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SCHEDULE 14A
(RULE 14a)
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:
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
MORGAN 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)(4) 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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MORGAN'S FOODS, INC.
Suite 126
24200 Chagrin Boulevard
Beachwood, Ohio 44122
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 27, 1997
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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 27, 1997, at
10:00 a.m., Eastern Daylight Time, for the following purposes:
1. To elect the Board of Directors of the Company.
2. To amend the articles of incorporation to effect a one-for-six
reverse stock split.
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 14, 1997 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 6, 1997
- --------------------------------------------------------------------------------
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.
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MORGAN'S FOODS, INC.
24200 Chagrin Blvd., Suite 126
Beachwood, Ohio 44122
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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 27, 1997 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 6, 1997. A copy of the Company's Annual
Report to Shareholders, including financial statements, for the fiscal year
ended March 2, 1997 (the "1997 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 the proposal to amend the
articles of incorporation to effect a one-for-six reverse stock split.
Where a choice is specified in the proxy, the shares represented thereby
will be voted in accordance with such specification. If no specification is
made, such shares will be voted at the Meeting FOR the election as directors of
the nominees set forth herein under "Election of Directors" and FOR the reverse
stock split 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 reverse stock split
proposal.
The close of business on May 14, 1997, 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 7, 1997, the Company's outstanding voting securities
consisted of 17,650,430 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 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.
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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 7, 1997, certain information about
each of the nominees for directors.
DIRECTOR
OF THE
PRINCIPAL OCCUPATION COMPANY
NAME AGE FOR THE PAST FIVE YEARS SINCE
- ------------------------ ---- ---------------------------------------------- --------
Richard A. Arons 59 Attorney 1985
Lawrence S. Dolin 53 President of Joy Entertainment, Inc. (consul- 1981
tant in entertainment industry) (July 1993 to
present); President of The Front Row Theatre,
Inc. (entertainment facility) (July 1974 to
December 1994)
Kenneth L. Hignett 50 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); and
Vice President, Controller of TRW Real Estate
Loan Services (1984 to June 1989)
Steven S. Kaufman 47 President, Co-CEO and a founding shareholder, 1989
Kaufman & Cumberland Co. L.P.A. (law firm)
Bernard Lerner 70 President of Automated Packaging Systems, Inc. 1989
(manufacturer of packaging materials and
machinery)
James J. Liguori 48 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 58 Chairman of the Board and Chief Executive 1981
Officer of the Company (April 1989 to pres-
ent); Consultant to TRW, Inc. (information
services division) (January 1988 to December
1988); Chairman of the Board of Record Data
TRW, Inc. (information services company)
January 1985 to December 1987)
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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,
Richard A. Arons 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 Plan 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 five times, the Audit Committee once and the
Executive and Stock Option Plan Committees did not meet, during the 1997 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.
PROPOSAL NO. 2
AMENDMENT OF ARTICLES OF INCORPORATION TO EFFECT
ONE-FOR-SIX REVERSE STOCK SPLIT
GENERAL
The Board is seeking the approval of the shareholders to amend the Articles
of Incorporation of the Company, effective on such date as the Certificate of
Amendment is filed with the Secretary of State of Ohio (the "Effective Date"),
to implement a one-for-six reverse stock split (the "Reverse Split"). If the
Reverse Split is approved by the requisite vote of the Company's shareholders,
each certificate representing common shares outstanding immediately prior to the
Reverse Split (the "Old Shares") will be deemed automatically, without any
action on the part of the holder of such certificate, to represent one-sixth the
number of common shares after the Reverse Split (the "New Shares"). The proposed
amendment to the Company's Articles of Incorporation is set forth in Exhibit I
to this proxy statement.
PURPOSES OF REVERSE STOCK SPLIT
The Board of Directors believes that the current low per-share price of the
common shares may reduce the effective marketability of the shares because of
the reluctance of many institutional investors to trade in low-priced stocks and
because brokerage firms are reluctant to recommend low-priced stocks to their
clients. Also, section 970 of the American Stock Exchange Company Guide, states
"The Exchange may recommend to the management of a company, whose common stock
sells at a low price per share for a substantial period of time, that it submit
to its shareholders a proposal providing for a combination ("reverse split") of
such shares." Management has reviewed the reverse stock split proposal with
representatives of the American Stock Exchange to ensure that the proposal is in
keeping with the guidelines of the Exchange.
