EXHIBIT 10.2
KENTUCKY FRIED CHICKEN
INTERNATIONAL FRANCHISE AGREEMENT
THIS AGREEMENT made this 1st day of January, 1994 ("Commencement Date")
by and between Kentucky Fried Chicken International Holdings, Inc., a Delaware,
U.S.A. corporation ("KFC"), and Alimentos Merced S.A., a corporation of Chile
with principal place of business at Huerfanos 000, 0xx Xxxxx, Xxxxxxxx (xxx
"XXXXXXXXXX").
WITNESSETH:
WHEREAS, KFC and it predecessors over the course of more than four
decades have originated and developed a substantial dynamic system for
elaboration, preparation, cooking and merchandising of specially selected
chicken and other food products of quality using specialized equipment and
methods of marketing including but not limited to formulae, techniques,
training, dress, design, services, procedures, premises, menus, advertising, and
materials pursuant to trade secrets, standards and specifications (hereinafter
referred to as "the Kentucky Fried Chicken System" or "System"); and
WHEREAS, KFC owns valuable good will and enjoys a special and very high
reputation in the field of the quick service restaurant industry, with respect
to its valuable trademark, service xxxx and trade name Kentucky Fried Chicken in
addition to various trademarks, service marks, trade names, slogans, designs,
insignias, emblems, symbols, package designs, distinctive building designs and
other architectural features, logos and other proprietary identifying
characteristics identifying and distinguishing or used or to be used in
connection with its products, business and System (hereafter collectively
referred to as the "Trademarks"); and
WHEREAS, FRANCHISEE considers that access to elements of technology and
technical assistance and support of the Kentucky Fried Chicken System can enable
local enterprises and individuals to develop activities, jobs, and opportunities
in food service and related industries and desires to use the Trademarks and the
Kentucky Fried Chicken System in the business of operating a quick service
restaurant (the "Business") at the location specified in Exhibit A (the
"Outlet"); and
WHEREAS, FRANCHISEE understands the need and its responsibilities to
perform substantial obligations including strict adherence to KFC's present and
future requirements regarding menu items, equipment, advertising, facilities and
future improvements and enhancements to the Outlet that may be required under
the Kentucky Fried Chicken System; and
WHEREAS, FRANCHISEE acknowledges that the success of the Business in
connection with the limited rights granted herein involves substantial risks and
depends significantly on the FRANCHISEE's abilities, participation, involvement,
and control of the daily affairs of the Business.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises herein recorded and contained and for other good and
valuable consideration, receipt and sufficiency of which is hereby acknowledged,
and intending to be legally bound hereby, the parties do hereby agree as
follows:
1. LICENSE GRANTED
1.1 KFC grants to FRANCHISEE for a period of ten (10) years
from the Commencement Date hereof (the "Outlet Term"), a license, without the
right to sublicense, to use the Trademarks solely in direct connection with the
operation of the Business, in accordance with and subject to the limitations of
this Agreement.
1.2 KFC shall renew this license granted herein at the
expiration of the Outlet Term for a supplemental term of ten (10) years ("Outlet
Renewal Term") provided that the following conditions are met:
(a) Such renewal is permitted by local law.
(b) FRANCHISEE has corrected any default under this
Agreement and has not been in default in any material manner within twenty-four
(24) months preceding the renewal request and complies with such annual
performance criteria implemented in the System during the Outlet Term.
(c) FRANCHISEE makes the renewal request not more
than eighteen (18) or less than twelve (12) months prior to the expiration of
the Outlet Term.
(d) FRANCHISEE agrees to make such capital
expenditures as may be required to renovate, modernize and enhance the Outlet
and its signs and equipment to conform with KFC's then current standards and
completes such renovation within the time agreed with KFC.
(e) If KFC determines that renovation and
modernization of the outlet is not practical or advisable to meet its then
current standards, FRANCHISEE agrees to undertake KFC's relocation procedure for
the Outlet.
(f) FRANCHISEE executes a new Kentucky Fried Chicken
International Franchise Agreement if the current form has been modified for new
franchisees or renewals, including then current fees and contributions.
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(g) FRANCHISEE is current in all monetary obligations
or other obligations to KFC and its subsidiaries and affiliates.
(h) FRANCHISEE pays KFC a renewal fee in the amount
of Three Thousand United States Dollars (US$3,000) or such greater amount as
required for renewals in the form of agreement then used for new franchisees.
1.3 The license granted to FRANCHISEE under this Agreement is
non-exclusive and gives FRANCHISEE the right to establish the Outlet at only the
specific location set forth in Exhibit A, and no exclusive, protected or other
territorial right in the contiguous space, area or market of such Outlet or
otherwise is granted or to be inferred. FRANCHISEE shall conduct the Business
only at the Outlet. The license does not include the right to operate, sell or
deliver at or from any other location. Upon reasonable advance notice, KFC may
approve catering and special event sales conducted in strict accordance with the
procedures it establishes.
1.4 KFC expressly reserves the right to operate and sell and
to license others to operate and sell any products under the Trademarks through
a delivery system or any distribution channel or concept other than the Outlet.
2. TRAINING, ASSISTANCE AND DEVELOPMENT
2.1 KFC shall assist and advise FRANCHISEE in establishing,
becoming familiar with proper operation, maintaining, and developing the
Business at KFC deems appropriate and necessary. However, FRANCHISEE
acknowledges that the initial and monthly franchise fees hereunder are due in
compensation for the rights to establish and operate the Outlet under the
license granted and not for the performance of specific services.
2.2 Such assistance to FRANCHISEE which KFC might find
necessary or advisable could include any of the following:
(a) Conducting certain training programs at locations
selected by KFC which FRANCHISEE and key employees of FRANCHISEE must attend and
successfully complete at the full cost of FRANCHISEE including, without
limitation, the cost of travel, lodging, meals and other related and incidental
expenses. When required by KFC, FRANCHISEE and key employees of FRANCHISEE shall
personally attend and successfully complete additional training programs.
FRANCHISEE agrees that the Outlet shall only be managed by individuals who have
successfully completed the management training courses and uphold the KFC
standards set forth below.
(b) Reviewing the operation of the Business, the
control of quality and furnishing operating advice on a continuing basis through
its representatives in the field.
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(c) Undertaking refinement of products and equipment
and informing FRANCHISEE of such engineering research and development which in
KFC's opinion may be beneficial to FRANCHISEE's operation of the Business.
(d) Recommending such planning, accounting, analysis
and other business and marketing procedures which KFC believes may be
beneficial.
(e) Scheduling and holding from time to time regional
and international meetings and seminars for the advancement and dissemination of
its methods and in connection with furthering the Business of FRANCHISEE and the
Kentucky Fried Chicken System and protecting the Trademarks.
2.3 KFC may undertake to provide for FRANCHISEE without
obligation option services or other specified forms of assistance or may offer
products or materials for sale to FRANCHISEE. KFC may charge FRANCHISEE for such
assistance or products amounts which reflect the value conveyed.
3. PRODUCTS AND STANDARDS
3.1 FRANCHISEE shall engage only in the Business at the Outlet
and shall only manufacture, sell advertise for sale, market or give away food
products and beverages approved in writing by KFC and meeting KFC's quality
standards through the use of specifications and processes communicated by KFC
("Approved Products"). The Approved Products shall consist of Xxxxxxx Xxxxxxx
Kentucky Fried Chicken Original Recipe ("Original Recipe"), other required
products, and other products which are optionally authorized for sale by KFC
under the Trademarks. The current Approved Products are listed and the
explanation as to their authorization for use at the Outlet are set forth in
Exhibit B hereto. FRANCHISEE may not discontinue the sale of or otherwise fail
to offer any required product at the Outlet at any time during the term of this
Agreement unless so required by KFC. All products shall be sold under the
Trademarks or the brand name designated by KFC, and no products may be sold
under any other brand name.
3.2 KFC shall provide, on loan and at no cost to FRANCHISEE,
one copy of the Kentucky Fried Chicken Confidential Operations Manual ("COM")
for the Outlet. FRANCHISEE may obtain additional copies of the COM on loan from
KFC at a reasonable fee to be set by KFC. All COM's shall remain the property of
KFC and shall be returned to KFC upon any reasonable request, termination of
this Agreement or the closing of the Outlet.
