MORGANS FOODS INC, 8-K/A, 1999-09-27

MORGANS FOODS INC
8-K/A, 1999-09-27
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-KA

Amendment Number One
To Report on Form 8-K Dated July 28, 1999

Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934

Date of Report September 27, 1999 Commission file number 0-3833
------------------------- --------------

MORGAN'S FOODS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Ohio 34-0562210
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

24200 Chagrin Boulevard, Suite 126, Beachwood, OH 44122
- --------------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)

Registrant's telephone number, including area code: (216) 360-7500
-------------------

ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.

On July 14, 1999 Morgan's Restaurants of Pennsylvania, Inc., Morgan's
Restaurants of Ohio, Inc., Morgan's Restaurants of West Virginia, Inc. and
Morgan's Foods of Missouri, Inc., all wholly owned subsidiaries of Morgan's
Foods, Inc. completed the acquisition of the assets of fifty-four (54) existing
KFC and Taco Bell restaurants and the land and building of a non-operating KFC
restaurant from various subsidiaries of Tricon Global Restaurants, Inc. for cash
in the amount of $33,740,000. This consideration was arrived at by negotiations
between the parties, giving weight to such factors as revenues, cashflows and
real estate values. The assets involved include land, buildings, leasehold
improvements, equipment, franchise agreements and inventories in West Virginia,
Ohio, Pennsylvania and Missouri, used in the operation of the forty-two (42) KFC
restaurants and twelve (12) Taco Bell restaurants. The Company intends to
continue to operate the fifty-four (54) properties as KFC and Taco Bell
restaurants under the franchise agreements which were assigned to the Company as
part of the asset purchase and sale transaction. It is also the intention of the
Company to reopen the closed KFC restaurant as a KFC/Taco Bell "2n1" restaurant.
Twelve of the KFC restaurants in Pennsylvania are KFC/Taco Bell "2n1"
restaurants. Revenues for the forty-three KFC restaurant properties (including
the non-operating restaurant) for the 12 months ended April 19, 1999 were
$34,100,000 and revenues for the twelve Taco Bell restaurants for the 12 months
ended April 20, 1999 were $7,300,000. Funds for the acquisition were provided by
Captec Financial Group, Inc. in the form of separate loans for each property.
The maturities of the loans range from 13 years to 20 years at fixed interest
rates and they are secured by substantially all of the assets which were
purchased. The following is a summary of the acquired restaurant locations:

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Market Area Restaurants
----------- -----------
Pittsburgh, PA 26 KFC (incl. 12 KFC/Taco Bell "2n1")
12 Taco Bell
Wheeling, WV 7 KFC
(incl. 2 OH) 1 closed KFC
St. Louis, MO 9 KFC

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

(a) Financial Statements of Businesses Acquired.

The financial statements of the acquired businesses are presented in
Exhibit 99-A to this filing and are incorporated herein by reference.

(b) Pro Forma Financial Information.

The pro forma financial information required by Article 11 of
Regulation S-X, related to this acquisition is presented in Exhibit
99-B to this filing and is incorporated herein by reference.

The following Exhibits which were not available on July 28, 1999 when
the original Form 8-K was filed are filed herewith and incorporated herein by
this reference:

Exhibit
Number Exhibit Description
------ -------------------

2-A Asset Purchase and Sale Agreement dated April 30, 1999
2-B Asset Purchase and Sale Agreement dated May 7, 1999
23 Independent Auditors' Consent
99-A Financial statements of business acquired
99-B Pro Forma Financial Information

SIGNATURES

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 and on the dates indicated.

Morgan's Foods, Inc.
-----------------------------------------
(Registrant)

Dated: September 27, 1999 By: /s/ Kenneth L. Hignett
------------------------- ---------------------------------------
Kenneth L. Hignett
Senior Vice President,
Chief Financial Officer & Secretary

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Exhibit 2-A

ASSET PURCHASE AGREEMENT

by and among

Morgan's Restaurants of
Pennsylvania, Inc.,
Morgan's Foods of Missouri, Inc.,
Morgan's Restaurants of Ohio, Inc.

and

Morgan's Weirton Foods, Inc.

(together, "Purchaser"),

Morgan's Foods, Inc.

("MFI")

and

KFC National Management Company

and
Kentucky Fried Chicken of California, Inc.

(together "Seller")

April 30,1999
----------------------------------
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ASSET PURCHASE AGREEMENT
------------------------

This ASSET PURCHASE AGREEMENT (this "Agreement"), made and entered into
as of this 30th day of April, 1999 by and among Morgan's Restaurants of
Pennsylvania, Inc., a Pennsylvania corporation ("MRP"), Morgan's Foods of
Missouri, Inc., a Missouri corporation ("MFM"), Morgan's Restaurants of Ohio,
Inc., an Ohio corporation ("MRO"), Morgan's Weirton Foods, Inc., a West Virginia
corporation ("MWF"), (MRP, MFM, MRO and MWF shall be referred to jointly and
severally as "Purchaser"), Morgan's Foods, Inc., an Ohio corporation ("MFI"),
KFC National Management Company, a Delaware corporation ("NMC"), and Kentucky
Fried Chicken of California, Inc., a Delaware corporation ("KFCCAL") (NMC and
KFCCAL shall be referred to jointly and severally as "Seller");

WITNESSETH:
-----------

WHEREAS, Seller presently owns and operates 42 KFC restaurants and owns
1 restaurant site in areas in and around Pittsburgh, Pennsylvania, St. Louis,
Missouri, Ohio and West Virginia as identified on Schedule 1 hereto (the
"Restaurants"); and

WHEREAS, Seller desires to sell and transfer to Purchaser and Purchaser
desires to purchase and acquire from Seller the Restaurants on the terms and
subject to the conditions set forth in this Agreement;

NOW, THEREFORE, the parties hereto agree as follows:

I. PURCHASE AND SALE OF ASSETS
---------------------------

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1.1. PURCHASE AND SALE OF ASSETS. Subject to and upon the terms and
conditions hereof, Seller shall sell and assign to Purchaser, and Purchaser
shall purchase and acquire from Seller at the Closing (as defined in Section 7.1
hereof) the assets referred to or described in this Section 1.1 and/or the
Schedules contemplated hereby (the "Assets"):

1.1.1. OWNED REAL PROPERTY. All of Seller's rights and incidents of
interest in and to the real property owned, as of the Closing Date (as defined
in Section 7.1 hereof), by Seller constituting part of the Restaurants (the
"Owned Real Property"). The Owned Real Property is identified on Schedule 1.1.1
hereto.

1.1.2. LEASED REAL PROPERTY. All of Sellers rights and incidents of
interest, as of the Closing Date, in and to the leases of real property
constituting part of the Restaurants (the "Leased Real Property"). The Leased
Real Property is identified on Schedule 1.1.2 hereto. Seller shall provide
Purchaser with copies of the leases for such Leased Real Property.

1.1.3. TANGIBLE PERSONAL PROPERTY. All rights and incidents of interest
of Seller in and to all restaurant equipment, fixtures, furniture, signs, menus,
dishes, glassware, utensils and other smallwares, computers, telephones, and
other office or telecommunications equipment (but excluding the register systems
and Sellers proprietary software) in which Seller has any interest as of the
date of this Agreement and which are located at the Restaurants, as well as
spare equipment and parts of which Seller is aware that are readily available,
stored in the area of the Restaurants, and designated for use at the
Restaurants, all of the foregoing subject to use, wear and tear, disposition,
replacement or similar actions in the normal course between the date hereof and
the Closing (the "Tangible Personal Property").

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Purchaser may temporarily use the register systems until December 31,
1999 while Purchaser converts to a new POS system. Purchaser shall be entitled
to use said systems free of charge for the first 90 days following the Closing
Date. Thereafter, Purchaser agrees to pay Seller at the rate of $436 per month
per Restaurant for Purchaser's use of such systems up to December 31, 1999. At
the end of Purchaser's use of such systems, Purchaser shall, at its expense,
deliver such register systems to Seller at one or more locations designated by
Seller in the same condition as on the Closing Date, ordinary wear and tear for
the period of use excepted. Purchaser may, at its option, cease using such
register systems prior to December 31, 1999, at which time Purchaser's
obligation to pay the monthly fee shall also cease.

1.1.4. INVENTORIES. All rights and incidents of interest of Seller in
and to the food ingredients, packaging materials, paper products, miscellaneous
consumable inventories and stores and supplies located at the Restaurants, as of
the Closing Date ("the Inventories").

1.1.5. MISCELLANEOUS ASSETS. Other supplies (in addition to those
listed as part of the Inventories described in Section 1.1.4 hereof) and sundry
items, including telephone numbers, keys, lock combinations and similar items
relating to the operation of the Restaurants, security systems located at the
Restaurants and any purchasing cooperative stock interests of Seller pertaining
specifically to the Restaurants.

1.1.6. CASH. All cash in drawers and change funds of Seller in each
Restaurant as of the commencement of business on the Closing Date, not to exceed
$1,000 per Restaurant (the "Cash").

1.2. EXCLUDED ASSETS. Notwithstanding anything contained in this
Agreement to the contrary, the following rights, properties and assets (the
"Excluded Assets") shall not be included in the Assets:

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1.2.1. CASH AND CASH EQUIVALENTS. All cash or cash equivalents of
Seller, including bank accounts and deposits, in existence on the Closing Date,
other than the Cash.

1.2.2. EXCLUDED REAL PROPERTY. The owned and leased real property of
Seller other than the Owned Real Property and the Leased Real Property (the
"Excluded Real Property").

1.2.3. EXCLUDED IMPROVEMENTS. All buildings, fixtures and similar
improvements located on the Excluded Real Property.

1.2.4. EXCLUDED TANGIBLE PERSONAL PROPERTY. All office equipment,
furniture, fixtures, business machines and other tangible personal property of
Seller other than the Tangible Personal Property.

1.2.5. RECEIVABLES. All accounts and notes receivable of Seller.

II. PURCHASE PRICE
--------------
2.1. PURCHASE PRICE. (a) In consideration of the transfer of the Assets
and the other undertakings of Seller hereunder, Purchaser shall pay to Seller
the sum of Thirty Million Five Hundred Thousand Dollars ($30,500,000) (the
"Purchase Price"), plus the Cash and the value of the Inventories as of the
Closing Date determined in accordance with Section 2.1(b) hereof. The Purchase
Price shall be payable in cash to Seller by cashier's check or bank wire
transfer to an account or accounts designated in writing by Seller as follows:
$150,000 upon the execution of this Agreement, and the remaining $30,350,000 on
the Closing Date. The $150,000 shall be refundable to Purchaser only in the
event this Agreement terminates pursuant to Section 10.1 hereof due to Seller's
failure to fulfill any of

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its obligations hereunder that constitutes a condition precedent to the
performance of Purchaser's obligations hereunder.

b) On the business day immediately preceding the Closing Date,
as of the close of business of the Restaurants, Seller shall take a physical
count and review of the Cash and Inventories, and Purchaser shall have the right
to have its representatives observe such physical count and review. No later
than 15 business days thereafter, Seller shall prepare and deliver to Purchaser
a statement of all of the Cash and Inventories as of the Closing Date (the
"Closing Inventory Statement"). Within ten business days after receipt by
Purchaser of the Closing Inventory Statement, Purchaser shall remit to Seller,
by cashiers check or bank wire transfer to an account designated in writing by
Seller, the amount stated in the Closing Inventory Statement. All items of
Inventory shall be valued at Seller's actual cost. Any amounts not paid by
Purchaser within ten business days as provided herein shall bear interest at the
lesser of (i) the rate of 1.5% per month or (ii) the highest rate permissible
under applicable law.

(c) On the Closing Date, Purchaser shall remit to Seller in
immediately available funds the amount of any prepaid deposits or other items
that will benefit Purchaser's operation of the Restaurants and which are
identified in Schedule 2.1(c) hereto as of the date hereof, or added to such
schedule on or before the Closing Date.

III. ASSUMPTION OF LIABILITIES
-------------------------
3.1. ASSUMED LIABILITIES. It is expressly understood and agreed that
Purchaser shall assume, and shall be responsible for, those liabilities and
obligations as are described in this Section 3.1. Purchaser shall assume on the
Closing Date, and thereafter in due course shall pay and fully satisfy, the
liabilities and obligations relating to the Restaurants and set forth

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below in subparagraphs (i) and (ii) of this Section 3.1 (such liabilities and
obligations being referred to herein as the "Assumed Liabilities"):

(i) All liabilities and obligations arising or accruing, or pertaining
to the period, on or after the Closing Date (A) relating to the Restaurants or
the Assets, or their ownership or operation, and (B) under all contracts, leases
and other agreements pertaining to the Restaurants in the normal course (i) as
identified on Schedule 3.1, (ii) copies of which have been provided to
Purchaser, or (iii) (and where monetary obligations are included) for amounts
consistent with market pricing (the "Assumed Contracts"); and

(ii) Without limiting anything in subparagraph (i) above, all
liabilities and obligations arising or accruing, or pertaining to the period, on
or after the Closing Date for death, personal injury (including workers'
compensation), property damage or other injury, damage or loss to, by or of any
person or entity, any property or any right, relating to the Restaurants or the
Assets, or their operation, including, without limitation, any tort, breach of
contract or violation of any statute, regulation or other law or requirement of
any governmental agency.

Purchaser understands and agrees that the liabilities and obligations
it is assuming under the Assumed Contracts may include, without limitation, the
chicken purchases Seller or its affiliates plan, or may be obligated, to make
for the Restaurants under Seller's or its affiliates' chicken supply agreements
as listed on Schedule 3.1. Seller will use reasonable efforts to identify the
Assumed Contracts, provide copies thereof to Purchaser, and list the Assumed
Contracts it has knowledge of on Schedule 3.1.

