<PAGE> 1
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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
MORGAN'S FOODS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
MORGAN'S FOODS, INC.
Suite 126
24200 Chagrin Boulevard
Beachwood, Ohio 44122
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 23, 2000
------------------
TO THE SHAREHOLDERS:
You are hereby notified that the Annual Meeting of Shareholders of Morgan's
Foods, Inc., an Ohio corporation (the "Company"), will be held at the Cleveland
Marriott East, 3663 Park East Dr., Beachwood, Ohio, on Friday, June 23, 2000, at
10:00 a.m., Eastern Daylight Time, for the following purposes:
1. To elect the Board of Directors of the Company.
2. To vote upon a shareholder proposal concerning the Company's
Shareholder Rights Plan.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on May 10, 2000 will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
KENNETH L. HIGNETT
Secretary
June 2, 2000
--------------------------------------------------------------------------------
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE TO ENSURE THAT THEIR SHARES ARE REPRESENTED AT THE MEETING
OR ANY ADJOURNMENT THEREOF.
<PAGE> 3
MORGAN'S FOODS, INC.
24200 Chagrin Blvd., Suite 126
Beachwood, Ohio 44122
------------------------
PROXY STATEMENT
------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of Morgan's Foods, Inc., an
Ohio corporation (the "Company"), for use at the Annual Meeting of Shareholders
of the Company (the "Meeting") to be held at the Cleveland Marriott East, 3663
Park East Dr., Beachwood, Ohio, on Friday, June 23, 2000 at 10:00 a.m., Eastern
Daylight Time, and at any adjournment thereof.
This proxy statement and accompanying notice and form of proxy are being
mailed to shareholders on or about June 2, 2000. A copy of the Company's Annual
Report to Shareholders, including financial statements, for the fiscal year
ended February 27, 2000 (the "2000 fiscal year") is enclosed with this proxy
statement.
The presence of any shareholder at the Meeting will not operate to revoke
his proxy. Any proxy may be revoked, at any time before it is exercised, in open
meeting, or by giving notice to the Company in writing, or by filing a duly
executed proxy bearing a later date.
If the enclosed proxy is executed and returned to the Company, the persons
named therein will vote the shares represented by it at the Meeting. The proxy
permits specification of a vote for the election of directors, or the
withholding of authority to vote in the election of directors, or the
withholding of authority to vote for one or more specified nominees. The proxy
also permits specification of a vote for or against, or abstention with respect
to, a shareholder proposal concerning the Company's Shareholder Rights Plan.
Where a choice is specified in the proxy, the shares represented thereby
will be voted in accordance with such specification. If no specification is
made, such shares will be voted at the Meeting FOR the election as directors of
the nominees set forth herein under "Election of Directors" and AGAINST the
shareholder proposal.
Under Ohio law and the Company's Articles of Incorporation, broker
non-votes and abstaining votes will not be counted in favor of or against
election of any nominee but will be counted against the shareholder proposal.
The close of business on May 10, 2000, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Meeting. As of May 4, 2000, the Company's outstanding voting securities
consisted of 2,922,727 Common Shares, without par value, each of which is
entitled to one vote on all matters to be presented to the shareholders at the
Meeting.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
At the Meeting, shares represented by proxies will be voted, unless
otherwise specified in such proxies, for the election of the seven nominees for
directors named in this proxy statement and the enclosed proxy. These nominees
will, if elected, serve as directors of the Company until the next annual
meeting of the shareholders and until their successors are elected and shall
qualify. All of the nominees are currently members of the Board of Directors and
have consented to be nominated and to serve if elected. If, for any reason, any
one or more nominees
1
<PAGE> 4
becomes unavailable for election, it is expected that proxies will be voted for
the election of such substitute nominees as may be designated by the Board of
Directors.
If notice in writing is given by any shareholder to the President or the
Secretary of the Company, not less than 48 hours before the time fixed for
holding the Meeting, that such shareholder desires that the voting for the
election of directors shall be cumulative, and if an announcement of the giving
of such notice is made upon the convening of the Meeting by the President or
Secretary or by or on behalf of the shareholder giving such notice, each
shareholder shall have the right to cumulate such voting power as he possesses
at such election and to give one candidate an amount of votes equal to the
number of directors to be elected multiplied by the number of his shares, or to
distribute his votes on the same principle among two or more candidates, as he
sees fit.
