AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1998
REGISTRATION NO. 333-50897
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------
UNISERVICE CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5812 65-0816177
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
--------------
<TABLE>
<S> <C>
DAVID MAYER
UNISERVICE CORPORATION
1900 GLADES ROAD, SUITE 351 1900 GLADES ROAD, SUITE 351
BOCA RATON, FLORIDA 33431 BOCA RATON, FLORIDA 33431
(561) 347-6398 (561) 347-6398
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND (NAME, ADDRESS AND TELEPHONE NUMBER
PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS) OF AGENT FOR SERVICE)
</TABLE>
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COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
CHARLES B. PEARLMAN, ESQ.
JOEL D. MAYERSOHN, ESQ. DONN A. BELOFF, ESQ.
ATLAS, PEARLMAN, TROP & BORKSON, P.A. HOLLAND & KNIGHT LLP
200 EAST LAS OLAS BOULEVARD, SUITE 1900 ONE EAST BROWARD BOULEVARD, SUITE 1300
FORT LAUDERDALE, FLORIDA 33301 FORT LAUDERDALE, FLORIDA 33301
TELEPHONE (954) 763-1200 TELEPHONE (954) 525-1000
FACSIMILE (954) 766-7800 FACSIMILE (954) 463-2030
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, check the following box: [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
PROPOSED
AMOUNT MAXIMUM
TITLE OF EACH CLASS TO BE OFFERING PRICE
OF SECURITIES TO BE REGISTERED REGISTERED PER SECURITY
------------------------------ ---------- ------------
<S> <C> <C>
Class A Common Stock ........................................... 1,610,000(2) $ 5.00
Warrants ....................................................... 1,610,000(3) $ 0.125
Class A Common Stock issuable upon exercise of the Warrants .... 1,610,000(4) $ 6.00
Representative's Warrants ...................................... 140,000 $ 0.001
Class A Common Stock ........................................... 140,000(5) $ 8.25
Warrants issuable upon the exercise of the
Representative's Warrants ..................................... 140,000(6) $ 0.20625
Class A Common Stock issuable upon the exercise of the
Representative's Warrants ..................................... 140,000(7) $ 9.90
Total ............................................................................................
<CAPTION>
PROPOSED
MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
------------------------------ ----------------- ----------------
<S> <C> <C>
Class A Common Stock ........................................... $ 8,050,000 $ 2,374.75
Warrants ....................................................... $ 201,250 $ 59.37
Class A Common Stock issuable upon exercise of the Warrants .... $ 9,660,000 $ 2,849.70
Representative's Warrants ...................................... $ 140 $ .04
Class A Common Stock ........................................... $ 1,155,000 $ 340.73
Warrants issuable upon the exercise of the
Representative's Warrants ..................................... $ 28,875 $ 8.52
Class A Common Stock issuable upon the exercise of the
Representative's Warrants ..................................... $ 1,386,000 $ 408.87
Total ........................................................ $20,481,265 $ 6,041.98
</TABLE>
================================================================================
(SEE NEXT PAGE FOR FOOTNOTES)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
- --------------
(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended (the
"Act").
(2) Includes 210,000 shares of Class A Voting Common Stock ("Class A Common
Stock") issuable pursuant to the Underwriter's over-allotment option
("Over-Allotment Option").
(3) Includes 210,000 Redeemable Common Stock Purchase Warrants ("Warrants")
issuable pursuant to the Over-Allotment Option.
(4) Represents shares of Class A Common Stock issuable upon exercise of the
Warrants registered hereby together with such additional indeterminate
number of shares as may be issued upon exercise of such Warrants by reason
of the anti-dilution provisions contained therein.
(5) Represents shares of Class A Common Stock issuable upon exercise of the
Representative's Warrants together with such additional indeterminate number
of shares of Class A Common Stock as may be issued upon exercise of such
Representative's Warrants by reason of the anti-dilution provisions
contained therein.
(6) Represents Warrants issuable upon exercise of the Representative's Warrants,
together with such additional indeterminate number of Warrants as may be
issued by reason of the anti-dilution provisions contained therein.
(7) Represents shares of Class A Common Stock issuable upon exercise of the
Warrants included within the Representative's Warrants, together with such
additional indeterminate number of shares of Class A Common Stock as may be
issued upon exercise of such Warrants by reason of the anti-dilution
provisions contained therein.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JULY 21, 1998
UNISERVICE CORPORATION
1,400,000 SHARES OF CLASS A COMMON STOCK AND
1,400,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
----------------
Uniservice Corporation is offering ("Offering") 1,400,000 shares of Class A
Voting Common Stock, par value $.0001 ("Class A Common Stock") at $5.00 per
share and 1,400,000 Redeemable Common Stock Purchase Warrants ("Warrants") at
$.125 per Warrant. The Class A Common Stock and the Warrants are being offered
separately and not as units, and each is separately transferable. Each Warrant
entitles the holder to purchase one share of Class A Common Stock at $6.00 per
share (subject to adjustment) during the five-year period commencing on the date
of this Prospectus (the "Effective Date"). The Warrants are redeemable by
Uniservice Corporation commencing twelve (12) months following the Effective
Date for $.25 per Warrant subject to prior exercise of the Warrant, if the
closing bid price for the Class A Common Stock has been at least $7.00 per share
for thirty (30) consecutive trading days. See "Description of Securities."
Prior to this Offering, there has been no public market for the Class A
Common Stock, the Warrants or the shares of Class A Common Stock underlying the
Warrants (collectively the "Securities") and there can be no assurances that any
market will develop or if developed, that it will be sustained. The initial
public offering prices of the Class A Common Stock and the Warrants and the
exercise price and other terms of the Warrants have been determined through
negotiations between Uniservice Corporation and Werbel-Roth Securities, Inc.,
the representative ("Representative") of the Underwriters ("Underwriters"), and
are not related to Uniservice Corporation's assets, book value, financial
condition or other recognized criteria value. Uniservice Corporation has applied
for the inclusion of the Class A Common Stock and the Warrants on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") SmallCap
Market under the symbols "UNSRA" and "UNSRW," respectively.
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK AND THE WARRANTS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS TO THE CONTRARY
IS A CRIMINAL OFFENSE.
================================================================================
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
------ ------------ ----------
<S> <C> <C> <C>
Per Share of
Class A Common Stock ......... $ 5.00 $ .50 $ 4.50
Per Warrant ................... $ .125 $ .0125 $ .1125
Total(3) ...................... $7,175,000 $717,500 $6,457,500
</TABLE>
================================================================================
(SEE NEXT PAGE FOR FOOTNOTES)
----------------
The Securities are being offered by the Underwriters on a firm commitment
basis, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify this Offering without notice and to reject any order
in whole or in part. It is expected that delivery of the Class A Common Stock
and the Warrants will be made against payment therefor at the offices of the
Representative at 150 East Palmetto Park Road, Suite 510, Boca Raton, Florida
33432 on or about , 1998.
----------------
WERBEL-ROTH SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
- ----------------
(1) Does not include additional compensation payable to the Representative in
the form of (i) a non-accountable expense allowance equal to 3% of the gross
proceeds of the Offering ($215,250 or $247,537.50 if the Over-Allotment
Option is exercised) of which $25,000 has been paid to date; (ii)
Representative's Purchase Warrants ("Representative's Warrants") to purchase
140,000 shares of Class A Common Stock and 140,000 Warrants for a four-year
period commencing one year from the Effective Date at an exercise price of
165% of the initial public offering price for the Class A Common Stock
($8.25 per share) and the Warrants ($.20625 per Warrant), subject to
adjustment; and (iii) a three-year financial consulting fee in the amount of
$105,000, payable at the closing. In addition, Uniservice Corporation has
granted the Representative certain registration rights with respect to
registration of the shares of Class A Common Stock and Warrants underlying
the Representative's Warrants and the shares of Class A Common Stock
issuable upon the exercise of the Representative's Warrants, and has agreed
to indemnify the Underwriters against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended (the
"Act"). See "Underwriting."
(2) Before deducting expenses payable by Uniservice Corporation estimated at
$342,250, not including the Representative's non-accountable expense
allowance.
(3) Uniservice Corporation has granted the Underwriters (or the Representative,
individually at its option) an option (the "Over-Allotment Option"),
exercisable within 45 days from the date of this Prospectus, to purchase up
to 210,000 additional shares of Class A Common Stock and up to 210,000
additional Warrants at an exercise price of $5.00 per share and $.125 per
Warrant, solely to cover over-allotments, if any. If the Over-Allotment
Option is exercised in full, the total Price to Public, Underwriting
Discounts, and Proceeds to Uniservice Corporation will be $8,251,250,
$825,125, and $7,426,125, respectively. See "Underwriting."
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK
AND WARRANTS, INCLUDING STABILIZING TRANSACTIONS EFFECTED IN ACCORDANCE WITH
RULE 104 OF REGULATION M PURSUANT TO WHICH PERSONS MAY BID FOR OR PURCHASE THE
CLASS A COMMON STOCK OR WARRANTS FOR THE PURPOSE OF STABILIZING ITS MARKET
PRICE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN CLASS A COMMON
STOCK AND WARRANTS ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND UNISERVICE CORPORATION'S
FINANCIAL STATEMENTS (THE "FINANCIAL STATEMENTS"), INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT
OPTION, THE WARRANTS, THE REPRESENTATIVE'S WARRANTS, THE SECURITIES UNDERLYING
THE REPRESENTATIVE'S WARRANTS, OR THE ISSUANCE OF UP TO AN AGGREGATE OF 200,000
SHARES OF CLASS A COMMON STOCK RESERVED FOR ISSUANCE UNDER UNISERVICE
CORPORATION'S STOCK OPTION PLAN (SEE "MANAGEMENT--INCENTIVE AND NON-QUALIFIED
STOCK OPTIONS PLAN); (II) ASSUMES A PUBLIC OFFERING PRICE OF $5.00 PER SHARE OF
CLASS A COMMON STOCK AND $.125 PER WARRANT; AND (III) GIVES EFFECT AS OF
DECEMBER 31, 1996 TO TWO STOCK PURCHASE AGREEMENTS (THE "STOCK PURCHASES")
WHEREBY (X) INVERSIONES E. INMOBILIARIA KYOTO LIMITADA ("KYOTO"), A CHILEAN
CORPORATION, SHALL PURCHASE 1,399,900 SHARES OF THE COMPANY'S CLASS B COMMON
STOCK, PAR VALUE $.0001 ("CLASS B COMMON STOCK") AND, SIMULTANEOUSLY THEREWITH
(Y) THE COMPANY SHALL PURCHASE KYOTO'S 99.97% INTEREST IN KENTUCKY FOODS CHILE,
S.A. SEE "BUSINESS-BACKGROUND" AND "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." ALL AMOUNTS ARE IN U.S. DOLLARS EXCEPT AS OTHERWISE SPECIFICALLY
NOTED. EXCEPT AS OTHERWISE SPECIFICALLY NOTED, UNISERVICE CORPORATION AND
KENTUCKY FOODS CHILE S.A. ARE COLLECTIVELY REFERRED TO HEREIN AS THE "COMPANY."
THE COMPANY
Uniservice Corporation ("USC") was organized in November 1997 as a holding
company to acquire a 99.97% interest in Kentucky Foods Chile, S.A. ("KyF
Chile"), a Chilean corporation incorporated in November 1986. KyF Chile
currently owns and operates, under license, 29 Kentucky Fried Chicken/registered
trademark/ ("KFC/registered trademark/") restaurants in Chile, the majority of
which are located in Santiago, pursuant to its International Franchise
Agreement, as amended (the "Franchise Agreement") with Kentucky Fried Chicken
International Holdings, Inc. ("KFCIH"). See "Business--Franchise Agreement with
KFCIH." KyF Chile is currently the sole KFC/registered trademark/ franchisee in
Chile and is the largest KFC/registered trademark/ franchisee in Central and
South America. KFCIH has no equity interest in the Company and does not warrant
the results of the operations of the Company.
The Company's strategy is to (i) develop new KFC/registered trademark/
restaurants to enhance its operating leverage and increase overall margins and
profitability; (ii) achieve operating efficiencies through centralized
management and advanced management information systems; and (iii) capitalize on
KFC/registered trademark/'s strong, international brand name. The Company
believes that this strategy will enable the Company to double the number of
KFC/registered trademark/ restaurants it currently owns and operates by
constructing approximately four to five new restaurants each year for the next
seven years (for a total of up to 60 Company owned restaurants by 2005). The
Company has allocated approximately $2,465,000 (or $616,250 per restaurant based
on four restaurants) of the proceeds from this Offering to open four new
KFC/registered trademark/ restaurants during the next twelve months, which
includes initial fees due to KFCIH, construction costs, and purchase of
equipment and fixtures. See "Use of Proceeds."
The Company's offices are currently located at 1900 Glades Road, Suite
351, Boca Raton, FL 33431, and its telephone number is (561) 347-6398. Its
fiscal year end is December 31.
3
<PAGE>
THE OFFERING
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<S> <C>
Class A Common Stock Offered ......... 1,400,000
Warrants Offered ..................... 1,400,000
Shares of Class A Common Stock
Underlying Warrants ................. 1,400,000
Class A Common Stock Outstanding:
Before the Offering ................. 30,000
After the Offering .................. 1,430,000
Class B Common Stock Outstanding(1):
Before the Offering ................. 1,400,000
After the Offering .................. 1,400,000
Warrants Outstanding:
Before the Offering ................. None
After the Offering .................. 1,400,000
Use of Proceeds ...................... The net proceeds of this Offering will be
approximately $5,900,000, which will be used as
follows: (1) $1,485,000 for construction of leasehold
improvements; (2) $1,261,317 for reduction of long
term debt; (3) $840,000 for equipment for four new
KFC/registered trademark/ restaurants; (4) $650,000 for payment of
back royalties, which amount includes accrued
interest at 12.5% per annum, to KFCIH;
(5) $565,000 for repayment of loans due to third
parties; (6) $140,000 for initial fees for four new
KFC/registered trademark/ restaurants; and (7) $958,683 for working
capital.
RISK FACTORS ......................... SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR
CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN
THE SECURITIES.
Nasdaq Symbols
Class A Common Stock ................ UNSRA
Warrants ............................ UNSRW
</TABLE>
- ----------------
(1) The Class B Common Stock is identical to the Class A Common Stock, except
that holders of Class B Common Stock are entitled to ten (10) votes for each
share of Class B Common Stock held. Upon sale or other disposition, the
shares of Class B Common Stock may be converted, at the option of the
holders, into shares of Class A Common Stock on a one share for one share
basis. Upon such conversion, the super-voting rights with respect to such
shares will terminate.
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION PRESENTED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE CLASS A COMMON STOCK AND WARRANTS OFFERED
HEREBY. THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; INCREASED OPERATING EXPENSES. USC was recently
organized as a holding company to acquire a 99.97% ownership interest in KyF
Chile, which currently owns and operates, under license, 29 Kentucky Fried
Chicken restaurants in Chile, the majority of which are located in the Santiago
area. All the revenues shown in the Financial Statements are attributable to the
operations of KyF Chile during the relevant periods. The Company has had only
limited operations since its formation on November 21, 1997, and has had no
revenue through the date hereof, although its operating company, KyF Chile, has
been in business in Chile for over 11 years. While a majority of the Company's
purchasing, inventory control and operations are and will continue to be
centralized from its executive offices in Santiago, Chile, the Company
anticipates that it will incur increased operating expenses as a result of its
strategy to open 31 additional KFC/registered trademark/ restaurants by the end
of 2005.
NEED FOR ADDITIONAL FINANCING. The Company believes that the net proceeds
from the Offering will be sufficient to enable it to carry out its business
objectives to open four additional KFC/registered trademark/ restaurants during
the next twelve months. The Company intends to open an aggregate of 31
additional KFC/registered trademark/ restaurants over the next seven years, for
a total of up to 60 Company-owned KFC/registered trademark/ restaurants. The
Company anticipates that it will require additional financing to construct and
open the additional restaurants. There can be no assurances that the Company
will be able to obtain additional financing when required, or if additional
financing is available, such financing would be available on acceptable terms
and conditions. Additionally, as a condition of the Franchise Agreement, KFCIH
must approve any future public financing proposed by the Company. Additional
equity financings may result in dilution to existing shareholders.
RISKS OF EXPANSION AND DEVELOPMENT. The Company intends to open
approximately four to five new KFC/registered trademark/ restaurants each year
for the next seven years (for a total of up to 60 Company-owned KFC/registered
trademark/ restaurants in Chile). The Company's ability to achieve its expansion
goals will depend on a number of factors, including, among others, (1)
availability of funds for expansion, (2) hiring, training and retaining skilled
management and restaurant personnel, (3) timely development and construction of
additional KFC/registered trademark/ restaurants, and (4) continued compliance
with the Franchise Agreement. No assurances can be made that the Company's
expansion plans will be achieved, each new restaurant will be profitable, or
unanticipated expenses, problems or difficulties will not result in material
delays in implementing its business strategy. See "Business."
DEPENDENCE ON THE FRANCHISE AGREEMENT AND DEVELOPMENT AGREEMENT WITH KFCIH.
The Company's operations are materially dependent on the terms and conditions of
the Franchise Agreement. Pursuant to the Franchise Agreement, the Company is
presently prohibited from engaging in any KFC/registered trademark/ brand
business outside of Chile. The Franchise Agreement permits the Company to
operate its restaurants in Chile using and exploiting certain proprietary
property and concepts owned or controlled by KFCIH, including the KFC/registered
trademark/ brand names, trade dress and trademarks, and proprietary recipes. The
initial franchise term for each of the Company's restaurant is ten years, with a
conditional ten year renewal period. The Company is currently in default of the
Franchise Agreement for failure to pay royalties to KFCIH of which approximately
$634,000 remains unpaid as of March 31, 1998. KFCIH has advised the Company,
however, that so long as the Company is in compliance with the other terms and
obligations of the Franchise Agreement and complies with the terms of a
promissory note between the Company and KFCIH, KFCIH does not intend to
terminate the Franchise Agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Company has agreed to repay all back royalties to KFCIH no later than
5
<PAGE>
November 20, 1998. While the Company believes that following payment of back
royalties due to KFCIH from the proceeds of this Offering, it will be in
material compliance with the provisions of the Franchise Agreement, there can be
no assurance that it will continue to be in compliance with its obligations
thereunder, including payments of any required initial fees for new restaurants,
development fees and continuing royalties. See "Use of Proceeds."
Additionally, as soon as practicable following the closing of this Offering
and the payment of back royalties due to KFCIH, the Company will enter into a
development agreement with KFCIH (the "Development Agreement"). The Development
Agreement, whose terms have been agreed upon in principle, although no
definitive agreement has been entered into, will allow the Company to open and
operate approximately four to five new KFC/registered trademark/ restaurants
each year for the next seven years, for a total of up to 60 KFC/registered
trademark/ restaurants by the end of 2005. See "Business--Franchise Agreement
with KFCIH." In the event that the Company is unable to comply with the terms
and conditions of the Franchise Agreement or the Development Agreement in the
future, it will seek to modify such agreements. There can be no assurance that
KFCIH will agree to any such modification, which failure to agree would have a
material adverse impact on the Company's operations. In the event the Franchise
Agreement is terminated, whether resulting from default or expiration of its
terms, the Company must immediately discontinue the use of equipment and
marketing methods including, but not limited to, training, procedures, menus,
advertising, trade secrets and the use of the KFC/registered trademark/
trademarks, service marks and distinctive building designs. In addition,
termination due to default by the Company under the Franchise Agreement may
result in KFCIH reducing or terminating any rights granted to the Company in
respect of sites not yet under construction, or ultimately acquiring the
business, or locating a purchaser to acquire the business of the Company.
Accordingly, the termination of the Franchise Agreement or Development Agreement
for any reason, would have a material adverse effect on the Company.
Neither KFCIH nor any of its affiliates have approved or disapproved the
Common Stock or the Warrants offered hereby. The only relationship between KFCIH
and the Company is contractual, the terms of which are set forth in the
Franchise Agreement. The Franchise Agreement, which permits the Company to
operate KFC/registered trademark/ restaurants in certain designated locations,
may be terminated at any time if the Company is in default and is renewable only
if certain conditions are met. Neither KFCIH nor any of its affiliates (i) owes
any fiduciary duties to the Company, (ii) is responsible for the management of
the Company or any of the obligations or liabilities of the Company nor (iii)
owes any duties to any security holder of the Company. KFCIH and its affiliates
have no obligations to grant any new franchises to the Company, other than
contemplated by the Development Agreement.
CONTROL BY MANAGEMENT; KFCIH RESTRICTIONS. Prior to this Offering, Ricardo
Vilensky, the Company's Chief Executive Officer ("CEO"), President, and Chairman
of the Board of Directors owned, directly or indirectly, approximately 97.9% and
held the right to vote 99.8% of the Company's outstanding capital stock. After
this Offering, Mr. Vilensky will, directly or indirectly, own approximately
49.5% of the outstanding capital stock, which represents the right to vote 90.7%
of the Company's outstanding capital stock. See "Principal Shareholders" and
"Description of Securities." Holders of Class B Common Stock (of which Mr.
Vilensky currently owns or controls all outstanding shares) are entitled to ten
(10) votes for each share of Class B Common Stock held, and directors are
elected by plurality vote. Accordingly, Mr. Vilensky will control the election
of directors as well as the other affairs of the Company for the foreseeable
future. See "Management" and "Principal Shareholders."
As a condition to the Franchise Agreement, KFCIH's consent is required for
certain transfers by the Company of its equity securities or the transfer or
issuance to third parties of any Class B Common Stock owned or controlled,
directly or indirectly, by Mr. Vilensky. Additionally, Mr. Vilensky may not
terminate his relationship with, reduce his ownership interest to less than 30%
in, or reduce his voting control to 50% or less in the Company, without KFCIH's
approval. Absent KFCIH's waiver of its approval for any or all of these
requirements, the Company would be in default of its Franchise Agreement with
KFCIH. See "Business--Franchise Agreement with KFCIH" and "Anti-takeover
6
<PAGE>
Effects of Certain Provisions of the Company's Articles of Incorporation,
Bylaws, and the Franchise Agreement." In the event that the Company or Mr.
Vilensky fail to comply with KFCIH's policies and procedures or any provision of
the Franchise Agreement, KFCIH could, among other remedies, terminate its
Franchise Agreement with the Company.
COMPETITION. The Company is engaged in a highly competitive segment of the
fast food industry with respect to price, variety, product quality, speed of
service, convenience of location, cleanliness and upkeep. The Company may
compete directly or indirectly with many companies and franchisees, including
franchisees and company-owned stores of international fast food franchisors
including McDonalds/registered trademark/ and Burger King/registered trademark/,
each of which have multiple locations in Chile, a number of which may be larger,
better capitalized, more established and have greater personnel and other
resources than the Company. Additionally, the Company encounters competition
from a number of Chilean restaurants and food service establishments, some of
which offer chicken meals, as well as other local fast food restaurants offering
products that are familiar to Chilean consumers and have achieved broad market
acceptance. See "Business--The Fast Food Restaurant Industry in Chile" and
"Competition."
RISKS OF THE RESTAURANT INDUSTRY; CHANGES IN CONSUMER PREFERENCES, ECONOMIC
CONDITIONS AND TRENDS. The Company currently operates 29 KFC/registered
trademark/ restaurants and is subject to the risks of the fast food restaurant
industry, which is generally affected by changes in consumer preferences, as
well as national, regional and local economic conditions and demographic trends.
The performance of individual restaurants may also be affected by factors such
as traffic patterns and type, number and location of competing restaurants, as
well as inflation, and increased food, labor and employee benefit costs. The
availability of experienced management and hourly employees may also adversely
affect the fast food restaurant industry in general in Chile and the Company's
restaurants in particular.
