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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. 2)
KFC NATIONAL PURCHASING COOPERATIVE, INC.
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(Name of Issuer)
KFC NATIONAL PURCHASING COOPERATIVE, INC.
TACO BELL NATIONAL PURCHASING COOP, INC.
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(Name of Person(s) Filing Statement)
MEMBERSHIP COMMON STOCK AND STORE COMMON STOCK
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(Title of Class of Securities)
N/A
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(CUSIP Number of Class of Securities)
THOMAS D. HENRION COPY TO: JAMES A. GIESEL
KFC NATIONAL PURCHASING COOPERATIVE, INC. BROWN, TODD & HEYBURN PLLC
950 BRECKENRIDGE LANE 400 WEST MARKET ST., 32ND FLOOR
LOUISVILLE, KY 40232 LOUISVILLE, KY 40202
(502) 896-5900 (502) 589-5400
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of the Person(s) Filing Statement)
JANUARY 28, 1999
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(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
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Transaction Valuation Amount of Filing Fee
$4,236,000 (VALUE OF NET ASSETS TO $0
BE SPUN-OFF THROUGH
TENDER OFFER)
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[X] Check box if any part of the fee is offset as provided by rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
Amount previously paid: $847.20
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Filing party: KFC NATIONAL PURCHASING COOPERATIVE, INC.
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Form or registration no.: SCHEDULE 14A
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Date filed: NOVEMBER 17, 1998
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ITEM 1. SECURITY AND ISSUER
(a) The name of the issuer is KFC National Purchasing Cooperative,
Inc., a Delaware corporation (the "KFC Coop"), which has its principal executive
offices at 950 Breckenridge Lane, Louisville, Kentucky 40232. Taco Bell National
Purchasing Coop, Inc., a Delaware corporation, (the "Taco Bell Coop"), is a
wholly owned subsidiary of the KFC Coop and has the same principal executive
offices.
(b) The information set forth in "Description of KFC Coop Capital
Stock," "Description of Taco Bell Coop Capital Stock" and "The Tender Offer -
Terms of the Offer" of the Tender Offer is incorporated herein by reference.
(c) There is no trading market for these securities. The information
set forth in "Market and Price for the KFC Coop and Taco Bell Coop Stock" of the
Tender Offer is incorporated herein by reference.
(d) The KFC Coop and Taco Bell Coop are filing this statement.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a) The information set forth in "The Tender Offer - Terms of the
Offer" of the Tender Offer is incorporated herein by reference.
(b) None of the consideration exchanged in this tender offer will be
borrowed.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE
(a) None.
(b) - (c) The information set forth in "The Corporate Reorganization"
of the Tender Offer is incorporated herein by reference.
(d) The information set forth in "Interests of Certain Persons in the
Corporate Reorganization" and "Management of the Cooperatives" of the Tender
Offer is incorporated herein by reference.
(e) The information set forth in "Dividends and Patronage Dividends" of
the Tender Offer is incorporated herein by reference.
(f) - (g) None.
(h) - (j) The information set forth in "Comparison of Shareholder
Rights--Registration of KFC Coop and Taco Bell Coop Stock" of the Tender Offer
is incorporated herein by reference.
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ITEM 4. INTEREST IN SECURITIES OF THE ISSUER
This section discusses all of the stock transactions effected by the
KFC Coop during the 40 business days prior to January 28, 1999. All of the
redemptions were unsolicited by the KFC Coop. All of these transactions
involved Membership Common Stock priced at $10 per share and/or Store Common
Stock priced at $400 per share.
On December 10, 1998, the KFC Coop sold one share of Store Common
Stock. On December 11, 1998, the KFC Coop sold eleven shares of Store Common
Stock. On December 15, 1998, the KFC Coop sold four shares of Membership Common
Stock and twenty-one shares of Store Common Stock. On December 17, 1998, the
KFC Coop sold one share of Store Common Stock. On December 21, 1998, the KFC
Coop sold one share of Store Common Stock.
On December 8, 1998, the KFC Coop redeemed two shares of Membership
Common Stock and three shares of Store Common Stock.
On December 10, 1998, the KFC Coop redeemed 14 shares of Store Common
Stock held by Scott's Food Services, Inc., which owns the one outstanding share
of Series I Membership Common Stock and has previously appointed Paul Houston as
the member of the Board of Directors to represent Series I.
On January 18, 1999, the Taco Bell Coop issued one share of Membership
Common Stock to the KFC Coop priced at $10 per share in a private transaction.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE ISSUER'S SECURITIES
None.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Only KFC Coop employees, officers and directors will make solicitations
or recommendations in connection with this tender offer, for which no fees or
commissions will be paid. The information set forth in "Fees and Expenses" of
the Tender Offer is incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION
(a) Not applicable.
(b) The information set forth in "Unaudited Pro Forma Financial
Statements" of the Tender Offer is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION
(a) The information set forth in "The Corporate Reorganization" and
"Interests of Certain Parties in the Corporate Reorganization" of the Tender
Offer is incorporated herein by reference.
(b) None.
(c) Not applicable.
(d) - (e) None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(a) - (1) Tender Offer dated January 28, 1999.
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(b) None.
(c) The Operating Agreement for Unified FoodService Purchasing
Cooperative, LLC, Agreement and Plan of Corporate Separation, Asset Contribution
and Liability Assumption Agreement, Purchasing Program Management Agreement and
selected KFC Coop Bylaw Amendments are set forth in Appendices A - E of the
Proxy Statement, as filed in definitive form with the Commission on January 28,
1999, and are incorporated herein by reference. The initial Bylaws of the
Taco Bell Coop, enclosed with this Tender Offer, are incorporated herein by
reference. The Separation and Consulting Agreement effective as of January 22,
1999 between the KFC Coop, Unified FoodService Purchasing Coop, LLC, and Thomas
D. Henrion is attached hereto as Exhibit 99.C-1.
(d) - (f) None.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: January 28, 1999
KFC NATIONAL PURCHASING COOPERATIVE, INC.
By: /s/ Thomas D. Henrion
----------------------------------------
Thomas D. Henrion
President and Chief Executive Officer
TACO BELL NATIONAL PURCHASING COOP, INC.
By: /s/ Thomas M. Cook
----------------------------------------
Thomas M. Cook
Chairman
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Exhibit 99.a.1
AN OFFER TO EXCHANGE
ALL OUTSTANDING SHARES OF SERIES O AND P MEMBERSHIP COMMON STOCK,
AND RELATED STORE COMMON STOCK, OF
KFC NATIONAL PURCHASING COOPERATIVE, INC.
FOR AN EQUAL NUMBER OF SHARES OF MEMBERSHIP AND STORE COMMON STOCK OF
TACO BELL NATIONAL PURCHASING COOP, INC.
The KFC Coop has decided to join with Tricon Global Restaurants, Inc.
and franchisee owners and operators of KFC, Taco Bell and Pizza Hut restaurants
to form Unified FoodService Purchasing Coop, LLC, as a new purchasing
cooperative focusing on the purchase of the food, packaging, supplies,
equipment, and related services used by such owners and operators. The KFC Coop
believes that the Unified Coop will enable the KFC, Taco Bell and Pizza Hut
restaurant owners and operators to reduce their store delivered costs of goods
and equipment.
Tricon, together with its subsidiaries, is (i) the franchisor and
licensor of the KFC, Taco Bell and Pizza Hut concepts (the "Tricon Concepts"),
(ii) the developer of products used and sold by the Tricon Concepts, and (iii)
an operator of many KFC, Taco Bell and Pizza Hut retail outlets. Tricon will not
be a member of the Unified Coop. However, as the franchisor of the Tricon
Concepts and as an operator of many outlets, Tricon is strongly committed to the
success of the KFC Coop's corporate reorganization and the formation of the
Unified Coop. Tricon has entered into an expense sharing arrangement under which
Tricon will provide $400,000 to the Unified Coop to assist the Unified Coop with
organizational expenses and Tricon has agreed to purchase through the Unified
Coop virtually all of the goods and equipment needed for the Tricon operated
outlets. Tricon will also be a stockholder member of each Concept Coop and will
purchase the number of shares of stock required to be a member in good standing
of each Concept Coop.
In connection with forming the new Unified Coop, the KFC Coop desires
to split-off to a new entity the portion of its business which operates
purchasing programs for its Taco Bell members. Through this new entity, owners
and operators of Taco Bell restaurants, including Tricon, will participate with
the KFC Coop and the newly organized Pizza Hut National Purchasing Coop, Inc. in
the purchasing programs of the Unified Coop. The creation of the new Taco Bell
Purchasing Coop, Inc. will also create a cooperative in which only Tricon,
FRANMAC and Taco Bell franchisees are members, while the KFC Coop will only have
Tricon and KFC franchisees as its remaining members. Splitting off the Taco Bell
members into a separate entity will better enable the Taco Bell Coop and the KFC
Coop to respond to the differing needs and requirements of the Taco Bell
operators and KFC operators, respectively.
To accomplish this split-off, the KFC Coop is hereby offering you and
the other KFC Coop stockholders who are Taco Bell operators the opportunity to
exchange your shares of KFC Coop Membership Common Stock and Store Common Stock
for an equal number of shares of Taco Bell Coop Membership Common Stock and
Store Common Stock.
TO PARTICIPATE IN THE SPLIT-OFF AND JOIN THE NEW TACO BELL COOP, YOU
SHOULD (A) CAREFULLY READ THIS TENDER OFFER AND THE AGREEMENT AND PLAN OF
CORPORATE SEPARATION,(B) SIGN THE TENDERING MEMBER SIGNATURE PAGE AND LETTER OF
TRANSMITTAL, A COPY OF WHICH IS ENCLOSED ON BLUE PAPER, AND (C) RETURN THE
TENDERING MEMBER SIGNATURE PAGE AND LETTER OF TRANSMITTAL TO THE KFC COOP ALONG
WITH YOUR CERTIFICATES REPRESENTING YOUR SHARES OF COMMON STOCK IN THE KFC COOP.
If you choose not to participate in the split-off, you will remain a
stockholder member of the KFC Coop, however, the KFC Coop will no longer provide
any services to Taco Bell Members and will discontinue all patronage dividend
programs for Taco Bell Members.
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By agreeing to the Agreement and Plan of Corporate Separation (a copy
of which is attached to the accompanying proxy statement) by signing the
enclosed Tendering Member Signature Page and Letter of Transmittal and by
tendering one's shares, you are agreeing: (i) to purchase virtually all of your
goods and equipment for use in your restaurants through the purchasing programs
of the Unified Coop and Taco Bell Coop, (ii) to participate in the Taco Bell
Coop patronage dividend program in accordance with its terms, (iii) to abide by
the terms and commitments of the Taco Bell Coop Bylaws, (iv) to coordinate all
requests to Tricon for supplier and distributor approval through the Unified
Coop and/or the Taco Bell Coop, and (v) to be bound by the terms of the
Agreement and Plan of Corporate Separation.
The date of this Tender Offer is January 28, 1999. This Tender Offer
will expire at 12:00 midnight (Eastern Standard Time) on February 26, 1999,
unless the Tender Offer is extended. The consummation of this Tender Offer is
conditioned upon the approval of the Corporate Reorganization by the members of
the KFC Coop and its subsequent consummation, as described in the Proxy
Statement accompanying this Tender Offer.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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TENDER OFFER SUMMARY................................................................- 1 -
The Tender Offer...........................................................- 1 -
What is the Corporate Reorganization?......................................- 1 -
Is Tricon involved?........................................................- 2 -
Why is there a Tender Offer?...............................................- 2 -
How do I participate in the Corporate Reorganization?......................- 3 -
What are the terms of the Offer?...........................................- 3 -
What happens if I do not participate in this Offer?........................- 3 -
RECOMMENDATION OF THE KFC COOP BOARD................................................- 4 -
THE CORPORATE REORGANIZATION........................................................- 4 -
Background and Reasons for the Corporate Reorganization....................- 4 -
Summary of The Corporate Reorganization....................................- 9 -
Agreement and Plan of Corporate Separation................................- 11 -
Parties..........................................................- 11 -
Purpose..........................................................- 11 -
The Corporate Separation.........................................- 11 -
Taco Bell Coop Member Agreements.................................- 12 -
Federal Income Tax Consequences..................................- 12 -
Effects of the Agreement and Plan of Corporate Separation........- 13 -
Operating Agreement.......................................................- 13 -
Parties..........................................................- 13 -
Purpose..........................................................- 13 -
Tax Allocations..................................................- 13 -
Withdrawal.......................................................- 14 -
Asset Contribution and Liability Assumption Agreement.....................- 14 -
Parties..........................................................- 14 -
Purpose..........................................................- 14 -
KFC Coop Employees...............................................- 14 -
Federal Income Tax Consequences..................................- 14 -
Purchasing Program Management Agreement...................................- 15 -
Parties and Term.................................................- 15 -
Purpose..........................................................- 15 -
Federal Income Tax Consequences of Patronage Income..............- 15 -
The Tricon Agreements.....................................................- 16 -
Amendments to the KFC Coop's Bylaws.......................................- 17 -
Patronage Dividend Program.......................................- 17 -
Changes to Reflect Taco Bell Split-Off...........................- 17 -
Canadian Operations.......................................................- 18 -
Interests of Certain Persons in the Corporate Reorganization..............- 18 -
</TABLE>
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<TABLE>
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Failure of the Corporate Reorganization Proposal..........................- 18 -
Special Meeting..................................................- 18 -
Failure of the Proposal..........................................- 19 -
MANAGEMENT OF THE COOPERATIVES.....................................................- 19 -
KFC Coop..................................................................- -
Taco Bell Coop............................................................- 23 -
Unified Coop..............................................................- 24 -
THE TENDER OFFER...................................................................- 25 -
Terms of the Offer........................................................- 25 -
Extension of Tender Period; Termination; Amendments..............- 25 -
Disclosure of Material Changes...................................- 26 -
Acceptance of Shares for Exchange; Delivery of Taco Bell Coop Shares .....- 26 -
Procedure for Tendering Shares............................................- 26 -
Valid Tender of Shares...........................................- 26 -
Lost Certificates................................................- 27 -
Backup Federal Income Tax Withholding............................- 27 -
Determination of Validity........................................- 27 -
Withdrawal Rights ........................................................- 27 -
Certain Effects of the Offer..............................................- 28 -
Conditions of the Offer...................................................- 28 -
DIVIDENDS AND PATRONAGE DIVIDENDS..................................................- 29 -
KFC Coop Stock............................................................- 29 -
Taco Bell Coop Stock......................................................- 29 -
Patronage Dividend Program................................................- 29 -
MARKET AND PRICE FOR KFC COOP AND TACO BELL COOP STOCK.............................- 29 -
SHARES OUTSTANDING OF KFC COOP STOCK AS OF JANUARY 27, 1999........................- 30 -
DESCRIPTION OF KFC COOP CAPITAL STOCK..............................................- 30 -
Introduction..............................................................- 30 -
KFC Coop Membership Stock.................................................- 31 -
Issuance in Series...............................................- 31 -
KFC Operators....................................................- 31 -
Taco Bell Operators..............................................- 31 -
Licensees........................................................- 32 -
Voting Rights....................................................- 32 -
Dividend Rights..................................................- 32 -
Limitations on Ownership and Transfer; Redemption................- 32 -
Liquidation Rights...............................................- 32 -
General..........................................................- 33 -
KFC Coop Store Stock......................................................- 33 -
</TABLE>
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<TABLE>
<S> <C>
Voting Rights..................................................- 33 -
Dividend Rights................................................- 33 -
Limitations on Ownership and Transfer; Redemption..............- 33 -
Liquidation Rights.............................................- 33 -
General........................................................- 34 -
DESCRIPTION OF TACO BELL COOP CAPITAL STOCK......................................- 34 -
Introduction............................................................- 34 -
Taco Bell Coop Membership Stock.........................................- 34 -
Issuance in Series.............................................- 34 -
Taco Bell Operators............................................- 35 -
Licensees......................................................- 35 -
Voting Rights..................................................- 35 -
Dividend Rights................................................- 35 -
Limitations on Ownership and Transfer; Redemption..............- 35 -
Liquidation Rights.............................................- 36 -
General ......................................................- 36 -
Taco Bell Coop Store Stock..............................................- 36 -
Voting Rights..................................................- 36 -
Dividend Rights................................................- 36 -
Limitations on Ownership and Transfer; Redemption..............- 37 -
Distribution and Liquidation Rights............................- 37 -
General ......................................................- 37 -
COMPARISON OF SHAREHOLDER RIGHTS.................................................- 37 -
Purchase Requirements...................................................- 37 -
Business with Members...................................................- 38 -
Transferability.........................................................- 38 -
Dividend Rights.........................................................- 38 -
Registration of KFC Coop and Taco Bell Coop Stock.......................- 39 -
Licensees...............................................................- 39 -
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..................- 39 -
WHERE YOU CAN FIND MORE INFORMATION..............................................- 51 -
REGULATORY APPROVAL..............................................................- 52 -
FEES AND EXPENSES................................................................- 52 -
MISCELLANEOUS....................................................................- 52 -
BYLAWS OF TACO BELL NATIONAL PURCHASING COOP.....................................Appendix A
</TABLE>
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TENDER OFFER SUMMARY
THE TENDER OFFER
KFC National Purchasing Cooperative, Inc., a Delaware corporation
(d/b/a FoodService Purchasing Cooperative, Inc.) (the "KFC Coop"), hereby offers
to exchange (a) one share of Membership Common Stock ("Taco Bell Coop Membership
Stock") of the Taco Bell National Purchasing Coop, Inc. (the "Taco Bell Coop"),
a Delaware corporation and a wholly owned subsidiary of the KFC Coop, for each
outstanding share of Series O and P KFC Coop Membership Common Stock and (b) one
share of Store Common Stock of the Taco Bell Coop ("Taco Bell Coop Store Stock")
for each outstanding share of KFC Coop Store Common Stock ("KFC Coop Store
Stock") owned by members of the KFC Coop ("Members") who are owners
and operators of Taco Bell restaurants (the "Taco Bell Members"). Tendering
Members will receive one share of Taco Bell Coop Membership Stock of Series C -
G, inclusive, depending upon in which geographic area they are deemed to operate
a Taco Bell outlet. This offer is subject to the terms and conditions set forth
in this Tender Offer, the Agreement and Plan of Corporate Separation, and the
attached Tendering Member Signature Page and Letter of Transmittal (which
together constitute the "Offer").
The Offer is being made in connection with the "Corporate
Reorganization" of the KFC Coop, as discussed more fully below. To seek the
necessary approval for the Corporate Reorganization, proxies are being solicited
from all KFC Coop Members by the KFC Coop's Board of Directors through a Proxy
Statement dated January 28, 1999 (the "Proxy Statement"), in connection with a
Special Meeting of KFC Coop Members to be held on February 26, 1999. This Offer
is accompanied by the Proxy Statement.
WHAT IS THE CORPORATE REORGANIZATION?
For the past six months, representatives of the KFC Coop have met with
representatives of Tricon Global Restaurants, Inc. (together with its
affiliates, "Tricon") and franchisee owners and operators of KFC, Pizza Hut, and
Taco Bell retail outlets ("Retail Outlets") to discuss the formation of a new
purchasing cooperative focusing on the purchase of the food, packaging,
supplies, equipment, and related services ("Goods and Equipment") used by
operators of KFC, Pizza Hut and Taco Bell Retail Outlets (together with Tricon
operated stores, "Operators"). To reduce the store delivered costs of Goods and
Equipment, as well as to achieve other important goals discussed more fully
below, the KFC Coop Board of Directors (the "KFC Coop Board") has adopted this
proposal to create and join the newly organized Unified FoodService Purchasing
Coop, LLC, a Kentucky limited liability company (the "Unified Coop"). The other
members of the Unified Coop will be the Taco Bell Coop and Pizza Hut National
Purchasing Coop, Inc. (the "Pizza Hut Coop"), both newly organized Delaware
corporations with shareholder members who will be Operators of Taco Bell and
Pizza Hut Retail Outlets, respectively. To fully realize the benefits of joining
the Unified Coop, the KFC Coop Board recommends you tender your shares of KFC
Coop stock.
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Upon completion of the Corporate Reorganization and Offer, the KFC Coop
will continue to operate and will concentrate on its KFC purchasing cooperative
business. Although this business will be out-sourced and administered by the
Unified Coop, the KFC purchasing program will be subject to significant control,
advice and counsel of the KFC Coop. The KFC Coop Board will continue to exercise
policy-making decisions and administer the patronage dividend program in
accordance with past practices. The Taco Bell Coop will operate purchasing
programs for Taco Bell Operators which are also out-sourced and administered by
the Unified Coop, subject to significant control, advice and counsel of the Taco
Bell Coop. The Taco Bell Coop will not likely pay significant patronage
dividends to its members until it has had an opportunity to accumulate reserves
and working capital which, in the judgement of the Taco Bell Coop Board of
Directors (the "Taco Bell Coop Board"), are adequate for operations.
IS TRICON INVOLVED?
The KFC Coop believes that Tricon is committed to the success of the
Corporate Reorganization and the formation of the Unified Coop and Taco Bell
Coop. Tricon has entered into an expense sharing arrangement under which Tricon
will provide $400,000 to the Unified Coop to assist the Unified Coop with
organizational expenses and Tricon has agreed to purchase through the Unified
Coop virtually all of the Goods and Equipment needed for the Tricon operated
Retail Outlets. Additionally, Tricon will be a member of the Taco Bell Coop and
purchase the number of shares of Taco Bell Coop stock required to be a
stockholder member in good standing of the Taco Bell Coop in accordance with the
Taco Bell Coop Bylaws.
WHY IS THERE A TENDER OFFER?
If the KFC Coop Members approve the Corporate Reorganization at the
Special Meeting, the KFC Coop will transfer certain assets, liabilities and
members' equity that relate specifically to its Taco Bell operations to the Taco
Bell Coop. Through the consummation of this Offer, the KFC Coop will divide its
Taco Bell business (the "Taco Bell Split-Off") so that the KFC Coop Members who
are Taco Bell Operators will become members of the Taco Bell Coop and will no
longer be Members of the KFC Coop. Concurrently with the Taco Bell Split-Off,
the KFC Coop will transfer certain assets and liabilities to the Unified Coop,
in exchange for its membership interest in the Unified Coop. Implementing the
Corporate Reorganization and the Taco Bell Split-Off requires the following
actions to be taken: (i) the KFC Coop's officers must enter into the Operating
Agreement for the Unified Coop, the Agreement and Plan of Corporate Separation,
the Asset Contribution and Liability Assumption Agreement, and the Purchasing
Program Management Agreement, all dated as of the Closing Date (collectively,
the "Corporate Reorganization Agreements") (as used in this Offer, the "Closing
Date" refers to the date on which the Corporate Reorganization occurs); (ii) the
KFC Coop's Bylaws must be amended to conform the patronage dividend program to
the operations of the Unified Coop and to make other changes which give effect
to the Taco Bell Coop Split-Off; and (iii) the KFC Coop Members must authorize
such other action as may be necessary to carry out the purposes of the Corporate
Reorganization.
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HOW DO I PARTICIPATE IN THE CORPORATE REORGANIZATION?
If you want to tender your shares of KFC Coop Membership Stock and KFC
Coop Store Stock, you should promptly complete and sign the Letter of
Transmittal, in accordance with the instructions in the Letter of Transmittal,
mail or deliver it and any other documents required by the Letter of Transmittal
to the KFC Coop at 950 Breckenridge Lane, Louisville, Kentucky 40232, and mail
or deliver your KFC Coop stock certificates to the KFC Coop along with the
Letter of Transmittal. If you want to tender your shares and your stock
certificates are lost, you should immediately request an Affidavit of Lost
Certificate from the KFC Coop.
By agreeing to the Agreement and Plan of Corporate Separation by
signing the attached Tendering Member Signature Page and Letter of Transmittal
(the "Letter of Transmittal") and by tendering your shares, you are agreeing:
(i) to purchase virtually all of your Goods and Equipment for use in your Retail
Outlets through the purchasing programs of the Unified Coop and Taco Bell Coop
(See "Comparison of Shareholder Rights" below), (ii) to participate in the Taco
Bell Coop patronage dividend program in accordance with its terms, (iii) to
abide by the terms and commitments of the Taco Bell Coop Bylaws, enclosed in
their current form with this Offer, (iv) to coordinate all requests to Tricon
for supplier and distributor approval through the Unified Coop and/or the Taco
Bell Coop, and (v) to be bound by the terms of the Agreement and Plan of
Corporate Separation.
WHAT ARE THE TERMS OF THE OFFER?
The Offer will expire at 12:00 midnight (Eastern Standard Time) on
February 26, 1999, unless extended (the "Expiration Date"). Tenders of shares
may be withdrawn at any time prior to the Expiration Date or, unless previously
accepted for exchange, after 12:00 midnight (Eastern Standard Time) on
March 24, 1999. Certificates for shares of Taco Bell Coop Membership Stock and
Taco Bell Coop Store Stock (the "Taco Bell Coop Shares") to be issued in
exchange for properly tendered shares of KFC Coop stock will be mailed by the
KFC Coop promptly after the Expiration Date.
In addition to this Offer, the KFC Coop is delivering a Membership
Information Packet and Subscription Agreement to Taco Bell Operators who are not
members of the KFC Coop, including Tricon, for the purpose of offering Taco Bell
Coop stock to all other Operators of Taco Bell Retail Outlets.
WHAT HAPPENS IF I DO NOT PARTICIPATE IN THIS OFFER?
Any Taco Bell Members' shares of KFC Coop Membership Common Stock ("KFC
Coop Membership Stock") that are not tendered in this Offer will remain
outstanding and, assuming that fewer than 400 shares of KFC Coop Store Stock
remain owned by Taco Bell Operators, will be automatically converted into Series
N shares of KFC Coop Membership Stock in accordance with the KFC Coop's Bylaws.
After the Corporate Reorganization is completed, however, the KFC Coop will no
longer provide any services to Taco Bell Members and will discontinue all
patronage dividend programs for Taco Bell Members. Although Taco Bell Members
who do not tender their shares of
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KFC Coop stock will retain their KFC Coop Membership Stock and KFC Coop Store
Stock, they will otherwise not enjoy any benefits of being a Member of the KFC
Coop.
Taco Bell Members are urged to carefully read this Offer and the
related Letter of Transmittal before deciding whether to tender their shares.
[1. BEFORE CORPORATE REORGANIZATION AND TENDER OFFER DIAGRAM]
Before the Tender Offer and Corporate Reorganization are consummated,
Taco Bell and KFC Operators are Members of the KFC Coop. The KFC Coop
has organized the Taco Bell Coop as a wholly owned subsidiary with no
assets.
[2. THE TENDER OFFER DIAGRAM]
The KCF Coop will transfer Taco Bell related assets and liabilities to
the Taco Bell Coop in exchange for a promissory note and shares of the
Taco Bell Coop. Pursuant to the Tender Offer, the KFC Coop will issue
the shares of the Taco Bell Coop to the tendering Taco Bell Operator
Members in exchange for their shares of the KFC Coop. The Taco Bell
Coop will then become wholly owned by Taco Bell Operators.
[3. AFTER CORPORATE REORGANIZATION AND TENDER OFFER DIAGRAM]
Upon consummation of the Corporate Reorganization, each of the Concept
Coops will be owned by Operators of their respective concepts,
including Tricon. In connection with the Corporate Reorganization, each
of the Concept Coops will become members of the new Unified Coop. The
Unified Coop will administer the purchasing programs for each of the
Concept Coops.
RECOMMENDATION OF THE KFC COOP BOARD
The KFC Coop Board has approved the Corporate Reorganization and the
Offer. The KFC Coop Board has determined that the Offer and Corporate
Reorganization are fair to and in the best interest of the KFC Coop and its
Members. The purpose of the Corporate Reorganization is, among other things, to
reduce the store delivered costs of Goods and Equipment to Operators.
Additionally, the Offer allows the Taco Bell Members to be members of a
purchasing cooperative in which only Tricon, Taco Bell franchisees, and the Taco
Bell Franchise Management Advisory Council ("FRANMAC") are members and allows
the KFC Members to be members of a purchasing cooperative in which only Tricon
and KFC franchisees are members (assuming all Taco Bell Members tender their
shares of stock pursuant to this Offer). As the needs and requirements of KFC
Operators and Taco Bell Operators may differ, splitting off the Taco Bell
Members into a separate entity will allow the Taco Bell Coop and the KFC Coop to
be responsive to the different needs and requirements of the Taco Bell Operators
and KFC Operators, respectively.
The KFC Coop Board recommends that Taco Bell Members accept this offer.
THE CORPORATE REORGANIZATION
BACKGROUND AND REASONS FOR THE CORPORATE REORGANIZATION
The KFC Coop was organized in 1978 to serve as a national purchasing
cooperative on behalf, and for the benefit, of KFC Operators, including KFC
National Management Company ("KFC Management"), a subsidiary of KFC Corporation
("KFCC"). The KFC Coop was organized by KFCC and the KFC franchisees' National
Franchisee Advisory Council with the objectives of: (i) obtaining Goods and
Equipment at the lowest prices and (ii) having the procurement function on
behalf of Operators of KFC Retail Outlets handled on an arm's-length basis
rather than through KFCC.
In 1989, KFCC announced its intention to withdraw its support for the
purchasing programs of the KFC Coop and to begin direct purchasing from
suppliers and distributing to KFCC-owned and KFC franchisee Retail Outlets
through a wholly owned division of PepsiCo, PFS, which had a long-standing
program of purchasing and distributing to PepsiCo owned and franchised Taco Bell
and Pizza Hut Retail Outlets. In response to KFCC's action, the KFC Coop Board
approved sales by the KFC Coop directly and through distributors of Goods and
Equipment to certain other restaurant systems, including Taco Bell. In November
1992, the KFC Coop Members adopted amendments to its Certificate of
Incorporation and Bylaws to provide for membership in the KFC Coop by Operators
of Taco Bell Retail Outlets. In addition, during fiscal 1992, through a newly
formed subsidiary, the KFC Coop commenced purchasing
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and distribution for Operators of KFC franchised Retail Outlets in Canada. In
fiscal 1997, the KFC Coop established a new subsidiary to develop the KFC Coop's
sales of Goods and Equipment to quick service restaurant operators located
outside of the United States and Canada.
In October 1997, PepsiCo spun off Tricon with its three dominant
quick-service restaurant concepts, KFC, Taco Bell and Pizza Hut. In anticipation
of the spin-off, PepsiCo sold its distribution division, PFS, to AmeriServe Food
Distributors, Inc. ("AmeriServe"). With its purchase of PFS, AmeriServe acquired
a long term distribution commitment from Tricon which may extend until 2007 with
respect to all Tricon-operated Retail Outlets and certain Pizza Hut and Taco
Bell Retail Outlets sold by Tricon to franchisees. Before PepsiCo's sale of PFS
to AmeriServe and PepsiCo's spin-off of Tricon, PepsiCo viewed its purchasing
and distribution activities as an opportunity for profit through the sale and
distribution of Goods and Equipment to KFC, Taco Bell and Pizza Hut franchisees.
Following the Tricon spin-off, Tricon, which does not own a distribution
division like PFS, initiated a comprehensive review of its domestic Supply Chain
Management activities, and a comparison of those activities with the purchasing
activities of the KFC Coop on behalf of KFC and Taco Bell franchisees. Following
the Tricon spin-off, representatives of the KFC Coop and Pizza Hut franchisees
and their organization, the IPHFHA, Inc., renewed their occasional conversations
concerning a purchasing program administered by the KFC Coop on behalf of Pizza
Hut franchisees. The KFC Coop initiated a pilot purchasing program for Pizza Hut
Franchisees in the Fall of 1998. Discussions among the KFC Coop and KFC, Pizza
Hut and Taco Bell franchisees concerning the formation of a unified purchasing
cooperative for Goods and Equipment in the United States and Canada began in
earnest during the Fall of 1997. During the Spring of 1998, Tricon's internal
evaluation of domestic purchasing programs indicated to Tricon that the best
approach would be a combined purchasing organization, including Tricon and its
KFC, Pizza Hut and Taco Bell franchisees. Discussions with Tricon about
inclusion of Tricon in a three-system purchasing organization began in earnest
in June of 1998 when Tricon agreed in principle to an organizational structure
with a unified coop owned by the Concept Coops representing the KFC, Taco Bell
and Pizza Hut systems, and a governance structure for the unified coop and the
Concept Coops in which franchisee representatives would have a majority of
votes. By mid-October 1998, agreement on substantially all material operating
and governance issues had been reached.
It was determined to retain the KFC Coop's historic, long term
valuation of its shares of Membership Common Stock at $10 per share and its
Store Common Stock at $400 per share, and to similarly value the Taco Bell and
Pizza Hut Coop shares at $10 per membership share and $400 per store share for
three reasons. First, the KFC Coop had been selling its membership shares for
$10 per share since its inception, and had been selling its store shares for
$400 per share for well over 15 years, and it was thought appropriate to
continue this valuation tradition. Second, it was determined that a sale of
store shares by the Taco Bell and Pizza Hut Coops for $400 per share would
provide the
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basic equity capital needed for the Taco Bell and Pizza Hut Coops to commence
operations and make their initial capital contribution to the Unified Coop.
Third, the sale of membership and store shares is not viewed as the sale of an
investment, but rather the sale of membership interests which allow the members
to participate in the operations and governance of the purchasing programs of
the Concept Coops and the Unified Coop.
The KFC Coop Board considered alternatives other than the Corporate
Reorganization. The KFC Coop Board considered remaining independent of Tricon
and continuing its historic purchasing programs for KFC franchisees, and,
perhaps, some Taco Bell franchisees. The KFC Coop Board rejected this
alternative because it is unclear that a purchasing organization purchasing
essentially for just KFC franchisees would have the purchasing volume to
effectively purchase at the lowest possible prices. The KFC Coop Board
considered a KFC, Taco Bell and Pizza Hut franchisee only purchasing
organization, which it considered inferior to a purchasing organization which
included Tricon (a) because inclusion of Tricon allows the purchasing
organization to purchase for the entire Tricon system without the confusion of
duplicate purchasing organizations, and (b) because Tricon agreed to a
governance structure which insures that franchisees have a majority of the votes
in the governing structure of the Unified Coop and the Concept Coops.
On October 15, 1998, the KFC Coop Board unanimously approved the
Corporate Reorganization described in this Proxy Statement, subject to the KFC
Coop Board's final approval of definitive documents and business plans and
arrangements.
In addition to reducing the store delivered costs of Goods and
Equipment, the goals of the Corporate Reorganization are to:
- Allow the KFC, Taco Bell and Pizza Hut franchisees to
work together to identify common interests as Tricon
franchisees. Historically, the KFC, Taco Bell and
Pizza Hut systems were administered separately in
most respects and each system's franchisees have had
their own franchisee organizations. Concept Coops for
each system will be the members of the Unified Coop
which will be governed by a board of directors with
franchisees from each system;
- Allow Tricon and its franchisees to work together.
There are often tensions between franchisor and
franchisees concerning a myriad of issues such as the
terms of franchisee agreements, the expenditure of
marketing funds, the advisability of product
promotions and changes, and the franchisor's role in
the procurement and distribution of Goods and
Equipment. The Unified Coop should substantially
align the interests of Tricon as operator and
franchisor and of Tricon's franchisees in the
procurement of Goods and Equipment at the lowest
possible sustainable store delivered price;
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- Integrate the current purchasing functions of the KFC
Coop and Tricon's Supply Chain Management, Tricon's
internal purchasing division, in a way that
identifies and uses the best practices of each
organization;
- Increase the purchasing power and leverage of the
Operators' purchasing cooperative by allowing the
purchasing cooperative to make larger volume purchase
commitments and to speak with one consistent voice
with suppliers;
- Eliminate duplicate overhead through the elimination
of duplicate administrative and purchasing functions.
Initial estimates are that combined Tricon and KFC
Coop annual savings will reach approximately
$2,500,000;
- Allow a higher level of sophistication in purchasing
programs and partnerships with suppliers by combining
the expertise in each purchasing program and by
allowing more specialized purchasing supported by a
larger organization;
- Eliminate most sheltered income, which includes
rebates, volume discounts, and promotional
allowances, that does not benefit all Operators
equally. Tricon has agreed to forego the collection
of most sheltered income from suppliers and
distributors which franchisees believe will allow
suppliers and distributors to charge lower prices;
- End confusion for valued suppliers and distributors
caused by uncoordinated, separate communication to
suppliers and distributors from Tricon's Supply Chain
Management and a separate franchisee purchasing
organization such as the KFC Coop concerning such
matters as requirements and purchase commitments and
over who "speaks" for the restaurant system; and
- Facilitate taking advantage of both Title
Transactions and Contract Transactions, as defined
below. Historically, the KFC Coop's operations have
been characterized by the KFC Coop taking title to
Goods and Equipment purchased from vendors and
reselling Goods and Equipment to Operators and their
distributors. By taking title, the KFC Coop has
assumed the administrative burden of obtaining
payment from Operators and their distributors.
Historically, the operations of Supply Chain
Management have been characterized by the negotiation
of terms with suppliers pursuant to which suppliers
sell Goods and Equipment directly to Tricon and to
franchisee Operators and their distributors without
assuming any credit risks. For instance, currently as
a general matter, suppliers of Goods to AmeriServe
for resale by AmeriServe to Tricon take the credit
risk of payment for those Goods by AmeriServe, while
suppliers selling to distributors through the KFC
Coop look to the KFC Coop rather than to the
distributor for payment. The
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Unified Coop will combine the KFC Coop's expertise
with respect to Title Transactions and Supply Chain
Management's expertise with respect to Contract
Transactions and allow the organization to evaluate
on an item by item and program by program basis which
kind of transaction will result in the lowest
possible sustainable store delivered prices.
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SUMMARY OF THE CORPORATE REORGANIZATION
To achieve the goals listed above, the KFC Coop Board has approved the
Corporate Reorganization and Offer. The Corporate Reorganization involves (i)
the execution of the Agreement and Plan of Corporate Separation (the "Agreement
and Plan of Corporate Separation"), the Asset Contribution and Liability
Assumption Agreement (the "Asset Contribution and Liability Assumption
Agreement"), the Operating Agreement for the Unified FoodService Purchasing
Coop, LLC (the "Operating Agreement"), and the KFC Coop's Purchasing Program
Management Agreement, an agreement similar to the purchasing program management
agreements to be entered into between the Unified Coop and each of the Taco Bell
Coop and Pizza Hut Coop (each a "Purchasing Program Management Agreement"), and
the consummation of the transactions contemplated by the agreements; (ii) the
amendment of the KFC Coop Bylaws to conform the patronage dividend program to
the operations of the Unified Coop and to makes other changes which reflect the
Taco Bell Coop Split-Off; and, (iii) the authorization of such other action as
may be necessary to carry out the purposes of the Corporate Reorganization. The
discussion in this Offer of the Corporate Reorganization and the description of
the principal terms of the Corporate Reorganization Agreements is subject to and
qualified in their entirety by reference to the drafts of the Corporate
Reorganization Agreements, copies of which are attached to the Proxy Statement
accompanying this Offer and incorporated herein by reference, which are being
submitted to the KFC Coop's stockholders for approval in substantially the form
attached thereto.
Three new entities will be organized in connection with the Corporate
Reorganization. On the Closing Date, the Unified Coop will be formed with the
KFC Coop, the Taco Bell Coop, and the Pizza Hut Coop (collectively, the "Concept
Coops") as its initial members. The Unified Coop will provide the support and
operational services for each Concept Coop through combined administrative and
purchasing functions in a manner consistent with the current operation of the
KFC Coop. The KFC Coop has organized the Taco Bell Coop as a wholly owned
subsidiary. On the Closing Date, the KFC Coop will transfer certain assets and
liabilities that relate specifically to its Taco Bell operations to the Taco
Bell Coop in exchange for that number of shares of the Taco Bell Coop's stock
equal to the number of shares of KFC Coop stock tendered by Taco Bell Members
pursuant to this Offer. The KFC Coop will then exchange such shares of Taco Bell
Coop stock with the Tendering Members, as defined below, for their shares of KFC
Coop stock. Furthermore, in exchange for its membership interest in the Unified
Coop, the KFC Coop will contribute certain operating assets and cash to the
Unified Coop.
Following the Corporate Reorganization, much of the KFC Coop's
organization and its relationship with its Members will remain the same.
Pursuant to the Operating Agreement, the KFC Coop's Purchasing Program
Management Agreement and the KFC Coop Bylaws, it is expected that the patronage
dividend program will continue to be administered in accordance with past
practices. The Taco Bell Coop will not likely pay significant patronage
dividends to its members until it has had an opportunity to accumulate reserves
and working capital which, in the judgement of the Taco Bell Coop Board, are
adequate for operations.
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The remaining Members will continue to elect the directors of the KFC
Coop Board by series of KFC Coop Membership Stock held. Both the KFC Coop Board
and the Taco Bell Coop Board will remain independent and will continue to manage
their respective Concept Coop's business affairs, as well as provide significant
control, advice and counsel to the Unified Coop regarding the operation of the
purchasing program operated on behalf of their respective Concept Coop. The
Unified Coop will provide to each of the Concept Coops all of the purchasing
functions previously provided by the KFC Coop in a fashion similar to the KFC
Coop's current operations. While the KFC Coop will terminate all of its
employees, the Unified Coop will make offers of employment to these employees on
terms and conditions substantially similar to those currently in effect between
the KFC Coop and its employees. These aspects of the Corporate Reorganization
are described in more detail below.
The KFC Coop's purchasing programs have involved the KFC Coop
historically taking title to Goods and Equipment purchased from suppliers and
the resale by the KFC Coop of those Goods and Equipment to Operators and their
distributors, with the KFC Coop taking the credit risks on sales to Operators
and distributors (such transactions are hereinafter referred to as "Title
Transactions"). The purchasing programs of Tricon Supply Chain Management
("SCM") have historically involved non-title transactions in which SCM
negotiates the price and other terms under which suppliers of Goods and
Equipment will sell directly to Operators and distributors (such transactions
are hereinafter referred to as "Contract Transactions"). The integration of the
KFC Coop's purchasing program and SCM's purchasing programs will give the
Unified Coop flexibility to take advantage of both Title Transactions and
Contract Transactions in order to obtain the lowest possible sustainable
restaurant delivered prices. The advantages of Title Transactions include the
ability to control the entire supply chain and the lower prices which suppliers
are sometimes willing to accept in order to avoid distributor and Operator
credit risks. The advantages of Contract Transactions include avoiding credit
risks and decreasing the need for working capital to provide the funds necessary
to carry accounts receivable from distributors and Operators.
In addition to agreeing to integrate SCM's purchasing programs with
those of the Unified Coop, Tricon has also committed to contribute $400,000 to
the Unified Coop to assist the Unified Coop with organizational expenses and
purchase through the Unified Coop virtually all of the Goods and Equipment
needed for the Tricon operated Retail Outlets.
The Corporate Reorganization Agreements will be entered into
simultaneously with the effectiveness of the Bylaw amendments and consummation
of this Offer. None of these agreements or amendments will become effective
unless all become effective. It is the KFC Coop Board's belief that Tricon and
all other parties are prepared to sign the Corporate Reorganization Agreements,
in substantially the forms attached to the Proxy Statement accompanying this
Offer, and all other documents necessary to form the Unified Coop shortly
following approval of the Corporate Reorganization by the Members. The Corporate
Reorganization is subject to the final approval of the KFC Coop Board.
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AGREEMENT AND PLAN OF CORPORATE SEPARATION
Parties. The parties to the Agreement and Plan of Corporate Separation,
a copy of which is attached to the Proxy Statement accompanying this Offer, are
(a) the KFC Coop, (b) the Taco Bell Members who sign the Letter of Transmittal
attached to the Agreement and Plan of Corporate Separation and tender their
stock certificates representing shares of KFC Coop Membership Stock and KFC Coop
Store Stock (the "Tendering Members"), and (c) the Taco Bell Coop.
Purpose. The parties are entering into the Agreement and Plan of
Corporate Separation, in part, so that the Taco Bell Members can become members
of a Concept Coop in which only Tricon, Taco Bell franchisees, and FRANMAC are
members and the KFC Members can become members of a Concept Coop in which only
Tricon and KFC franchisees are members (assuming all Taco Bell Members tender
their shares of stock pursuant to this Offer). As the needs and requirements of
KFC Operators and Taco Bell Operators may differ, splitting off the Taco Bell
Members into a separate entity will allow the Taco Bell Coop and the KFC Coop to
be responsive to the different needs and requirements of the Taco Bell Operators
and KFC Operators, respectively.
The Corporate Separation. The KFC Coop has identified certain assets
(the "Taco Bell Assets") and liabilities (the "Taco Bell Liabilities") of the
KFC Coop that relate specifically to the KFC Coop's Taco Bell operations. Taco
Bell Assets include, but are not limited to, Taco Bell product inventory and
equipment, records of Taco Bell operations, and miscellaneous Taco Bell supplies
and signs. Taco Bell Liabilities include, but are not limited to, purchase
commitment liabilities, intercompany liabilities attributable to accounts
payable and other liabilities related to Taco Bell operations paid or assumed by
the KFC Coop (the "Intercompany Liability"). The stockholders' equity related to
the KFC Coop's Taco Bell operations represents: (i) the amount paid for KFC Coop
Membership Stock and KFC Coop Store Stock by Taco Bell Members and (ii) retained
earnings attributable to the KFC Coop's Taco Bell operations on the basis of the
past patronage of Taco Bell Members with the KFC Coop.
The KFC Coop will divide its business by transferring all of the Taco
Bell Assets (except for an amount of cash [the "Excluded Assets"] equal to the
sum of $10 for each share of KFC Coop Membership Stock and $400 for each share
of KFC Coop Store Stock, in each case, owned by Taco Bell Members who are not
Tendering Members, if any ["Non-Tendering Members"]), Taco Bell Liabilities,
and stockholders' equity related to the Taco Bell operations, to the Taco Bell
Coop, in exchange for (i) a Promissory Note in an original principal amount
equal to the Intercompany Liability and (ii) the original issue to the KFC Coop
of one share of the Taco Bell Coop's membership common stock ("Taco Bell Coop
Membership Stock") for each Tendering Member's share of KFC Coop Membership
Stock and one share of the Taco Bell Coop's store common stock ("Taco Bell Coop
Store Stock") for each share of KFC Coop Store Stock owned by each Tendering
Member, which will constitute all of the outstanding capital stock of the Taco
Bell Coop. The KFC Coop will retain all other assets and liabilities now owned
by the KFC Coop.
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The Taco Bell Coop is obligated to reimburse the KFC Coop for the
Intercompany Liability pursuant to the terms of a Promissory Note and Security
Agreement that will be executed in connection with the Agreement and Plan of
Corporate Separation by the Taco Bell Coop. The Promissory Note provides that
the Intercompany Liability is payable in monthly installments of principal and
interest thereon at the prime rate reported in the "Money Rates" section of The
Wall Street Journal on the Closing Date. All principal and interest will be due
and payable in any event on or before the six month anniversary of the Closing
Date. The amount of the Intercompany Liability as of July 31, 1998 was
approximately $10,677,000. Pursuant to the terms of the Security Agreement, the
Taco Bell Coop grants a security interest to the KFC Coop in all of its assets,
including accounts receivable, and the KFC Coop may exercise all of the rights,
options, and remedies of a secured party upon default as provided for under the
Uniform Commercial Code as enacted in the Commonwealth of Kentucky.
The KFC Coop is making this Offer to the Taco Bell Members to offer to
transfer to the Tendering Members all of the Taco Bell Coop Shares previously
acquired by it, in the manner described above, in exchange for the surrender by
the Tendering Members of all of their shares of KFC Coop Membership Stock and
KFC Coop Store Stock. The exchange of shares will occur on the Closing Date.
This transaction is intended to qualify as a tax-free split off under Section
355 of the Internal Revenue Code of 1986, as amended (hereinafter referred to as
the "Code"). See "Federal Income Tax Consequences" below.
Concurrent with this Offer, the Taco Bell Coop is offering Operators of
Taco Bell outlets who are not members of the KFC Coop the opportunity to join
the Taco Bell Coop by subscribing for shares of Taco Bell Coop stock.
Taco Bell Coop Member Agreements. By agreeing to the Agreement and Plan
of Corporate Separation by signing the attached Letter of Transmittal and by
tendering one's shares, the Taco Bell Coop members will be agreeing to the
following: (i) to commit to purchase virtually all of their Goods and Equipment
for use in their Retail Outlets through the purchasing programs of the Unified
Coop and Taco Bell Coop, (ii) to participate in the Taco Bell Coop patronage
dividend program in accordance with its terms, (iii) to abide by the terms and
commitments of the Taco Bell Coop Bylaws,(iv) to coordinate all requests to
Tricon for supplier and distributor approval through the Unified Coop and/or the
Taco Bell Coop, and (v) to be bound by the terms of the Agreement and Plan of
Corporate Separation.