The COM shall be subject to and shall be deemed to include
such reasonable supplements, revisions and subsequent instructions as may be
issued from time to time by KFC. FRANCHISEE must treat the COM in a confidential
manner as
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trade secrets of KFC and not disclose any information contained therein to
anyone except employees of FRANCHISEE as necessary for the proper operation of
the Outlet.
3.3 In the COM, its supplements and other publications, KFC
has established standards of operation (including menu content, recipes and
presentation) and standards of quality, cleanliness and service for all food,
beverages, furnishings, supplies, fixtures, interior and exterior decor and
equipment used in connection with the Business ("Standards"). KFC may change any
Standard and FRANCHISEE shall at all times conform to all Standards as issued
from time to time by KFC, which FRANCHISEE acknowledges may include remodelling
or upgrading of the Outlet and additional investment by FRANCHISEE. FRANCHISEE
shall be advised of any change and shall have thirty (30) days, or such
reasonable time as KFC deems necessary, from the date of such written notice to
fully implement any such change. The COM and other publications which establish
Standards as presently constituted and as may be hereafter amended and
supplemented by KFC from time to time are incorporated by reference herein and
thereby made a part of this Agreement.
4. PLEDGE OF OUTLET COMPLIANCE AND SUPERVISION OF STANDARDS
4.1 FRANCHISEE represents that the Outlet has in all respects
been constructed, established and prepared to conduct the Business in strict
compliance with all plans, specifications, requirements, rules and regulations
prescribed by KFC, and that any material deviations from KFC's Standards, plans,
specifications, requirements, rules and regulations, have been approved in
writing by KFC. At KFC's request FRANCHISEE will promptly correct any unapproved
deviations.
4.2 FRANCHISEE shall, consistent with the terms of this
Agreement, diligently develop the Business of the Outlet and use its best
efforts to market and promote the Approved Products offered for sale at the
Outlet.
4.3 FRANCHISEE will strictly comply with all Standards,
specifications, processes, procedures, requirements, rules, regulations and
instructions of KFC regarding the operation of the Business which now exist or
may be established from time to time, and FRANCHISEE will take such action and
precautions as necessary to assure that:
(a) FRANCHISEE's fully trained and qualified managers
devote their full time to the supervision, management and operation of the
Outlet.
(b) FRANCHISEE's employees at the Outlet attend and
complete such courses, programs and seminars as such locations, as KFC may from
time to time require, in order that such persons may be fully trained and
instructed on a continuing basis in various aspects of operating a KFC outlet.
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(c) all Approved Products offered for sale at the
Outlet are prepared at the Outlet for sale to customers at the Outlet, except as
expressly authorized in writing by KFC, but any such authorization shall
terminate, if it is found by KFC that preparation elsewhere results in a
lessening of the high quality of food products required by KFC's specifications.
(d) no sale of any product except Approved Products
is solicited, accepted or made at or from the Outlet, and no products except
Approved Products are prepared at the Outlet, except when specifically
authorized in writing by KFC.
(e) only signs and menuboards, advertising and
promotional material, equipment, supplies, uniforms, paper goods, packaging,
furnishings, fixtures, receipts, and food ingredients which meet KFC's Standards
and specifications (as established from time to time) are used at the Outlet or
in connection with its Business.
(f) equipment, signs, menuboards, supplies and other
items are added, eliminated, substituted and modified at the Outlet, as soon as
practicable in accordance with changes in KFC's specifications and requirements.
(g) the Outlet and everything located at the Outlet
are maintained in first-class condition and repair and are kept clean, neat and
sanitary; the Outlet is adequately lighted and is operated in a clean, wholesome
and sanitary manner consistent with KFC's requirements; all maintenance, repairs
and replacements requested by KFC or needed in connection with the Outlet are
promptly made; and all employees are clean and neat in appearance.
(h) no alterations of the Outlet affecting the image
are made except at KFC's request or with KFC's approval, and any such
alterations strictly conform to specifications and requirements established or
approved by KFC.
(i) the Outlet and its Business comply with
applicable laws, ordinances and governmental rules, regulations and other
requirements, including but not limited to health and sanitation requirements.
FRANCHISEE shall promptly notify KFC of any conflict between this requirement
and any other requirement in or pursuant to this Agreement.
(j) such advertising materials as may be furnished
form time to time for use by FRANCHISEE are used only in the manner and during
the period specified by KFC.
(k) the Outlet is open for business every day during
the hours specified or approved by KFC, except Christmas and any other day
expressly prohibited or regulated by the appropriate governmental authority.
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(l) the employees, and the supplies and other items
on hand at the Outlet, are at all times sufficient to meet the reasonably
anticipated volume of the Business.
(m) all debts and taxes in connection with the Outlet
and its Business, except those duly contested in a bona fide dispute, are paid
when due, including but not limited to debts payable to KFC and its affiliates.
(n) all necessary and appropriate measures are taken
to avoid an unsatisfactory or equivalent safety, sanitation or health rating at
any time from any governmental authority, and conditions or practices
disapproved by any such authority are promptly corrected.
4.4 KFC's employees and representatives shall have the right,
during business hours and at all other reasonable times, to enter and to inspect
the Outlet and all other facilities used for the preparation, storage,
transportation, etc., of any Approved Products, to discuss with FRANCHISEE or
other people as the FRANCHISEE may designate, concerning all matters that may
pertain to the Business, compliance with this Agreement and with Standards,
specifications, requirements, instructions and procedures of KFC, to take
photographs of the Outlet and such other facilities, and to buy samples of
products and other items at the Outlet and other points-of-sale. KFC employees
and representatives shall also have the right, under the supervision of
FRANCHISEE or its designee, to collect samples at any other facilities under the
control of FRANCHISEE. FRANCHISEE will in all respects operate with KFC in its
exercise of rights under this subsection. At KFC's discretion, FRANCHISEE shall
receive a written evaluation report after each formal evaluation of the Business
by KFC. In the event any such evaluation report indicates any deficiency in the
conduct of the Business, FRANCHISEE shall, within forty-eight (48) hours of
FRANCHISEE's receipt of the report (or such other time period as KFC may
provide), correct or repair any deficiency or unsatisfactory condition. If any
deficiency or unsatisfactory condition is not, in KFC's judgment, correctable or
repairable within such period of time, FRANCHISEE shall at least commence such
correction or repair and thereafter diligently pursue the same to completion
within seven (7) days after FRANCHISEE's receipt of such report. If FRANCHISEE
fails to comply with the foregoing obligations to correct and repair, KFC shall
have the right to make or cause to be made such corrections or repairs, and the
expenses thereof, including board, lodging, wages and transportation of KFC
personnel, if utilized in KFC's sole discretion, shall be paid by FRANCHISEE
upon billing by KFC.
5. SITE, OUTLET AND LEASE APPROVAL AND COMMENCEMENT OF BUSINESS
5.1 The Outlet approval procedure of KFC must be complied with
by FRANCHISEE. FRANCHISEE shall prepare for a proposed site for the proposed
outlet a written site evaluation in accordance with the site evaluation
documentation of KFC
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showing site dimensions, building type and placement on site, proposed ingress
and egress and layout. The site evaluation documentation will indicate which of
the KFC standards plans and specifications will be utilized on the site. KFC
shall evaluate each proposed site submitted and notify FRANCHISEE of any comment
or objection it may have, and if acceptable, shall issue the terms of its
approval of the site. FRANCHISEE acknowledges and agrees that in the event
modification of the plans becomes necessary than FRANCHISEE shall bear the sole
responsibility and cost and KFC approval of such modification must be obtained.
Any contract for construction or remodelling of any building for an Outlet shall
not be entered into by FRANCHISEE without KFC's prior approval, which shall not
be unreasonably withheld.