GOVERNMENT REGULATION. The restaurant business is subject to various
Chilean national and municipal government regulations, including those relating
to the sale of food and, in the case of certain of the restaurants, the sale of
beer. While the Company has not experienced any difficulty in obtaining
necessary government approvals to date, difficulty or failure to retain or
obtain required licenses or other regulatory approvals could have an adverse
effect on the Company's current or future operations or delay or prevent the
opening of new KFC/registered trademark/ restaurants. See "Business--Government
Regulations."
DEPENDENCE ON THIRD PARTY SUPPLIERS. The Company is substantially dependent
upon third parties for all of its capital equipment (including furniture,
fixtures and equipment), food products and other supplies. Pursuant to the
Franchise Agreement, all of these supplies must be of a quality, and conform to
specifications, acceptable to KFCIH. Although KFCIH has been providing
assistance to the Company in identifying sources of supply and has, to date,
approved all suppliers used by the Company, there can be no assurances that in
the future, products will continue to be available from these approved entities.
Failure to obtain equipment, food products and other supplies for the
KFC/registered trademark/ restaurants on a timely basis could have a material
adverse effect on the Company. See "Business--Supplies and Distribution."
DEPENDENCE ON KEY PERSONNEL. The success of the Company is highly
dependent upon the continued services of Mr. Ricardo Vilensky. Although the
Company currently has an employment agreement with Mr. Vilensky, the loss of
his services could have a material adverse effect on the business of the
Company. The Company intends to obtain a $1,000,000 key man life insurance
policy, of which the Company will be the beneficiary, on the life of Mr.
Vilensky, as soon as practicable following the Effective Date. See
"Management."
With the implementation of the Company's business strategy, it may become
necessary for the Company to hire additional experienced professionals to meet
its expanding needs. The Company intends to use certain of its existing staff to
perform a number of these duties and to participate in the selection of new
personnel, as required. While the Company believes that by offering competitive
salaries and benefit packages it will be able to solicit and hire qualified
individuals, no assurances can be made that such individuals will accept
employment with the Company or will continue to be employed by the Company, or
that qualified individuals will always be available to the Company when needed.
7
<PAGE>
As a condition of the Franchise Agreement, the Company is also required to
have a "designated operator," which is the person that oversees the management
of the day-to-day operations of the Company's restaurants. Currently, the
designated operator is Mr. Vilensky. In the event Mr. Vilensky is unwilling to
serve as the designated operator or becomes disabled or deceased, management or
Mr. Vilensky's heirs will propose a new designated operator, who will be subject
to approval by KFCIH. KFCIH has indicated that it prefers that the designated
operator also control the ownership of the Company. In the event that KFCIH
determines that the proposed designated operator is not capable of performing
the necessary duties and obligations, Mr. Vilensky or his heirs are required to
use their best efforts to sell their interest in the Company within six months
thereafter. In the event that no sale is completed within the six month period,
KFCIH thereafter has the option to purchase Mr. Vilensky's interest, or the
interest of Mr. Vilensky's heirs, in the Company for a market value determined
by three appraisers. There can be no assurance that the Company will be in a
position to meet the criteria required by KFCIH in the event Mr. Vilensky is
unable or unwilling to continue as the designated operator.
TERMINATION OF LEASES UPON DEFAULT. All of the Company's restaurants are
presently located in leased space. Typically, the leases for the Company's
KFC/registered trademark/ restaurants are for a period ranging from six years to
15 years and provide for one or more options to renew for at least one
additional term. Certain of the leases provide that in the event of non-payment
of rent, the landlord may terminate the lease without notice. Chilean law
provides that a landlord may not evict a tenant without a court hearing,
although the tenant is responsible for all costs related to such court hearing.
In the event that any landlord is successful in evicting the Company pursuant to
the terms of a lease agreement, the Company would need to seek an alternative
for that location. There can be no assurances that the Company would be
successful in locating an alternative location, or if an alternative location is
found, that a lease agreement would be entered into with terms as favorable to
the Company as the current lease agreement.
DISCRETION IN USE OF PROCEEDS; ASSETS TO BE HELD OUTSIDE THE UNITED STATES.
The Company presently intends to use the net proceeds from this Offering for the
purposes set forth in "Use of Proceeds." The Company reserves the right to use
the funds obtained from this Offering for other purposes not presently
contemplated which it deems to be in the best interests of the Company and its
shareholders in order to address changed circumstances and opportunities. As a
result of the foregoing, the success of the Company will be substantially
dependent upon the discretion and judgment of management with respect to the
application and allocation of the net proceeds of the Offering. Investors in the
Securities offered hereby will be entrusting their funds to the Company's
management, upon whose judgment and discretion the investors must depend, with
only limited information concerning management's specific intentions.
Additionally, while USC is a U.S. corporation, it is a holding company for
KyF Chile, a Chilean corporation. For the foreseeable future, substantially all
of the assets of the Company will be held or used outside the United States
(primarily in Chile), and approximately 86% of the net proceeds from this
Offering will be used in Chile. See "Use of Proceeds." Enforcement by investors
of civil liabilities under the U.S. Federal securities laws may adversely be
affected by the fact that while USC is located in the U.S., its principal
subsidiary is located in Chile. The Company's current executive officers,
directors and management are residents of Chile, and substantially all of the
assets of the Company and of the executive officers, directors and management of
the Company are located outside the United States.
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering will result in immediate
dilution of approximately $1.89 per share to new investors of Class A Common
Stock, without giving effect to the exercise of the Warrants, the
Over-Allotment Option, the Representative's Warrants, or the issuance of up to
an aggregate of 200,000 shares of Class A Common Stock reserved for issuance
under the Company's Stock Option Plan (the "Plan"). See "Dilution" and
"Management--Incentive and Non-Qualified Stock Option Plan."
NO DIVIDENDS ANTICIPATED TO BE PAID. While KyF Chile has previously paid
dividends to its shareholders, the Company does not anticipate paying dividends
in the foreseeable future. The future
8
<PAGE>
payment of dividends is directly dependent upon future earnings of the Company,
its financial requirements and other factors to be determined by the Company's
Board of Directors. For the foreseeable future, it is anticipated that any
earnings which may be generated from the Company's operations will be used to
finance the growth of the Company. Moreover, the issuance of any dividends is
subject to the Company's compliance with the terms and conditions of the
Franchise Agreement, which include the approval by KFCIH of the issuance of any
dividends by the Company. See "Dividend Policy."
DIRECTED SHARES FOR COMPANY EMPLOYEES. The Company and the Representative
have agreed that a small amount of shares (which number has not yet been
determined) of Class A Common Stock offered hereby (the "Directed Shares") will
be reserved for the Company at the initial public offering price, solely for the
purpose of being purchased by employees of the Company. In connection with the
purchase of Directed Shares by Company employees, the Company has agreed to make
non-recourse, interest free loans to its employees. To the extent that any
employee defaults on the payment of a loan obtained in connection with the
purchase of Directed Shares, there can be no assurances that the Company will be
able to collect the outstanding loan or that or that it will pursue any legal
remedies available to collect such loan.
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants will have the right to exercise the Warrants
to purchase shares of Class A Common Stock only if a current prospectus relating
to such shares is then in effect and only if the shares have been qualified for
sale under the securities laws of the applicable state or states. The Company
has undertaken to use its best efforts to file and keep effective a current
prospectus which will permit the purchase and sale of the Warrants and the Class
A Common Stock underlying the Warrants, but there can be no assurances that the
Company will be able to do so. Although the Company has undertaken to use its
best efforts to qualify for sale the Warrants and the shares of Class A Common
Stock underlying the Warrants in those states in which the Securities are to be
offered, no assurance can be given that such qualifications will occur. The
Warrants may lose, or be of no value, if a prospectus covering the shares
issuable upon the exercise thereof is not kept current or if such underlying
shares are not, or cannot be, registered in the applicable states. See
"Description of Securities."
REDEEMABLE WARRANTS AND IMPACT ON INVESTORS. The Warrants are subject to
redemption by the Company in certain circumstances. The Company's exercise of
this right would force a holder of the Warrants to exercise the Warrants and pay
the exercise price at a time when it may be disadvantageous for the holder to do
so, to sell the Warrants at the then current market price when the holder might
otherwise wish to hold the Warrants for possible additional appreciation, or to
accept the redemption price, which is likely to be substantially less than the
market value of the Warrants in the event of a call for redemption. Holders who
do not exercise their Warrants prior to redemption by the Company will forfeit
their right to purchase the shares of Class A Common Stock underlying the
Warrants. The foregoing notwithstanding, the Company may not redeem the Warrants
at any time that a current registration statement under the Act is not then in
effect. See "Description of Securities--Warrants."
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE COMPANY AND THE MARKET.
Pursuant to the terms of the Underwriting Agreement between the Company and the
Representative, the Representative has the right to designate a member to the
Company's Board of Directors for a period of five years from the Effective Date,
such member to be reasonably acceptable to management of the Company. The
ability to designate a member to the Company's Board of Directors will provide
the Representative with a certain amount of continuing influence over the
Company's business and operations, even though such single designee will
constitute a minority of the Board of Directors. In addition, the Company has
engaged the Representative as a consultant for a period of three years from the
closing date of this Offering, at a total fee of $105,000, all of which is
payable to the Representative on the Effective Date. Accordingly, as a result of
the foregoing, the Representative may, under certain circumstances, be able to
influence the operations of the Company. See "Underwriting."
Additionally, it is anticipated that a significant amount of the Class A
Common Stock and Warrants will be sold to customers of the Representative.
Although the Representative has advised the Company
9
<PAGE>
that it intends to make a market in the Class A Common Stock and the Warrants,
it will have no legal obligation to do so. The prices and the liquidity of the
Class A Common Stock and the Warrants may be significantly affected by the
degree, if any, of the Representative's participation in the market. If it
participates in the market, the Representative may influence the market, if one
develops, for the Securities. Such market-making activity may be discontinued at
any time. Moreover, if the Representative sells the securities issuable upon the
exercise of the Representative's Warrants or acts as a warrant solicitation
agent for the Warrants, it may be required under the Securities Exchange Act of
1934, as amended, to temporarily suspend its market-making activities. The
prices and liquidity of the Securities may be significantly affected by the
degree, if any, of the Representative's participation in such market. See
"Underwriting."
In connection with the Offering, the Company will sell to the
Representative the Representative's Warrants. The holders of the
Representative's Warrants will have the opportunity to profit from a rise in the
market price of the Securities, if any, without assuming the risk of ownership.
The Company may find it more difficult to raise additional equity capital, if it
should be needed, for the business of the Company while the Representative's
Warrant is outstanding. At any time when the holders thereof might be expected
to exercise the Representative's Warrants, the Company would probably not be
able to obtain additional capital on terms more favorable than those provided by
the Representative's Warrant. The Company has agreed to register under federal
and state securities laws, the Common Stock underlying the Representative's
Warrants for resale. Such registration rights could involve substantial expenses
to the Company and may adversely affect the terms upon which the Company may
obtain additional financing. See "Underwriting".
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; POSSIBLE
FAILURE TO QUALIFY FOR NASDAQ SMALLCAP MARKET LISTING. Effective February 23,
1998, The Nasdaq Stock Market, Inc. adopted certain changes to the entry and
maintenance criteria for listing eligibility on the Nasdaq SmallCap Market. In
addition to increased listing criteria, new maintenance standards require at
least $2,000,000 in net tangible assets (total assets less total liabilities and
goodwill) or $500,000 in net income in two of the last three years, a public
float of at least 500,000 shares, a $1,000,000 market value of public float, a
minimum bid price of $1.00 per share, at least two market makers, at least 300
shareholders and at least two outside directors. If the Company is or becomes
unable to meet the initial or continuing listing criteria of the Nasdaq SmallCap
Market and is never traded on or becomes delisted therefrom, trading, if any, in
the Class A Common Stock and Warrants would thereafter be conducted in the
over-the-counter market on the OTC Bulletin Board. In such an event, the market
price of the Class A Common Stock and Warrants may be adversely impacted and an
investor may find it difficult to dispose of, or to obtain accurate quotations
as to the market value of, the Class A Common Stock.
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share, subject to
certain exceptions including listing on the Nasdaq SmallCap Market. In the event
that the Class A Common Stock is never traded or becomes delisted from trading
on the Nasdaq SmallCap Market, the shares of Class A Common Stock offered hereby
may be deemed to be penny stocks and thus will become subject to rules that
impose additional sales practice requirements on broker/dealers who sell such
securities to persons other than established customers and accredited investors.
Unless an exception is available, the penny stock regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
In addition, trading in penny stock is subject to the requirements of Rule 15g-9
under the Securities Exchange Act of 1934, as amended. Under such rule, a
broker/dealer who recommends such low-priced securities to persons other than
established customers or accredited investors, must satisfy special sales
practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser's
written consent prior to the transaction. In addition, a broker/dealer must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker/dealer and its salesperson in the transaction,
and monthly accounts statements showing the market value of each penny stock
held in the customer's account. Such requirements could severely limit the
market liquidity of the Class A
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<PAGE>
Common Stock or Warrants and the ability of purchasers in the Offering to sell
their securities in the secondary market. There can be no assurance that the
Class A Common Stock or Warrants will not be treated as penny stock. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. All of the shares of Class A Common Stock
and Class B Common Stock (collectively the "Common Stock") held by the Company's
existing shareholders immediately prior to the Effective Date are "restricted
securities," as that term is defined under the Act, and may only be sold
pursuant to a registration statement or in compliance with Rule 144 under the
Act or other exemption from registration. Rule 144 provides that a person
holding restricted Class A Common Stock for a period of one year may sell such
securities during any three month period, subject to certain exceptions, in
amounts equal to the greater of one percent (1%) of the outstanding Class A
Common Stock or the average weekly trading volume of the Class A Common Stock
during the four calendar weeks prior to the filing of the required Form 144.
Rule 144 also permits, under certain circumstances, the sale of shares without
any quantity limitation by a person who is not an affiliate of the Company and
who has satisfied a two year holding period. Upon the sale of the Class A Common
Stock offered hereby, the Company will have 1,430,000 shares of Class A Common
Stock (1,640,000 shares of Class A Common Stock if the Over-Allotment Option is
exercised) and 1,400,000 shares of Class B Common Stock issued and outstanding,
of which 30,000 shares of Class A Common Stock and all of the shares of Class B
Common Stock are "restricted securities."
Shares of Class B Common Stock held immediately prior to the Effective Date
by the Company's existing shareholders are subject to a 24-month lock-up period
commencing on the Effective Date which is subject to early termination at the
sole discretion of the Representative. 30,000 shares of Class A Common Stock
issued in connection with a loan made to the Company by an unrelated third party
in the principal amount of $150,000 (the "Bridge Financing") are subject to a
six month lock-up period commencing on the Effective Date which is not subject
to early termination. See "Bridge Financing." The Representative does not have a
general policy with respect to the release of these shares prior to the
expiration of the lock-up. See "Underwriting." After expiration of the lock-up
periods, all outstanding shares of Class A Common Stock will be eligible for
sale under Rule 144. The availability for sale of substantial amounts of Class A
Common Stock subsequent to this Offering could adversely affect the prevailing
market price of the Class A Common Stock and could impair the Company's ability
to raise additional capital through the sale of its equity securities. See
"Principal Shareholders," and "Shares Eligible for Future Sale."
EXERCISE OF REPRESENTATIVE'S WARRANTS. In connection with this Offering,
the Company will sell to the Representative, for nominal consideration,
Representative's Warrants to purchase 140,000 shares of Class A Common Stock and
140,000 Warrants. The Representative's Warrants will be exercisable commencing
twelve months after the Effective Date for a period of four years at an exercise
price of 165% of the price at which the Class A Common Stock and Warrants are
sold to the public hereunder. For the term of the Representative's Warrants, the
holders thereof will have, at nominal cost, the opportunity to profit from a
rise in the market price of the Securities without assuming the risk of
ownership, with a resulting dilution in the interest of other security holders.
As long as the Representative's Warrants remain unexercised, the Company's
ability to obtain additional capital might be adversely affected. Moreover, the
Representative may be expected to exercise the Representative's Warrants at any
time when the Company would, in all likelihood, be able to obtain any needed
capital through a new offering of its securities on terms more favorable than
those provided in the Representative's Warrants. See "Underwriting."
The Company has agreed that, at the request of the holders of the
Representative's Warrants, under certain circumstances, it will register under
state securities laws the Representative's Warrants and/or the securities
issuable thereunder. Exercise of these registration rights could involve
substantial expense to the Company at a time when it could not afford cash
expenditures and may adversely affect the terms upon which the Company may
obtain additional funding and may adversely affect the price of the Class A
Common Stock and the Warrants. See "Underwriting."
LACK OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE;
POSSIBILITY OF VOLATILITY OF PRICES OF THE SECURITIES. Prior to this Offering,
there has been no public market for the Securities and
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<PAGE>
there can be no assurance that an active public market for the Securities will
be developed or, if developed, sustained after this Offering. The initial public
offering prices of the Securities offered hereby and the exercise price and
terms of the Warrants have been arbitrarily determined by negotiations between
the Company and the Representative and may bear no relationship to the Company's
current earnings, book value, net worth or other established valuation criteria.
The factors considered in determining the initial public offering prices
included an evaluation by management of the Company and the Representative of
the history of and prospects for the industry in which the Company competes, an
assessment of management, the prospects of the Company, its capital structure,
and certain other factors deemed relevant. See "Underwriting."
The stock market from time to time experiences significant price and volume
fluctuations that may be unrelated to the operating performance of specific
companies. The trading prices of the Securities could be subject to wide
fluctuations in response to variations in the Company's operating results,
public announcements by the Company or others, economic developments affecting
the Company or its competitors, suppliers or clients and other events or factors
which may or may not be in the Company's control.
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCES OF PREFERRED STOCK. Certain
provisions of the Company's Amended and Restated Articles of Incorporation
("Articles of Incorporation") and Bylaws may be deemed to have anti-takeover
effects and may delay, defer or prevent a takeover attempt of the Company, which
include when and by whom special meetings of the Company may be called. In
addition, certain provisions of the Florida Business Corporation Act also may
have certain anti-takeover effects, including the provision that shares acquired
in excess of certain specified thresholds will not possess any voting rights
unless the voting rights are approved by a majority of a corporation's
disinterested shareholders.
Furthermore, the Board of Directors has the authority to issue up to
5,000,000 shares of the Company's preferred stock and to fix the dividend,
liquidation, conversion, redemption and other rights, preferences and
limitations of such shares without any further vote or action of the
shareholders. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue preferred stock which could adversely affect the
voting power or the rights of the holders of the Company's Class A Common Stock.
In the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its preferred stock, there can be no assurance that the Company
will not do so in the future. See "Description of Securities."
CONSIDERATIONS RELATING TO CHILE
EFFECT OF TRADE INITIATIVES. The Chilean government has granted foreigners
greater access to its economy. As a result, the amount of foreign private
investment in Chile has significantly increased. As the Chilean economy
continues to grow and as Chile continues to enter into additional trade
initiatives with foreign countries, the number of foreign businesses that will
open in Chile, including fast food restaurants, will likely grow, resulting in
increased competition for the Company.
INFLATION. A number of reforms have been introduced by the Chilean
government over the past 20 years to achieve macroeconomic stability and to
increase economic growth, while controlling inflation. The average annual
inflation rate in Chile, as measured by changes in the Official Consumer Price
Index of the Chilean National Institute of Statistics ("Instituto Nacional de
Estadisticas"), for 1994, 1995, 1996 and 1997 was 8.9%, 8.2%, 6.6% and 6.0%,
respectively. While Chilean inflation has not had a material adverse effect on
the operations of the Company in the past, there can be no assurance that high
levels of inflation in the future will not adversely affect the Company or the
Securities offered hereby. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RESTRICTIONS ON REPATRIATION WITH RESPECT TO INVESTMENTS. Equity
investments in Chile by persons who are not Chilean residents may be freely
repatriated starting one year after the date the funds were
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<PAGE>
brought into Chile, provided that the investment is channeled through the Formal
Exchange Market ("Mercado Cambiario Formal") pursuant to an investment contract
entered into with the Chilean government under Decree-Law No. 600 of 1974, as
amended ("DL 600"), which contract is not subject to subsequent exchange-control
restrictions. Net profits can be remitted at any time, after deduction of
applicable withholding income taxes. Although there have been no cases of
deviations from this rule for more than 22 years, there is no assurance that
such a deviation could not occur in the future. The Company has applied to enter
into a foreign investment contract with the Chilean government which stays the
laws concerning foreign investments as of the date of the contract and permits
income to flow outside Chile. There can be no assurances that the Chilean
government will not modify these restrictions in the future in such a manner to
adversely affect the Company and its shareholders. See "Business--Foreign
Investment Laws and Regulations."
IT IS NOT POSSIBLE TO FORESEE ALL RISK FACTORS WHICH MAY AFFECT THE
COMPANY. MOREOVER, THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL SUCCESSFULLY
EFFECTUATE ITS BUSINESS PLAN. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY ANALYZE
THE RISKS AND MERITS OF AN INVESTMENT IN THE CLASS A COMMON STOCK AND THE
WARRANTS AND SHOULD TAKE INTO CONSIDERATION WHEN MAKING SUCH AN ANALYSIS, AMONG
OTHER THINGS, THE RISK FACTORS DISCUSSED ABOVE.
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<PAGE>
USE OF PROCEEDS
The gross proceeds from the sale of the 1,400,000 shares of Class A Common
Stock and 1,400,000 Warrants offered hereby will be $7,175,000, assuming an
initial public offering price of $5.00 per share of Class A Common Stock and
$.125 per Warrant. The net proceeds will be approximately $5,900,000 after
giving effect to (i) the Representative's discounts of $717,500, (ii) a 3%
non-accountable expense allowance to the Representative of $215,250, and (iii)
offering costs and expenses of approximately $342,250, but without giving effect
to the exercise of the Over-Allotment Option. The Company intends to use the net
proceeds of this Offering, during the twelve months following the Effective
Date, approximately as follows, of which approximately $5,078,000 (approximately
86%) will be used in Chile:
<TABLE>
<CAPTION>
ANTICIPATED USE OF NET PROCEEDS APPROXIMATE AMOUNT PERCENTAGE OF PROCEEDS
- ---------------------------------------------------- -------------------- -----------------------
<S> <C> <C>
Construction(1) ................................. $1,485,000 25.2%
Reduction of long term debt(2) .................. $1,261,317 21.4%
Equipment(3) .................................... $ 840,000 14.2%
Payment of back royalties(4) .................... $ 650,000 11.0%
Repayment of loans to third parties(5) .......... $ 565,000 9.6%
Initial Fees(6) ................................. $ 140,000 2.4%
Working Capital(7) .............................. $ 958,683 16.2%
---------- ----
Total ........................................... $5,900,000 100%
========== ====
</TABLE>
- ----------------
(1) Construction of leasehold improvements for four new KFC/registered
trademark/ restaurants.
(2) Reduction of long term debt due to Banco A. Edwards, a Chilean based bank,
with maturity dates through 2005. The interest rate for this long term debt
ranges from 9.02% to 11%, based upon the Asociacion de Bancos y Entidades
Financieras (T.A.B.) rate, which represents a daily average of the interest
paid by banks on their deposits. This long term debt was incurred as a
result of the Company's consolidation of certain of its lines of credit and
short term debt. See "Note 9 to Notes to Financial Statements."
(3) Includes computers, cooking and grill equipment, furniture and fixtures for
four new KFC/registered trademark/ restaurants.
(4) Payment of back royalty fees and accrued interest of 12.5% per annum due to
KFCIH.