Certain institutional investors also have internal practices which tend to
discourage individual brokers within those firms from dealing in low-priced
stocks. Some of those practices pertain to the payment of brokers' commissions
and to time-consuming procedures that function to make the handling of
low-priced stocks unattractive to brokers from an economic standpoint.
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In addition, the structure of trading commissions also tends to have an adverse
impact upon holders of low-priced stocks because the brokers' commission on a
sale of low-priced stock generally represents a higher percentage of the sales
price than the commission on a higher-priced stock.
The Board of Directors is hopeful that the decrease in the number of common
shares outstanding as a consequence of the proposed Reverse Split will result in
an increase in the quoted market price to a level that is a more readily
accepted trading price in the capital markets. There can be no assurance,
however, that any such increase would be in proportion to the one-for-six
reverse stock split ratio, or that the per-share price level of the common
shares immediately after the proposed Reverse Split will be maintained for any
period of time.
The Board of Directors currently intends to implement the Reverse Split
Proposal promptly following shareholder approval. Shareholders who vote against
the Reverse Split Proposal are not entitled to dissenters' rights.
EFFECT OF REVERSE SPLIT
The Reverse Split will decrease the number of the Company's common shares
issued and outstanding on the Record Date from 17,650,430 shares to 2,941,738
shares. The number of common shares authorized by the Company's Articles of
Incorporation will not change as a result of the Reverse Split. The Reverse
Split will not affect any shareholder's proportionate equity interest in the
Company (other than as a result of the treatment of fractional interests,
discussed below) or the rights, preferences, privileges or priorities of the
Company's common shares or their par value. The Reverse Split will not affect
the shareholders' equity of the Company as reflected in the financial statements
of the Company except to change the number of the issued and outstanding common
shares. In connection with the Reverse Split, appropriate adjustments will be
made in the exercise price of, and number of shares issuable under, the
Company's outstanding stock options.
The following table illustrates the principal effects of the Reverse Split
Proposal:
NUMBER OF COMMON SHARES
(AT MAY 7, 1997)
-----------------------------------------------
PRIOR TO REVERSE SPLIT AFTER REVERSE SPLIT
---------------------- -------------------
Authorized Shares.................................. 25,000,000 25,000,000
Shares Issued and Outstanding...................... 17,650,430 2,941,738
Treasury Shares.................................... 166,000 27,667
Shares Reserved for Issuance Under Stock Option
Plans............................................ 1,161,000 193,500
Shares Available for Issuance...................... 6,022,570 21,837,095
Total Shareholders' Equity at March 2, 1997........ $ 3,300,000 $ 3,300,000
Fully Diluted Book Value per Common Share.......... $ 0.17 $ 1.04
EXCHANGE OF CERTIFICATES
If the Reverse Split is approved, the Company will notify shareholders of
the Effective Date. Shareholders of record on such date (the "Record Holders")
will receive a letter of transmittal for use in exchanging certificates
representing Old Shares for certificates representing New Shares. The Reverse
Split will be effective as to all holders of Old Shares, whether or not they are
Record Holders and irrespective of whether they vote in favor of, against or
abstain from voting on the proposal. Each shareholder will be required to mail
all stock certificates representing Old Shares held by such shareholder to the
exchange agent named in the letter of transmittal (the "Exchange Agent") in
order to receive stock certificates representing New Shares. Until
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such time as the Old Shares are surrendered, each certificate representing Old
Shares will continue to be valid and represent New Shares equal to one-sixth the
number of Old Shares.