5.2 If the Outlet is the subject of an occupation under a
lease, sublease or other contract to tenancy (collectively, the "Lease"),
FRANCHISEE shall, prior to the execution thereof and upon any renewal or
modification submit the Lease and any amendments or modifications thereto to KFC
for its written approval. Any Lease shall contain a provision recognizing KFC's
rights under this Agreement and permitting KFC to enter on the site of the
Outlet to de-identify the Business without penalty as necessary pursuant to
Article 13. Such Lease language shall also provide for the right of assignment
and/or sublease by lessee to KFC, reasonable notice by the lessor to KFC of any
contemplated termination, and option for KFC to assume leasehold in the event of
termination of lease or of this Agreement. KFC shall not be named by FRANCHISEE
as a party to or guarantor of, nor shall it assume any obligations under any
such Lease.
5.3 If required by applicable law, FRANCHISEE shall promptly
file and publish a certificate of doing business under fictitious name and
comply with any other local filing or permit requirements and shall furnish a
certified copy of such to KFC promptly thereafter. Prior to the commencement of
the Business, FRANCHISEE shall obtain and shall maintain all licenses necessary
or the lawful operation of the Business. FRANCHISEE shall commence operations at
the Outlet no later than thirty (30) days following completion of the building
and improvements and shall give KFC ten (10) days written notice prior to
commencing operations.
6. MAINTENANCE AND UPGRADING OF OUTLET
6.1 FRANCHISEE shall at all times comply, and cause the Outlet
to be in compliance with all Standards, specifications, processes, procedures,
requirements and reasonable instructions of KFC regarding the Outlet's physical
facilities, including the layout of furnishings and fixtures, and facilities at
which or by means of which FRANCHISEE is permitted by KFC to store, handle,
prepare or transport Approved Products or ingredients to be used in preparing
them.
6.2 Recognizing the importance of maintenance of image,
notwithstanding any other provision of this Agreement FRANCHISEE shall abide by
any requirement of KFC with regard to the remodelling and upgrading of the
Outlet to comply
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with standards then applicable to new franchises and outlets in FRANCHISEE's
country or the region, the geographical territory of which includes FRANCHISEE's
country, provided, however, that FRANCHISEE shall commence to make any changes
required by this subsection no later than within six (6) months after receiving
notice from KFC that such changes are required and shall complete such changes
within twelve (12) months of such notice.
6.3 For all changes in or additions of equipment or changes in
or additions to the Outlet required by KFC, FRANCHISEE will bear the entire cost
thereof. Similarly, FRANCHISEE will bear the entire cost of adding equipment and
altering the Outlet for Approved Products which KFC requires or which FRANCHISEE
desires to sell. FRANCHISEE acknowledges that additional investment may be
called for pursuant to this subsection. KFC recognizes that remodelling and
upgrading should not normally be required during the first two (2) years of an
Outlet Term.
7. TRADEMARKS AND TRADE SECRETS
7.1 FRANCHISEE is not granted and shall not acquire any right,
title or interest of any kind or nature whatsoever in or to the Trademarks or
the associated goodwill of KFC. FRANCHISEE acknowledges KFC's exclusive
ownership and rights and the validity of KFC's current and future Trademarks and
all other industrial and intellectual property rights whether or not protected
by registration. FRANCHISEE shall use the Trademarks, as set forth in Exhibit C
hereto, which may be amended by KFC from time to time, only and strictly in
connection with the Business and agrees that all of FRANCHISEE's use under this
Agreement inures to the benefit of KFC. KFC retains the right at any time to
make additions to, deletions from, and changes in the Trademarks at its complete
discretion, and FRANCHISEE shall adopt and use any and all such additions,
deletions and changes.
7.2 FRANCHISEE shall use and display the Trademarks only and
strictly in such form and manner as is specifically approved by KFC and, upon
request by KFC, affix thereto any legends, markings and notices of trademark
registration or licensee or franchisee relationship specified by KFC, or any
other notice of KFC's ownership, including, without limitation, trademark,
copyright, patent applications and patents. KFC shall have the right to approve
all advertising, displays, copy and all other materials using the Trademarks
prepared by or for FRANCHISEE. FRANCHISEE agrees to follow KFC's instructions
regarding proper usage of the Trademarks in all respects.
7.3 KFC agrees to protect and defend the Trademarks in the
manner it determines to be appropriate. FRANCHISEE agrees to cooperate fully
with KFC in the defense and protection of the Trademarks and shall promptly
advise KFC in writing of any potentially infringing uses by others in addition
to any suits brought, or claims made, against FRANCHISEE involving the
Trademarks. Decisions regarding action involving the protection and defense of
the Trademarks shall be solely in the discretion of KFC.
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7.4 FRANCHISEE agrees to join with KFC in any application to
enter FRANCHISEE as a registered or permitted user, or the like, of the
Trademarks with any appropriate governmental agency or entity. Upon termination
of this Agreement for any reason whatsoever, KFC may immediately apply to cancel
FRANCHISEE's status as a registered or permitted user and FRANCHISEE shall
consent in writing to the cancellation and shall join in any cancellation
petition. The expense of any of the foregoing recording activities shall be
borne by KFC.
7.5 FRANCHISEE makes the following further commitments with
respect to its use of the Trademarks during or after the Outlet Term. It shall
not use any trademarks or other identifying characteristics in connection with
its operation of the Business other than the Trademarks. It shall not use any
other trademarks or other identifying characteristics which are similar to the
Trademarks. It shall not use or register, in whole or in part, the Trademark's
or KFC's name, or anything similar thereto, as part of FRANCHISEE's name or as
the name of any entity directly or indirectly associated with FRANCHISEE's
activities. It shall not use the Trademarks in any manner to disparage KFC or
its reputation nor take any action which will harm or jeopardize the Trademarks
in any way.
7.6 FRANCHISEE acknowledges that it will derive no benefit
from the goodwill associated with the Trademarks, except through any profit
received from the operation of the Business or approved transfer of this
Agreement. Any enhancement of the goodwill associated with the Trademarks while
the Agreement is in effect will inure to the benefit of KFC except to the extent
of such profits, if any, realized by FRANCHISEE while the Agreement is in
effect, following which no value shall be attributed to any such goodwill
associated with the Trademarks enjoyed by FRANCHISEE pursuant to this Agreement.
7.7 Confidential information contained in the COM, KFC's
secret recipes, formulae and know-how are highly confidential trade secrets and
FRANCHISEE shall not reveal any such trade secrets except as necessary in the
operation of the Business. FRANCHISEE further acknowledges and agrees that KFC
is the owner of all rights in and to the Kentucky Fried Chicken System, which
contains trade secrets of KFC which are revealed to FRANCHISEE in confidence,
and that no right is given to or acquired by FRANCHISEE to disclose, duplicate,
license, sell or reveal any such trade secret to any person, other than an
employee of FRANCHISEE required by his work to be familiar with relevant trade
secrets. FRANCHISEE agrees to keep confidential such trade secrets, to obtain
from each of its shareholders, directors, officers, employees and agents an
agreement to keep and respect such confidences, and to be responsible for
compliance by such shareholders, directors, officers, employees and agents with
such agreements.
7.8 FRANCHISEE understands that substantial irreparable injury
might be caused to KFC by any violation of FRANCHISEE's commitments under this
Article. Accordingly, FRANCHISEE recognizes and agrees that injunctive or other
equitable or
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immediate relief in addition to monetary compensation may be appropriate. The
parties acknowledge that the precise amount of KFC's actual damages would be
extremely difficult to ascertain. FRANCHISEE agrees that if it should disclose
any trade secret to any person, or one of the persons subject to FRANCHISEE's
control makes such a disclosure as a result of the failure of FRANCHISEE to use
its best efforts to take the necessary precautions to prevent such disclosure,
then FRANCHISEE shall pay to KFC for each and every breach of this covenant, a
sum representing a reasonable estimate of actual damages. The parties confirm
that the sum of One Hundred Twenty Thousand U.S. Dollars (US$120,000) as
liquidated damages and not as a penalty. In the event FRANCHISEE can establish
and prove that KFC has suffered lesser damages than the aforesaid amount, the
such lower sum shall be owed by FRANCHISEE.