Federal Income Tax Consequences. The KFC Coop believes, based on a
review of applicable authorities, that the transactions contemplated by the
Agreement and Plan of Corporate Separation will be tax-free to the KFC Coop and
its shareholders under Section 355 of the Code. Specifically, the KFC Coop
believes (1) no gain or loss will be recognized by a holder of KFC Coop stock
upon the receipt of Taco Bell Coop stock; (2) no gain or loss will be recognized
by the KFC Coop or the Taco Bell Coop upon the distribution of the Taco Bell
Coop stock; and (3) no gain or loss will be recognized by the KFC Coop or the
Taco Bell Coop upon the transfer of assets from the KFC Coop to the Taco Bell
Coop. The KFC Coop, however, has not and does not intend to apply for a ruling
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from the Internal Revenue Service with respect to the tax treatment of the
transactions contemplated by the Agreement and Plan of Corporate Separation.
If those transactions do not qualify under Section 355 of the Code,
then (i) a corporate level capital gains tax would be payable based upon the
amount by which the fair market value of the Taco Bell Coop stock distributed to
the KFC Coop stockholders exceeded the KFC Coop's adjusted tax basis therein,
and (ii) the distribution will be treated as a redemption of stock, resulting in
gain or loss to each holder of KFC Coop stock who receives shares of Taco Bell
Coop stock in the distribution.
Effects of the Agreement and Plan of Corporate Separation. Following
consummation of the transactions contemplated herein, the KFC Coop will no
longer provide any services to Taco Bell Operators and will discontinue its
patronage dividend program for Taco Bell Operators. Although Non-Tendering
Members will retain their KFC Coop Membership Stock and KFC Coop Store Stock,
they will otherwise not enjoy any of the benefits of being a Member of the KFC
Coop, such as participation in a purchasing program.
OPERATING AGREEMENT
Parties. The parties to the Operating Agreement, as more fully
described in the Proxy Statement accompanying this Offer, are the KFC Coop, the
Taco Bell Coop and the Pizza Hut Coop (the "Unified Coop Members"), as the
initial members of the Unified Coop. Tricon is a recognized third party
beneficiary of the Operating Agreement.
Purpose. The Operating Agreement describes the business of the Unified
Coop. The Unified Coop will combine the purchasing volume for Goods and
Equipment within and across Tricon's KFC, Taco Bell and Pizza Hut concepts in
order to achieve the lowest possible store delivered costs for Operators. The
Unified Coop will manage and operate purchasing programs for each of the Concept
Coops consistent with the terms of management agreements between the Unified
Coop and each Concept Coop ("Management Agreements"). (See "Purchasing Program
Management Agreement" below.) The Unified Coop will attempt to negotiate the
lowest possible sustainable prices for Goods and Equipment from suppliers
approved by Tricon for sale either through the Unified Coop or directly by the
supplier to approved distributors selected by the Unified Coop Members and the
Operators represented by the Unified Coop Members. The Unified Coop will also
assist the Unified Coop Members and Operators in negotiating and monitoring
freight and distribution arrangements. The Unified Coop will provide other
services for Unified Coop Members and Operators provided for in the Management
Agreements.
Separate Capital Accounts. Each Concept Coop will have a Capital
Account balance, representing that Concept Coop's property interest in the
Unified Coop. The Capital Account will initially be credited with the fair
market value of the assets contributed to the Unified Coop by each Concept Coop,
plus that Concept Coop's share of the Unified Coop's liabilities, minus the
amount of the Concept Coop's liabilities assumed by the Unified Coop. A Concept
Coop's Capital Account balance will increase by an amount equal to any profits
allocated to the Concept Coop and decrease by allocations of losses and
distributions of net cash flow. Increases or decreases in a Concept Coop's share
of the Unified Coop's liabilities will also increase or decrease the Concept
Coop's Capital Account balance. Except as expressly provided in the Operating
Agreement, no Unified Coop Member will be entitled to withdraw any part of such
Unified Coop Member's capital contributions or Capital Account, or to receive
any distribution from the Unified Coop.
Tax Allocations. The Unified Coop's profits and losses will generally
be allocated annually for tax purposes among the Unified Coop Members in
accordance with their relative annual patronage for each respective year.
Patronage is defined in the Operating Agreement to mean the amount of direct and
indirect transactions between the Unified Coop and the three Concept Coops and
Operators which qualify as patronage in the Certificates of Incorporation and
Bylaws (the "Charter Documents") of each Concept Coop.
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Withdrawal. Until December 31, 2003 (the "Withdrawal Date"), no Unified
Coop Member may withdraw from the Unified Coop for any reason. A Unified Coop
Member may withdraw at any time after the Withdrawal Date by giving the Unified
Coop 365 days advance written notice of such Unified Coop Member's withdrawal
from the Unified Coop. The redemption price payable by the Unified Coop for the
Unified Coop Member's interest will be the "Contract Price." The Contract Price
equals the balance of the withdrawing Unified Coop Member's Capital Account as
defined in the Operating Agreement as of the end of the month immediately
preceding the removal or withdrawal of a Unified Coop Member, provided that such
Capital Account will be appropriately adjusted for any distribution by the
Unified Coop which is not reflected in such Capital Account as of the close of
such month. The Unified Coop will not be required to redeem a withdrawing
Unified Coop Member's interest if the remaining Unified Coop Members elect to
dissolve the Unified Coop.
ASSET CONTRIBUTION AND LIABILITY ASSUMPTION AGREEMENT
Parties. The parties to the Asset Contribution and Liability Assumption
Agreement, as more fully described in the Proxy Statement accompanying this
Offer, are the Unified Coop and the KFC Coop.
Purpose. The Operating Agreement requires, among other things, that
the KFC Coop make certain capital contributions to the Unified Coop in exchange
for its membership interest therein. In satisfaction of that obligation,
pursuant to the Asset Contribution and Liability Assumption Agreement, the KFC
Coop will assign, transfer, deliver, and generally set over to the Unified Coop,
and the Unified Coop agrees to accept and assume, certain "Assets," which means
certain of its Contracts, Leases, Equipment, Prepaid Assets and Kenco Stock
(other than any of the same which are Taco Bell Coop Assets), as defined in the
Asset Contribution and Liability Assumption Agreement. The Assets will not
include any other assets of the KFC Coop, including, without limitation, any
accounts receivable, cash or cash equivalents, goodwill or the capital stock of
any subsidiary of the KFC Coop other than Kenco Insurance Agency, Inc.
("Kenco"). In return, the Unified Coop will assume and agree to perform and
discharge in full any and all of the KFC Coop's obligations and liabilities
under its Contracts and Leases. Furthermore, in exchange for its contribution of
the Assets to the Unified Coop, the KFC Coop will receive credit to its Capital
Account, as discussed above, in an amount equal to the value of the Assets on
the balance sheet of the KFC Coop prepared as of the Closing Date in accordance
with generally accepted accounting principles and as further defined in the
Operating Agreement up to a maximum of $950,000. If the value of the Assets
exceeds $950,000, the Unified Coop will return the excess value in cash to the
KFC Corp.
KFC Coop Employees. The Unified Coop will make offers of employment to
all of the current employees of the KFC Coop on terms and conditions
substantially similar in the aggregate to those currently in effect between the
KFC Coop and its employees, except for Mr. Henrion, as discussed below. See
"Interests of Certain Persons in the Corporate Reorganization."
Federal Income Tax Consequences. Under the Asset Contribution and
Liability Assumption Agreement, the KFC Coop will contribute certain assets and
liabilities to the Unified Coop and receive in exchange a membership interest in
the Unified Coop. The Unified Coop is a Kentucky limited liability company that
will be treated as a partnership for federal income tax purposes. Under
-14-
<PAGE> 24
Sections 721 and 752 of the Code, the contribution of assets and liabilities by
the KFC Coop to the Unified Coop will be tax-free to the KFC Coop and the
Unified Coop, so long as the aggregate amount of the liabilities assumed by the
Unified Coop from the KFC Coop does not exceed the aggregate of the KFC Coop's
share of the Unified Coop's liabilities and the basis of the assets contributed
by the KFC Coop.
PURCHASING PROGRAM MANAGEMENT AGREEMENT
Parties and Term. A Purchasing Program Management Agreement, as more
fully described in the Proxy Statement accompanying this Offer, will be entered
into between the Unified Coop and each Concept Coop. The initial term of each
Purchasing Program Management Agreement extends through December 31, 2003, the
Withdrawal Date. A Purchasing Program Management may be terminated on the
Withdrawal Date or any December 31 thereafter upon one year's notice of
termination.
Purpose. The Purchasing Program Management Agreement sets forth the
terms pursuant to which the Unified Coop will establish and administer a
purchasing program on behalf of each Concept Coop.
The management services to be provided by the Unified Coop will include
negotiating the lowest possible sustainable prices for Goods and Equipment from
suppliers approved by Tricon for sale through the Unified Coop or directly by
the supplier to Tricon-approved distributors selected by the Unified Coop
Members and the Operators represented by Members; assisting the Unified Coop
Members and Operators in negotiating and monitoring freight and distribution
arrangements; administering related insurance and other service programs; and
negotiating arrangements such as master beverage agreements and regional poultry
contracts. To provide these services, the Concept Coops agree that the Unified
Coop purchasing program must be appropriately capitalized, financially
self-sustaining, and operated on a cooperative basis.
Federal Income Tax Consequences of Patronage Income. Under the
Purchasing Program Management Agreements, income generated through the
management services provided by the Unified Coop will be retained in part as
consideration for the Unified Coop's services, with the balance paid to each
Concept Coop. The KFC Coop believes, based on applicable authorities, that
payments by the Unified Coop to a Concept Coop under the applicable Purchasing
Program Management Agreement will qualify for patronage dividend
characterization under Section 1381 through 1388 of the Code, so long as such
amounts not retained by the Concept Coop for capital and reserves are
distributed to the Concept Coop's shareholders in accordance with the Charter
Documents of each Concept Coop. The KFC Coop, however, has not and does not
intend to apply for a ruling from the Internal Revenue Service with respect to
the characterization of the payments for federal income tax purposes. If the
Internal Revenue Service challenged the characterization of the payments and was
successful, then the Concept Coop would be liable for taxes and interest for any
amounts disallowed as exclusions from its taxable income.
-15-
<PAGE> 25
THE TRICON AGREEMENTS
The Unified Coop and Tricon will enter into the Tricon Purchasing Coop
Agreement (the "Tricon Purchasing Coop Agreement") and the SCM Transfer
Agreement (the "SCM Transfer Agreement"), both dated as of the Closing Date
(collectively, the "Tricon Agreements"). The Tricon Purchasing Coop Agreement
sets forth Tricon's commitment to the purchasing programs of the Unified Coop
and the Concept Coops, Tricon's supplier and distributor processes, aspects of
the relationships between Tricon and suppliers and distributors, and
coordination of the Unified Coop's purchasing activities with the marketing,
promotion, and other programs and projects of Tricon. The SCM Transfer Agreement
sets forth provisions concerning the Unified Coop employment of Tricon SCM
personnel and the assumption by the Unified Coop of certain SCM purchasing
arrangements for Goods and Equipment.
Tricon will designate the Unified Coop as the exclusive administrator
of purchasing programs, operated on behalf of the Concept Coops, for all Tricon
owned and operated Retail Outlets. Tricon is also contributing $400,000 to the
Unified Coop to assist the Unified Coop with specific expenses incurred in its
organization and in establishing its purchasing programs. Tricon is expected to
become and remain a member of each Concept Coop, in accordance with the policies
and requirements of each Concept Coop.
Pursuant to the terms of the Tricon Agreements, Tricon agrees to
purchase through the Unified Coop virtually all of the Goods and Equipment
needed for the Tricon operated Retail Outlets. Furthermore, Tricon agrees to
transfer to the Unified Coop, and the Unified Coop agrees to assume, certain of
Tricon's contracts and commitments involving the purchase or sale of Goods and
Equipment. The Unified Coop will also make offers of employment to all of the
current employees of Tricon who are engaged primarily in the purchase or sale of
Goods and Equipment for use or consumption by Operators.
Tricon will have the exclusive right and obligation with respect to the
purchase and distribution of Goods and Equipment used by Operators to (i)
designate and terminate approved suppliers and approved distributors, with
significant franchisee involvement, (ii) designate approved Goods and Equipment,
and (iii) develop, designate, modify and update specifications for Goods and
Equipment.
As used in the Tricon Purchasing Coop Agreement, "Sheltered Income"
means so called earned income, rebates, kick-backs, volume discounts, tier
pricing, purchase commitment discounts, sales and service allowances, marketing
allowances, advertising allowances, promotional allowances, label allowances,
back-door income, application fees, inspection fees, quality assurance fees,
etc., and includes, among other items, (a) fees charged suppliers and
distributors in the supplier and distributor approval process, (b) fees charged
suppliers and distributors for quality inspections and "hot line" inquiries and
complaints, (c) license or trademark fees or rebates charged or expected as a
condition of supplier or distributor approval or use, typically paid as a
percentage of system-wide volume, (d) higher prices permitted suppliers to
amortize research and development expenses undertaken by
-16-
<PAGE> 26
suppliers at the request of Tricon or otherwise, (e) higher prices permitted
suppliers to amortize the cost of excess inventory, (f) higher prices permitted
suppliers to amortize the cost of graphics and other product changes, (g)
special or atypical payment terms, (h) payments and allowances to distributors
from suppliers based on distributor volume which are not reflected as a
reduction in distributor cost or prices, and (i) special favors, gifts and
entertainment. Tricon will abide by the terms of the Sheltered Income provisions
of the Tricon Purchasing Coop Agreement which provide that neither Tricon nor
the Unified Coop will receive or benefit from any Sheltered Income in connection
with Goods or Equipment purchased or used by Retail Outlets, nor shall either
authorize any approved supplier, approved distributor, or Concept Coop to
receive or benefit from Sheltered Income, subject to the few exceptions listed
in the Tricon Purchasing Coop Agreement. This, however, does not limit or
prohibit the right of the Unified Coop or any Concept Coop to benefit from any
Sheltered Income, provided that the Unified Coop shares, and causes each Concept
Coop to share, such Sheltered Income among each applicable Operator (including
Tricon) based on the dollar volume of the purchases of such Operator that gave
rise to the receipt or benefit of such Sheltered Income.
AMENDMENTS TO THE KFC COOP'S BYLAWS
The KFC Coop Board has made two substantive changes to the KFC Coop
Bylaws, as discussed below, conditioned on the consummation of the Corporate
Reorganization. The KFC Coop Board also retains the right under Article IX of
its Certificate of Incorporation to make, adopt, amend or repeal the KFC Coop
Bylaws, subject to the right of Members to adopt, amend or repeal the KFC Coop
Bylaws.
Patronage Dividend Program. The KFC Coop Board has updated the
provisions of the KFC Coop Bylaws governing the patronage dividend program to
conform its operations with those of the Unified Coop and the other Concept
Coops, pursuant to the Operating Agreement. No Unified Coop Member is entitled
to patronage, but rather may pass such distributions on to the Concept Coop
members in accordance with the provisions of their respective patronage dividend
programs. This patronage dividend program contemplates separate patronage pools
for each Unified Coop Member's Title Transactions and Contract Transactions.
See "Dividends and Patronage Dividends--Patronage Dividend Program."
The Operating Agreement prohibits Unified Coop Members from altering
their patronage dividend programs without the consent of the Unified Coop Board.
Changes to Reflect Taco Bell Split-Off. The KFC Coop Board has amended
the KFC Coop Bylaws to reflect the division of its business, conditioned on the
consummation of the Corporate Reorganization. Assuming that less than 400 shares
of KFC Coop Store Stock remain owned by Taco Bell Operators following the
Corporate Reorganization, any remaining Taco Bell Operators will own Series N
shares of KFC Coop Membership Stock. If any Members of Series N remain, they
will be entitled to elect one member of the KFC Coop Board. Other administrative
amendments to the KFC Coop Bylaws are planned to reflect the Taco Bell
Split-Off.
-17-
<PAGE> 27
CANADIAN OPERATIONS
The KFC Coop currently operates its purchasing program for KFC
Operators in Canada through a wholly owned subsidiary, KFC Franchisee Purchasing
of Canada, Inc. (the "Canada Subsidiary"). It is anticipated that at the time of
or shortly following the Corporate Reorganization a new unified purchasing
cooperative will be organized for KFC, Taco Bell, and Pizza Hut Operators in
Canada (the "Canada Coop"). The Canada Coop would be a party to the Operating
Agreement for the Unified Coop, but would not be a member of the Unified Coop.
The Canada Coop would be represented on the Unified Coop Board of Directors by a
director who has no vote, except on Canada Matters, as would be defined in the
Operating Agreement. As of the date of this Proxy Statement, there can be no
assurance that a Canada Coop will be organized and become a party to the
Operating Agreement for the Unified Coop.
Unlike the Concept Coops, the Canada Coop would directly operate a
purchasing program for Goods used by Operators in Canada. The Unified Coop would
likely operate a purchasing program for Equipment used by Operators in Canada.
The Canada Coop would enter into a purchasing cooperative agreement with Tricon,
on terms similar to the Tricon Purchasing Coop Agreement, that describes
Tricon's commitment to the Canada Coop and its purchasing programs.
INTERESTS OF CERTAIN PERSONS IN THE CORPORATE REORGANIZATION
Thomas D. Henrion, President of the KFC Coop and a non-voting member of
its Board of Directors, may be deemed to have certain interests in the Corporate
Reorganization that are in addition to his interests as an officer and director.
The KFC Coop Board is aware of this interest and has considered it, among other
matters, in approving the Corporate Reorganization and the transactions
contemplated thereby.
The KFC Coop, the Unified Coop, and Thomas D. Henrion, President of the
KFC Coop, have executed a Separation and Consulting Agreement (the "Separation
and Consulting Agreement"). The Separation and Consulting Agreement provides for
Mr. Henrion to resign his employment on the Closing Date and, thereafter, to
provide consulting services for two years. Mr. Henrion also agrees to
non-compete provisions whereby, for two years following the date of the
Separation and Consulting Agreement, Mr. Henrion will not work for specifically
scheduled companies that are specifically listed in the Separation and
Consulting Agreement. Under the Separation and Consulting Agreement, Mr. Henrion
will be paid $500,000 upon consummation of the Corporate Reorganization and
$456,300 on the first business day of January 2000 along with health insurance
coverage for 10 years. The Separation and Consulting Agreement replaces the
Supplemental Benefits/Consulting Agreement (the "Supplemental Agreement")
between Mr. Henrion and the KFC Coop.
Under the Supplemental Agreement, upon Mr. Henrion's retirement or
termination, he would receive (i) monthly compensation equal to one-twelfth of
18% of his annual base compensation averaged over a three-year period (his
"Average Annual Compensation") for the number of months Mr. Henrion had worked
for the KFC Coop since January 1, 1994 and (ii) for one year following the
expiration of the above compensation, monthly payments equal to one-twelfth of
his Average Annual Compensation. As of the end of fiscal 1998, Mr. Henrion's
Average Annual Compensation was approximately $209,000. As of January 1, 1999,
Mr. Henrion would have been entitled to aggregate payments of approximately
$397,000 under the Supplemental Agreement. The Supplemental Agreement also
provided that if Mr. Henrion chose to consult with the KFC Coop following his
departure, in lieu of monthly retirement benefits discussed in (i) above, he
would receive monthly compensation equal to one-twelfth of 30% of his Average
Annual Compensation for so long as he provided consulting services to the KFC
Coop, but for no longer than the number of months he was actually employed after
January 1, 1994 (aggregate value of approximately $538,175). Finally, the
Supplemental Agreement provided Mr. Henrion with one-half ownership of a whole
life split-dollar insurance policy in an initial face amount of $147,384, a car
allowance and health insurance while he consulted.
FAILURE OF THE CORPORATE REORGANIZATION PROPOSAL
Special Meeting. The KFC Coop Board is seeking approval of the
Corporate Reorganization from its stockholder members at a Special Meeting (the
"Special Meeting"). In connection with the Special Meeting, the KFC Coop has
filed the Proxy Statement with the Securities and Exchange Commission (the
"Commission") and is soliciting proxies from holders of record of KFC Coop
Membership Stock as of the close of business on January 28, 1999 (the "Special
Meeting Record Date"), for use at the Special Meeting to be held on February
26, 1999, at 10:00 a.m. (Eastern Standard
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<PAGE> 28
Time) at the KFC Coop's headquarters at 950 Breckenridge Lane, Louisville,
Kentucky 40232 and at any adjournment or postponement thereof.
Failure of the Proposal. If the Corporate Reorganization proposal fails
to receive the required affirmative votes of the KFC Coop's stockholder members,
the KFC Coop will not enter into the Corporate Reorganization Agreements and
will not exchange any shares pursuant to the Offer, but will continue to operate
in a manner and structure consistent with its operations as of the date of this
Offer. The KFC Coop would expect to continue discussions with Tricon and
franchisees to explore alternative ways of reducing store delivered costs of
Goods and Equipment to Retail Outlets and achieving the other goals stated
herein.
MANAGEMENT OF THE COOPERATIVE
Directors and Executive Officers
The following table lists, in addition to other information, the
directors and certain executive officers of the Cooperative as of December 31,
1998, their ages, their position with the Cooperative, their present principal
occupations, and the number and percentages of shares of Store Common Stock
beneficially owned, directly or indirectly, by each. The information provided
with respect to the ages and number of shares beneficially owned is as of
December 31, 1998.
<TABLE>
<CAPTION>
POSITIONS AND YEAR FIRST
OFFICES BECAME KFC
CURRENTLY DIRECTOR OR TERM AS PRESENT STORE PERCENT OF
HELD WITH EXECUTIVE DIRECTOR SERIES PRINCIPAL STOCK STORE
NAME AGE KFC COOP OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ---- --- -------- ------- ------- ----------- ---------- --------- -----------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William E. Allen 59 Director, 1988 2000 F Operator 6 **
Secretary
- ----------------------------------------------------------------------------------------------------------------------------
Anthony Basile 56 Director, 1997 2001 Taco Bell at Operator 26 **
Treasurer Large
- ----------------------------------------------------------------------------------------------------------------------------
James G. Cocolin 49 Director 1996 1999 C Operator 10 **
- ----------------------------------------------------------------------------------------------------------------------------
Lois G. Foust 53 Director 1997 2001 L Operator 2 **
- ----------------------------------------------------------------------------------------------------------------------------
Edward J. Henriquez, Jr. 60 Director 1994 1999 J Operator 12 **
- ----------------------------------------------------------------------------------------------------------------------------
Paul A. Houston 48 Director 1995 2000 I President of 353 5.3
Scott's
Restaurants,
Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Grover G. Moss 53 Director 1994 2001 O Operator 12 **
- ----------------------------------------------------------------------------------------------------------------------------
David G. Neal 52 Director, 1991+ 2000 E Operator 94 1.4
Chairman of
the Board
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE> 29
<TABLE>
<CAPTION>
POSITIONS AND YEAR FIRST
OFFICES BECAME STORE
CURRENTLY DIRECTOR OR TERM AS PRESENT COMMON PERCENT OF
HELD WITH EXECUTIVE DIRECTOR SERIES PRINCIPAL STOCK STORE
NAME AGE COOPERATIVE OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ---- --- ----------- ------- ------- ----------- ---------- --------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James D. Olson 48 Director 1997 2000 H President of 266 4.0
Harman
Management
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Ben E. Edwards 56 Director 1998++ 1999 B Operator 10 **
- ------------------------------------------------------------------------------------------------------------------------------
Darlene L. Pfeiffer 60 Director 1997 2001 L Operator 4 **
- ------------------------------------------------------------------------------------------------------------------------------
Edward W. Rhawn 60 Director 1992 1999 Independent Chairman of -- --
Rhawn
Enterprises,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
James B. Royster 60 Director, Vice 1998++ 2000 A Operator 4 **
Chairman
- ------------------------------------------------------------------------------------------------------------------------------
Dean M. Sorgdrager 36 Director 1996 1999 G Operator 1 **
- ------------------------------------------------------------------------------------------------------------------------------
Robert C. Carle 42 Director 1998 1999 D Operator 7 **
- ------------------------------------------------------------------------------------------------------------------------------
Ronald J. Young 39 Director 1993 2000 M Operator 14 **
- ------------------------------------------------------------------------------------------------------------------------------
David Paradise 47 Non-voting 1997 -- -- Operator 19 **
Director+++
- ------------------------------------------------------------------------------------------------------------------------------
Thomas D. Henrion 55 Director, 1980 -- -- President, -- --
President, Chief
Chief Executive
Executive Officer,
Officer Cooperative
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE> 30
<TABLE>
<CAPTION>
POSITIONS AND YEAR FIRST
OFFICES BECAME STORE
CURRENTLY DIRECTOR OR TERM AS PRESENT COMMON PERCENT OF
HELD WITH EXECUTIVE DIRECTOR SERIES PRINCIPAL STOCK STORE
NAME AGE COOPERATIVE OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ---- --- ----------- ------- ------- ----------- ---------- --------- -----------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William V. Holden 48 Vice 1985 -- -- Vice -- --
President, President,
Chief Chief
Financial Financial
Officer Officer,
Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
W. Thomas Hutcherson 51 Vice 1982 -- -- Vice -- --
President, President,
Purchasing Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
Kenneth L. Hartung 50 Vice President 1993 -- -- Vice -- --
President,
Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
John W. Inwright 41 Vice 1991 -- -- Vice -- --
President, President,
Operations Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
Alice LeBlanc 41 Vice 1998 -- -- Vice -- --
President, President,
KFC Operations Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
Carol L. Mudd 43 Vice 1997 -- -- Vice -- --
President, President,
Human Cooperative
Resources
- -----------------------------------------------------------------------------------------------------------------------------
All directors and officers as a group (23 persons)++++ 830 12.5
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* KFC Management has purchased one share of Series K Membership Common
Stock. In 1989, both directors representing KFC Management resigned as
members of the Board of Directors. KFC Management has not taken any
action to fill the vacancies. The total number of shares of Store
Common Stock listed as owned by directors and officers does not include
the 2,028 shares of Store Common Stock believed by the Cooperative to
be owned by KFC Management or affiliates, representing approximately
33.0% of the Store Common Stock outstanding.
** Less than one-half of one percent.
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<PAGE> 31
+ Mr. Neal has previously served on the Board of Directors of the
Cooperative as one of the two directors representing the National
Franchise Advisory Council, the former holder of the Series L share of
Membership Common Stock. He first began serving on the Board of
Directors as a representative of Series E in February 1991.
++ Previously served as a director appointed by the National Franchisee
Advisory Council.
+++ Mr. Paradise is a Taco Bell Operator chosen to serve at the pleasure of
the Board of Directors as a non-voting member of the Board of Directors
after consultation with the Taco Bell Operators serving as directors
and FRANMAC.
++++ Each director, other than Messrs. Henrion and Rhawn, is, or is
affiliated with a member which is, the owner of one share of Membership
Common Stock; All directors and officers as a group (23 persons) own 16
shares of Membership Common Stock, 2.3 percent of the total number of
Shares of Membership Common Stock outstanding. The Store Common Stock
ownership reflects the number of shares which each director, other than
Messrs. Henrion and Rhawn, owns or which is owned by the member with
which the director is affiliated. Except as required by law, Store
Common Stock has no voting rights. Messrs. Henrion and Rhawn are
neither the owners, nor affiliates of the owners, of any Membership or
Store Common Stock.
-22-
<PAGE> 32
TACO BELL COOP
The initial members of the Taco Bell Coop Board are:
<TABLE>
<S> <C>
Anthony Basile Thomas M. Cook
Chicago Diversified Foods, Corp. Chairman
400 E. 22nd Street, Suite E Cardinal Restaurants, Inc.
Lombard, IL 60148 1700 Washington Street
Vancouver, WA 98660
Max Craig* Karl James
Chief Financial Officer Golden West Taco, Inc.
Taco Bell Corp. PO Box 8450
17901 Van Karman Rancho Santa Fe, CA 92067
Irvine, CA 92714-6212
George Kentris Grover Moss
K&K Restaurants, Inc. E.T. Tacos, Inc.
431 E. Main Cross Street 1426 University Avenue
Findlay, OH 45840 Riverside, CA 92507
David Paradise Mary Wagner*
Paradise Foods Sr. Vice President of Technology & Quality
P.O. Box 1124 Taco Bell Corp.
Natchez, MS 39121 17901 Van Karman
Irvine, CA 92714-6212
</TABLE>
*Tricon representative
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<PAGE> 33
Except for the Tricon representatives, each member of the Taco Bell
Coop Board has been an Operator for over five years and is expected to own one
share of Taco Bell Coop Membership Stock and that number of shares of Taco Bell
Coop Store Stock which equals the number of Taco Bell Retail Outlets operated by
him. The Tricon representatives have served Tricon and Taco Bell in various
capacities for over five years; Tricon will own one share of Taco Bell Coop
Membership Stock and that number of shares of Taco Bell Store Stock which equals
the number of Taco Bell Retail Outlets it operates.
UNIFIED COOP
The initial members of the Unified Board are:
<TABLE>
<S> <C>
Christian L. Campbell* Thomas M. Cook***
Sr. Vice President and General Counsel Chairman
Tricon Global Restaurants, Inc. Cardinal Restaurants, Inc.
1441 Gardiner Lane 1700 Washington Street
Louisville, KY 40213 Vancouver, WA 98660
David G. Neal** Robert Lowes*
JRN, Inc. Chief Financial Officer
201 West 7th Street Tricon Global Restaurants, Inc.
Columbia, TN 38401 1441 Gardiner Lane
Louisville, KY 40213
David E. Paradise*** Burney Royster**
Paradise Foods Royster Enterprises, Inc.
417 Main Street 1110 W. Michigan
Natchez, MS 39121 Jackson, MI 49204
Jim Schwartz**** Ken Wagnon****
President/Chief Operating Officer Capital Enterprises, Inc.
NPC International 3445 North Webb Rd.
14400 College Boulevard - Suite 201 Wichita, KS 67226
Lenexa, KS 66215
</TABLE>
* Tricon representative
** KFC Coop representative
*** Taco Bell Coop representative
**** Pizza Hut Coop representative
-24-
<PAGE> 34
THE TENDER OFFER
TERMS OF THE OFFER
The KFC Coop hereby offers, upon the terms of and subject to the
conditions set forth in this Offer, the Agreement and Plan of Corporate
Separation, and the Letter of Transmittal, to exchange (a) one share of Taco
Bell Coop Membership Stock for each share of KFC Coop Membership Stock
outstanding and validly tendered and (b) one share of Taco Bell Coop Store Stock
for each share of KFC Coop Store Stock outstanding and validly tendered. Upon
the terms and subject to the conditions of this Offer, the KFC Coop will accept
for exchange any and all shares of Series O and P KFC Coop Membership Stock and
KFC Coop Store Stock that are properly tendered and not withdrawn before the
Expiration Date. See "The Tender Offer -- Conditions of the Offer." Tendering
Members will receive one share of Taco Bell Coop Membership Stock Series C - G,
inclusive, depending upon in which geographic area they are deemed to operate a
Taco Bell Retail Outlet.
The term "Expiration Date" means 12:00 midnight (Eastern Standard
time) on February 26, 1999, unless and until the KFC Coop has extended the
period of time for which the Offer is open, in which event the term "Expiration
Date" will mean the latest time and date at which the Offer, as so extended by
the KFC Coop, expires.
Extension of Tender Period; Termination; Amendments. The KFC Coop
expressly reserves the right, in its sole discretion, at any time, to extend the
period of time during which the Offer is open, and thereby delay the acceptance
for exchange of any shares of KFC Coop stock, by making a public announcement
thereof. During any such extension, all shares of KFC Coop stock previously
tendered and not exchanged or withdrawn will remain subject to the Offer, except
to the extent that such shares may be withdrawn as set forth below.
The KFC Coop also expressly reserves the right, subject to
applicable law, to postpone the exchange of Taco Bell Coop Shares for such
shares of KFC Coop stock under any circumstances, including those listed below,
by making a public announcement thereof. The KFC Coop's reservation of the right
to delay the exchange of Taco Bell Coop Shares for shares of KFC Coop Membership
Stock and KFC Coop Store Stock which it has accepted for exchange is limited by
Rule 13e-4(f)(5) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") which requires that the KFC Coop must pay the
consideration offered or return the shares tendered promptly after termination
or withdrawal of the Offer. Subject to compliance with applicable law, the KFC
Coop further reserves the right, in its sole discretion to amend the Offer in
any respect. Amendments to the Offer may be made at any time by public
announcement which, in the case of an extension, is to be issued no later than
9:00 a.m. (Eastern Standard Time) on the next business day after the previously
scheduled Expiration Date.
-25-
<PAGE> 35
If the KFC Coop makes a material change in the terms of the Offer
or the information concerning the Offer or waives a material condition of the
Offer, the KFC Coop will extend the Offer to the extent required by applicable
rules or regulations promulgated under the Exchange Act. The minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price
or a change in percentage of securities sought) will depend on the facts and
circumstances then existing, including the relative materiality of the changed
terms or information. If (a) the KFC Coop (i) changes the consideration it
proposes to deliver in exchange for properly tendered shares or (ii) decreases
the number of shares being sought and (b) the Offer is scheduled to expire at
any time earlier than the expiration of a period ending on the tenth business
day from and including the date that notice of such increase or decrease is
first published, sent or given, the Offer will be extended until the expiration
of such ten business day period. Because of the nature of the Corporate
Reorganization and the consideration offered, the KFC Coop does not currently
anticipate any such changes in the consideration offered for, or number of,
shares being sought pursuant to this Offer.
Disclosure of Material Changes. Any disclosure of a material
change in the information published, sent or given to holders of shares of KFC
Coop Membership Stock and KFC Coop Store Stock will be disseminated promptly to
such stockholders in a manner reasonably calculated to inform holders of such
change to the extent required by rules promulgated under the Exchange Act.
ACCEPTANCE OF SHARES FOR EXCHANGE; DELIVERY OF TACO BELL COOP SHARES
Upon the terms and subject to the conditions of the Offer, shares
validly tendered under the Offer and not withdrawn will be accepted, and Taco
Bell Coop Shares will be delivered in exchange therefor, promptly after the
Expiration Date.
For purposes of the Offer, the KFC Coop shall be deemed to have
accepted validly tendered shares of KFC Coop Membership Stock and KFC Coop Store
Stock upon the Expiration Date. If any tendered shares are not accepted for
exchange because of an invalid tender or the occurrence of certain other events
set forth herein or otherwise, certificates for any such unaccepted shares will
be returned, without expense, to the tendering holder thereof promptly after the
expiration or termination of the Offer.
PROCEDURE FOR TENDERING SHARES
Valid Tender of Shares. In order for shares of KFC Coop Membership
Stock and Store Stock to be validly tendered pursuant to the Offer, the Letter
of Transmittal, properly completed and duly executed, and any other documents
required by the Letter of Transmittal must be received by the KFC Coop at 950
Breckenridge Lane, Louisville, Kentucky 40232 on or before the Expiration Date.
In addition, either (i) certificates evidencing tendered shares must be received
by the KFC Coop at such address on or before the Expiration Date or (ii) the
lost certificate procedure set forth below must be satisfied.
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Lost Certificates. If the certificates representing shares of KFC
Coop Membership Stock and KFC Coop Store Stock are lost, the Member desiring to
tender those shares should immediately request an Affidavit of Lost Certificate
from the KFC Coop. Upon receipt of a properly completed Affidavit of Lost
Certificate and Letter of Transmittal, a shareholder tendering shares
represented by lost certificates will be deemed to have complied with the
procedure for validly tendering shares.
Backup Federal Income Tax Withholding. Under the federal income
tax law, a Tendering Member whose shares of KFC Coop Membership Stock and KFC
Coop Store Stock are surrendered is required to provide the KFC Coop with such
shareholder's correct Taxpayer Identification Number ("TIN") on the substitute
Form W-9 attached to the Letter of Transmittal. If such shareholder is an
individual, the TIN is his or her social security number. If the KFC Coop is not
provided with the correct TIN, the shareholder may be subject to a penalty
imposed by the Internal Revenue Service. In addition, payments that are made to
such shareholders with respect to shares surrendered may be subject to backup
withholding.
If backup withholding applies, the KFC Coop is required to
withhold 31% of any payments made to the shareholders. Backup withholding is not
an additional tax. Rather, the shareholders may offset the amount of tax
withheld against his or her federal tax liability on such shareholder's federal
income tax return. If withholding results in an overpayment of taxes, a refund
may be obtained from the Internal Revenue Service.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any shares
will be determined by the KFC Coop in its sole discretion, which determination
shall be final and binding. The KFC Coop reserves the absolute right to reject
any and all tenders of shares determined by it not to be in proper form or the
acceptance for exchange of which may, in the opinion of the KFC Coop's counsel,
be unlawful. The KFC Coop reserves the absolute right to waive any defect or
irregularity in any tender of shares of any particular shareholder. The KFC
Coop's interpretations of the terms and conditions of the Offer (including the
Letter of Transmittal and the instructions thereto) will be final and binding.
Neither the KFC Coop nor any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
WITHDRAWAL RIGHTS
Members who tender their shares of KFC Coop Membership Stock and
KFC Coop Store Stock pursuant to the Offer may withdraw such shares at any time
on or prior to the Expiration Date. Thereafter, such tenders are irrevocable,
except that they may be withdrawn after March 24, 1999, unless accepted for
exchange by the KFC Coop before that date. If the KFC Coop extends the Offer, is
delayed in exchanging for the shares or is unable to exchange for the shares for
any reason, then, without prejudice to the KFC Coop's rights under the Offer,
the KFC Coop may retain all shares tendered, and such shares may not be
withdrawn except to the extent that Tendering Members are entitled to withdrawal
rights pursuant to this Section.
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For a withdrawal to be effective, a written or facsimile
transmission notice of withdrawal must be timely received by the KFC Coop at 950
Breckenridge Lane, Louisville, Kentucky 40232. Any notice of withdrawal must
specify the name of the person who tendered the shares of KFC Coop Membership
Stock and KFC Coop Store Stock to be withdrawn, the number of shares to be
withdrawn and the name of the registered holder.
Withdrawals may not be rescinded and shares withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. However,
withdrawn shares may be retendered at any time prior to the Expiration Date by
again following the procedures described above.
All questions as to the form and validity (including time of
receipt) of any notice of withdrawal will be determined by the KFC Coop, in its
sole discretion, whose determination shall be final and binding. The KFC Coop
nor any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failure
to give such notification.
CERTAIN EFFECTS OF THE OFFER
Following the consummation of the Offer, the Taco Bell Members
will be members of a Concept Coop in which only Tricon, Taco Bell franchisees
and FRANMAC are members and the KFC Members will be members of a Concept Coop in
which only Tricon and KFC franchisees are members (assuming all Taco Bell
Members tender their shares of stock pursuant to this Offer). As the needs and
requirements of KFC Operators and Taco Bell Operators may differ, splitting off
the Taco Bell Members into a separate entity will allow the Taco Bell Coop and
the KFC Coop to be responsive to the different needs and requirements of the
Taco Bell Operators and KFC Operators, respectively.
Once (a) the Members approve the Corporate Reorganization at the
Special Meeting and (b) all other conditions of the Offer, as discussed below,
are met, the KFC Coop Board is expected to consummate the Corporate
Reorganization. The Tendering Members will then be shareholders in the Taco Bell
Coop only. Any shares of KFC Coop Membership Stock that are not tendered in this
Offer will remain outstanding, and, assuming that fewer than 400 shares of KFC
Coop Store Stock remain owned by Taco Bell Operators, will be automatically
converted into Series N shares of KFC Coop Membership Stock in accordance with
the KFC Coop's Bylaws. However, following consummation of the Corporate
Reorganization, the KFC Coop will no longer provide any services to Taco Bell
Members and will discontinue all patronage dividend programs for Taco Bell
Members. Although Non-Tendering Members will retain their KFC Coop Membership
Stock and KFC Coop Store Stock, they will otherwise not enjoy any benefits of
being a Member of the KFC Coop.
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the obligation
of the KFC Coop to accept for exchange any shares of KFC Coop Membership Stock
or KFC Coop Store Stock tendered pursuant to the Offer are subject to the
conditions that (i) at the Special Meeting, the Members approve the Corporate
Reorganization and authorize such other action by the KFC Coop Board and any of
its officers as may be necessary or appropriate to carry out the objects,
intents, and purposes of the Corporate Reorganization by an affirmative vote of
(a) a majority of all outstanding shares of KFC Coop Membership Stock held by
each Voting Group, as defined in the Proxy Statement, and (b) two-thirds of the
Members of each Voting Group present, either in person or by properly executed
proxy, at the Special Meeting and (ii) the Operating Agreement is executed and
delivered by the Taco Bell Coop and the Pizza Hut Coop in substantially the
form attached to the Proxy Statement as Appendix B. The Corporate
Reorganization Agreements will be executed simultaneously with the consummation
of the Offer and neither will be effective unless both become effective.
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DIVIDENDS AND PATRONAGE DIVIDENDS
KFC COOP STOCK
Dividends may not be declared or paid with respect to KFC Coop
Membership Stock. The holders of KFC Coop Store Stock are entitled to receive
dividends if declared by the KFC Coop Board. The KFC Coop Board has no current
intention to pay any dividends on KFC Coop Store Stock. However, it is
anticipated that the KFC Coop Board will continue the patronage dividend program
in accordance with past practices.
TACO BELL COOP STOCK
Dividends may not be declared or paid with respect to Taco Bell
Coop Membership Stock. The holders of Taco Bell Coop Store Stock are not
entitled to receive dividends, other than patronage dividends.
PATRONAGE DIVIDEND PROGRAM
Although the KFC Coop and Taco Bell Coop do not and will not
engage in business to generate profits, they may nonetheless, in any fiscal
year, generate revenues in excess of amounts needed to cover expenses, amortize
indebtedness, and provide for reasonable working capital and reserves. Thus,
even though the KFC Coop and Taco Bell Coop will endeavor to minimize
purchasing fees and mark-ups on Goods and Equipment to the least amount
required to cover their anticipated cost of operations, the KFC Coop and Taco
Bell Coop may have funds available for distribution to members as patronage
dividends.
When, in the judgment of the Board of Directors of a Concept
Coop, the Concept Coop should distribute patronage dividends to its members,
it shall be done in accordance with the Bylaws of each Concept Coop. The Bylaws
of each Concept Coop provide that patronage dividends will be distributed to
members on the basis of the value of business done by the Concept Coop (or
through the Unified Coop) with each member respectively. The Bylaws contemplate
separate patronage pools for each Concept Coop's Title Transactions and
Contract Transactions. The provisions of the Taco Bell Coop Bylaws governing
the patronage dividend program are attached as Appendix A.
Net cash flow generated from the Concept Coop's purchasing
programs administered by the Unified Coop will be the primary source of funds
for any patronage dividends distributed to a Concept Coop's members. After the
Unified Coop makes tax distributions to the Unified Coop Members, the Unified
Coop may distribute additional net cash flow, whether resulting from patronage
or non-patronage sources, to the Unified Coop Members in accordance with their
relative annual patronage for such year. No Unified Coop Member is itself
entitled to patronage, but rather may pass such distributions on to the Concept
Coop's members in accordance with the provisions of their respective patronage
dividend programs.
The Operating Agreement prohibits Unified Coop Members from
altering their bylaw provisions regarding their patronage dividend programs
without the consent of the Unified Coop Board.
Pursuant to the Operating Agreement, the Purchasing Program
Management Agreement and the KFC Coop Bylaws, it is expected that the KFC Coop
Board will continue to administer its patronage dividend program in accordance
with past practices.
The Taco Bell Coop will not likely pay significant patronage
dividends to its members until it has had an opportunity to accumulate reserves
and working capital which, in the judgment of the Taco Bell Coop Board of
Directors, are adequate for operations.
MARKET AND PRICE FOR KFC COOP AND TACO BELL COOP STOCK
No class of the KFC Coop's or Taco Bell Coop's capital stock is or
will be listed on an exchange or traded in any other public trading market. All
KFC Coop stock and Taco Bell Coop stock is and will be issued only to Operators.
The KFC Coop Members purchase KFC Coop Membership
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Stock and KFC Coop Store Stock to participate in the KFC Coop's programs for its
members, including the patronage dividend program and the KFC Coop purchasing
programs, and to participate in the KFC Coop's management through the election
of directors. The KFC Coop Members do not purchase KFC Coop stock with any
expectation of return on their investment through stock appreciation or per
share dividends. Tendering Members and other prospective Taco Bell Coop
shareholder members should also not expect a return on their investment in Taco
Bell Coop stock through stock appreciation or per share dividends, but should
purchase Taco Bell Coop stock to participate in the Taco Bell Coop's programs
for its members.
Since July 1, 1983, the KFC Coop has offered shares of KFC Coop
Membership Stock at $10 per share and shares of KFC Coop Store Stock at $400 per
share. Taco Bell Coop Membership Stock will be initially priced at $10 per share
and Taco Bell Coop Store Stock will be initially priced at $400 per share.
SHARES OUTSTANDING OF KFC COOP STOCK AS OF JANUARY 27, 1999
<TABLE>
<CAPTION>
DESCRIPTION SERIES REPRESENTED MEMBERSHIP STOCK STORE STOCK
----------- ------------------ ---------------- -----------
<S> <C> <C> <C>
KFC Members A - H, K, L 533 5,131
Taco Bell Members O and P 94 759
Canada Members M and I 49 534
International Members J 12 230
---- ------
Total 688 6,654
</TABLE>
DESCRIPTION OF KFC COOP CAPITAL STOCK
INTRODUCTION
Membership in the KFC Coop is currently limited to Operators of KFC and
Taco Bell Retail Outlets. Each Operator desiring membership in the KFC Coop is
required to purchase one share of KFC Coop Membership Stock regardless of the
number of Retail Outlets operated and to purchase a number of shares of KFC Coop
Store Stock which equals either (i) the total number of KFC Retail Outlets
located in the United States owned and operated by that Operator, (ii) the total
number of Retail Outlets located in a Foreign Territory owned and operated by
that Operator, (iii) the total number of KFC Retail Outlets located in Canada
owned and operated by that Operator or (iv) the total number of Taco Bell Retail
Outlets wherever located owned and operated by that Operator. For purposes of
calculating the number of shares of KFC Coop Store Stock required to be
purchased by a Member, the total number of Retail Outlets equals the total
number of traditional Retail Outlets plus one-half, rounded up to the nearest
even number, of the total number of non-traditional Retail Outlets, as defined
in the KFC Coop's Bylaws. If a Member at any time becomes an Operator of
additional KFC Retail Outlets, he or she will be required to purchase one
additional share of KFC Coop Store Stock for each such additional traditional
Retail Outlet or for each two additional non-traditional Retail Outlets, as the
case may be. No purchase commitment is required as a condition of
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<PAGE> 40
membership or, except with respect to advance purchase commitments for certain
commodities, as a condition to purchasing from or through the KFC Coop. As of
January 27, 1999, there were 688 shares of KFC Coop Membership Stock and 6,654
shares of KFC Coop Store Stock outstanding.
KFC COOP MEMBERSHIP STOCK
The KFC Coop is authorized to issue 2,000 shares of KFC Coop Membership
Stock, no par value, of which 688 shares were issued and outstanding on January
27, 1999. The following description of KFC Coop Membership Stock is qualified in
all respects by the KFC Coop Charter Documents.
Issuance in Series. KFC Coop Membership Stock is offered and issued in
series, as discussed below. Currently, the KFC Coop has provided for Series A-Q.
The KFC Coop's Certificate of Incorporation also provides for nine series of KFC
Coop Membership Stock which are designated Series R-Z. The KFC Coop Board has no
current intention to issue any shares of the Series R-Z KFC Coop Membership
Stock and is prohibited from doing so without further amendment of its Bylaws.
KFC Operators. Operators of KFC Retail Outlets, except for KFC
Management, the NCAC, Harman and Scott's, as defined in the KFC Coop Bylaws, are
entitled to purchase one share of KFC Coop Membership Stock in Series A-G,
inclusive, depending upon their being deemed to operate a KFC Retail Outlet in
one or more of the geographic areas designated in the KFC Coop Bylaws.
Harman has purchased one share of Series H KFC Coop Membership Stock.
Scott's has purchased one share of Series I KFC Coop Membership Stock. Operators
of KFC Retail Outlets in Foreign Territories are entitled to purchase one share
of Series J KFC Coop Membership Stock. KFC Management has purchased one share of
Series K KFC Coop Membership Stock and the NCAC has purchased one share of
Series L KFC Coop Membership Stock. Operators of KFC Retail Outlets in Canada,
including Tricon (Canada), are entitled to each purchase one share of Series M
KFC Coop Membership Stock.
The Series H and I KFC Coop Membership Stock held by Harman and
Scott's, respectively, provide for the election of one director and the series
of such stock held by KFC Management and the NCAC provide for the election of
two directors. The KFC Coop Bylaws provide that if Harman or Scott's at any time
owns or operates fewer than 100 KFC Retail Outlets, or if KFC Management owns or
operates fewer than 200 KFC Retail Outlets, then the share of KFC Coop
Membership Stock owned by said Operators must be exchanged for one share of KFC
Coop Membership Stock of such other series as such Operator is otherwise
eligible to purchase.
