As filed with the Securities and Exchange Commission on February 24, 2000
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
UNISERVICE CORPORATION
(Name of Small Business Issuer in its Charter)
--------------
FLORIDA 5812 65-0816177
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Numbers) No.)
--------------
1900 Glades Road, Suite 351
Boca Raton, Florida 33431 1900 Glades Road, Suite 351
(561) 347-6398 Boca Raton, Florida 33431
(Address and Telephone Number of (Address of Principal Place of Business or
Principal Executive Offices) Intended Principal Place of Business)
David Mayer
Uniservice Corporation
1900 Glades Road, Suite 351
Boca Raton, Florida 33431
(561) 347-6398
(Name, address and telephone number of agent for service)
Copies of all communications to:
Joel D. Mayersohn, Esq. Neil Baritz, Esq.
Brian Pearlman, Esq. Dreier & Baritz LLP
Atlas Pearlman, P.A. 150 East Palmetto Park Road, Suite 401
350 East Las Olas Boulevard, Suite 1700 Boca Raton, Florida 33432
Fort Lauderdale, Florida 33301 Telephone (561) 750-0910
Telephone (954) 763-1200 Facsimile (561) 750-5045
Facsimile (954) 766-7800
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: [ ]
We will amend this registration statement on such date or dates as may be
necessary to delay its effective date until we 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 under Section 8(a), may
determine.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================-
Title of Each Class of Amount Proposed Maximum Proposed Maximum Amount of
Securities to be Registered to be Offering Price Aggregate Offering Registration Fee(1)
Registered per Security Price(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units (consisting of one share of Series A 1,380,000(2) $5.00 $6,900,000 $1,821.60
8% Convertible Preferred Stock and one
Warrant to purchase one share of Class A
Common Stock)
- ------------------------------------------------------------------------------------------------------------------------------------
Series A 8% Convertible Preferred Stock 1,380,000(3) (5) (5) -0-
underlying the Unit
- ------------------------------------------------------------------------------------------------------------------------------------
Warrant to purchase one share of class A 1,380,000(4) (5) (5) -0-
common stock underlying the Unit
- ------------------------------------------------------------------------------------------------------------------------------------
Class A common stock issuable upon 1,380,000(3) (5) (5) -0-
conversion of the 8% Convertible Preferred
Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Class A common stock issuable 1,380,000 $6.00 $8,280,000 $2,185.92
upon exercise of the Warrants(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Warrants 120,000 $.0001 $12 $.003
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Units underlying 120,000 $8.25 $990,000 $261.36
Representative's Warrants
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's 8% Convertible Preferred 120,000 (9) (9) -0-
Stock underlying the Representative's
Units(7)
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Warrant underlying the 120,000 (9) (9) -0-
Representative's Units(8)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A common stock issuable upon the 120,000 (9) (9) -0-
conversion of the Representative's 8%
Convertible Preferred Stock
- --------------------------------------------- --------------------- ------------------- ------------------------ -------------------
Class A common stock issuable upon the 120,000 $9.90 $1,188,000 $313.63
exercise of the Representative's
Warrants(10)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $17,358,012 $4,582.52
====================================================================================================================================
</TABLE>
(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 180,000 Units issuable under the underwriter's over-allotment
option
(3) Includes 180,000 shares of preferred stock issuable under the underwriter's
over-allotment option.
(4) Includes 180,000 redeemable common stock purchase warrants issuable under
the over-allotment option.
(5) Included in the units.
(6) Represents shares of class A common stock issuable upon exercise of the
warrants registered together with such additional indeterminate number of
shares as may be issued upon exercise of the Warrants as may be issued by
reason of the anti-dilution provisions contained in the registration
statement.
(7) 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
the representative's warrants.
(8) Represents warrants issuable upon exercise of the representative's
warrants, together with such additional indeterminate number of warrants.
(9) Included in the representative's units.
(10) 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 warrants.
2
<PAGE>
SUBJECT TO COMPLETION, DATED February 24, 2000
UNISERVICE CORPORATION
1,200,000 units
We are offering shares of series A convertible cumulative redeemable
preferred stock and class A common stock purchase warrants. The series A
preferred stock and warrants will trade as separate securities six months after
the date of this prospectus. Each warrant allows its holder to purchase after a
period beginning six months from the date of our prospectus until August 2,
2003, one share of class A common stock for $6.00 per share.
Our series A common stock and common stock purchase warrants trade on
the Nasdaq SmallCap Market under the symbols "UNSRA" and "UNSRW". On ________,
2000, the closing bid price of the common stock and common stock purchase
warrants was $______ and $_______, respectively. We have applied to list our
common stock, units, series A convertible preferred stock and common stock
purchase warrants under the symbols _______, ________, _________ and ________ on
the American Stock Exchange.
Investing in our securities involves a high degree of risk. See our
"Risk Factors" beginning on page ____.
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 representation to the
contrary is a criminal offense.
We have granted the underwriter a 45-day option to purchase an
additional 180,000 units from us at the initial offering price less the
underwriting discounts.
================================================================================
WITHOUT WITH
PER UNIT OVER-ALLOTMENT OVER-ALLOTMENT
- --------------------------------------------------------------------------------
Public offering price $5.00 $6,000,000 $6,900,000
- --------------------------------------------------------------------------------
Underwriting discounts $0.50 $ 600,000 $ 690,000
- --------------------------------------------------------------------------------
Proceeds before expenses $4.50 $5,400,000 $6,210,000
================================================================================
The underwriter is offering our units on a firm commitment basis and
expects to deliver our units on or about ____________, 2000.
Werbel-Roth Securities, Inc.
The date of this Prospectus is __________, 2000
3
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary.......................................................
Risk Factors.............................................................
Use of Proceeds .........................................................
Dividend Policy..........................................................
Price Range of our Common Stock and Warrants ............................
Dilution.................................................................
Capitalization...........................................................
Exchange Rates...........................................................
Selected Financial Data..................................................
Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................
Business.................................................................
Management...............................................................
Certain Relationships and Related Transactions...........................
Principal Shareholders...................................................
Market for Common Equity and Related Stockholder Matters.................
Description of Securities................................................
Shares Eligible for Future Sale..........................................
Underwriting.............................................................
Legal Matters............................................................
Experts..................................................................
Additional Information...................................................
Index to Financial Statements............................................ F-1
Until _________, 2000 (25 days after the commencement of this
offering), all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This 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.
4
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
INVESTORS SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE FINANCIAL
STATEMENTS WHICH ARE A PART OF THIS PROSPECTUS.
Uniservice
Overview
Uniservice Corporation is a company engaged in the fast food restaurant
business in Chile. We are presently the holding company of Kentucky Foods Chile,
S.A. Kentucky Foods Chile currently owns and operates 36 Kentucky Fried
Chicken(R) restaurants in Chile. The majority of these KFC(R) restaurants are
located in Santiago and are operated under an international franchise agreement
with Kentucky Fried Chicken International Holdings, Inc. and its successor,
Tricon Restaurants International. Kentucky Foods Chile is currently the sole and
exclusive KFC franchisee in Chile and is the largest KFC franchisee in Central
and South America. We are also seeking the acquisition of a restaurant chain
located in Chile. We have identified and have entered into preliminary
negotiations with several acquisition possibilities. The proceeds from this
offering will be used to finance an acquisition of a restaurant business or
other operation, subject to the approval of our underwriter.
Our strategy
Our strategy is to continue to grow our restaurant business in Chile
through the following:
o acquisitions of fast food restaurant companies; and
o increase our existing restaurants' overall margins and profitability.
Our history and structure
We were incorporated in November 1997. We acquired a 99.97% interest in
Kentucky Foods Chile, a Chilean corporation, in August 1998 where we
simultaneously completed an initial public offering of our class A common stock
and warrants to purchase shares of our class A common stock. These securities
are listed on the Nasdaq SmallCap under the symbols UNSRA and UNSRW.
Our principle executive offices are located at Carmencita 25, Suite
102, Santiago, Chile, our telephone number is 011(562) 334-3000 and our e-mail
address is Our U.S. offices are currently located at 1900 Glades Road, Suite
351, Boca Raton, FL 33431, and our telephone number is (561) 416-8930. When we
use the terms "Uniservice," "Kentucky Foods Chile," "we," "our," and similar
terms, this includes Uniservice Corporation and Kentucky Foods Chile S.A., our
99.97% subsidiary.
7
<PAGE>
<TABLE>
The Offering
<S> <C>
Securities offered................................... 1,200,000 units. Each unit consists of one share of 8%
convertible preferred stock and one warrant to purchase
one share of our class A common stock. The preferred
stock and warrant will trade only as a unit for a period
of six months following the date of this prospectus.
Preferred shares:
Dividends.......................................... Cumulative semi-annual dividends of 8% are payable
semi-annually on the first day of _______ and _______
beginning ______, 2000. Unpaid dividends will accumulate.
Conversion rights.................................. Unless previously redeemed, preferred shares are
convertible into class A common shares at the option of
the holder. The conversion right commences six months
from the date of this prospectus. Preferred shares are
initially convertible into class A common shares at a
price equal to ___% of the closing bid price of our
class A common stock on the day prior to the effective
date of our registration statement. These terms are
subject to adjustment under certain circumstances.
Redemption......................................... Our preferred shares are redeemable beginning two years
after the date of this prospectus. At this time we may
redeem our preferred shares on a scaled basis. The
applicable percentage of the principle amount of
redemption ranges between _____% and ____%. The
redemption scale is shown in the description of our
preferred stock. The redemption price will also include
all unpaid dividends. We must provide 30 days written
notice.
Voting rights...................................... Our preferred shares will not be entitled to voting
rights, except as required by the Florida Business
Corporation Act.
6
<PAGE>
Warrants:
Exercise price..................................... $6.00 per share subject to adjustment in certain
circumstances. Our warrants may be exercised at any
time commencing six months after the date of this
prospectus.
Expiration date.................................... August 2, 2003.
Redemption......................................... We may redeem our warrants commencing six months after
the date of this prospectus. As with our outstanding
warrants, we may redeem the warrants we are offering in
this prospectus at a price of $.25 per warrant. We must
provide 30 days written notice. The closing price of
our class A common stock must exceed $7.00 for 30
consecutive days before we may redeem our warrants.
Common stock outstanding............................. 1,430,000 shares of class A common stock were
outstanding on the date of this prospectus. This number
excludes up to 1,610,000 shares of class A common stock
issuable upon exercise of our outstanding warrants and
1,400,000 shares of class A common stock issuable upon
conversion of our class B common stock currently
issuable and outstanding on the date of this prospectus.
Preferred stock outstanding ......................... There were no shares of preferred stock outstanding on
the date of this prospectus.
Warrants outstanding ................................ 1,610,000 warrants to purchase shares of our class A
common stock are outstanding as of the date of this
prospectus.
These warrants are identical to the warrants we are
offering in this prospectus. The warrants are
exercisable at an exercise price of $6.00. The warrants
expire on August 2, 2003.
We may redeem our warrants if the closing bid price of our
class A common stock for each of the 30 consecutive trading
days preceding our notice of redemption is greater than or
equal to
7
<PAGE>
$7.00. We may redeem the warrants if we provide the holders
with 30 days' prior written notice. The redemption price is
$.25 per warrant. If we give notice of redemption, holders
of warrants will have 30 days during which they may elect to
exercise the warrants, or allow the warrants to be redeemed
for the redemption price.
Use of proceeds ..................................... To fund the acquisition of a Chilean fast food company
and working capital.
</TABLE>
We are presently seeking listing of the securities described in this prospectus
on the American Stock Exchange.
Proposed American Stock Exchange symbols are:
Common stock .................................... "______"
Units ........................................... "______"
Series A 8% convertible
preferred stock............................... "______"
Warrants ........................................ "______"
Our outstanding class A common stock and common stock purchase warrants
trade on the Nasdaq SmallCap Market under the symbols "UNSRA" and "UNSRW".
8
<PAGE>
RISK FACTORS
We have designated $5,000,000 of our proceeds from this offering to
fund the acquisition of a Chilean restaurant chain, however, as of the date of
this prospectus we have not entered into an acquisition agreement. We have
agreed with our underwriter that proceeds of this offering must be designated
for acquisition purposes. We have identified several acquisition possibilities,
but as of the date of this offering we have not entered into any acquisition
agreements. If we are unable to reach a satisfactory agreement to acquire a
restaurant chain we may terminate this offering.
Our franchise agreement with Tricon only covers 28 of our 36 KFC
restaurants, which currently prevents us from opening any additional KFC
restaurants. Our franchise agreement only covers 28 of our restaurants. Five of
our remaining restaurants are covered by a temporary license and 3 are operating
without any agreement with Tricon. We are making royalty payments for these
eight restaurants while we continue negotiating an agreement with Tricon to
cover these restaurants. If we do not enter into a new franchise agreement for
these remaining restaurants, Tricon may force us to close the 3 restaurants
operating without permission or legally prohibit this restaurant from using KFC
property, information and products. Without a new franchise agreement we cannot
open any additional KFC restaurants.
We have been served with notice by Tricon Restaurants International
that the opening and operation of our 3 restaurants without Tricon's approval or
under an agreement with Tricon has breached our KFC franchise agreement. Tricon
has informed us that the opening of these 3 restaurants was unauthorized and the
use of KFC property, confidential information and products is unauthorized for
these 3 restaurants. To cure this default and legally operate these restaurants
we must execute Tricon's standard international franchise agreement and pay
initial fees for our 3 unauthorized restaurants of approximately $105,000.
If we do not immediately cure this default, Tricon may force us to
cease KFC operations at these 3 locations and we may receive a formal notice of
default, which could ultimately lead to the termination of our franchise
agreement.
Our operations are limited to the terms and conditions of our franchise
agreement with Tricon and if we violate this franchise agreement our
relationship with KFC may be terminated. Under our KFC franchise agreement, we
are presently prohibited from engaging in any KFC brand business outside of
Chile and certain types of restaurant businesses within Chile. Under our
franchise agreement we may not participate in any business that Tricon deems to
be competing. Our relationship with Tricon also restricts Ricardo Vilensky, our
chief executive officer and principal shareholder, from transferring his
interest in our company or terminating his relationship with us.
9
<PAGE>
In the event our KFC franchise agreement is terminated, whether
resulting from default or expiration of its terms, our franchise agreement with
KFC states that we must immediately discontinue the use of KFC equipment,
concepts and marketing methods. The franchise agreement also imposes a 12 month
non-compete clause with KFC if our relationship with Tricon is terminated.
Non-compete agreements are generally considered illegal and unenforceable under
Chilean law.
We are engaged in a highly competitive segment of the fast food
industry with respect to:
o price,
o variety,
o product quality,
o speed of service,
o convenience of location,
o cleanliness, and
o upkeep.
We compete directly or indirectly with many companies and franchisees.
Most franchisees and company-owned stores of international fast food
franchisors, including McDonald's(R) and Burger King(R), have multiple locations
in Chile. A number of these companies may be larger, better capitalized, more
established and have greater personnel and other resources than us.
Additionally, we encounter competition from a number of Chilean restaurants and
food service establishments, as well as other local fast food restaurants
offering products that are familiar to Chilean consumers and have achieved broad
market acceptance.
We are substantially dependent upon third parties for all of our
capital equipment. These supplies include:
o furniture,
o fixtures and equipment,
o food products, and
o other supplies.
Failure to obtain equipment, food products and other supplies for our
restaurants on a timely basis could materially effect us.
The loss of Ricardo Vilensky's services could have a material adverse
effect on our business. Our success is highly dependent upon the continued
services of Mr. Vilensky who continues to devote a substantial amount of his
time to our business. Although we currently have an employment agreement with
Mr. Vilensky through 2001 for his services, the loss of his services could have
a material adverse effect on our business.