No script or fractional share certificates representing New Shares will be
issued in connection with the Reverse Split, but in lieu thereof a certificate
or certificates evidencing the aggregate of all fractional shares otherwise
issuable, rounded, if necessary, to the next higher whole share, shall be issued
to the Exchange Agent, or its nominee, as agent for the accounts of all holders
of common shares of the Company otherwise entitled to have a fraction of a share
issued to them in connection with the Reverse Split. Sales of fractional
interests will be effected by the Exchange Agent as soon as practicable on the
basis of prevailing market prices of the Company's common shares on the American
Stock Exchange. After the Effective Date, the Exchange Agent or the Company will
pay to such shareholders their pro rata share of the net proceeds derived from
the sale of their fractional interest upon surrender of their stock
certificates. No service charges or brokerage commissions will be payable by
shareholders in connection with the sale of fractional interest; these costs
will be borne by the Company.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the proposed Reverse Split to the Company and its shareholders. This summary
is based upon laws, regulations, rulings and decisions now in effect, all of
which are subject to change. This summary does not discuss all aspects of
federal income taxation that may be relevant to a particular shareholder in
light of his, her or its personal investment circumstances or to certain types
of shareholders subject to special treatment under federal income tax laws (for
example, life insurance companies, tax exempt organizations, broker-dealers and
foreign taxpayers) and does not discuss any aspect of state, local or foreign
tax laws. The discussion with respect to exchanging shareholders is limited to
those who have held prior to the Reverse Split, and will hold immediately
following the Reverse Split, common shares as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). Each shareholder should consult
with his, her or its own tax advisor as to the specific tax consequences of the
Reverse Split to such shareholder, including the application and effect of
state, local and foreign income and other tax laws.
The Reverse Split should qualify as a tax-free recapitalization under
Section 368(a)(1)(E) of the Code to the extent that common shares held prior to
the Reverse Split are exchanged for new shares following the Reverse Split,
resulting in the following federal income tax consequences.
1. Neither the Company nor its shareholders will recognize any gain or loss
by reason of the exchange.
2. The new shares issued as a result of the Reverse Split in the hands of a
shareholder will have an aggregate basis for computing gain or loss equal to the
aggregate basis of shares (less that portion, if any, allocable to fractional
shares) held by that shareholder immediately prior to the Reverse Split.
3. The holding period of the new shares issued as a result of the proposed
Reverse Split in the hands of a shareholder will include the period during which
the shareholder held the shares prior to the Reverse Split.
4. The payment in cash in lieu of fractional shares will be treated for
federal income tax purposes as if the fractional shares were distributed as part
of the recapitalization and then redeemed by the Company.
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VOTE REQUIRED
Approval of the Reverse Split Proposal requires affirmative vote of the
holders of at least two-thirds of the outstanding common shares.
The officers and directors of the Company, who beneficially own in the
aggregate 7,735,392 common shares (41.1% of the outstanding shares), intend to
vote in favor of the Reverse Split Proposal.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED, AND RECOMMENDS THAT THE
COMPANY'S SHAREHOLDERS VOTE FOR, THE REVERSE SPLIT PROPOSAL.
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 7, 1997.
NAME AND ADDRESS PERCENT OF
OF BENEFICIAL OWNER NUMBER OF SHARES CLASS
- ------------------------------------- ---------------- ----------
Leonard R. Stein-Sapir (1)
24200 Chagrin Blvd., Suite 126
Beachwood, Ohio 44122 3,144,150 17.3%
Richard A. Arons
24200 Chagrin Blvd.,
Suite 126
Beachwood, Ohio 44122 2,525,000 14.3%
Cramer Rosenthal McGlynn, Inc. (2)
707 Westchester Avenue
White Plains, NY 10604 1,131,000 6.41%
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(1) Includes 500,000 shares subject to exercisable options and 350 shares owned
by Mr. Stein-Sapir's children and 10,000 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 February 15, 1997, filed with
the Securities and Exchange Commission, Cramer Rosenthal McGlynn, Inc., an
investment advisory firm ("CRM"), beneficially owned 1,131,000 or 6.41% 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.
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SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth
information as of May 7, 1997, 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.