If voting for the election of directors is cumulative, the persons named in
the enclosed proxy will vote the shares represented by proxies given to them in
such fashion as to elect as many of the nominees as possible.
The table below sets forth, as of May 26, 2000, certain information about
each of the nominees for directors.
<TABLE>
<CAPTION>
DIRECTOR
OF THE
PRINCIPAL OCCUPATION COMPANY
NAME AGE FOR THE PAST FIVE YEARS SINCE
---- --- ----------------------- --------
<S> <C> <C> <C>
Richard A. Arons 62 Attorney 1985
Lawrence S. Dolin 56 Chairman, President and Chief Executive 1981
Officer, Noteworthy Medical Systems, Inc.
(July 1998 to present) (computerized patient
record software); General Partner, Mordo
Partners (January 1996 to present) (investment
management)
Kenneth L. Hignett 53 Senior Vice President, Chief Financial Officer 1993
and Secretary of the Company (March 1992 to
present); Vice President, Secretary and
Treasurer of the Company (January 1991 to
March 1992); Vice President and Treasurer of
the Company (June 1989 to January 1991)
Steven S. Kaufman 50 President and Managing Partner, Kaufman & 1989
Cumberland Co. L.P.A. (law firm)
Bernard Lerner 73 President of Automated Packaging Systems, Inc. 1989
(manufacturer of packaging materials and
machinery)
James J. Liguori 51 President and Chief Operating Officer of the 1984
Company (July 1988 to present); Executive Vice
President of the Company (August 1987 to July
1988); Vice President of the Company (June
1979 to August 1987)
Leonard R. Stein-Sapir 61 Chairman of the Board and Chief Executive 1981
Officer of the Company (April 1989 to present)
</TABLE>
The Company has an Executive Committee, an Audit Committee, and a Stock
Option Plan Committee, the members of each of which are appointed by the Board
of Directors. The Company does not have a nominating committee.
2
<PAGE> 5
The Executive Committee consists of James J. Liguori, Lawrence S. Dolin,
Bernard Lerner and Leonard R. Stein-Sapir. This committee has the authority,
between meetings of the Board of Directors, to exercise substantially all of the
powers of the Board in the management of the business of the Company.
The Audit Committee consists of Lawrence S. Dolin, Steven S. Kaufman and
Bernard Lerner. This committee considers and recommends to the Board of
Directors the appointment of independent accountants for the Company. It reviews
with such accountants the arrangements for and the scope of the audit to be
conducted by them. It also reviews the results of audits and various other
financial and accounting matters affecting the Company.
The members of the Stock Option Committee are Bernard Lerner, Steven S.
Kaufman, and Lawrence S. Dolin. This committee administers the Company's stock
option plans.
The Board of Directors met four times, the Audit and Stock Option
Committees each met twice and the Executive Committee did not meet, during the
2000 fiscal year. Each director currently serving on the Board attended 75% or
more of the meetings held during such year by the Board and the committee(s) on
which he served.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets
forth certain information with respect to all persons known to the Company to be
the beneficial owners of more than 5% of the Company's outstanding Common Shares
as of May 4, 2000.
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT
OF BENEFICIAL OWNER NUMBER OF SHARES OF CLASS
------------------- ---------------- --------
<S> <C> <C>
Leonard R. Stein-Sapir (1)
24200 Chagrin Blvd., Suite 126
Beachwood, OH 44122............... 523,529 17.6%
Richard A. Arons
24200 Chagrin Blvd., Suite 126
Beachwood, OH 44122............... 421,833 14.4%
Cramer Rosenthal McGlynn, Inc. (2)
707 Westchester Avenue
White Plains, NY 10604............ 147,327 5.0%
</TABLE>
---------------
(1) Includes 50,000 shares subject to exercisable options, 98 shares owned by
Mr. Stein-Sapir's children and 1,666 shares owned by his wife. Mr.
Stein-Sapir disclaims any beneficial interest in the shares owned by his
wife and children.
(2) According to a report on Schedule 13G dated March 6, 2000, filed with the
Securities and Exchange Commission, Cramer Rosenthal McGlynn, Inc., an
investment advisory firm ("CRM"), beneficially owned 147,327 or 5.1% of the
outstanding Common Shares as of such date. CRM disclosed in such Schedule
13G that it shares the power to dispose of and vote such shares.