8. PURCHASE OF EQUIPMENT, SUPPLIES AND MATERIALS
8.1 FRANCHISEE shall purchase all equipment, paper goods and
all other products and materials required to be utilized in the establishment or
operation of the Business and the making of the Approved Products ("Supplies")
from suppliers, manufacturers and distributors ("Supplier") approved by KFC.
FRANCHISEE will consult with KFC with respect to its purchasing intention prior
to Outlet construction and upgrading and shall seek KFC's recommendation prior
to other major purchasing decisions.
8.2 If FRANCHISEE desires to purchase Supplies from a Supplier
not then approved by KFC, FRANCHISEE shall provide KFC with all information
regarding such Supplier reasonably requested by KFC, and, where appropriate, the
Supplier may be required to provide KFC with samples of the Supplies that the
FRANCHISEE desires to purchase.
8.3 Any tests reasonably required by KFC to determine whether
the Supplies meet current KFC Standards and specifications shall be performed as
directed by KFC but not at KFC's cost. On the completion of such procedures and
KFC's determination as to whether the Supplier possesses adequate capacity and
facilities to supply FRANCHISEE's needs in the quantities and at times and with
the reliability requisite to an efficient operation, KFC shall notify FRANCHISEE
and the Supplier whether KFC approves the Supplier as a source for the Supplies
involved.
8.4 KFC will not approve sources of Supplies which do not meet
KFC Standards and specifications, and reserves the right to make determinations
consistent with the overall needs of the Kentucky Fried Chicken System and the
economic conditions of the markets concerned.
8.5 In order to maintain and protect uniqueness and uniformity
of taste, quality and image of the Approved Products, KFC owns, has developed
and will continue to develop certain secret blends of herbs, spices and KFC
Seasoning and other trade
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secrets, which KFC shall make available only through KFC's licensees or
Suppliers specifically appointed by KFC. KFC Seasoning will be produced by
FRANCHISEE at the prevailing available international prices from time to time
from sources specifically approved by KFC, and will be utilized by FRANCHISEE
exclusively as specified in the COM.
8.6 KFC may from time to time review the quality of the
Supplies by approved Suppliers and their capacity and facilities, and shall have
the right to monitor the production, use and ultimate disposition of all items
bearing the Trademarks or containing the secret blends. KFC may, consequently,
remove a Supplier from the list of approved sources. In such event, KFC shall
advise the FRANCHISEE and the Supplier of such action.
9. MARKETING AND ADVERTISING
9.1 FRANCHISEE shall maintain close cooperation with KFC in
advertising under the Trademarks. FRANCHISEE shall have the obligation to
diligently promote the Approved Products and make every reasonable effort to
steadily increase sales of the Products and growth of the Business.
9.2 FRANCHISEE agrees to contribute annually for advertising
and promotions not less than five percent (5%) of its annual Revenues (as
defined in Article 11). In the event KFC determines that it should directly
manage the advertising fund program among the operators in the territory or if
KFC authorizes a cooperative advertising program, FRANCHISEE must participate
and contribute directly to KFC on its behalf for such program in the manner
provided for payment of monthly franchise fees under Article 10 at four percent
(4%) of its annual Revenues as included in the aforesaid five percent (5%)
amount, or such greater amount should such be agreed by the applicable program.
9.3 KFC and FRANCHISEE shall decide on a marketing and
advertising budget and program on an annual basis ("Annual Program") at least
sixty (60) days prior to the commencement of the calendar year. The budget and
program which KFC must approve will take into account the funds and expenses to
be handled by the parties for regional and local programs. The Annual Program
will address how the funds will be allocated across various marketing and
advertising categories, including but not limited to advertising and promotional
media (i.e., television, radio, newspapers, magazines, billboards, handbills,
posters, direct mail, etc.), production (costs of producing the materials for
the above, including agency commissions and fees) promotion and market research.
A marketing activities calendar will be established and shall be approved by
KFC. KFC shall be consulted and shall approve all major decisions involving
marketing and advertising, including but not limited to the appointment or
retention of the advertising agency, adoption of marketing and pricing
strategies and other decisions of significance to the market development of the
Business.
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9.4 All advertising materials must be in form and substance
satisfactory to KFC. Upon written notice from KFC, FRANCHISEE shall promptly
remove and cease distribution of any signs or advertising materials. If
FRANCHISEE fails to do so within five (5) days immediately following the receipt
of such notice by FRANCHISEE, then KFC or its authorized agents at any time
thereafter may remove any unsatisfactory signs or advertising materials, without
thereby becoming liable to FRANCHISEE for the value or any other claims relating
to any such removal.
9.5 The parties recognize that the following shall not be
taken into account in calculation of compliance with the minimum local
advertising and marketing requirements: Permanent on-premises signs, lighting,
menus, menuboards, purchasing or maintaining vehicles even though such vehicles
display in some manner Trademarks (except the cost of the materials displayed
are included), contributions, giveaways, discounts or similar offers, employee
incentive programs not relating to marketing and other similar payments, costs
or premiums which KFC may determine should not be included in determining
whether FRANCHISEE has met its local advertising obligation.
10. CONSIDERATION FOR LICENSE GRANT
10.1 In consideration of the issuance of the license granted
hereunder, FRANCHISEE shall pay to KFC:
(a) Upon commencement of physical construction or
remodelling of the Outlet, an initial franchise fee in the amount of Twenty-Five
Thousand United States Dollars (US$25,000) .
(b) A monthly franchise fee of five percent (5%) per
month of Revenues (as defined in Article 11), subject to a monthly minimum which
may be set and updated by KFC from time to time.
10.2 In connection with the payment of the foregoing fees:
(a) If by law KFC is prohibited from receiving a
percentage of sales of alcoholic beverages or beer, the monthly franchise fee
shall be appropriately adjusted by KFC to reflect a greater percentage of gross
food and non-alcoholic beverage sales instead of Revenues.
(b) Monthly franchise fees shall be payable by
FRANCHISEE to KFC within ten (10) days after the end of each month during the
Outlet Term. Each payment shall be accompanied by a monthly franchise report
containing such information as KFC deems necessary on the form it has furnished
or approved.
(c) The initial franchise and monthly franchise fees
set forth herein and all other amounts payable hereunder are payable in United
States Dollars or,
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at KFC's sole option, in any other currency. Such amounts shall be paid by bank
wire transfer or automatic transfer to such accounts, and at such places or in
such other manner, as KFC may from time to time designate by notice to
FRANCHISEE.
(d) In order to properly establish FRANCHISEE's
United States Dollar obligations to KFC, the exchange rate between the local
currency and United States Dollar to be employed for each month's franchise fees
shall be the official rate for the purchase of United States Dollars posted for
the last business day of each month with respect to which the monthly franchise
fees are being calculated. FRANCHISEE acknowledges that it is the responsibility
of FRANCHISEE to secure and transfer funds in accordance herewith.
(e) Fees which are not paid when due shall bear
interest from and after their respective due dates at the rate of four percent
(4%) per annum above the U.S. prime rate posted by Citibank, New York, or the
highest rate permitted by local law, whichever is less. Any late payment of such
fees shall be accompanied by a late payment administrative charge of One Hundred
U.S. Dollars (US$100.00). Notwithstanding the above, nothing in this
subparagraph shall be deemed to affect in any way KFC's rights as set forth in
Article 13.
(f) All payments to KFC pursuant to this Agreement
shall be for the full amount specified herein, free and clear of any taxes due
and owing by FRANCHISEE in respect of such payments.
11. ACCOUNTING AND FINANCIAL REVIEW
11.1 All Revenues shall be recorded on cash registers, the
equipment for which must be approved by KFC. FRANCHISEE shall, in a manner and
form satisfactory to KFC, maintain an accounting system and prepare on a current
basis (and preserve for no less than three (3) years) complete and accurate
records concerning Revenues and other aspects of the Outlet. Such records shall
include but not be limited to books of account, tax returns, daily reports,
statements of Revenues (to be prepared each month for the preceding month),
profit and loss statements (to be prepared at least annually), and balance
sheets (to be prepared at least annually). FRANCHISEE shall also if so requested
by KFC submit current financial statements and such other reports as KFC may
reasonably request and allow KFC to poll FRANCHISEE's cash register, computer
and accounting equipment and data to evaluate or compile research and data on
any aspect or aspects of the Outlet or the Business.
