<PAGE> 1
As filed with the Securities and Exchange Commission on July 27, 1999
Registration No. 33-56982
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 6 TO
FORM S-1 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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KFC NATIONAL PURCHASING COOPERATIVE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
5199
(Primary standard industrial classification code number)
61-0946155
(I.R.S. Employer Identification No.)
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950 Breckenridge Lane
Louisville, Kentucky 40207
(502) 896-5900
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
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Daniel E. Woodside, President and Chief Executive Officer
KFC NATIONAL PURCHASING COOPERATIVE, INC.
P.O. Box 32033
Louisville, Kentucky 40232
(502) 896-5900
(Name, address including zip code, and telephone
number, including area code, of agent for service)
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Copies to:
R. James Straus
James A. Giesel
BROWN, TODD & HEYBURN PLLC
400 West Market Street
32nd Floor
Louisville, Kentucky 40202-3363
(502) 589-5400
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[facing sheet continues]
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Approximate date of commencement of the proposed sale to the public
As soon as practicable after this amendment to the Registration
Statement becomes effective.
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If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the Securities
Act of 1933, check the following box.
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/ X /
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The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 3
Prospectus
KFC NATIONAL PURCHASING COOPERATIVE, INC.
950 Breckenridge Lane
P. O. Box 32033
Louisville, Kentucky 40207
(502) 896-5900
473 Shares of Membership Common Stock, no par value
Series A through G and J
451 Shares of Store Common Stock, no par value
We are offering these shares only to owners and operators of KFC retail
outlets to provide working capital for the purchasing programs of the KFC Coop
and, by virtue of membership, to encourage KFC operators to use the volume
purchasing services of the KFC Coop. Members must purchase one share of
Membership Common Stock and that number of shares of Store Common Stock which
equals the total number of KFC retail outlets owned or operated by the member.
Members are entitled to patronage dividends, if distributed, on the basis of the
value of their annual business done with the KFC Coop.
No market for this stock exists nor is any expected to develop. You
should not expect any return on your investment through stock appreciation or
per share dividends.
The Offering
<TABLE>
<CAPTION>
Price Underwriting Discounts Proceeds
to Operators and Commissions to the KFC Coop*
------------ --------------- ----------------
<S> <C> <C> <C>
Membership Common Stock
(Series A through G and J)
Per Share $ 10 0 $ 10
Total $ 4,730 $ 4,730
Store Common Stock
Per Share $ 400 0 $ 400
Total $ 180,400 $ 180,400
</TABLE>
* Before deducting expenses, estimated at $15,000, to be paid by the KFC Coop.
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We are using our best efforts to sell these shares. There is no minimum
number of shares that must be sold.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OF COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
___________, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY................................................................................. 1
Who are we?............................................................................... 1
Why is this stock being offered?.......................................................... 1
Why should I purchase this stock?......................................................... 1
How many shares of stock must I purchase to participate in the KFC Coop's programs?....... 1
May I sell or transfer this stock?........................................................ 1
Will I receive patronage dividends?....................................................... 2
How do I become a member?................................................................. 2
Who is being offered this stock?.......................................................... 2
How is this stock being offered?.......................................................... 2
How will these proceeds be used?.......................................................... 2
Is Tricon involved?....................................................................... 2
SUMMARY FINANCIAL INFORMATION...................................................................... 3
THE OFFERING....................................................................................... 3
Why is this stock being offered?.......................................................... 3
How is this stock being offered?.......................................................... 3
How will these proceeds be used?.......................................................... 4
How do I become a member?................................................................. 4
CAPITALIZATION..................................................................................... 5
THE BUSINESS....................................................................................... 5
Who are we?............................................................................... 5
What is the Unified Co-op?................................................................ 7
Organizational Structure.................................................................. 8
Purchasing Programs....................................................................... 10
Distribution.............................................................................. 11
The Tricon Purchasing Agreement........................................................... 13
Principal Customers....................................................................... 14
Sources of Supply......................................................................... 15
Competition............................................................................... 15
Seasonality............................................................................... 15
Properties................................................................................ 16
SELECTED FINANCIAL DATA............................................................................ 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 16
Recent Corporate Reorganization........................................................... 16
Results of Operations..................................................................... 18
Year 2000................................................................................. 24
Forward Looking Statements......................................................................... 26
WILL I RECEIVE DIVIDENDS AND PATRONAGE DIVIDENDS?.................................................. 26
Introduction.............................................................................. 26
Patronage Dividend Program................................................................ 26
MANAGEMENT OF THE KFC COOP......................................................................... 28
Executive Compensation.................................................................... 34
</TABLE>
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<TABLE>
<S> <C>
Compensation of Directors................................................................. 36
Transactions With Stockholders, Directors and Officers.................................... 36
KFC COOP STOCK..................................................................................... 37
Lack of Market for KFC Coop Stock......................................................... 37
Description of KFC Coop Stock............................................................. 37
MISCELLANEOUS...................................................................................... 41
Indemnification and Limits on Monetary Liability.......................................... 41
Where you can find more information....................................................... 42
Legal Proceedings......................................................................... 42
Legal Matters............................................................................. 42
Experts................................................................................... 43
</TABLE>
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PROSPECTUS SUMMARY
WHO ARE WE?
The KFC Coop is a purchasing cooperative which focuses on the purchase of the
food, packaging, supplies, equipment and related services used by owners and
operators of KFC restaurants, including Tricon Global Restaurants, Inc. Along
with cooperatives representing owners and operators of Taco Bell and Pizza Hut
restaurants, we are a member of the Unified Foodservice Purchasing Co-op, LLC,
which administers our purchasing program. Tricon, together with its
subsidiaries, is the franchisor and licensor of the KFC, Taco Bell and Pizza Hut
concepts, the developer of products used and sold by the Tricon concepts, and an
operator of many KFC, Taco Bell and Pizza Hut retail outlets.
WHY IS THIS STOCK BEING OFFERED?
The KFC Coop is offering these membership interests (a) to raise proceeds to
provide working capital for the operation of the KFC Coop; (b) to encourage all
KFC outlets, by virtue of membership, to use the volume purchasing services of
the KFC Coop and Unified Co-op, thereby enhancing the ability of the KFC Coop
and Unified Co-op to achieve economies of scale in purchasing activities; and
(c) to maintain a cooperative in which the only members are Tricon, the KFC
National Council and Advertising Cooperative, Inc., and KFC franchisees and
licensees, thereby better enabling the KFC Coop to respond to the unique needs
and requirements of KFC operators.
WHY SHOULD I PURCHASE THIS STOCK?
You should purchase KFC Coop stock to participate in the purchasing programs we
offer for our members, to participate in any patronage dividend program, and to
participate in our management through the election of directors. Together with
the Unified Co-op, it is our goal to administer purchasing programs for our
members which should significantly reduce their store delivered costs of goods
and equipment. You should not expect any return on your investment through stock
appreciation or per share dividends.
HOW MANY SHARES OF STOCK MUST I PURCHASE TO PARTICIPATE IN THE KFC COOP'S
PROGRAMS?
If you are a KFC franchisee or licensee and wish to become a stockholder member
of the KFC Coop, you must: (a) purchase one share of Membership Common Stock;
and (b) purchase that number of shares of Store Common Stock which equals the
total number of KFC traditional retail outlets you own and operate plus one
half, rounded up to the nearest whole number, of the total number of
non-traditional retail outlets you own and operate, if any.
MAY I SELL OR TRANSFER THIS STOCK?
Transfers of KFC Coop stock are restricted. No market for it exists, nor is any
expected to develop. The KFC Coop expects to redeem shares of Membership Common
Stock for $10.00 per share from any member who no longer qualifies as a member.
The KFC Coop may, but is not obligated to, purchase Store Common Stock. If the
KFC Coop does not exercise its right to purchase such Store Common Stock, it may
be sold or otherwise transferred, but only to other qualified KFC operators.
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WILL I RECEIVE PATRONAGE DIVIDENDS?
The holders of Store Common Stock are entitled to receive dividends or other
distributions. However, it is currently anticipated that no dividends, other
than patronage dividends, will be paid to stockholder members in good standing.
See "Will I receive dividends and patronage dividends?"
HOW DO I BECOME A MEMBER?
To become a member of the KFC Coop you should read this prospectus and send your
payment in the amount of $10 for your one share of Membership Common Stock plus
$400 for each share of Store Common Stock you are required to purchase to the
KFC Coop at Stockholder Records, KFC National Purchasing Cooperative, Inc., 950
Breckenridge Lane, Louisville, Kentucky, 40232.
WHO IS BEING OFFERED THIS STOCK?
We are offering Membership Common Stock (Series A-G and J) and Store Common
Stock to (a) persons or entities that are franchisees or licensees of the KFC
Corporation, (b) Tricon and (c) the NCAC. The series of Membership Common Stock
issued to an operator is generally based on the subscriber's geographic
location. See "Description of KFC Coop Stock."
HOW IS THIS STOCK BEING OFFERED?
These shares of stock are being offered through officers, directors and other
affiliates of the KFC Coop. Sales will be made to KFC outlet operators only in
units consisting of one share of Membership Common Stock and one share of Store
Common Stock for each one traditional outlet or each two non-traditional outlets
owned by such operator.
HOW WILL THESE PROCEEDS BE USED?
Any net proceeds of this offering will be used to provide working capital for
the operation of the KFC Coop. The working capital needs of the KFC Coop may
also be met through borrowings.
IS TRICON INVOLVED?
Tricon is a member of the KFC Coop and has purchased one share of Series K
Membership Common Stock and the required number of shares of Store Common Stock
to be a member in good standing of the KFC Coop. Tricon, however, is not a
member of the Unified Co-op. As franchisor of the Tricon concepts and as an
operator of many outlets, we believe Tricon is strongly committed to the success
of the KFC Coop and Unified Co-op. Tricon entered into an expense sharing
arrangement under which Tricon provided $400,000 to the Unified Co-op to assist
the Unified Co-op with organizational expenses and Tricon has agreed to purchase
through the Unified Co-op virtually all of the goods and equipment needed for
the Tricon operated outlets.
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SUMMARY FINANCIAL INFORMATION
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Consolidated Statements of
Income:
Net Sales $664,792 $600,132 $580,441
Net Income 60 748 1,386
Consolidated Balance Sheets
(at end of period):
Working Capital 16,346 18,305 17,841
Total assets 61,338 49,800 49,445
Members' equity 17,896 17,586 16,802
</TABLE>
THE OFFERING
WHY IS THIS STOCK BEING OFFERED?
The KFC Coop is offering these securities (1) to raise proceeds to
provide working capital for the operation of the KFC Coop; (2) to encourage all
KFC operators, by virtue of membership, to use the volume purchasing services of
the KFC Coop and Unified Co-op, thereby enhancing the ability of the KFC Coop
and Unified Co-op to achieve economies of scale in purchasing activities; and
(3) to maintain a cooperative in which only Tricon, the KFC National Council and
Advertising Cooperative, and KFC franchisees and licensees are members, thereby
better enabling the KFC Coop to respond to the unique needs and requirements of
KFC operators.
HOW IS THIS STOCK BEING OFFERED?
This KFC Coop stock is being offered directly by officers, directors
and other affiliates of the KFC Coop. None of these people will receive any
commission or fee in connection with these sales. These shares are only being
offered to operators of KFC retail outlets, including Tricon, and the NCAC.
Sales are made only in units consisting of one share of Membership Common Stock
per operator and one share of Store Common Stock for each outlet (or each two
non-traditional outlets) operated by such operator. This KFC Coop stock is being
offered on a continuing basis, subject to applicable legal requirements.
The KFC Coop reserves the right in its sole discretion to accept or
reject any membership subscription.
The shares of KFC Coop stock are being offered on a "best efforts"
basis. There is no scheduled termination date for this offering, no minimum
required purchase, nor have any
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<PAGE> 9
arrangements been made to place the funds received in the offering in escrow, in
trust or to make other similar arrangements.
No person is authorized by the KFC Coop to give any information or to
make any representations other than those contained in this prospectus in
connection with the offering described herein. This prospectus does not
constitute an offer of any membership interest other than the shares of KFC Coop
stock to which it relates, or an offer by any person within any jurisdiction to
any person to whom such offer would be unlawful. The delivery of this prospectus
at any time does not imply that the information herein is correct as of any time
subsequent to its date.
As of June 30, 1999, 580 shares of Membership Common Stock and 5,465
shares of Store Common Stock were outstanding.
HOW WILL THESE PROCEEDS BE USED?
The Membership Common Stock price of $10 per share was determined
arbitrarily and bears no relation to a stockholder member's equity, income or
other recognized criteria of value. Since July 1, 1983, the offering price of
Store Common Stock has been $400 per share. The KFC Coop intends to keep the
price of Store Common Stock at $400 per share through at least October 31, 1999,
in order to encourage new memberships in the KFC Coop.
Any net proceeds of this offering will be used to provide working
capital for the operation of the KFC Coop. As part of the consideration for its
membership interest in the Unified Co-op, the KFC Coop made an initial capital
contribution of $1,000,000 to the Unified Co-op and an initial loan to the
Unified Co-op of $1,000,000. The working capital needs of the KFC Coop may also
be met through borrowing. The KFC Coop currently has a $15 million revolving
line of credit with a commercial bank. See "Liquidity and Capital Resources."
HOW DO I BECOME A MEMBER?
Membership in the KFC Coop is open to all KFC operators.
To join the KFC Coop you should read this prospectus and send your
payment in the amount of $10 for your one share of Membership Common Stock plus
$400 for each share of Store Common Stock you are required to purchase to the
KFC Coop at Stockholder Records, KFC National Purchasing Cooperative, Inc., 950
Breckenridge Lane, Louisville, Kentucky, 40232.
If a member at any time becomes an operator of additional KFC outlets,
that member must purchase one additional share of Store Common Stock for each
additional traditional outlet or each two additional non-traditional outlets.
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CAPITALIZATION
The following table shows the capitalization of the KFC Coop as of
June 30, 1999, and as adjusted assuming all shares of Membership and Store
Common Stock offered hereby are sold:
<TABLE>
<CAPTION>
ADJUSTED
ASSUMING
ALL SHARES
OUTSTANDING OFFERED
JUNE 30, 1999 ARE SOLD
------------- ----------
<S> <C> <C>
Short-Term Indebtedness *............................ $ 1,000 $ 1,000
Capital Stock:
Membership Common Stock,
(2,000 shares authorized),
473 shares offered,
no par value.............................. 580 shares 1,053 shares
Store Common Stock,
(10,000 shares authorized),
451 shares offered,
no par value............................. 5,465 shares 5,916 shares
</TABLE>
* For information concerning the KFC Coop's borrowing arrangements,
see "Liquidity and Capital Resources."
THE BUSINESS
WHO ARE WE?
The KFC Coop is a purchasing cooperative that operates a purchasing
program through the Unified Co-op in order to provide its members with the
lowest possible store delivered costs for goods and equipment used in their
outlets. Our stockholder members are operators of KFC outlets, including Tricon,
and the NCAC. Until March 1, 1999, we administered purchasing programs for
multiple restaurant concepts, but now we only operate and only plan to operate
purchasing programs for KFC operators.
History
The KFC Coop was incorporated in 1978 on the premise that one central
procurement organization for KFC operators could decrease the costs of goods and
equipment for KFC operators. Beginning in 1992, the KFC Coop expanded its
purchasing programs to include KFC franchisees in Canada, Taco Bell franchisees
in the United States and franchisees of non-Tricon related restaurant concepts.
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<PAGE> 11
In March, 1999, pursuant to a corporate reorganization, the KFC Coop
stopped operating its KFC-Canada, Taco Bell and non-Tricon related purchasing
programs. On March 1, 1999, the KFC Coop split off its Taco Bell purchasing
program business into the newly organized Taco Bell National Purchasing Coop,
Inc. To effect this split off, the KFC Coop (1) transferred certain assets,
liabilities and members' equity that related specifically to its Taco Bell
operations to the Taco Bell Coop, and (2) offered KFC Coop stockholders who were
Taco Bell operators the opportunity to exchange their shares of KFC Coop stock
for shares of Taco Bell Coop stock, pursuant to a tender offer. As of March 23,
1999, the KFC Coop's Canada subsidiary transferred all of its purchasing
contracts, equipment, and other assets to the Unified Purchasing Group of
Canada, Inc. and no longer operates a purchasing program. As of the date of this
prospectus, the KFC Coop only operates a purchasing program through the Unified
Co-op for goods and equipment used by operators of KFC outlets. Our Bylaws
require us to always do more than 50% of the value of our business with KFC Coop
members.
On March 1, 1999, the Unified Co-op was organized with the three
concept coops as its initial members: the KFC Coop, the Taco Bell Coop and the
Pizza Hut National Purchasing Coop, Inc. The Unified Co-op provides the support
and operational services for each concept coop through combined administrative
and purchasing functions. Tricon is a member of each concept coop.
Operations
Through the Unified Co-op, the KFC Coop makes volume purchases and
arranges for the purchases of goods and equipment from manufacturers and
suppliers for sale to KFC operators and distributors who supply KFC operators.
We work to obtain low prices by making or arranging volume purchase commitments
and by assuming other purchasing functions and risks on behalf of KFC operators,
distributors and suppliers. We also reduce the cost to the KFC system by
assuming many credit, sales, marketing and billing functions, which would
otherwise be performed by multiple suppliers. Our volume purchase commitments
allow suppliers to reduce their costs since they can more effectively plan their
production, purchasing, and inventory levels.
We also provide our members with advisory services relating to the
distribution of goods and equipment, including industry data on distribution
costs and service levels, which enable our members to negotiate more effectively
with distributors and we sponsor a Distributor Monitor Program to enhance the
system of independent distributors available to KFC operators.
In sum, the KFC Coop provides the convenience of "one-stop" shopping
for suppliers, distributors and operators that otherwise might be required to
deal with a number of third parties.
Through the ongoing membership subscription of KFC operators, we seek
to maximize our number of members to enhance our ability to achieve economies of
scale in our purchasing activities.
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WHAT IS THE UNIFIED CO-OP?
The mission of the Unified Co-op is to work with concept franchisees
and licensees and Tricon in the development and supply of goods and equipment
for each concept at the lowest sustainable outlet-delivered price.
In addition to reducing the store delivered costs of goods and
equipment, the goals of the organizers of the Unified Co-op were 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 had their own franchisee organizations. Now, concept
coops for each system are the members of the Unified Co-op which
is governed by a board of directors with franchisees from each
system;
- Allow Tricon and its franchisees to work together. There are
often tensions between a 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
Co-op 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;
- 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;
- Facilitate taking advantage of both title and non-title
transactions. Historically, the KFC Coop took title to goods and
equipment purchased from vendors and resold them to operators and
their distributors. By taking title, the KFC Coop assumed the
administrative burden of obtaining payment from operators and
their distributors. Historically, Tricon's Supply Chain
Management negotiated terms with suppliers pursuant to which
suppliers would sell goods and equipment directly to Tricon and
other franchisee operators and their distributors, without
assuming any credit risks. For instance, prior to the
organization of the Unified Co-op, suppliers of goods to
AmeriServe Food Distribution, Inc. for resale by AmeriServe to
Tricon took the credit risk of payment for those goods, while
suppliers that sold to distributors through the KFC Coop looked
to the KFC Coop rather than to the distributor for payment. The
Unified Co-op combined the KFC Coop's expertise with respect to
title transactions and Supply Chain Management's expertise with
respect to non-title transactions, allowing the Unified Co-op to
evaluate on an item by item, program by program and distributor
by distributor basis which kind of transaction will result in the
lowest possible sustainable store delivered prices;
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<PAGE> 13
- 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; and
- End confusion for valued suppliers and distributors which was
caused by uncoordinated, separate communication to suppliers and
distributors from Tricon's Supply Chain Management division 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.
In conjunction with our membership in the Unified Co-op, we operate a
KFC purchasing cooperative business. Although this business is outsourced to and
administered by the Unified Co-op, the KFC purchasing program is subject to
significant control, advice and counsel of the KFC Coop. The KFC Coop Board of
Directors exercises policy making decisions and administers the patronage
dividend program. Although the KFC Coop is an independent corporation, its
success is, in large part, linked to the success of the Unified Co-op and the
ability of the Unified Co-op to administer purchasing programs which utilize
economies of scale to reduce the store delivered costs of goods and equipment to
operators.
ORGANIZATIONAL STRUCTURE
The KFC Coop, the Taco Bell Coop, and the Pizza Hut Coop are the
parties to the Operating Agreement for the Unified Co-op dated as of March 1,
1999. The Unified Co-op is a Kentucky limited liability company. Tricon is a
recognized third party beneficiary of the Operating Agreement. The Operating
Agreement describes the business of the Unified Co-op. The Unified Co-op
combines 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 outlet operators. The Unified Co-op manages
and operates purchasing programs for each of the concept coops consistent with
the terms of management agreements between the Unified Co-op and each concept
coop. (See "Purchasing Programs.")
Separate Capital Accounts. Each concept coop has a capital account
balance, representing that concept coop's property interest in the Unified
Co-op. The capital accounts were initially credited with the fair market value
of the assets contributed to the Unified Co-op by each concept coop, plus that
concept coop's share of the Unified Co-op's liabilities, minus the amount of the
concept coop's liabilities assumed by the Unified Co-op. A concept coop's
capital account balance increases by an amount equal to any profits allocated to
the concept coop and decreases by an amount equal to any allocations of losses
or distributions of net cash flow.
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Increases or decreases in a concept coop's share of the Unified Co-op's
liabilities will also increase or decrease the concept coop's capital account
balance.
Except as expressly provided in the Operating Agreement, no concept
coop is entitled to withdraw any part of its capital contributions or capital
account, or to receive any distribution from the Unified Co-op.
Distributions to Members. The Unified Co-op's net cash flow (defined
generally to mean revenues minus expenses and reserves) is retained by the
Unified Co-op for reinvestment in the Unified Co-op's business. However, such
net cash flow is distributed annually to the concept coops in an amount equal to
the federal and state income taxes due with respect to the Unified Co-op's
profits for a given year, assuming that the Unified Co-op's profits are taxed at
the highest applicable marginal rates. The Unified Co-op may also determine to
distribute additional net cash flow over and above the amount necessary to cover
the concept coops' taxes. The Unified Co-op's net cash flow arising out of its
profits in a given taxable year is distributed among the concept coops in
accordance with their relative annual patronage for such year. Any distributions
of net cash flow in a given tax year in excess of that amount is distributed
among the concept coops in accordance with their relative capital account
balances (calculated by excluding each concept coop's initial capital account
balance). No member of a concept coop is entitled to receive patronage dividends
from the Unified Co-op. Members of a concept coop are entitled to patronage
dividends only as provided by the certificate of incorporation and bylaws of
their concept coop. See "Will I receive dividends and patronage dividends?"
Additional Members. The Unified Co-op may admit additional members from
time to time at the election of the Unified Co-op Board of Directors, upon the
terms and conditions determined by the Unified Co-op Board. A prerequisite to
admission to membership in the Unified Co-op is the written agreement by the
additional member to be bound by the terms of the Operating Agreement.
The Unified Co-op Board of Directors. The business and affairs of the
Unified Co-op is managed by the Unified Co-op Board. The Unified Co-op Board
constitutes the "manager" of the Unified Co-op.
The number of full voting directors is eight. Unless otherwise provided
in each concept coop's bylaws, the Unified Co-op Board consists of (i) the
chairperson of the board of each of the concept coops, (ii) one additional
representative selected by each of the concept coops, and (iii) two
representatives selected by Tricon. Directors are appointed annually by each of
the concept coops and Tricon. No director of the Unified Co-op who is appointed
by a concept coop may be affiliated with Tricon in any manner other than as a
KFC, Taco Bell or Pizza Hut franchisee. Each franchisee member of the Unified
Co-op Board must also be a voting member of the board of directors of a concept
coop.
Canadian Operations. On March 23, 1999, the Unified Purchasing Group of
Canada, Inc. began its operations as a new unified purchasing cooperative for
KFC, Taco Bell, and Pizza Hut operators in Canada. The Canada Coop is a party to
the Operating Agreement for the Unified Co-op, but is not a member of the
Unified Co-op. The Canada Coop is represented on
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the Unified Co-op Board by a director who has no vote, except on Canada matters,
as defined in the Operating Agreement. The Canada Coop also entered into a
purchasing cooperative agreement with Tricon, on terms similar to the Tricon
Purchasing Coop Agreement discussed below, that describes Tricon's commitment to
the Canada Coop and its purchasing programs.
PURCHASING PROGRAMS
The Unified Co-op and each concept coop entered into a Purchasing
Program Management Agreement. These Management Agreements set forth the terms
pursuant to which the Unified Co-op administers purchasing programs on behalf of
each concept coop. The initial term of each Management Agreement extends through
December 31, 2003 and may be terminated then or on any December 31 thereafter
upon one year's notice of termination.
In general, the management services provided by the Unified Co-op
include:
- Negotiating the lowest possible sustainable prices for goods and
equipment from suppliers approved by Tricon for sale through the
Unified Co-op or directly by the supplier to Tricon-approved
distributors selected by the concept coops and the outlet
operators;
- Assisting the concept coops and outlet 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.
Examples of some specific programs the Unified Co-op administers for
the KFC Coop and its operators are:
- Corn Program: The Unified Co-op makes large purchase commitments
for frozen cob corn at the beginning of each crop year and takes
physical possession of this corn shortly thereafter. The corn is
stored by the Unified Co-op in freezer equipped storage
facilities until it is resold to distributors or franchisees.
- Insurance Program: Through its subsidiary, Kenco Insurance
Agency, Inc., the Unified Co-op sponsors property, casualty and
workers' compensation insurance programs and employee benefits
programs, including life, health, dental and long-term disability
coverage for KFC operators. The Unified Co-op monitors and
maintains these insurance programs and distributes general
information about these programs to KFC operators.
- Equipment Staging: The Unified Co-op performs equipment staging
services for KFC operators by purchasing and warehousing
equipment while it is consolidated into packages for timely and
convenient shipment to an operator. The Unified
-10-
<PAGE> 16
Co-op currently leases warehouse space in Louisville, Kentucky
for its equipment staging operation.
Payment to the Unified Co-op. To provide these services, the concept
coops agreed in the Management Agreements that the Unified Co-op purchasing
programs must be appropriately capitalized, financially self-sustaining, and
operated on a cooperative basis. Thus, in exchange for administering these
services, the Unified Co-op may retain 10% of the net income generated by each
purchasing program. The Unified Co-op distributes the remaining net income to
the concept coops on a quarterly and annual basis. However, each concept coop is
required to reimburse the Unified Co-op for any net losses. See "Distributions
to Members."
Margins and Distributor Fees. To maintain prudent working capital
reserves and provide a sound operational basis for its purchasing programs, the
Unified Co-op also generates income by charging distributors (a) mark-ups, or
margins, on goods and equipment for which the Unified Co-op takes title or (b)
service fees on goods and equipment for which the Unified Co-op does not take
title.
Federal Income Tax Consequences of Patronage Income. Under the
Management Agreements, income generated through the management services provided
by the Unified Co-op is retained in part as consideration for the Unified
Co-op's services, with the balance paid to each concept coop. We believe, based
on applicable authorities, that such payments qualify for patronage dividend
characterization under Section 1381 through 1388 of the Internal Revenue Code of
1986, as amended, so long as such amounts that are not retained by the KFC Coop
for capital and reserves are distributed to our shareholders in accordance with
our Certificate of Incorporation and Bylaws. The KFC Coop, however, has not and
does not intend to apply for a ruling from the IRS with respect to the
characterization of the payments for federal income tax purposes. If the IRS
challenged the characterization of the payments and was successful, then we
would be liable for taxes and interest for any amounts disallowed as exclusions
from its taxable income. See "Will I receive dividends and patronage dividends?"
DISTRIBUTION
Notwithstanding the Unified Co-op's coordination of the distribution of
many goods and equipment to operators, each operator may individually choose
their own Tricon-approved distributors. Furthermore, operators may buy goods and
equipment directly from the Unified Co-op, directly from distributors (whether
or not the distributor purchases from or through the Unified Co-op), or directly
from suppliers. All Triconapproved distributors may buy goods and equipment from
or through the Unified Co-op for sale or resale to operators, subject to their
agreement to enter into a Distributor Participation Agreement with the Unified
Co-op. Pursuant to the Distributor Participation Agreement, a distributor agrees
to, among other things, remain in compliance with the Unified Co-op's credit
standards and policies, provide information to the Unified Co-op regarding its
sales to operators, forego most sheltered income, and pay the Unified Co-op a
service fee for its purchasing services.
Distributors purchasing from or through the Unified Co-op usually
consolidate orders received from individual operators and place bulk orders with
the Unified Co-op and suppliers.
-11-
<PAGE> 17
The Unified Co-op consolidates such orders from all distributors and operators
for a given item and issues shipping and sales instruction to suppliers. The
supplier then ships the goods or equipment directly to the operators or to local
distributors who, in turn, deliver the merchandise to operators.
Title Transactions. For transactions in which the Unified Co-op takes
title, suppliers bill the Unified Co-op which, in turn, bills the distributor or
operator for any goods or equipment shipped. In title transactions, the Unified
Co-op takes title to the goods or equipment and assumes the risks related to
taking title, even though the Unified Co-op does not take physical delivery of
most merchandise. Also in title transactions, the Unified Co-op extends
short-term trade credit to its customers; therefore, it bears the risk that
accounts receivable may become uncollectible or may not be paid in accordance
with usual terms if an operator experiences financial difficulties.
Non-Title Transactions. In transactions in which the Unified Co-op does
not take title, suppliers bill the distributors directly for the goods or
equipment purchased pursuant to the Unified Co-op's orders.
Other Programs. The Unified Co-op operates a Distributor Monitoring
Program which monitors prices and provides reports to franchisees and franchisee
committees to assist them in negotiating with and selecting among distribution
alternatives in order to receive the best pricing and service. On occasion, the
Unified Co-op may provide certain clerical and administrative assistance to such
franchisee committees. The Unified Co-op believes that the monitoring program
and the formation of purchasing committees strengthens the system of independent
distributors since it fosters competition among such distributors.
The Unified Co-op also maintains an information bank which provides
members, upon request, with the following:
- information concerning prices being paid by distributors for
merchandise purchased from or through the Unified Co-op so that
members can compare store-delivered cost with the distributors'
cost for the goods or equipment;
- industry data to assist them in analyzing cash discounts, earned
weight discounts and other elements of the distributors' costs;
- industry data on average distributor markups, order size
discounts, cash discounts, distributor service levels and other
distributor performance guidelines; and
- information on expected supply levels (especially possible
shortages) and on expected changes in prices of goods and
equipment.
The Unified Co-op also provides it members with assistance in resolving a wide
variety of procurement problems including "out-of-stock" conditions, shipping
problems and returned goods disputes.
-12-
<PAGE> 18
THE TRICON PURCHASING AGREEMENT
The Unified Co-op and Tricon entered into the Tricon Purchasing Coop
Agreement and the SCM Transfer Agreement, both dated as of March 1, 1999. The
Tricon Purchasing Coop Agreement sets forth Tricon's commitment to the
purchasing programs of the Unified Co-op 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 Co-op's
purchasing activities with the marketing, promotion, and other programs and
projects of Tricon. The SCM Transfer Agreement sets forth provisions concerning
the Unified Co-op's employment of former Tricon SCM personnel and the assumption
by the Unified Co-op of certain SCM purchasing arrangements for goods and
equipment.
Tricon's Commitment. Tricon designated the Unified Co-op as the
exclusive administrator of purchasing programs, operated on behalf of the
concept coops, for all Tricon owned and operated concept outlets. Tricon also
entered into an expense sharing arrangement under which Tricon provided $400,000
to the Unified Co-op to assist the Unified Co-op with specific expenses incurred
in its organization and in establishing its purchasing programs. Tricon is a
member of each concept coop in accordance with their respective policies and
requirements.
Pursuant to the terms of the Tricon Agreements, Tricon purchases
through the Unified Co-op virtually all of the goods and equipment needed for
the Tricon operated outlets. Furthermore, Tricon transferred to the Unified
Co-op, and the Unified Co-op assumed, certain Tricon contracts and commitments
involving the purchase or sale of goods and equipment. The Unified Co-op also
made offers of employment to all of the employees of Tricon who were engaged
primarily in the purchase or sale of goods and equipment for use or consumption
by outlet operators.
Tricon has the exclusive right and obligation with respect to the
purchase and distribution of goods and equipment used by outlet 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.
Sheltered Income. As used in the Tricon Purchasing Coop Agreement,
"sheltered income" means so called earned income, rebates, kickbacks, 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. Sheltered income includes, among other items:
- fees charged suppliers and distributors in the supplier and
distributor approval process;
- fees charged suppliers and distributors for quality inspections
and "hot line" inquiries and complaints;
-13-
<PAGE> 19
- 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;
- higher prices permitted suppliers to amortize research and
development expenses undertaken by suppliers at the request of
Tricon or otherwise;
- higher prices permitted suppliers to amortize the cost of excess
inventory;
- higher prices permitted suppliers to amortize the cost of
graphics and other product changes;
- special or atypical payment terms;
- payments and allowances to distributors from suppliers based on
distributor volume which are not reflected as a reduction in
distributor cost or prices; and
- 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 Co-op will receive or benefit from any sheltered income in connection
with goods or equipment purchased or used by any outlets. Additionally, neither
Tricon nor the Unified Co-op will authorize any approved supplier, approved
distributor, or concept coop to receive or benefit from sheltered income,
subject to a few exceptions, including an exception for certain disclosed
sheltered income permissible for AmeriServe to receive and retain under its
distributor agreement with Tricon. The Tricon Purchasing Coop Agreement does
not, however, limit or prohibit the right of the Unified Co-op or any concept
coop to benefit from any sheltered income, provided that the Unified Co-op
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.
PRINCIPAL CUSTOMERS
Although the Unified Co-op sells food and packaging primarily to
distributors, the ultimate customers for the goods sold by the Unified Co-op are
operators, including Tricon. There can be no assurance that operators will
continue to make substantial purchases through the Unified Co-op even if the
Unified Co-op's prices and services are competitive with those which can be
obtained from other sources. Other than advance purchase commitments for cob
corn, frozen chicken products, shortening, promotional items and certain
equipment used by certain operators, no member of the KFC Coop, other than
Tricon, has any contractual or other obligation to purchase from or through the
Unified Co-op. See "Tricon's Commitment."
On behalf of the KFC Coop, the Unified Co-op sells or arranges for the
sale of goods to approximately 30 independent distributors on a regular basis.
The KFC Coop had sales to certain distributors in fiscal 1998 in excess of 10%
of the KFC Coop's net sales. McLane Foodservice
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<PAGE> 20
Group sales for fiscal 1998 were $134,000,000, primarily in support of the Taco
Bell system. In fiscal 1998, sales to Sysco Corporation were approximately
$94,800,000.
In fiscal 1998, the KFC Coop's sales to AmeriServe were approximately
$94,700,000. In October 1997, PepsiCo spun off its three primary restaurant
divisions, KFC, Taco Bell and Pizza Hut, into Tricon. Also during fiscal 1997,
PepsiCo sold PepsiCo Food Systems, Inc., to AmeriServe. Through PFS, PepsiCo had
previously purchased equipment and supplies for distribution to corporate-owned
and franchisee-owned KFC and Taco Bell retail outlets. AmeriServe has been and
continues to be a principal customer of the KFC Coop and Unified Co-op,
respectively, purchasing goods and equipment for distribution to KFC
franchisees.
SOURCES OF SUPPLY
The Unified Co-op purchases or arranges for the purchase of goods and
equipment from Tricon-approved suppliers for those items which operators
require, giving all approved suppliers an opportunity to compete for the Unified
Co-op's business. The Unified Co-op does not approve suppliers itself, but is
involved in the approval process. See "Tricon's Commitment." The Unified Co-op
may also from time to time suggest to potential suppliers that they seek
approval for their products or facilities. The Unified Co-op's ability to obtain
low prices for goods and equipment, subject to Tricon's approval is, in part,
dependent upon Tricon approving enough suppliers for any particular product so
that there is price competition among approved suppliers. Generally, many
suppliers are available to sell any given item purchased or contracted for by
the Unified Co-op. However, KFC proprietary original recipe seasoning products
are available only through one or a limited number of suppliers. For any item
sold by or through the Unified Co-op for which approval is not required, the
Unified Co-op purchases products from a wide variety of sources, ranging from
local suppliers to large multinational corporations. Approved suppliers
generally establish minimum order quantities. The Unified Co-op, in conjunction
with Tricon, frequently monitors product quality and services of approved
suppliers.
COMPETITION
The Unified Co-op faces competition from manufactures who sell goods
and equipment directly to distributors and operators. Since the Unified Co-op
does not provide warehousing and local transportation services, it generally
does not compete with distributors for sales to operators which require the
distributor to provide such services. However, the Unified Co-op does compete
with distributors such as AmeriServe whose functions and services overlap with
those of the Unified Co-op in direct sales of equipment.
SEASONALITY
The KFC Coop's past sales reflect the somewhat seasonal nature of the
volume of business done by operators. The sales of the Unified Co-op are
expected to continue this seasonal nature. The sales are generally expected to
be at their relatively lowest levels during the winter months and are generally
expected to be at their relatively highest levels in the summer months.
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<PAGE> 21
PROPERTIES
The KFC Coop does not own or lease any real property or warehousing
facilities. As assigned from the KFC Coop, the Unified Co-op currently leases
approximately 51,474 square feet of office space at 950 Breckenridge Lane, in
Louisville, Kentucky, for its executive offices under leases expiring on
February 28, 2005. As assigned from the KFC Coop, the Unified Co-op leases
commercial frozen food warehouse facilities on a short-term basis in various
locations in connection with its frozen cob corn purchase program. As assigned
from the KFC Coop, the Unified Co-op currently leases approximately 19,650
square feet of warehouse space in Louisville, Kentucky, for its equipment
staging operation.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
April 30, Year Ended October 31,
------------------ ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of
Income:
Net sales $240,357 $303,320 $664,792 $600,132 $580,441 $537,116 $528,010
Income before patronage
dividend and income taxes 1,840 1,589 2,757 4,153 5,057 2,771 1,343
Patronage dividend 1,714 1,306 2,619 2,890 2,762 1,246 569
Net income 74 159 60 748 1,386 909 461
Consolidated Balance Sheets
(at end of period):
Total assets $20,176 $48,971 $61,338 $49,800 $49,445 $42,831 $42,767
Long-term obligation -- 3,000 0 3,000 3,000 3,000 3,000
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT CORPORATE REORGANIZATION
On March 1, 1999, pursuant to a corporate reorganization discussed
above, the KFC Coop joined with Tricon and franchisee owners and operators of
KFC, Taco Bell and Pizza Hut restaurants to form the Unified Coop. The KFC Coop
believes that the Unified Coop will enable KFC, Taco Bell and Pizza Hut
restaurant owners and operators to reduce their store delivered costs of goods
and equipment.
To facilitate the corporate reorganization, the KFC Coop (i) executed
agreements which, among other things, facilitated (a) the KFC Coop's membership
in the Unified Coop and (b) the spin off of the KFC Coop's Taco Bell business
and (ii) amended its bylaws to conform its
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<PAGE> 22
patronage dividend program to the operations of the Unified Coop and to make
other changes which reflect the spin off of its Taco Bell business.
In exchange for its membership interest in the Unified Coop, the KFC
Coop contributed certain operating assets and cash to the Unified Coop. Pursuant
to the Asset Contribution and Liability Assumption Agreement, the KFC Coop
assigned, transferred, delivered, and generally set over to the Unified Coop,
and the Unified Coop accepted and assumed, certain "Assets," which mean certain
of the KFC Coop's contracts, leases, equipment, and prepaid assets (other than
any of the same which were transferred to the Taco Bell Coop pursuant to the
Agreement and Plan of Corporate Separation), as defined in the Asset
Contribution and Liability Assumption Agreement. The Assets did not include any
other assets of the KFC Coop, including, without limitation, any accounts
receivable, cash or cash equivalents, or goodwill. In return, the Unified Coop
assumed and agreed to perform and discharge in full any and all of the KFC
Coop's obligations and liabilities under its contracts and leases. The Unified
Coop also made offers of employment to all of the employees of the KFC Coop on
terms and conditions substantially similar in the aggregate to those in effect
before the corporate reorganization, except for Thomas D. Henrion, the KFC
Coop's then president and chief executive officer. The KFC Coop and the Unified
Coop entered into a Separation and Consulting Agreement with Mr. Henrion.
Before the corporate reorganization, the KFC Coop organized the Taco
Bell Coop as a wholly owned subsidiary. On March 1, 1999, the Agreement and Plan
of Corporate Separation effected a division of the KFC Coop's business by
transferring all of the KFC Coop's Taco Bell related assets and liabilities to
the Taco Bell Coop and spinning off the Taco Bell Coop as an independent entity
to the Taco Bell operators who were stockholder members of the KFC Coop and who
tendered their shares of the KFC Coop's membership common stock and store common
stock pursuant to a tender offer dated January 28, 1999. The nature and amount
of consideration given and received and the principle followed in determining
the amount of such consideration in the Agreement and Plan of Corporate
Separation were determined through negotiations among the KFC Coop, the Taco
Bell Coop, and Taco Bell franchisees and their representatives.
The Taco Bell assets and liabilities included Taco Bell product
inventory and equipment, records of Taco Bell operations, miscellaneous Taco
Bell supplies and signs, purchase commitment liabilities, intercompany
liabilities attributable to accounts payable and other liabilities related to
Taco Bell operations paid or assumed by the KFC Coop, and members' equity
related to the KFC Coop's Taco Bell operations including retained earnings from
prior years of $518,347. In exchange for and in consideration for the transfer
of the Taco Bell assets and liabilities to the Taco Bell Coop, the Taco Bell
Coop transferred to the KFC Coop the original issue of one share of Taco Bell
Coop membership common stock for each tendering member's share of the KFC Coop's
membership common stock and one share of Taco Bell Coop store common stock for
each share of the KFC Coop's store common stock owned by each tendering member.
The Taco Bell Coop's obligation to reimburse the KFC Coop for the
intercompany liability is reflected in a promissory note at 7.75% for a maximum
six month period. The original principal amount of $8,608,568 is collateralized
by security interests granted by the Taco Bell Coop to the
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<PAGE> 23
KFC Coop pursuant to a security agreement. As of April 30, 1999, the remaining
principal balance on the note was $378,592, excluding accrued but unpaid
interest.
The KFC Coop and Taco Bell Coop entered into the Agreement and Plan of
Corporate Separation, in part, so that Taco Bell operators could become members
of a concept purchasing cooperative in which only Tricon and Taco Bell
franchisees are members and the members of the KFC Coop would be members of a
concept purchasing cooperative in which only Tricon and KFC franchisees are
members.
The success of the Unified Co-op depends on management's ability to
continue to integrate the purchasing operations of the KFC Coop and Tricon's
Supply Chain Management, including operational, financial and management
information systems.
The following is a discussion and analysis of the financial condition
and the condensed consolidated results of operations of the KFC Coop for the
three months ended April 30, 1999. The results of operations for the three
months ended April 30, 1999, are not necessarily indicative of the operating
results for the entire year.
RESULTS OF OPERATIONS
Second Three Months of Fiscal 1999 Compared to the Second Three Months of
Fiscal 1998
The KFC Coop's corporate reorganization has materially affected its
results of operations. As a result of the corporate reorganization, the KFC
Coop's primary source of revenues effective March 1, 1999 has been payments
pursuant to the KFC Coop's Purchasing Program Management Agreement with the
Unified Coop. Because net sales previously recorded by the KFC Coop became net
sales of the Unified Coop effective March 1, 1999, the KFC Coop's net sales for
the three months ended April 30, 1999, decreased significantly from the same
period ended April 30, 1998. Set forth below is comparative information
concerning net sales of the KFC Coop and the Unified Coop for the relevant
periods.