IV. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS
-------------------------------------------------

4.1. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF SELLER.
Seller represents and warrants to and covenants with Purchaser as follows:

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4.1.1. ORGANIZATION. Each of NMC and KFCCAL is a corporation duly
organized, validly existing and in good standing under the laws of Delaware.

4.1.2. AUTHORIZATION AND EFFECT OF AGREEMENT. Seller has all requisite
corporate power and authority to enter into and to perform its obligations under
this Agreement. This Agreement constitutes a valid and binding obligation of
Seller.

4.1.3. NO RESTRICTIONS AGAINST SALE OF THE ASSETS. The execution and
delivery of this Agreement by Seller, and the performance by it of the
transactions contemplated hereby will not violate, conflict with, or result in a
breach of the Certificate of Incorporation or By-Laws of Seller, or any Law
applicable to it.

4.1.4. INVENTORIES. As of the Closing Date, Inventories shall not be
excessive in light of the present operation of the Restaurants. The Inventories
consist of items usable in the normal course of the operation of the
Restaurants.

4.1.5. COMPLIANCE WITH LAWS. The Restaurants have been, are and will
be, from the date hereof through the Closing Date, conducted in substantial
compliance with applicable laws ("Laws"), and in a fashion reasonable consistent
with Seller's business practices prior to Seller's execution of this Agreement.

4.1.6. TITLE TO AND CONDITION OF TANGIBLE PERSONAL PROPERTY. Except as
provided in Schedule 4.1.6 thereto, Seller has marketable title to all of the
Tangible Personal Property free and clear of all liens, except for liens for
taxes not due and payable, or that otherwise arise by operation of law. All
items of the Tangible Personal Property are being sold in "as is" condition.
Except with respect to the Restaurant located at 210 N. State Rt. 2, New
Martinsville, West Virginia, there is no significant asset necessary for
operating the Restaurants as KFC outlets that is not included in the Assets.

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4.1.7. OWNED REAL PROPERTY AND LEASED REAL PROPERTY. With respect to
the Owned Real Property and the Leased Real Property (the "Real Property"),
except as provided in Schedule 4.1.7 hereto:

(i) To Seller's knowledge, there are no pending actions against
or affecting the Real Property;

(ii) The Real Property (including all improvements, parking
areas, utilities and HVAC systems) is being sold in "as is" condition; provided,
however, that all major equipment systems included herein shall be in working
condition on the Closing Date;

(iii) The Real Property currently has unrestricted vehicular
and pedestrian ingress and egress access to publicly dedicated and publicly
maintained roads or streets, the failure of which would not result in more than
an insignificant adverse impact on the operation of the Restaurants;

(iv) Seller has not released or discharged nor, to Seller's
knowledge (for purposes of this Agreement, to Seller's knowledge shall be deemed
to be knowledge at the Louisville headquarters level, without any special
investigation, of factors that would have more than an insignificant adverse
impact on the operation of the Restaurants), has any third party released or
discharged, any hazardous substance on the Real Property. Seller agrees to
provide Purchaser with copies of any environmental surveys, audits or other
reports relating to the Restaurants of which it is aware in its possession;

v) The Real Property leases are in effect, and all amounts
due and owing by Seller pursuant to the leases prior to the Closing will be paid
by Seller; and

(vi) Seller has marketable title in fee simple to the Owned
Real Property, and marketable title to a leasehold estate in the Leased Real
Property.

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4.1.8. NO DEFAULT OR LITIGATION. To its knowledge, Seller is not, and
on the Closing Date shall not be, in default under any of the material terms or
provisions of any Assumed Contract. Except as provided in Schedule 4.1.8 hereto,
to Seller's knowledge no action has occurred, or on the Closing Date shall have
occurred, relating to the conduct of the Restaurants that would have a material
adverse impact upon the post Closing operation of the Restaurants. Except as
provided in Schedule 4.1.8 hereto, to Seller's knowledge there is no action
pending against Seller relating to the conduct of the Restaurants that could
have a material adverse effect upon the operation of the Restaurants.

4.1.9. GENERAL. Seller shall not be deemed to have made any
representation or warranty to Purchaser other than as expressly made by Seller
in Sections 4.1.1 through 4.1.8 hereof. Without limiting the generality of the
foregoing, Seller makes no representations with respect to any projections,
estimates, budgets, future revenues or future operations of the Restaurants.

4.2. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF PURCHASER.
Purchaser represents and warrants to and covenants with Seller as follows:

4.2.1. ORGANIZATION AND POWER. MRP is a corporation duly organized,
validly existing and in good standing under the laws of Pennsylvania; MFM is a
corporation duly organized, validly existing and in good standing under the laws
of Missouri, MWF is a corporation duly organized, validly existing and in good
standing under the laws of West Virginia, and each of MRO and MFI is a
corporation duly organized, validly existing and in good standing under the laws
of Ohio. Purchaser has all requisite corporate power and authority to own its
properties and to conduct its business as presently conducted.

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4.2.2. AUTHORIZATION AND EFFECT OF AGREEMENT. Purchaser has all
requisite power and authority to enter into and to perform its obligations under
this Agreement. This Agreement constitutes a valid and binding obligation of
Purchaser.

4.2.3. NO RESTRICTIONS AGAINST PURCHASE OF THE ASSETS; NO DEFAULT. The
execution and delivery of this Agreement by Purchaser, and the performance by it
of the transactions contemplated hereby will not violate, conflict with or
result in a breach of the Certificate of Incorporation or By-Laws of Purchaser,
or any Law applicable to it. Purchaser is not in default under any of the terms
or provisions of any debt instrument, supply agreement or other agreement or
instrument relating in any way to its existing business or assets.

4.2.4. GENERAL. Except as may otherwise be expressly included
elsewhere in this Agreement, Purchaser shall not be deemed to have made any
representation or warranty to Seller other than as expressly made by Purchaser
in Sections 4.2.1 through 4.2.3 hereof.

V. CERTAIN COVENANTS OF PURCHASER AND SELLER
--------------------------------------------

Purchaser and Seller covenant and agree as follows:

5.1. PRESS RELEASES. Purchaser and Seller shall not issue or cause
publication of any press release or other public communication with respect to
this Agreement or the transactions contemplated hereby without the consent of
the other. Without the express prior written consent of the other, Purchaser and
Seller shall not, and Purchaser and Seller shall cause their affiliates not to,
disclose to any other person or entity any information with respect to the terms
and conditions of this Agreement; provided however that each of Purchaser and
Seller may make such disclosures to (i) its independent accountants, legal
counsel and employees, and (ii) as required by law, including without limitation
by the

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Securities and Exchange Commission ("SEC") and any other national stock
exchange, provided such party gives written notice to the other and discusses
the matter with the other prior to any such disclosure.

5.2. INVESTIGATION BY PURCHASER. Seller shall afford to the authorized
representatives of Purchaser access to the Restaurants so that Purchaser may
interview the Restaurant employees and assess the condition of the Assets.
Purchaser shall schedule the interviews and inspections with Seller's Director
of Operations and Recognition ("DOR") for the region(s) in which the Restaurants
are located, and Purchaser's representative shall be accompanied by Seller's DOR
or his designee. Purchaser shall conduct the interviews and inspections so as to
minimize any disruption to the operation of the Restaurants.

5.3. CONFIDENTIAL NATURE OF INFORMATION. Whether or not the Closing
shall occur, each of the parties hereto shall treat in confidence all documents,
materials and other information which it shall have obtained regarding the other
relating to this Agreement or the transactions contemplated hereby.

5.4. MAKE NO MATERIAL CHANGE IN THE RESTAURANTS. Seller shall operate
the Restaurants until the Closing Date in the ordinary course, which shall
include maintaining, repairing and/or replacing equipment at the Restaurants in
the normal course.

5.5. SATISFACTION OF CONDITIONS. Each of the parties hereto agrees to
use its best efforts with due diligence and in good faith to satisfy promptly
all conditions to the obligations of the parties hereto in order to expedite the
consummation of the transactions contemplated hereby. In connection herewith,
both parties agree to work together to agree to reasonable terms and conditions
with the landlords of each parcel of Leased Real Property in order to obtain,
where necessary, landlord consents to the assignment of the leaseholds from
Seller to

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Purchaser, including as an example but not limited to Seller reasonably agreeing
to remain contingently obligated to the landlord on a particular assigned
leasehold and Purchaser reasonably agreeing to indemnify Seller against any
Seller's loss associated with Seller's remaining so obligated.

5.6. PURCHASE PRICE ALLOCATION. For federal, state, local and other tax
purposes, including without limitation income tax, ad valorem, transfer and
recording tax and similar purposes, Purchaser and Seller agree that the Purchase
Price will be allocated (the "Allocation") among the Assets as set forth on
Schedule 5.6. None of the parties hereto will take any position that is
substantively inconsistent with the Allocation in preparing any income or other
tax return or report and will each use reasonable efforts to maintain the
positions reflected in such returns or reports in determining any tax
liabilities. The parties acknowledge that the Allocation shall be based on, and
reflect, the relative fair market value of the Assets and Assumed Liabilities as
of the date hereof.

5.7. TITLE AND SURVEY MATTERS. Purchaser shall have the right, at its
option and sole cost and expense, to cause a current Commitment for Title
Insurance for the Restaurants to be issued for the benefit of Purchaser, to
cause a title search to be performed for the Restaurants and to cause surveys
and/or environmental Vista reports to be prepared or performed. In the event any
of the foregoing require access to the Restaurants, Purchaser shall follow the
procedures set forth in Section 5.2 hereof. Title and/or environmental reports,
searches, investigations, work or the like other than as specifically described
in this Section 5.7 shall not be performed or caused to be performed by
Purchaser in connection with the Restaurants without Seller's prior written
consent, which shall not be unreasonably withheld. Seller agrees to provide
Purchaser with copies of any surveys, title reports, title insurance policies or
environmental assessments relating to the Restaurants of which it is aware in
its possession.

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In the event the results of any environmental audit of any of the Owned
Real Property performed with Seller's prior consent as provided above indicates
that remedial action to alleviate currently existing contamination problems at
any such site is required by applicable federal or state law, Seller may, at its
option, (i) conduct, at its expense, the remedial action as required at such
site, (ii) work with Purchaser to reach a resolution that is mutually acceptable
to both Seller and Purchaser, or (iii) remove such Restaurant from this
Agreement, in which event the Purchase Price shall be reduced as provided in
Schedule 5.7 hereto.

5.8. CASUALTY AND CONDEMNATION. In the event that any Restaurant is
materially damaged by casualty or a material portion of any Restaurant is taken
or subject to pending or threatened condemnation prior to Closing, Purchaser
shall purchase the Restaurant and Seller shall transfer at Closing all insurance
or condemnation proceeds received (together with an assignment of the right to
receive any proceeds not yet paid) to Purchaser.

5.9. EQUITY PORTION OF PURCHASE PRICE. Commencing as of the Closing
Date, Purchaser shall maintain an equity position in the Restaurants equal to,
at a minimum, the aggregate of (i) 15% of the Purchase Price, Cash, value of the
Inventories and all transaction costs (with transaction costs, to the extent
they do not exceed 5% of the Purchase Price, Cash and value of the Inventories),
and (ii) all transaction costs incurred by Purchaser in connection with the
transactions contemplated hereby in excess of 5% of the Purchase Price, Cash and
value of the Inventories. Equity may include stock/partnership capital and
market value of existing assets, net of debt. Equity investments of
stock/partnership capital and/or a contribution of assets will be valued on an
"all-in" basis. The equity of the combined entity (acquired Assets and existing
operations) must be at least 15%. Equity shall be calculated in accordance with
the formula set forth in Schedule 5.9. In order to cause Purchaser to satisfy
its equity obligations under this Agreement, MFI hereby

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unconditionally guarantees to Seller and its affiliates, successors and assigns,
the full and complete timely performance of Purchaser's obligations under this
Agreement, the Real Property leases and the KFC Franchise Agreements for the
Restaurants. MFI hereby waives presentment, demand, protest and notice in
connection with this guaranty obligation. Purchaser's failure to maintain such
equity position in the Restaurants as provided in this Section 5.9 at any time
during the first two years following the Closing shall constitute a breach by
Purchaser of the KFC Franchise Agreements for all of the Restaurants; provided,
however, that Purchaser shall have 60 days following notice from Seller to cure
any failure by Purchaser, by a less than a material amount, to maintain such
equity position. The parties acknowledge that the remedy provided in the
foregoing sentence shall not limit any other remedy available to Seller relating
to a breach by Purchaser of Section 5.9, either during or after such two-year
period. Purchaser further agrees that it will not, during the first two years
following Closing, without the prior written consent of Seller, which shall not
be unreasonably withheld, refinance or restructure any portion of Purchaser's
debt or equity assumed or contributed in connection with the transactions
contemplated hereby. The parties agree that it shall not be unreasonable for
Seller to withhold its consent if such refinancing or restructuring would result
in a reduction of equity below the minimum level required by this Section 5.9.
Purchaser agrees, at Seller's request, to provide Seller at Closing with an
officers certificate in form satisfactory to Seller that the equity contributed
by Purchaser as required by this Section 5.9 is not encumbered in any way.

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status of its endeavors to obtain financing. In the event Purchaser does not,
despite its best efforts, obtain a commitment for such financing with 60 days of
the execution of this Agreement, then within 75 days of the execution of this
Agreement either party may terminate this Agreement. Purchaser agrees that it
will provide Seller with a copy of the lender commitment letter promptly
following its receipt of such letter, or at least 10 days before Closing,
whichever is earlier. Purchaser also agrees, at Seller's reasonable request, to
provide Seller with copies of any other documentation relating to such
financing.

5.11. FINANCIAL STATEMENTS AND RELATED DOCUMENTS. At the time of
execution of this Agreement, Purchaser shall deliver to Seller a copy of MFI's
certified audited current financial statements, as well as Purchaser's current
financial statements certified by the president and chief financial officer of
Purchaser. MFI's financial statements shall be in the form, with the content
and for the period required by the SEC. All financial statements of Purchaser
shall be in the form, with the content, and for the period reasonably required
by Seller.