11.2 From the date hereof until three (3) years elapse
following the end of the Outlet Term, KFC or its authorized agent shall have the
right to request, receive, inspect and audit, at all reasonable times, any or
all of the records referred to above wherever they may be located or at any
other mutually agreeable location. If such inspection or audit discloses a
deficiency in the payment of any fee, advertising
14
contribution or other amount required to be paid under this Agreement,
FRANCHISEE shall immediately pay the deficiency plus interest at the maximum
rate permitted by law to KFC. In addition, if the deficiency for any audit
period equals or exceeds 2% of the correct amount due, FRANCHISEE shall also
immediately pay to KFC the entire cost of such inspection or audit (including
but not limited to travel, lodging, meals, salaries and other expenses of the
inspecting or auditing personnel).
11.3 The term "Revenues" shall mean gross cash receipts
(including checks, other means of exchange, charge slips, credit sales or other
promises to pay) received by the FRANCHISEE as payment for Approved Products,
beverages and other goods, services and supplies sold in the Business, any and
all service fees (whether governmentally imposed, resulting from local custom,
or otherwise), and gross amounts derived from any other business at the Outlet
or at special events or from catering and from all sales and orders made,
solicited or received at the Outlet or at special events (including but not
limited to vending or game receipts) but shall exclude sales or other tax
receipts which may be required by law to be collected from customers.
11.4 FRANCHISEE shall use the accounting services of any
independent national or large regional firm of chartered accountants acceptable
to KFC which acceptance shall not be unreasonably withheld. Upon request of KFC,
FRANCHISEE agrees to direct such accountants to submit to KFC profit and loss
statements and a balance sheet every three (3) months covering the immediately
preceding three (3) months' operations of the Business.
12. COVENANTS REGARDING OTHER ACTIVITIES
12.1 For purposes of this Article and Articles 7, 13 and 14,
"FRANCHISEE" shall mean the individual entity or partnership named hereinabove
as FRANCHISEE who or which has the further obligation to obtain covenants
concerning the relevant obligation of said Articles from:
- if FRANCHISEE is an individual, his employees,
spouse and minor children; or
- if FRANCHISEE is a corporate entity, the direct
or indirect shareholders holding at least a ten
percent beneficial interest in the entity, officers,
directors and employees of the level of restaurant
manager or higher; or
- if FRANCHISEE is a partnership, the partners,
participants and employees of the level of
restaurant manager or higher.
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12.2 Acknowledging that the Approved Products and the Kentucky
Fried Chicken System are unique and distinctive and have been developed by KFC
at great effort, time and expense, and that FRANCHISEE has regular and
continuing access to valuable and confidential information, training and trade
secrets regarding the Approved Products, the Kentucky Fried Chicken System and
the operation of the Business and recognizing FRANCHISEE's obligation to fully
develop the Business, FRANCHISEE agrees that:
(a) FRANCHISEE shall not, in any capacity whatsoever,
either directly or indirectly, individually or as a member of any business
organization, at any location whatsoever, engage in the production or sale at
retail or any food items similar to the Approved Products being sold at the
Outlet or have any employment or interest in, or provide any consulting services
to, any firm engaged in the production or sale thereof.
(b) FRANCHISEE shall not let or permit any part of
any premises owned or controlled by it within the country where the Outlet is
located to be used as a business, all or part of which consists of the sale at
retail of any food items similar to the Approved Products being sold at the
Outlet.
(c) FRANCHISEE shall not direct or attempt to divert
any customer or business of the Outlet or Business to any competitor, by any
direct or indirect inducement, or do or perform any other act or omission,
directly or indirectly which could damage or injure the Trademarks, the Kentucky
Fried Chicken System or the goodwill or KFC.
(d) Upon expiration, termination or transfer of this
Agreement or FRANCHISEE for any reason and continuing for a continuous,
uninterrupted period of twelve (12) months thereafter, FRANCHISEE shall observe
and honor the covenants set forth in this Article 12.
12.3 During the Outlet Term, neither party hereto, without the
prior written consent of the other party, shall employ or seek to employ,
directly or indirectly, any person serving in a managerial position who is at
the time or was at any time during the prior six months employed by the other
party, its subsidiaries or affiliates, or, in the case of FRANCHISEE, by any
other operator of a Business. KFC and FRANCHISEE agree that, if this subsection
is violated by either party hereto, the other party shall be entitled to
liquidated damages equal to twice the annual salary of the employee involved
plus reimbursement of all costs and attorney fees incurred, and shall be
entitled to seek such amounts through either arbitration or court proceedings.
For purposes of this paragraph, "managerial position" includes all employees at
the pay grade of restaurant manager and above.
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12.4 In the event any of the foregoing covenants is held
invalid or unenforceable by a competent authority, then the maximum legally
allowable restriction permitted by law shall apply and KFC and FRANCHISEE shall
be bound thereby.
12.5 Subsection 12.2 shall not apply to the ownership of one
percent or less of the issued and outstanding shares of stock in any
publicly-held corporation, unless the same shall give FRANCHISEE the power to
influence the economic conduct of such corporation.
13. COVENANTS REGARDING TRANSFER OR ASSIGNMENT
13.1 This Agreement shall inure to the benefit of KFC and its
successors and assigns. KFC may assign its rights and/or obligations under this
Agreement at any time without need of the consent of FRANCHISEE.
13.2 KFC has granted this license in reliance on the
individual or collective character, experience, skill, aptitude, dedication and
business and financial reputation and capacity of FRANCHISEE. Accordingly,
without KFC's prior written consent, FRANCHISEE shall not directly or
indirectly, pledge, mortgage or otherwise encumber, sell, assign, transfer or
convey, any direct or indirect interest in the franchise, the license rights,
FRANCHISEE or all or a significant part of FRANCHISE's assets, real or personal
tangible or intangible, pertaining to the Business or the Outlet, including any
significant part of the restaurant or food business, land, building, equipment
or fixtures. The prospective assignee shall be advised of this requirement and
KFC shall be provided the information it finds necessary for its determination.
FRANCHISEE acknowledges that in the event of KFC's consent to a transfer, (i)
any legal fees or other costs or expenses related thereto shall e for the sole
account of FRANCHISEE, (ii) FRANCHISEE shall indemnify and hold KFC harmless
with respect thereto, (iii) FRANCHISEE shall have satisfied all of its accrued
obligations to KFC in full, (iv) the assignee shall be bound and liable for the
corresponding obligations of the FRANCHISEE, (v) KFC shall have the option to
modify the terms and conditions of the Agreement, including the fee and
contribution structure and other obligations to reflect then current terms and
conditions offered by KFC, and (vi) FRANCHISEE shall pay KFC a transfer fee in
the amount of Three Thousand United States (US$3,000) or such greater amount as
required for transfers in the form of agreement then used for new franchisees.
The assignee must agree in writing satisfactory to KFC (i) to assume
all obligations of FRANCHISEE, (ii) demonstrate to KFC's satisfaction that KFC's
standards applicable to new franchisees regarding financing and other
qualifications are met, and (iii) assume or enter into a new franchise agreement
with KFC as KFC determines.
13.3 FRANCHISEE shall not offer any interest described above
in Subsection 13.2 for sale or transfer at public or private auction or
otherwise, nor publicly
17
advertise (through newspapers or otherwise) an offer to sell, transfer or assign
such an interest, without first offering to KFC the right to purchase such
interest. Should FRANCHISEE desire to accept any bona fide offer to purchase or
to sell or transfer such interest, written notice must be made to KFC with full
information concerning the proposed assignee, price, contract and the other
terms and conditions. KFC shall have the right and option exercisable within
sixty (60) days from receipt of such information to notify FRANCHISEE whether
KFC will consummate the purchase on the same or reasonably equivalent terms and
conditions.