<TABLE>
<CAPTION>
SALES
(dollars in thousands)
QUARTER ENDED 4/30/99 QUARTER ENDED 4/30/98
--------------------- ---------------------
<S> <C> <C>
KFC Coop $ 61,819 $153,741
Unified Coop 104,699 N/A
-------- --------
$166,518 $153,741
======== ========
</TABLE>
Aggregate sales of the KFC Coop and the Unified Coop increased by
$12,777,000 or 8.3% for the three months ended April 30, 1999 compared to the
same quarter in 1998. Of the aggregate amount, food and packaging sales
increased by $11,936,000 or 9%, in part due to the Unified Coop's implementation
of the Pizza Hut purchasing program which contributed $23,237,000 in food and
packaging sales. Combined sales for KFC-Canada, Dairy Queen, Long John Silvers
and
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<PAGE> 24
Fazoli's decreased by $17,485,000. The decrease is in part a result of the
termination of those programs at the time of the formation of the Unified Co-op
and the focus solely on the three Tricon brands (KFC, Taco Bell and Pizza Hut).
KFCU.S. food and packaging sales increased by $4,221,000 for the three months
ended April 30, 1999, compared to the same quarter in 1998. Aggregate equipment
sales for the second fiscal quarter 1999 increased $1,256,000 over 1998.
KFC-U.S. equipment sales increased by $2,969,000. This increase was mitigated by
the decrease in volumes as a result of the termination of purchasing programs
related to the nonTricon brands, similar to food and packaging, as discussed
previously.
For the quarter ended April 30, 1999 and future quarters, the KFC Coop
will generally recognize its portion of the income (loss) generated through the
Unified Co-op in accordance with the Purchasing Program Management Agreement.
Included in the income statement as of April 30, 1999, is $618,926 which
represents the KFC Coop's share of the profit generated from the Unified Co-op.
In accordance with the Operating Agreement of the Unified Co-op, the operations
of the three concept coops were assigned to the Unified Co-op and the synergies
in purchasing, in addition to the sharing of expenses, are expected to result in
an overall savings to the three brands. Future quarters for the KFC Coop will
primarily reflect its share of earnings from the Unified Co-op. For the two
months ended April 30, 1999, Taco Bell Coop's and Pizza Hut Coop's equity in
earnings of the Unified Co-op were $49,121 and $(443,562), respectively.
A comparison of selling, general and administrative expenses for the
quarters ended April 30, 1999 and 1998 reflects a significant decrease. The 1999
quarter reflects expense through February 28, 1999. On March 1, 1999, with the
formation of the Unified Co-op, the employees of the KFC Coop and Tricon's
Supply Chain Management became employees of the Unified Co-op.
As part of the formation of the Unified Co-op, Kenco Insurance Agency,
Inc., a subsidiary of the KFC Coop, was transferred to the Unified Co-op. Before
the transfer, Kenco declared a dividend payable to the KFC Coop in the amount of
$902,669, representing earnings before March 1, 1999, the effective transfer
date.
Income before patronage dividend and income taxes increased by $229,723
or 37.8% which is attributable to the higher sales volumes for KFC-U.S. offset
by the absorption of various expenses in the formation of the Unified Co-op.
These expenses are primarily associated with a deferred compensation package for
the former president of the KFC Coop.
Patronage dividend exceeds the income before patronage dividend and
income taxes as a result of a losses in the international and insurance
divisions which are excluded from the patronage dividend calculation for the
quarter.
First Six Months of Fiscal 1999 Compared to the First Six Months of Fiscal 1998
A comparison of material changes between the six months ended April 30,
1999 and the comparable period for the previous year shows:
The corporate reorganization affected the KFC Coop's results of
operations for the six months ended April 30, 1999, similarly to the effects on
the three month period ended April 30,
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<PAGE> 25
1999 discussed above. The chart set forth below reflects the sales volume of the
two entities for the six months periods ending April 30, 1999 and 1998:
<TABLE>
<CAPTION>
NET SALES
(dollars in thousands)
SIX MONTHS ENDED SIX MONTHS ENDED
1999 1998
---- ----
<S> <C> <C>
KFC Coop $240,357 $303,321
Unified Co-op 104,699 N/A
-------- --------
$345,056 $303,321
======== ========
</TABLE>
Total sales for the combined entities increased by $41,735,000 or
13.8%. Total food and packaging sales increased by $37,892,000. Food and
packaging sales related to the Pizza Hut concept increased by $39,724,000, Taco
Bell related sales increased by $10,505,000 and KFC-U.S. related sales increased
by $7,485,000. The year to date reduction in food and packaging attributed to
KFC-Canada, Dairy Queen, Long John Silvers and Fazoli's sales was approximately
$21,000,000. With respect to the equipment business, KFC, Taco Bell and Pizza
Hut related sales had increases of $4,950,000, $4,620,000 and $2,690,000,
respectively. Equipment sales for terminated programs reflected decreases of
approximately $7,800,000.
Income before patronage dividend and income taxes increased by $251,360
primarily due to the reduction in expenses associated with the formation of the
Unified Co-op and the assumption thereof of certain expenses as previously
discussed.
Management believes the current provision for losses on uncollectible
accounts to be adequate.
The provision for patronage dividend for 1999 has been calculated and
accrued on a formula approved by the Board of Directors. For the second quarter
of fiscal 1999, the provision was $1,714,176, an increase of $408,049 over the
same period last year. The increase is primarily associated with the income from
the Unified Co-op based on the allocation to the KFC Coop.
Fiscal 1998 Compared to Fiscal 1997 and Fiscal 1996
Before the KFC Coop's corporate reorganization on March 1, 1999, the
KFC Coop's increases in net sales over the years resulted primarily from
increased sales volume, the expansion of product lines and services, and the
addition of new customers.
Net sales for fiscal 1998 were $664,792,000 compared to $600,132,000
for fiscal 1997, an increase of 10.8%. The fiscal 1998 increase is primarily
attributable to sales related to the Taco Bell concept. Taco Bell food and
packaging sales increased 41.5% while Taco Bell's equipment sales increased 52%
in fiscal 1998. The KFC Coop's overall food and packaging sales increased 13.1%
in fiscal 1998 from fiscal 1997. Overall sales to KFC operators located in the
United States increased approximately 7.0% in fiscal 1998 from fiscal 1997. The
termination
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<PAGE> 26
of sales related to the Fazoli's and Dairy Queen restaurant concepts and the
bankruptcy of Long John Silver's decreased sales during fiscal 1998.
Net sales for fiscal 1997 were $600,132,000 compared to $580,441,000
for fiscal 1996, an increase of 3.4%. The fiscal 1997 increase is primarily
attributable to sales related to the Taco Bell, Dairy Queen and Fazoli's
concepts and sales to KFC Operators located in the United States. The KFC Coop's
food and packaging sales increased 2.2% in fiscal 1997 from fiscal 1996, with
significant percentage increases from the Fazoli's and Long John Silver's
concepts. The KFC Coop's equipment sales increased by 12.2% in fiscal 1997 from
fiscal 1996. Overall sales to KFC-U.S. increased approximately 2.5% in fiscal
1997 from fiscal 1996. KFC-U.S. equipment sales increased by approximately 19.2%
in fiscal 1997. Sales related to the KFC Coop's Canadian subsidiary increased
approximately 1.5% in fiscal 1997 from fiscal 1996, primarily driven by
increased equipment sales. Dairy Queen sales increased approximately 3.3% for
fiscal 1997 compared to fiscal 1996, attributable primarily to an increase in
food and packaging sales. Taco Bell sales increased approximately 9.7% for
fiscal 1997 compared to fiscal 1996. Sales related to Fazoli's increased 5.4% in
fiscal 1997 compared to fiscal 1996.
During fiscal 1997, PepsiCo sold its restaurant distribution
subsidiary, Pepsi Food Systems to AmeriServe Food Distribution, Inc. AmeriServe
is the third largest KFC Coop customer, purchasing goods for distribution to
primarily KFC franchisees. When AmeriServe purchased PFS, it acquired rights
under a distribution agreement which, as amended, may extend until 2007. This
agreement binds Tricon to use AmeriServe distribution services for Tricon-owned
KFC, Taco Bell, and Pizza Hut outlets. The agreement also extends to Taco Bell
and Pizza Hut restaurants sold as part of Tricon's announced program of
refranchising certain Tricon-owned restaurants to existing and new franchisees.
On May 21, 1998, AmeriServe acquired ProSource, Inc. For the year ended October
31, 1997, ProSource was the KFC Coop's sixth largest distributor with total
sales of approximately $19,000,000. AmeriServe has stated in its public filings
that AmeriServe is and will continue to be highly leveraged as a result of the
indebtedness incurred primarily in connection with its acquisition of PFS. The
KFC Coop and its members continue to monitor their relationship with AmeriServe.
The impact of AmeriServe's acquisition of PFS and the merger with ProSource on
the business of the KFC Coop remains uncertain.
The operations of the Canadian subsidiary (in U.S. dollars) contributed
approximately $48,219,000, $51,397,000 and $50,600,000 in sales in fiscal 1998,
1997 and 1996, respectively. The Canadian subsidiary contributed net income of
approximately $14,000 in 1998 and $62,000 in each of 1997 and 1996. As of
October 31, 1998, 1997 and 1996, the Canadian subsidiary had identifiable assets
(in U.S. dollars) of approximately $2,721,000, $3,829,000 and $4,300,000,
respectively, consisting of accounts receivable, property and equipment, and
amortizable costs. As of March 23, 1999, the KFC Coop no longer operates a
purchasing program for operators of KFC outlets in Canada. See "Canadian
Operations."
Income before patronage dividend and income taxes for fiscal 1998 was
$2,757,000, a decrease of $1,396,000 compared to fiscal 1997. The decrease is
primarily attributable to an increase in selling, general and administrative
expenses and an increase in provisions for bad debt reserve. The cost associated
with the operation of the KFC Coop's international subsidiary
-21-
<PAGE> 27
for an entire year in 1998, along with increased travel associated with the KFC
Coop's efforts to focus on working more closely with its customers and
additional board meetings were the primary contributors to the increase in
expenses. The increase in the provision for losses on receivables was a result
of the bankruptcy filing of Long John Silver's in October 1998. Management
believes it has adequately reserved for the impact of the potential loss. The
carrying values of all intangibles are periodically reviewed by management and
impairments are recognized when the expected undiscounted future operating cash
flows derived from operations associated with such intangible assets are less
than their carrying value. As a result of this review all remaining goodwill was
written off in the year ended October 31, 1998 resulting in a charge to earnings
of approximately $303,000.
Income before patronage dividend and income taxes for fiscal 1997 was
$4,153,000, a decrease of $904,000 over fiscal 1996. The decrease is
attributable to an increase in selling, general and administrative expenses,
primarily associated with additional staff positions to support expanded
involvement with the customer base, including services relative to distribution
and project teams, and the related expanded travel costs. The development of the
international division, including new staff positions and startup cost, accounts
for approximately one-third of the total increase in expenses.
Other income (expenses) for fiscal 1998 decreased by $40,000 compared
to fiscal 1997. The two major components of this change were (i) a net decrease
in interest income (expense) of $79,000, due primarily to lower cash balances
available for investment, and (ii) and a $29,000 decline in service charge
income.
Other income (expense) for fiscal 1997 decreased by $45,000 compared to
fiscal 1996. Service charge income doubled in fiscal 1997, primarily as a result
of the payment practice of one distributor customer who chose to make late
payments on a significant number of invoices for which service charges were
collected. Interest income was lower in fiscal 1997 reflecting the effect of the
increased equipment volume on the KFC Coop's cash flow needs.
Selling, general and administrative expenses for fiscal 1998 increased
by approximately 10.9% compared to fiscal 1997. As a percentage of sales, the
expenses remained constant at 2.0% in 1998 compared to fiscal 1997. The KFC Coop
is constantly monitoring costs to provide the required service at the lowest
cost to the stockholder members. Improvements in the area of technology have
allowed the KFC Coop to deliver on this objective.
Selling, general and administrative expenses for fiscal 1997 increased
by approximately 11.5% compared to fiscal 1996. As a percentage of sales, the
expenses went from 1.9% in fiscal 1996 to 2.0% in fiscal 1997. Four factors
contributed to the increase in expenses for fiscal 1997. First, in response to
employees leaving the KFC Coop for other jobs in the headquarters' community, a
wage and salary survey was conducted and, based on the results, a significant
number of employees received upward adjustments in compensation to be
competitive in the Louisville market for comparable positions. Second,
additional staff was added to focus more directly on the franchisee customers.
Field representatives were added to all concepts to work directly with the
franchisees and the franchisor on project teams. Third, five new positions were
added in fiscal 1997 to form the international division. The growth in our
equipment business is
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<PAGE> 28
the fourth contributing factor. Expenses associated with equipment are
significantly higher than expenses associated with food and packaging.
In fiscal 1998, the KFC Coop terminated its business with operators of
non-member concepts in anticipation of establishing the Unified Co-op. During
fiscal 1998, sales to operators of retail outlets of quick service restaurant
systems other than KFC and Taco Bell in the United States were approximately 17%
of sales.
The KFC Coop pays its member stockholders a patronage dividend based on
a formula approved by the board of directors. The percentage of patronage
earnings to be paid as patronage dividends increased for fiscal 1998 compared to
1997. For fiscal 1998, the dividend to be paid is $2,619,000 compared to
$2,890,000 in fiscal 1997.
Net income for fiscal 1998 was $60,000, a decrease of $688,000 compared
to fiscal 1997. The decrease is due primarily to the increase in selling,
general and administrative expenses, and the provision for losses in fiscal 1998
and the board of directors' decision to pay out a greater percentage of
patronage earnings as patronage dividends for fiscal 1998 compared to fiscal
1997.
Net income for fiscal 1997 was $748,000, a decrease of $638,000
compared to fiscal 1996. The decrease is primarily attributable to the increase
in selling, general and administrative expenses in fiscal 1997 and the board of
directors' decision to pay out a greater percentage of patronage earnings as
patronage dividends for fiscal 1997 compared to fiscal 1996.
Inflation
The prices paid for goods and equipment are, of course, subject to the
effects of inflation. In an effort to mitigate the effects of inflation on both
the KFC Coop and its customers, the KFC Coop has made advance purchase
commitments (but did not take delivery, except for certain items, such as cob
corn and equipment for staging) at fixed prices for the volume of goods and
equipment it anticipated selling within a reasonable period of time. The KFC
Coop has provided its customers with the benefit of forward purchase commitments
on price-volatile commodities.
Capital Expenditures
In fiscal 1998, the KFC Coop invested approximately $508,000 in office
furniture and equipment. The KFC Coop spent approximately $174,000 to purchase
personal computers. The balance was expended to upgrade the telephone and voice
mail systems, purchase office furniture, and upgrade hardware and software for
the mainframe computer. Following the corporate reorganization consummated on
March 1, 1999, the KFC Coop does not believe it will have significant capital
expenditures in the coming fiscal year.
Liquidity and Capital Resources
Net working capital at April 30, 1999, was $13,432,140, which was a
decrease of $2,463,343 since October 31, 1998. The investment and loan to the
Unified Coop is the primary use of this working capital. Cash and cash
equivalents, notes receivable from Unified Co-op, notes
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<PAGE> 29
receivable from related parties and deferred income taxes increased by
$2,234,103, $5,865,591, $378,592 and $16,388, respectively. Short term
borrowings, notes payable, accounts payable, accrued expenses, premium deposits,
and patronage dividends decreased by $443,302, $3,000,000, $32,968,021,
$2,792,095, $328,807 and $904,739, respectively. These working capital items
were offset by decreases in accounts receivable, inventories and prepaid
expenses and other current assets of $46,228,849, $5,008,011 and $158,121,
respectively.
The balance sheet is indicative of the transactions associated with the
formation of the Unified Co-op. The KFC Coop, on March 1, 1999, contributed
certain assets, primarily office equipment, to the Unified Co-op as part of the
capital contribution. In addition, the KFC Coop loaned an additional $1,000,000
in the form of a note. The other two members also contributed capital and loans
of equal amounts which provided the Unified Co-op capital and loans of
$6,000,000 to fund its operations and start up. Based on the formulas to
determine working capital requirements by concept (KFC, Taco Bell, and Pizza
Hut) each member of the Unified Co-op is required to provide individually their
funds. Each concept coop has its own line of credit and borrows or funds out of
its own working capital the needs required to support its own programs with the
Unified Co-op. The KFC Coop's current line of credit with its primary bank is
$15,000,000. As of April 30, 1999, KFC Coop had provided the Unified Co-op with
$5,865,591 in working capital loans in addition to its capital contribution. The
KFC Coop also funded, through a note, the spin off of the Taco Bell assets and
equity to the Taco Bell Coop. As of April 30, 1999 the balances of this note was
$378,592.
Since the Unified Co-op provides the operational support for the
concept coops, the balance sheet of the KFC Coop has substantially changed.
After March 1, 1999 receivables and inventory are assets of the Unified Co-op,
so the KFC Coop is winding down the collection of its receivables and
transferring inventory to the Unified Co-op as needed. Once this is
accomplished, the balance sheet of the KFC Coop will primarily consist of cash,
investments in and loans to the Unified Co-op, and members' equity.
YEAR 2000
On March 1, 1999 the software and systems were transferred to the
Unified Co-op. The Year 2000 project is addressing the ability of computer
programs and embedded computer chips to distinguish the 20th century date from
the 21st century date, and is considering our trading partners, application
systems, central & distributed computing infrastructure, telephone
communications, and physical systems. The Unified Co-op has contracted with EDS
data systems to review the results of our Y2K testing and to certify that the
all actions, detailed below, are complete in minimizing risk. The Unified Co-op
is jointly working with Tricon to address certification for our suppliers and
distributors. Contingency plans will be developed for suppliers & distributors
which are considered to be "high risk" to our business operations.
The KFC Coop's core business operations, supported by the Unified
Co-op, are run on a third party software that was purchased from American
Software, Inc (ASI) in 1989, which have been heavily enhanced inhouse. These
systems are comprised of accounting systems, supply chain systems, and
Electronic Data Interchange (EDI). In 1996, the KFC Coop contracted with a
consulting firm to modify all accounting applications, which was completed in
January 1997. The
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<PAGE> 30
KFC Coop's supply chain systems had been modified to be Y2K compliant by the KFC
Coop internal programming staff. Changes to EDI communications have been
upgraded to support either Y2K compliant or noncompliant EDI document
specifications. The Unified Co-op is working closely with their EDI partners as
they are upgrading to facilitate continued uninterrupted operations. The Unified
Co-op is utilizing third party vendors for payroll processing through ADP, which
has provided documentation that their system is Y2K compliant. Non-title
business information is supported by a third party arrangement with Tricon,
which is in the process of providing written documentation that this system is
also Y2K compliant.
The Unified Co-op's core business operations are supported on an IBM
AS/400. IBM AS/400 has been verified as Y2K compliant, both for hardware and
operating systems, which the Unified Co-op has confirmed through independent
testing. The Unified Co-op's NT based LAN environment has been upgraded to the
latest Microsoft Y2K compliant software. The Unified Co-op has researched its
routers, and network equipment vendors, and has been provided with certification
of Y2K compliance. Kenco, a division of the Unified Co-op, operates on a
separate system to support its billing and accounting functions. Kenco will
upgrade its Novell server to address Y2K compliance. The Unified Co-op's desktop
PC's have been upgraded or replaced and the telephone systems' hardware and
software has been upgraded such that both are Y2K compliant. Other hardware
devices have been confirmed to be Y2K compliant by their respective vendors.
Management believes that external total cost incurred in connection
with the Year 2000 project, for the KFC Coop, was approximately $80,000. The KFC
Coop does not expect any subsequent costs to have a material effect on its
results of operations or financial conditions. Any additional cost will be borne
by the Unified Co-op.
Based on the progress the Unified Co-op has made in addressing its Y2K
issues, management does not foresee interruption in normal business activities
or operations associated with its Y2K compliance at this time. However, if the
Unified Co-op identifies significant risks related to its compliance management,
then it will develop a contingency plan to address those risks. Even given best
efforts and execution of the aforementioned planning and testing, disruptions
and unexpected business problems may occur as a result of the Y2K issue.
The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially adversely affect the company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the uncertainty
of the Y2K readiness of customer and thirdparty suppliers, including utility
companies and customers, the company is unable to conclude that the consequences
of Y2K failures will not have a material impact on the company's results of
operations, liquidity or financial position.
The discussion and analysis of the Year 2000 issue included herein
contains forwardlooking statements and is based on management's best estimates
of future events. Risks related to completing the Unified Co-op's Y2K plan
include the availability of resources, the Unified Co-op's ability to timely
discover and correct the potential Y2K sensitive problems which could have a
serious impact on and Unified Co-op's operations, the ability of suppliers to
bring
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<PAGE> 31
their systems into Y2K compliance, and the Unified Co-op's ability to
identify and implement effective contingency plans to address Y2K failures.
FORWARD LOOKING STATEMENTS
This prospectus contains forwardlooking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Although the KFC Coop believes that the forward-looking statements are based
upon reasonable assumptions, there can be no assurance that the forward-looking
statements will prove to be accurate. Factors that could cause actual results to
differ from the results anticipated in the forward-looking statements include,
but are not limited to: economic conditions (both generally and more
specifically in the markets in which the KFC Coop and its customers operate);
competition for the KFC Coop's customers from other distributors; material
unforeseen changes in the liquidity, results of operations, or financial
condition of the KFC Coop's customers; material unforeseen complications related
to addressing the Year 2000 Problem experienced by the KFC Coop, its suppliers,
customers and governmental agencies; and other risks detailed in the KFC Coop's
filings with the Securities and Exchange Commission, all of which are difficult
to predict and any of which are beyond the control of the KFC Coop. The KFC Coop
undertakes no obligation to republish forwardlooking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
WILL I RECEIVE DIVIDENDS AND PATRONAGE DIVIDENDS?
INTRODUCTION
Although the KFC Coop does not engage in business to generate profits,
it may nonetheless, in any fiscal year, generate revenues in excess of amounts
needed to cover expenses, amortize indebtedness, and provide for reasonable
reserves. Thus, even though the KFC Coop endeavors to minimize purchasing fees
and mark-ups on goods and equipment to the least amount required to cover its
anticipated cost of operations, the KFC Coop may have funds available for
distribution to members as patronage dividends.
Dividends may not be declared or paid with respect to Membership Common
Stock. There is no current intention to pay any dividends in the future on Store
Common Stock on a per share basis.
PATRONAGE DIVIDEND PROGRAM
When, in the judgment of the KFC Coop Board of Directors, we should
distribute patronage dividends to our members, it will be done in accordance
with Article 9 of the Bylaws. (Article 9 of the Bylaws is attached to this
prospectus as Exhibit A.) Following, is a brief description of some of the
features of the patronage dividend program:
- Only stockholder members of the KFC Coop are eligible to
receive patronage dividends.
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<PAGE> 32
- Patronage dividends are distributed to members on the basis of
the value of business done by the KFC Coop or through the
Unified Co-op with each member, respectively.
- For fiscal 1999, the KFC Coop Board has determined that the
KFC Coop would pay patronage dividends to its stockholder
members in an aggregate amount equal to the lesser of (a) 80%
of the KFC Coop's total "pre-tax income," as defined in the
KFC Coop's 1999 fiscal year budget, or (b) the amount of the
KFC Coop's total "pre-tax income" for fiscal 1999 reasonably
allocable to sales with respect to which a patronage dividend
is payable.
- Members who are United States residents must consent to report
any patronage dividends received as gross income for federal
income tax purposes. The KFC Coop will file a report with the
IRS currently on Form 1099-PATR, of the amount of patronage
dividends paid to each member.
- Members resident of countries other than the United States
generally are subject to a flat United States tax of 30% on
the amount of patronage dividends paid by the KFC Coop. The
KFC Coop is required to withhold the 30% tax from the
patronage dividend payment, unless the treaty between the
United States and a particular country provides for a lower
withholding rate.
- Solely for the purpose of determining the amount of patronage
dividends distributable to a particular member, our board of
directors may, by resolution, segregate the KFC Coop's
business with members into two distinct pools: (i) the "Title
Pool," under which will be our net earnings from business with
our members in which we take title to goods; and (ii) the
"Non-Title Pool," under which will be our net earnings from
business with our members in which do not take title to goods.
- Revenues generated from our purchasing programs administered
by the Unified Co-op will be the primary source of funds for
any patronage dividends distributed. After the Unified Co-op
makes tax distributions to the concept coops, the Unified
Co-op may distribute additional net cash flow, whether
resulting from patronage or non-patronage sources, to the
concept coops in accordance with their relative annual
patronage for such year. No concept coop is itself entitled to
patronage, but rather may pass such distributions on to its
members in accordance with the provisions of its respective
patronage dividend program. See "The Business - Organizational
Structure - Distributions to Members."
- The KFC Coop is authorized to make patronage dividend
distributions, in part, in a form other than cash. Subject
only to the payment of at least 20% of each member's patronage
dividend payment, if any, in cash, we may pay each stockholder
member all or any portion of any annual patronage dividend in
promissory notes. These notes may be subordinated to any
liabilities or obligations of a member to the KFC Coop.
Additionally, the portion of any
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<PAGE> 33
patronage dividends which would otherwise be payable in cash
to a member may be applied to the payment of any indebtedness,
the repayment of which is in default, owed to us by any such
member to the extent of such indebtedness; provided, however,
that an amount equal to 20% (or, in some cases, 30%) of the
total annual patronage dividends distributable for the
applicable year to any such member must nevertheless be paid
in cash if any such member so requests in writing.
- The KFC Coop paid a cash patronage dividend totaling $2,890,000
in March 1998 for patronage in fiscal 1997. The KFC Coop paid a
patronage dividend totaling $2,619,000 in March 1999 for
patronage in fiscal 1998.
MANAGEMENT OF THE KFC COOP
The KFC Coop's Bylaws provide for a board of directors consisting of up
to 21 members, plus the Chief Executive Officer of the KFC Coop who is a
non-voting ex-officio member of the board. The directors representing each
series are nominated by the stockholder members of each series. Each of Series A
- - H, J, M and N is entitled to elect, as a series, one member of the Board of
Directors, and each of Series K and L is entitled to elect, as a series, two
members of the Board of Directors. A vacancy currently exists with respect to
the Series N director, which vacancy the KFC Coop does not expect to be filled.
In addition, the Board of Directors nominates an independent director,
who is elected by a plurality vote of the outstanding shares of Membership
Common Stock at the annual meeting of members.
The Board of Directors may also from time to time appoint non-voting
members of the Board of Directors who serve unspecified terms at the pleasure of
the Board and upon terms and conditions set by the Board. There are currently
three non-voting members of the Board. Paul Houston, President of Scott's
Restaurants, Inc. in Canada, was appointed a non-voting director in order to
facilitate communication between KFC franchisees in the United States and
Canada. William Hecht, President of Hecht Management Company, was appointed a
non-voting director with the advice and counsel of the Association of Kentucky
Fried Chicken Franchisees, Inc. in order to facilitate communication between the
AKFCF and the KFC Coop. Don Parkinson, Senior Vice President of Franchising for
KFC Corporation, was appointed a non-voting director in order to further
facilitate communication between KFC Corporation and the KFC Coop.
The affirmative vote of three-fifths of all voting members of the Board
of Directors is, except as otherwise specifically provided for in the Bylaws,
the act of the Board of Directors on any matter properly submitted to the Board
of Directors. The Chairman of the Board is elected at each annual meeting by the
affirmative vote of three-fifths of the entire board of directors. The
independent director may receive compensation as determined by the board of
directors. All other members of the Board of Directors serve without
compensation, but are reimbursed for reasonable expenses incurred by virtue of
their duties as directors.
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<PAGE> 34
With the exception of the independent director and the president, all
directors of the KFC Coop are stockholder members of the KFC Coop or an officer,
shareholder, employee or partner of an entity which is stockholder member of the
KFC Coop. All purchases of goods and equipment made by directors or their
affiliates from or through the KFC Coop are made on the same terms and
conditions as purchases made by any other KFC operator.
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<PAGE> 35
The following table lists, in addition to other information, the
current directors and executive officers of the KFC Coop as of the date of this
prospectus, their position with the KFC Coop, and their present principal
occupations.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS
AND YEAR
OFFICES FIRST
CURRENTLY BECAME STORE
HELD WITH DIRECTOR TERM AS PRESENT COMMON PERCENT OF
THE OR DIRECTOR SERIES PRINCIPAL STOCK STORE STOCK
NAME AND ADDRESS 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 **
1624 Lloyd Lane Secretary
Cedar Falls, Iowa 50613
- ------------------------------------------------------------------------------------------------------------------------------------
Christian L. Campbell 48 Director 1999 2001 K Sr. Vice --- ---
Tricon Global Restaurants, Inc. President,
P.O. Box 32070 Tricon Global
Louisville, Kentucky 40232 Restaurants, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
William R. Carden 62 Director 1999 2000 Independent President, The --- ---
The Carden Group Carden Group
4800 Lakewood, Suite 2
Waco, Texas 76702-3222
- ------------------------------------------------------------------------------------------------------------------------------------
Bob Carle 42 Director 1998 1999 D Operator 7 **
6921 Brayton Drive, Suite 105
Anchorage, Alaska 99507
- ------------------------------------------------------------------------------------------------------------------------------------
James G. Cocolin 49 Director 1996 1999 C Operator 10 **
17 James Street
Kingston, Pennsylvania 18704
- ------------------------------------------------------------------------------------------------------------------------------------
Ben E. Edwards 56 Director 1998 ++ 1999 B Operator 10 **
West Texas Foods, Inc.
P.O. Box 64490
Lubbock, Texas 79464
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS
AND YEAR
OFFICES FIRST
CURRENTLY BECAME STORE
HELD WITH DIRECTOR TERM AS PRESENT COMMON PERCENT OF
THE OR DIRECTOR SERIES PRINCIPAL STOCK STORE STOCK
NAME AND ADDRESS AGE KFC COOP OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lois G. Foust 54 Director 1997 2001 L Operator 2 **
4000 Chestnut Avenue
Long Beach, California 90807
- ------------------------------------------------------------------------------------------------------------------------------------
William B. Hecht 59 Non-Voting 1999 --- --- Operator 5 **
P.O. Box 1031 Director
St. Charles, Missouri 63302
- ------------------------------------------------------------------------------------------------------------------------------------
Edward J. Henriquez, Jr. 61 Director 1994 1999 J Operator 12 **
610 Valencia Avenue #503
Coral Gables, Florida 33134
- ------------------------------------------------------------------------------------------------------------------------------------
David G. Neal 52 Director, 1991 + 2000 E Operator 94 1.4
JRN, Inc. Chairman
P.O. Box 1257 of the Board
Columbia, Tennessee 38402
- ------------------------------------------------------------------------------------------------------------------------------------
James D. Olson 48 Director 1997 2000 H President, 266 4.0
Harman Management Corp. Harman
199 First Street, Suite 212 Management
Los Altos, California 94022 Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Don E. Parkinson 56 Non-voting 1999 --- --- Sr. Vice --- ---
P.O. Box 32070 Director President
Louisville, Kentucky 40232 Franchising, KFC
Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Darlene Pfeiffer 61 Director 1997 2001 L Operator 4 **
P.O. Box 1185
Port Ewen, New York 12466
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS
AND YEAR
OFFICES FIRST
CURRENTLY BECAME STORE
HELD WITH DIRECTOR TERM AS PRESENT COMMON PERCENT OF
THE OR DIRECTOR SERIES PRINCIPAL STOCK STORE STOCK
NAME AND ADDRESS AGE KFC COOP OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles E. Rawley, III 48 Director 1999 2001 K President and --- ---
Tricon Global Restaurants, Inc. Chief Operating
P.O. Box 32070 Officer, KFC U.S.A.
Louisville, Kentucky 40232
- ------------------------------------------------------------------------------------------------------------------------------------
James B. Royster 60 Director, Vice 1998 ++ 2000 A Operator 4 **
1110 West Michigan Avenue Chairman
Jackson, Michigan 49202
- ------------------------------------------------------------------------------------------------------------------------------------
Dean M. Sorgdrager 36 Director 1996 1999 G Operator 1 **
6851 Beach Boulevard
Buena Park, California 90620
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald J. Young 40 Director 1993 2000 M Operator 14 **
El Rancho Food Services
2929 Melville Street
Saskatoon, Saskatchewan Canada
S7J 5A6
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel E. Woodside 52 Director, 1999 -- -- President, --- ---
Unified Foodservice Purchasing Co-op President, Unified Co-op
950 Breckenridge Lane Chief
Louisville, Kentucky 40207 Executive
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
William L. Bickley 46 Chief 1999 --- --- Chief Financial --- ---
Unified Foodservice Purchasing Co-op Financial Officer, Unified
950 Breckenridge Lane Officer Co-op
Louisville, Kentucky 40207
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS
AND YEAR
OFFICES FIRST
CURRENTLY BECAME STORE
HELD WITH DIRECTOR TERM AS PRESENT COMMON PERCENT OF
THE OR DIRECTOR SERIES PRINCIPAL STOCK STORE STOCK
NAME AND ADDRESS AGE KFC COOP OFFICER EXPIRES REPRESENTED OCCUPATION OWNERSHIP OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alice LeBlanc 41 Vice 1998 --- --- Vice President, --- ---
Unified Foodservice Purchasing Co-op President Unified Co-op
950 Breckenridge Lane
Louisville, Kentucky 40207
- ------------------------------------------------------------------------------------------------------------------------------------
All voting and non-voting directors and officers as a group (20 persons)+++ 435 7.9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Less than one-half of one percent.
+ Mr. Neal has previously served on the Board 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 as a
representative of Series E in February 1991.
++ Previously served as a director appointed by the National
Franchisee Advisory Council.
+++ Each director, other than Messrs. Woodside and Carden, is, or
is affiliated with a member which is, the owner of one share
of Membership Common Stock. All voting and non-voting
directors and officers as a group (20 persons) own 13 shares
of Membership Common Stock, 2.4 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. Woodside and Carden,
beneficially owns. Except as required by law, Store Common
Stock has no voting rights. Messrs. Woodside and Carden are
neither the owners, nor affiliated with the owners, of any
Membership or Store Common Stock.
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<PAGE> 39
During the last five years, Directors Allen, Carle, Cocolin, Edwards,
Foust, Hecht, Henriquez, Neal, Olson, Pfeiffer, Royster, Sorgdrager, and Young
have been principally engaged in business as Operators, and Mr. Carden has been
owner and President of The Carden Group, a management and financial consulting
company. Charles E. Rawley, III is President and Chief Operating Officer of KFC
U.S.A. Mr. Rawley joined KFC in 1985 as a Director of Operations. He served as
Vice President of Operations for the Southwest, West, Northeast, and
Mid-Atlantic Divisions from 1988 to 1994, when he became Senior Vice President,
Concept Development for KFC. Mr. Rawley assumed his position of Chief Operating
Officer in 1995 and President in 1998. Christian L. Campbell is Senior Vice
President, General Counsel and Secretary of Tricon. He has served in this
position since September 1997. From 1995 to September 1997, Mr. Campbell served
as Senior Vice President, General Counsel and Secretary of Owens Corning, a
building products company. Before joining Owens Corning, Mr. Campbell served as
Vice President, General Counsel and Secretary of Nalco Chemical Company in
Naperville, Illinois, from 1990 through 1994. Don E. Parkinson is Senior Vice
President, Franchising of KFC, a position he has held since 1990.
Since March 1, 1999, Daniel E. Woodside has served as the President and
Chief Executive Officer of the KFC Coop and the Unified Co-op. From September
1997 through February 1999, Mr. Woodside served as Chief Operating Officer of
UniPro Foodservice, Inc. UniPro was formed by the merger of EMCO Food Service
Systems, Inc. and ComSource Independent Food Distribution in September 1997. Mr.
Woodside served as President of EMCO from 1991 to September 1997. Before his
service with EMCO, Mr. Woodside served in various positions with General Foods
Corporation for 21 years.
William L. Bickley is Vice President and Chief Financial Officer of the
KFC Coop. He is also Sr. Vice President and Chief Financial Officer of the
Unified Co-op. Before joining the KFC Coop and Unified Co-op in March 1999, Mr.
Bickley had served PepsiCo, Inc./Tricon Global Restaurants, Inc. Since 1983, his
positions with PepsiCo/Tricon included Vice President, Acquisitions and
Divestitures - Kentucky Fried Chicken (1996 - 1999); Vice President, North
American SmartSourcing-PepsiCo Restaurant Services (1995 - 1996); and Senior
Director, Business Planning - Kentucky Fried Chicken (1992 - 1995).
Alice LeBlanc is Vice President of the KFC Coop and Vice President -
KFC Operations for the Unified Co-op. Ms. LeBlanc previously served as the KFC
Coop's Vice President and General Manager - KFC Domestic & Canada and Vice
President and General Manager of Canadian Operations. From 1992 to 1996, Ms.
LeBlanc was the Director of Purchasing for Cara Operations Limited. From 1985 to
1992, she was Director of Purchasing and Technical Services for PepsiCo Food
Service International.
Except for Mr. Woodside, all officers of the KFC Coop who are also
directors serve in such offices on a limited, part-time basis without
remuneration.
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<PAGE> 40
EXECUTIVE COMPENSATION
The following table shows all cash compensation paid by the KFC Coop
for the years ended October 31, 1998, 1997 and 1996 to the most highly
compensated executive officers, whose total cash and cash-equivalent
remuneration exceeded $100,000 during fiscal 1998(1).
Summary of Annual Compensation
------------------------------
<TABLE>
<CAPTION>
Fiscal All Other
Name and Principal Position Year Salary Bonus(2) Compensation(3)
- --------------------------- ---- ------ -------- ---------------
<S> <C> <C> <C> <C>
Thomas D. Henrion 1998 $212,127 $90,640 16,200
President and Chief Executive 1997 208,460 49,940 20,583
Officer 1996 191,798 58,466 22,578
William V. Holden 1998 111,011 27,126 8,926
Vice President and Chief Financial 1997 103,665 16,500 12,010
Officer 1996 95,421 16,432 12,444
John W. Inwright 1998 108,937 27,192 8,896
Vice President 1997 103,178 18,150 12,317
1996 88,656 20,000 11,929
Kenneth L. Hartung 1998 108,233 26,512 8,755
Vice President 1997 102,733 16,838 11,802
1996 93,896 15,288 12,662
Alice LeBlanc 1998 87,216 24,720 72,922
Vice President
</TABLE>
(1) As of March 1, 1999, the executive officers of the KFC Coop are:
Daniel E. Woodside, President and Chief Executive Officer; William L.
Bickley, Chief Financial Officer; and Alice LeBlanc, Vice President.
(2) The KFC Coop had bonus programs for all officers under which, if
they achieved certain objectives, they received a bonus of not greater
than 40% of their base salaries.
(3) Includes employer contribution to the KFC Coop's Money Purchase
Pension Plan in fiscal 1998 as follows: Mr. Henrion $11,200; Mr. Holden
$8,926; Mr. Inwright $8,896; Mr. Hartung $8,755; and Ms. LeBlanc
$6,105. For Mr. Henrion, the fiscal 1998 amount includes $5,000,
representing the value to Mr. Henrion of the KFC Coop's payments with
respect to the insurance policy described below. For Ms. LeBlanc, the
fiscal 1998 amount includes $66,817 paid
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<PAGE> 41
to Ms. LeBlanc in connection with moving expenses and the sale of her
home to relocate from Toronto to the KFC Coop's headquarters in
Louisville.
In addition, as part of the KFC's Coop's corporate reorganization
discussed above, Thomas D. Henrion, the KFC Coop, and the Unified Co-op executed
a Separation and Consulting Agreement. The Separation and Consulting Agreement
provided for Mr. Henrion to resign his employment on March 1, 1999 and,
thereafter, to provide consulting services to the Unified Co-op and KFC Coop for
two years. Mr. Henrion also agreed to non-compete provisions whereby, for two
years following the date of the Separation and Consulting Agreement, Mr. Henrion
will not work for companies that are specifically listed in the Separation and
Consulting Agreement. Under the Separation and Consulting Agreement, Mr. Henrion
was paid $500,000 on March 1, 1999 and will be paid $456,300 on the first
business day of January 2000 along with health insurance coverage for 10 years.
COMPENSATION OF DIRECTORS AND OFFICERS
No director, other than the Independent Director, receives any
remuneration from the KFC Coop other than reimbursement for long distance
travel, hotel accommodations, and $400 per board meeting for out-of-pocket
expenses. The Independent Director receives an annual fee of $10,000, plus fees
of $1,000 per board meeting attended.
As of March 1, 1999, the KFC Coop pays no salary or other similar
compensation to any officer or employee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Personnel Committee is comprised of Messrs. Houston, Olson, and Ms.
Pfeiffer and met four times during fiscal 1998. Before his resignation as a
director, Robert P. Peck served as a member of the Personnel Committee during
fiscal 1998. Pursuant to a former provision of the KFC Coop's Bylaws, Mr. Peck,
as Chairman of the Board, served as the KFC Coop's Chief Executive Officer until
May 1993; he received no compensation from the KFC Coop except for the
reimbursement for expenses as set forth above in "Compensation of Directors."
The Personnel Committee considers personnel policy and practices of the KFC Coop
and makes recommendations to the Board of Directors concerning the compensation
of all officers.
TRANSACTIONS WITH STOCKHOLDERS, DIRECTORS AND OFFICERS
All present voting members of the Board of Directors and nominees for
the Board, except the Independent Director, are operators or represent operators
and have purchased or may purchase equipment and supplies from the KFC Coop or
from distributors who purchase from the KFC Coop. All purchases by directors and
nominees or their affiliates from the KFC Coop are made on the same terms and
conditions as purchases by any other operator. Several operators are also in the
business of purchasing equipment and supplies for sale and distribution to other
operators and may purchase such equipment and supplies from the KFC Coop.
-36-
<PAGE> 42
KFC COOP STOCK
LACK OF MARKET FOR KFC COOP STOCK
No class of the KFC Coop's capital stock is or will be listed on an
exchange or traded in any other public trading market. All KFC Coop stock is and
will be issued only to operators of KFC concept outlets, including Tricon, and
the NCAC. You should purchase KFC Coop stock to participate in our programs we
offer for members, including the patronage dividend program and purchasing
programs, and to participate in management through the election of directors.
You should not purchase KFC Coop stock with any expectation of a return on your
investment through stock appreciation or per share dividends. Membership Common
Stock is priced at $10 per share and Store Common Stock is priced at $400 per
share. Transfers of KFC Coop stock to third parties are restricted.
Consequently, no market exists, nor is expected to develop for these membership
interests.
DESCRIPTION OF KFC COOP STOCK
Introduction
Each qualified operator desiring membership in the KFC Coop is required
to purchase one share of Membership Common Stock and that number of shares of
Store Common Stock which equals the total number of KFC outlets located in the
United States owned and operated by such person, firm or entity. For purposes of
calculating the number of shares of Store Common Stock required to be purchased
by a KFC 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: (1) a five year or shorter license, (2) a limited menu, (3)
sales from a kiosk or other transportable unit, (4) 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, (5) anticipated sales volume less than
anticipated sales volume for a traditional retail unit, (6) sales in conjunction
with sales of another food concept, or (7) such other characteristics as the KFC
Coop Board of Directors may determine are indicative of a nontraditional retail
outlet. If a member at any time becomes an operator of additional KFC outlets,
he or she is required to purchase one additional share of Store Common Stock for
each such additional traditional retail outlet or for each two additional
non-traditional retail outlets, as the case may be.
KFC Coop stock is available to all KFC operators on a nondiscriminatory
basis and the purchase of our stock is completely voluntary. While KFC operators
do not need to own stock in the KFC Coop to purchase goods and equipment from or
through us, our bylaws require that more than 50% of the value of our business
be conducted with KFC Coop members.
-37-
<PAGE> 43
KFC Coop Membership Common Stock
The KFC Coop is authorized to issue 2,000 shares of Membership Common
Stock, no par value. The following description of Membership Common Stock is
qualified in all respects by the KFC Coop certificate of incorporation and
bylaws.