Taco Bell Operators. The KFC Coop Bylaws designate Series N-Q as series
available to Taco Bell Operators. Upon completion of the Corporate
Reorganization and this Offer, assuming that less than 400 shares of KFC Coop
Store Stock remain owned by Taco Bell Operators, Taco Bell Operators will only
be eligible to own shares of Series N KFC Coop Membership Stock in accordance
with the KFC Coop's Bylaws.
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<PAGE> 41
Licensees. Any KFC licensee may purchase one share of KFC Coop
Membership Stock and that number of shares of KFC Coop Store Stock which the KFC
Coop Bylaws require such licensee to purchase pursuant to the provisions
governing non-traditional Retail Outlets, discussed above. The term "franchisee"
includes licensees where appropriate in this discussion.
Voting Rights. Each class of Series A-J and M-O KFC Coop Membership
Stock is entitled to elect one member of the KFC Coop Board. Series K and L
holders are entitled to elect two members of the KFC Coop Board. Each Member is
entitled to cast one vote to elect a member of the KFC Coop Board to represent
its series except for the Members of Series K and L, which are entitled to cast
one vote to elect each of two members of the KFC Coop Board from their
respective series.
On all matters except the election of the KFC Coop Board, each holder
of KFC Coop Membership Stock is entitled to cast one vote on each matter on
which members are entitled to vote. The KFC Coop Bylaws provide that directors
may be elected by a plurality of the series entitled to elect such director.
Unless otherwise provided by the KFC Coop Bylaws or required by law, the
affirmative vote of two-thirds (2/3) of the Members in attendance at a meeting
at which a quorum is present is necessary to decide in favor of any matter.
Dividend Rights. Dividends may not be declared or paid with respect to
KFC Coop Membership Stock.
Limitations on Ownership and Transfer; Redemption. KFC Coop Membership
Stock may be issued only to persons who satisfy the membership requirements and
no more than one share of such stock will be issued to any one Operator, except
for certain limited circumstances described in the KFC Coop Bylaws. The KFC Coop
Bylaws thus generally reflect the principle of one franchisee, one vote. The KFC
Coop Bylaws provide for who is entitled to vote certain shares of KFC Coop
Membership Stock in situations involving individuals who, through different
corporations, partnerships or other affiliations, may have an interest in more
than one share of KFC Coop Membership Stock.
If any holder of KFC Coop Membership Stock has ceased to be a Member
because it is no longer an Operator or owns less than the required amount of KFC
Coop Store Stock, such Membership Stock will be called for redemption at $10.00
per share. Under Delaware Law, the KFC Coop may not repurchase any shares of its
stock when the capital of the KFC Coop is impaired or when such repurchase would
cause any impairment of the capital of the KFC Coop. KFC Coop Membership Stock
may not be transferred to any person or entity other than the KFC Coop.
Liquidation Rights. In the event of any liquidation of the KFC Coop, or
other disposition of its assets, the holders of KFC Coop Membership Stock are
entitled to receive $10.00 per share before any distributions are made to the
holders of KFC Coop Store Stock. Any net assets remaining after the payment of
the $10.00 per share to the holders of KFC Coop Membership Stock will be
distributed to holders of the KFC Coop Store Stock in the manner described
below.
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General. KFC Coop Membership Stock has no preemptive rights. The shares
of KFC Coop Membership Stock are, when issued, duly authorized, validly issued,
fully paid and nonassessable and the holders thereof will not be liable for any
payment of the KFC Coop's debts.
KFC COOP STORE STOCK
The KFC Coop is authorized to issue 10,000 shares of KFC Coop Store
Stock, no par value, of which 6,654 shares were issued and outstanding as of
January 27, 1999. The summary description of KFC Coop Store Stock provisions
which follows is qualified in all respects by the KFC Coop Charter Documents.
Voting Rights. The holders of KFC Coop Store Stock are not entitled by
virtue of their ownership of KFC Coop Store Stock to vote for directors, to
participate in meetings or the management of the KFC Coop, or to vote in any
proceedings, except as required by law.
Dividend Rights. The holders of KFC Coop Store Stock are entitled to
receive dividends if declared by the KFC Coop Board. There is no current
intention to pay any dividends on KFC Coop Store Stock. However, it is
anticipated that the KFC Coop Board will continue the patronage dividend program
in accordance with past practices.
Limitations on Ownership and Transfer; Redemption. KFC Coop Store Stock
may be issued only to persons who satisfy the membership requirements discussed
above. Each Member must purchase that number of shares of KFC Coop Store Stock
equal to the total number of KFC or Taco Bell Retail Outlets owned and operated
by each Member. KFC Coop Store Stock may only be transferred to persons, firms
or entities that qualify for membership in the KFC Coop, and only if the KFC
Coop does not exercise its right of first refusal to purchase such shares.
Pursuant to a policy adopted by the KFC Coop Board, the KFC Coop is
authorized to purchase, for not more than the amount of the Member's equity per
share at the end of the KFC Coop's fiscal year next preceding the date of
purchase, a certain number of shares of KFC Coop Store Stock in each of the KFC
Coop's fiscal quarters. The KFC Coop therefore may, but generally has no
obligation to, repurchase shares of KFC Coop Store Stock from a Member who owns
shares in excess of the number required for membership. In any event, the KFC
Coop has no intention of repurchasing substantial numbers of shares of KFC Coop
Store Stock.
Liquidation Rights. In the event of any liquidation of the KFC Coop, or
other disposition of its assets, the holders of KFC Coop Store Stock will be
entitled to receive the net assets of the KFC Coop remaining after the payment
of all of its debts and liabilities and the payment of $10.00 per share to the
holders of KFC Coop Membership Stock. Liquidating distributions will be made on
the basis of past patronage with the KFC Coop rather than the number of shares
of KFC Coop Store Stock owned.
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General. KFC Coop Store Stock has no preemptive or conversion rights.
The shares of KFC Coop Store Stock are, when issued, duly authorized, validly
issued, fully paid and nonassessable and the holders thereof will not be liable
for any payment of the KFC Coop's debts.
DESCRIPTION OF TACO BELL COOP CAPITAL STOCK
INTRODUCTION
Membership in the Taco Bell Coop will be limited to Taco Bell
Corporation, a California corporation, all franchisees and licensees of Taco
Bell, and FRANMAC (collectively, the "Taco Bell Operators"). Each Taco Bell
Operator desiring membership in the Taco Bell Coop will be required to purchase
one share of Taco Bell Coop Membership Stock and a number of shares of Taco Bell
Coop Store Stock which equals the total number of Taco Bell Retail Outlets
located in all states and the District of Columbia owned and operated by such
person, firm or entity. For purposes of calculating the number of shares of Taco
Bell Coop Store Stock required to be purchased by a Taco Bell Operator, the
total number of Retail Outlets equals the total number of traditional Retail
Outlets plus one-half, rounded up to the nearest even number, of the total
number of non-traditional Retail Outlets. A non-traditional Retail Outlet means
a Retail Outlet with more than one of the following characteristics: (i) a five
year or shorter license, (ii) a limited menu, (iii) sales from a kiosk or other
transportable unit, (iv) sales from a segregated food service area at a location
in a facility (such as an airport, athletic stadium, university or school)
established for a primary purpose other than selling food for reasonably
immediate consumption, (v) anticipated sales volume less than anticipated sales
volume for a traditional Retail Outlet, (vi) sales in conjunction with sales of
another food concept, or (vii) such other characteristics as the Taco Bell Coop
Board may determine are indicative of a non-traditional Retail Outlet. If a
Member at any time becomes an Operator of additional Taco Bell Retail Outlets,
he or she will be required to purchase one additional share of Taco Bell Coop
Store Stock for each such additional traditional Retail Outlet or for each two
additional non-traditional Retail Outlets, as the case may be. Taco Bell Coop
members will be required to purchase virtually all of their Goods and Equipment
for use in their Retail Outlets through the purchasing programs of the Unified
Coop and the Taco Bell Coop. The Bylaws of the Taco Bell Coop require that more
than 90% of the value of the Taco Bell Coop's business be conducted with Taco
Bell Coop members. At the time of this Offer, one share of Taco Bell Coop
Membership Stock is outstanding.
TACO BELL COOP MEMBERSHIP STOCK
The Taco Bell Coop is authorized to issue 2,000 shares of Taco Bell
Coop Membership Stock, no par value, of which one share is issued and
outstanding as of the date of this Offer. The following description of Taco Bell
Coop Membership Stock is qualified in all respects by the Taco Bell Coop Charter
Documents.
Issuance in Series. Taco Bell Coop Membership Stock will be offered and
issued in 26 series, designated A-Z. Except for Series A and B, which consist of
one share each, the Taco Bell Coop Board has the right, power and authority to
establish and increase or decrease the number of shares
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of each series, except that in no event will the aggregate number of authorized
shares of Series C-Z, inclusive, exceed 1,998 shares.
Taco Bell Operators. Operators of Taco Bell Retail Outlets, except for
Taco Bell and FRANMAC, will be entitled to purchase one share of Taco Bell Coop
Membership Stock of Series C-G, inclusive, depending upon in which geographic
area they are deemed to operate a Taco Bell Retail Outlet. Taco Bell will be
entitled to purchase one share of Series B Taco Bell Coop Membership Stock and
FRANMAC will be entitled to purchase one share of Series A Taco Bell Coop
Membership Stock. The Taco Bell Coop Bylaws initially prohibit the purchase of
any Taco Bell Coop Membership Stock for Series H-Z.
Licensees. No licensee is eligible to be a stockholder member in the
Taco Bell Coop unless the licensee is also a franchisee or the licensee owns and
operates 25 or more non-traditional Retail Outlets. A qualified licensee may
purchase one share of Taco Bell Coop Membership Stock and that number of shares
of Taco Bell Coop Store Stock which the Taco Bell Coop Bylaws require such
licensee to purchase pursuant to the provisions governing non-traditional Retail
Outlets, discussed above. The term "franchisee" includes licensees where
appropriate in this discussion.
Voting Rights. Each Taco Bell Coop member who holds a share in Series A
and Series C-G will be entitled to cast one vote to elect one member of the Taco
Bell Coop Board to represent its series. As the sole Series B stockholder, Taco
Bell Corporation will be entitled to cast one vote to elect two members of the
Taco Bell Coop Board to represent its series. As to all other matters on which
each Taco Bell Coop member is entitled to vote, each share of Taco Bell Coop
Membership Stock will be entitled to one vote on each matter.
Dividend Rights. Dividends may not be declared or paid with respect to
Taco Bell Coop Membership Stock.
Limitations on Ownership and Transfer; Redemption. Taco Bell Coop
Membership Stock may be issued only to persons who satisfy the membership
requirements, as set forth above, and no more than one share of stock will be
issued to any one Taco Bell Operator, except for the limited circumstances
described below. The Taco Bell Coop Bylaws reflect the Taco Bell Coop's one
franchisee, one vote principle. When a corporation, partnership or other entity
is a franchisee Operator, the owner of more than fifty percent of the
corporation, partnership or other entity is deemed to be the owner of the shares
of Taco Bell Coop Membership Stock. Where no person, corporation, partnership or
other entity owns more than fifty percent of the outstanding ownership interest
of a franchisee Operator, the owners of the corporation, partnership or other
entity must designate among themselves who will be deemed to own the share of
Taco Bell Coop Membership Stock.
The Taco Bell Coop Bylaws address who is entitled to vote certain
shares of Taco Bell Coop Membership Stock in situations involving individuals
who, through different corporations, partnerships or other affiliations, may
have an interest in more than one share of Taco Bell Coop
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<PAGE> 45
Membership Stock. The Taco Bell Coop Bylaws provide that no person, firm or
entity is entitled to own or have an interest in, directly or indirectly, more
than one share of Taco Bell Coop Membership Stock, except for (a) any interest
which any franchisee may have in the share of the Taco Bell Coop Series A
Membership Stock held by FRANMAC or (b) any interest which any franchisee may
have in a share of the Taco Bell Coop's Membership Stock (i) held by a person,
firm or entity in which the franchisee owns fifty percent or less in the
aggregate of the outstanding ownership interest and (ii) with respect to which
the franchisee refrains from voting or participating in the voting of the share
of Taco Bell Coop Membership Stock.
Unless otherwise prohibited by law, the Taco Bell Coop will promptly
redeem shares of Taco Bell Coop Membership Stock held by persons, firms or
entities who no longer qualify as Taco Bell Coop members. The redemption price
for each share of Taco Bell Coop Membership Stock will be $10.00 which will be
payable in cash, except that, if the Taco Bell Coop is prohibited by law from
redeeming such share in cash because the payment would impair the capital of the
Taco Bell Coop or otherwise, the Taco Bell Coop will issue a non-interest
bearing promissory note payable whenever the Taco Bell Coop is no longer
prohibited by law from making such payment. The Taco Bell Coop Membership Stock
may not be sold, transferred, pledged, mortgaged, gifted, or hypothecated to any
third party, either voluntarily or by operation of law, and such restrictions
will be noted on all Taco Bell Coop Membership Stock certificates.
Liquidation Rights. In the event of any dissolution or liquidation of
the Taco Bell Coop, or other disposition of its assets, the holders of Taco Bell
Coop Membership Stock will be entitled to receive $10.00 per share. The
remaining assets of the Taco Bell Coop will be distributed to the holders of
Taco Bell Coop Store Stock, as described below.
General. Taco Bell Coop Membership Stock has no preemptive rights. The
shares of Taco Bell Coop Membership Stock issuable upon consummation of the
Offer will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and the holders thereof will not be liable for any payment of the
Taco Bell Coop's debts.
TACO BELL COOP STORE STOCK
The Taco Bell Coop is authorized to issue 10,000 shares of Taco Bell
Coop Store Stock, no par value, of which no shares are issued and outstanding as
of the date of this Offer. The following description of Taco Bell Coop Store
Stock provisions is qualified in all respects by the Taco Bell Coop Charter
Documents.
Voting Rights. The holders of Taco Bell Coop Store Stock will not
entitled by virtue of their ownership of Taco Bell Coop Store Stock to vote for
directors, to participate in meetings or management of the Taco Bell Coop or to
vote in any proceedings, except as required by law.
Dividend Rights. The holders of Taco Bell Coop Store Stock will not be
entitled to receive dividends, other than patronage dividends.
-36-
<PAGE> 46
Limitations on Ownership and Transfer; Redemption. Taco Bell Coop Store
Stock will be issued only to persons who satisfy the membership requirements
discussed above and each Taco Bell Coop member will be required to purchase that
number of shares of Taco Bell Coop Store Stock equal to the total number of Taco
Bell Coop Retail Outlets, as determined by the total number of traditional
Retail Outlets, plus one-half rounded up to the nearest even number, of the
total number of non-traditional Retail Outlets, owned and operated by each Taco
Bell Coop member. Only holders of record of Taco Bell Coop Membership Stock will
be permitted to purchase shares of Taco Bell Coop Store Stock. Taco Bell Coop
Store Stock may not be sold, transferred, pledged, mortgaged, gifted, or
hypothecated to any third party, either voluntarily or by operation of law, and
such restrictions will be noted on all Taco Bell Coop Store Stock certificates.
If a Taco Bell Coop member desires to dispose of his or her Taco Bell Coop Store
Stock, the Taco Bell Coop member must transfer his or her Taco Bell Coop Store
Stock to the Taco Bell Coop at the same price the stockholder paid to acquire
the Taco Bell Coop Store Stock.
Distribution and Liquidation Rights. In the event of any distributions
by the Taco Bell Coop to its members, liquidation of the Taco Bell Coop, or
other disposition of its assets, after the payment of all debts and liabilities
of the Taco Bell Coop and the payment of $10.00 per share to holders of Taco
Bell Coop Membership Stock, the remaining assets of the corporation will be
distributed to the holders of Taco Bell Coop Store Stock on the basis of each
member's face amount of outstanding patronage equities and distribute the
remaining assets to such members on the basis of their past patronage insofar as
such distribution is practicable.
General. Taco Bell Coop Store Stock has no preemptive or conversion
rights. The shares of the Taco Bell Coop Store Stock issuable upon consummation
of the Offer will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and the holders thereof will not be liable for any payment of
the Taco Bell Coop's debts.
COMPARISON OF SHAREHOLDER RIGHTS
Upon the consummation of the Corporate Reorganization and Offer, the
Tendering Members will become shareholders of Taco Bell Coop. Following is a
summary of certain differences between the rights of holders of KFC Coop capital
stock and the rights of holders of Taco Bell Coop capital stock. Differences
arise from the governing instruments of the two companies. Although it is
impractical to compare all of the aspects in which the companies' governing
instruments differ with respect to shareholders' rights, the following
discussion summarizes certain significant differences between them.
Purchase Requirements. Taco Bell Coop members will be required to
purchase virtually all of their Goods and Equipment for use in their Retail
Outlets through the purchasing programs of the Unified Coop and the Taco Bell
Coop. The Taco Bell Coop Bylaws state:
2.6 Purchase Commitment. Each stockholder member shall purchase
virtually all Goods and Equipment for use in the stockholder member's
Retail Outlets through the
-37-
<PAGE> 47
purchasing programs of the Unified Coop and the Taco Bell Coop.
"Virtually all" with respect to Goods and Equipment means all Goods and
Equipment except Goods and Equipment:
(a) Where the Unified Coop or the Taco Bell Coop agrees in
advance in writing that the stockholder member need not purchase the
particular item or category of Goods or Equipment through the
purchasing programs of the Unified Coop;
(b) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is
impractical, with notice given as soon as possible), with respect to a
specific item or category of Goods or Equipment for specific Retail
Outlets that (i) the Unified Coop is unable to meet the member's
required volume of supply for the particular Goods or Equipment, or
(ii) the Unified Coop is unable to meet previously established quality
standards with respect to particular Goods or Equipment;
(c) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is
impractical, with notice given as soon as possible), that the Unified
Coop's purchasing policies or procedures with respect to the particular
item or category of Goods or Equipment present a material business risk
to the member, which the member is unwilling to assume, because of the
Unified Coop's volume, hedging or similar commitments, arrangements or
policies; or
(d) Purchased after the termination of the stockholder
member's membership in the Taco Bell Coop.
No purchase commitment is required as a condition of membership in the
KFC Coop nor, except with respect to advance purchase commitments for certain
commodities, as a condition to purchasing from or through the KFC Coop.
Business with Members. The Taco Bell Coop Bylaws require the Taco Bell
Coop to always do more than 90% of the value of its business with Taco Bell Coop
members. The KFC Coop has no minimum required level of business that must be
conducted with its Members.
Transferability. Taco Bell Coop Membership Stock and Taco Bell Coop
Store Stock may not be sold, transferred, pledged, mortgaged, gifted, or
hypothecated to any third party, either voluntarily or by operation of law, and
such restrictions will be noted on all Taco Bell Coop stock certificates. Shares
of KFC Coop Membership Stock and KFC Coop Store Stock are not subject to this
restriction.
Dividend Rights. Dividends may not be declared or paid with respect to
KFC Coop Membership Stock or Taco Bell Coop Membership Stock. However, the
holders of Taco Bell Coop Store Stock will not be entitled to receive dividends,
other than patronage dividends, while the holders of KFC Coop Store Stock are
entitled to receive dividends if declared by the KFC Coop
-38-
<PAGE> 48
Board. There is no current intention to pay any dividends on KFC Coop Store
Stock, but it is anticipated that the KFC Coop Board will continue the patronage
dividend program in accordance with past practices.
Registration of KFC Coop and Taco Bell Coop Stock. The shares of KFC
Coop stock currently held by Taco Bell Members are registered under the Exchange
Act with the Commission. The KFC Coop is required to file periodic reports,
proxy statements and other information with the Commission, including annual and
quarterly financial information. The Taco Bell Coop stock will not be registered
with the Commission although it is expected that the Taco Bell Coop will provide
its members with annual audited financial statements.
Licensees. No Taco Bell licensee is eligible to be a stockholder member
in the Taco Bell Coop unless the licensee is also a franchisee or the licensee
owns and operates 25 or more non-traditional Retail Outlets. Any KFC licensee
may be a stockholder member of the KFC Coop.
-39-
<PAGE> 49
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine
months ended July 31, 1998 and for the year ended October 31, 1997 give pro
forma effect to the Corporate Reorganization as if it had been consummated as of
November 1, 1996. The Unaudited Pro Forma Condensed Consolidated Balance Sheets
as of July 31, 1998 give pro forma effect to the Corporate Reorganization as if
it had been consummated on July 31, 1998. All material adjustments necessary to
reflect the Corporate Reorganization are presented in the pro forma adjustments
columns, which are further described in the notes to the unaudited pro forma
condensed consolidated financial statements. The pro forma adjustments are based
upon available information and upon certain assumptions deemed reasonable by
management.
The unaudited pro forma condensed consolidated financial statements are provided
for informational purposes only and should not be considered indicative of
actual results that would have been achieved had the Corporate Reorganization
been consummated on the dates or for the periods indicated and do not purport to
indicate the balance sheet data or results of operations as of any future date
or for any future period. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes thereto appearing in the KFC Coop's
Annual Report and Form 10-Q accompanying this proxy statement.
-40-
<PAGE> 50
KFC NATIONAL PURCHASING COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS
HISTORICAL --------------------------- KFC
KFC TACO BELL UNIFIED COOP PRO FORMA
----------- ------------ -------------- ------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 132 -- $(1,412)(b) $ 132
1,412 (c)
Accounts receivable, net 44,170 $(13,458)(a) (93)(b) 30,619
Inventories:
Food 1,397 (653)(a) -- 744
Equipment and promotional items 2,153 (764)(a) -- 1,389
-------- -------- ------- --------
3,550 (1,417) -- 2,133
Current portion of note receivable from related party 60 10,677 (a) -- 10,737
Prepaid expenses and other current assets 114 -- (91)(b) 23
Current portion of deferred income taxes 758 -- -- 758
-------- -------- ------- --------
Total Current Assets 48,784 (4,198) (184) 44,402
Office equipment, net 833 -- (833)(b) 0
Investment in marketable equity security available for sale 71 -- -- 71
Investment in the Unified Coop 1,000 (b) 1,000
Loan Receivable from Unified Coop 1,000 (b) 1,000
Note receivable from related party, excluding current portion 118 -- -- 118
Deferred income taxes, excluding current portion 137 (38)(a) -- 99
Other assets 510 -- -- 510
-------- -------- ------- --------
Total Assets $ 50,453 $ (4,236) $ 983 $ 47,200
======== ======== ======= ========
Liabilities and Members' Equity
Current Liabilities:
Short-term borrowings $ 418 -- $ 1,412 (c) $ 1,830
Accounts payable 24,179 $ (3,173)(a) -- 21,006
Accrued expenses 2,734 (196)(a) (101)(b) 2,437
Premium deposits 328 -- (328)(b) 0
Patronage dividend 1,798 (162)(a) -- 1,636
-------- -------- ------- --------
Total Current Liabilities 29,457 (3,531) 983 26,909
Long-term note payable 3,000 -- -- 3,000
-------- -------- ------- --------
Members' Equity:
Membership common stock 7 (1)(a) -- 6
Store common stock 1,884 (277)(a) -- 1,607
Unrealized gain on marketable equity security 16 -- -- 16
Retained earnings 16,166 (427)(a) -- 15,739
Currency translation adjustment (77) -- -- (77)
-------- -------- ------- --------
Total Members' Equity 17,996 (705) -- 17,291
-------- -------- ------- --------
Total Liabilities & Members' Equity $ 50,453 $ (4,236) $ 983 $ 47,200
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ----------------
(a) The proposed split-off of Taco Bell operations from KFC Coop will be
accounted for at fair value. Assets to be transferred to the Taco Bell
subsidiary are trade accounts receivable (net of allowance for doubtful
accounts), inventories and other assets related to the Taco Bell
operations. The book value of these assets approximates their fair
value. Liabilities to be transferred to the Taco Bell subsidiary are
trade accounts payable and other current liabilities related to the
Taco Bell operations. The book value of these liabilities approximates
their fair value. Members' equity of the Taco Bell members to be
transferred to the Taco Bell subsidiary is determined by summing the
amount paid for KFC Coop Membership Stock and KFC Coop Store Stock by
Taco Bell Members and the amount of retained earnings attributable to
the KFC Coop's Taco Bell operations on the basis of the past
patronage of Taco Bell Members with the KFC Coop. The net difference in
assets, liabilities and members' equity transferred to the Taco Bell
subsidiary will be offset by an intercompany payable by the Taco Bell
subsidiary to the KFC Coop. This intercompany payable is a result of
early payment of Taco Bell trade accounts payable by the KFC Coop.
Subsequent sale of inventory and collection of Taco Bell trade accounts
receivable will provide sufficient cash to permit the payment in full
of the intercompany payable, trade accounts payable and other current
liabilities. The intercompany liability will be payable in six monthly
installments of principal and interest. Interest will accrue at the
prime rate. Following is a summary of the pro forma adjustment as of
July 31, 1998 assuming all Taco Bell members tender their KFC Coop
Membership Stock and their KFC Coop Store Stock (dollars in
thousands):
<TABLE>
<S> <C>
Assets Transferred:
Accounts receivable, net $13,458
Inventories 1,417
Other assets 38
-------
Total Assets 14,913
-------
Liabilities and Members' Equity Transferred:
Accounts payable, trade 3,173
Other current liabilities 358
Members' Equity 705
-------
Total Liabilities and Members' Equity 4,236
-------
Intercompany payable / receivable $10,677
=======
</TABLE>
- ----------------
(b) Reflects capital contribution and loan to the Unified Coop. The loan
will be evidenced by a demand note and will carry interest at a rate
equal to the cost of funds of the KFC Coop from its primary lender,
currently approximately 6%.
(c) Reflects short-term borrowings under existing lines of credit by the
KFC Coop to fund its capital contribution and loan to the Unified Coop.
Pursuant to the Operating Agreement, the KFC Coop is required to make
additional capital contributions and loans from time to time to the
Unified Coop in amounts necessary to fund the working capital
requirements of the purchasing program conducted for the KFC Coop.
-41-
<PAGE> 51
KFC NATIONAL PURCHASING COOPERATIVE, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS
-----------------------------
HISTORICAL KFC
KFC KFC TACO BELL PRO FORMA
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 472,725 $ (263,347)(a) $ (104,602)(a) $ 104,776
Cost of goods sold 460,024 (255,449)(a) (102,527)(a) 102,048
---------- ----------- ---------- ---------
Gross profit 12,701 (7,898) (2,075) 2,728
Selling, general and administrative expenses 10,302 (4,770)(a) (1,706)(a) 3,826
Provision for losses on receivables 442 (342)(b) (100)(b) -
Other income (expenses):
Equity in earnings of
the Unified Coop -- 2,786 (c) 2,786
Service charges 136 136
Interest income 191 191
Interest expense (162) (162)
Miscellaneous 95 95
----------- ---------- ---------- ---------
260 2,786 3,046
----------- ---------- ---------- ---------
Income before patronage
dividend and income taxes 2,217 -- (269) 1,948
Patronage dividend 1,798 (162)(d) 1,636
---------- ---------- ---------- ---------
Income before income taxes 419 -- (107) 312
Provision for income taxes 182 (45)(e) 137
---------- ---------- ---------- ---------
Net income $ 237 $ -- $ (62) $ 175
========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ---------------------
(a) To eliminate sales, cost of sales and related selling, general and
administrative expenses for the respective concepts. This activity will
be performed by the Unified Coop after the Corporate Reorganization.
(b) To eliminate provision for losses on receivables from operators and
distributors of the respective concepts. The provision will be
recognized by the Unified Coop after the Corporate Reorganization.
(c) The KFC Coop will recognize its share of earnings of the Unified Coop
utilizing the equity method of accounting.
(d) To eliminate patronage dividend paid to Taco Bell members of the KFC
Coop.
(e) To eliminate income tax expense.
-42-
<PAGE> 52
KFC NATIONAL PURCHASING COOPERATIVE, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Corporate Reorganization
Adjustments
HISTORICAL ----------------------------- KFC
KFC KFC TACO BELL PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 600,132 $ (345,388)(a) $ (109,361)(a) $ 145,383
Cost of goods sold 583,891 (335,068)(a) (107,228)(a) 141,595
----------- ----------- ---------- ----------
Gross profit 16,241 (10,320) (2,133) 3,788
Selling, general and administrative expenses 12,266 (6,083)(a) (1,790)(a) 4,393
Provision for losses on receivables 175 (175)(b) -
Other income (expenses):
Equity in earnings of
the Unified Coop. -- 4,062 (c) 4,062
Service charges 187 187
Interest income 339 339
Interest expense (285) (285)
Miscellaneous 112 112
----------- ----------- ---------- ----------
353 4,062 -- 4,415
----------- ----------- ---------- ----------
Income before patronage
dividend and income taxes 4,153 -- (343) 3,810
Patronage dividend 2,890 (228)(d) 2,662
----------- ----------- ---------- ----------
Income before income taxes 1,263 -- (115) 1,148
Provision for income taxes 515 (39)(e) 476
----------- ----------- ---------- ----------
Net income $ 748 $ -- $ (76) $ 672
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
condensed consolidated financial statements.
- ---------------------
(a) To eliminate sales, cost of sales and related selling, general and
administrative expenses for the respective concepts. This activity will
be performed by the Unified Coop after the Corporate Reorganization.
(b) To eliminate provision for losses on receivables from operators and
distributors of the respective concepts. The provision will be
recognized by the Unified Coop after the Corporate Reorganization.
(c) The KFC Coop will recognize its share of earnings of the Unified Coop
utilizing the equity method of accounting.
(d) To eliminate patronage dividend paid to Taco Bell members of the KFC
Coop.
(e) To eliminate income tax expense.
-43-
<PAGE> 53
TACO BELL NATIONAL PURCHASING COOP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION ADJUSTMENTS
------------------------------------ TACO BELL
TACO BELL MEMBERSHIP UNIFIED PRO FORMA
PRO FORMA (a) FEES COOP AS ADJUSTED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ -- $ 1,714 (b) $ (2,000) (d) $ --
2 (c) 284 (e)
Accounts receivable, net 13,458 13,458
Inventories:
Food 653 653
Equipment and promotional items 764 764
---------- ----------
1,417 1,417
---------- ----------- ---------- ----------
Total Current Assets 14,875 1,716 (1,716) 14,875
Investment in the Unified Coop -- 1,000 (d) 1,000
Loan receivable from the Unified Coop 1,000 (d) 1,000
Deferred income taxes, excluding current portion 38 38
---------- ----------- ---------- ----------
Total Assets $ 14,913 $ 1,716 $ 284 $ 16,913
========== =========== ========== ==========
Liabilities and Members' Equity
Current Liabilities:
Short-term borrowings $ $ 284 (e) $ 284
Accounts payable 3,173 3,173
Accrued expenses 196 196
Patronage dividend 162 162
Note payable to the KFC Coop 10,677 10,677
---------- ---------- ----------
Total Current Liabilities 14,208 284 14,492
Members' Equity:
Membership common stock 1 $ 2 (c) 3
Store common stock 277 1,714 (b) 1,991
Retained earnings 427 427
---------- ----------- ----------
Total Members' Equity 705 1,716 2,421
---------- ----------- ---------- ----------
Total Liabilities & Members' Equity $ 14,913 $ 1,716 $ 284 $ 16,913
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
(a) Taco Bell Pro Forma represents assets, liabilities and members' equity
formerly included in the balance sheet of the KFC Coop, but
attributable to the Taco Bell concept. The proposed split-off of Taco
Bell operations from KFC Coop will be accounted for at fair value.
Assets to be transferred to the Taco Bell subsidiary are trade accounts
receivable (net of allowance for doubtful accounts), inventories and
other assets related to the Taco Bell operations. The book value of
these assets approximates their fair value. Liabilities to be
transferred to the Taco Bell subsidiary are trade accounts payable and
other current liabilities related to the Taco Bell operations. The book
value of these liabilities approximates their fair value. Members'
equity of the Taco Bell members to be transferred to the Taco Bell
subsidiary is determined by summing the amount paid for KFC Coop
Membership Stock and KFC Coop Store Stock by Taco Bell Members and the
amount of retained earnings attributable to the KFC Coop's Taco Bell
operations on the basis of the past patronage of Taco Bell Members with
the KFC Coop. The net difference in assets, liabilities and members'
equity transferred to the Taco Bell subsidiary will be offset by an
intercompany payable by the Taco Bell subsidiary to the KFC Coop. This
intercompany payable is a result of early payment of Taco Bell trade
accounts payable by the KFC Coop. Subsequent sale of inventory and
collection of Taco Bell trade accounts receivable will provide
sufficient cash to permit the payment in full of the intercompany
payable, trade accounts payable and other current liabilities. The
intercompany liability will be payable in six monthly installments of
principal and interest. Interest will accrue at the prime rate.
Following is a summary of the pro forma adjustment as of July 31, 1998
assuming all Taco Bell members tender their KFC Coop Membership Stock
and their KFC Coop Store Stock (dollars in thousands):
<TABLE>
<S> <C>
Assets Transferred:
Accounts receivable, net $ 13,458
Inventories 1,417
Other assets 38
--------
Total Assets 14,913
--------
Liabilities and Members' Equity Transferred:
Accounts payable, trade 3,173
Other current liabilities 358
Members' Equity 705
--------
Total Liabilities and Members' Equity 4,236
--------
Intercompany payable / receivable $ 10,677
========
</TABLE>
(b) Reflects the issuance of Taco Bell Store Stock to an estimated 4,284
Taco Bell stores for $400 per store. Estimated number of stores
represents traditional franchise stores as discussed in the Tricon
December 31, 1997 annual report less the number of stores belonging to
the KFC Coop prior to the reorganization.
(c) Reflects the issuance of Taco Bell Membership Stock to an estimated 217
Taco Bell operators for $10 per operator.
(d) Reflects capital contribution and loan to the Unified Coop. The loan
will be evidenced by a demand note and will carry interest at a rate
equal to the cost of funds of the Taco Bell Coop, currently estimated
to be approximately 6%.
(e) Reflects short-term borrowings by the Taco Bell Coop to fund its
contribution and loan to the Unified Coop. Pursuant to the Operating
Agreement, the Taco Bell Coop is required to make additional capital
contributions and loans from time to time to the Unified Coop in
amounts necessary to fund the working capital requirements of the
purchasing program conducted for the Taco Bell Coop. The Taco Bell Coop
has received an offer from a third-party lender for a revolving line of
credit up to an amount of $5 million.
-44-
<PAGE> 54
TACO BELL NATIONAL PURCHASING COOP, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE TACO BELL
TACO BELL REORGANIZATION PRO FORMA
PRO FORMA (a) ADJUSTMENTS AS ADJUSTED
--------- -------------- -----------
<S> <C> <C> <C>
Net sales $ 104,602 $ (104,602)(b) --
Cost of goods sold 102,527 (102,527)(b) --
--------- ---------- -----------
Gross profit 2,075 (2,075) --
Selling, general and administrative expenses 1,706 (1,706)(b) --
Provision for losses on receivables 100 (100)(c) --
Equity in earnings of
the Unified Coop 269 (d) $ 269
--------- ---------- -----------
Income before patronage
dividend and income taxes 269 -- 269
Patronage dividend 162 -- 162
--------- ---------- -----------
Income before income taxes 107 -- 107
Provision for income taxes 45 -- 45
--------- ---------- -----------
Net income $ 62 -- $ 62
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- --------
(a) Taco Bell Pro Forma represents historical information formerly included
in the results of operations of the KFC Coop, but attributable to
operations of the Taco Bell concept.
(b) To eliminate sales, cost of sales and selling, general and
administrative expenses. These activities will be performed by the
Unified Coop after the Corporate Reorganization.
(c) To eliminate provision for losses on receivables from operators and
distributors of the Taco Bell concept. The provision will be recognized
by the Unified Coop after the Corporate Reorganization.
(d) The Taco Bell Coop will recognize it share of earnings of the Unified
Coop utilizing the equity method of accounting.
-45-
<PAGE> 55
TACO BELL NATIONAL PURCHASING COOP, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE TACO BELL
TACO BELL REORGANIZATION PRO FORMA
PRO FORMA (a) ADJUSTMENTS AS ADJUSTED
------------ -------------- ------------
<S> <C> <C> <C>
Net sales $ 109,361 $ (109,361)(b) --
Cost of goods sold 107,228 (107,228)(b) --
------------ ------------- ------------
Gross profit 2,133 (2,133) --
Selling, general and administrative expenses 1,790 (1,790)(b) --
Equity in earnings of
the Unified Coop 343 (c) $ 343
------------ ------------- ------------
Income before patronage
dividend and income taxes 343 -- 343
Patronage dividend 228 228
------------ ------------- ------------
Income before income taxes 115 -- 115
Provision for income taxes 39 39
------------ ------------- ------------
Net income $ 76 -- $ 76
============ ============= ============
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ---------
(a) Taco Bell Pro Forma represents historical information formerly included
in the results of operations of the KFC Coop, but attributable to
operations of the Taco Bell concept.
(b) To eliminate sales, cost of sales and selling, general and
administrative expenses. These activities will be performed by the
Unified Coop after the Corporate Reorganization.
(c) The Taco Bell Coop will recognize its share of earnings of the Unified
Coop utilizing the equity method of accounting.
-46-
<PAGE> 56
PIZZA HUT NATIONAL PURCHASING COOP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS
---------------------------- PIZZA HUT
MEMBERSHIP UNIFIED PRO FORMA
FEES COOP AS ADJUSTED
---------- --------- -----------
Assets
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,962 (a) $ (2,000)(c) $ 963
1 (b)
------- --------- --------
Total Current Assets 2,963 (2,000) 963
Investment in the Unified Coop 1,000 (c) 1,000
Loan Receivable from the Unified Coop 1,000 1,000
------- --------- --------
Total Assets $ 2,963 -- $ 2,963
======= ========= ========
Members' Equity:
Membership common stock $ 1 (b) $ 1
Store common stock 2,962 (a) 2,962
------- --------
Total Members' Equity $ 2,963 $ 2,963
======= ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ----------------
(a) Reflects the issuance of Pizza Hut Store Stock to an estimated 7,404
Pizza Hut stores for $400 per store. Estimated number of stores
represents traditional franchise stores as discussed in the Tricon
December 31, 1997 annual report.
(b) Reflects the issuance of Pizza Hut Membership Stock to an estimated 145
Pizza Hut operators for $10 per operator.
(c) Reflects capital contribution and loan to the Unified Coop. Pursuant
to the Operating Agreement, the Pizza Hut Coop is required to make
additional capital contributions and loans from time to time to the
Unified Coop in amounts necessary to fund the working capital
requirements of the purchasing program conducted for the Pizza Hut
Coop. The Pizza Hut Coop has received an offer from a third-party
lender for a revolving line of credit up to an amount of $5 million.
-47-
<PAGE> 57
UNIFIED FOODSERVICE PURCHASING COOP, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION ADJUSTMENTS
-------------------------------------------------------------------------------
ORGANIZATION OTHER
KFC TACO BELL PIZZA HUT COSTS ADJUSTMENT
----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,412 (a) $ 2,000 (b) $ 2,000 (c) $ 400 (d) $ (500)(e)
(400)(d)
Other current assets 184 (a) -- -- --
----------- ----------- ----------- ------------ ----------
Total Current Assets 1,596 2,000 2,000 -- (500)
Office equipment, net 833 (a) - - --
----------- ----------- ----------- ------------ ----------
Total Assets $ 2,429 $ 2,000 $ 2,000 $ -- $ (500)
=========== =========== =========== ============ ==========
Liabilities and Members' Equity
Other current liabilities $ 429 -- - -- --
Loans payable to members 1,000 (a) $ 1,000 (b) $ 1,000 (c) -- --
----------- ----------- ----------- ------------ ----------
Total current liabilities 1,429 1,000 1,000 -- --
Long-term liability -- -- -- -- $ 500 (e)
----------- ----------- ----------- ------------ ----------
Total Liabilities 1,429 1,000 1,000 -- 500
Paid in capital 1,000 (a) 1,000 (b) 1,000 (c) - --
Retained earnings -- -- - $ 400 (d) (1,000)(e)
(400)(d)
----------- ----------- ----------- ------------ ----------
Total Members' Equity 1,000 1,000 1,000 -- (1,000)
----------- ----------- ----------- ------------ ----------
Total Liabilities and Members' Equity $ 2,429 $ 2,000 $ 2,000 $ -- $ (500)
=========== =========== =========== ============ ==========
<CAPTION>
Pro Forma
Unified Coop
------------
<S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 4,912
Other current assets 184
------------
Total Current Assets 5,096
Office equipment, net 833
------------
Total Assets $ 5,929
============
Liabilities and Members' Equity
Other current liabilities $ 429
Loans payable to members 3,000
-----------
Total current liabilities 3,429
Long-term liability 500
-----------
Total Liabilities 3,929
Paid in capital 3,000
Retained earnings (1,000)
-----------
Total Members' Equity 2,000
-----------
Total Liabilities and Members' Equity $ 5,929
===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- --------
(a) Reflects capital contribution and loan from the KFC Coop in the form of
cash and assets.
(b) Reflects capital contribution and loan from the Taco Bell Coop.
(c) Reflects capital contribution and loan from the Pizza Hut Coop.
(d) Reflects contribution from Tricon to fund organization costs of the
Unified Coop which are immediately expensed.
(e) Reflects payments to Mr. Henrion under the Separation and Consulting
Agreement of $500,000 assuming that such payment is made on the
Closing Date, the earliest date possible in accordance with the
Agreement, and $456,300 in January 2000 along with health insurance
coverage for 10 years.
-48-
<PAGE> 58
UNIFIED FOODSERVICE PURCHASING COOP, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS UNIFIED
----------------------------- COOP
KFC TACO BELL PRO FORMA (c)
---------- ----------- ---------
<S> <C> <C> <C>
Net sales $ 263,347 (a) $ 104,602 (a) $ 367,949
Cost of goods sold 255,449 (a) 102,527 (a) 357,976
---------- ----------- ----------
Gross profit 6,898 2,075 9,973
Selling, general and administrative expenses 4,770 (a) 1,706 (a) 6,476
Provision for losses on receivables 342 (b) 100 (b) 442
---------- ----------- ----------
Net income $ 2,786 $ 269 $ 3,055
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ----------
(a) To record sales, cost of sales and selling, general and administrative
expenses of the respective concept. These items were formerly included
in the results of operations of the KFC Coop.
(b) To record provision for losses on receivables from operators and
distributors of the respective concepts. The provision is recognized by
the Unified Coop along with the associated revenues.
(c) Unified Coop Pro Forma column does not include any pro forma
adjustments related to historical activity of Tricon's Supply Chain
Management, Tricon's internal purchasing division.
-49-
<PAGE> 59
UNIFIED FOODSERVICE PURCHASING COOP, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS UNIFIED
-------------------------- COOP
KFC TACO BELL PRO FORMA (c)
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 345,388 (a) $ 109,361 (a) $ 454,749
Cost of goods sold 335,068 (a) 107,228 (a) 442,296
---------- ---------- ----------
Gross profit 10,320 2,133 12,453
Selling, general and administrative expenses 6,083 (a) 1,790 (a) 7,873
Provision for losses on receivables 175 (b) 175
---------- ---------- ----------
Net income $ 4,062 $ 343 $ 4,405
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ---------
(a) To record sales, cost of sales and selling, general and administrative
expenses of the respective concept. These items were formerly included
in the results of operations of the KFC Coop.
(b) To record provision for losses on receivables from KFC operators and
distributors. The provision is recognized by the Unified Coop along
with the associated revenues.
(c) Unified Coop Pro Forma column does not include any pro forma
adjustments related to historical activity of Tricon's Supply Chain
Management, Tricon's internal purchasing division.
-50-
<PAGE> 60
WHERE YOU CAN FIND MORE INFORMATION
The KFC Coop files reports, proxy statements and other information with
the Commission under the Exchange Act. You may read and copy this information at
the following locations of the Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
This Commission also maintains an Internet world wide web site that
contains reports, proxy statements and other information about issuers, like the
KFC Coop, who file electronically with the Commission. The address of that site
is http://www.sec.gov.
This Offer is accompanied by a copy of the Proxy Statement delivered to
all shareholders of the KFC Coop in connection with the Special Meeting of KFC
Coop Members, to be held on February 26, 1999.
-51-
<PAGE> 61
REGULATORY APPROVAL
The KFC Coop is not aware of (a) any license or regulatory permit that
is material to its business that might be adversely affected by its acquisition
of shares of KFC Coop Membership Stock or KFC Coop Store Stock as contemplated
in the Offer or (b) any approval or other action by any government or
governmental, administrative or regulatory authority or agency, domestic or
foreign, that would be required for the KFC Coop's acquisition or ownership of
such shares pursuant to the Offer. On advice from counsel, the parties involved
in the Corporate Reorganization have determined that the transactions
contemplated by the Corporate Reorganization are exempt from the notice filing
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. Should any such approval or other action be required, the KFC Coop will
seek such approval or other action. The KFC Coop cannot predict whether it may
determine that it is required to delay the acceptance for exchange of shares of
KFC Coop Membership Stock and KFC Coop Store Stock tendered pursuant to the
Offer pending the outcome of any such matter. There can be no assurance that any
such approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in adverse consequences to the KFC Coop's
business.
FEES AND EXPENSES
The KFC Coop has not retained any dealer-manager or similar agent in
connection with the Offer and will not pay any fees or commissions to any
broker, dealer, commercial bank, trust company or other person for soliciting
shares of KFC Coop Membership Stock and KFC Coop Store Stock pursuant to the
Offer. No broker, dealer, commercial bank or trust company has been authorized
to act as an agent for the KFC Coop for the purposes of the Offer.
MISCELLANEOUS
The Offer is not being made to, nor will the KFC Coop accept tenders
from or on behalf of, owners of shares of KFC Coop Membership Stock and KFC Coop
Store Stock in any jurisdiction in which the making of the Offer or its
acceptance would not be in compliance with the laws of such jurisdiction. The
KFC Coop is not aware of any jurisdiction where the making of the Offer or the
tender of such shares would not be in compliance with applicable law. If the KFC
Coop becomes aware of any jurisdiction where the making of the offer or the
tender of such shares is not in compliance with any applicable law, the KFC Coop
will make a good faith effort to comply with such law. If, after such good faith
effort, the KFC Coop cannot comply with such law, the Offer will not be made to
(nor will tenders be accepted from or on behalf of) the holders of shares of KFC
Coop Membership Stock and KFC Coop Store Stock residing in such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the KFC Coop or Taco Bell Coop not contained in this
Offer or in the Letter of Transmittal and, if given or made, such information or
representations must not be relied upon as having been authorized.
-52-
<PAGE> 62
"Taco Bell," "Pizza Hut," and "KFC" are registered trademarks of Taco
Bell Corporation, Pizza Hut, Inc., and KFCC, respectively, and are used in these
materials for identification purposes only. The KFC Coop is an independent
provider of products and is not affiliated with Taco Bell Corporation, Pizza Hut
Inc., or KFCC, except that KFCC is a Member of the KFC Coop.
-53-
<PAGE> 63
APPENDIX A
BYLAWS
OF
TACO BELL NATIONAL PURCHASING COOP, INC.
ARTICLE I
Offices and Business Purpose
1.1 Registered Office. The address of the registered office of Taco
Bell National Purchasing Coop, Inc. (the "Coop") shall be 1209 Orange Street,
Wilmington, Delaware, until altered as provided by law.
1.2 Principal Office. The principal office of the Coop shall be in
Louisville, Kentucky until altered by the Board of Directors.
1.3 Other Offices. The Coop may maintain other offices within or
without the state where its registered and principal offices are located, as the
Board of Directors may from time to time establish.
1.4 Business. The Coop shall conduct a purchasing program for its
members through the Unified FoodService Purchasing Coop, LLC, a Kentucky limited
liability company, (the "Unified Coop") and otherwise in order to provide its
members and Taco Bell operators with the lowest possible store delivered costs
for food, packaging and supplies, and related services ("Goods") and equipment
and related services ("Equipment").
ARTICLE II
Stockholder Members
2.1 Stockholder Eligibility.
(a) As used in these Bylaws,
(i) the term "non-traditional retail outlet" means an
outlet with more than one of the following characteristics: (A) a ten year or
shorter license, (B) a limited menu, (C) sales from a kiosk or other
transportable unit, (D) sales from a segregated food service area at a location
in a facility (such as an airport, athletic stadium, university or school)
established for a primary purpose other than selling food for reasonably
immediate consumption, (E) anticipated sales volume less than anticipated sales
volume for a traditional unit, (F) sales in conjunction with sales of another
food concept, or (G) such other characteristics as the Board of Directors may
determine are indicative of a non-traditional retail outlet;
(ii) "traditional retail outlet" means all retail
outlets other than "non-traditional retail outlets";
A-1
<PAGE> 64
(iii) "total number...of retail outlets" means the
total number of traditional retail outlets, plus one-half rounded up to the
nearest even number of the total number of non-traditional outlets; and
(iv) the term "franchise" includes licenses where
appropriate in the context.