10
<PAGE>
As a condition of our franchise agreement with Tricon, Ricardo Vilensky
is required to be our designated operator and if we want to change our
designated operator we need permission from Tricon. 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 Tricon. Although not required, Tricon has
indicated that it prefers if our designated operator also controls our
ownership.
If Mr. Vilensky is unable to perform his duties and obligations to our
operations, he may be forced to sell his interest in our company. In the event
that Tricon determines that our designated operator is not capable of performing
necessary duties and obligations, Mr. Vilensky or his heirs are required to use
their best efforts to sell their interest in our company within six months. In
the event that no sale is completed within the six month period, Tricon has the
option to purchase Mr. Vilensky's interest, or the interest of Mr. Vilensky's
heirs, in our company for a market value determined by three appraisers.
Issuance of the preferred stock in this offering and the conversion of
our warrants in this offering may decrease Mr. Vilensky's economic interest in
our company below 30% which would violate our agreement with Tricon. This
violation may place us in default of our franchise agreement with Tricon or may
place Mr. Vilensky in default of his obligations to Tricon.
You may be limited in your ability to enforce civil liabilities against
us since most of our assets and operations are abroad. Enforcement by investors
of civil liabilities under the U.S. Federal securities laws may adversely be
affected by the fact that while Uniservice is located in the U.S., our principal
subsidiary is located in Chile. While we are a U.S. corporation, our subsidiary,
Kentucky Foods Chile is a Chilean corporation. For the foreseeable future,
substantially all of our assets will be held or used outside the United States
(in Chile), and approximately 90% of the net proceeds from this offering will be
used in Chile. Our current executive officers, directors (excluding David Mayer)
and management are residents of Chile, and substantially all of our assets and
the assets of our executive officers, directors and management are located
outside the United States.
Considerations relating to Chile
Since we are subject to risks associated with foreign operations, we
may incur additional costs and disruptions to our operations. Our business is
currently conducted almost exclusively in Chile. We consequently are subject to
a number of significant risks associated with foreign operations. Our operating
profits may be negatively affected by changes in the value of the Chilean peso,
by hyperinflationary conditions, or recession, which have occurred in the past
in Chile. Other risks and considerations include:
o the effect of foreign income and withholding taxes and the U.S.
tax implications of foreign source income and losses;
11
<PAGE>
o the possibility of expropriation or confiscatory taxation or price
controls;
o adverse changes in local investment or exchange control
regulations;
o difficulties inherent in operating in less developed legal systems;
o political instability, government corruption and civil unrest; and
o potential restrictions on the flow of international capital.
In Chile, where our business is conducted, there has been less
governmental regulation relating to the environment, occupational safety,
employment practices or other business matters than in the United States. It is
possible that future regulations in Chile may increase the expense and risk of
doing business in Chile. In addition, social legislation in Chile may result in
significantly higher expenses associated with terminating employees or
distributors or closing manufacturing facilities.
In the event of long-term restrictions on repatriation with respect to
investments, you may find it difficult to realize value on your investment
through the receipt of dividends, including preferred stock dividends, or in the
appreciation of the value of your investment. Equity investments in Chile by
persons who are not Chilean residents may not be freely repatriated for one year
starting after the date the funds were brought into Chile. After one year,
equity investments may be freely repatriated only if the investment is channeled
through the Formal Exchange Market (Mercado Cambiario Formal) under an
investment contract entered into with the Chilean government under Decree-Law
No. 600 of 1974, as amended. This may restrict our ability to pay dividends on
our preferred stock.
Drought conditions which negatively effected Chile's economy and our
business in 1998 and most of 1999 will have the same negative effects if they
return in 2000. Santiago, our principal place of business, is powered by
hydroelectric energy. Due to drought conditions over the past two years, the
Chilean government systematically shut off electricity throughout sections of
Santiago, forcing the majority of our restaurants to close for up to four hours
per day and significantly impacted our revenues and financial results. We lost
revenues as a result. If drought conditions return, the Chilean government may
be forced to take the same measures, subjecting our restaurants located in
Santiago to the same closures.
Recessionary conditions in Chile in 1998 and 1999 negatively effected
our business and may continue throughout 2000. Recessionary conditions in Chile
have the effect of decreasing our revenues and weakening the value of the
Chilean peso as compared to the U.S. dollar. Although we believe, and recent
market indicators have shown, that the recession in Chile has ended, if Chile
remains in a recession, our business will continue to suffer.
12
<PAGE>
USE OF PROCEEDS
The gross proceeds from the sale of our 1,200,000 units will be
approximately $6,000,000, assuming an initial public offering price of $5.00 per
unit. The net proceeds, without giving effect to the exercise of the
over-allotment option, will be approximately $5,020,000 after giving effect to:
o the representative's discounts of $600,000,
o a 3% non-accountable expense allowance to the representative of
$180,000, and
o offering costs and expenses of approximately $200,000.
Approximately all of our proceeds will be used immediately following
this offering for the acquisition of a Chilean fast food restaurant company.
Any remaining proceeds will be used for working capital, which may
include the initial payment of dividends on our preferred stock.
Approximately all of our proceeds will be used in Chile. We may keep a
portion of the proceeds in the United States, avoiding Chilean repatriation
laws, for initial payment of dividends on our preferred stock.
Our anticipated use of net proceeds are based upon our current status
of 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. Pending use of the proceeds of this offering, we 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.
Without underwriter approval, we may not use our proceeds for any
purposes other than an acquisition. We reserve the right to use the funds
obtained from this offering for other purposes not presently contemplated which
we deem to be in our best interest and the best interest of our shareholders as
long as our underwriter approves. As a result, our success will be substantially
dependent upon the discretion and judgment of our management and our
underwriter.
13
<PAGE>
DIVIDEND POLICY
We have never paid dividends on our outstanding securities since our
formation in November 1997. However, Kentucky Foods Chile has declared the
following dividends to its shareholders in the corresponding years:
1994.................. $ 71,565
1995.................. $ 730,648
1996.................. $ 768,018
1997.................. $ 19,305
Of the $730,648 declared in 1995, the total amount was reinvested 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 Kentucky Fried Chicken Chile. Kentucky Fried
Chicken Chile currently intends to retain earnings for use in its business and
does not anticipate paying dividends in the foreseeable future, except to our
preferred shareholders
Upon distribution of a dividend by Kentucky Foods Chile, we, 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 taxes may be credited
against U.S. federal income tax. Potential purchasers of our units should
consult their own tax advisors regarding the impact of these taxes.
Due to Chilean repatriation laws, we may keep a portion of the proceeds
of this offering with our U.S. holding company. This money will be used to pay
the initial dividends on our preferred stock.
14
<PAGE>
PRICE RANGE OF OUR COMMON STOCK AND WARRANTS
Our class A common stock and our class A common stock warrants are
traded on the Nasdaq SmallCap Market under the symbols UNSRA and UNSRW,
respectively, and commenced their trading on August 4, 1998. The following table
sets forth the high and low bid quotations for the common stock and warrant for
the periods indicated. These quotations, as reported by Bridge Information
Systems, reflect prices between dealers, do not include retail mark-ups,
markdowns, commissions and may not necessarily represent actual transactions.
Period High Low
- ------ ---- ---
Common Stock
August 4, 1998 through quarter ended December 31, 1998 $5.625 $2.37
Quarter ended March 31, 1999 $3.90 $3.25
Quarter ended June 30, 1999 $3.75 $2.80
Quarter ended September 30, 1999 $3.25 $1.70
Quarter ended December 31, 1999 $2.75 $1.75
Warrants
August 4, 1998 through quarter ended December 31, 1998 $1.53 $0.62
Quarter ended March 31, 1999 $0.90 $0.55
Quarter ended June 30, 1999 $0.80 $0.375
Quarter ended September 30, 1999 $0.625 $0.125
Quarter ended December 31, 1999 $0.60 $0.125
As of December 31, 1999, there were approximately 20 holders of record
of our class A common stock. We have approximately 300 holders in street name
for our class A common stock.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999 on an actual basis.
Stockholders' equity:
Class A common stock ($.0001 par value) 20,000,000 shares authorized;
1,430,000 shares issued
and outstanding ............................................. $ 143
Class B common stock ($.0001 par value)
2,000,000 shares authorized; 1,400,000 shares issued
and outstanding ............................................. 140
Preferred Stock, $.0001 par value; 5,000,000 shares
authorized; 0 (actual) and 1,200,000 (as adjusted)
shares issued and outstanding................................ -0-
Additional paid-in capital...................................... 8,707,157
Retained earnings............................................... 1,335,986
Cumulative translation adjustment............................... (2,211,083)
Total stockholders' equity...................................... 7,832,343
Total capitalization............................................ 11,152,247
16
<PAGE>
EXCHANGE RATES
Unless otherwise specified, references 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
January 31, 2000, the exchange rate was one U.S. dollar to 517.89 Chilean pesos.
No representation is made that the Chilean peso or U.S. dollar amounts shown in
this prospectus could have been or could be converted into U.S. dollars or
Chilean pesos, as the case may be, at such rate or at any other rate.
The value of the Chilean peso floats freely. It is not tied to the U.S.
dollar.
Chile's Ley Organica Constitucional del Banco Central de Chile No.
18.840 the Central Bank Act of Chile, 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,
we may purchase and sell foreign exchange freely without authorization from the
Central Bank of Chile. These provisions allow us 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 1997 as
reported by the Central Bank of Chile. The table reflects the actual high and
low exchange rates on a yearly basis for each period and the average yearly
rates during the period.
Exchange Rates of Ch$ per U.S.$
-------------------------------
Year Low High Average
---- --- ---- -------
1997 411.85 439.81 419.31
1998 439.18 460.33 465.25
1999 468.70 550.93 508.79
Source: Central Bank of Chile
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<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data below, for the years ended December
31, 1997 and 1998 and the balance sheet data at December 31, 1997 and 1998, have
been derived from our consolidated financial statements and notes, which have
been audited by Spear, Safer, Harmon & Co., P.A., members of Horwath
International, independent auditors, whose report is included in this
prospectus. 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 in this
prospectus.
Statement of Operations Data
The statement of operations data for the nine months ended September
30, 1998 and 1999, and the balance sheet data at September 30, 1999 are derived
from unaudited financial statements 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 our financial condition and results of operations for such
periods. The results of operations for the nine months ended September 30, 1999
are not necessarily indicative of the results to be expected for any other
interim period or the entire year.
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
1997 1998 1998 1999 (Unaudited)
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
Revenues $14,562,157 $13,415,518 $10,187,645 $9,732,674
Cost of Operations 5,712,350 4,988,852 4,150,851 3,948,575
Selling and Administrative Expenses 7,817,129 7,704,376 5,411,170 5,779,295
Other Income (Expenses) 281,271 417,022 362,492 98,694
Net Income 1,313,949 1,139,312 988,116 103,498
Net Income per common share 0.94 0.57 0.57 0.04
Weighted average common shares 1,400,000 2,005,833 1,731,111 2,830,000
outstanding
</TABLE>
Balance Sheet Data
The balance sheet data as of September 30, 1999, does not reflect the
sale of 1,200,000 shares of preferred stock. This data also does not include
receipt of net proceeds from the exercise of our warrants, the representative's
warrants, or the over-allotment option.
Period Ended December 31, September 30,1999
1997 1998 (unaudited)
---- ---- -----------
Total Assets 9,259,632 11,774,546 11,152,247
Total Long-term liabilities 2,875,411 1,022,249 1,303,480
Total liabilities 6,084,073 2,895,083 3,319,904
Stockholders' equity 3,175,559 8,879,463 7,832,343
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis contains various forward looking
statements. These statements consist of any statement other than a recitation of
historical fact and can be identified by the use of forward-looking terminology
such as "may," "expect," "anticipate," "estimate" or "continue" or use of
negative or other variations or comparable terminology.
We caution that these statements are further qualified by important
factors that could cause actual results to differ materially from those
contained in the forward-looking statements, that these forward-looking
statements are necessarily speculative, and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements.
Overview
We generate revenues in two ways: sales of products from restaurant
locations (approximately 93% of total revenues) and sales of coupon books
(approximately 7% of total revenues). Typically, business entities will receive
our coupon books 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.
We incur costs primarily for raw food and paper supplies, which
represent approximately 37% and 40% of the total revenues for 1998 and 1997,
respectively. Payroll represents 22% and 19%, and rent represents 13% and 12%,
respectively, for 1998 and 1997. Our royalty and marketing costs are each 5% of
our total revenues each year.
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998
Results of Operation
Our gross revenues decreased from $10,187,645 for the nine months ended
September 30, 1998 to $9,732,674 for the nine months ended September 30, 1999, a
decrease of $454,971 or approximately 4%. A decline in sales for the nine months
ended September 30, 1999 in U.S. dollars was prompted by the devaluation of the
Chilean peso against the dollar. Sales in Chilean pesos actually increased from
Ch$4.650 billion in 1998 to Ch$4.885 billion for the same period in 1999, an
increase of Ch$235 million.
Our cost of operations for the nine months ended September 30, 1999
decreased $202,276 from $4,150,851 for the nine months ended September 30, 1998
to $3,948,575, a decrease of
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<PAGE>
approximately 5%. The decline in cost of operations is principally attributable
to the devaluation of the Chilean peso against the dollar.
Although our cost of operations and gross profit percentages (59% for
both years) remained materially the same when compared to the nine months ended
September 30, 1998, actual costs were reduced if the highly inflationary Chilean
economy is taken into consideration. The Chilean peso was devalued from
Ch$466.38 per U.S. dollar in September 1998 to Ch$531.11 per U.S. dollar in
September 1999, a devaluation index of 12%.
Payroll and employee benefits increased from $1,450,245 for the nine
months ended September 30, 1998 to $1,987,560 for the nine months ended
September 30, 1999, an increase of $537,315 or 37%. The increase is primarily
due to the opening and operation of new restaurants. In addition, the Chilean
Government increased the minimum wage by approximately 10% during 1999, from
Ch$419.27 per hour to Ch$470.35 per hour. This is an increase of approximately
U.S.$.09.
Occupancy increased from $1,223,306 for the nine months ended September
30, 1998 to $1,450,399 for the nine months ended September 30, 1999, an increase
of $227,093 or 19%. The increase is due primarily to the opening of new stores.
Selling and administrative expenses for the nine months ended September
30, 1999 were $2,341,336 compared to $2,737,619, for the nine months ended
September 30, 1998, a decrease of $396,283 or approximately 14%. This decrease
is attributable to the devaluation of the Chilean peso.
Other income (expenses) consisted of two major categories: other
revenues and interest expense and their composition is as follows:
The first category of other income includes advertising credits and
refunds from vendors and suppliers and amortization of deferred revenue arising
from an exclusivity agreement with ECUSA. ECUSA is the Pepsico franchise and
bottling company in Chile. The decrease in this category was from $879,089 for
the nine months ended September 30, 1998 to $287,192 for the nine months ended
September 30, 1999, a change of $591,897 or 67%. The decrease was primarily due
to a decline in the incentive fees paid to us by vendors and a reduction of
income tax refunds in 1999. For the nine months ended September 30, 1999,
approximately $83,000 relates to the amortization of deferred revenue and
$205,000 relates to refunds and credits from vendors.
The second category relates to interest expense paid to banks and
leasing companies which decreased by $328,099 to $188,498 in September 30, 1999
from $516,597 in September 30, 1998 or 64%. The decrease is due primarily to the
average outstanding balance of debt during the related periods.
