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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[ ] 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 Section 240.14a-11c or Section 240.14a-12
</Table>
MORGAN'S FOODS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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:
----------------------------------------------------------------------
MORGAN'S FOODS, INC.
Suite 126
24200 Chagrin Boulevard
Beachwood, Ohio 44122
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 28, 2002
------------------
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 Hilton
Cleveland East, 3663 Park East Dr., Beachwood, Ohio, on Friday, June 28, 2002,
at 10:00 a.m., Eastern Daylight Time, for the following purposes:
1. To elect the Board of Directors of the Company.
2. 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 15, 2002 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 7, 2002
- --------------------------------------------------------------------------------
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.
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 Hilton Cleveland East, 3663
Park East Dr., Beachwood, Ohio, on Friday, June 28, 2002 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 7, 2002. A copy of the Company's Annual
Report to Shareholders, including financial statements, for the fiscal year
ended March 3, 2002 (the "2002 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.
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".
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.
The close of business on May 15, 2002, 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 17, 2002, the Company's outstanding voting securities
consisted of 2,719,641 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.
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 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
1
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 17, 2002, 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
---- --- ----------------------- --------
Richard A. Arons 64 Attorney 1985
Lawrence S. Dolin 58 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 55 Senior Vice President, Chief Financial 1993
Officer and Secretary of the Company (March
1992 to present); Vice President, Secretary
and Treasurer of the Company (January 1991 to
March 1992); Vice President and Treasurer of
the Company (June 1989 to January 1991)
Steven S. Kaufman 52 President and Managing Partner, Kaufman & 1989
Cumberland Co. L.P.A. (law firm)
Bernard Lerner 75 President of Automated Packaging Systems, 1989
Inc. (manufacturer of packaging materials and
machinery)
James J. Liguori 53 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 63 Chairman of the Board and Chief Executive 1981
Officer of the Company (April 1989 to
present)
</Table>
Lawrence S. Dolin also serves as a director of FalconStor, Inc. a company
in the business of providing software IP storage.
The Company has an Executive Committee, an Audit Committee, and a Stock
Option Plan Committee, the members of each of which are appointed by the Board
of Directors. The Company does not have a nominating committee.
The Executive Committee consists of James J. Liguori, Lawrence S. Dolin,
Bernard Lerner and Leonard R. Stein-Sapir. This committee has the authority,
between meetings of the Board of
2
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 (Chairman), Steven S.
Kaufman and Bernard Lerner. This committee, as set forth in more detail in the
Audit Committee Charter which is attached to this Proxy Statement as Exhibit A,
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 with the independent accountants and with management the results of
audits and various other financial and accounting matters affecting the Company.
The members of the Stock Option Committee are Steven S. Kaufman, Bernard
Lerner (Chairman), and Lawrence S. Dolin. This committee administers the
Company's stock option plans.
The Board of Directors met four times, the Audit Committee met two times
and the Stock Option Committee and the Executive Committee did not meet, during
the 2002 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 except Mr. Arons who attended two of four meetings of the
Board of Directors.
AUDIT COMMITTEE REPORT
The Audit Committee is composed of three directors, all of whom are
independent under the rules of the American Stock Exchange. The Committee
operates under a written charter adopted on June 23, 2000, reviewed annually and
ratified most recently on June 22, 2001 (a copy of the charter is attached as
Exhibit A to this Proxy Statement). The Committee's responsibilities include
oversight of the Company's independent auditors as well as oversight of
management's conduct in the Company's financial reporting process. The Committee
also recommends to the Board of Directors the selection of the Company's
independent auditors. Management is responsible for the Company's internal
controls and the financial reporting process. The independent auditors are
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with auditing standards generally accepted in
the United States of America and issuing a report thereon. For fiscal 2002, the
Committee met and held discussions with management and the independent auditors.
In addition, the Chairman of the Audit Committee, on behalf of the Committee,
has reviewed each of the Company's quarterly submissions on form 10-Q with
management and the independent auditors. Management represented to the Committee
that the Company's consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States of America,
and the Committee has reviewed and discussed the consolidated financial
statements with management and the independent auditors. The Committee discussed
with the independent auditors matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). The Company's
independent auditors also provided to the Committee the written disclosures
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and the Committee discussed with the
independent auditors their firm's independence. The Audit Committee has
considered whether the provision of non-audit services by the independent
auditors is compatible with maintaining the auditor's independence.
3
Based on the Committee's discussion with management and the independent
auditors and the Committee's review of the representations of management and the
report of the independent auditors to the Committee, the Committee recommended
that the Board of Directors include the audited consolidated financial
statements in the Company's Annual Report on Form 10-K for the fiscal year ended
March 3, 2002 filed with the Securities and Exchange Commission.