(b) The following persons, firms or entities shall be eligible
to be stockholders in the Coop: (i) each sole proprietor, partnership,
corporation or other entity who is or becomes a direct or indirect Taco Bell
franchisee or licensee of Taco Bell Corp., a California corporation, or its
successors, assigns, affiliates, or related companies, (ii) Taco Bell Corp., and
its respective successors as operators of Taco Bell outlets, and (iii) Taco Bell
Franchise Management Advisory Council, a Nevada nonprofit organization
(FRANMAC).
(c) Only persons, firms or entities which own of record a
share of the Coop's Membership Common Stock shall be eligible to purchase shares
of the Coop's Store Common Stock; provided however, that no licensee is eligible
to be a stockholder in the Coop unless (i) the licensee is also a franchisee or
(ii) owns and operates twenty five (25) or more nontraditional retail outlets.
(d) KFC National Purchasing Cooperative, Inc. (the "KFC Coop")
is authorized to purchase shares of the Coop's Membership Common Stock and Store
Common Stock, in order to facilitate the initial organization of the Coop and in
order to facilitate the split-off transaction contemplated by the Agreement and
Plan of Corporate Separation, entered into between the KFC Coop, the Coop, and
the members of the KFC Coop who are the holders of the KFC Coop's Series O and P
membership common stock that agree to the Agreement and Plan of Corporate
Separation and tender their shares of KFC Coop membership common stock and KFC
Coop store common stock.
2.2 Stockholder Membership Requirements. Each person, firm or entity
which is eligible to be a stockholder member in the Coop shall be a stockholder
member in the Coop when and if that person, firm or entity (a) purchases one
share of the Coop's Membership Common Stock, (b) purchases that number of shares
of the Coop's Store Common Stock which equals the total number of Taco Bell
retail outlets located in all states of the United States and the District of
Columbia (collectively, the "United States") owned and operated by such person,
firm or entity, and (c) agrees to abide by the terms and commitments set forth
in these Bylaws as amended from time to time. If a person, firm, or entity which
is eligible to be a stockholder member in the Coop does not purchase that number
of shares of the Coop's Store Common Stock which equals the total number of Taco
Bell retail outlets located in the United States owned and operated by such
person, firm, or entity, then such person, firm, or entity shall not be entitled
to vote on any matters submitted to stockholder members nor receive patronage
dividends from the Coop as provided in Article IX. If a stockholder member at
any time becomes an owner and operator of additional Taco Bell retail outlets
within the United States, he shall purchase one
A-2
<PAGE> 65
additional share of Store Common Stock for each such additional traditional
retail outlet or for each additional two non-traditional retail outlets as the
case may be.
2.3 Multiple Franchises. No person, firm or entity shall be entitled to
own, directly or indirectly, beneficially or of record, an interest in more than
one (1) share of the Coop's Membership Common Stock (the "Base Share")
regardless of the number of Taco Bell retail outlets owned and operated by such
person, firm or entity, excluding (a) any interest which any franchisee may have
in the share of the Coop's Series A Membership Common Stock held by FRANMAC and
(b) any interest which any franchisee may have in a share of the Coop's
Membership Common Stock (i) held by a person, firm or entity in which the
franchisee owns 50% or less in the aggregate of the outstanding ownership
interests, and (ii) with respect to which the franchisee refrains from voting or
participating in the voting of the share of Membership Common Stock. Where more
than one (1) person, firm or entity are designated as franchisees of one (1) or
more retail outlets, such persons, firms or entities shall be considered as a
single person, firm or entity for stockholder purposes. The person, firm or
entity who owns more than 50% in the aggregate of the outstanding ownership
interest of the person, firm or entities owning and operating a Taco Bell retail
outlet shall be, unless such person designates otherwise, the person, firm or
entity entitled to own the share of Membership Common Stock representing such
franchise operation. Where no person, firm or entity owns more than 50% in the
aggregate of the outstanding ownership interests of the person, firm or entity
owning and operating a Taco Bell retail outlet and none of such persons, firms
or entities own, directly or indirectly, an interest in a share of Membership
Common Stock of the Coop, such persons, firms or entities shall be entitled to
designate the person, firm or entity from among themselves who shall be entitled
to own the share of Membership Common Stock.
2.4 Divisions of Membership Common Stock into Series.
(a) Each stockholder member other than Taco Bell Corp. and
FRANMAC shall be entitled to purchase one share of Membership Common Stock of
one of the following series set forth in Column 1 below, but only if such
stockholder member owns or operates, or pursuant to Section 2.3 hereof, is
deemed to own or operate, a Taco Bell retail outlet in one or more of the areas
("Areas") set forth in the corresponding line(s) of Column 2 below:
<TABLE>
<CAPTION>
Column 1 Column 2
-------- --------
<S> <C>
Series Area
------ ----
C Zones 1, 2, and 3
D Zones 4, 5, and 6
E Zones 7, 8, and 9
F Zones 10, 11, and 12
G Zones 13, 14, and 15
</TABLE>
A-3
<PAGE> 66
The Zones ("Zones") in Column 1 below include the regions set forth in
the corresponding line(s) of Column 2 below:
<TABLE>
<CAPTION>
Column 1 Column 2
-------- --------
<S> <C>
Zone Region
---- ------
1 Alaska, Hawaii, Idaho - Northern, Montana, Oregon
and Washington
2 California - Northern area
3 California - Los Angeles area (North of Interstate
10) and Nevada
4 California - Los Angeles area (South of Interstate
10 across to Interstate 15, down to San Diego
County line)
5 Arizona and California - San Diego
6 Colorado, New Mexico, Utah, Wyoming and Idaho -
Southern
7 Iowa, Kansas, Minnesota, Nebraska, North Dakota,
South Dakota, Wisconsin and Michigan (west of Lake
Michigan)
8 Oklahoma, Texas, Arkansas - West half (Ft. Smith
and Russellville areas) and Louisiana - Shreveport
area
9 Illinois and Missouri
10 Alabama, Mississippi, Arkansas - East half
(excludes Ft. Smith and Russellville areas),
Louisiana - Excluding Shreveport area and Tennessee
- Southwest (Memphis and Jackson areas)
11 Florida and Georgia
</TABLE>
A-4
<PAGE> 67
<TABLE>
<S> <C>
12 North Carolina, South Carolina and Tennessee - East
(Chattanooga, Knoxville, and Oakridge/Harriman
areas)
13 Indiana, Kentucky, Michigan (excluding areas
west of Lake Michigan) and Ohio
14 Delaware, Maryland, Pennsylvania, Virginia, West
Virginia and New Jersey - Southern (Philadelphia
DMA)
15 Connecticut, Maine, Massachusetts, New Hampshire,
New Jersey - Northern, New York, Rhode Island and
Vermont
</TABLE>
The Board of Directors may from time to time adjust the Areas so as to
conform to modifications in regional zones designated by FRANMAC from time to
time for purposes of FRANMAC governance and administration.
The Series of Membership Common Stock to be issued shall be designated
by the stockholder member, or in the absence of such designation, by the Coop.
(b) FRANMAC and Taco Bell Corp. shall be entitled to purchase
one (1) share of one of the Series of Membership Common Stock set forth below
opposite its name:
Stockholder Member Series
------------------ ------
FRANMAC A
Taco Bell Corp. B
(c) No person, firm or entity shall be entitled to purchase
any of the Series H through Series Z shares of Membership Common Stock.
2.5 Mandatory Redemptions; Restrictions on Transfers; Prohibition of
Dividends.
(a) Unless otherwise prohibited by law, the Coop shall
promptly redeem shares of Membership Common Stock held by persons, firms or
entities who no longer qualify as members. The redemption price for each share
of Membership Stock shall be Ten Dollars ($10.00), which shall be payable in
cash, except that, if the Coop shall be prohibited by law from redeeming such
share in cash because such payment would impair the capital of the Coop or
otherwise, the Coop shall in lieu thereof issue to the holder of such share a
non-interest bearing promissory note payable whenever the Coop shall no longer
be prohibited by law from making such payment. The Membership Common Stock may
not be sold, transferred, pledged,
A-5
<PAGE> 68
mortgaged, gifted, or hypothecated to any third party, either voluntarily or by
operation of law, and such restrictions shall be noted on all Membership Common
Stock certificates.
(b) The Store Common Stock may not be sold, transferred,
pledged, mortgaged, gifted, or hypothecated to any third party, either
voluntarily or by operation of law, and such restrictions will be noted on all
Store Common Stock certificates. The Coop may from time to time purchase shares
of its Store Common Stock if the stockholder does not or no longer owns or
operates Taco Bell retail outlets with respect to the share to be purchased by
the Coop. If the Coop purchases shares of its Store Common Stock as provided in
this Section 2.5(b), the purchase price paid by the Coop for a share of Store
Common Stock shall be the same as the price the stockholder member paid to
acquire the share of Store Common Stock.
(c) No dividends, other than "patronage dividends" as provided
in Section 9 of the Bylaws, shall be declared, accrued, or paid on any class of
stock of the Coop.
2.6 Purchase Commitment. Each stockholder member shall purchase
virtually all Goods and Equipment for use in the stockholder member's retail
outlets through the purchasing programs of the Unified Coop and the Coop.
"Virtually all" with respect to Goods and Equipment means all Goods and
Equipment except Goods and Equipment:
(a) Where the Unified Coop or the Coop agrees in advance in
writing that the stockholder member need not purchase the particular item or
category of Goods or Equipment through the purchasing programs of the Unified
Coop;
(b) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is impractical,
with notice given as soon as possible), with respect to a specific item or
category of Goods or Equipment for specific retail outlets that (i) the Unified
Coop is unable to meet the member's required volume of supply for the particular
Goods or Equipment, or (ii) the Unified Coop is unable to meet previously
established quality standards with respect to particular Goods or Equipment;
(c) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is impractical,
with notice given as soon as possible), that the Unified Coop's purchasing
policies or procedures with respect to the particular item or category of Goods
or Equipment present a material business risk to the member, which the member is
unwilling to assume, because of the Unified Coop's volume, hedging or similar
commitments, arrangements or policies; or
(d) Purchased after the termination of the stockholder
member's membership in the Coop.
2.7 Liquidation Rights. In the event of any dissolution or liquidation
of the Coop or other disposition of its assets, after payment of all debts and
liabilities of the Coop and payment of Ten Dollars ($10.00) per share to holders
of Membership Common Stock, the remaining assets of the Coop shall be
distributed to the holders of Store Common Stock on a cooperative
A-6
<PAGE> 69
basis, that is, the Coop shall return to such stockholder members the face
amount of outstanding patronage equities and distribute the remaining assets to
such stockholder members on the basis of their past Patronage insofar as such
distribution is practicable.
ARTICLE III
Meetings of Stockholder Members of the Coop
3.1 Annual Meeting of Stockholder Members. An annual meeting of
stockholder members of the Coop shall be held each year at a time and place
selected by the Board of Directors.
3.2 Notice of Annual Meeting. Written notice of the time and place of
the annual meeting shall be mailed to stockholder members entitled to vote as
shown by the records of the Coop not less than twenty (20) nor more than sixty
(60) days prior to the meeting which notice shall state the place, date and hour
of the meeting.
3.3 Delayed Annual Meeting. If, for any reason, the annual meeting of
the stockholder members shall not be held on the day designated, such meeting
may be called and held as a special meeting, and the same proceedings may be had
at such meeting as at an annual meeting and the notice of such meeting shall be
the same as required for the annual meeting.
3.4 Special Meetings of Stockholder Members. Special meetings of the
stockholder members may be called at any time by the Chairman of the Board of
Directors, President or by three-eighths (3/8) of the voting members of the
Board of Directors, upon not less than twenty (20) nor more than sixty (60) days
written notice which shall state the place, date, hour and purpose or purposes
of the meeting.
3.5 Waiver of Notice by Attendance. Attendance at a meeting, whether
annual or special, shall be a waiver of notice, unless attendance is expressly
for the purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
3.6 Quorum. Presence in person or by proxy of stockholder members
representing a majority of the stockholder members entitled to vote at such
meeting shall constitute a quorum at such meeting. A quorum shall not be lost by
the departure of stockholder members before adjournment.
3.7 Who Entitled to Vote; Proxies. Each stockholder member owning a
share of the Coop's Membership Common Stock shall be entitled to one (1) vote in
person or by proxy upon each matter on which such stockholder member is entitled
to vote. Proxies shall be valid only if signed by the stockholder member, dated
and filed with the Secretary of the Coop prior to or at the meeting in which it
is given. No proxy shall be irrevocable and any proxy may be revoked at any time
in writing or in person at the meeting for which it was given. No Proxy shall be
voted or acted upon after one (1) year from its date.
A-7
<PAGE> 70
3.8 Majority Vote. Except as otherwise provided in these Bylaws or
required by law, the affirmative vote of a majority of the stockholder members
present in person or by proxy at a meeting at which a quorum is in attendance
shall be necessary to decide in favor of any matter properly submitted to the
meeting.
3.9 Disputes. Any dispute as to the voting rights of stockholder
members shall be submitted to the Secretary of the Coop to be decided upon by
the Chairman of the Board of Directors, or, in his absence, the Vice-Chairman
with the stockholder member whose voting rights are in issue having the right to
appeal this decision to the Board of Directors.
3.10 Organization of Meetings. The Chairman of the Board of Directors,
or the Vice-Chairman, if the Chairman is not present, and the Secretary of the
Coop shall act as chairman and secretary, respectively, at all meetings of
stockholder members of the Coop.
ARTICLE IV
Board of Directors
4.1 General.
(a) The property and affairs of the Coop shall be managed by a
governing body to be known as the Board of Directors. The Board of Directors
shall be composed of eight (8) persons who shall be nominated and elected and
shall serve for terms as hereinafter provided.
(b) The Secretary of the Coop shall notify stockholder members
in writing no later than seventy-five (75) days prior to the annual meeting of
stockholder members of the date of such meeting. Such notice shall advise them
that nominations for members of the Board of Directors whose terms will expire
at such meeting must be submitted to the Secretary in writing not later than
sixty (60) days prior to the meeting date. Such notice shall specify the names
of any nominees nominated by the Nominating Committee appointed by the Board of
Directors as provided in Section 4.1(k) below. Such notice shall also specify
the names of directors whose terms are expiring and the names of directors who
have resigned, died, or otherwise been removed from office since the last annual
meeting of stockholder members, and shall identify the Series of Membership
Common Stock entitled to elect successors to such directors. Each nomination
submitted to the Secretary shall be accompanied by a statement signed by the
nominee that he will serve in such capacity if elected. The Nominating Committee
may nominate not more than one person to serve as a director to represent each
of the Series C through G shares of Membership Common Stock. Each stockholder
member other than Taco Bell Corp. may nominate not more than one person to serve
as the director who may be elected by the Series of Membership Common Stock held
by such stockholder member. Taco Bell Corp. may nominate two persons to serve as
the directors who may be elected by the series of Membership Common Stock held
by it.
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(c) Each of Series A and Series C, D, E, F, and G shall be
entitled to elect, as a series, one member of the Board of Directors, and Series
B shall be entitled to elect, as a series, two members of the Board of
Directors.
(d) The President of the Unified Coop shall serve as a
non-voting ex-officio member of the Board of Directors.
(e) With the exception of the President of the Unified Coop,
all directors of the Coop must be stockholder members of the Coop or an officer,
shareholder, employee or partner of an entity which is a stockholder member of
the Coop. Each director must be a member or an officer, director, shareholder,
employee or partner of the organization which is entitled to vote for such
director.
(f) All voting directors of the Coop shall be divided into two
classes, designated Class I and Class II. Such classes shall include four (4)
voting directors, with the term of office of one class expiring each year. The
Board of Directors shall by majority vote designate which series of membership
shall elect directors within Class I and II, respectively, but by such
designations may not shorten the term of any director.
(g) No person shall hold more than one (1) seat on the Board
of Directors at any one time. Except for the holder of the Series B Membership
Common Stock which is entitled, as a series, to elect two (2) members of the
Board of Directors, not more than one (1) person affiliated with any stockholder
member may hold a seat on the Board of Directors.
(h) The initial Class I directors shall hold office for a term
commencing with the adoption of these Bylaws and expiring at the annual meeting
next ensuing and until their successors are elected and take office. The initial
Class II directors shall hold office for a term commencing with the adoption of
these Bylaws and expiring at the second annual meeting thereafter and until
their successors are elected and take office. The successors to the initial
Class I and Class II directors shall each be elected for terms commencing as of
the date of their election and continuing until the third annual meeting of
stockholder members thereafter and until their respective successors are duly
elected and qualified.
(i) Whenever any member of the Board of Directors ceases to
fulfill the eligibility requirements of this Section 4.1, his membership on the
Board of Directors shall automatically terminate and the vacancy so created
shall be filled in the manner prescribed in Section 4.2.
(j) Notwithstanding any limitation on the number of persons
who may serve as members of the Board of Directors provided for in Section
4.1(a) hereof, the Board of Directors may, from time to time, by resolution
provide for one or more non-voting members of the Board of Directors to serve at
the pleasure and upon such terms and conditions as the Board of Directors may by
resolution provide.
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(k) The Board of Directors shall appoint a fifteen member
Nominating Committee whose members must be shareholder members and whose members
may but are not required to be members of the board of directors of FRANMAC or
members of the Coop's Board of Directors. The Nominating Committee shall consist
of three members from each of the five Areas described in section 2.4. The
purpose of the Nominating Committee shall be to consider and make nominations of
eligible persons for election as members of the Board of Directors representing
Series C through G shares of Membership Common Stock. The three members of the
Nominating Committee from each Area shall select the nominee for that Area.
4.2 Vacancies. Except as herein provided, all vacancies on the Board of
Directors shall be filled by the Board of Directors. In filling any vacancy, the
Board of Directors shall seek the advice and counsel of the holder or holders of
the Series of stock who are entitled, as a Series, to elect the director whose
position became vacant. All vacancies shall be filled as soon as practicable;
however, the Board need not fill a vacancy if the holder or holders of the
Series of Membership Common Stock who are entitled, as a Series, to elect the
director whose position became vacant decline (a) to provide the Board with
advice and counsel concerning the filling of the vacancy, or (b) to nominate a
person to fill a vacancy, however created, at any annual or special meeting of
the stockholders at which an election of directors occurs. For purposes of this
Article IV, the number of voting members of the Board shall not include from
time to time the number of vacancies on the Board. The Board of Directors shall
not fill a vacancy with respect to the Series A or Series B share of Membership
Common Stock without specific direction and the consent respectively of FRANMAC
and Tricon.
Directors elected as hereinabove provided in this Section 4.2 shall
serve until the next annual meeting of stockholder members, at which time the
holders of the Series of Membership Common Stock who elected the director whose
position became vacant shall be entitled to elect a successor who shall serve
for the remainder, if any, of the term of the director who shall have resigned,
died or otherwise been removed from office.
The person elected to fill a vacancy must fulfill the eligibility
requirements for the position of the director whose position became vacant.
4.3 Quorum. Three-fourths (3/4) of the voting members of the Board of
Directors shall constitute a quorum.
4.4 Annual Meeting. The Board of Directors shall hold its annual
meeting in each calendar year at such time and place as the Board shall
designate to elect its Chairman and Vice-Chairman, to elect the officers of the
Coop for the ensuing year and to transact any other business.
4.5 Other Meetings. Other meetings of the Board of Directors may be
called by the Chairman, President or three-eighths (3/8) of the voting members
of the Board of Directors at any time by means of written notice by mail of the
time, place and purpose thereof to each member of the Board of Directors, as the
Chairman, the President or three-eighths (3/8) of the voting members of the
Board of Directors shall deem sufficient, but action taken at any such
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meeting shall not be invalidated for want of notice if such notice shall be
waived as hereinafter provided.
4.6 Waiver of Notice. Notice of the time, place and purpose of any
meeting of the Board of Directors may be waived by telegram, radiogram,
cablegram, or other writing either before or after such meeting has been held.
Attendance at a meeting shall constitute a waiver of notice, unless attendance
is expressly for the purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened.
4.7 Removal of Members of the Board of Directors. The Board of
Directors may, upon the affirmative vote of at least two-thirds (2/3) of all
stockholder members (including the vote of FRANMAC with respect to the director
representing the Series A and Tricon with respect to a director representing the
Series B share of Membership Common Stock) at any time determine that any member
of the Board of Directors shall be removed from the Board of Directors for
cause. Upon such a vote of stockholder members, the Board of Directors shall
give such director written notice of removal for cause.
4.8 Voting. The affirmative vote of three-fourths (3/4) of all voting
members of the Board of Directors shall, except as otherwise specifically
provided in these Bylaws, be the act of the Board of Directors on any matter
properly submitted to the Board of Directors. Members of the Board of Directors
may participate in a meeting of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation in a
meeting shall constitute presence in person at such meeting. Upon the demand of
a majority of the voting members of the Board of Directors participating in a
meeting, the voting upon any question before the meeting shall be by secret
ballot. The President shall not be entitled to vote on matters brought before
the Board of Directors.
4.9 Chairman and Vice-Chairman.
(a) The Chairman of the Board of Directors shall be the member
of the Board of Directors elected from time to time by FRANMAC as the holder of
the Series A share of Membership Common Stock unless the Board of Directors by a
unanimous vote of all members shall elect another member as Chairman. The Board
of Directors shall at each annual meeting elect by the affirmative vote of
three-fourths (3/4) of the entire Board of Directors a Vice-Chairman. The
Chairman and Vice-Chairman shall each serve until the next annual meeting of the
Board of Directors and until his successor is duly elected and qualified.
Neither the Chairman nor the Vice-Chairman may be directors elected by the
Series B share of Membership Common Stock.
(b) The duties of the Chairman shall be to preside at all
meetings of the Board of Directors and stockholder members. The Chairman shall
oversee the President in his assigned duties as established and authorized by
the Board of Directors. The Chairman shall have the power to execute in the name
of the Coop any authorized corporate obligation or other instru-
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ment and shall perform all acts incident to the Office of Chairman or Directors.
In the absence of the Chairman or his inability to perform, the Vice-Chairman
shall assume his duties.
4.10 Meetings: Chairman and Secretary. At all meetings of the Board of
Directors, the Chairman, or in his absence, the Vice-Chairman, shall act as
chairman of the meeting and the Secretary of the Coop shall act as secretary,
except that if any one of them shall be absent, a chairman or secretary, or
both, may be chosen at the meeting.
4.11 Compensation and Expenses. All members of the Board of Directors
shall serve without compensation. Reasonable expenses of members of the Board of
Directors attending regular and called meetings shall be reimbursed by the Coop,
provided, that such expenses are not in excess of the actual cost of traveling
from and returning to the member's home city, lodging, meals and other
reasonable and necessary expenses. The Board of Directors shall also reimburse
members of the Board of Directors and others for their reasonable expenses of
attending seminars or other events at the direction of the Board of Directors.
4.12 Unified Coop. The Coop shall appoint the Chairman and one other
member of the Board of Directors as members of the Unified Coop's Board of
Directors. The Coop shall not appoint a member to the Unified Coop's Board of
Directors who is a designee, employee, or agent of Tricon Global Restaurants,
Inc. ("Tricon"), a Tricon controlled affiliate, or a Tricon subsidiary.
ARTICLE V
Officers
5.1 Executive Officers. The Board of Directors shall elect a President,
a Secretary and a Treasurer, and may elect one or more Vice-Presidents and such
other officers and assistant officers, as the Board of Directors may, from time
to time, determine are necessary to manage the affairs of the Coop. Any one
person, except as forbidden by law, may be elected to more than one office. Any
person elected to office shall hold his office as such for a one (1) year period
and until his successor shall have been elected and shall have accepted office,
unless prior thereto such person resigns or is removed from office. The
President shall at all times be subject to dismissal by the Board of Directors
by the affirmative vote of three-fourths (3/4) of all voting members of the
Board of Directors. Any meeting of the Board of Directors for the purpose of
considering the dismissal of the President may be called upon not less than
twenty (20) days nor more than sixty (60) days prior written notice which notice
shall state the place, date, hour and purpose of the meeting. The other officers
shall at all times be subject to dismissal by the President or the Board of
Directors.
5.2 Vacancies. Any vacancy in any office shall be filled by the Board
of Directors.
5.3 Powers and Duties of the President. The President shall be the
President and Chief Executive Officer of the Coop and, subject to the control of
the Board of Directors, shall
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have general charge of its business and supervision of its affairs. He shall
keep the Board of Directors fully informed and freely consult with it in regard
to the business of the Coop, and make due reports to it and to the stockholder
members. The President shall have the power to execute in the name of the Coop
any authorized corporate obligation or other instruments. The President shall
also have such other powers and duties as are incident to his office and not
inconsistent with these Bylaws, or as may at any time be assigned to him by the
Board of Directors.
5.4 Powers and Duties of Vice-Presidents. The Board of Directors may
elect one (1) or more Vice-Presidents who shall have the powers and duties
incident to their office and shall perform such duties as may at any time be
assigned to them by the Board of Directors or the President.
5.5 Powers and Duties of the Treasurer. The Treasurer, subject to the
control of the Board of Directors and together with the President, shall have
general supervision of the finances of the Coop. He shall have the care of, and
be responsible for, all monies, securities, evidences of value and corporate
instruments of the Coop, and shall supervise the officers and other persons
authorized to bank, handle and disburse its funds, informing himself as to
whether all deposits are or have been duly made and all expenditures duly
authorized and evidenced by proper receipts and vouchers. He shall cause full
and accurate books to be kept, showing the transactions of the Coop, its
accounts, assets, liabilities and financial condition, which shall at all
reasonable times be open to the inspection of any member of the Board of
Directors, and he shall make due reports to the Board of Directors and the
stockholder members, and such statements and reports as are required of him by
law. The Treasurer shall have such other powers and duties incident to his
office and not inconsistent with these Bylaws, or as may at any time be assigned
to him by the Board of Directors.
5.6 Powers and Duties of the Secretary. The Secretary shall cause to be
entered in the minute books the minutes of all meetings of the Board of
Directors and annual and other meetings of the stockholder members; shall have
charge of the seal of the Coop and all other books and papers pertaining to his
office, and shall be responsible for giving of all notices, and the making of
all statements and reports required of the Coop or of the Secretary by law. The
Secretary shall affix the corporate seal, attested by his signature, to all
instruments duly authorized and requiring the same. The Secretary shall have
such other powers and duties incident to his office and not inconsistent with
these Bylaws, or as may at any time be assigned to him by the Board of
Directors.
5.7 Assistant Treasurers and Assistant Secretaries. Any Assistant
Treasurers and Assistant Secretaries elected shall perform such duties as may
properly be assigned to them by the executive officers of the Coop, and shall
have such powers and duties, including all the powers and duties of their
principals in the event of the absence of such principals from any place in
which the business in hand is to be done, and as may at any time be assigned to
them by the Board of Directors.
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5.8 Other Officers. The Board of Directors shall prescribe the powers
and duties of any other officer or officers of the Coop.
5.9 Salaries. The salary, if any, of the President of the Coop shall be
fixed by the Board of Directors. Subject to such limitations as may be fixed by
the Board of Directors from time to time, the salaries, if any, of all other
employees and officers of the Coop shall be fixed by the President who shall
report annually to the Board of Directors on all salary changes.
ARTICLE VI
Finance, Audit and Fiscal Year
6.1 Banking. All funds and money of the Coop shall be banked, handled
and disbursed, and all bills, notes, checks and like obligations, and
endorsements (for deposit or collection) shall be signed by such officers and
other persons as the Board of Directors shall from time to time designate, who
shall account therefor to the Treasurer as and when he may require. All money,
funds, bills, notes, checks and other negotiable instruments coming to the Coop
shall be collected and promptly deposited in the name of the Coop in such
depositories as the Board of Directors shall select.
6.2 Annual Audit. An audit by certified public accountants of the books
and records of the Coop shall be conducted annually by a firm engaged by the
Board of Directors.
6.3 Fiscal Year. The fiscal year of the Coop shall be the fiscal year
of the Unified Coop unless set otherwise by the Board of Directors.
ARTICLE VII
Indemnification
7.1 Indemnification of Officers and Directors.
(a) The Coop shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Coop) by reason of
the fact that he is or was a director, officer, employee or agent of the Coop,
or is or was serving at the request of the Coop as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Coop, and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he
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reasonably believed to be in or not opposed to the best interests of the Coop,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) The Coop shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Coop to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Coop, or is or was serving at the request of the Coop as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Coop and except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the Coop unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present and former director or
officer of the Coop has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of this
Section 7.1, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
Section 7.1 (unless ordered by a court) shall be made by the Coop only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b). Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in written opinion, or (4) by the stockholder
members.
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the Coop in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount it
shall ultimately be determined that he is not entitled to be indemnified by the
Coop as authorized in this Section 7.1. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
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(f) The indemnification and advancement of expenses provided
by, or granted pursuant to this Section 7.1 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) The Coop shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Coop, or is or was serving at the request of the Coop as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Coop would have the power to indemnify him against such
liability under the provisions of this Section 7.1.
(h) For purposes of this Section 7.1, references to the Coop
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Section 7.1 with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
(i) For purposes of this Section 7.1, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Coop" shall
include any service as a director, officer, employee or agent of the Coop which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Coop" as referred to in this Section 7.1.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 7.1 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery of the State of Delaware is hereby
vested with exclusive jurisdiction to hear and determine all actions for
advancement of expenses or indemnification brought under this Section 7.1 or
under any bylaw, agreement, vote of stockholder members or disinterested
directors, or otherwise. The Court of Chancery may summarily determine the
Coop's obligation to advance expenses (including attorneys' fees).
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(l) If so provided in the Coop's Certificate of Incorporation,
a director of the Coop shall not be personally liable to the Coop or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Coop or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
The foregoing Article 7 is derived from Sections 145 and 102 of the
General Corporation Law of the State of Delaware.
The Coop has obtained a policy of insurance under which the Coop and
its directors and officers are insured subject to specific exclusions and
deductible and maximum amounts against loss deriving from any claim which may be
made against the Coop or any director or officer of the Coop by reason of any
act done or alleged to have been done while acting in their respective
capacities.
ARTICLE VIII
Capital Stock
8.1 Certificate of Stock. Every holder of capital stock in the Coop
shall be entitled to have a certificate, signed by, or in the name of the Coop
by, the President or a Vice-President and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Coop, certifying
the number of shares owned by him in the Coop. The certificates of stock of the
Coop shall be numbered and shall be entered in the books of the Coop as they are
issued.
8.2 Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Coop alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Coop a bond in such sum as it may direct as indemnity against
any claim that may be made against the Coop with respect to the certificate
alleged to have been lost, stolen or destroyed.
8.3 Transfers of Capital Stock. Any attempted transfer, sale, pledge,
mortgage, gift, or hypothecation of shares of Membership Common Stock or Store
Common Stock other than a transfer of the shares to the Coop shall be null,
void, and without effect, and the Coop shall not make or recognize any such
transfer, sale, pledge, mortgage, gift, or hypothecation upon its books.
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8.4 Fixing Record Date. In order that the Coop may determine the
stockholder members entitled to notice of or to vote at any meeting of
stockholder members or any adjournment thereof, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
twenty (20) days prior to any other action. A determination of stockholder
members of record entitled to notice of or to vote at a meeting of stockholder
members shall apply to any adjournment of the meeting; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
8.5 Registered Stockholders. The Coop shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends and to vote, and to hold liable for calls and assessments a
person registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share of shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
Patronage Dividends
9.1 Patronage. The term "patronage" shall refer to the value of the
Coop's business with its stockholder members. Business with the Coop's
stockholder members shall include the following: (1) the Coop's direct business
with its stockholder members; (2) the Coop's business with its stockholder
members through distributors ("participating distributors") which shall have
agreed to participate in the Coop's patronage dividend program for its
stockholder members by entering into distributor participation agreements with
the Coop or the Unified Coop in such form as the President shall prescribe or
approve from time to time; (3) the Coop's business with its stockholder members
through suppliers ("participating suppliers") which shall have agreed to
participate in the Coop's patronage dividend program by entering into supplier
participation agreements with the Coop or the Unified Coop in such form as the
President shall prescribe or approve from time to time; and (4) the Coop's
business with its stockholder members pursuant to arrangements set forth in a
management agreement approved by the Board of Directors with the Unified Coop,
whereby the stockholder members purchase goods directly from the Unified Coop or
through participating distributors and participating suppliers. The term
"patronage" includes the Coop's business with its stockholder members both when
the Coop or the Unified Coop purchases (takes "Title") and resells goods to the
Coop's stockholder members and participating distributors, and when
participating suppliers sell goods directly to stockholder members and
participating distributors.
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9.2 Cooperative Basis. The Coop shall at all times be operated on a
cooperative basis for the benefit of its stockholder members. The Coop shall
always do more than ninety percent (90%) in value of its business with its
stockholder members.
9.3 Patronage Dividend Distributions.
(a) The Board of Directors shall, after considering the Coop's
anticipated expenses and need for capital and reserves, (i) obligate the Coop to
distribute patronage dividends as provided in section 1388(a)(2) of the Internal
Revenue Code of 1986, as amended (hereinafter referred to as the "IRC"), and
(ii) distribute as patronage dividends, directly to the stockholder members of
the Coop, the net income of the Coop from patronage done with or for stockholder
members computed in accordance with sections 1381-1388 of the IRC and in
accordance with the principles applied in preparation of the Coop's federal
income tax return. Specifically, the Coop shall distribute patronage dividends
to stockholder members annually on the basis of each stockholder member's
patronage. In determining the portion of the Coop's patronage dividend
obligations to be paid in cash, the Board of Directors shall consider: (1)
Expenses directly or indirectly related to the Coop's business; (2) Such
reasonable reserves for necessary corporate purposes as may from time to time be
provided by the Board of Directors for depreciation and obsolescence, state and
federal taxes, bad debts, casualty losses, insurance and other corporate and
operating charges and expenses, all established and computed in accordance with
generally accepted accounting principles; (3) Such reasonable reserves for
working capital necessary for the operation of the Coop and for deficits arising
from such operation, (including deficits from business other than business done
with or for stockholder members).
The amounts set aside for reserves in any year from gross margins of
the Coop from business other than with or for the stockholder members shall be
allocated to the extent possible, to stockholder members, on the books of the
Coop on a patronage basis for that year, or, in lieu thereof, the books or
records of the Coop shall afford a means of doing so, so that in the event of a
distribution of amounts formerly carried in reserves, each stockholder member
may receive to the extent possible, that stockholder member's pro rata share
thereof.
(b) Solely for the purpose of determining the amount of patronage
dividends distributable to a particular stockholder member of the Coop, the
Board of Directors may, by resolution, segregate the Coop's business with its
stockholder members into two distinct pools: (i) the "Title Pool," under which
shall be determined the net earnings of the Coop from business with the Coop's
stockholder members in which the Coop takes Title to goods; and (ii) the
"Non-Title Pool," under which shall be determined the net earnings of the Coop
from business with the Coop's stockholder members in which the Coop does not
take Title to goods.
The amount distributable by the Coop as patronage dividends
directly to each stockholder member of the Coop shall be based on
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<PAGE> 82
(A) the ratio of
(i) the value of business done by the Coop with each
stockholder member in which the Coop takes Title to goods, to
(ii) the net earnings of the Coop in the Title Pool
attributable to business done with or for its stockholder members, plus
(B) the ratio of
(i) the value of business done by the Coop with each
stockholder member in which the Coop does not take Title to goods, to
(ii) the net earnings of the Coop in the Non-Title
Pool attributable to business done with or for its stockholder members.
(c) The patronage dividend distributions shall be paid to each
stockholder member on the basis of the quantity or value of business done with
or for each stockholder member, and the patronage dividend distributions shall
be determined by reference to the net earnings of the Coop from business done
with or for its stockholder members. The patronage dividend distributions shall
be among all stockholder members, shall be directly proportional for each
taxable year of the Coop to the purchases by each stockholder member, and so
shall be based upon each stockholder member's patronage.
9.4 Timing of Payment of Patronage Dividends. Each distribution of
patronage dividends shall be made within the payment period beginning with the
first day of a taxable year for which the Coop claims a deduction for patronage
dividends paid in the form of such distributions and ending with the 15th day of
the 9th month following the close of such taxable year.
9.5 Method and Character of Payment. The Board of Directors may, in
its discretion, determine to pay patronage dividends either all in a form that
will be treated as a deductible qualified written notice of allocation within
the meaning of section 1388(c) of the IRC, all in a form that will be treated as
a nonqualified written notice of allocation within the meaning of section
1388(d) of the IRC, or part in qualified form and part in nonqualified form. At
least twenty percent (20%) of any qualified payment of patronage dividends shall
be paid in cash or by a "qualified check" as defined in Section 1388(c)(4) of
the IRC. Subject to this limitation with respect to qualified distributions, the
Board of Directors may decide that the balance of any patronage dividend be
paid, in whole or in part, in cash, property, promissory notes or other evidence
of indebtedness, or in any other form of written notice of allocation (within
the meaning of section 1388(b) of the IRC).
9.6 Consent to Stockholder Members. Membership in the Coop by
stockholder members shall constitute a consent of each such member to include in
its gross income the amount of any patronage dividend which is paid with respect
to direct sales from the Coop, and indirect sales through participating
distributors in money, "qualified checks," "qualified written notices of
allocation" or other property (except "nonqualified written notices of
allocation" as
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<PAGE> 83
defined in Section 1388(d) of the Internal Revenue Code of 1986, as amended) and
which is received by it during the taxable year from the Coop. Each stockholder
member of the Coop, through initiating or retaining its membership after
adoption of this Article IX of these Bylaws, as amended from time to time,
consents to be bound hereby. The provisions of this Article IX, as amended from
time to time, shall be a contract between the Coop and each stockholder member
as fully as though each stockholder member had signed a specific separate
instrument in which the stockholder member agreed to be bound by all of the
terms and provisions of this Article IX, as amended from time to time.
This consent, however, shall not extend to written notices of
allocation received by the stockholder member as part of a nonqualified payment
of patronage which clearly indicate on their face that they are nonqualified. By
way of illustration, the term "written notice of allocation" shall include such
items as the promissory notes, a notice or statement that such securities have
been deposited with a bank or other qualified agent on behalf of the stockholder
member, a notice of credit to the account of the stockholder member on the books
of the Coop (against stock subscription or any other indebtedness as the Coop
may elect) and such other forms of notice as the Board of Directors may
determine, distributed by the Coop in payment, or part payment of the patronage
dividends. The stated dollar amount of the promissory notes is the principal
amount thereof.
9.7 Promissory Notes. Subject only to the payment of at least twenty
percent (20%) of each stockholder member's annual patronage dividend in cash,
the Coop may pay each stockholder member all or any portion of the annual
patronage dividend in promissory notes which shall bear interest at the rate
from time to time fixed by the Board of Directors and shall mature at the time
fixed by the Board of Directors not later than five (5) years from the date of
issuance, and may be subordinated to any liabilities or obligations of the Coop,
existing, contingent or created after the date of issuance. The Coop shall have
a lien upon and a right of set off against any said promissory notes issued to a
stockholder member to secure payment of any indebtedness due the Coop or any of
its subsidiaries by the stockholder member.
9.8 Application of Patronage Dividends to Amounts Due the Coop.
Notwithstanding any of the foregoing provisions of this Article IX, the portion
of any patronage dividends which would otherwise be payable in cash under any
provision of this Article IX to a stockholder member may be applied by the Coop
to the payment of any indebtedness, the repayment of which is in default, owed
to the Coop by any such stockholder member to the extent of such indebtedness
instead of being distributed in cash, provided, however, that an amount equal to
twenty percent (20%) (or, in the case of a stockholder member located in a
jurisdiction to which the special withholding requirements of Sections 1441 or
1442 of the Internal Revenue Code of 1986, as amended, apply, thirty percent
(30%)) of the total annual patronage dividends distributable for the applicable
year to any such stockholder member shall nevertheless be paid in cash within
the period set forth in Section 9.4 if any such stockholder member so requests
in a writing received by the Coop within thirty (30) days of the first day of
the Coop's fiscal year as established under Section 6.3.
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<PAGE> 84
ARTICLE X
Amendments
10.1 Amendments to Bylaws. The Board of Directors shall have the power
to adopt, amend or repeal from time to time the Bylaws of the Coop at any
regular meeting of the Board of Directors or at any special meeting of the Board
of Directors if notice of such adoption, amendment or repeal of the Bylaws be
contained in the notice of such special meeting, subject to the right of the
stockholder members to adopt, amend or repeal the Bylaws, at any regular meeting
of the stockholder members or at any special meeting of the stockholder members
if notice of such adoption, amendment or repeal of the Bylaws be contained in
the notice of such special meeting. Provided, however, that the Bylaws may not
be amended to provide that the number of voting members of the Board of
Directors which Tricon is entitled to elect as the holder of the Series B share
of Membership Common Stock or otherwise is less than twenty-five percent (25%)
of all voting directors without the approval of at least one director elected by
Tricon.
A-22
<PAGE> 1
Exhibit 99.a.1
AN OFFER TO EXCHANGE
ALL OUTSTANDING SHARES OF SERIES O AND P MEMBERSHIP COMMON STOCK,
AND RELATED STORE COMMON STOCK, OF
KFC NATIONAL PURCHASING COOPERATIVE, INC.
FOR AN EQUAL NUMBER OF SHARES OF MEMBERSHIP AND STORE COMMON STOCK OF
TACO BELL NATIONAL PURCHASING COOP, INC.
The KFC Coop has decided to join with Tricon Global Restaurants, Inc.
and franchisee owners and operators of KFC, Taco Bell and Pizza Hut restaurants
to form Unified FoodService Purchasing Coop, LLC, as a new purchasing
cooperative focusing on the purchase of the food, packaging, supplies,
equipment, and related services used by such owners and operators. The KFC Coop
believes that the Unified Coop will enable the KFC, Taco Bell and Pizza Hut
restaurant owners and operators to reduce their store delivered costs of goods
and equipment.
Tricon, together with its subsidiaries, is (i) the franchisor and
licensor of the KFC, Taco Bell and Pizza Hut concepts (the "Tricon Concepts"),
(ii) the developer of products used and sold by the Tricon Concepts, and (iii)
an operator of many KFC, Taco Bell and Pizza Hut retail outlets. Tricon will not
be a member of the Unified Coop. However, as the franchisor of the Tricon
Concepts and as an operator of many outlets, Tricon is strongly committed to the
success of the KFC Coop's corporate reorganization and the formation of the
Unified Coop. Tricon has entered into an expense sharing arrangement under which
Tricon will provide $400,000 to the Unified Coop to assist the Unified Coop with
organizational expenses and Tricon has agreed to purchase through the Unified
Coop virtually all of the goods and equipment needed for the Tricon operated
outlets. Tricon will also be a stockholder member of each Concept Coop and will
purchase the number of shares of stock required to be a member in good standing
of each Concept Coop.
In connection with forming the new Unified Coop, the KFC Coop desires
to split-off to a new entity the portion of its business which operates
purchasing programs for its Taco Bell members. Through this new entity, owners
and operators of Taco Bell restaurants, including Tricon, will participate with
the KFC Coop and the newly organized Pizza Hut National Purchasing Coop, Inc. in
the purchasing programs of the Unified Coop. The creation of the new Taco Bell
Purchasing Coop, Inc. will also create a cooperative in which only Tricon,
FRANMAC and Taco Bell franchisees are members, while the KFC Coop will only have
Tricon and KFC franchisees as its remaining members. Splitting off the Taco Bell
members into a separate entity will better enable the Taco Bell Coop and the KFC
Coop to respond to the differing needs and requirements of the Taco Bell
operators and KFC operators, respectively.
To accomplish this split-off, the KFC Coop is hereby offering you and
the other KFC Coop stockholders who are Taco Bell operators the opportunity to
exchange your shares of KFC Coop Membership Common Stock and Store Common Stock
for an equal number of shares of Taco Bell Coop Membership Common Stock and
Store Common Stock.
TO PARTICIPATE IN THE SPLIT-OFF AND JOIN THE NEW TACO BELL COOP, YOU
SHOULD (A) CAREFULLY READ THIS TENDER OFFER AND THE AGREEMENT AND PLAN OF
CORPORATE SEPARATION,(B) SIGN THE TENDERING MEMBER SIGNATURE PAGE AND LETTER OF
TRANSMITTAL, A COPY OF WHICH IS ENCLOSED ON BLUE PAPER, AND (C) RETURN THE
TENDERING MEMBER SIGNATURE PAGE AND LETTER OF TRANSMITTAL TO THE KFC COOP ALONG
WITH YOUR CERTIFICATES REPRESENTING YOUR SHARES OF COMMON STOCK IN THE KFC COOP.
If you choose not to participate in the split-off, you will remain a
stockholder member of the KFC Coop, however, the KFC Coop will no longer provide
any services to Taco Bell Members and will discontinue all patronage dividend
programs for Taco Bell Members.
<PAGE> 2
By agreeing to the Agreement and Plan of Corporate Separation (a copy
of which is attached to the accompanying proxy statement) by signing the
enclosed Tendering Member Signature Page and Letter of Transmittal and by
tendering one's shares, you are agreeing: (i) to purchase virtually all of your
goods and equipment for use in your restaurants through the purchasing programs
of the Unified Coop and Taco Bell Coop, (ii) to participate in the Taco Bell
Coop patronage dividend program in accordance with its terms, (iii) to abide by
the terms and commitments of the Taco Bell Coop Bylaws, (iv) to coordinate all
requests to Tricon for supplier and distributor approval through the Unified
Coop and/or the Taco Bell Coop, and (v) to be bound by the terms of the
Agreement and Plan of Corporate Separation.
