
<S> <C> <C>
Richard A. Arons............................... 420,833 14.5%
Lawrence S. Dolin (1).......................... 106,125 3.7
James J. Liguori (2)........................... 31,539 1.1
Steven S. Kaufman (3).......................... 4,744 *
Leonard R. Stein-Sapir (4)..................... 473,529 16.3
Bernard Lerner................................. 103,066 3.5
Kenneth L. Hignett (5)......................... 13,666 *
All officers and directors as a group (10
persons) (6)................................. 1,168,523 39.8%
</TABLE>
- ---------------
* Less than one percent of the outstanding Common Shares of the Company.
(1) Includes 43,000 shares owned by a partnership of which Mr. Dolin is a
general partner and 625 shares owned by Mr. Dolin's wife. Mr. Dolin
disclaims any beneficial interest in the shares owned by his wife.
(2) Includes 166 shares owned by Mr. Liguori's children and 83 shares owned by
his wife. Mr. Liguori disclaims any beneficial interest in the shares owned
by his wife and children.
(3) Includes 1,007 shares owned by Mr. Kaufman's wife, as to which he disclaims
any beneficial interest.
(4) Includes 98 shares owned by Mr. Stein-Sapir's children and 1,666 shares
owned by his wife. Mr. Stein-Sapir disclaims any beneficial interest in the
shares owned by his wife and children.
(5) Includes 10,833 shares subject to exercisable options.
(6) Includes 24,166 shares subject to exercisable options.
EXECUTIVE COMPENSATION
REPORT OF THE BOARD OF DIRECTORS ON COMPENSATION
Introduction. The disclosure rules of the Securities and Exchange
Commission require the Company to provide certain information concerning the
compensation of the Chief Executive Officer and the other executive officers of
the Company. The Company does not have a Compensation Committee of the Board of
Directors. Decisions on the compensation of the Company's Chief Executive
Officer are made by the Board and salaries of other executive officers are set
in relation to the Chief Executive Officer.
Structure. Compensation of the Company's executive officers consists
primarily of salary and stock option grants. The Company also provides a
matching contribution to deferred compensation under a 401(k) Plan described in
a separate section of this proxy statement. Stock options have been used by the
Company to reward executives for actions which increase shareholder value. The
granting of stock options also aids in the retention of high quality executives
by providing long term incentives. The Company has no bonus plan for executives
nor does it provide retirement benefits. The Company believes that the Company's
compensation
4
<PAGE> 7
policy is fair to the Company's employees and shareholders and that its total
compensation package is competitive within the restaurant industry.
Base Salary. In the past, the Company has relied primarily on its own
informal surveys of compensation levels to gauge the reasonableness of the
compensation of Leonard Stein-Sapir, the Company's Chief Executive Officer.
Compensation of other executives is set in relation to the Chief Executive based
on each other executive's level of responsibility and experience and the
particular challenges facing the executive during the coming year. During fiscal
1993, the Company engaged a compensation consultant to compile comparative data
on chief executive officer compensation at similar size companies and recommend
a range of base salary for the Chief Executive Officer for fiscal 1994. The
Board of Directors has not considered it necessary to utilize a compensation
consultant since fiscal 1993. Due to the Company's significant dependence on the
efforts of the Chief Executive Officer, his services were subject to a three
year employment agreement covering the fiscal years 1994 -- 1996 and providing
for a base salary of $250,000 for the 1996 fiscal year which Mr. Stein-Sapir
voluntarily reduced to $225,000 for such year. Under the terms of the agreement,
the Chief Executive Officer's compensation could be reviewed annually and Mr.
Stein-Sapir was eligible to participate in any bonus plan offered to other
executive officers of the Company. Mr. Stein-Sapir continued to be compensated
at the annual rate of $225,000 for the 1999 fiscal year although the employment
contract is no longer in effect.
All executive officer salaries are reviewed on an annual basis. In deciding
on changes in the annual base salary of the Chief Executive Officer the Board
considers several performance factors. Among these are operating and
administrative efficiency and the maintenance of an appropriately experienced
management team. The Board also evaluates the Chief Executive Officer's
performance in the area of finding and evaluating new business opportunities to
establish the most productive strategic direction for the Company. Salary
changes for other executives are based primarily on their performance in
supporting the strategic initiatives of the Chief Executive Officer, meeting
individual goals and objectives set by the Chief Executive Officer, and
improving the operating efficiency of the Company. Also, where applicable,
changes in the duties and responsibilities of each other executive officer may
be considered in deciding on changes in annual salary. Based on a recommendation
of the Chief Executive Officer, fiscal 1999 salary evaluations for all other
officers were deferred indefinitely.