If these financial statements do not show that Purchaser has available
cash or other liquid assets equaling at least 15% (as calculated in accordance
with Schedule 5.9) of the Purchase Price, Cash and value of the Inventories (and
transaction costs as provided in Section 5.9 hereof), Purchaser shall also
deliver proof that Purchaser has available 15% of the Purchase Price, Cash and
value of the Inventories (and transaction costs as provided in Section 5.9
hereof) that will not be secured by the Assets or by stock in the Purchaser.

For the two year period following the Closing, Purchaser shall provide
Seller with MFI's then current quarterly financial statements in the form
prescribed by the SEC, and Purchaser's then current certified quarterly
financial statements in the form reasonably satisfactory to Seller.

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<PAGE> 17

Purchaser has provided Seller with copies of Purchaser's business plan
for the Restaurants, and shall provide Seller with Purchaser's ownership
structure, certified as true and correct by Purchaser or a duly authorized
officer of Purchaser.

5.12. EMPLOYEES. Except as provided in Schedule 5.12 hereto, Purchaser
shall extend offers of employment to all of Seller's employees up to and
including the level of Restaurant General Manager working in the Restaurants,
such employment to commence effective the Closing Date. Seller shall offer
Purchaser the opportunity to interview Seller's area coaches for the
Restaurants. Except as otherwise expressly provided by applicable law, on and
after the Closing Date Purchaser shall be responsible for all matters of
employment occurring on or after the Closing Date concerning such employees who
accept Purchaser's offer of employment, including without limitation workers'
compensation claims, unemployment benefit claims, wage and hour claims,
employment discrimination claims, child labor claims and OSHA claims, and
Purchaser shall indemnify Seller for any and all such matters and claims, and
Seller shall be responsible for such matters of employment and claims occurring
up to the Closing Date and shall indemnify Purchaser therefor. The employment by
Seller of the Restaurant employees who accept Purchaser's offer of employment
shall cease effective the close of business on the day preceding the Closing
Date. The timing of such offers of employment, and any related meetings between
Purchaser and the Restaurant employees, shall be as agreed between Purchaser and
Seller. Seller makes no representations regarding the qualifications or
abilities of the Restaurant employees. For a period of two years following the
Closing Date, Seller and its affiliates shall not knowingly, without the consent
of Purchaser, recruit with an intent to employ any Restaurant employee employed
by Seller on the day preceding the Closing Date who accepts Purchaser's offer of
employment, so long as such Restaurant employee remains an employee of
Purchaser.

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<PAGE> 18

VI. CONDITIONS PRECEDENT TO THE CLOSING
-----------------------------------

6.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The obligations
of Purchaser under this Agreement shall be subject to the satisfaction, on or
prior to the Closing Date, of all of the following conditions, any one or more
of which may be waived at the option of Purchaser:

6.1.1. MISREPRESENTATION OR BREACH OF COVENANTS, REPRESENTATIONS AND
WARRANTIES. There shall have been no material breach by Seller in the
performance of Seller's covenants herein, the representations and warranties of
Seller contained or referred to in this Agreement shall be true and correct on
the Closing Date and there shall have been delivered to Purchaser a certificate
to that effect, dated the Closing Date, and signed by a duly authorized officer
of Seller.

6.1.2 CONVEYANCING DOCUMENTS. With respect to the Assets there shall
have been delivered to Purchaser by Seller bills of sale, assignments, general
warranty deeds, landlord consents, lease assignments, KFCC Form 76(5p) Franchise
Agreements in conformity with Section 6.2.4 of this Agreement, and KFCC and Taco
Bell Corporation authorizations, as appropriate, for Taco Bell/KFC. 2n1
facilities (conversions or ground-ups) and single brand facilities for the
locations specified in Schedule 10.12 hereto for the effective dates stated
therein. All of the transfer documents delivered pursuant to this Section shall
be reasonably satisfactory to Purchaser's attorneys and Purchaser's lender as of
the Closing Date.

6.1.3. CONSENTS AND APPROVALS. The consents, waivers and approvals
necessary for the effective transfer, assignment and conveyance of the Assets
shall have been given or obtained.

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<PAGE> 19

6.1.4 APPROVAL BY MFI. This Agreement and the transactions contemplated
hereby shall have been approved by the Board of Directors of MFI.

6.1.5. NO LEGAL OBSTRUCTION. Any and all required waiting periods or
approvals under the Hart-Scott-Rodino Act or with or from other federal agencies
shall have expired or been terminated or received without the institution of a
proceeding challenging the transactions contemplated hereby. Any required filing
fees in connection with the approvals contemplated by this Section shall be
shared equally by Purchaser and Seller.

6.1.6 RELATED CLOSING. Simultaneously with the Closing hereunder, the
sale of 12 Taco Bell restaurants in the Pittsburgh, Pennsylvania area to
Purchaser or its affiliates contemplated under the Asset Purchase Agreement
executed on or about the date hereof among Purchaser, MFI, Taco Bell Corp. and
Taco Bell of California, Inc. shall also close.

6.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of
Seller under this Agreement shall be subject to the satisfaction, on or prior to
the Closing Date, of all of the following conditions, any one or more of which
may be waived at the option of Seller.

6.2.1. NO MISREPRESENTATION OR BREACH OF COVENANTS, REPRESENTATIONS AND
WARRANTIES. There shall have been no material breach by Purchaser in the
performance of its covenants herein, the representations and warranties of
Purchaser contained or referred to in this Agreement shall be true and correct
on the Closing Date and there shall have been delivered to Seller a certificate
to that effect, dated the Closing Date, and signed by a duly authorized officer
of Purchaser.

6.2.2 CONSIDERATION. Purchaser shall have delivered to Seller the
Purchase Price in accordance with the terms of Section 2.1 (a) hereof.

6.2.3. RESOLUTIONS; OTHER DOCUMENTS. There shall have been delivered
to Seller by

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<PAGE> 20

Purchaser copies, certified by the Secretary of Purchaser, of resolutions duly
adopted by the Board of Directors and shareholders of Purchaser authorizing,
ratifying and approving the terms, execution and delivery by Purchaser of this
Agreement and the performance thereof by Purchaser. Purchaser shall have also
delivered to Seller a good standing certificate dated within 15 days of the
Closing Date, as well as the documents referred to in Sections 5.10 and 5.11
hereof and any other documents that Seller may reasonably request.

6.2.4. FRANCHISE DOCUMENTS. Purchaser and KFCC shall have executed and
delivered to each other a 20-year KFC Franchise Agreement Form 76(5p) for each
of the Restaurants, together with such other documents as may then be
customarily required by KFCC in connection with the issuance of franchises,
including without limitation the Franchisee Use of Safety, Security and Employee
Relations Materials Release and Disclaimer, and the KFCC and Taco Bell Corp.
authorizations, as appropriate, for the Taco Bell/KFC 2nl and other facilities
for the locations specified in Schedule 10.12 hereto. For any of the Restaurants
that are Taco Bell/KFC 2nl's on the Closing Date, with the exception of the 2n1
Restaurant located at 6190 Steubenville Pike, McKees Rocks, PA, Purchaser and
Taco Bell Corp. shall have executed and delivered to each other a current form
5-year Taco Bell Franchise Agreement, together with such other documents as may
then be customarily required by Taco Bell Corp. in connection with the issuance
of franchises, and Purchaser shall have been granted at Closing the option to
convert such 5-year franchises to (in the aggregate) 20-year franchises
following the upgrade by Purchaser of each such 2n1 facility to then current
Taco Bell/KFC ground-up image and standards within 5 years of the Closing and
the payment by Purchaser to Taco Bell Corp. of an initial fee of $45,000 for
each such 2n1 facility. For such McKees Rocks Restaurant, Purchaser shall have
the right to operate the Taco Bell Express facility for the remaining portion of
the current 5-year term only.

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<PAGE> 21

6.2.5. APPROVAL BY TRICON. This Agreement and the transactions
contemplated hereby shall have been approved by the senior management of Tricon
Global Restaurants, Inc. ("Tricon").

6.2.6. NO LEGAL OBSTRUCTION. Any and all required waiting periods or
approvals under the Hart-Scott-Rodino Act or with or from other federal agencies
shall have expired or been terminated or received without the institution of a
proceeding challenging the transactions contemplated hereby. Any required filing
fees in connection with the approvals contemplated by this Section shall be
shared equally by Purchaser and Seller.

6.2.7. RELATED CLOSING. Simultaneously with the Closing hereunder, the
sale of 12 Taco Bell restaurants in the Pittsburgh, Pennsylvania area to
Purchaser or its affiliates contemplated under the Asset Purchase Agreement
executed on or about the date hereof among Purchaser, MFI, Taco Bell Corp. and
Taco Bell of California, Inc. shall also close.

6.2.8. EAST SIDE MARIO'S LITIGATION. As of the Closing, MFI, Purchaser
and their affiliates shall execute and deliver to Seller a general release and
related documents in the form reasonably satisfactory to Purchaser, Seller and
their respective counsel. The release and related documents shall provide, in
substantial part, that MFI, Purchaser and their affiliates release with
prejudice any and all claims whatsoever that any of them have, may have or may
have had, or which were, could have been, or may have been asserted by them in
the litigation entitled MORGAN'S CREATIVE RESTAURANT CONCEPTS, INC. AND MORGAN'S
FOODS, INC. v. EAST SIDE MARIO'S RESTAURANTS, INC., MARIE CALLENDER'S PIE SHOPS,
INC. AND MARK BROMBERG, filed in the United States District Court, Northern
District of Ohio, Eastern Division, Case No. 1:98CV1559, or MORGAN'S CREATIVE
RESTAURANT CONCEPTS, INC. AND MORGAN'S FOODS, INC. v. EAST SIDE MARIO'S, INC.,
MARIE CALLENDER'S PIE SHOPS,

<PAGE> 22
INC. AND MARK BROMBERG, filed in the United States District Court, Northern
District of Ohio, Eastern Division, Case No.1:98CV920 (the "Litigation") against
Tricon or any of its affiliates, or for which Tricon or any of its affiliates
may have an obligation to indemnify any or all of East Side Mario's Restaurants,
Inc., Marie Callender's Pie Shops, Inc., or any of their respective current or
former affiliates, employees, officers or directors, or PepsiCo, Inc., or any of
its current or former affiliates, employees, officers or directors (together
"Indemnified Parties") in connection therewith (provided, however, that this
shall not preclude MFI, Purchaser and their affiliates from asserting claims
against any such Indemnified Party, for which claims Tricon and its affiliates
have no obligation to indemnify such Indemnified Party), and that MFI, Purchaser
and their affiliates jointly and severally agree to indemnify Tricon and its
affiliates for, from and against any other claims which were, are or may be
asserted against Tricon or any of its affiliates in the Litigation or any
related litigation involving the same parties, or for which Tricon or any of its
affiliates are found to be liable in the Litigation or any related litigation
involving the same parties. Except as provided herein, Tricon and its affiliates
shall release MFI and its affiliates from any claims Tricon or its affiliates
may have against MFI or it affiliates relating to the East Side Mario's
restaurant concept.

In connection with such release, Seller shall cause Pizza Hut, Inc.
to pay MFI $60,000.

VII. CLOSING
------------

7.1 THE CLOSING. Subject to the fulfillment of the conditions
precedent specified in Article VI hereof, the consummation of the transactions
of purchase and sale contemplated hereby (the "Closing") shall take place at
10:00 a.m. on June 15, 1999 or on such other date

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<PAGE> 23

as mutually agreed by Seller and Purchaser (the "Closing Date"). The Closing
shall take place at a location as mutually agreed by Purchaser and Seller.

VIII. INDEMNIFICATION
---------------

8.1. INDEMNIFICATION. (a) Purchaser and Seller (i) represent that they
have not incurred any brokerage or finder's fees or agent's commissions or other
similar charges to any person or entity which would result in liability, cost or
obligation to the other or any affiliate of the other and (ii) agree to
indemnify and save harmless the other from and against any loss, cost, damage or
expense (including court costs and reasonable attorneys' fees and expenses)
resulting from any breach of such representation.

(b) From and after the Closing, Seller shall indemnify and save
harmless Purchaser and its affiliates from and against any and all loss, cost,
damage or expense of or to Purchaser or its affiliates (including court costs
and reasonable attorneys' fees and expenses) resulting from or arising out of:

(i) Any breach of any representation, warranty, covenant or
obligation of Seller contained in this Agreement; or

(ii) Any liability or obligation in respect of the operation
of the Restaurants by Seller prior to the Closing Date (including but not
limited to employment or termination claims by Seller's Restaurant employees
arising from events occurring at the Restaurants prior to the Closing Date).

(c) From and after the Closing, Purchaser shall indemnify and save
harmless Seller and its affiliates from and against any and all loss, cost,
damage or expense of or to Seller or its affiliates (including court costs and
reasonable attorneys' fees and expenses) resulting from or arising out of:

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<PAGE> 24

(i) Any breach of any representation, warranty, covenant or
obligation of Purchaser contained in this Agreement; or

(ii) The Assumed Liabilities.

IX. PRORATIONS AND EXPENSES
-----------------------

9.1. EXCLUSIVITY. Utility charges, rental charges, Real Property taxes,
and personal property taxes, including without limitation, accruals or
prepayments thereof (collectively called the "Proration Accounts"), shall be
apportioned between Seller and Purchaser as of the Closing. To the extent the
Proration Accounts cannot be fully apportioned, or other amounts payable by
Purchaser or Seller hereunder, as the case may be, cannot be fully determined as
of the Closing, either party may from time to time after the Closing Date
prepare and submit to the other one or more post-closing statements, and
Purchaser or Seller, as the case may be, shall pay the amounts due to the other
within 30 days of receipt of any such post-closing statement.