The date of this Tender Offer is January 28, 1999. This Tender Offer
will expire at 12:00 midnight (Eastern Standard Time) on February 26, 1999,
unless the Tender Offer is extended. The consummation of this Tender Offer is
conditioned upon the approval of the Corporate Reorganization by the members of
the KFC Coop and its subsequent consummation, as described in the Proxy
Statement accompanying this Tender Offer.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
TENDER OFFER SUMMARY................................................................- 1 -
The Tender Offer...........................................................- 1 -
What is the Corporate Reorganization?......................................- 1 -
Is Tricon involved?........................................................- 2 -
Why is there a Tender Offer?...............................................- 2 -
How do I participate in the Corporate Reorganization?......................- 3 -
What are the terms of the Offer?...........................................- 3 -
What happens if I do not participate in this Offer?........................- 3 -
RECOMMENDATION OF THE KFC COOP BOARD................................................- 4 -
THE CORPORATE REORGANIZATION........................................................- 4 -
Background and Reasons for the Corporate Reorganization....................- 4 -
Summary of The Corporate Reorganization....................................- 9 -
Agreement and Plan of Corporate Separation................................- 11 -
Parties..........................................................- 11 -
Purpose..........................................................- 11 -
The Corporate Separation.........................................- 11 -
Taco Bell Coop Member Agreements.................................- 12 -
Federal Income Tax Consequences..................................- 12 -
Effects of the Agreement and Plan of Corporate Separation........- 13 -
Operating Agreement.......................................................- 13 -
Parties..........................................................- 13 -
Purpose..........................................................- 13 -
Tax Allocations..................................................- 13 -
Withdrawal.......................................................- 14 -
Asset Contribution and Liability Assumption Agreement.....................- 14 -
Parties..........................................................- 14 -
Purpose..........................................................- 14 -
KFC Coop Employees...............................................- 14 -
Federal Income Tax Consequences..................................- 14 -
Purchasing Program Management Agreement...................................- 15 -
Parties and Term.................................................- 15 -
Purpose..........................................................- 15 -
Federal Income Tax Consequences of Patronage Income..............- 15 -
The Tricon Agreements.....................................................- 16 -
Amendments to the KFC Coop's Bylaws.......................................- 17 -
Patronage Dividend Program.......................................- 17 -
Changes to Reflect Taco Bell Split-Off...........................- 17 -
Canadian Operations.......................................................- 18 -
Interests of Certain Persons in the Corporate Reorganization..............- 18 -
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Failure of the Corporate Reorganization Proposal..........................- 18 -
Special Meeting..................................................- 18 -
Failure of the Proposal..........................................- 19 -
MANAGEMENT OF THE COOPERATIVES.....................................................- 19 -
KFC Coop..................................................................- -
Taco Bell Coop............................................................- 23 -
Unified Coop..............................................................- 24 -
THE TENDER OFFER...................................................................- 25 -
Terms of the Offer........................................................- 25 -
Extension of Tender Period; Termination; Amendments..............- 25 -
Disclosure of Material Changes...................................- 26 -
Acceptance of Shares for Exchange; Delivery of Taco Bell Coop Shares .....- 26 -
Procedure for Tendering Shares............................................- 26 -
Valid Tender of Shares...........................................- 26 -
Lost Certificates................................................- 27 -
Backup Federal Income Tax Withholding............................- 27 -
Determination of Validity........................................- 27 -
Withdrawal Rights ........................................................- 27 -
Certain Effects of the Offer..............................................- 28 -
Conditions of the Offer...................................................- 28 -
DIVIDENDS AND PATRONAGE DIVIDENDS..................................................- 29 -
KFC Coop Stock............................................................- 29 -
Taco Bell Coop Stock......................................................- 29 -
Patronage Dividend Program................................................- 29 -
MARKET AND PRICE FOR KFC COOP AND TACO BELL COOP STOCK.............................- 29 -
SHARES OUTSTANDING OF KFC COOP STOCK AS OF JANUARY 27, 1999........................- 30 -
DESCRIPTION OF KFC COOP CAPITAL STOCK..............................................- 30 -
Introduction..............................................................- 30 -
KFC Coop Membership Stock.................................................- 31 -
Issuance in Series...............................................- 31 -
KFC Operators....................................................- 31 -
Taco Bell Operators..............................................- 31 -
Licensees........................................................- 32 -
Voting Rights....................................................- 32 -
Dividend Rights..................................................- 32 -
Limitations on Ownership and Transfer; Redemption................- 32 -
Liquidation Rights...............................................- 32 -
General..........................................................- 33 -
KFC Coop Store Stock......................................................- 33 -
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Voting Rights..................................................- 33 -
Dividend Rights................................................- 33 -
Limitations on Ownership and Transfer; Redemption..............- 33 -
Liquidation Rights.............................................- 33 -
General........................................................- 34 -
DESCRIPTION OF TACO BELL COOP CAPITAL STOCK......................................- 34 -
Introduction............................................................- 34 -
Taco Bell Coop Membership Stock.........................................- 34 -
Issuance in Series.............................................- 34 -
Taco Bell Operators............................................- 35 -
Licensees......................................................- 35 -
Voting Rights..................................................- 35 -
Dividend Rights................................................- 35 -
Limitations on Ownership and Transfer; Redemption..............- 35 -
Liquidation Rights.............................................- 36 -
General ......................................................- 36 -
Taco Bell Coop Store Stock..............................................- 36 -
Voting Rights..................................................- 36 -
Dividend Rights................................................- 36 -
Limitations on Ownership and Transfer; Redemption..............- 37 -
Distribution and Liquidation Rights............................- 37 -
General ......................................................- 37 -
COMPARISON OF SHAREHOLDER RIGHTS.................................................- 37 -
Purchase Requirements...................................................- 37 -
Business with Members...................................................- 38 -
Transferability.........................................................- 38 -
Dividend Rights.........................................................- 38 -
Registration of KFC Coop and Taco Bell Coop Stock.......................- 39 -
Licensees...............................................................- 39 -
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..................- 39 -
WHERE YOU CAN FIND MORE INFORMATION..............................................- 51 -
REGULATORY APPROVAL..............................................................- 52 -
FEES AND EXPENSES................................................................- 52 -
MISCELLANEOUS....................................................................- 52 -
BYLAWS OF TACO BELL NATIONAL PURCHASING COOP.....................................Appendix A
</TABLE>
<PAGE> 6
TENDER OFFER SUMMARY
THE TENDER OFFER
KFC National Purchasing Cooperative, Inc., a Delaware corporation
(d/b/a FoodService Purchasing Cooperative, Inc.) (the "KFC Coop"), hereby offers
to exchange (a) one share of Membership Common Stock ("Taco Bell Coop Membership
Stock") of the Taco Bell National Purchasing Coop, Inc. (the "Taco Bell Coop"),
a Delaware corporation and a wholly owned subsidiary of the KFC Coop, for each
outstanding share of Series O and P KFC Coop Membership Common Stock and (b) one
share of Store Common Stock of the Taco Bell Coop ("Taco Bell Coop Store Stock")
for each outstanding share of KFC Coop Store Common Stock ("KFC Coop Store
Stock") owned by members of the KFC Coop ("Members") who are owners
and operators of Taco Bell restaurants (the "Taco Bell Members"). Tendering
Members will receive one share of Taco Bell Coop Membership Stock of Series C -
G, inclusive, depending upon in which geographic area they are deemed to operate
a Taco Bell outlet. This offer is subject to the terms and conditions set forth
in this Tender Offer, the Agreement and Plan of Corporate Separation, and the
attached Tendering Member Signature Page and Letter of Transmittal (which
together constitute the "Offer").
The Offer is being made in connection with the "Corporate
Reorganization" of the KFC Coop, as discussed more fully below. To seek the
necessary approval for the Corporate Reorganization, proxies are being solicited
from all KFC Coop Members by the KFC Coop's Board of Directors through a Proxy
Statement dated January 28, 1999 (the "Proxy Statement"), in connection with a
Special Meeting of KFC Coop Members to be held on February 26, 1999. This Offer
is accompanied by the Proxy Statement.
WHAT IS THE CORPORATE REORGANIZATION?
For the past six months, representatives of the KFC Coop have met with
representatives of Tricon Global Restaurants, Inc. (together with its
affiliates, "Tricon") and franchisee owners and operators of KFC, Pizza Hut, and
Taco Bell retail outlets ("Retail Outlets") to discuss the formation of a new
purchasing cooperative focusing on the purchase of the food, packaging,
supplies, equipment, and related services ("Goods and Equipment") used by
operators of KFC, Pizza Hut and Taco Bell Retail Outlets (together with Tricon
operated stores, "Operators"). To reduce the store delivered costs of Goods and
Equipment, as well as to achieve other important goals discussed more fully
below, the KFC Coop Board of Directors (the "KFC Coop Board") has adopted this
proposal to create and join the newly organized Unified FoodService Purchasing
Coop, LLC, a Kentucky limited liability company (the "Unified Coop"). The other
members of the Unified Coop will be the Taco Bell Coop and Pizza Hut National
Purchasing Coop, Inc. (the "Pizza Hut Coop"), both newly organized Delaware
corporations with shareholder members who will be Operators of Taco Bell and
Pizza Hut Retail Outlets, respectively. To fully realize the benefits of joining
the Unified Coop, the KFC Coop Board recommends you tender your shares of KFC
Coop stock.
-1-
<PAGE> 7
Upon completion of the Corporate Reorganization and Offer, the KFC Coop
will continue to operate and will concentrate on its KFC purchasing cooperative
business. Although this business will be out-sourced and administered by the
Unified Coop, the KFC purchasing program will be subject to significant control,
advice and counsel of the KFC Coop. The KFC Coop Board will continue to exercise
policy-making decisions and administer the patronage dividend program in
accordance with past practices. The Taco Bell Coop will operate purchasing
programs for Taco Bell Operators which are also out-sourced and administered by
the Unified Coop, subject to significant control, advice and counsel of the Taco
Bell Coop. The Taco Bell Coop will not likely pay significant patronage
dividends to its members until it has had an opportunity to accumulate reserves
and working capital which, in the judgement of the Taco Bell Coop Board of
Directors (the "Taco Bell Coop Board"), are adequate for operations.
IS TRICON INVOLVED?
The KFC Coop believes that Tricon is committed to the success of the
Corporate Reorganization and the formation of the Unified Coop and Taco Bell
Coop. Tricon has entered into an expense sharing arrangement under which Tricon
will provide $400,000 to the Unified Coop to assist the Unified Coop with
organizational expenses and Tricon has agreed to purchase through the Unified
Coop virtually all of the Goods and Equipment needed for the Tricon operated
Retail Outlets. Additionally, Tricon will be a member of the Taco Bell Coop and
purchase the number of shares of Taco Bell Coop stock required to be a
stockholder member in good standing of the Taco Bell Coop in accordance with the
Taco Bell Coop Bylaws.
WHY IS THERE A TENDER OFFER?
If the KFC Coop Members approve the Corporate Reorganization at the
Special Meeting, the KFC Coop will transfer certain assets, liabilities and
members' equity that relate specifically to its Taco Bell operations to the Taco
Bell Coop. Through the consummation of this Offer, the KFC Coop will divide its
Taco Bell business (the "Taco Bell Split-Off") so that the KFC Coop Members who
are Taco Bell Operators will become members of the Taco Bell Coop and will no
longer be Members of the KFC Coop. Concurrently with the Taco Bell Split-Off,
the KFC Coop will transfer certain assets and liabilities to the Unified Coop,
in exchange for its membership interest in the Unified Coop. Implementing the
Corporate Reorganization and the Taco Bell Split-Off requires the following
actions to be taken: (i) the KFC Coop's officers must enter into the Operating
Agreement for the Unified Coop, the Agreement and Plan of Corporate Separation,
the Asset Contribution and Liability Assumption Agreement, and the Purchasing
Program Management Agreement, all dated as of the Closing Date (collectively,
the "Corporate Reorganization Agreements") (as used in this Offer, the "Closing
Date" refers to the date on which the Corporate Reorganization occurs); (ii) the
KFC Coop's Bylaws must be amended to conform the patronage dividend program to
the operations of the Unified Coop and to make other changes which give effect
to the Taco Bell Coop Split-Off; and (iii) the KFC Coop Members must authorize
such other action as may be necessary to carry out the purposes of the Corporate
Reorganization.
-2-
<PAGE> 8
HOW DO I PARTICIPATE IN THE CORPORATE REORGANIZATION?
If you want to tender your shares of KFC Coop Membership Stock and KFC
Coop Store Stock, you should promptly complete and sign the Letter of
Transmittal, in accordance with the instructions in the Letter of Transmittal,
mail or deliver it and any other documents required by the Letter of Transmittal
to the KFC Coop at 950 Breckenridge Lane, Louisville, Kentucky 40232, and mail
or deliver your KFC Coop stock certificates to the KFC Coop along with the
Letter of Transmittal. If you want to tender your shares and your stock
certificates are lost, you should immediately request an Affidavit of Lost
Certificate from the KFC Coop.
By agreeing to the Agreement and Plan of Corporate Separation by
signing the attached Tendering Member Signature Page and Letter of Transmittal
(the "Letter of Transmittal") and by tendering your shares, you are agreeing:
(i) to purchase virtually all of your Goods and Equipment for use in your Retail
Outlets through the purchasing programs of the Unified Coop and Taco Bell Coop
(See "Comparison of Shareholder Rights" below), (ii) to participate in the Taco
Bell Coop patronage dividend program in accordance with its terms, (iii) to
abide by the terms and commitments of the Taco Bell Coop Bylaws, enclosed in
their current form with this Offer, (iv) to coordinate all requests to Tricon
for supplier and distributor approval through the Unified Coop and/or the Taco
Bell Coop, and (v) to be bound by the terms of the Agreement and Plan of
Corporate Separation.
WHAT ARE THE TERMS OF THE OFFER?
The Offer will expire at 12:00 midnight (Eastern Standard Time) on
February 26, 1999, unless extended (the "Expiration Date"). Tenders of shares
may be withdrawn at any time prior to the Expiration Date or, unless previously
accepted for exchange, after 12:00 midnight (Eastern Standard Time) on
March 24, 1999. Certificates for shares of Taco Bell Coop Membership Stock and
Taco Bell Coop Store Stock (the "Taco Bell Coop Shares") to be issued in
exchange for properly tendered shares of KFC Coop stock will be mailed by the
KFC Coop promptly after the Expiration Date.
In addition to this Offer, the KFC Coop is delivering a Membership
Information Packet and Subscription Agreement to Taco Bell Operators who are not
members of the KFC Coop, including Tricon, for the purpose of offering Taco Bell
Coop stock to all other Operators of Taco Bell Retail Outlets.
WHAT HAPPENS IF I DO NOT PARTICIPATE IN THIS OFFER?
Any Taco Bell Members' shares of KFC Coop Membership Common Stock ("KFC
Coop Membership Stock") that are not tendered in this Offer will remain
outstanding and, assuming that fewer than 400 shares of KFC Coop Store Stock
remain owned by Taco Bell Operators, will be automatically converted into Series
N shares of KFC Coop Membership Stock in accordance with the KFC Coop's Bylaws.
After the Corporate Reorganization is completed, however, the KFC Coop will no
longer provide any services to Taco Bell Members and will discontinue all
patronage dividend programs for Taco Bell Members. Although Taco Bell Members
who do not tender their shares of
-3-
<PAGE> 9
KFC Coop stock will retain their KFC Coop Membership Stock and KFC Coop Store
Stock, they will otherwise not enjoy any benefits of being a Member of the KFC
Coop.
Taco Bell Members are urged to carefully read this Offer and the
related Letter of Transmittal before deciding whether to tender their shares.
[1. BEFORE CORPORATE REORGANIZATION AND TENDER OFFER DIAGRAM]
Before the Tender Offer and Corporate Reorganization are consummated,
Taco Bell and KFC Operators are Members of the KFC Coop. The KFC Coop
has organized the Taco Bell Coop as a wholly owned subsidiary with no
assets.
[2. THE TENDER OFFER DIAGRAM]
The KCF Coop will transfer Taco Bell related assets and liabilities to
the Taco Bell Coop in exchange for a promissory note and shares of the
Taco Bell Coop. Pursuant to the Tender Offer, the KFC Coop will issue
the shares of the Taco Bell Coop to the tendering Taco Bell Operator
Members in exchange for their shares of the KFC Coop. The Taco Bell
Coop will then become wholly owned by Taco Bell Operators.
[3. AFTER CORPORATE REORGANIZATION AND TENDER OFFER DIAGRAM]
Upon consummation of the Corporate Reorganization, each of the Concept
Coops will be owned by Operators of their respective concepts,
including Tricon. In connection with the Corporate Reorganization, each
of the Concept Coops will become members of the new Unified Coop. The
Unified Coop will administer the purchasing programs for each of the
Concept Coops.
RECOMMENDATION OF THE KFC COOP BOARD
The KFC Coop Board has approved the Corporate Reorganization and the
Offer. The KFC Coop Board has determined that the Offer and Corporate
Reorganization are fair to and in the best interest of the KFC Coop and its
Members. The purpose of the Corporate Reorganization is, among other things, to
reduce the store delivered costs of Goods and Equipment to Operators.
Additionally, the Offer allows the Taco Bell Members to be members of a
purchasing cooperative in which only Tricon, Taco Bell franchisees, and the Taco
Bell Franchise Management Advisory Council ("FRANMAC") are members and allows
the KFC Members to be members of a purchasing cooperative in which only Tricon
and KFC franchisees are members (assuming all Taco Bell Members tender their
shares of stock pursuant to this Offer). As the needs and requirements of KFC
Operators and Taco Bell Operators may differ, splitting off the Taco Bell
Members into a separate entity will allow the Taco Bell Coop and the KFC Coop to
be responsive to the different needs and requirements of the Taco Bell Operators
and KFC Operators, respectively.
The KFC Coop Board recommends that Taco Bell Members accept this offer.
THE CORPORATE REORGANIZATION
BACKGROUND AND REASONS FOR THE CORPORATE REORGANIZATION
The KFC Coop was organized in 1978 to serve as a national purchasing
cooperative on behalf, and for the benefit, of KFC Operators, including KFC
National Management Company ("KFC Management"), a subsidiary of KFC Corporation
("KFCC"). The KFC Coop was organized by KFCC and the KFC franchisees' National
Franchisee Advisory Council with the objectives of: (i) obtaining Goods and
Equipment at the lowest prices and (ii) having the procurement function on
behalf of Operators of KFC Retail Outlets handled on an arm's-length basis
rather than through KFCC.
In 1989, KFCC announced its intention to withdraw its support for the
purchasing programs of the KFC Coop and to begin direct purchasing from
suppliers and distributing to KFCC-owned and KFC franchisee Retail Outlets
through a wholly owned division of PepsiCo, PFS, which had a long-standing
program of purchasing and distributing to PepsiCo owned and franchised Taco Bell
and Pizza Hut Retail Outlets. In response to KFCC's action, the KFC Coop Board
approved sales by the KFC Coop directly and through distributors of Goods and
Equipment to certain other restaurant systems, including Taco Bell. In November
1992, the KFC Coop Members adopted amendments to its Certificate of
Incorporation and Bylaws to provide for membership in the KFC Coop by Operators
of Taco Bell Retail Outlets. In addition, during fiscal 1992, through a newly
formed subsidiary, the KFC Coop commenced purchasing
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and distribution for Operators of KFC franchised Retail Outlets in Canada. In
fiscal 1997, the KFC Coop established a new subsidiary to develop the KFC Coop's
sales of Goods and Equipment to quick service restaurant operators located
outside of the United States and Canada.
In October 1997, PepsiCo spun off Tricon with its three dominant
quick-service restaurant concepts, KFC, Taco Bell and Pizza Hut. In anticipation
of the spin-off, PepsiCo sold its distribution division, PFS, to AmeriServe Food
Distributors, Inc. ("AmeriServe"). With its purchase of PFS, AmeriServe acquired
a long term distribution commitment from Tricon which may extend until 2007 with
respect to all Tricon-operated Retail Outlets and certain Pizza Hut and Taco
Bell Retail Outlets sold by Tricon to franchisees. Before PepsiCo's sale of PFS
to AmeriServe and PepsiCo's spin-off of Tricon, PepsiCo viewed its purchasing
and distribution activities as an opportunity for profit through the sale and
distribution of Goods and Equipment to KFC, Taco Bell and Pizza Hut franchisees.
Following the Tricon spin-off, Tricon, which does not own a distribution
division like PFS, initiated a comprehensive review of its domestic Supply Chain
Management activities, and a comparison of those activities with the purchasing
activities of the KFC Coop on behalf of KFC and Taco Bell franchisees. Following
the Tricon spin-off, representatives of the KFC Coop and Pizza Hut franchisees
and their organization, the IPHFHA, Inc., renewed their occasional conversations
concerning a purchasing program administered by the KFC Coop on behalf of Pizza
Hut franchisees. The KFC Coop initiated a pilot purchasing program for Pizza Hut
Franchisees in the Fall of 1998. Discussions among the KFC Coop and KFC, Pizza
Hut and Taco Bell franchisees concerning the formation of a unified purchasing
cooperative for Goods and Equipment in the United States and Canada began in
earnest during the Fall of 1997. During the Spring of 1998, Tricon's internal
evaluation of domestic purchasing programs indicated to Tricon that the best
approach would be a combined purchasing organization, including Tricon and its
KFC, Pizza Hut and Taco Bell franchisees. Discussions with Tricon about
inclusion of Tricon in a three-system purchasing organization began in earnest
in June of 1998 when Tricon agreed in principle to an organizational structure
with a unified coop owned by the Concept Coops representing the KFC, Taco Bell
and Pizza Hut systems, and a governance structure for the unified coop and the
Concept Coops in which franchisee representatives would have a majority of
votes. By mid-October 1998, agreement on substantially all material operating
and governance issues had been reached.
It was determined to retain the KFC Coop's historic, long term
valuation of its shares of Membership Common Stock at $10 per share and its
Store Common Stock at $400 per share, and to similarly value the Taco Bell and
Pizza Hut Coop shares at $10 per membership share and $400 per store share for
three reasons. First, the KFC Coop had been selling its membership shares for
$10 per share since its inception, and had been selling its store shares for
$400 per share for well over 15 years, and it was thought appropriate to
continue this valuation tradition. Second, it was determined that a sale of
store shares by the Taco Bell and Pizza Hut Coops for $400 per share would
provide the
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basic equity capital needed for the Taco Bell and Pizza Hut Coops to commence
operations and make their initial capital contribution to the Unified Coop.
Third, the sale of membership and store shares is not viewed as the sale of an
investment, but rather the sale of membership interests which allow the members
to participate in the operations and governance of the purchasing programs of
the Concept Coops and the Unified Coop.
The KFC Coop Board considered alternatives other than the Corporate
Reorganization. The KFC Coop Board considered remaining independent of Tricon
and continuing its historic purchasing programs for KFC franchisees, and,
perhaps, some Taco Bell franchisees. The KFC Coop Board rejected this
alternative because it is unclear that a purchasing organization purchasing
essentially for just KFC franchisees would have the purchasing volume to
effectively purchase at the lowest possible prices. The KFC Coop Board
considered a KFC, Taco Bell and Pizza Hut franchisee only purchasing
organization, which it considered inferior to a purchasing organization which
included Tricon (a) because inclusion of Tricon allows the purchasing
organization to purchase for the entire Tricon system without the confusion of
duplicate purchasing organizations, and (b) because Tricon agreed to a
governance structure which insures that franchisees have a majority of the votes
in the governing structure of the Unified Coop and the Concept Coops.
On October 15, 1998, the KFC Coop Board unanimously approved the
Corporate Reorganization described in this Proxy Statement, subject to the KFC
Coop Board's final approval of definitive documents and business plans and
arrangements.
In addition to reducing the store delivered costs of Goods and
Equipment, the goals of the Corporate Reorganization are to:
- Allow the KFC, Taco Bell and Pizza Hut franchisees to
work together to identify common interests as Tricon
franchisees. Historically, the KFC, Taco Bell and
Pizza Hut systems were administered separately in
most respects and each system's franchisees have had
their own franchisee organizations. Concept Coops for
each system will be the members of the Unified Coop
which will be governed by a board of directors with
franchisees from each system;
- Allow Tricon and its franchisees to work together.
There are often tensions between franchisor and
franchisees concerning a myriad of issues such as the
terms of franchisee agreements, the expenditure of
marketing funds, the advisability of product
promotions and changes, and the franchisor's role in
the procurement and distribution of Goods and
Equipment. The Unified Coop should substantially
align the interests of Tricon as operator and
franchisor and of Tricon's franchisees in the
procurement of Goods and Equipment at the lowest
possible sustainable store delivered price;
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- Integrate the current purchasing functions of the KFC
Coop and Tricon's Supply Chain Management, Tricon's
internal purchasing division, in a way that
identifies and uses the best practices of each
organization;
- Increase the purchasing power and leverage of the
Operators' purchasing cooperative by allowing the
purchasing cooperative to make larger volume purchase
commitments and to speak with one consistent voice
with suppliers;
- Eliminate duplicate overhead through the elimination
of duplicate administrative and purchasing functions.
Initial estimates are that combined Tricon and KFC
Coop annual savings will reach approximately
$2,500,000;
- Allow a higher level of sophistication in purchasing
programs and partnerships with suppliers by combining
the expertise in each purchasing program and by
allowing more specialized purchasing supported by a
larger organization;
- Eliminate most sheltered income, which includes
rebates, volume discounts, and promotional
allowances, that does not benefit all Operators
equally. Tricon has agreed to forego the collection
of most sheltered income from suppliers and
distributors which franchisees believe will allow
suppliers and distributors to charge lower prices;
- End confusion for valued suppliers and distributors
caused by uncoordinated, separate communication to
suppliers and distributors from Tricon's Supply Chain
Management and a separate franchisee purchasing
organization such as the KFC Coop concerning such
matters as requirements and purchase commitments and
over who "speaks" for the restaurant system; and
- Facilitate taking advantage of both Title
Transactions and Contract Transactions, as defined
below. Historically, the KFC Coop's operations have
been characterized by the KFC Coop taking title to
Goods and Equipment purchased from vendors and
reselling Goods and Equipment to Operators and their
distributors. By taking title, the KFC Coop has
assumed the administrative burden of obtaining
payment from Operators and their distributors.
Historically, the operations of Supply Chain
Management have been characterized by the negotiation
of terms with suppliers pursuant to which suppliers
sell Goods and Equipment directly to Tricon and to
franchisee Operators and their distributors without
assuming any credit risks. For instance, currently as
a general matter, suppliers of Goods to AmeriServe
for resale by AmeriServe to Tricon take the credit
risk of payment for those Goods by AmeriServe, while
suppliers selling to distributors through the KFC
Coop look to the KFC Coop rather than to the
distributor for payment. The
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Unified Coop will combine the KFC Coop's expertise
with respect to Title Transactions and Supply Chain
Management's expertise with respect to Contract
Transactions and allow the organization to evaluate
on an item by item and program by program basis which
kind of transaction will result in the lowest
possible sustainable store delivered prices.
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SUMMARY OF THE CORPORATE REORGANIZATION
To achieve the goals listed above, the KFC Coop Board has approved the
Corporate Reorganization and Offer. The Corporate Reorganization involves (i)
the execution of the Agreement and Plan of Corporate Separation (the "Agreement
and Plan of Corporate Separation"), the Asset Contribution and Liability
Assumption Agreement (the "Asset Contribution and Liability Assumption
Agreement"), the Operating Agreement for the Unified FoodService Purchasing
Coop, LLC (the "Operating Agreement"), and the KFC Coop's Purchasing Program
Management Agreement, an agreement similar to the purchasing program management
agreements to be entered into between the Unified Coop and each of the Taco Bell
Coop and Pizza Hut Coop (each a "Purchasing Program Management Agreement"), and
the consummation of the transactions contemplated by the agreements; (ii) the
amendment of the KFC Coop Bylaws to conform the patronage dividend program to
the operations of the Unified Coop and to makes other changes which reflect the
Taco Bell Coop Split-Off; and, (iii) the authorization of such other action as
may be necessary to carry out the purposes of the Corporate Reorganization. The
discussion in this Offer of the Corporate Reorganization and the description of
the principal terms of the Corporate Reorganization Agreements is subject to and
qualified in their entirety by reference to the drafts of the Corporate
Reorganization Agreements, copies of which are attached to the Proxy Statement
accompanying this Offer and incorporated herein by reference, which are being
submitted to the KFC Coop's stockholders for approval in substantially the form
attached thereto.
Three new entities will be organized in connection with the Corporate
Reorganization. On the Closing Date, the Unified Coop will be formed with the
KFC Coop, the Taco Bell Coop, and the Pizza Hut Coop (collectively, the "Concept
Coops") as its initial members. The Unified Coop will provide the support and
operational services for each Concept Coop through combined administrative and
purchasing functions in a manner consistent with the current operation of the
KFC Coop. The KFC Coop has organized the Taco Bell Coop as a wholly owned
subsidiary. On the Closing Date, the KFC Coop will transfer certain assets and
liabilities that relate specifically to its Taco Bell operations to the Taco
Bell Coop in exchange for that number of shares of the Taco Bell Coop's stock
equal to the number of shares of KFC Coop stock tendered by Taco Bell Members
pursuant to this Offer. The KFC Coop will then exchange such shares of Taco Bell
Coop stock with the Tendering Members, as defined below, for their shares of KFC
Coop stock. Furthermore, in exchange for its membership interest in the Unified
Coop, the KFC Coop will contribute certain operating assets and cash to the
Unified Coop.
Following the Corporate Reorganization, much of the KFC Coop's
organization and its relationship with its Members will remain the same.
Pursuant to the Operating Agreement, the KFC Coop's Purchasing Program
Management Agreement and the KFC Coop Bylaws, it is expected that the patronage
dividend program will continue to be administered in accordance with past
practices. The Taco Bell Coop will not likely pay significant patronage
dividends to its members until it has had an opportunity to accumulate reserves
and working capital which, in the judgement of the Taco Bell Coop Board, are
adequate for operations.
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The remaining Members will continue to elect the directors of the KFC
Coop Board by series of KFC Coop Membership Stock held. Both the KFC Coop Board
and the Taco Bell Coop Board will remain independent and will continue to manage
their respective Concept Coop's business affairs, as well as provide significant
control, advice and counsel to the Unified Coop regarding the operation of the
purchasing program operated on behalf of their respective Concept Coop. The
Unified Coop will provide to each of the Concept Coops all of the purchasing
functions previously provided by the KFC Coop in a fashion similar to the KFC
Coop's current operations. While the KFC Coop will terminate all of its
employees, the Unified Coop will make offers of employment to these employees on
terms and conditions substantially similar to those currently in effect between
the KFC Coop and its employees. These aspects of the Corporate Reorganization
are described in more detail below.
The KFC Coop's purchasing programs have involved the KFC Coop
historically taking title to Goods and Equipment purchased from suppliers and
the resale by the KFC Coop of those Goods and Equipment to Operators and their
distributors, with the KFC Coop taking the credit risks on sales to Operators
and distributors (such transactions are hereinafter referred to as "Title
Transactions"). The purchasing programs of Tricon Supply Chain Management
("SCM") have historically involved non-title transactions in which SCM
negotiates the price and other terms under which suppliers of Goods and
Equipment will sell directly to Operators and distributors (such transactions
are hereinafter referred to as "Contract Transactions"). The integration of the
KFC Coop's purchasing program and SCM's purchasing programs will give the
Unified Coop flexibility to take advantage of both Title Transactions and
Contract Transactions in order to obtain the lowest possible sustainable
restaurant delivered prices. The advantages of Title Transactions include the
ability to control the entire supply chain and the lower prices which suppliers
are sometimes willing to accept in order to avoid distributor and Operator
credit risks. The advantages of Contract Transactions include avoiding credit
risks and decreasing the need for working capital to provide the funds necessary
to carry accounts receivable from distributors and Operators.
In addition to agreeing to integrate SCM's purchasing programs with
those of the Unified Coop, Tricon has also committed to contribute $400,000 to
the Unified Coop to assist the Unified Coop with organizational expenses and
purchase through the Unified Coop virtually all of the Goods and Equipment
needed for the Tricon operated Retail Outlets.
The Corporate Reorganization Agreements will be entered into
simultaneously with the effectiveness of the Bylaw amendments and consummation
of this Offer. None of these agreements or amendments will become effective
unless all become effective. It is the KFC Coop Board's belief that Tricon and
all other parties are prepared to sign the Corporate Reorganization Agreements,
in substantially the forms attached to the Proxy Statement accompanying this
Offer, and all other documents necessary to form the Unified Coop shortly
following approval of the Corporate Reorganization by the Members. The Corporate
Reorganization is subject to the final approval of the KFC Coop Board.
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AGREEMENT AND PLAN OF CORPORATE SEPARATION
Parties. The parties to the Agreement and Plan of Corporate Separation,
a copy of which is attached to the Proxy Statement accompanying this Offer, are
(a) the KFC Coop, (b) the Taco Bell Members who sign the Letter of Transmittal
attached to the Agreement and Plan of Corporate Separation and tender their
stock certificates representing shares of KFC Coop Membership Stock and KFC Coop
Store Stock (the "Tendering Members"), and (c) the Taco Bell Coop.
Purpose. The parties are entering into the Agreement and Plan of
Corporate Separation, in part, so that the Taco Bell Members can become members
of a Concept Coop in which only Tricon, Taco Bell franchisees, and FRANMAC are
members and the KFC Members can become members of a Concept Coop in which only
Tricon and KFC franchisees are members (assuming all Taco Bell Members tender
their shares of stock pursuant to this Offer). As the needs and requirements of
KFC Operators and Taco Bell Operators may differ, splitting off the Taco Bell
Members into a separate entity will allow the Taco Bell Coop and the KFC Coop to
be responsive to the different needs and requirements of the Taco Bell Operators
and KFC Operators, respectively.
The Corporate Separation. The KFC Coop has identified certain assets
(the "Taco Bell Assets") and liabilities (the "Taco Bell Liabilities") of the
KFC Coop that relate specifically to the KFC Coop's Taco Bell operations. Taco
Bell Assets include, but are not limited to, Taco Bell product inventory and
equipment, records of Taco Bell operations, and miscellaneous Taco Bell supplies
and signs. Taco Bell Liabilities include, but are not limited to, purchase
commitment liabilities, intercompany liabilities attributable to accounts
payable and other liabilities related to Taco Bell operations paid or assumed by
the KFC Coop (the "Intercompany Liability"). The stockholders' equity related to
the KFC Coop's Taco Bell operations represents: (i) the amount paid for KFC Coop
Membership Stock and KFC Coop Store Stock by Taco Bell Members and (ii) retained
earnings attributable to the KFC Coop's Taco Bell operations on the basis of the
past patronage of Taco Bell Members with the KFC Coop.
The KFC Coop will divide its business by transferring all of the Taco
Bell Assets (except for an amount of cash [the "Excluded Assets"] equal to the
sum of $10 for each share of KFC Coop Membership Stock and $400 for each share
of KFC Coop Store Stock, in each case, owned by Taco Bell Members who are not
Tendering Members, if any ["Non-Tendering Members"]), Taco Bell Liabilities,
and stockholders' equity related to the Taco Bell operations, to the Taco Bell
Coop, in exchange for (i) a Promissory Note in an original principal amount
equal to the Intercompany Liability and (ii) the original issue to the KFC Coop
of one share of the Taco Bell Coop's membership common stock ("Taco Bell Coop
Membership Stock") for each Tendering Member's share of KFC Coop Membership
Stock and one share of the Taco Bell Coop's store common stock ("Taco Bell Coop
Store Stock") for each share of KFC Coop Store Stock owned by each Tendering
Member, which will constitute all of the outstanding capital stock of the Taco
Bell Coop. The KFC Coop will retain all other assets and liabilities now owned
by the KFC Coop.
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The Taco Bell Coop is obligated to reimburse the KFC Coop for the
Intercompany Liability pursuant to the terms of a Promissory Note and Security
Agreement that will be executed in connection with the Agreement and Plan of
Corporate Separation by the Taco Bell Coop. The Promissory Note provides that
the Intercompany Liability is payable in monthly installments of principal and
interest thereon at the prime rate reported in the "Money Rates" section of The
Wall Street Journal on the Closing Date. All principal and interest will be due
and payable in any event on or before the six month anniversary of the Closing
Date. The amount of the Intercompany Liability as of July 31, 1998 was
approximately $10,677,000. Pursuant to the terms of the Security Agreement, the
Taco Bell Coop grants a security interest to the KFC Coop in all of its assets,
including accounts receivable, and the KFC Coop may exercise all of the rights,
options, and remedies of a secured party upon default as provided for under the
Uniform Commercial Code as enacted in the Commonwealth of Kentucky.
The KFC Coop is making this Offer to the Taco Bell Members to offer to
transfer to the Tendering Members all of the Taco Bell Coop Shares previously
acquired by it, in the manner described above, in exchange for the surrender by
the Tendering Members of all of their shares of KFC Coop Membership Stock and
KFC Coop Store Stock. The exchange of shares will occur on the Closing Date.
This transaction is intended to qualify as a tax-free split off under Section
355 of the Internal Revenue Code of 1986, as amended (hereinafter referred to as
the "Code"). See "Federal Income Tax Consequences" below.
Concurrent with this Offer, the Taco Bell Coop is offering Operators of
Taco Bell outlets who are not members of the KFC Coop the opportunity to join
the Taco Bell Coop by subscribing for shares of Taco Bell Coop stock.
Taco Bell Coop Member Agreements. By agreeing to the Agreement and Plan
of Corporate Separation by signing the attached Letter of Transmittal and by
tendering one's shares, the Taco Bell Coop members will be agreeing to the
following: (i) to commit to purchase virtually all of their Goods and Equipment
for use in their Retail Outlets through the purchasing programs of the Unified
Coop and Taco Bell Coop, (ii) to participate in the Taco Bell Coop patronage
dividend program in accordance with its terms, (iii) to abide by the terms and
commitments of the Taco Bell Coop Bylaws,(iv) to coordinate all requests to
Tricon for supplier and distributor approval through the Unified Coop and/or the
Taco Bell Coop, and (v) to be bound by the terms of the Agreement and Plan of
Corporate Separation.
Federal Income Tax Consequences. The KFC Coop believes, based on a
review of applicable authorities, that the transactions contemplated by the
Agreement and Plan of Corporate Separation will be tax-free to the KFC Coop and
its shareholders under Section 355 of the Code. Specifically, the KFC Coop
believes (1) no gain or loss will be recognized by a holder of KFC Coop stock
upon the receipt of Taco Bell Coop stock; (2) no gain or loss will be recognized
by the KFC Coop or the Taco Bell Coop upon the distribution of the Taco Bell
Coop stock; and (3) no gain or loss will be recognized by the KFC Coop or the
Taco Bell Coop upon the transfer of assets from the KFC Coop to the Taco Bell
Coop. The KFC Coop, however, has not and does not intend to apply for a ruling
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from the Internal Revenue Service with respect to the tax treatment of the
transactions contemplated by the Agreement and Plan of Corporate Separation.
If those transactions do not qualify under Section 355 of the Code,
then (i) a corporate level capital gains tax would be payable based upon the
amount by which the fair market value of the Taco Bell Coop stock distributed to
the KFC Coop stockholders exceeded the KFC Coop's adjusted tax basis therein,
and (ii) the distribution will be treated as a redemption of stock, resulting in
gain or loss to each holder of KFC Coop stock who receives shares of Taco Bell
Coop stock in the distribution.
Effects of the Agreement and Plan of Corporate Separation. Following
consummation of the transactions contemplated herein, the KFC Coop will no
longer provide any services to Taco Bell Operators and will discontinue its
patronage dividend program for Taco Bell Operators. Although Non-Tendering
Members will retain their KFC Coop Membership Stock and KFC Coop Store Stock,
they will otherwise not enjoy any of the benefits of being a Member of the KFC
Coop, such as participation in a purchasing program.
OPERATING AGREEMENT
Parties. The parties to the Operating Agreement, as more fully
described in the Proxy Statement accompanying this Offer, are the KFC Coop, the
Taco Bell Coop and the Pizza Hut Coop (the "Unified Coop Members"), as the
initial members of the Unified Coop. Tricon is a recognized third party
beneficiary of the Operating Agreement.
Purpose. The Operating Agreement describes the business of the Unified
Coop. The Unified Coop will combine the purchasing volume for Goods and
Equipment within and across Tricon's KFC, Taco Bell and Pizza Hut concepts in
order to achieve the lowest possible store delivered costs for Operators. The
Unified Coop will manage and operate purchasing programs for each of the Concept
Coops consistent with the terms of management agreements between the Unified
Coop and each Concept Coop ("Management Agreements"). (See "Purchasing Program
Management Agreement" below.) The Unified Coop will attempt to negotiate the
lowest possible sustainable prices for Goods and Equipment from suppliers
approved by Tricon for sale either through the Unified Coop or directly by the
supplier to approved distributors selected by the Unified Coop Members and the
Operators represented by the Unified Coop Members. The Unified Coop will also
assist the Unified Coop Members and Operators in negotiating and monitoring
freight and distribution arrangements. The Unified Coop will provide other
services for Unified Coop Members and Operators provided for in the Management
Agreements.
Separate Capital Accounts. Each Concept Coop will have a Capital
Account balance, representing that Concept Coop's property interest in the
Unified Coop. The Capital Account will initially be credited with the fair
market value of the assets contributed to the Unified Coop by each Concept Coop,
plus that Concept Coop's share of the Unified Coop's liabilities, minus the
amount of the Concept Coop's liabilities assumed by the Unified Coop. A Concept
Coop's Capital Account balance will increase by an amount equal to any profits
allocated to the Concept Coop and decrease by allocations of losses and
distributions of net cash flow. Increases or decreases in a Concept Coop's share
of the Unified Coop's liabilities will also increase or decrease the Concept
Coop's Capital Account balance. Except as expressly provided in the Operating
Agreement, no Unified Coop Member will be entitled to withdraw any part of such
Unified Coop Member's capital contributions or Capital Account, or to receive
any distribution from the Unified Coop.
Tax Allocations. The Unified Coop's profits and losses will generally
be allocated annually for tax purposes among the Unified Coop Members in
accordance with their relative annual patronage for each respective year.
Patronage is defined in the Operating Agreement to mean the amount of direct and
indirect transactions between the Unified Coop and the three Concept Coops and
Operators which qualify as patronage in the Certificates of Incorporation and
Bylaws (the "Charter Documents") of each Concept Coop.
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Withdrawal. Until December 31, 2003 (the "Withdrawal Date"), no Unified
Coop Member may withdraw from the Unified Coop for any reason. A Unified Coop
Member may withdraw at any time after the Withdrawal Date by giving the Unified
Coop 365 days advance written notice of such Unified Coop Member's withdrawal
from the Unified Coop. The redemption price payable by the Unified Coop for the
Unified Coop Member's interest will be the "Contract Price." The Contract Price
equals the balance of the withdrawing Unified Coop Member's Capital Account as
defined in the Operating Agreement as of the end of the month immediately
preceding the removal or withdrawal of a Unified Coop Member, provided that such
Capital Account will be appropriately adjusted for any distribution by the
Unified Coop which is not reflected in such Capital Account as of the close of
such month. The Unified Coop will not be required to redeem a withdrawing
Unified Coop Member's interest if the remaining Unified Coop Members elect to
dissolve the Unified Coop.
ASSET CONTRIBUTION AND LIABILITY ASSUMPTION AGREEMENT
Parties. The parties to the Asset Contribution and Liability Assumption
Agreement, as more fully described in the Proxy Statement accompanying this
Offer, are the Unified Coop and the KFC Coop.
Purpose. The Operating Agreement requires, among other things, that
the KFC Coop make certain capital contributions to the Unified Coop in exchange
for its membership interest therein. In satisfaction of that obligation,
pursuant to the Asset Contribution and Liability Assumption Agreement, the KFC
Coop will assign, transfer, deliver, and generally set over to the Unified Coop,
and the Unified Coop agrees to accept and assume, certain "Assets," which means
certain of its Contracts, Leases, Equipment, Prepaid Assets and Kenco Stock
(other than any of the same which are Taco Bell Coop Assets), as defined in the
Asset Contribution and Liability Assumption Agreement. The Assets will not
include any other assets of the KFC Coop, including, without limitation, any
accounts receivable, cash or cash equivalents, goodwill or the capital stock of
any subsidiary of the KFC Coop other than Kenco Insurance Agency, Inc.
("Kenco"). In return, the Unified Coop will assume and agree to perform and
discharge in full any and all of the KFC Coop's obligations and liabilities
under its Contracts and Leases. Furthermore, in exchange for its contribution of
the Assets to the Unified Coop, the KFC Coop will receive credit to its Capital
Account, as discussed above, in an amount equal to the value of the Assets on
the balance sheet of the KFC Coop prepared as of the Closing Date in accordance
with generally accepted accounting principles and as further defined in the
Operating Agreement up to a maximum of $950,000. If the value of the Assets
exceeds $950,000, the Unified Coop will return the excess value in cash to the
KFC Corp.
KFC Coop Employees. The Unified Coop will make offers of employment to
all of the current employees of the KFC Coop on terms and conditions
substantially similar in the aggregate to those currently in effect between the
KFC Coop and its employees, except for Mr. Henrion, as discussed below. See
"Interests of Certain Persons in the Corporate Reorganization."
Federal Income Tax Consequences. Under the Asset Contribution and
Liability Assumption Agreement, the KFC Coop will contribute certain assets and
liabilities to the Unified Coop and receive in exchange a membership interest in
the Unified Coop. The Unified Coop is a Kentucky limited liability company that
will be treated as a partnership for federal income tax purposes. Under
-14-
<PAGE> 20
Sections 721 and 752 of the Code, the contribution of assets and liabilities by
the KFC Coop to the Unified Coop will be tax-free to the KFC Coop and the
Unified Coop, so long as the aggregate amount of the liabilities assumed by the
Unified Coop from the KFC Coop does not exceed the aggregate of the KFC Coop's
share of the Unified Coop's liabilities and the basis of the assets contributed
by the KFC Coop.
PURCHASING PROGRAM MANAGEMENT AGREEMENT
Parties and Term. A Purchasing Program Management Agreement, as more
fully described in the Proxy Statement accompanying this Offer, will be entered
into between the Unified Coop and each Concept Coop. The initial term of each
Purchasing Program Management Agreement extends through December 31, 2003, the
Withdrawal Date. A Purchasing Program Management may be terminated on the
Withdrawal Date or any December 31 thereafter upon one year's notice of
termination.
Purpose. The Purchasing Program Management Agreement sets forth the
terms pursuant to which the Unified Coop will establish and administer a
purchasing program on behalf of each Concept Coop.
The management services to be provided by the Unified Coop will include
negotiating the lowest possible sustainable prices for Goods and Equipment from
suppliers approved by Tricon for sale through the Unified Coop or directly by
the supplier to Tricon-approved distributors selected by the Unified Coop
Members and the Operators represented by Members; assisting the Unified Coop
Members and Operators in negotiating and monitoring freight and distribution
arrangements; administering related insurance and other service programs; and
negotiating arrangements such as master beverage agreements and regional poultry
contracts. To provide these services, the Concept Coops agree that the Unified
Coop purchasing program must be appropriately capitalized, financially
self-sustaining, and operated on a cooperative basis.
Federal Income Tax Consequences of Patronage Income. Under the
Purchasing Program Management Agreements, income generated through the
management services provided by the Unified Coop will be retained in part as
consideration for the Unified Coop's services, with the balance paid to each
Concept Coop. The KFC Coop believes, based on applicable authorities, that
payments by the Unified Coop to a Concept Coop under the applicable Purchasing
Program Management Agreement will qualify for patronage dividend
characterization under Section 1381 through 1388 of the Code, so long as such
amounts not retained by the Concept Coop for capital and reserves are
distributed to the Concept Coop's shareholders in accordance with the Charter
Documents of each Concept Coop. The KFC Coop, however, has not and does not
intend to apply for a ruling from the Internal Revenue Service with respect to
the characterization of the payments for federal income tax purposes. If the
Internal Revenue Service challenged the characterization of the payments and was
successful, then the Concept Coop would be liable for taxes and interest for any
amounts disallowed as exclusions from its taxable income.
-15-
<PAGE> 21
THE TRICON AGREEMENTS
The Unified Coop and Tricon will enter into the Tricon Purchasing Coop
Agreement (the "Tricon Purchasing Coop Agreement") and the SCM Transfer
Agreement (the "SCM Transfer Agreement"), both dated as of the Closing Date
(collectively, the "Tricon Agreements"). The Tricon Purchasing Coop Agreement
sets forth Tricon's commitment to the purchasing programs of the Unified Coop
and the Concept Coops, Tricon's supplier and distributor processes, aspects of
the relationships between Tricon and suppliers and distributors, and
coordination of the Unified Coop's purchasing activities with the marketing,
promotion, and other programs and projects of Tricon. The SCM Transfer Agreement
sets forth provisions concerning the Unified Coop employment of Tricon SCM
personnel and the assumption by the Unified Coop of certain SCM purchasing
arrangements for Goods and Equipment.
Tricon will designate the Unified Coop as the exclusive administrator
of purchasing programs, operated on behalf of the Concept Coops, for all Tricon
owned and operated Retail Outlets. Tricon is also contributing $400,000 to the
Unified Coop to assist the Unified Coop with specific expenses incurred in its
organization and in establishing its purchasing programs. Tricon is expected to
become and remain a member of each Concept Coop, in accordance with the policies
and requirements of each Concept Coop.
Pursuant to the terms of the Tricon Agreements, Tricon agrees to
purchase through the Unified Coop virtually all of the Goods and Equipment
needed for the Tricon operated Retail Outlets. Furthermore, Tricon agrees to
transfer to the Unified Coop, and the Unified Coop agrees to assume, certain of
Tricon's contracts and commitments involving the purchase or sale of Goods and
Equipment. The Unified Coop will also make offers of employment to all of the
current employees of Tricon who are engaged primarily in the purchase or sale of
Goods and Equipment for use or consumption by Operators.
Tricon will have the exclusive right and obligation with respect to the
purchase and distribution of Goods and Equipment used by Operators to (i)
designate and terminate approved suppliers and approved distributors, with
significant franchisee involvement, (ii) designate approved Goods and Equipment,
and (iii) develop, designate, modify and update specifications for Goods and
Equipment.
As used in the Tricon Purchasing Coop Agreement, "Sheltered Income"
means so called earned income, rebates, kick-backs, volume discounts, tier
pricing, purchase commitment discounts, sales and service allowances, marketing
allowances, advertising allowances, promotional allowances, label allowances,
back-door income, application fees, inspection fees, quality assurance fees,
etc., and includes, among other items, (a) fees charged suppliers and
distributors in the supplier and distributor approval process, (b) fees charged
suppliers and distributors for quality inspections and "hot line" inquiries and
complaints, (c) license or trademark fees or rebates charged or expected as a
condition of supplier or distributor approval or use, typically paid as a
percentage of system-wide volume, (d) higher prices permitted suppliers to
amortize research and development expenses undertaken by
-16-
<PAGE> 22
suppliers at the request of Tricon or otherwise, (e) higher prices permitted
suppliers to amortize the cost of excess inventory, (f) higher prices permitted
suppliers to amortize the cost of graphics and other product changes, (g)
special or atypical payment terms, (h) payments and allowances to distributors
from suppliers based on distributor volume which are not reflected as a
reduction in distributor cost or prices, and (i) special favors, gifts and
entertainment. Tricon will abide by the terms of the Sheltered Income provisions
of the Tricon Purchasing Coop Agreement which provide that neither Tricon nor
the Unified Coop will receive or benefit from any Sheltered Income in connection
with Goods or Equipment purchased or used by Retail Outlets, nor shall either
authorize any approved supplier, approved distributor, or Concept Coop to
receive or benefit from Sheltered Income, subject to the few exceptions listed
in the Tricon Purchasing Coop Agreement. This, however, does not limit or
prohibit the right of the Unified Coop or any Concept Coop to benefit from any
Sheltered Income, provided that the Unified Coop shares, and causes each Concept
Coop to share, such Sheltered Income among each applicable Operator (including
Tricon) based on the dollar volume of the purchases of such Operator that gave
rise to the receipt or benefit of such Sheltered Income.