Issuance in Series. Membership Common Stock may be offered and issued
in 26 series, designated A-Z. Except for Series H, K and L, which consist of one
share each, the KFC Coop Board of Directors has the right, power and authority
to establish and increase or decrease the number of shares of each series,
except that in no event will the aggregate number of authorized shares of Series
A-J and M-Z, inclusive, exceed 1,997 shares.
Operators of KFC outlets, except for Tricon, Harman, and the NCAC are
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 is deemed to own or operate, a KFC retail outlet in
one or more of the areas set forth in the corresponding line(s) of Column 2
below:
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2
-------- --------
SERIES AREA
------ ----
<S> <C>
A Indiana, Michigan, Ohio and West Virginia
B Arkansas, Colorado, Kansas, Missouri, New Mexico,
Oklahoma and Texas
C Connecticut, Delaware, District of Columbia, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey,
New York, Pennsylvania, Rhode Island and Vermont
D Alaska, Hawaii, Idaho, Montana, Oregon, Washington
and Wyoming
E Alabama, Florida, Georgia, Kentucky, Louisiana,
Mississippi, North Carolina, South Carolina,
Tennessee and Virginia
F Illinois, Iowa, Minnesota, Nebraska, North Dakota,
South Dakota and Wisconsin
G Arizona, California, Nevada and Utah
J Foreign Territories other than Canada
M Canada
</TABLE>
-38-
<PAGE> 44
Harman, Tricon and the NCAC shall be entitled to purchase one share of
one of the Series of Membership Common Stock set forth below opposite its name:
<TABLE>
<CAPTION>
STOCKHOLDER MEMBER SERIES
------------------ ------
<S> <C>
Harman H
KFC National Management Company K
NCAC L
</TABLE>
However, if Harman shall at any time own or operate less than 100 KFC
outlets in the United States, then the share of Membership Common Stock owned by
Harman shall be exchanged for one share of Membership Common Stock of such other
Series as it is eligible to purchase.
Voting Rights. Each KFC Coop member who holds a share in Series A-H, J
and M is entitled to cast one vote to elect one member of the KFC Coop Board of
Directors to represent its series. As the sole holder of Series K and L,
respectively, KFC National Management Company and NCAC are entitled to cast one
vote to elect two members of the KFC Coop Board of Directors to represent its
series. As to all other matters on which each KFC Coop member is entitled to
vote, each share of Membership Common Stock is entitled to one vote on each
matter.
Limitations on Ownership and Transfer; Redemption. Membership Common
Stock may be issued only to persons who satisfy the membership requirements, as
set forth above. In general, no more than one share of Membership Common Stock
will be issued to any one KFC operator. The KFC Coop Bylaws reflect our 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 Membership Common 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 is to be deemed to own the share of
Membership Common Stock.
The KFC Coop Bylaws set forth who is entitled to vote certain shares of
Membership Common Stock in situations involving individuals who, through
different corporations, partnerships or other affiliations, may have an interest
in more than one share of Membership Common Stock. In general, the KFC 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 Membership Common
Stock.
-39-
<PAGE> 45
Unless otherwise prohibited by law, the KFC Coop will promptly redeem
shares of Membership Common Stock held by persons, firms or entities who no
longer qualify as KFC Coop members. The redemption price for each share of
Membership Common Stock is $10.00 which will be payable in cash, except that, if
the KFC Coop is prohibited by law from redeeming such share in cash because the
payment would impair the capital of the KFC Coop, the KFC Coop will issue a
non-interest bearing promissory note payable whenever the KFC Coop is no longer
prohibited by law from making such payment. Membership Common Stock is not
transferrable and may only be redeemed by the KFC Coop, as discussed above.
Liquidation Rights. In the event of any dissolution, liquidation, or
other disposition of our assets, after the KFC Coop pays all of its debts and
liabilities, the holders of Membership Common Stock will be entitled to receive
$10.00 per share. The remaining assets of the KFC Coop will be distributed to
the holders of Store Common Stock, as described below.
General. Membership Common Stock has no preemptive rights. The shares
of Membership Common Stock issued in accordance with the terms and conditions of
this prospectus are, when issued, duly authorized, validly issued, fully paid
and nonassessable and the holders thereof are not liable for any payment of the
KFC Coop's debts.
KFC Coop Store Common Stock
The KFC Coop is authorized to issue 10,000 shares of Store Common
Stock, no par value. The following description of Store Common Stock provisions
is qualified in all respects by the KFC Coop certificate of incorporation and
bylaws.
Voting Rights. The holders of Store Common Stock are not entitled by
virtue of their ownership of Store Common Stock to vote for directors, to
participate in meetings or management of the KFC Coop or to vote in any
proceedings, except as required by law.
Limitations on Ownership and Transfer; Redemption. Only holders of
record of Membership Common Stock are permitted to purchase shares of Store
Common Stock.
In the event that a holder of Store Common Stock receives a bona fide
offer to purchase its shares of Store Common Stock and such holder desires to
sell or otherwise convey such shares, such shareholder must first offer to sell
the shares to the KFC Coop on the same terms as stated in the offer. The KFC
Coop may repurchase the shares on the terms set forth in the offer. However, if
the KFC Coop rejects the offer or fails to respond to the offer within 90 days,
the holder of the shares of Store Common Stock may sell or otherwise transfer
such shares to the person named in the bona fide offer on terms no less
favorable than those set forth in the bona fide offer. However, such a transfer
may only be made to a person, firm or entity which qualifies as a member of the
KFC Coop. The KFC Coop may also, from time to time, purchase shares of Store
Common Stock at the request of holders who no longer operate KFC outlets, with
respect to the offered shares.
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<PAGE> 46
Distribution and Liquidation Rights. In the event of any distributions
by the KFC Coop to our members, liquidation, or other disposition of our assets,
after the payment of all of our debts and liabilities and the payment of $10.00
per share to holders of Membership Common Stock, our remaining assets will be
distributed to the holders of Store Common Stock on the basis of each member's
past patronage insofar as such distribution is practicable.
General. Store Common Stock has no preemptive or conversion rights. The
shares of the Store Common Stock issued in accordance with the terms and
conditions of this prospectus are, when issued, duly authorized, validly issued,
fully paid and nonassessable and the holders thereof are liable for any payment
of the KFC Coop's debts.
MISCELLANEOUS
INDEMNIFICATION AND LIMITS ON MONETARY LIABILITY
Article 8 of our Certificate of Incorporation provides that a director
will not be personally liable to the KFC Coop or its stockholder members for
monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to the KFC Coop
or its members, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for the payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
Delaware law, or (4) for any transaction from which the director derived an
improper personal benefit. Only directors, not officers, may benefit from the
provisions of Article 8. The limitations of liability extend only to the
elimination of a recovery of a monetary remedy. Members may still seek equitable
relief, such as an injunction, against any action by a director that is
inappropriate. This provision does not affect the directors' responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
Article 7 of our Bylaws provides for the indemnification of officers or
directors who are party to or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative. Such indemnification is against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred, if the officer or director acted in good faith
and reasonably believed his or her actions were not opposed to the best
interests of the KFC Coop. Officers and directors are not indemnified for
criminal actions where they have reason to believe their conduct is unlawful, or
in connection with any matter where the officer or director is adjudged to have
been liable for negligence or misconduct in the performance of his or her duty,
unless a court deems such officer or director to be fairly and reasonably
entitled to indemnity.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, is permitted for directors and officers of the KFC Coop
pursuant to the provisions discussed above, the KFC Coop has been advised that
the opinion of the Securities and Exchange Commission is that such
indemnification is against public policy and, therefore, unenforceable.
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<PAGE> 47
WHERE YOU CAN FIND MORE INFORMATION
You can obtain any document discussed in this prospectus by requesting
it in writing or by telephone from the KFC Coop at the following address:
Stockholder Records
KFC National Purchasing Cooperative, Inc.
950 Breckenridge Lane
Louisville, Kentucky 40232
(502) 896-5900
If you request any documents from us, we will mail them to you by first
class mail, or another equally prompt means, within one business day after we
receive your request. The KFC Coop intends to provide our members with annual
reports containing audited financial statements and quarterly reports containing
unaudited financial statements.
LEGAL PROCEEDINGS
On July 31, 1998, the KFC Coop filed a complaint in Jefferson County
Kentucky Circuit Court against Fred Jeffrey, a former consultant to the KFC
Coop, and his wife, Julianna Jeffrey, alleging breach of contract, conversion
and unjust enrichment. The KFC Coop alleges in its complaint that the Jeffreys
breached certain contracts with the KFC Coop by not fully repaying a $600,000
loan from the KFC Coop and for converting certain funds that were to be used to
repay that loan. At the time of the filing the complaint, the Jeffreys were in
default for approximately $194,037 under the loan. The Jeffreys each filed
separate answers to the complaint, denying that they are in default and
asserting that the loan was non-recourse in nature. Fred Jeffrey filed a
counterclaim against the KFC Coop, alleging that in 1991 the KFC Coop
fraudulently induced him into selling his business and becoming a consultant to
the KFC Coop, and various other claims including wrongful termination of his
consulting agreement with the KFC Coop. The matter is in discovery. Management,
after consultation with legal counsel, believes that these claims by Mr. Jeffrey
are without merit.
LEGAL MATTERS
Brown, Todd & Heyburn PLLC, 400 West Market Street, 32nd Floor,
Louisville, Kentucky, 40202 has passed upon the legality of the securities we
are offering pursuant to this prospectus.
"Dairy Queen," "Long John Silver's," "Fazoli's," "Taco Bell," "Pizza
Hut" and "KFC" are registered trademarks of American Dairy Queen Corporation,
Long John Silver's Inc., Seed Restaurant Group, Inc., Taco Bell Corp., Pizza
Hut, Inc. and KFC Corporation, respectively and are used in these materials for
identification purposes only. The KFC Coop is not affiliated with American Dairy
Queen Corporation, Long John Silver's Inc., Seed Restaurant Group, Inc., Taco
-42-
<PAGE> 48
Bell Corp., Pizza Hut, Inc. and KFC Corporation, except that KFC Corporation is
a stockholder member of the KFC Coop.
EXPERTS
The consolidated financial statements and schedule of the KFC Coop as
of October 31, 1998 and for the year ended October 31, 1998, have been included
herein in reliance upon the reports of PricewaterhouseCoopers LLP, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements and schedule of the KFC Coop as of
October 31, 1997, and for each of the years in the two-year period ended October
31, 1997, have been included herein in reliance upon the reports of KPMG Peat
Marwick LLP, now KPMG LLP, independent accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
-43-
<PAGE> 49
KFC National Purchasing Cooperative, Inc.
Index to Condensed Consolidated Financial Statements and
Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Accountants F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets
October 31, 1998 and 1997 F-3
Consolidated Statements of Income for the years ended
October 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Members' Equity for the years ended
October 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
October 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Condensed Consolidated Statements of Income for the three months ended
April 30, 1999 and 1998 (Unaudited) F-18
Condensed Consolidated Statements of Income and Expense for the six months ended
April 30, 1999 and 1998 (Unaudited) F-19
Condensed Consolidated Balance Sheets
April 30, 1999 and October 31, 1998 (Unaudited) F-20
Consolidated Statements of Cash Flows for the six months ended
April 30, 1999 and 1998 (Unaudited) F-21
Notes to Condensed Consolidated Financial Statements F-22
</TABLE>
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
KFC National Purchasing Cooperative, Inc.
In our opinion, the accompanying consolidated balance sheet as of October 31,
1998 and the related consolidated statements of income, members' equity and cash
flows for the year then ended present fairly, in all material respects, the
financial position of KFC National Purchasing Cooperative, Inc. (d/b/a
FoodService Purchasing Cooperative, Inc.) and Subsidiaries at October 31, 1998,
and the results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Louisville, Kentucky
January 26, 1999
F-1
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
KFC National Purchasing Cooperative, Inc.
We have audited the accompanying consolidated balance sheet of KFC National
Purchasing Cooperative, Inc. (d/b/a FoodService Purchasing Cooperative, Inc.)
and Subsidiaries as of October 31, 1997, and the related consolidated statements
of income, members' equity, and cash flows for each of the years in the two-year
period ended October 31, 1997. These consolidated financial statements are the
responsibility of the Cooperative's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of KFC National
Purchasing Cooperative, Inc. and Subsidiaries as of October 31, 1997, and the
results of their operations and their cash flows for each of the years in the
two-year period ended October 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
KPMG LLP
Louisville, Kentucky
December 8, 1997
F-2
<PAGE> 52
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
CONSOLIDATED BALANCE SHEETS
October 31, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 272 $ 160
Accounts and note receivable, less allowance for losses of
$1,393 in 1998 and $1,409 in 1997 51,654 41,040
Inventories:
Food 3,306 1,662
Equipment and promotional items 3,763 3,853
-------- --------
7,069 5,515
Current note receivable from related party - 60
Prepaid expenses 158 130
Deferred income taxes 635 614
-------- --------
Total current assets 59,788 47,519
-------- --------
Office equipment, at cost, less accumulated depreciation of
$3,275 in 1998 and $3,039 in 1997 832 660
Note receivable from related party, excluding current portion 178 118
Note receivable - 832
Deferred income taxes 225 108
Other assets 315 563
-------- --------
$ 61,338 $ 49,800
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Short-term borrowings $ 444 $ 572
Note payable 3,000 -
Accounts payable 33,554 21,124
Accrued expenses 3,496 4,299
Premium deposits 329 329
Patronage dividend 2,619 2,890
-------- --------
Total current liabilities 43,442 29,214
Long-term note payable - 3,000
-------- --------
Total liabilities 43,442 32,214
-------- --------
Commitments and contingencies
Members' equity:
Membership common stock, voting, no par value; authorized, 2,000 shares;
issued and outstanding, 707 shares in 1998 and 665 shares in 1997 7 7
Store common stock, no par value; authorized, 10,000 shares; issued and
outstanding, 6,730 shares in 1998 and 6,091 shares in 1997 1,951 1,700
Unrealized gain/loss on marketable equity security 33 -
Retained earnings 15,990 15,930
Currency translation adjustment (85) (51)
-------- --------
17,896 17,586
-------- --------
$ 61,338 $ 49,800
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 53
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
CONSOLIDATED STATEMENTS OF INCOME
for the years ended October 31,1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 664,792 $ 600,132 $ 580,441
Cost of goods sold 648,046 583,891 564,370
--------- --------- ---------
Gross profit 16,746 16,241 16,071
Selling, general and administrative expenses 13,602 12,266 11,006
Provision for losses on receivables 700 175 406
Other income (expense):
Service charges 158 187 90
Interest income 247 339 508
Interest expense (272) (285) (270)
Miscellaneous 180 112 70
--------- --------- ---------
313 353 398
--------- --------- ---------
Income before patronage dividend
and income taxes 2,757 4,153 5,057
Patronage dividend 2,619 2,890 2,762
--------- --------- ---------
Income before income taxes 138 1,263 2,295
Provision for income taxes 78 515 909
--------- --------- ---------
Net income $ 60 $ 748 $ 1,386
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 54
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
for the years ended October 31, 1998, 1997 and 1996
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ UNREALIZED
AMOUNT CURRENCY GAIN/LOSS
---------------------- RETAINED TRANSLATION EQUITY
SHARES MEMBERSHIP STORE EARNINGS ADJUSTMENT SECURITY
-------- ---------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1995 $ 6 $ 1,582 $ 13,796 $ (35) --
Proceeds from sales of common stock:
Membership, at $10 per share 55
Store, at $400 per share 225 90
Retirement of common stock:
Membership, at $10 per share (17)
Store, at $400 per share (58) (22)
Cost in connection with sales of
common stock (4)
Net income for the year ended
October 31, 1996 1,386
Currency translation adjustment 3
---------- --------- ---------- ------------ ----------
Balance, October 31, 1996 6 1,646 15,182 (32) --
Proceeds from sales of common stock:
Membership, at $10 per share 77 1
Store, at $400 per share 331 132
Retirement of common stock:
Membership, at $10 per share (36)
Store, at $400 per share (186) (75)
Cost in connection with sales of
common stock (3)
Net income for the year ended
October 31, 1997 748
Currency translation adjustment (19)
---------- --------- ---------- ------------ ----------
Balance, October 31, 1997 7 1,700 15,930 (51) --
Proceeds from sales of common stock:
Membership, at $10 per share 64
Store, at $400 per share 800 320
Retirement of common stock:
Membership, at $10 per share (22)
Store, at $400 per share (161) (64)
Cost in connection with sales of
common stock (5)
Net income for the year ended
October 31, 1998 60
Currency translation adjustment (34)
Gain/loss on marketable equity security $ 33
---------- --------- ---------- ------------ ----------
Balance, October 31, 1998 $ 7 $ 1,951 $ 15,990 $ (85) $ 33
========== ========= ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 55
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended October 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 60 $ 748 $ 1,386
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 376 377 418
Provision for losses on receivables 700 175 406
Impairment of goodwill 303 -- --
(Gain) loss on disposals 4 7 (1)
Deferred income tax expense (benefit) (138) (23) 44
Changes in operating assets and liabilities:
Increase in accounts receivable (11,314) (3,893) (3,207)
(Increase) decrease in inventories (1,554) (3,037) 462
Decrease in refundable income taxes -- 32 6
(Increase) decrease in prepaid expenses (28) 3 (52)
Increase (decrease) in accounts payable 12,430 (953) 2,318
Increase (decrease) in accrued expenses (803) 1,272 789
Decrease in premium deposits -- (10) (23)
Increase (decrease) in patronage dividend (271) 128 1,516
-------- ------- -------
Net cash provided by (used in) operating activities (235) (5,174) 4,062
-------- ------- -------
Cash flows from investing activities:
Repayments of loan from related party -- 56 79
Repayments of note receivable 832 -- 12
Increase in other assets (11) (446) (74)
Additions to office equipment, net (508) (322) (291)
Purchase of marketable equity security (55) -- --
Proceeds from sale of office equipment -- -- 17
-------- ------- -------
Net cash provided by (used in) investing activities 258 (712) (257)
-------- ------- -------
Cash flows from financing activities:
Increase (decrease) in short-term borrowings, net (128) (866) 561
Proceeds from sale of stock, net of costs 315 130 86
Retirement of stock (64) (75) (22)
-------- ------- -------
Net cash provided by (used in) financing activities 123 (811) 625
-------- ------- -------
Effect of change in exchange rates on cash and cash equivalents (34) (19) 3
Net increase (decrease) in cash and cash equivalents 112 (6,716) 4,433
Cash and cash equivalents - beginning of year 160 6,876 2,443
-------- ------- -------
Cash and cash equivalents - end of year $ 272 $ 160 $ 6,876
======== ======= =======
Supplemental information:
Income taxes paid $ 237 $ 468 $ 937
======== ======= =======
Interest paid $ 273 $ 285 $ 270
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 56
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The primary purpose of KFC National Purchasing Cooperative, Inc. (d/b/a
FoodService Purchasing Cooperative, Inc.) and Subsidiaries (the
Cooperative) is to operate as a central procurement organization, making
volume purchases of various foods, equipment and supplies primarily for
the benefit of Kentucky Fried Chicken (KFC) and Taco Bell retail
operators and their distributors.
KFC Franchisee Purchasing of Canada, Inc., a wholly-owned subsidiary, is
a procurement organization for the benefit of Canadian KFC retail
operators and their distributors. FoodService Purchasing Cooperative
International, Inc., a wholly-owned subsidiary, was formed in 1997 to
provide similar services to international franchisees, other than Canada.
Kenco Insurance Agency, Inc. sponsors and helps administer insurance
programs primarily for KFC franchisees. KFC Franchisee Finance Company,
Inc., another wholly-owned subsidiary, has provided financing for
equipment purchases of KFC franchisees. In view of the overall nature of
its operations, the Cooperative is considered to operate in a single
industry segment. The more significant accounting policies of the
Cooperative are as follows:
A. CONSOLIDATION: The accompanying financial statements include the
accounts of KFC National Purchasing Cooperative, Inc. and its
wholly-owned subsidiaries, KFC Franchisee Insurance Program, Inc.
and its wholly-owned subsidiary, Kenco Insurance Agency, Inc., KFC
Franchisee Purchasing of Canada, Inc., FoodService Purchasing
Cooperative International, Inc. and KFC Franchisee Finance Company,
Inc. All significant intercompany balances and transactions have
been eliminated in consolidation. The operation of KFC Franchisee
Purchasing of Canada, Inc. and FoodService Purchasing Cooperative
International, Inc. represent less than 10% of net sales and total
assets of the Cooperative.
B. REVENUE RECOGNITION: The Cooperative purchases a majority of
merchandise for its customers from suppliers without taking physical
possession of the products. The suppliers ship directly to the
customers. The Cooperative takes title to the merchandise and
assumes the risk related to taking title upon shipment to the
customer based on purchase order terms. For accounting purposes, the
Cooperative recognizes revenues and the related costs upon receipt
of notification of shipment, primarily an invoice, from the
supplier. Management believes the consistent application of this
accounting method does not have a significant impact upon the
consolidated financial statements.
F-7
<PAGE> 57
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. BASIS OF PRESENTATION, CONTINUED:
C. INVENTORIES: Inventories are stated at the lower of cost, primarily
determined on the last-in, first-out (LIFO) method, or market. If
inventories were valued using the first-in, first-out (FIFO) method,
they would have been approximately $41,000 and $19,000 higher at
October 31, 1998 and 1997, respectively.
During 1996, LIFO inventory layers were reduced. This reduction
resulted in charging lower inventory costs prevailing in previous
years to cost of goods sold, thus reducing costs of goods sold by
approximately $18,000, below the amount that would have resulted
from replacing the liquidated inventory at end of year prices.
D. CHECKS DRAWN IN EXCESS OF BOOK BALANCE: Included in accounts payable
are checks drawn in excess of book balance. Such amounts were
approximately $8,870,000 and $2,406,000 at October 31, 1998 and
1997, respectively.
E. DEPRECIATION AND AMORTIZATION EXPENSE: Provision for depreciation
and amortization is made on the basis of the estimated useful lives
of the assets. Principally, the double declining-balance method is
used for depreciation of office equipment and the straight-line
method is used for amortization of other assets.
Other assets principally consist of the unamortized portion of
non-competition agreements, goodwill and loan origination fees. The
non-competition agreements are being amortized over 13 and 5 years.
The loan origination fees are being amortized over 5 and 3 years.
Goodwill was being amortized over 15 years. The carrying values of
all intangibles are periodically reviewed by management and
impairments are recognized when the expected undiscounted future
operating cash flows derived from operations associated with such
intangible assets are less than their carrying value. As a result of
this review, all remaining goodwill was written off in the year
ended October 31, 1998 resulting in a charge to earnings of
approximately $303,000.
F. STATEMENT OF CASH FLOWS: For purposes of the consolidated statements
of cash flows, the Cooperative considers all short-term highly
liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
G. TRANSLATION OF FOREIGN CURRENCY: The financial statements of KFC
Franchisee Purchasing of Canada, Inc. are translated in accordance
with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation." Foodservice Purchasing Cooperative
International, Inc. operates in U.S. funds. Foreign currency
transaction gains and losses were not significant in 1998, 1997 and
1996.
F-8
<PAGE> 58
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. BASIS OF PRESENTATION, CONTINUED:
H. INCOME TAXES: Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
I. USE OF ESTIMATES: Management of the Cooperative has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent liabilities to prepare
these consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
2. ACCOUNTS RECEIVABLE AND SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK:
As of October 31, 1998 and 1997, substantially all of the Cooperative's
receivables are obligations of retail operators and their distributors.
The Cooperative does not require collateral or other security on most of
these accounts. The credit risk on these accounts is controlled through
credit approvals, limits and monitoring procedures.
The note receivable of approximately $832,000 at October 31, 1997 was due
from a former distributor customer. In 1995, the Cooperative converted an
account receivable from this customer to a note receivable. As of October
31, 1997, the customer had not made timely payments as prescribed by the
note and was in default; however, payment was received by the Cooperative
during 1998 for the full amount of the note.
3. BORROWING ARRANGEMENTS:
The Cooperative has a $3,000,000 term note with its primary bank.
Accounts receivable and other property are pledged as collateral. Terms
require monthly interest payments, with a balloon principal payment due
May 2, 1999. The outstanding balance accrues interest at an annual fixed
rate of 6.95%.
F-9
<PAGE> 59
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. BORROWING ARRANGEMENTS, CONTINUED:
The Cooperative has a line of credit of $8,000,000 with its primary bank,
of which $7,900,000 was available on October 31, 1998. Accounts
receivable and other property are pledged as collateral for borrowings
under the line. Borrowings on the line of credit bear interest at an
annual rate equal to the Federal Funds Rate plus 120 basis points (6.07%
as of October 31, 1998). This line of credit expires on May 2, 1999.
The Cooperative has a $3,000,000 line of credit with National Cooperative
Bank (the Bank), of which the entire amount was available as of October
31, 1998. Equipment accounts receivable and equipment inventory are
pledged as collateral for borrowings under the line. Borrowings on this
line of credit bear interest at LIBOR plus 140 basis points (6.74% as of
October 31, 1998). This line of credit expires May 1, 1999. The President
of the Cooperative served as a director of the Bank from May 1991 to May
1997.
The Cooperative has a $4,000,000 (Canadian dollars) line of credit with a
Canadian bank, of which approximately $3,469,000 (Canadian dollars) is
available at October 31, 1998. Accounts receivable of the Cooperative's
Canadian subsidiary are pledged as collateral for borrowings under this
line. Borrowings on this line of credit bear interest at an annual rate
equal to the bank's prime lending rate with respect to Canadian dollar
commercial loans made in Canada (7.00% as of October 31, 1998). This line
of credit expires on May 16, 1999.
4. INCOME TAXES:
Income tax expense for the years ended October 31, 1998, 1997 and 1996
consists of:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
Federal $ 175,000 $ 414,000 $ 663,000
State and local 41,000 124,000 202,000
Deferred - all taxing jurisdictions (138,000) (23,000) 44,000
---------- ----------- -----------
$ 78,000 $ 515,000 $ 909,000
========== =========== ===========
</TABLE>
F-10
<PAGE> 60
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. INCOME TAXES, CONTINUED:
A reconciliation of the difference between income tax expense computed at
the Federal statutory rate of 34% and income tax expense follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense $ 47,000 $ 429,000 $ 780,000
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of federal
income tax benefit 27,000 83,000 133,000
Other, net 4,000 3,000 (4,000)
--------- ---------- ----------
$ 78,000 $ 515,000 $ 909,000
========= ========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at October 31, 1998 and 1997 are
presented below:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Accounts receivable, principally due to allowance
for doubtful accounts $ 558,000 $ 575,000
Lease recognition 25,000 55,000
Accounting reserves not currently deductible for income
tax purposes 127,000 64,000
Impaired goodwill written off, not currently deductible
for income tax purposes 118,000 -
Other 32,000 28,000
--------- ---------
Net deferred tax asset $ 860,000 $ 722,000
========= =========
</TABLE>
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the
Cooperative will realize the benefits of these temporary differences.
Accordingly, no valuation allowance for deferred tax assets was recorded
as of October 31, 1998, 1997 and 1996.
The Board of Directors is authorized, after considering the Cooperative's
need for capital and reserves, to distribute patronage cash dividends.
The patronage dividend for 1998 is based upon shareholder members'
retaining membership in the Cooperative through October 31, 1998 and the
value of any purchase of equipment and supplies made from the
Cooperative, or through participating distributors from November 1, 1997
through October 31, 1998. The patronage dividends for 1997 and 1996 were
based upon similar facts as described in the preceding sentence.
F-11
<PAGE> 61
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. INCOME TAXES, CONTINUED:
The Internal Revenue Code of 1986, as amended, provides that corporations
"operating on the cooperative basis" generally may exclude from their
taxable income amounts paid as patronage dividends. The Cooperative would
be liable for taxes associated with the disallowance of any patronage
dividend deduction.
5. MEMBERSHIP AND STORE COMMON STOCK:
Membership common stock may be issued only to persons who satisfy
shareholder membership requirements and generally no more than one share
of such stock will be issued to any one person. Membership common stock
may not be transferred to any person other than the Cooperative. In the
event that a shareholder no longer qualifies for membership, the
Cooperative is required to redeem such shareholder's membership common
stock at a redemption price of $10.00 per share.
Store common stock may be issued only to persons who satisfy the
shareholder membership requirements and each shareholder member must
generally purchase one share of store common stock for each KFC or Taco
Bell retail outlet which such shareholder member owns and operates. Store
common stock may be transferred to persons, firms or entities who qualify
for membership in the Cooperative if the Cooperative does not exercise
its right of first refusal to purchase such shares.
6. MAJOR CUSTOMERS:
The Cooperative had sales to certain distributors in excess of 10% of net
sales. One customer accounted for sales of approximately $134,000,000,
$104,000,000 and $120,000,000 for the years ended October 31, 1998, 1997
and 1996, respectively. This customer's outstanding accounts receivable
balances were approximately $12,003,000, $6,659,000 and $7,094,000 at
October 31, 1998, 1997 and 1996, respectively. A second customer
accounted for sales of approximately $94,700,000, $99,874,000 and
$84,000,000 for the years ended October 31, 1998, 1997 and 1996,
respectively. This customer's outstanding accounts receivable balances
were approximately $4,880,000, $6,306,000 and $6,104,000 at October 31,
1998, 1997 and 1996, respectively. A third customer accounted for sales
of approximately $94,754,000, $86,773,000 and $80,300,000 for the years
ended October 31, 1998, 1997 and 1996, respectively. This customer's
outstanding accounts receivable balances were approximately $5,633,000,
$5,552,000 and $4,758,000 at October 31, 1998, 1997 and 1996,
respectively.
F-12
<PAGE> 62
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. MAJOR CUSTOMERS, CONTINUED:
In October 1997, PepsiCo, Inc. spun off its three primary restaurant
divisions - KFC, Taco Bell, and Pizza Hut - into a new public company,
Tricon Global Restaurants, Inc. (Tricon). Also during fiscal 1997,
PepsiCo sold its restaurant distribution subsidiary, Pepsi Food Service
(PFS) to AmeriServe Food Distribution, Inc. (AmeriServe). AmeriServe has
been and continues to be the second largest Cooperative customer,
purchasing goods for distribution primarily to KFC franchisees. When
AmeriServe purchased PFS, it acquired rights under a distribution
agreement which as amended may extend until 2007. This agreement binds
Tricon to use AmeriServe distribution services for Tricon owned KFC, Taco
Bell, and Pizza Hut outlets. The agreement also extends to Taco Bell and
Pizza Hut restaurants sold as part of Tricon's announced program of
refranchising certain Tricon-owned restaurants to existing and new
franchisees. AmeriServe does not purchase goods through the Cooperative
for distribution under its Tricon agreement. On May 21, 1998, AmeriServe
acquired ProSource, Inc. (ProSource). For the year ended October 31,
1997, ProSource was the Cooperative's sixth largest distributor with
total sales of approximately $19,000,000. AmeriServe has stated in its
public filings that AmeriServe is and will continue to be highly
leveraged as a result of the indebtedness incurred primarily in
connection with its acquisition of PFS. The Cooperative and its members
continue to monitor their relationship with AmeriServe. The impact of
Tricon's formation, AmeriServe's acquisition of PFS and the merger with
ProSource on the business of the Cooperative remains uncertain.
Scott's Restaurants, Inc. (Scott's) is the largest KFC franchisee in
Canada, with approximately 353 retail outlets. The operations of the
Canadian subsidiary are substantially dependent on its business connected
with Scott's. On October 10, 1997, following a court ruling favorable to
KFC (Canada), KFC (Canada) delivered a notice terminating Scott's
franchise license agreement to operate KFC outlets. Scott's obtained a
stay of the termination pending judicial appeal which resulted in an
appealable ruling favorable to Scott's. On October 30, 1998, Scott's and
KFC (Canada) announced that they had signed an agreement providing for
the sale to the public of the Scott's KFC outlets and selected KFC
(Canada) owned outlets throughout Canada by way of a newly organized
income trust. The proposed sale is subject to approval by the
shareholders of Scott's and market conditions at the time of the public
offering of income trust securities. It is the intention of the parties
that the transaction be completed irrespective of further litigation
between the parties regarding Scott's franchise agreement. The closing
date for the transaction is scheduled for March 1, 1999. Once closed, the
parties will exchange mutual releases with respect to the litigation. If
the transaction is not successfully completed, their agreement provides
that the parties will negotiate alternate strategies for the disposition
of Scott's KFC business. The Cooperative continues to monitor the Scott's
situation. The loss by the Canadian subsidiary of Scott's KFC business
would have an adverse effect on the Cooperative's Canadian operations.
F-13
<PAGE> 63
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. RETIREMENT PLAN:
The Cooperative has a thrift and profit-sharing plan and a money purchase
pension plan which covers all employees who meet certain requirements as
to age and length of service. The thrift and profit-sharing plan is
funded under two allocation methods. The first is funded through a thrift
plan agreement under Section 401(k) of the Internal Revenue Code whereby
contributions made by those employees who elect to participate are
matched, in accordance with plan guidelines and limitations, by the
Cooperative. The second allocation, which covers all employees and was
introduced in 1986, is funded by the Cooperative as determined by the
Board of Directors, subject to certain limitations. The money purchase
pension plan, established November 1, 1991, provides for an employer
matching contribution of 2% to 7% of eligible compensation.
The Cooperative's combined contributions relating to these plans were
approximately $609,000, $556,000 and $498,000 for 1998, 1997 and 1996,
respectively.
8. COMMITMENTS AND CONTINGENCIES:
The Cooperative's leasing arrangements include office space and equipment
leased under customary leasing arrangements which include in some
instance options to renew or purchase the leased items. All such leases
are considered operating leases.
The following is a schedule of future lease obligations:
<TABLE>
<CAPTION>
YEAR ENDING
OCTOBER 31
-----------
<S> <C>
1999 $ 925,000
2000 806,000
2001 721,000
2002 764,000
---------------
$ 3,216,000
===============
</TABLE>
Rental expense was approximately $839,000, $774,000 and $719,000 in
1998, 1997 and 1996, respectively.
In the ordinary course of business, the Cooperative becomes involved in
various claims and legal actions. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Cooperative's consolidated financial statements.
F-14
<PAGE> 64
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS AND CONTINGENCIES, CONTINUED:
The Cooperative endeavors to obtain the lowest purchase prices by making
large volume purchase commitments at fixed prices and by assuming other
procurement functions and risks that reduce the suppliers' cost. These
commitments are made throughout the year based on anticipated demands of
the restaurant operators, with terms usually of less than a year and
conditions varying from product to product. Commitments made in the past
have resulted in minimal losses. No significant losses are expected from
existing commitments.
In April 1996, the Cooperative entered into a finance program for
stockholder members cosponsored by the Bank. The program initially
provided up to $20,000,000 in loans to Cooperative members which range
from $100,000 to an individual maximum of $2,000,000. The Cooperative has
guaranteed from 10% to 25% of the declining balance based on each loan's
classification. The Bank has agreed to maintain a reserve account which
will be applied to losses prior to the Cooperative incurring any loss.
The reserve account is funded pursuant to the program agreements. The
Bank's commitment to provide such loans terminated in June 1997. As of
October 31, 1998, the Bank has funded approximately $6.5 million of
borrowings outstanding under this program. The Cooperative evaluates the
credit risk associated with their guarantees through credit and
monitoring procedures associated with their approval and periodic
payments and reporting from the primary lender, the Bank. Currently, no
losses are expected by the Cooperative under this program.
9. FINANCIAL INSTRUMENTS:
The fair value of a financial instrument represents the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation. Differences
can arise between the fair value and carrying amount of financial
instruments that are recognized at historical amounts.
The carrying amounts of cash and cash equivalents, accounts receivable
(net), short-term borrowings, accounts payable and accrued expenses
approximate the fair value of these instruments because of the short
maturity of these instruments.
The carrying amount of the long-term note payable approximates fair
value because the interest rate approximates that currently offered to
the Cooperative for similar debt instruments.
It is not practical to estimate the fair value of the note receivable
from related party due to the related party nature of that instrument.
F-15
<PAGE> 65
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. IMPACT OF NEW ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." Management believes that the adoption of
SFAS No. 130 in fiscal 1999 will not have a material adverse affect on the
Cooperative's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement is effective for financial statements for fiscal years beginning
after December 15, 1997. Management is continuing to assess the disclosure
impacts of adopting SFAS No. 131 in fiscal 1999.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This statement is effective for financial statements for fiscal
years beginning after December 15, 1997. Management is continuing to
assess the disclosure impacts of adopting SFAS No. 132 in fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Management believes that the adoption of SFAS No. 133
in fiscal 1999 will not have a material adverse affect on the Cooperative's
consolidated financial statements.
11. PROPOSED CORPORATE REORGANIZATION:
In conjunction with Tricon Global Restaurants, Inc. and franchisee owners
and operators of KFC, Taco Bell and Pizza Hut restaurants, on October 21,
1998, the Cooperative publicly announced the proposed formation of a
"unified" purchasing cooperative focusing on the purchase of the food,
packaging, supplies, equipment, and related services used in these
restaurants. The Cooperative would transfer most operating assets and
liabilities and its employees to the unified cooperative in exchange for
its membership interest therein. In connection with forming the new unified
cooperative, the Cooperative expects to split-off to a newly organized Taco
Bell purchasing cooperative 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, would
participate with the Cooperative and a newly organized Pizza Hut purchasing
cooperative in the purchasing programs of the unified cooperative. Although
administered by the new unified cooperative, the KFC purchasing program
would be subject to significant control, advice and counsel of the
Cooperative. The Cooperative would continue to exercise policy-making
decisions and administer the patronage dividend program in accordance with
past practices.
F-16
<PAGE> 66
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. PROPOSED CORPORATE REORGANIZATION, CONTINUED:
The process is subject to the approval of the members of the Cooperative,
Proxy statements soliciting such approval will be distributed to holders
of record of the Cooperative's outstanding shares of membership common
stock as of the close of business on January 27, 1999. Concurrently with
the solicitation of proxies, the Cooperative is making a tender offer to
holders of Taco Bell series membership common stock to transfer to the
tendering members all of the shares of the newly organized Toco Bell
cooperative in exchange for the surrender by the tendering members of all
of their shares of the Cooperative membership common stock and store
common stock.
F-17
<PAGE> 67
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Expenses
For the three months ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 61,819,049 $ 153,740,546
Cost of goods sold 60,349,149 149,623,336
------------ -------------
Gross profit 1,469,900 4,117,210
Equity in earnings from Affiliate - Unified Co-op 618,926 --
------------ -------------
Selling, general and administrative expenses (1,196,753) (3,561,344)
Provision for losses on receivables (132,571) (52,505)
------------ -------------
(1,329,324) (3,613,849)
------------ -------------
Operating income 759,502 503,361
------------ -------------
Other income (expenses):
Service charges 48,860 48,262
Interest income 15,125 104,868
Interest expense (48,629) (62,071)
Miscellaneous 62,905 13,620
------------ -------------
78,261 104,679
------------ -------------
Income before patronage
dividend and income taxes 837,763 608,040
Patronage dividend 895,047 427,717
------------ -------------
(Loss) income before income taxes (57,284) 180,323
(Benefit) provision for income taxes (11,905) 87,571
------------ -------------
Net (loss) income $ (45,379) $ 92,752
============ =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-18
<PAGE> 68
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Expenses
For the six months ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 240,356,725 303,320,196
Cost of goods sold 234,413,390 295,047,577
------------- ------------
Gross profit 5,943,335 8,272,619
Equity in earnings from Affiliate - Unified Co-op 618,926 --
------------- ------------
Selling, general and administrative expenses (4,585,657) (6,774,658)
Provision for losses on receivables (177,458) (95,011)
------------- ------------
(4,763,115) (6,869,669)
------------- ------------
Operating income 1,799,146 1,402,950
------------- ------------
Other income (expenses):
Service charges 127,996 93,002
Interest income 23,515 177,132
Interest expense (204,138) (126,805)
Miscellaneous 93,457 42,337
------------- ------------
40,830 185,666
------------- ------------
Income before patronage
dividend and income taxes 1,839,976 1,588,616
Patronage dividend 1,714,176 1,306,127
------------- ------------
Income before income taxes 125,800 282,489
Provision for income taxes 51,914 123,911
------------- ------------
Net income $ 73,886 158,578
============= ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-19
<PAGE> 69
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
Derived from
audited
financial
statements
Assets April 30, October 31,
------ 1999 1998
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,505,956 $ 271,853
Accounts receivable, less allowance for
losses of $1,153,455 at April 30, 1999 4,924,781 51,153,630
and $1,392,579 at October 31, 1998
Inventories 2,060,477 7,068,488
Prepaid expenses and other current assets 178 158,299
Current portion of deferred income taxes 651,893 635,505
Notes receivable from Unified Co-op 5,865,591 --
Notes receivable from related parties 428,592 50,000
------------ ------------
Total Current Assets 16,437,468 59,337,775
------------ ------------
Investment in Unified Co-op 1,618,926 --
Note receivable from Unified Co-op 1,000,000 --
Notes receivable from related parties, excluding current portion 627,948 627,948
Deferred income taxes, excluding current portion 52,640 225,216
Other assets 438,953 1,147,063
------------ ------------
Total Assets $ 20,175,935 $ 61,338,002
============ ============
Liabilities and Members' Equity
Current Liabilities:
Short-term borrowings $ 1,000 $ 444,302
Notes payable -- 3,000,000
Accounts payable 586,203 33,554,224
Accrued expenses 703,950 3,496,045
Premium deposits -- 328,807
Patronage dividend 1,714,175 2,618,914
------------ ------------
Total Current Liabilities 3,005,328 43,442,292
------------ ------------
Commitments and Contingencies
Members' Equity:
Membership common stock 6,250 7,070
Store common stock 1,683,163 1,950,708
Accumulated other comprehensive income (64,611) (52,323)
Retained earnings 15,545,805 15,990,255
------------ ------------
17,170,607 17,895,710
------------ ------------
Total Liabilities and Members' Equity $ 20,175,935 $ 61,338,002
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-20
<PAGE> 70
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the six months ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 73,886 $ 158,578
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 119,373 212,491
Provision for losses on receivables 177,458 95,011
Gain on sale of investment (65,367) --
Equity in earnings of affiliate (618,926) --
Changes in operating assets and liabilities:
Deferred income tax benefit 21,734 (43,157)
Decrease in accounts receivable 32,782,173 1,027,102
Decrease in inventories 3,843,367 2,273,050
(Increase) in notes receivable from Unified Co-op (5,195,300) --
Decrease (increase) in prepaid expenses and other current assets 33,877 (170,096)
Decrease (increase) in other assets (31,645) 16,570
(Decrease) increase in accounts payable (28,523,707) 1,449,965
(Decrease) in accrued expenses (2,222,925) (1,698,888)
(Decrease) in premium deposits (258) --
(Decrease) in patronage dividend (904,739) (1,584,173)
------------ -----------
Net cash provided by (used in) operating activities (510,999) 1,736,453
------------ -----------
Cash Flows from Investing Activities:
Increase in investment in Unified Co-op (1,000,000) --
Increase in notes receivable (175,251) 831,789
Increase in notes receivable from Unified Co-op (1,000,000) --
Decrease in notes receivable from Taco Bell Coop 8,567,346 --
Sale (purchase) of marketable equity security 119,742 (54,375)
Additions to office equipment (75,405) (267,824)
------------ -----------
Net cash used in investing activities 6,436,432 509,590
------------ -----------
Cash Flows from Financing Activities:
(Decrease) increase in short-term borrowings (443,302) 719,545
(Decrease) in notes payable (3,000,000) --
Proceeds from sale of stock, net of costs 80,525 160,364
Retirement of stock (14,750) (37,430)
Distribution to Taco Bell Coop (334,140) --
------------ -----------
Net cash provided by financing activities (3,711,667) 842,479
Effect of exchange rate changes on cash and cash equivalents 20,337 (5,697)
------------ -----------
Net increase in cash and cash equivalents 2,234,103 3,082,825
Cash and cash equivalents - beginning of period 271,853 160,065
------------ -----------
Cash and cash equivalents - end of period $ 2,505,956 $ 3,242,890
============ ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-21
<PAGE> 71
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-----------------------------------------------
1. Basis of Presentation
The accompanying financial statements are presented in accordance with the
requirements of Form S-1 and consequently do not include all of the disclosures
normally required by generally accepted accounting principles or those normally
made in the registrant's annual Form 10-K filing. Accordingly, the reader of
this Form S-1 may wish to refer to the Registrant's Form 10-K for the year
ended October 31, 1998, for further information in this regard.