9.2. OTHER TAXES AND EXPENSES. (a) All federal, state and municipal
income, federal and state withholding, Federal Insurance Contributions Act,
federal employment and state unemployment taxes and other charges levied or
imposed upon Seller will be borne and paid by Seller and all such taxes and
charges so levied or imposed upon Purchaser will be borne and paid by
Purchaser.

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<PAGE> 25

the lender, the title company or otherwise, payable by reason of the sale and
conveyance of any of the Assets; provided, however, that Seller shall pay 1/2 of
the 2% Pennsylvania real estate transfer tax only; and provided further,
however, that, to the extent Seller is required under applicable state law to
remit any sales taxes in connection with the transactions contemplated by this
Agreement, Purchaser shall pay such taxes to Seller at Closing so they can be
duly and timely paid in accordance with such state law.

X. MISCELLANEOUS
----------------

10.1. TERMINATION. Notwithstanding anything contained in this Agreement
to the contrary, this Agreement may be terminated at any time prior to the
Closing:

a) by the mutual written consent of Purchaser and Seller;

b) by Seller or Purchaser if the Closing shall not have
occurred on or before September 30, 1999, unless extended by written agreement
of the parties; or

c) by either Purchaser or Seller if the other shall fail to
fulfill any of its obligations hereunder that constitutes a condition precedent
to the performance of the first party's obligations in accordance with the terms
hereof.

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<PAGE> 26

have no impact on the defenses, rights and remedies, if any, available to
any party (currently or hereafter) in the Litigation, or with respect to any
claims which any party may make against Tricon or its affiliates in the
Litigation, or any claims that Tricon or its affiliates may make against any
such party or others in the Litigation or otherwise.

10.2. SPECIFIC PERFORMANCE. Seller and Purchaser acknowledge and agree
that monetary damages are not adequate to enforce the terms of this Agreement
or to address a breach or an alleged breach of this Agreement. Each of the
parties hereto will be entitled to obtain specific performance or other
equitable relief against the other in connection with any breach of any
provision hereof (in addition to any other remedies, including monetary
damages, otherwise available hereunder or at law).

10.3. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and, unless otherwise provided in this
Agreement, shall be deemed to have been duly given when delivered in person or
when dispatched by telegram or electronic facsimile transfer, or sent by
overnight mail to the addressees at the addresses specified below:

(a) If to Seller:

KFC National Management Company
Kentucky Fried Chicken of California, Inc.
1441 Gardiner Lane
Louisville, Kentucky 40213
Attn: General Counsel

(b) If to Purchaser:

Morgan's Foods, Inc.
Morgan's Restaurants of Pennsylvania, Inc.
Morgan's Foods of Missouri, Inc.
Morgan's Restaurants of Ohio, Inc.
Morgan's Weirton Foods, Inc.
24200 Chagrin Boulevard, Suite 126
Beachwood, Ohio 44122
Attn: Mr. James J. Liguori
President, Chief Operating Officer

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<PAGE> 27

or to such other address or addresses as any such party may from time to time
designate as to itself by like notice.

10.4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Seller, Purchaser, and their respective successors and
assigns; provided however that Purchaser may not assign its rights or delegate
its obligations hereunder in whole or in part without the prior written consent
of Seller; provided further that, as between Seller and Purchaser, no such
assignment shall relieve Purchaser of its primary liability to Seller for any of
Purchaser's obligations hereunder.

10.5. MODIFICATION AND WAIVER. No modification or waiver of any of the
provisions of this Agreement shall be effective unless such modification or
waiver shall be in writing and signed by the party or parties to be bound.

10.6. ENTIRE AGREEMENT. This Agreement (together with any Schedules and
Exhibits hereto, the Asset Purchase Agreement referred to in Section 6.2.7 and
the settlement and release documents contemplated in Section 6.2.8) supersedes
any other agreement, whether written or oral, that may have been made or entered
into by Purchaser or Seller relating to the matters contemplated hereby. This
Agreement (together with any Schedules and Exhibits hereto) constitutes the
entire agreement by and between the parties and there are no agreements or
commitments except as expressly set forth herein. Notwithstanding the above,
this Section shall not apply to those agreements listed in Schedule 10.6 hereto.

10.7. LIMITATIONS ON RIGHTS OF THE PARTIES. Nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give any person, firm or

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<PAGE> 28

corporation other than the parties hereto any rights or remedies under or by
reason of this Agreement or any transaction contemplated hereby.

10.8. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the substantive laws of the Commonwealth of Kentucky without
giving effect to the principles of conflict of laws thereof. If any party seeks
to enforce its rights under this Agreement by legal proceedings or otherwise,
the nonprevailing party shall pay the prevailing party's costs and expenses,
including, without limitation, reasonable attorney's fees.

10.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.

10.10. TITLES AND HEADINQS. Titles and headings to sections herein are
inserted for convenience of reference only, and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.

10.11. SEVERABILITY. If any provision or provisions of this Agreement,
or any of the documents or instruments delivered pursuant hereto, or any portion
of any provision hereof or thereof, shall be deemed invalid or unenforceable
pursuant to a final determination of any court of competent jurisdiction or as a
result of future legislative action, such determination or action shall be
construed so as not to affect the validity or enforceability hereof or thereof
and shall not affect the validity or effect of any other portion hereof or
thereof.

10.12. FRANCHISE AGREEMENTS. (a) Purchaser acknowledges that, except as
may otherwise be provided in Schedule 10.12 hereto, Seller shall cause KFC
Corporation ("KFCC") to issue to Purchaser a KFC Franchise Agreement for each of
the Restaurants. Purchaser agrees to comply fully with the terms of such
Franchise Agreements and any supplements or

27
<PAGE> 29

attachments thereto, including without limitation any "Exhibit A's" containing
upgrading, relocation, rebuild and/or remodeling obligations for the
Restaurants. Purchaser further acknowledges that, due to concern for the
employees at the Restaurants, among other reasons, at the time of execution of
this Agreement, the Exhibit A's may only contain generally described upgrading,
relocation, rebuild and/or remodeling obligations, and that the specific
components of such obligations (which shall include current image signage for
all of the Restaurants) will be determined by Seller at a later date, consistent
with the I.E. Guidelines for Divestitures currently endorsed by the NCAC.
Purchaser agrees to comply with these specific obligations within the time
periods specified by Seller. Purchaser further agrees to comply fully with the
terms of each Real Property lease for the Leased Real Property, including
without limitation the obligations under each Real Property lease to pay rent
when due, so long as Seller or any of its affiliates remain obligated
(contingently or otherwise) under such Real Property lease. Purchaser agrees
that, notwithstanding anything to the contrary set forth in the KFC Franchise
Agreements for the Restaurants, a breach by Purchaser of any Real Property lease
under which Seller or any of its affiliates remain liable shall constitute a
breach by Purchaser of the KFC Franchise Agreement for that Restaurant, and a
breach by Purchaser of KFC Franchise Agreement for one of the Restaurants shall
constitute a breach by Purchaser under the KFC Franchise Agreements for all of
the Restaurants; provided, however, that this cross-default provision shall no
longer apply to a default under a Real Property lease where Seller and its
affiliates are no longer liable. The $25,000 initial franchise fee payable by
Purchaser to KFCC for the KFC franchise for each of the Restaurants is included
in the Purchase Price specified in Section 2.1 of this Agreement, and no
separate additional initial franchise fee shall be charged by Seller to
Purchaser for the KFC Franchise Agreements for any of the Restaurants. There
shall be no initial fees

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<PAGE> 30

payable by Purchaser for the 5-year Taco Bell franchise agreements for the
Restaurants that are currently Taco Bell/KFC 2n1's.

(b) In addition to its other agreements and obligations hereunder,
including without limitation its Exhibit A obligations, Purchaser agrees that,
subject to the then existing contractual rights of other KFC and Taco Bell
franchisees and the then current practices and policies of KFCC and Taco Bell
Corp. (e.g., any impact guidelines), it will construct and open for business a
total of 20 new KFC and/or Taco Bell single or multi-brand outlets (including 9
conversions of single brand outlets to ground-up image 2nl's) in the following
areas: 12 in the vicinity of the "Committed Locations" as identified in Schedule
10.12, and the remaining 8 in and/or around the areas where the Restaurants are
located or in the "Optional Locations" as identified in Schedule 10.12. Where
Schedule 10.12 specifies a certain facility type for a particular location (e.g.
Taco Bell/KFC 2n1), Purchaser agrees to construct such facility type at that
location. The new outlets shall be constructed and opened for business in
accordance with KFCC's and Taco Bell Corp.'s standards at specific locations
approved by KFCC and/or Taco Bell Corp., as the case may be. Five new outlets
shall be opened for business within each successive 12 month period following
the Closing.

At Closing, and in addition to the Purchase Price, Purchaser shall
pay Seller the nonrefundable amount of $170,000 toward the initial franchise
fees for the new outlets to be constructed at the Committed Locations
identified in Schedule 10.12: $10,000 for each of the new brand points of
distribution. As each of such 12 new outlets are opened for business as
provided in this subsection (b), the remaining $15,000 portion of the initial
franchise fee for each KFC and Pizza Hut outlet (distribution point) and
$35,000 for each

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<PAGE> 31

Taco Bell outlet (distribution point) shall be payable by Purchaser to Seller or
its designee on such opening day. In the event any of such 12 new outlets are
not opened for business as provided herein (unless due to factors outside of
Purchaser's control), the portion of the initial franchise fee paid hereunder
for such outlet shall be retained by Seller.

(c) For the 24-month period following the Closing, Seller shall
not, and shall cause its affiliates not to, grant any other party the right to
construct and open for business a KFC and/or Taco Bell outlet at any of the
"Optional Locations designated for such brands; provided, however, that in order
to retain the right to construct a KFC and/or Taco Bell outlet of the type
identified in Schedule 10.12 at any of the Optional Locations after such
24-month period, Purchaser shall (I) pay to Seller or its designee before the
expiration of such 24-month period $10,000 toward the initial franchise fee for
each new brand distribution point at each such Optional Location, and (ii)
remain in full compliance with the development timetable specified in subsection
(b) above; otherwise, Purchaser shall have no further right to construct or open
for business any such outlet. The remainder of the initial franchise fee shall
be paid as provided in subsection (b) above.

(d) If any new outlet as referred to in (b) or (c) above is not
opened for business as provided herein within the time periods specified (unless
due to factors outside of Purchaser's control), the option for such outlet shall
automatically expire, and Purchaser shall have no further right to construct or
open for business such outlet. In addition, in the event any such new KFC outlet
as referred to in (b) or (c) above is not opened as provided herein, Purchaser
shall waive and release for a period of one year following the scheduled opening
day any and all rights it may have under any then existing KFC Franchise
Agreement to apply for any new KFC franchised outlet within such vicinity is
described in Schedule 10.12 or subsection (b) above, unless such failure to open
is due to factors outside of Purchaser's control. At the end

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of such one-year period, subject to the provisions of such KFC Franchise
Agreements, Purchaser shall regain such rights.

(e) Within 30 days following the beginning of each 12-month period
following the Closing, Purchaser shall notify Seller in writing of the outlets
(specifying locations) it will construct and open for business during that
12-month period.

(f) Purchaser further agrees, as part of its overall agreement
hereunder, that it will waive any Section 19 or other rights it may have under
any current or then existing KFC, Pizza Hut or Taco Bell Franchise Agreement
with respect to a total of 4 new franchised outlets to be constructed and opened
for business of the types and in the vicinities identified below:

Type of Outlet Vicinity
- -------------- --------

1. KFC/Taco Bell 2n1 Cranberry, PA

2. KFC/Taco Bell 2n1 Pittsburgh University Campus (Forbes Ave.)

3. KFC/Taco Bell/Pizza Hut 3n1 Pittsburgh, PA (Carson Street)

4. KFC/Taco Bell 2n1 Cadiz, PA (part of Wheeling)

Purchaser is waiving these rights on the condition that the KFC Franchise
Agreements issued to a third party for the KFC franchises identified above do
not contain Section 19.

(g) Purchaser and Seller further agree that Purchaser will
relocate its current KFC outlet at 100 S. 7th Street in Indiana, PA (L125087) to
another location acceptable to KFCC in Indiana, PA, in accordance with a
timetable to be reasonably agreed upon by Purchaser and Seller. There shall be
no initial franchise fee payable to KFCC with respect to this relocation, and
such relocation shall not be counted toward Purchaser's development obligations
under this Section 10.12.

10.13. ASSET SALE ONLY. Purchaser and Seller mutually agree that this
transaction constitutes an asset sale only.

10.14. SANDWICH EQUIPMENT. Purchaser acknowledges and agrees that an

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incremental investment in equipment for the Restaurants will be necessary for
Purchaser to participate in the national launch of sandwiches in the KFC System
scheduled for September, 1999. Purchaser further acknowledges and agrees that it
shall be responsible for purchasing such equipment and having it delivered to
the Restaurants prior to such sandwich launch.

IN WITNESS WHEREOF, the parties hereto have executed, or have caused
their duly authorized representatives to execute, this Agreement the day and
year first above written.

SELLER: PURCHASER:

KFC National Management Company Morgan's Foods, Inc.

By /s/ Scott Toop By /s/ Leonard Stein-Sapir
----------------------------- ---------------------------
Vice President Chairman

FEIN 34-0562210
----------

Kentucky Fried Chicken of Morgan's Restaurants of
California, Inc. Pennsylvania, Inc.

By /s/ Scott Toop By /s/ James J. Liguori
---------------------------- ----------------------------
Vice President President & COO

FEIN 25-1239132
----------

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<PAGE> 34

Morgan's Foods of Missouri, Inc.

By /s/ James J. Liguori
----------------------
President & COO

FEIN 34-1576794
-----------

Morgan's Restaurants of Ohio, Inc.

By /s/ James J. Liguori
----------------------
President & COO

FEIN 25-1219310
------------
Morgan's Weirton Foods, Inc.