3
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth
information as of May 4, 2000, with respect to Common Shares beneficially owned
by all directors and nominees for election as directors of the Company and by
all officers and directors of the Company as a group. Each person owns
beneficially and of record the shares indicated and has sole voting and
investment power with respect thereto, except as otherwise set forth in the
footnotes to the table.
<TABLE>
<CAPTION>
PERCENT
NAME NUMBER OF SHARES OF CLASS
---- ---------------- --------
<S> <C> <C>
Richard A. Arons............................... 421,833 14.4%
Lawrence S. Dolin (1).......................... 106,125 3.6
James J. Liguori (2)........................... 81,539 2.7
Steven S. Kaufman (3).......................... 4,744 *
Leonard R. Stein-Sapir (4)..................... 523,529 17.6
Bernard Lerner................................. 103,066 3.5
Kenneth L. Hignett (5)......................... 15,333 *
All officers and directors as a group (10
persons) (6)................................. 1,289,107 42.0%
</TABLE>
---------------
* Less than one percent of the outstanding Common Shares of the Company.
(1) Includes 43,000 shares owned by a partnership of which Mr. Dolin is a
general partner and 625 shares owned by Mr. Dolin's wife. Mr. Dolin
disclaims any beneficial interest in the shares owned by his wife.
(2) Includes 50,000 shares subject to exercisable options and 83 shares owned by
his wife. Mr. Liguori disclaims any beneficial interest in the shares owned
by his wife.
(3) Includes 1,007 shares owned by Mr. Kaufman's wife, as to which he disclaims
any beneficial interest.
(4) Includes 50,000 shares subject to exercisable options, 98 shares owned by
Mr. Stein-Sapir's children and 1,666 shares owned by his wife. Mr.
Stein-Sapir disclaims any beneficial interest in the shares owned by his
wife and children.
(5) Includes 12,500 shares subject to exercisable options.
(6) Includes 143,750 shares subject to exercisable options.
EXECUTIVE COMPENSATION
REPORT OF THE BOARD OF DIRECTORS ON COMPENSATION
Introduction. The disclosure rules of the Securities and Exchange
Commission require the Company to provide certain information concerning the
compensation of the Chief Executive Officer and the other executive officers of
the Company. The Company does not have a Compensation Committee of the Board of
Directors. Decisions on the compensation of the Company's Chief Executive
Officer are made by the Board and salaries of other executive officers are set
in relation to the salary of the Chief Executive Officer.
Structure. Compensation of the Company's executive officers consists
primarily of salary and stock option grants. The Company also provides a
matching contribution to deferred compensation under a 401(k) Plan described in
a separate section of this proxy statement. Stock options have been used by the
Company to reward executives for actions which increase shareholder value. The
granting of stock options also aids in the retention of high quality executives
by providing long-term incentives. The Company has no bonus plan for executives
nor does it provide retirement benefits. The Company believes that the Company's
compensation
4
<PAGE> 7
policy is fair to the Company's employees and shareholders and that its total
compensation package is competitive within the restaurant industry.
Base Salary. Since 1999, the Company has relied on its own informal surveys
of compensation levels to gauge the reasonableness of the compensation of
Leonard Stein-Sapir, the Company's Chief Executive Officer. Mr. Stein-Sapir was
compensated at the annual rate of $225,000 for the 2000 fiscal year which was
the same rate at which he was compensated for the previous two fiscal years.
All executive officer salaries are reviewed on an annual basis. In deciding
on changes in the annual base salary of the Chief Executive Officer the Board
considers several performance factors. Among these are operating and
administrative efficiency and the maintenance of an appropriately experienced
management team. The Board also evaluates the Chief Executive Officer's
performance in the area of finding and evaluating new business opportunities to
establish the most productive strategic direction for the Company. Salary
changes for other executives are based primarily on their performance in
supporting the strategic initiatives of the Chief Executive Officer, meeting
individual goals and objectives set by the Chief Executive Officer, and
improving the operating efficiency of the Company. Also, where applicable,
changes in the duties and responsibilities of each other executive officer may
be considered in deciding on changes in annual salary. Based on a recommendation
of the Chief Executive Officer, fiscal 2000 salary evaluations for all other
officers were deferred.