(5) Includes (i) $415,000 plus accrued interest of 7.8% per annum due to Kyoto,
the principal shareholder of the Company, in connection with a loan made to
KyF Chile in November 1997, which was used to reduce the back royalties due
to KFCIH, and (ii) $150,000 plus accrued interest of 8.5% per annum due to
an unrelated third party, which is being used to pay a portion of the costs
and expenses of the Offering. See "Certain Relationships and Related
Transactions" and "Bridge Financing."
(6) Includes amounts due to KFCIH for initial fees for four new KFC/registered
trademark/ restaurants (at $35,000 per restaurant).
(7) Includes overhead and administrative expenses, legal expenses (not in
connection with this Offering) and reserves.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the Offering, based upon the current status of its
operations and anticipated business plans. It is possible that the application
of funds may vary depending on numerous factors including, but not limited to,
changes in the economic climate or unanticipated complications, delay and
expenses. The Company currently estimates that the net proceeds from this
Offering will be sufficient to meet the Company's liquidity and working capital
requirements for a period of at least 12 months from the completion of this
Offering and to open four additional new KFC/registered trademark/ restaurants.
However, there can be no assurance that the net proceeds of this Offering will
satisfy the Company's requirements for any particular period of time. Additional
financing may be required to implement the Company's long-term business plan.
There can be no assurance that any such additional financing will be available
when needed on terms acceptable to the Company, if at all. Any additional
proceeds realized from the exercise of the Over-Allotment Option or the Warrants
will be used for working capital. Pending use of the proceeds of this Offering,
the Company may make temporary investments in bank certificates of deposit,
interest bearing savings accounts, prime commercial paper, U.S. Government
obligations and money market funds. Any income derived from these short term
investments will be used for working capital. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
14
<PAGE>
DIVIDEND POLICY
The Company has never paid dividends on its Class A Common Stock since its
formation in November 1997. However, KyF Chile has declared dividends in the
aggregate of $71,565, $730,648, $768,018 and $19,305 for the years 1994, 1995,
1996, and 1997 respectively, to its shareholders. Of the $730,648 declared in
1995, the total amount was reinvested in the Company as paid-in capital. Of the
$768,018 declared in 1996, $139,909 was distributed in 1996 and the balance
($628,409) was distributed in 1997, of which $324,286 of the $628,409 was
reinvested in KyF Chile. The Company currently intends to retain earnings for
use in its business and therefore does not anticipate paying dividends in the
foreseeable future. The issuance of any dividends in the future is subject to
compliance with the terms and conditions of the Franchise Agreement, which
include the approval by KFCIH of the issuance of any dividends by the Company.
Upon distribution of a dividend by KyF Chile, the Company, as a foreign
non-resident shareholder of a Chilean corporation, will be subject to a 35%
percent withholding tax less a credit for any corporate taxes paid by the
Chilean corporation. However, the payment of foreign (Chilean) taxes may be
credited against U.S. federal income tax. Potential purchasers of the Class A
Common Stock or the Warrants should consult their own tax advisors regarding the
impact of these taxes.
15
<PAGE>
DILUTION
At March 31, 1998, the Company had a net tangible book value of $3,087,838
or approximately $2.16 per share of outstanding Class B Common Stock (after
giving effect to the Stock Purchases). "Net tangible book value" per share
represents the amount of total tangible assets of the Company less total
liabilities of the Company, divided by the number of shares of Common Stock
outstanding. After giving effect to the receipt of the estimated net proceeds
from the Company's sale of the 1,400,000 shares of Class A Common Stock offered
hereby, at an assumed initial public offering price of $5.00 per share of Class
A Common Stock (after deducting underwriting discounts and estimated Offering
expenses payable by the Company), the net tangible book value of the Company at
March 31, 1998, would have been approximately $8,812,838 or $3.11 per share of
Common Stock. This would represent an immediate increase in the net tangible
book value per share of Common Stock of $0.95 to existing shareholders and an
immediate dilution of $1.89 per share to new investors purchasing shares of
Class A Common Stock in the Offering. "Dilution" is determined by subtracting
net tangible book value per share after the Offering from the offering price to
investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial offering price per share of Class A Common Stock ..................... $ 5.00
Net tangible book value per share of Class B Common Stock before the Offering $ 2.16
Increase attributable to new investors ....................................... $ .95
------
Proforma net tangible book value after the Offering .......................... $ 3.11
------
Dilution to new investors .................................................... $ 1.89
======
Percentage of dilution to new investors ...................................... 37.8 %
</TABLE>
The following table summarizes the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by (i) existing shareholders of the Company at March 31, 1998 and
(ii) new investors purchasing shares of Class A Common Stock in this Offering,
before deducting the underwriting discounts and estimated offering expenses
payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED CONSIDERATION PAID
-------------------------- ---------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
----------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1) ......... 1,430,000 50.50% $ 3,355,259 32.40% $ 2.35
New Investors(2) ................. 1,400,000 49.50% $ 7,000,000 67.60% $ 5.00
--------- ------ ----------- ------ -------
Total ............................ 2,830,000 100.00% $10,355,259 100.00% $ 3.66
========= ====== =========== ====== =======
</TABLE>
- ----------------
(1) Gives effect to the Stock Purchases, and 30,000 shares of Class A Common
Stock issued in March 1998 in connection with the Bridge Financing. See
"Bridge Financing."
(2) Represents 1,400,000 shares of Class A Common Stock, but does not include
(i) the sale of 1,400,000 Warrants offered hereby or (ii) the issuance and
exercise of the Representative's Warrants.
16
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1998, the capitalization of
the Company, actual and as adjusted for the issuance and sale of the 1,400,000
shares of Class A Common Stock offered hereby (assuming an initial public
offering price of $5.00 per share of Class A Common Stock) after deducting
estimated Offering expenses and underwriting discounts and the initial
application of the proceeds therefrom.
<TABLE>
<CAPTION>
ACTUAL(1) AS ADJUSTED(1)(2)
------------- ------------------
<S> <C> <C>
Long-term Debt ..................................................... $2,729,768 $ 1,068,451
Stockholders' equity:
Class A Common Stock ($.0001 par value) 20,000,000 shares authorized; 30,000
shares issued and outstanding (actual) and
1,430,000 (as adjusted)(2) ...................................... 3 143
Class B Common Stock ($.0001 par value) 2,000,000 shares
authorized; 1,400,000 shares issued and outstanding (actual) and
1,400,000 (as adjusted)(2) ...................................... 140 140
Preferred Stock, $.0001 par value; 5,000,000 shares authorized; no
shares issued and outstanding (actual) and as adjusted .......... -0- -0-
Additional paid-in capital ......................................... 3,355,259 9,198,430
Retained earnings .................................................. 308,802 308,802
Cumulative translation adjustment(3) ............................... (302,201) (302,201)
Total stockholders' equity ......................................... 3,362,003 9,205,314
Total capitalization ............................................... $6,091,771 $10,273,765
</TABLE>
- ----------------
(1) Gives effect to the Stock Purchases and excludes the issuance of (i)
1,400,000 shares of Class A Common Stock upon exercise of the Warrants, (ii)
up to 140,000 shares of Class A Common Stock issuable pursuant to the
Over-Allotment Option, (iii) up to 140,000 shares of Class A Common Stock
issuable pursuant to the Representative's Warrants; (iv) up to 140,000
shares of Class A Common Stock issuable upon the exercise of the Warrants
contained in the Representative's Warrants; and (v) up to 200,000 shares of
Class A Common Stock reserved for issuance under the Plan, of which no
shares are currently subject to the Plan. See "Underwriting,"
"Management-Incentive and Non-Qualified Stock Option Plan," and "Description
of Securities."
(2) Gives effect to the issuance of 1,400,000 shares of Class A Common Stock and
the receipt of the net proceeds therefrom and the issuance of 30,000 shares
of Class A Common Stock in connection with the Bridge Financing. Does not
give effect to the sale of 1,400,000 Warrants offered hereby and exercise of
the Over-Allotment Option. See "Bridge Financing."
(3) Represents the conversion from Chilean pesos into U.S. Dollars.
17
<PAGE>
EXCHANGE RATES
Unless otherwise specified, references herein to "U.S. dollars", "dollars",
"$", or "U.S.$" are to United States dollars and references to "pesos" or "Ch$"
are to Chilean pesos, the legal currency of Chile, and peso-denominated monetary
unit. As of March 31, 1998, the exchange rate was one (1) U.S. dollar to 454.18
pesos. No representation is made that the peso or U.S. dollar amounts shown in
this Prospectus could have been or could be converted into U.S. dollars or
pesos, as the case may be, at such rate or at any other rate.
Chile's Ley Organica Constitucional del Banco Central de Chile No. 18.840
("Central Bank Act") enacted in 1989, liberalized the rules that govern the
ability to buy and sell foreign exchange. Prior to 1989, the law permitted the
purchase and sale of foreign exchange only in those cases explicitly authorized
by the Central Bank of Chile. Under the Central Bank Act, the Company may
purchase and sell foreign exchange freely without authorization from the Central
Bank of Chile. Such provisions allow the Company to expatriate earnings at the
market exchange rate.
The following table sets forth the annual high, low, and average monthly
exchange rate for U.S. dollars for each year starting in 1990 as reported by the
Central Bank of Chile.
EXCHANGE RATES OF CH$ PER U.S.$
---------------------------------------
YEAR LOW(1) HIGH(1) AVERAGE(2)
- -------- ----------- ----------- -----------
1990 295.40 336.86 306.42
1991 336.67 374.50 349.21
1992 343.93 382.33 362.58
1993 382.12 431.04 404.17
1994 397.87 433.69 420.18
1995 368.75 418.98 396.77
1996 402.25 424.97 412.27
1997 411.85 439.81 419.31
Source: Central Bank of Chile
- ----------------
(1) Exchange rates are the actual high and low, on a month-to-month basis for
each period.
(2) The average monthly rates during the period.
18
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data as set forth below for the years ended
December 31, 1996 and 1997 and the balance sheet data at December 31, 1996 and
1997, have been derived from the Company's Consolidated Financial Statements and
Notes thereto, which have been audited by Spear, Safer, Harmon & Co., P.A.,
independent auditors, whose report with respect thereto is included elsewhere in
this Prospectus. The statement of operations data for the three months ended
March 31, 1998 and 1997, and the balance sheet data at March 31, 1998 are
derived from unaudited financial statements of the Company included elsewhere in
this Prospectus. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments (consisting only of normal recurring
adjustments) necessary for the fair presentation of the Company's financial
condition and results of operations for such periods. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for any other interim period or the entire year. The
following financial data should be read in conjunction with the Financial
Statements and Notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------- ---------------------------------
1996 1997 1997 1998
---------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues .................................... $ 11,706,398 $14,562,157 $ 3,244,952 $ 3,452,964
Cost of Operations .......................... 4,534,762 5,909,803 1,407,202 1,426,381
Selling and Administrative Expenses ......... 6,698,335 7,817,129 1,784,906 1,893,434
Other Income (Expenses) ..................... 61,141 478,724 55,350 82,477
Net Income .................................. 534,442 1,313,949 108,194 215,626
Net Income per common share ................. 0.38 0.94 0.08 0.15
Weighted average common shares
outstanding ............................... 1,400,000 1,400,000 1,400,000 1,410,000
Supplemental pro forma net income
per share ................................. -- 0.55(1)
</TABLE>
- ----------------
(1) Includes $250,000 of interest savings due to the reduction of debt from the
proceeds of the Offering, as described in "Use of Proceeds," and 1,400,000
of shares of A Common Stock issued at the Offering.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- MARCH 31, 1998 MARCH 31, 1998
1996 1997 (UNAUDITED) AS ADJUSTED (UNAUDITED)(1)
---------------- ---------------- ---------------- ---------------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital ..................... $ (3,250,955) $ (1,029,940) $ (782,274) $ 3,419,807
Total assets ........................ 8,778,122 9,259,632 8,987,198 12,511,378
Total long-term liabilities ......... 1,643,181 2,875,411 2,729,768 1,068,451
Total liabilities ................... 6,478,371 6,084,073 5,625,195 3,306,064
Stockholders' equity ................ 2,299,751 3,175,559 3,362,003 9,205,314
</TABLE>
- ----------------
(1) Adjusted to reflect the sale of 1,400,000 shares of Class A Common Stock
(assuming an initial public offering price of $5.00 per share of Class A
Common Stock, after deducting the underwriting discounts and estimated
offering expenses). Does not include receipt of net proceeds from the sale
of 1,400,000 Warrants offered hereby, the exercise of the Warrants, the
Representative's Warrants, or the Over-Allotment Option.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company generates revenues in two ways: sales of products from
restaurant locations (approximately 92% of total revenues) and sales of coupon
books (approximately 8% of total revenues). Typically, business entities will
receive coupon books from the Company and give them to employees as incentives.
The coupon holders present the coupons to the individual restaurants which will
subsequently bill the employer for the food purchased by the coupon holders.
The Company incurs costs primarily for raw food and paper supplies, which
represent approximately 40% of total revenues, as well as payroll and rent which
represent 19% and 12% of total revenues, respectively.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
Gross revenues for the three months ended March 31, 1998 increased $208,012
over the three months ended March 31, 1997 from $3,244,952 to $3,452,964, an
increase of approximately 6%. This increase is primarily due to the opening of
three new restaurants.
Cost of operations for the three months ended March 31, 1998 increased
$19,179 from $1,407,202 to $1,426,381, an increase of approximately 1%. Although
three new restaurants were operational during the three months ended March 31,
1998, a decrease in the cost of fresh chicken and the successful efforts of
management to control costs limited the increase in costs of operations during
the three months ended March 31, 1998.
Selling and administrative expenses for the three months ended March 31,
1998 were $1,893,434 compared to $1,784,906 for the three months ended March 31,
1997, an increase of $108,528 or 6%. This increase is due to the hiring and
training of personnel to support the expected increased growth of the Company in
1998 and the opening of three new restaurants in late 1997.
Other income (expenses) increased from $55,350 for the three months ended
March 31, 1997 to $82,477 for the three months ended March 31, 1998. This
increase of $27,127 is due to an interest expense decrease of $45,059, resulting
from the reduction of debt since the prior period.
As a result of the factors discussed above, net income for the three months
ended March 31, 1998 was $215,626 compared to $108,194 for the three months
ended March 31, 1997, an increase of $107,432 or 99%.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
RESULTS OF OPERATIONS
Gross revenues for the year ended December 31, 1997 increased $2,855,759
over the year ended December 31, 1996 from $11,706,398 to $14,562,157, an
increase of approximately 24%. This increase is due to two primary components.
During 1997, the Company opened five new restaurants, which accounted for
approximately $1,440,000 of the increased revenues. In addition, during 1997,
the Company introduced a "combination" program (combination meals including
chicken, cheese turnover, french fries and soda for a fixed price) which
increased revenues by approximately $990,000, primarily during the fourth
quarter of the year.
Cost of operations for the year ended December 31, 1997 increased
$1,375,041 from $4,534,762 to $5,909,803, an increase of approximately 30%. This
increase is a corollary to the additional revenues
20
<PAGE>
generated during the year. Although management continues to emphasize expense
control, gross profit margins decreased from 61% in 1996 to 59% in 1997. This
was a result of initial start-up costs for the new "combination" campaign
referred to above.
Selling and administrative expenses for the year ended December 31, 1997
were $7,817,129 compared to $6,698,335 in 1996, an increase of $1,118,794 or
17%. This increase is due to the additional marketing efforts required to
introduce the "combination" program, as well as the additional costs associated
with the opening of the five new restaurants such as rental costs.
Other income (expenses) increased from $61,141 during 1996 to $478,724 for
the year ended December 31, 1997. This increase of $417,583 is due to several
factors. Interest expense decreased approximately $135,000, due to the reduction
of debt during 1997. $148,000 of the increase in other income (expenses) is due
to miscellaneous receivables recorded from related parties and the balance of
the increase resulted from refunds from various vendors.
Net income for the year ended December 31, 1997 was $1,313,949 compared to
$534,442 for the year ended December 31, 1996, an increase of $779,501 or 146%.
This increase is due to the successful efforts of management to introduce the
"combination" meals, along with management's continued efforts to control costs.
LIQUIDITY AND CAPITAL RESOURCES
While the Company and its restaurants have a significant presence in Chile
and particularly in Santiago, the Company is seeking to accelerate its growth
and expand its operations not only in the Santiago area, but also in other
cities in Chile with populations of approximately 100,000 or more. The Company's
growth to date has been financed through internally generated revenues and bank
financing. In order to facilitate its proposed growth, the Company has allocated
approximately $2,465,000 from this Offering to open approximately four to five
new KFC/registered trademark/ restaurants during the next twelve months. See
"Use of Proceeds."
At December 31, 1997, accounts receivable decreased by $211,986 to $373,946
from $585,932 at December 31, 1996. The amount of receivables outstanding and
the number of days outstanding is attributable to the timing of recognition of
revenues as compared to the date of payment. Furthermore, during 1997, in order
to provide greater financial strength to the Company, management emphasized an
acceleration of collections in an attempt to reduce short term liabilities, in
particular accounts payable. As a result of these efforts, both accounts
receivable and accounts payable have decreased substantially.
Due from related parties decreased from $148,000 at December 31, 1997 to
$108,295 at March 31, 1998 as a result of a payment received from Kyoto, the
principal shareholder of the Company.
Due to related parties decreased from $679,095 at December 31, 1997 to
$656,667 at March 31, 1998 as a result of fluctuation in the Chilean peso which
offset any accrued interest. This amount represented two loan agreements entered
into with Kyoto. $400,000 of the loan, plus accrued interest at an annual rate
of 7.8%, shall be repaid from the proceeds of this Offering and the remaining
$256,667, plus accrued interest at an annual rate of 9%, shall be repaid from
the Company's operations. See "Use of Proceeds" and "Certain Relationships and
Related Transactions."
Current obligations to banks decreased to $156,085 at March 31, 1998 from
$319,249 at December 31, 1997, a decrease of $163,164. This decrease is
attributable to management's efforts to reduce debt as well as to a decrease in
working in capital needs.
Other current assets increased to $188,820 at March 31, 1998 from $114,722
at December 31, 1997, an increase of $74,097 due to prepayment of certain
expenses and the capitalization of the cost of the Bridge Financing.
The Company did not incur Chilean income taxes in 1996 or 1997 as a result
of various Chilean government incentives designed to promote expansion and
continued development of business in the
21
<PAGE>
country. Tax credits for building acquisitions, rapid acceleration of
depreciation, and employee education have resulted in the elimination of any tax
liability for the Company. This tax benefit is not anticipated to continue in
the future.
The Company utilizes bank lines of credit for periodic operational
expenses. At December 31, 1997, the Company had $81,117 outstanding on its line
of credit of approximately $450,000. As of March 31, 1998, the Company had no
amounts outstanding on its line of credit.
Long term obligations with banks consists of various amounts payable to
banks with maturity dates through 2005, all of which are collaterized with
personal guarantees from a stockholder of the Company and certain assets of the
Company and its affiliates. Interest rates on the obligations range from 9.02%
to 11% APR, and are payable in Chilean Pesos and Unidad de Fomento ("UF"). The
UF is an indexed unit of account expressed in pesos and adjusted according to
inflation. Total long term obligations with banks at March 31, 1998 and December
31, 1997 were $1,261,317 and $1,331,733, respectively. Management anticipates
that the proceeds of this Offering will eliminate all of its existing long term
obligations with banks. In the future, the Company may have to borrow additional
funds for continued expansion beyond the construction of the restaurants
referred to above.
The Company's cost of capital, to the extent determinable, is TAB plus 2%
(TAB is the average interest rate Chilean banks pay on deposits which varies
between 6%-8%). While cash flow from the Company's current business may provide
a cushion with respect to the operating expenses to be incurred in connection
with its asset based expansion, management intends to provide separate sources
of funding for the present and proposed projects.
In August 1994, the Company entered into an agreement with Pepsico
requiring the exclusive use of Pepsi products for each KFC/registered trademark/
restaurant then owned for the following five years. Additionally, the agreement
also provided that each new KFC/registered trademark/ restaurant owned by the
Company would be subject to a similar agreement for a period of five years from
the opening of such restaurant. In exchange for this exclusivity agreement, the
Company received approximately $780,000, net of taxes, which is being recognized
and amortized over a five year period. For the years ended December 31, 1997 and
1996, the Company recognized $149,912 and $153,122, respectively, of the
deferred revenue. The Company intends to enter into a new agreement with Pepsico
during 1998 which shall supersede the previous agreement.
Between January and March 1998, the Company received a loan in the amount
of $150,000 from an accredited investor to be used to pay a portion of the costs
and expenses of the Offering. This loan is evidenced by a promissory note
bearing an interest rate of 8.5% per year. The Company is obligated to repay
this note on the earlier of (i) the closing date of this Offering, or (ii)
January 1, 2000. As additional consideration, the investor received 30,000
shares of Class A Common Stock. In connection with such loan, the Company
capitalized approximately $67,500 and will incur an amortization expense of
$67,500 assuming such loan is repaid in July 1998. Such expense will result in a
charge to earnings of approximately $17,000 per month beginning in April 1998
and ending upon repayment of such loan. See "Bridge Financing."
SEASONALITY
The Company generates the highest amount of sales in June, July and
December. The slowest month for sales is February, when many Chileans are on
summer vacation.
INFLATION
Over the past five years, Chile has experienced a decrease in inflation.
The Chilean economic system is based on an indexed inflation system and
therefore, no material inflation is anticipated in the immediate future. See
"Risk Factors--Considerations Relating to Chile--Inflation."
22
<PAGE>
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000 date
are a known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. The
Company has established processes for evaluating and managing the risks and
costs associated with this problem.
Major areas of potential business impact have been identified and initial
conversion efforts are underway. The Company also is communicating with
suppliers, dealers, financial institutions and others with which it does
business to coordinate year 2000 conversion. The total cost of compliance and
its effect on the Company's future results of operations is being determined as
part of the detailed conversion planning.
23
<PAGE>
BUSINESS
GENERAL
Uniservice Corporation was organized in November 1997 as a holding company
to acquire a 99.97% interest in KyF Chile, a Chilean corporation incorporated in
November 1986. KyF Chile currently owns and operates, under license, 29 Kentucky
Fried Chicken/registered trademark/ ("KFC/registered trademark/") restaurants in
Chile, the majority of which are located in Santiago, pursuant to the Franchise
Agreement with KFCIH. See "Business--Franchise Agreement with KFCIH." KyF Chile
is currently the sole KFC/registered trademark/ franchisee in Chile and is the
largest KFC/registered trademark/ franchisee in Central and South America. KFCIH
has no equity interest in the Company and does not warrant the results of the
operations of the Company.
The Company's strategy is to (i) develop new KFC/registered trademark/
restaurants to enhance its operating leverage and increase overall margins and
profitability; (ii) achieve operating efficiencies through centralized
management and advanced management information systems; and (iii) capitalize on
KFC/registered trademark/'s strong, international brand name. The Company
believes that this strategy will enable the Company to double the number of
KFC/registered trademark/ restaurants it currently owns and operates by
constructing approximately four to five new restaurants each year for the next
seven years (for a total of up to 60 Company owned restaurants by 2005). The
Company has allocated approximately $2,465,000 (or $616,250 per restaurant based
on four restaurants) of the proceeds from this Offering to open four new
KFC/registered trademark/ restaurants during the next twelve months, which
includes initial fees due to KFCIH, construction costs, and purchase of
equipment and fixtures. See "Use of Proceeds."
The Company's offices are currently located at 1900 Glades Road, Suite
351, Boca Raton, FL 33431, and its telephone number is (561) 347-6398. Its
fiscal year end is December 31.
BACKGROUND
USC was organized as a Florida corporation on November 21, 1997 under the
name Uniservice Corp. and on January 5, 1998, changed its name to Uniservice
Corporation. KyF Chile was organized under the name Alimentos Merced Limitada on
November 6, 1986, as a Chilean limited partnership and on January 14, 1991, was
reorganized as a Chilean corporation and changed its name to Alimentos Merced
S.A. On October 3, 1995, that corporation changed its name to Kentucky Foods
Chile S.A.