Stock Options. Stock options have been administered by the Stock Option
Committee of the Board of Directors. The Company's Incentive Stock Option Plan
expired during fiscal 1995. Options granted under the Incentive Plan remain
outstanding until their individual expiration dates. In April 1999, the Board of
Directors approved a non-qualified stock option plan for executives and managers
and a key employees' non-qualified stock option plan. See "Proposal No. 2 - Key
Employees Non-Qualified Stock Option Plan".
THE BOARD OF DIRECTORS
<TABLE>
<S> <C>
Richard A. Arons Leonard R. Stein-Sapir
Lawrence S. Dolin Bernard Lerner
James J. Liguori Kenneth L. Hignett
Steven S. Kaufman
</TABLE>
SUMMARY COMPENSATION TABLE
The following table sets forth for each of the Company's last three fiscal
years the compensation earned by or awarded or paid to the Company's Chief
Executive Officer and each
5
<PAGE> 8
of the Company's other most highly compensated executive officers earning more
than $100,000 during one or more of such years.
<TABLE>
<CAPTION>
NAME AND FISCAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY COMPENSATION (1)
- ------------------ ------ -------- ----------------
<S> <C> <C> <C>
Leonard R. Stein-Sapir, 1999 $225,000 $5,987
Chairman of the Board 1998 225,140 5,987
and Chief Executive Officer 1997 226,742 6,647
James J. Liguori, 1999 $176,500 $3,283
President and 1998 176,500 3,025
Chief Operating Officer 1997 173,952 1,912
Kenneth L. Hignett, 1999 $107,500 $2,436
Senior Vice President, 1998 107,500 2,178
Chief Financial Officer and Secretary 1997 107,389 2,802
</TABLE>
- ---------------
(1) Represents the value of insurance premiums paid by the Company with respect
to term life insurance for the benefit of the named executives and the
matching contribution made by the Company to the 401(k) Plan.
OPTION EXERCISES IN FISCAL 1999 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information about the number of
options exercised during the 1999 fiscal year and the number and value of
unexercised incentive and nonqualified stock options held as of February 28,
1999 by each executive named in the Summary Compensation Table.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
SHARES FEBRUARY 28, 1999 FEBRUARY 28, 1999
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ------------------- -----------------
<S> <C> <C> <C> <C>
Leonard R. Stein-Sapir 0 0 83,333/0 $0/0
Kenneth L. Hignett 0 0 10,833/0 $0/0
</TABLE>
RETIREMENT AND SAVINGS PLAN -- 401(k)
Since October 1, 1993, the Company has maintained a Retirement and Savings
Plan under IRS Code Section 401(k) ("the 401(k) Plan"). The 401(k) Plan allows
eligible employees to defer a portion of their compensation before federal
income tax to a qualified trust. All employees who are at least 21 years of age,
have one year of service with the Company and have worked at least 1,000 hours
in the past year are eligible to participate in the 401(k) Plan. The
participants may choose from five investment options including common shares of
the Company for the investment of their deferred compensation. In addition, the
Company matches 15% of each participant's salary deferral, for the first 6% of
their salary, with Common Shares of the Company. For the fiscal year ended
February 28, 1999, the Company contributed $21,014 to the 401(k) Plan and paid
or accrued $10,078 in administrative fees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors performs the functions of a compensation
committee. The Company's Board includes three members who are executive officers
of the Company: James J. Liguori, Kenneth L. Hignett and Leonard R. Stein-Sapir.
During the fiscal year ended February 28, 1999, Mr. Liguori was President and
Chief Operating Officer of the Company,
6
<PAGE> 9
positions he has held since July 1988. From August 1987 to July 1988, he was
Executive Vice President of the Company, and from June 1978 to August 1987 he
was Vice President of the Company. During the fiscal year ended February 28,
1999, Mr. Hignett was Senior Vice President, Chief Financial Officer and
Secretary of the Company, positions which he has held since March 1992. From
January 1991 to March 1992, he was Vice President, Secretary and Treasurer of
the Company, and from June 1989 to January 1991 he was Vice President and
Treasurer of the Company. During the fiscal year ended February 28, 1999, Mr.