Stock Options. Stock options have been administered by the Stock Option
Committee of the Board of Directors. The Company's Incentive Stock Option Plan
expired during fiscal 1995. In April 1999, the Board of Directors approved a
non-qualified stock option plan for executives and managers and a key employees'
non-qualified stock option plan. Options were granted under the Non-qualified
Stock Option Plan for Executives and Managers on April 2, 1999 for 145,150
shares of common stock and under the Key Employee's Non-qualified Stock Option
Plan for 129,850 shares on January 7, 2000. Options granted to certain
employees, including the Chief Executive Officer, are shown in the Option
Exercisable table below.
THE BOARD OF DIRECTORS
<TABLE>
<S> <C>
Richard A. Arons Leonard R. Stein-Sapir
Lawrence S. Dolin Bernard Lerner
James J. Liguori Kenneth L. Hignett
Steven S. Kaufman
</TABLE>
SUMMARY COMPENSATION TABLE
The following table sets forth for each of the Company's last three fiscal
years the compensation earned by or awarded or paid to the Company's Chief
Executive Officer and each
5
<PAGE> 8
of the Company's other most highly compensated executive officers earning more
than $100,000 during one or more of such years.
<TABLE>
<CAPTION>
NAME AND FISCAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY COMPENSATION (1)
------------------ ------ -------- ----------------
<S> <C> <C> <C>
Leonard R. Stein-Sapir, 2000 $225,000 $5,987
Chairman of the Board 1999 225,000 5,987
and Chief Executive Officer 1998 225,140 5,987
James J. Liguori, 2000 $176,500 $3,565
President and 1999 176,500 3,283
Chief Operating Officer 1998 176,500 3,025
Kenneth L. Hignett, 2000 $107,500 $2,718
Senior Vice President, 1999 107,500 2,436
Chief Financial Officer and Secretary 1998 107,500 2,178
</TABLE>
---------------
(1) Represents the value of insurance premiums paid by the Company with respect
to term life insurance for the benefit of the named executives and the
matching contribution made by the Company to the 401(k) Plan.
OPTION EXERCISES IN FISCAL 2000 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information about the number of
options exercised during the 2000 fiscal year and the number and value of
unexercised incentive and nonqualified stock options held as of February 27,
2000 by each executive named in the Summary Compensation Table.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AS OF
SHARES AS OF FEBRUARY 27, 2000 FEBRUARY 27, 2000
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------------------- -----------------
<S> <C> <C> <C> <C>
Leonard R. Stein-Sapir 0 0 50,000/50,000 $0/0
James J. Liguori 0 0 50,000/50,000 $0/0
Kenneth L. Hignett 0 0 12,500/12,500 $0/0
</TABLE>
RETIREMENT AND SAVINGS PLAN -- 401(k)
Since October 1, 1993, the Company has maintained a Retirement and Savings
Plan under IRS Code Section 401(k) ("the 401(k) Plan"). The 401(k) Plan allows
eligible employees to defer a portion of their compensation before federal
income tax to a qualified trust. All employees who are at least 21 years of age,
have one year of service with the Company and have worked at least 1,000 hours
in the past year are eligible to participate in the 401(k) Plan. The
participants may choose from six investment options for the investment of their
deferred compensation. In addition, the Company matches 30% of each
participant's salary deferral, for the first 6% of their salary, with Common
Shares of the Company. For the fiscal year ended February 27, 2000, the Company
contributed $62,407 to the 401(k) Plan and paid or accrued $13,121 in
administrative fees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors performs the functions of a compensation
committee. The Company's Board includes three members who are executive officers
of the Company: James
6
<PAGE> 9
J. Liguori, Kenneth L. Hignett and Leonard R. Stein-Sapir. During the fiscal
year ended February 27, 2000, Mr. Liguori was President and Chief Operating
Officer of the Company, positions he has held since July 1988. From August 1987
to July 1988, he was Executive Vice President of the Company, and from June 1978
to August 1987 he was Vice President of the Company. During the fiscal year
ended February 27, 2000, Mr. Hignett was Senior Vice President, Chief Financial
Officer and Secretary of the Company, positions which he has held since March
1992. From January 1991 to March 1992, he was Vice President, Secretary and
Treasurer of the Company, and from June 1989 to January 1991 he was Vice
President and Treasurer of the Company. During the fiscal year ended February
27, 2000, Mr. Stein-Sapir was Chairman of the Board and Chief Executive Officer
of the Company, positions he has held since April 1989.