By /s/ James J. Liguori
--------------------
President & COO

FEIN 25-1213925
----------

<PAGE> 1
Exhibit 2-B

ASSET PURCHASE AGREEMENT

by and among

Morgan's Restaurants of Pennsylvania, Inc.

("Purchaser"),

Morgan's Foods, Inc.

("MFI")

and

Taco Bell Corp.

and

Taco Bell of California, Inc.

(together "Seller")

May 7, 1999

<PAGE> 2

ASSET PURCHASE AGREEMENT
------------------------

This ASSET PURCHASE AGREEMENT (this "Agreement"), made and entered
into as of this 7th day of May, 1999 by and among Morgan's Restaurants of
Pennsylvania, Inc., a Pennsylvania corporation ("Purchaser"), Morgan's Foods,
Inc., an Ohio corporation ("MFI"), Taco Bell Corp., a California corporation
("TB"), and Taco Bell of California, Inc., a California corporation ("TBCAL")
(TB and TBCAL shall be referred to jointly and severally as "Seller");

WITNESSETH:
-----------

WHEREAS, Seller presently owns and operates 12 Taco Bell
restaurants in and around Pittsburgh, Pennsylvania as identified on Schedule I
hereto (the "Restaurants"); and

WHEREAS, Seller desires to sell and transfer to Purchaser and
Purchaser desires to purchase and acquire from Seller the Restaurants on the
terms and subject to the conditions set forth in this Agreement;

NOW, THEREFORE, the parties hereto agree as follows:

I. PURCHASE AND SALE OF ASSETS
------------------------------

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<PAGE> 3

assets referred to or described in this Section 1.1 and/or the Schedules
contemplated hereby (the "Assets")

1.1.2. LEASED REAL PROPERTY. All of Seller's rights and incidents of
interest, as of the Closing Date, in and to the leases of real property
constituting part of the Restaurants (the "Leased Real Property"). The Leased
Real Property is identified on Schedule 1.1.2 hereto. Seller shall provide
Purchaser with copies of the leases for such Leased Real Property.

1.1.3. TANGIBLE PERSONAL PROPERTY. All rights and incidents of
interest of Seller in and to all restaurant equipment, fixtures, furniture,
signs, menus, dishes, glassware, utensils and other smallwares, computers,
telephones, register systems and other office or telecommunications equipment in
which Seller has any interest as of the date of this Agreement and which are
located at the Restaurants, as well as spare equipment and parts of which Seller
is aware that are readily available, stored in the area of the Restaurants, and
designated for use at the Restaurants, all of the foregoing subject to use, wear
and tear, disposition, replacement or similar actions in the normal course
between the date hereof and the Closing (the "Tangible Personal Property").
Purchaser, at its option, may elect to use the POS software that Seller may
offer its franchisees from time to time, for the then current fee charged by
Seller to its franchisees.

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<PAGE> 4

1.1.6. CASH. All cash in drawers and change funds of Seller in each
Restaurant as of the commencement of business on the Closing Date, not to exceed
$1,000 per Restaurant (the "Cash").

1.2. EXCLUDED ASSETS. Notwithstanding anything contained in this
Agreement to the contrary, the following rights, properties and assets (the
"Excluded Assets") shall not be included in the Assets:

1.2.1. CASH AND CASH EQUIVALENTS. All cash or cash equivalents of
Seller, including bank accounts and deposits, in existence on the Closing Date,
other than the Cash.

1.2.2. EXCLUDED REAL PROPERTY. The owned and leased real property of
Seller other than the Owned Real Property and the Leased Real Property (the
"Excluded Real Property").

1.2.3. EXCLUDED IMPROVEMENTS. All buildings, fixtures and similar
improvements located on the Excluded Real Property.

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<PAGE> 5
1.2.4. EXCLUDED TANGIBLE PERSONAL PROPERTY. All office equipment,
furniture, fixtures, business machines and other tangible personal property of
Seller other than the Tangible Personal Property.

1.2.5. RECEIVABLES. All accounts and notes receivable of Seller.

II. PURCHASE PRICE
--------------

2.1. PURCHASE PRICE. (a) In consideration of the transfer of the Assets
and the other undertakings of Seller hereunder, Purchaser shall pay to Seller
the sum of Three Million Two Hundred Forty Thousand Dollars ($3,240,000) (the
"Purchase Price"), plus the Cash and the value of the Inventories as of the
Closing Date determined in accordance with Section 2.1(b) hereof. The Purchase
Price shall be payable in cash to Seller by cashier's check or bank wire
transfer to an account or accounts designated in writing by Seller as follows:
$15,000 upon the execution of this Agreement, and the remaining $3,225,000 on
the Closing Date. The $15,000 shall be refundable to Purchaser only in the event
this Agreement terminates pursuant to Section 10.1 hereof due to Seller's
failure to fulfill any of its obligations hereunder that constitutes a condition
precedent to the performance of Purchaser's obligations hereunder.

(b) On the business day immediately preceding the Closing Date, as of
the close of business of the Restaurants, Seller shall take a physical count and
review of the Cash and Inventories, and Purchaser shall have the right to have
its representatives observe such physical count and review. No later than 15
business days thereafter, Seller shall prepare and deliver to Purchaser a
statement of all of the

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<PAGE> 6

Cash and Inventories as of the Closing Date (the "Closing Inventory Statement").
Within ten business days after receipt by Purchaser of the Closing Inventory
Statement. Purchaser shall remit to Seller, by cashier's check or bank wire
transfer to an account designated in writing by Seller, the amount stated in the
Closing Inventory Statement. All items of Inventory shall be valued at Seller's
actual cost. Any amounts not paid by Purchaser within ten business days as
provided herein shall bear interest at the lesser of (i) the rate of 1.5% per
month or (ii) the highest rate permissible under applicable law.

(c) On the Closing Date, Purchaser shall remit to Seller in immediately
available funds the amount of any prepaid deposits or other items that will
benefit Purchaser's operation of the Restaurants and which are identified in
Schedule 2.1(c) hereto as of the date hereof, or added to such schedule on or
before the Closing Date.

III. ASSUMPTION OF LIABILITIES
-------------------------

3.1. ASSUMED LIABILITIES. It is expressly understood and agreed that
Purchaser shall assume, and shall be responsible for, those liabilities and
obligations as are described in this Section 3.1. Purchaser shall assume on the
Closing Date, and thereafter in due course shall pay and fully satisfy, the
liabilities and obligations relating to the Restaurants and set forth below in
subparagraphs (i) and (ii) of this Section 3.1 (such liabilities and obligations
being referred to herein as the "Assumed Liabilities"):

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<PAGE> 7

copies of which have been provided to Purchaser, or (iii) (and where monetary
obligations are included) for amounts consistent with market pricing (the
"Assumed Contracts"); and

(ii) Without limiting anything in subparagraph (i) above,
all liabilities and obligations arising or accruing, or pertaining to the
period, on or after the Closing Date for death, personal injury (including
workers' compensation), property damage or other injury, damage or loss to, by
or of any person or entity, any property or any right, relating to the
Restaurants or the Assets, or their operation, including, without limitation,
any tort, breach of contract or violation of any statute, regulation or other
law or requirement of any governmental agency.

Seller will use reasonable efforts to identify the
Assumed Contracts, provide copies thereof to Purchaser, and list the Assumed
Contracts it has knowledge of on Schedule 3.1.

IV. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS
-------------------------------------------------

4.1. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF SELLER.
Seller represents and warrants to and covenants with Purchaser as follows:

4.1.1. ORGANIZATION. Each of TB and TBCAL is a corporation duly
organized, validly existing and in good standing under the laws of California.

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<PAGE> 8

4.1.5. COMPLIANCE WITH LAWS. The Restaurants have been, are and will
be, from the date hereof through the Closing Date, conducted in substantial
compliance with applicable laws ("Laws"), and in a fashion reasonably consistent
with Seller's business practices prior to Seller's execution of this Agreement.

4.1.6. TITLE TO AND CONDITION OF TANGIBLE PERSONAL PROPERTY. Except as
provided in Schedule 4.1.6 hereto, Seller has marketable title to all of the
Tangible Personal Property free and clear of all liens, except for liens for
taxes not due and payable, or that otherwise arise by operation of law. All
items of the Tangible Personal Property are being sold in "as is" condition.
There is no significant asset necessary for operating the Restaurants as Taco
Bell outlets that is not included in the Assets.

4.1.7. OWNED REAL PROPERTY AND LEASED REAL PROPERTY. With respect to
the Owned Real Property and the Leased Real Property (the "Real Property"),
except as provided in Schedule 4.1.7 hereto:

(i) To Seller's knowledge, there are no pending
actions against or affecting the Real Property;

(ii) The Real Property (including all improvements, parking
areas,

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<PAGE> 9

utilities and HVAC systems) is being sold in "as is" condition; provided,
however, that all major equipment systems included herein shall be in working
condition on the Closing Date;

(iii) The Real Property currently has unrestricted
vehicular and pedestrian ingress and egress access to publicly dedicated and
publicly maintained roads or streets, the failure of which would not result in
more than an insignificant adverse impact on the operation of the Restaurants;

(iv) Seller has not released or discharged nor, to Seller's
knowledge (for purposes of this Agreement, to Seller's knowledge shall be deemed
to be knowledge at the Irvine headquarters level, without any special
investigation, of factors that would have more than an insignificant adverse
impact on the operation of the Restaurants), has any third party released or
discharged, any hazardous substance on the Real Property. Seller agrees to
provide Purchaser with copies of any environmental surveys, audits or other
reports relating to the Restaurants of which it is aware in its possession;

(v) The Real Property leases are in effect, and all amounts
due and owing by Seller pursuant to the leases prior to the Closing will be paid
by Seller; and

(vi) Seller has marketable title in fee simple to the Owned
Real Property, and marketable title to a leasehold estate in the Leased Real
Property.

8
<PAGE> 10

Closing operation of the Restaurants. Except as provided in Schedule 4.1.8
hereto, to Seller's knowledge there is no action pending against Seller relating
to the conduct of the Restaurants that could have a material adverse effect upon
the operation of the Restaurants.

4.2. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF PURCHASER.
Purchaser represents and warrants to and covenants with Seller as follows:

4.2.1. ORGANIZATION AND POWER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of Pennsylvania;
and MFI is a corporation duly organized, validly existing and in good standing
under the laws of Ohio. Purchaser has all requisite corporate power and
authority to own its properties and to conduct its business as presently
conducted.

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<PAGE> 11

Purchaser is not in default under any of the terms or provisions of any debt
instrument, supply agreement or other agreement or instrument relating in any
way to its existing business or assets.

4.2.4. GENERAL. Except as may otherwise be expressly included elsewhere
in this Agreement, Purchaser shall not be deemed to have made any representation
or warranty to Seller other than as expressly made by Purchaser in Sections
4.2.1 through 4.2.3 hereof.

V. CERTAIN COVENANTS OF PURCHASER AND SELLER
-----------------------------------------

Purchaser and Seller covenant and agree as follows:

5.2. INVESTIGATION BY PURCHASER. Seller shall afford to the
authorized

<PAGE> 12

representatives of Purchaser access to the Restaurants so that Purchaser may
interview the Restaurant employees and assess the condition of the Assets.
Purchaser shall schedule the interviews and inspections with Seller's Transition
Manager ("TM") for the region(s) in which the Restaurants are located, and
Purchaser's representative shall be accompanied by Seller's TM or his designee.
Purchaser shall conduct the interviews and inspections so as to minimize any
disruption to the operation of the Restaurants.

11
<PAGE> 13

a particular assigned leasehold and Purchaser reasonably agreeing to indemnify
Seller against any Seller's loss associated with Seller's remaining so
obligated.

12
<PAGE> 14

with copies of any surveys, title reports, title insurance policies or
environmental assessments relating to the Restaurants of which it is aware in
its possession.

In the event the results of any environmental audit of any
of the Owned Real Property performed with Seller's prior consent as provided
above indicates that remedial action to alleviate currently existing
contamination problems at any such site is required by applicable federal or
state law, Seller may, at its option, (i) conduct, at its expense, the remedial
action as required at such site, (ii) work with Purchaser to reach a resolution
that is mutually acceptable to both Seller and Purchaser, or (iii) remove such
Restaurant from this Agreement, in which event the Purchase Price shall be
reduced as provided in Schedule 5.7 hereto.

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<PAGE> 15

include stock/partnership capital and market value of existing assets, net of
debt. Equity investments of stock/partnership capital and/or a contribution of
assets will be valued on an "all-in" basis. The equity of the combined entity
(acquired Assets and existing operations) must be at least 15%. Equity shall be
calculated in accordance with the formula set forth in Schedule 5.9. In order to
cause Purchaser to satisfy its equity obligations under this Agreement, MFI
hereby unconditionally guarantees to Seller and its affiliates, successors and
assigns, the full and complete timely performance of Purchaser's obligations
under this Agreement, the Real Property leases and the Taco Bell Franchise
Agreements for the Restaurants. MFI hereby waives presentment, demand, protest
and notice in connection with this guaranty obligation. Purchaser's failure to
maintain such equity position in the Restaurants as provided in this Section 5.9
at any time during the first two years following the Closing shall constitute a
breach by Purchaser of the Taco Bell Franchise Agreements for all of the
Restaurants; provided, however, that Purchaser shall have 60 days following
notice from Seller to cure any failure by Purchaser, by a less than a material
amount, to maintain such equity position. The parties acknowledge that the
remedy provided in the foregoing sentence shall not limit any other remedy
available to Seller relating to a breach by Purchaser of Section 5.9, either
during or after such two year period. Purchaser further agrees that it will not,
during the first two years following Closing, without the prior written consent
of Seller, which shall not be unreasonably withheld, refinance or restructure
any portion of Purchaser's debt or equity assumed or contributed in connection
with the transactions contemplated hereby. The parties agree that it shall not
be unreasonable for Seller to withhold its consent if such refinancing or
restructuring would result in a reduction of

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<PAGE> 16

equity below the minimum level required by this Section 5.9. Purchaser agrees,
at Seller's request, to provide Seller at Closing with an officer's certificate
in form satisfactory to Seller that the equity contributed by Purchaser as
required by this Section 5.9 is not encumbered in any way.