20
<PAGE>
For the nine months ended September 30, 1999, we had a net income of
$103,498 compared to net income of $988,116 for the nine months ended September
30, 1998. One of the reasons for this decrease was the start-up costs connected
with the opening of new stores since our initial public offering in August 1998,
all of which required new equipment, new personnel and training, in addition to
new and extensive advertising efforts. Included in these new advertising efforts
were special promotions for the "Super Crunch" sandwich and "Star Wars." To
facilitate these promotions, we introduced new products at prices below their
regular profit margins. After September 1999, we began selling these products at
their regular prices. In addition, our management believes that the inflation
and drought Chile endured throughout the first nine months of the year had a
negative effect on revenues and margins.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Results of Operations
Our gross revenues decreased from $14,562,157 in 1997 to $13,415,518 in
1998, a decrease of $1,146,639 or approximately 8%. This decrease is due to a
number of components:
o during 1998, we increased the price of our combination meals
first introduced in 1997 which resulted in a decrease in the
volume of sales and an increase in the gross profit margin;
o during 1998, the Chilean peso in relation to the dollar
decreased by 8%. This decrease of the peso was caused in part
by the economic crisis in Asia and Brazil. As a consequence of
the Chilean government devaluing its currency, interest rates
increased to as much as 22%. This increase in interest rates
reduced overall consumer discretionary spending and
contributed to the decrease in gross revenues;
o although we opened six new restaurants in 1998, five were
opened in December 1998 and one in August 1998. The gross
revenues from the new restaurants were not sufficient to
offset expansion costs, pricing of our combination meals and
the devaluation of the Chilean peso; and
o there was a 28% increase in the number of fast food
restaurants in Chile, which created more competition.
Costs of our operations for the year ended December 31, 1998 decreased
$723,498 from $5,712,350 to $4,988,852 a decrease of approximately 13%. This
decrease was due to:
o the decrease in revenue discussed above;
o favorable pricing obtained for fresh chicken; and
21
<PAGE>
o the devaluation of the Chilean peso discussed above.
Our gross profit margins increased from 61% in 1997 to 63% in 1998 as a
result of the increase in the price of the combination meal coupled with the
decrease in the cost of fresh chicken.
Our selling and administrative expenses for the year ended December 31,
1998 were $7,704,776 compared to $7,817,129 in 1997 a decrease of $112,353 or
1%. This decrease is due to the devaluation of the Chilean peso offset in part
by increases in payroll and other costs associated with the opening of the six
new restaurants.
Our other income (expenses) increased from $281,271 during 1997 to
$417,022 for the year ended December 31, 1998. This increase of $135,751 is due
to an increase of $360,683 in incentive fees for the restaurants opened in 1998
offset by an increase in interest expense of $63,942 and a decrease in
miscellaneous income of $113,632. Interest expense increased due to the increase
in the Chilean interest rate. Miscellaneous income decreased as a result of the
one time revenue generated from related parties in 1997.
Our net income for the year ended December 31, 1998 was $1,139,312
compared to $1,313,949 for the year ended December 31, 1997, a decrease of
$174,637 or 13%. This decrease is due to the decrease in revenues as described
above.
Liquidity and Capital Resources
At September 30, 1999, accounts receivable increased by $99,365 to
$204,426 from $105,061 at December 31, 1998, due to monies due from ECUSA under
a new exclusivity agreement discussed in greater detail below.
Due from related parties increased to $343,470 at September 30, 1999
from $120,038 at December 31, 1998, an increase of $223,432 due to advances to
related parties.
Other current assets decreased to $115,053 at September 30, 1999 from
$236,647 at December 31, 1998, a decrease of $121,594, due to a decrease in
sales taxes receivable and other prepaid taxes.
At September 30, 1999, we had approximately $415,000 outstanding on our
$450,000 line-of-credit facility. The increase of almost $320,000 from December
31, 1998 was used to partially finance short-term operations.
We had no outstanding long-term debt obligations with banks at
September 30, 1999 and at December 31, 1998, respectively. We paid off our long
term obligations with banks with the proceeds received from our initial public
offering in August 1998. The total of capital lease
22
<PAGE>
obligations decreased by $847,540 when compared to December 31, 1998, because we
used the monies received from a new exclusivity agreement with ECUSA to reduce
this debt.
In August 1999, we entered into a new seven year agreement with ECUSA,
our supplier of Pepsi products, requiring our exclusive use of Pepsi products
for each of our existing Kentucky Foods Chile restaurants and each Kentucky
Foods Chile restaurant we open during the term of the agreement. In exchange for
this exclusivity agreement, we received and deferred approximately $780,000 net
of tax, which is being recognized and amortized ratably over a seven year
period. For the periods ended September 30, 1999 and 1998, we recognized
deferred revenues of approximately $83,000 and $71,000. See note 11 included in
our December 31, 1998 Consolidated Financial Statements for further explanation.
The new exclusivity agreement contains similar terms as the previous
agreement with respect to the use of Pepsi products in our KFC restaurants. We
received and deferred in exchange for committing to continue to use Pepsi
products exclusively, approximately $800,000 net of tax, at the signing of the
contract. We received an additional payment of $300,000 net of tax on January
15, 2000 and will receive $200,000 net of tax on January 15, 2001. In addition,
the agreement grants us significant purchase discounts on various products. Our
supplier has also agreed to pay us, on a monthly basis, a marketing allowance
based on the amount purchased from the supplier and to provide us with certain
equipment and to fund miscellaneous promotional expenses.
We estimate that based on this agreement, we will receive cash, other
certain payments and discounts from ECUSA as follows:
<TABLE>
<CAPTION>
Estimated
Cash and Estimated Revenue /
Calendar Other Certain Marketing Credit Total Discounts to
Year Payments and Purchase Payments be Recognized
<S> <C> <C> <C> <C>
1999 $ 806,000 $ 181,000 $ 987,000 249,193
2000 318,000 713,000 1,031,000 917,571
2001 218,000 792,000 1,010,000 996,571
2002 18,000 875,000 893,000 1,079,571
2003 18,000 962,000 980,000 1,166,571
2004 18,000 1,054,000 1,072,000 1,258,571
2005 to 2006 36,000 2,361,000 2,397,000 2,701,952
Total $1,432,000 $6,938,000 $8,370,000 $8,370,000
</TABLE>
We computed discounts and other payments based on our plans to place
three additional restaurants in service during each year of the exclusivity
agreement.
23
<PAGE>
We plan to record $1,432,000 in deferred revenue in 1999 for the cash
and other certain payments per the terms of the contract and to amortize them
over the life of the contract. We can only estimate future purchases and,
accordingly, discounts earned will be recorded as they are granted.
Seasonality
We generate the highest amount of sales during July and December. The
slowest month for sales is February, when many Chileans are on summer vacations.
The fourth quarter is normally the most profitable and this is due to the cash
rebates we receive based on purchases from suppliers. As we operate and open
additional stores, we anticipate amounts received in rebates will increase.
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.
24
<PAGE>
BUSINESS
General
We were organized as a Florida corporation on November 21, 1997 under
the name Uniservice Corp. and subsequently changed our name to Uniservice
Corporation. On August 4, 1998 we acquired 99.97% of Inversiones e Inmobiliaria
Kyoto S.A.'s interest in Kentucky Foods Chile S.A. in a series of transactions
in exchange for 1,399,900 shares of our class B common stock. These transactions
were effected simultaneously with the initial public offering of our class A
common stock and warrants to purchase shares of our class A common stock. The
remaining interest in Kentucky Foods Chile is held by Ricardo Vilensky.
In this section of our prospectus regarding our business, when we use
the terms "Uniservice," "we," and "our," we are referring to Uniservice
Corporation. All references to our historical activities before August 1998
refer to the historical activities of Inversiones e Inmobiliaria Kyoto and
Kentucky Foods Chile.
Our background
We have been involved in the restaurant business since our subsidiary,
Kentucky Foods Chile, commenced business in November 1986. We operated our first
four restaurants under the name Papa Pollo. During the second half of 1991 we
changed the names of our restaurants to Chicken Inn. In 1994, when we were
operating nine restaurants, we entered into a franchise agreement with Kentucky
Fried Chicken International Holdings and Tricon Restaurants International and
converted all of our restaurants into KFC restaurants. We opened eight KFC
restaurants in 1995, and an additional seven, five, seven and three restaurants
during 1996, 1997, 1998 and 1999, respectively.
We are currently the only KFC franchisee in Chile and the largest KFC
franchisee in Central and South America. We currently own and operate 36 KFC
Restaurants throughout Chile. We are also currently evaluating acquisition
opportunities within the restaurant industry in Chile. We plan on acquiring a
restaurant chain located in Chile, when we receive the proceeds from this
offering. We have identified and entered into preliminary discussions with
several acquisition possibilities, but have not entered into an acquisition
agreement with a specific company as of the date of this offering.
Fast food industry background
Overview
The fast food service industry consists of quick service restaurants,
referred to as QSRs, full service restaurants, other commercial restaurants,
including cafeterias and non-commercial
25
<PAGE>
restaurants such as those in schools and hospitals. The QSR segment of the fast
food service industry is a multi-billion dollar industry.
Fast food restaurant industry in Chile
Listed below is the number of restaurants for each of the major fast
food franchises located in Chile as of December 31, 1999.
Name Number of Restaurants Major Types of Products
---- -------------------- -----------------------
Lomiton(R) 82 Pork sandwiches
Doggis(R) 58 Hot dogs
McDonald's(R) 62 Hamburgers
KFC(R) 36 Chicken
Burger King(R) 25 Hamburgers
Pizza Hut(R) 30 Pizza
Domino's(R) 21 Pizza
Embers(R) 17 Roast beef sandwiches
Submarine(TM) 12 Subs/hoagies
Mr. Chips(R) 11 Roast beef sandwiches
Taco Bell(R) 11 Tacos and burritos
Mei Lin Ta(R) 10 Chinese food
Burger Inn(TM) 10 Hamburgers
Natural Juice(TM) 7 Salads and natural juices
Strategy
Our strategy is to expand our restaurant business throughout Chile
through the acquisition of restaurant businesses and the expansion of our
current restaurants. The following is an overview of our acquisition and
expansion strategy:
o Acquire fast food and other franchise restaurants located in Chile. We
have entered into discussions with several restaurant businesses
located in Chile, with a view towards expanding our operations in
Chile. This acquisition will be financed through the proceeds of this
offering and possibly other sources of capital.
We believe that this acquisition would result in greater economies of
scale in:
o reduced management to store ratios;
o purchase of food;
o purchase of consumables;
o negotiation with vendors;
o more favorable advertising rates; and
o the ability to formulate and implement cross-promotional
opportunities.
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<PAGE>
o Seek non-Chilean acquisition possibilities throughout Latin American
and the Carribean. As of the date of this offering we have not
identified any non-Chilean acquisition possibilities nor entered into
any negotiations.
o Increase our existing KFC restaurants overall margins and
profitability.
o Maximize operating efficiencies through continued centralized
management and advanced management information systems. This enables
us to:
o control corporate overhead and individual restaurant costs;
o capture economics of scale by utilizing our existing corporate
management structure; and
o continuously monitor point-of-sale data to more efficiently manage
our restaurant operations.
We believe we will experience both restaurant level and corporate level
savings as a result of an increase in size and related bargaining power,
particularly with respect to food and paper purchasing and distribution, and
restaurant maintenance services. As the number of our restaurants increase, we
believe our bargaining power should continue to increase. In particular, we
believe that we will be able to continue to spread our corporate overhead and
continue to reduce our cost of operations by centralization of management and
purchasing of food and other products in greater quantities as the restaurants
we acquire, own and operate increase business. We also believe that our risks of
expansion are substantially reduced due to:
o our management's extensive experience within the fast food
restaurant business;
o an increased Chilean middle class with discretionary income;
o the predictability of development costs and restaurant
profitability; and o the proven success of the chicken concept in
Chile.
Our operations
Overview
All executive management, financing, marketing and operations support
functions are conducted centrally at our Santiago Chile headquarters. At our
headquarters we maintain a state-of-the-art centralized computer system that is
linked with the cash register at each of our restaurants. Through this computer
system, we have access to up-to-the-minute information including, among other
things, revenues, inventory control, and the ability to monitor the progress of
various promotions.
Under our KFC franchise agreement, we are presently prohibited from
engaging in any KFC(R) brand business outside of Chile. Subject to compliance
with our franchise agreement and the development agreement, we may, however,
engage in other businesses which do not conflict
27
<PAGE>
with the KFC(R) brand, subject to prior approval by Tricon. We intend to proceed
with the acquisition of restaurant businesses regardless of whether or not we
receive approval by Tricon.
Acquisition developments
We are seeking to acquire a restaurant business located in Chile. We
have identified several acquisition possibilities are have begun preliminary
negotiations with their individual representatives. The completion of any
acquisition will be subject to approval of the respective board of directors, as
well as completion of our due diligence. The proceeds from this offering will be
used to finance the acquisition of one of these companies.
We believe that even though our potential acquisition is a restaurant
company, it will not compete directly with our KFC business, since the companies
we are focusing on do not sell fast food chicken products. We will continue to
look for other food companies to complement, but not directly compete with our
current business.
Our KFC restaurants
KFC restaurants offer basically the same menu, meal options and
distinctive KFC design as the KFC restaurants found throughout the United
States. Our KFC restaurants are of distinctive design and are generally located
in high-traffic areas including shopping malls, food courts, shopping centers,
and downtown areas. Our KFC restaurants consist of several building types with
various layouts and seating capacities. We currently have 36 restaurants, 34 of
which are open seven days a week, typically from 10:00 a.m. to midnight.
Currently, we do not accept credit cards, although we may elect to do so in the
future. Some of our restaurants offer drive-through service. Home delivery is
available at no-charge from 17 of our restaurants.
All of our KFC restaurants offer a full line of KFC 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, 21 of our current restaurants are licensed to sell beer (the
drinking age in Chile is 18).
Quality assurance
Our operations are focused on achieving a high level of customer
satisfaction, with speed, accuracy and quality of service closely monitored. Our
senior management and restaurant management staff are principally responsible
for ensuring compliance with our internal and Tricon's operating procedures. We
and Tricon 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 and internal surveys, detailed reports from
our own management information system and detailed reports from Tricon are
tabulated and distributed to management on a regular basis to help maintain
compliance. In addition to
28
<PAGE>
customer satisfaction, these reports track comparable sales and customer counts,
labor and food costs, inventory levels, waste losses and cash balances.
We closely supervise the operation of all of our 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 and audits of our restaurants to ensure
quality.
Our 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 has set maximum time
standards for holding unsold prepared food in order to maintain freshness of our
KFC products.
Supplies and distribution
We inspect the facilities of our suppliers and request samples for
testing and other quality control monitoring from time to time. Many of these
suppliers are also subject to Chilean government inspection. In addition,
representatives of our 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.
Under our KFC franchise agreement, we are required to buy food
supplies, ingredients, seasonings, and equipment for our KFC restaurants only
from approved suppliers who are required to meet or exceed system standards
designed to ensure product quality, safety and consistency. We purchase KFC's
pre-packaged seasoning which contain KFC's proprietary recipes directly from
Tricon's principal U.S. supplier.
We purchase much of our products by means of centralized buying in
order to obtain the best prices. As the number of our restaurants increase, we
believe that our bargaining power to purchase goods at the best prices and on
favorable terms should also increase. We purchase our supplies and foodstuffs
from vendors on favorable terms and conditions (including quantity discounts).
We believe there are a number of vendors who can supply us with adequate
quantities of products and that the loss of any one supplier would not have a
material impact on our 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. We have not experienced any
significant continuous shortages of supplies. Prices paid for these supplies may
29
<PAGE>
be subject to fluctuation. When prices increase, we may be able to pass on such
increases to our customers.