Since its formation, the Company has been involved in fast-food restaurants
specializing in chicken products. Initially, the Company operated its first four
restaurants under the name "Papa Pollo." During the second half of 1991, the
Company changed the name of its restaurants to "Chicken Inn" and by 1993, the
Company had nine restaurants. It then purchased an additional five restaurants,
and in January 1994, the Company entered into the Franchise Agreement and
converted all of its restaurants into KFC/registered trademark/ restaurants.
On the Effective Date, (i) Kyoto shall purchase 1,399,900 shares of Class B
Common Stock from the Company for $2,200,000, and (ii) the Company shall
purchase Kyoto's 99.97% in KyF Chile for $2,200,000 and KyF Chile shall then
become a majority owned (99.97%) subsidiary of the Company. See "Certain
Relationships and Related Transactions." The remaining 15 shares of KyF Chile
stock will continue to be owned by Ricardo Vilensky, individually, who is also
the principal shareholder of Kyoto (Chilean law requires that a Chilean
corporation be owned by not less than two shareholders). See "Principal
Shareholders."
THE FAST FOOD RESTAURANT INDUSTRY
OVERVIEW
The fast food service industry consists of quick service restaurants
("QSRs"), full service restaurants, other commercial restaurants (including
cafeterias) and non-commercial restaurants such as
24
<PAGE>
those in schools and hospitals. According to KFCIH's public reports, the QSR
segment of the fast food service industry had total sales of approximately $160
billion worldwide in 1996. The Company believes that KFC/registered trademark/
is the leading chain in the chicken segment of the QSR industry.
THE FAST FOOD RESTAURANT INDUSTRY IN CHILE
With the continued economic stability in Chile and the economic growth of
its middle class, the demand for goods and services, including fast food, has
grown. Listed below is the number of restaurants for each of the major fast food
franchises located in Chile as of November 1997.
<TABLE>
<CAPTION>
NUMBER OF
NAME RESTAURANTS MAJOR TYPES OF PRODUCTS
- ---- ------------- --------------------------
<S> <C> <C>
Lomiton/registered trademark/ ............. 46 Pork sandwiches
Doggis/registered trademark/ .............. 38 Hot dogs
KFC/registered trademark/ ................. 29 Chicken
Pizza Hut/registered trademark/ ........... 29 Pizza
McDonald's/registered trademark/ .......... 27 Hamburgers
Burger King/registered trademark/ ......... 21 Hamburgers
Domino's/registered trademark/ ............ 16 Pizza
Embers/registered trademark/ .............. 12 Roast beef sandwiches
Mr. Chips/registered trademark/ ........... 10 Roast beef sandwiches
Taco Bell/registered trademark/ ........... 8 Tacos and burritos
Submarine/trademark/ ...................... 8 Subs/hoagies
Mei Lin Ta/registered trademark/ .......... 8 Chinese food
Burger Inn/trademark/ ..................... 8 Hamburgers
Natural Juice/trademark/ .................. 7 Salads and natural juices
</TABLE>
THE KFC/registered trademark/ RESTAURANT CONCEPT
The KFC/registered trademark/ Restaurant Concept was founded in Corbin,
Kentucky by Harland D. Sanders, an early developer of the QSR business and a
pioneer of the restaurant franchise concept. He perfected his recipe for
Kentucky Fried Chicken in 1939 and signed up his first franchisee in 1952.
Today, KFC/registered trademark/ restaurants have grown to approximately 10,000
units in over 80 countries and territories.
The KFC/registered trademark/ mission is based upon its "CHAMPS" philosophy
which stands for Cleanliness, Hospitality, Accuracy, Maintenance, Product, Speed
("CHAMPS"). In particular, (1) all restaurants and employees are to be clean and
hygienic, (2) all restaurants and employees will be hospitable and welcoming to
all customers, (3) all orders served will be correct and as requested by a
customer, (4) all restaurants will be well maintained, (5) all products offered
and served will be of high quality and consistent, and (6) the restaurants will
offer quality and efficient service.
Part of the KFC/registered trademark/ concept is to offer full meal options
with alternative choices, as opposed to offering only sandwiches or burgers.
These full meal options include chicken, side orders such as salads, mashed
potatoes and gravy, french fries, biscuits, rice, and cole slaw, dessert and
beverages. KFC/registered trademark/ restaurants also offer options in the
preparation of chicken, including three types of fried and rotisserie chicken
entrees sold under the brand names of Original Recipe/registered trademark/,
Extra Tasty Crispy/registered trademark/ and Tender Roast/registered trademark/
, as well as other entree items include Chunky Chicken Pot Pies/trademark/,
Colonel's Crispy Strips/registered trademark/ and various chicken sandwiches.
Restaurant exteriors, decor and packaging are characterized by KFC/registered
trademark/'s distinctive trade dress, including the image of Colonel Sanders and
the "Bucket" of chicken.
BUSINESS STRATEGY
The Company's business strategy is as follows:
/bullet/ DEVELOP NEW KFC/registered trademark/ RESTAURANTS TO ENHANCE
ITS OPERATING LEVERAGE AND INCREASE OVERALL MARGINS AND
PROFITABILITY. In particular, management believes that it will
be able to continue to spread its
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corporate overhead and continue to reduce its cost of
operations by centralization of management and purchasing of
food and other products in greater quantities as the number of
restaurants that it owns and operates steadily increases.
Management also believes that its risks of expansion are
substantially reduced due to (i) the proven success of the
KFC/registered trademark/ concept in Chile as well as the
stable Chilean economy, which has resulted in an increased
middle class with discretionary income; (ii) the
predictability of development costs and restaurant
profitability; and (iii) management's extensive experience
within the KFC/registered trademark/ franchise system. The
Company currently intends to open approximately 60% of its new
KFC/registered trademark/ restaurants in the Santiago area and
the remaining 40% in metropolitan areas in Chile with
populations of approximately 100,000 or more. See "--The
Company's Restaurants."
/bullet/ ACHIEVE OPERATING EFFICIENCIES THROUGH CONTINUED CENTRALIZED
MANAGEMENT AND ADVANCED MANAGEMENT INFORMATION SYSTEMS. This
enables the Company to (i) control corporate overhead and
individual restaurant costs, (ii) capture economics of scale
by utilizing its existing corporate management structure, and
(iii) continuously monitor point-of-sale data to more
efficiently manage its restaurant operations. The Company has
experienced both restaurant level and corporate level savings
as a result of its size and related bargaining power,
particularly with respect to food and paper purchasing and
distribution, and restaurant maintenance services. As the
number of its restaurants increases, the Company believes its
bargaining power should continue to increase.
/bullet/ CAPITALIZE ON KFC'/registered trademark/S STRONG INTERNATIONAL
BRAND NAME. The Company believes that it realizes significant
benefits from its affiliation with KFCIH as a result of: (i)
the widespread recognition of the KFC/registered trademark/
brand name and products; and (ii) the historical availability
of international marketing and promotion of KFC/registered
trademark/ products.
By undertaking this Offering, management believes that it will have the
requisite capital to expand much more rapidly than if it had to rely solely on
internal cash flow or debt financing.
THE COMPANY OPERATIONS
OVERVIEW
All executive management, financing, marketing and operations support
functions are conducted centrally at the Company's Santiago, Chile headquarters.
At its headquarters, the Company maintains a state-of-the-art centralized
computer system that is linked with the cash register at each KFC/registered
trademark/ restaurant. Through this computer system, the Company has access to
up-to-the-minute information including, among other things, revenues, inventory
control, and the ability to monitor the progress of various promotions. The
Company intends to restrict its business to the KFC/registered trademark/ brand
in Chile. Pursuant to the Franchise Agreement, the Company is presently
prohibited from engaging in any KFC/registered trademark/ brand business outside
of Chile. Subject to compliance with the Franchise Agreement and the Development
Agreement (following execution), the Company may, however, engage in other
businesses which do not conflict with the KFC/registered trademark/ brand,
subject to prior approval by KFCIH.
TRAINING
KFCIH issues detailed training manuals which cover all aspects of the
operations of KFC/registered trademark/ restaurants, including food handling and
product preparation procedures, safety and quality issues, equipment
maintenance, facility standards, marketing, and accounting procedures. The
restaurant management teams are responsible for the day-to-day operation of each
unit and for ensuring compliance with operating standards.
In addition to the training manuals, the Company maintains a comprehensive
training and development program based upon the CHAMPS concept for all of its
personnel. This program emphasizes the KFC/registered trademark/ system-wide
operating procedures, food preparation methods and customer service standards.
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THE COMPANY'S RESTAURANTS
KFC/registered trademark/ restaurants are of distinctive design and are
generally located in high-traffic areas including shopping malls, food courts,
shopping centers, and downtown areas. The Company's KFC/registered trademark/
restaurants generally consist of one of several building types with various
layouts and seating capacities. The Company believes that convenience of
location, speed of service, quality of food and price/value of food served are
the primary competitive advantages of KFC/registered trademark/ restaurants.
The Company opened its first five KFC/registered trademark/ restaurants in
1994, and an additional eight, seven and five restaurants during 1995, 1996 and
1997, respectively. The Company currently has 29 restaurants, of which 15 are in
malls and shopping centers, 11 are in store fronts (in line), and three are free
standing. Twenty-six of its 29 restaurants are open seven days a week, typically
from 10:00 a.m. to midnight. Currently, the Company does not accept credit
cards, although it may elect to do so in the future. All free standing
restaurants also offer drive-through windows. Home delivery is available at
no-charge from eight of its restaurants.
During the next 12 months, the Company expects to open four new
KFC/registered trademark/ restaurants, one of which will be free standing, two
of which will be located in a shopping center, and one of which will be in-line.
The Company anticipates that two of the restaurants will be located in Santiago,
one will be located in the northern region of Chile and one in the coastal
region of Chile. The Company anticipates that of the remaining 27 planned new
restaurants, 18 will be in-line and 9 will be free standing. The Company intends
to open 14 new restaurants in the Santiago metropolitan area, five in the
southern region of Chile, five in the coastal region of Chile, and three in the
northern region of Chile. In the future, the Company may also seek to enter into
franchise agreements with other KFCIH affiliated restaurants (including Pizza
Hut/registered trademark/ and Taco Bell/registered trademark/ restaurants).
All of the Company's KFC/registered trademark/ restaurants offer a full
line of KFC/registered trademark/ products, including chicken pieces, chicken
sandwiches, a variety of side items including cole slaw, mashed potatoes, salads
and corn, and dessert. In addition to a full-line of soft drinks, 17 of the
Company's current restaurants are licensed to sell beer (the drinking age in
Chile is 18).
QUALITY ASSURANCE
The Company's operations are focused on achieving a high level of customer
satisfaction, with speed, accuracy and quality of service closely monitored. The
Company's senior management and restaurant management staff are principally
responsible for ensuring compliance with the Company's and KFCIH's operating
procedures. The Company and KFCIH have uniform operating standards and
specifications relating to the quality, preparation and selection of menu items,
maintenance and cleanliness of the premises and employee conduct. Detailed
reports from the Company's own management information system and surveys
conducted by the Company or KFCIH are tabulated and distributed to management on
a regular basis to help maintain compliance. In addition to customer
satisfaction, these reports track comparable sales and customer counts, labor
and food costs, inventory levels, waste losses and cash balances.
The Company and its management closely supervise the operation of all of
its restaurants to help ensure that standards and policies are followed and that
product quality, customer service and cleanliness of the restaurants are
maintained. Management also conducts unscheduled inspections of its restaurants
to ensure quality.
The KFC/registered trademark/ restaurants are also subject to standards set
by Chilean, provincial and local governmental laws and regulations. These
standards include food preparation rules regarding, among other things, minimum
cooking times and temperatures, sanitation and cleanliness. In addition,
KFC/registered trademark/ has set maximum time standards for holding unsold
prepared food in order to maintain freshness of its products.
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SUPPLIES AND DISTRIBUTION
Pursuant to the Franchise Agreement, the Company is required to buy food
supplies, ingredients, seasonings, and equipment only from approved suppliers
who are required to meet or exceed system standards designed to ensure product
quality, safety and consistency. The Company purchases KFC/registered
trademark/'s pre-packaged seasoning which contain KFC/registered trademark/'s
proprietary recipes directly from KFCIH's principal U.S. supplier.
From time to time, the Company may inspect the facilities of its suppliers
and request samples for testing and other quality control monitoring. Many of
these suppliers, such as poultry producers, are also subject to Chilean
government inspection. In addition, representatives of the Company's quality
assurance department visit restaurants from time to time to ensure that food is
properly stored, handled and prepared in accordance with prescribed standards
and specifications, as well as to provide training in food safety and sanitation
measures to the restaurant operators. The quality assurance department is also
responsible for remaining current on issues related to food safety, and
interacting with regulatory agencies as may be required or desirable on these
matters.
The Company purchases much of its products by means of centralized buying
in order to obtain the best prices. As the number of the Company's restaurants
increase, the Company believes that its bargaining power to purchase goods at
the best prices and on favorable terms should also increase. The Company
purchases its supplies and foodstuffs from vendors on favorable terms and
conditions (including quantity discounts) and all suppliers used by the Company
have been approved by KFCIH, as a condition of the Franchise Agreement. The
Company believes there are a number of vendors who can supply the Company with
adequate quantities of products and that the loss of any one supplier would not
have a material impact on the Company's operations.
Additionally, to ensure the wholesomeness of all food products, suppliers
are required to meet or exceed strict quality control standards. Competitive
bids, long-term contracts and long-term vendor relationships have been used to
ensure availability of products. The Company has not experienced any significant
continuous shortages of supplies. Prices paid for these supplies may be subject
to fluctuation. When prices increase, the Company may be able to pass on such
increases to its customers, although there is no assurance this can be done in
the future. In particular, the quality assurance departments of KFCIH help
ensure that the systems' restaurants provide high quality, wholesome food
products in clean and safe environments.
PERSONNEL
The Company and KFCIH believe that high quality, customer-focused
restaurant management is critical to long-term success. Generally, each of the
Company's restaurants has one restaurant general manager, two supervisors and
teams of workers. KFC/registered trademark/'s restaurant management structure
varies by unit size. Each restaurant usually has between 10 and 35 hourly
employees, most of whom work part-time. The Company pays an hourly wage of $1.60
per hour, the average hourly wage in Chile. Overtime is paid (one and one half
time minimum wage, or $2.40 per hour) to any employee that works more than 48
hours weekly. However, Chilean law only permits employees to work a maximum of
two extra hours daily. Overtime (of two times minimum wage, or $3.20 per hour)
is paid on Sundays and holidays. Restaurant general managers receive base
salaries, as well as incentive bonuses, based upon that KFC/registered
trademark/ restaurant's productivity and profitability.
MARKETING, ADVERTISING AND PROMOTION
The Company believes that one of the major advantages of being a
KFC/registered trademark/ franchisee is the marketing support and international
brand name promotion by KFCIH and its franchisees. Each year, the Company
typically introduces different types of promotions, either in conjunction with
KFCIH or independently, including, among others, (1) value-type combination
meals, (2) new products, (3) kids meals, (4) coupons, and (5) promotion of new
KFC/registered trademark/ restaurants.
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A portion of its marketing and advertising plan includes participating in
certain of KFCIH's internationally licensed promotions, for which it pays a fee
to KFCIH pursuant to the Franchise Agreement, which may include giveaways for
children. During 1998, the Company anticipates taking part in promotions for
"Godzilla" (a film which opened in June 1998), "The Simpsons" television
characters and "Chicky/Camelot Quest," (a new logo/character to be identified
with KFC/registered trademark/ restaurants). The Company also advertises on
cable television and radio.
FRANCHISE AGREEMENT WITH KFCIH
The Franchise Agreement permits the Company to use, among other things,
KFCIH's proprietary trade names, trademarks, service marks, recipes, and trade
dress. The Company is also permitted to sell and promote only KFC/registered
trademark/ approved products.
Under the Franchise Agreement, at all times, Mr. Vilensky must retain
voting control of KyF Chile and USC. As result, the Company has created two
classes of common stock--Class A Common Stock and Class B Common Stock--which
are identical except that holders of Class B Common Stock are entitled to ten
votes for each one share held (all of which shares of Class B Common Stock are
owned or controlled by Mr. Vilensky). See "Description of Securities."
Additionally, unless Mr. Vilensky obtains approval from KFCIH, Mr. Vilensky must
retain at all times a minimum of 30% ownership of the Company. As a condition to
the Franchise Agreement, Mr. Vilensky may sell up to the lesser of (a) 10% of
the outstanding amount of capital stock of the Company or (b) such amount so
that Mr. Vilensky's ownership interest will not be below 30% provided, however,
that the proceeds from such sale received by Mr. Vilensky may not be used to
start a new company.
As a condition of the Franchise Agreement, the Company is also required to
have a "designated operator", which is the person that oversees the management
of the day-to-day operations of the Company's restaurants. Currently, the
designated operator is Mr. Vilensky. In the event Mr. Vilensky is unwilling to
serve as the designated operator or becomes disabled or deceased, management or
Mr. Vilensky's heirs will propose a new designated operator, who will be subject
to approval by KFCIH. KFCIH has indicated that it prefers if the designated
operator also controls the ownership of the Company. In the event that KFCIH
determines that the proposed designated operator is not capable of performing
the necessary duties and obligations, Mr. Vilensky or his heirs are required to
use their best efforts to sell their interest in the Company within six months
thereafter. In the event that no sale is completed within the six month period,
KFCIH thereafter has the option to purchase Mr. Vilensky's interest, or the
interest of Mr. Vilensky's heirs, in the Company for a market value determined
by three appraisers. There can be no assurance that the Company will be in a
position to meet the criteria required by KFCIH in the event Mr. Vilensky is
unable or unwilling to continue as the designated operator and/or controls not
less than a 30% ownership interest in the Company.
The initial franchise term for each restaurant is ten years, which expires
between December 31, 2003 and December 31, 2007, depending on when the
particular restaurant was opened. The initial franchise term is renewable for
additional ten year periods, provided that, among other things, (i) the renewal
is permitted by local law, (ii) the Company has corrected any default under the
Franchise Agreement and has not been in material default within the 24 months
preceding the renewal request; (iii) the Company complies with annual
performance criteria; (iv) the Company requests renewal within 12 to 18 months
prior to the expiration of the initial term; (v) the Company agrees to make
capital improvements to conform with KFCIH's then current standards and
completes the improvements, as agreed; (vi) the Company agrees to relocate any
restaurants KFCIH determines cannot be renovated to meet the then current
standards; (vii) the Company executes a new franchise agreement if the current
form has been modified; (viii) the Company is current in all obligations,
monetary or otherwise, to KFCIH; and (ix) the Company pay a renewal fee as
agreed upon with KFCIH.
The monthly royalty fees for each KFC/registered trademark/ restaurant
currently owned by the Company is 5% of net revenues. Pursuant to the Franchise
Agreement, KFCIH's approval is required for the development of any new
KFC/registered trademark/ restaurants by the Company and KFCIH's consent to such
renewals, acquisitions or development may be withheld in KFCIH's sole
discretion.
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The Company has agreed, with KFCIH's consent, to construct, develop, open
and operate 31 additional new KFC/registered trademark/ restaurants during the
next seven years, for a total of 60 restaurants to be owned and operated by the
Company by the end of 2005. Royalty rates for the first new KFC/registered
trademark/ restaurant will be 5% and for the additional 30 new KFC/registered
trademark/ restaurants will be 6%. Initial fees will be $35,000 per restaurant,
except for (i) the first four new KFC/registered trademark/ restaurants, which
require no initial fees, and (ii) non-traditional stores (relocateable
structures such as kiosks, carts, and mobile units and are typically located in
airports, schools, universities, offices, hospitals and retail outlets), which
will have initial fees of $17,500. Additionally, development right fees of
$10,000 per unit to develop the 31 new restaurants will be paid in equal
installments over six years beginning on the first anniversary of the effective
date of the Development Agreement (which terms have been agreed upon in
principle and which will be executed as soon as practicable following payment to
KFCIH of back royalties, which shall be paid from the proceeds of this
Offering), and then continuing on the following five anniversaries thereafter.
See "Use of Proceeds." Non-traditional stores will not count toward the
development schedule obligations.
The royalty rate for all restaurants will decrease to, and be maintained
for ten years at, 5% following the opening of the 60th restaurant if (i) the 31
remaining new KFC/registered trademark/ restaurants are opened in accordance
with the development schedule and (ii) there are no defaults under the
Development Agreement, the Franchise Agreement, or any related agreements.
Following such ten year period, royalties for all KFC/registered trademark/
restaurants owned by the Company will convert to the then current KFC/registered
trademark/ royalty rate for international franchises, which is currently 6%. The
then current standard form of KFC/registered trademark/ international franchise
agreement will be executed for all KFC/registered trademark/ restaurants subject
to the Development Agreement.
The Franchise Agreement provides that the Company will be in default if
certain events occur, including but not limited to, the insolvency or
dissolution of the Company, the Company contesting in any court or proceeding
the validity of, or KFCIH's ownership of, any trademarks, trade secrets or
proprietary aspects of the Kentucky Fried Chicken system, the Company failing to
fully correct or diligently remedy any notice, or summons issued by any
government authority regarding any matter involving safety, sanitation or
health, the Company breaching any term or condition of the Franchise Agreement
or any other agreement with KFCIH, or the Company defaulting under or failing to
perform any term or condition of any lease, mortgage, deed or trust or other
agreement with respect to any KFC restaurant locations.
COMPETITION
The overall food service industry and the QSR segment are intensely
competitive with respect to food quality, price, service, convenience,
restaurant location and concept. The restaurant business is often affected by
changes in consumer tastes; national, regional or local economic conditions;
demographic trends; traffic patterns; the type, number and location of competing
restaurants; and disposable purchasing power. The Company competes within each
market with international and regional chains as well as locally-owned
restaurants, not only for customers, but also for management and hourly
personnel and suitable real estate sites. Typically, international chains such
as McDonalds/registered trademark/ and Burger King/registered trademark/ compete
with one another and do not serve a variety of chicken products, while the
Company's actual competitors are fast food restaurants that offer similar menus
which include chicken. Certain of these companies may have greater financing,
personnel, technical and other resources than the Company. There can be no
assurance that the Company will be able to compete successfully with these
companies. See "Risk Factors--Competition."
GOVERNMENT REGULATION
The Company is subject to various Chilean national, provincial, and
municipal laws affecting its business. Each of the Company's restaurants must
comply with various licensing requirements and regulations of governmental
authorities, including health, sanitation, safety and fire agencies in the
region and municipality in which the restaurant is located. To date, the Company
has obtained all necessary licenses and approvals.
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A small portion of the Company's sales are attributable to the sale of
beer. A license is required from the provincial governing authority for each
restaurant that sells beer and regulations governing the sale of beer relate to
many aspects of restaurant operations, including the minimum age (18) of patrons
to purchase beer.
The Company is also subject to Chilean national minimum wage laws governing
such matters as overtime and working conditions. Since the bulk of the Company's
employees are paid on an hourly basis at rates related to the minimum wage,
increases in the minimum wage could significantly increase the Company's labor
costs. The Company has not to date been materially adversely affected by such
laws. Furthermore, the Company's business is subject to the full range of
governmental regulation and supervision generally applicable to companies
engaged in business in Chile, including labor laws, social security laws, public
health, environmental laws, securities laws and anti-trust laws.