PERCENT OF
NAME NUMBER OF SHARES CLASS
- ------------------------------------- ---------------- ----------
Richard A. Arons..................... 2,525,000 14.3%
Lawrence S. Dolin (1)................ 789,005 4.5
James J. Liguori (2)................. 643,729 3.6
Steven S. Kaufman (3)................ 28,470 *
Leonard R. Stein-Sapir (4)........... 3,144,150 17.3
Bernard Lerner....................... 421,000 2.4
Kenneth L. Hignett (5)............... 92,000 *
All officers and directors as a group
(10 persons) (6)................... 7,735,392 41.1%
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* Less than one percent of the outstanding common shares of the Company.
(1) Includes 398,000 shares owned by partnerships of which Mr. Dolin is a
general partner, 3,750 shares owned by Mr. Dolin's wife and 12,255 shares
owned by Mr. Dolin's children. Mr. Dolin disclaims any beneficial interest
in the shares owned by his wife and children.
(2) Includes 500,000 shares subject to exercisable options and 1,000 shares
owned by Mr. Liguori's children and 500 shares owned by his wife. Mr.
Liguori disclaims any beneficial interest in the shares owned by his wife
and children.
(3) Includes 6,045 shares owned by Mr. Kaufman's wife, as to which he disclaims
any beneficial interest.
(4) Includes 500,000 shares subject to exercisable options and 350 shares owned
by Mr. Stein-Sapir's children and 10,000 shares owned by his wife. Mr.
Stein-Sapir disclaims any beneficial interest in the shares owned by his
wife and children.
(5) Includes 75,000 shares subject to exercisable options.
(6) Includes 1,158,000 shares subject to exercisable options.
EXECUTIVE COMPENSATION
REPORT OF THE BOARD OF DIRECTORS ON COMPENSATION
Introduction. The disclosure rules of the Securities and Exchange
Commission require the Company to provide certain information concerning the
compensation of the Chief Executive Officer and the other executive officers of
the Company. The Company does not have a Compensation Committee of the Board of
Directors. Decisions on the compensation of the Company's Chief Executive
Officer are made by the Board and salaries of other executive officers are set
in relation to the Chief Executive Officer.
Structure. Compensation of the Company's executive officers consists
primarily of salary and stock option grants. The Company also provides a
matching contribution to deferred compensation under a 401(k) Plan described in
a separate section of this proxy statement. Stock options have been used by the
Company to reward executives for actions which increase shareholder value. The
granting of stock options also aids in the retention of high quality executives
by providing long term incentives. The Company has no bonus plan for executives
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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. In the past, the Company has relied primarily on its own
informal surveys of compensation levels to gauge the reasonableness of the
compensation of Leonard Stein-Sapir, the Company's Chief Executive Officer.
Compensation of other executives is set in relation to the Chief Executive based
on each other executive's level of responsibility and experience and the
particular challenges facing the executive during the coming year. During fiscal
1993, the Company engaged a compensation consultant to compile comparative data
on chief executive officer compensation at similar size companies and recommend
a range of base salary for the Chief Executive Officer for fiscal 1994. The
Board of Directors has not considered it necessary to utilize a compensation
consultant since fiscal 1993. Due to the Company's significant dependence on the
efforts of the Chief Executive Officer, his services were subject to a three
year employment agreement covering the fiscal years 1994 -- 1996 and providing
for a base salary of $250,000 for the 1996 fiscal year which Mr. Stein-Sapir
voluntarily reduced to $225,000 for such year. Under the terms of the agreement,
the Chief Executive Officer's compensation could be reviewed annually and Mr.
Stein-Sapir was eligible to participate in any bonus plan offered to other
executive officers of the Company. Mr. Stein-Sapir continued to be compensated
at the annual rate of $225,000 for the 1997 fiscal year although the employment
contract is no longer in effect.