AMENDMENTS TO THE KFC COOP'S BYLAWS
The KFC Coop Board has made two substantive changes to the KFC Coop
Bylaws, as discussed below, conditioned on the consummation of the Corporate
Reorganization. The KFC Coop Board also retains the right under Article IX of
its Certificate of Incorporation to make, adopt, amend or repeal the KFC Coop
Bylaws, subject to the right of Members to adopt, amend or repeal the KFC Coop
Bylaws.
Patronage Dividend Program. The KFC Coop Board has updated the
provisions of the KFC Coop Bylaws governing the patronage dividend program to
conform its operations with those of the Unified Coop and the other Concept
Coops, pursuant to the Operating Agreement. No Unified Coop Member is entitled
to patronage, but rather may pass such distributions on to the Concept Coop
members in accordance with the provisions of their respective patronage dividend
programs. This patronage dividend program contemplates separate patronage pools
for each Unified Coop Member's Title Transactions and Contract Transactions.
See "Dividends and Patronage Dividends--Patronage Dividend Program."
The Operating Agreement prohibits Unified Coop Members from altering
their patronage dividend programs without the consent of the Unified Coop Board.
Changes to Reflect Taco Bell Split-Off. The KFC Coop Board has amended
the KFC Coop Bylaws to reflect the division of its business, conditioned on the
consummation of the Corporate Reorganization. Assuming that less than 400 shares
of KFC Coop Store Stock remain owned by Taco Bell Operators following the
Corporate Reorganization, any remaining Taco Bell Operators will own Series N
shares of KFC Coop Membership Stock. If any Members of Series N remain, they
will be entitled to elect one member of the KFC Coop Board. Other administrative
amendments to the KFC Coop Bylaws are planned to reflect the Taco Bell
Split-Off.
-17-
<PAGE> 23
CANADIAN OPERATIONS
The KFC Coop currently operates its purchasing program for KFC
Operators in Canada through a wholly owned subsidiary, KFC Franchisee Purchasing
of Canada, Inc. (the "Canada Subsidiary"). It is anticipated that at the time of
or shortly following the Corporate Reorganization a new unified purchasing
cooperative will be organized for KFC, Taco Bell, and Pizza Hut Operators in
Canada (the "Canada Coop"). The Canada Coop would be a party to the Operating
Agreement for the Unified Coop, but would not be a member of the Unified Coop.
The Canada Coop would be represented on the Unified Coop Board of Directors by a
director who has no vote, except on Canada Matters, as would be defined in the
Operating Agreement. As of the date of this Proxy Statement, there can be no
assurance that a Canada Coop will be organized and become a party to the
Operating Agreement for the Unified Coop.
Unlike the Concept Coops, the Canada Coop would directly operate a
purchasing program for Goods used by Operators in Canada. The Unified Coop would
likely operate a purchasing program for Equipment used by Operators in Canada.
The Canada Coop would enter into a purchasing cooperative agreement with Tricon,
on terms similar to the Tricon Purchasing Coop Agreement, that describes
Tricon's commitment to the Canada Coop and its purchasing programs.
INTERESTS OF CERTAIN PERSONS IN THE CORPORATE REORGANIZATION
Thomas D. Henrion, President of the KFC Coop and a non-voting member of
its Board of Directors, may be deemed to have certain interests in the Corporate
Reorganization that are in addition to his interests as an officer and director.
The KFC Coop Board is aware of this interest and has considered it, among other
matters, in approving the Corporate Reorganization and the transactions
contemplated thereby.
The KFC Coop, the Unified Coop, and Thomas D. Henrion, President of the
KFC Coop, have executed a Separation and Consulting Agreement (the "Separation
and Consulting Agreement"). The Separation and Consulting Agreement provides for
Mr. Henrion to resign his employment on the Closing Date and, thereafter, to
provide consulting services for two years. Mr. Henrion also agrees to
non-compete provisions whereby, for two years following the date of the
Separation and Consulting Agreement, Mr. Henrion will not work for specifically
scheduled companies that are specifically listed in the Separation and
Consulting Agreement. Under the Separation and Consulting Agreement, Mr. Henrion
will be paid $500,000 upon consummation of the Corporate Reorganization and
$456,300 on the first business day of January 2000 along with health insurance
coverage for 10 years. The Separation and Consulting Agreement replaces the
Supplemental Benefits/Consulting Agreement (the "Supplemental Agreement")
between Mr. Henrion and the KFC Coop.
Under the Supplemental Agreement, upon Mr. Henrion's retirement or
termination, he would receive (i) monthly compensation equal to one-twelfth of
18% of his annual base compensation averaged over a three-year period (his
"Average Annual Compensation") for the number of months Mr. Henrion had worked
for the KFC Coop since January 1, 1994 and (ii) for one year following the
expiration of the above compensation, monthly payments equal to one-twelfth of
his Average Annual Compensation. As of the end of fiscal 1998, Mr. Henrion's
Average Annual Compensation was approximately $209,000. As of January 1, 1999,
Mr. Henrion would have been entitled to aggregate payments of approximately
$397,000 under the Supplemental Agreement. The Supplemental Agreement also
provided that if Mr. Henrion chose to consult with the KFC Coop following his
departure, in lieu of monthly retirement benefits discussed in (i) above, he
would receive monthly compensation equal to one-twelfth of 30% of his Average
Annual Compensation for so long as he provided consulting services to the KFC
Coop, but for no longer than the number of months he was actually employed after
January 1, 1994 (aggregate value of approximately $538,175). Finally, the
Supplemental Agreement provided Mr. Henrion with one-half ownership of a whole
life split-dollar insurance policy in an initial face amount of $147,384, a car
allowance and health insurance while he consulted.
FAILURE OF THE CORPORATE REORGANIZATION PROPOSAL
Special Meeting. The KFC Coop Board is seeking approval of the
Corporate Reorganization from its stockholder members at a Special Meeting (the
"Special Meeting"). In connection with the Special Meeting, the KFC Coop has
filed the Proxy Statement with the Securities and Exchange Commission (the
"Commission") and is soliciting proxies from holders of record of KFC Coop
Membership Stock as of the close of business on January 28, 1999 (the "Special
Meeting Record Date"), for use at the Special Meeting to be held on February
26, 1999, at 10:00 a.m. (Eastern Standard
-18-
<PAGE> 24
Time) at the KFC Coop's headquarters at 950 Breckenridge Lane, Louisville,
Kentucky 40232 and at any adjournment or postponement thereof.
Failure of the Proposal. If the Corporate Reorganization proposal fails
to receive the required affirmative votes of the KFC Coop's stockholder members,
the KFC Coop will not enter into the Corporate Reorganization Agreements and
will not exchange any shares pursuant to the Offer, but will continue to operate
in a manner and structure consistent with its operations as of the date of this
Offer. The KFC Coop would expect to continue discussions with Tricon and
franchisees to explore alternative ways of reducing store delivered costs of
Goods and Equipment to Retail Outlets and achieving the other goals stated
herein.
MANAGEMENT OF THE COOPERATIVE
Directors and Executive Officers
The following table lists, in addition to other information, the
directors and certain executive officers of the Cooperative as of December 31,
1998, their ages, their position with the Cooperative, their present principal
occupations, and the number and percentages of shares of Store Common Stock
beneficially owned, directly or indirectly, by each. The information provided
with respect to the ages and number of shares beneficially owned is as of
December 31, 1998.
<TABLE>
<CAPTION>
POSITIONS AND YEAR FIRST
OFFICES BECAME KFC
CURRENTLY DIRECTOR OR TERM AS PRESENT STORE PERCENT OF
HELD WITH EXECUTIVE DIRECTOR SERIES PRINCIPAL STOCK STORE
NAME AGE KFC COOP OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ---- --- -------- ------- ------- ----------- ---------- --------- -----------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William E. Allen 59 Director, 1988 2000 F Operator 6 **
Secretary
- ----------------------------------------------------------------------------------------------------------------------------
Anthony Basile 56 Director, 1997 2001 Taco Bell at Operator 26 **
Treasurer Large
- ----------------------------------------------------------------------------------------------------------------------------
James G. Cocolin 49 Director 1996 1999 C Operator 10 **
- ----------------------------------------------------------------------------------------------------------------------------
Lois G. Foust 53 Director 1997 2001 L Operator 2 **
- ----------------------------------------------------------------------------------------------------------------------------
Edward J. Henriquez, Jr. 60 Director 1994 1999 J Operator 12 **
- ----------------------------------------------------------------------------------------------------------------------------
Paul A. Houston 48 Director 1995 2000 I President of 353 5.3
Scott's
Restaurants,
Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Grover G. Moss 53 Director 1994 2001 O Operator 12 **
- ----------------------------------------------------------------------------------------------------------------------------
David G. Neal 52 Director, 1991+ 2000 E Operator 94 1.4
Chairman of
the Board
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE> 25
<TABLE>
<CAPTION>
POSITIONS AND YEAR FIRST
OFFICES BECAME STORE
CURRENTLY DIRECTOR OR TERM AS PRESENT COMMON PERCENT OF
HELD WITH EXECUTIVE DIRECTOR SERIES PRINCIPAL STOCK STORE
NAME AGE COOPERATIVE OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ---- --- ----------- ------- ------- ----------- ---------- --------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James D. Olson 48 Director 1997 2000 H President of 266 4.0
Harman
Management
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Ben E. Edwards 56 Director 1998++ 1999 B Operator 10 **
- ------------------------------------------------------------------------------------------------------------------------------
Darlene L. Pfeiffer 60 Director 1997 2001 L Operator 4 **
- ------------------------------------------------------------------------------------------------------------------------------
Edward W. Rhawn 60 Director 1992 1999 Independent Chairman of -- --
Rhawn
Enterprises,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
James B. Royster 60 Director, Vice 1998++ 2000 A Operator 4 **
Chairman
- ------------------------------------------------------------------------------------------------------------------------------
Dean M. Sorgdrager 36 Director 1996 1999 G Operator 1 **
- ------------------------------------------------------------------------------------------------------------------------------
Robert C. Carle 42 Director 1998 1999 D Operator 7 **
- ------------------------------------------------------------------------------------------------------------------------------
Ronald J. Young 39 Director 1993 2000 M Operator 14 **
- ------------------------------------------------------------------------------------------------------------------------------
David Paradise 47 Non-voting 1997 -- -- Operator 19 **
Director+++
- ------------------------------------------------------------------------------------------------------------------------------
Thomas D. Henrion 55 Director, 1980 -- -- President, -- --
President, Chief
Chief Executive
Executive Officer,
Officer Cooperative
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE> 26
<TABLE>
<CAPTION>
POSITIONS AND YEAR FIRST
OFFICES BECAME STORE
CURRENTLY DIRECTOR OR TERM AS PRESENT COMMON PERCENT OF
HELD WITH EXECUTIVE DIRECTOR SERIES PRINCIPAL STOCK STORE
NAME AGE COOPERATIVE OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ---- --- ----------- ------- ------- ----------- ---------- --------- -----------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William V. Holden 48 Vice 1985 -- -- Vice -- --
President, President,
Chief Chief
Financial Financial
Officer Officer,
Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
W. Thomas Hutcherson 51 Vice 1982 -- -- Vice -- --
President, President,
Purchasing Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
Kenneth L. Hartung 50 Vice President 1993 -- -- Vice -- --
President,
Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
John W. Inwright 41 Vice 1991 -- -- Vice -- --
President, President,
Operations Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
Alice LeBlanc 41 Vice 1998 -- -- Vice -- --
President, President,
KFC Operations Cooperative
- -----------------------------------------------------------------------------------------------------------------------------
Carol L. Mudd 43 Vice 1997 -- -- Vice -- --
President, President,
Human Cooperative
Resources
- -----------------------------------------------------------------------------------------------------------------------------
All directors and officers as a group (23 persons)++++ 830 12.5
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* KFC Management has purchased one share of Series K Membership Common
Stock. In 1989, both directors representing KFC Management resigned as
members of the Board of Directors. KFC Management has not taken any
action to fill the vacancies. The total number of shares of Store
Common Stock listed as owned by directors and officers does not include
the 2,028 shares of Store Common Stock believed by the Cooperative to
be owned by KFC Management or affiliates, representing approximately
33.0% of the Store Common Stock outstanding.
** Less than one-half of one percent.
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<PAGE> 27
+ Mr. Neal has previously served on the Board of Directors of the
Cooperative as one of the two directors representing the National
Franchise Advisory Council, the former holder of the Series L share of
Membership Common Stock. He first began serving on the Board of
Directors as a representative of Series E in February 1991.
++ Previously served as a director appointed by the National Franchisee
Advisory Council.
+++ Mr. Paradise is a Taco Bell Operator chosen to serve at the pleasure of
the Board of Directors as a non-voting member of the Board of Directors
after consultation with the Taco Bell Operators serving as directors
and FRANMAC.
++++ Each director, other than Messrs. Henrion and Rhawn, is, or is
affiliated with a member which is, the owner of one share of Membership
Common Stock; All directors and officers as a group (23 persons) own 16
shares of Membership Common Stock, 2.3 percent of the total number of
Shares of Membership Common Stock outstanding. The Store Common Stock
ownership reflects the number of shares which each director, other than
Messrs. Henrion and Rhawn, owns or which is owned by the member with
which the director is affiliated. Except as required by law, Store
Common Stock has no voting rights. Messrs. Henrion and Rhawn are
neither the owners, nor affiliates of the owners, of any Membership or
Store Common Stock.
-22-
<PAGE> 28
TACO BELL COOP
The initial members of the Taco Bell Coop Board are:
<TABLE>
<S> <C>
Anthony Basile Thomas M. Cook
Chicago Diversified Foods, Corp. Chairman
400 E. 22nd Street, Suite E Cardinal Restaurants, Inc.
Lombard, IL 60148 1700 Washington Street
Vancouver, WA 98660
Max Craig* Karl James
Chief Financial Officer Golden West Taco, Inc.
Taco Bell Corp. PO Box 8450
17901 Van Karman Rancho Santa Fe, CA 92067
Irvine, CA 92714-6212
George Kentris Grover Moss
K&K Restaurants, Inc. E.T. Tacos, Inc.
431 E. Main Cross Street 1426 University Avenue
Findlay, OH 45840 Riverside, CA 92507
David Paradise Mary Wagner*
Paradise Foods Sr. Vice President of Technology & Quality
P.O. Box 1124 Taco Bell Corp.
Natchez, MS 39121 17901 Van Karman
Irvine, CA 92714-6212
</TABLE>
*Tricon representative
-23-
<PAGE> 29
Except for the Tricon representatives, each member of the Taco Bell
Coop Board has been an Operator for over five years and is expected to own one
share of Taco Bell Coop Membership Stock and that number of shares of Taco Bell
Coop Store Stock which equals the number of Taco Bell Retail Outlets operated by
him. The Tricon representatives have served Tricon and Taco Bell in various
capacities for over five years; Tricon will own one share of Taco Bell Coop
Membership Stock and that number of shares of Taco Bell Store Stock which equals
the number of Taco Bell Retail Outlets it operates.
UNIFIED COOP
The initial members of the Unified Board are:
<TABLE>
<S> <C>
Christian L. Campbell* Thomas M. Cook***
Sr. Vice President and General Counsel Chairman
Tricon Global Restaurants, Inc. Cardinal Restaurants, Inc.
1441 Gardiner Lane 1700 Washington Street
Louisville, KY 40213 Vancouver, WA 98660
David G. Neal** Robert Lowes*
JRN, Inc. Chief Financial Officer
201 West 7th Street Tricon Global Restaurants, Inc.
Columbia, TN 38401 1441 Gardiner Lane
Louisville, KY 40213
David E. Paradise*** Burney Royster**
Paradise Foods Royster Enterprises, Inc.
417 Main Street 1110 W. Michigan
Natchez, MS 39121 Jackson, MI 49204
Jim Schwartz**** Ken Wagnon****
President/Chief Operating Officer Capital Enterprises, Inc.
NPC International 3445 North Webb Rd.
14400 College Boulevard - Suite 201 Wichita, KS 67226
Lenexa, KS 66215
</TABLE>
* Tricon representative
** KFC Coop representative
*** Taco Bell Coop representative
**** Pizza Hut Coop representative
-24-
<PAGE> 30
THE TENDER OFFER
TERMS OF THE OFFER
The KFC Coop hereby offers, upon the terms of and subject to the
conditions set forth in this Offer, the Agreement and Plan of Corporate
Separation, and the Letter of Transmittal, to exchange (a) one share of Taco
Bell Coop Membership Stock for each share of KFC Coop Membership Stock
outstanding and validly tendered and (b) one share of Taco Bell Coop Store Stock
for each share of KFC Coop Store Stock outstanding and validly tendered. Upon
the terms and subject to the conditions of this Offer, the KFC Coop will accept
for exchange any and all shares of Series O and P KFC Coop Membership Stock and
KFC Coop Store Stock that are properly tendered and not withdrawn before the
Expiration Date. See "The Tender Offer -- Conditions of the Offer." Tendering
Members will receive one share of Taco Bell Coop Membership Stock Series C - G,
inclusive, depending upon in which geographic area they are deemed to operate a
Taco Bell Retail Outlet.
The term "Expiration Date" means 12:00 midnight (Eastern Standard
time) on February 26, 1999, unless and until the KFC Coop has extended the
period of time for which the Offer is open, in which event the term "Expiration
Date" will mean the latest time and date at which the Offer, as so extended by
the KFC Coop, expires.
Extension of Tender Period; Termination; Amendments. The KFC Coop
expressly reserves the right, in its sole discretion, at any time, to extend the
period of time during which the Offer is open, and thereby delay the acceptance
for exchange of any shares of KFC Coop stock, by making a public announcement
thereof. During any such extension, all shares of KFC Coop stock previously
tendered and not exchanged or withdrawn will remain subject to the Offer, except
to the extent that such shares may be withdrawn as set forth below.
The KFC Coop also expressly reserves the right, subject to
applicable law, to postpone the exchange of Taco Bell Coop Shares for such
shares of KFC Coop stock under any circumstances, including those listed below,
by making a public announcement thereof. The KFC Coop's reservation of the right
to delay the exchange of Taco Bell Coop Shares for shares of KFC Coop Membership
Stock and KFC Coop Store Stock which it has accepted for exchange is limited by
Rule 13e-4(f)(5) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") which requires that the KFC Coop must pay the
consideration offered or return the shares tendered promptly after termination
or withdrawal of the Offer. Subject to compliance with applicable law, the KFC
Coop further reserves the right, in its sole discretion to amend the Offer in
any respect. Amendments to the Offer may be made at any time by public
announcement which, in the case of an extension, is to be issued no later than
9:00 a.m. (Eastern Standard Time) on the next business day after the previously
scheduled Expiration Date.
-25-
<PAGE> 31
If the KFC Coop makes a material change in the terms of the Offer
or the information concerning the Offer or waives a material condition of the
Offer, the KFC Coop will extend the Offer to the extent required by applicable
rules or regulations promulgated under the Exchange Act. The minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price
or a change in percentage of securities sought) will depend on the facts and
circumstances then existing, including the relative materiality of the changed
terms or information. If (a) the KFC Coop (i) changes the consideration it
proposes to deliver in exchange for properly tendered shares or (ii) decreases
the number of shares being sought and (b) the Offer is scheduled to expire at
any time earlier than the expiration of a period ending on the tenth business
day from and including the date that notice of such increase or decrease is
first published, sent or given, the Offer will be extended until the expiration
of such ten business day period. Because of the nature of the Corporate
Reorganization and the consideration offered, the KFC Coop does not currently
anticipate any such changes in the consideration offered for, or number of,
shares being sought pursuant to this Offer.
Disclosure of Material Changes. Any disclosure of a material
change in the information published, sent or given to holders of shares of KFC
Coop Membership Stock and KFC Coop Store Stock will be disseminated promptly to
such stockholders in a manner reasonably calculated to inform holders of such
change to the extent required by rules promulgated under the Exchange Act.
ACCEPTANCE OF SHARES FOR EXCHANGE; DELIVERY OF TACO BELL COOP SHARES
Upon the terms and subject to the conditions of the Offer, shares
validly tendered under the Offer and not withdrawn will be accepted, and Taco
Bell Coop Shares will be delivered in exchange therefor, promptly after the
Expiration Date.
For purposes of the Offer, the KFC Coop shall be deemed to have
accepted validly tendered shares of KFC Coop Membership Stock and KFC Coop Store
Stock upon the Expiration Date. If any tendered shares are not accepted for
exchange because of an invalid tender or the occurrence of certain other events
set forth herein or otherwise, certificates for any such unaccepted shares will
be returned, without expense, to the tendering holder thereof promptly after the
expiration or termination of the Offer.
PROCEDURE FOR TENDERING SHARES
Valid Tender of Shares. In order for shares of KFC Coop Membership
Stock and Store Stock to be validly tendered pursuant to the Offer, the Letter
of Transmittal, properly completed and duly executed, and any other documents
required by the Letter of Transmittal must be received by the KFC Coop at 950
Breckenridge Lane, Louisville, Kentucky 40232 on or before the Expiration Date.
In addition, either (i) certificates evidencing tendered shares must be received
by the KFC Coop at such address on or before the Expiration Date or (ii) the
lost certificate procedure set forth below must be satisfied.
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Lost Certificates. If the certificates representing shares of KFC
Coop Membership Stock and KFC Coop Store Stock are lost, the Member desiring to
tender those shares should immediately request an Affidavit of Lost Certificate
from the KFC Coop. Upon receipt of a properly completed Affidavit of Lost
Certificate and Letter of Transmittal, a shareholder tendering shares
represented by lost certificates will be deemed to have complied with the
procedure for validly tendering shares.
Backup Federal Income Tax Withholding. Under the federal income
tax law, a Tendering Member whose shares of KFC Coop Membership Stock and KFC
Coop Store Stock are surrendered is required to provide the KFC Coop with such
shareholder's correct Taxpayer Identification Number ("TIN") on the substitute
Form W-9 attached to the Letter of Transmittal. If such shareholder is an
individual, the TIN is his or her social security number. If the KFC Coop is not
provided with the correct TIN, the shareholder may be subject to a penalty
imposed by the Internal Revenue Service. In addition, payments that are made to
such shareholders with respect to shares surrendered may be subject to backup
withholding.
If backup withholding applies, the KFC Coop is required to
withhold 31% of any payments made to the shareholders. Backup withholding is not
an additional tax. Rather, the shareholders may offset the amount of tax
withheld against his or her federal tax liability on such shareholder's federal
income tax return. If withholding results in an overpayment of taxes, a refund
may be obtained from the Internal Revenue Service.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any shares
will be determined by the KFC Coop in its sole discretion, which determination
shall be final and binding. The KFC Coop reserves the absolute right to reject
any and all tenders of shares determined by it not to be in proper form or the
acceptance for exchange of which may, in the opinion of the KFC Coop's counsel,
be unlawful. The KFC Coop reserves the absolute right to waive any defect or
irregularity in any tender of shares of any particular shareholder. The KFC
Coop's interpretations of the terms and conditions of the Offer (including the
Letter of Transmittal and the instructions thereto) will be final and binding.
Neither the KFC Coop nor any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
WITHDRAWAL RIGHTS
Members who tender their shares of KFC Coop Membership Stock and
KFC Coop Store Stock pursuant to the Offer may withdraw such shares at any time
on or prior to the Expiration Date. Thereafter, such tenders are irrevocable,
except that they may be withdrawn after March 24, 1999, unless accepted for
exchange by the KFC Coop before that date. If the KFC Coop extends the Offer, is
delayed in exchanging for the shares or is unable to exchange for the shares for
any reason, then, without prejudice to the KFC Coop's rights under the Offer,
the KFC Coop may retain all shares tendered, and such shares may not be
withdrawn except to the extent that Tendering Members are entitled to withdrawal
rights pursuant to this Section.
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For a withdrawal to be effective, a written or facsimile
transmission notice of withdrawal must be timely received by the KFC Coop at 950
Breckenridge Lane, Louisville, Kentucky 40232. Any notice of withdrawal must
specify the name of the person who tendered the shares of KFC Coop Membership
Stock and KFC Coop Store Stock to be withdrawn, the number of shares to be
withdrawn and the name of the registered holder.
Withdrawals may not be rescinded and shares withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. However,
withdrawn shares may be retendered at any time prior to the Expiration Date by
again following the procedures described above.
All questions as to the form and validity (including time of
receipt) of any notice of withdrawal will be determined by the KFC Coop, in its
sole discretion, whose determination shall be final and binding. The KFC Coop
nor any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failure
to give such notification.
CERTAIN EFFECTS OF THE OFFER
Following the consummation of the Offer, the Taco Bell Members
will be members of a Concept Coop in which only Tricon, Taco Bell franchisees
and FRANMAC are members and the KFC Members will be members of a Concept Coop in
which only Tricon and KFC franchisees are members (assuming all Taco Bell
Members tender their shares of stock pursuant to this Offer). As the needs and
requirements of KFC Operators and Taco Bell Operators may differ, splitting off
the Taco Bell Members into a separate entity will allow the Taco Bell Coop and
the KFC Coop to be responsive to the different needs and requirements of the
Taco Bell Operators and KFC Operators, respectively.
Once (a) the Members approve the Corporate Reorganization at the
Special Meeting and (b) all other conditions of the Offer, as discussed below,
are met, the KFC Coop Board is expected to consummate the Corporate
Reorganization. The Tendering Members will then be shareholders in the Taco Bell
Coop only. Any shares of KFC Coop Membership Stock that are not tendered in this
Offer will remain outstanding, and, assuming that fewer than 400 shares of KFC
Coop Store Stock remain owned by Taco Bell Operators, will be automatically
converted into Series N shares of KFC Coop Membership Stock in accordance with
the KFC Coop's Bylaws. However, following consummation of the Corporate
Reorganization, the KFC Coop will no longer provide any services to Taco Bell
Members and will discontinue all patronage dividend programs for Taco Bell
Members. Although Non-Tendering Members will retain their KFC Coop Membership
Stock and KFC Coop Store Stock, they will otherwise not enjoy any benefits of
being a Member of the KFC Coop.
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the obligation
of the KFC Coop to accept for exchange any shares of KFC Coop Membership Stock
or KFC Coop Store Stock tendered pursuant to the Offer are subject to the
conditions that (i) at the Special Meeting, the Members approve the Corporate
Reorganization and authorize such other action by the KFC Coop Board and any of
its officers as may be necessary or appropriate to carry out the objects,
intents, and purposes of the Corporate Reorganization by an affirmative vote of
(a) a majority of all outstanding shares of KFC Coop Membership Stock held by
each Voting Group, as defined in the Proxy Statement, and (b) two-thirds of the
Members of each Voting Group present, either in person or by properly executed
proxy, at the Special Meeting and (ii) the Operating Agreement is executed and
delivered by the Taco Bell Coop and the Pizza Hut Coop in substantially the
form attached to the Proxy Statement as Appendix B. The Corporate
Reorganization Agreements will be executed simultaneously with the consummation
of the Offer and neither will be effective unless both become effective.
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DIVIDENDS AND PATRONAGE DIVIDENDS
KFC COOP STOCK
Dividends may not be declared or paid with respect to KFC Coop
Membership Stock. The holders of KFC Coop Store Stock are entitled to receive
dividends if declared by the KFC Coop Board. The KFC Coop Board has no current
intention to pay any dividends on KFC Coop Store Stock. However, it is
anticipated that the KFC Coop Board will continue the patronage dividend program
in accordance with past practices.
TACO BELL COOP STOCK
Dividends may not be declared or paid with respect to Taco Bell
Coop Membership Stock. The holders of Taco Bell Coop Store Stock are not
entitled to receive dividends, other than patronage dividends.
PATRONAGE DIVIDEND PROGRAM
Although the KFC Coop and Taco Bell Coop do not and will not
engage in business to generate profits, they may nonetheless, in any fiscal
year, generate revenues in excess of amounts needed to cover expenses, amortize
indebtedness, and provide for reasonable working capital and reserves. Thus,
even though the KFC Coop and Taco Bell Coop will endeavor to minimize
purchasing fees and mark-ups on Goods and Equipment to the least amount
required to cover their anticipated cost of operations, the KFC Coop and Taco
Bell Coop may have funds available for distribution to members as patronage
dividends.
When, in the judgment of the Board of Directors of a Concept
Coop, the Concept Coop should distribute patronage dividends to its members,
it shall be done in accordance with the Bylaws of each Concept Coop. The Bylaws
of each Concept Coop provide that patronage dividends will be distributed to
members on the basis of the value of business done by the Concept Coop (or
through the Unified Coop) with each member respectively. The Bylaws contemplate
separate patronage pools for each Concept Coop's Title Transactions and
Contract Transactions. The provisions of the Taco Bell Coop Bylaws governing
the patronage dividend program are attached as Appendix A.
Net cash flow generated from the Concept Coop's purchasing
programs administered by the Unified Coop will be the primary source of funds
for any patronage dividends distributed to a Concept Coop's members. After the
Unified Coop makes tax distributions to the Unified Coop Members, the Unified
Coop may distribute additional net cash flow, whether resulting from patronage
or non-patronage sources, to the Unified Coop Members in accordance with their
relative annual patronage for such year. No Unified Coop Member is itself
entitled to patronage, but rather may pass such distributions on to the Concept
Coop's members in accordance with the provisions of their respective patronage
dividend programs.
The Operating Agreement prohibits Unified Coop Members from
altering their bylaw provisions regarding their patronage dividend programs
without the consent of the Unified Coop Board.
Pursuant to the Operating Agreement, the Purchasing Program
Management Agreement and the KFC Coop Bylaws, it is expected that the KFC Coop
Board will continue to administer its patronage dividend program in accordance
with past practices.
The Taco Bell Coop will not likely pay significant patronage
dividends to its members until it has had an opportunity to accumulate reserves
and working capital which, in the judgment of the Taco Bell Coop Board of
Directors, are adequate for operations.
MARKET AND PRICE FOR KFC COOP AND TACO BELL COOP STOCK
No class of the KFC Coop's or Taco Bell Coop's capital stock is or
will be listed on an exchange or traded in any other public trading market. All
KFC Coop stock and Taco Bell Coop stock is and will be issued only to Operators.
The KFC Coop Members purchase KFC Coop Membership
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Stock and KFC Coop Store Stock to participate in the KFC Coop's programs for its
members, including the patronage dividend program and the KFC Coop purchasing
programs, and to participate in the KFC Coop's management through the election
of directors. The KFC Coop Members do not purchase KFC Coop stock with any
expectation of return on their investment through stock appreciation or per
share dividends. Tendering Members and other prospective Taco Bell Coop
shareholder members should also not expect a return on their investment in Taco
Bell Coop stock through stock appreciation or per share dividends, but should
purchase Taco Bell Coop stock to participate in the Taco Bell Coop's programs
for its members.
Since July 1, 1983, the KFC Coop has offered shares of KFC Coop
Membership Stock at $10 per share and shares of KFC Coop Store Stock at $400 per
share. Taco Bell Coop Membership Stock will be initially priced at $10 per share
and Taco Bell Coop Store Stock will be initially priced at $400 per share.
SHARES OUTSTANDING OF KFC COOP STOCK AS OF JANUARY 27, 1999
<TABLE>
<CAPTION>
DESCRIPTION SERIES REPRESENTED MEMBERSHIP STOCK STORE STOCK
----------- ------------------ ---------------- -----------
<S> <C> <C> <C>
KFC Members A - H, K, L 533 5,131
Taco Bell Members O and P 94 759
Canada Members M and I 49 534
International Members J 12 230
---- ------
Total 688 6,654
</TABLE>
DESCRIPTION OF KFC COOP CAPITAL STOCK
INTRODUCTION
Membership in the KFC Coop is currently limited to Operators of KFC and
Taco Bell Retail Outlets. Each Operator desiring membership in the KFC Coop is
required to purchase one share of KFC Coop Membership Stock regardless of the
number of Retail Outlets operated and to purchase a number of shares of KFC Coop
Store Stock which equals either (i) the total number of KFC Retail Outlets
located in the United States owned and operated by that Operator, (ii) the total
number of Retail Outlets located in a Foreign Territory owned and operated by
that Operator, (iii) the total number of KFC Retail Outlets located in Canada
owned and operated by that Operator or (iv) the total number of Taco Bell Retail
Outlets wherever located owned and operated by that Operator. For purposes of
calculating the number of shares of KFC Coop Store Stock required to be
purchased by a Member, the total number of Retail Outlets equals the total
number of traditional Retail Outlets plus one-half, rounded up to the nearest
even number, of the total number of non-traditional Retail Outlets, as defined
in the KFC Coop's Bylaws. If a Member at any time becomes an Operator of
additional KFC Retail Outlets, he or she will be required to purchase one
additional share of KFC Coop Store Stock for each such additional traditional
Retail Outlet or for each two additional non-traditional Retail Outlets, as the
case may be. No purchase commitment is required as a condition of
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membership or, except with respect to advance purchase commitments for certain
commodities, as a condition to purchasing from or through the KFC Coop. As of
January 27, 1999, there were 688 shares of KFC Coop Membership Stock and 6,654
shares of KFC Coop Store Stock outstanding.
KFC COOP MEMBERSHIP STOCK
The KFC Coop is authorized to issue 2,000 shares of KFC Coop Membership
Stock, no par value, of which 688 shares were issued and outstanding on January
27, 1999. The following description of KFC Coop Membership Stock is qualified in
all respects by the KFC Coop Charter Documents.
Issuance in Series. KFC Coop Membership Stock is offered and issued in
series, as discussed below. Currently, the KFC Coop has provided for Series A-Q.
The KFC Coop's Certificate of Incorporation also provides for nine series of KFC
Coop Membership Stock which are designated Series R-Z. The KFC Coop Board has no
current intention to issue any shares of the Series R-Z KFC Coop Membership
Stock and is prohibited from doing so without further amendment of its Bylaws.
KFC Operators. Operators of KFC Retail Outlets, except for KFC
Management, the NCAC, Harman and Scott's, as defined in the KFC Coop Bylaws, are
entitled to purchase one share of KFC Coop Membership Stock in Series A-G,
inclusive, depending upon their being deemed to operate a KFC Retail Outlet in
one or more of the geographic areas designated in the KFC Coop Bylaws.
Harman has purchased one share of Series H KFC Coop Membership Stock.
Scott's has purchased one share of Series I KFC Coop Membership Stock. Operators
of KFC Retail Outlets in Foreign Territories are entitled to purchase one share
of Series J KFC Coop Membership Stock. KFC Management has purchased one share of
Series K KFC Coop Membership Stock and the NCAC has purchased one share of
Series L KFC Coop Membership Stock. Operators of KFC Retail Outlets in Canada,
including Tricon (Canada), are entitled to each purchase one share of Series M
KFC Coop Membership Stock.
The Series H and I KFC Coop Membership Stock held by Harman and
Scott's, respectively, provide for the election of one director and the series
of such stock held by KFC Management and the NCAC provide for the election of
two directors. The KFC Coop Bylaws provide that if Harman or Scott's at any time
owns or operates fewer than 100 KFC Retail Outlets, or if KFC Management owns or
operates fewer than 200 KFC Retail Outlets, then the share of KFC Coop
Membership Stock owned by said Operators must be exchanged for one share of KFC
Coop Membership Stock of such other series as such Operator is otherwise
eligible to purchase.
Taco Bell Operators. The KFC Coop Bylaws designate Series N-Q as series
available to Taco Bell Operators. Upon completion of the Corporate
Reorganization and this Offer, assuming that less than 400 shares of KFC Coop
Store Stock remain owned by Taco Bell Operators, Taco Bell Operators will only
be eligible to own shares of Series N KFC Coop Membership Stock in accordance
with the KFC Coop's Bylaws.
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<PAGE> 37
Licensees. Any KFC licensee may purchase one share of KFC Coop
Membership Stock and that number of shares of KFC Coop Store Stock which the KFC
Coop Bylaws require such licensee to purchase pursuant to the provisions
governing non-traditional Retail Outlets, discussed above. The term "franchisee"
includes licensees where appropriate in this discussion.
Voting Rights. Each class of Series A-J and M-O KFC Coop Membership
Stock is entitled to elect one member of the KFC Coop Board. Series K and L
holders are entitled to elect two members of the KFC Coop Board. Each Member is
entitled to cast one vote to elect a member of the KFC Coop Board to represent
its series except for the Members of Series K and L, which are entitled to cast
one vote to elect each of two members of the KFC Coop Board from their
respective series.
On all matters except the election of the KFC Coop Board, each holder
of KFC Coop Membership Stock is entitled to cast one vote on each matter on
which members are entitled to vote. The KFC Coop Bylaws provide that directors
may be elected by a plurality of the series entitled to elect such director.
Unless otherwise provided by the KFC Coop Bylaws or required by law, the
affirmative vote of two-thirds (2/3) of the Members in attendance at a meeting
at which a quorum is present is necessary to decide in favor of any matter.
Dividend Rights. Dividends may not be declared or paid with respect to
KFC Coop Membership Stock.
Limitations on Ownership and Transfer; Redemption. KFC Coop Membership
Stock may be issued only to persons who satisfy the membership requirements and
no more than one share of such stock will be issued to any one Operator, except
for certain limited circumstances described in the KFC Coop Bylaws. The KFC Coop
Bylaws thus generally reflect the principle of one franchisee, one vote. The KFC
Coop Bylaws provide for who is entitled to vote certain shares of KFC Coop
Membership Stock in situations involving individuals who, through different
corporations, partnerships or other affiliations, may have an interest in more
than one share of KFC Coop Membership Stock.
If any holder of KFC Coop Membership Stock has ceased to be a Member
because it is no longer an Operator or owns less than the required amount of KFC
Coop Store Stock, such Membership Stock will be called for redemption at $10.00
per share. Under Delaware Law, the KFC Coop may not repurchase any shares of its
stock when the capital of the KFC Coop is impaired or when such repurchase would
cause any impairment of the capital of the KFC Coop. KFC Coop Membership Stock
may not be transferred to any person or entity other than the KFC Coop.
Liquidation Rights. In the event of any liquidation of the KFC Coop, or
other disposition of its assets, the holders of KFC Coop Membership Stock are
entitled to receive $10.00 per share before any distributions are made to the
holders of KFC Coop Store Stock. Any net assets remaining after the payment of
the $10.00 per share to the holders of KFC Coop Membership Stock will be
distributed to holders of the KFC Coop Store Stock in the manner described
below.
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General. KFC Coop Membership Stock has no preemptive rights. The shares
of KFC Coop Membership Stock are, when issued, duly authorized, validly issued,
fully paid and nonassessable and the holders thereof will not be liable for any
payment of the KFC Coop's debts.
KFC COOP STORE STOCK
The KFC Coop is authorized to issue 10,000 shares of KFC Coop Store
Stock, no par value, of which 6,654 shares were issued and outstanding as of
January 27, 1999. The summary description of KFC Coop Store Stock provisions
which follows is qualified in all respects by the KFC Coop Charter Documents.
Voting Rights. The holders of KFC Coop Store Stock are not entitled by
virtue of their ownership of KFC Coop Store Stock to vote for directors, to
participate in meetings or the management of the KFC Coop, or to vote in any
proceedings, except as required by law.
Dividend Rights. The holders of KFC Coop Store Stock are entitled to
receive dividends if declared by the KFC Coop Board. There is no current
intention to pay any dividends on KFC Coop Store Stock. However, it is
anticipated that the KFC Coop Board will continue the patronage dividend program
in accordance with past practices.
Limitations on Ownership and Transfer; Redemption. KFC Coop Store Stock
may be issued only to persons who satisfy the membership requirements discussed
above. Each Member must purchase that number of shares of KFC Coop Store Stock
equal to the total number of KFC or Taco Bell Retail Outlets owned and operated
by each Member. KFC Coop Store Stock may only be transferred to persons, firms
or entities that qualify for membership in the KFC Coop, and only if the KFC
Coop does not exercise its right of first refusal to purchase such shares.
Pursuant to a policy adopted by the KFC Coop Board, the KFC Coop is
authorized to purchase, for not more than the amount of the Member's equity per
share at the end of the KFC Coop's fiscal year next preceding the date of
purchase, a certain number of shares of KFC Coop Store Stock in each of the KFC
Coop's fiscal quarters. The KFC Coop therefore may, but generally has no
obligation to, repurchase shares of KFC Coop Store Stock from a Member who owns
shares in excess of the number required for membership. In any event, the KFC
Coop has no intention of repurchasing substantial numbers of shares of KFC Coop
Store Stock.
Liquidation Rights. In the event of any liquidation of the KFC Coop, or
other disposition of its assets, the holders of KFC Coop Store Stock will be
entitled to receive the net assets of the KFC Coop remaining after the payment
of all of its debts and liabilities and the payment of $10.00 per share to the
holders of KFC Coop Membership Stock. Liquidating distributions will be made on
the basis of past patronage with the KFC Coop rather than the number of shares
of KFC Coop Store Stock owned.
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General. KFC Coop Store Stock has no preemptive or conversion rights.
The shares of KFC Coop Store Stock are, when issued, duly authorized, validly
issued, fully paid and nonassessable and the holders thereof will not be liable
for any payment of the KFC Coop's debts.
DESCRIPTION OF TACO BELL COOP CAPITAL STOCK
INTRODUCTION
Membership in the Taco Bell Coop will be limited to Taco Bell
Corporation, a California corporation, all franchisees and licensees of Taco
Bell, and FRANMAC (collectively, the "Taco Bell Operators"). Each Taco Bell
Operator desiring membership in the Taco Bell Coop will be required to purchase
one share of Taco Bell Coop Membership Stock and a number of shares of Taco Bell
Coop Store Stock which equals the total number of Taco Bell Retail Outlets
located in all states and the District of Columbia owned and operated by such
person, firm or entity. For purposes of calculating the number of shares of Taco
Bell Coop Store Stock required to be purchased by a Taco Bell Operator, the
total number of Retail Outlets equals the total number of traditional Retail
Outlets plus one-half, rounded up to the nearest even number, of the total
number of non-traditional Retail Outlets. A non-traditional Retail Outlet means
a Retail Outlet with more than one of the following characteristics: (i) a five
year or shorter license, (ii) a limited menu, (iii) sales from a kiosk or other
transportable unit, (iv) sales from a segregated food service area at a location
in a facility (such as an airport, athletic stadium, university or school)
established for a primary purpose other than selling food for reasonably
immediate consumption, (v) anticipated sales volume less than anticipated sales
volume for a traditional Retail Outlet, (vi) sales in conjunction with sales of
another food concept, or (vii) such other characteristics as the Taco Bell Coop
Board may determine are indicative of a non-traditional Retail Outlet. If a
Member at any time becomes an Operator of additional Taco Bell Retail Outlets,
he or she will be required to purchase one additional share of Taco Bell Coop
Store Stock for each such additional traditional Retail Outlet or for each two
additional non-traditional Retail Outlets, as the case may be. Taco Bell Coop
members will be required to purchase virtually all of their Goods and Equipment
for use in their Retail Outlets through the purchasing programs of the Unified
Coop and the Taco Bell Coop. The Bylaws of the Taco Bell Coop require that more
than 90% of the value of the Taco Bell Coop's business be conducted with Taco
Bell Coop members. At the time of this Offer, one share of Taco Bell Coop
Membership Stock is outstanding.
TACO BELL COOP MEMBERSHIP STOCK
The Taco Bell Coop is authorized to issue 2,000 shares of Taco Bell
Coop Membership Stock, no par value, of which one share is issued and
outstanding as of the date of this Offer. The following description of Taco Bell
Coop Membership Stock is qualified in all respects by the Taco Bell Coop Charter
Documents.
Issuance in Series. Taco Bell Coop Membership Stock will be offered and
issued in 26 series, designated A-Z. Except for Series A and B, which consist of
one share each, the Taco Bell Coop Board has the right, power and authority to
establish and increase or decrease the number of shares
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of each series, except that in no event will the aggregate number of authorized
shares of Series C-Z, inclusive, exceed 1,998 shares.
Taco Bell Operators. Operators of Taco Bell Retail Outlets, except for
Taco Bell and FRANMAC, will be entitled to purchase one share of Taco Bell Coop
Membership Stock of Series C-G, inclusive, depending upon in which geographic
area they are deemed to operate a Taco Bell Retail Outlet. Taco Bell will be
entitled to purchase one share of Series B Taco Bell Coop Membership Stock and
FRANMAC will be entitled to purchase one share of Series A Taco Bell Coop
Membership Stock. The Taco Bell Coop Bylaws initially prohibit the purchase of
any Taco Bell Coop Membership Stock for Series H-Z.
Licensees. No licensee is eligible to be a stockholder member in the
Taco Bell Coop unless the licensee is also a franchisee or the licensee owns and
operates 25 or more non-traditional Retail Outlets. A qualified licensee may
purchase one share of Taco Bell Coop Membership Stock and that number of shares
of Taco Bell Coop Store Stock which the Taco Bell Coop Bylaws require such
licensee to purchase pursuant to the provisions governing non-traditional Retail
Outlets, discussed above. The term "franchisee" includes licensees where
appropriate in this discussion.
Voting Rights. Each Taco Bell Coop member who holds a share in Series A
and Series C-G will be entitled to cast one vote to elect one member of the Taco
Bell Coop Board to represent its series. As the sole Series B stockholder, Taco
Bell Corporation will be entitled to cast one vote to elect two members of the
Taco Bell Coop Board to represent its series. As to all other matters on which
each Taco Bell Coop member is entitled to vote, each share of Taco Bell Coop
Membership Stock will be entitled to one vote on each matter.
Dividend Rights. Dividends may not be declared or paid with respect to
Taco Bell Coop Membership Stock.
Limitations on Ownership and Transfer; Redemption. Taco Bell Coop
Membership Stock may be issued only to persons who satisfy the membership
requirements, as set forth above, and no more than one share of stock will be
issued to any one Taco Bell Operator, except for the limited circumstances
described below. The Taco Bell Coop Bylaws reflect the Taco Bell Coop's one
franchisee, one vote principle. When a corporation, partnership or other entity
is a franchisee Operator, the owner of more than fifty percent of the
corporation, partnership or other entity is deemed to be the owner of the shares
of Taco Bell Coop Membership Stock. Where no person, corporation, partnership or
other entity owns more than fifty percent of the outstanding ownership interest
of a franchisee Operator, the owners of the corporation, partnership or other
entity must designate among themselves who will be deemed to own the share of
Taco Bell Coop Membership Stock.
The Taco Bell Coop Bylaws address who is entitled to vote certain
shares of Taco Bell Coop Membership Stock in situations involving individuals
who, through different corporations, partnerships or other affiliations, may
have an interest in more than one share of Taco Bell Coop
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<PAGE> 41
Membership Stock. The Taco Bell Coop Bylaws provide that no person, firm or
entity is entitled to own or have an interest in, directly or indirectly, more
than one share of Taco Bell Coop Membership Stock, except for (a) any interest
which any franchisee may have in the share of the Taco Bell Coop Series A
Membership Stock held by FRANMAC or (b) any interest which any franchisee may
have in a share of the Taco Bell Coop's Membership Stock (i) held by a person,
firm or entity in which the franchisee owns fifty percent or less in the
aggregate of the outstanding ownership interest and (ii) with respect to which
the franchisee refrains from voting or participating in the voting of the share
of Taco Bell Coop Membership Stock.
Unless otherwise prohibited by law, the Taco Bell Coop will promptly
redeem shares of Taco Bell Coop Membership Stock held by persons, firms or
entities who no longer qualify as Taco Bell Coop members. The redemption price
for each share of Taco Bell Coop Membership Stock will be $10.00 which will be
payable in cash, except that, if the Taco Bell Coop is prohibited by law from
redeeming such share in cash because the payment would impair the capital of the
Taco Bell Coop or otherwise, the Taco Bell Coop will issue a non-interest
bearing promissory note payable whenever the Taco Bell Coop is no longer
prohibited by law from making such payment. The Taco Bell Coop Membership Stock
may not be sold, transferred, pledged, mortgaged, gifted, or hypothecated to any
third party, either voluntarily or by operation of law, and such restrictions
will be noted on all Taco Bell Coop Membership Stock certificates.
Liquidation Rights. In the event of any dissolution or liquidation of
the Taco Bell Coop, or other disposition of its assets, the holders of Taco Bell
Coop Membership Stock will be entitled to receive $10.00 per share. The
remaining assets of the Taco Bell Coop will be distributed to the holders of
Taco Bell Coop Store Stock, as described below.
General. Taco Bell Coop Membership Stock has no preemptive rights. The
shares of Taco Bell Coop Membership Stock issuable upon consummation of the
Offer will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and the holders thereof will not be liable for any payment of the
Taco Bell Coop's debts.
TACO BELL COOP STORE STOCK
The Taco Bell Coop is authorized to issue 10,000 shares of Taco Bell
Coop Store Stock, no par value, of which no shares are issued and outstanding as
of the date of this Offer. The following description of Taco Bell Coop Store
Stock provisions is qualified in all respects by the Taco Bell Coop Charter
Documents.