DIRECTOR COMPENSATION
Annual Fee. Messrs. Arons, Dolin, Kaufman and Lerner each received $12,000
for serving on the Board of Directors during the fiscal year ended February 27,
2000. Directors who are also officers of the Company do not receive additional
compensation as Directors. Additional compensation of $1,500 per meeting, up to
a maximum of four meetings per year, will be paid to Directors serving on the
Audit Committee beginning in fiscal 2001. No additional compensation is paid to
Directors for serving on other Committees of the Board.
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return on
the Company's Common Shares, assuming a $100 investment as of February 26, 1995,
and based on the market prices at the end of each fiscal year, with the
cumulative total return of the Standard & Poor's Midcap 400 Stock Index and a
peer group index composed of four restaurant companies that have a market
capitalization comparable to that of the Company.
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
MORGAN'S FOODS S&P MIDCAP 400 RESTAURANT INDEX
-------------- -------------- ----------------
<S> <C> <C> <C>
1995 100.00 100.00 100.00
1996 43.00 129.00 80.00
1997 33.00 152.00 87.00
1998 28.00 207.00 106.00
1999 30.00 212.00 132.00
2000 35.00 268.00 101.00
</TABLE>
7
<PAGE> 10
The companies in the restaurant peer group index are Consolidated Products,
Inc., Uno Restaurant Corp., Cuisine Solutions Inc. (formerly Vie De France
Corp.), and Wall Street Deli, Inc. The index is weighted based on market
capitalization. The companies included in the peer group were approved by the
Board of Directors. The following companies were included in the peer group in
previous years but have been acquired by other companies and are no longer
publicly traded:
Summit Family Restaurants Inc. acquired in 1996 by CKE Restaurants
Daka International Inc. acquired in 1997 by Compass Group
Ground Round Restaurant Inc. acquired in 1998 by GRR Holdings LLC
PROPOSAL NO. 2: SHAREHOLDER'S PROPOSAL CONCERNING RIGHTS PLAN
A shareholder has given notice that he will introduce a proposal and
supporting statement for action at the Annual Meeting. The name and address of
the shareholder submitting the proposal, as well as the number of shares held by
such shareholder, will be furnished by the Company, either orally or in writing
as requested. The Board of Directors recommends that you vote against this
proposal for the reasons described in its Statement in Opposition, which is set
forth immediately below the text of the shareholder's proposal and supporting
statement. The shareholder's proposal as submitted reads as follows:
RESOLVED, that it is hereby recommended, that as soon as practicable,
the Board of Directors redeem the rights distributed under the Company's
Shareholder Rights Agreement, dated as of April 8, 1999, which was adopted
by the Board without prior shareholder approval, and that in the future the
Board refrain from adopting any "rights plans" or "poison pills" (meaning
any plan which confers additional rights on the holders of the Company's
common stock upon the acquisition of a large block of securities by a party
not approved by the Board of Directors or upon the making of a takeover or
merger proposal by a party not approved by the Board of Directors) and from
issuing any rights under any "rights plans" or "poison pills" without prior
approval of the shareholders.
SUPPORTING STATEMENT
So-called "poison pills" are a tool used by incumbent management and
boards of directors to deter proposals by acquirers. As such, they limit
shareholder options and are designed to discourage offers that may help
shareholders. This limitation is not in the best interests of shareholders
and it is impossible to tell what types of offers might have been made for
the Company, except for the presence of a poison pill. The statements made
by the Company when it adopted its existing Shareholder Rights Plan are
self-serving and fail to point out that the Board of Directors can use its
power to approve or disapprove a proposal (by redeeming or not redeeming
the pill) to discourage and avoid offers from persons not favored by the
board, such as acquirers that might make management changes. This type of
anti-takeover mechanism prevents all of us as shareholders from evaluating
all proposals on their merits, and restricts the market for our common
stock. Therefore, the board of directors should refrain from continuing or
implementing poison pill tactics that are not approved by the shareholders.
