UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 19, 2011
MORGANS FOODS, INC.
(Exact name of registrant as specified in its charter)
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Ohio
(State or other jurisdiction of
incorporation or organization)
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1-08395
(Commission
File Number)
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34-0562210
IRS Employer
Identification Number) |
4829 Galaxy Parkway, Suite S, Cleveland, OH 44128
(Address of principal executive officers) (Zip Code)
Registrants telephone number, including area code: (216) 359-9000
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01 |
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Entry into a Material Definitive Agreement. |
The Company previously disclosed in a report on Form 8-K filed with the SEC on March 16, 2011 that
it received termination notices on ten of its KFC restaurants. In connection with the Companys
ongoing dialog with KFC Corporation (KFC) the Company requested that two of the franchise
agreements for the Ashtabula, OH and Waynesburg, PA restaurants be reinstated and in turn was
required to close four other restaurants. In April 2011, the Company received reinstatement
agreements from KFC for the two restaurants, which require that the funds necessary for the image
enhancement of the restaurants be placed in a remodel escrow
account, and closed all 12 of the
restaurants covered by these notices and agreements between March 31, 2011 and April 15, 2011.
In furtherance of its ongoing negotiations with KFC regarding the Companys required image
enhancement obligations related to other restaurants, on May 19, 2011 the Company and KFC entered
into a Pre-negotiation Agreement, similar to the Pre-negotiation Agreement entered into on November
10, 2010, as described in the Companys Form 8-K filed on the same date, outlining the conditions
of reaching a final agreement related to the Companys required image enhancement obligations.
Under the May 19, 2011 Pre-negotiation Agreement, KFC has agreed to forbear until August 31, 2011
from terminating the franchise agreements on the 13 operating restaurants on which KFC on May 2,
2011 delivered to the Company a notice of default (for failure to timely comply with required image
enhancement obligations) provided that the Company is in compliance with certain forbearance
conditions, which include, among others, that (i) the Company is paid up on amounts owing under the
franchise agreements, (ii) the Company is not in default of its obligations under the franchise
agreements (other than the image enhancement obligations), (iii) the Company submits to KFC a
written proposal by June 20, 2011 detailing how the Company will obtain the necessary funds to
enable it to comply with the Companys image enhancement obligations, (iv) the Company will
establish a remodel escrow account, and (v) the Company will enter into a definitive remodel
agreement with KFC by August 31, 2011.
Even though the Pre-negotiation Agreement outlines generally the mutually acceptable terms of a
final agreement related to the Companys image enhancement obligations, there can be no assurance
that the Company (i) will be able to reach an agreement with KFC regarding image enhancements that
would extend the time periods for completion of the required image enhancements, or (ii) will
complete the financial restructuring or that the restructuring will create the ability for the
Company to complete a satisfactory number of image enhancements. If KFC exercises its termination
rights, it is unclear, what, if any, action the Companys landlords and creditors may take under
cross default provisions of the Companys agreements that would impede the Companys ability to
satisfy its obligations. The termination of those franchise agreements would have a material
adverse effect on the Companys financial condition and results of operations.