The accompanying financial statements for comparative purposes have been made to
conform to the format of the registrant's Form 10-K for the year ended October
31, 1998, and have been prepared in accordance with the registrant's customary
accounting practices and have not been audited. In the opinion of management,
all adjustments (consisting of normal recurring accruals except for transaction
described in Note 3) necessary for fair presentation of this information have
been made.
2. Other Comprehensive Income
Effective November 1, 1998 the company adopted Statement of Financial Accounting
Standard (SFAS) No. 130, Reporting Comprehensive Income. This statement requires
that all items recognized under accounting standards as components of
comprehensive earnings be reported in a financial statement. This statement also
requires that an entity classify items of other comprehensive earnings by their
nature in a financial statement. For example, other comprehensive earnings may
include foreign currency translation adjustments, minimum pension liability
adjustments and unrealized gains and losses on certain marketable securities.
Financial statements for prior periods have been reclassified, as required.
Comprehensive earnings consists of the following:
<TABLE>
<CAPTION>
Six Months Ended
April 30,
-----------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 73,886 $ 158,578
Other comprehensive income (loss):
Foreign currency translation adjustment (net of related tax benefit
of $0 in 1999 and 1998) 20,337 (5,697)
Change in unrealized gain on marketable equity securities (29,612) 9,125
-------- ---------
Comprehensive income $ 64,611 $ 162,006
======== =========
</TABLE>
3. Recent Corporate Reorganization
On March 1, 1999, the KFC Coop joined with Tricon Global Restaurants, Inc. and
franchisee owners and operators of KFC, Taco Bell and Pizza Hut restaurants to
form Unified Foodservice Purchasing Co-op, 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 "Corporate
Reorganization"). The KFC Coop believes that the Unified Co-op will enable KFC,
Taco Bell and Pizza Hut restaurant owners and operators to reduce their store
delivered costs of goods and equipment. In addition to the KFC Coop, the other
two members of the Unified Co-op are the Taco Bell National Purchasing Coop,
Inc. and Pizza Hut National Purchasing Coop, Inc., both newly organized Delaware
corporations with shareholder members who are operators of Taco Bell and Pizza
Hut retail outlets, respectively.
The KFC Coop, the Taco Bell Coop and the Pizza Hut Coop each contributed
$1,000,000 in capital to the Unified Co-op. Equity in earnings of the Unified
Co-op is based on revenue and allocation of expenses to the respective
cooperatives in accordance with the Operating Agreement between the KFC Coop,
the Taco Bell Coop and the Pizza Hut Coop.
F-22
<PAGE> 72
The following transaction took place on March 1, 1999.
KFC National Purchasing Cooperative, Inc.
Unaudited Condensed Consolidated Balance Sheet
March 1, 1999
<TABLE>
<CAPTION>
Corporate Reorganization
Adjustments
Historical ------------------------------ As adjusted
Registrant Taco Bell Coop Unified Co-op Registrant
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ (5,909,246) $ 300 $(5,909,546)
Accounts and notes receivable, net 52,958,694 $ 12,158,183 24,164 40,776,347
Inventories 4,620,819 1,164,644 3,456,175
Note Receivable - Affiliate (8,608,568) 279,409 8,329,159
Prepaid expenses and other current assets 125,158 3,241 111,736 10,181
------------ ------------ ------------ -----------
Total Current Assets 51,795,425 4,717,500 415,609 46,662,316
Investment in the Unified Coop 50,000 (950,000) 1,000,000
Deferred income taxes, excluding current portion 907,127 81,000 826,127
Other assets 1,287,964 705,559 582,405
------------ ------------ ------------ -----------
Total Assets $ 54,040,516 $ 4,798,500 $ 171,168 $49,070,848
============ ============ ============ ===========
Liabilities and Members' Equity
Current Liabilities:
Notes Payable and short term borrowings $ 6,161,905 $ 6,161,905
Accounts payable 22,978,219 $ 3,759,401 19,218,818
Accrued expenses 3,122,879 183,382 $ 171,168 2,768,329
Patronage dividend payable 2,618,826 2,618,826
Patronage dividend accrued 1,152,486 1,152,486
------------ ------------ ------------ -----------
Total Current Liabilities 36,034,315 3,942,783 171,168 31,920,364
------------ ------------ ------------ -----------
Members' Equity: --
Membership common stock 7,080 970 6,110
Store common stock 1,994,763 336,400 1,658,363
Unrealized gain on marketable equity security 65,366 65,366
Accumulated Foreign Currency (76,717) (76,717)
Retained earnings, prior 15,990,253 518,347 15,471,906
Retained earnings, current 25,456 25,456
------------ ------------ ------------ -----------
Total Members' Equity 18,006,201 855,717 -- 17,150,484
------------ ------------ ------------ -----------
Total Liabilities and Members' Equity $ 54,040,516 $ 4,798,500 $ 171,168 $49,070,848
============ ============ ============ ===========
</TABLE>
4. Affiliate - Unified Foodservice Purchasing Co-op, LLC
The Unified Co-op is owned by its members, consisting of the KFC Coop, Taco
Bell Coop, and Pizza Hut Coop. Summarized financial information of the Unified
Co-op as of and for the two months ended April 30, 1999 is as follows:
<TABLE>
<CAPTION>
Total
Registrant Taco Bell Coop Pizza Hut Coop Other Unified Co-op
---------- -------------- -------------- ----- -------------
<S> <C> <C> <C> <C> <C>
Sales $63,580,065 $23,990,432 $ 16,990,298 $138,090 $104,698,885
Sourcing Fee 821,431 1,262,605 888,751 -- 2,972,787
Gross profit 2,806,759 1,796,297 1,229,384 138,090 5,970,530
Net earnings 618,926 49,121 (443,562) 16,007 240,492
- -----------------------------------------------------------------------------------------------
Current assets $ 58,358,763
Non-current assets 876,016
Current liabilities 53,696,218
Non-current liabilities 3,328,549
Members' equity 2,210,012
- -----------------------------------------------------------------------------------------------
</TABLE>
5. Borrowing Arrangements
During quarter ended April 30, 1999, the KFC Coop terminated its line of credit
of $8,000,000 and entered into a new borrowing arrangement, which had the effect
of increasing its line of credit to $15,000,000, of which the entire amount was
available as of April 30, 1999. In addition, the $3,000,000 line of credit with
National Cooperative Bank available as of October 31, 1998 was terminated during
the quarter ended April 30, 1999.
6. Note Receivable from the Unified Co-op
At April 30, 1999, the KFC Coop has a note receivable from the Unified Co-op of
$5,865,591 representing the amount outstanding on an operating line of credit.
The line of credit is used by the Unified Co-op to fund KFC Coop related
operations of the Unified Co-op and bears no interest.
7. Contingencies
In April 1996, the KFC Coop entered into a finance program for stockholder
members cosponsored by the National Cooperative Bank. The program initially
provided up to $20,000,000 in loans to KFC Coop members which range from
$100,000 to an individual maximum of $2,000,000. The KFC Coop has guaranteed
from 10% to 25% of the declining balance based on each loan's classification.
The National Cooperative Bank has agreed to maintain a reserve account which
will be applied to losses prior to the KFC Coop incurring any loss. The reserve
account is funded pursuant to the program agreements. The National Cooperative
Bank's commitment to provide such loans terminated in June 1997. As of October
31, 1998, the National Cooperative Bank has funded approximately $6.5 million of
credit risk associated with their guarantees through credit and monitoring
procedures associated with their approval and periodic payments and reporting
from the primary lender, the National Cooperative Bank. Currently, no losses are
expected by the KFC Coop under this program.
F-23
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the KFC Coop in connection with the
registration of the interests offered hereby, other than underwriting discounts
and commissions (of which there are none), are as follows:
<TABLE>
<S> <C>
Registration fee $ 0
NASD filing fee 0
"Blue Sky" filing fee and expenses
(including legal expenses) 2,000.00
Printing expenses 2,000.00
Legal fees and expenses 7,000.00
Accounting fees and expenses 3,500.00
Miscellaneous expenses 500.00
----------
Total $15,000.00
==========
</TABLE>
-------------------
Item 14. Indemnification of Officers and Directors.
Article VIII of the Certificate of Incorporation of the KFC Coop
provides as follows:
Article VIII
A director of the corporation shall not be personally liable to the
corporation 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 corporation 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. Any repeal or modification of this paragraph by the
stockholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
corporation existing at the time of such repeal or modification.
II-1
<PAGE> 74
Article VII of the Bylaws of the KFC Coop provides as follows:
7.1 Indemnification.
(a) The Cooperative 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 Cooperative) by
reason of the fact that he is or was a director, officer, employee or agent of
the Cooperative, or is or was serving at the request of the Cooperative 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 Cooperative, 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 reasonably believed to be in or not opposed to the best
interests of the Cooperative, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Cooperative 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 Cooperative 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 Cooperative, or is or was serving at the
request of the Cooperative 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 Cooperative 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 Cooperative 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 director, officer, employee or agent
of the Cooperative 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.
II-2
<PAGE> 75
(d) Any indemnification under subsections (a) and (b) of this
Section 7.1 (unless ordered by a court) shall be made by the Cooperative only as
authorized in the specific case upon a determination that indemnification of the
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 (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested Directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholder members.
(e) Expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding may be paid by the Cooperative in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Cooperative as authorized in this Section 7.1. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(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 Cooperative 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 Cooperative, or is or was serving at the request of the Cooperative
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 Cooperative would have the power to indemnify him
against such liability hereunder.
(h) For purposes of this Section 7.1, references to the
Cooperative 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 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.
II-3
<PAGE> 76
(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 Cooperative"
shall include any service as a director, officer, employee or agent of the
Cooperative 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 Cooperative" 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) If so provided in the Cooperative's Certificate of
Incorporation, a director of the Cooperative shall not be personally liable to
the Cooperative 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 Cooperative 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.
Item 15. Recent Sales of Unregistered Securities.
All sales of securities by the Cooperative within the past three years
of the date of this Amendment were registered under the Securities Act of 1933.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
*3.1 Certificate of Incorporation of KFC Coop, as amended.
**3.2 Bylaws of KFC Coop, as amended.
*4.1 Article IV of Certificate of Incorporation of KFC Coop,
as amended.
**4.2 Articles II, III, IV and IX of Bylaws of KFC Coop, as
amended.
+5 Opinion of Brown, Todd & Heyburn as to the legality of the
securities registered.
II-4
<PAGE> 77
***10.1 Employment Agreement between Thomas D. Henrion and the
KFC Coop (management contract required to be filed pursuant to Item 601(10) of
Regulation S-K).
***10.2 Lease, dated June 21, 1983, between KFC Coop, as Lessee,
and General Electric Corporation, as Lessor and amended on June 20, 1988.
**10.3 Lease, dated April 8, 1988, between NTS/Breckenridge, Ltd.
d/b/a The Springs and the KFC Coop.
+10.4 Supplemental Benefits/Consulting Agreement between
Thomas D. Henrion and the KFC Coop effective as of January 1, 1994 (management
contract required to be filed pursuant to Item 601(10) of Regulation S-K).
****10.5 Amendment No. 1 to Supplemental Benefits/Consulting
Agreement between Thomas D. Henrion and the KFC Coop effective January 1996
(management contract required to be filed pursuant to Item 601(10) of Regulation
S-K).
*****10.6 Guaranty Agreement dated as of April 18, 1996 between the
KFC Coop and National Consumer Cooperative Bank.
******10.7 Separation and Consulting Agreement between Thomas D.
Henrion, KFC Coop and the Unified Foodservice Purchasing Co-op, LLC (management
contract require to be filed pursuant to Item 601(10 of Regulation S-K).
********10.8 Sixth and Seventh Amendments to Lease between NTS/Springs
Office, Ltd. and the KFC Coop.
10.9 Loan Agreement between Bank One and the KFC Coop and
related documents.
+23.1 Consent of Brown, Todd & Heyburn is contained in their
opinion filed as Exhibit 5 hereto.
23.2 Consent of Independent Auditors.
24 Power of Attorney.
*******99.1 Operating Agreement for Unified Foodservice Purchasing
Co-op, LLC.
*******99.2 Form of Purchasing Program Management Agreement.
+ Previously filed in Registration Statement (File No. 3356982).
II-5
<PAGE> 78
*Incorporated by reference to the KFC Coop's Annual Report on Form
10-K for the fiscal year ended October 31, 1997 [File No. 2-63640].
**Incorporated by reference to the KFC Coop's Annual Report on Form
10-K for the fiscal year ended October 31, 1998 [File No. 2-63640].
***Previously filed in Registration Statement (File No. 33-33801) with
the Securities and Exchange Commission on March 9, 1990.
****Incorporated by reference to the KFC Coop's Annual Report on Form
10-K for the fiscal year ended October 31, 1995 [File No. 2-63640].
*****Incorporated by reference to the KFC Coop's Annual Report on Form
10-K for the fiscal year ended October 31, 1996 [File No. 2-63640].
******Incorporated by reference to the Amendment No. 2 to the Tender
Offer of the KFC Coop on Schedule 13E-4 [File No. 5-54907].
*******Incorporated by reference to the Amendment No. 2 to the Proxy
Statement of the KFC Coop on Schedule 14A [File No. 000-23496].
********Incorporated by reference to the KFC Coop's Annual Report on
Form 10-K for the fiscal year ended October 31, 1999 [File No. 2-63640].
(b) Financial Statement Schedules.
Report on Financial Statement Schedule and Consents of Independent
Auditors Schedule II-Valuation and Qualifying Accounts
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
(D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
KFC National Purchasing Cooperative, Inc.
Our audit of the consolidated financial statements referred to in our report
dated January 26, 1999 of KFC National Purchasing Cooperative, Inc. (d/b/a
FoodService Purchasing Cooperative, Inc.) and Subsidiaries as of October 31,
1998 and for the year then ended, which financial statements are included in
this Form S-1, also included an audit of the financial statement schedule listed
in Item 16(b) of this Form S-1. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
- --------------------------------------
PricewaterhouseCoopers LLP
Louisville, Kentucky
January 26, 1999
REPORT ON FINANCIAL STATEMENT SCHEDULE AND
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
KFC National Purchasing Cooperative, Inc.:
The audits referred to in our report dated December 8, 1997, included the
related financial statement schedule for each of the years in the two-year
period ended October 31, 1997, included in the Registration Statement. This
financial statement schedule is the responsibility of the Cooperative's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
Louisville, Kentucky
July 22, 1999
<TABLE>
<CAPTION>
BALANCE CHARGED CHARGED
AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ------------------------------------ --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for losses on receivables:
Year ended
October 31;
1996 $1,408,727 $699,601 -- $715,749(A) $1,392,579
1997 1,328,869 175,310 -- 95,452(A) 1,408,727
1998 1,188,248 406,490 -- 265,869(A) 1,328,869
(A) Uncollectible accounts and notes written off
</TABLE>
Item 17. Undertakings.
(a) The undersigned KFC Coop hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
II-6
<PAGE> 79
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the KFC Coop pursuant to the foregoing provisions, or otherwise, the KFC Coop
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the KFC Coop of expenses incurred or
paid by a director, officer or controlling person of the KFC Coop in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the KFC Coop will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the KFC
Coop has duly caused this Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Louisville, Commonwealth of Kentucky, on July 23, 1999.
KFC NATIONAL PURCHASING
COOPERATIVE, INC.
By /s/ Daniel E. Woodside
----------------------------------------
Daniel E. Woodside, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
* Director, Secretary July 23, 1999
- --------------------------
William E. Allen
* Vice President, Chief July 23, 1999
- -------------------------- Financial Officer
William L. Bickley (Principal Accounting Officer)
(Principal Financial Officer)
Director
- --------------------------
Christian L. Campbell
Director
- --------------------------
William R. Carden
* Director July 23, 1999
- --------------------------
Robert C. Carle
* Director July 23, 1999
- --------------------------
James G. Cocolin
</TABLE>
II-8
<PAGE> 81
<TABLE>
<S> <C> <C>
* Director July 23, 1999
- --------------------------
Ben E. Edwards
* Director July 23, 1999
- --------------------------
Lois G. Foust
* Director July 23, 1999
- --------------------------
Edward J. Henriquez, Jr.
* Director, Chairman July 23, 1999
- --------------------------
David G. Neal
Director
- --------------------------
James D. Olson
* Director July 23, 1999
- --------------------------
Darlene L. Pfeifer
* Director July 23, 1999
- --------------------------
Charles Rawley
* Director, July 23, 1999
- -------------------------- Vice Chariman
James B. Royster
* Director July 23, 1999
- --------------------------
Dean M. Sorgdrager
* Director, President July 23, 1999
- -------------------------- Chief Executive Officer
Daniel E. Woodside
* Director July 23, 1999
- --------------------------
Ronald J. Young
</TABLE>
II-9
<PAGE> 82
<TABLE>
<S> <C>
By /s/ Daniel E. Woodside July 23, 1999
---------------------------
Daniel E. Woodside
Attorney-in-fact pursuant
to powers of attorney filed
as Exhibit 24 to this Registration
Statement.
</TABLE>
II-10
<PAGE> 1
EXHIBIT 10.9
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into on this 1st day of March,
1999, by and among (i) KFC NATIONAL PURCHASING COOPERATIVE, INC., a Delaware
corporation d/b/a FoodService Purchasing Cooperative, Inc., with principal
office and place of business in Louisville, Kentucky (the "KFC Cooperative"),
(ii) PIZZA HUT NATIONAL PURCHASING COOP, INC., a Delaware corporation with
principal office and place of business in Louisville, Kentucky (the "Pizza Hut
Cooperative"), (iii) TACO BELL NATIONAL PURCHASING COOP, INC., a Delaware
corporation with principal office and place of business in Louisville, Kentucky
(the "Taco Bell Cooperative"), (iv) UNIFIED FOODSERVICE PURCHASING COOP, LLC, a
Kentucky limited liability company with principal office and place of business
in Louisville, Kentucky ("Unified"), and (v) FIFTH THIRD BANK, KENTUCKY, INC., a
Kentucky banking corporation with principal office and place of business in
Louisville, Kentucky (the "Bank").
P R E L I M I N A R Y S T A T E M E N T:
A. The KFC Cooperative, the Pizza Hut Cooperative and the Taco Bell
Cooperative are the sole members of Unified, which is a newly-formed purchasing
cooperative focusing on the purchase of the food, packaging, supplies, equipment
and related products and services used by the owners and operators of the KFC
Outlets, the Pizza Hut Outlets and the Taco Bell Outlets, as such terms are
defined below.
B. The KFC Cooperative has requested the Bank to establish a revolving
line of credit in the principal amount of Fifteen Million Dollars ($15,000,000)
in favor of the KFC Cooperative to finance certain cash capital contributions
and loans that the KFC Cooperative is required to make to Unified pursuant to
the Unified Operating Agreement, as such term is defined below, to repay certain
outstanding Indebtedness, as such term is defined below, of the KFC Cooperative,
and to provide general working capital to the KFC Cooperative to pay its valid
operating expenses arising in the ordinary course of business.
C. The Pizza Hut Cooperative has requested the Bank to establish a
revolving line of credit in the principal amount of Two Million Dollars
($2,000,000) in favor of the Pizza Hut
<PAGE> 2
Cooperative to finance certain cash capital contributions and loans that the
Pizza Hut Cooperative is required to make to Unified pursuant to the Unified
Operating Agreement and to provide general working capital to the Pizza Hut
Cooperative to pay its valid operating expenses arising in the ordinary course
of business.
D. The Taco Bell Cooperative has requested the Bank to establish a
revolving line of credit in the principal amount of Eight Million Dollars
($8,000,000) in favor of the Taco Bell Cooperative to finance certain cash
capital contributions and loans that the Taco Bell Cooperative is required to
make to Unified pursuant to the Unified Operating Agreement and to provide
general working capital to the Taco Bell Cooperative to pay its valid operating
expenses arising in the ordinary course of business.
E. The Bank is willing to and desires to establish the foregoing
revolving lines of credit in favor of the KFC Cooperative, the Pizza Hut
Cooperative and the Taco Bell Cooperative in each case upon the terms and
conditions set forth in this Loan Agreement and the other Loan Documents, as
such term is defined below.
F. No Borrower shall be obligated for the obligations of any other
Borrower under this Loan Agreement or any other Loan Document, and Unified shall
not be liable for the obligations of any Borrower under this Loan Agreement or
any other Loan Document except to the extent of the collateral pledged by
Unified to the Bank to secure such Borrower's obligations to the Bank.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements set forth herein, and for other good and
valuable consideration, the mutuality, receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
As used herein the following terms shall have the following meanings
unless the context otherwise requires:
2
<PAGE> 3
1.1 "Accounts Receivable" has the meaning ascribed to the term
"Accounts" in Section 9-106 of the Uniform Commercial Code as enacted in the
Commonwealth of Kentucky.
1.2 "Bank" has the meaning set forth in the preambles to this Loan
Agreement.
1.3 "Borrower" or "Borrowers" means, as the context shall require, the
KFC Cooperative, the Pizza Hut Cooperative and/or the Taco Bell Cooperative.
1.4 "Business Day" means each day of the week other than Saturdays,
Sundays and other days on which the Bank is closed to the public.
1.5 "Collateral" means, as the context requires, the KFC Collateral,
the Pizza Hut Collateral and/or the Taco Bell Collateral.
1.6 "Debt for Borrowed Money" means Indebtedness of the types described
in clauses (a) through (c) or (e) through (g), both inclusive in each instance,
of the definition of Indebtedness set forth below except that only guaranties of
Indebtedness which is itself included in Debt for Money Borrowed shall be
excluded from Debt for Money Borrowed.
1.7 "Default" shall mean any event specified in Section 11 hereof
whether or not any requirement for notice or lapse of time or any other
condition has been satisfied.
1.8 "Default Rate" means a variable rate equal to six percent (6%) per
annum plus the interest rate borne by the Promissory Note issued by the Borrower
in respect of which the Default Rate is being assessed.
1.9 "EBITDAP" means for the particular Borrower or for Unified and for
the period in question, the sum of (a) the Net Income of the particular Borrower
or Unified for such period, (b) the Interest Expense of the particular Borrower
or Unified for such period, (c) the income tax expense of the particular
Borrower or Unified for such period, (c) the depreciation expense and
amortization expense of the particular Borrower or Unified for such period, and
(e) the patronage dividends or
3
<PAGE> 4
patronage-based distributions paid by the particular Borrower to its
shareholders or by Unified to its members during such period, all as determined
in accordance with GAAP.
1.10 "GAAP" means those principles of accounting set forth in the
opinions and pronouncements of the Financial Accounting Standards Board and its
predecessors and the American Institute of Certified Public Accountants or those
principles of accounting which have other substantial authoritative support and
are applicable in the circumstances as of the date of application, as such
principles are from time to time supplemented and amended.
1.11 "Indebtedness" of the particular Borrower or Unified means and
includes, without duplication, all obligations of such Borrower or Unified which
in accordance with GAAP shall be classified upon a balance sheet of such
Borrower or Unified as liabilities of such Borrower or Unified, in each case as
determined for such Borrower or Unified in accordance with GAAP and in any event
shall include all (a) obligations of the particular Borrower or Unified for
borrowed money or which have been incurred in connection with the acquisition of
property or assets or for the deferred payment of the cost of construction or
improvement thereof or for the deferred purchase price of property (other than
current accounts payable), (b) obligations secured by any lien, security
interest or other charge upon property or assets owned by the particular
Borrower or Unified, even though such Borrower or Unified has not assumed or
become liable for the payment of such obligations, (c) obligations for the
deferred purchase price of property created or arising under any conditional
sale or other title retention agreement with respect to property acquired by the
particular Borrower or Unified notwithstanding the fact that the rights and
remedies of the seller, lender or lessor under such agreement in the event of
default are limited to repossession or sale of the property, (d) obligations
(other than obligations under any lease which is not a capital lease in
accordance with GAAP and obligations in an amount equal to the demand component
of any contract providing for usual and customary utility services, including
gas, water, electricity and wastewater treatment services) to purchase any
property or services of another person or entity if the contract requires that
payment for such property or services be made regardless of whether such
property is delivered or such services are performed, except that no obligation
shall
4
<PAGE> 5
constitute Indebtedness solely because the contract provides for liquidated
damages or reimbursement of expenses following cancellation, (e) all guaranties
of debt of another person or entity issued by the particular Borrower or
Unified, (f) all capital leases entered into or assumed by the particular
Borrower or Unified, and (g) obligations in respect of letters of credit but
only to the extent that the letter of credit does not support an obligation of
the particular Borrower or Unified already included in Indebtedness or which
would constitute a current account payable of the particular Borrower or
Unified.
1.12 "Interest Expense" means for the period in question, total
interest expense (including that attributable to capital leases in conformity
with GAAP) of the particular Borrower or Unified during such period with respect
to all outstanding Indebtedness of the particular Borrower or Unified,
including, without limitation, all capitalized interest, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
banker's acceptance financing and net costs and benefits under interest rate
agreements, all as determined in accordance with GAAP.
1.13 "KFC Accounts Receivable" means those Accounts Receivable owed to
Unified in connection with the sale of KFC Inventory and KFC Goods and Equipment
by Unified to KFC Distributors or KFC Operators pursuant to Title Transactions.
1.14 "KFC Borrowing Base" means an amount equal to the sum of (a)
eighty percent (80%) of KFC Eligible Accounts Receivable, (b) eighty percent
(80%) of KFC Eligible Presold Inventory, (c) fifty percent (50%) of KFC Eligible
Inventory Held on Account, plus (d) for the period ending on May 31, 1999, the
sum of Two Hundred Fifty Thousand Dollars ($250,000.00).
1.15 "KFC Borrowing Base Report" means the report in the form of
Exhibit A attached hereto and made a part hereof.
1.16 "KFC Collateral" means (a) all of the assets described in the
Unified KFC Security Agreement, all of which pertain to and/or are otherwise
used by Unified in connection with the purchasing program established and
conducted by Unified for the benefit of the KFC Cooperative and the KFC
Operators pursuant to that certain Purchasing Program Management Agreement of
even date herewith, between Unified and the KFC Cooperative, as the
5
<PAGE> 6
same may hereafter be amended, modified and/or restated, in all of which Unified
has granted to the Bank a first priority security interest pursuant to the
Unified KFC Security Agreement, (b) the loan agreement, the promissory note and
the security agreement executed and delivered by Unified in favor of the KFC
Cooperative to evidence the loans made by the KFC Cooperative to Unified
pursuant to the Unified Operating Agreement, (c) the promissory note and the
security agreement executed and delivered by the Taco Bell Cooperative in favor
of the KFC Cooperative to evidence the Intercompany Liability (as such term is
defined in that certain Agreement and Plan of Corporate Separation of even date
herewith, adopted by the KFC Cooperative) owed by the Taco Bell Cooperative to
KFC Cooperative, in all of which the KFC Cooperative has granted to the Bank a
first priority security interest pursuant to the KFC Pledge Agreement, (d) the
promissory note executed and delivered by the Pizza Hut Cooperative in favor of
the KFC Cooperative to evidence the loan in the principal amount of $500,000
made by the KFC Cooperative to the Pizza Hut Cooperative, in which the KFC
Cooperative has granted to the Bank a first priority security interest pursuant
to the KFC Pledge Agreement, and (e) all other business assets of the KFC
Cooperative, in all of which the KFC Cooperative has granted to the Bank a first
priority security interest pursuant to the KFC Pledge Agreement, and (f) all
proceeds of the property described in subparts (a) through (e) above.
1.17 "KFC Cooperative" has the meaning set forth in the preambles to
this Loan Agreement.
1.18 "KFC Demand Deposit Account" means the demand deposit account
established by the KFC Cooperative with the Bank pursuant to this Loan
Agreement.
1.19 "KFC Deficiency Fee" has the meaning set forth in Section 2.8
hereof.
1.20 "KFC Default" means the occurrence of any Default with respect to
the KFC Cooperative or Unified.
1.21 "KFC Distributors" means, as of each date of determination
thereof, those distributors who have been approved by Tricon to sell KFC
Inventory to KFC Operators.
6
<PAGE> 7
1.22 "KFC Eligible Accounts Receivable" means good, bona fide
collectible KFC Accounts Receivable owed directly to Unified by KFC Distributors
and KFC Operators, but excluding from the definition of KFC Eligible Accounts
Receivable all of the following:
(a) Those KFC Accounts Receivable owed to Unified by KFC
Distributors which remain unpaid more than sixty (60) days after their
respective invoice dates;
(b) Those KFC Accounts Receivable owed to Unified by KFC Operators
which remain unpaid more than sixty (60) days after their respective invoice
dates;
(c) Those KFC Accounts Receivable which are subject to any right
of set off by the account debtor, to the extent of the amount subject to such
right of set off;
(d) Those KFC Accounts Receivable subject to liens and security
interests in favor of a party or parties other than the Bank and which are prior
to the security interest in the KFC Accounts Receivable granted by Unified to
the Bank pursuant to the Unified KFC Security Agreement;
(e) Those KFC Accounts Receivable owed to Unified by any account
debtor who, to the actual knowledge of the KFC Cooperative or Unified, is
subject to any insolvency, bankruptcy or dissolution proceedings;
(f) Those KFC Accounts Receivable evidencing or otherwise arising
out of the sale of assets of Unified, other than the sale of KFC Inventory and
KFC Goods and Equipment in the ordinary course of business;
(g) Those KFC Accounts Receivable which the KFC Cooperative,
Unified and/or the Bank believe in the exercise of good faith to be
uncollectible when due; and
(h) Any and all KFC Accounts Receivable owed by a particular
account debtor to the extent 25% or more of the total KFC Accounts Receivable of
such account debtor are more than sixty (60) days past due from their respective
invoice dates.
7
<PAGE> 8
1.23 "KFC Eligible Inventory Held on Account" means, as of each date of
determination thereof, all KFC Inventory Held on Account, valued at the lower of
cost or market value, but excluding from the definition of KFC Eligible
Inventory Held on Account all of the following:
(a) "defective" KFC Inventory Held on Account, which term, as used
herein, means KFC Inventory Held on Account which Unified does not intend to
sell and/or cannot sell to KFC Distributors and/or KFC Operators at established
prices therefor due to defects therein; and
(b) all KFC Inventory Held on Account subject to liens and
security interests in favor of a party or parties other than the Bank and which
are prior to the security interest in the KFC Inventory granted by Unified to
the Bank pursuant to the Unified KFC Security Agreement.
1.24 "KFC Eligible Presold Inventory" means, as of each date of
determination thereof, all KFC Presold Inventory, valued at the lower of cost or
market value, but excluding from the definition of KFC Eligible Presold
Inventory all of the following:
(a) "defective" KFC Presold Inventory, which term, as used herein,
means KFC Presold Inventory which Unified does not intend to sell and/or cannot
sell to the particular KFC Operators at agreed upon prices therefor due to
defects therein; and
(b) all KFC Presold Inventory subject to liens and security
interests in favor of a party or parties other than the Bank and which are prior
to the security interest in the KFC Inventory granted by Unified to the Bank
pursuant to the Unified KFC Security Agreement.
1.25 "KFC Event of Default" means the occurrence of any Event of
Default referred to in Section 11 hereof with respect to either the KFC
Cooperative or Unified.
1.26 "KFC Goods and Equipment" means those items of food, paper
products, supplies, equipment and other products and services (a) that have been
approved by Tricon for use and consumption at the KFC Outlets, (b) that have
been purchased by
8
<PAGE> 9
Unified pursuant to a Title Transaction, and (c) that does not constitute KFC
Inventory.
1.27 "KFC Inventory" means, collectively, the KFC Presold Inventory and
the KFC Inventory Held on Account.
1.28 "KFC Inventory Held on Account" means, as of each date of
determination thereof, those items of food, paper products, equipment and other
goods and services (a) that have been approved by Tricon for use and consumption
at the KFC Outlets, (b) that have been purchased by Unified in anticipation of
resale to KFC Distributors and/or KFC Operators and is being held by either
Unified or by the particular KFC Supplier on behalf of Unified, (c) the title to
which was acquired by Unified pursuant to a Title Transaction, and (d) that has
not yet been invoiced by Unified to the particular KFC Distributors and/or KFC
Operators.
1.29 "KFC Line of Credit" means the revolving line of credit in the
principal amount of Fifteen Million Dollars ($15,000,000.00) established by the
Bank in favor of the KFC Cooperative pursuant to and upon the terms and
conditions set forth in this Loan Agreement.
1.30 "KFC Minimum Compensating Balances Requirement" means, as of each
date of determination thereof, an amount equal to Thirty-Five Thousand Dollars
($35,000.00) for each One Million Dollars ($1,000,000.00) of the fully committed
principal amount of the KFC Line of Credit as it may exist from time to time. If
the KFC Line of Credit is not in integral multiples of One Million Dollars
($1,000,000.00), the KFC Minimum Compensating Balances Requirement shall be
prorated for that portion of the fully committed principal amount of the KFC
Line of Credit that is in excess of the highest integral multiple of One Million
Dollars ($1,000,000.00).
1.31 "KFC Operators" means, as of each date of determination thereof,
the owners of KFC Outlets, including those KFC Outlets owned directly by Tricon,
who are eligible to purchase KFC Inventory directly through Unified pursuant to
Title Transactions.
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1.32 "KFC Outlets" means, as of each date of determination thereof, the
KFC retail outlets that are owned by Tricon or by Tricon-approved franchisees of
the KFC restaurant concept.
1.33 "KFC Pledge Agreement" means that certain Security Agreement of
even date herewith, between the KFC Cooperative and the Bank, as supplemented
pursuant to that certain First Addendum to Security Agreement of even date
herewith, between the KFC Cooperative and the Bank, together with all future
amendments and modifications thereto.
1.34 "KFC Presold Inventory" means, as of each date of determination
thereof, those items of food, paper products, equipment and other goods and
services (a) that have been approved by Tricon for use and consumption at the
KFC Outlets, (b) that have been specially ordered by a KFC Operator through
Unified and is awaiting shipment to the KFC Operator in a warehouse owned or
leased by Unified, (c) the title to which was acquired by Unified pursuant to a
Title Transaction, and (d) that has not yet been invoiced by Unified to the
particular KFC Distributors and/or KFC Operators.
1.35 "KFC Promissory Note" means that certain Revolving Note of even
date herewith, made by the KFC Cooperative, payable to the order of the Bank,
and in the face principal amount of Fifteen Million Dollars ($15,000,000.00), as
supplemented pursuant to that certain First Addendum to Revolving Note of even
date herewith, between the KFC Cooperative and the Bank, together with all
future amendments, modifications, renewals, extensions, replacements and
restatements thereof.
1.36 "KFC Suppliers" means, as of each date of determination thereof,
those suppliers who have been approved by Tricon to sell KFC Inventory to KFC
Distributors and KFC Operators.
1.37 "Lines of Credit" means, collectively or individually, as the
context shall require, the KFC Line of Credit, the Pizza Hut Line of Credit and
the Taco Bell Line of Credit.
1.38 "Loan Agreement" means this Loan Agreement together with all
future amendments, modifications and supplements to this Loan Agreement
hereafter executed by the parties hereto.
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1.39 "Loan Documents" means, collectively, this Loan Agreement, the KFC
Promissory Note, the KFC Pledge Agreement, the Unified KFC Security Agreement,
the Pizza Hut Promissory Note, the Pizza Hut Pledge Agreement, the Unified Pizza
Hut Security Agreement, the Taco Bell Promissory Note, the Taco Bell Pledge
Agreement, the Unified Taco Bell Security Agreement and all other agreements,
documents and instruments that evidence, secure and/or pertain to the KFC Line
of Credit, the Pizza Hut Line of Credit and/or the Taco Bell Line of Credit.
1.40 "Net Income" means, for the period in question, the net income (or
loss), excluding extraordinary, non-recurring or unusual gains (but not
extraordinary, non-recurring or unusual losses), of the particular Borrower or
Unified for such period, after deducting therefrom all operating expenses,
provisions for all reserves and all other proper deductions for the same period,
including income taxes, all as determined in accordance with GAAP.
1.41 "Net Worth" means for the particular Borrower or Unified, as
applicable, and as of each date Net Worth is being determined, the total
shareholder or member equity of the particular Borrower or Unified as determined
in accordance with GAAP.
1.42 "Pizza Hut Accounts Receivable" means those Accounts Receivable
owed to Unified by Pizza Hut Distributors or Pizza Hut Operators in connection
with the sale of Pizza Hut Inventory and Pizza Hut Goods and Equipment by
Unified to Pizza Hut Distributors and Pizza Hut Operators pursuant to Title
Transactions.
1.43 "Pizza Hut Borrowing Base" means an amount equal to the sum of (a)
eighty percent (80%) of Pizza Hut Eligible Accounts Receivable, (b) eighty
percent (80%) of Pizza Hut Eligible Presold Inventory, (c) fifty percent (50%)
of Pizza Hut Eligible Inventory Held on Account, and (d) for the period ending
May 31, 1999 only, the sum of One Hundred Thousand Dollars ($100,000.00).
1.44 "Pizza Hut Borrowing Base Report" means the report in the form of
Exhibit B attached hereto and made a part hereof.
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1.45 "Pizza Hut Collateral" means (a) all of the property described in
the Unified Pizza Hut Security Agreement, all of which pertain to and/or are
otherwise used by Unified in connection with the purchasing program established
and conducted by Unified for the benefit of the Pizza Hut Cooperative and the
Pizza Hut Operators pursuant to that certain Purchasing Program Management
Agreement of even date herewith, between Unified and the Pizza Hut Cooperative,
as the same may hereafter be amended, modified and/or restated, in all of which
Unified has granted to the Bank a first priority security interest pursuant to
the Unified Pizza Hut Security Agreement, (b) the loan agreement, the promissory
note and the security agreement executed and delivered by Unified in favor of
the Pizza Hut Cooperative to evidence the loans made by the Pizza Hut
Cooperative to Unified pursuant to the Unified Operating Agreement, in all of
which the Pizza Hut Cooperative has granted to the Bank a first priority
security interest pursuant to the Pizza Hut Pledge Agreement, (c) all other
business assets of the Pizza Hut Cooperative, in all of which the Pizza Hut
Cooperative has granted to the Bank a first priority security interest pursuant
to the Pizza Hut Pledge Agreement, and (d) all proceeds of the property
described in subparts (a) through (c) above.
1.46 "Pizza Hut Cooperative" has the meaning set forth in the preambles
to this Loan Agreement.
1.47 "Pizza Hut Demand Deposit Account" means the demand deposit
account established by the Pizza Hut Cooperative with the Bank pursuant to this
Loan Agreement.
1.48 "Pizza Hut Deficiency Fee" has the meaning set forth in Section
3.8 hereof.
1.49 "Pizza Hut Default" means the occurrence of any Default with
respect to the Pizza Hut Cooperative or Unified.
1.50 "Pizza Hut Distributors" means, as of each date of determination
thereof, those distributors who have been approved by Tricon to sell Pizza Hut
Inventory to Pizza Hut Operators.
1.51 "Pizza Hut Eligible Accounts Receivable" means good, bona fide
collectible Pizza Hut Accounts Receivable owed directly to Unified by Pizza Hut
Distributors and Pizza Hut
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Operators, but excluding from the definition of Pizza Hut Eligible Accounts
Receivable all of the following:
(a) Those Pizza Hut Accounts Receivable owed to Unified by Pizza
Hut Distributors which remain unpaid more than sixty (60) days after their
respective invoice dates;
(b) Those Pizza Hut Accounts Receivable owed to Unified by Pizza
Hut Operators which remain unpaid more than sixty (60) days after their
respective invoice dates;
(c) Those Pizza Hut Accounts Receivable which are subject to any
right of set off by the account debtor, to the extent of the amount subject to
such right of set off;
(d) Those Pizza Hut Accounts Receivable subject to liens and
security interests in favor of a party or parties other than the Bank and which
are prior to the security interest in the Pizza Hut Accounts Receivable granted
by Unified to the Bank pursuant to the Unified Pizza Hut Security Agreement;
(e) Those Pizza Hut Accounts Receivable owed to Unified by any
account debtor who, to the actual knowledge of the Pizza Hut Cooperative or
Unified, is subject to any insolvency, bankruptcy or dissolution proceedings;
(f) Those Pizza Hut Accounts Receivable evidencing or otherwise
arising out of the sale of assets of Unified, other than the sale of Pizza Hut
Inventory and Pizza Hut Goods and Equipment in the ordinary course of business;
(g) Those Pizza Hut Accounts Receivable which the Pizza Hut
Cooperative, Unified and/or the Bank believe in the exercise of good faith to be
uncollectible when due; and
(h) Any and all Pizza Hut Accounts Receivable owed by a particular
account debtor to the extent 25% or more of the total Pizza Hut Accounts
Receivable of such account debtor are more than sixty (60) days past due from
their respective invoice dates.
1.52 "Pizza Hut Eligible Inventory Held on Account" means, as of each
date of determination thereof, all Pizza Hut Inventory Held on Account, valued
at the lower of cost or market
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value, but excluding from the definition of Pizza Hut Eligible Inventory Held on
Account all of the following:
(a) "defective" Pizza Hut Inventory Held on Account, which term,
as used herein, means Pizza Hut Inventory Held on Account which Unified does not
intend to sell and/or cannot sell to Pizza Hut Distributors and/or Pizza Hut
Operators at established prices therefor due to defects therein; and
(b) all Pizza Hut Inventory Held on Account subject to liens and
security interests in favor of a party or parties other than the Bank and which
are prior to the security interest in the Pizza Hut Inventory granted by Unified
to the Bank pursuant to the Unified Pizza Hut Security Agreement.
1.53 "Pizza Hut Eligible Presold Inventory" means, as of each date of
determination thereof, all Pizza Hut Presold Inventory, valued at the lower of
cost or market value, but excluding from the definition of Pizza Hut Eligible
Presold Inventory all of the following:
(a) "defective" Pizza Hut Presold Inventory, which term, as used
herein, means Pizza Hut Presold Inventory which Unified does not intend to sell
and/or cannot sell to the particular Pizza Hut Operators at agreed upon prices
therefor due to defects therein; and
(b) all Pizza Hut Presold Inventory subject to liens and security
interests in favor of a party or parties other than the Bank and which are prior
to the security interest in the Pizza Hut Inventory granted by Unified to the
Bank pursuant to the Unified Pizza Hut Security Agreement.
1.54 "Pizza Hut Event of Default" means the occurrence of any Event of
Default referred to in Section 11 hereof with respect to either the Pizza Hut
Cooperative or Unified.
1.55 "Pizza Hut Goods and Equipment" means those items of food, paper
products, supplies, equipment and other products and services (a) that have been
approved by Tricon for use and consumption at the Pizza Hut Outlets, (b) that
have been purchased by Unified pursuant to a Title Transaction, and (c) that
does not constitute Pizza Hut Inventory.
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1.56 "Pizza Hut Inventory" means, collectively, the Pizza Hut Presold
Inventory and the Pizza Hut Inventory Held on Account.
1.57 "Pizza Hut Inventory Held on Account" means, as of each date of
determination thereof, those items of food, paper products, equipment and other
goods and services (a) that have been approved by Tricon for use and consumption
at the Pizza Hut Outlets, (b) that have been purchased by Unified in
anticipation of resale to Pizza Hut Distributors and/or Pizza Hut Operators and
is being held by either Unified or by the particular Pizza Hut Supplier on
behalf of Unified, (c) the title to which was acquired by Unified pursuant to a
Title Transaction, and (d) that has not yet been invoiced by Unified to the
particular Pizza Hut Distributors and/or Operators.