Marketing, advertising and promotion
Each year, we typically introduce different types of promotions, either
in conjunction with Tricon or independently, including:
o value-type combination meals;
o new products;
o kids meals; and
o coupons.
A portion of our marketing and advertising plan includes participating
in certain of Tricon's internationally licensed promotions and marketing fund.
We also advertise on cable television and radio.
Franchise agreement with Kentucky Fried Chicken International Holdings and
Tricon
We may be in default of our KFC franchise agreement. Of our 36
restaurants currently in operation, 28 are operating under our franchise
agreement, 5 are operating under a temporary license agreement, and 3 of our
restaurants are operating without any agreement. Kentucky Fried Chicken
International Holdings and Tricon have prohibited us from opening any additional
restaurants until a new franchise and development agreement covering our 8
restaurants operating outside our KFC franchise agreement and any future
restaurants has been executed. The new franchise agreement should be consistent
with the original franchise agreement, permitting us to use, among other things,
KFC's proprietary trade names, trademarks, service marks, recipes, and trade
dress. We are also permitted to sell and promote only KFC approved products.
Although Tricon wants to increase our royalty payments to 6% of our total
revenues.
We have been served with notice by Tricon that the opening and
operation of our 3 restaurants without Tricon's approval or under an agreement
with Tricon has breached our KFC franchise agreement. Tricon has informed us
that the opening of these 3 restaurants was unauthorized and the use of KFC
property, confidential information and product is unauthorized for these 3
restaurants. To cure this default and legally operate these restaurants we must
execute Tricon's standard international franchise agreement and pay initial fees
for the 3 unauthorized restaurants of approximately $105,000.
If we do not immediately cure this default, Tricon may force us to
cease KFC operations at these 3 locations and we may receive a formal notice of
default, which could ultimately terminate our franchise agreement.
30
<PAGE>
Under our original franchise agreement at all times, Mr. Vilensky must
retain voting control of Kentucky Foods Chile and our company. As result, we
have 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. Additionally, unless Mr.
Vilensky obtains approval from Tricon, he must retain at all times a minimum of
30% ownership of our company. As a condition to our franchise agreement, Mr.
Vilensky may sell up to the lesser of 10% of the outstanding amount of our
capital stock or an amount so that his ownership interest will not be below 30%
provided, however, that the proceeds from sale received by Mr. Vilensky may not
be used to start a new company. When our warrants are exercised, Mr. Vilensky's
ownership interest will fall below 30%, in which case we will be in technical
default of our KFC franchise agreement.
Another condition of our franchise agreement requires us to have a
designated operator, who is the person that oversees the management of our
day-to-day operations. 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 Tricon. Although not
required, Tricon has indicated that it would prefer the designated operator to
also control our company. In the event that Tricon 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 our company within six months. In the event that no sale
is completed within the six month period, Tricon has the option to purchase Mr.
Vilensky's interest, or the interest of Mr.
Vilensky's heirs, for a market value determined by three appraisers.
The initial franchise term for each of our restaurants operating under
our franchise Agreement is ten years. Expiration dates range between December
31, 2003 and December 31, 2007, depending on when the particular restaurant was
opened. The initial franchise term is renewable, at our option, for additional
ten year periods, provided that:
o the renewal is permitted by local law;
o we have corrected any default under the franchise agreement and
has not been in material default within the 24 months preceding
the renewal request;
o we comply with annual performance criteria;
o we request renewal within 12 to 18 months prior to the expiration
of the initial term;
o we agree to make capital improvements to conform with Tricon's
then current standards and completes the improvements, as agreed;
o we agree to relocate any restaurants Tricon determines cannot be
renovated to meet the then current standards;
o we execute a new franchise agreement if the current form has been
modified;
o we are current in all obligations, monetary or otherwise, to
Tricon; and o we pay a renewal fee as agreed upon with Tricon.
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The monthly royalty fees for each of our KFC restaurants operating
under our franchise agreement is 5% of net revenues. The monthly royalty fees
for each of our KFC restaurants operating under our temporary license agreement
is 5% of net revenues. Royalty fees will increase to 6% in 2005.
Under our franchise agreement, Tricon's approval is required for our
operation of any new KFC restaurants or other fast food restaurant and Tricon's
consent to such renewals, acquisitions or development may be withheld in
Tricon's sole discretion.
We intend to continue with our acquisition strategy and the operation
of our current restaurants regardless of the status of our relationship with
Tricon. If we lose our right to the KFC concept we will operate our current
restaurants without the KFC concept and methods. However, if our KFC franchise
agreement is terminated (either by default or expiration) we are prohibited from
competing with KFC for 12 months. While our franchise agreement contains this
non-compete clause, non-compete agreements are generally considered illegal and
unenforceable under Chilean law.
Competition
The overall food service industry and the quick service restaurant
(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. We compete
within the Chilean 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 McDonald's(R) and Burger King(R) compete with one another and do not
serve a variety of chicken products, while our 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 us. During 1999 there was an increase of approximately 7% in the number of
QSRs in Chile from 365 to 392.
Patents and trademarks
Under our franchise agreement with Tricon we may use KFC's proprietary
trade names, trademarks, service marks, recipes, and trade dress. If our
franchise agreement is terminated or expires we will lose all rights to use
KFC's proprietary trade names, trademarks, service marks, recipes, and trade
dress.
Our company does not have any proprietary trade name protection,
trademark protection, patents, or service marks, however, our subsidiary,
Kentucky Foods Chile, holds several proprietary trade names, trademarks and
service marks in Chile.
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Government regulation
We are subject to various Chilean national, provincial, and municipal
laws affecting its business. Each of our 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, we have obtained all necessary
licenses and approvals.
A small portion of our 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 eighteen of patrons
to purchase beer.
We are also subject to Chilean national minimum wage laws governing
matters as overtime and working conditions. Since the bulk of our employees are
paid on an hourly basis at rates related to the minimum wage, increases in the
minimum wage could significantly increase our labor costs. We have not, to date,
been materially adversely affected by these laws. Our business is also 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.
Personnel
We believe that high quality, customer-focused restaurant management is
critical to long-term success. Generally, each of our restaurants has one
restaurant general manager, two supervisors and teams of workers. Restaurant
management structure varies by unit size. Each restaurant usually has between 10
and 35 hourly employees, most of whom work part-time. We pay an hourly wage of
$1.20 per hour, the average hourly wage in Chile. Overtime is paid (one and one
half time minimum wage, or $1.79 per hour) to any employee who 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 Chilean minimum wage, the
equivalent of U.S.$2.40 per hour) is paid on Sundays and holidays. Restaurant
general managers receive base salaries, as well as incentive bonuses, based upon
that restaurant's productivity and profitability.
Foreign Corrupt Practices Act
Substantially all of our operations are conducted in South America. To
the extent that we conduct operations and sell our products outside the U.S., we
are 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, foreign political party official or any
candidate for foreign political office or any person with knowledge that all or
a portion of
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money or thing of value will be offered, given, or promised, directly or
indirectly, to any of these people.
We have not made any offers, payments, promises to pay, or
authorization of any money or anything of value to any foreign official, foreign
political party or foreign political party official or candidate for foreign
political office and have implemented a policy to be followed by our officers,
directors, employees and anyone acting on our behalf, that no payments can and
will be made. We have made all employees cognizant of the need for compliance
with the Foreign Corrupt Practices Act and any violation of our policy will
result in dismissal. We also conduct 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 Chilean Decree-Law No. 600 of
1974, as amended. DL 600 requires that a foreign investor and the government of
Chile 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 26 years, there can be no assurances that a breach by or political
changes within the Chilean government will not occur in the future or which
would adversely affect our rights to do business in Chile.
Employees
As of December 31, 1999, we employed 852 employees, of which 40 were
full-time salaried employees in administration, 115 were full-time salaried
employees in supervisory and management positions and 697 were full-time and
part-time hourly employees who were employed in food preparation and serving.
All of our management and employees who reside in
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Chile speak Spanish and our senior management team in Chile also communicates in
English. None of our employees are covered by a collective bargaining agreement.
We believe that the dedication of its employees is critical to its success, and
that its relations with its employees are good.
Properties
All of our restaurants are presently located in leased space. The
leases for our 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.
Our leases either specify a fixed annual rent with fixed increases or are
variable. Generally, our leases are net leases which require us 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.
We lease approximately 4,000 square feet of executive offices in
Santiago, Chile from Inmobiliaria KilKil S.A., our affiliate, 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, ending May 1, 2007.
In August, 1998, we entered into a two year lease with Andean Financial
Corporation for our corporate U.S. offices in Boca Raton, Florida. This lease
may be renewed for an additional two year term. David Mayer, one of our
directors, is the sole shareholder, officer and director of Andean Financial
Corporation. The annual lease amount is $10,000 annually, payable quarterly,
which includes all telephone and facsimile, secretarial and other expenses.
Legal proceedings
We are involved in legal proceedings arising in the ordinary course of
business. We are not involved in any legal proceedings that we believes will
result, individually or in the aggregate, in a material adverse effect upon its
financial condition or results of operations.
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<PAGE>
MANAGEMENT
Directors and executive officers of Uniservice Corporation
Name Age Position
- ---- --- --------
Ricardo Vilensky 43 Chief Executive Officer, President, Chairman of
the Board of Directors
Mauricio Aguirre 36 Chief Financial Officer, Vice President of
Finance and Administration, Director
Juan Carlos Cerda 43 Director
Avram Fritch 41 Director
David Mayer 57 Director, Assistant Secretary
Sergio Vivanco 46 Director
Ricardo Vilensky has served as our chief executive officer, president
and chairman since our formation in November 1997 and as the chief executive
officer, president and chairman of Kentucky Foods Chile 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 21 Domino's pizza
franchises in Chile. From June 1991 to September 1996, Mr. Vilensky was the
general manager of Comercial Submarine Chile Limitada, which owned 10 submarine
and hoagie 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.
Mauricio Aguirre has served as our chief financial officer, vice
president of finance and administration and director since August 1998. He has
served as vice president of administration and finance of Kentucky Foods Chile
since September 1994 and as director of Kentucky Foods 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, public accountant and auditor.
Juan Carlos Cerda has served as our director since August 1998. He has
served as directors of Kentucky Foods Chile since May 1996. From June 1994
through 1998, Mr. Cerda was a partner with the law firm of Estudio Juridico
Figueroa and Valenzuela in Chile. He is currently a partner with the tax
consulting firm of Cerda y Compania, located in Chile. 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.
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Avram Fritch has served as our director since August 1998. Mr. Fritch
is the founder of and currently serves as president of General Security Chile,
S.A., a residential and commercial security and alarm company located in
Santiago, Chile, since 1991. General Security is a wholly-owned subsidiary of
Tyco International. Since 1996, he has served as the general manager of
Inversiones y Rentas Carmel S.A., a Chilean investment company. Since January
2000 he has served as vice president of Rebrisa, S.A., a Chilean investment
company. Mr. Fritch is a mechanical engineer and was a captain in the Defense
Force of Israel.
David Mayer has served as our director and assistant secretary since
our formation in November 1997. He has also entered into a ten year consulting
agreement with us. Mr. Mayer has served as president of Andean Financial
Corporation, a private investment banking firm, since July 1997. We lease our
U.S. offices from Andean Financial Corporation. Mr. Mayer has served as a
director and as assistant secretary for Bio-Aqua Systems, Inc., a Florida
corporation, since March 1999. He is also currently a director for Our
Universe.com, Inc., a Florida corporation. From January 1992 to March 1996, Mr.
Mayer was a consultant to various companies in the entertainment industry.
Sergio Vivanco has served as a member of our board of directors since
August 1998. Mr. Vivanco has been a member of the board of directors of Kentucky
Foods Chile since 1991 and is a member of the board of directors of Inversiones
Huillimapu S.A., an affiliate of Inversiones e Inmobiliaria Kyoto. Mr. Vivanco
has been an attorney since 1979 and has served as general counsel since 1986 to
Inversiones e Inmobiliaria Kyoto and Kentucky Foods Chile. Mr. Vivanco is a
partner in the law firm of Abud, Vivanco and Vergara in Santiago, Chile, which
serves as our legal counsel in Chile.
Directors and executive officers of Kentucky Foods Chile
The directors and executive officers of Kentucky Foods Chile are as follows:
Name Age Position
- ---- --- --------
Ricardo Vilensky(1) 43 Chief Executive Officer, President,
Chairman of the Board, Director
Mauricio Aguirre(1) 35 Chief Financial Officer, Vice President
of Finance and Administration, Director
Sergio Vivanco(1) 46 Director
(1) See Directors and executive officers of Uniservice Corporation.
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Election of directors
Each of our directors are elected at our annual meeting of shareholders
and holds office until the next annual meeting of shareholders or until his or
her successor is elected and qualified. Our bylaws permit our board of directors
to fill any vacancy. Directors appointed by our board of directors may serve
until the next annual meeting of shareholders or until his successor is elected
and qualified.
Directors' compensation
Our non-employee directors, David Mayer, Sergio Vivanco, Avram Fritch,
and Carlos Cerda, receive $200 plus expenses for attendance at each meeting of
our board of directors, as well as reimbursement of reasonable out-of-pocket
expenses incurred in connection with their attendance at the meetings. We intend
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 our board of directors
Our audit committee consists of Juan Carlos Cerda, Sergio Vivanco, and
Avram Fritch. Our audit committee reviews the work of the audit staff and direct
reports to be prepared. Our audit committee oversees our continuous audit
program to protect against improper and unsound practices and to furnish
adequate protection for all of our assets and records. Our audit committee also
acts as liaison to our independent certified public accountants, and conducts
audit work as is necessary and receives written and oral reports from our
independent certified public accountants.
Our compensation and stock option committee consists of Messrs.
Vivanco, Fritch, Cerda, and Mayer. Our compensation and stock option committee
makes recommendations with respect to compensation of senior officers and
granting of stock options and stock awards.
Our nominating committee consists of Messrs. Vilensky, Fritch, Cerda,
and Mayer. Our nominating committee makes recommendations with respect to
qualified individuals to become members of our board of directors.
Of the six members of our board of directors, Messrs. Cerda, Fritch,
Vivanco and Mayer are non-employee directors. However, we have entered into a
consulting agreement with Mr. Mayer and Mr. Vivanco serves as our Chilean legal
counsel.
There are no family relationships among any of the executive officers
or directors.
Appointment of officers
Our officers are elected annually by our board of directors and their
terms of office are, except to the extent governed by employment contracts, at
the discretion of our board of directors. Our officers devote full time to our
business.
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Executive compensation
The following table sets forth compensation awarded to, earned by or
paid to our chief executive officer and each executive officer whose
compensation exceeded $100,000 for the year ended December 31, 1999. We did not
grant any stock options, restricted stock awards or stock appreciation rights or
make any long-term incentive plan payments during 1999. The compensation Mr.
Vilensky derived in 1996 and 1997 was received from Kentucky Foods Chile.
<TABLE>
<CAPTION>
Summary Compensation Table
---------------------------
Other Annual
Name and Principal Position Year Salary($) Bonus ($) Compensation ($)
- --------------------------- ---- --------- --------- ----------------
<S> <C> <C> <C> <C>
Ricardo Vilensky, CEO, 1999 $80,000 $44,559 $36,000
President and Chairman 1998 -0- -0- -0-
1997 $85,868 -0- $19,305
</TABLE>
Employment agreements
Ricardo Vilensky, chief executive officer, president and chairman. We
have entered into a written three-year employment agreement with Mr. Vilensky,
which commenced August 1998. Under the terms and conditions of his employment
agreement, Mr. Vilensky receives an initial annual base salary of $80,000,
annual bonuses of up to $100,000, as determined by our board of directors, and
other annual compensation of $90,000, which includes:
o $15,000 for school expenses for Mr. Vilensky's children,
o $10,000 for entertainment,
o $20,000 for travel,
o $20,000 for medical reimbursement, and
o $28,000 for automobile expenses including cost of vehicle,
maintenance and insurance.