The Audit Committee
Lawrence S. Dolin, Chairman
Steven S. Kaufman
Bernard Lerner
INDEPENDENT AUDITOR FEES
The following table sets forth the aggregate fees billed or to be billed to
the Company for the fiscal year ended March 3, 2002 by the Company's independent
auditors, Deloitte & Touche LLP:
<Table>
<Caption>
Audit of Fiscal Year Ended 3/3/2002, Including Quarterly
Reviews................................................... $73,400
Information Systems Consulting Services..................... $ 0
Audit of 401(k) Plan........................................ $36,234
Other Services.............................................. $75,745
</Table>
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 17, 2002.
<Table>
<Caption>
NAME AND ADDRESS PERCENT OF
OF BENEFICIAL OWNER NUMBER OF SHARES CLASS
------------------- ---------------- ----------
Leonard R. Stein-Sapir (1)
24200 Chagrin Blvd., Suite 126
Beachwood, OH 44122............................ 573,529 20.3%
Richard A. Arons
c/o Morgan's Foods, Inc.
24200 Chagrin Blvd., Suite 126
Beachwood, OH 44122............................ 421,933 15.5%
</Table>
- ---------------
(1) Includes 100,000 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.
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth
information as of May 17, 2002, 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
4
investment power with respect thereto, except as otherwise set forth in the
footnotes to the table.
<Table>
<Caption>
PERCENT OF
NAME NUMBER OF SHARES CLASS
---- ---------------- ----------
Richard A. Arons............................... 421,933 15.5%
Lawrence S. Dolin (1).......................... 106,125 3.9
James J. Liguori (2)........................... 131,539 4.7
Steven S. Kaufman.............................. 4,686 *
Leonard R. Stein-Sapir (3)..................... 573,529 20.3
Bernard Lerner................................. 103,066 3.8
Kenneth L. Hignett (4)......................... 27,833 1.0
All officers and directors as a group
(10 persons) (5)............................. 1,431,899 47.6%
</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 100,000 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 100,000 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.
(4) Includes 25,000 shares subject to exercisable options.
(5) Includes 286,500 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 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's
compensation was at an annual rate of $250,000 for the 2002 fiscal year which
was unchanged since February 28, 2000 although his
5
actual compensation for the fiscal year ended February 25, 2001 was 236,500
because of voluntary salary reductions taken during the year.
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 2002 salary increases for all officers
were deferred.
Stock Options. Stock options have been administered by the Stock Option
Committee of the Board of Directors. 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 and for 11,500 shares on April
27, 2001. Options granted to certain employees, including the Chief Executive
Officer, are shown in the Exercisable Options table below.
THE BOARD OF DIRECTORS
<Table>
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 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)
- ------------------ ------ -------- ----------------
Leonard R. Stein-Sapir, 2002 $250,000 $6,159
Chairman of the Board 2001 236,500 8,291
and Chief Executive Officer 2000 225,000 5,987
James J. Liguori, 2002 $201,500 $4,398
President and 2001 202,500 4,171
Chief Operating Officer 2000 176,500 3,565
Kenneth L. Hignett, 2002 $115,000 $6,132
Senior Vice President, 2001 115,000 5,712
Chief Financial Officer and Secretary 2000 107,500 2,718
</Table>
- ---------------
(1) Represents the value of insurance premiums paid by the Company with respect
to term life insurance for the benefit of the named executives and the
matching contribution made by the Company to the 401(k) Plan.
6
OPTION EXERCISES IN FISCAL 2002 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information about the number of
options exercised during the 2002 fiscal year and the number and value of
unexercised nonqualified stock options held as of March 3, 2002 by each
executive named in the Summary Compensation Table.
<Table>
<Caption>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
SHARES MARCH 3, 2002 MARCH 3, 2002
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ------------- -------------
Leonard R. Stein-Sapir 0 0 100,000/0 $0/0
James J. Liguori 0 0 100,000/0 $0/0
Kenneth L. Hignett 0 0 25,000/0 $0/0
</Table>
RETIREMENT AND SAVINGS PLAN -- 401(k)
Since October 1, 1993, the Company has maintained a Retirement and Savings
Plan under IRS Code Section 401(k) ("the 401(k) Plan"). The 401(k) Plan allows
eligible employees to defer a portion of their compensation before federal
income tax to a qualified trust. All employees who are at least 21 years of age
are eligible to participate in the 401(k) Plan. The participants may choose from
eight 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 a cash contribution. For the fiscal year ended
March 3, 2002, the Company contributed $69,737 to the 401(k) Plan and paid or
accrued $12,804 in administrative fees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors performs the functions of a compensation
committee. The Company's Board includes three members who are executive officers
of the Company: James J. Liguori, Kenneth L. Hignett and Leonard R. Stein-Sapir.
During the fiscal year ended March 3, 2002, 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 March 3, 2002, 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
March 3, 2002, 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 March 3,
2002. 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, was paid to Directors serving on the Audit
Committee. No additional compensation is paid to Directors for serving on other
Committees of the Board.