1.58 "Pizza Hut Line of Credit" means the revolving line of credit in
the principal amount of Two Million Dollars ($2,000,000.00) established by the
Bank in favor of the Pizza Hut Cooperative pursuant to and upon the terms and
conditions set forth in this Loan Agreement.
1.59 "Pizza Hut Minimum Compensating Balances Requirement" means, as of
each date of determination thereof, an amount equal to Thirty-Five Thousand
Dollars ($35,000.00) for each One Million Dollars ($1,000,000.00) of the fully
committed principal amount of the Pizza Hut Line of Credit as it may exist from
time to time. If the Pizza Hut Line of Credit is not in integral multiples of
One Million Dollars ($1,000,000.00), the Pizza Hut Minimum Compensating Balances
Requirement shall be prorated for that portion of the fully committed principal
amount of the Pizza Hut Line of Credit that is in excess of the highest integral
multiple of One Million Dollars ($1,000,000.00).
1.60 "Pizza Hut Operators" means, as of each date of determination
thereof, the owners of Pizza Hut Outlets, including those Pizza Hut Outlets
owned directly by Tricon, who are eligible to purchase Pizza Hut Inventory
directly through Unified pursuant to Title Transactions.
1.61 "Pizza Hut Outlets" means, as of each date of determination
thereof, the Pizza Hut retail outlets that are owned by Tricon or by
Tricon-approved franchisees of the Pizza Hut restaurant concept.
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1.62 "Pizza Hut Pledge Agreement" means that certain Security Agreement
of even date herewith, between the Pizza Hut Cooperative and the Bank, as
supplemented pursuant to that certain First Addendum to Security Agreement of
even date herewith, between the Pizza Hut Cooperative and the Bank, together
with all future amendments and modifications thereto.
1.63 "Pizza Hut Presold Inventory" means, as of each date of
determination thereof, those items of food, paper products, equipment and other
goods and services (a) that have been approved by Tricon for use and consumption
at the Pizza Hut Outlets, (b) that have been specially ordered by a Pizza Hut
Operator through Unified and is awaiting shipment to the Pizza Hut Operator in a
warehouse owned or leased by Unified, (c) the title to which was acquired by
Unified pursuant to a Title Transaction, and (d) that has not yet been invoiced
by Unified to the particular Pizza Hut Distributors and/or Pizza Hut Operators.
1.64 "Pizza Hut Promissory Note" means that certain Revolving Note of
even date herewith, made by the Pizza Hut Cooperative, payable to the order of
the Bank, and in the face principal amount of Two Million Dollars
($2,000,000.00), as supplemented pursuant to that certain First Addendum to
Revolving Note of even date herewith, between the Pizza Hut Cooperative and the
Bank, together with all future amendments, modifications, renewals, extensions,
replacements and restatements thereof.
1.65 "Pizza Hut Suppliers" means, as of each date of determination
thereof, those suppliers who have been approved by Tricon to sell Pizza Hut
Inventory to Pizza Hut Distributors and Pizza Hut Operators.
1.66 "Prime Rate" means the interest rate per annum announced from time
to time by the Bank as its Prime Rate.
1.67 "Promissory Notes" means, collectively or individually, as the
context shall require, the KFC Promissory Note, the Pizza Hut Promissory Note
and the Taco Bell Promissory Note.
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1.68 "Secured Obligations" means, with respect to each Borrower, (a)
all loans, advances, indebtedness and other obligations of such Borrower owed to
the Bank and/or any affiliate of Fifth Third Bankcorp of every kind and
description whether now existing or hereafter arising including, without
limitation, those owed to others and acquired by the Bank by purchase,
assignment or otherwise and whether direct or indirect, primary or as guarantor
or surety, absolute or contingent, liquidated or unliquidated, matured or
unmatured, whether or not secured by additional collateral, and (b) all
liabilities, obligations and indebtedness of such Borrower arising under this
Loan Agreement and all other Loan Documents to which such Borrower is a party,
and all obligations of such Borrower to perform or forbear from performing acts,
all amounts represented by letters of credit now or hereafter issued by the Bank
for the benefit of or at the request of such Borrower and such Borrower's
obligation for all reasonable expenses and attorneys' fees incurred by Bank
under this Loan Agreement or any other Loan Document to which such Borrower is a
party or related to any of the Secured Obligations.
1.69 "Taco Bell Accounts Receivable" means those Accounts Receivable
owed to Unified by Taco Bell Distributors or Taco Bell Operators in connection
with the sale of Taco Bell Inventory and Taco Bell Goods and Equipment by
Unified to Taco Bell Distributors and Taco Bell Operators pursuant to Title
Transactions.
1.70 "Taco Bell Borrowing Base" means an amount equal to the sum of (a)
eighty percent (80%) of Taco Bell Eligible Accounts Receivable, (b) eighty
percent (80%) of Taco Bell Eligible Presold Inventory, and (c) fifty percent
(50%) of Taco Bell Eligible Inventory Held on Account, and (d) for the period
ending May 31, 1999 only, the sum of One Hundred Fifty Thousand Dollars
($150,000.00).
1.71 "Taco Bell Borrowing Base Report" means the report in the form of
Exhibit C attached hereto and made a part hereof.
1.72 "Taco Bell Collateral" means (a) all of the property described in
the Unified Taco Bell Security Agreement, all of which contributed by the Taco
Bell Cooperative to Unified or otherwise acquired by Unified and that pertain to
and/or are otherwise used by Unified in connection with the purchasing
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program established and conducted by Unified for the benefit of the Taco Bell
Cooperative and the Taco Bell Operators pursuant to that certain Purchasing
Program Management Agreement of even date herewith, between Unified and the Taco
Bell Cooperative, as the same may hereafter be amended, modified and/or
restated, in all of which Unified has granted to the Bank a first priority
security interest pursuant to the Unified Taco Bell Security Agreement, (b) the
loan agreement, the promissory note and the security agreement executed and
delivered by Unified in favor of the Taco Bell Cooperative to evidence the loans
made by the Taco Bell Cooperative to Unified pursuant to the Unified Operating
Agreement, in all of which the Taco Bell Cooperative has granted to the Bank a
first priority security interest pursuant to the Taco Bell Pledge Agreement, (c)
all other business assets of the Taco Bell Cooperative, in all of which the Taco
Bell Cooperative has granted to the Bank a first priority security interest
pursuant to the Taco Bell Pledge Agreement, and (d) all proceeds of the property
described in subparts (a) through (c) above.
1.73 "Taco Bell Cooperative" has the meaning set forth in the preambles
to this Loan Agreement.
1.74 "Taco Bell Demand Deposit Account" means the demand deposit
account established by the Taco Bell Cooperative with the Bank pursuant to this
Loan Agreement.
1.75 "Taco Bell Deficiency Fee" has the meaning set forth in Section
4.8 hereof.
1.76 "Taco Bell Default" means the occurrence of any Default with
respect to the Taco Bell Cooperative or Unified.
1.77 "Taco Bell Distributors" means, as of each date of determination
thereof, those distributors who have been approved by Tricon to sell Taco Bell
Inventory to Taco Bell Operators.
1.78 "Taco Bell Eligible Accounts Receivable" means good, bona fide
collectible Taco Bell Accounts Receivable owed directly to Unified by Taco Bell
Distributors and Taco Bell Operators, but excluding from the definition of Taco
Bell Eligible Accounts Receivable all of the following:
(a) Those Taco Bell Accounts Receivable owed to Unified by Taco
Bell Distributors which remain unpaid more than sixty (60) days after their
respective invoice dates;
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(b) Those Taco Bell Accounts Receivable owed to Unified by Taco
Bell Operators which remain unpaid more than sixty (60) days after their
respective invoice dates;
(c) Those Taco Bell Accounts Receivable which are subject to any
right of set off by the account debtor, to the extent of the amount subject to
such right of set off;
(d) Those Taco Bell Accounts Receivable subject to liens and
security interests in favor of a party or parties other than the Bank and which
are prior to the security interest in the Taco Bell Accounts Receivable granted
by Unified to the Bank pursuant to the Unified Taco Bell Security Agreement;
(e) Those Taco Bell Accounts Receivable owed to Unified by any
account debtor who, to the actual knowledge of the Taco Bell Cooperative or
Unified, is subject to any insolvency, bankruptcy or dissolution proceedings;
(f) Those Taco Bell Accounts Receivable evidencing or otherwise
arising out of the sale of assets of Unified, other than the sale of Taco Bell
Inventory and Taco Bell Goods and Equipment in the ordinary course of business;
(g) Those Taco Bell Accounts Receivable which the Taco Bell
Cooperative, Unified and/or the Bank believe in the exercise of good faith to be
uncollectible when due; and
(h) Any and all Taco Bell Accounts Receivable owed by a particular
account debtor to the extent 25% or more of the total Taco Bell Accounts
Receivable of such account debtor are more than sixty (60) days past due from
their respective invoice dates.
1.79 "Taco Bell Eligible Inventory Held on Account" means, as of each
date of determination thereof, all Taco Bell Inventory Held on Account, valued
at the lower of cost or market value, but excluding from the definition of Taco
Bell Eligible Inventory Held on Account all of the following:
(a) "defective" Taco Bell Inventory Held on Account, which term,
as used herein, means Taco Bell Inventory Held on Account which Unified does not
intend to sell and/or cannot sell
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to Taco Bell Distributors and/or Taco Bell Operators at established prices
therefor due to defects therein; and
(b) all Taco Bell Inventory Held on Account subject to liens and
security interests in favor of a party or parties other than the Bank and which
are prior to the security interest in the Taco Bell Inventory granted by Unified
to the Bank pursuant to the Unified Taco Bell Security Agreement.
1.80 "Taco Bell Eligible Presold Inventory" means, as of each date of
determination thereof, all Taco Bell Presold Inventory, valued at the lower of
cost or market value, but excluding from the definition of Taco Bell Eligible
Presold Inventory all of the following:
(a) "defective" Taco Bell Presold Inventory, which term, as used
herein, means Taco Bell Presold Inventory which Unified does not intend to sell
and/or cannot sell to the particular Taco Bell Operators at agreed upon prices
therefor due to defects therein; and
(b) all Taco Bell Presold Inventory subject to liens and security
interests in favor of a party or parties other than the Bank and which are prior
to the security interest in the Taco Bell Inventory granted by Unified to the
Bank pursuant to the Unified Taco Bell Security Agreement.
1.81 "Taco Bell Event of Default" means the occurrence of any Event of
Default referred to in Section 11 hereof with respect to either the Taco Bell
Cooperative or Unified.
1.82 "Taco Bell Goods and Equipment" means those items of food, paper
products, supplies, equipment and other products and services (a) that have been
approved by Tricon for use and consumption at the Taco Bell Outlets, (b) that
have been purchased by Unified pursuant to a Title Transaction, and (c) that
does not constitute Taco Bell Inventory.
1.83 "Taco Bell Inventory" means, collectively, the Taco Bell Presold
Inventory and the Taco Bell Inventory Held on Account.
1.84 "Taco Bell Inventory Held on Account" means, as of each date of
determination thereof, those items of food, paper
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products, equipment and other goods and services (a) that have been approved by
Tricon for use and consumption at the Taco Bell Outlets, (b) that have been
purchased by Unified in anticipation of resale to Taco Bell Distributors and/or
Taco Bell Operators and is being is being held by either Unified or by the
particular Taco Bell Supplier on behalf of Unified, (c) the title to which was
acquired by Unified pursuant to a Title Transaction, and (d) that has not yet
been invoiced by Unified to the particular Taco Bell Distributors and/or Taco
Bell Operators.
1.85 "Taco Bell Line of Credit" means the revolving line of credit in
the principal amount of Eight Million Dollars ($8,000,000.00) established by the
Bank in favor of the Taco Bell Cooperative pursuant to and upon the terms and
conditions set forth in this Loan Agreement.
1.86 "Taco Bell Minimum Compensating Balances Requirement" means, as of
each date of determination thereof, an amount equal to Thirty-Five Thousand
Dollars ($35,000.00) for each One Million Dollars ($1,000,000.00) of the fully
committed principal amount of the Taco Bell Line of Credit as it may exist from
time to time. If the Taco Bell Line of Credit is not in integral multiples of
One Million Dollars ($1,000,000.00), the Taco Bell Minimum Compensating Balances
Requirement shall be prorated for that portion of the fully committed principal
amount of the Taco Bell Line of Credit that is in excess of the highest integral
multiple of One Million Dollars ($1,000,000.00).
1.87 "Taco Bell Operators" means, as of each date of determination
thereof, the owners of Taco Bell Outlets, including those Taco Bell Outlets
owned directly by Tricon, who are eligible to purchase Taco Bell Inventory
directly through Unified pursuant to Title Transactions.
1.88 "Taco Bell Outlets" means, as of each date of determination
thereof, the Taco Bell retail outlets that are owned by Tricon or by
Tricon-approved franchisees of the Taco Bell restaurant concept.
1.89 "Taco Bell Pledge Agreement" means that certain Security Agreement
of even date herewith, between the Taco Bell Cooperative and the Bank, as
supplemented pursuant to that certain First Addendum to Security Agreement of
even date
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herewith, between the Taco Bell Cooperative and the Bank, together with all
future amendments and modifications thereto.
1.90 "Taco Bell Presold Inventory" means, as of each date of
determination thereof, those items of food, paper products, equipment and other
goods and services (a) that have been approved by Tricon for use and consumption
at the Taco Bell Outlets, (b) that have been specially ordered by a Taco Bell
Operator through Unified and is awaiting shipment to the Taco Bell Operator in a
warehouse owned or leased by Unified, (c) the title to which was acquired by
Unified pursuant to a Title Transaction, and (d) that has not yet been invoiced
by Unified to the particular Taco Bell Distributors and/or Taco Bell Operators.
1.91 "Taco Bell Promissory Note" means that certain Revolving Note of
even date herewith, made by the Taco Bell Cooperative, payable to the order of
the Bank, and in the face principal amount of Eight Million Dollars
($8,000,000.00), as supplemented pursuant to that certain First Addendum to
Revolving Note of even date herewith, between the Taco Bell Cooperative and the
Bank, together with all future amendments, modifications, renewals, extensions,
replacements and restatements thereof.
1.92 "Taco Bell Suppliers" means, as of each date of determination
thereof, those suppliers who have been approved by Tricon to sell Taco Bell
Inventory to Taco Bell Distributors and Taco Bell Operators.
1.93 "Title Transactions" means, as the case may be, the sale of KFC
Inventory and KFC Goods and Equipment directly by Unified to KFC Distributors
and/or KFC Operators, the sale of Pizza Hut Inventory and Pizza Hut Goods and
Equipment directly by Unified to Pizza Hut Distributors and/or Pizza Hut
Operators, and the sale of Taco Bell Inventory and Taco Bell Goods and Equipment
directly by Unified to Taco Bell Distributors and/or Taco Bell Operators, in
each case where the KFC Inventory and the KFC Goods and Equipment, the Pizza Hut
Inventory and the Pizza Hut Goods and Equipment, and the Taco Bell Inventory and
the Taco Bell Goods and Equipment was purchased by Unified from the particular
KFC Supplier, the particular Pizza Hut Supplier or the particular Taco Bell
Supplier and resold directly by Unified to the particular KFC Distributors
and/or KFC Operators,
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the particular Pizza Hut Distributors and/or Pizza Hut Operators and the
particular Taco Bell Distributors and/or Taco Bell Operators.
1.94 "Total Liabilities" means, with respect to the particular Borrower
or Unified, as the case may be, and as of each date determination of Total
Liabilities is being made, (a) all Indebtedness of the particular Borrower or
Unified as at such date, including, without limitation, all Debt for Borrowed
Money of the particular Borrower or Unified and all amounts due under all
capital leases entered into or assumed by the particular Borrower or Unified,
(b) all current liabilities of the particular Borrower or Unified, and (c) and
all other liabilities and obligations of the particular Borrower or Unified, in
each case as determined for the particular Borrower or Unified in accordance
with GAAP.
1.95 "Transaction Documents" means all agreements, documents and
instruments executed and delivered in connection with the formation and initial
capitalization of each of the Pizza Hut Cooperative, the Taco Bell Cooperative
and Unified including, without limitation, (a) the Unified Operating Agreement,
(b) that certain Asset Contribution and Liability Assumption Agreement of even
date herewith, between Unified and the KFC Cooperative, (c) that certain Tricon
Purchasing Coop Agreement of even date herewith, between Tricon and Unified, (d)
that certain SCM Transfer Agreement of even date herewith, among Unified,
Tricon, KFC Corporation, Taco Bell Corp., Pizza Hut, Inc. and Tricon Restaurant
Services Group, Inc., (e) that certain Purchasing Program Management Agreement
of even date herewith, between Unified and the KFC Cooperative, (f) that certain
Purchasing Program Management Agreement of even date herewith, between Unified
and the Pizza Hut Cooperative, (g) that certain Purchasing Program Management
Agreement of even date herewith, between Unified and the Taco Bell Cooperative,
and (h) each loan agreement, promissory note and security agreement executed and
delivered by Unified in favor of each Borrower in connection with the loans made
by each Borrower to Unified.
1.96 "Tricon" means Tricon Global Restaurants, Inc., a Delaware
corporation.
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1.97 "Unified" has the meaning set forth in the preambles to this Loan
Agreement.
1.98 "Unified Deficiency Fee" has the meaning set forth in Section 9.6
hereof.
1.99 "Unified Operating Agreement" means that certain Operating
Agreement dated as of March 1, 1999, among the KFC Cooperative, the Pizza Hut
Cooperative and the Taco Bell Cooperative, and joined in by Unified Purchasing
Group of Canada, Inc., together with all future amendments and modifications
thereto.
1.100 "Unified KFC Security Agreement" means that certain Security
Agreement of even date herewith, between Unified and the Bank, as supplemented
pursuant to that certain First Addendum to Security Agreement of even date
herewith, between Unified and the Bank, pursuant to which Unified has granted to
the Bank a first priority security interest in all of the KFC Collateral owned
by Unified to secure the payment of the KFC Promissory Note and the other
Secured Obligations owed by the KFC Cooperative to the Bank.
1.101 "Unified Pizza Hut Security Agreement" means that certain
Security Agreement of even date herewith, between Unified and the Bank, as
supplemented pursuant to that certain First Addendum to Security Agreement of
even date herewith, between Unified and the Bank, pursuant to which Unified has
granted to the Bank a first priority security interest in all of the Pizza Hut
Collateral owned by Unified to secure the payment of the Pizza Hut Promissory
Note and the other Secured Obligations owed by the Pizza Hut Cooperative to the
Bank.
1.102 "Unified Taco Bell Security Agreement" means that certain
Security Agreement of even date herewith, between Unified and the Bank, as
supplemented pursuant to that certain First Addendum to Security Agreement of
even date herewith, between Unified and the Bank, pursuant to which Unified has
granted to the Bank a first priority security interest in all of the Taco Bell
Collateral owned by Unified to secure the payment of the Taco Bell Promissory
Note and the other Secured Obligations owed by the Taco Bell Cooperative to the
Bank.
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1.103 Singular and Plural. Terms in the singular number shall include
the plural and those in the plural shall include the singular.
1.104 Use of Defined Terms. All terms defined in this Loan Agreement
shall, unless the context clearly requires to the contrary, have the defined
meanings when used in the other Loan Documents.
SECTION 2. KFC LINE OF CREDIT.
2.1 KFC Line of Credit. The Bank hereby establishes a revolving line of
credit in favor of the KFC Cooperative in the original principal amount of
Fifteen Million Dollars ($15,000,000.00) (the "KFC Line of Credit"). The KFC
Cooperative agrees that the proceeds of the KFC Line of Credit shall be used
solely by the KFC Cooperative to make the cash capital contributions and the
loans required to be made by the KFC Cooperative to Unified pursuant to the
Unified Operating Agreement, to repay certain outstanding Indebtedness of the
KFC Cooperative, and to provide general working capital to the KFC Cooperative
to pay its valid operating expenses arising in the ordinary course of business.
The KFC Cooperative may obtain advances under the KFC Line of Credit pursuant
to, and subject to the terms and conditions set forth in, this Loan Agreement.
2.2 Advances under the KFC Line of Credit. Subject to the terms and
conditions of this Loan Agreement, the Bank shall make to the KFC Cooperative
such advances under the KFC Line of Credit as the KFC Cooperative may from time
to time request in accordance with the provisions of this Loan Agreement. All
advances under the KFC Line of Credit shall be evidenced by, shall bear interest
at the rates established in, shall be payable and otherwise made on the terms
set forth in this Loan Agreement and the KFC Promissory Note.
2.3 Term of KFC Line of Credit. The KFC Line of Credit shall become
effective immediately as of the date of this Loan Agreement, and as of the date
hereof, the KFC Cooperative may obtain advances under the KFC Line of Credit in
each case subject to the terms and conditions contained herein. The KFC Line of
Credit shall continue in effect until April 1, 2001, unless sooner terminated
(a) by the Bank upon the occurrence and during the continuation of a KFC Event
of Default, or (b) by the
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KFC Cooperative at any time in its sole and absolute discretion; provided, in
the event the KFC Cooperative terminates the KFC Line of Credit on any date
other than a six-month anniversary of the date of this Loan Agreement, the
provisions of Section 2.8 hereof shall survive until the next succeeding
six-month anniversary of the date of this Loan Agreement. Upon termination of
the KFC Line of Credit by the Bank upon the occurrence and during the
continuation of a KFC Event of Default, or by the KFC Cooperative at any time in
its sole and absolute discretion, or otherwise at the stated maturity date of
the KFC Line of Credit, the entire unpaid principal balance of and all accrued
and unpaid interest on the KFC Promissory Note shall be due and payable in full
to the Bank. The termination of the KFC Line of Credit, for whatever reason,
shall not in any way release or relieve the KFC Cooperative or Unified from
their respective obligations incurred under the Loan Documents or in connection
herewith or under the KFC Promissory Note or the other Loan Documents, and the
provisions hereof and the other Loan Documents to which the KFC Cooperative or
Unified is a party shall continue in full force and effect until the KFC
Promissory Note and all other Secured Obligations owed by the KFC Cooperative to
the Bank have been paid in full to the Bank. In the event the KFC Cooperative
terminates the KFC Line of Credit, which the KFC Cooperative has the right to do
at any time in its sole and absolute discretion, (i) the KFC Cooperative shall
be obligated to pay the KFC Promissory Note and the other Secured Obligations
owed by the KFC Cooperative to the Bank in full to the Bank, and (ii) the Bank
shall have the right, at its sole option, to terminate the Pizza Hut Line of
Credit and/or the Taco Bell Line of Credit.
2.4 KFC Borrowing Base.
(a) The sum of the aggregate unpaid principal balance of the
advances under the KFC Line of Credit at any one time outstanding shall not
exceed the lesser of (i) Fifteen Million Dollars ($15,000,000.00), or (ii) the
then existing KFC Borrowing Base. The provisions of this Section 2.4(a) shall
take priority and govern over any conflicting or inconsistent provision of this
Loan Agreement or any other Loan Document.
(b) Unified shall deliver monthly to the Bank, within twenty (20)
days after the end of each month, a KFC Borrowing Base Report prepared and dated
as of the end of the immediately
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preceding month and substantially in the form of Exhibit A attached hereto and
made a part hereof, together with a KFC Accounts Receivable Aging Report
prepared and dated as of the end of the immediately preceding month and
substantially in the form of Exhibit D attached hereto and made a part hereof.
Each KFC Borrowing Base Report and each KFC Accounts Receivable Aging Report
shall be certified to be true, correct and accurate by the President or Chief
Financial Officer of Unified. Unified shall, in addition, from time to time
deliver to the Bank such other information concerning the KFC Accounts
Receivable and KFC Inventory as the Bank may reasonably request. The Bank
reserves the right to audit, from time to time, the KFC Accounts Receivable
and/or the KFC Inventory.
(c) The Bank shall fund each advance under the KFC Line of Credit
requested by the KFC Cooperative by depositing the entire amount thereof into an
operating account maintained by the KFC Cooperative with the Bank on the date
requested by a duly authorized officer of the KFC Cooperative, a list of which
shall be provided by the KFC Cooperative to the Bank, provided that notice of
the request for such advance has been received by the Bank by 3:00 P.M.
Louisville, Kentucky time on the date of the request, which must be a Business
Day (unless the date of the request is the last Business Day of a month, in
which event such notice must be received by the Bank by 11:00 A.M., Louisville,
Kentucky time on such date); notice of a request for an advance under the KFC
Line of Credit received by the Bank after such time shall be funded on the next
Business Day. The obligation of the Bank to fund each request for an advance
under the KFC Line of Credit is further subject to the prior satisfaction of
each and every condition precedent to the making of such advance, including,
without limitation, the condition precedent that the amount of the advance
requested, when combined with the aggregate amount of all outstanding advances
under the KFC Line of Credit, does not exceed the lesser of Fifteen Million
Dollars ($15,000,000.00) or the then existing KFC Borrowing Base.
(d) If any representation or fact pertaining to the KFC Eligible
Accounts Receivable, the KFC Eligible Presold Inventory and/or the KFC Eligible
Inventory Held on Account contained in any KFC Borrowing Base Report or in any
KFC Accounts Receivable Aging Report shall prove to be untrue, or if all or any
part of the KFC Accounts Receivable shall cease to
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constitute KFC Eligible Account Receivables and/or the KFC Inventory shall cease
to constitute KFC Eligible Presold Inventory and/or KFC Eligible Inventory Held
on Account, as applicable, for whatever reason, then such KFC Accounts
Receivable and/or KFC Inventory affected thereby (collectively, the "KFC
Disqualified Assets"), shall automatically be excluded from the KFC Borrowing
Base. If the then aggregate principal balance of the advances outstanding under
the KFC Line of Credit exceeds the KFC Borrowing Base, after excluding the KFC
Disqualified Assets, the KFC Cooperative shall immediately notify the Bank in
writing thereof and shall, without demand or further notice, repay to the Bank
such amount of the advances under the KFC Line of Credit as is sufficient to
reduce the outstanding principal balance of the advances under the KFC Line of
Credit to an amount equal to or less than the KFC Borrowing Base, after
excluding the KFC Disqualified Assets.
2.5 Procedures and Conditions. The obtaining by the KFC Cooperative of
each advance under the KFC Line of Credit shall be subject to the following
terms and conditions:
(a) Each advance under the KFC Line of Credit shall be in integral
multiples of One Hundred Thousand Dollars ($100,000.00) or, if less, the amount
available to be borrowed under the KFC Line of Credit at the time the advance is
requested by the KFC Cooperative. Whenever the KFC Cooperative desires that the
Bank make an advance under the KFC Line of Credit to the KFC Cooperative, the
KFC Cooperative shall give the Bank telephonic or facsimile notice of the amount
of the advance requested and the date on which such advance is to be made by the
Bank. At the request of the Bank, the KFC Cooperative shall confirm in writing
any telephonic request for an advance under the KFC Line of Credit.
(b) The Bank shall not incur any liability to the KFC Cooperative
in acting upon any telephonic notice referred to above which the Bank believes
in good faith to have been given by a duly authorized officer or other person
authorized to borrow on behalf of the KFC Cooperative or for otherwise acting in
good faith under this Section 2.5, and, upon the funding of any advance under
the KFC Line of Credit by the Bank in accordance with this Loan Agreement
pursuant to any telephonic notice, the Borrower shall have effected such advance
hereunder.
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(c) The Bank shall make the proceeds of each advance under the KFC
Line of Credit requested by the KFC Cooperative available to the KFC Cooperative
on the date requested by the KFC Cooperative (which shall be a Business Day) by
causing an amount of same day funds equal to the proceeds of such advance to be
credited to the operating account maintained by the KFC Cooperative with the
Bank.
(d) The KFC Cooperative shall have no right to obtain, and the
Bank shall have no obligation to make, any advance under the KFC Line of Credit
if a KFC Default or a KFC Event of Default has occurred and is continuing.
(e) Each request by the KFC Cooperative for an advance under the
KFC Line of Credit shall, in and of itself, constitute a continuing
representation and warranty by the KFC Cooperative to the Bank (i) that the KFC
Cooperative then is, and at the time the advance is actually made will be,
entitled under this Loan Agreement to obtain the particular advance, and (ii)
that all of the covenants, agreements, representations and warranties made by
the KFC Cooperative herein and in the other Loan Documents to which the KFC
Cooperative is a party are true and correct, and have been fully complied with,
as of the date of such request.
(f) The KFC Cooperative shall have no right to obtain any advance
under the KFC Line of Credit unless all of the terms and conditions set forth in
this Section 2.5 have been fully satisfied with regard to that advance.
(g) The KFC Cooperative shall not pay down the outstanding
principal balance of the KFC Line of Credit to an amount less than One Thousand
Dollars ($1,000.00) at any one time during the period of this Loan Agreement,
and in the event that the outstanding principal balance of the KFC Line of
Credit is paid down to an amount less than One Thousand Dollars ($1,000.00), the
Bank shall have no obligation to make any further advances under the KFC Line of
Credit to the KFC Cooperative, and the KFC Cooperative shall have no right to
obtain any further advances under the KFC Line of Credit, until the Bank has
completely satisfied itself that it has a properly perfected security interest
in and lien on all of the KFC Collateral with the priority intended under this
Loan Agreement to
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secure the payment of all such additional advances to be made to the KFC
Cooperative pursuant hereto.
2.6 Interest on the Advances Under the KFC Line of Credit. The
aggregate advances under the KFC Line of Credit shall bear interest as provided
in the KFC Promissory Note. All accrued interest on the KFC Line of Credit shall
be paid monthly to the Bank through the maturity date of the KFC Line of Credit,
whether the stated maturity date of the KFC Line of Credit, an accelerated
maturity date of the KFC Line of Credit or otherwise. All interest on the KFC
Promissory Note shall be computed based upon the actual number of days elapsed
over an assumed year of three hundred sixty (360) days.
2.7 Late Charge; Post-Maturity Interest. The KFC Cooperative shall be
obligated to pay to the Bank a late charge equal to five percent (5%) of any
installment of accrued interest on the KFC Promissory Note not paid to the Bank
when due or within ten (10) days thereafter. Further, all installments of
accrued interest on and all unpaid principal of the KFC Promissory Note not paid
to the Bank when due or within ten (10) days thereafter shall bear interest at
the Default Rate until such overdue installments of accrued interest and/or
unpaid principal have been paid in full to the Bank.
2.8 Deficiency Fee. The KFC Cooperative hereby agrees to pay to the
Bank, in respect of each calendar quarter during the term of the KFC Line of
Credit, a deficiency fee (the "KFC Deficiency Fee") in an amount equal to the
product of (a) the Prime Rate plus two percent (2%) per annum as of the last day
of such calendar quarter, and (b) the positive difference, if any, between (i)
the KFC Minimum Compensating Balances Requirement, less (ii) the sum of the
average daily collected balances maintained in the KFC Demand Deposit Account
during such calendar quarter. The KFC Deficiency Fee shall be due and payable to
the Bank quarterly in arrears within ten (10) days after the KFC Cooperative has
received an invoice for the KFC Deficiency Fee from the Bank. Any KFC Deficiency
Fee not paid to the Bank when due shall bear interest at the Default Rate, and
the KFC Deficiency Fee, together with all accrued interest thereon, shall
continue to be immediately due and payable to the Bank.
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2.9 Purpose. The KFC Cooperative agrees that the proceeds of the KFC
Line of Credit shall be used solely by the KFC Cooperative to make the cash
capital contributions and the loans required to be made by the KFC Cooperative
to Unified pursuant to the Unified Operating Agreement, to repay certain
outstanding Indebtedness of the KFC Cooperative and to provide general working
capital to the KFC Cooperative to pay its valid operating expenses arising in
the ordinary course of business. The KFC Cooperative further agrees that no
portion of the proceeds of the KFC Line of Credit shall be used to purchase or
carry any margin stock, to extend credit to others for the purpose of purchasing
or carrying margin stock or for any purpose proscribed by Regulation G,
Regulation T, Regulation U or Regulation X of the Board of Governors of the
Federal Reserve System.
2.10 Payments. All payments on the KFC Promissory Note shall be in
legal tender of the United States of America in immediately available funds. If
the date any payment is due under the KFC Promissory Note shall not be a
Business Day, the payment otherwise then due shall be due and payable on the
next succeeding Business Day (provided, interest shall continue to accrue on
each such non-Business Day).
2.11 Security. The KFC Promissory Note and the other Secured
Obligations owed by the KFC Cooperative to the Bank shall at all times be
secured by the KFC Pledge Agreement and the Unified KFC Security Agreement
together with accompanying UCC-1 Financing Statements executed by the KFC
Cooperative and Unified.
2.12 Reduction in the KFC Line of Credit. The KFC Cooperative shall
have the right on each six-month anniversary of the date of this Loan Agreement,
upon not less than thirty (30) days prior written notice to the Bank, to reduce
the committed principal amount of the KFC Line of Credit to a lesser amount
without the payment of any premium to the Bank. In such event, the KFC
Cooperative, Unified and the Bank shall execute and deliver such amendment
documents as shall be necessary or appropriate to evidence such reduction in the
committed principal amount of the KFC Line of Credit. To the extent the unpaid
principal of the KFC Line of Credit exceeds the committed principal amount of
the KFC Line of Credit as reduced by the KFC Cooperative, the KFC Cooperative
shall immediately pay to the
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Bank, without prior demand or notice by the Bank, such amount of the unpaid
principal of the KFC Line of Credit as exceeds the committed principal amount of
the KFC Line of Credit. The KFC Cooperative shall have no right to subsequently
increase the committed principal amount of the KFC Line of Credit, after it has
been reduced by the KFC Cooperative pursuant to this Section 2.12, without the
prior written consent of the Bank.
SECTION 3. PIZZA HUT LINE OF CREDIT.
3.1 Pizza Hut Line of Credit. The Bank hereby establishes a revolving
line of credit in favor of the Pizza Hut Cooperative in the original principal
amount of Two Million Dollars ($2,000,000.00) (the "Pizza Hut Line of Credit").
The Pizza Hut Cooperative agrees that the proceeds of the Pizza Hut Line of
Credit shall be used solely by the Pizza Hut Cooperative to make the cash
capital contributions and the loans required to be made by the Pizza Hut
Cooperative to Unified pursuant to the Unified Operating Agreement and to
provide general working capital to the Pizza Hut Cooperative to pay its valid
operating expenses arising in the ordinary course of business. The Pizza Hut
Cooperative may obtain advances under the Pizza Hut Line of Credit pursuant to,
and subject to the terms and conditions set forth in, this Loan Agreement.
3.2 Advances under the Pizza Hut Line of Credit. Subject to the terms
and conditions of this Loan Agreement, the Bank shall make to the Pizza Hut
Cooperative such advances under the Pizza Hut Line of Credit as the Pizza Hut
Cooperative may from time to time request in accordance with the provisions of
this Loan Agreement. All advances under the Pizza Hut Line of Credit shall be
evidenced by, shall bear interest at the rates established in, shall be payable
and otherwise made on the terms set forth in this Loan Agreement and the Pizza
Hut Promissory Note.
3.3 Term of Pizza Hut Line of Credit. The Pizza Hut Line of Credit
shall become effective immediately as of the date of this Loan Agreement, and as
of the date hereof, the Pizza Hut Cooperative may obtain advances under the
Pizza Hut Line of Credit in each case subject to the terms and conditions
contained herein. The Pizza Hut Line of Credit shall continue in effect until
April 1, 2001, unless sooner terminated (a) by the Bank upon the occurrence and
during the continuation of a Pizza
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Hut Event of Default, or (b) by the Pizza Hut Cooperative at any time in its
sole and absolute discretion; provided, in the event the Pizza Hut Cooperative
terminates the Pizza Hut Line of Credit on any date other than a six-month
anniversary of the date of this Loan Agreement, the provisions of Section 3.8
hereof shall survive until the next succeeding six-month anniversary of the date
of this Loan Agreement. Upon termination of the Pizza Hut Line of Credit by the
Bank upon the occurrence and during the continuation of a Pizza Hut Event of
Default, or by the Pizza Hut Cooperative at any time in its sole and absolute
discretion, or otherwise at the stated maturity date of the Pizza Hut Line of
Credit, the entire unpaid principal balance of and all accrued and unpaid
interest on the Pizza Hut Promissory Note shall be due and payable in full to
the Bank. The termination of the Pizza Hut Line of Credit, for whatever reason,
shall not in any way release or relieve the Pizza Hut Cooperative or Unified
from their respective obligations incurred under the Loan Documents or in
connection herewith or under the Pizza Hut Promissory Note or the other Loan
Documents, and the provisions hereof and the other Loan Documents to which the
Pizza Hut Cooperative or Unified is a party shall continue in full force and
effect until the Pizza Hut Promissory Note and all other Secured Obligations
owed by the Pizza Hut Cooperative to the Bank have been paid in full to the
Bank. In the event the Pizza Hut Cooperative terminates the Pizza Hut Line of
Credit, which the Pizza Hut Cooperative has the right to do at any time in its
sole and absolute discretion, (i) the Pizza Hut Cooperative shall be obligated
to pay the Pizza Hut Promissory Note and the other Secured Obligations owed by
the Pizza Hut Cooperative to the Bank in full to the Bank, and (ii) the Bank
shall have the right, at its sole option, to terminate the KFC Line of Credit
and/or the Taco Bell Line of Credit.
3.4 Pizza Hut Borrowing Base.
(a) The sum of the aggregate unpaid principal balance of the
advances under the Pizza Hut Line of Credit at any one time outstanding shall
not exceed the lesser of (i) Two Million Dollars ($2,000,000.00), or (ii) the
then existing Pizza Hut Borrowing Base. The provisions of this Section 3.4(a)
shall take priority and govern over any conflicting or inconsistent provision of
this Loan Agreement or any other Loan Document.
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(b) Unified shall deliver monthly to the Bank, within twenty (20)
days after the end of each month, a Pizza Hut Borrowing Base Report prepared and
dated as of the end of the immediately preceding month and substantially in the
form of Exhibit B attached hereto and made a part hereof, together with a Pizza
Hut Accounts Receivable Aging Report prepared and dated as of the end of the
immediately preceding month and substantially in the form of Exhibit E attached
hereto and made a part hereof. Each Pizza Hut Borrowing Base Report and each
Pizza Hut Accounts Receivable Aging Report shall be certified to be true,
correct and accurate by the President or Chief Financial Officer of Unified.
Unified shall, in addition, from time to time deliver to the Bank such other
information concerning the Pizza Hut Accounts Receivable and Pizza Hut Inventory
as the Bank may reasonably request. The Bank reserves the right to audit, from
time to time, the Pizza Hut Accounts Receivable and/or the Pizza Hut Inventory.
(c) The Bank shall fund each advance under the Pizza Hut Line of
Credit requested by the Pizza Hut Cooperative by depositing the entire amount
thereof into an operating account maintained by the Pizza Hut Cooperative with
the Bank on the date requested by a duly authorized officer of the Pizza Hut
Cooperative, a list of which shall be provided by the Pizza Hut Cooperative to
the Bank, provided that notice of the request for such advance has been received
by the Bank by 3:00 P.M. Louisville, Kentucky time on the date of the request,
which must be a Business Day (unless the date of the request is the last
Business Day of a month, in which event such notice must be received by the Bank
by 11:00 A.M., Louisville, Kentucky time on such date); notice of a request for
an advance under the Pizza Hut Line of Credit received by the Bank after such
time shall be funded on the next Business Day. The obligation of the Bank to
fund each request for an advance under the Pizza Hut Line of Credit is further
subject to the prior satisfaction of each and every condition precedent to the
making of such advance, including, without limitation, the condition precedent
that the amount of the advance requested, when combined with the aggregate
amount of all outstanding advances under the Pizza Hut Line of Credit, does not
exceed the lesser of Two Million Dollars ($2,000,000.00) or the then existing
Pizza Hut Borrowing Base.
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(d) If any representation or fact pertaining to the Pizza Hut
Eligible Accounts Receivable, the Pizza Hut Eligible Presold Inventory and/or
the Pizza Hut Eligible Inventory Held on Account contained in any Pizza Hut
Borrowing Base Report or in any Pizza Hut Accounts Receivable Aging Report shall
prove to be untrue, or if all or any part of the Pizza Hut Accounts Receivable
shall cease to constitute Pizza Hut Eligible Account Receivables and/or the
Pizza Hut Inventory shall cease to constitute Pizza Hut Eligible Presold
Inventory and/or Pizza Hut Eligible Inventory Held on Account, as applicable,
for whatever reason, then such Pizza Hut Accounts Receivable and/or Pizza Hut
Inventory affected thereby (collectively, the "Pizza Hut Disqualified Assets"),
shall automatically be excluded from the Pizza Hut Borrowing Base. If the then
aggregate principal balance of the advances outstanding under the Pizza Hut Line
of Credit exceeds the Pizza Hut Borrowing Base, after excluding the Pizza Hut
Disqualified Assets, the Pizza Hut Cooperative shall immediately notify the Bank
in writing thereof and shall, without demand or further notice, repay to the
Bank such amount of the advances under the Pizza Hut Line of Credit as is
sufficient to reduce the outstanding principal balance of the advances under the
Pizza Hut Line of Credit to an amount equal to or less than the Pizza Hut
Borrowing Base, after excluding the Pizza Hut Disqualified Assets.
3.5 Procedures and Conditions. The obtaining by the Pizza Hut
Cooperative of each advance under the Pizza Hut Line of Credit shall be subject
to the following terms and conditions:
(a) Each advance under the Pizza Hut Line of Credit shall be in
integral multiples of One Hundred Thousand Dollars ($100,000.00) or, if less,
the amount available to be borrowed under the Pizza Hut Line of Credit at the
time the advance is requested by the Pizza Hut Cooperative. Whenever the Pizza
Hut Cooperative desires that the Bank make an advance under the Pizza Hut Line
of Credit to the Pizza Hut Cooperative, the Pizza Hut Cooperative shall give the
Bank telephonic or facsimile notice of the amount of the advance requested and
the date on which such advance is to be made by the Bank. At the request of the
Bank, the Pizza Hut Cooperative shall confirm in writing any telephonic request
for an advance under the Pizza Hut Line of Credit.
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(b) The Bank shall not incur any liability to the Pizza Hut
Cooperative in acting upon any telephonic notice referred to above which the
Bank believes in good faith to have been given by a duly authorized officer or
other person authorized to borrow on behalf of the Pizza Hut Cooperative or for
otherwise acting in good faith under this Section 3.5, and, upon the funding of
any advance under the Pizza Hut Line of Credit by the Bank in accordance with
this Loan Agreement pursuant to any telephonic notice, the Borrower shall have
effected such advance hereunder.
(c) The Bank shall make the proceeds of each advance under the
Pizza Hut Line of Credit requested by the Pizza Hut Cooperative available to the
Pizza Hut Cooperative on the date requested by the Pizza Hut Cooperative (which
shall be a Business Day) by causing an amount of same day funds equal to the
proceeds of such advance to be credited to the operating account maintained by
the Pizza Hut Cooperative with the Bank.
(d) The Pizza Hut Cooperative shall have no right to obtain, and
the Bank shall have no obligation to make, any advance under the Pizza Hut Line
of Credit if a Pizza Hut Default or a Pizza Hut Event of Default has occurred
and is continuing.
(e) Each request by the Pizza Hut Cooperative for an advance under
the Pizza Hut Line of Credit shall, in and of itself, constitute a continuing
representation and warranty by the Pizza Hut Cooperative to the Bank (i) that
the Pizza Hut Cooperative then is, and at the time the advance is actually made
will be, entitled under this Loan Agreement to obtain the particular advance,
and (ii) that all of the covenants, agreements, representations and warranties
made by the Pizza Hut Cooperative herein and in the other Loan Documents to
which the Pizza Hut Cooperative is a party are true and correct, and have been
fully complied with, as of the date of such request.
(f) The Pizza Hut Cooperative shall have no right to obtain any
advance under the Pizza Hut Line of Credit unless all of the terms and
conditions set forth in this Section 3.5 have been fully satisfied with regard
to that advance.