Mr. Vilensky is 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 we and Mr. Vilensky
mutually agree are necessary and appropriate. In 1998 Mr. Vilensky deferred all
compensation due to him. Mr. Vilensky's compensation for 1998 is being
negotiated.
Mauricio Aguirre, Chief Financial Officer. We have entered into a
written one year employment agreement with Mauricio Aguirre, which commenced
August 1998. 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
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<PAGE>
Board of Directors, and other annual compensation of $20,000, which includes
$10,000 for medical reimbursement and $10,000 for automobile expenses.
Chilean Social Security/AFP and ISAPRE. Messrs. Vilensky and Aguirre
are also entitled to receive certain social security benefits under 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 $4,408.95 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:
(1) 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.
(2) 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.
(3) 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 $1,713.00) 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 $1,713.00 per month, or an aggregate of $18,844.00). When the employee
terminates his or her employment, no compensation is legally required.
Stock options
During fiscal year 1998, there were no option or SAR grants to any
persons, including any of our executive officers or directors.
Incentive and non-qualified stock option plan
On January 5, 1998, our board of directors and a majority of our
shareholders adopted our stock option plan. The purpose of our stock option plan
is to increase our employees', advisors', consultants', and directors'
proprietary interest in our company, to align more closely their interests with
the interests of our shareholders, and to enable us to attract and retain the
services
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<PAGE>
of experienced and highly qualified employees and directors. We have reserved an
aggregate of 200,000 shares of Class A common stock under our stock option plan.
Our board of directors, or a committee of our board of directors,
administers and interprets our stock option plan and is authorized to grant
options to all our eligible employees. Our stock option plan includes our
officers and directors (whether or not employees). Our stock option 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 our stock option plan on terms and at prices
determined by our board of directors, or a committee of our board of directors,
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 our stock option 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 our stock option plan may be
paid in cash, in shares of class A common stock or other consideration that is
acceptable to our board of directors or a committee of our board of directors.
If the exercise price is paid in whole or in part in class A common stock, the
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 stated in our stock option plan
with respect to the underlying option except as varied by our board of directors
or a committee of our board of directors. 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 our stock option plan will be exercisable after
the period or periods specified in the option agreement. Options granted under
our stock option 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. Our stock option plan also authorizes us to
make loans to optionees to enable them to exercise their options.
As of the date of this offering, no options have been granted pursuant
to our stock option plan. To the extent that any options granted within a year
of this offering are exercised, the underlying shares of class A common stock
will be subject to a 13 month lock-up period commencing on the effective date of
this offering.
Option exercises and holdings
To date, we have not issued any options or SARs to any persons. No
options or SARs were exercised or unexercised during fiscal year 1998.
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Indemnification of officers and directors
The Florida Business Corporation Act permits the indemnification of
directors, employees, officers and agents of Florida corporations. However, the
provisions of the Florida Business 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 non-monetary relief will remain available. Our articles of incorporation and
bylaws provide that we shall indemnify our directors and officers to the fullest
extent permitted by the Florida Business Corporation Act. To the extent
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us under these
provisions, we have been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Limitation of liability
Under Florida law, our directors are protected against personal
liability for monetary damages from breaches of their duty of care. As a result,
our directors will not be liable in an action by us or a shareholder for
monetary damages alleging negligence or gross negligence in the performance of
their duties. In such actions, our directors remain liable for monetary damages
for willful misconduct, conscious disregard of our best interest, and for
transactions from which a director derives an improper personal benefit. Our
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 our
directors under federal or applicable state securities laws is also unaffected.
While our 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.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 4, 1998, Inversiones e Inmobiliaria Kyoto purchased 1,399,900
shares of class B common stock from us for $2,200,000, and we purchased
Inversiones e Inmobiliaria Kyoto's 99.97% interest in Kentucky Foods Chile for
$2,200,000 and Kentucky Foods Chile became our majority owned (99.97%)
subsidiary. The remaining 15 shares of Kentucky Foods Chile stock are owned by
Ricardo Vilensky, individually. Mr. Vilensky retained this minority interest
because Chilean law requires that a Chilean corporation be owned by not less
than two shareholders.
Inversiones e Inmobiliaria Kyoto is a Chilean limited partnership whose
partners are Inversiones Huillimapu S.A. (99%) and Ricardo Vilensky (1%), who is
also its general manager. The shareholders of Inversiones Huillimapu S.A. are
Ricardo Vilensky (90%) and Compania Administradora de Restaurantes Limitada
(10%). The partners of Compania Administradora de Restaurantes Limitada are
Inversiones e Inmobiliaria Kyoto (98%) and Mr. Vilensky (2%). The general
manager of Compania Administradora de Restaurantes Limitada is Mr. Vilensky.
Mr. Vilensky owns a 50% interest in Ann Arbor Foods S.A. which owns 21
Domino's Pizza restaurants in Chile. In 1998, Mr. Vilensky agreed with Tricon to
resign as an officer and director in Ann Arbor and to divest himself of all
interest in these franchises in the future.
On April 30, 1997, Kentucky Foods Chile sold its office facility in
Santiago, Chile to Inmobiliaria KilKil S.A., whose shareholders include
Inversiones Huillimapu (99%) and Mr. Vilensky (1%). In consideration for the
payment price of $577,574, Inmobiliaria KilKil issued to Kentucky Foods Chile a
promissory note for the total amount due, and in turn, Kentucky Foods Chile
transferred the note to its principal shareholder, Inversiones e Inmobiliaria
Kyoto. Of the total amount due, $303,191 was paid in the form of dividends to
Inversiones e Inmobiliaria Kyoto for 1996 and $274,383 has been used to satisfy
a loan obligation due by Kentucky Foods Chile to Inversiones e Inmobiliaria
Kyoto in connection with the remodeling of two of our restaurants. On May 1,
1997, Kentucky Foods Chile entered into a ten year lease agreement with
Inmobiliaria KilKil, at a rate of $9,050 per month, plus common area maintenance
and general expenses of $1,100 per month.
We entered into a two year lease agreement in August 1998, with Andean
Financial Corporation to use a portion of Andean Financial Corporation's
facilities in Boca Raton, Florida, for our corporate U.S. offices. David Mayer,
our assistant secretary and director, is the sole shareholder, officer and
director of Andean Financial Corporation. The annual agreement amount will be
payable semi-annually or as otherwise agreed upon between the parties. This
lease agreement may be renewed for an additional two year term.
In August 1998, Kentucky Foods Chile entered into a ten year agreement
with David Mayer. Under this agreement Mr. Mayer performs certain services for
us, including:
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<PAGE>
o advising in the preparation and implementation of our business plan,
o research, evaluation and negotiations with strategic partners and
alternative sources of credit and financial opportunities,
o assisting in conducting market surveys,
o assisting in shareholder and investor relations,
o assisting in the preparation of reports to shareholders and
investors, and
o acting as the U.S. liaison to Tricon and to U.S. vendors.
In consideration for these services, Mr. Mayer receives an annual fee of
approximately $35,000, or as otherwise agreed upon by the parties. As of
December 31, 1999, we had prepaid all of the amounts due.
Sergio Vivanco, a member of our board of directors, serves as our
Chilean legal counsel.
Juan Carlos Cerda, a member of our board of directors, also serves as
our tax advisor. He receives $10,000 per year for his services.
We believe that all transactions with our officers, shareholders and
each of our affiliated companies have been made on terms no less favorable to
our company than those available from unaffiliated parties. In the future, we
intend to handle transactions of a similar nature on terms no less favorable to
our company than those available from unaffiliated parties.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table provides certain information regarding our common
stock beneficially owned as of the date of this prospectus by:
o each person who is known by us to own beneficially 5% or more of
our common stock;
o by each of our executive officers and directors; and
o by all of our executive officers and directors as a group.
After the conversion of our preferred stock, the common stock held by our
officers, directors and Inversiones e Inmobiliaria Kyoto, directly or indirectly
will represent an aggregate 36.2% of the outstanding securities issued and will
represent an aggregate 84.7% of our voting interest since, Inversiones e
Inmobiliaria Kyoto and Ricardo Vilensky, holders of our class B common stock,
are entitled to ten votes per share of class B common stock held. The conversion
of our warrants are not taken into consideration in computing the ownership and
voting percentages below.
As of the effective date of this offering none of our officers,
directors or their affiliates own, directly or indirectly, shares of our
preferred stock. Unless otherwise disclosed, the mailing addresses for the
individuals named below is Carmencita #25, Office 102, Santiago, Chile.
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Name and Address of of Common Stock Ownership Voting
Beneficial Owner Beneficially Owned Percentage Percentage
- ------------------- ------------------ ---------- ----------
Before After Before After
Conversion Conversion Conversion Conversion
<S> <C> <C> <C> <C> <C> <C>
Ricardo Vilensky 1,457,000(1)(2) 51.5% 36.2% 9.13% 84.7%
Mauricio Aguirre 2,000 * * * *
Juan Carlos Cerda -0- -0- -0- -0- -0-
Avram Fritch 5,000 * * * *
David Mayer(3) -0- -0- -0- -0- -0-
Sergio Vivanco 2,000 * * * *
Inversiones e Inmobiliaria Kyoto 1,399,900 49.5% 34.7% 90.9% 84.3%
All executive officers and
directors as a group (6 persons) 1,466,400(1)(2) 51.8% 36.4% 91.3% 84.7%
</TABLE>
* Less than one percent.
(1) Includes 1,400,000 shares of class B common stock.
(2) Includes 1,399,900 shares of class B common stock issued to Inversiones e
Inmobiliaria Kyoto and 100 shares of class B common stock issued to Mr.
Vilensky as founder's shares. Include 57,000 shares of class A common stock
held jointly by Mr. Vilensky and Jessica Vilensky, Mr. Vilensky's wife.
(3) Mr. Mayer's address is 1900 Glades Road, Suite 351, Boca Raton, Florida
33301.
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<PAGE>
DESCRIPTION OF SECURITIES
We are authorized to issue 30,000,000 shares of common stock, par value
$.0001 and 5,000,000 shares of preferred stock, par value $.0001. We have
summarized our units, common stock, warrants and preferred stock below.
Units
Each unit we are offering consists of one share of series A convertible
cumulative redeemable preferred stock and common stock purchase warrant. The
components of our units are not separable until six months after the closing of
this offering.
Common stock
20,000,000 shares of our common stock are designated as class A common
stock and 2,000,000 shares are designated as class B common stock. As of the
date of this prospectus there are 1,430,000 shares of class A common stock
outstanding and 1,400,000 shares of class B common stock outstanding.
We have also reserved up to an aggregate of 200,000 shares of our class
A common stock for our stock option plan.
Upon our liquidation, dissolution or winding up, after payment of
creditors and holders of any of our senior securities, including preferred
stock, our assets will be divided pro rata on a per share basis among the
holders of the shares of common stock. Our common stock has no preemptive or
other subscription rights, and there are no conversion rights or redemption or
sinking fund provisions. All outstanding shares of common stock are fully paid
and non-assessable.
Subject to the dividend rights of the holders of any other class of
common stock or preferred stock, if applicable, and as a condition of the
franchise agreement, the approval of Tricon, 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.
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 our shareholders. Holders of shares of
class B common stock are entitled to ten votes per for each share of class B
common stock on all matters to be voted on by our shareholders. Our class A
common stock and our class B common stock do not have cumulative voting rights.
The holders of more than 50% of the voting rights for the election of directors
can elect all of our directors. Following this offering, Ricardo Vilensky will
have the ability to vote 1,400,000 shares of class B common stock and 57,000
shares of our class A
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common stock or approximately 91% of our votes. Our bylaws 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.
Holders of class B common stock have the right to transfer or sell
shares of class B common stock, and/or convert shares of class B common stock
into shares of class A common stock on a one share for one share basis. Any
converted shares 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. Each certificate representing shares of class B
common stock contains a legend setting for the restrictions imposed by
Werbel-Roth Securities, Inc. and Tricon.
Preferred stock
Our preferred stock may be issued in one or more series. The title and
designations of our preferred stock is determined by our board of directors in a
corporate resolution. Each series of our preferred stock will have voting
rights, if any, preferences, and other rights as determined by our board of
directors. Qualifications, limitations or restrictions may also be placed on a
series of our preferred stock if stated in resolutions of our board of directors
adopted before the issuance a series of our preferred stock.
The preferred stock we are offering is the first series of preferred
shares designated by our board of directors. Unless we have the affirmative vote
of a majority of the holders of the preferred shares we are offering, we may not
amend, alter or repeal any of the provisions of our articles of incorporation or
articles of designation for our preferred shares. We also need the affirmative
vote of a majority of the holders of preferred shares if we want to authorize
any reclassification of our preferred stock that would adversely affect the
preferences, special rights or privileges or voting power of our preferred
shares. We may not create or issue any class of stock ranking prior to our
preferred shares as to dividends or distribution of assets, or create or issue
any shares of any series of our authorized preferred stock ranking prior to our
preferred shares rights to dividends or distribution on liquidation.
As of the date of this offering our board of directors does not have
plans to issue any other series of preferred stock. However, purchasers of the
preferred stock in this offering should be aware that subject to restrictions,
the holders of any series of preferred stock issued in the future could have
voting rights, rights to receive dividends or rights to distribution in
liquidation superior to holders of our preferred shares or common stock.
Since the terms of each series of our preferred stock may be fixed by
our board of directors without shareholder action, our preferred stock can be
issued with terms calculated to defeat a proposed takeover or make the removal
of our management more difficult.
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<PAGE>
Series A convertible cumulative redeemable preferred stock
Our board of directors has filed a certificate of designation
designating 1,500,000 shares of preferred stock as series A convertible
cumulative redeemable preferred stock. This preferred stock has the following
rights, preferences and privileges:
Conversion. Unless previously redeemed by us, the holders of our
preferred shares are entitled, beginning six months after the closing of this
offering, to convert each preferred share into shares of Class A common stock at
price equal to ___% of the closing bid price of our outstanding common stock on
the day prior to the effective date of this prospectus. Our preferred stock is
subject to adjustment described below.
Instead of issuing fractional shares upon conversion, we may pay an
equivalent amount in cash. No adjustment for dividends will be made on
conversion of any preferred shares. Accrued dividends will not be paid on a
preferred share if it is converted between a dividend payment date and the next
record date for dividend payments. If any holder surrenders a preferred share
for conversion after the close of business on the record date for the payment of
a dividend and prior to the opening of business on the next dividend payment
date, then, the dividend payable on the dividend date will be paid to the
registered holder of the share on the record date. In this instance the share,
when surrendered for conversion, must be accompanied by payment of an amount
equal to the dividend payable on such dividend payment date on the share
converted. In the case of preferred shares called for redemption, conversion
rights will expire at the close of business on the redemption date.
Our conversion rate is subject to adjustment upon the occurrence of
certain events, including the issuance of our stock as a dividend or
distribution on our common stock. The conversion rate is not subject to
adjustment upon the occurrence of:
o issuance of our stock as dividends on the preferred shares;
o sub-divisions and combinations of our common stock;
o certain reclassifications, consolidations, mergers and sales of
our property;
o the issuance to all holders of our common stock of certain rights
or warrants; and
o the distribution to all holders of common stock of evidence of
our indebtedness or of assets (excluding cash dividends or
distributions from retained earnings).