7
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 March 2, 1997, 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 restaurant
group index composed of 19 restaurant companies that have a market
capitalization comparable to that of the Company.
[PERFORMANCE GRAPH]
<Table>
1997 1998 1999 2000 2001 2002
Morgan's Foods 100 87 91 107 31 77
S&P Midcap 400 100 137 139 177 199 208
Restaurant Index 100 102 55 49 23 15
</Table>
The companies in the restaurant index are Austins Steaks & Saloon Inc.,
Avado Brands Inc., Boston Restaurant Assoc. Inc., Brazil Fast Food Corp., Briazz
Inc., Chart House Enterprises Inc., Chefs International Inc., Creative Host
Services Inc., Eateries Inc., Elmers Restaurants Inc., Flanigans Enterprises
Inc., Founders Food & Firkins Ltd., Good Times Restaurants Inc., Grill Concepts
Inc., Health Express USA Inc., Mexican Restaurants Inc., New World Restaurant
Group, Star Buffet Inc., Tumbleweed Inc. The index is weighted based on market
capitalization. The companies included in the restaurant index were approved by
the Board of Directors.
In previous years the Company used a peer group of restaurant companies for
comparison in the Shareholder Return Performance Graph. The peer group was no
longer usable as most of the entities contained in it had ceased to exist as
independent public companies. For this reason a group of public restaurant
companies with market capitalizations between $4M and $12M was selected as the
restaurant index comparison group for the Shareholder Return Performance Graph.
The Company believes that this index encompasses all companies that fit the
aforementioned criteria.
8
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 March 2, 2003.
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 2003 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, 2003. 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 2003,
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,
2003. 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 March 3, 2002, all Section
16(a) filing requirements applicable to its executive officers, directors and
10% stockholders were complied with.
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or 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.
9
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 7, 2002
10
EXHIBIT A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
ORGANIZATION
This charter governs the operations of the audit committee. The committee
shall review and reassess the charter at least annually and obtain the
approval of the board of directors. The committee shall be appointed by the
board of directors and shall comprise at least three directors, each of
whom are independent of management and the Company. Members of the
committee shall be considered independent if they have no relationship that
may interfere with the exercise of their independence from management and
the Company. All committee members shall be financially literate, or shall
become financially literate within a reasonable period of time after
appointment to the committee and at least one member shall have accounting
or related financial management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the
Company's financial statements and the financial reporting process, the
systems of internal accounting and financial controls, the annual
independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board.
In so doing, it is the responsibility of the committee to maintain free and
open communication between the committee, independent auditors and
management of the Company. In discharging its oversight role, the committee
is empowered to investigate any matter brought to its attention with full
access to all books, records, facilities, and personnel of the Company and
the power to retain outside counsel, or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of their activities to the board. Management is responsible for
preparing the Company's financial statements, and the independent auditors
are responsible for auditing those financial statements. The committee in
carrying out its responsibilities believes its policies and procedures
should remain flexible, in order to best react to changing conditions and
circumstances. The committee should take the appropriate actions to set the
overall corporate "tone" for quality financial reporting, sound business
risk practices, and ethical behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are
set forth as a guide with the understanding that the committee may
supplement them as appropriate.
- The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of the
Company's shareholders. The committee shall have the ultimate authority and
responsibility to evaluate and, where appropriate, replace the independent
auditors. The committee shall discuss with the auditors their independence
from management and the Company and the matters included in the written
disclosures required by the Independence Standards Board. Annually, the
committee shall review and recommend to the board the selection of the
Company's independent auditors, subject to shareholders' approval.
- The committee shall discuss with the independent auditors the overall scope
and plans for their respective audits including the adequacy of staffing and
compensation. Also, the
11
committee shall discuss with management and the independent auditors the
adequacy and effectiveness of the accounting and financial controls,
including the Company's system to monitor and manage business risk, and
legal and ethical compliance programs. Further, the committee shall meet
separately with the independent auditors, with and without management
present, to discuss the results of their examinations.
- The committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the Company's Quarterly
Report on Form 10-Q. Also, the committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards. The chair of the committee may represent the entire committee for
the purposes of this review.
- The committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form
10-K (or the annual report to shareholders if distributed prior to the
filing of Form 10-K), including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements.
Also, the committee shall discuss the results of the annual audit and any
other matters required to be communicated to the committee by the
independent auditors under generally accepted auditing standards.
12
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 Hilton Cleveland East, 3663 Park East Drive,
Beachwood, Ohio, on Friday, June 28, 2002 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. 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.
Receipt of Notice of Annual
Meeting of Shareholders and
Proxy State-
ment dated June 7, 2002, is
hereby acknowledged.
Dated............... , 2002
...........................
...........................
...........................
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