8
<PAGE> 11
DIRECTORS' STATEMENT IN OPPOSITION TO SHAREHOLDER'S PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST PROPOSAL 2 FOR THE
FOLLOWING REASONS:
The Board of Directors unanimously adopted the Company's Shareholder Rights
Plan in April 1999 because it believes the Rights Plan best serves the interests
of the Company's shareholders and is an effective tool to maximize the value of
the Company's shares in the context of an offer to purchase the Company. In
approving the Rights Plan, the Directors took into account that over 2,000
publicly-traded companies have such plans in place. The Rights Plan encourages
potential acquirers to negotiate directly with the Board, which is in the best
position to negotiate on behalf of all shareholders, to evaluate the adequacy of
any potential offer, and to protect shareholders against potential abuses during
the takeover process which unfairly discriminate among shareholders. The Rights
Plan is also designed to provide the Board with adequate time and flexibility to
negotiate on behalf of all the Company's shareholders and enhances the Board's
ability to negotiate the highest possible offer from a potential acquirer,
develop alternatives which may better maximize shareholder values, and preserve
the long-term value of the Company for all of the shareholders.
The benefits of shareholder rights plans have been validated by a study by
Georgeson & Company, Inc., in November 1997. The study found that: (i) premiums
paid to companies with shareholder rights plans were on average eight percentage
points higher than premiums paid to purchase target companies that did not have
shareholder rights plans; (ii) the presence of a shareholder rights plan did not
increase the likelihood that a hostile takeover bid would be defeated or that a
friendly bid would be withdrawn; and (iii) a shareholder rights plan did not
reduce the likelihood that a company would become a takeover target. In fact,
the study showed that the takeover rate was similar for companies with and
companies without shareholder rights plans.
The Rights Plan is not intended to prevent a takeover of the Company. The
Rights Plan does not diminish the fiduciary obligations of the Company's Board
of Directors. Because the Board, prior to the acquisition of 21% of the
Company's common shares by an acquirer, has the power to redeem the rights
issued under the Rights Plan and thereby remove the impediment to the completion
of an acquisition of the Company, a prospective acquirer seeking to persuade the
Board to redeem the Rights may propose a higher takeover price, an offer for all
shares rather than a partial offer, or better takeover terms than would be
proposed in the absence of the Rights Plan. The Rights Plan is intended, in
part, to discourage creeping acquisitions of control whereby an acquirer may
accumulate a controlling block of stock in the open market without paying a
control premium, attempt to unfairly pressure shareholders, potentially squeeze
them out of their investment without any real choice and deprive them of the
full value of their stock. Small shareholders are particularly vulnerable to
creeping acquisitions. Several studies have determined that rights plans do not
deter takeovers, but have shown that higher premiums have been paid for
companies with rights plans in place.
Many companies with a rights plan have received unsolicited offers and a
number of companies have redeemed the rights in connection with transactions
that their directors determined to be in the best interests of the company's
shareholders. Through the use of rights plans, many companies have been able to
negotiate successfully on behalf of their shareholders for prices higher than
those originally offered by the potential acquirer. The Board seeks to retain
that same ability and believes that the fact that a majority of the directors of
the Company are outside directors ensures that the Rights Plan will not be
misused. In such a situation, the Board has an obligation to meet its fiduciary
duties and exercise its business judgment in the best interests of the Company
and its shareholders.
Approval of a shareholder proposal requires the affirmative vote of a
majority of the votes actually cast by the shareholders present (in person or by
proxy) at the meeting and entitled to
9
<PAGE> 12
vote. Because Proposal 2 is a request that the Board take steps to implement the
proposal, approval of Proposal 2 may not result in the requested action being
taken, nor is the Board required to initiate such steps to take that action. If
no voting instructions are given, the accompanying proxy will be voted AGAINST
Proposal 2. Under the American Stock Exchange rules, brokers who hold street
name shares cannot vote in their discretion on Proposal 2.
FOR THE REASONS OUTLINED ABOVE, THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE
AGAINST PROPOSAL 2, AND THE ACCOMPANYING PROXY WILL BE SO VOTED, UNLESS A
CONTRARY SPECIFICATION IS MADE.
SELECTION OF INDEPENDENT AUDITORS
Deloitte & Touche LLP serves as the Company's independent auditors. The
Board of Directors of the Company has not selected independent auditors for the
Company and its subsidiaries for the fiscal year ending February 25, 2001.