Stein-Sapir was Chairman of the Board and Chief Executive Officer of the
Company, positions he has held since April 1989.
DIRECTOR COMPENSATION
Annual Fee. Messrs. Arons, Dolin, Kaufman and Lerner each received $12,000
for serving on the Board of Directors during the fiscal year ended February 28,
1999. Directors who are also officers of the Company do not receive additional
compensation as Directors. No additional compensation is paid to Directors for
serving on Committees of the Board.
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return on
the Company's Common Shares, assuming a $100 investment as of February 28, 1994,
and based on the market prices at the end of each fiscal year, with the
cumulative total return of the Standard & Poor's Midcap 400 Stock Index and a
peer group index composed of seven restaurant companies that have a market
capitalization comparable to that of the Company.
<TABLE>
<CAPTION>
MORGAN'S FOODS S&P MIDCAP 400 RESTAURANT INDEX
-------------- -------------- ----------------
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 64.00 102.00 115.00
1996 28.00 131.00 99.00
1997 21.00 155.00 79.00
1998 18.00 211.00 96.00
1999 19.00 216.00 119.00
</TABLE>
The companies in the restaurant peer group index are Consolidated Products,
Inc., Ground Round Restaurants, Summit Family Restaurants, Inc. , Daka
International Inc., Uno Restaurant Corp., Cuisine Solutions Inc. (formerly Vi De
France Corp.), and Wall Street Deli, Inc. The index
7
<PAGE> 10
is weighted based on market capitalization. The companies included in the peer
group were approved by the Board of Directors.
PROPOSAL 2: TO ADOPT THE KEY EMPLOYEES NONQUALIFIED STOCK OPTION PLAN
GENERAL
There will be submitted at the Meeting for action by the holders of Common
Shares a proposal to adopt the Key Employees Nonqualified Stock Option Plan (the
"Plan"). The board continues to believe that the use of stock-related benefits
as part of the Company's compensation package is of great importance in
promoting the growth and continued success of the Company and is thus of
substantial benefit to the Company and its shareholders. The Company cannot be
successful without the ability to attract and retain talented executives,
managers and other employees. The Plan is an effective recruiting tool, as well
as a means of promoting long-term commitment to the Company. The Plan was
approved by the board of directors on April 2, 1999.
No awards relating to the Plan have been made. If the Plan is approved by
the holders of Common Shares, the Plan Committee (the "Committee") will from
time to time consider awards for key employees of the Company under the Plan.
Administration. The Plan will be administered by the Committee. Subject to
the terms of the Plan, the Committee will be authorized to select persons to
participate in the Plan, determine the form and substance of grants made under
the Plan, and the conditions and restrictions, if any, to which such grants are
subject, interpret the Plan and adopt, amend, or rescind rules and regulations
for carrying out the Plan.
Shares Available Under the Plan. Subject to certain provisions in the Plan,
an aggregate of 291,000 Common Shares of the Company may be issued pursuant to
the Plan.
Participation; Award Limitation. Participation in the Plan will be limited
to officers and other key employees of the Company and its subsidiaries selected
by the Committee. Directors who are officers of the Company shall be eligible to
participate in the Plan. Directors who are not officers of the Company will not
be eligible to participate.
Under the Plan, the Committee will determine who receives stock options.
The Committee will determine the number of shares with respect to which stock
options are granted to a participant. The maximum number of shares with respect
to which options may be granted to any single individual in any one calendar
year may not exceed 100,000 shares.
Nonqualified Options. The Plan provides for the grant to eligible
participants of nonqualified stock options only. The exercise price under any
option awarded under the Plan is required to be not less than 100% of the fair
market value of the shares on the date the option is granted.
Options may be exercised in whole or in part upon payment of the exercise
price of the shares to be acquired. Payment will be made in cash or in shares
previously acquired by the participant or a combination thereof. The fair market
value of Common Shares tendered on exercise of options will be determined on the
date of exercise. A participant also may exercise his or her options under a
"cashless" exercise method involving a brokerage loan or a brokered sale of all
or part of the shares underlying the options.