13.4 If KFC does not wish to purchase such interest, KFC may
waive its right of consent. KFC's written consent to a transfer of any interest
subject to the restrictions of this Article shall not constitute a waiver of any
claims KFC may have against the FRANCHISEE, nor shall it be deemed a waiver of
KFC's right to demand exact compliance with any of the terms of this Agreement
by the assignee. In such event, FRANCHISEE must consummate the sale on the same
terms within sixty (60) days or again be subject to KFC's right of first
refusal.
13.5 Should FRANCHISEE desire to encumber an interest
described above in Subsection 13.2, KFC reserves the right to ask the secured
party to agree that in the event of default by FRANCHISEE, (i) KFC shall have
the right and option to purchase its rights upon payment of all amounts then due
and (ii) confirm it shall not operate the Outlet without KFC's consent.
13.6 FRANCHISEE understands that substantial irreparable
injury might be caused to KFC by any violation of FRANCHISEE's commitments under
this Article. Accordingly, FRANCHISEE recognizes and agrees that injunctive or
other equitable or immediate relief in addition to monetary compensation may be
appropriate. The parties acknowledge that the exact amount of KFC's actual
damages would be extremely difficult to ascertain. FRANCHISEE agrees that if
FRANCHISEE consummates any assignment in violation of KFC's right of first
refusal, then FRANCHISEE shall pay to KFC an amount which represents a
reasonable estimate of such actual damages. The parties confirm that the best
estimate current value of the month franchise fees which would have been paid
during the remainder of the Outlet Term or the Outlet Renewal Term represents a
reasonable estimate of liquidated damages and not a penalty. In the event
FRANCHISEE can establish and prove that KFC has suffered lesser damages than the
aforesaid amount, then such lower sum shall be owed by FRANCHISEE.
13.7 If FRANCHISEE, or any successor in interest, is a
partnership, joint venture, corporation, trust or other non-individual entity:
(a) Upon the execution of this Agreement and upon
each transfer of at least a ten percent (10%) beneficial ownership interest in
this franchise or in FRANCHISEE, FRANCHISEE shall furnish KFC with a list of all
shareholders or partners having at least a ten percent (10%) beneficial
ownership interest in this franchise or in
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FRANCHISEE, the percentage interest of each shareholder or partner, and a list
of all officers and directors of FRANCHISEE substantially in form of Schedule A
to Exhibit D attached hereto. All holders of at least a ten percent (10%)
beneficial ownership interest in this franchise or in FRANCHISEE shall execute a
written agreement in substantially the form of Exhibit D personally
guaranteeing, jointly and severally with all other such holders, the full
payment of all monies due and owing and performance of FRANCHISEE's other
obligations, and all such holders shall undertake individually to be bound by
this Agreement.
(b) Neither FRANCHISEE nor any person with a
beneficial interest in FRANCHISEE shall, directly or indirectly, publicly
register, or make or cause to be made a public offering of, any securities or
other interests in FRANCHISEE, this franchise or this Agreement, without KFC's
prior written consent.
13.8 In the event of death or legal incapacity of an
individual who is FRANCHISEE or of a principal partner or principal shareholder
of an entity that is FRANCHISEE, the rights and obligations of such FRANCHISEE
hereunder shall inure to the benefit of such of the executors, administrators,
heirs, conservators or legatees of such FRANCHISEE (collectively the "Legatee")
as shall (i) elect, in a written notice received by KFC within one hundred
twenty (120) days after the date of death, or the judicial determination of
legal incapacity, to perform all of the duties and obligations required to be
performed, fulfilled and observed by the FRANCHISEE under this Agreement and
(ii) be determined by KFC in its sole reasonable discretion, to be able to
perform such duties and obligations. In the event KFC determines that the
Legatee is not capable of performing all of the duties and obligations required
to be performed by the FRANCHISEE under this Agreement, the Legatee shall use
its best efforts within the six (6) months from the date of written notice from
KFC to sell its interest hereunder to a bona fide purchaser in accordance with
and subject to all of the provisions hereof. If by the end of such six month
period, the Legatee has not effectuated a transfer of such interest in a
transaction which meets the requirements of this Agreement, KFC shall have the
option to purchase the interests at a fair price failing agreement by the
parties for market value to be established within sixty (60) days of Legatee's
receipt of written notice from KFC from the average of the two closest values
assigned by three appraisers, one appointed by KFC, one appointed by Legatee and
one appointed by agreement of these two appraisers. Such acquisition shall be
consummated within one hundred (12) days of Legatee's receipt of written notice
and KFC shall have the right to appoint the management of such Business from
Legatee's receipt of such notice.
14. DEFAULT AND TERMINATION
14.1 This Agreement and all rights granted FRANCHISEE
hereunder shall terminate without notice to FRANCHISEE unless KFC notifies
FRANCHISEE to the contrary in writing promptly after it has actual knowledge of
the relevant facts in the event that (i) FRANCHISEE becomes insolvent or is
dissolved, (ii) a receiver or trustee
19
for the business of FRANCHISEE is appointed, (iii) FRANCHISEE files a voluntary
petition in bankruptcy or makes an assignment for the benefit of creditors, or
(iv) an involuntary petition in bankruptcy is filed by any other person against
FRANCHISEE and is not dismissed within ten (10) days of filing. In addition,
this Agreement shall terminate without notice if:
(a) FRANCHISEE contests in any court or proceeding
the validity of, or KFC's ownership of any of the Trademarks, trade secrets or
proprietary aspects of the Kentucky Fried Chicken System.
(b) FRANCHISEE fails to fully correct or diligently
remedy any notice, or summons issued by any governmental authority regarding any
matter involving safety, sanitation or health.
(c) An individual who is FRANCHISEE or a principal
partner or principal shareholder of an entity that is FRANCHISEE is convicted of
felony, crime involving moral turpitude, or any other serious crime or offense
which in KFC's reasonable judgment adversely affects or reflects upon the
Approved Products, the Kentucky Fried Chicken System, the Trademarks, or the
goodwill associated therewith or KFC's interest therein.
14.2 Upon written or telexed notice to FRANCHISEE, this
Agreement and all rights granted KFC hereunder shall terminate on the cure or
termination date specified in the notice without any further notice unless
required by applicable law if any of the following events occur and are not
cured or remedied as specified in the notice:
(a) FRANCHISEE breaches any term or condition of this
Agreement or any other agreement with KFC or its subsidiaries or affiliates.
(b) FRANCHISEE defaults under or fails to perform any
term or condition of the Lease, any other lease, mortgage, deed or trust or
other agreement covering the Business or the Outlet.
(c) FRANCHISEE attempts any assignment or transfer of
the whole or any portion of any rights granted by this Agreement without KFC's
consent.
(d) In the event of any sale, transfer, change of
beneficial ownership or other disposition of all or part of FRANCHISEE, or its
shares, assets or otherwise which result directly or indirectly in a change of
effective ownership or control of FRANCHISEE, the Outlet or the Business without
KFC's consent.
(e) FRANCHISEE abandons, ceases to operate or
otherwise fails to conduct Business at the Outlet for a period of five (5) or
more consecutive days, except for a reason expressly permitted by the terms of
this Agreement or loses
20
possession or the right of possession of all or a significant part of the Outlet
through condemnation or force majeure casualty and the Outlet is not relocated
or reopened as allowed by KFC on due consideration of the cause.
(f) If FRANCHISEE terminates his relationship.
14.3 In addition to and not in limitation of the foregoing,
KFC may exercise its rights, following the occurrence of any of the events
described in Subsection 14.1 and 14.2 above and upon written notice to
FRANCHISEE, to:
(a) reduce any development or terminate any license
or option rights granted to FRANCHISEE in respect of other sites not yet under
construction; and/or
(b) acquire the Business, or locate a purchaser to
acquire the Business of FRANCHISEE at a fair price, failing agreement by the
parties, for market value, to be established within sixty (60) days of
FRANCHISEE's receipt of written notice from KFC from the average of the two
closest values assigned by three appraisers, one appointed by KFC, one appointed
by FRANCHISEE and one appointed by agreement of these two appraisers. Such
acquisition shall be consummated within one hundred twenty (120) days of
FRANCHISEE's receipt of written notice and KFC shall have the right to appoint
the management of such Business from FRANCHISEE's receipt of such notice.