Except as stated above, the conversion price will not be adjusted for the
issuance of common stock or any securities convertible into or exchangeable for
common stock, or carrying the right to purchase any of the foregoing, in
exchange for cash, property or services.
Dividends. Each preferred share is entitled to cumulative semi-annual
dividends of 8% payable semi-annually on the first day of ______ and _______
commencing _______ 2000. Unpaid dividends will accumulate and be payable prior
to the payment of dividends on our common stock. We will pay dividends in cash.
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<PAGE>
Redemption. Our preferred shares are redeemable at our option after a
two year period commencing on the date of this prospectus at our option, on not
less than 30 days' written notice to registered holders at the redemption price
per share determined below plus accumulated dividends. We may modify the
redemption rights. The redemption rights are subject to the adjustments for
recapitalization and stock splits.
If Redeemed
During 12 Months Redemption
Period Ending Price
----------------- ------------
2002 _____%
2003 _____%
2004 _____%
2005 _____%
2006 _____%
Voting rights. Preferred shares are not entitled to voting rights,
except as required by the Florida Business Corporation Act.
Preference on liquidation. Preferred shares will be entitled to a
preference on liquidation equal to $___ per share, plus accumulated unpaid
dividends.
No sinking fund. We are not required to provide for the retirement or
redemption of our preferred shares through the operation of a sinking fund.
Common stock purchase warrants
We have outstanding 1,610,000 common stock purchase warrants and we are
offering an additional 1,200,000 common stock purchase warrants as part of our
units offered in this prospectus. Each warrant entitles the holder to purchase
until August 2, 2003, one share of our class A common stock at an exercise price
of $6.00. The warrants we are offering will be identical to our currently
outstanding common stock purchase warrants expiring on August 2, 2003.
The warrants outstanding prior to this offering are subject to
redemption at any time and the warrants we are now offering are subject to
redemption at any time six months after the date of this prospectus. To redeem
any warrant we must provide 30 days written notice. All warrants are redeemable
at $.25 per warrant provided that the closing sale price, or if none, the
closing bid price of the common stock is $7.00 per share for thirty consecutive
trading days. Holders of warrants shall have exercise rights until the close of
the business day preceding the date fixed for redemption.
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<PAGE>
The warrants will be issued in registered form pursuant to warrant
agreement between us and Werbel-Roth Securities, Inc., dated as of the effective
date of this offering. The following discussion of certain terms and provisions
of the warrants is qualified in its entirety by reference to the warrant
agreement.
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.
This exercise price has been arbitrarily determined by us and the
representative. 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 of the warrants in the event of:
o stock dividend;
o stock split;
o reclassification;
o reorganization; and
o consolidation or merger.
The warrants we are offering as part of our units and our outstanding
warrants expire on August 2, 2003.
Warrant holders do not have any voting or any other rights as our
shareholders. The warrants we are presently offering will not be redeemable for
a period of six months following our effective date. At this time we may redeem
the warrants for $0.25 per warrant on not less than thirty days prior written
notice, subject to exercise by the warrant holder. We may only redeem our
warrants if the closing bid price for our class A common stock has been at least
$7.00 per share for thirty consecutive trading days.
If we exercise our rights to redeem warrants, our warrants may still be
exercised by their holder 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 its holder will
be entitled only to the redemption price. We 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 these shares to the holder must be
registered, qualified or exempt under the laws of the state in which the holder
resides. If required, we will file a new registration statement with the
Securities and Exchange Commission with respect to the securities underlying the
warrants prior to the exercise of these warrants and will deliver a prospectus
with respect to such securities to all warrant holders.
The warrants contain provisions that protect warrant holders against
dilution by adjustment of the exercise price in certain events, such as stock
dividends and distributions, stock splits, recapitalizations, mergers and
consolidations. No adjustment exists for the issuance of shares of common stock,
among other circumstances, upon exercise of any warrants or options
50
<PAGE>
granted under any stock option plan. We are not required to issue fractional
shares. The holder of a warrant does not possess any rights as a stockholder
unless he exercises his warrant and obtains common stock. The warrants have been
issued in registered form under a warrant agreement dated __________, between us
and __________________ as warrant agent. The shares of class A common stock
issued upon exercise of a warrant, will be fully paid and non-assessable.
Our warrants may be exercised upon the surrender of a duly completed
warrant certificate on or prior to its expiration, accompanied by cash or
certified bank check for the exercise price.
Our warrants issued under our initial public offering are traded on the
Nasdaq SmallCap Market under the symbol UNSRW.
Certain Florida legislation
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The provisions of the Florida Control Share Act 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 the
board of directors of a majority of a corporation's disinterested shareholders.
The provisions of the Florida Control Share Act apply to us. The provisions of
the Florida Affiliated Transactions Act do not apply to us because we have opted
out of the act. Our articles of incorporation and bylaws also authorize us to
indemnify our directors, officers, employees and agents. In addition, our
articles of incorporation and Florida law presently limit the personal liability
of corporate directors for monetary damages, except where the directors breach
their fiduciary duties and such breach constitutes or includes certain
violations of criminal law, a transaction from which the directors derived an
improper personal benefit, certain unlawful distributions or certain other
reckless, wanton or willful acts or misconduct.
Anti-takeover effects of certain provisions of our articles of incorporation,
bylaws, and the franchise agreement.
Certain provisions of our articles of incorporation and bylaws of
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 our 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 our class B common stock are entitled to ten votes for each
share of class B common stock held. Ricardo Vilensky owns directly or
indirectly, all outstanding shares of class B common stock. Upon the effective
date, Ricardo Vilensky will own or control, directly or indirectly,
approximately 51.5% of our common stock and will have the right to cast 91% of
the
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<PAGE>
votes. Our class B common stock could be utilized under certain circumstances,
as a method of discouraging, delaying or preventing a change in our control.
Preferred shares
Our 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 our common and series A preferred stock. Additional preferred stock
could be utilized under certain circumstances, as a method of discouraging,
delaying or preventing a change in our control.
Special meeting of shareholders
Our articles of incorporation and bylaws provide that special meetings
of our shareholders may be called only by a majority of the board of directors,
our chief executive officer or holders of not less than ten percent of our
outstanding voting stock.
KFC franchise agreement
Pursuant to franchise agreement, Tricon's consent is required for
certain transfers or issuances of our 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 our control in connection with a public tender offer require
Tricon's consent. If Tricon's consent is not obtained in connection with these
transactions including in connection with a public offering, Tricon could
terminate our franchise agreement.
Pursuant to the franchise agreement, unless Tricon approves otherwise,
at all times Mr. Vilensky must maintain a majority voting interest and a 30%
ownership interest in our company. Any transactions which reduce Mr. Vilensky's
ownership interest without Tricon's approval could terminate the franchise
agreement and the development agreement, including our right to use the KFC
concept. If our preferred stock is converted and our warrants in this offering
are exercised, Mr. Vilensky's ownership interest will fall below 30%.
Transfer agent and registrar
The transfer agent, warrant agent, and registrar for our class A common
stock, preferred stock and warrants is American Securities Transfer & Trust,
Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado 80202-1817 (303)
298-5370.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, we will have outstanding:
o 1,430,000 shares of class A common stock outstanding, without
giving effect to the exercise of our warrants;
o 1,200,000 shares of series A preferred stock outstanding,
1,380,000 shares if the over-allotment option is exercised in
full; and
o 1,400,000 shares of class B common stock outstanding.
15,550 shares of class A common stock, and all of the class B common stock
outstanding are restricted securities as the term is defined under the
Securities Act. Prior to the consummation of this offering our class A common
stock was held by over 300 entities and our class B stock was held by two
entities.
The 1,200,000 shares of series A preferred stock sold in this offering,
(1,380,000 shares if the over-allotment option is exercised in full) will be
freely tradeable without restriction or further registration under the
Securities Act. Any shares purchased by an affiliate, in general, a person who
has a control relationship with us, will be subject to the resale limitations of
Rule 144 under the Securities Act. An additional 1,200,000 shares of class A
common stock have been registered (1,380,000 shares if the over-allotment option
is exercised in full) and reserved for issuance upon exercise of our warrants.
In general, Rule 144 under the Securities Act permits a shareholder 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, a
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 with certain reporting requirements of Rule 144. If
restricted shares are held for at least two years by a person not affiliated
with us, the restricted shares can be sold without any volume limitation. Any
sales of shares under Rule 144 may have the effect of putting downward pressure
on the price of our securities.
Also, all of the holders of our class B common stock 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 which commenced
on August 3, 1998.
Any securities issued for a period of twelve months from our effective
date (other than those offered in this prospectus), are subject to a 24-month
lock-up period. An appropriate legend referring to these restrictions will be
marked on the face of the certificates representing these securities. Also, for
a period of twelve months from the effective date, our affiliates will not sell
or otherwise dispose of any securities without the prior written consent of the
representative.
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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 us and we have agreed to sell to the
underwriters, the respective number of shares of class A common stock and
warrants located opposite their respective names at the public offering price,
less the underwriting discounts found on the cover page of this prospectus:
Underwriters Number of Preferred Shares Number of Warrants
------------ -------------------------- ------------------
Werbel-Roth Securities,
Inc.
TOTAL 1,200,000 1,200,000
The underwriting agreement provides that the obligations of the
underwriters to pay for and accept delivery of the units are subject to approval
of certain legal matters by counsel to the underwriter and to certain other
events. The underwriters are obligated to purchase all units we are offering
(other than those covered by the over-allotment option described below), if any
such shares are purchased.
We have been advised by the representative of the underwriters that the
underwriters propose initially to offer the shares of preferred stock and
warrants to the public at the offering price set forth on the cover page of this
prospectus and through members of the NASD. The representative has also advised
us that the underwriters may allow a concession, not in excess of $___ per share
of series A preferred stock and $____ per warrant, in their discretion, to
certain domestic dealers who are members of the NASD and which domestic dealers
agree to sell our securities in conformity with the NASD Conduct Rules. Under
these rules, no NASD member will receive 10% or more of the net proceeds of this
offering. The initial public offering price and concessions will not be changed
by the representative until after the offering has been completed.
At the closing of the sale of our securities that we are offering, we
will sell to the representative, representative's warrants, for nominal
consideration. These warrants entitle the representative to purchase an
aggregate of 120,000 units consisting of one share of series A preferred stock
and one warrant similar but not identical to our warrants. The representative's
warrants shall be non-exercisable and non-transferable, other than a transfer to
affiliates of the representative or members of the selling group for a period of
twelve months following the effective date. The representative's warrants and
the underlying securities shall contain anti-dilution provisions. 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.
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The exercise price of each representative warrant shall be:
o $____ per each unit, and
o $____ per share of class A common stock for each share underlying
the warrant, which are ___% of the public offering price of our
units and the shares of class A common stock underlying our
warrants.
In addition, we have granted to the representative a single demand
registration right and unlimited piggy back registration rights with respect to
our class A common stock and our warrants underlying the representative's
warrants for a period commencing at the beginning of the second year and
concluding at the end of the fifth year following the effective date.
The issuance of such shares to the representative must be registered,
qualified or exempt under the laws of the state in which the representative
resides. If required, we will file a new registration statement with the
Securities and Exchange 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 the representative as required by Section
10(a)(3) of the Securities Act.
Under Rule 2710(a)(7)(A) of the NASD Conduct Rules, the warrants
acquired by the representative will be restricted from sale, transfer,
assignment or hypothecation for a period of one year from the effective date of
this offering, except to officers or partners (not directors) of the
representative and members of the selling group and their officers or partners.
In addition to the above, we have granted to the representative an
option exercisable for 45 days from the effective date, to purchase up to an
additional 180,000 units at the public offering price, less the underwriting
discount set forth on the cover page of this prospectus. The underwriters, or
the representative individually at its option, may exercise this option solely
to cover over-allotments in the sale of our securities being offered by this
prospectus.
Prior to this offering, there has been no public market for our
preferred stock and there can be no assurances that an active public market for
our preferred stock will be developed or, if developed, sustained after this
offering. The public offering price of our units and the exercise price and
terms of our warrants have been arbitrarily determined by negotiations between
us and the representative and may bear no relationship to our current earnings,
book value, net worth or other established valuation criteria. The factors
considered in determining the initial public offering prices included:
o an evaluation by our management and the representative of the
history of and prospects for the industry in which we compete,
o an assessment of management,
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<PAGE>
o our prospects,
o trading price of our outstanding class A common stock and
warrants,
o our capital structure, and
o certain other factors deemed relevant.
The initial public offering prices do not necessarily bear any
relationship to our 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 preferred 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 preferred stock and/or warrants can be
resold at any time at the initial public offering prices or any other prices.
We have agreed to pay our underwriters an underwriting discount as a
commission of ten percent of the gross proceeds of this offering, including the
gross proceeds from the sale of the over-allotment option, if exercised. We have
also agreed to reimburse the representative on a non-accountable basis for their
expenses in the amount of three percent of the gross proceeds of this offering,
including proceeds from any securities purchased under 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.
We have 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 us 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 Securities and Exchange
Commission, such indemnification is contrary to public policy and therefore
unenforceable.
The representative of the underwriters shall have the right to
designate of a member of the board of directors, or at the representative's
option, to designate one individual to attend the meetings of our board of
directors for a period of three years after the effective date.
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.
Certain persons participating in this offering may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock and warrants, including stabilizing
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transactions in accordance with Rule 104 of Regulation M. Under Regulation M
persons may bid for or purchase of common stock for the purpose of stabilizing
its market price.
LEGAL MATTERS
Our legal matters in connection with our offering of the preferred
stock and the warrants will be passed upon by Atlas Pearlman, P.A., Fort
Lauderdale, Florida. We are 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 Dreier & Baritz LLP, Boca Raton, Florida.
EXPERTS
Our balance sheets as of December 31, 1998 and 1997, and the related
statements of income, stockholders' equity and cash flows for the years then
ended, included in this prospectus have been included in reliance upon the
report of Spear, Safer, Harmon & Co., P.A., independent accountants, given on
their authority as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement in Washington, D.C., on Form SB-2 under the Securities
Act, with respect to the securities we are offering. We also file quarterly and
annual reports with the Securities and Exchange Commission. This prospectus does
not contain all the information found in our registration statement and its
exhibits. For further information about us and the securities we offer,
reference is made to our registration statement and to the exhibits filed. 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 reference.
The registration statement, including exhibits, may be inspected
without charge at the principal reference facilities maintained by the
Securities and Exchange 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 materials can be
obtained from the Public Reference Section of the Securities and Exchange
Commission at its principal office in Washington, D.C. found above or by calling
the Securities and Exchange Commission at 1-800-SEC-0330 upon payment of
prescribed fees. Additionally, the Securities and Exchange Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Securities and
Exchange Commission and the address of such site is (http://www.sec.gov).
We intend to furnish our shareholders with annual reports containing
audited financial statements and such other periodic reports as we may from time
to time deem appropriate or as may be required by law.
57
<PAGE>
UNISERVICE CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Income F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Uniservice Corporation and Subsidiary
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of Uniservice
Corporation and Subsidiary (the "Company") as of December 31, 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years ended December 31, 1998 and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Uniservice
Corporation and Subsidiary as of December 31, 1998, and the results of their
operations and their cash flows for the years ended December 31, 1998 and 1997
in conformity with generally accepted accounting principles.