Pursuant to the Plan, the Committee will determine the date on which each
option may be exercised and whether an option is exercisable in installments. In
addition, the Committee may accelerate the time at which any option may be
exercised in whole or in part. A participant may exercise an option only if he
or she is, and has continuously since the date the option was granted been, an
employee of the Company or a subsidiary.
8
<PAGE> 11
The Committee will determine the term during which each option may be
exercised, but in no event will an option be exercisable in whole or in part in
less than six months from the date of grant.
Termination and Modification of the Plan. The board of directors of the
Company, without further approval of the shareholders, may modify or terminate
the Plan and may suspend, and if suspended, may reinstate any or all of the
provisions of the Plan, except that no modification, suspension or termination
of the Plan may, without the consent of the participant affected, alter or
impair any grant previously made under the Plan.
The Plan will terminate on April 1, 2009.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
Non-Qualified Stock Options. With respect to non-qualified stock options
generally, (a) no income is realized by the optionee at the time the option is
granted, (b) upon exercise of the option, the optionee realizes ordinary income
in an amount equal to the excess, if any, of the fair market value of the Common
Shares on the date of exercise over the option price paid for the shares, and
the Company is entitled to a tax deduction in the amount of ordinary income
realized (provided that applicable withholding or reporting requirements are
satisfied), and (c) upon disposition of the Common Shares received upon exercise
of the option, the optionee recognizes, as either short-term or long-term
capital gain (or loss), depending upon the length of time that the optionee has
held the shares, income (or loss) equal to the difference between the amount
realized and the fair market value of the shares on the date of exercise.
Capital Gains. Under current law, capital gains are subject to the same tax
rates that apply to ordinary income, except the rate on long-term capital gains
may not exceed 20%. Capital losses may be utilized to offset capital gains to
the extent of capital gains, and $3,000 of capital losses in excess of capital
gains ($1,500 in the case of a married individual filing a separate return) is
deductible against other income.
To receive long-term capital gain (loss) treatment with respect to any
appreciation (depreciation) in the value of Common Shares acquired pursuant to
the Plan, the participant must hold such shares for more than one year. Shares
held for one year or less will receive short-term capital gain or loss
treatment.
VOTE NECESSARY FOR APPROVAL
The affirmative vote of the holders of a majority of the Common Shares
present or represented at the Meeting is required to approve the Plan. The board
of directors recommends that holders of such shares vote FOR approval of the
Plan. Proxies for Common Shares solicited by the board will be voted FOR the
Plan unless shareholders specify a contrary choice in their proxies.
NONQUALIFIED STOCK OPTION PLAN FOR EXECUTIVES AND MANAGERS
On April 2, 1999, the board of directors of the Company approved and
adopted the Nonqualified Stock Option Plan for Executives and Managers (the
"Executive Plan"). The purpose of the Plan is to promote the long-term growth
and profitability of the Company by granting non-qualified stock options to
certain senior executive officers and managers of the Company to provide them
with incentives to improve shareholder values and to contribute to the success
of the Company. An aggregate of 145,500 Common Shares has been reserved and may
be issued pursuant to the Executive Plan. Participation in the Plan is limited
to executives and managers selected by the Stock Option Committee of the
Company. Options granted under the Plan must be granted at an exercise price not
less than 100% of the fair market value of the shares on the date the option is
granted. No shareholder approval was required under the
9
<PAGE> 12
American Stock Exchange rules or applicable law for the adoption and
implementation of the Executive Plan. The Executive Plan will remain in effect
until April 1, 2009.
On the date that the Executive Plan was approved and adopted, the Plan
Committee granted non-qualified stock options under the Executive Plan for an
aggregate of 145,500 shares to certain executives and managers, including the
Chairman and Chief Executive Officer (50,000 shares), the President and Chief
Operating Officer (50,000 shares) and the Senior Vice President and Chief
Financial Officer (12,500 shares). Each option has an exercise price of $4.125
and will be exercisable from October 2, 1999 through April 1, 2009.
SELECTION OF INDEPENDENT AUDITORS
Deloitte & Touche LLP serves as the Company's independent auditors. The
Board of Directors of the Company has not selected independent auditors for the
Company and its subsidiaries for the fiscal year ending February 27, 2000.