FOREIGN CORRUPT PRACTICES ACT
Substantially all of the Company's operations are transacted in South
America. To the extent that the Company conducts operations and sells its
products outside the U.S., the Company is subject to the Foreign Corrupt
Practices Act which makes it unlawful for any issuer to pay or offer to pay, any
money or anything of value to any foreign official, foreign political party or
official thereof or any candidate for foreign political office ("Foreign
Officials") or any person with knowledge that all or a portion of such money or
thing of value will be offered, given, or promised, directly or indirectly, to
any Foreign Official.
The Company has not made any offers, payments, promises to pay, or
authorization of any money or anything of value to any Foreign Official and has
implemented a policy to be followed by its officers, directors, employees and
anyone acting on its behalf, that no such payments can and will be made. The
Company has made all employees cognizant of the need for compliance with the
Foreign Corrupt Practices Act and any violation of the Company policy will
result in dismissal. Further, the Company conducts periodic reviews of this
policy with all employees to ensure full compliance.
FOREIGN INVESTMENT LAWS AND REGULATIONS
The Chilean Constitution establishes that any Chilean or foreigner may
freely develop any activity in Chile so long as the activity in Chile does not
contravene existing laws dealing with public morals, public safety or national
security and follows the laws that regulate such activity. It also establishes
the principle of non-discrimination, thus guaranteeing foreign investors equal
protection under Chilean law. Additionally, Chilean law prohibits any
discretionary acts by the Chilean government or other entities against the
rights of persons or property in derogation of this principle. Foreign investors
may transfer capital and net profits abroad. There are no exchange control
regulations which restrict the repatriation of the investment or earnings except
that the remittance of capital may take place starting a year after the date the
funds were brought into the country, but net profits can be remitted at any
time, after deduction of applicable withholding income taxes. Therefore, equity
investments in Chile by persons who are not Chilean residents follow the same
rules as investments made by Chilean citizens.
These principles are the basis for the DL 600. Based on DL 600, the foreign
investor and the government sign a legally-binding investment contract which may
only be modified by mutual consent. The contract sets forth the current tax and
foreign exchange laws as each relates to the specific investments by that
investor in Chile. Thus, the investor is protected against any subsequent
changes in the law which could adversely affect the investor or his investments
in Chile. Although the Chilean Government has been successful in keeping this
principle in place for the last 23 years, there can be no assurances that a
breach by the Government will not occur in the future or that it would not
adversely affect the rights of the Company to do business in Chile. Moreover,
while there has been no precedent that political changes had determined changes
in these rules, no assurances can be made that such changes will not occur in
the future. The Company intends to enter into an investment contract with the
Government of Chile on or around the closing of this Offering.
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EMPLOYEES
As of March 31, 1998, the Company employed 795 employees, of which 15 were
full-time salaried employees in administration, 113 were full-time salaried
employees in supervisory and management positions and 667 were full-time and
part-time hourly employees who were employed in food preparation and serving.
Substantially all of the Company's management and employees who reside in Chile
speak Spanish and its senior management team in Chile also communicates in
English. None of the Company's employees are covered by a collective bargaining
agreement. The Company believes that the dedication of its employees is critical
to its success, and that its relations with its employees are good.
PROPERTIES
All of the Company's restaurants are presently located in leased space. The
leases for the Company's KFC/registered trademark/ restaurants are for a period
ranging from six years to 15 years and provide for one or more options to renew
for at least one additional term. The leases generally specify a fixed annual
rent with fixed increases. Generally, the leases are net leases which require
the Company to pay all or a portion of the cost of taxes, maintenance and
utilities. Certain of the leases provide that in the event of non-payment of
rent, the lessor may terminate the lease without notice. Chilean law provides
that a landlord may not evict a tenant without a court hearing, although the
tenant is responsible for all costs related to such court hearing. See "Risk
Factors--Termination of Leases upon Default."
The Company leases approximately 380 square meters of executive offices in
Santiago, Chile from Inmobiliaria KilKil S.A., an affiliate of the Company, at a
rate of $9,050 per month, plus common area maintenance and general expenses of
$1,100 per month. The lease is for ten years, commencing May 1, 1997. See
"Certain Relationships and Related Transactions."
Upon the Effective Date, the Company will enter into a two year lease with
Andean Engineering & Finance Corp. ("AEFC") for its corporate U.S. offices in
Boca Raton, Florida, which lease may be renewed for an additional two year term.
David Mayer, a Director of USC, is the sole shareholder, officer and director of
AEFC. The annual lease amount will be $10,000 annually, payable quarterly, which
includes all telephone and facsimile, secretarial and other expenses. The
Company believes that these terms were negotiated on an arm's length basis and
such terms are competitive with current lease terms for similar arrangements in
the South Florida area. See "Certain Relationships and Related Transactions."
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding the resolution
of which, the management of the Company believes, would have a material adverse
effect on the Company's results of operations or financial condition, nor to any
other pending legal proceedings other than ordinary, routine litigation
incidental to its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF UNISERVICE CORPORATION
NAME AGE POSITION
- ---- --- --------
Ricardo Vilensky(1) 42 Chief Executive Officer, President, Chairman of
the Board of Directors
Mauricio Aguirre(2) 34 Chief Financial Officer, Vice President of
Finance and Administration, Director Nominee
Juan Carlos Cerda(2) 42 Director Nominee
Avram Fritch(2) 40 Director Nominee
David Mayer(1) 56 Director, Assistant Secretary
Sergio Vivanco(2) 45 Director Nominee
- ----------------
(1) Has served in his position since the Company's formation in November 1997.
(2) Will commence serving in his position upon the Effective Date.
RICARDO VILENSKY has served as the Chief Executive Officer, President and
Chairman of USC since its formation in November 1997 and as the CEO, President
and Chairman of Kentucky Foods Chile, S.A. since its formation in 1986. From
July 1991 to the present, Mr. Vilensky has served as the Chairman and owns a 50%
interest in Ann Arbor Foods, S.A., which owns 15 Domino's pizza franchises in
Chile. See "Certain Relationships and Related Transactions." From June 1991 to
September 1996, Mr. Vilensky was the general manager of Comercial Submarine
Chile Limitada, which owns 10 submarine and hoagie restaurants in Chile. See
"Certain Relationships and Related Transactions." From August 1988 to September
1995, he was a Director of Cafe Santos, S.A., which owned and operated six full
service restaurants in Chile. From 1982 to 1994, Mr. Vilensky was the general
manager and legal representative for "El Vegetariano," a vegetarian restaurant
in Santiago, Chile. Mr. Vilensky is also the principal owner and general manager
of Kyoto, the principal shareholder of the Company. See "Certain Relationships
and Related Transactions."
MAURICIO AGUIRRE will commence serving as USC's Chief Financial Officer,
Vice President of Finance and Administration, and a Director of USC on the
Effective Date. He has served as Vice President of Administration and Finance of
KyF Chile S.A. since September 1994 and as a Director of KyF Chile since October
1995. From 1989 to September 1994, Mr. Aguirre was the Controller and a
Vice-President of Lan Chile, the national airline of Chile. Mr. Aguirre is a
commercial engineer, a public accountant and auditor.
JUAN CARLOS CERDA will commence serving as a Director of USC as of the
Effective Date. He has served as a member of the Board of Directors of KyF Chile
since May 1996. Since June 1994, Mr. Cerda has been a partner with the law firm
of Estudio Juridico Figueroa and Valenzuela Abogados in Chile as a tax
consultant. Since March 1994, Mr. Cerda has been a professor of Planification
and Tributary Management at the University of Santiago. From 1991 through May
1994, he was a tax advisor to the Arauco Enterprise Group in Chile.
AVRAM FRITCH will commence serving as a Director of USC as of the
Effective Date. Mr. Fritch is the founder of and has served as General Director
of General Security Chile, S.A., a residential and commercial security and
alarm company located in Santiago, Chile, since 1991. Mr. Fritch is a
mechanical engineer and was a captain in the Defense Force of Israel.
DAVID MAYER has served as a Director and Assistant Secretary of USC since
its formation in November 1997 and has entered into a ten (10) year consulting
agreement with the Company. Since July 1997, Mr. Mayer has served as the
President of Andean Engineering and Finance Corp. See "Certain Relationships
and Related Transactions." Since May 1997, Mr. Mayer has also served as a
member of the Board of Directors of Gay Entertainment Television (Nasdaq
SmallCap: "GETU", "GETC", "GETW"). From January 1992 to March 1996, Mr. Mayer
was a consultant to Premier Artists
33
<PAGE>
Services, Inc., Corporate Entertainment Productions, Inc. and Alliance
Entertainment, Inc., companies where he assisted in the implementation of their
respective business plans, as well as in connection with mergers and
acquisitions.
SERGIO VIVANCO shall commence serving as a member of USC's Board of
Directors on the Effective Date. Mr. Vivanco has been a member of the Board of
Directors of KyF Chile since 1991 and is a member of the Board of Directors of
Inversiones Huillimapu S.A., an affiliate of Kyoto. See "Principal
Shareholders." Mr. Vivanco has been an attorney since 1979 and has served as
general counsel since 1986 to Kyoto and to KyF Chile. Mr. Vivanco is a partner
in the law firm of Abud, Vivanco and Vergara in Santiago, Chile, which serves as
the Company's legal counsel in Chile.
DIRECTORS AND EXECUTIVE OFFICERS OF KYF CHILE
The directors and executive officers of KyF Chile are as follows:
NAME AGE POSITION
- ---- --- --------
Ricardo Vilensky(1) 42 Chief Executive Officer, President, Chairman of
the Board, Director
Mauricio Aguirre(1) 34 Chief Financial Officer, Vice President of
Finance and Administration, Director
Juan Carlos Cerda(1) 42 Director
Fernando Abud 47 Director
Sergio Vivanco(1) 45 Director
- ----------------
(1) See "Directors and Executive Officers of USC."
FERNANDO ABUD has been a partner with the law firm of Abud, Vivanco y
Vergara Abogados since March 1995, which firm also include Sergio Vivanco, a
Director of KyF Chile and of USC. Between 1977 and 1993, Mr. Abud was a partner
with the law firm of Abud y Cia, Abogados. Between 1977 and 1993, he was an
attorney for the Copper Chilean Commission, where he served as the legal
subdirector from 1978 to 1986 and from 1986 to 1993, as Secretary General. Mr.
Abud's law firm is the Company's legal counsel in Chile.
ELECTION OF DIRECTORS
Each Director of USC is elected at the annual meeting of shareholders and
holds office until the next annual meeting of shareholders, or until his or her
successor is elected and qualified. The Bylaws permit the Board of Directors to
fill any vacancy and such director may serve until the next annual meeting of
shareholders or until his successor is elected and qualified.
USC has agreed that for a period of five years after the Effective Date, if
requested by the Representative, it will use its best efforts to cause one
individual designated by the Representative to be elected to USC's Board of
Directors, which individual may be a director, officer, employee or affiliate of
the Representative. Alternatively, the Representative may designate a person to
attend meetings of USC's Board of Directors as an observer for five years
following the Effective Date.
DIRECTORS' COMPENSATION
Upon the Effective Date, USC's non-employee directors, David Mayer, Avram
Fritch, and Carlos Cerda, will receive $200 plus expenses for attendance at each
meeting of the Board of Directors, as well as reimbursement of reasonable
out-of-pocket expenses incurred in connection with their attendance at the
meetings. The Company intends to purchase directors and officers insurance as
soon as practicable to the extent that it is available and cost effective to do
so.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee will be established upon the Effective Date and will
consist of Juan Carlos Cerda, Sergio Vivanco, and Avram Fritch. The Audit
Committee will review the work of the audit staff
34
<PAGE>
and direct reports covering such work to be prepared. The Audit Committee will
oversee the Company's continuous audit program to protect against improper and
unsound practices and to furnish adequate protection for all of its assets and
records. The Audit Committee also will act as liaison to the Company's
independent certified public accountants, and will conduct such audit work as is
necessary and will receive written reports, supplemented by such oral reports as
it deems necessary, from the Company's independent certified public accountants.
The Compensation and Stock Option Committee will be established upon the
Effective Date and will consist of Messrs. Vivanco, Fritch, Cerda, and Mayer.
The Compensation and Stock Option Committee will make recommendations with
respect to compensation of senior officers and granting of stock options and
stock awards.
The Nominating Committee will be established upon the Effective Date and
will consist of Messrs. Vilensky, Fritch, Cerda, and Mayer. The Nominating
Committee will make recommendations with respect to qualified individuals to
become members of the Company's Board of Directors.
Of the six members of the Board of Directors, Messrs. Cerda, Fritch, and
Mayer are non-employee directors. However, Mr. Mayer has entered into a
consulting agreement with the Company. See "Certain Relationships and Related
Transactions."
APPOINTMENT OF OFFICERS
Officers are elected annually by the Board of Directors and their terms of
office are, except to the extent governed by employment contracts, at the
discretion of the Board. The officers of the Company devote full time to the
business of the Company.
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The following table sets forth compensation awarded to, earned by or paid
to the Company's Chief Executive Officer and each executive officer whose
compensation exceeded $100,000 for the year ended December 31, 1997. The Company
did not grant any stock options, restricted stock awards or stock appreciation
rights or make any long-term incentive plan payments during 1997.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) COMPENSATION($)
- ----------------------------- ------ ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Ricardo Vilensky, CEO, 1997 $85,868 -0- 19,305(2)
President and Chairman 1996 -0- -0- $ 109,629(2)
1995 -0- -0- -0-
</TABLE>
- ----------------
(1) This table is based solely upon compensation received from KyF Chile.
(2) Represents dividends paid to Kyoto. Mr. Vilensky is the principal
shareholder of Kyoto. See "Certain Relationships and Related
Transactions."
EMPLOYMENT AGREEMENTS
RICARDO VILENSKY, CHIEF EXECUTIVE OFFICER, PRESIDENT AND CHAIRMAN. The
Company has entered into a written three-year employment agreement with Mr.
Vilensky, which shall commence upon the Effective Date. Pursuant to the terms
and conditions of his employment agreement, Mr. Vilensky shall receive an
initial annual base salary of $80,000, annual bonuses of up to $100,000, as
determined by the Company's Board of Directors, including a vacation bonus of
$20,000, and other annual compensation of $90,000, which includes (i) $15,000
for school expenses for Mr. Vilensky's children, (ii) $10,000 for entertainment,
(iii) $20,000 for travel, (iv) $20,000 for medical reimbursement, and (v)
$28,000 for
35
<PAGE>
automobile expenses including cost of vehicle, maintenance and insurance. Mr.
Vilensky shall be reimbursed for his ordinary and necessary business expenses
including fees for membership in one business or social club, up to a maximum of
$5,000 per year, and in other clubs and organizations as the Company and Mr.
Vilensky shall mutually agree are necessary and appropriate.
MAURICIO AGUIRRE, CHIEF FINANCIAL OFFICER. The Company has entered into a
written one year employment agreement with Mauricio Aguirre, which shall
commence upon the Effective Date. Pursuant to the terms and conditions of his
employment agreement, Mr. Aguirre shall receive an initial annual base salary of
$60,000, bonuses of up to $30,000 per year, as determined by the Company's Board
of Directors, and other annual compensation of $20,000, which includes (i)
$10,000 for medical reimbursement and (ii) $10,000 for automobile expenses.
Prior to the Effective Date, Mr. Aguirre entered into a written employment
agreement with KyF Chile, which employment agreement will terminate upon the
Effective Date of the written employment agreement with the Company described
herein.
ISAPRE. Messrs. Vilensky and Aguirre are also entitled to receive certain
social security benefits pursuant to Chilean law. The Social Security laws in
Chile were established as a private system that requires all companies to retain
approximately 20% of the gross salaries of its employees, up to a maximum of
$1,892.80 per year, which is used to pay both Administrators of Pension Funds
Companies ("AFP") and Institutions of Previsional Health ("ISAPRE").
The allocation of this 20% to each service is approximately as follows:
(a) 10% to the AFP: This amount is deposited in an individual
interest-bearing account of each employee to cover their retirement. In
Chile, the age of retirement is 60 for women and 65 for men.
(b) 3% to the AFP: This amount covers any partial or permanent disability
and, in the case of death, will provide a monthly amount to the deceased's
spouse. The amount paid corresponds to 70% of an employee's average salary,
based upon the last 10 years of the employee's life.
(c) 7% to the ISAPRE: This amount covers medical fees, hospitalization and
clinical examinations. This percentage may be voluntarily increased by the
employee according to the employee's contractual agreement with the
employee's ISAPRE. In many instances it may be necessary for individuals to
pay additional costs for health care.
Additionally, Chilean law requires the payment of one month salary (up to a
maximum of approximately $2,839.20) for each year (or portion thereof in excess
of six months worked in the last year), worked by the employee when he is
dismissed without cause, subject to a maximum of eleven months (up to a maximum
of $1,892.80 per month, or an aggregate of $20,820.80). When the employee
terminates his or her employment, no compensation is legally required.
STOCK OPTIONS
During fiscal year 1997, there were no option or SAR grants to any persons,
including any of the Company's executive officers or directors.
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
On January 5, 1998, the Board of Directors and a majority of USC's
shareholders adopted the Company's Stock Option Plan (the "Plan"). The purpose
of the Plan is to increase the proprietary interest of employees, advisors,
consultants and directors in USC, to align more closely their interests with the
interests of USC's shareholders, and to enable the Company to attract and retain
the services of experienced and highly qualified employees and directors. USC
has reserved an aggregate of 200,000 shares of Class A Common Stock under the
Plan.
The Company's Board of Directors, or a committee thereof, administers and
interprets the Plan and is authorized to grant options thereunder to all
eligible employees of the Company, including
36
<PAGE>
officers and directors (whether or not employees) of the Company. The Plan
provides for the granting of "incentive stock options" (as defined in Section
422 of the Internal Revenue Code), non-statutory stock options and "reload
options." Options may be granted under the Plan on such terms and at such prices
as determined by the Board, or a committee thereof, except that in the case of
an incentive stock option granted to a 10% shareholder, the per share exercise
price will not be less than 110% of such fair market value. The aggregate fair
market value of the shares covered by incentive stock options granted under the
Plan that become exercisable by a grantee for the first time in any calendar
year is subject to a $100,000 limit.
The exercise price for any option under the Plan may be paid in cash, in
shares of Class A Common Stock or such other consideration that is acceptable to
the Board of Directors or the committee thereof. If the exercise price is paid
in whole or in part in Class A Common Stock, such exercise may result in the
issuance of additional options, known as "reload options," for the same number
of shares of Class A Common Stock surrendered upon the exercise of the
underlying option. The reload option would be generally subject to the same
provisions and restrictions set forth in the Plan with respect to the underlying
option except as varied by the Board of Directors or the committee thereof. A
reload option enables the optionee to ultimately own the same number of shares
as the optionee would have owned if the optionee had exercised all options for
cash.
Options granted under the Plan will be exercisable after the period or
periods specified in the option agreement. Options granted under the Plan are
not exercisable after the expiration of five years from the date of grant and
are not transferable other than by will or by the laws of descent and
distribution. The Plan also authorizes the Company to make loans to optionees to
enable them to exercise their options.
As of the Effective Date, no options have been granted pursuant to the Plan
and no options may be granted without the express written consent of the
Representative for a period of one year following the Effective Date.
OPTION EXERCISES AND HOLDINGS
To date, the Company has not issued any options or SARs to any persons. No
options or SARs were exercised or unexercised during fiscal year 1997.
DIRECTED SHARES FOR COMPANY EMPLOYEES
The Company and the Representative have agreed that a small amount of
shares (which number has not yet been determined) of Class A Common Stock
offered hereby (the "Directed Shares") will be reserved for the Company at the
initial public offering price, solely for the purpose of being purchased by
employees of the Company. In connection with the purchase of Directed Shares by
Company employees, the Company has agreed to make non-recourse, interest free
loans to its employees. To the extent that any employee defaults on the payment
of a loan obtained in connection with the purchase of Directed Shares, there can
be no assurances that the Company will be able to collect the outstanding loan
or that it will pursue any legal remedies available to collect such loan.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Florida Business Corporation Act ("Corporation Act") permits the
indemnification of directors, employees, officers and agents of Florida
corporations. However, the provisions of the Corporation Act that authorize
indemnification do not eliminate the duty of care of a director, and in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. USC's Articles of Incorporation and
Bylaws provide that USC shall indemnify its directors and officers to the
fullest extent permitted by the Corporation Act. Insofar as indemnification for
liabilities arising under the Act may be permitted to directors, officers or
persons controlling USC pursuant to the foregoing provisions, USC has been
informed that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
37
<PAGE>
LIMITATION OF LIABILITY
Under Florida law, USC's directors are protected against personal liability
for monetary damages from breaches of their duty of care. As a result, USC's
directors will not be liable in an action by USC or a shareholder for monetary
damages alleging negligence or gross negligence in the performance of their
duties. In such actions, directors remain liable for monetary damages for
willful misconduct, conscious disregard of the best interest of USC, and for
transactions from which a director derives an improper personal benefit.
Directors also remain liable under another provision of Florida law which makes
directors personally liable for unlawful distributions and which expressly sets
forth a negligence standard with respect to such liability. The liability of
USC's directors under federal or applicable state securities laws is also
unaffected.
While USC's directors have protection from awards of monetary damages for
breaches of fiduciary duty, that does not eliminate their fiduciary duty.
Equitable remedies, such as an injunction or rescission based upon a director's
breach of fiduciary duty, are still available.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On the Effective Date, (i) Kyoto shall purchase 1,399,900 shares of Class B
Common Stock from the Company for $2,200,000, and (ii) the Company shall
purchase Kyoto's 99.97% interest in KyF Chile for $2,200,000 and KyF Chile shall
then become a majority owned (99.97%) subsidiary of the Company. The remaining
15 shares of KyF Chile stock will continue to be owned by Ricardo Vilensky,
individually, who is also the principal shareholder of Kyoto (Chilean law
requires that a Chilean corporation be owned by not less than two shareholders).
The current shareholders of KyF Chile are Kyoto (99.97%) and Ricardo Vilensky
(.03%). Mr. Vilensky will retain his .03% interest (15 shares) in KyF Chile in
order to comply with Chilean law. Kyoto is a Chilean limited partnership whose
partners are Inversiones Huillimapu S.A. ("IHSA") (99%) and Ricardo Vilensky
(1%), who is also its general manager. The shareholders of IHSA are Ricardo
Vilensky (90%) and Compania Administradora de Restaurantes Limitada ("CARL")
(10%). The partners of CARL are Kyoto (98%) and Mr. Vilensky (2%). The general
manager of CARL is Mr. Vilensky. This transaction was approved by the sole
shareholder of the Company at the time of the transaction.
In May 1991, KyF Chile agreed to guaranty certain liabilities of Kyoto that
are due to Leasing Andino S.A. in connection with certain lease obligations for
office space. As of the Effective Date, the Company estimates that the current
remaining obligations of Kyoto under the lease are approximately $147,000.
In January 1992, KyF Chile agreed to guarantee certain liabilities of
Inversiones y Rentas Quebrada Honda S.A. ("IRQH"), whose shareholders are Mr.
Vilensky's brother and sister-in-law. Such liabilities are due to Banestado
Leasing S.A. in connection with certain lease obligations. As of the Effective
Date, the Company estimates that the current remaining obligations of IRQH are
approximately $60,000.
In August 1992, KyF Chile agreed to guaranty all liabilities of Comercial
Submarine Chile Limitada ("Submarine"), whose shareholder is Mr. Vilensky's
brother, that are due to Leasing Banestado in connection with certain lease
obligations. As of the Effective Date, the Company estimates that the current
remaining obligations of Submarine are approximately $83,000.
Mr. Vilensky owns a 50% interest in Ann Arbor Foods S.A. ("Ann Arbor"),
which owns fifteen (15) Domino's Pizza restaurants in Chile. Within 18 months
from the Effective Date, Mr. Vilensky has agreed to resign as an officer and
director in Ann Arbor and to divest himself of all interest in these franchises.