15. OBLIGATIONS ON TERMINATION OR EXPIRATION
15.1 Upon termination or expiration of this Agreement or the
closing of the Outlet, FRANCHISEE as this term is defined for Articles 7 and 12
shall immediately discontinue the use of the Kentucky Fried Chicken System and
the Trademarks and trade secrets. All rights or licenses granted herein with
respect to the Trademarks shall revert to KFC. This shall include the removal
from the Outlet of signs, menuboards, inserts thereto, points-of-sale material,
red-and-white stripes and any characteristically designed roof, and changing the
exterior and interior appearance so that the Outlet is no longer confusingly
similar in KFC's judgment to a Kentucky Fried Chicken Outlet and no longer bears
any Trademarks or trademarks in KFC's judgment that are similar thereto.
15.2 If the Outlet site is not owned by KFC, FRANCHISEE, shall
immediately without limiting the generality of the foregoing, make the following
alterations:
(a) Remove the Trademarks from all buildings, signs,
trade dress, fixtures and furnishings.
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(b) Alter and paint all structures and other
improvements maintained to designs and colors which basically differ from KFC's
authorized building design and colors and decor.
(c) On mansard roofs, remove the tower.
(d) On pagoda roofs, remove the entire pagoda.
(e) Paint roof other than red or terra cotta.
(f) Remove the birdcage and weather vane.
(g) Remove any exterior awnings and frames.
(h) Paint any red-and-white stripes a solid non-red
color.
(i) Remove the distinctive facia, lettering, signage,
carpeting and any other distinguishing features, including but not limited to
any etched or decal images of Xxxxxxx Xxxxxxx or other Trademarks from windows,
doors and other glass surfaces.
(j) Remove any window, door, table and counter signs,
panels, logos and menuboard inserts. Remove any banners, uniforms or emblems
depicting or recalling the Approved Products or Trademarks.
(k) All COM's and all other confidential forms and
materials which contain KFC's trade secrets or recipes, methods of food
preparation and management systems and procedures shall be removed and returned
to KFC, leaving no copies.
(l) All television and radio commercials, newspaper
advertising mats and materials, point-of-sale material and all other advertising
and promotional materials shall be returned to KFC or confirmation shall be made
to KFC that such materials have been destroyed.
(m) All unopened Supplies which bear the Trademarks
or are unique to the Kentucky Fried Chicken System shall either be returned to
the Supplier for credit or destroyed. Contents of all such Supplies which have
been opened shall be destroyed. KFC shall have the right, however, to buy, at
FRANCHISEE's cost, all quantities of KFC seasoning blends as well as other
Supplies that FRANCHISEE may have in stock.
15.3 KFC shall have the right and the option, for a sixty (60)
day period to purchase FRANCHISEE's equipment for cooking and processing under
the Kentucky Fried Chicken System for an agreed amount which shall not be less
than the book value less depreciation of such equipment or any portion thereof.
Payments shall vest KFC
22
with title thereto. If such equipment is subject to any lien or security
interest, KFC may have the benefit of all of FRANCHISEE's credits for payment
and deposit. In the event title to the equipment is transferred to a third party
during the Outlet Term, FRANCHISEE shall agree that this provision shall apply
and the third party shall grant the same repurchase option as granted herein.
15.4 If FRANCHISEE shall fail to make or cause to be made any
such removal, alteration or repainting within thirty (30) days after written
notice, KFC may enter the Outlet and site, without being deemed guilty of
trespass or any other tort or civil wrong, and make or cause to be made such
removal, alterations and repainting at the reasonable expense of FRANCHISEE,
which expense the FRANCHISEE shall pay KFC upon demand.
15.5 FRANCHISEE shall not thereafter use any trademark, trade
name, service xxxx, logo, insignia, slogan, emblem, symbol, design, package
design, distinctive building design or other architectural feature or other
identifying characteristic that is any way associated with KFC or similar to the
Trademarks and those associated with KFC, or operate or do business under any
name or in any manner that might tend to give the public the impression that
FRANCHISEE is or was a licensee or franchisee of, or otherwise is or was
associated with, KFC. KFC shall also have the option to cause FRANCHISEE to
cease operation of the Business at any site.
15.6 KFC may retain all fees paid by FRANCHISEE pursuant to
this Agreement. FRANCHISEE shall immediately pay any and all amounts owing to
KFC and its subsidiaries and affiliates.
15.7 If this Agreement is terminated, pursuant to Article 14
or otherwise without KFC's consent, FRANCHISEE shall pay to KFC in a lump sum as
liquidated damages and not as a penalty the amount of five percent (5%) of
Revenues for the twelve (12) months immediately preceding termination of this
Agreement. Such liquidated damages shall be in addition to, and not in lieu of,
any other rights and remedies available to KFC. If the Outlet is closed for
Business for a period totalling thirty (30) days without justification permitted
under the Agreement or KFC's express written consent and the foregoing payment
is not applied, KFC may require FRANCHISEE to pay a lump sum amount as
liquidated damages, and not as a penalty, equal to two times the monthly
franchise fees paid or due with respect to the Outlet for the twelve (12) months
immediately preceding the closing. In the event of the Outlet was not open for
business for a full twelve (12) month period during the prior calendar year, the
total amount of liquidated damages due KFC shall be computed by determining the
highest monthly franchise fees paid and multiplying such figure by twenty-four
(24).
15.8 FRANCHISEE shall execute all documents and perform all
acts necessary to cause or enable KFC's representatives, agents or
attorneys-in-fact to be
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irrevocably empowered to perform all or any of the above acts and duties,
including, without limitation, a power of attorney in form and substance
satisfactory to KFC.
16. INSURANCE AND INDEMNIFICATION
16.1 FRANCHISEE shall procure before the commencement of
construction of the Outlet and maintain in full force and effect during the
Outlet Term, at its sole cost and expense, an insurance policy or policies
protecting FRANCHISEE and KFC and their respective officers, directors and
employees against any and all losses, liabilities, claims, costs and expenses
from fire, personal injury, theft, death, property damage, or other damaging or
injurious occurrence, arising out of or in connection with the condition,
operation, use or occupancy of the Outlet and the Business. KFC shall be named
as an additional insured in all such policies. Such policy or policies shall be
written by a responsible insurance company or companies and shall be in such
form and contain such limits of liability as shall be satisfactory to KFC. Such
policy or policies shall include at least the following unless KFC specifically
agrees to other limits for a specified country or jurisdiction:
KIND OF INSURANCE MINIMUM LIMITS OF LIABILITY
----------------- ---------------------------
Workers' Compensation As required by law
General Public Liability, U.S.$1,000,000 each person
including products and injury U.S.$1,000,000 each occurrence
Property Damage U.S.$1,000,000 aggregate
The insurance afforded by the aforementioned public liability policies shall not
be limited in any way by reason of any insurance which may be maintained by KFC.
KFC shall have the right to increase the minimum limits of liability on a
biennial basis consistent with insurance policies then in effect for similar
businesses.
16.2 FRANCHISEE shall insure the Outlet and other
improvements, equipment, furnishings, and other fixtures and any additions
thereto in accordance with standard fire and extended coverage insurance
policies then in effect for similar businesses. FRANCHISEE shall, upon request,
exhibit evidence of such insurance to KFC. If the Outlet or improvements,
equipment, furnishings, fixtures or additions are damaged, the proceeds of any
such insurance shall first be used to completely restore the Outlet, such
improvements, equipment, furnishings, fixtures or additions to the condition of
the Kentucky Fried Chicken System as described in the COM at that time. Within
thirty (30) days after the execution of this Agreement, certificates of
insurance showing compliance with the requirements of this Article 16 shall be
furnished by FRANCHISEE to KFC for approval. Such certificates shall state that
the policy or policies shall not be cancelled or altered without prior written
notice to KFC of at least
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thirty (30) days. Maintenance of such insurance and the performance by
FRANCHISEE of its obligations hereunder shall not relieve FRANCHISEE of
liability or limit such liability under the indemnification provisions herein.