Miami, Florida
February 26, 1999
F-2
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
A S S E T S
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 292,541 $ 1,618,179
Accounts receivable, net 204,426 105,061
Due from related parties 343,470 120,038
Other receivables (Note 2) 270,654 208,939
Inventory 570,422 430,361
Income taxes receivable (Note 3) 89,514 155,754
Other current assets (Notes 4 and 15) 115,053 236,647
---------------- ---------------
Total Current Assets 1,886,080 2,874,979
Property and Equipment, net (Note 5) 8,289,451 8,304,932
Prepaid expense (Note 15) 422,446 50,417
Intangibles, net (Note 6) 150,214 98,787
Deposits (Note 7) 404,056 445,431
---------------- ---------------
$ 11,152,247 $ 11,774,546
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note 8) $ 1,448,213 $ 1,187,074
Lines-of-credit (Note 9) 414,514 94,322
Current portion of capital lease obligations (Note 10) 46,122 502,549
Current portion of deferred revenue (Note 11) 107,575 88,889
---------------- ---------------
Total Current Liabilities 2,016,424 1,872,834
---------------- ---------------
Long-Term Liabilities:
Capital lease obligations, excluding current portion 631,136 1,022,249
Deferred revenue, excluding current portion (Note 11) 672,344 -
---------------- --------------
1,303,480 1,022,249
---------------- ---------------
Stockholders' Equity (Note 12):
Class A - common stock 143 143
Class B - common stock 140 140
Preferred stock - -
Additional paid-in capital 8,707,157 8,707,157
Retained earnings 1,335,986 1,232,488
Cumulative translation adjustment (2,211,083) (1,060,465)
---------------- ---------------
Total Stockholders' Equity 7,832,343 8,879,463
---------------- ---------------
$ 11,152,247 $ 11,774,546
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------------- ------------------- --------------------- --------------------
1999 1998 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 9,732,674 $ 10,187,645 $ 13,415,518 $ 14,562,157
Cost of Operations 3,948,575 4,150,851 4,988,852 5,712,350
------------- -------------- --------------- --------------
Gross Profit 5,784,099 6,036,794 8,426,666 8,849,807
------------- -------------- --------------- --------------
Selling and Administrative Expenses:
Payroll and employee benefits 1,987,560 1,450,245 3,089,405 2,776,949
Occupancy 1,450,399 1,223,306 1,677,986 1,708,515
Other selling and administrative 2,341,336 2,737,619 2,936,985 3,331,665
------------- -------------- --------------- --------------
5,779,295 5,411,170 7,704,376 7,817,129
------------- -------------- --------------- --------------
Income from Operations 4,804 625,624 722,290 1,032,678
------------- -------------- --------------- --------------
Other Income (Expenses):
Other, net (Note 13) 287,192 879,089 762,010 562,317
Interest expense (188,498) (516,597) (344,988) (281,046)
------------- -------------- --------------- --------------
98,694 362,492 417,022 281,271
------------- -------------- --------------- --------------
Net Income $ 103,498 $ 988,116 $ 1,139,312 $ 1,313,949
============= ============== =============== ==============
Net Income Per Common Share $ 0.04 $ 0.57 $ 0.57 $ 0.94
============= ============== =============== ==============
Weighted Average Common
Shares Outstanding 2,830,000 1,731,111 2,005,833 1,400,000
============= ============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1998 and 1997
<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> <C> <C>
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 -- -- 3,287,762 93,176 (205,519) 3,175,559
Issuance of Class A common stock from
public offering, net 140 -- 5,325,648 -- -- 5,325,788
Issuance of Class A common stock for
bridge financing 3 -- 67,497 -- -- 67,500
Over allotment of warrants -- -- 26,250 -- -- 26,250
Net income -- -- -- 1,139,312 -- 1,139,312
Dividends to stockholders -- -- -- -- -- --
Translation adjustment -- -- -- -- (854,946) (854,946)
-------- ------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 143 140 8,707,157 1,232,488 (1,060,465) 8,879,463
Net income (unaudited) -- -- -- 103,498 -- 103,498
Translation adjustment (unaudited) -- -- -- -- (1,150,618) (1,150,618)
-------- ------- ----------- ----------- ----------- -----------
Balance at September 30,
1999 (unaudited) $ 143 $ 140 $ 8,707,157 $ 1,335,986 $(2,211,083) $ 7,832,343
======== ======= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
----------------------------------------- -------------------------------------------
September 30, December 31,
------------------- -------------------- -------------------- ---------------------
1999 1998 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 103,498 $ 988,116 $ 1,139,312 $ 1,313,949
Adjustments to reconcile net income to
Depreciation and amortization 335,261 379,451 685,918 715,555
Deferred income taxes - - - (1,156)
Loss on sale of building - - - 7,852
Translation adjustment (1,150,618) (728,811) (854,946) (116,174)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net (99,365) 117,338 268,885 211,986
Other receivables (61,715) (262,775) (323,616) 22,593
Inventory (140,061) 9,652 85,202 (208,507)
Income taxes receivable 66,240 (114,533) (10,319) 82,939
Other current assets 121,594 (95,810) (121,924) 68,743
Prepaid contract (372,029) - (50,417) -
Intangibles (74,677) 24,294 9,733 (4,199)
Deposits 41,375 27,601 27,828 (80,020)
Increase (decrease) in:
Accounts payable and
accrued expenses 261,139 (489,013) (1,121,334) (26,182)
Deferred revenue 691,030 (115,378) (150,446) (156,404)
--------------- --------------- ---------------- ----------------
Net Cash (Used in) Provided by
Operating Activities (278,328) (259,868) (416,124) 1,830,975
--------------- --------------- ---------------- ----------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (296,530) (1,510,107) (1,636,245) (448,507)
--------------- --------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
---------------------------- -------------------------
1999 1998 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Financing Activities:
Net repayment of notes payable to
vendors $ - $ (14,188) $ - $ -
Net repayments of note payable to
banks - - (70,206) (586,946)
Dividends paid - - - (321,967)
Net proceeds (repayment) of
lines-of-credit 320,192 (81,117) 13,205 (701,671)
Net (repayments) proceeds from
related parties (223,432) (531,095) (421,261) 531,095
Repayments on capital lease
obligations (847,540) (62,491) (385,606) (352,350)
Net proceeds from public offering - 6,144,438 6,483,750 -
Payment of offering costs - (1,076,020) (945,901) (118,311)
Proceeds from bridge loan - 150,000 150,000 -
Repayment of bridge loan - (150,000) (150,000) -
Net (repayment) proceeds of
long-term debt - (1,650,982) (1,650,982) 672,456
------------- -------------- --------------- ----------------
Net Cash Provided by (Used in)
Financing Activities (750,780) 2,728,545 3,022,999 (877,694)
------------- -------------- --------------- ----------------
(Decrease) Increase in Cash and
Cash Equivalents (1,325,638) 958,570 970,630 504,774
Cash and Cash Equivalents -
Beginning of Year 1,618,179 647,549 647,549 142,775
------------- -------------- --------------- ----------------
Cash and Cash Equivalents - End of Year $ 292,541 $ 1,606,119 $ 1,618,179 $ 647,549
============= ============== =============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
---------------------------- -------------------------
1999 1998 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the year for interest $ 188,498 $ 516,597 $ 529,503 $ 274,371
Supplemental Disclosure of Non-Cash
Financing Activities:
Dividends reinvested - - - 324,286
Note received in exchange for sale
of building - - - 568,545
Issuance of Class A Common
stock in connection with
bridge loan - 67,500 - 67,500
Acquisition of property and equipment
subject to capital lease - - 855,474 77,704
Capital leases reclassified to property,
plant and equipment - - 557,547 -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Unaudited with Respect to September 30, 1999 and 1998
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 36 restaurants in the
Santiago, Chile area pursuant to its international franchise
agreement with Tricon Global Restaurants, Inc. ("Tricon").
Basis of Presentation - In August 1998, the Company acquired 99.7%
of Kyoto's interest in KyF Chile in exchange for 1,399,900 shares
of Class B common stock which occurred simultaneously with 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 were effectuated at the time of the closing of the
initial public offering of the Company's stock whereby (i) Kyoto
purchased 1,399,000 shares of Class B common stock for $2.2
million, and, (ii) the Company purchased Kyoto's 99.97% interest
in Kentucky Foods Chile, S.A. for $2.2 million and KyF Chile
became a majority owned (99.97%) subsidiary of the Company. The
substance of this transaction was an exchange of shares between
the Company and Kyoto which was accounted for by the pooling of
interests. Accordingly, the consolidated financial statements for
the periods presented have been prepared assuming the acquisition
by the Company took place on January 1, 1997, that the Company was
incorporated on that date, and the exchange of shares was affected
at that time.
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). The exchange rate used at September 30, 1999, December
31, 1998 and 1997, respectively, was 531.11 pesos to U.S. $1,
473.00 pesos to U.S. $1 and 439.18 to U.S. $1. The weighted
average exchange rate used in September 30, 1999 and 1998,
December 31, 1998 and 1997 was 501.90 pesos to U.S. $1, 456.40
pesos to U.S. $1, 465.25 pesos to U.S. $1, and 420,69 pesos to
U.S. $1, respectively.
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. The Company places its
cash with high credit quality financial institutions and, at
times, maintain balances in excess of insured limits.
F-9
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Fair Values of Financial Instruments - The fair value of a
financial instrument is the amount at which the instrument could
be exchanged in the current transaction between willing parties.
The fair value of cash and cash equivalents, accounts receivable,
accounts payable and notes payable approximate their carrying
amounts at September 30, 1999 and at December 31, 1998,
respectively.
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 recognizes income,
accordingly. Approximately 6%, 7%, 8% and 8%, respectively, of
revenues generated for the nine months ended September 30, 1999
and 1998 and during the years 1998 and 1997 were due from these
coupon books. Included in accounts receivable are amounts due from
the various corporations in connection with coupon redemptions.
Historically, the Company has had very few non-remittances on its
billings. As a result, the Company has provided an allowance for
doubtful accounts of $-0- at September 30, 1999 and $17,099 as of
December 31, 1998.
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 representing legal, accounting,
and underwriting fees incurred in connection with the public
offering of the Company's shares are charged against paid in
capital. Offering costs amounted to approximately $1,849,000.
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
twenty years.
Income Taxes - The Company was not liable for U.S. income taxes
for the nine months ended September 30, 1999 and 1998 and for the
years ended December 31, 1998 and December 31, 1997, 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.
Foreign Operations - As the Company operates exclusively in Chile,
one must be aware of the potential for both economic and political
changes 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.
F-10
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Earnings Per Common Share - Earnings per common share are based on
the weighted average number of shares outstanding of 2,830,000,
1,731,111, 2,005,833 and 1,400,000, respectively, for the nine
months ended September 30, 1999 and 1998 and for the years ended
December 31, 1998 and 1997, giving effect to common stock
equivalents, none of which existed in the aforementioned periods.
Comprehensive Income - Effective January 1, 1998, the Company
adopted SFAS #130, Reporting Comprehensive Income. SFAS #130
establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. The Statement requires only additional disclosures in
the financial statements; it does not affect the Company's
financial position or results of operations. For the nine months
ended September 30, 1999 and 1998 and for the years ended December
31, 1998 and 1997, comprehensive income is equal to net income.
Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect certain 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
combined 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 combined financial
position of the Company as of September 30, 1999 and the combined
results of its operations and cash flows for the nine months ended
September 30, 1999 and 1998, have been included. The results of
operations for such interim period are not necessarily indicative
of the results for the full year.
Reclassifications - Certain accounts in the 1997 consolidated
financial statements have been reclassified for comparative
purposes to conform with the presentation in the 1998 consolidated
financial statements.
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 evaluation and managing the risks and costs
associated with this problem.
F-11
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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. After evaluations of the responses from such
communications, the Company will prepare a contingency plan to
mitigate year 2000 issues, if necessary. The preliminary estimate
for Year 2000 conversion ranges from $75,000 to $100,000 of which
approximately $30,000 have been incurred to date.
Recent Pronouncements - The Financial Accounting Standards Board
(FASB) has issued the following statements which are to be applied
prospectively, #131 - Disclosures About Segments of an Enterprise
and Related Information, #132 - Employer's Disclosures About
Pensions and Other Retirement Benefits. None of these
pronouncements have a material impact on the financial statements
of the Company.
NOTE 2 - OTHER RECEIVABLES
Other receivables consist of the following:
September 30, December 31,
1999 1998
------------- -------------
Advances to vendors $ 135,939 $ 98,250
Advance payments for custom duties - 18,289
Travel and other sundry advances 30,039 66,031
Other 104,676 26,369
--------- ---------
$ 270,654 $ 208,939
========= =========
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 period ended
September 30, 1999 and 1998 and the years ended December 31, 1998
and 1997, 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-12
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 3 - INCOME TAXES (Continued)
The following is a reconciliation of the statutory tax rates:
<TABLE>
<CAPTION>
Period Ended Years Ended
September 30, December 31,
------------------------------- ------------------------------
1999 1998 1998 1997
--------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Statutory tax rate 15% 15% 15% 15%
Credits and incentives from
government (15) (15) (15) (15)
--------- -------- -------- --------
Effective tax rate 0% 0% 0% 0%
========= ======== ======== ========
</TABLE>
As mentioned above, while the Company has incurred no income taxes
for the nine months ended September 30, 1999 and 1998 and the
years ended December 31, 1998 and 1997, 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 balance:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ----------------
<S> <C> <C>
Balance at beginning of year $ 155,754 $ 145,435
Payments of estimated income taxes 25,060 115,370
Credit for educational expenses 10,581 11,448
Refunds received (155,754) (145,435)
Other, net 53,873 28,936
-------------- ----------------
$ 89,514 $ 155,754
============== ================
</TABLE>
NOTE 4 - OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ----------------
(Unaudited)
<S> <C> <C>
Deferred income taxes $ - $ 32,111
Prepaid expenses 115,053 204,536
--------------- ---------------
$ 115,053 $ 236,647
=============== ===============
</TABLE>
F-13
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 4 - OTHER CURRENT ASSETS (Continued)
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, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ----------------
(Unaudited)
<S> <C> <C>
Furniture and fixtures $ 6,564,125 $ 6,459,923
Office equipment and machinery 2,459,459 2,134,234
Capital leases 1,743,815 2,136,377
Other 100,929 255,408
--------------- ---------------
10,868,328 10,985,942
Less accumulated depreciation
and amortization (2,578,877) (2,681,010)
--------------- ---------------
$ 8,289,451 $ 8,304,932
=============== ===============
</TABLE>
Depreciation and amortization expense approximated $312,000,
$379,000, $655,000 and $712,000 for the nine months ended
September 30, 1999 and 1998 and for the years ended December 31,
1998 and 1997, respectively.
NOTE 6 - INTANGIBLES, NET
Intangibles, net consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ----------------
(Unaudited)
<S> <C> <C>
Goodwill $ 101,151 $ 106,519
Trademarks, licenses and other 106,929 26,884
--------------- ---------------
208,080 133,403
Less accumulated amortization (57,866) (34,616)
--------------- ---------------
$ 150,214 $ 98,787
=============== ===============
</TABLE>
F-14
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 6 - INTANGIBLES, NET (Continued)
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. For the nine
months ended September 30, 1999 and 1998 and for the years ended
December 31, 1998 and 1997, amortization expense amounted to
approximately $23,000, $23,000, $31,000 and $4,000, respectively.
NOTE 7 - DEPOSITS
KyF Chile conducts its operations in leased facilities which
require security deposits based on the square footage, location,
and term of each lease (see Note 15). The balance of the security
deposits at September 30, 1999 and at December 31, 1998 amounted
to approximately $404,000 and $445,000, respectively.