(g) The Pizza Hut Cooperative shall not pay down the outstanding
principal balance of the Pizza Hut Line of Credit to
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an amount less than One Thousand Dollars ($1,000.00) at any one time during the
period of this Loan Agreement, and in the event that the outstanding principal
balance of the Pizza Hut Line of Credit is paid down to an amount less than One
Thousand Dollars ($1,000.00), the Bank shall have no obligation to make any
further advances under the Pizza Hut Line of Credit to the Pizza Hut
Cooperative, and the Pizza Hut Cooperative shall have no right to obtain any
further advances under the Pizza Hut Line of Credit, until the Bank has
completely satisfied itself that it has a properly perfected security interest
in and lien on all of the Pizza Hut Collateral with the priority intended under
this Loan Agreement to secure the payment of all such additional advances to be
made to the Pizza Hut Cooperative pursuant hereto.
3.6 Interest on the Advances Under the Pizza Hut Line of Credit. The
aggregate advances under the Pizza Hut Line of Credit shall bear interest as
provided in the Pizza Hut Promissory Note. All accrued interest on the Pizza Hut
Line of Credit shall be paid monthly to the Bank through the maturity date of
the Pizza Hut Line of Credit, whether the stated maturity date of the Pizza Hut
Line of Credit, an accelerated maturity date of the Pizza Hut Line of Credit or
otherwise. All interest on the Pizza Hut Promissory Note shall be computed based
upon the actual number of days elapsed over an assumed year of three hundred
sixty (360) days.
3.7 Late Charge; Post-Maturity Interest. The Pizza Hut Cooperative
shall be obligated to pay to the Bank a late charge equal to five percent (5%)
of any installment of accrued interest on the Pizza Hut Promissory Note not paid
to the Bank when due or within ten (10) days thereafter. Further, all
installments of accrued interest on and all unpaid principal of the Pizza Hut
Promissory Note not paid to the Bank when due or within ten (10) days thereafter
shall bear interest at the Default Rate until such overdue installments of
accrued interest and/or unpaid principal have been paid in full to the Bank.
3.8 Deficiency Fee. The Pizza Hut Cooperative hereby agrees to pay to
the Bank, in respect of each calendar quarter during the term of the Pizza Hut
Line of Credit, a deficiency fee (the "Pizza Hut Deficiency Fee") in an amount
equal to the product of (a) the Prime Rate plus two percent (2%) per annum as of
the last day of such calendar quarter, and (b) the positive
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difference, if any, between (i) the Pizza Hut Minimum Compensating Balances
Requirement, less (ii) the sum of the average daily collected balances
maintained in the Pizza Hut Demand Deposit Account during such calendar quarter.
The Pizza Hut Deficiency Fee shall be due and payable to the Bank quarterly in
arrears within ten (10) days after the Pizza Hut Cooperative has received an
invoice for the Pizza Hut Deficiency Fee from the Bank. Any Pizza Hut Deficiency
Fee not paid to the Bank when due shall bear interest at the Default Rate, and
the Pizza Hut Deficiency Fee, together with all accrued interest thereon, shall
continue to be immediately due and payable to the Bank.
3.9 Purpose. The Pizza Hut Cooperative agrees that the proceeds of the
Pizza Hut Line of Credit shall be used solely by the Pizza Hut Cooperative to
make the cash capital contributions and the loans required to be made by the
Pizza Hut Cooperative to Unified pursuant to the Unified Operating Agreement and
to provide general working capital to the Pizza Hut Cooperative to pay its valid
operating expenses arising in the ordinary course of business. The Pizza Hut
Cooperative further agrees that no portion of the proceeds of the Pizza Hut Line
of Credit shall be used to purchase or carry any margin stock, to extend credit
to others for the purpose of purchasing or carrying margin stock or for any
purpose proscribed by Regulation G, Regulation T, Regulation U or Regulation X
of the Board of Governors of the Federal Reserve System.
3.10 Payments. All payments on the Pizza Hut Promissory Note shall be
in legal tender of the United States of America in immediately available funds.
If the date any payment is due under the Pizza Hut Promissory Note shall not be
a Business Day, the payment otherwise then due shall be due and payable on the
next succeeding Business Day (provided, interest shall continue to accrue on
each such non-Business Day).
3.11 Security. The Pizza Hut Promissory Note and the other Secured
Obligations owed by the Pizza Hut Cooperative to the Bank shall at all times be
secured by the Pizza Hut Pledge Agreement and the Unified Pizza Hut Security
Agreement together with accompanying UCC-1 Financing Statements executed by the
Pizza Hut Cooperative and Unified.
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3.12 Reduction in the Pizza Hut Line of Credit. The Pizza Hut
Cooperative shall have the right on each six-month anniversary of the date of
this Loan Agreement, upon not less than thirty (30) days prior written notice to
the Bank, to reduce the committed principal amount of the Pizza Hut Line of
Credit to a lesser amount without the payment of any premium to the Bank. In
such event, the Pizza Hut Cooperative, Unified and the Bank shall execute and
deliver such amendment documents as shall be necessary or appropriate to
evidence such reduction in the committed principal amount of the Pizza Hut Line
of Credit. To the extent the unpaid principal of the Pizza Hut Line of Credit
exceeds the committed principal amount of the Pizza Hut Line of Credit as
reduced by the Pizza Hut Cooperative, the Pizza Hut Cooperative shall
immediately pay to the Bank, without prior demand or notice by the Bank, such
amount of the unpaid principal of the Pizza Hut Line of Credit as exceeds the
committed principal amount of the Pizza Hut Line of Credit. The Pizza Hut
Cooperative shall have no right to subsequently increase the committed principal
amount of the Pizza Hut Line of Credit, after it has been reduced by the Pizza
Hut Cooperative pursuant to this Section 3.12, without the prior written consent
of the Bank.
SECTION 4 TACO BELL LINE OF CREDIT.
4.1 Taco Bell Line of Credit. The Bank hereby establishes a revolving
line of credit in favor of the Taco Bell Cooperative in the original principal
amount of Eight Million Dollars ($8,000,000.00) (the "Taco Bell Line of
Credit"). The Taco Bell Cooperative agrees that the proceeds of the Taco Bell
Line of Credit shall be used solely by the Taco Bell Cooperative to make the
cash capital contributions and the loans required to be made by the Taco Bell
Cooperative to Unified pursuant to the Unified Operating Agreement and to
provide general working capital to the Taco Bell Cooperative to pay its valid
operating expenses arising in the ordinary course of business. The Taco Bell
Cooperative may obtain advances under the Taco Bell Line of Credit pursuant to,
and subject to the terms and conditions set forth in, this Loan Agreement.
4.2 Advances under the Taco Bell Line of Credit. Subject to the terms
and conditions of this Loan Agreement, the Bank shall make to the Taco Bell
Cooperative such advances under the Taco Bell Line of Credit as the Taco Bell
Cooperative may from
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time to time request in accordance with the provisions of this Loan Agreement.
All advances under the Taco Bell Line of Credit shall be evidenced by, shall
bear interest at the rates established in, shall be payable and otherwise made
on the terms set forth in this Loan Agreement and the Taco Bell Promissory Note.
4.3 Term of Taco Bell Line of Credit. The Taco Bell Line of Credit
shall become effective immediately as of the date of this Loan Agreement, and as
of the date hereof, the Taco Bell Cooperative may obtain advances under the Taco
Bell Line of Credit in each case subject to the terms and conditions contained
herein. The Taco Bell Line of Credit shall continue in effect until April 1,
2001, unless sooner terminated (a) by the Bank upon the occurrence and during
the continuation of a Taco Bell Event of Default, or (b) by the Taco Bell
Cooperative at any time in its sole and absolute discretion; provided, in the
event the Taco Bell Cooperative terminates the Taco Bell Line of Credit on any
date other than a six-month anniversary of the date of this Loan Agreement, the
provisions of Section 4.8 hereof shall survive until the next succeeding
six-month anniversary of the date of this Loan Agreement. Upon termination of
the Taco Bell Line of Credit by the Bank upon the occurrence and during the
continuation of a Taco Bell Event of Default, or by the Taco Bell Cooperative at
any time in its sole and absolute discretion, or otherwise at the stated
maturity date of the Taco Bell Line of Credit, the entire unpaid principal
balance of and all accrued and unpaid interest on the Taco Bell Promissory Note
shall be due and payable in full to the Bank. The termination of the Taco Bell
Line of Credit, for whatever reason, shall not in any way release or relieve the
Taco Bell Cooperative or Unified from their respective obligations incurred
under the Loan Documents or in connection herewith or under the Taco Bell
Promissory Note or the other Loan Documents, and the provisions hereof and the
other Loan Documents to which the Taco Bell Cooperative or Unified is a party
shall continue in full force and effect until the Taco Bell Promissory Note and
all other Secured Obligations owed by the Taco Bell Cooperative to the Bank have
been paid in full to the Bank. In the event the Taco Bell Cooperative terminates
the Taco Bell Line of Credit, which the Taco Bell Cooperative has the right to
do at any time in its sole and absolute discretion, (i) the Taco Bell
Cooperative shall be obligated to pay the Taco Bell Promissory Note and the
other Secured Obligations owed by
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the Taco Bell Cooperative to the Bank in full to the Bank, and (ii) the Bank
shall have the right, at its sole option, to terminate the KFC Line of Credit
and/or the Pizza Hut Line of Credit.
4.4 Taco Bell Borrowing Base.
(a) The sum of the aggregate unpaid principal balance of the
advances under the Taco Bell Line of Credit at any one time outstanding shall
not exceed the lesser of (i) Eight Million Dollars ($8,000,000.00), or (ii) the
then existing Taco Bell Borrowing Base. The provisions of this Section 4.4(a)
shall take priority and govern over any conflicting or inconsistent provision of
this Loan Agreement or any other Loan Document.
(b) Unified shall deliver monthly to the Bank, within twenty (20)
days after the end of each month, a Taco Bell Borrowing Base Report prepared and
dated as of the end of the immediately preceding month and substantially in the
form of Exhibit C attached hereto and made a part hereof, together with a Taco
Bell Accounts Receivable Aging Report prepared and dated as of the end of the
immediately preceding month and substantially in the form of Exhibit F attached
hereto and made a part hereof. Each Taco Bell Borrowing Base Report and each
Taco Bell Accounts Receivable Aging Report shall be certified to be true,
correct and accurate by the President or Chief Financial Officer of Unified.
Unified shall, in addition, from time to time deliver to the Bank such other
information concerning the Taco Bell Accounts Receivable and Taco Bell Inventory
as the Bank may reasonably request. The Bank reserves the right to audit, from
time to time, the Taco Bell Accounts Receivable and/or the Taco Bell Inventory.
(c) The Bank shall fund each advance under the Taco Bell Line of
Credit requested by the Taco Bell Cooperative by depositing the entire amount
thereof into an operating account maintained by the Taco Bell Cooperative with
the Bank on the date requested by a duly authorized officer of the Taco Bell
Cooperative, a list of which shall be provided by the Taco Bell Cooperative to
the Bank, provided that notice of the request for such advance has been received
by the Bank by 3:00 P.M. Louisville, Kentucky time on the date of the request,
which must be a Business Day (unless the date of the request is the last
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Business Day of a month, in which event such notice must be received by the Bank
by 11:00 A.M., Louisville, Kentucky time on such date); notice of a request for
an advance under the Taco Bell Line of Credit received by the Bank after such
time shall be funded on the next Business Day. The obligation of the Bank to
fund each request for an advance under the Taco Bell Line of Credit is further
subject to the prior satisfaction of each and every condition precedent to the
making of such advance, including, without limitation, the condition precedent
that the amount of the advance requested, when combined with the aggregate
amount of all outstanding advances under the Taco Bell Line of Credit, does not
exceed the lesser of Eight Million Dollars ($8,000,000.00) or the then existing
Taco Bell Borrowing Base.
(d) If any representation or fact pertaining to the Taco Bell
Eligible Accounts Receivable, the Taco Bell Eligible Presold Inventory and/or
the Taco Bell Eligible Inventory Held on Account contained in any Taco Bell
Borrowing Base Report or in any Taco Bell Accounts Receivable Aging Report shall
prove to be untrue, or if all or any part of the Taco Bell Accounts Receivable
shall cease to constitute Taco Bell Eligible Account Receivables and/or the Taco
Bell Inventory shall cease to constitute Taco Bell Eligible Presold Inventory
and/or Taco Bell Eligible Inventory Held on Account, as applicable, for whatever
reason, then such Taco Bell Accounts Receivable and/or Taco Bell Inventory
affected thereby (collectively, the "Taco Bell Disqualified Assets"), shall
automatically be excluded from the Taco Bell Borrowing Base. If the then
aggregate principal balance of the advances outstanding under the Taco Bell Line
of Credit exceeds the Taco Bell Borrowing Base, after excluding the Taco Bell
Disqualified Assets, the Taco Bell Cooperative shall immediately notify the Bank
in writing thereof and shall, without demand or further notice, repay to the
Bank such amount of the advances under the Taco Bell Line of Credit as is
sufficient to reduce the outstanding principal balance of the advances under the
Taco Bell Line of Credit to an amount equal to or less than the Taco Bell
Borrowing Base, after excluding the Taco Bell Disqualified Assets.
4.5 Procedures and Conditions. The obtaining by the Taco Bell
Cooperative of each advance under the Taco Bell Line of Credit shall be subject
to the following terms and conditions:
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(a) Each advance under the Taco Bell Line of Credit shall be in
integral multiples of One Hundred Thousand Dollars ($100,000.00) or, if less,
the amount available to be borrowed under the Taco Bell Line of Credit at the
time the advance is requested by the Taco Bell Cooperative. Whenever the Taco
Bell Cooperative desires that the Bank make an advance under the Taco Bell Line
of Credit to the Taco Bell Cooperative, the Taco Bell Cooperative shall give the
Bank telephonic or facsimile notice of the amount of the advance requested and
the date on which such advance is to be made by the Bank. At the request of the
Bank, the Taco Bell Cooperative shall confirm in writing any telephonic request
of an advance under the Taco Bell Line of Credit.
(b) The Bank shall not incur any liability to the Taco Bell
Cooperative in acting upon any telephonic notice referred to above which the
Bank believes in good faith to have been given by a duly authorized officer or
other person authorized to borrow on behalf of the Taco Bell Cooperative or for
otherwise acting in good faith under this Section 4.5, and, upon the funding of
any advance under the Taco Bell Line of Credit by the Bank in accordance with
this Loan Agreement pursuant to any telephonic notice, the Borrower shall have
effected such advance hereunder.
(c) The Bank shall make the proceeds of each advance under the
Taco Bell Line of Credit requested by the Taco Bell Cooperative available to the
Taco Bell Cooperative on the date requested by the Taco Bell Cooperative (which
shall be a Business Day) by causing an amount of same day funds equal to the
proceeds of such advance to be credited to the operating account maintained by
the Taco Bell Cooperative with the Bank.
(d) The Taco Bell Cooperative shall have no right to obtain, and
the Bank shall have no obligation to make, any advance under the Taco Bell Line
of Credit if a Taco Bell Default or a Taco Bell Event of Default has occurred
and is continuing.
(e) Each request by the Taco Bell Cooperative for an advance under
the Taco Bell Line of Credit shall, in and of itself, constitute a continuing
representation and warranty by the Taco Bell Cooperative to the Bank (i) that
the Taco Bell Cooperative then is, and at the time the advance is actually
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made will be, entitled under this Loan Agreement to obtain the particular
advance, and (ii) that all of the covenants, agreements, representations and
warranties made by the Taco Bell Cooperative herein and in the other Loan
Documents to which the Taco Bell Cooperative is a party are true and correct,
and have been fully complied with, as of the date of such request.
(f) The Taco Bell Cooperative shall have no right to obtain any
advance under the Taco Bell Line of Credit unless all of the terms and
conditions set forth in this Section 2.5 have been fully satisfied with regard
to that advance.
(g) The Taco Bell Cooperative shall not pay down the outstanding
principal balance of the Taco Bell Line of Credit to an amount less than One
Thousand Dollars ($1,000.00) at any one time during the period of this Loan
Agreement, and in the event that the outstanding principal balance of the Taco
Bell Line of Credit is paid down to an amount less than One Thousand Dollars
($1,000.00), the Bank shall have no obligation to make any further advances
under the Taco Bell Line of Credit to the Taco Bell Cooperative, and the Taco
Bell Cooperative shall have no right to obtain any further advances under the
Taco Bell Line of Credit, until the Bank has completely satisfied itself that it
has a properly perfected security interest in and lien on all of the Taco Bell
Collateral with the priority intended under this Loan Agreement to secure the
payment of all such additional advances to be made to the Taco Bell Cooperative
pursuant hereto.
4.6 Interest on the Advances Under the Taco Bell Line of Credit. The
aggregate advances under the Taco Bell Line of Credit shall bear interest as
provided in the Taco Bell Promissory Note. All accrued interest on the Taco Bell
Line of Credit shall be paid monthly to the Bank through the maturity date of
the Taco Bell Line of Credit, whether the stated maturity date of the Taco Bell
Line of Credit, an accelerated maturity date of the Taco Bell Line of Credit or
otherwise. All interest on the Taco Bell Promissory Note shall be computed based
upon the actual number of days elapsed over an assumed year of three hundred
sixty (360) days.
4.7 Late Charge; Post-Maturity Interest. The Taco Bell Cooperative
shall be obligated to pay to the Bank a late charge equal to five percent (5%)
of any installment of accrued
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interest on the Taco Bell Promissory Note not paid to the Bank when due or
within ten (10) days thereafter. Further, all installments of accrued interest
on and all unpaid principal of the Taco Bell Promissory Note not paid to the
Bank when due or within ten (10) days thereafter shall bear interest at the
Default Rate until such overdue installments of accrued interest and/or unpaid
principal have been paid in full to the Bank.
4.8 Deficiency Fee. The Taco Bell Cooperative hereby agrees to pay to
the Bank, in respect of each calendar quarter during the term of the Taco Bell
Line of Credit, a deficiency fee (the "Taco Bell Deficiency Fee") in an amount
equal to the product of (a) the Prime Rate plus two percent (2%) per annum as of
the last day of such calendar quarter, and (b) the positive difference, if any,
between (i) the Taco Bell Minimum Compensating Balances Requirement, less (ii)
the sum of the average daily collected balances maintained in the Taco Bell
Demand Deposit Account during such calendar quarter. The Taco Bell Deficiency
Fee shall be due and payable to the Bank quarterly in arrears within ten (10)
days after the Taco Bell Cooperative has received an invoice for the Taco Bell
Deficiency Fee from the Bank. Any Taco Bell Deficiency Fee not paid to the Bank
when due shall bear interest at the Default Rate, and the Taco Bell Deficiency
Fee, together with all accrued interest thereon, shall continue to be
immediately due and payable to the Bank.
4.9 Purpose. The Taco Bell Cooperative agrees that the proceeds of the
Taco Bell Line of Credit shall be used solely by the Taco Bell Cooperative to
make the cash capital contributions and the loans required to be made by the
Taco Bell Cooperative to Unified pursuant to the Unified Operating Agreement and
to provide general working capital to the Taco Bell Cooperative to pay its valid
operating expenses arising in the ordinary course of business. The Taco Bell
Cooperative further agrees that no portion of the proceeds of the Taco Bell Line
of Credit shall be used to purchase or carry any margin stock, to extend credit
to others for the purpose of purchasing or carrying margin stock or for any
purpose proscribed by Regulation G, Regulation T, Regulation U or Regulation X
of the Board of Governors of the Federal Reserve System.
4.10 Payments. All payments on the Taco Bell Promissory Note shall be
in legal tender of the United States of America in
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immediately available funds. If the date any payment is due under the Taco Bell
Promissory Note shall not be a Business Day, the payment otherwise then due
shall be due and payable on the next succeeding Business Day (provided, interest
shall continue to accrue on each such non-Business Day).
4.11 Security. The Taco Bell Promissory Note and the other Secured
Obligations owed by the Taco Bell Cooperative to the Bank shall at all times be
secured by the Taco Bell Pledge Agreement and the Unified Taco Bell Security
Agreement together with accompanying UCC-1 Financing Statements executed by the
Taco Bell Cooperative and Unified.
4.12 Reduction in the Taco Bell Line of Credit. The Taco Bell
Cooperative shall have the right on each six-month anniversary of the date of
this Loan Agreement, upon not less than thirty (30) days prior written notice to
the Bank, to reduce the committed principal amount of the Taco Bell Line of
Credit to a lesser amount without the payment of any premium to the Bank. In
such event, the Taco Bell Cooperative, Unified and the Bank shall execute and
deliver such amendment documents as shall be necessary or appropriate to
evidence such reduction in the committed principal amount of the Taco Bell Line
of Credit. To the extent the unpaid principal of the Taco Bell Line of Credit
exceeds the committed principal amount of the Taco Bell Line of Credit as
reduced by the Taco Bell Cooperative, the Taco Bell Cooperative shall
immediately pay to the Bank, without prior demand or notice by the Bank, such
amount of the unpaid principal of the Taco Bell Line of Credit as exceeds the
committed principal amount of the Taco Bell Line of Credit. The Taco Bell
Cooperative shall have no right to subsequently increase the committed principal
amount of the Taco Bell Line of Credit, after it has been reduced by the Taco
Bell Cooperative pursuant to this Section 4.12, without the prior written
consent of the Bank.
SECTION 5. CONDITIONS PRECEDENT TO KFC LINE OF CREDIT.
5.1 Conditions Precedent to KFC Line of Credit. The obligation of the
Bank to establish the KFC Line of Credit in favor of the KFC Cooperative is
expressly subject to the delivery of the following documents to the Bank, in
each case dated the date of this Loan Agreement or such other date as
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shall be satisfactory to the Bank and in form and substance satisfactory to the
Bank:
(a) Corporate Documents.
(i) Copies of the Certificate of Incorporation and the
Bylaws of the KFC Cooperative, a Certificate of Existence duly issued on behalf
of the KFC Cooperative by each of the Secretary of State of Delaware and the
Secretary of State of Kentucky, and resolutions of the Board of Directors of the
KFC Cooperative authorizing the execution, delivery and performance of this Loan
Agreement and the other Loan Documents to which the KFC Cooperative is a party
by the KFC Cooperative and an incumbency certificate with respect to the KFC
Cooperative, all certified by the Secretary or an Assistant Secretary of the KFC
Cooperative and further certifying the names and true signatures of the officers
of the KFC Cooperative authorized to sign this Loan Agreement and the other Loan
Documents to be delivered by the KFC Cooperative hereunder.
(ii) Copies of the Articles of Organization and the Operating
Agreement of Unified, a Certificate of Existence duly issued on behalf of
Unified by the Secretary of State of Kentucky, and resolutions of the Board of
Directors of Unified authorizing the execution, delivery and performance of this
Loan Agreement and the other Loan Documents to which Unified is a party by
Unified and an incumbency certificate with respect to Unified, all certified by
the Secretary or an Assistant Secretary of Unified and further certifying the
names and true signatures of the officers of Unified authorized to sign this
Loan Agreement and the other Loan Documents to which Unified is a party.
(b) Loan Agreement. This Loan Agreement, duly executed and
delivered by the KFC Cooperative, the Pizza Hut Cooperative, the Taco Bell
Cooperative and Unified.
(c) KFC Promissory Note. The KFC Promissory Note, duly executed
and delivered by the KFC Cooperative.
(d) KFC Pledge Agreement. The KFC Pledge Agreement and
accompanying UCC-1 Financing Statements, in each case duly executed and
delivered by the KFC Cooperative.
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(e) Unified KFC Security Agreement. The Unified KFC ecurity
Agreement and accompanying UCC-1 Financing Statements, in each case duly
executed and delivered by Unified.
(f) Legal Opinion. An opinion of Brown, Todd & Heyburn PLLC,
counsel to the KFC Cooperative and Unified, in substantially the form attached
hereto and made a part hereof as Exhibit G.
(g) UCC-3 Termination Statements. All Uniform Commercial Code
Termination Statements necessary to release of record all liens and security
interests encumbering the KFC Collateral.
(h) Certificate of Insurance. A Certificate of Insurance,
confirming that the KFC Cooperative and Unified have obtained all of the
insurance required under this Loan Agreement and the other Loan Documents.
(i) UCC Search Reports. UCC-11 Search Reports with respect to the
KFC Cooperative and Unified from the Clerk of Jefferson County, the Secretary of
State of Kentucky and each other appropriate public office.
(j) Other Documents. Such other documents, instruments, approvals
(and, if requested by the Bank, certified duplicates of executed copies thereof)
or opinions as the Bank may reasonably request.
(k) Certificates of the KFC Cooperative. Certificates signed by a
duly authorized officer of the KFC Cooperative, dated the date of this Loan
Agreement, stating that:
(i) The representations and warranties of the KFC Cooperative
and Unified contained in Section 8 hereof are correct on and as of the date of
this Loan Agreement as though made on and as of such date; and
(ii) No KFC Event of Default referred to in Section 11 hereof
has occurred and is continuing, or would result from the consummation of the
transactions contemplated in this Loan Agreement, and no event has occurred and
is continuing which would constitute a KFC Event of Default but for the
requirement that notice be given or time elapse or both.
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(l) Satisfaction of Other Conditions Precedent. The conditions
precedent set forth in Sections 6 and 7 of this Loan Agreement shall have been
satisfied to the Bank's satisfaction.
(m) Transaction Documents. The Transaction Documents shall have
been fully executed and delivered by all parties thereto and all of the
transactions required to be consummated thereunder as of the date of this Loan
Agreement shall have been consummated or shall be consummated contemporaneously
with the initial advances under the KFC Line of Credit, the Pizza Hut Line of
Credit and the Taco Bell Line of Credit.
(n) Net Worth. Each Borrower and Unified shall have or, in the case
of Unified will have, contemporaneously with the initial advances under the KFC
Line of Credit, the Pizza Hut Line of Credit and the Taco Bell Line of Credit,
met the initial minimum Net Worth required under Section 10 hereof.
5.2 Conditions Precedent to Advances Under the KFC Line of Credit. The
obligation of the Bank to make each advance under the KFC Line of Credit is
expressly subject to the satisfaction of the following conditions precedent:
(a) No Existing KFC Default or KFC Event of Default. No KFC Default
or KFC Event of Default shall have occurred and be continuing.
(b) Continuation of Representations and Warranties. The
representations and warranties set forth in Section 8 with respect to the KFC
Cooperative and Unified shall be true and correct as of the date of the making
of any such advance under the KFC Line of Credit.
SECTION 6. CONDITIONS PRECEDENT TO PIZZA HUT LINE OF CREDIT.
6.1 Conditions Precedent to Pizza Hut Line of Credit. The obligation of
the Bank to establish the Pizza Hut Line of Credit in favor of the Pizza Hut
Cooperative is expressly subject to the delivery of the following documents to
the Bank, in each case dated the date of this Loan Agreement or such other date
as shall be satisfactory to the Bank and in form and substance satisfactory to
the Bank:
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(a) Corporate Documents.
(i) Copies of the Certificate of Incorporation and the Bylaw/s
of the Pizza Hut Cooperative, a Certificate of Existence duly issued on behalf
of the Pizza Hut Cooperative by each of the Secretary of State of Delaware and
the Secretary of State of Kentucky, and resolutions of the Board of Directors of
the Pizza Hut Cooperative authorizing the execution, delivery and performance of
this Loan Agreement and the other Loan Documents to which the Pizza Hut
Cooperative is a party by the Pizza Hut Cooperative and an incumbency
certificate with respect to the Pizza Hut Cooperative, all certified by the
Secretary or an Assistant Secretary of the Pizza Hut Cooperative and further
certifying the names and true signatures of the officers of the Pizza Hut
Cooperative authorized to sign this Loan Agreement and the other Loan Documents
to be delivered by the Pizza Hut Cooperative hereunder.
(ii) Copies of the Articles of Organization and the Operating
Agreement of Unified, a Certificate of Existence duly issued on behalf of
Unified by the Secretary of State of Kentucky, and resolutions of the Board of
Directors of Unified authorizing the execution, delivery and performance of this
Loan Agreement and the other Loan Documents to which Unified is a party by
Unified and an incumbency certificate with respect to Unified, all certified by
the Secretary or an Assistant Secretary of Unified and further certifying the
names and true signatures of the officers of Unified authorized to sign this
Loan Agreement and the other Loan Documents to which Unified is a party.
(b) Loan Agreement. This Loan Agreement, duly executed and
delivered by the KFC Cooperative, the Pizza Hut Cooperative, the Taco Bell
Cooperative and Unified.
(c) Pizza Hut Promissory Note. The Pizza Hut Promissory Note, duly
executed and delivered by the Pizza Hut Cooperative.
(d) Pizza Hut Pledge Agreement. The Pizza Hut Pledge Agreement and
accompanying UCC-1 Financing Statements, in each case duly executed and
delivered by the Pizza Hut Cooperative.
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(e) Unified Pizza Hut Security Agreement. The Unified Pizza Hut
Security Agreement and accompanying UCC-1 Financing Statements, in each case
duly executed and delivered by Unified.
(f) Legal Opinion. An opinion of Brown, Todd & Heyburn PLLC,
counsel to the Pizza Hut Cooperative and Unified, in substantially the form
attached hereto and made a part hereof as Exhibit G.
(g) UCC-3 Termination Statements. All Uniform Commercial Code
Termination Statements necessary to release of record all liens and security
interests encumbering the Pizza Hut Collateral.
(h) Certificate of Insurance. A Certificate of Insurance,
confirming that the Pizza Hut Cooperative and Unified have obtained all of the
insurance required under this Loan Agreement and the other Loan Documents.
(i) UCC Search Reports. UCC-11 Search Reports with respect to the
Pizza Hut Cooperative and Unified from the Clerk of Jefferson County, the
Secretary of State of Kentucky and each other appropriate public office.
(j) Other Documents. Such other documents, instruments, approvals
(and, if requested by the Bank, certified duplicates of executed copies thereof)
or opinions as the Bank may reasonably request.
(k) Certificates of the Pizza Hut Cooperative. Certificates signed
by a duly authorized officer of the Pizza Hut Cooperative, dated the date of
this Loan Agreement, stating that:
(i) The representations and warranties of the Pizza Hut
Cooperative and Unified contained in Section 8 hereof are correct on and as of
the date of this Loan Agreement as though made on and as of such date; and
(ii) No Pizza Hut Event of Default referred to in Section 11
hereof has occurred and is continuing, or would result from the consummation of
the transactions contemplated in this Loan Agreement, and no event has occurred
and is continuing
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which would constitute a Pizza Hut Event of Default but for the requirement that
notice be given or time elapse or both.
(l) Satisfaction of Other Conditions Precedent. The conditions
precedent set forth in Sections 5 and 7 of this Loan Agreement shall have been
satisfied to the Bank's satisfaction.
(m) Transaction Documents. The Transaction Documents shall have
been fully executed and delivered by all parties thereto and all of the
transactions required to be consummated thereunder as of the date of this Loan
Agreement shall have been consummated or shall be consummated contemporaneously
with the initial advances under the KFC Line of Credit, the Pizza Hut Line of
Credit and the Taco Bell Line of Credit.
(n) Net Worth. Each Borrower and Unified shall have or, in the
case of Unified will have, contemporaneously with the initial advances under the
KFC Line of Credit, the Pizza Hut Line of Credit and the Taco Bell Line of
Credit, met the initial minimum Net Worth required under Section 10 hereof.
6.2 Conditions Precedent to Advances Under the Pizza Hut Line of
Credit. The obligation of the Bank to make each advance under the Pizza Hut Line
of Credit is expressly subject to the satisfaction of the following conditions
precedent:
(a) No Existing Pizza Hut Default or Pizza Hut Event of Default. No
Pizza Hut Default or Pizza Hut Event of Default shall have occurred and be
continuing.
(b) Continuation of Representations and Warranties. The
representations and warranties set forth in Section 8 with respect to the Pizza
Hut Cooperative and Unified shall be true and correct as of the date of the
making of any such advance under the Pizza Hut Line of Credit.
SECTION 7. CONDITIONS PRECEDENT TO TACO BELL LINE OF CREDIT.
7.1 Conditions Precedent to Taco Bell Line of Credit. The obligation of
the Bank to establish the Taco Bell Line of Credit in favor of the Taco Bell
Cooperative is expressly subject to the delivery of the following documents to
the Bank, in each case dated the date of this Loan Agreement or such other date
as
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shall be satisfactory to the Bank and in form and substance satisfactory to the
Bank:
(a) Corporate Documents.
(i) Copies of the Certificate of Incorporation and the Bylaws
of the Taco Bell Cooperative, a Certificate of Existence duly issued on behalf
of the Taco Bell Cooperative by each of the Secretary of State of Delaware and
the Secretary of State of Kentucky, and resolutions of the Board of Directors of
the Taco Bell Cooperative authorizing the execution, delivery and performance of
this Loan Agreement and the other Loan Documents to which the Taco Bell
Cooperative is a party by the Taco Bell Cooperative and an incumbency
certificate with respect to the Taco Bell Cooperative, all certified by the
Secretary or an Assistant Secretary of the Taco Bell Cooperative and further
certifying the names and true signatures of the officers of the Taco Bell
Cooperative authorized to sign this Loan Agreement and the other Loan Documents
to be delivered by the Taco Bell Cooperative hereunder.
(ii) Copies of the Articles of Organization and the Operating
Agreement of Unified, a Certificate of Existence duly issued on behalf of
Unified by the Secretary of State of Kentucky, and resolutions of the Board of
Directors of Unified authorizing the execution, delivery and performance of this
Loan Agreement and the other Loan Documents to which Unified is a party by
Unified and an incumbency certificate with respect to Unified, all certified by
the Secretary or an Assistant Secretary of Unified and further certifying the
names and true signatures of the officers of Unified authorized to sign this
Loan Agreement and the other Loan Documents to which Unified is a party.
(b) Loan Agreement. This Loan Agreement, duly executed and
delivered by the KFC Cooperative, the Pizza Hut Cooperative, the Taco Bell
Cooperative and Unified.
(c) Taco Bell Promissory Note. The Taco Bell Promissory Note, duly
executed and delivered by the Taco Bell Cooperative.
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(d) Taco Bell Pledge Agreement. The Taco Bell Pledge Agreement and
accompanying UCC-1 Financing Statements, in each case duly executed and
delivered by the Taco Bell Cooperative.
(e) Unified Taco Bell Security Agreement. The Unified Taco Bell
Security Agreement and accompanying UCC-1 Financing Statements, in each case
duly executed and delivered by Unified.
(f) Legal Opinion. An opinion of Brown, Todd & Heyburn PLLC,
counsel to the Taco Bell Cooperative and Unified, in substantially the form
attached hereto and made a part hereof as Exhibit G.
(g) UCC-3 Termination Statements. All Uniform Commercial Code
Termination Statements necessary to release of record all liens and security
interests encumbering the Taco Bell Collateral.
(h) Certificate of Insurance. A Certificate of Insurance,
confirming that the Taco Bell Cooperative and Unified have obtained all of the
insurance required under this Loan Agreement and the other Loan Documents.
(i) UCC Search Reports. UCC-11 Search Reports with respect to
the Taco Bell Cooperative and Unified from the Clerk of Jefferson County, the
Secretary of State of Kentucky and each other appropriate public office.
(j) Other Documents. Such other documents, instruments, approvals
(and, if requested by the Bank, certified duplicates of executed copies thereof)
or opinions as the Bank may reasonably request.
(k) Certificates of the Taco Bell Cooperative. Certificates signed
by a duly authorized officer of the Taco Bell Cooperative, dated the date of
this Loan Agreement, stating that:
(i) The representations and warranties of the Taco Bell
Cooperative and Unified contained in Section 8 hereof are correct on and as of
the date of this Loan Agreement as though made on and as of such date; and
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(ii) No Taco Bell Event of Default referred to in Section 11
hereof has occurred and is continuing, or would result from the consummation of
the transactions contemplated in this Loan Agreement, and no event has occurred
and is continuing which would constitute a Taco Bell Event of Default but for
the requirement that notice be given or time elapse or both.
(l) Satisfaction of Other Conditions Precedent. The conditions
precedent set forth in Sections 5 and 6 of this Loan Agreement shall have been
satisfied to the Bank's satisfaction.
(m) Transaction Documents. The Transaction Documents shall have
been fully executed and delivered by all parties thereto and all of the
transactions required to be consummated thereunder as of the date of this Loan
Agreement shall have been consummated or shall be consummated contemporaneously
with the initial advances under the KFC Line of Credit, the Pizza Hut Line of
Credit and the Taco Bell Line of Credit.
(n) Net Worth. Each Borrower and Unified shall have or, in the case
of Unified will have, contemporaneously with the initial advances under the KFC
Line of Credit, the Pizza Hut Line of Credit and the Taco Bell Line of Credit,
met the initial minimum Net Worth required under Section 10 hereof.
7.2 Conditions Precedent to Advances Under the Taco Bell Line of
Credit. The obligation of the Bank to make each advance under the Taco Bell Line
of Credit is expressly subject to the satisfaction of the following conditions
precedent:
(a) No Existing Taco Bell Default or Taco Bell Event of
Default. No Taco Bell Default or Taco Bell Event of Default shall have occurred
and be continuing.
(b) Continuation of Representations and Warranties. The
representations and warranties set forth in Section 8 with respect to the Taco
Bell Cooperative and Unified shall be true and correct as of the date of the
making of any such advance under the Taco Bell Line of Credit.
SECTION 8. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to execute and deliver this Loan Agreement
and the other Loan Documents to which it is a
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party and to establish each of the KFC Line of Credit, the Pizza Hut Line of
Credit and the Taco Bell Line of Credit, each Borrower, as to itself only, and
Unified, as to itself and each Borrower, hereby represents and warrants to the
Bank as follows:
8.1 Corporate Existence.
(a) Each Borrower is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware and is
duly qualified to transact business as a foreign corporation under the laws of
the Commonwealth of Kentucky and each other state in which it is required by law
to qualify to transact business.
(b) Unified is a limited liability company duly organized and
validly existing and in good standing under the laws of the Commonwealth of
Kentucky and is duly qualified to transact business as a foreign limited
liability company under the laws of each state in which it is required by law to
qualify to transact business.
8.2 Requisite Power and Authority. Each Borrower and Unified has the
requisite power and authority to execute, deliver and perform its obligations
under this Loan Agreement and each other Loan Document to which it is a party.
8.3 No Violation. The execution, delivery and performance of this Loan
Agreement and the other Loan Documents to which each Borrower and Unified is a
party will not violate any provision of law or the formation documents of any
Borrower or Unified or, except as otherwise described in writing to the Bank,
any agreement, document or instrument to which any Borrower or Unified is a
party or which is binding on it or its property, and will not result in the
creation or imposition of any lien, charge or any encumbrance on, or security
interest in, any of its property pursuant to the provisions of any such
agreement, document or instrument.
8.4 No Material Litigation. Except as described on Exhibit I attached
hereto and made a part hereof, there is no litigation and no administrative
investigation proceeding of or before any governmental body (including the
Internal Revenue Service) presently pending against any Borrower or Unified or
its property, the result of which could have a material adverse
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effect on such Borrower or Unified or its financial condition, results of
operations or property, nor, to the knowledge of any Borrower or Unified, is any
such litigation or proceeding presently threatened against it or its property.
8.5 No Default. No default hereunder has occurred and is continuing and
none of the Borrowers or Unified is in default under any agreement to which it
is a party and which default might, in the opinion of such Borrower or Unified,
have a material adverse affect on its financial condition, results of operations
or property.
8.6 Financial Condition. The financial statements of the KFC
Cooperative previously delivered to the Bank present fairly the financial
condition of the KFC Cooperative as of the dates thereof and the results of its
operations for the periods covered thereby.
8.7 Tax Returns and Tax Payments. Each Borrower and Unified has filed
all tax returns required by law to be filed by it and has paid all taxes,
assessments and other governmental charges levied upon its properties, assets,
income and franchises, other than those not yet delinquent and those being or
about to be contested by such Borrower or Unified and in respect of which such
Borrower or Unified has established appropriate accruals and/or reserves on its
books and records in accordance with GAAP. The charges, accruals and reserves on
the books of each Borrower and Unified in respect of its taxes are adequate in
the opinion of such Borrower and Unified. None of the Borrowers or Unified knows
of any unpaid assessment for additional taxes applicable to it.
8.8 Title to Properties; Liens. Each Borrower and Unified has good and
marketable title to all of its properties and assets, and none of such
properties or assets is or will be, as of the date of this Loan Agreement,
subject to any lien, encumbrance or security interest except for liens for taxes
not yet due and owing, the liens and security interests created under the Loan
Documents and other permitted liens and encumbrances.
8.9 Leases. Each Borrower and Unified enjoys quiet possession under
each lease to which it is a party as lessee, and all of such leases are to the
best knowledge of each
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Borrower and Unified, after due inquiry, validly existing and in full force and
effect, and, to the best knowledge of such Borrower and Unified, after due
inquiry, neither the lessor nor such Borrower or Unified as lessee is in default
under any of such leases. None of such leases contains any provision restricting
the incurrence of indebtedness by the lessee or any unusual or burdensome
provision materially adversely affecting the current and proposed operations of
such Borrower or Unified.
8.10 Full Disclosure. The financial statements referred to in Section
8.6 above do not and will not, nor does this Loan Agreement or any other Loan
Document or other written statement furnished by any Borrower or Unified to the
Bank in connection with the negotiation of this Loan Agreement and the other
Loan Documents, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein or herein not
misleading. None of the Borrowers or Unified has failed to disclose to the Bank
any material fact known to such Borrower or Unified that could materially
adversely affect or, so far as such Borrower or Unified can reasonably foresee,
will materially adversely affect its financial condition, results of operations,
property, activities or prospect of future success.
8.11 Execution and Delivery. This Loan Agreement and the other Loan
Documents to which each Borrower or Unified is a party have been duly executed
and delivered by such Borrower and Unified and constitute the legal, valid and
binding obligations of such Borrower and Unified, enforceable in accordance with
their respective terms.
8.12 No Material Liabilities. None of the Borrowers or Unified has any
material liabilities, direct or contingent, other than as disclosed on its
financial statements or otherwise to the Bank, nor has any Borrower or Unified
guaranteed, or otherwise become responsible for, the material obligations of any
person or entity, other than as set forth in the financial statements referred
to in Section 8.6 hereof.
8.13 Agreements Requiring Subordination. There is no agreement,
indenture, contract or instrument to which any Borrower or Unified is a party,
or by which any Borrower or Unified may be bound, that requires a subordination
of right of
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payment to the Bank of any of the Secured Obligations to any other obligation of
any Borrower or Unified.
8.14 Permits and Licenses to Conduct Business. Each Borrower and
Unified possesses, and will hereafter possess, to the best of its knowledge, all
permits, memberships, franchises, contracts, licenses, trademark rights,
tradenames, tradename rights and fictitious name rights necessary to enable it
to conduct the business in which it is now engaged or proposes to engage without
conflict with the rights of others.
8.15 ERISA. Each employee benefit plan or other plan maintained by each
Borrower and Unified for its employees that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), has been
maintained and funded in all material respects in accordance with its terms and
with all provisions of ERISA applicable thereto.
8.16 Environmental Conditions. To the best knowledge of each Borrower
and Unified, there are no present Environmental Conditions, as hereinafter
defined, in any way relating to the business of such Borrower or Unified, and
there have been no past Environmental Conditions which at present materially
affect, or may in the future materially affect, such Borrower or Unified. For
purposes of this Loan Agreement, Environmental Conditions means (a) the
introduction into the environmental of any pollution, including without
limitation any contaminant, irritant or pollutant or other toxic or hazardous
substance (whether or not such pollution constituted at the time thereof a
violation of any statute, law, ordinance or regulation), as a result of any
spill, discharge, leak, emission, escape, injection, dumping or release of any
kind whatsoever of any substance or exposure of any type in any work places or
to any medium, including without limitation air, land, surface waters or ground
waters, or from any generation, transportation, treatment, discharge, storage or
disposal of waste materials, raw materials, hazardous materials, toxic materials
or products of any kind or from the storage, use or handling of any hazardous or
toxic materials or other substances, as a result of which any Borrower or
Unified or any of the assets of any Borrower or Unified may suffer or be
subjected to any lien, or (b) any noncompliance with or violation of any
environmental law, whether federal, state or local, as a result of or in
connection with any of the foregoing.