Voting Rights. The holders of Taco Bell Coop Store Stock will not
entitled by virtue of their ownership of Taco Bell Coop Store Stock to vote for
directors, to participate in meetings or management of the Taco Bell Coop or to
vote in any proceedings, except as required by law.
Dividend Rights. The holders of Taco Bell Coop Store Stock will not be
entitled to receive dividends, other than patronage dividends.
-36-
<PAGE> 42
Limitations on Ownership and Transfer; Redemption. Taco Bell Coop Store
Stock will be issued only to persons who satisfy the membership requirements
discussed above and each Taco Bell Coop member will be required to purchase that
number of shares of Taco Bell Coop Store Stock equal to the total number of Taco
Bell Coop Retail Outlets, as determined by the total number of traditional
Retail Outlets, plus one-half rounded up to the nearest even number, of the
total number of non-traditional Retail Outlets, owned and operated by each Taco
Bell Coop member. Only holders of record of Taco Bell Coop Membership Stock will
be permitted to purchase shares of Taco Bell Coop Store Stock. Taco Bell Coop
Store Stock may not be sold, transferred, pledged, mortgaged, gifted, or
hypothecated to any third party, either voluntarily or by operation of law, and
such restrictions will be noted on all Taco Bell Coop Store Stock certificates.
If a Taco Bell Coop member desires to dispose of his or her Taco Bell Coop Store
Stock, the Taco Bell Coop member must transfer his or her Taco Bell Coop Store
Stock to the Taco Bell Coop at the same price the stockholder paid to acquire
the Taco Bell Coop Store Stock.
Distribution and Liquidation Rights. In the event of any distributions
by the Taco Bell Coop to its members, liquidation of the Taco Bell Coop, or
other disposition of its assets, after the payment of all debts and liabilities
of the Taco Bell Coop and the payment of $10.00 per share to holders of Taco
Bell Coop Membership Stock, the remaining assets of the corporation will be
distributed to the holders of Taco Bell Coop Store Stock on the basis of each
member's face amount of outstanding patronage equities and distribute the
remaining assets to such members on the basis of their past patronage insofar as
such distribution is practicable.
General. Taco Bell Coop Store Stock has no preemptive or conversion
rights. The shares of the Taco Bell Coop Store Stock issuable upon consummation
of the Offer will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and the holders thereof will not be liable for any payment of
the Taco Bell Coop's debts.
COMPARISON OF SHAREHOLDER RIGHTS
Upon the consummation of the Corporate Reorganization and Offer, the
Tendering Members will become shareholders of Taco Bell Coop. Following is a
summary of certain differences between the rights of holders of KFC Coop capital
stock and the rights of holders of Taco Bell Coop capital stock. Differences
arise from the governing instruments of the two companies. Although it is
impractical to compare all of the aspects in which the companies' governing
instruments differ with respect to shareholders' rights, the following
discussion summarizes certain significant differences between them.
Purchase Requirements. Taco Bell Coop members will be required to
purchase virtually all of their Goods and Equipment for use in their Retail
Outlets through the purchasing programs of the Unified Coop and the Taco Bell
Coop. The Taco Bell Coop Bylaws state:
2.6 Purchase Commitment. Each stockholder member shall purchase
virtually all Goods and Equipment for use in the stockholder member's
Retail Outlets through the
-37-
<PAGE> 43
purchasing programs of the Unified Coop and the Taco Bell Coop.
"Virtually all" with respect to Goods and Equipment means all Goods and
Equipment except Goods and Equipment:
(a) Where the Unified Coop or the Taco Bell Coop agrees in
advance in writing that the stockholder member need not purchase the
particular item or category of Goods or Equipment through the
purchasing programs of the Unified Coop;
(b) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is
impractical, with notice given as soon as possible), with respect to a
specific item or category of Goods or Equipment for specific Retail
Outlets that (i) the Unified Coop is unable to meet the member's
required volume of supply for the particular Goods or Equipment, or
(ii) the Unified Coop is unable to meet previously established quality
standards with respect to particular Goods or Equipment;
(c) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is
impractical, with notice given as soon as possible), that the Unified
Coop's purchasing policies or procedures with respect to the particular
item or category of Goods or Equipment present a material business risk
to the member, which the member is unwilling to assume, because of the
Unified Coop's volume, hedging or similar commitments, arrangements or
policies; or
(d) Purchased after the termination of the stockholder
member's membership in the Taco Bell Coop.
No purchase commitment is required as a condition of membership in the
KFC Coop nor, except with respect to advance purchase commitments for certain
commodities, as a condition to purchasing from or through the KFC Coop.
Business with Members. The Taco Bell Coop Bylaws require the Taco Bell
Coop to always do more than 90% of the value of its business with Taco Bell Coop
members. The KFC Coop has no minimum required level of business that must be
conducted with its Members.
Transferability. Taco Bell Coop Membership Stock and Taco Bell Coop
Store Stock may not be sold, transferred, pledged, mortgaged, gifted, or
hypothecated to any third party, either voluntarily or by operation of law, and
such restrictions will be noted on all Taco Bell Coop stock certificates. Shares
of KFC Coop Membership Stock and KFC Coop Store Stock are not subject to this
restriction.
Dividend Rights. Dividends may not be declared or paid with respect to
KFC Coop Membership Stock or Taco Bell Coop Membership Stock. However, the
holders of Taco Bell Coop Store Stock will not be entitled to receive dividends,
other than patronage dividends, while the holders of KFC Coop Store Stock are
entitled to receive dividends if declared by the KFC Coop
-38-
<PAGE> 44
Board. There is no current intention to pay any dividends on KFC Coop Store
Stock, but it is anticipated that the KFC Coop Board will continue the patronage
dividend program in accordance with past practices.
Registration of KFC Coop and Taco Bell Coop Stock. The shares of KFC
Coop stock currently held by Taco Bell Members are registered under the Exchange
Act with the Commission. The KFC Coop is required to file periodic reports,
proxy statements and other information with the Commission, including annual and
quarterly financial information. The Taco Bell Coop stock will not be registered
with the Commission although it is expected that the Taco Bell Coop will provide
its members with annual audited financial statements.
Licensees. No Taco Bell licensee is eligible to be a stockholder member
in the Taco Bell Coop unless the licensee is also a franchisee or the licensee
owns and operates 25 or more non-traditional Retail Outlets. Any KFC licensee
may be a stockholder member of the KFC Coop.
-39-
<PAGE> 45
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine
months ended July 31, 1998 and for the year ended October 31, 1997 give pro
forma effect to the Corporate Reorganization as if it had been consummated as of
November 1, 1996. The Unaudited Pro Forma Condensed Consolidated Balance Sheets
as of July 31, 1998 give pro forma effect to the Corporate Reorganization as if
it had been consummated on July 31, 1998. All material adjustments necessary to
reflect the Corporate Reorganization are presented in the pro forma adjustments
columns, which are further described in the notes to the unaudited pro forma
condensed consolidated financial statements. The pro forma adjustments are based
upon available information and upon certain assumptions deemed reasonable by
management.
The unaudited pro forma condensed consolidated financial statements are provided
for informational purposes only and should not be considered indicative of
actual results that would have been achieved had the Corporate Reorganization
been consummated on the dates or for the periods indicated and do not purport to
indicate the balance sheet data or results of operations as of any future date
or for any future period. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes thereto appearing in the KFC Coop's
Annual Report and Form 10-Q accompanying this proxy statement.
-40-
<PAGE> 46
KFC NATIONAL PURCHASING COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS
HISTORICAL --------------------------- KFC
KFC TACO BELL UNIFIED COOP PRO FORMA
----------- ------------ -------------- ------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 132 -- $(1,412)(b) $ 132
1,412 (c)
Accounts receivable, net 44,170 $(13,458)(a) (93)(b) 30,619
Inventories:
Food 1,397 (653)(a) -- 744
Equipment and promotional items 2,153 (764)(a) -- 1,389
-------- -------- ------- --------
3,550 (1,417) -- 2,133
Current portion of note receivable from related party 60 10,677 (a) -- 10,737
Prepaid expenses and other current assets 114 -- (91)(b) 23
Current portion of deferred income taxes 758 -- -- 758
-------- -------- ------- --------
Total Current Assets 48,784 (4,198) (184) 44,402
Office equipment, net 833 -- (833)(b) 0
Investment in marketable equity security available for sale 71 -- -- 71
Investment in the Unified Coop 1,000 (b) 1,000
Loan Receivable from Unified Coop 1,000 (b) 1,000
Note receivable from related party, excluding current portion 118 -- -- 118
Deferred income taxes, excluding current portion 137 (38)(a) -- 99
Other assets 510 -- -- 510
-------- -------- ------- --------
Total Assets $ 50,453 $ (4,236) $ 983 $ 47,200
======== ======== ======= ========
Liabilities and Members' Equity
Current Liabilities:
Short-term borrowings $ 418 -- $ 1,412 (c) $ 1,830
Accounts payable 24,179 $ (3,173)(a) -- 21,006
Accrued expenses 2,734 (196)(a) (101)(b) 2,437
Premium deposits 328 -- (328)(b) 0
Patronage dividend 1,798 (162)(a) -- 1,636
-------- -------- ------- --------
Total Current Liabilities 29,457 (3,531) 983 26,909
Long-term note payable 3,000 -- -- 3,000
-------- -------- ------- --------
Members' Equity:
Membership common stock 7 (1)(a) -- 6
Store common stock 1,884 (277)(a) -- 1,607
Unrealized gain on marketable equity security 16 -- -- 16
Retained earnings 16,166 (427)(a) -- 15,739
Currency translation adjustment (77) -- -- (77)
-------- -------- ------- --------
Total Members' Equity 17,996 (705) -- 17,291
-------- -------- ------- --------
Total Liabilities & Members' Equity $ 50,453 $ (4,236) $ 983 $ 47,200
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ----------------
(a) The proposed split-off of Taco Bell operations from KFC Coop will be
accounted for at fair value. Assets to be transferred to the Taco Bell
subsidiary are trade accounts receivable (net of allowance for doubtful
accounts), inventories and other assets related to the Taco Bell
operations. The book value of these assets approximates their fair
value. Liabilities to be transferred to the Taco Bell subsidiary are
trade accounts payable and other current liabilities related to the
Taco Bell operations. The book value of these liabilities approximates
their fair value. Members' equity of the Taco Bell members to be
transferred to the Taco Bell subsidiary is determined by summing the
amount paid for KFC Coop Membership Stock and KFC Coop Store Stock by
Taco Bell Members and the amount of retained earnings attributable to
the KFC Coop's Taco Bell operations on the basis of the past
patronage of Taco Bell Members with the KFC Coop. The net difference in
assets, liabilities and members' equity transferred to the Taco Bell
subsidiary will be offset by an intercompany payable by the Taco Bell
subsidiary to the KFC Coop. This intercompany payable is a result of
early payment of Taco Bell trade accounts payable by the KFC Coop.
Subsequent sale of inventory and collection of Taco Bell trade accounts
receivable will provide sufficient cash to permit the payment in full
of the intercompany payable, trade accounts payable and other current
liabilities. The intercompany liability will be payable in six monthly
installments of principal and interest. Interest will accrue at the
prime rate. Following is a summary of the pro forma adjustment as of
July 31, 1998 assuming all Taco Bell members tender their KFC Coop
Membership Stock and their KFC Coop Store Stock (dollars in
thousands):
<TABLE>
<S> <C>
Assets Transferred:
Accounts receivable, net $13,458
Inventories 1,417
Other assets 38
-------
Total Assets 14,913
-------
Liabilities and Members' Equity Transferred:
Accounts payable, trade 3,173
Other current liabilities 358
Members' Equity 705
-------
Total Liabilities and Members' Equity 4,236
-------
Intercompany payable / receivable $10,677
=======
</TABLE>
- ----------------
(b) Reflects capital contribution and loan to the Unified Coop. The loan
will be evidenced by a demand note and will carry interest at a rate
equal to the cost of funds of the KFC Coop from its primary lender,
currently approximately 6%.
(c) Reflects short-term borrowings under existing lines of credit by the
KFC Coop to fund its capital contribution and loan to the Unified Coop.
Pursuant to the Operating Agreement, the KFC Coop is required to make
additional capital contributions and loans from time to time to the
Unified Coop in amounts necessary to fund the working capital
requirements of the purchasing program conducted for the KFC Coop.
-41-
<PAGE> 47
KFC NATIONAL PURCHASING COOPERATIVE, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS
-----------------------------
HISTORICAL KFC
KFC KFC TACO BELL PRO FORMA
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 472,725 $ (263,347)(a) $ (104,602)(a) $ 104,776
Cost of goods sold 460,024 (255,449)(a) (102,527)(a) 102,048
---------- ----------- ---------- ---------
Gross profit 12,701 (7,898) (2,075) 2,728
Selling, general and administrative expenses 10,302 (4,770)(a) (1,706)(a) 3,826
Provision for losses on receivables 442 (342)(b) (100)(b) -
Other income (expenses):
Equity in earnings of
the Unified Coop -- 2,786 (c) 2,786
Service charges 136 136
Interest income 191 191
Interest expense (162) (162)
Miscellaneous 95 95
----------- ---------- ---------- ---------
260 2,786 3,046
----------- ---------- ---------- ---------
Income before patronage
dividend and income taxes 2,217 -- (269) 1,948
Patronage dividend 1,798 (162)(d) 1,636
---------- ---------- ---------- ---------
Income before income taxes 419 -- (107) 312
Provision for income taxes 182 (45)(e) 137
---------- ---------- ---------- ---------
Net income $ 237 $ -- $ (62) $ 175
========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ---------------------
(a) To eliminate sales, cost of sales and related selling, general and
administrative expenses for the respective concepts. This activity will
be performed by the Unified Coop after the Corporate Reorganization.
(b) To eliminate provision for losses on receivables from operators and
distributors of the respective concepts. The provision will be
recognized by the Unified Coop after the Corporate Reorganization.
(c) The KFC Coop will recognize its share of earnings of the Unified Coop
utilizing the equity method of accounting.
(d) To eliminate patronage dividend paid to Taco Bell members of the KFC
Coop.
(e) To eliminate income tax expense.
-42-
<PAGE> 48
KFC NATIONAL PURCHASING COOPERATIVE, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Corporate Reorganization
Adjustments
HISTORICAL ----------------------------- KFC
KFC KFC TACO BELL PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 600,132 $ (345,388)(a) $ (109,361)(a) $ 145,383
Cost of goods sold 583,891 (335,068)(a) (107,228)(a) 141,595
----------- ----------- ---------- ----------
Gross profit 16,241 (10,320) (2,133) 3,788
Selling, general and administrative expenses 12,266 (6,083)(a) (1,790)(a) 4,393
Provision for losses on receivables 175 (175)(b) -
Other income (expenses):
Equity in earnings of
the Unified Coop. -- 4,062 (c) 4,062
Service charges 187 187
Interest income 339 339
Interest expense (285) (285)
Miscellaneous 112 112
----------- ----------- ---------- ----------
353 4,062 -- 4,415
----------- ----------- ---------- ----------
Income before patronage
dividend and income taxes 4,153 -- (343) 3,810
Patronage dividend 2,890 (228)(d) 2,662
----------- ----------- ---------- ----------
Income before income taxes 1,263 -- (115) 1,148
Provision for income taxes 515 (39)(e) 476
----------- ----------- ---------- ----------
Net income $ 748 $ -- $ (76) $ 672
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
condensed consolidated financial statements.
- ---------------------
(a) To eliminate sales, cost of sales and related selling, general and
administrative expenses for the respective concepts. This activity will
be performed by the Unified Coop after the Corporate Reorganization.
(b) To eliminate provision for losses on receivables from operators and
distributors of the respective concepts. The provision will be
recognized by the Unified Coop after the Corporate Reorganization.
(c) The KFC Coop will recognize its share of earnings of the Unified Coop
utilizing the equity method of accounting.
(d) To eliminate patronage dividend paid to Taco Bell members of the KFC
Coop.
(e) To eliminate income tax expense.
-43-
<PAGE> 49
TACO BELL NATIONAL PURCHASING COOP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION ADJUSTMENTS
------------------------------------ TACO BELL
TACO BELL MEMBERSHIP UNIFIED PRO FORMA
PRO FORMA (a) FEES COOP AS ADJUSTED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ -- $ 1,714 (b) $ (2,000) (d) $ --
2 (c) 284 (e)
Accounts receivable, net 13,458 13,458
Inventories:
Food 653 653
Equipment and promotional items 764 764
---------- ----------
1,417 1,417
---------- ----------- ---------- ----------
Total Current Assets 14,875 1,716 (1,716) 14,875
Investment in the Unified Coop -- 1,000 (d) 1,000
Loan receivable from the Unified Coop 1,000 (d) 1,000
Deferred income taxes, excluding current portion 38 38
---------- ----------- ---------- ----------
Total Assets $ 14,913 $ 1,716 $ 284 $ 16,913
========== =========== ========== ==========
Liabilities and Members' Equity
Current Liabilities:
Short-term borrowings $ $ 284 (e) $ 284
Accounts payable 3,173 3,173
Accrued expenses 196 196
Patronage dividend 162 162
Note payable to the KFC Coop 10,677 10,677
---------- ---------- ----------
Total Current Liabilities 14,208 284 14,492
Members' Equity:
Membership common stock 1 $ 2 (c) 3
Store common stock 277 1,714 (b) 1,991
Retained earnings 427 427
---------- ----------- ----------
Total Members' Equity 705 1,716 2,421
---------- ----------- ---------- ----------
Total Liabilities & Members' Equity $ 14,913 $ 1,716 $ 284 $ 16,913
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
(a) Taco Bell Pro Forma represents assets, liabilities and members' equity
formerly included in the balance sheet of the KFC Coop, but
attributable to the Taco Bell concept. The proposed split-off of Taco
Bell operations from KFC Coop will be accounted for at fair value.
Assets to be transferred to the Taco Bell subsidiary are trade accounts
receivable (net of allowance for doubtful accounts), inventories and
other assets related to the Taco Bell operations. The book value of
these assets approximates their fair value. Liabilities to be
transferred to the Taco Bell subsidiary are trade accounts payable and
other current liabilities related to the Taco Bell operations. The book
value of these liabilities approximates their fair value. Members'
equity of the Taco Bell members to be transferred to the Taco Bell
subsidiary is determined by summing the amount paid for KFC Coop
Membership Stock and KFC Coop Store Stock by Taco Bell Members and the
amount of retained earnings attributable to the KFC Coop's Taco Bell
operations on the basis of the past patronage of Taco Bell Members with
the KFC Coop. The net difference in assets, liabilities and members'
equity transferred to the Taco Bell subsidiary will be offset by an
intercompany payable by the Taco Bell subsidiary to the KFC Coop. This
intercompany payable is a result of early payment of Taco Bell trade
accounts payable by the KFC Coop. Subsequent sale of inventory and
collection of Taco Bell trade accounts receivable will provide
sufficient cash to permit the payment in full of the intercompany
payable, trade accounts payable and other current liabilities. The
intercompany liability will be payable in six monthly installments of
principal and interest. Interest will accrue at the prime rate.
Following is a summary of the pro forma adjustment as of July 31, 1998
assuming all Taco Bell members tender their KFC Coop Membership Stock
and their KFC Coop Store Stock (dollars in thousands):
<TABLE>
<S> <C>
Assets Transferred:
Accounts receivable, net $ 13,458
Inventories 1,417
Other assets 38
--------
Total Assets 14,913
--------
Liabilities and Members' Equity Transferred:
Accounts payable, trade 3,173
Other current liabilities 358
Members' Equity 705
--------
Total Liabilities and Members' Equity 4,236
--------
Intercompany payable / receivable $ 10,677
========
</TABLE>
(b) Reflects the issuance of Taco Bell Store Stock to an estimated 4,284
Taco Bell stores for $400 per store. Estimated number of stores
represents traditional franchise stores as discussed in the Tricon
December 31, 1997 annual report less the number of stores belonging to
the KFC Coop prior to the reorganization.
(c) Reflects the issuance of Taco Bell Membership Stock to an estimated 217
Taco Bell operators for $10 per operator.
(d) Reflects capital contribution and loan to the Unified Coop. The loan
will be evidenced by a demand note and will carry interest at a rate
equal to the cost of funds of the Taco Bell Coop, currently estimated
to be approximately 6%.
(e) Reflects short-term borrowings by the Taco Bell Coop to fund its
contribution and loan to the Unified Coop. Pursuant to the Operating
Agreement, the Taco Bell Coop is required to make additional capital
contributions and loans from time to time to the Unified Coop in
amounts necessary to fund the working capital requirements of the
purchasing program conducted for the Taco Bell Coop. The Taco Bell Coop
has received an offer from a third-party lender for a revolving line of
credit up to an amount of $5 million.
-44-
<PAGE> 50
TACO BELL NATIONAL PURCHASING COOP, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE TACO BELL
TACO BELL REORGANIZATION PRO FORMA
PRO FORMA (a) ADJUSTMENTS AS ADJUSTED
--------- -------------- -----------
<S> <C> <C> <C>
Net sales $ 104,602 $ (104,602)(b) --
Cost of goods sold 102,527 (102,527)(b) --
--------- ---------- -----------
Gross profit 2,075 (2,075) --
Selling, general and administrative expenses 1,706 (1,706)(b) --
Provision for losses on receivables 100 (100)(c) --
Equity in earnings of
the Unified Coop 269 (d) $ 269
--------- ---------- -----------
Income before patronage
dividend and income taxes 269 -- 269
Patronage dividend 162 -- 162
--------- ---------- -----------
Income before income taxes 107 -- 107
Provision for income taxes 45 -- 45
--------- ---------- -----------
Net income $ 62 -- $ 62
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- --------
(a) Taco Bell Pro Forma represents historical information formerly included
in the results of operations of the KFC Coop, but attributable to
operations of the Taco Bell concept.
(b) To eliminate sales, cost of sales and selling, general and
administrative expenses. These activities will be performed by the
Unified Coop after the Corporate Reorganization.
(c) To eliminate provision for losses on receivables from operators and
distributors of the Taco Bell concept. The provision will be recognized
by the Unified Coop after the Corporate Reorganization.
(d) The Taco Bell Coop will recognize it share of earnings of the Unified
Coop utilizing the equity method of accounting.
-45-
<PAGE> 51
TACO BELL NATIONAL PURCHASING COOP, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE TACO BELL
TACO BELL REORGANIZATION PRO FORMA
PRO FORMA (a) ADJUSTMENTS AS ADJUSTED
------------ -------------- ------------
<S> <C> <C> <C>
Net sales $ 109,361 $ (109,361)(b) --
Cost of goods sold 107,228 (107,228)(b) --
------------ ------------- ------------
Gross profit 2,133 (2,133) --
Selling, general and administrative expenses 1,790 (1,790)(b) --
Equity in earnings of
the Unified Coop 343 (c) $ 343
------------ ------------- ------------
Income before patronage
dividend and income taxes 343 -- 343
Patronage dividend 228 228
------------ ------------- ------------
Income before income taxes 115 -- 115
Provision for income taxes 39 39
------------ ------------- ------------
Net income $ 76 -- $ 76
============ ============= ============
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ---------
(a) Taco Bell Pro Forma represents historical information formerly included
in the results of operations of the KFC Coop, but attributable to
operations of the Taco Bell concept.
(b) To eliminate sales, cost of sales and selling, general and
administrative expenses. These activities will be performed by the
Unified Coop after the Corporate Reorganization.
(c) The Taco Bell Coop will recognize its share of earnings of the Unified
Coop utilizing the equity method of accounting.
-46-
<PAGE> 52
PIZZA HUT NATIONAL PURCHASING COOP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS
---------------------------- PIZZA HUT
MEMBERSHIP UNIFIED PRO FORMA
FEES COOP AS ADJUSTED
---------- --------- -----------
Assets
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,962 (a) $ (2,000)(c) $ 963
1 (b)
------- --------- --------
Total Current Assets 2,963 (2,000) 963
Investment in the Unified Coop 1,000 (c) 1,000
Loan Receivable from the Unified Coop 1,000 1,000
------- --------- --------
Total Assets $ 2,963 -- $ 2,963
======= ========= ========
Members' Equity:
Membership common stock $ 1 (b) $ 1
Store common stock 2,962 (a) 2,962
------- --------
Total Members' Equity $ 2,963 $ 2,963
======= ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ----------------
(a) Reflects the issuance of Pizza Hut Store Stock to an estimated 7,404
Pizza Hut stores for $400 per store. Estimated number of stores
represents traditional franchise stores as discussed in the Tricon
December 31, 1997 annual report.
(b) Reflects the issuance of Pizza Hut Membership Stock to an estimated 145
Pizza Hut operators for $10 per operator.
(c) Reflects capital contribution and loan to the Unified Coop. Pursuant
to the Operating Agreement, the Pizza Hut Coop is required to make
additional capital contributions and loans from time to time to the
Unified Coop in amounts necessary to fund the working capital
requirements of the purchasing program conducted for the Pizza Hut
Coop. The Pizza Hut Coop has received an offer from a third-party
lender for a revolving line of credit up to an amount of $5 million.
-47-
<PAGE> 53
UNIFIED FOODSERVICE PURCHASING COOP, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION ADJUSTMENTS
-------------------------------------------------------------------------------
ORGANIZATION OTHER
KFC TACO BELL PIZZA HUT COSTS ADJUSTMENT
----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,412 (a) $ 2,000 (b) $ 2,000 (c) $ 400 (d) $ (500)(e)
(400)(d)
Other current assets 184 (a) -- -- --
----------- ----------- ----------- ------------ ----------
Total Current Assets 1,596 2,000 2,000 -- (500)
Office equipment, net 833 (a) - - --
----------- ----------- ----------- ------------ ----------
Total Assets $ 2,429 $ 2,000 $ 2,000 $ -- $ (500)
=========== =========== =========== ============ ==========
Liabilities and Members' Equity
Other current liabilities $ 429 -- - -- --
Loans payable to members 1,000 (a) $ 1,000 (b) $ 1,000 (c) -- --
----------- ----------- ----------- ------------ ----------
Total current liabilities 1,429 1,000 1,000 -- --
Long-term liability -- -- -- -- $ 500 (e)
----------- ----------- ----------- ------------ ----------
Total Liabilities 1,429 1,000 1,000 -- 500
Paid in capital 1,000 (a) 1,000 (b) 1,000 (c) - --
Retained earnings -- -- - $ 400 (d) (1,000)(e)
(400)(d)
----------- ----------- ----------- ------------ ----------
Total Members' Equity 1,000 1,000 1,000 -- (1,000)
----------- ----------- ----------- ------------ ----------
Total Liabilities and Members' Equity $ 2,429 $ 2,000 $ 2,000 $ -- $ (500)
=========== =========== =========== ============ ==========
<CAPTION>
Pro Forma
Unified Coop
------------
<S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 4,912
Other current assets 184
------------
Total Current Assets 5,096
Office equipment, net 833
------------
Total Assets $ 5,929
============
Liabilities and Members' Equity
Other current liabilities $ 429
Loans payable to members 3,000
-----------
Total current liabilities 3,429
Long-term liability 500
-----------
Total Liabilities 3,929
Paid in capital 3,000
Retained earnings (1,000)
-----------
Total Members' Equity 2,000
-----------
Total Liabilities and Members' Equity $ 5,929
===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- --------
(a) Reflects capital contribution and loan from the KFC Coop in the form of
cash and assets.
(b) Reflects capital contribution and loan from the Taco Bell Coop.
(c) Reflects capital contribution and loan from the Pizza Hut Coop.
(d) Reflects contribution from Tricon to fund organization costs of the
Unified Coop which are immediately expensed.
(e) Reflects payments to Mr. Henrion under the Separation and Consulting
Agreement of $500,000 assuming that such payment is made on the
Closing Date, the earliest date possible in accordance with the
Agreement, and $456,300 in January 2000 along with health insurance
coverage for 10 years.
-48-
<PAGE> 54
UNIFIED FOODSERVICE PURCHASING COOP, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS UNIFIED
----------------------------- COOP
KFC TACO BELL PRO FORMA (c)
---------- ----------- ---------
<S> <C> <C> <C>
Net sales $ 263,347 (a) $ 104,602 (a) $ 367,949
Cost of goods sold 255,449 (a) 102,527 (a) 357,976
---------- ----------- ----------
Gross profit 6,898 2,075 9,973
Selling, general and administrative expenses 4,770 (a) 1,706 (a) 6,476
Provision for losses on receivables 342 (b) 100 (b) 442
---------- ----------- ----------
Net income $ 2,786 $ 269 $ 3,055
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ----------
(a) To record sales, cost of sales and selling, general and administrative
expenses of the respective concept. These items were formerly included
in the results of operations of the KFC Coop.
(b) To record provision for losses on receivables from operators and
distributors of the respective concepts. The provision is recognized by
the Unified Coop along with the associated revenues.
(c) Unified Coop Pro Forma column does not include any pro forma
adjustments related to historical activity of Tricon's Supply Chain
Management, Tricon's internal purchasing division.
-49-
<PAGE> 55
UNIFIED FOODSERVICE PURCHASING COOP, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE REORGANIZATION
ADJUSTMENTS UNIFIED
-------------------------- COOP
KFC TACO BELL PRO FORMA (c)
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 345,388 (a) $ 109,361 (a) $ 454,749
Cost of goods sold 335,068 (a) 107,228 (a) 442,296
---------- ---------- ----------
Gross profit 10,320 2,133 12,453
Selling, general and administrative expenses 6,083 (a) 1,790 (a) 7,873
Provision for losses on receivables 175 (b) 175
---------- ---------- ----------
Net income $ 4,062 $ 343 $ 4,405
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
- ---------
(a) To record sales, cost of sales and selling, general and administrative
expenses of the respective concept. These items were formerly included
in the results of operations of the KFC Coop.
(b) To record provision for losses on receivables from KFC operators and
distributors. The provision is recognized by the Unified Coop along
with the associated revenues.
(c) Unified Coop Pro Forma column does not include any pro forma
adjustments related to historical activity of Tricon's Supply Chain
Management, Tricon's internal purchasing division.
-50-
<PAGE> 56
WHERE YOU CAN FIND MORE INFORMATION
The KFC Coop files reports, proxy statements and other information with
the Commission under the Exchange Act. You may read and copy this information at
the following locations of the Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
This Commission also maintains an Internet world wide web site that
contains reports, proxy statements and other information about issuers, like the
KFC Coop, who file electronically with the Commission. The address of that site
is http://www.sec.gov.
This Offer is accompanied by a copy of the Proxy Statement delivered to
all shareholders of the KFC Coop in connection with the Special Meeting of KFC
Coop Members, to be held on February 26, 1999.
-51-
<PAGE> 57
REGULATORY APPROVAL
The KFC Coop is not aware of (a) any license or regulatory permit that
is material to its business that might be adversely affected by its acquisition
of shares of KFC Coop Membership Stock or KFC Coop Store Stock as contemplated
in the Offer or (b) any approval or other action by any government or
governmental, administrative or regulatory authority or agency, domestic or
foreign, that would be required for the KFC Coop's acquisition or ownership of
such shares pursuant to the Offer. On advice from counsel, the parties involved
in the Corporate Reorganization have determined that the transactions
contemplated by the Corporate Reorganization are exempt from the notice filing
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. Should any such approval or other action be required, the KFC Coop will
seek such approval or other action. The KFC Coop cannot predict whether it may
determine that it is required to delay the acceptance for exchange of shares of
KFC Coop Membership Stock and KFC Coop Store Stock tendered pursuant to the
Offer pending the outcome of any such matter. There can be no assurance that any
such approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in adverse consequences to the KFC Coop's
business.
FEES AND EXPENSES
The KFC Coop has not retained any dealer-manager or similar agent in
connection with the Offer and will not pay any fees or commissions to any
broker, dealer, commercial bank, trust company or other person for soliciting
shares of KFC Coop Membership Stock and KFC Coop Store Stock pursuant to the
Offer. No broker, dealer, commercial bank or trust company has been authorized
to act as an agent for the KFC Coop for the purposes of the Offer.
MISCELLANEOUS
The Offer is not being made to, nor will the KFC Coop accept tenders
from or on behalf of, owners of shares of KFC Coop Membership Stock and KFC Coop
Store Stock in any jurisdiction in which the making of the Offer or its
acceptance would not be in compliance with the laws of such jurisdiction. The
KFC Coop is not aware of any jurisdiction where the making of the Offer or the
tender of such shares would not be in compliance with applicable law. If the KFC
Coop becomes aware of any jurisdiction where the making of the offer or the
tender of such shares is not in compliance with any applicable law, the KFC Coop
will make a good faith effort to comply with such law. If, after such good faith
effort, the KFC Coop cannot comply with such law, the Offer will not be made to
(nor will tenders be accepted from or on behalf of) the holders of shares of KFC
Coop Membership Stock and KFC Coop Store Stock residing in such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the KFC Coop or Taco Bell Coop not contained in this
Offer or in the Letter of Transmittal and, if given or made, such information or
representations must not be relied upon as having been authorized.
-52-
<PAGE> 58
"Taco Bell," "Pizza Hut," and "KFC" are registered trademarks of Taco
Bell Corporation, Pizza Hut, Inc., and KFCC, respectively, and are used in these
materials for identification purposes only. The KFC Coop is an independent
provider of products and is not affiliated with Taco Bell Corporation, Pizza Hut
Inc., or KFCC, except that KFCC is a Member of the KFC Coop.
-53-
<PAGE> 59
APPENDIX A
BYLAWS
OF
TACO BELL NATIONAL PURCHASING COOP, INC.
ARTICLE I
Offices and Business Purpose
1.1 Registered Office. The address of the registered office of Taco
Bell National Purchasing Coop, Inc. (the "Coop") shall be 1209 Orange Street,
Wilmington, Delaware, until altered as provided by law.
1.2 Principal Office. The principal office of the Coop shall be in
Louisville, Kentucky until altered by the Board of Directors.
1.3 Other Offices. The Coop may maintain other offices within or
without the state where its registered and principal offices are located, as the
Board of Directors may from time to time establish.
1.4 Business. The Coop shall conduct a purchasing program for its
members through the Unified FoodService Purchasing Coop, LLC, a Kentucky limited
liability company, (the "Unified Coop") and otherwise in order to provide its
members and Taco Bell operators with the lowest possible store delivered costs
for food, packaging and supplies, and related services ("Goods") and equipment
and related services ("Equipment").
ARTICLE II
Stockholder Members
2.1 Stockholder Eligibility.
(a) As used in these Bylaws,
(i) the term "non-traditional retail outlet" means an
outlet with more than one of the following characteristics: (A) a ten year or
shorter license, (B) a limited menu, (C) sales from a kiosk or other
transportable unit, (D) sales from a segregated food service area at a location
in a facility (such as an airport, athletic stadium, university or school)
established for a primary purpose other than selling food for reasonably
immediate consumption, (E) anticipated sales volume less than anticipated sales
volume for a traditional unit, (F) sales in conjunction with sales of another
food concept, or (G) such other characteristics as the Board of Directors may
determine are indicative of a non-traditional retail outlet;
(ii) "traditional retail outlet" means all retail
outlets other than "non-traditional retail outlets";
A-1
<PAGE> 60
(iii) "total number...of retail outlets" means the
total number of traditional retail outlets, plus one-half rounded up to the
nearest even number of the total number of non-traditional outlets; and
(iv) the term "franchise" includes licenses where
appropriate in the context.
(b) The following persons, firms or entities shall be eligible
to be stockholders in the Coop: (i) each sole proprietor, partnership,
corporation or other entity who is or becomes a direct or indirect Taco Bell
franchisee or licensee of Taco Bell Corp., a California corporation, or its
successors, assigns, affiliates, or related companies, (ii) Taco Bell Corp., and
its respective successors as operators of Taco Bell outlets, and (iii) Taco Bell
Franchise Management Advisory Council, a Nevada nonprofit organization
(FRANMAC).
(c) Only persons, firms or entities which own of record a
share of the Coop's Membership Common Stock shall be eligible to purchase shares
of the Coop's Store Common Stock; provided however, that no licensee is eligible
to be a stockholder in the Coop unless (i) the licensee is also a franchisee or
(ii) owns and operates twenty five (25) or more nontraditional retail outlets.
(d) KFC National Purchasing Cooperative, Inc. (the "KFC Coop")
is authorized to purchase shares of the Coop's Membership Common Stock and Store
Common Stock, in order to facilitate the initial organization of the Coop and in
order to facilitate the split-off transaction contemplated by the Agreement and
Plan of Corporate Separation, entered into between the KFC Coop, the Coop, and
the members of the KFC Coop who are the holders of the KFC Coop's Series O and P
membership common stock that agree to the Agreement and Plan of Corporate
Separation and tender their shares of KFC Coop membership common stock and KFC
Coop store common stock.
2.2 Stockholder Membership Requirements. Each person, firm or entity
which is eligible to be a stockholder member in the Coop shall be a stockholder
member in the Coop when and if that person, firm or entity (a) purchases one
share of the Coop's Membership Common Stock, (b) purchases that number of shares
of the Coop's Store Common Stock which equals the total number of Taco Bell
retail outlets located in all states of the United States and the District of
Columbia (collectively, the "United States") owned and operated by such person,
firm or entity, and (c) agrees to abide by the terms and commitments set forth
in these Bylaws as amended from time to time. If a person, firm, or entity which
is eligible to be a stockholder member in the Coop does not purchase that number
of shares of the Coop's Store Common Stock which equals the total number of Taco
Bell retail outlets located in the United States owned and operated by such
person, firm, or entity, then such person, firm, or entity shall not be entitled
to vote on any matters submitted to stockholder members nor receive patronage
dividends from the Coop as provided in Article IX. If a stockholder member at
any time becomes an owner and operator of additional Taco Bell retail outlets
within the United States, he shall purchase one
A-2
<PAGE> 61
additional share of Store Common Stock for each such additional traditional
retail outlet or for each additional two non-traditional retail outlets as the
case may be.
2.3 Multiple Franchises. No person, firm or entity shall be entitled to
own, directly or indirectly, beneficially or of record, an interest in more than
one (1) share of the Coop's Membership Common Stock (the "Base Share")
regardless of the number of Taco Bell retail outlets owned and operated by such
person, firm or entity, excluding (a) any interest which any franchisee may have
in the share of the Coop's Series A Membership Common Stock held by FRANMAC and
(b) any interest which any franchisee may have in a share of the Coop's
Membership Common Stock (i) held by a person, firm or entity in which the
franchisee owns 50% or less in the aggregate of the outstanding ownership
interests, and (ii) with respect to which the franchisee refrains from voting or
participating in the voting of the share of Membership Common Stock. Where more
than one (1) person, firm or entity are designated as franchisees of one (1) or
more retail outlets, such persons, firms or entities shall be considered as a
single person, firm or entity for stockholder purposes. The person, firm or
entity who owns more than 50% in the aggregate of the outstanding ownership
interest of the person, firm or entities owning and operating a Taco Bell retail
outlet shall be, unless such person designates otherwise, the person, firm or
entity entitled to own the share of Membership Common Stock representing such
franchise operation. Where no person, firm or entity owns more than 50% in the
aggregate of the outstanding ownership interests of the person, firm or entity
owning and operating a Taco Bell retail outlet and none of such persons, firms
or entities own, directly or indirectly, an interest in a share of Membership
Common Stock of the Coop, such persons, firms or entities shall be entitled to
designate the person, firm or entity from among themselves who shall be entitled
to own the share of Membership Common Stock.
2.4 Divisions of Membership Common Stock into Series.
(a) Each stockholder member other than Taco Bell Corp. and
FRANMAC shall be entitled to purchase one share of Membership Common Stock of
one of the following series set forth in Column 1 below, but only if such
stockholder member owns or operates, or pursuant to Section 2.3 hereof, is
deemed to own or operate, a Taco Bell retail outlet in one or more of the areas
("Areas") set forth in the corresponding line(s) of Column 2 below:
<TABLE>
<CAPTION>
Column 1 Column 2
-------- --------
<S> <C>
Series Area
------ ----
C Zones 1, 2, and 3
D Zones 4, 5, and 6
E Zones 7, 8, and 9
F Zones 10, 11, and 12
G Zones 13, 14, and 15
</TABLE>
A-3
<PAGE> 62
The Zones ("Zones") in Column 1 below include the regions set forth in
the corresponding line(s) of Column 2 below:
<TABLE>
<CAPTION>
Column 1 Column 2
-------- --------
<S> <C>
Zone Region
---- ------
1 Alaska, Hawaii, Idaho - Northern, Montana, Oregon
and Washington
2 California - Northern area
3 California - Los Angeles area (North of Interstate
10) and Nevada
4 California - Los Angeles area (South of Interstate
10 across to Interstate 15, down to San Diego
County line)
5 Arizona and California - San Diego
6 Colorado, New Mexico, Utah, Wyoming and Idaho -
Southern
7 Iowa, Kansas, Minnesota, Nebraska, North Dakota,
South Dakota, Wisconsin and Michigan (west of Lake
Michigan)
8 Oklahoma, Texas, Arkansas - West half (Ft. Smith
and Russellville areas) and Louisiana - Shreveport
area
9 Illinois and Missouri
10 Alabama, Mississippi, Arkansas - East half
(excludes Ft. Smith and Russellville areas),
Louisiana - Excluding Shreveport area and Tennessee
- Southwest (Memphis and Jackson areas)
11 Florida and Georgia
</TABLE>
A-4
<PAGE> 63
<TABLE>
<S> <C>
12 North Carolina, South Carolina and Tennessee - East
(Chattanooga, Knoxville, and Oakridge/Harriman
areas)
13 Indiana, Kentucky, Michigan (excluding areas
west of Lake Michigan) and Ohio
14 Delaware, Maryland, Pennsylvania, Virginia, West
Virginia and New Jersey - Southern (Philadelphia
DMA)
15 Connecticut, Maine, Massachusetts, New Hampshire,
New Jersey - Northern, New York, Rhode Island and
Vermont
</TABLE>
The Board of Directors may from time to time adjust the Areas so as to
conform to modifications in regional zones designated by FRANMAC from time to
time for purposes of FRANMAC governance and administration.
The Series of Membership Common Stock to be issued shall be designated
by the stockholder member, or in the absence of such designation, by the Coop.
(b) FRANMAC and Taco Bell Corp. shall be entitled to purchase
one (1) share of one of the Series of Membership Common Stock set forth below
opposite its name:
Stockholder Member Series
------------------ ------
FRANMAC A
Taco Bell Corp. B
(c) No person, firm or entity shall be entitled to purchase
any of the Series H through Series Z shares of Membership Common Stock.
2.5 Mandatory Redemptions; Restrictions on Transfers; Prohibition of
Dividends.
(a) Unless otherwise prohibited by law, the Coop shall
promptly redeem shares of Membership Common Stock held by persons, firms or
entities who no longer qualify as members. The redemption price for each share
of Membership Stock shall be Ten Dollars ($10.00), which shall be payable in
cash, except that, if the Coop shall be prohibited by law from redeeming such
share in cash because such payment would impair the capital of the Coop or
otherwise, the Coop shall in lieu thereof issue to the holder of such share a
non-interest bearing promissory note payable whenever the Coop shall no longer
be prohibited by law from making such payment. The Membership Common Stock may
not be sold, transferred, pledged,
A-5
<PAGE> 64
mortgaged, gifted, or hypothecated to any third party, either voluntarily or by
operation of law, and such restrictions shall be noted on all Membership Common
Stock certificates.
(b) The Store Common Stock may not be sold, transferred,
pledged, mortgaged, gifted, or hypothecated to any third party, either
voluntarily or by operation of law, and such restrictions will be noted on all
Store Common Stock certificates. The Coop may from time to time purchase shares
of its Store Common Stock if the stockholder does not or no longer owns or
operates Taco Bell retail outlets with respect to the share to be purchased by
the Coop. If the Coop purchases shares of its Store Common Stock as provided in
this Section 2.5(b), the purchase price paid by the Coop for a share of Store
Common Stock shall be the same as the price the stockholder member paid to
acquire the share of Store Common Stock.
(c) No dividends, other than "patronage dividends" as provided
in Section 9 of the Bylaws, shall be declared, accrued, or paid on any class of
stock of the Coop.
2.6 Purchase Commitment. Each stockholder member shall purchase
virtually all Goods and Equipment for use in the stockholder member's retail
outlets through the purchasing programs of the Unified Coop and the Coop.
"Virtually all" with respect to Goods and Equipment means all Goods and
Equipment except Goods and Equipment:
(a) Where the Unified Coop or the Coop agrees in advance in
writing that the stockholder member need not purchase the particular item or
category of Goods or Equipment through the purchasing programs of the Unified
Coop;
(b) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is impractical,
with notice given as soon as possible), with respect to a specific item or
category of Goods or Equipment for specific retail outlets that (i) the Unified
Coop is unable to meet the member's required volume of supply for the particular
Goods or Equipment, or (ii) the Unified Coop is unable to meet previously
established quality standards with respect to particular Goods or Equipment;
(c) Where the stockholder member determines in good faith,
after written notice to the Unified Coop (or if prior notice is impractical,
with notice given as soon as possible), that the Unified Coop's purchasing
policies or procedures with respect to the particular item or category of Goods
or Equipment present a material business risk to the member, which the member is
unwilling to assume, because of the Unified Coop's volume, hedging or similar
commitments, arrangements or policies; or
(d) Purchased after the termination of the stockholder
member's membership in the Coop.
2.7 Liquidation Rights. In the event of any dissolution or liquidation
of the Coop or other disposition of its assets, after payment of all debts and
liabilities of the Coop and payment of Ten Dollars ($10.00) per share to holders
of Membership Common Stock, the remaining assets of the Coop shall be
distributed to the holders of Store Common Stock on a cooperative
A-6
<PAGE> 65
basis, that is, the Coop shall return to such stockholder members the face
amount of outstanding patronage equities and distribute the remaining assets to
such stockholder members on the basis of their past Patronage insofar as such
distribution is practicable.
ARTICLE III
Meetings of Stockholder Members of the Coop
3.1 Annual Meeting of Stockholder Members. An annual meeting of
stockholder members of the Coop shall be held each year at a time and place
selected by the Board of Directors.
3.2 Notice of Annual Meeting. Written notice of the time and place of
the annual meeting shall be mailed to stockholder members entitled to vote as
shown by the records of the Coop not less than twenty (20) nor more than sixty
(60) days prior to the meeting which notice shall state the place, date and hour
of the meeting.
3.3 Delayed Annual Meeting. If, for any reason, the annual meeting of
the stockholder members shall not be held on the day designated, such meeting
may be called and held as a special meeting, and the same proceedings may be had
at such meeting as at an annual meeting and the notice of such meeting shall be
the same as required for the annual meeting.
3.4 Special Meetings of Stockholder Members. Special meetings of the
stockholder members may be called at any time by the Chairman of the Board of
Directors, President or by three-eighths (3/8) of the voting members of the
Board of Directors, upon not less than twenty (20) nor more than sixty (60) days
written notice which shall state the place, date, hour and purpose or purposes
of the meeting.
3.5 Waiver of Notice by Attendance. Attendance at a meeting, whether
annual or special, shall be a waiver of notice, unless attendance is expressly
for the purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
3.6 Quorum. Presence in person or by proxy of stockholder members
representing a majority of the stockholder members entitled to vote at such
meeting shall constitute a quorum at such meeting. A quorum shall not be lost by
the departure of stockholder members before adjournment.
3.7 Who Entitled to Vote; Proxies. Each stockholder member owning a
share of the Coop's Membership Common Stock shall be entitled to one (1) vote in
person or by proxy upon each matter on which such stockholder member is entitled
to vote. Proxies shall be valid only if signed by the stockholder member, dated
and filed with the Secretary of the Coop prior to or at the meeting in which it
is given. No proxy shall be irrevocable and any proxy may be revoked at any time
in writing or in person at the meeting for which it was given. No Proxy shall be
voted or acted upon after one (1) year from its date.
A-7
<PAGE> 66
3.8 Majority Vote. Except as otherwise provided in these Bylaws or
required by law, the affirmative vote of a majority of the stockholder members
present in person or by proxy at a meeting at which a quorum is in attendance
shall be necessary to decide in favor of any matter properly submitted to the
meeting.
3.9 Disputes. Any dispute as to the voting rights of stockholder
members shall be submitted to the Secretary of the Coop to be decided upon by
the Chairman of the Board of Directors, or, in his absence, the Vice-Chairman
with the stockholder member whose voting rights are in issue having the right to
appeal this decision to the Board of Directors.
3.10 Organization of Meetings. The Chairman of the Board of Directors,
or the Vice-Chairman, if the Chairman is not present, and the Secretary of the
Coop shall act as chairman and secretary, respectively, at all meetings of
stockholder members of the Coop.
ARTICLE IV
Board of Directors
4.1 General.
(a) The property and affairs of the Coop shall be managed by a
governing body to be known as the Board of Directors. The Board of Directors
shall be composed of eight (8) persons who shall be nominated and elected and
shall serve for terms as hereinafter provided.