On October 3, 1997, the Company entered into a loan agreement with Kyoto
whereby Kyoto loaned the Company the principal sum of $279,095, at an interest
rate of 9% per annum. The proceeds
38
<PAGE>
from this loan were used for working capital. On November 6, 1997, the Company
entered into a loan agreement with Kyoto whereby Kyoto loaned the Company the
principal sum of $400,000 at an interest rate of 7.8% per annum. These funds
were used to reduce the amount of back royalties due to KFCIH. The Company has
agreed to repay the $400,000 loan (plus accrued interest) from the proceeds of
this Offering. The remaining loan in the principal amount of $279,095 (plus
accrued interest) shall be repaid from the Company's operations by the end of
1998 in accordance with the terms of the promissory note. This transaction was
approved by the sole shareholder of the Company at the time of the transaction.
On April 30, 1997, KyF Chile sold its office facility in Santiago, Chile to
Imobiliaria KilKil S.A. ("IKK"), whose shareholders include IHSA (99%) and Mr.
Vilensky (1%). In consideration for the payment price of $577,574, IKK issued to
KyF Chile a promissory note (the "Note") for the total amount due, and in turn,
KyF Chile transferred the Note to its principal shareholder, Kyoto. Of the total
amount due, $303,191 was paid in the form of dividends to Kyoto for 1996 and
$274,383 has been used to satisfy a loan obligation due by KyF Chile to Kyoto in
connection with the remodelling of two of the Company's KFC/registered
trademark/ restaurants. On May 1, 1997, KyF Chile entered into a ten year lease
agreement with IKK, at a rate of $9,050 per month, plus common area maintenance
and general expenses of $1,100 per month. See "Business--Properties."
Upon the Effective Date, the Company will enter into a two year lease,
which lease may be renewed for an additional term of two years, with AEFC to use
a portion of AEFC's facilities in Boca Raton, Florida, for the Company's
corporate U.S. offices. David Mayer, a Director of USC, is the sole shareholder,
officer and director of AEFC. The annual lease amount will be $10,000 payable
quarterly or as otherwise agreed upon between the parties. The Company believes
these terms were negotiated on an arm's length basis and such terms are
competitive with the going rates. This transaction was approved by the sole
shareholder of the Company at the time of the transaction.
Upon the Effective Date, the Company will also enter into a one year
agreement with AEFC to provide certain services to the Company including acting
as the U.S. liaison for the Company. In consideration for these services, AEFC
will receive $20,000 annually, payable in quarterly installments. This
transaction was approved by the sole shareholder of the Company at the time of
the transaction.
As of the Effective Date, KyF Chile will enter into a ten year agreement
with David Mayer, a Director of USC, whereby Mr. Mayer shall perform certain
services for the Company, including advising in the preparation and
implementation of the Company's business plan, research, evaluation and
negotiations with strategic partners and alternative sources of credit and
financial opportunities, assisting in conducting market surveys, assisting in
shareholder and investor relations, assisting in the preparation of reports to
shareholders and investors, and acting as the U.S. liaison to KFCIH and to U.S.
vendors. In consideration for these services, Mr. Mayer receives an annual fee
of approximately $35,000.00, or as otherwise agreed upon by the parties,
commencing as of the Effective Date. This transaction was approved by the sole
shareholder of the Company at the time of the transaction.
The Company believes that all transactions between the Company and its
officers, shareholders and each of their affiliated companies have been made on
terms no less favorable to the Company than those available from unaffiliated
parties. In the future, the Company intends to handle transactions of a similar
nature on terms no less favorable to the Company than those available from
unaffiliated parties. In addition, any forgiveness of loans will be approved by
a majority of the Company's independent directors who do not have an interest in
the transaction and who have access, at the Company's expense, to the Company's
counsel or independent counsel.
BRIDGE FINANCING
Between January and March 1998, the Company received loans in the aggregate
amount of $150,000 from an unrelated third party accredited investor. This loan
is evidenced by promissory notes bearing interest at 8 1/2% per year. The
Company is obligated to repay this loan on the earlier of (i) the closing of
this Offering or (ii) January 1, 2000. As additional consideration, the investor
received an aggregate of 30,000 shares of Class A Common Stock.
39
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the Common
Stock beneficially owned as of the date of this Prospectus (i) by each person
who is known by USC to own beneficially 5% or more of the Common Stock; (ii) by
each of USC's executive officers, directors and director nominees; and (iii) by
all executive officers, directors and director nominees of USC as a group.
Unless otherwise set forth, the mailing addresses for the individuals named
below is Carmencita #23, Office 102, Santiago, Chile.
<TABLE>
<CAPTION>
OWNERSHIP VOTING
NUMBER OF SHARES PERCENTAGE PERCENTAGE
OF COMMON STOCK ------------------------------ --------------------------
BENEFICIALLY OWNED
BEFORE AND BEFORE AFTER BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER AFTER OFFERING OFFERING(1) OFFERING(1)(2) OFFERING OFFERING(1)(2)
- -------------------------------------- ------------------------ ------------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Ricardo Vilensky ..................... 1,400,000(3)(4) 97.9% 49.5%(5) 99.8% 90.7%
Mauricio Aguirre ..................... -0- -0- -0- -0- -0-
Juan Carlos Cerda .................... -0- -0- -0- -0- -0-
Avram Fritch ......................... -0- -0- -0- -0- -0-
David Mayer(6) ....................... -0- -0- -0- -0- -0-
Sergio Vivanco ....................... -0- -0- -0- -0- -0-
Inversiones e Inmobiliaria
Kyoto Limitada ..................... 1,399,900(7) 97.9% 49.5% 99.8% 90.7%
All executive officers and directors
as a group (6 persons) ............. 1,400,000(8) 97.9% 49.5% 99.8% 90.7%
</TABLE>
- ----------------
(1) Assumes no exercise of the Over-Allotment Option. See "Underwriting."
(2) Does not give effect to the issuance or exercise of Warrants offered hereby.
(3) Represents 1,400,000 shares of Class B Common Stock that have 10 votes for
each share of Class B Common Stock held. See "Description of Securities."
(4) Includes 1,399,900 shares of Class B Common Stock issued to Kyoto in
connection with the Stock Purchases. See Note 1 to "Notes to Financial
Statements." Kyoto is owned and controlled by Mr. Vilensky. See "Certain
Relationships and Related Transactions." The remaining 100 shares of Class B
Common Stock were issued to Mr. Vilensky as founder's shares.
(5) While the shares held by Mr. Vilensky, directly or indirectly, will
represent 49.5% of the outstanding Common Stock issued, they will represent
an approximately 90.7% voting interest in the Company, since holders of
Class B Common Stock are entitled to 10 votes for each share of Class B
Common Stock held.
(6) Mr. Mayer's address is 1900 Glades Road, Suite 351, Boca Raton, Florida
33301.
(7) Represents 1,399,900 shares of Class B Common Stock that have 10 votes for
each share of Class B Common Stock held. Kyoto is owned and controlled by
Mr. Vilensky. See "Certain Relationships and Related Transactions."
(8) Includes 1,399,900 shares of Class B Common Stock issued to Kyoto in
connection with the Stock Purchases.
40
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is currently authorized to issue up to 30,000,000 shares of
Common Stock, of which 20,000,000 shares are designated as Class A Common Stock
and 2,000,000 shares are designated as Class B Common Stock. As of the Effective
Date, there were (i) 30,000 shares of Class A Common Stock outstanding, and (ii)
1,400,000 shares of Class B Common Stock outstanding. The Company has also
reserved up to an aggregate of 200,000 shares of Class A Common Stock pursuant
to its Plan.
Upon liquidation, dissolution or winding up of the Company, after payment
of creditors and holders of any senior securities of the Company, including
preferred stock, as applicable, the assets of the Company will be divided pro
rata on a per share basis among the holders of the shares of Common Stock. The
Common Stock has no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to such
shares. All outstanding shares of Common Stock are, and the shares of Class A
Common Stock offered hereby will be, upon completion of this Offering, fully
paid and non-assessable.
Subject to (i) the dividend rights of the holders of any other class of
common stock or preferred stock, if applicable, and (ii) as a condition of the
Franchise Agreement, the approval of KFCIH, holders of shares of Common Stock
are entitled to share, on a ratable basis, such dividends as may be declared by
the Board of Directors out of funds legally available therefor. USC has never
paid dividends on any class of Common Stock since its formation in November
1997. However, KyF Chile has previously paid dividends to its shareholders. See
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Holders of shares of Class A Common Stock are entitled to one vote per
share on all matters to be voted on by the shareholders. Holders of shares of
Class B Common Stock are entitled to ten (10) votes per for each share of Class
B Common Stock on all matters to be voted on by the shareholders. Neither
holders of Class A Common Stock nor Class B Common Stock have cumulative voting
rights. Accordingly, the holders of more than 50% of the voting rights for the
election of directors can elect all of the directors if they choose to do so,
and in such event, the holders of the remaining shares will not be able to elect
any directors. Following this Offering, management will have the ability to vote
1,400,000 shares of Class B Common Stock or approximately 90.97% of the votes of
the Company, without giving effect to the exercise of the Over-Allotment Option
or the Representative's Warrants. The Bylaws of the Company require that only a
majority of the issued and outstanding voting shares of Common Stock need be
represented to constitute a quorum and to transact business at a shareholders'
meeting.
Subject to the approval of KFCIH, as a condition of the Franchise
Agreement, holders of Class B Common Stock have the right to (1) transfer or
sell shares of Class B Common Stock, and/or (2) convert shares of Class B Common
Stock into shares of Class A Common Stock on a "one share for one share" basis,
provided that any shares so converted (but not sold or transferred) will only be
entitled to one vote per share. Any persons acquiring shares of Class B Common
Stock in a private transaction, either by means of a transfer or sale, shall be
entitled to ten votes for each one share of Class B Common Stock held. See
"Business-Franchise Agreement with KFCIH" and "Underwriting." Each certificate
representing shares of Class B Common Stock contains a legend setting for the
restrictions imposed by and KFCIH. See "Class A Voting Common Stock."
PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares,
par value $.0001, of the Company's preferred stock and to fix the dividend,
liquidation, conversion, redemption and other rights, preferences and
limitations of such shares without any further vote or action of the
shareholders.
41
<PAGE>
WARRANTS
The Warrants will be issued in registered form pursuant to an agreement
dated as of the Effective Date (the "Warrant Agreement"), between the Company
and American Securities Transfer and Trust, Inc. as Warrant Agent. The following
discussion of certain terms and provisions of the Warrants is qualified in its
entirety by reference to the Warrant Agreement. A form of the certificate
representing the Warrants which form a part of the Warrant Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part.
Each of the Warrants entitles the registered holder to purchase one share
of Class A Common Stock. The Warrants are exercisable at a price of $6.00 (which
exercise price has been arbitrarily determined by the Company and the
Representative) subject to certain adjustments. The Warrants are entitled to the
benefit of adjustments in their exercise prices and in the number of shares of
Class A Common Stock or other securities deliverable upon the exercise thereof
in the event of a stock dividend, stock split, reclassification, reorganization,
consolidation or merger.
The Warrants may be exercised, in whole or in part, for a period of five
(5) years from the Effective Date, unless such period is extended by the
Company. After the expiration date, Warrant holders shall have no further
rights.
Warrant holders do not have any voting or any other rights as shareholders
of the Company. The Warrants will not be redeemable for a period of twelve (12)
months following the Effective Date, at which time the Warrants may be redeemed
by the Company for $0.25 per Warrant on not less than thirty (30) days prior
written notice, subject to exercise by the Warrant holder, if the closing bid
price for the Class A Common Stock has been at least $7.00 per share for thirty
(30) consecutive trading days. If the Company exercises its right to redeem
Warrants, such Warrants may still be exercised by the holder thereof until the
close of business on the day immediately preceding the date fixed for
redemption. If any Warrant called for redemption is not exercised by such time,
it will cease to be exercisable, and the holder thereof will be entitled only to
the redemption price. The foregoing notwithstanding, the Company may not redeem
the Warrants at any time that a current registration statement under the Act
covering the shares of Class A Common Stock issuable upon exercise of the
Warrants is not then in effect. Additionally, the issuance of such shares to the
holder must be registered, qualified or exempt under the laws of the state in
which the holder resides. If required, the Company will file a new registration
statement with the Commission with respect to the securities underlying the
Warrants prior to the exercise of such Warrants and will deliver a prospectus
with respect to such securities to all holders thereof as required by Section
10(a)(3) of the Act. See "Risk Factors--Current Prospectus and State Blue Sky
Registration Required to Exercise Warrants."
CERTAIN FLORIDA LEGISLATION
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The provisions of Florida corporate law relating to
control share acquisitions (the "Florida Control Share Act") generally provide
that shares acquired in excess of certain specified thresholds will not possess
any voting rights unless such voting rights are approved by a majority of a
corporation's disinterested shareholders. The provisions of the Florida Control
Share Act apply to the Company. The provisions of Florida corporate law relating
to affiliated transactions (the "Florida Affiliated Transactions Act") generally
require super majority approval by disinterested shareholders of certain
specified transactions between a public corporation and holders of more than 10%
of the outstanding voting shares of the corporation (or their affiliates). The
provisions of the Florida Affiliated Transactions Act do not apply to the
Company because it has opted out of such act. The Company's Articles of
Incorporation and Bylaws also authorize the Company to indemnify the Company's
directors, officers, employees and agents. See "Management--Indemnification of
Officers and Directors." In addition, the Articles of Incorporation and Florida
law presently limit the personal liability of corporate directors for monetary
damages, except where the directors (i) breach their fiduciary duties and (ii)
such breach constitutes or includes certain violations of criminal law, a
transaction from which the directors derived an improper
42
<PAGE>
personal benefit, certain unlawful distributions or certain other reckless,
wanton or willful acts or misconduct. See "Management--Limitation of
Liability."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION, BYLAWS, AND THE FRANCHISE AGREEMENT
Certain provisions of the Articles of Incorporation and Bylaws of USC and
the Franchise Agreement described below may delay, defer or prevent a tender
offer or takeover attempt, including attempts that might result in a premium
being paid over the market price for the shares held by shareholders. Such
provisions could result in the Company being less attractive to a potential
acquiror or in shareholders receiving less for their shares in the event of a
take-over attempt.
CLASS B COMMON STOCK.
Holders of Class B Common Stock are entitled to ten (10) votes for each
share of Class B Common Stock held. Upon the Effective Date, Ricardo Vilensky
will own or control, directly or indirectly, approximately 49.5% of the Common
Stock and will have the right to cast 90.7% of the votes. The Class B Common
Stock could be utilized under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
PREFERRED SHARES
The Board of Directors is empowered, without shareholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or the rights of the holders of
Common Stock. In the event of issuance, the preferred stock could be utilized
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of the Company. Although the Company has no present
intention to issue any shares of its preferred stock, there can be no assurance
that the Company will not do so in the future. See "Description of
Securities--Preferred Stock"
SPECIAL MEETING OF SHAREHOLDERS.
The Articles of Incorporation and Bylaws of USC provide that special
meetings of shareholders of the Company may be called only by a majority of the
Board of Directors, the Company's Chief Executive Officer or holders of not less
than ten percent (10%) of the Company's outstanding voting stock.
FRANCHISE AGREEMENT
Pursuant to the Franchise Agreement, KFCIH's consent is required for
certain transfers or issuances by the Company of its equity securities or the
transfer or issuance to third parties of any Class B Common Stock owned or
controlled, directly or indirectly, by Mr. Vilensky. Additionally, transfers
that result in a change of control of the Company in connection with a public
tender offer require KFCIH's consent. If KFCIH's consent is not obtained in
connection with any such transactions including in connection with a public
offering, KFCIH could terminate its Franchise Agreement with the Company, which
would have a material adverse effect on the Company's financial condition and
results of operations. See "Business--Franchise Agreement with KFCIH."
Pursuant to the Franchise Agreement, unless KFCIH approves otherwise, at
all times Mr. Vilensky must maintain a majority voting interest and a 30%
ownership interest in the Company. Any transactions which reduce Mr. Vilensky's
ownership interest without KFCIH's approval could terminate the Franchise
Agreement and the Development Agreement, including the Company's right to use
the KFC/registered trademark/ concept. See "Risk Factors--Control by Management;
KFCIH Restrictions" and "Business--Franchise Agreement with KFCIH."
43
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent, warrant agent, and registrar for the Class A Common
Stock and the Warrants is American Securities Transfer & Trust, Inc., 1825
Lawrence Street, Suite 444, Denver, Colorado 80202-1817 (303) 298-5370.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 1,430,000
shares of Class A Common Stock outstanding (1,640,000 shares if the
Over-Allotment Option is exercised in full but without giving effect to the
exercise of the Warrants) and 1,400,000 shares of Class B Common Stock
outstanding, of which 30,000 shares of Class A Common Stock and all of the Class
B Common Stock outstanding are "restricted securities" as such term is defined
under the Act.
The 1,400,000 shares of Class A Common Stock sold in this Offering
(1,610,000 shares if the Over-Allotment Option is exercised in full) will be
freely tradeable without restriction or further registration under the Act,
except for any shares purchased by an "affiliate" of the Company (in general, a
person who has a control relationship with the Company), which shares will be
subject to the resale limitations of Rule 144 under the Act. An additional
1,400,000 shares of Class A Common Stock have been registered (1,610,000 shares
if the Over-Allotment Option is exercised in full) and reserved for issuance
upon exercise of the Warrants.
In general, Rule 144 permits a shareholder of the Company who has
beneficially owned restricted shares of any class of Common Stock for at least
one year to sell without registration, within a three-month period, such number
of shares not exceeding the greater of one percent of the then outstanding
shares of any class of Common Stock or, generally, the average weekly trading
volume during the four calendar weeks preceding the sale, assuming compliance by
the Company with certain reporting requirements of Rule 144. Furthermore, if the
restricted shares of any class of Common Stock is held for at least two years by
a person not affiliated with the Company (in general, a person who is not an
executive officer, director or principal shareholder of the Company during the
three month period prior to resale), such restricted shares can be sold without
any volume limitation. The 30,000 shares of Class A Common Stock issued on March
12, 1998, will not be eligible to be resold until March 11, 1999, subject to the
lock-up provisions described below. Any sales of shares pursuant to Rule 144 may
have a depressive effect on the price of the Class A Common Stock.
Notwithstanding the foregoing, all of the holders of Common Stock prior to
the closing of this Offering (including Kyoto, who will purchase 1,399,900
shares of Class B Common Stock of USC as of the Effective Date) have agreed not
to, directly or indirectly, offer to sell, contract to sell, sell, transfer,
assign, encumber, grant an option to purchase or otherwise dispose of any
beneficial interest in such securities for a period of 24 months from the date
hereof (with the exception of 30,000 shares of Class A Common Stock issued in
connection with the Bridge Financing, which are subject only to a six month
lock-up period that is not subject to early termination), without the prior
written consent of the Representative. An appropriate legend referring to these
restrictions will be marked on the face of the certificates representing all
such securities.
45
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representative, Werbel-Roth Securities,
Inc., have severally agreed to purchase from the Company and the Company has
agreed to sell to the such Underwriters, the respective number of shares of
Class A Common Stock and Warrants set forth opposite their respective names at
the initial public offering price, less the underwriting discounts set forth on
the cover page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES NUMBER OF WARRANTS
- ------------ ------------------ -------------------
<S> <C> <C>
Werbel-Roth Securities, Inc. ..........
Total ................................. 1,400,000 1,400,000
========= =========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock and the Warrants are subject to approval of certain legal matters by
counsel to the Underwriter and to certain other conditions precedent. The
Underwriters are obligated to purchase all shares of Common Stock and the
Warrants hereby (other than those covered by the Over-Allotment Option described
below), if any such shares are purchased.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the shares of Common Stock and Warrants to the public
at the offering price set forth on the cover page of this Prospectus and to
certain dealers at a price which represents a concession not in excess of $0.25
per share of Class A Common Stock below the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $0.10 per share of Class A Common Stock to certain other domestic dealers who
are members of the National Association of Securities Dealers, Inc. ("NASD") and
which domestic dealers agree to sell the Securities in conformity with the NASD
Conduct Rules. After the initial offering of the Securities to the public, the
price to the public and such concessions may change based upon market
conditions. The Representative has advised the Company that the Underwriters do
not intend to confirm sales to any accounts over which they exercise
discretionary authority in excess of 1% of the Securities offered hereby.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Over-allotment involves syndicate short sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
for and purchases of the Securities so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the Securities in the open market in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the Securities originally sold by such syndicate member is
purchased in a stabilizing transaction or syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Securities to
be higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on The Nasdaq SmallCap Market or otherwise and, if
commenced, may be discontinued at any time.
The Underwriters and dealers may engage in passive market making
transactions in the Class A Common Stock in accordance with Rule 103 of
Regulation M under the Exchange Act. In general, a passive market maker may not
bid for, or purchase, the Class A Common Stock at a price that exceeds
46
<PAGE>
the highest independent bid. In addition, the net daily purchases made by any
passive market maker may not exceed 30% of its average daily trading volume in
the Class A Common Stock during a specified two month period, or 200 shares,
whichever is greater. A passive market maker must identify market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Class A Common Stock
above independent market levels. Underwriters and dealers are not required to
engage in passive market making and may end passive market making activities at
any time.
At the closing of the sale of the Securities being offered hereby, the
Company will sell to the Representative, the Representative's Warrants, for
nominal consideration, entitling the Representative to purchase an aggregate of
140,000 shares of Class A Common Stock and 140,000 warrants, similar but not
identical to the Warrants. The Representative's Warrants shall be restricted
from sale, transfer, pledge, assignment or hypothecation (other than to officers
or partners of the Representative and members of the selling group and/or their
officers and partners) for a period of one year from the Effective Date. The
Representative's Warrants shall contain anti-dilution provisions and shall not
be redeemable. The Representative's Warrants will be exercisable for a period of
four years commencing one year following the Effective Date and, if the
Representative's Warrants are not exercised during such period, they shall, by
their own terms, automatically expire. The exercise price of each Representative
Warrant shall be $8.25 per share of Class A Common Stock, $.20625 per warrant,
and $9.90 per share of Class A Common Stock for each share underlying the
warrant, which are 165% of the public offering price of the Class A Common
Stock, the Warrants and the shares of Class A Common Stock underlying the
Warrants, respectively. In addition, the Company has agreed to register under
Federal and States securities laws, the Representative's Warrants and the
securities underlying the Representative's Warrants.
In addition to the above, the Company has granted to the Representative an
option exercisable for 45 days from the Effective Date, to purchase up to an
additional 210,000 shares of Class A Common Stock and an additional 210,000
Warrants at the initial public offering price, less the underwriting discount
set forth on the cover page of this Prospectus (the "Over-Allotment Option").
The Underwriters (or the Representative individually at its option) may exercise
this option solely to cover over-allotments in the sale of the Securities being
offered by this Prospectus.
Prior to this Offering, there has been no public market for the Securities
and there can be no assurances that an active public market for the Securities
will be developed or, if developed, sustained after this Offering. The initial
public offering price of the Class A Common Stock offered hereby and the
exercise price and terms of the Warrants has been arbitrarily determined by
negotiations between the Company and the Representative and may bear no
relationship to the Company's current earnings, book value, net worth or other
established valuation criteria. The factors considered in determining the
initial public offering prices included an evaluation by management of the
Company and the Representative of the history of and prospects for the industry
in which the Company competes, an assessment of management, the prospects of the
Company, its capital structure, and certain other factors deemed relevant. The
initial public offering prices do not necessarily bear any relationship to the
Company's assets, book value, earnings or other established criterion of value.