5.10. FINANCING. In the event Purchaser is planning to finance a
portion of the Purchase Price, Purchaser shall file within 10 business days of
the execution of this Agreement a completed application for such financing with
a reputable financing company and provide Seller with a copy of such completed
application. Purchaser shall regularly inform Seller of the status of its
endeavors to obtain financing. In the event Purchaser does not, despite its best
efforts, obtain a commitment for such financing within 60 days of the execution
of this Agreement, then within 75 days of the execution of this Agreement either
party may terminate this Agreement. Purchaser agrees that it will provide Seller
with a copy of the lender commitment letter promptly following its receipt of
such letter, or at least 10 days before Closing, whichever is earlier. Purchaser
also agrees, at Seller's reasonable request, to provide Seller with copies of
any other documentation relating to such financing.

5.11. FINANCIAL STATEMENTS AND RELATED DOCUMENTS. At the time of
execution of this Agreement, Purchaser shall deliver to Seller a copy of MFI's
certified audited current financial statements, as well as Purchaser's current
financial statements certified by the president and chief financial officer of
Purchaser. MFI's financial statements shall be in the form, with the content and
for the period required by the SEC. All financial statements of Purchaser shall
be in the form, with the content, and for the period reasonably required by
Seller.

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<PAGE> 17

For the two year period following the Closing, Purchaser shall provide
Seller with MFI's then current quarterly financial statements in the form
prescribed by the SEC, and Purchasers then current certified quarterly financial
statements in the form reasonably satisfactory to Seller.

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<PAGE> 18

claims, wage and hour claims, employment discrimination claims, child labor
claims and OSHA claims, and Purchaser shall indemnify Seller for any and all
such matters and claims, and Seller shall be responsible for such matters of
employment and claims occurring up to the Closing Date and shall indemnify
Purchaser therefor. The employment by Seller of the Restaurant employees who
accept Purchaser's offer of employment shall cease effective the close of
business on the day preceding the Closing Date. The timing of such offers of
employment, and any related meetings between Purchaser and the Restaurant
employees, shall be as agreed between Purchaser and Seller. Seller makes no
representations regarding the qualifications or abilities of the Restaurant
employees. For a period of two years following the Closing Date, Seller and its
affiliates shall not knowingly, without the consent of Purchaser, recruit with
an intent to employ any Restaurant employee employed by Seller on the day
preceding the Closing Date who accepts Purchasers offer of employment, so long
as such Restaurant employee remains an employee of Purchaser.

5.13. FRANCHISOR'S POLICIES AND PROCEDURES. Commencing as of the
Closing Date, Purchaser and MFI shall comply fully with Seller's policies and
procedures applicable to Taco Bell franchisees generally and/or public companies
in particular, as such policies and procedures may be changed from time to time,
including without limitation Sellers requirements regarding corporate ownership
and structure (e.g. single purpose entity) and its standards for conversions,
relocations, upgrading and current image. Purchaser and MFI acknowledge that
compliance with this Section 5.13 may include, for example, executing one or
more agreements with Seller demonstrating Purchaser's and/or MFI's commitment
and willingness to comply with certain of Seller's

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<PAGE> 19

policies and procedures. In applying the policies and procedures to Purchaser
and its affiliates, TB shall in good faith take into account that MFI is a
public company and that some policies and procedures applicable to privately
held companies could be inconsistent with the operation of public companies. For
example, among other possibilities, MFI, but not any of its individual
management, directors or shareholders, will be required to guarantee the
obligations of Purchaser under the Taco Bell Franchise Agreements.

VI. CONDITIONS PRECEDENT TO THE CLOSING
-----------------------------------

6.1.1. NO MISREPRESENTATION OR BREACH OF COVENANTS, REPRESENTATIONS AND
WARRANTIES. There shall have been no material breach by Seller in the
performance of Seller's covenants herein, the representations and warranties of
Seller contained or referred to in this Agreement shall be true and correct on
the Closing Date and there shall have been delivered to Purchaser a certificate
to that effect, dated the Closing Date, and signed by a duly authorized officer
of Seller.

6.1.2. CONVEYANCING DOCUMENTS. With respect to the Assets there shall
have been delivered to Purchaser by Seller bills of sale, assignments, general
warranty deeds, landlord consents, lease assignments, current form Taco Bell
Franchise Agreements in conformity with Section 6.2.4 of this Agreement, and KFC
Corporation

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<PAGE> 20

("KFCC") and TB authorizations, as appropriate, for Taco Bell/KFC 2n1 facilities
(conversions or ground-ups) and single brand facilities for the locations
specified in the Development Agreement (as defined herein) for the effective
dates stated therein. All of the transfer documents delivered pursuant to this
Section shall be reasonably satisfactory to Purchaser's attorneys and
Purchaser's lender as of the Closing Date.

6.1.3. CONSENTS AND APPROVALS. The consents, waivers and approvals
necessary for the effective transfer, assignment and conveyance of the Assets
shall have been given or obtained.

6.1.4. APPROVAL BY MFI. This Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors of MFI.

6.1.6. RELATED CLOSING. Simultaneously with the Closing hereunder, the
sale of 42 KFC restaurants in the Pittsburgh, Pennsylvania, St. Louis, Missouri,
Ohio and West Virginia areas to Purchaser or its affiliates contemplated under
the Asset Purchase Agreement dated April 30, 1999 among Purchaser and certain of
its affiliates, MFI, KFC National Management Company and Kentucky Fried Chicken
of California, Inc. shall also close.

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<PAGE> 21

6.2.2. CONSIDERATION. Purchaser shall have delivered to Seller the
Purchase Price in accordance with the terms of Section 2.1 (a) hereof.

6.2.3. RESOLUTIONS: OTHER DOCUMENTS. There shall have been delivered to
Seller by Purchaser copies, certified by the Secretary of Purchaser, of
resolutions duly adopted by the Board of Directors and shareholders of Purchaser
authorizing, ratifying and approving the terms, execution and delivery by
Purchaser of this Agreement and the performance thereof by Purchaser. Purchaser
shall have also delivered to Seller a good standing certificate dated within 15
days of the Closing Date, as well as the documents referred to in Sections 5.10
and 5.11 hereof and any other documents that Seller may reasonably request.

6.2.4. FRANCHISE DOCUMENTS. Purchaser and TB shall have executed and
delivered to each other a current form 20-year Taco Bell Franchise Agreement for
each

<PAGE> 22

of the Restaurants, with the exception of the Restaurant located at 1703
Wilmington Road, New Castle, PA, together with such other documents as may then
be customarily required by TB in connection with the issuance of franchises, and
the KFCC and TB authorizations, as appropriate, for the Taco Bell/KFC 2n1 and
other facilities for the locations specified in the Development Agreement. For
the Restaurant at 1703 Wilmington Road, Purchaser shall have been granted at
Closing a current form 5-year Taco Bell Franchise Agreement, and Purchaser
hereby agrees to convert or relocate such Restaurant to a then current ground-up
image Taco Bell/KFC 2n1 facility at a location approved by KFCC and TB within 5
years of the Closing, following which Purchaser shall receive a new 20-year Taco
Bell franchise.

6.2.5. APPROVAL BY TRICON. This Agreement and the transactions
contemplated hereby shall have been approved by the senior management of Tricon
Global Restaurants, Inc. ("Tricon").

6.2.7. RELATED CLOSING. Simultaneously with the Closing hereunder, the
sale of 42 KFC restaurants in the Pittsburgh, Pennsylvania, St. Louis, Missouri,
Ohio and West Virginia areas to Purchaser or its affiliates contemplated under
the Asset Purchase Agreement dated April 30, 1999 among Purchaser and certain of
its affiliates, MFI, KFC

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<PAGE> 23

National Management Company and Kentucky Fried Chicken of California, Inc. ("KFC
APA") shall also close.

6.2.8. SALES AND DISTRIBUTION AGREEMENT. Purchaser and AmeriServe Food
Distribution, Inc. ("AmeriServe") shall have executed a Sales and Distribution
Agreement in the form used with other Taco Bell franchisees and substantially as
set forth as Exhibit A hereto, pursuant to which AmeriServe shall be appointed
Purchaser's exclusive distributor for certain products for the Restaurants until
January 11, 2005, or, in the alternative, Purchaser shall have received from
AmeriServe a Waiver and Release in the form used with other Taco Bell
franchisees and substantially as set forth as Exhibit B hereto, executed by
AmeriServe.

6.2.9. POWER PLAY AGREEMENT. Purchaser shall have executed and
delivered to TB a Power Play Agreement for the Restaurants in the form used with
other Taco Bell franchisees and substantially as set forth as Exhibit C hereto.

6.2.10. FINANCIAL OBLIGATIONS. Each of Purchaser and MFI and their
affiliates shall be current in any and all financial obligations they may have
to Seller or any of its affiliates, including without limitation with respect to
any royalty payments due and any amounts due under any guaranty.

6.2.11. DEVELOPMENT AGREEMENT. Purchaser shall have executed and
delivered to TB a Development Agreement ("Development Agreement") in the form
substantially as set forth as Exhibit D hereto. Purchaser's development
obligations under the Development Agreement will be consistent with those set
forth in Section 10.12 of the KFC APA.

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<PAGE> 24

6.2.12. EAST SIDE MARIO'S LITIGATION. As of the Closing, MFI, Purchaser
and their affiliates shall execute and deliver to Seller a general release, and
related documents in the form reasonably satisfactory to Purchaser, Seller and
their respective counsel. The release and related documents shall provide, in
substantial part, that MFI, Purchaser and their affiliates release with
prejudice any and all claims whatsoever that any of them have, may have or may
have had, or which were, could have been, or may be asserted by them in the
litigation entitled MORGAN'S CREATIVE RESTAURANT CONCEPTS, INC. AND MORGAN'S
FOODS, INC. v. EAST SIDE MARIO'S RESTAURANTS, INC., MARIE CALLENDERS PIE SHOPS,
INC. AND MARK BROMBERG, filed in the United States District Court, Northern
District of Ohio, Eastern Division, Case No. 1:98CV1559, or MORGAN'S CREATIVE
RESTAURANT CONCEPTS, INC. AND MORGAN'S FOODS, INC. v. EAST SIDE MARIO'S
RESTAURANTS INC., MARIE CALLENDER'S PIE SHOPS, INC. AND MARK BROMBERG, filed in
the United States District Court, Northern District of Ohio, Eastern Division,
Case No. 1:98CV920 (the "Litigation") against Tricon or any of its affiliates,
or for which Tricon or any of its affiliates may have an obligation to indemnify
any or all of East Side Mario's Restaurants, Inc., Marie Callender's Pie Shops,
Inc., or any of their respective current or former affiliates, employees,
officers or directors, or PepsiCo, Inc., or any of its current or former
affiliates, employees, officers or directors (together "Indemnified Parties") in
connection therewith (provided, however, that this shall not preclude MFI,
Purchaser and their affiliates from asserting claims against any such
Indemnified Party, for which claims Tricon and its affiliates have no obligation
to indemnify such Indemnified Party), and that MFI, Purchaser and their
affiliates jointly and severally agree to indemnify Tricon and its affiliates
for, from and against any other claims which

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<PAGE> 25

were, are or may be asserted against Tricon or any of its affiliates in the
Litigation or any related litigation involving the same parties, or for which
Tricon or any of its affiliates are found to be liable in the Litigation or any
related litigation involving the same parties. Except as provided herein, Tricon
and its affiliates shall release MFI and its affiliates from any claims Tricon
or its affiliates may have against MFI or its affiliates relating to the East
Side Mario's restaurant concept.

In connection with such release, Seller shall cause Pizza Hut, Inc. to
pay MFI $60,000.

VII. CLOSING
-------

7.1. THE CLOSING. Subject to the fulfillment of the conditions
precedent specified in Article V1 hereof, the consummation of the transactions
of purchase and sale contemplated hereby (the "Closing") shall take place at
10:00 a.m. on June 15, 1999 or on such other date as mutually agreed by Seller
and Purchaser (the "Closing Date"). The Closing shall take place at a location
as mutually agreed by Purchaser and Seller.

VIII. INDEMNIFICATION
---------------

8.1. INDEMNIFICATION. (a) Purchaser and Seller (i) represent that they
have not incurred any brokerage or finder's fees or agent's commissions or other
similar charges to any person or entity which would result in liability, cost or
obligation to the other or any affiliate of the other and (ii) agree to
indemnify and save harmless the other from and against any loss, cost, damage or
expense (including court costs and reasonable attorneys fees and expenses)
resulting from any breach of such representation.

<PAGE> 26

(b) From and after the Closing, Seller shall indemnify and
save harmless Purchaser and its affiliates from and against any and all loss,
cost, damage or expense of or to Purchaser or its affiliates (including court
costs and reasonable attorneys' fees and expenses) resulting from or arising out
of:

(i) Any breach of any representation, warranty,
covenant or obligation of Seller contained in this Agreement; or

(ii) Any liability or obligation in respect of the
operation of the Restaurants by Seller prior to the Closing Date (including but
not limited to employment or termination claims by Seller's Restaurant employees
arising from events occurring at the Restaurants prior to the Closing Date).

(c) From and after the Closing, Purchaser shall indemnify
and save harmless Seller and its affiliates from and against any and all loss,
cost, damage or expense of or to Seller or its affiliates (including court costs
and reasonable attorneys' fees and expenses) resulting from or arising out of:

(i) Any breach of any representation, warranty,
covenant or obligation of Purchaser contained in this Agreement; or

(ii) The Assumed Liabilities.