(b) The Secretary of the Coop shall notify stockholder members
in writing no later than seventy-five (75) days prior to the annual meeting of
stockholder members of the date of such meeting. Such notice shall advise them
that nominations for members of the Board of Directors whose terms will expire
at such meeting must be submitted to the Secretary in writing not later than
sixty (60) days prior to the meeting date. Such notice shall specify the names
of any nominees nominated by the Nominating Committee appointed by the Board of
Directors as provided in Section 4.1(k) below. Such notice shall also specify
the names of directors whose terms are expiring and the names of directors who
have resigned, died, or otherwise been removed from office since the last annual
meeting of stockholder members, and shall identify the Series of Membership
Common Stock entitled to elect successors to such directors. Each nomination
submitted to the Secretary shall be accompanied by a statement signed by the
nominee that he will serve in such capacity if elected. The Nominating Committee
may nominate not more than one person to serve as a director to represent each
of the Series C through G shares of Membership Common Stock. Each stockholder
member other than Taco Bell Corp. may nominate not more than one person to serve
as the director who may be elected by the Series of Membership Common Stock held
by such stockholder member. Taco Bell Corp. may nominate two persons to serve as
the directors who may be elected by the series of Membership Common Stock held
by it.
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(c) Each of Series A and Series C, D, E, F, and G shall be
entitled to elect, as a series, one member of the Board of Directors, and Series
B shall be entitled to elect, as a series, two members of the Board of
Directors.
(d) The President of the Unified Coop shall serve as a
non-voting ex-officio member of the Board of Directors.
(e) With the exception of the President of the Unified Coop,
all directors of the Coop must be stockholder members of the Coop or an officer,
shareholder, employee or partner of an entity which is a stockholder member of
the Coop. Each director must be a member or an officer, director, shareholder,
employee or partner of the organization which is entitled to vote for such
director.
(f) All voting directors of the Coop shall be divided into two
classes, designated Class I and Class II. Such classes shall include four (4)
voting directors, with the term of office of one class expiring each year. The
Board of Directors shall by majority vote designate which series of membership
shall elect directors within Class I and II, respectively, but by such
designations may not shorten the term of any director.
(g) No person shall hold more than one (1) seat on the Board
of Directors at any one time. Except for the holder of the Series B Membership
Common Stock which is entitled, as a series, to elect two (2) members of the
Board of Directors, not more than one (1) person affiliated with any stockholder
member may hold a seat on the Board of Directors.
(h) The initial Class I directors shall hold office for a term
commencing with the adoption of these Bylaws and expiring at the annual meeting
next ensuing and until their successors are elected and take office. The initial
Class II directors shall hold office for a term commencing with the adoption of
these Bylaws and expiring at the second annual meeting thereafter and until
their successors are elected and take office. The successors to the initial
Class I and Class II directors shall each be elected for terms commencing as of
the date of their election and continuing until the third annual meeting of
stockholder members thereafter and until their respective successors are duly
elected and qualified.
(i) Whenever any member of the Board of Directors ceases to
fulfill the eligibility requirements of this Section 4.1, his membership on the
Board of Directors shall automatically terminate and the vacancy so created
shall be filled in the manner prescribed in Section 4.2.
(j) Notwithstanding any limitation on the number of persons
who may serve as members of the Board of Directors provided for in Section
4.1(a) hereof, the Board of Directors may, from time to time, by resolution
provide for one or more non-voting members of the Board of Directors to serve at
the pleasure and upon such terms and conditions as the Board of Directors may by
resolution provide.
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(k) The Board of Directors shall appoint a fifteen member
Nominating Committee whose members must be shareholder members and whose members
may but are not required to be members of the board of directors of FRANMAC or
members of the Coop's Board of Directors. The Nominating Committee shall consist
of three members from each of the five Areas described in section 2.4. The
purpose of the Nominating Committee shall be to consider and make nominations of
eligible persons for election as members of the Board of Directors representing
Series C through G shares of Membership Common Stock. The three members of the
Nominating Committee from each Area shall select the nominee for that Area.
4.2 Vacancies. Except as herein provided, all vacancies on the Board of
Directors shall be filled by the Board of Directors. In filling any vacancy, the
Board of Directors shall seek the advice and counsel of the holder or holders of
the Series of stock who are entitled, as a Series, to elect the director whose
position became vacant. All vacancies shall be filled as soon as practicable;
however, the Board need not fill a vacancy if the holder or holders of the
Series of Membership Common Stock who are entitled, as a Series, to elect the
director whose position became vacant decline (a) to provide the Board with
advice and counsel concerning the filling of the vacancy, or (b) to nominate a
person to fill a vacancy, however created, at any annual or special meeting of
the stockholders at which an election of directors occurs. For purposes of this
Article IV, the number of voting members of the Board shall not include from
time to time the number of vacancies on the Board. The Board of Directors shall
not fill a vacancy with respect to the Series A or Series B share of Membership
Common Stock without specific direction and the consent respectively of FRANMAC
and Tricon.
Directors elected as hereinabove provided in this Section 4.2 shall
serve until the next annual meeting of stockholder members, at which time the
holders of the Series of Membership Common Stock who elected the director whose
position became vacant shall be entitled to elect a successor who shall serve
for the remainder, if any, of the term of the director who shall have resigned,
died or otherwise been removed from office.
The person elected to fill a vacancy must fulfill the eligibility
requirements for the position of the director whose position became vacant.
4.3 Quorum. Three-fourths (3/4) of the voting members of the Board of
Directors shall constitute a quorum.
4.4 Annual Meeting. The Board of Directors shall hold its annual
meeting in each calendar year at such time and place as the Board shall
designate to elect its Chairman and Vice-Chairman, to elect the officers of the
Coop for the ensuing year and to transact any other business.
4.5 Other Meetings. Other meetings of the Board of Directors may be
called by the Chairman, President or three-eighths (3/8) of the voting members
of the Board of Directors at any time by means of written notice by mail of the
time, place and purpose thereof to each member of the Board of Directors, as the
Chairman, the President or three-eighths (3/8) of the voting members of the
Board of Directors shall deem sufficient, but action taken at any such
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meeting shall not be invalidated for want of notice if such notice shall be
waived as hereinafter provided.
4.6 Waiver of Notice. Notice of the time, place and purpose of any
meeting of the Board of Directors may be waived by telegram, radiogram,
cablegram, or other writing either before or after such meeting has been held.
Attendance at a meeting shall constitute a waiver of notice, unless attendance
is expressly for the purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened.
4.7 Removal of Members of the Board of Directors. The Board of
Directors may, upon the affirmative vote of at least two-thirds (2/3) of all
stockholder members (including the vote of FRANMAC with respect to the director
representing the Series A and Tricon with respect to a director representing the
Series B share of Membership Common Stock) at any time determine that any member
of the Board of Directors shall be removed from the Board of Directors for
cause. Upon such a vote of stockholder members, the Board of Directors shall
give such director written notice of removal for cause.
4.8 Voting. The affirmative vote of three-fourths (3/4) of all voting
members of the Board of Directors shall, except as otherwise specifically
provided in these Bylaws, be the act of the Board of Directors on any matter
properly submitted to the Board of Directors. Members of the Board of Directors
may participate in a meeting of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation in a
meeting shall constitute presence in person at such meeting. Upon the demand of
a majority of the voting members of the Board of Directors participating in a
meeting, the voting upon any question before the meeting shall be by secret
ballot. The President shall not be entitled to vote on matters brought before
the Board of Directors.
4.9 Chairman and Vice-Chairman.
(a) The Chairman of the Board of Directors shall be the member
of the Board of Directors elected from time to time by FRANMAC as the holder of
the Series A share of Membership Common Stock unless the Board of Directors by a
unanimous vote of all members shall elect another member as Chairman. The Board
of Directors shall at each annual meeting elect by the affirmative vote of
three-fourths (3/4) of the entire Board of Directors a Vice-Chairman. The
Chairman and Vice-Chairman shall each serve until the next annual meeting of the
Board of Directors and until his successor is duly elected and qualified.
Neither the Chairman nor the Vice-Chairman may be directors elected by the
Series B share of Membership Common Stock.
(b) The duties of the Chairman shall be to preside at all
meetings of the Board of Directors and stockholder members. The Chairman shall
oversee the President in his assigned duties as established and authorized by
the Board of Directors. The Chairman shall have the power to execute in the name
of the Coop any authorized corporate obligation or other instru-
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ment and shall perform all acts incident to the Office of Chairman or Directors.
In the absence of the Chairman or his inability to perform, the Vice-Chairman
shall assume his duties.
4.10 Meetings: Chairman and Secretary. At all meetings of the Board of
Directors, the Chairman, or in his absence, the Vice-Chairman, shall act as
chairman of the meeting and the Secretary of the Coop shall act as secretary,
except that if any one of them shall be absent, a chairman or secretary, or
both, may be chosen at the meeting.
4.11 Compensation and Expenses. All members of the Board of Directors
shall serve without compensation. Reasonable expenses of members of the Board of
Directors attending regular and called meetings shall be reimbursed by the Coop,
provided, that such expenses are not in excess of the actual cost of traveling
from and returning to the member's home city, lodging, meals and other
reasonable and necessary expenses. The Board of Directors shall also reimburse
members of the Board of Directors and others for their reasonable expenses of
attending seminars or other events at the direction of the Board of Directors.
4.12 Unified Coop. The Coop shall appoint the Chairman and one other
member of the Board of Directors as members of the Unified Coop's Board of
Directors. The Coop shall not appoint a member to the Unified Coop's Board of
Directors who is a designee, employee, or agent of Tricon Global Restaurants,
Inc. ("Tricon"), a Tricon controlled affiliate, or a Tricon subsidiary.
ARTICLE V
Officers
5.1 Executive Officers. The Board of Directors shall elect a President,
a Secretary and a Treasurer, and may elect one or more Vice-Presidents and such
other officers and assistant officers, as the Board of Directors may, from time
to time, determine are necessary to manage the affairs of the Coop. Any one
person, except as forbidden by law, may be elected to more than one office. Any
person elected to office shall hold his office as such for a one (1) year period
and until his successor shall have been elected and shall have accepted office,
unless prior thereto such person resigns or is removed from office. The
President shall at all times be subject to dismissal by the Board of Directors
by the affirmative vote of three-fourths (3/4) of all voting members of the
Board of Directors. Any meeting of the Board of Directors for the purpose of
considering the dismissal of the President may be called upon not less than
twenty (20) days nor more than sixty (60) days prior written notice which notice
shall state the place, date, hour and purpose of the meeting. The other officers
shall at all times be subject to dismissal by the President or the Board of
Directors.
5.2 Vacancies. Any vacancy in any office shall be filled by the Board
of Directors.
5.3 Powers and Duties of the President. The President shall be the
President and Chief Executive Officer of the Coop and, subject to the control of
the Board of Directors, shall
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have general charge of its business and supervision of its affairs. He shall
keep the Board of Directors fully informed and freely consult with it in regard
to the business of the Coop, and make due reports to it and to the stockholder
members. The President shall have the power to execute in the name of the Coop
any authorized corporate obligation or other instruments. The President shall
also have such other powers and duties as are incident to his office and not
inconsistent with these Bylaws, or as may at any time be assigned to him by the
Board of Directors.
5.4 Powers and Duties of Vice-Presidents. The Board of Directors may
elect one (1) or more Vice-Presidents who shall have the powers and duties
incident to their office and shall perform such duties as may at any time be
assigned to them by the Board of Directors or the President.
5.5 Powers and Duties of the Treasurer. The Treasurer, subject to the
control of the Board of Directors and together with the President, shall have
general supervision of the finances of the Coop. He shall have the care of, and
be responsible for, all monies, securities, evidences of value and corporate
instruments of the Coop, and shall supervise the officers and other persons
authorized to bank, handle and disburse its funds, informing himself as to
whether all deposits are or have been duly made and all expenditures duly
authorized and evidenced by proper receipts and vouchers. He shall cause full
and accurate books to be kept, showing the transactions of the Coop, its
accounts, assets, liabilities and financial condition, which shall at all
reasonable times be open to the inspection of any member of the Board of
Directors, and he shall make due reports to the Board of Directors and the
stockholder members, and such statements and reports as are required of him by
law. The Treasurer shall have such other powers and duties incident to his
office and not inconsistent with these Bylaws, or as may at any time be assigned
to him by the Board of Directors.
5.6 Powers and Duties of the Secretary. The Secretary shall cause to be
entered in the minute books the minutes of all meetings of the Board of
Directors and annual and other meetings of the stockholder members; shall have
charge of the seal of the Coop and all other books and papers pertaining to his
office, and shall be responsible for giving of all notices, and the making of
all statements and reports required of the Coop or of the Secretary by law. The
Secretary shall affix the corporate seal, attested by his signature, to all
instruments duly authorized and requiring the same. The Secretary shall have
such other powers and duties incident to his office and not inconsistent with
these Bylaws, or as may at any time be assigned to him by the Board of
Directors.
5.7 Assistant Treasurers and Assistant Secretaries. Any Assistant
Treasurers and Assistant Secretaries elected shall perform such duties as may
properly be assigned to them by the executive officers of the Coop, and shall
have such powers and duties, including all the powers and duties of their
principals in the event of the absence of such principals from any place in
which the business in hand is to be done, and as may at any time be assigned to
them by the Board of Directors.
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5.8 Other Officers. The Board of Directors shall prescribe the powers
and duties of any other officer or officers of the Coop.
5.9 Salaries. The salary, if any, of the President of the Coop shall be
fixed by the Board of Directors. Subject to such limitations as may be fixed by
the Board of Directors from time to time, the salaries, if any, of all other
employees and officers of the Coop shall be fixed by the President who shall
report annually to the Board of Directors on all salary changes.
ARTICLE VI
Finance, Audit and Fiscal Year
6.1 Banking. All funds and money of the Coop shall be banked, handled
and disbursed, and all bills, notes, checks and like obligations, and
endorsements (for deposit or collection) shall be signed by such officers and
other persons as the Board of Directors shall from time to time designate, who
shall account therefor to the Treasurer as and when he may require. All money,
funds, bills, notes, checks and other negotiable instruments coming to the Coop
shall be collected and promptly deposited in the name of the Coop in such
depositories as the Board of Directors shall select.
6.2 Annual Audit. An audit by certified public accountants of the books
and records of the Coop shall be conducted annually by a firm engaged by the
Board of Directors.
6.3 Fiscal Year. The fiscal year of the Coop shall be the fiscal year
of the Unified Coop unless set otherwise by the Board of Directors.
ARTICLE VII
Indemnification
7.1 Indemnification of Officers and Directors.
(a) The Coop shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Coop) by reason of
the fact that he is or was a director, officer, employee or agent of the Coop,
or is or was serving at the request of the Coop as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Coop, and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he
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reasonably believed to be in or not opposed to the best interests of the Coop,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) The Coop shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Coop to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Coop, or is or was serving at the request of the Coop as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Coop and except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the Coop unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present and former director or
officer of the Coop has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of this
Section 7.1, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
Section 7.1 (unless ordered by a court) shall be made by the Coop only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b). Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in written opinion, or (4) by the stockholder
members.
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the Coop in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount it
shall ultimately be determined that he is not entitled to be indemnified by the
Coop as authorized in this Section 7.1. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
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(f) The indemnification and advancement of expenses provided
by, or granted pursuant to this Section 7.1 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) The Coop shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Coop, or is or was serving at the request of the Coop as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Coop would have the power to indemnify him against such
liability under the provisions of this Section 7.1.
(h) For purposes of this Section 7.1, references to the Coop
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Section 7.1 with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
(i) For purposes of this Section 7.1, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Coop" shall
include any service as a director, officer, employee or agent of the Coop which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Coop" as referred to in this Section 7.1.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 7.1 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery of the State of Delaware is hereby
vested with exclusive jurisdiction to hear and determine all actions for
advancement of expenses or indemnification brought under this Section 7.1 or
under any bylaw, agreement, vote of stockholder members or disinterested
directors, or otherwise. The Court of Chancery may summarily determine the
Coop's obligation to advance expenses (including attorneys' fees).
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(l) If so provided in the Coop's Certificate of Incorporation,
a director of the Coop shall not be personally liable to the Coop or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Coop or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
The foregoing Article 7 is derived from Sections 145 and 102 of the
General Corporation Law of the State of Delaware.
The Coop has obtained a policy of insurance under which the Coop and
its directors and officers are insured subject to specific exclusions and
deductible and maximum amounts against loss deriving from any claim which may be
made against the Coop or any director or officer of the Coop by reason of any
act done or alleged to have been done while acting in their respective
capacities.
ARTICLE VIII
Capital Stock
8.1 Certificate of Stock. Every holder of capital stock in the Coop
shall be entitled to have a certificate, signed by, or in the name of the Coop
by, the President or a Vice-President and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Coop, certifying
the number of shares owned by him in the Coop. The certificates of stock of the
Coop shall be numbered and shall be entered in the books of the Coop as they are
issued.
8.2 Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Coop alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Coop a bond in such sum as it may direct as indemnity against
any claim that may be made against the Coop with respect to the certificate
alleged to have been lost, stolen or destroyed.
8.3 Transfers of Capital Stock. Any attempted transfer, sale, pledge,
mortgage, gift, or hypothecation of shares of Membership Common Stock or Store
Common Stock other than a transfer of the shares to the Coop shall be null,
void, and without effect, and the Coop shall not make or recognize any such
transfer, sale, pledge, mortgage, gift, or hypothecation upon its books.
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8.4 Fixing Record Date. In order that the Coop may determine the
stockholder members entitled to notice of or to vote at any meeting of
stockholder members or any adjournment thereof, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
twenty (20) days prior to any other action. A determination of stockholder
members of record entitled to notice of or to vote at a meeting of stockholder
members shall apply to any adjournment of the meeting; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
8.5 Registered Stockholders. The Coop shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends and to vote, and to hold liable for calls and assessments a
person registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share of shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
Patronage Dividends
9.1 Patronage. The term "patronage" shall refer to the value of the
Coop's business with its stockholder members. Business with the Coop's
stockholder members shall include the following: (1) the Coop's direct business
with its stockholder members; (2) the Coop's business with its stockholder
members through distributors ("participating distributors") which shall have
agreed to participate in the Coop's patronage dividend program for its
stockholder members by entering into distributor participation agreements with
the Coop or the Unified Coop in such form as the President shall prescribe or
approve from time to time; (3) the Coop's business with its stockholder members
through suppliers ("participating suppliers") which shall have agreed to
participate in the Coop's patronage dividend program by entering into supplier
participation agreements with the Coop or the Unified Coop in such form as the
President shall prescribe or approve from time to time; and (4) the Coop's
business with its stockholder members pursuant to arrangements set forth in a
management agreement approved by the Board of Directors with the Unified Coop,
whereby the stockholder members purchase goods directly from the Unified Coop or
through participating distributors and participating suppliers. The term
"patronage" includes the Coop's business with its stockholder members both when
the Coop or the Unified Coop purchases (takes "Title") and resells goods to the
Coop's stockholder members and participating distributors, and when
participating suppliers sell goods directly to stockholder members and
participating distributors.
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9.2 Cooperative Basis. The Coop shall at all times be operated on a
cooperative basis for the benefit of its stockholder members. The Coop shall
always do more than ninety percent (90%) in value of its business with its
stockholder members.
9.3 Patronage Dividend Distributions.
(a) The Board of Directors shall, after considering the Coop's
anticipated expenses and need for capital and reserves, (i) obligate the Coop to
distribute patronage dividends as provided in section 1388(a)(2) of the Internal
Revenue Code of 1986, as amended (hereinafter referred to as the "IRC"), and
(ii) distribute as patronage dividends, directly to the stockholder members of
the Coop, the net income of the Coop from patronage done with or for stockholder
members computed in accordance with sections 1381-1388 of the IRC and in
accordance with the principles applied in preparation of the Coop's federal
income tax return. Specifically, the Coop shall distribute patronage dividends
to stockholder members annually on the basis of each stockholder member's
patronage. In determining the portion of the Coop's patronage dividend
obligations to be paid in cash, the Board of Directors shall consider: (1)
Expenses directly or indirectly related to the Coop's business; (2) Such
reasonable reserves for necessary corporate purposes as may from time to time be
provided by the Board of Directors for depreciation and obsolescence, state and
federal taxes, bad debts, casualty losses, insurance and other corporate and
operating charges and expenses, all established and computed in accordance with
generally accepted accounting principles; (3) Such reasonable reserves for
working capital necessary for the operation of the Coop and for deficits arising
from such operation, (including deficits from business other than business done
with or for stockholder members).
The amounts set aside for reserves in any year from gross margins of
the Coop from business other than with or for the stockholder members shall be
allocated to the extent possible, to stockholder members, on the books of the
Coop on a patronage basis for that year, or, in lieu thereof, the books or
records of the Coop shall afford a means of doing so, so that in the event of a
distribution of amounts formerly carried in reserves, each stockholder member
may receive to the extent possible, that stockholder member's pro rata share
thereof.
(b) Solely for the purpose of determining the amount of patronage
dividends distributable to a particular stockholder member of the Coop, the
Board of Directors may, by resolution, segregate the Coop's business with its
stockholder members into two distinct pools: (i) the "Title Pool," under which
shall be determined the net earnings of the Coop from business with the Coop's
stockholder members in which the Coop takes Title to goods; and (ii) the
"Non-Title Pool," under which shall be determined the net earnings of the Coop
from business with the Coop's stockholder members in which the Coop does not
take Title to goods.
The amount distributable by the Coop as patronage dividends
directly to each stockholder member of the Coop shall be based on
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(A) the ratio of
(i) the value of business done by the Coop with each
stockholder member in which the Coop takes Title to goods, to
(ii) the net earnings of the Coop in the Title Pool
attributable to business done with or for its stockholder members, plus
(B) the ratio of
(i) the value of business done by the Coop with each
stockholder member in which the Coop does not take Title to goods, to
(ii) the net earnings of the Coop in the Non-Title
Pool attributable to business done with or for its stockholder members.
(c) The patronage dividend distributions shall be paid to each
stockholder member on the basis of the quantity or value of business done with
or for each stockholder member, and the patronage dividend distributions shall
be determined by reference to the net earnings of the Coop from business done
with or for its stockholder members. The patronage dividend distributions shall
be among all stockholder members, shall be directly proportional for each
taxable year of the Coop to the purchases by each stockholder member, and so
shall be based upon each stockholder member's patronage.
9.4 Timing of Payment of Patronage Dividends. Each distribution of
patronage dividends shall be made within the payment period beginning with the
first day of a taxable year for which the Coop claims a deduction for patronage
dividends paid in the form of such distributions and ending with the 15th day of
the 9th month following the close of such taxable year.
9.5 Method and Character of Payment. The Board of Directors may, in
its discretion, determine to pay patronage dividends either all in a form that
will be treated as a deductible qualified written notice of allocation within
the meaning of section 1388(c) of the IRC, all in a form that will be treated as
a nonqualified written notice of allocation within the meaning of section
1388(d) of the IRC, or part in qualified form and part in nonqualified form. At
least twenty percent (20%) of any qualified payment of patronage dividends shall
be paid in cash or by a "qualified check" as defined in Section 1388(c)(4) of
the IRC. Subject to this limitation with respect to qualified distributions, the
Board of Directors may decide that the balance of any patronage dividend be
paid, in whole or in part, in cash, property, promissory notes or other evidence
of indebtedness, or in any other form of written notice of allocation (within
the meaning of section 1388(b) of the IRC).
9.6 Consent to Stockholder Members. Membership in the Coop by
stockholder members shall constitute a consent of each such member to include in
its gross income the amount of any patronage dividend which is paid with respect
to direct sales from the Coop, and indirect sales through participating
distributors in money, "qualified checks," "qualified written notices of
allocation" or other property (except "nonqualified written notices of
allocation" as
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defined in Section 1388(d) of the Internal Revenue Code of 1986, as amended) and
which is received by it during the taxable year from the Coop. Each stockholder
member of the Coop, through initiating or retaining its membership after
adoption of this Article IX of these Bylaws, as amended from time to time,
consents to be bound hereby. The provisions of this Article IX, as amended from
time to time, shall be a contract between the Coop and each stockholder member
as fully as though each stockholder member had signed a specific separate
instrument in which the stockholder member agreed to be bound by all of the
terms and provisions of this Article IX, as amended from time to time.
This consent, however, shall not extend to written notices of
allocation received by the stockholder member as part of a nonqualified payment
of patronage which clearly indicate on their face that they are nonqualified. By
way of illustration, the term "written notice of allocation" shall include such
items as the promissory notes, a notice or statement that such securities have
been deposited with a bank or other qualified agent on behalf of the stockholder
member, a notice of credit to the account of the stockholder member on the books
of the Coop (against stock subscription or any other indebtedness as the Coop
may elect) and such other forms of notice as the Board of Directors may
determine, distributed by the Coop in payment, or part payment of the patronage
dividends. The stated dollar amount of the promissory notes is the principal
amount thereof.
9.7 Promissory Notes. Subject only to the payment of at least twenty
percent (20%) of each stockholder member's annual patronage dividend in cash,
the Coop may pay each stockholder member all or any portion of the annual
patronage dividend in promissory notes which shall bear interest at the rate
from time to time fixed by the Board of Directors and shall mature at the time
fixed by the Board of Directors not later than five (5) years from the date of
issuance, and may be subordinated to any liabilities or obligations of the Coop,
existing, contingent or created after the date of issuance. The Coop shall have
a lien upon and a right of set off against any said promissory notes issued to a
stockholder member to secure payment of any indebtedness due the Coop or any of
its subsidiaries by the stockholder member.
9.8 Application of Patronage Dividends to Amounts Due the Coop.
Notwithstanding any of the foregoing provisions of this Article IX, the portion
of any patronage dividends which would otherwise be payable in cash under any
provision of this Article IX to a stockholder member may be applied by the Coop
to the payment of any indebtedness, the repayment of which is in default, owed
to the Coop by any such stockholder member to the extent of such indebtedness
instead of being distributed in cash, provided, however, that an amount equal to
twenty percent (20%) (or, in the case of a stockholder member located in a
jurisdiction to which the special withholding requirements of Sections 1441 or
1442 of the Internal Revenue Code of 1986, as amended, apply, thirty percent
(30%)) of the total annual patronage dividends distributable for the applicable
year to any such stockholder member shall nevertheless be paid in cash within
the period set forth in Section 9.4 if any such stockholder member so requests
in a writing received by the Coop within thirty (30) days of the first day of
the Coop's fiscal year as established under Section 6.3.
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ARTICLE X
Amendments
10.1 Amendments to Bylaws. The Board of Directors shall have the power
to adopt, amend or repeal from time to time the Bylaws of the Coop at any
regular meeting of the Board of Directors or at any special meeting of the Board
of Directors if notice of such adoption, amendment or repeal of the Bylaws be
contained in the notice of such special meeting, subject to the right of the
stockholder members to adopt, amend or repeal the Bylaws, at any regular meeting
of the stockholder members or at any special meeting of the stockholder members
if notice of such adoption, amendment or repeal of the Bylaws be contained in
the notice of such special meeting. Provided, however, that the Bylaws may not
be amended to provide that the number of voting members of the Board of
Directors which Tricon is entitled to elect as the holder of the Series B share
of Membership Common Stock or otherwise is less than twenty-five percent (25%)
of all voting directors without the approval of at least one director elected by
Tricon.
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<PAGE> 1
EXHIBIT 99(C)(1)
KFC NATIONAL PURCHASING COOPERATIVE, INC.
UNIFIED FOOD PURCHASING COOPERATIVE, LLC
Separation and Consulting Agreement
This is a Separation and Consulting Agreement (the "Agreement")
effective as of January 22, 1999 between KFC National Purchasing Cooperative,
Inc. (the "KFC Coop"), Unified FoodService Purchasing Coop, LLC (the "Unified
Coop"), a Kentucky limited liability company of which the KFC Coop is one of
three initial members, (the KFC Coop and Unified Coop shall together throughout
this Agreement be referred to as the "Coops"), and Thomas D. Henrion
("Henrion").
Recitals
A. Henrion has rendered valuable services to KFC Coop for over 18 years as
its President and Chief Executive Officer, and, in connection with that
service, previously entered into a Supplemental Benefits/Consulting
Agreement with KFC Coop effective as of January 1, 1994, which
agreement was subsequently amended by Amendment No. 1 thereto (the
"Prior Agreement").
B. The Prior Agreement was entered into to reward Henrion for his past and
continued loyalty, services and counsel to the KFC Coop and to assist
Henrion in providing for his retirement as well as for the
contingencies of death and disability. The Prior Agreement gave Henrion
the ability to consult with the KFC Coop for a substantial period
beyond any termination of his employment, and, if he elected not to
consult or cease consulting, some compensation as a supplement to
retirement savings he accumulated through KFC Coop's qualified
retirement plan.
C. In connection with a reorganization of the KFC Coop's business, the KFC
Coop expects to transfer a substantial part of its operating assets and
personnel to a new entity (Unified Coop) formed for the purpose of
creating a unified purchasing organization for operators of KFC, Taco
Bell and Pizza Hut outlets in exchange for a membership interest in
Unified Coop.
D. After the reorganization, Unified Coop, with the advice and consent of
the KFC Coop, will conduct a purchasing program for the KFC Coop
similar to that now conducted by the KFC Coop. Although various
personnel of the KFC Coop will become employed with Unified Coop, the
members of Unified Coop have concluded to employ a new chief executive
officer of the combined operations, and Henrion, by virtue of this
Agreement, agrees to sever his employment relationship with KFC Coop
shortly after a new chief executive officer is appointed, and to
provide certain consulting and other services subsequent to that
termination to allow for an orderly transition, all as provided in this
Agreement.
E. The Coops understand and acknowledge that Henrion desires to obtain new
employment after the Separation Date, and believe that their need for
his consulting services thereafter will be satisfied by services
performed upon reasonable advance notice, at reasonable times
<PAGE> 2
and places, consistent with Henrion's future employment by others.
Agreements
In respect to the mutual covenants and conditions contained herein the
parties agree as follows:
Section 1 -- Employment Separation
1.1 Separation. Henrion hereby agrees to resign as an employee,
officer and director from all positions with the Coops or any of their
subsidiaries effective at the closing of the Unified/KFC Coop formation
transactions (the "Separation Date") and the Coops hereby accept Henrion's
resignation effective as of the Separation Date.
1.2 Release. Henrion hereby releases the Coops from any and all
legal and equitable claims which he now has, or may have, arising out of his
employment with the Coops or his separation from that employment, except for (i)
any claims arising under this Agreement, and (ii) any claims for benefits due
Henrion under any employee benefit plan governed by the Employee Retirement
Income Security Act of 1974, other than those required solely under the Prior
Agreement, which is superceded by this Agreement. Henrion agrees to again
release the Coops from all such claims by signing a duplicate copy of the
release in this Section at the Separation Date.
(a) Specifically, Henrion for himself and his heirs,
executors, administrators, insurers, and assigns, irrevocably and
unconditionally releases and discharges the Coops and their present and former
agents, directors, shareholders, commissioners, officers, employees,
representatives, attorneys, divisions, parents, subsidiaries and affiliates, and
their predecessors, successors, heirs, executors, administrators and assigns
(said parties, including the Coops, referred to hereinafter as the "Releasees")
from any and all actions, causes of action, suits, debts, charges, complaints,
claims, liabilities, obligations, promises, agreements, controversies and
damages of any nature whatsoever in law or equity, whether known or unknown,
which he ever had, now has or may have had against Releasees arising out of
Henrion's employment by the Coops or Henrion's separation from the Coops, since
the beginning of time and which arose prior to the Separation Date.
(b) Claims being released, include, but are not limited
to, (1) any and all claims against Releasees arising under any federal, state or
local statutes, ordinances, resolutions, regulations or constitutional
provisions and/or common law(s) including any tort or contract claims, and
specifically including claims of discrimination in employment on the basis of
race, sex, religion, national origin, disability and/or veteran's status arising
under or pursuant to Title VII of the Civil Rights Act of 1964, as amended, 42
U.S.C. ss.2000e, et seq.; the Americans With Disabilities Act, as amended,, the
Federal Rehabilitation Act of 1973, as amended, and Executive Order 111246; (2)
any and all tort claims including, but not limited to claims of wrongful
termination, assault, battery and intentional or negligent infliction of
emotional distress and outrage, (3) any and all claims of breach of any express
or implied employment contract, and (4) any and all claims for attorneys' fees,
interest, costs or injunctive relief to which Henrion is, or may be, entitled
either by statute or otherwise related to the forgoing.
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<PAGE> 3
(c) Henrion agrees that he will not seek to recover legal
or equitable remedies against the Coops arising out of his employment or his
separation from that employment, that he will not request any other person or
agency to seek such recovery on his behalf, and that he will not elect to be a
member of any class seeking such recovery. Henrion further agrees that he will
not counsel or assist any other person or agency with regard to any claim
arising out of his employment or his separation from that employment unless
required by summons or subpoena. Henrion agrees that if any such claim
referenced herein is filed, pursued or otherwise prosecuted by him, individually
or collectively, or by persons or entities acting by or through him,
individually or collectively, Henrion waives his rights to relief from such
claim, including the right to attorneys' fees, costs and any and all other
relief, whether legal or equitable, sought in such claim.
(d) Notwithstanding the foregoing provisions of this
Section 1.2, should Henrion be sued or be the sole subject or part of a group
which is subject to any action, cause of action, debt, charge, complaint, claim,
liability, obligation, promise, agreement, controversy, damage, or expense of
any nature whatsoever in law or in equity, whether known or unknown, which now
or may ever be brought by any of the Coops' present or former agents, directors,
shareholders, commissioners, officers, employees, representatives, attorneys
divisions, parents, subsidiaries and affiliates, and their predecessors,
successors, heirs, executors, administrators and assigns, Henrion shall have the
right to make counter claims, cross claims or suit or take any action against
such party as Henrion may be entitled under applicable laws, including, without
limitation, any claims arising out of Henrion's employment by the Coops or
Henrion's separation from the Coops.
1.3 Separate Release of Age Claims. In specific consideration of
the Coop's agreement set forth in Section 3.3 of this Agreement, the sufficiency
of which is hereby acknowledged, Henrion, for himself and his heirs, executors,
administrators and assigns, hereby irrevocably and unconditionally releases and
discharges Releasees from any and all age discrimination claims or liability
arising under federal, state or local law including, but not limited to, the Age
Discrimination in Employment Act, as amended, 29 U.S.C. ss.626 et seq., the
Kentucky Civil Rights, as amended, KRS Chapter 344, and any other statute, local
or municipal ordinance, resolution or regulation governing age discrimination in
employment. Henrion and the Coops agree that, for a period of seven days
following the execution of this Agreement, Henrion may revoke the release in
this Section 1.3 by notifying the Chairman of the Board of the KFC Coop, in
writing, of his intent to do so. Henrion and the Coops further agree that this
Section 1.3 and the consideration in Section 3.3 shall not become effective or
enforceable until seven days after execution of this Agreement. Henrion
acknowledges that the Coops has advised and encouraged him to seek the advice of
an attorney regarding the content and effect of these releases and this
Agreement and that he has been afforded 21 days in which to seek his attorney's
advice.
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1.4 Indemnity Rights Preserved. The KFC Coop shall indemnify and
hold Henrion harmless, and shall advance expenses, to the full extent
permissible for employees, officers, consultants or directors under the
provisions of the KFC Coop's Bylaws (as in effect on the date hereof), and under
applicable law. KFC Coop shall indemnify and hold Unified Coop harmless from any
liability to Henrion that relates to the scope of his employment or service as
an officer or director of KFC Coop. The Unified Coop shall indemnify and hold
Henrion harmless, and shall advance expenses, to the full extent permissible as
if he were an officer or employee under the provisions of the Unified Coop's
Operating Agreement (as in effect on the Separation Date), and under applicable
law. The releases given by Henrion pursuant to this Agreement shall not be
deemed a release of any obligations which Coops may now have to him, or have in
the future, pursuant to the obligations set forth in this Section.
1.5 Release Effective At Separation Date. Henrion agrees to sign a
duplicate copy of the releases set forth in this Section 1 effective as of the
Separation Date and agrees that no payments shall be made to him if he fails to
do so and that the consideration in Section 3.3 shall not be due or payable if
the release in Section 1.3 is revoked by him within 7 days following its
execution (either following execution of this Agreement or upon its
reaffirmation at the Separation Date).
1.6 Coops Unaware of Any Claim Against Henrion. The Coops
represent and warrant that they have no knowledge of a claim they may have
against Henrion, other than matters that would be covered by Section 1.4.
Section 2 -- Consulting Services
2.1 Consulting Duties. For 24 months following the Separation
Date, Henrion shall provide consulting services which consist of advising
Unified Coop in the smooth transition to a new president, and specifically any
other matters as the Board of Directors of any of the member Coops of Unified
Coop reasonably request from time to time. Such services shall be provided at
reasonable times, on reasonable advance notice, at a location chosen by Henrion,
except to the extent the location is crucial to the service needed, in which
event the Coop shall bear the cost of Henrion's transportation to and from that
location. Notwithstanding anything else in this Agreement, Henrion shall not be
required to reserve any particular number of hours or time for Unified Coop's
business. Henrion will perform his consulting services as an independent
contractor and not as an employee.
2.2 Facilities. For 24 months following the Separation Date,
Unified Coop shall provide Henrion with an office and support services adequate
to provide the consulting services desired, and shall allow Henrion the use of
the furniture and accessories in his existing office and the personal computers
now used by him during that period. Such furniture and accessories shall be sold
to Henrion, if he elects, at its value on the Coops books.
2.3 Expense Reimbursements. Unified Coop shall reimburse Henrion
for reasonable travel, entertainment and similar expenses that Henrion incurs in
performing the consulting services, in accordance with Unified Coop's expense
reimbursement policies as is in effect from time to time. The reimbursement
shall be made upon presentation to Unified Coop by Henrion, from time to time,
of an account of such expenses in such form and in such detail as Unified Coop
may request.
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<PAGE> 5
Section 3 -- Consulting Fees and Separation Compensation
3.1 Cash Payments.
(a) Henrion shall be paid $500,000 within 10 business
days following the Separation Date as severance pay and supplemental retirement
payments, $100,000 of which shall be attributable to his consulting services
hereunder and reported for tax purposes as a fees to an independent contractor
(i.e., on a form 1099), and the remainder as severance and supplemental
retirement compensation, less any income and employment taxes required to be
withheld therefrom, provided, however, that any employment taxes paid with
respect to supplemental retirement benefits accrued under the Prior Agreement
shall be taken into account in determining employment taxes due on this payment,
and further provided that the amount payable as additional severance
compensation pursuant to Section 3.1(b) below shall be accrued and employment
taxes thereon determined and withheld from this payment as well in accordance
with Section 3121(v) of the Internal Revenue Code.
(b) Henrion shall be paid $456,300 on the first business
day in January 2000, as additional severance compensation, less any income taxes
required to be withheld thereon.
3.2 Health Insurance Continuation. Until Henrion reaches the age
of 66 (unless waived in writing by Henrion, and then only for the period so
waived), Unified Coop shall provide coverage to Henrion and his dependents in
Unified Coop's group health plan (as it exists from time to time), unless such
coverage is unavailable without a cost to Unified Coop for insurance to other
employees or consultants, in which event Unified Coop shall reimburse Henrion
for an individual policy providing comparable coverage. If, at any time, Henrion
notifies the Unified Coop prior to the beginning of a calendar year that he no
longer desires to be covered by such insurance, the Unified Coop shall promptly
pay to Henrion an amount equal to $4,370 for each year from the date his
coverage ceases until his age 66, less any income or employment taxes required
to be withheld therefrom.
3.3 Transfer of Insurance. Within 30 days after the Separation
Date, KFC Coop (or Unified Coop, if the policy has then been transferred to it)
shall transfer to Henrion all of its rights, title and interest in the Policy
(as defined in the Prior Agreement), at no cost to him, provided that the
revocation provided for in Section 1.3 has not then been exercised by Henrion.
3.4 Benefits in the Event of Death or Disability. If Henrion's
ability to consult (or his employment, prior to the separation Date) terminates
due to disability or to death, he, his personal representative (if
incapacitated) or his spouse (or any other beneficiary designated in writing to
the Unified Coop by him), as the case may be, shall receive the fees and
compensation that Henrion would have received under this Section 3, at the same
time and in the same manner as it would have been so paid.
Section 4 -- Confidentiality
4.1 Acknowledgment. Henrion acknowledges that the identity of the
Coops' customers, vendors, its trade secrets and its other confidential
information pertaining to its operations and
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<PAGE> 6
business affairs, as the same may exist from time to time, are valuable, special
and unique assets of the Coops' business, and Henrion shall not either during
the term of this Agreement or after its termination, disclose any such
information to any person, firm, corporation, association or other entity, for
any reason or purpose whatsoever.
4.2 Duties Upon Termination. Promptly after the Separation Date,
Henrion must return to Unified Coop any Confidential Material (as defined in
Section 4.3(a)(4)) and whether or not constituting Confidential Information, any
technical data, Rolodexes and any tape recordings, computer programs, disks, and
any other physical representations of any information relating to the Coops or
their business. Henrion acknowledges that any and all of such items, physical
representations and information are and will remain at all times the exclusive
property of Unified Coop. Upon request, the Coops will provide a receipt to
Henrion listing the items he has returned.
4.3 Covenant of Non-Disclosure.
(a) Employment Relationship and Acknowledgments. Henrion
acknowledges that:
(1) Henrion's employment creates a relationship
of confidence and trust between Henrion and
the Coops.
(2) Unified Coop has a proprietary interest in
documents and information applicable to its
business or to the business of its clients
and customers, which may be made known to
Henrion during the period of Henrion's
employment.
(3) "Confidential Information" includes
information not generally known in the
industry in which Coops are or may be
engaged, disclosed to or known by Henrion
through his employment by Coops or their
predecessors, about the Coops' costs,
pricing, marketing, ideas, problems,
developments, research records, technical
data, processes, products, marketing plans,
plans for products or service improvement
and development, business and strategic
plans, financial information, forecasts,
customer records and any other information
which derives independent economic value,
actual or potential, and all other
information of a trade secret or
confidential nature. Confidential
Information shall not include any
information that is or becomes publicly
available through lawful means and other
than through breach by Henrion of this
Agreement or from a third party known by
Henrion to be under a written or common law
obligation of confidentiality to the Coops.
(4) "Confidential Material" includes any writing
of any kind, obtained by Henrion through his
employment by the Coops or their
predecessors, containing any Confidential
Information and includes, without limiting
the generality of the foregoing, customer
lists, price lists, financial data,
operating instructions, forms and manuals,
procedural
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instructions, information on computer disks
or computer print-outs, computer programs,
any physical property of Coops or any of
their sources with which insurance is
placed, policyholders, expiration or renewal
dates, inspection or credit reports and data
on insurance risks being written, catalogs,
records, drawings, blueprints, notes,
notebooks, and all other materials of a
trade secret or confidential nature.
(b) Restricted Disclosure and Use. Notwithstanding any
other provision of this Agreement, unless Henrion first secures Unified Coop's
written consent, and except for authorized use in performance of Henrion's
duties on behalf of the Coops, Henrion must not disclose to any others, or use,
at any time, in any way, or anywhere, either during or subsequent to employment
with Company, any trade secret or other Confidential Information of the Coops.
Section 5 -- Covenants Not to Solicit or Compete
5.1 Covenants. Henrion shall not, directly or indirectly,
individually, in partnership or through a corporation, as proprietor, manager,
employee, major stockholder or consultant, at any time within two years after
the Separation Date,
(i) engage in any business (a "business" being a line of
business operated separately or in combination with
other businesses, such as a restaurant business,
whether or not for profit, in the U.S. or
internationally) of purchasing food or other supplies
for any of the companies (or their successors or
affiliates) listed on Annex A hereto and incorporated
herein by reference; or
(ii) influence or attempt to influence previously existing
customers (i.e. franchisees), which shall include any
franchisees who are eligible to be customers at the
date of formation of Unified Coop (whether or not
they so elect) of any member of Unified Coop or its
Canadian counterpart, either directly or indirectly,
to divert or attempt to divert from the Coops any
business which KFC Coop, or other members of Unified
Coop or its Canadian counterpart, had enjoyed or
solicited anywhere in the 12 months before the
Separation Date; or
(iii) directly or indirectly, approach or solicit any
employee of Unified Coop or the KFC Coop with a view
to hiring such employee for any other entity or
persuading such employee to leave the employment of
the Coops.
5.2 Enforcement. Henrion hereby expressly acknowledges that this
covenant will not prevent him from finding other gainful employment. The
restrictions contained in Sections 4 and 5, in view of the nature of the
business in which Coops are engaged, are reasonable and necessary in order to
protect the legitimate business interests of Coops and any violation of Sections
4 or 5 will result in irreparable injury to Coops. In the event of a breach or a
threatened breach by Henrion of Sections 4 or 5 of this Agreement, Coops are
entitled to an injunction restraining Henrion from the
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commission of the breach, and may withhold any remaining payments due hereunder
in all or partial payment of damages related solely to any breach of this
Section 5. Nothing in this Section may be construed as prohibiting Coops from
pursuing any other remedies available to them for such breach or threatened
breach, including the recovery of money damages.
5.3 Construction. The covenants and disclosures in Sections 4 and
5 will be construed as independent of any other provisions in this Agreement,
and the existence of any claim or cause of action by Henrion against Coops,
whether predicated on this Agreement or otherwise, will not constitute a defense
to the enforcement by Coops of such covenants and agreements. If any provision
of this Section is invalid in part or in whole, it will be deemed to have been
amended, whether as to time, area covered or otherwise, as and to the extent
required for its validity under applicable law and, as so amended, will be
enforceable. The parties will execute all documents necessary to evidence such
amendment.
5.4 Survival. The provisions of Sections 4 and 5 shall survive any
termination of this Agreement. Henrion agrees that the covenants in Sections 4
and 5 are binding upon Henrion's heirs, successors and legal representatives.
Section 6 -- Miscellaneous
6.1 Nonassignability. Neither Henrion nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate or convey in advance of actual
receipt the amounts, if any, payable hereunder. No part of the amounts payable
shall, prior to actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed by Henrion
or any other person, or be transferable by operation of law in the event of
Henrion's or any other person's bankruptcy or insolvency.
6.2 Obligations of Unified Coop and KFC Coop; Successors. The
provisions of this Agreement shall bind and inure to the benefit of the KFC
Coop, Unified Coop as its successor, and any of their successors and assigns.
The term successors as used herein shall include any corporate or other business
entity which shall, whether by merger, consolidation, purchase or otherwise
acquire all or substantially all of the business and assets of the Coop, and
successors of any such corporation or other business entity. Unified Coop shall
become primarily liable for all payments to Henrion hereunder by virtue of the
transfer to it of KFC Coop's operating assets and liabilities, but KFC Coop
shall remain a guarantor of Unified Coop's obligations hereunder, and shall be
responsible for making payments hereunder should Unified Coop fail or refuse to
do so. As between Unified Coop and KFC Coop, and payments made directly by KFC
Coop shall be reimbursed by Unified Coop within 10 days following receipt by
Unified Coop.
6.3 Governing Law. The validity and construction of any provision
of this Agreement shall be governed by the laws of the Commonwealth of Kentucky.
6.4 Severability. If any provision of this Agreement shall be
declared invalid or unenforceable, the remaining provisions hereof shall not be
affected thereby.
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6.5 Notices. Any notices required to be given under the terms of
the Agreement may be given by personal delivery or by certified mail (return
receipt requested) to the parties last known address. If given by mail, the date
of mailing shall be deemed to be the date as of which the same was given or
furnished to the addressee.
6.6 Headings. Headings in this Agreement are for convenience only
and shall not be used to interpret or construe its provisions.
6.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
6.8 Entire Agreement and Amendments. This Agreement contains the
entire understanding of the parties and supersedes all previous verbal and
written agreements, including the employment letter agreement between Henrion
and the Coop dated September 20, 1982, and the Prior Agreement. This Agreement
may not be amended or modified except by written instrument executed by the KFC
Coop, Unified Coop and Henrion.
IN WITNESS WHEREOF, the parties have signed this Agreement on the dates
set forth below, but effective as of the date set forth in the preamble hereto.
KFC NATIONAL PURCHASING UNIFIED FOODSERVICE PURCHASING
COOPERATIVE, INC. COOP, LLC
By By
---------------------------- ----------------------------
Title: Title:
------------------------ ------------------------
Date: Date:
------------------------- -------------------------
- ------------------------------
Thomas D. Henrion
Date:
-------------------------
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ANNEX A
List of Competing Businesses Referred to in Section 5
Dominoes
Papa Johns
Little Caesars
Pizza Inn
Church's Fried Chicken
Popeye's Fried Chicken
Chick-Fil-A
Ranch *1
Kenny Rogers Roasters
Taco Johns
Del Tacos
10