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ----------------
(Unaudited)
<S> <C> <C>
Vendors $ 814,862 $ 812,983
Sales tax and withholdings 141,893 147,668
Salaries and other employee benefits 47,862 101,138
Franchise fees 430,461 83,676
Other 13,135 41,609
---------------- ----------------
$ 1,448,213 $ 1,187,074
================ ================
</TABLE>
NOTE 9 - LINES-OF-CREDIT
The Company has lines-of-credit with several Chilean banks with
monthly semiannual and annual maturity dates. The lines-of-credit
bear interest at rates ranging from 9.02% to 11% per annum and are
collateralized by a personal guarantee from a stockholder and
certain assets of the Company. As of September 30, 1999 and
December 31, 1998, approximately $414,000 and $356,000 was
available to the Company in Chilean Pesos and UF.
F-15
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 9 - LINES-OF-CREDIT (Continued)
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 8.0%, 8.0%, 8.03% and 7.9%
for the nine months ended September 30, 1999 and 1998 and for the
years ended December 31, 1998 and 1997, respectively.
The UF is an indexed unit of account expressed in pesos and
adjusted according to inflation (CPI).
NOTE 10 - CAPITAL LEASE OBLIGATIONS
KyF Chile leases various equipment under capital leases. The
capital leases in effect as of December 31, 1998, are scheduled to
expire between the years 1999 and 2009. At the expiration of the
lease terms, KyF Chile may exercise options to purchase the
equipment at a bargain purchase price. As of September 30, 1999
and as of December 31, 1998, the gross amount of assets recorded
under capital leases totaled $1,743,815 and $2,136,377,
respectively. Amortization is computed by the straight-line method
and has been included in depreciation. Accumulated amortization
related to those assets totaled $158,107 and $110,544 as of
September 30, 1999 and December 31, 1998, respectively.
Minimum payments under capital lease obligations are as follows:
Year Ending
December 31,
1999 $ 502,549
2000 418,783
2001 315,692
2002 108,874
2003 99,587
Thereafter 79,313
---------------
1,524,798
Current portion (502,549)
---------------
Long-term portion $ 1,022,249
===============
F-16
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 11 - DEFERRED REVENUE
In August 1994, KyF Chile entered into an agreement with PepsiCo
requiring the exclusive use of Pepsi products in the Company's
restaurants. In exchange for this exclusivity agreement, KyF Chile
received approximately $780,000, net of taxes, which is being
recognized and amortized over that five year period. For the nine
months ended September 30, 1999 and 1998 and for the years ended
December 31, 1998 and 1997, KyF Chile recognized approximately
$83,000, $104,000, $136,000 and $150,000, respectively, of the
deferred revenue.
In September 1999, the Company entered into a new agreement.
The new agreement contains similar terms as the previous agreement
with respect to the use of Pepsi products in the Company's stores.
In exchange for committing to continue to use exclusively Pepsi
products, the Company received and deferred approximately $800,000
net of tax, at the signing of the contract. The Company will
receive additional payments of $300,000 net of tax on January 15,
2000 and $200,000 net of tax on January 15, 2001. In addition, the
contract grants the Company significant purchase discounts on the
supplier's products to the Company. The supplier has also agreed
to pay the Company, on a monthly basis, a marketing allowance
based on the amount purchased from the supplier and to provide the
Company with certain equipment and signage and to fund
miscellaneous promotional expenses. As of September 30, 1999
deferred revenue amounted to $779,919. For the nine months ended
September 30, 1999, the Company recognized $9,486 as other income.
NOTE 12 - 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,
8,000,000 shares of undesignated common stock and 5,000,000 shares
of preferred stock all at $.0001 per share par value. As of
September 30, 1999 and December 31, 1998, the Company had
1,430,000 shares of Class A common stock and 1,400,000 shares of
Class B common stock issued and outstanding. There are no shares
of preferred stock issued or outstanding at September 30, 1999 and
December 31, 1998.
As part of its initial public offering, the Company issued
1,400,000 shares of Class A common stock and 1,610,000 warrants to
the public. This increased the outstanding shares of Class A
common stock to 1,430,000 for the total outstanding shares of
2,830,000, without giving effect to the exercise of the warrants.
F-17
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 13 - OTHER INCOME (EXPENSES)
Other, net consist of the following at December 31:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
-------------------------------- ---------------------------------
1999 1998 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Exclusivity income $ 92,778 $ 138,183 $ 135,554 $ 149,912
Incentive fee 194,414 677,891 558,847 231,164
Other - 63,015 67,609 181,241
------------- ------------ ------------- -------------
$ 287,192 $ 879,089 $ 762,010 $ 562,317
============= ============ ============= =============
</TABLE>
NOTE 14 - RELATED PARTY TRANSACTIONS
In April 1997, KyF Chile sold the new office facilities to a third
party, whose 2% shareholder was 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. A portion of the
proceeds from the closing of the initial public offering was used
to repay Kyoto during 1998.
Also during 1997, the Company declared dividends to eliminate
related party receivables. Total dividends declared amounted to
$321,967.
In August 1998, 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. Simultaneously, the Company entered into a one year
agreement with this affiliate to provide certain services to the
Company including acting as a U.S. liaison for the Company. In
consideration for these services, this affiliate will receive
$20,000 annually.
F-18
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 15 - 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 2019. Most leases provide for one or more options
to renew 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 are as follows:
Year Ending December 31,
---------------------------------------
1999 $ 1,639,517
2000 1,690,230
2001 1,406,388
2002 1,162,657
2003 1,101,832
Thereafter 5,357,738
------------
Total Minimum Lease Payments Required $ 12,358,362
============
Franchise Agreement
-------------------
KyF Chile entered into a franchise agreement with Kentucky Fried
Chicken International Holdings ("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.
F-19
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
The initial franchise term for each restaurant is ten years, which
expires between December 31, 2003 and December 31, 2017, 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 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 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 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 $487,000, $509,000, $671,000 and
$728,000 for the nine months ended September 30, 1999 and 1998 and
for the years ended December 31, 1998 and 1997, respectively, of
which approximately $430,000, $84,000 remain unpaid as of
September 30, 1999 and December 31, 1998 and is included in
accounts payable and accrued expenses in the accompanying
consolidated balance sheet.
The Company and KFCIH have orally agreed to a new franchise
agreement, under which, the Company has agreed to construct,
develop, open and operate 15 additional new KyF restaurants during
the next five years, for a total of 49 restaurants to be owned and
operated by the Company by the end of 2003. Royalty rates for the
KyF restaurants that opened in 1998 will be 6% for two years and
thereafter decrease to 5% for eight years. An initial fee of
$25,000 per restaurant is due for four restaurants that opened in
1998. Initial fees for restaurants opening in 1999 through 2000
will be $15,000 each for the first three restaurants and $10,000
for each additional restaurant. Royalty rates for these
restaurants will be 5% for the first eight years they are open and
thereafter increase to 6% for two years. The first three
restaurants that open in 2001 will each have initial fees of
$25,000, and each additional restaurant will have an initial fee
of $10,000. Royalties for restaurants opened in 2001 are 5% for
the first five years, increasing to 6% for the remaining five
years. Restaurant development in 2002 is subject to the same
initial fees as the preceding year, however, any restaurant opened
in 2002 will be subject to a 6% royalty rate for 10 years.
Restaurants opened in 2003 through 2005 will each have an initial
fee of $3,000 and be subject to a 6% royalty rate for 10 years.
F-20
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
Consulting Agreement - In August 1998, the Company entered into a
ten year agreement with one of its Directors who 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,
the Director receives an annual fee of approximately $35,000, or
as otherwise agreed upon by the parties, commencing August 1998.
As of September 30, 1999 and December 31, 1998, the Company
prepaid approximately $309,000 and $85,000, respectively, of which
$35,000 is included in other current assets on the accompanying
consolidated balance sheets. The long-term portion is included in
prepaid expenses.
Employment Agreements - In 1998, 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. For 1998, the President waived all compensation due
him. This contract is being re-negotiated in 1999.
Stock Option Plan - In January 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 has reserved an
aggregate of 200,000 shares of Class A common stock for issuance
under this Plan. No options have been issued under the Plan.
Off Balance Sheet - KyF Chile has guaranteed certain obligations
for affiliated entities. As of September 30, 1999 and December 31,
1998, these obligations amounted to approximately $154,000.
NOTE 16 - OTHER MATTERS
The Company completed its initial public offering in August 1998;
selling 1,400,000 shares of common stock and 1,610,000 warrants
and received approximately $6,483,750 after deducting underwriting
discounts. A portion of the proceeds from the public offering was
used to reduce long-term debt of approximately $1,651,000; payment
of back royalties of approximately $874,000 and repayment of loans
to related parties of approximately $680,000. Since the completion
of the public offering, the Company has opened six new KFC
restaurants and will open another KFC restaurant during January
1999. The Company opened three new restaurants during 1999. From
the proceeds of its public offering, the Company has used
approximately $441,000 for construction costs and for equipment
related to the opening of new restaurants.
F-21
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
NOTE 16 - OTHER MATTERS (Continued)
The Company has working capital of approximately $1,606,000 from
the offering and intends to use this and its internally generated
revenues to open additional restaurants during 1999.
Also in 1998, the Company entered into a bridge loan in the amount
of $150,000 with an investor which was used for short-term
operations. This loan was evidenced by a promissory note bearing
an interest rate of 8.5% per year. The Company repaid this note at
the closing of the aforementioned initial public offering. As
additional consideration, the investor received 30,000 shares of
Class A common stock.
F-22
<PAGE>
UNISERVICE CORPORATION
1,200,000 UNITS
EACH UNIT CONTAINS ONE
SHARE OF SERIES A 8% CUMULATIVE
PREFERRED STOCK
AND ONE REDEEMABLE
COMMON STOCK
PURCHASE WARRANT
--------------
-------------------------
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 permits the indemnification of
directors, employees, officers and agents of a Florida corporation. Our articles
of incorporation and bylaws provide that we shall indemnify to the fullest
extent permitted by the Florida Business Corporation Act any person whom we may
indemnify under the act.
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 non-monetary relief will
remain available. In addition, each director will continue to be subject to
liability for:
o 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,
o deriving an improper personal benefit from a transaction,
o voting for or assenting to an unlawful distribution and
o willful misconduct or conscious disregard for our best interests
in a proceeding by or in our right 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 Florida law, our articles of incorporation and our bylaws
is to require us to indemnify our officers and directors 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.
Under the terms of the underwriting agreement, our directors and
officers also are indemnified against certain civil liabilities that they may
incur under the Securities Act.
To the limit indemnification for liabilities arising under the
Securities Act, may be permitted to our directors, officers or control persons
control, we have been informed that in the opinion of the Securities and
Exchange Commission, this indemnification is against public policy as expressed
in the Securities Act and is unenforceable.
II-1
<PAGE>
Item 25. Other expenses of issuance and distribution.
The following table states 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.
Securities and Exchange Commission
registration and filing fee and other
documents $ 6,000
NASD filing fee 3,000
AMEX filing fee 4,000
Printing expenses 25,000
Accounting fees and expenses 50,000
Legal fees and expenses 100,000
Blue Sky fees and expenses 1,000
Representative's non-accountable
expense allowance 1,000
Transfer and Warrant Agent fees and expenses 5,000
Miscellaneous 5,000
Total $200,000
We will pay all of the above expenses of this Offering.
Item 26. Recent Sales of Unregistered Securities.
On November 21, 1997, we issued 100 shares of class B common stock to
Ricardo Vilensky, for par value, as promotional shares. The issuance of the
shares of Class B common stock were exempt from registration pursuant to Section
4(2) of the Act.
Between January and March 1998, one unrelated, accredited investor
loaned us $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 us. The issuance of the shares of class A common stock
were exempt from registration pursuant to Section 4(2) of the Act.
On August 3, 1998, the effective date of our initial public offering,
Inversiones e Inmobiliaria Kyoto Limitada, a Chilean limited partnership that is
controlled by Mr. Vilensky and whose partners are also controlled by Mr.
Vilensky, purchased 1,399,900 shares of class B common stock for $2.2 million.
These shares were recently transferred to Inversiones e Inmobiliaria Kyoto. The
shareholders of Inversiones e Inmobiliaria Kyoto Limitada were
II-2
<PAGE>
provided with, or otherwise had access to, information, including financial,
concerning our company. The issuances of the shares of class B common stock were
exempt from registration pursuant to Section 4(2) of the Act.
Item 27. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement(2)
2.1 Stock Purchase Agreement between Kyoto and Uniservice Corporation for the purchase of Class B
common stock*
2.2 Stock Purchase Agreement between Uniservice Corporation and
Inversiones e Inmobiliaria Kyoto for the purchase of shares of
Kentucky Foods Chile S.A. Stock*
3.1(a) Uniservice Corporation's Amended and Restated Articles of Incorporation*
3.1(b) Articles of Amendment to Articles of Incorporation*
3.1(c) Designation of Preferred Stock(2)
3.2 Uniservice Corporation's Bylaws*
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(2)
4.3 Form of Class A Common Stock Certificate*
4.4 Form of Preferred Stock Certificate(2)
5.1 Opinion of Atlas Pearlman, P.A.(2)
10.1 Stock Option Plan*
10.2 Master Franchise Agreement between Kentucky Foods Chile, S.A. and Tricon, Inc., as amended*
10.6 Employment Agreement between Uniservice Corporation and Ricardo Vilensky*
10.7 Employment Agreement between Uniservice Corporation and Mauricio Aguirre*
10.8 Lease Agreement between Kentucky Fried Chicken Chile and Inmobiliaria KilKil S.A.*
21 Subsidiaries of Registrant*
23.1 Consent of Atlas Pearlman, P.A. (to be included in its opinion filed as Exhibit 5.1)(2)
23.2 Consent of Spear, Safer, Harmon & Co. P.A.(1)
27 Financial Data Schedule(1)
</TABLE>
- ---------------
* Previously filed
(1) Included herein.
(2) To be included by amendment.
II-3
<PAGE>
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) We 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-4
<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 day of February 24, 2000.
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 February 24, 2000
- ----------------------------
Ricardo Vilensky Executive Officer and
Director
/s/ Mauricio Aguirre Chief Financial Officer, February 24, 2000
- ----------------------------
Mauricio Aguirre Vice President of Finance
and Administration and
Director
/s/ David Mayer Assistant Secretary and February 24, 2000
- ----------------------------
David Mayer Director
/s/ Sergio Vivanco Director February 24, 2000
- ----------------------------
Sergio Vivanco
/s/ Avram Fritch Director February 24, 2000
- ----------------------------
Avram Fritch
/s/ Juan Carlos Cerda Director February 24, 2000
- ----------------------------
Juan Carlos Cerda
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ---------- -----------------------
23.2 Consent of Spear, Safer, Harmon & Co. P.C.
27 Financial Data Schedule
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the Form SB-2 being filed under the Securities
Exchange Act of 1934 by Uniservice Corporation and Subsidiary of our report
dated February 26, 1999, relating to our audits of the consolidated balance
sheet of Uniservice Corporation and Subsidiary as of December 31, 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1998 and 1997 and appearing in the
aforementioned Form SB-2.
Miami, Florida
February 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 404,364
<SECURITIES> 0
<RECEIVABLES> 2,769,458
<ALLOWANCES> 0
<INVENTORY> 778,433
<CURRENT-ASSETS> 4,772,362
<PP&E> 2,208,295
<DEPRECIATION> (1,330,377)
<TOTAL-ASSETS> 6,546,695
<CURRENT-LIABILITIES> 5,678,038
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 468,476
<TOTAL-LIABILITY-AND-EQUITY> 6,546,695
<SALES> 4,454,395
<TOTAL-REVENUES> 4,454,395
<CGS> 3,087,682
<TOTAL-COSTS> 981,529
<OTHER-EXPENSES> (29,470)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 317,324
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<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