Representatives of Deloitte & Touche LLP are expected to be present at the
Meeting and will have the opportunity to make a statement and to respond to
appropriate questions.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal for inclusion in the
proxy statement and form of proxy relating to the 2000 Annual Meeting of
Shareholders is advised that the proposal must be received by the Company at its
principal executive offices not later than January 31, 2000. The Company is not
required to include in its proxy statement or form of proxy a shareholder
proposal which is received after that date or which otherwise fails to meet
requirements for shareholder proposals established by regulations of the
Securities and Exchange Commission.
If a shareholder intends to raise at the Company's annual meeting in 2000,
a proposal that he does not seek to have included in the Company's proxy
statement, he must notify the Company of the proposal on or before April 15,
2000. If the shareholder fails to notify the Company, the Company's proxies will
be permitted to use their discretionary voting authority with respect to such
proposal when and if it is raised at such annual meeting, whether or not there
is any discussion of such proposal in the proxy statement for that meeting.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and owners of more than ten percent of the
Company's Common Shares ("10% stockholders"), to file with the Securities and
Exchange Commission (the "SEC") and the American Stock Exchange initial reports
of ownership and reports of changes in ownership of Common Shares of the
Company. Executive officers, directors and 10% stockholders are required by SEC
regulations to furnish the Company with copies of all forms they file pursuant
to Section 16(a).
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended February 28, 1999, all
Section 16(a) filing requirements applicable to its executive officers,
directors and 10% stockholders were complied with.
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or
10
<PAGE> 13
by telephone or telegraph. The Company does not expect to pay any compensation
for the solicitation of proxies, but it may reimburse brokers and other persons
holding shares in their names or in the names of nominees for their expenses in
sending proxy materials to beneficial owners and obtaining proxies from such
owners.
OTHER MATTERS
The Board of Directors is not aware of any matters to be presented for
action at the Meeting other than those shown in this document. Should any other
matters be properly presented for action at the Meeting, the enclosed proxy
confers upon the proxy holders named therein the authority to vote on such
matters in accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
KENNETH L. HIGNETT
Secretary
Beachwood, Ohio
June 4, 1999
11
<PAGE> 14
P R O X Y P R O X Y
MORGAN'S FOODS, INC.
The undersigned hereby appoints Lawrence S. Dolin, Leonard R.
Stein-Sapir and James J. Liguori, and each of them, attorneys and
proxies of the undersigned with full power of substitution to attend
the Annual Meeting of Shareholders of Morgan's Foods, Inc. (the
"Company") at Cleveland Marriott East, 3663 Park East Drive,
Beachwood, Ohio, on Friday, June 25, 1999 at 10:00 a.m., Eastern
Daylight Time, or any adjournment thereof, and to vote the number of
shares of the Company which the undersigned would be entitled to
vote and with all the power the undersigned would possess, if
personally present, as follows:
1. [ ] FOR, or [ ] WITHHOLD AUTHORITY to vote for the
following nominees for election as directors: Leonard R.
Stein-Sapir, Richard A. Arons, Lawrence S. Dolin, James J.
Liguori, Steven S. Kaufman, Bernard Lerner and Kenneth L.
Hignett.
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line
provided below.)
----------------------------------------------------------------
2. [ ] FOR, or [ ] AGAINST or [ ] ABSTAIN with respect to,
the proposal to approve the Key Employees Nonqualified Stock
Option Plan.
3. On such other business as may properly come before the
meeting or any adjournment thereof.
(continued, and to be signed, on the other side)
(Continued from other side)
THE PROXIES WILL VOTE AS SPECIFIED ABOVE OR IF A CHOICE IS NOT
SPECIFIED THEY WILL VOTE FOR THE NOMINEES LISTED IN ITEM 1 AND FOR
APPROVAL OF THE KEY EMPLOYEES NONQUALIFIED STOCK OPTION PLAN UNDER
ITEM 2.
Receipt of Notice of Annual
Meeting of Shareholders and
Proxy Statement dated
June 4, 1999, is hereby
acknowledged.
Dated............... , 1999
...........................
...........................
...........................
Signature(s)
(Please sign exactly as
your name or names
appear(s) hereon,
indicating, where proper,
official position or
representative capacity.)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
Proxy Card