All executive officer salaries are reviewed on an annual basis. In deciding
on changes in the annual base salary of the Chief Executive Officer the Board
considers several performance factors. Among these are operating and
administrative efficiency and the maintenance of an appropriately experienced
management team. The Board also evaluates the Chief Executive Officer's
performance in the area of finding and evaluating new business opportunities to
establish the most productive strategic direction for the Company. Salary
changes for other executives are based primarily on their performance in
supporting the strategic initiatives of the Chief Executive Officer, meeting
individual goals and objectives set by the Chief Executive Officer, and
improving the operating efficiency of the Company. Also, where applicable,
changes in the duties and responsibilities of each other executive officer may
be considered in deciding on changes in annual salary. The previous voluntary
salary reduction of the President was restored during the fiscal 1997 year.
Based on a recommendation of the Chief Executive Officer, fiscal 1997 salary
evaluations for all other officers were deferred indefinitely.
Stock Options. Stock options have been administered by the Stock Option
Committee of the Board of Directors. The Incentive Stock Option Plan expired
during fiscal 1995 and the Board of Directors has determined not to implement a
new plan at this time. Options granted under the Incentive Plan remain
outstanding until their individual expiration dates.
THE BOARD OF DIRECTORS
Richard A. Arons Leonard R. Stein-Sapir
Lawrence S. Dolin Bernard Lerner
James J. Liguori Kenneth L. Hignett
Steven S. Kaufman
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
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of the Company's other most highly compensated executive officers earning more
than $100,000 during one or more of such years.
ALL OTHER
NAME AND FISCAL COMPENSATION
PRINCIPAL POSITION YEAR SALARY (1)
- ---------------------------------------- ------ -------- ---------------
Leonard R. Stein-Sapir, 1997 $226,742 $ 6,647
Chairman of the Board 1996 228,610 4,237
and Chief Executive Officer 1995 239,432 3,845
James J. Liguori, 1997 $173,952 $ 1,912
President and 1996 165,950 2,025
Chief Operating Officer 1995 169,038 2,432
Kenneth L. Hignett, 1997 $107,389 $ 2,802
Senior Vice President, 1996 105,105 2,560
Chief Financial Officer and Secretary 1995 102,502 2,312
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(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 1997 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information about the number of
options exercised during the 1997 fiscal year and the number and value of
unexercised incentive and nonqualified stock options held as of March 2, 1997 by
each executive named in the Summary Compensation Table.
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
SHARES MARCH 2, 1997 MARCH 2, 1997
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------------ ------------ ------------ ------------- -------------
Leonard R. Stein-Sapir 0 0 500,000/0 $ 0/0
James J. Liguori 0 0 500,000/0 $ 0/0
Kenneth L. Hignett 0 0 75,000/0 $ 0/0
RETIREMENT AND SAVINGS PLAN -- 401(K)
Since October 1, 1993 the Company has maintained a Retirement and Savings
Plan under IRS Code Section 401(k) ("the 401(k) Plan"). The 401(k) Plan allows
eligible employees to defer a portion of their compensation before Federal
Income Tax to a qualified trust. All employees who are at least 21 years of age,
have one year of service with the Company and have worked at least 1,000 hours
in the past year are eligible to participate in the 401(k) Plan. The
participants may choose from five investment options including common shares of
the Company for the investment of their deferred compensation. In addition, the
Company matches 15% of each participant's salary deferral, for the first 6% of
their salary, with common stock of the Company.
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 2,
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1997, 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 2, 1997,
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 2, 1997, 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 2,
1997. Directors who are also Officers of the Company do not receive additional
compensation as Directors. No additional compensation is paid to Directors for
serving on Committees of the Board.
10
13
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 3, 1992 and
based on the market prices at the end of each fiscal year, with the cumulative
total return of the Standard & Poor's Midcap 400 Stock Index and a peer group
index composed of seven restaurant companies that have a market capitalization
comparable to that of the Company.
MEASUREMENT PERIOD MORGAN'S S&P MIDCAP RESTAURANT
(FISCAL YEAR COVERED) FOODS 400 INDEX
1992 100 100 100
1993 213 109 103
1994 250 125 114
1995 138 126 128
1996 63 163 114
1997 50 192 92
The companies in the restaurant peer group index are Consolidated Products,
Inc., Ground Round Restaurants, Summit Family Restaurants, Inc. (formerly JB's
Restaurants, Inc.), Daka International Inc., Uno Restaurant Corp., Vi 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.