Such prices are subject to change as a result of market conditions and other
factors, and no assurance can be given that a public market for the shares of
Class A Common Stock and/or Warrants will develop after the close of the public
offering, or if a public market in fact develops, that such public market will
be sustained, or that the shares of Class A Common Stock and/or Warrants can be
resold at any time at the initial public offering prices or any other prices.
See "Risk Factors."
The Company has agreed to pay the Underwriters a commission of ten percent
(10%) of the gross proceeds of this Offering, including the gross proceeds from
the sale of the Over-Allotment Option, if exercised. The Company has also agreed
to reimburse the Representative on a non-accountable basis for their expenses in
the amount of three (3%) of the gross proceeds of this Offering, including
proceeds from any Securities purchased pursuant to the Over-Allotment Option.
The Representative's expenses in excess of the non-accountable expense allowance
will be paid by the Representative. To the extent that the expenses of the
Representative are less than the amount of the non-accountable expense allowance
received, such excess shall be deemed to be additional compensation to the
Representative.
47
<PAGE>
The Company has agreed to engage the Representative as a consultant for a
period of three (3) years from the closing of this Offering, at a fee of
$105,000, all of which is payable to the Representative on the Effective Date.
The Company has agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Representative by reasons of misstatements or
omissions to state material facts in connection with statements made in the
Registration Statement or the Prospectus. The Representative has, in turn agreed
to indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Representative and furnished in
writing by the Representative. To the extent that this indemnification may
purport to provide exculpation from possible liabilities arising from the
federal securities laws, in the opinion of the Commission, such indemnification
is contrary to public policy and therefore unenforceable.
Commencing on the Effective Date, shares of Common Stock held immediately
prior to the Effective Date by the Company's existing shareholders are subject
to a 24-month lock-up period, which is subject to early termination at the sole
discretion of the Representative (with the exception of 30,000 shares of Class A
Common Stock issued in connection with a Bridge Financing in the principal
amount of $150,000, which are subject only to a six month lock-up period
that is not subject to early termination. See "Bridge Financing"). An
appropriate legend referring to these restrictions will be marked on the face of
the certificates representing all such securities. Moreover, for a period of two
years from the Effective Date, the Company will not sell or otherwise dispose of
any Common Stock without the prior written consent of the Representative.
The Representative of the Underwriters shall have the right to designate a
member of the Board of Directors, or at the Representative's option, to
designate one individual to attend the meetings of the Company's Board of
Directors for a period of five years after the Effective Date. The
Representative does not intend to exercise this right in the near future.
The foregoing is a summary of the principal terms of the agreement
described above and does not purport to be complete. Reference is made to the
Underwriting Agreement which is filed as an exhibit to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
Legal matters in connection with the Class A Common Stock and the Warrants
being offered hereby will be passed upon for the Company by Atlas, Pearlman,
Trop & Borkson, P.A., Fort Lauderdale, Florida. The Company is being represented
as to matters of Chilean law by the law firm of Abud, Vivanco and Vergara.
Certain legal matters will be passed upon for the Underwriters by Holland and
Knight LLP, Fort Lauderdale, Florida.
EXPERTS
The balance sheets of USC and its subsidiary, KyF Chile, as of December 31,
1997 and 1996, and the related statements of income, stockholders' equity and
cash flows for the years then ended, included in this Prospectus have been so
included in reliance upon the report of Spear, Safer, Harmon & Co., P.A.,
independent accountants, given on authority of said firm as experts in auditing
and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement in
Washington, D.C., on Form SB-2 under the Act, with respect to the securities
being offered hereby. This Prospectus does not
48
<PAGE>
contain all the information set forth in the Registration Statement and the
exhibits thereto. For further information about the Company and the Securities
offered hereby, reference is made to the Registration Statement and to the
exhibits filed as a part thereof. The statements contained in this Prospectus as
to the contents of any contract or other document identified as exhibits in this
Prospectus are not necessarily complete, and in each instance, reference is made
to a copy of such contract or document filed as an exhibit to the Registration
Statement, each statement being qualified in any and all respects by such
reference. The Registration Statement, including exhibits, may be inspected
without charge at the principal reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; at its Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and
at its Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and copies of such materials can be obtained from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. set forth above upon payment of prescribed fees. Additionally,
the Commission maintains a Web sit that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission and the address of such site is (http://www.sec.gov).
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may from time to time deem appropriate or as may be required by law.
49
<PAGE>
UNISERVICE CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Independent Auditors' Report .......................................... F-2
Supplemental Consolidated Balance Sheets .............................. F-3
Supplemental Consolidated Statements of Income ........................ F-4
Supplemental Consolidated Statements of Stockholders' Equity .......... F-5
Supplemental Consolidated Statements of Cash Flows .................... F-6
Notes to Supplemental Consolidated Financial Statements ............... F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Uniservice Corporation
Boca Raton, Florida
We have audited the accompanying supplemental consolidated balance sheets
of Uniservice Corporation (the "Company") as of December 31, 1997 and 1996, and
the related supplemental consolidated statements of income, stockholders' equity
and cash flows for the years then ended. These supplemental consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the supplemental consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the supplemental
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect
to the tax free exchange of shares between the Company and Inversiones e
Inmobiliaria Kyoto, S.A., which will be effectuated at the time of the closing
of a public offering of the Company's stock, which has been accounted for as a
pooling of interests as described in Note 1 to the supplemental consolidated
financial statements. Generally accepted accounting principles prescribe giving
effect to a consummated business combination accounted for by the pooling of
interests method in financial statements that do not include the date of
consummation as if the business combination occurred for the periods presented.
In addition, they will become the historical consolidated financial statements
of the Company after financial statements covering the date of consummation of
the business are issued.
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Uniservice Corporation as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles applicable after financial statements
are issued for a period which includes the date of consummation of the business
combination.
SPEAR, SAFER, HARMON & CO.
Miami, Florida
February 4, 1998
F-2
<PAGE>
UNISERVICE CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------
1998 1997 1996
-------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .............................................. $ 545,240 $ 647,549 $ 142,775
Accounts receivable, net ............................................... 374,761 373,946 585,932
Due from related party (Note 14) ....................................... 108,295 148,000 --
Other receivables (Note 2) ............................................. 159,148 115,195 137,788
Inventory .............................................................. 452,462 515,563 307,056
Income taxes receivable (Note 3) ....................................... 146,029 145,435 228,374
Offering costs ......................................................... 138,398 118,311 --
Other current assets (Note 4) .......................................... 188,820 114,723 182,310
---------- ---------- ----------
Total Current Assets ................................................. 2,113,153 2,178,722 1,584,235
---------- ---------- ----------
Property and Equipment, net (Note 5) .................................... 6,275,468 6,468,247 6,661,711
---------- ---------- ----------
Other Assets:
Intangibles, net (Note 6) .............................................. 135,767 139,404 138,937
Deposits (Note 7) ...................................................... 462,810 473,259 393,239
---------- ---------- ----------
Total Other Assets ................................................... 598,577 612,663 532,176
---------- ---------- ----------
$8,987,198 $9,259,632 $8,778,122
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ....................................................... $1,277,092 $1,300,659 $1,506,725
Obligations with banks: (Note 9)
Lines-of-credit ....................................................... -- 81,117 782,788
Current portion ....................................................... 156,085 319,249 377,478
Notes payable (Note 10) ................................................ 43,901 70,206 657,152
Bridge loan payable (Note 17) .......................................... 150,000 -- --
Sales tax and withholdings ............................................. 186,858 163,761 125,921
Accrued expenses and other current liabilities (Note 8) ................ 754,384 843,988 701,944
Current portion of capital lease obligations (Note 11) ................. 130,392 190,347 287,443
Deferred revenue (Note 12) ............................................. 196,715 239,335 395,739
---------- ---------- ----------
Total Current Liabilities ............................................ 2,895,427 3,208,662 4,835,190
---------- ---------- ----------
Long-Term Liabilities:
Obligations with banks, excluding current portion (Note 9) ............. 1,261,317 1,331,733 601,048
Due to related party (Note 15) ......................................... 656,667 679,095 --
Capital lease obligations, excluding current portion (Note 11) ......... 811,784 864,583 1,042,133
---------- ---------- ----------
Total Long-Term Liabilities .......................................... 2,729,768 2,875,411 1,643,181
---------- ---------- ----------
Stockholders' Equity: (Note 13)
Class A common stock, $.0001 par value; 20,000,000 shares authorized; 30,000,
-0-, -0- issued and outstanding at
March 31, 1998, December 31, 1997 and 1996 respectively .............. 3 -- --
Class B common stock, $.0001 par value; 2,000,000 shares
authorized; 1,400,000 shares issued and outstanding at
March 31, 1998, December 31, 1997 and 1996 ........................... 140 140 140
Preferred stock, $.0001 par value; 5,000,000 shares authorized;
no shares issued and outstanding ..................................... -- -- --
Additional paid-in capital ............................................. 3,355,259 3,287,762 2,963,476
Retained earnings (deficit) ............................................ 308,802 93,176 (574,520)
Cumulative translation adjustment ...................................... (302,201) (205,519) (89,345)
---------- ---------- ----------
Total Stockholders' Equity ........................................... 3,362,003 3,175,559 2,299,751
---------- ---------- ----------
$8,987,198 $9,259,632 $8,778,122
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
supplemental consolidated financial statements.
F-3
<PAGE>
UNISERVICE CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------------ -------------------------------
1998 1997 1997 1996
------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues .................................. $3,452,964 $3,244,952 $14,562,157 $11,706,398
Cost of Operations ........................ 1,426,381 1,407,202 5,909,803 4,534,762
---------- ---------- ----------- -----------
Gross Profit .............................. 2,026,583 1,837,750 8,652,354 7,171,636
---------- ---------- ----------- -----------
Selling and Administrative Expenses:
Payroll and employee benefits ............ 543,096 446,783 2,776,949 2,483,571
Occupancy ................................ 475,611 462,415 1,708,515 1,425,190
Other selling and administrative ......... 874,727 875,708 3,331,665 2,789,574
---------- ---------- ----------- -----------
1,893,434 1,784,906 7,817,129 6,698,335
---------- ---------- ----------- -----------
Income from Operations .................... 133,149 52,844 835,225 473,301
Other Income (Expenses):
Other, net (Note 14) ..................... 115,332 133,264 759,770 477,081
Interest expense ......................... (32,855) (77,914) (281,046) (415,940)
---------- ---------- ----------- -----------
82,477 55,350 478,724 61,141
---------- ---------- ----------- -----------
Net Income ................................ $ 215,626 108,194 $ 1,313,949 $ 534,442
========== ========== =========== ===========
Net Income Per Common Share ............... $ 0.15 $ 0.08 $ 0.94 $ 0.38
========== ========== =========== ===========
Weighted Average Common Shares
Outstanding .............................. 1,410,000 1,400,000 1,400,000 1,400,000
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
supplemental consolidated financial statements.
F-4
<PAGE>
UNISERVICE CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL RETAINED CUMULATIVE TOTAL
COMMON COMMON PAID-IN EARNINGS TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENT EQUITY
--------- --------- ------------ --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 ............... $ -- $140 $2,963,476 $ (969,053) $ 4,765 $1,999,328
Net income ........................ -- -- -- 534,442 -- 534,442
Dividends to stockholders ......... -- -- -- (139,909) -- (139,909)
Translation adjustment ............ -- -- -- (94,110) (94,110)
---- ---- ---------- ----------- ---------- ----------
Balance at
December 31, 1996 ............... -- 140 2,963,476 (574,520) (89,345) 2,299,751
Dividends reinvested .............. -- -- 324,286 (324,286) -- --
Net income ........................ -- -- -- 1,313,949 -- 1,313,949
Dividends to stockholders ......... -- -- -- (321,967) -- (321,967)
Translation adjustment ............ -- -- -- -- (116,174) (116,174)
---- ---- ---------- ----------- ---------- ----------
Balance at
December 31, 1997 ............... -- 140 3,287,762 93,176 (205,519) 3,175,559
Net income (unaudited) ............ -- -- -- 215,626 -- 215,626
Class A Common stock
issued in connection with
bridge loan ..................... 3 -- 67,497 -- -- 67,500
Translation adjustment
(unaudited) ..................... -- -- -- -- (96,682) (96,682)
---- ---- ---------- ----------- ---------- ----------
Balance at March 31, 1998
(unaudited) ..................... $ 3 $140 $3,355,259 $ 308,802 $ (302,201) $3,362,003
==== ==== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
supplemental consolidated financial statements.
F-5
<PAGE>
UNISERVICE CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------------ -----------------------------
1998 1997 1997 1996
------------- -------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income .................................................. $ 215,626 $ 108,194 $1,313,949 $ 534,442
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization ............................. 197,128 115,635 715,555 546,775
Deferred income taxes ..................................... 889 (878) (1,156) 1,587
Loss on sale of building .................................. -- -- 7,852 --
Translation adjustment .................................... (96,682) 55,151 (116,174) (94,110)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net ................................ (815) 227,844 211,986 (279,741)
Other receivables ....................................... (43,953) (311,765) 22,593 (23,797)
Inventory ............................................... 63,101 (26,612) (208,507) 324,601
Income taxes receivable ................................. (594) (251,742) 82,939 (160,900)
Offering costs .......................................... (20,087) -- (118,311) --
Other current assets .................................... (7,486) 66,756 68,743 148,095
Intangibles ............................................. (712) (3,442) (4,199) (3,329)
Deposits ................................................ 10,449 (9,374) (80,020) (33,808)
Increase (decrease) in:
Accounts payable ........................................ (23,567) (223,746) (206,066) (236,154)
Sales tax and withholdings .............................. 23,097 33,512 37,840 (10,092)
Accrued expenses and other current liabilities .......... (89,604) 129,923 142,044 296,953
Deferred revenue ........................................ (42,620) (28,298) (156,404) (172,553)
---------- ---------- ---------- ----------
Net Cash Provided by (Used In) Operating Activities ......... 184,170 (118,842) 1,712,664 837,969
---------- ---------- ---------- ----------
Cash Flows from Investing Activities:
Acquisition of property and equipment ...................... -- (276,514) (448,507) (783,240)
---------- ---------- ---------- ----------
Cash Flows from Financing Activities:
Repayment of notes payable to banks ........................ $ (26,305) $ (368,385) $ (586,946) $ 196,286
Dividends paid ............................................. -- (17,134) (321,967) (139,909)
Proceeds from bridge loan .................................. 150,000 -- -- --
Net proceeds (repayment) of lines-of-credit ................ (81,117) (782,788) (701,671) 415,894
Net proceeds from related parties .......................... 17,277 481,477 531,095 --
Payments on capital lease obligations ...................... (112,754) (11,073) (352,350) (278,614)
Proceeds from long-term debt ............................... -- 1,226,033 1,353,883 501,817
Repayment of long-term debt ................................ (233,580) -- (681,427) (801,236)
---------- ---------- ---------- ----------
Net Cash Provided by (Used in) Financing Activities ......... (286,479) 528,130 (759,383) (105,762)
---------- ---------- ---------- ----------
Increase (Decrease) in Cash and Cash Equivalents ............ (102,309) 132,774 504,774 (51,033)
Cash and Cash Equivalents--Beginning of Period .............. 647,549 142,775 142,775 193,808
---------- ---------- ---------- ----------
Cash and Cash Equivalents--End of Period .................... $ 545,240 $ 275,549 $ 647,549 $ 142,775
========== ========== ========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest .................. $ 32,855 $ 77,914 $ 274,371 $ 415,940
Supplemental Disclosure of Non-Cash Financing Activities:
Dividends reinvested ...................................... -- -- 324,286 --
Note received in exchange for sale of building ............ -- -- 568,545 --
Acquisition of property and equipment subject to
capital lease ........................................... -- -- 77,704 1,190,010
Issuance of Class A common stock in connection with
bridge loan ............................................. 67,500 -- -- --
</TABLE>
The accompanying notes are an integral part of these
supplemental consolidated financial statements.
F-6
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Uniservice Corporation, (the "Company"), is a Florida
corporation incorporated in November 1997 as a holding company to acquire
Inversiones e Inmobiliaria Kyoto, S.A.'s ("Kyoto") 99.97% interest in Kentucky
Foods Chile, S.A. ("KyF Chile" collectively, the "Company"). KyF Chile is in the
fast food service business and presently operates 29 restaurants in the
Santiago, Chile area pursuant to its international franchise agreement with
Kentucky Fried Chicken International Holdings, Inc. ("KFCIH"), then a subsidiary
of Pepsico, Inc. ("Pepsico") and currently an affiliate of Tricon Global
Restaurants, Inc. ("Tricon").
BASIS OF PRESENTATION--Subsequent to December 31, 1997, the Company agreed
to acquire 99.7% of Kyoto's interest in KyF Chile in exchange for 1,399,900
shares of Class B common stock which will be effective as of the closing of the
initial public offering of the Company's stock. In order to comply with Chilean
law and the requirements of the Central Bank of Chile for foreign investments,
two stock purchase agreements will be effectuated at the time of the closing of
the initial public offering of the Company's stock whereby (i) Kyoto shall
purchase 1,399,900 shares of Class B common stock for $2.2 million, and, (ii)
the Company shall purchase Kyoto's 99.97% interest in Kentucky Foods Chile, S.A.
for $2.2 million and Kyf Chile shall then become a majority owned (99.97%)
subsidiary of the Company. The substance of this transaction is an exchange of
shares between the Company and Kyoto which is accounted for by the pooling of
interests. Generally accepted accounting principles prescribe giving effect to a
consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation as
if the business combination occurred for the periods presented. Accordingly, the
supplemental consolidated financial statements for all periods presented have
been prepared assuming the acquisition by the Company took place on January 1,
1996, that the Company was incorporated on that date, and the exchange of shares
was effectuated at that time. Since the Company was not formed until November
1997, historical and proforma consolidating financial statements are not
included herein because the assets, liabilities, revenues and expenses and net
income of Uniservice Corporation are not material to the information presented.
These financial statements will become the historical consolidated
financial statements of the Company after financial statements covering the date
of consummation of the business combination are issued.
FUNCTIONAL CURRENCY--The financial statements have been translated in
accordance with the provisions set forth in Statement of Financial Accounting
Standards No. 52, from Chilean pesos (the functional currency) into US dollars
(the reporting currency).
REVENUE RECOGNITION--Revenue is recognized at the point of sale of goods to
its customers on a daily basis.
CASH AND CASH EQUIVALENTS--Cash equivalents consist of highly liquid
investments, which are readily convertible into cash and have maturities of
three months or less.
ACCOUNTS RECEIVABLE--In Chile, it is customary to offer various sorts of
coupons and coupon books to other corporations who provide meal services to
their employees, as well as, for bonuses to its customers. The Company bills the
various corporations, on a monthly basis, for coupons redeemed and
F-7
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
recognizes income, accordingly. Approximately 8% of revenues generated were due
from these coupon books. Included in accounts receivable are amounts due from
the various corporations in connection to coupon redemptions. Historically, the
Company has had very few non-remittance on its billings. As a result, the
Company has provided an allowance for doubtful accounts of $-0-, $2,209 and $-0-
as of March 31, 1998, December 31, 1997 and 1996, respectively.
INVENTORY--Inventory consists primarily of fresh chicken, produce and
restaurant supplies and are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
OFFERING COSTS--Offering costs represent legal, accounting, and
underwriting fees incurred in connection with a registration statement to be
part of a public offering of the Company's shares (see Note 17).
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Depreciation is provided on a straight-line method based on the estimated useful
life of the asset ranging from three to ten years.
INCOME TAXES--In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
Accounting for Income Taxes SFAS 109 requires a change from the deferred method
of accounting for income taxes prescribed by APB Opinion 11, to the asset and
liability method of accounting for income taxes. Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are recognized for the
future income tax assets and liabilities are recognized for the future income
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
FOREIGN OPERATIONS--As the Company operates exclusively in Chile, one must
be aware of the potential for both economic and political change in the business
environment, different than that of the United States. The success of the
Company depends on the success of the Chilean operations and a stable economic
and political environment.
EARNINGS PER COMMON SHARE--Earnings per common share are based on the
weighted average number of shares outstanding of 1,400,000 for all periods
presented, giving effect to common stock equivalents, none of which existed in
the aforementioned periods.
RECENT PRONOUNCEMENTS--The Financial Accounting Standards Board (FASB) has
issued the following statements which are to be applied prospectively,
#130--Reporting Comprehensive Income, #131--Disclosures About Segments of an
Enterprise and Related Information and #132--Employer's Disclosures About
Pensions and Other Retirement Benefits. Once effective, none of these
pronouncements are expected to have a material impact on the financial
statements of the Company.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain
F-8
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
INTERIM FINANCIAL STATEMENTS--The accompanying interim unaudited
supplemental consolidated financial information has been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although management
believes that the disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments and eliminations,
consisting only of normal recurring adjustments, necessary to present fairly the
supplemental consolidated financial position of the Company as of March 31,
1998, and the supplemental consolidated results of its operations and cash flows
for the three months ended March 31, 1998 and 1997, have been included. The
results of operations for such interim period are not necessarily indicative of
the results for the full year.
NOTE 2--OTHER RECEIVABLES
Other receivables consist of the following at December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------
1998 1997 1996
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Advances to vendors ........................ $107,330 $ 53,024 $ 28,945
Advance payments for custom duties ......... 27,378 23,622 23,678
Travel and other sundry advances ........... 24,440 32,289 49,226
Other ...................................... -- 6,260 35,939
-------- -------- --------
$159,148 $115,195 $137,788
======== ======== ========
</TABLE>
NOTE 3--INCOME TAXES
In Chile, the Company is subject to income taxes at a statutory rate of 15%
of taxable income, as defined. For the years ended December 31, 1997 and 1996,
the Company had no taxable income, due to various credits and incentives
provided by the government of Chile. Therefore, no provision for income taxes
were made. These government credits and incentives are not anticipated to
continue in the future with the continued strong earnings previously reported
and expected in the future. In addition, the Company made estimated income tax
payments during those years and is due a refund.
F-9
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 3--INCOME TAXES--(CONTINUED)
The following is a reconciliation of the statutory tax rates:
<TABLE>
<CAPTION>
YEARS ENDED
PERIOD ENDED DECEMBER 31,
MARCH 31, -------------------
1998 1997 1996
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Statutory tax rate ............................. 15% 15% 15%
Credits and incentives from government ......... (15) (15) (15)
--- --- ---
Effective tax rate ............................. 0% 0% 0%
=== === ===
</TABLE>
As mentioned above, while the Company has incurred no income taxes for the
years ended December 31, 1997 and 1996, it has made monthly estimated tax
payments which coupled with the aforementioned credits has yielded income tax
recoverables. Following are the components of the income tax receivable balances
at:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------
1998 1997 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Balance at beginning of year ............... $145,435 $ 228,374 $ 220,634
Payments of estimated income taxes ......... -- 125,941 163,767
Credit for fixed asset purchases ........... -- -- 32,753
Credit for educational expenses ............ 3,303 16,576 20,705
Refunds received ........................... -- (228,374) (220,634)
Other, net ................................. (2,709) 2,918 11,149
-------- ---------- ----------
$146,029 $ 145,435 $ 228,374
======== ========== ==========
</TABLE>
The Company was not liable for U.S. income taxes for the years ended
December 31, 1997 and December 31, 1996, because all earnings were generated by
the Chilean subsidiary and no earnings were repatriated to the Company for these
reporting periods. Therefore, no deferred tax assets or liabilities are
attributable to these years other than those reported by the subsidiary in its
regional operations.