Representatives of Deloitte & Touche LLP are expected to be present at the
Meeting and will have the opportunity to make a statement and to respond to
appropriate questions.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal for inclusion in the
proxy statement and form of proxy relating to the 2001 Annual Meeting of
Shareholders is advised that the proposal must be received by the Company at its
principal executive offices not later than January 31, 2001. The Company is not
required to include in its proxy statement or form of proxy a shareholder
proposal which is received after that date or which otherwise fails to meet
requirements for shareholder proposals established by regulations of the
Securities and Exchange Commission.
If a shareholder intends to raise at the Company's annual meeting in 2001,
a proposal that he does not seek to have included in the Company's proxy
statement, he must notify the Company of the proposal on or before April 15,
2001. If the shareholder fails to notify the Company, the Company's proxies will
be permitted to use their discretionary voting authority with respect to such
proposal when and if it is raised at such annual meeting, whether or not there
is any discussion of such proposal in the proxy statement for that meeting.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and owners of more than ten percent of the
Company's Common Shares ("10% stockholders"), to file with the Securities and
Exchange Commission (the "SEC") and the American Stock Exchange initial reports
of ownership and reports of changes in ownership of Common Shares of the
Company. Executive officers, directors and 10% stockholders are required by SEC
regulations to furnish the Company with copies of all forms they file pursuant
to Section 16(a).
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended February 27, 2000, all
Section 16(a) filing requirements applicable to its executive officers,
directors and 10% stockholders were complied with.
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<PAGE> 13
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or by telephone. The Company does not expect
to pay any compensation for the solicitation of proxies, but it may reimburse
brokers and other persons holding shares in their names or in the names of
nominees for their expenses in sending proxy materials to beneficial owners and
obtaining proxies from such owners.
OTHER MATTERS
The Board of Directors is not aware of any matters to be presented for
action at the Meeting other than those shown in this document. Should any other
matters be properly presented for action at the Meeting, the enclosed proxy
confers upon the proxy holders named therein the authority to vote on such
matters in accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
KENNETH L. HIGNETT
Secretary
Beachwood, Ohio
June 2, 2000
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<PAGE> 14
P R O X Y P R O X Y
MORGAN'S FOODS, INC.
The undersigned hereby appoints Lawrence S. Dolin, Leonard R.
Stein-Sapir and James J. Liguori, and each of them, attorneys and
proxies of the undersigned with full power of substitution to attend
the Annual Meeting of Shareholders of Morgan's Foods, Inc. (the
"Company") at Cleveland Marriott East, 3663 Park East Drive,
Beachwood, Ohio, on Friday, June 23, 2000 at 10:00 a.m., Eastern
Daylight Time, or any adjournment thereof, and to vote the number of
shares of the Company which the undersigned would be entitled to
vote and with all the power the undersigned would possess, if
personally present, as follows:
1. [ ] FOR, or [ ] WITHHOLD AUTHORITY to vote for the
following nominees for election as directors: Leonard R.
Stein-Sapir, Richard A. Arons, Lawrence S. Dolin, James J.
Liguori, Steven S. Kaufman, Bernard Lerner and Kenneth L.
Hignett.
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line
provided below.)
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2. [ ] FOR, or [ ] AGAINST or [ ] ABSTAIN with respect to,
the shareholder proposal concerning the Company's Shareholder
Rights Plan.
3. On such other business as may properly come before the
meeting or any adjournment thereof.
(continued, and to be signed, on the other side)
(Continued from other side)
THE PROXIES WILL VOTE AS SPECIFIED ABOVE OR IF A CHOICE IS NOT
SPECIFIED THEY WILL VOTE FOR THE NOMINEES LISTED IN ITEM 1 AND
AGAINST THE SHAREHOLDER PROPOSAL CONCERNING THE COMPANY'S
SHAREHOLDER RIGHTS PLAN UNDER ITEM 2.
Receipt of Notice of Annual
Meeting of Shareholders and
Proxy Statement dated
June 2, 2000, is hereby
acknowledged.
Dated............... , 2000
...........................
...........................
...........................
Signature(s)
(Please sign exactly as
your name or names
appear(s) hereon,
indicating, where proper,
official position or
representative capacity.)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
Proxy Card