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 1, 1998.
Representatives of Deloitte & Touche LLP are expected to be present at the
Meeting with 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 1998 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, 1998. 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.
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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 Class A 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 2, 1997, 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 or telegraph. The Company does
not expect to pay any compensation for the solicitation of proxies, but it may
reimburse brokers and other persons holding shares in their names or in the
names of nominees for their expenses in sending proxy materials to beneficial
owners and obtaining proxies from such owners.
OTHER MATTERS
The Board of Directors is not aware of any matters to be presented for
action at the Meeting other than those shown in this document. Should any other
matters be properly presented for action at the Meeting, the enclosed proxy
confers upon the proxy holders named therein the authority to vote on such
matters in accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
KENNETH L. HIGNETT
Secretary
Beachwood, Ohio
June 6, 1997
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EXHIBIT I
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
MORGAN'S FOODS, INC.
PURSUANT TO SECTION 71 OF THE
GENERAL CORPORATION LAW OF THE STATE OF OHIO
MORGAN'S FOODS, INC., a corporation organized and existing under the laws
of the State of Ohio (the "Company"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors on April 21, 1997,
resolutions were duly adopted setting forth a proposed amendment to the Amended
Articles of Incorporation of the Company, declaring such amendment to be
advisable and directing that such amendment be considered at the next annual
meeting of the shareholders of the Company. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Board of Directors of this Company hereby declares it
advisable that Article FOURTH of the Amended Articles of Incorporation of the
Company be amended by adding as the second paragraph of Article FOURTH the
following:
"Upon the effectiveness of this Certificate of Amendment, each Common
Share, without par value, of the Company, that is issued and outstanding shall
be changed, ipso facto and without any other action on the part of the holders
of such Common Shares, into one-sixth (1/6) of a Common Share, without par
value, of the Company."
SECOND: That thereafter, pursuant to resolution of the Board of Directors
of the Company, the annual meeting of the shareholders of the Company was duly
called and held upon notice in accordance with Section 41 of the General
Corporation Law of the State of Ohio, at which meeting the necessary number of
shares as required by statute and the Articles of Incorporation were voted in
favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of the General Corporation Law of the State of Ohio.
IN WITNESS WHEREOF, Morgan's Foods, Inc. has caused this certificate to be
signed by Leonard R. Stein-Sapir, Chairman and Chief Executive Officer, and
attested by Kenneth L. Hignett, Secretary, , 1997.
ATTEST: MORGAN'S FOODS, INC.
By:
- -------------------------------------------- -----------------------------------------
Kenneth L. Hignett Leonard R. Stein-Sapir
Secretary Chairman and Chief Executive Officer
16
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 27, 1997 at 10:00 a.m., Eastern
Daylight Time, or any adjournment thereof, and to vote the number of
shares of the Company which the undersigned would be entitled to
vote and with all the power the undersigned would possess, if
personally present, as follows:
1. [ ] FOR, or [ ] WITHHOLD AUTHORITY to vote for the
following nominees for election as directors: Leonard R.
Stein-Sapir, Richard A. Arons, Lawrence S. Dolin, James J.
Liguori, Steven S. Kaufman, Bernard Lerner and Kenneth L.
Hignett.
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line
provided below.)
----------------------------------------------------------------
2. [ ] FOR, or [ ] AGAINST the proposal to amend the
Articles of Incorporation to effect a one-for-six reverse stock
split.
3. On such other business as may properly come before the
meeting or any adjournment thereof.
(continued, and to be signed, on the other side)
(Continued from other side)
THE PROXIES WILL VOTE AS SPECIFIED ABOVE OR IF A CHOICE IS NOT
SPECIFIED THEY WILL VOTE FOR THE NOMINEES LISTED IN ITEM 1 AND FOR
PROPOSAL NO. 2 (REVERSE STOCK SPLIT).
Receipt of Notice of Annual
Meeting of Shareholders and
Proxy State-
ment dated June 6, 1997, is
hereby acknowledged.
Dated............... , 1997
...........................
...........................
...........................
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