IX. PRORATIONS AND EXPENSES
-----------------------

25
<PAGE> 27

apportioned, or other amounts payable by Purchaser or Seller hereunder, as the
case may be, cannot be fully determined as of the Closing, either party may from
time to time after the Closing Date prepare and submit to the other one or more
post-closing statements, and Purchaser or Seller, as the case may be, shall pay
the amounts due to the other within 30 days of receipt of any such post-closing
statement.

(b) Except as otherwise provided by the Proration Accounts
or this Agreement, each party will bear and pay its own expenses and taxes
incurred in connection with the transactions referred to in this Agreement.
Notwithstanding the foregoing, Purchaser shall bear and pay in their entirety
all registration, sales, transfer, excise, real estate, escrow, recordation and
any similar taxes and fees, as well as all closing fees, whether charged by the
lender, the title company or otherwise, payable by reason of the sale and
conveyance of any of the Assets; provided, however, that Seller shall pay 1/2 of
the 2% Pennsylvania real estate transfer tax only; and provided further,
however, that, to the extent Seller is required under applicable state law to
remit any sales taxes in connection with the transactions contemplated by this
Agreement, Purchaser shall pay such taxes to Seller at Closing so they can be
duly and timely paid in accordance with such state law.

26
<PAGE> 28

X. MISCELLANEOUS
-------------

10.1. TERMINATION. Notwithstanding anything contained in this
Agreement to the contrary, this Agreement may be terminated at any time prior to
the Closing:

(a) by the mutual written consent of Purchaser and Seller;

(b) by Seller or Purchaser if the Closing shall not have
occurred on or before September 30,

1999, unless extended by written agreement of the parties; or

(c) by either Purchaser or Seller if the other shall fail
to fulfill any of its obligations hereunder that constitutes a condition
precedent to the performance of the first party's obligations in accordance
with the terms hereof.

In the event of termination of this Agreement under Section
10.1, each party hereto shall pay all of its own fees and expenses. There shall
be no further liability hereunder on the part of any party hereto if this
Agreement shall be so terminated, except by reason of a breach of this
Agreement or any representation, warranty or covenant contained herein.
Notwithstanding the foregoing sentence, the $15,000 of the Purchase Price paid
by Purchaser upon the execution of this Agreement shall only be refundable as
provided in Section 2.1 (a) hereof. The termination of this Agreement as
provided in this Section shall have no impact on the defenses, rights and
remedies, if any, available to any party (currently or hereafter) in the
Litigation, or with respect to any claims which any party may make against
Tricon or its affiliates in the Litigation, or any claims that Tricon or its
affiliates may make against any such party or others in the Litigation or
otherwise.

10.2. SPECIFIC PERFORMANCE. Seller and Purchaser acknowledge and agree
that monetary damages are not adequate to enforce the terms of this Agreement or
to

27
<PAGE> 29

address a breach or an alleged breach of this Agreement. Each of the parties
hereto will be entitled to obtain specific performance or other equitable relief
against the other in connection with any breach of any provision hereof (in
addition to any other remedies, including monetary damages, otherwise available
hereunder or at law).

(a) If to Seller:

Taco Bell Corp.
Taco Bell of California, Inc.
17901 Von Karman
Irvine, California 92614
Attn: General Counsel

(b) If to Purchaser:

Morgan's Foods, Inc.
Morgan's Restaurants of Pennsylvania, Inc.
24200 Chagrin Boulevard, Suite 126
Beachwood, Ohio 44122
Attn: Mr. James J. Liguori
President, Chief Operating Officer

or to such other address or addresses as any such party may from time to time
designate as to itself by like notice.

28
<PAGE> 30

hereunder in whole or in part without the prior written consent of Seller;
provided further that, as between Seller and Purchaser, no such assignment shall
relieve Purchaser of its primary liability to Seller for any of Purchaser's
obligations hereunder.

10.6. ENTIRE AGREEMENT. This Agreement (together with any Schedules
and Exhibits hereto, the Asset Purchase Agreement referred to in Section 6.2.7
and the settlement and release documents contemplated in Section 6.2.12)
supersedes any other agreement, whether written or oral, that may have been made
or entered into by Purchaser or Seller relating to the matters contemplated
hereby. This Agreement (together with any Schedules and Exhibits hereto)
constitutes the entire agreement by and between the parties and there are no
agreements or commitments except as expressly set forth herein. Notwithstanding
the above, this Section shall not apply to those agreements listed in Schedule
10.6 hereto.

10.7. LIMITATIONS ON RIGHTS OF THE PARTIES. Nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give any person, firm or corporation other than the parties hereto any rights or
remedies under or by reason of this Agreement or any transaction contemplated
hereby.

10.8 APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the substantive laws of the Commonwealth of Kentucky without
giving effect to the principles of conflict of laws thereof. If any party seeks
to enforce its rights under this Agreement by legal proceedings or otherwise,
the nonprevailing party shall

29
<PAGE> 31

pay the prevailing party's costs and expenses, including, without limitation,
reasonable attorneys' fees.

10.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.

10.10. TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for convenience of reference only, and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.

10.12. FRANCHISE AGREEMENTS. Purchaser acknowledges that, except as
may otherwise be provided in Schedule 10.12 hereto, and subject to the
provisions of Section 6.2 hereof, TB shall issue to Purchaser a Taco Bell
Franchise Agreement for each of the Restaurants. Purchaser agrees to comply
fully with the terms of such Franchise Agreements and any supplements or
attachments thereto, including without limitation any "Exhibit A's" containing
upgrading, relocation, rebuild and/or remodeling obligations for the
Restaurants. Purchaser further acknowledges that, due to concern for the
employees at the Restaurants, among other reasons, at the time of execution of

30
<PAGE> 32

this Agreement, the Exhibit A's may only contain generally described upgrading,
relocation, rebuild and/or remodeling obligations, and that the specific
components of such obligations (which shall include current image signage for
all of the Restaurants) will be determined by Seller at a later date, consistent
with what is required of similarly situated franchisees. Purchaser agrees to
comply with these specific obligations within the time periods specified by
Seller. Purchaser further agrees to comply fully with the terms of each Real
Property lease for the Leased Real Property, including without limitation the
obligations under each Real Property lease to pay rent when due, so long as
Seller or any of its affiliates remain obligated (contingently or otherwise)
under such Real Property lease. Purchaser agrees that, notwithstanding anything
to the contrary set forth in the Taco Bell Franchise Agreements for the
Restaurants, a breach by Purchaser of any Real Property lease under which Seller
or any of its affiliates remain liable shall constitute a breach by Purchaser of
the Taco Bell Franchise Agreement for that Restaurant, and a breach by Purchaser
of a Taco Bell Franchise Agreement for one of the Restaurants shall constitute a
breach by Purchaser under the Taco Bell Franchise Agreements for all of the
Restaurants; provided, however, that this cross-default provision shall no
longer apply to a default under a Real Property lease where Seller and its
affiliates are no longer liable. The $45,000 initial franchise fee payable by
Purchaser to TB for the Taco Bell franchise for each of the Restaurants is
included in the Purchase Price specified in Section 2.1 of this Agreement, and
no separate additional initial franchise fee shall be charged by Seller to
Purchaser for the Taco Bell Franchise Agreements for any of the Restaurants.

31
<PAGE> 33

10.13. ASSET SALE ONLY. Purchaser and Seller mutually agree that this
transaction constitutes an asset sale only.

IN WITNESS WHEREOF, the parties hereto have executed, or have caused
their duly authorized representatives to execute, this Agreement the day and
year first above written.

SELLER: PURCHASER:

Taco Bell Corp. Morgan's Foods, Inc.

By: /s/ Andrew Vollero By: /s/ Leonard R. Stein-Sapir
------------------------------ ---------------------------
Vice President Chairman & CEO

FEIN 34-0562210
-----------------
Taco Bell of California, Inc. Morgan's Restaurants of
Pennsylvania, Inc.

By: /s/ Andrew Vollero By: /s/ James J. Liguori
------------------------------ ---------------------------
Vice President President & COO

FEIN 25-1239132
-----------------
Reviewed by R.B. Shirley
Date: 5-14-99

<PAGE> 1
Exhibit 23

The Board of Directors
Morgan's Foods, Inc.:

We consent to the inclusion of our report dated September 17, 1999 with respect
to the statements of net assets sold of the Restaurants, as defined, as of
December 26, 1998 and December 27, 1997, and the related statements of
operations for each of the years in the three-year period ended December 26,
1998, which report appears in the Form 8-K/A of Morgan's Foods, Inc. dated
September 27, 1999.

/s/ KPMG LLP
Louisville, Kentucky
September 27, 1999

<PAGE> 1
EXHIBIT 99-A
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED

INDEPENDENT AUDITORS' REPORT

The Board of Directors
TRICON Global Restaurants, Inc.:

We have audited the accompanying statements of net assets sold of the
Restaurants, as defined, as of December 26, 1998 and December 27, 1997, and
the related statements of operations for each of the years in the
three-year period ended December 26, 1998. These financial statements are
the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets sold of the Restaurants as of
December 26, 1998 and December 27, 1997, and the results of their
operations for each of the years in the three-year period ended December
26, 1998, in conformity with generally accepted accounting principles.

/s/ KPMG LLP
Louisville, Kentucky
September 17, 1999

<PAGE> 2

THE RESTAURANTS

Statements of Net Assets Sold

DECEMBER 26, DECEMBER 27, JUNE 12,
ASSETS 1998 1997 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 45,690 39,175 41,375
Inventory 380,050 453,913 360,167
Prepaid expenses and other current assets 5,000 3,326 26,824
----------- ----------- -----------

Total current assets 430,740 496,414 428,366

Property and equipment, net 18,179,067 17,749,966 17,655,206
Intangible assets, net 2,864,939 3,268,136 2,755,024
----------- ----------- -----------

Total assets 21,474,746 21,514,516 20,838,596
----------- ----------- -----------

LIABILITIES

Capital lease obligation 235,927 235,227 236,308

Commitments

Net assets sold $21,238,819 21,279,289 20,602,288
=========== =========== ===========

</TABLE>

See accompanying notes to financial statements.

2
<PAGE> 3

THE RESTAURANTS

Statements of Operations

YEAR ENDED YEAR ENDED YEAR ENDED 24 WEEKS ENDED
DECEMBER 26, DECEMBER 27, DECEMBER 28, ----------------------------
1998 1997 1996 JUNE 12, 1999 JUNE 13, 1998
---- ---- ---- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $42,705,005 41,015,158 40,239,906 19,048,621 18,828,395
----------- ----------- ----------- ----------- -----------

Cost and expenses:
Costs of food and paper 14,004,345 13,587,728 13,931,694 5,948,565 6,169,779
Cost of labor 12,963,892 12,274,835 11,427,597 5,898,872 5,991,855
Operating expenses 8,818,096 8,663,810 8,331,303 4,407,933 3,854,680
General and administrative expenses 3,805,590 3,733,777 3,472,448 1,615,828 1,568,239
Depreciation expense 2,138,163 2,144,598 2,149,223 955,312 1,018,013
Amortization expense 224,985 229,979 210,061 109,872 91,511
Provision for impairment of property and equipment 501,000 -- 834,789 -- --
----------- ----------- ----------- ----------- -----------

Total costs and expenses 42,456,071 40,634,727 40,357,115 18,936,382 18,694,077
----------- ----------- ----------- ----------- -----------

Earnings (loss) before income taxes $ 248,934 380,431 (117,209) 112,239 134,318
=========== =========== =========== =========== ===========

</TABLE>

See accompanying notes to financial statements.

<PAGE> 4

THE RESTAURANTS

Notes to Financial Statements

December 26, 1998 and December 27, 1997

(1) ORGANIZATION AND OPERATIONS

The 42 KFC restaurants, the 12 Taco Bell restaurants and the one
restaurant site (the Restaurants) are principally located in Missouri,
Ohio, Pennsylvania and West Virginia. The Restaurants are composed of
quick service restaurants featuring dine-in, carryout, and in some
instances, drive-thru or delivery service. Until July 1999, the
Restaurants were operated by TRICON Global Restaurants, Inc. (the
Company).

In July 1999, the Restaurants were acquired by Morgan's Foods, Inc. and
subsidiaries (MFI) pursuant to the Asset Purchase Agreements.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies followed in the preparation
of the financial statements of the Restaurants is set forth below:

(a) BASIS OF PRESENTATION

The accompanying statements of net assets sold represent the
assets of the Restaurants acquired by MFI under the provisions of
the Asset Purchase Agreements.

The accompanying statements of operations include all costs
applicable to the Restaurants which were incurred in connection
with the operation of the Restaurants and for which specific
identification was practical. Certain costs incurred by the
Company which represent the cost of doing business and for which
specific identification to an individual restaurant is not
practical have been allocated to the Restaurants based on an
average cost per restaurant. Interest expense and income taxes
have not been reflected in the accompanying statements of
operations.

(b) INTERIM FINANCIAL INFORMATION

The financial statements for the 24 weeks ended June 12, 1999 and
June 13, 1998 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the
opinion of management, the unaudited financial statements include
all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of financial position and
results of operations. The results of operations for the interim
periods are not necessarily indicative of the results that may be
expected for any future periods.

Inventories consist of food and paper and are valued at the lower
of cost (first-in, first-out method) or net realizable value.

<PAGE> 5

THE RESTAURANTS

Notes to Financial Statements

December 26, 1998 and December 27, 1997

(d) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, except for property and
equipment that have been determined to be impaired, for which the
carrying amount is reduced to estimated fair value. Depreciation
and amortization are calculated on a straight-line basis over the
estimated useful lives of the assets as follows: 5 to 25 years for
buildings and leasehold improvements and 3 to 20 years for
restaurant equipment.

(e) INTANGIBLE ASSETS

Goodwill and reacquired franchise rights are amortized using the
straight-line method over a period of twenty years. Other
intangible assets are amortized using the straight-line method
over the estimated period of benefit.