F-10
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 4--OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------
1998 1997 1996
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred income taxes ................... $ 33,695 $ 34,584 $ 35,740
Prepaid expenses ........................ 78,665 75,363 81,538
Prepaid taxes other than income ......... -- -- 60,581
Bridge loan financing ................... 67,500 -- --
Other ................................... 8,960 4,776 4,451
-------- -------- --------
$188,820 $114,723 $182,310
======== ======== ========
</TABLE>
Deferred income taxes is due to a deferred tax asset. Deferred tax assets
and liabilities are determined based on temporary differences between the
financial carrying amounts and tax bases of assets and liabilities, principally
depreciation, using enacted tax rates in effect.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------------
1998 1997 1996
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures ................................. $ 4,592,757 $ 4,592,757 $ 3,698,163
Office equipment and machinery ......................... 1,832,859 1,832,859 1,842,381
Capital leases ......................................... 1,838,450 1,838,450 1,819,622
Buildings .............................................. -- -- 506,007
Land ................................................... -- -- 62,538
Other .................................................. 184,598 184,598 47,153
Construction in progress ............................... 45,559 45,559 --
------------ ------------ ------------
8,494,223 8,494,223 7,975,864
Less accumulated depreciation and amortization ......... (2,218,755) (2,025,976) (1,314,153)
------------ ------------ ------------
$ 6,275,468 $ 6,468,247 $ 6,661,711
============ ============ ============
</TABLE>
Depreciation and amortization expense was $197,128, $115,635, $711,823 and
$546,775 for the three months ended March 31, 1998 and 1997 and the years ended
December 31, 1997 and 1996, respectively.
F-11
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 6--INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill ............................... $114,406 $115,207 $112,003
Trademarks, licenses and other ......... 29,442 27,929 26,934
-------- -------- --------
143,848 143,136 138,937
Less accumulated amortization .......... (8,081) (3,732) --
-------- -------- --------
$135,767 $139,404 $138,937
======== ======== ========
</TABLE>
Intangibles are being amortized using the straight-line method. Goodwill is
being amortized over a period of 40 years and trademarks, licenses and other are
being amortized over a period of 17 years. Amortization commenced during 1997.
NOTE 7--DEPOSITS
KyF Chile conducts its operations in leased facilities which require
security deposits based on the square footage, location, and term of the lease
(see Note 11). The balance of the security deposits at March 31, 1998
(unaudited), December 31, 1997 and 1996 amounted to $462,810, $473,259 and
$393,239, respectively.
NOTE 8--ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Franchise fees payable(*) ............................ $633,981 $793,793 $518,547
Other ................................................ -- 27,407 34,505
Accrued salaries and other employee benefits ......... 120,403 22,788 148,892
-------- -------- --------
$754,384 $843,988 $701,944
======== ======== ========
</TABLE>
- ----------------
(*) See Note 16 for details on franchise fees.
F-12
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 9--OBLIGATIONS WITH BANKS
Obligations with banks consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Loans payable to banks for lines-of-credit with monthly,
semiannual and annual maturity dates and interest rates ranging from 9.02%
to 11% APR.; fully collateralized by a personal guarantee from a stockholder
and certain assets of the Company. The unused portion of the line-of-credit
as of March 31, 1998 and December 31, 1997, respectively, approximates
$1,442,000 and $374,000.
Currency: Chilean Pesos and UF .......................... $ -- $81,117 $782,788
==== ======= ========
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------
1998 1997 1996
-------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to banks with maturity dates through
2005 and fully collateralized by a personal guarantee
from a stockholder and certain assets of the Company.
Interest rates ranging from 9.02% to 11% APR.
Currency: Chilean Pesos and UF ...................... $1,417,402 $1,650,982 $ 978,526
Less: Current portion ............................... (156,085) (319,249) (377,478)
---------- ---------- ----------
$1,261,317 $1,331,733 $ 601,048
========== ========== ==========
</TABLE>
Interest rates on all of these flexible rate loans are based on the
Asociacion de Bancos y Entidades Financieras, (T.A.B.) rate, which represents a
daily average of the interest paid by banks on its deposits. The rate is then
adjusted upwards approximately 1.5% for the banks profit, and then an additional
1.0%-1.7% reflecting the individual risk of the bank on the individual loan.
There are no covenants or restrictions imposed on the aforementioned obligations
with any of the banks involved.
The weighted average interest rate was 7.9% and 10.8% for the years ended
December 31, 1997 and 1996, respectively.
The UF is an indexed unit of account expressed in pesos and adjusted
according to inflation (CPI).
F-13
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 9--OBLIGATIONS WITH BANKS--(CONTINUED)
Future maturities of long-term debt are as follows:
YEAR ENDING
DECEMBER 31,
- ------------
1998 ...................... $ 319,249
1999 ...................... 293,509
2000 ...................... 293,466
2001 ...................... 192,505
2002 ...................... 144,412
Thereafter ................ 407,841
----------
$1,650,982
==========
NOTE 10--NOTES PAYABLE
Notes payable consists of various short-term unsecured loans with local
banks bearing interest at rates ranging from 9.0% to 11.0% per annum.
NOTE 11--CAPITAL LEASE OBLIGATIONS
KyF Chile leases various equipment under capital leases. The capital leases
in effect as of December 31, 1997, are scheduled to expire between the years
1998 and 2009. At the expiration of the lease terms, KyF Chile may exercise
options to purchase the equipment at a bargain purchase price. Amortization is
computed by the straight-line method and has been included in depreciation. As
of March 31, 1998 (unaudited) and December 31, 1997 and 1996, the gross amount
of assets recorded under capital leases totaled $1,838,450, $1,838,450 and
$1,819,622, respectively. Accumulated amortization related to those assets
totaled $40,324, $38,765, $163,379 and $86,745 as of March 31, 1998, March 31,
1997, December 31, 1997 and 1996, respectively.
The following is a schedule of future minimum lease payments:
YEAR ENDING
DECEMBER 31,
- ------------
1998 ............................. $ 190,347
1999 ............................. 112,708
2000 ............................. 36,243
2001 ............................. 84,864
2002 ............................. 91,004
Thereafter ....................... 539,764
----------
1,054,930
Current portion .................. (190,347)
----------
Long-term portion ................ $ 864,583
==========
NOTE 12--DEFERRED REVENUE
In August 1994, KyF Chile entered into an agreement with Pepsico requiring
the exclusive use of Pepsi products for the following five years. In exchange
for this exclusivity agreement, KyF Chile
F-14
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 12--DEFERRED REVENUE--(CONTINUED)
received approximately $780,000, net of taxes, which is being recognized and
amortized over that five year period. For the three months ended March 31, 1998
and the years ended December 31, 1997 and 1996, KyF Chile recognized $42,620,
$149,912 and $153,122, respectively, of the deferred revenue.
NOTE 13--STOCKHOLDERS' EQUITY
The Company is currently authorized to issue 20,000,000 shares of Class A
common stock, 2,000,000 shares of Class B common stock and 8,000,000 shares of
undesignated common stock at a par value of $.0001 per share.
As part of its anticipated initial public offering, the Company will sell
approximately 1,400,000 shares of Class A common stock and 1,400,000 warrants to
the public. This would increase the outstanding shares of Class A common stock
to 1,430,000 for a total outstanding shares of 2,830,000, without giving effect
to the exercise of the warrants.
NOTE 14--OTHER INCOME (EXPENSES)
Included in other, net, is the recognition of approximately $150,000 of
deferred revenue from the Pepsico exclusivity agreement (see Note 12), $148,000
from related parties and approximately $353,000 of refunds from vendors.
NOTE 15--RELATED PARTY TRANSACTIONS
During 1996, KyF Chile relocated its Corporate headquarters by acquiring
new office facilities in Santiago, Chile at a cost of approximately $568,000.
In April 1997, KyF Chile sold the new office facilities to a third party,
whose 1% shareholder is the owner of KyF Chile. In consideration for the
approximate price of $568,000, KyF Chile issued a promissory note for the total
amount due which was later transferred to Kyoto as part of various loans due
Kyoto from KyF Chile. In May 1997, KyF Chile entered into a ten year lease
agreement with the purchaser at a monthly rate of $9,050 plus common area
maintenance and general expenses of $1,100 per month.
In addition, the Company received advances for $679,095 from Kyoto bearing
interest rates of 7.8% and 9% per annum. There are no stated repayment terms.
During 1997 and 1996, the Company declared dividends with the intent of
eliminating related party receivables. Total dividends declared were $321,967
and $139,909, respectively. No dividends were declared during 1998.
NOTE 16--COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
KyF Chile conducts its operations in facilities which are leased under
terms ranging from six to 15 years expiring between the years 2006 and 2012.
Most leases provide for one or more options to renew
F-15
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 16--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
for at least one additional term. In addition to a minimum monthly base rent,
some of the leases provide for additional rents which are calculated on a
percentage of gross sales over a base sales amount.
Future minimum obligations over the primary terms of KyF Chile's long-term
leases as of December 31, 1997 are as follows:
YEAR ENDING
DECEMBER 31,
------------
1998 .......................................... $ 1,491,091
1999 .......................................... 1,512,087
2000 .......................................... 1,555,154
2001 .......................................... 1,263,208
2002 .......................................... 1,010,886
Thereafter .................................... 5,337,400
-----------
Total Minimum Lease Payments Required ......... $12,169,826
===========
FRANCHISE AGREEMENT
KyF Chile entered into a franchise agreement with KFCIH to use the
trademark, service mark and trade name Kentucky Fried Chicken.
Under the franchise agreement, at all times, Ricardo Vilensky, the
Company's CEO, President, and Chairman, is to retain voting control of KyF Chile
and a minimum of 30% ownership of the Company. Provided that any proceeds
received are not used to start a new company, Mr. Vilensky may sell up to the
lesser of (a) 10% of the outstanding capital stock of the Company or (b) such
amount so that Mr. Vilensky's ownership interest will not be below 30% of the
outstanding capital stock. However, to the extent that Mr. Vilensky wants to
retain less than a 30% interest in the Company, KFCIH must approve.
As a condition of the franchise agreement, the Company is also required to
have a "designated operator", which is the person that oversees the management
of the day-to-day operations of the Company's restaurants. Currently, the
designated operator is Mr. Vilensky. There can be no assurance that the Company
will be in a position to meet the criteria required by KFCIH in the event Mr.
Vilensky is unable or unwilling to continue as the designated operator and/or
control not less than a 30% ownership interest in the Company.
The initial franchise term for each restaurant is ten years, which expires
between December 31, 2003 and December 31, 2007, depending on when the
particular restaurant was opened. The initial franchise term is renewable for
additional ten year periods, provided that, among other things, (i) the renewal
is permitted by local law; (ii) the Company has corrected and default under the
agreement and has not been in material default within the 24 months preceding
the renewal request; (iii) the Company complies with annual performance
criteria; (iv) the Company requests renewal within 12 to 18 months prior to the
expiration of the initial term; (v) the Company agrees to make capital
improvements to conform with KFCIH's then current standards and completes the
improvements, as agreed; (iv) the
F-16
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 16--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Company agrees to relocate any restaurants KFCIH determines cannot be renovated
to meet the then current standards; (vii) the Company executes a new franchise
agreement if the current form has been modified; (viii) the Company is current
in all obligations, monetary or otherwise, to KFCIH; and (ix) the Company pay a
renewal fee as agreed upon with KFCIII.
Pursuant to current KFCIH policies and procedures, KFCIH's approval is
required for the development of any new KyF restaurants by the Company and
KFCIH's consent to such renewals, acquisitions or development may be withheld in
KFCIH's sole discretion.
The Company has agreed, with KFCIH's consent, to construct, develop, open
and operate four additional new KyF restaurants during the next seven years, for
a total of 60 restaurants to be owned and operated by the Company by the end of
2005. Royalty rates for the first new KyF restaurant will be 5% and for the
additional 30 new KyF restaurants will be 6%. Initial franchise fees will be
$35,000 per restaurant, except for (i) the first four new KFC restaurants, which
require no initial franchise fees, and (ii) non-traditional stores (relocateable
structures such as kiosks, carts, and mobile units and are typically located in
airports, schools, universities, offices, hospitals and retail outlets), which
will have initial franchise fees of $17,500. Additionally, development right
fees of $10,000 per restaurant to develop 34 locations will be paid in equal
installments over six years beginning on the first anniversary of the effective
date of the development agreement, and then continuing on the following five
anniversaries thereafter.
The agreement requires a monthly franchise fee of 5% of revenues, as
defined, subject to a monthly minimum which may be set and updated by KFCIH from
time to time. The agreement also requires the Company to contribute annually for
advertising and promotions not less than 5% of its annual revenues, as defined.
Franchise fees totaled approximately $173,000, $162,000, $728,000 and $503,000
for the three months ended March 31, 1998 and 1997, and for the years ended
December 31, 1997 and 1996, respectively, of which approximately $634,000,
$794,000 and $519,000 remain unpaid as of March 31, 1998, December 31, 1997 and
1996, respectively, and is included in accrued expenses and other current
liabilities in the accompanying supplemental consolidated balance sheets. As a
result, the Company is currently in default of the franchise agreement. So long
as the Company is in compliance with the other terms and obligations of the
franchise agreement, KFCIH has advised the Company that it does not intend to
terminate the franchise agreement.
YEAR 2000 CONVERSION--The Company recognizes the need to ensure its
operations will not be adversely impacted by Year 2000 software failures.
Software failures due to processing errors potentially arising from calculations
using the year 2000 date are a known risk. The Company is addressing this risk
to the availability and integrity of financial systems and the reliability of
operational systems. The Company has established processes for evaluating and
managing the risks and costs associated with this problem.
Major areas of potential business impact have been identified and initial
conversion efforts are underway. The Company also is communicating with
suppliers, dealers, financial institutions and others with which it does
business to coordinate year 2000 conversion. The total cost of compliance and
its effect on the Company's future results of operations is being determined as
part of the detailed conversion planning.
F-17
<PAGE>
UNISERVICE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO MARCH 31, 1998 AND 1997
NOTE 17--OTHER MATTERS
INITIAL PUBLIC OFFERING--In November 1997, the Company entered into an
agreement with an underwriter to offer 1,400,000 shares of Class A common stock
and 1,400,000 redeemable common stock purchase warrants to the public in an
initial public offering, being made on a firm commitment basis. Each of the
warrants entitles the registered holder to purchase one share of Class A common
stock. Total anticipated funds being raised will be approximately $7,175,000.
The net proceeds will be used for the continued development of new stores
(approximately $2,465,000), payment of franchise fees for approximately $650,000
(including interest), the repayment of $1,261,317 in long term debt, $565,000
for repayment of loans due to third parties, and working capital of
approximately $958,683.
BRIDGE LOAN--Subsequent to December 31, 1997, the Company entered into a
bridge loan in the amount of $150,000 with an investor to be used for short-term
operations. This loan is evidenced by a promissory note bearing an interest rate
of 8.5% per year. The Company is obligated to repay this note the earlier of (i)
the closing date of the aforementioned initial public offering, or (ii) January
1, 2000. As additional consideration, the investor received 30,000 shares of
Class A common stock. As a result, bridge loan financing costs amounting to
$67,500 are reflected in the March 31, 1998 balance sheet as a component of
other current assets and will be amortized over the term of the loan beginning
in April 1998.
RENT AGREEMENT--Subsequent to December 31, 1997, the Company entered into a
two year lease agreement with an affiliate of one of the Company's Directors for
the rental space of its Florida office at an annual payment of $10,000.
CONSULTING AGREEMENT--Subsequent to December 31, 1997, the Company entered
into a ten year agreement with of one of the Directors at an annual compensation
of $35,000 which shall commence as of the effective date of the Company's
initial public offering in consideration for certain financial, advisory and
consulting services.
In addition, the Company entered into a one year agreement with an
affiliate of one of the Company's Directors to perform certain services
including acting as the U.S. liaison for the Company at an annual payment of
$20,000.
EMPLOYMENT AGREEMENTS--Subsequent to December 31, 1997, the Company entered
into a three year employment agreement with the Company's President and Chief
Financial Officer. Pursuant to the terms and conditions of the employment
agreements, the President shall receive an initial annual base salary of $80,000
and the Chief Financial Officer shall receive an initial annual base salary of
$60,000. In addition to the base salaries, they are entitled to receive various
incentives and other compensation amounting to $190,000 and $50,000 for the
President and Chief Financial Officer, respectively.
STOCK OPTION PLAN--On January 5, 1998, the Board of Directors of the
Company and a majority of the Company's shareholders adopted a Stock Option Plan
(the "Plan"). The Company will reserve a small amount of shares (not yet
determined) of Class A common stock for issuance under this Plan. No options
have been issued under the Plan.
F-18
<PAGE>
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, IN ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
-----------------------------------
TABLE OF CONTENTS
PAGE
----------
Prospectus Summary ...................... 3
Risk Factors ............................ 5
Use of Proceeds ......................... 14
Dividend Policy ......................... 15
Dilution ................................ 16
Capitalization .......................... 17
Exchange Rates .......................... 18
Selected Financial Data ................. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................... 20
Business ................................ 24
Management .............................. 33
Certain Relationships and
Related Transactions ................. 38
Bridge Financing ........................ 39
Principal Shareholders .................. 40
Description of Securities ............... 41
Shares Eligible for Future Sale ......... 45
Underwriting ............................ 46
Legal Matters ........................... 48
Experts ................................. 48
Additional Information .................. 48
Index to Financial Statements ........... F-1
-----------------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
UNISERVICE
CORPORATION
1,400,000 SHARES OF
CLASS A COMMON STOCK
1,400,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
-----------------------------------
----------
PROSPECTUS
----------
WERBEL-ROTH SECURITIES, INC.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act ("Corporation Act") permits the
indemnification of directors, employees, officers and agents of Florida
corporation. The Company's Articles of Incorporation and Bylaws provides that
the Company shall indemnify to the fullest extent permitted by the Corporation
Act any person whom it may indemnify thereunder.
The provisions of Florida law that authorize indemnification do not
eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of nonmonetary relief will
remain available. In addition, each director will continue to be subject to
liability for (a) violations of criminal laws, unless the director has
reasonable cause to believe that his or her conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (b) deriving an improper
personal benefit from a transaction, (c) voting for or assenting to an unlawful
distribution and (d) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of the Company to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder. The statute does not affect a director's responsibilities under any
other law, such as the federal securities laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he or she reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful.
Pursuant to the terms of the Underwriting Agreement, the directors and
officers of the Company also are indemnified against certain civil liabilities
that they may incur under the Act.
Insofar as indemnification for liabilities arising under the Act, may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts expected to be incurred in connection with the Offering described in
this Registration Statement. All amounts are estimated except the Registration
Fee, NASD Fee and the underwriters' non-accountable expense allowance.
<TABLE>
<S> <C>
Securities and Exchange Commission/Registration fee and other documents* $ 6,041.98
NASD filing fee* ........................................................ 2,506.00
NASDAQ filing fee* ...................................................... 8,220.00
Printing and engraving expenses* ........................................ 65,000.00
Accounting fees and expenses* ........................................... 50,000.00
Legal fees and expenses* ................................................ 175,000.00
Blue Sky fees and expenses* ............................................. 25,000.00
Transfer Agent fees and expenses ........................................ 750.00
Miscellaneous ........................................................... 9,732.02
------------
Total ................................................................... $ 342,250.00
============
</TABLE>
- ----------------
* Estimated
All of the above expenses of this Offering will be paid by the Company.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On November 21, 1997, the Company issued 100 shares of Class B Common Stock
to Mr. Vilensky, the President, Chief Executive Officer and Chairman of the
Board of USC and KyF Chile for par value, as promotional shares. The issuance of
the shares of Class A Common Stock were exempt from registration pursuant to
Section 4(2) of the Act.
Between January and March 1998, one unrelated, accredited investor loaned
the Company $150,000 (at an interest rate of 8 1/2% per year). As consideration
for this loan, the investor received 30,000 shares of Class A Common Stock. The
investor had access to, or was otherwise provided with, information, including
financial, concerning the Company. Accordingly, the issuance of the shares of
Class A Common Stock were exempt from registration pursuant to Section 4(2) of
the Act.
As of the Effective Date, Inversiones e Inmobiliaria Kyoto Limitada
("Kyoto"), a Chilean limited partnership that is controlled by Mr. Vilensky and
whose partners are also controlled by Mr. Vilensky, will purchase 1,399,900
shares of Class B Common Stock for $2.2 million. The shareholders of Kyoto were
provided with, or otherwise had access to, information, including financial,
concerning the Company. Accordingly, The issuances of the shares of Class B
Common Stock to Kyoto will be exempt from registration pursuant to Section 4(2)
of the Act.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------- -----------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement(1)
2.1 Stock Purchase Agreement between Kyoto and the Company for the purchase of Class B
Common Stock(1)
2.2 Stock Purchase Agreement between the Company and Kyoto for the purchase of shares of
Kentucky Foods Chile S.A. Stock(1)
3.1 (a) Company's Amended and Restated Articles of Incorporation(1)
3.1 (b) Articles of Amendment to Articles of Incorporation(1)
3.2 Company's Bylaws(1)
4.1 Form of Warrant Agreement together with the form of Warrant Certificate(2)
4.2 Form of Representative's Warrant Agreement together with the form of Representative's
Warrant Certificate(1)
4.3 Form of Class A Common Stock Certificate(1)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(1)
10.1 Stock Option Plan(1)
10.2 Master Franchise Agreement between Kentucky Foods Chile, S.A. and Kentucky Fried
Chicken International Holdings, Inc., as amended(1).
10.3 Loan Agreement between Kentucky Foods Chile, S.A. and Inversiones e Inmobiliaria Kyoto
Limitada dated October 3, 1997(1)
10.4 Loan Agreement between Kentucky Foods Chile, S.A. and Inversiones e Inmobiliaria Kyoto
Limitada dated November 6, 1997(1)
10.5 Bridge Loan Documents(1)
10.6 Employment Agreement between the Company and Ricardo Vilensky(1)
10.7 Employment Agreement between the Company and Mauricio Aguirre(1)
10.8 Lease Agreement between KyF Chile and Imobiliaria Kilkil S.A.(1)
10.9 Recognition of Debt Note(1)
21 Subsidiaries of Registrant(1)
23.1 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (to be included in its opinion filed as
Exhibit 5.1)(1)
23.2 Consent of Spear, Safer, Harmon & Co. P.C.(2)
</TABLE>
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
27 Financial Data Schedule(1)
99.1 Consent of Mauricio Aguirre(1)
99.2 Consent of Juan Carlos Cerda(1)
99.3 Consent of Sergio Vivanco(1)
99.4 Consent of Avram Fritch(1)
- ----------------
(1) Previously filed
(2) Filed herewith
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the Act;
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) include any additional or changed material information on the
plan of distribution;
(2) For determining liability under the Act, it will treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
(4) The Company will provide to the Underwriter at the closing of this
Offering certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liability arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
For the purpose of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective.
For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide Offering thereof.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-2 and authorizes this
Amendment to be signed on its behalf by the undersigned, in the City of Ft.
Lauderdale, State of Florida, on this 21st day of July, 1998.
UNISERVICE CORPORATION
By /s/ RICARDO VILENSKY
--------------------------------------
Ricardo Vilensky
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ RICARDO VILENSKY President and Chief Executive Officer July 21, 1998
- ---------------------------- and Director (Principal Executive,
Ricardo Vilensky Financial and Accounting Officer)
/s/ DAVID MAYER Director July 21, 1998
- ----------------------------
David Mayer
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
23.2 Consent of Spear, Safer, Harmon & Co. P.C.
EXHIBIT 23.2
SPEAR, SAFER, HARMON & CO. LETTERHEAD
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Second Amendment to Form SB-2 being filed
under the Securities Exchange Act of 1934 by Uniservice Corporation of our
report dated February 4, 1998, relating to our audits of the supplemental
consolidated financial statements of Uniservice Corporation as of December 31,
1997 and 1996 and appearing in the aforementioned Second Amendment to Form SB-2.
/s/ SPEAR, SAFER, HARMON & CO.
- ------------------------------
SPEAR, SAFER, HARMON & CO.
Miami, Florida
July 21, 1998