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SECTION 9. AFFIRMATIVE COVENANTS.
Each Borrower and Unified hereby as to itself only covenants and agrees
in favor of the Bank as to the following matters as they pertain to such
Borrower or Unified, which covenants shall remain in effect (a) with respect to
each Borrower so long as the Line of Credit established by the Bank in favor of
such Borrower remains in effect, and (b) with respect to Unified, so long as any
Line of Credit established by the Bank in favor of a Borrower remains in effect:
9.1 Financial Statements. Each Borrower and Unified shall furnish to
the Bank (a) within forty-five (45) days after the end of each fiscal quarter,
an unaudited balance sheet and unaudited statements of profit and loss and cash
flows of such Borrower and Unified, for the period from the commencement of the
current fiscal year of the Borrower or Unified to the date of such unaudited
financial statements, setting forth in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year of such
Borrower or Unified, all in reasonable detail, prepared in accordance with GAAP,
and certified to be true, accurate and complete by the President or Chief
Financial Officer of such Borrower or Unified, (b) together with the unaudited
financial statements required to be delivered by each Borrower and Unified
pursuant to subpart (a) above, a compliance certificate in the form attached
hereto and made a part hereof as Exhibit H for such Borrower or Unified,
demonstrating compliance by such Borrower or Unified with the financial
covenants set forth in this Loan Agreement with respect to such Borrower or
Unified as of and for the period ended on the date of such unaudited financial
statements, (c) within seventy-five (75) days after the end of each fiscal year
of the Borrower and Unified, an audited balance sheet and audited statements of
profit and loss and cash flows of such Borrower and Unified for such fiscal
year, setting forth in comparative form the corresponding figures for the
preceding fiscal year of such Borrower and Unified, all in reasonable detail,
prepared in accordance with GAAP and certified by independent public accountants
of recognized standing selected by such Borrower and Unified, (d) such other
financial information with respect to any Borrower or Unified as the Bank may,
from time to time, reasonably request, and (e) within seventy-five (75) days
after the end of each fiscal year of each
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Borrower and Unified, a certificate of the President or Chief Financial Officer
of such Borrower or Unified stating (i) that a review of the activities of such
Borrower or Unified during such fiscal year has been made under his or her
supervision with a view to determining whether such Borrower or Unified has
kept, observed and fulfilled all of its obligations under this Loan Agreement,
and (ii) that, to the best of his or her knowledge, such Borrower or Unified
during such fiscal year has kept, observed, performed and fulfilled each and
every material covenant and condition set forth in this Loan Agreement and is
not then in material default under this Loan Agreement, or, if it shall be in
material default, specifying all such defaults and the nature and status
thereof. In addition, each Borrower and Unified shall submit to the Bank cash
flow, profit and loss and balance sheet projections, all prepared in accordance
with GAAP, thirty (30) days prior to the beginning of each succeeding fiscal
year of such Borrower and Unified.
9.2 Payment of Obligations. Each Borrower and Unified shall pay and
discharge, when due, all of its Indebtedness and other liabilities, except where
the same may be contested in good faith and where adequate accruals and reserves
have been established on the books and records of the particular Borrower or
Unified in accordance with GAAP. Each Borrower and Unified shall also maintain,
in accordance with GAAP, appropriate reserves for the accrual of taxes.
9.3 Maintenance of Properties. Each Borrower and Unified shall maintain
all of its tangible property in good working order and condition, reasonable
wear and tear excepted.
9.4 Notices. Each Borrower and Unified shall promptly give notice in
writing to the Bank of (a) all litigation which may exist between it and any
other entity including any regulatory body, the result of which might, in the
opinion of such Borrower or Unified, have a material adverse effect upon its
financial condition, results of operations or property, (b) any proposal by any
public or governmental agency or authority to acquire the assets or business of
such Borrower or Unified, (c) notice of any Default or Event of Default
applicable to such Borrower or Unified, and (d) notice of the occurrence of any
Environmental Condition applicable to such Borrower or Unified.
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9.5 Conduct of Business and Maintenance of Existence. Each Borrower and
Unified shall conduct its business in compliance with all applicable laws, rules
and regulations and shall take all actions that may be necessary to preserve,
renew and keep in full force and effect its corporate existence, assets, rights
and franchises necessary to continue such business.
9.6 Depository Relationship. Each Borrower shall maintain its primary
operating accounts with the Bank. In addition, Unified shall establish a demand
deposit account with the Bank and shall maintain a minimum of Two Hundred
Thousand Dollars ($200,000.00) in collected balances in such account at all
times. Unified hereby agrees to pay to the Bank, in respect of each calendar
quarter during the term of this Loan Agreement, a deficiency fee (the "Unified
Deficiency Fee") in an amount equal to the product of (a) the Prime Rate plus
two percent (2%) per annum as of the last day of such calendar quarter, and (b)
the positive difference, if any, between (i) Two Hundred Thousand Dollars
($200,000.00), less (ii) the sum of the average daily collected balances
maintained in such demand deposit account during such calendar quarter. The
Unified Deficiency Fee shall be due and payable to the Bank quarterly in arrears
within ten (10) days after Unified has received an invoice for the Unified
Deficiency Fee from the Bank. Any Unified Deficiency Fee not paid to the Bank
when due shall bear interest at the Default Rate, and the Unified Deficiency
Fee, together with all accrued interest thereon, shall continue to be
immediately due and payable to the Bank. The balances maintained in such demand
deposit account shall be eligible to receive earnings credits to be applied to
any service fees charged to such account.
9.7 Further Banking Services. Each Borrower and Unified shall offer to
the Bank the first opportunity to provide any and all other banking and
financial services, such as administration of employee benefit plans, cash
management services, trust services, and payroll services, that such Borrower or
Unified desires to obtain.
9.8 Further Assurances. Each Borrower and Unified shall from time to
time hereafter execute and deliver, or will cause to be executed and delivered,
such additional agreements, documents and instruments, will pay all filing fees
and taxes in connection therewith, and will take all such further actions as
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the Bank may reasonably request for the purposes of implementing or effectuating
the provisions of this Loan Agreement and the other Loan Documents, or in order
to more fully perfect or renew the liens and security interests granted in favor
of the Bank pursuant to the Loan Documents.
9.9 Review by Bank. The Bank shall have the right from time to time,
at its expense so long as no Default or Event of Default has occurred and is
continuing, to audit the accounts, records and reporting procedures of any
Borrower or Unified as determined by the Bank in its reasonable discretion. If
any Default or Event of Default with respect to a particular Borrower or Unified
has occurred and is continuing, any such audit conducted by the Bank shall be at
the expense of the particular Borrower or Unified.
9.10 Insurance.
(a) Each Borrower and Unified shall at all times maintain
insurance covering such risks as are customarily carried by business entities
engaged in the same business as such Borrower or Unified, including, without
limitation, the following insurance:
(i) Workers' compensation insurance in conformity with the
laws of the Commonwealth of Kentucky;
(ii) Comprehensive general public liability insurance with
respect to all activities in which such Borrower or Unified might incur
liability for the death or injury of any employee or other person or entity or
for damage to or destruction of the property of another person or entity, in a
combined single limit of an amount not less than One Million Dollars
($1,000,000.00) per occurrence for death or personal injury and One Hundred
Thousand Dollars ($100,000.00) for property damage, and with a deductible not in
excess of Ten Thousand Dollars ($10,000.00) per occurrence;
(iii) Casualty insurance on all tangible property owned by
such Borrower or Unified insuring against loss or damage by fire and such other
risks as are included in coverage of the type known as "all risk coverage", in
an amount not less than the actual cash value of such tangible property,
excepting only a deductible not exceeding Ten Thousand Dollars
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($10,000.00) with respect to each event of loss or damage, and with an eighty
percent (80%) co-insurance clause.
All of the insurance policies referred to in this Section 9.10 shall be
issued by insurers rated "B" or better by Best's or which meets equivalent
rating criteria, shall be in the above amounts or such other amounts as shall be
reasonably satisfactory to the Bank, and shall be in form reasonably
satisfactory to the Bank. Each Borrower and Unified shall forthwith deliver to
the Bank a standard certificate of insurance evidencing the insurance policies
described in this Section 9.10.
(b) The Bank shall be named as a lender loss payee under all
casualty insurance policies covering the tangible Collateral owned by each
Borrower and/or Unified as the Bank's interests may appear pursuant to a
standard mortgagee clause and with full waiver of subrogation rights against any
insureds or loss-payees. Each Borrower and Unified hereby collaterally assigns
to the Bank all rights to receive the proceeds of the casualty insurance
policies covering the tangible Collateral owned by such Borrower or Unified up
to an amount equal to the principal amount of the Line of Credit established by
the Bank in favor of the particular Borrower at the time of any loss, damage or
destruction to the tangible Collateral or any part thereof, and each Borrower
and Unified shall promptly (i) compromise, settle and/or receipt for any and all
claims under such insurance policies, and (ii) obtain such proceeds and,
together with the Bank, endorse and negotiate any check and/or draft for such
proceeds. All such insurance proceeds shall be applied to the replacement or
repair of the damaged Collateral pursuant to procedures completely satisfactory
to the Bank, unless an Event of Default with respect to the particular Borrower
has occurred and is continuing, in which event such proceeds, at the sole option
of the Bank, shall be applied to the replacement or repair of the damaged
Collateral pursuant to procedures completely satisfactory to the Bank and/or
shall be applied to the payment of the Secured Obligations owed by the
particular Borrower to the Bank in such order as the Bank may select in its sole
and absolute discretion.
(c) In case of the pending expiration, termination or cancellation
of any policy of insurance required under this Section 9.10, a renewal or
replacement thereof with receipt for
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the accompanying premium shall be delivered to the Bank not less than fifteen
(15) days before the date of such expiration. In the event of loss to any
tangible Collateral owned by any Borrower or Unified or any part thereof, such
Borrower or Unified shall give immediate written notice thereof to the Bank. If
any Borrower or Unified shall fail to obtain any of the insurance required under
this Section 9.10 and/or shall fail to pay any premiums for any of the insurance
required under this Section 9.10, or shall fail to pay for any necessary repairs
to or replacements of the tangible Collateral owned by such Borrower or Unified,
the Bank shall have the right, at its option and upon five (5) days prior
written notice to such Borrower or Unified (unless, within such five day period,
any of the insurance required under this Section 9.10 shall lapse, in which
event the foregoing written notice shall not be required), but not the
obligation, to pay the same, and all sums paid by the Bank shall become a
Secured Obligation owed by the particular Borrower to the Bank.
(d) Each of the insurance policies required hereunder shall
contain an endorsement that such policy may not be cancelled, terminated or
modified except upon not less than thirty (30) days' prior written notice to the
Bank.
9.11 Notice of Claims; Proceedings, Litigation or Disputes. Each
Borrower and Unified shall furnish to the Bank prompt written notice of any
material claims, proceedings, litigation or disputes (whether or not reported on
behalf of such Borrower or Unified) against, or to the knowledge of such
Borrower or Unified, threatened or affecting such Borrower or Unified which, if
determined adversely to such Borrower or Unified, would have a material adverse
effect on the financial condition, results of operations or property of such
Borrower or Unified. Without in any way limiting the foregoing, claims,
proceedings, litigation or disputes involving monetary amounts in excess of One
Hundred Thousand Dollars ($100,000.00) not fully covered by insurance shall be
deemed to be material.
9.12 Payment of Debts. Each Borrower and Unified shall pay in full all
of its debts, obligations and liabilities on or prior to their respective due
dates, unless the same are being contested in good faith by such Borrower or
Unified, such Borrower or Unified has established adequate reserves for the
payment of the same and the contesting thereof does not involve
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the risk of forfeiture or loss of any of the assets of such Borrower or Unified.
Each Borrower and Unified shall file all federal, state and local tax returns
and other reports which such Borrower or Unified is required by law to file, and
such Borrower and Unified shall promptly pay, when due, all taxes and other
similar charges other than tax assessments or similar charges being contested in
good faith by such Borrower or Unified and for which adequate reserves have been
established on the books of such Borrower or Unified.
9.13 Corporate Existence. Each Borrower and Unified shall maintain its
corporate existence and its qualification and good standing to transact business
in all states in which such qualification and good standing are hereafter
necessary in order for such Borrower or Unified to conduct its business and own
its properties as conducted in such states.
SECTION 10. NEGATIVE COVENANTS.
Each Borrower and Unified hereby as to itself only covenants and agrees
in favor of the Bank as to the following matters as they pertain to such
Borrower or Unified, which covenants shall remain in effect (a) with respect to
each Borrower so long as the Line of Credit established by the Bank in favor of
such Borrower remains in effect, and (b) with respect to Unified, so long as any
Line of Credit established by the Bank in favor of a Borrower remains in effect:
10.1 Limitation on Liens. None of the Borrowers or Unified shall
create, assume or suffer to exist any mortgage, pledge, encumbrance, assignment
or other lien on, or security interest in, any of its property or assets,
whether now owned or hereafter acquired by it, except (a) the liens and security
interests created in favor of the Bank pursuant to the Loan Documents, (b)
purchase money security interests and capital leases subject to the compliance
with the other covenants and agreements set forth in this Loan Agreement and
provided that each such purchase money security interest encumbers only the
assets financed by such purchase money security interest and secures solely the
unpaid purchase price of the assets financed by such purchase money security
interest, (c) liens for ad valorem taxes not yet due and payable, and (d) liens
for taxes and liens of mechanics, materialmen and other like liens arising
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by operation of law which are not yet overdue, provided that the Bank's failure
to protest any lien is not an approval of such lien nor a waiver of the Bank's
rights as to such lien or any future lien.
10.2 Limitation on Contingent Liabilities. None of the Borrowers or
Unified shall agree to purchase or remain liable in connection with the
indebtedness for borrowed money of any other person or entity except
endorsements of negotiable instruments for collection in the ordinary course of
business other than, with respect to the KFC Cooperative, the existing guarantee
issued by the KFC Cooperative to the National Cooperative Bank in an aggregate
amount not to exceed at any one time One Million Dollars ($1,000,000.00).
10.3 Limitation on Mergers. None of the Borrowers or Unified shall be
or become a party to any consolidation, reorganization (including without
limitation the types referred to in Section 368 of the Internal Revenue Code),
merger, share exchange or recapitalization without prior written consent of the
Bank.
10.4 Limitation on Disposition of Assets. None of the Borrowers or
Unified shall liquidate, sell, lease or otherwise dispose of its assets outside
of the ordinary course of business other than the disposition of obsolete
tangible assets no longer useful in the business of such Borrower or Unified.
10.5 Limitation on Loans. None of the Borrowers or Unified shall make
loans to or investments in any person or entity, except (a) as to each Borrower,
the loans required to be made by such Borrower to Unified pursuant to the
Unified Operating Agreement, (b) for investments of the cash of each Borrower
and Unified in investment-grade obligations, (c) except as to the KFC
Cooperative, the line of credit in the principal amount of One Hundred Thousand
Dollars ($100,000.00) established by the KFC Cooperative in favor of Kenco
Insurance Agency, Inc., and (d) except as to the KFC Cooperative, the
intercompany loans in an aggregate amount of up to One Million Five Hundred
Thousand Dollars ($1,500,000.00) made by the KFC Cooperative to FoodService
International, Inc., a wholly-owned subsidiary of the KFC Cooperative.
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10.6 Environmental. None of the Borrowers or Unified shall cause or
permit others to cause the handling, storing, transporting or disposing of
hazardous or toxic substances in violation of applicable federal, state and
local laws and regulations.
10.7 Acquisitions. None of the Borrowers or Unified shall acquire all
or substantially all of the assets, securities or other equity interests of any
person or entity without the prior written consent of the Bank.
10.8 Dividends and Distributions. None of the Borrowers shall pay any
dividends or distributions to its shareholders or redeem, purchase or acquire
any of its stock if a Default or an Event of Default applicable to such Borrower
has occurred and is continuing or will result from the payment of such dividends
or distributions or the redemption, acquisition or purchase of such stock.
10.9 Maximum Leverage Ratio of the KFC Cooperative. The KFC Cooperative
shall not permit the ratio of its Total Liabilities to its Net Worth to be
greater than 1.5 to 1.0 at any fiscal quarter end of the KFC Cooperative.
10.10 Minimum Net Worth of the KFC Cooperative. The KFC Cooperative
shall not permit, as of the date of this Loan Agreement or at any fiscal quarter
end, its Net Worth to be less than the greater of (a) the aggregate
contributions made to the capital of the KFC Cooperative by its stockholders, or
(b) Seventeen Million Dollars ($17,000,000.00).
10.11 Minimum Ratio of EBITDAP to Interest Expense of the KFC
Cooperative. The KFC Cooperative shall not permit at any fiscal quarter end of
the KFC Cooperative beginning with the fiscal quarter ending on September 30,
1999, the ratio of its EBITDAP for such fiscal quarter to its Interest Expense
for such fiscal quarter to be less than 1.5 to 1.0.
10.12 Minimum Net Income of the KFC Cooperative. The KFC Cooperative
shall not permit its Net Income, for any fiscal quarter, to be zero or less.
10.13 Maximum Leverage Ratio of the Pizza Hut Cooperative. The Pizza
Hut Cooperative shall not permit the ratio of its
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Total Liabilities to its Net Worth to be greater than 2.0 to 1.0 at any fiscal
quarter end of the Pizza Hut Cooperative.
10.14 Minimum Net Worth of the Pizza Hut Cooperative. The Pizza Hut
Cooperative shall not permit its Net Worth to be less than the greater of (a)
the aggregate contributions made to the capital of the Pizza Hut Cooperative by
its stockholders, as of the date of this Loan Agreement or at any fiscal quarter
end of the Pizza Hut Cooperative, or (b)(i) One Million Three Hundred Thousand
Dollars ($1,300,000.00) at the closing and on March 31, 1999 and June 30, 1999,
and (ii) Two Million Dollars ($2,000,000.00) at any subsequent fiscal quarter
end of the Pizza Hut Cooperative.
10.15 Minimum Ratio of EBITDAP to Interest Expense of the Pizza Hut
Cooperative. The Pizza Hut Cooperative shall not permit at any fiscal quarter
end of the Pizza Hut Cooperative beginning with the fiscal quarter ending on
September 30, 1999, the ratio of its EBITDAP for such fiscal quarter to its
Interest Expense for such fiscal quarter to be less than 1.5 to 1.0.
10.16 Minimum Net Income of the Pizza Hut Cooperative. The Pizza Hut
Cooperative shall not permit its Net Income, for any fiscal quarter, to be zero
or less.
10.17 Maximum Leverage Ratio of the Taco Bell Cooperative. The Taco
Bell Cooperative shall not permit the ratio of its Total Liabilities to its Net
Worth to be greater than 6.4 to 1.0 at any fiscal quarter end of the Taco Bell
Cooperative.
10.18 Minimum Net Worth of the Taco Bell Cooperative. The Taco Bell
Cooperative shall not permit its Net Worth to be less than the greater of (a)
the aggregate contributions made to the capital of the Taco Bell Cooperative by
its stockholders as of the date of this Loan Agreement or at any fiscal quarter
end of the Taco Bell Cooperative, or (b)(i) One Million Two Hundred Fifty
Thousand Dollars ($1,250,000.00) at March 31, 1999 and June 30, 1999, and (ii)
One Million Nine Hundred Thousand Dollars ($1,900,000.00) at any subsequent
fiscal quarter end of the Taco Bell Cooperative.
10.19 Minimum Ratio of EBITDAP to Interest Expense of the Taco Bell
Cooperative. The Taco Bell Cooperative shall not permit at any fiscal quarter
end of the Taco Bell Cooperative beginning with the fiscal quarter ending on
September 30, 1999,
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the ratio of its EBITDAP for such fiscal quarter to its Interest Expense for
such fiscal quarter to be less than 1.5 to 1.0.
10.20 Minimum Net Income of the Taco Bell Cooperative. The Taco Bell
Cooperative shall not permit its Net Income, for any fiscal quarter, to be zero
or less.
10.21 Minimum Current Ratio of Unified. Unified shall not permit the
ratio of its current assets to its current liabilities, in each case as
determined in accordance with GAAP, to be less than 1.0 to 1.0 at any fiscal
quarter end of Unified.
10.22 Minimum Net Worth of Unified. Unified shall not permit its Net
Worth to be less than the greater of (a) the aggregate contributions made to the
capital of Unified by its members as of the date of this Loan Agreement or at
any fiscal quarter end of Unified, or (b)(i) Two Million Five Hundred Thousand
Dollars ($2,500,000.00) at March 31, 1999 and June 30, 1999, and (ii) Six
Million Dollars ($6,000,000.00) at any subsequent fiscal quarter end of Unified.
10.23 Minimum Ratio of EBITDAP to Interest Expense of Unified. Unified
shall not permit at any fiscal quarter end of Unified beginning with the fiscal
quarter ending on September 30, 1999, the ratio of its EBITDAP for such fiscal
quarter to its Interest Expense for such fiscal quarter to be less than 1.5 to
1.0.
10.24 Minimum Net Income of Unified. Unified shall not permit its Net
Income, for any fiscal quarter, to be zero or less.
10.25 Amendments of Transaction Documents. None of the Borrowers or
Unified will amend, modify or supplement any Transaction Document without the
prior written consent of the Bank if such amendment, modification or supplement
could have a materially adverse effect on the particular Borrower or Unified
and/or on the ability of the particular Borrower or Unified to perform its
obligations under this Loan Agreement or the other Loan Documents to which it is
a party.
SECTION 11. EVENTS OF DEFAULT.
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The following events with respect to any Borrower or Unified shall
constitute Events of Default under this Loan Agreement as to such Borrower or
Unified only:
11.1 Default in Payment of Secured Obligations. If the particular
Borrower shall fail to pay any principal of and/or accrued interest on its
Promissory Note or any other Secured Obligation owed by such Borrower to the
Bank when due or within ten (10) days thereafter.
11.2 Default in Payment of Other Debt For Borrowed Money. If the
particular Borrower or Unified shall default in the payment of the principal of
or interest on any Debt for Money Borrowed (other than the Secured Obligations)
when the same shall become due and payable by the lapse of time, by declaration,
by call for redemption or otherwise, and such default shall continue beyond any
period of grace or notice, if any, allowed with respect thereto.
11.3 Breach of Specific Covenants. If the particular Borrower or
Unified shall fail to observe or perform any covenant or agreement contained in
Section 10 hereof, other than the covenants and agreements set forth in Section
10.1, 10.2, 10.4, 10.5 and 10.6, to be performed or observed by such Borrower or
Unified.
11.4 Default of Other Covenants. If the particular Borrower or Unified
shall fail to observe or perform any other covenant or agreement contained in
this Loan Agreement to be performed or observed by such Borrower or Unified and
which is not remedied within thirty (30) days after the date on which notice of
such default is first given to the particular Borrower or Unified by the Bank.
11.5 Breach of Representations or Warranties. If any representation or
warranty made by the particular Borrower or Unified herein, in any of the other
Loan Documents to which it is a party or in any statement or certificate
furnished by it to the Bank in connection with or pursuant to this Loan
Agreement is untrue in any material respect as of the date of the issuance or
making (or deemed issuance or making) thereof.
11.6 Other Events of Default. The occurrence of any event of default
under and as defined in the other Loan Documents to
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which the particular Borrower or Unified is a party and which is not effectively
cured or waived.
11.7 Cessation to be a Member of Unified. If the particular Borrower
shall cease to be a member of Unified.
11.8 Termination of Purchasing Program Management Agreement. If the
Purchasing Program Management Agreement entered into between the particular
Borrower and Unified shall be terminated and not replaced by an agreement
containing substantially similar terms and conditions as set forth in such
Purchasing Program Management Agreement.
11.9 Judgments. If a final judgment or judgments for the payment of
money aggregating in excess of One Hundred Thousand Dollars ($100,000.00) is or
are outstanding against the particular Borrower or Unified or against any
property or assets of the particular Borrower or Unified and any one of such
judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or
otherwise for a period of thirty (30) days from the date of its entry.
11.10 Termination of Liens and Security Interests. If, for any reason
(other than the Bank's affirmative election to release or terminate the liens
and security interests created by the Loan Documents) any of the Loan Documents
to which the particular Borrower or Unified is a party shall cease (i) to create
valid and perfected first priority liens and security interests on the property
encumbered thereby in favor of the Bank, or (ii) to be in full force and effect
or shall be declared null and void, or the validity or enforceability thereof
shall be contested by the particular Borrower or Unified.
11.11 Insolvency. If a custodian, receiver, liquidator or trustee of
the particular Borrower or Unified, or of any of the property of the particular
Borrower or Unified, is appointed or takes possession of the particular Borrower
or Unified and its assets and such appointment or possession remains uncontested
or in effect for more than sixty (60) days; or the particular Borrower or
Unified generally fails to pay its debts as they become due or admits in writing
its inability to pay its debts as they mature; or the particular Borrower or
Unified is adjudicated bankrupt or insolvent; or any of the material property of
the particular Borrower or Unified is sequestered by
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court order and the order remains in effect for more than sixty (60) days; or a
petition is filed against the particular Borrower or Unified under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or subsequently
in effect, and is not stayed or dismissed within sixty (60) days after filing;
or the particular Borrower or Unified files a petition in voluntary bankruptcy
or seeking relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction, whether now or subsequently in effect; or the particular
Borrower or Unified consents to the filing of any petition against it under any
law; or consents to the appointment of or taking possession by a custodian,
receiver, trustee or liquidator of the particular Borrower or Unified or any of
the property of the particular Borrower or Unified.
SECTION 12. REMEDIES
12.1 Remedies With Respect to the KFC Cooperative. Upon the occurrence
of any KFC Event of Default, the Bank may at its election (a) terminate the KFC
Line of Credit, (b) declare the KFC Promissory Note and all other Secured
Obligations owed by the KFC Cooperative to the Bank to be forthwith due and
payable to the Bank, and the same shall thereupon become immediately due and
payable to the Bank without demand, presentment, protest or further notice of
any kind, all of which are hereby expressly waived by the KFC Cooperative,
and/or (c) proceed to enforce its liens and security interests in the KFC
Collateral granted to the Bank pursuant to the KFC Pledge Agreement and the
Unified KFC Security Agreement as well as all other remedies available to it
under the other Loan Documents and/or under applicable law or in equity in
respect of the occurrence of the KFC Event of Default.
12.2 Remedies With Respect to the Pizza Hut Cooperative. Upon the
occurrence of any Pizza Hut Event of Default, the Bank may at its election (a)
terminate the Pizza Hut Line of Credit, (b) declare the Pizza Hut Promissory
Note and all other Secured Obligations owed by the Pizza Hut Cooperative to the
Bank to be forthwith due and payable to the Bank, and the same shall thereupon
become immediately due and payable to the Bank without demand, presentment,
protest or further notice of any kind, all of which are hereby expressly waived
by the Pizza Hut Cooperative, and/or (c) proceed to enforce its liens and
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security interests in the Pizza Hut Collateral granted to the Bank pursuant to
the Pizza Hut Pledge Agreement and the Unified Pizza Hut Security Agreement as
well as all other remedies available to it under the other Loan Documents and/or
under applicable law or in equity in respect of the occurrence of the Pizza Hut
Event of Default.
12.3 Remedies With Respect to the Taco Bell Cooperative. Upon the
occurrence of any Taco Bell Event of Default, the Bank may at its election (a)
terminate the Taco Bell Line of Credit, (b) declare the Taco Bell Promissory
Note and all other Secured Obligations owed by the Taco Bell Cooperative to the
Bank to be forthwith due and payable to the Bank, and the same shall thereupon
become immediately due and payable to the Bank without demand, presentment,
protest or further notice of any kind, all of which are hereby expressly waived
by the Taco Bell Cooperative, and/or (c) proceed to enforce its liens and
security interests in the Taco Bell Collateral granted to the Bank pursuant to
the Taco Bell Pledge Agreement and the Unified Taco Bell Security Agreement as
well as all other remedies available to it under the other Loan Documents and/or
under applicable law or in equity in respect of the occurrence of the Taco Bell
Event of Default.
12.4 No Waiver; Remedies Cumulative. No remedy herein conferred or
reserved in favor of the Bank with respect to a particular Borrower or Unified
is intended to be exclusive of any other available remedy or remedies, but each
and every such remedy shall be cumulative with each and every other remedy given
under any other Loan Document or now or hereafter existing at law or in equity
or by statute. No delay or omission in the exercise of any right or power
accruing upon any default, omission or failure of performance hereunder shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right or power may be exercised from time to time and as often as may
be deemed expedient. In order to exercise any remedy reserved to the Bank in
this Loan Agreement or any other Loan Document, the Bank shall not be required
to give any notice other than such notice as may be herein expressly required.
In the event any provision contained in this Loan Agreement or any other Loan
Document should be breached by any party and thereafter duly waived by the other
party so empowered to act, such waiver shall be limited to the particular breach
so waived and shall not be deemed to waive any other breach hereunder. No
waiver, amendment, release or
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modification of this Loan Agreement or any other Loan Document shall be
established by conduct, custom or course of dealing, but solely by an instrument
in writing duly executed by the parties thereunto duly authorized by this Loan
Agreement or any other Loan Document.
12.5 Offset. Upon any default by a Borrower in the payment of any
accrued interest on and/or unpaid principal of its Promissory Note or any other
Secured Obligation owed by such Borrower to the Bank, and/or upon the occurrence
of any other Event of Default with respect to such Borrower or Unified and
during the continuation thereof, the Bank shall have the right then, or at any
time thereafter, to set off against, and to appropriate and apply toward the
payment of the Promissory Note and/or other Secured Obligations of such
Borrower, any and all deposit balances, other sums, indebtedness and other
property then held or owed by the Bank to or for the account of such Borrower,
and in and on all of which such Borrower hereby grants the Bank a first priority
security interest in and lien on to secure the payment of such Borrower's
Promissory Note and other Secured Obligations owed to the Bank, all without
notice to or demand upon such Borrower or any other person, all such notices and
demands being hereby expressly waived.
12.6 No Cross-Collateralization or Cross-Default Among the Borrowers.
The Bank expressly acknowledges and agrees that none of the KFC Line of Credit,
the Pizza Hut Line of Credit and the Taco Bell Line of Credit is either
cross-collateralized or cross-defaulted. In furtherance thereof, (a) the KFC
Collateral does not secure either the Pizza Hut Line of Credit or the Taco Bell
Line of Credit or any other Secured Obligation owed by the Pizza Hut Cooperative
or the Taco Bell Cooperative to the Bank, (b) the Pizza Hut Collateral does not
secure either the KFC Line of Credit or the Taco Bell Line of Credit or any
other Secured Obligation owed by the KFC Cooperative or the Taco Bell
Cooperative to the Bank, (c) the Taco Bell Collateral does not secure either the
KFC Line of Credit or the Pizza Hut Line of Credit or any other Secured
Obligation owed by the KFC Cooperative or the Pizza Hut Cooperative to the Bank,
(d) a KFC Default or a KFC Event of Default does not constitute a Pizza Hut
Default or a Pizza Hut Event of Default or a Taco Bell Default or a Taco Bell
Event of Default, (e) a Pizza Hut Default or a Pizza Hut Event of Default does
not constitute a KFC Default or a KFC Event of Default or a Taco Bell Default or
a Taco Bell Event of Default, (f) a Taco Bell Default or a Taco
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Bell Event of Default does not constitute a KFC Default or a KFC Event of
Default or a Pizza Hut Default or a Pizza Hut Event of Default, (g) no Borrower
is liable for the Secured Obligations owed by any other Borrower to the Bank,
and (h) Unified is not liable for any Secured Obligations owed by any Borrower
to the Bank except and only to the extent the assets of Unified constitute part
of the KFC Collateral, the Pizza Hut Collateral and the Taco Bell Collateral and
Unified has obligations in respect thereof under the Loan Documents to which
Unified is a party.
SECTION 13. MISCELLANEOUS.
13.1 Reimbursement of the Bank. The Borrowers and Unified jointly and
severally covenant and agree to reimburse the Bank for all actual out-of-pocket
expenses, including without limitation, reasonable attorneys' fees not to exceed
Twenty Thousand Dollars ($20,000.00), incurred by the Bank in connection with
the preparation, negotiation and execution and delivery of this Loan Agreement
and the other Loan Documents and the closing of the transactions contemplated
hereunder. Each Borrower, as to itself only, and Unified solely to the extent of
the Loan Documents to which it is a party, further covenants and agrees to
reimburse the Bank for all costs and expenses including, without limitation,
reasonable attorneys fees, incurred by the Bank in enforcing this Loan Agreement
and/or the other Loan Documents against the particular Borrower and/or Unified.
13.2 Notices. All notices, requests, demands and communications
pursuant to this Loan Agreement shall be in writing (except as otherwise
expressly permitted hereunder) and shall be personally delivered or sent by an
express courier service or by certified or registered United States mail,
postage prepaid and addressed as follows, or to such other address as may be
hereafter designated in writing by any party hereto to the other parties hereto:
If to the KFC Cooperative: KFC National Purchasing
Cooperative, Inc.
Attn: President and Chief
Executive Officer
950 Breckenridge Lane
Louisville, KY 40207
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Copy to: Christian L. Campbell, Esq.
Tricon Global Restaurants, Inc.
Law Department
1441 Gardiner Lane
Louisville, KY 40213
R. James Straus, Esq.
Brown, Todd & Heyburn PLLC
400 W. Market Street
Suite 3200
Louisville, KY 40202
If to the Pizza Hut
Cooperative: Pizza Hut National Purchasing Coop, Inc.
Attn: President and Chief
Executive Officer
950 Breckenridge Lane
Louisville, KY 40207
Copy to: Christian L. Campbell, Esq.
Tricon Global Restaurants, Inc.
Law Department
1441 Gardiner Lane
Louisville, KY 40213
R. James Straus, Esq.
Brown, Todd & Heyburn PLLC
400 W. Market Street
Suite 3200
Louisville, KY 40202
If to the Taco Bell
Cooperative: Taco Bell National Purchasing Coop, Inc.
Attn: President and Chief
Executive Officer
950 Breckenridge Lane
Louisville, KY 40207
Copy to: Christian L. Campbell, Esq.
Tricon Global Restaurants, Inc.
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Law Department
1441 Gardiner Lane
Louisville, KY 40213
R. James Straus, Esq.
Brown, Todd & Heyburn PLLC
400 W. Market Street
Suite 3200
Louisville, KY 40202
If to Unified: Unified FoodService Purchasing Coop, LLC
Attn: Chief Financial Officer
950 Breckenridge Lane
Louisville, KY 40207
Copy to: Christian L. Campbell, Esq.
Tricon Global Restaurants, Inc.
Law Department
1441 Gardiner Lane
Louisville, KY 40213
R. James Straus, Esq.
Brown, Todd & Heyburn PLLC
400 W. Market Street
Suite 3200
Louisville, KY 40202
If to the Bank: Fifth Third Bank,
Kentucky, Inc.
Attn: Mr. Jeff Gosnell
401 South Fourth Avenue
Louisville, KY 40202
All such notices shall be deemed given when personally delivered or one
(1) Business Day after having been delivered to an express courier service or
deposited in the United States mails each in case in accordance with the
provisions of this Section 13.2.
13.3 No Waiver, Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Bank, any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any
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right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
13.4 Entire Agreement; Amendments. Any amendments hereto must be in
writing signed by a duly authorized representative of the party to be charged.
This Loan Agreement (including any schedules and exhibits attached hereto)
contains the entire understanding of the parties with respect to its subject
matter. In the event of any conflict or discrepancy between this Loan Agreement
and any other document delivered in connection with this Loan Agreement, this
Loan Agreement shall control.
13.5 Governing Law. This Loan Agreement and the rights and obligations
of the parties hereunder shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Kentucky.
13.6 Effective Date of this Agreement. This Loan Agreement shall become
effective on the date when it shall have been executed by the Borrowers, Unified
and the Bank and fully executed counterparts thereof delivered to the Bank, such
date being herein called the "Effective Date of this Loan Agreement".
13.7 Severability. The provisions of this Loan Agreement are intended
to be severable. If any provision of this Loan Agreement shall be held invalid
or unenforceable in whole or in part in any jurisdiction, such provision shall,
as to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
13.8 Survival of Agreements, etc. All agreements, representations,
covenants, warranties and the like made herein shall survive the execution and
delivery of this Loan Agreement and the other Loan Documents.
13.9 Successors and Assigns. This Loan Agreement shall be binding upon
the parties hereto and their respective permitted successors and assigns, but
shall inure only to the benefit of the Borrowers, Unified and the Bank and their
respective permitted successors and assigns.
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13.10 Counterparts. This Loan Agreement may be executed in any number
of counterparts, each of which shall be deemed an original and all of which
taken together shall be deemed to constitute one and the same instrument.
13.11 Indemnity. Each Borrower shall indemnify and hold harmless the
Bank, its successors, assigns, agents and employees, from and against any and
all claims, actions, suits, proceedings, costs, expenses, damages, fines,
penalties and liabilities, including, without limitation, attorneys' fees and
costs, arising out of, connected with or resulting from (a) the operation of
such Borrower's businesses, (b) the Bank's preservation or attempted
preservation of the Collateral owned by such Borrower or by Unified on behalf of
such Borrower, and/or (c) any failure of the security interests and liens
granted to the Bank pursuant to the Loan Documents that secure such Borrower's
Promissory Note to be or to remain perfected or to have the priority as
contemplated therein. At the Bank's request, the particular Borrower shall, at
its own cost and expense, defend or cause to be defended any and all such
actions or suits that may be brought against the Bank and, in any event, shall
satisfy, pay and discharge any and all judgments, awards, penalties, costs and
fines that may be recovered against the Bank in any such action, plus all
attorneys' fees and costs related thereto to the extent permitted by applicable
law; provided, however, that the Bank shall give the particular Borrower (to the
extent the Bank seeks indemnification therefor from such Borrower under this
Section 13.11) written notice of any such claim, demand or suit after the Bank
has received written notice thereof, and the Bank shall not settle any such
claim, demand or suit, if the Bank seeks indemnification therefor from such
Borrower, without first giving notice to such Borrower of the Bank's desire to
settle and obtaining the consent of such Borrower to the same, which consent
such Borrower hereby agrees not to unreasonably withhold. All obligations of
each Borrower under this Section 13.11 shall survive the payment to the Bank of
the Promissory Note and the other Secured Obligations owed by such Borrower to
the Bank.
13.12 Time is of the Essence. Time shall be of the essence in the
performance of all obligations and covenants of each Borrower and Unified under
this Loan Agreement and the other Loan Documents to which such Borrower or
Unified is a party.
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13.13 Jurisdiction. Each Borrower and Unified hereby irrevocably agrees
that any legal action, suit or proceeding against such Borrower or Unified with
respect to the obligations and liabilities of such Borrower or Unified hereunder
or any other matter under or arising out of or in connection with this Loan
Agreement and/or the other Loan Documents or for recognition or enforcement of
any judgment rendered in any such action, suit or proceeding may be brought in
the Circuit Court of Jefferson County, Kentucky as the Bank may elect, and, by
execution and delivery of this Loan Agreement, each Borrower and Unified hereby
irrevocably accepts and submits to the non-exclusive jurisdiction of such court
in personam generally and unconditionally with respect to any such action, suit
or proceeding involving such Borrower or Unified. Each Borrower and Unified
further agrees that final judgment against such Borrower or Unified in any
action, suit or proceeding referred to herein shall be conclusive after all
appeals have been exhausted or waived by such Borrower or Unified, and may
thereafter be enforced in any other jurisdiction, within or outside the United
States of America, by suit on the judgment, a certified or exemplified copy of
which shall be conclusive evidence of the fact and of the amount of the
obligations and liabilities of such Borrower and Unified. Each Borrower and
Unified further irrevocably consents and agrees to the service of any and all
legal process, summons, notices and documents out of any of the aforesaid courts
in any such action, suit or proceeding by mailing copies thereof by registered
or certified air mail, postage prepaid, to such Borrower or Unified at the
address set forth in Section 13.2 hereof or by serving copies thereof upon any
statutory or registered agent for service of process of such Borrower or
Unified. Each Borrower and Unified agrees that service upon it as provided for
herein shall constitute valid and effective personal service upon such Borrower
and Unified and that the failure of any statutory or registered agent to give
any notice of such service to such Borrower or Unified shall not impair or
affect in any way the validity of such service or any judgment rendered in any
action or proceeding based thereon. Nothing herein shall, or shall be construed
so as to, limit the right of the Bank to bring actions, suits or proceedings
with respect to the obligations and liabilities of such Borrower or Unified
under, or any other matter arising out of or in connection with, this Loan
Agreement and/or the other Loan Documents, or for recognition or enforcement of
any judgment rendered in any such action, suit or proceeding, in the courts of
whatever jurisdiction in which property of such Borrower or Unified may be found
or as otherwise shall to the Bank seem appropriate, or to affect the rights to
service of
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process in any jurisdiction in any manner permitted by law. In addition, each
Borrower and Unified hereby irrevocably and unconditionally waives any objection
which such Borrower or Unified may now or hereafter have to the laying of venue
of any of the aforesaid actions, suits or proceedings arising out of or in
connection with this Loan Agreement and/or the other Loan Documents brought in
the Circuit Court of Jefferson County, Kentucky, and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim that any such
action, suit or proceeding brought in such court has been brought in an
inconvenient forum.
13.13 Waiver of Jury Trial. EACH BORROWER, UNIFIED AND THE BANK HEREBY
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS LOAN AGREEMENT OR THE OTHER LOAN
DOCUMENTS. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY
AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT THAT RELATE TO THE SUBJECT
MATTER OF THE TRANSACTIONS CONTEMPLATED UNDER THIS LOAN AGREEMENT AND THE OTHER
LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH
BORROWER, UNIFIED AND THE BANK ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT FOR EACH SUCH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
BORROWER, UNIFIED AND THE BANK HAVE ALREADY RELIED ON THE WAIVER IN ITS RELATED
DEALINGS WITH THE OTHERS. EACH BORROWER, UNIFIED AND THE BANK FURTHER WARRANT
AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LOAN
AGREEMENT OR THE OTHER LOAN DOCUMENTS. IN THE EVENT OF LITIGATION, THIS LOAN
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, the KFC Cooperative, the Pizza Hut Cooperative, the
Taco Bell Cooperative, Unified and the Bank have caused this Loan Agreement to
be duly authorized and delivered by their proper and duly authorized officers as
of the day and year first above written.
82
<PAGE> 83
KFC NATIONAL PURCHASING COOPERATIVE, INC.
By:
--------------------------------------
Its:
-------------------------------------
(the "KFC Cooperative")
TACO BELL NATIONAL PURCHASING COOP, INC:
By:
--------------------------------------
Its:
-------------------------------------
(the "Taco Bell Coop")
PIZZA HUT NATIONAL PURCHASING UNIFIED FOODSERVICE PURCHASING
COOP, INC. COOP, INC.
By: By:
-------------------------------------- -------------------------------
Its: Its:
------------------------------------- ------------------------------
(the "Pizza Hut Cooperative") ("Unified")
FIFTH THIRD BANK, KENTUCKY, INC.
By:
--------------------------------------
Its:
-------------------------------------
(the "Bank")
83
<PAGE> 84
List of
- -------
1. A: KFC Borrowing Base Report
2. B: Pizza Hut Borrowing Base Report
3. C: Taco Bell Borrowing Base Report
4. D: KFC Accounts Receivable Aging Report
5. E: Pizza Hut Accounts Receivable Aging Report
6. F: Taco Bell Accounts Receivable Aging Report
7. G: Opinion Letter of Brown, Todd & Heyburn PLLC
8. H: Compliance Certificate
9. I: Schedule of Pending Litigation
84
<PAGE> 85
A FIFTH THIRD BANCORP BANK
Officer No. Note No.