(f) LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS

Long-lived assets, certain identifiable intangibles and goodwill
related to each restaurant to be held and used in the business are
reviewed for impairment semi-annually or whenever events or
changes in circumstances indicate that the carrying amount of a
restaurant may not be recoverable. Recoverability is measured by a
comparison of the carrying amount of a restaurant to future net
cash flows expected to be generated by the restaurant. If the
future net cash flows are less than the carrying amount of the
restaurant, the impairment recognized is measured by the amount by
which the carrying amount of the restaurant exceeds the fair value
of the restaurant. Fair value is measured by discounting estimated
future cash flows.

(g) ADVERTISING

Advertising expense applicable to the Restaurants amounted to
$2,845,000, $2,778,000 and $2,594,000 for the years ended December
26, 1998, December 27, 1997 and December 28, 1996, respectively,
and is included in operating expenses in the accompanying
statements of operations.

(h) USE OF ESTIMATES

The preparation of financial statements in accordance with
generally accepted accounting principles requires management of
the Restaurants to make estimates and assumptions that affect the
reported amounts of assets and disclosure of contingent
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from these estimates.

5 (Continued)

<PAGE> 6
THE RESTAURANTS

Notes to Financial Statements

December 26, 1998 and December 27, 1997

(3) PROPERTY AND EQUIPMENT, NET

Restaurant property and equipment, net, at December 26, 1998 and
December 27, 1997 consist of the following:

1998 1997
------------ ------------

<S> <C> <C>
Land $ 5,791,239 5,424,890
Buildings 14,273,492 13,126,258
Restaurant equipment 8,605,420 8,464,232
Leasehold improvements 5,315,394 5,513,283
Construction in progress 106,317 91,771
------------ ------------

34,091,862 32,620,434

Accumulated depreciation and amortization (15,912,795) (14,870,468)
------------ ------------

Restaurant property and equipment, net $ 18,179,067 17,749,966
============ ============
</TABLE>

(4) INTANGIBLE ASSETS, NET

Intangible assets, net, at December 26, 1998 and December 27, 1997
consist of the following:

1998 1997
----------- -----------

<S> <C> <C>
Goodwill $ 1,606,748 1,668,110
Reacquired franchise rights and other intangibles 3,141,984 3,307,672
----------- -----------

4,748,732 4,975,782

Accumulated amortization (1,883,793) (1,707,646)
----------- -----------

Intangible assets, net $ 2,864,939 3,268,136
=========== ===========

</TABLE>

Intangible assets arose from the allocation of purchase prices of
restaurants acquired.

<PAGE> 7

THE RESTAURANTS

Notes to Financial Statements

December 26, 1998 and December 27, 1997

(5) LEASES

The Restaurants have commitments under several noncancelable operating
leases for restaurant space that expire over the next ten years. These
leases generally provide for rent escalations and contain renewal
options for periods ranging from three to five years and require the
payment of certain executory costs such as property taxes, maintenance
and insurance. Rental payments include minimum rentals plus contingent
rentals based on store sales. Rental expense for operating leases during
1998, 1997 and 1996 consisted of the following:

1998 1997 1996
-------- -------- --------

Minimum rentals $965,924 941,028 852,520
Contingent rentals 3,590 2,099 17,778
-------- -------- --------

Rental expense $969,514 943,127 870,298
======== ======== ========

Future minimum lease payments under noncancelable leases as of December
26, 1998 are as follows:

OPERATING CAPITAL
LEASES LEASE
----------- ---------

1999 $ 914,781 26,325
2000 695,778 26,325
2001 602,507 26,964
2002 512,198 30,476
2003 496,577 30,476
Thereafter 5,114,405 461,028
--------- ---------

Total minimum lease payments $ 8,336,246 601,594
=========
Less amount representing interest 365,667
---------

Total capital lease obligation $ 235,927
=========

7
<PAGE> 8
THE RESTAURANTS

Notes to Financial Statements

December 26, 1998 and December 27, 1997

(6) SELECTED CASH FLOW INFORMATION

The accompanying financial statements include statements of net assets
sold which exclude all operating liabilities. Operating liabilities have
been excluded because it is not possible to identify liabilities
associated with the Restaurants and because no liabilities have been
assumed by MFI with the exception of the capital lease obligation. Since
operating liabilities applicable to the Restaurants have not been
identified and presented, separate statements of cash flows are not
presented. Selected cash flow information for the years ended December
26, 1998, December 27, 1997 and December 28, 1996 and the twenty-four
weeks ended June 12, 1999 and June 13, 1998 is as follows:

24 WEEKS ENDED
----------------------------
1998 1997 1996 JUNE 12, 1999 JUNE 13, 1998
---------- ---------- ---------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cashflows from operating activities
exclusive of changes in liabilities
and income taxes:
Earnings (loss) before
income taxes 248,934 380,431 (117,209) 112,239 134,318
Depreciation and
amortization 2,363,148 2,374,577 2,359,284 1,065,184 1,109,524
Provision for impairment of
property and equipment 501,000 -- 834,789 -- --
Net change in inventories,
prepaids and other current
assets 72,189 (46,450) 31,330 (1,941) 70,868
---------- ---------- ---------- ---------- ----------

$3,185,271 2,708,558 3,108,194 1,175,482 1,314,710
========== ========== ========== ========== ==========

Cash flows from investing activities:
Capital expenditures $1,471,427 3,571,355 797,226 348,551 1,109,823
========== ========== ========== ========== ==========
</TABLE>

(7) COST ALLOCATIONS

As described in note 2(a), the accompanying statements of operations of
the Restaurants include all costs applicable to the Restaurants which
were incurred in connection with the operation of the Restaurants and
for which specific identification was practical which are comprised of
costs of food and paper, cost of labor, operating expenses, depreciation
expense, amortization expense and provision for impairment of property
and equipment. General and administrative expenses which represent part
of the cost of doing business and for which specific identification to
an individual restaurant is not practical, are allocated to the
Restaurants based primarily on an average cost per restaurant. Costs
allocated include such items as costs related to executive management,
accounting, data processing, legal, certain employee benefits and
certain occupancy costs. Management of the Restaurants believes that the
allocation method is reasonable and that it is not practical to estimate
what the Restaurants' costs would have been if they had operated as an
unaffiliated entity.

<PAGE> 9

THE RESTAURANTS

Notes to Financial Statements

December 26, 1998 and December 27, 1997

(8) YEAR 2000 (UNAUDITED)

The Restaurants' information technology systems and non-information
technology systems with embedded technology applications are primarily
those of the Company. As such, all systems have been included as part of
the enterprise-wide plan of the Company designed to reasonably assure
that those systems and certain critical business partners are prepared
for the Year 2000 issue and that plans exist for business continuity as
the Company enters the coming millennium.

The Restaurants, on their own, have not and do not expect to incur costs
for Year 2000 readiness. Material third party vendors of the
Restaurants, including data exchange providers, have been included in
the Company's assurance plans.

<PAGE> 1
Exhibit 99-B
Pro Forma Financial Information
Pro Forma Condensed Balance Sheet
Morgan's Foods, Inc.
Acquisition from Tricon Global Restaurants, Inc. of 42 KFC and 12 Taco Bell
restaurants at February 28, 1999

AS REPORTED KFC & TACO PRO FORMA PRO FORMA
BY THE COMPANY BELL UNITS ADJUSTMENTS STATEMENT
-------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets 3,243,000 431,000 -- 3,674,000
Property and Equipment net --
of $13,346,000 accum. depr 18,392,000 18,179,000 3,251,000 39,822,000
Intangible Assets 1,776,000 2,865,000 10,810,000 15,451,000
Deferred Taxes 600,000 -- -- 600,000
----------- ----------- ----------- -----------
Total Assets 24,011,000 21,475,000 14,061,000 59,547,000
=========== =========== =========== ===========

Current Liabilities 5,425,000 -- -- 5,425,000
Long-term Debt 17,338,000 236,000 35,300,000 52,874,000
Equity 1,248,000 21,239,000 (21,239,000) 1,248,000
----------- ----------- ----------- -----------
Total Liabilities & Equity 24,011,000 21,475,000 14,061,000 59,547,000
=========== =========== =========== ===========

</TABLE>

Pro Forma Condensed Balance Sheet
Morgan's Foods, Inc.
Acquisition from Tricon Global Restaurants, Inc. of 42 KFC and 12 Taco Bell
restaurants at May 23, 1999

AS REPORTED KFC & TACO PRO FORMA PRO FORMA
BY THE COMPANY BELL UNITS ADJUSTMENTS STATEMENT
-------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets 2,725,000 428,000 -- 3,153,000
Property and Equipment net --
of $13,551,000 accum. depr 19,265,000 17,655,000 3,775,000 40,695,000
Intangible Assets 2,071,000 2,755,000 10,923,000 15,749,000
Deferred Taxes 600,000 -- -- 600,000
----------- ----------- ----------- -----------
Total Assets 24,661,000 20,838,000 14,698,000 60,197,000
=========== =========== =========== ===========

Current Liabilities 5,995,000 -- -- 5,995,000
Long-term Debt 17,656,000 236,000 35,300,000 53,192,000
Equity 1,010,000 20,602,000 (20,602,000) 1,010,000
----------- ----------- ----------- -----------
Total Liabilities & Equity 24,661,000 20,838,000 14,698,000 60,197,000
=========== =========== =========== ===========
</TABLE>

See notes to pro forma statements

<PAGE> 2
Exhibit 99-B
Pro Forma Financial Information
Pro Forma Statement of Operations
Morgan's Foods, Inc.
Acquisition from Tricon Global Restaurants, Inc. of 42 KFC and 12 Taco Bell
restaurants for the Fifty-two Weeks Ended February 28, 1999

AS REPORTED KFC & TACO PRO FORMA PRO FORMA
BY THE COMPANY BELL UNITS ADJUSTMENTS STATEMENT
-------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 40,607,000 $ 42,705,000 $ -- $ 83,312,000
Cost of sales:
Food, paper and bverage 12,774,000 14,004,000 -- 26,778,000
Labor and benefits 10,635,000 12,964,000 -- 23,599,000
Restaurant operating expenses 11,348,000 8,818,000 -- 20,166,000
Depreciation and amortization 1,948,000 2,864,000 (1,045,000) 3,767,000
General and administrative 3,137,000 3,806,000 -- 6,943,000
------------ ------------ ------------ ------------
Operating income 765,000 249,000 1,045,000 2,059,000
Interest expense 1,538,000 -- 3,320,000 4,858,000
Other (72,000) -- -- (72,000)
------------ ------------ ------------ ------------
Income (loss) before taxes (701,000) 249,000 (2,275,000) (2,727,000)
Provision for income taxes 20,000 -- -- 20,000
------------ ------------ ------------ ------------
Net income (loss) $ (721,000) $ 249,000 $ (2,275,000) $ (2,747,000)
============ ============ ============ ============

Earnings (loss) per share $ (0.25) $ (0.94)
Weighted ave. shares outstanding 2,910,839 2,910,839
</TABLE>

Morgan's Foods, Inc.
Acquisition from Tricon Global Restaurants, Inc. of 42 KFC and 12 Taco Bell
restaurants for the Twelve Weeks Ended May 23, 1999

AS REPORTED KFC & TACO PRO FORMA PRO FORMA
BY THE COMPANY BELL UNITS ADJUSTMENTS STATEMENT
-------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues 9,859,000 10,150,000 -- 20,009,000
Cost of sales:
Food, paper and bverage 2,955,000 3,148,000 -- 6,103,000
Labor and benefits 2,645,000 3,080,000 -- 5,725,000
Restaurant operating expenses 2,871,000 2,596,000 -- 5,467,000
Depreciation and amortization 438,000 533,000 (113,000) 858,000
General and administrative 824,000 895,000 -- 1,719,000
----------- ----------- ----------- -----------
Operating income 126,000 (102,000) 113,000 137,000
Interest expense 385,000 -- 766,000 1,151,000
Other (17,000) -- -- (17,000)
----------- ----------- ----------- -----------
Income (loss) before taxes (242,000) (102,000) (653,000) (997,000)
Provision for income taxes (4,000) -- -- (4,000)
----------- ----------- ----------- -----------
Net income (loss) (238,000) (102,000) (653,000) (993,000)
=========== =========== =========== ===========

Earnings (loss) per share $ (0.08) $ (0.34)
Weighted ave. shares outstanding 2,910,839 2,910,839

</TABLE>

See notes to pro forma statements

<PAGE> 3
Notes to pro forma statements

1. Basis of presentation - The pro forma financial statements include the
accounts and results of operation for Morgan's Foods, Inc. and subsidiaries
("The Company"), and 42 KFC restaurants and 12 Taco Bell restaurants owned and
operated by Tricon Global Restaurants, Inc. or its subsidiaries ("Tricon"). The
statements of the Company are as of and for the 52 weeks ended February 28, 1999
and the 12 weeks ended May 23, 1999 and the statements of the Tricon units are
as of and for the 52 weeks ended December 28, 1998 and the 12 weeks ended June
12, 1999. These statements have been prepared in accordance with Article 11 of
the Securities & Exchange Commission Regulation S-X.

2. Balance Sheet - A full balance sheet has not been presented for the Tricon
units because Tricon does not record certain transactions on an individual unit
basis. Alternatively, a statement of net assets purchased has been presented
which represents the assets of the Tricon units acquired by the Company.
Adjustments have been made to reflect the change in carrying value of the
property and equipment and intangible assets based on the purchase price of the
assets. Further adjustments are made to reflect the long-term debt used to fund
the acquisition.

3. Statement of Operations - Adjustments were made to the pro forma statement
of operations to reflect the cost of the assets and the estimated useful lives
after the acquisition. Adjustments were also made to the statement of operations
to reflect interest expense on the long-term debt used to fund the acquisition.
Interest expense has been computed using an annual interest rate of 9.5%.