---------- --------------
$15,000,000.00 March 1, 1999
- -------------- ---------------
(Effective Date)
City Louisville State Kentucky
---------- --------
On or before the Due Date below, the undersigned, a (check one)
[ ] corporation [ ] partnership [ ] individual [ ] limited liability company for
value received if more than one, jointly and severally, promise to pay to the
order of Fifth Third Bank, Kentucky, Inc., 401 South Fourth Avenue, Louisville,
Kentucky 40202 hereinafter referred to as "Bank" the sum of Fifteen Million
Dollars (hereinafter referred to as the "Borrowing") plus interest as provided
herein, less such amounts as shall have been repaid in accordance with this
note. The outstanding balance of this note will appear on a supplemental bank
record and is not necessarily the face amount of this note. Such record shall be
conclusive as to the balance due of this note at time.
The principal sum outstanding shall bear interest as provided in the First
Addendum to Revolving Note referred to below interest shall be computed based on
a year of 360 days and charged for the actual number of days elapsed.
Prior to the Due Date, Bank may (but is not obligated to) lend to the
undersigned such amounts as may from time to time be requested by the
undersigned provided that the principal amount borrowed shall not at any time
exceed the Borrowing and further provided that no Event of Default as defined
herein shall exist.
Principal shall be due and payable: X At Maturity [ ] In Installments;
Installments in the amount of $_______ shall be due on the ______ day of each
[ ] MONTH [ ] QUARTER beginning ______, 19__ with a final payment on ________,
19__ of the principal amount then owing plus all interest due therein. Principal
and interest payments shall be made at Bank's address above unless otherwise
designed to Bank in writing. Interest shall be due and payable: [ ] At Maturity
X On the 1st day of each X Month [ ] Quarter beginning April 1, 1999.
To secure repayment of this note and all modifications, extensions and renewals
thereof, and all other Obligations (as herein defined) of the undersigned to
Bank the undersigned grants Bank a security interest in all of the undersigned's
now owned or hereafter acquired interests in all property in which Bank is, at
any time, granted a lien for any Obligation and all property in possession of
Bank including, without limitation, money, securities, instruments, documents,
letters of credit, chattel paper, or other property delivered to Bank in transit
for safekeeping, or for collection or exchange for other property, all
distributions, dividends, warrants, securities or other rights in addition to
such property, all rights payment from and claims against Bank and all proceeds
thereof, and all real and personal property described below ("Collateral"). The
undersigned agrees to immediately deliver such additional dividends warrants,
securities or other property or rights thereto to Bank immediately upon receipt
as additional Collateral and until delivery to hold in trust for Bank. The
undersigned agrees that the Bank may, at any time, call for additional
Collateral satisfactory to it. All documents executed in connection with this
note and all Collateral, including without limitation the following, further
secure the Obligations:
<PAGE> 86
The KFC Pledge Agreement and the Unified KFC Security Agreement, as such terms
are defined in the Loan Agreement referred to in the First Addendum to Revolving
Note of even date herewith, between the undersigned and the Bank.
The obligations secured by the Collateral (herein, the "Obligations") shall
include this note and each and every liability of the undersigned jointly and
severally to Bank and the affiliates of Fifth Third Bancorp however created,
direct or contingent, due or to become due whether now existing or hereafter
arising, participated in whole or in part, created trust agreement, lease,
overdraft, agreement, or otherwise, in any manner by the undersigned. The
undersigned also grants Bank a security interest in all of the Collateral as for
all affiliates of Fifth Third Bancorp for all obligations of the undersigned to
such affiliates. Said security interest shall not be enforced to the extent
prohibited by the Truth Lending Act as implemented by Federal Reserve
Regulation Z.
The undersigned certifies that the proceeds of this loan are to be used for
business purposes. If this note is a renewal, in whole or in part, of a previous
Obligation, the acceptance by Bank of this note shall not effectuate a payment
but rather a continuation of the previous Obligation.
Events of Default:
This Note, and all other obligations of the undersigned Bank, shall be and
become immediately due and payable at the option of the Bank, without demand or
notice whatsoever, upon the occurrence of any of the following described events,
each of which shall constitute an Event of Default:
Any failure to make any payment when due of the principal or interest on this
note, the occurrence of any event of default as therein defined on any other
Obligation of the undersigned, or a default in the obligations under any
security documents.
The death or dissolution of the undersigned, of any endorser or guarantor, or if
the undersigned is a partnership, the death or dissolution of a general partner.
Any failure to submit to Bank current financial information upon request.
The creation of any lien (except a lien to Bank) or the issuance of an
attachment against or seizure of any of the property of, or the entry of a
judgment against the undersigned.
In the judgment of Bank, any adverse change occurs in the ability of the
undersigned to repay the Obligations, or the Bank deems itself insecure.
An assignment for the benefit if the creditors of, or the commencement of any
bankruptcy, receivership, insolvency, reorganization, or liquidation proceedings
by or against the undersigned, or any endorser or guarantor hereof.
<PAGE> 87
The institution of any garnishment proceedings by attachment, levy, or
otherwise, against any Collateral, any deposit balance maintained or any
property deposited with the Bank by the undersigned or any endorser or guarantor
hereof.
Bank has called for additional security and the undersigned has not furnished
satisfactory additional security on demand.
Upon the occurrence of an Event in Default herein described Bank may, at its
option, cease making advances hereunder, declare this note and all other
Obligations of the undersigned, to be fully due and payable in their aggregate
amount together with accrued interest plus any applicable prepayment premiums,
fees and charges.
In addition to any other remedy permitted by law, the Bank may at any time,
without notice, apply the Collateral to this note or such other Obligations,
whether due or not, and Bank may, at its option, proceed to enforce and protect
its rights by an action at law or in equity or by any other appropriate
proceedings. Notwithstanding any other legal or equitable rights of Bank, Bank,
in the Event of Default, is (a) hereby irrevocably appointed and constituted
attorney-in-fact, with full power of substitution, to exercise all rights of
ownership with respect to Collateral including, but not limited to, the right to
collect all income of other distributions arising therefrom and to exercise all
voting rights connected with Collateral; and (b) is hereby given full power to
collect, sell, assign, transfer and deliver all of said Collateral or any part
thereof, or any substitutes therefor, or any additions thereto through any
private or public sale without either demand or notice to the undersigned, or
any advertisement, the same being hereby expressly waived, at which sale Bank is
authorized to purchase said property or any part thereof, free from any right of
redemption on the part of the undersigned, which is hereby expressly waived and
released. In case of sale for any cause, after deducting all costs and expenses
of every kind, Bank may apply, as it shall deem proper, the residue of the
proceeds of such sale toward the payment of any one or more or all of the
Obligations of the undersigned, whether due or not due, to Bank; after such
application and the return of any surplus, the undersigned agrees to be and
remains liable to Bank for any and every deficiency after application as
aforesaid upon this and any other Obligation. The undersigned shall pay all
costs of collection incurred by Bank, including its attorney's fees, if this
note is referred to an attorney for collection, whether or not payment is
obtained before entry of judgment, which costs and fees are Obligations secured
by the Collateral.
If any payment is not paid when due (whether by acceleration or otherwise) or
within 10 days thereafter, the undersigned agrees to pay to Bank a late payment
fee as in any loan agreement or 5% of the payment amount, whichever is greater,
with a minimum fee of $20.00. After an Event of Default, the undersigned agrees
to pay to charge of $25.00, or the undersigned agrees that Bank may, without
notice, increase the above stated interest rate by 6%, whichever is greater.
Under no circumstances interest rate be raised to a rate which shall be in
excess of the maximum rate of interest allowable under the state and/or federal
usury laws in force a the time of such change.
<PAGE> 88
The undersigned may prepay all or part of this note, which prepaid amounts shall
be applied to the amounts due in reverse order of their due dates. Partial shall
not excuse any subsequent payment due.
ENTIRE AGREEMENT: The undersigned agrees that there are no conditions or
understandings which are not expressed in this note and the documents referred
to herein.
WAIVER: No failure on the part of Bank to exercise any of its rights hereunder
shall be deemed a waiver of any such rights or of any default. Demand,
presentment of dishonor, notice of protest, and notice of default are hereby
waived. Each of the undersigned, including but not limited to all co-makers and
accommodation makers of this note. _____ hereby waives all suretyship defenses
including but not limited to all defenses based upon impairment of collateral
and all suretyship defenses described in Section 3-605 of the Uniform
Commercial Code, as revised in 1990 (the "UCC"). Such waiver is entered to the
full extent permitted by Section 3-605(I) of the UCC.
JURY WAIVER: THE UNDERSIGNED, AND ANY ENDORSER OR GUARANTOR HEREOF, WAIVE THE
RIGHT TO A TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
The declaration of invalidity of any provision of this note shall not affect any
part of the remainder of the provisions.
X This note is supplemented by the terms and conditions of a loan agreement
dated March 1, 1999, between the undersigned and Bank.
DUE DATE April 1, 2000 KFC National Purchasing Cooperative, Inc.
--------------------- -----------------------------------------
ADDRESS 950 Breckenridge Lane By: William V. Holden
--------------------- -----------------------------------------
Louisville, KY 40207 Title: Vice President and CFO
--------------------- -----------------------------------------
<PAGE> 89
FIRST ADDENDUM TO $15,000,000 REVOLVING NOTE
DATED MARCH 1, 1999, EXECUTED AND DELIVERED BY
KFC NATIONAL PURCHASING COOPERATIVE, INC.
d/b/a FOOD SERVICE PURCHASING COOPERATIVE, INC.
IN FAVOR OF FIFTH THIRD BANK, KENTUCKY, INC.
THIS FIRST ADDENDUM TO REVOLVING NOTE (the "First Addendum") is made
and entered into on this 1st day of March, 1999, by and between (i) KFC NATIONAL
PURCHASING COOPERATIVE, INC., a Delaware corporation d/b/a FoodService
Purchasing Cooperative, Inc. (the "KFC Cooperative"), and (ii) FIFTH THIRD BANK,
KENTUCKY, INC., a Kentucky banking corporation (the "Bank").
P R E L I M I N A R Y S T A T E M E N T:
A. Pursuant to that certain Loan Agreement of even date herewith, among
the KFC Cooperative, Pizza Hut National Purchasing Coop, Inc., Taco Bell
National Purchasing Coop, Inc., Unified FoodService Purchasing Coop, LLC and the
Bank (the "Loan Agreement"), the Bank has, among other things, established a
revolving line of credit in the original principal amount of Fifteen Million
Dollars ($15,000,000.00) in favor of the KFC Cooperative (the "KFC Line of
Credit").
B. The obligation of the KFC Cooperative to repay all advances under
the KFC Line of Credit together with accrued interest thereon is evidenced by
that certain Revolving Note of even date herewith, made by the KFC Cooperative,
payable to the order of the Bank, and in the face principal amount of Fifteen
Million Dollars ($15,000,000.00) (the "KFC Promissory Note").
C. The KFC Cooperative and the Bank desire to amend and supplement the
terms and provisions of the KFC Promissory Note in the manner set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements set forth in the Loan Agreement, and for other
good and valuable consideration, the mutuality, receipt and sufficiency of which
are hereby acknowledged, the KFC Cooperative and the Bank hereby agree as
follows:
<PAGE> 90
1. Interest Rate. The entire unpaid principal balance of the KFC
Promissory Note, as the same shall exist from time to time, shall bear interest
at a variable rate equal to .80% per annum (80 basis points) plus the LIBOR
Rate, as such term is defined below (the "Base Rate"). The Base Rate is the
interest rate applicable to the KFC Promissory Note so long as no KFC Event of
Default, as such term is defined in the Loan Agreement, has occurred and is
continuing. As used herein, the term "LIBOR Rate" means the offered rate for
U.S. Dollar deposits for a period of time equal to thirty (30) days as shown on
the Telerate System ("Telerate"). Provided, however, that if such rate is not
available on Telerate then the LIBOR Rate shall be otherwise independently
determined by the Bank from an alternate, substantially similar independent
source available to the Bank or shall be calculated by the Bank by a
substantially similar methodology as that theretofore used to determine such
offered rate on Telerate. The LIBOR Rate shall be determined daily by the Bank
for purposes of determining the Base Rate applicable to the KFC Promissory Note
on each day during the term of the KFC Line of Credit. In the event of any
change in the LIBOR Rate, the interest rate applicable to the KFC Promissory
Note shall be changed immediately. Each determination of the LIBOR Rate by the
Bank shall be binding upon the KFC Cooperative in the absence of manifest error
on the part of the Bank.
2. Ratification and Reaffirmation. Except to the extent as expressly
amended or modified pursuant to this First Addendum, the KFC Cooperative hereby
ratifies and reaffirms all of its covenants, agreements, obligations,
representations and warranties set forth in the Loan Agreement and the KFC
Promissory Note.
IN WITNESS WHEREOF, the KFC Cooperative and the Bank have caused this
First Addendum to Revolving Note to be duly authorized and delivered by their
proper and duly authorized officers as of the day and year first above written.
<PAGE> 91
KFC NATIONAL PURCHASING COOPERATIVE, INC.
By: /s/
--------------------------------------
Title:
------------------------------------
(the "KFC Cooperative")
FIFTH THIRD BANK, KENTUCKY, INC.
By: /s/
--------------------------------------
Title:
------------------------------------
(the "Bank")
<PAGE> 92
A FIFTH THIRD BANCORP BANK
SECURITY AGREEMENT
City Louisville State Kentucky March 1, 1999
---------------------- ----------------- ---------------------
KFC National Purchasing Cooperative, Inc. whose principal place of business is
located at 950 Breckenridge Lane, Louisville, Jefferson County, Kentucky
(hereinafter the "Debtor") and whose registered agent for service of process is
C. T. Corp, Sys. located at Kentucky Home Life Bldg., Room 1102, 239 South 5th
Street, Louisville, Kentucky, hereby assign(s) to Secured Party for itself as
agent for any affiliate of Fifth Third Bancorp as collateral and grant(s) to
Fifth Third Bank, Kentucky, Inc. (hereinafter the "Secured Party"), a security
interest in and to all items of property described in paragraph 2 of this
Agreement (all of which shall hereinafter be the "Collateral").
1. OBLIGATIONS: The security interest hereby granted shall secure the
following (collectively, the "Obligations"): all loans, advances, indebtedness
and other obligations of each of Debtor and n/a (if different from Debtor,
hereinafter referred to as the "Borrower") owed to Secured Party and/or any
affiliate of Fifth Third Bancorp, of every kind and description whether now
existing or hereafter arising including without limitation those owed to others
and acquired by Secured Party (by purchase, assignment or otherwise) and whether
direct or indirect, primary or as guarantor or surety, absolute or contingent,
liquidated or unliquidated, matured or unmatured, whether or not secured by
additional collateral, and all liabilities, obligations and indebtedness arising
under this Agreement and all other instruments and agreements evidencing,
guarantying or securing any of the foregoing, and all obligations to perform or
forbear from performing acts, all amounts represented by letters of credit now
or hereafter issued by Secured Party for the benefit of or at the request of
Debtor or Borrower and all expenses and attorneys' fees incurred by Secured
Party under this Agreement or any other document or instrument related thereto
or related to any of the Obligations, including but not limited to the
following:
The $15,000,000.00 Revolving Note of even date herewith, made by the Debtor,
payable to the order of the Secured Party, as amended pursuant to First Addendum
to Revolving Note of even date herewith, between the Debtor and the Secured
Party.
2. COLLATERAL: The Collateral in which a security interest is hereby
granted includes that Collateral now existing and hereafter arising or acquired
by Debtor, regardless of where it is located, and is defined as follows:
1
<PAGE> 93
(a) all Accounts, all Inventory, all Equipment, all General Intangibles
(each as defined in paragraph 3 of this Agreement);
(b) all instruments, chattel paper, documents, securities, moneys, cash,
letters of credit, warrants, dividends, distributions, contracts, agreements,
contract rights or other property, owned by Debtor or in which Debtor has an
interest, including but not limited to, those which are now or hereafter in the
possession or control of Secured Party or in transit by mail or carrier to or in
the possession of any third party acting on behalf of Secured Party, without
regard to whether Secured Party received the same in pledge, for safekeeping, as
agent for collection or transmission or otherwise or whether Secured Party had
conditionally released the same, and the proceeds thereof, all rights to payment
from, and all claims against Secured Party, and any deposit accounts of Debtor
with Secured Party, including all demand time, savings, passbook or other
accounts and all deposits therein;
(c) other Collateral: see First Addendum to Security Agreement of even
date herewith, between the Debtor and the Secured Party.
(d) all proceeds and products of the Collateral and all additions and
accessions to, replacements of, insurance or condemnation proceeds of, and
documents covering Collateral, all tort or other claims against third parties
arising out of damage or destruction of Collateral, all property received wholly
or partly in trade or exchange for Collateral, all fixtures, all leases of
Collateral and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection, or any other temporary or
permanent disposition, of the Collateral or any interest therein.
3. DEFINITIONS: As used herein the following capitalized terms will have
the following meanings:
(a) "Accounts" means all accounts, accounts receivable, contract rights,
instruments, documents, chattel paper, tax refunds from federal, state or local
governments and all obligations in any form including without limitation those
arising out of the sale or lease of goods or the rendition of services by
Debtor; all guaranties, letters of credit and other security for any of the
above; all merchandise returned to or reclaimed by Debtor; and all books and
records (including computer programs, tapes and data processing software)
evidencing an interest in or relating to the above.
(b) "Equipment" means all machinery, machine tools, equipment, fixtures,
office equipment, furniture, furnishings, motors, motor vehicles, tools, dies,
parts, jigs, goods (including, without limitation, each of the items of
equipment set forth on any schedule which is either now or in the future
attached to Secured Party's copy of this Agreement), and all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
thereto, and all supplies used or useful in connection therewith.
(c) "General Intangibles" means all general intangibles, chooses in
action, cause of action, obligations or indebtedness owed to Borrower from any
source whatsoever, and all other intangible personal property of every kind and
nature (other than Accounts) including without limitation patents, trademarks,
trade names, service marks, copyrights and applications for any of the above,
and good will, trade secrets, licenses, franchises, rights under agreements, tax
refund claims, and all books and records including all computer programs, disks,
tapes, printouts, customer lists, credit files and other business and financial
records, and the equipment containing any such information.
2
<PAGE> 94
(d) "Inventory" means all goods, supplies, wares, merchandise and other
tangible personal property, including raw materials, work in process, supplies
and components, and finished goods, whether held for sale or lease, or furnished
or to be furnished under any contract for service, or used or consumed in
business, and also including products of and accessions to inventory, packing
and shipping materials, and all documents of title, whether negotiable or
non-negotiable, representing any of the foregoing.
In addition to the foregoing, each of the above defined terms and certain other
terms set forth in paragraph 2 of this Agreement will have the meanings
attributed thereto in the applicable version of the Uniform Commercial Code
adopted in the jurisdiction where Secured Party's principal place of business is
located, as such definitions may be enlarged or expanded from time to time by
amendment or judicial decision.
4. WARRANTIES AS TO COLLATERAL: Debtor warrants that:
(a) Except for the security interest hereby granted, Debtor is, and as
to any property which at any time forms a part of the Collateral, shall be, the
owner of each and every item of the Collateral, free from any lien, security
interest or encumbrance;
(b) That Debtor has full right to grant such security interest there;
and that Debtor shall defend such Collateral and each and every part thereof
against all claims of all person at any time claiming such Collateral or
claiming any interest therein adverse to Secured Party;
(c) That as to any accounts receivable which are or become part of the
Collateral, each such account is a valid account receivable and that no such
account shall be sold, assigned, transferred, discounted, hypothecated, or
otherwise subject to any lien, encumbrance or security interest, and that
Debtors shall defend such accounts against all claims of any person whosoever.
(d) That if any of the Collateral is or will be attached to real estate
in such a manner as to become a fixture under applicable state law, that said
real estate is not encumbered in any way, or if said real estate is encumbered,
Debtor will secure from the lien holder or the party in whose favor it is or
will become so encumbered a written consent and subordination to the security
interest hereby granted or written disclaimer of any interest in the Collateral,
in such form as is acceptable to Secured Party.
(e) The financial statements of Debtor dated _______________________ and
heretofore submitted, to the Secured Party are true and correct and there are no
material adverse changes in the condition, financial or otherwise, of Debtor
since the date of said financial statements.
3
<PAGE> 95
THIS AGREEMENT IS SUBJECT TO, AND DEBTOR AGREES TO BE BOUND BY, THE
ADDITIONAL PROVISIONS SET FORTH ON THE REVERSE SIDE HEREOF, THE SAME BEING
INCORPORATED HEREIN BY REFERENCE.
SECURED PARTY: DEBTOR:
Fifth Third Bank, Kentucky, Inc. KFC National Purchasing Cooperative, Inc.
By: /s/ By: /s/
---------------------------- -------------------------------------
Its: Its:
---------------------------- -------------------------------------
5. DEBTOR'S RESPONSIBILITIES:
(a) Furnish to Secured Party in writing a current list of all Collateral
for the purpose of identifying the Collateral and, further, execute and deliver
such supplemental instruments, in the form of assignments or otherwise, as
Secured Party shall require for the purpose of confirming and perfecting Secured
Party's security interest in any or all of such Collateral;
(b) At its expense and upon request of Secured Party, furnish copies
of invoices issued by Debtor in connection with the Collateral, furnish
certificates of insurance evidencing insurance on Collateral, furnish proof of
payment of taxes and assessments on Collateral, make available to Secured Party
any and all of Debtor's books, records, written memoranda, correspondence,
purchase orders, invoices and other instruments or writings that in a way
evidence or relate to the Collateral;
(c) Keep the Collateral insured at all times against risks of loss or
damage by fire (including so-called extended coverage), theft and such other
casualties including collision in the case any motor vehicle, all in such
amounts, under such forms of policies, upon such terms, for such periods as
written by such companies or underwriters as is satisfactory to Secured Party.
In all cases losses shall be payable to Secured Party and any surpluses shall be
paid to Debtor. All policies of insurance shall provide for at least ten (10)
days prior written notice of cancellation to Secured Party. Should Debtor at any
time fail to purchase or maintain insurance, Secured Party may, but is not
obligated to, pay taxes, or pay for any expense, incident or such insurance, pay
such taxes, order and pay for such necessary items of preservation, maintenance
or protection of the Collateral, and Debtor agrees to reimburse Secured Party
for all expenses incurred under this paragraph;
(d) Pay all taxes or assessments imposed on or with respect to the
Collateral;
(e) Keep all of the Collateral in good condition and repair, protecting
it from weather and other contingencies which might adversely affect it as
secured hereunder;
(f) Notify Secured Party immediately in writing of any information which
Debtor has or may receive which might in any way adversely affect the value of
the Collateral or the rights of Secured Party with respect thereto;
(g) Notify Secured Party promptly, in writing, of any change in the
location of the Collateral or of any place of business or mailing addresses the
establishment of any new place of business or mailing address;
(h) Pay all costs of filing any financing, continuation or termination
statements with respect to the security interest created hereby;
4
<PAGE> 96
(i) Upon the occurrence of an Event of Default or breach of any
provision of this Security Agreement, pay all expenses and reasonable attorney
fees of Secured Party; and Debtor agrees that said expenses and fees shall be
secured under this Agreement;
(j) Maintain possession of all Collateral at the location disclosed to
Secured Party and not to remove the Collateral from that location;
(k) Not sell, contract to sell, lease, encumber, or otherwise transfer
the Collateral (other than sales of inventory in the ordinary course of business
until the Obligations have been paid and performed, Debtor acknowledging
nonetheless that Secured Party has a security interest in the proceeds of such
Collateral.
6. ACCOUNTS RECEIVABLE:
(a) Debtor hereby agrees that Secured Party may serve written notice on
Debtor instructing Debtor to deliver to Secured Party all subsequent payments on
accounts receivable which Debtor shall do until notified otherwise;
(b) Secured Party may notify the account debtor(s) of its security
interest and instruct such account debtor(s) to make further payments on
accounts to Secured Party instead of to Debtor; and
(c) Secured Party may serve written notice upon Debtor that all
subsequent billings or statements of account rendered to any account Debtor
shall bear a notion directing the account debtor(s) to make payment directly to
Secured Party. Any payment received by Secured Party pursuant to the paragraph
shall be retained in a separate non-interest bearing account as security for the
payment and performance of all Obligations of Debtor. Debtor hereby agrees that
Secured Party shall have the absolute right to take any one or all of the
actions set forth in this paragraph 6 notwithstanding the fact that all or any
part of the Obligations is not matured and Debtor is current in payment
according to the tenor of the Obligations.
7. POWER OF ATTORNEY: Debtor hereby makes, constitutes and appoints Secured
Party its true and lawful attorney in fact to act with respect to the Collateral
in any transaction, legal proceeding, or other matter in which Secured Party is
acting pursuant to this Agreement.
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<PAGE> 97
8. DEFAULT: In the event of (herein "Events of Default"): (a) the default
in the payment or performance of the Obligations or any part thereof; (b) the
occurrence of a default or an Event of Default under any instrument or agreement
evidencing, guarantying or securing any of the Obligation; (c) the failure of
Debtor to perform or observe any of the provisions of this Agreement; (d) any
misrepresentation by Debtor or Borrower to Secure Party for the purpose of
obtaining credit or an extension of credit; (e) the issuance of a court order,
lien or attachment against the any part of the Collateral; (f) the entry of a
decree or order for relief by a court having jurisdiction in the premises in
respect of Debtor or Borrower in an involuntary or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of Debtor or Borrower or for
any substantial part of either of their properties, or ordering the wind-up or
liquidation of either of their affairs, or the filing and pendency for 60 days
without dismissal of a petition initiating an involuntary case under any such
bankruptcy, insolvency or other similar law; or (g) the commencement by Debtor
or Borrower of a voluntary case under any applicable bankruptcy, insolvency or
other similarly law now or hereafter in effect, or the consent by either of them
to the entry of an order for relief in an involuntary case under any such law or
to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of Debtor or
Borrower or of any substantial part of either of their properties, or the making
by either of them of any general assignment for the benefit of creditors, or the
failure of Debtor or Borrower generally to pay either of their debts as such
debts become due, or the taking of corporate action by either Debtor or Borrower
in furtherance of any of the foregoing; (h) the death or dissolution of
Borrower, Debtor or any endorser or guarantor of the Obligations; (i) the
occurrence of any adverse change in the condition or affairs (financially or
otherwise) of Debtor, Borrower or of any endorser, guarantor or surety for any
of the Obligations, which in the opinion of Secured Party impairs Secured
Party's security or the ability of Secured Party to recover repayment or
performance of any Obligations or the Secured Party deems itself insecure; then,
in any such event, Secured Party may, without further notice to Debtor, at
Secured Party's option, declare any note and all of the Obligations to become
due and payable in its aggregate amount. Secured Party may resort to the rights
and remedies of a secured party under the Uniform Commercial Code including the
right to enter any premises of Debtor with or without legal process and take
possession of the Collateral and remove it and any records pertaining thereto
and/or remain on such premises and use it for the purpose of collecting,
preparing and disposing of the Collateral; ship, reclaim, recover, store,
finish, maintain and repair the Collateral; and sell the Collateral at public or
private sale, and Debtor will be credited with the net proceeds of such sale
only when they are actually received by Secured Party, any requirement of
reasonable notice of any disposition of the Collateral will be satisfied if such
notice is sent to Debtor 10 days prior to such disposition. Debtor will, upon
request, assemble the Collateral and any records pertaining thereto and make
them available at a place designated by Secured Party. Secured party may use, in
connection with any assembly or disposition of the Collateral, any trademark,
trade name, tradestyle, copyright, patent right, trade secret or technical
process used or utilized by Debtor. No remedy set forth herein is exclusive of
any other available remedy or remedies, but each is cumulative and in addition
to every other remedy given under this Agreement or now hereafter existing at
law or in equity or by statute. Secured Party may proceed to protect and enforce
its rights by an action at law, in equity or by any other appropriate
proceedings. No failure on the part of Secured Party to enforce any of the
rights hereunder shall be deemed a waiver of such
6
<PAGE> 98
rights or of any Event of Default and no waiver of any Event of Default will be
deemed to be a waiver of any subsequent Event of Default.
9. MISCELLANEOUS PROVISIONS:
(a) All rights of Secured Party shall inure to the benefit of its
successors and assigns and all obligations of Debtor shall bind the heirs,
executor, administrators, successors and assigns of Debtor.
(b) Debtor acknowledges and agrees that, in addition to the security
interests set granted herein, Secured Party has a banker's lien and common law
right of set-off in and to Debtor's deposits, accounts and credits held by
Secured Party and Secured Party may apply or set-off such deposits or other sums
against the Obligations upon the occurrence of an Event Default as set forth in
paragraph 8 of this Agreement.
(c) This Agreement contains the entire Agreement of the parties and no
oral Agreement whatsoever, whether made contemporaneously herewith or hereafter
shall amend, modify or otherwise affect the terms of this Agreement.
(d) All rights and liabilities hereunder shall be governed and limited
by and construed in accordance with the laws of the state where Secured Party
principal place of business is located; unless otherwise defined, words used
herein have the meanings given them in Article Nine of the Uniform Commercial
Code as adopted in the state where Secured Party's principal place of business
is located.
(e) Any provision herein which may prove limited or unenforceable under
any law or judicial ruling shall not affect the validity or enforceability of
the remainder of this Agreement.
(f) Debtor hereby authorizes Secured Party to file a copy of this
Agreement as a Financing Statement with appropriate county and state government
authorities necessary to perfect Secured Party's security interest in the
Collateral as set forth herein.
7
<PAGE> 99
FIRST ADDENDUM TO SECURITY AGREEMENT DATED MARCH 1, 1999,
BETWEEN KFC NATIONAL PURCHASING COOPERATIVE, INC.
D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.
AND FIFTH THIRD BANK, KENTUCKY, INC.
THIS FIRST ADDENDUM TO SECURITY AGREEMENT (the "First Addendum") is
made and entered into on this 1st day of March, 1999, by and between (i) KFC
NATIONAL PURCHASING COOPERATIVE, INC., a Delaware corporation d/b/a FoodService
Purchasing Cooperative, Inc. (the "KFC Cooperative"), and (ii) FIFTH THIRD BANK,
KENTUCKY, INC., a Kentucky banking corporation (the "Bank").
P R E L I M I N A R Y S T A T E M E N T:
A. Pursuant to that certain Loan Agreement of even date herewith, among
the KFC Cooperative, Pizza Hut National Purchasing Coop, Inc. (the "Pizza Hut
Cooperative"), Taco Bell National Purchasing Coop, Inc. (the "Taco Bell
Cooperative"), Unified FoodService Purchasing Coop, LLC ("Unified") and the Bank
(the "Loan Agreement"), the Bank has, among other things, established a
revolving line of credit in the original principal amount of Fifteen Million
Dollars ($15,000,000.00) in favor of the KFC Cooperative (the "KFC Line of
Credit").
B. The obligation of the KFC Cooperative to repay all advances under
the KFC Line of Credit together with accrued interest thereon is evidenced by
that certain Revolving Note of even date herewith, made by the KFC Cooperative,
payable to the order of the Bank, and in the face principal amount of Fifteen
Million Dollars ($15,000,000.00), as amended and supplemented pursuant to that
certain First Addendum to Revolving Note of even date herewith, between the KFC
Cooperative and the Bank (collectively, the "KFC Promissory Note").
C. Pursuant to that certain Security Agreement of even date herewith,
between the KFC Cooperative and the Bank (the "KFC Security Agreement"), the KFC
Cooperative has granted to the Bank a first priority security interest in all of
its assets to secure the payment of the KFC Promissory Note and the other
Secured Obligations, as such term is defined in the Loan Agreement, now or
hereafter owed by the KFC Cooperative to the Bank.
<PAGE> 100
D. The KFC Cooperative and the Bank now desire to amend and supplement
the terms and provisions of the KFC Security Agreement in the manner set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements set forth in the Loan Agreement and in the KFC
Security Agreement, and for other good and valuable consideration, the
mutuality, receipt and sufficiency of which are hereby acknowledged, the KFC
Cooperative and the Bank hereby agree as follows:
1. Capitalized Terms. Capitalized terms used herein, unless otherwise
defined herein, shall have the meanings ascribed thereto in the KFC Security
Agreement.
2. Collateral. The term "Collateral", as defined in the KFC Security
Agreement, expressly includes all right, title and interest of the KFC
Cooperative in and to (a) that certain Loan Agreement of even date herewith,
between the KFC Cooperative and Unified (the "Unified Loan Agreement"), (b) that
certain Revolving Credit Note of even date herewith, made by Unified, payable to
the order of the KFC Cooperative, and in the face principal amount of One
Million Dollars ($1,000,000.00) (the "Unified Note"), (c) that certain Security
Agreement of even date herewith, between Unified and the KFC Cooperative (the
"Unified Security Agreement"), together with all accompanying Uniform Commercial
Code Financing Statements (the "Financing Statements"), (d) the Promissory Note
(the "Taco Bell Note") and the Security Agreement (the "Taco Bell Security
Agreement") executed by the Taco Bell Cooperative in favor of the KFC
Cooperative to evidence and secure the Intercompany Liability (as such term is
defined in that certain Agreement and Plan of Corporate Separation of even date
herewith, adopted by the KFC Cooperative) owed by the Taco Bell Cooperative to
the KFC Cooperative, and (e) the Promissory Note executed and delivered by the
Pizza Hut Cooperative in favor of the KFC Cooperative to evidence the loan in
the principal amount of Five Hundred Thousand Dollars ($500,000.00) made by the
KFC Cooperative to the Pizza Hut Cooperative (the "Pizza Hut Note"). The KFC
Cooperative hereby specifically pledges to the Bank, and hereby grants to the
Bank a first priority security interest in, (i) the Unified Loan Agreement, the
Unified Note and the Unified Security Agreement (collectively, the "Unified Loan
Documents"), (ii) the Taco Bell Note and the Taco Bell Security Agreement
(collectively, the "Taco Bell Documents"), and (iii) the Pizza
2
<PAGE> 101
Hut Note, in each case to secure the payment of the KFC Promissory Note and the
other Secured Obligations now or hereafter owed by the KFC Cooperative to the
Bank. In furtherance thereof, the KFC Cooperative hereby endorses each of the
Unified Note, the Taco Bell Note and the Pizza Hut Note to the order of the Bank
and hereby assigns the security interest created pursuant to each of the Unified
Security Agreement and the Taco Bell Security Agreement to the Bank pursuant to
duly executed Uniform Commercial Code Assignments.
3. Special Covenants. The KFC Cooperative hereby covenants and agrees
with the Bank that the KFC Cooperative will perform and observe the following
covenants with respect to the Unified Loan Documents, the Taco Bell Documents
and the Pizza Hut Note until the KFC Promissory Note and all other Secured
Obligations now or hereafter owed by the KFC Cooperative to the Bank have been
paid in full and the Loan Agreement has been terminated by the Bank with respect
to the KFC Cooperative:
(a) The KFC Cooperative will do all acts and execute all documents
and instruments that may be necessary or as may be reasonably requested by the
Bank to maintain, preserve and protect the Unified Loan Documents, the Taco Bell
Documents and the Pizza Hut Note and the Bank's first priority security interest
therein.
(b) The KFC Cooperative will use the payments of principal of and
accrued interest now or hereafter paid to the KFC Cooperative pursuant to the
Unified Note, the Taco Bell Note and the Pizza Hut Note to pay the principal of
and the accrued interest on the KFC Promissory Note as well as other valid
operating expenses of the KFC Cooperative.
(c) The KFC Cooperative will immediately notify the Bank in writing
of the occurrence of any default by Unified under the Unified Loan Documents
and/or the assertion by Unified of any defense to or right of offset with
respect to the obligations of Unified under the Unified Loan Documents.
(d) The KFC Cooperative will enforce the Unified Loan Documents
against Unified in accordance with their respective terms.
3
<PAGE> 102
(e) Unless otherwise notified in writing by the Bank, upon the
occurrence of any default by Unified under the Unified Loan Documents, the KFC
Cooperative will, as the agent of the Bank, exercise all of its rights and
remedies under the Unified Loan Documents and/or at law or in equity against
Unified.
(f) The KFC Cooperative will not agree to any amendment or
modification of any of the Unified Loan Documents without the prior written
consent of the Bank.
(g) The KFC Cooperative will not grant any extension or renewal of
the due dates of the principal of and/or accrued interest on the Unified Note
without the prior written consent of the Bank.
(h) The KFC Cooperative will not waive any of its rights and
remedies under the Unified Loan Documents and/or at law or in equity without the
prior written consent of the Bank.
(i) The KFC Cooperative will not discharge or release Unified from
any of its obligations under the Unified Loan Documents without the prior
written consent of the Bank.
(j) The KFC Cooperative will not release any of the collateral
subject to the Unified Security Agreement or terminate or subordinate to any
other security interest, lien or other encumbrance the security interest created
in favor of the KFC Cooperative pursuant to the Unified Security Agreement
without the prior written consent of the Bank.
(k) The KFC Cooperative will not subordinate the payment of the
Unified Note to any other indebtedness of Unified without the prior written
consent of the Bank.
(l) The KFC Cooperative will immediately notify the Bank in
writing of the occurrence of any default by the Taco Bell Cooperative under the
Taco Bell Documents and/or the assertion by the Taco Bell Cooperative of any
defense to or right of offset with respect to the obligations of the Taco Bell
Cooperative under the Taco Bell Documents.
(m) The KFC Cooperative will enforce the Taco Bell Documents
against the Taco Bell Cooperative in accordance with their respective terms.
4
<PAGE> 103
(n) Unless otherwise notified in writing by the Bank, upon the
occurrence of any default by the Taco Bell Cooperative under the Taco Bell
Documents, the KFC Cooperative will, as the agent of the Bank, exercise all of
its rights and remedies under the Taco Bell Documents and/or at law or in equity
against the Taco Bell Cooperative.
(o) The KFC Cooperative will not agree to any amendment or
modification of any of the Taco Bell Documents without the prior written consent
of the Bank.
(p) The KFC Cooperative will not grant any extension or renewal of
the due dates of the principal of and/or accrued interest on the Taco Bell Note
without the prior written consent of the Bank.
(q) The KFC Cooperative will not waive any of its rights and
remedies under the Taco Bell Documents and/or at law or in equity without the
prior written consent of the Bank.
(r) The KFC Cooperative will not discharge or release the Taco Bell
Cooperative from any of its obligations under the Taco Bell Documents without
the prior written consent of the Bank.
(s) The KFC Cooperative will not release any of the collateral
subject to the Taco Bell Security Agreement or terminate or subordinate to any
other security interest, lien or other encumbrance the security interest created
in favor of the KFC Cooperative pursuant to the Taco Bell Security Agreement
without the prior written consent of the Bank.
(t) The KFC Cooperative will not subordinate the payment of the Taco
Bell Note to any other indebtedness of the Taco Bell Cooperative without the
prior written consent of the Bank.
(u) The KFC Cooperative will immediately notify the Bank in writing
of the occurrence of any default by the Pizza Hut Cooperative under the Pizza
Hut Note and/or the assertion by the Pizza Hut Cooperative of any defense to or
right of offset with respect to the obligations of the Pizza Hut Cooperative
under the Pizza Hut Note.
5
<PAGE> 104
(v) The KFC Cooperative will enforce the Pizza Hut Note against the
Pizza Hut Cooperative in accordance with its terms.
(w) Unless otherwise notified in writing by the Bank, upon the
occurrence of any default by the Pizza Hut Cooperative under the Pizza Hut Note,
the KFC Cooperative will, as the agent of the Bank, exercise all of its rights
and remedies under the Pizza Hut Note and/or at law or in equity against the
Pizza Hut Cooperative.
(x) The KFC Cooperative will not agree to any amendment or
modification of the Pizza Hut Note without the prior written consent of the
Bank.
(y) The KFC Cooperative will not grant any extension or renewal of
the due dates of the principal of and/or accrued interest on the Pizza Hut Note
without the prior written consent of the Bank.
(z) The KFC Cooperative will not waive any of its rights and
remedies under the Pizza Hut Note and/or at law or in equity without the prior
written consent of the Bank.
(aa) The KFC Cooperative will not discharge or release the Pizza Hut
Cooperative from any of its obligations under the Pizza Hut Note without the
prior written consent of the Bank.
(bb) The KFC Cooperative will not subordinate the payment of the
Pizza Hut Note to any other indebtedness of the Pizza Hut Cooperative without
the prior written consent of the Bank.
4. Ratification and Reaffirmation. Except to the extent as expressly
amended or modified pursuant to this First Addendum, the KFC Cooperative hereby
ratifies and reaffirms all of its covenants, agreements, obligations,
representations and warranties set forth in the Loan Agreement and the KFC
Security Agreement.
IN WITNESS WHEREOF, the KFC Cooperative and the Bank have caused this
First Addendum to Security Agreement to be duly authorized and delivered by
their proper and duly authorized
6
<PAGE> 105
officers as of the day and year first above written.
KFC NATIONAL PURCHASING COOPERATIVE, INC.
D/B/A FOODSERVICE PURCHASING COOPERATIVE, INC.
By: /s/
------------------------------------------
Title:
----------------------------------------
(the "KFC Cooperative")
FIFTH THIRD BANK, KENTUCKY, INC.
By: /s/
------------------------------------------
Title:
----------------------------------------
(the "Bank")
7
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated January 26, 1999 relating to the financial statements and
financial statement schedule of KFC National Purchasing Cooperative, Inc.,
which appear in such Registration Statement. We also consent to the references
to us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Louisville, Kentucky
July 22, 1999
<PAGE> 2
REPORT ON FINANCIAL STATEMENT SCHEDULE AND
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
KFC National Purchasing Cooperative, Inc.:
The audits referred to in our report dated December 8, 1997, included the
related financial statement schedule for each of the years in the two-year
period ended October 31, 1997, included in the Registration Statement. This
financial statement schedule is the responsibility of the Cooperative's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
Louisville, Kentucky
July 22, 1999
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
David G. Neal and Daniel E. Woodside, with full power to act without the other,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign (i) any and all post-effective amendments to the
Registration Statement of KFC National Purchasing Cooperative, Inc. (the
"Cooperative") (File No. 33-56982), and (ii) any other Registration Statement,
and all amendments thereto, relating to a class or classes of the Cooperative's
securities to which the Power of Attorney is filed as an exhibit, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the U.S. Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ William E. Allen Director, 5/23/99
- ----------------------------- Secretary ----------
William E. Allen
/s/ William Bickley Vice President, 5/23/99
- ----------------------------- Chief Financial Officer ----------
William Bickley (Principal Accounting Officer)
(Principal Financial Officer)
Director
- ----------------------------- ----------
Christian L. Campbell
/s/ Robert C. Carle Director 5/23/99
- ----------------------------- ----------
Robert C. Carle
/s/ James G. Cocolin Director 5/23/99
- ----------------------------- ----------
James G. Cocolin
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
/s/ Ben E. Edwards Director 5/23/99
- ----------------------------- ----------
Ben E. Edwards
/s/ Lois G. Foust Director 5/23/99
- ----------------------------- ----------
Lois G. Foust
/s/ Edward J. Henriquez, Jr. Director 5/23/99
- ----------------------------- ----------
Edward J. Henriquez, Jr.
Director
- ----------------------------- ----------
Paul A. Houston
/s/ David G. Neal Director, 5/23/99
- ----------------------------- Chairman ----------
David G. Neal
Director
- ----------------------------- ----------
James D. Olson
/s/ Darlene L. Pfeiffer Director 5/23/99
- ----------------------------- ----------
Darlene L. Pfeiffer
/s/ Charles Rawley Director 5/23/99
- ----------------------------- ----------
Charles Rawley
Director
- ----------------------------- ----------
Edward W. Rhawn
/s/ James B. Royster Director 5/23/99
- ----------------------------- ----------
James B. Royster
Director
- ----------------------------- ----------
Dean M. Sorgdrager
/s/ Daniel E. Woodside Director, 5/23/99
- ----------------------------- President, ----------
Daniel E. Woodside Chief Executive Officer
/s/ Ronald J. Young Director 5/23/99
- ----------------------------- ----------
Ronald J. Young
</TABLE>