16.3 FRANCHISEE is an independent contractor and not an agent,
legal representative, joint venturer, partner, employee or servant of KFC and is
not empowered to act on KFC's behalf in any manner. FRANCHISEE agrees that the
KFC is not in any way a fiduciary as regards FRANCHISEE.
16.4 FRANCHISEE shall indemnify KFC, its officers, directors,
employees, agents, affiliates, successors and assigns, against (i) any and all
claims, damages or liabilities based upon, arising out of, or in any way related
to the operation or condition of any part of the Business and the Outlet, the
conduct of business thereat, the ownership or possession of real or personal
property, any negligence or act or omission by FRANCHISEE or any of its agents,
contractors, servants, employees or licensees, and any obligation of FRANCHISEE
incurred pursuant to any provision of this Agreement including, without
limitation, the improper use of the Trademarks, and (ii) any and all fees
(including reasonable attorneys' fees), costs and other expenses incurred by or
on behalf of KFC in the investigation, defense or prosecution of any and all
claims.
17. NOTICES
17.1 All notices to KFC required by the terms of this
Agreement shall be in writing and sent by registered air mail, addressed to
Kentucky Fried Chicken International, Attention Vice President and General
Counsel, at 0000 Xxxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000, Xxxxxx Xxxxxx of
America (or at such other address as KFC shall designate in writing) or by telex
to such address confirmed by registered air mail.
17.2 All notices to FRANCHISEE required by the terms of this
Agreement shall be in writing and sent by registered air mail, addressed to
FRANCHISEE at the address set forth above (or at such other address as
FRANCHISEE shall designate in writing) or by telex to such address confirmed by
registered air mail.
17.3 Any notice shall be deemed to have been given when
deposited in the mail or, if by telex, when received.
17.4 This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky, United States of
America, and the parties hereto submit to the non-exclusive jurisdiction of
State and Federal courts in Kentucky. Proceedings may be brought in the courts
of any jurisdiction for the purpose of enforcing any award or order of any
Kentucky court, or for the purpose of restraining actions or threatened actions
which the Kentucky courts shall have ruled to constitute a breach of obligations
hereunder.
25
18. INTERPRETATION, EXECUTIONS AND WAIVERS
18.1 All terms and words used in this Agreement, regardless of
the number and gender in which they are used, shall include singular or plural
and any other gender as the context of this Agreement may require. Headings
preceding the text, articles and paragraph numbering hereof have been inserted
solely for convenience of reference and shall not be construed to affect the
meaning, construction or effect of this Agreement.
18.2 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but such counterparts
together shall constitute but one and the same instrument.
18.3 This Agreement and appendices hereto express fully the
understanding between the FRANCHISEE and KFC. This Agreement and appendices
hereto may be modified only in writing signed by both the FRANCHISEE and KFC.
18.4 The failure of KFC to enforce at any time or for any
period of time any one or more of the terms and conditions of this Agreement,
shall not be a waiver of such terms and conditions or of the KFC's right
thereafter to enforce each and every term and condition of this Agreement.
18.5 Nothing in this Agreement shall bar KFC's right to obtain
injunctive relief under applicable law. All remedies provided in this Agreement
are cumulative and not exclusive of any remedies provided by law.
18.6 The parties agree that the terms of this Agreement are
confidential in nature and should not be disclosed to any third party without
the prior written consent of the other party hereto.
19. ENFORCEABILITY
19.1 If this Agreement is declared to be invalid or
unenforceable for any reason, in whole or in part, then KFC shall have the
option, upon three (3) month's notice to FRANCHISEE, of terminating the
Agreement and the rights and obligations hereunder (including any other rights
of FRANCHISEE), except for such rights and obligations which are specified to
survive any termination of this Agreement.
19.2 In the event of any such declaration, FRANCHISEE's
obligations for payment of any amounts pursuant to this Agreement shall be
discharged only by payment in full of all such amounts to KFC as provided
herein.
26
20. WRITTEN APPROVALS AND NO WARRANTIES
20.1 Whenever this Agreement requires KFC's prior approval or
consent, FRANCHISEE shall make a timely written request therefor, and such
approval if granted shall be given by KFC in writing. KFC makes no warranties,
representations, or guarantees upon which FRANCHISEE may rely, and assumes no
liability or obligation to FRANCHISEE, by providing any waiver, approval,
consent or suggestion to FRANCHISEE in connection with this Agreement, or by
reason of any neglect, delay or denial or any request therefor.
20.2 KFC makes no representations or warranties concerning any
studies, reports or conclusions, financial, economic or otherwise, which may
have been prepared in connection with any aspect of negotiation leading to this
Agreement, this Agreement or any license contemplated by this Agreement.
21. SURVIVAL OF TERMS AND CONDITIONS
The rights and obligations contained in the following provisions of
this Agreement shall survive the expiration or termination of this Agreement:
Articles 5, 7, 9, 10, 11, 12, 13, 14, 15, 16 and 17.
FRANCHISEE REPRESENTS THAT IT HAS REVIEWED THIS AGREEMENT CAREFULLY
WITH THE ASSISTANCE OF LEGAL COUNSEL AND THAT IT UNDERSTANDS THE CONTENTS
HEREOF.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
hereto set their hands and seals as of the day and year first above written.
KFC
KENTUCKY FRIED CHICKEN INTERNATIONAL
HOLDINGS, INC.
ATTEST:
/S/ XXXXX XXXXX By: /S/ XXXX X. MASATO
-------------------------- --------------------------------
Title: Vice President Finance & CEO
FRANCHISEE
/S/ XXXXXXX XXXXXXXX
------------------------------------
/S/ XXXXX XXXXX Title: President
--------------------------
27
KENTUCKY FRIED CHICKEN
INTERNATIONAL FRANCHISE AGREEMENT
EXHIBIT D
AGREEMENT OF SHAREHOLDERS OR PARTNERS
WHEREAS, Kentucky Fried Chicken International Holdings, Inc. ("KFC"), a
Delaware, U.S.A. corporation, has granted and entered into a Kentucky Fried
Chicken International Franchise Agreement ("Agreement") with Alimentos Merced
S.A. ("FRANCHISEE"), a company incorporated in Chile with its principal place of
business at Huerfanos 000, Xxxxx Xxxxx, Xxxxxxxx, Xxxxx; and
WHEREAS, the undersigned are all the shareholders and/or partners
holding at least a ten percent (10%) beneficial interest in this franchise or in
FRANCHISEE (the "Holders") and
WHEREAS, KFC has placed great reliance upon the ability of the
undersigned in the granting and entering into the Agreement with FRANCHISEE.
NOW, THEREFORE, in consideration of KFC granting and entering into the
Agreement with FRANCHISEE to operate a Kentucky Fried Chicken Outlet and
pursuant to Article 13 of said Agreement, the undersigned, being all the Holders
as more fully described in Schedule A attached hereto and incorporated herein by
reference, agree as follows intending to be legally bound hereby:
1. Except as may be permitted under Article 13 of the Agreement,
neither FRANCHISEE nor any person with an interest in FRANCHISEE without KFC's
prior written consent, shall directly or indirectly, issue, sell, assign,
transfer, convey, give away, pledge, mortgage, or otherwise encumber any direct
or indirect interest in this franchise; any beneficial interest in FRANCHISEE;
if FRANCHISEE is a partnership, joint venture, or privately held corporation; or
any direct or indirect interest which, together with other related previous,
simultaneous, or proposed transfers, constitutes a transfer of control of
FRANCHISEE.
2. FRANCHISEE, if it is a corporation, shall maintain stock transfer
instructions against the transfer on its records of any securities with the
voting rights subject to the restrictions of Article 13 of the Agreement and
shall issue no such securities unless upon the fact of which the following
printed legend legibly and conspicuously appears:
"The transfer of this stock is subject to the terms and conditions of one or
more Kentucky Fried Chicken International Franchise Agreements with KFC.
Reference is made to said
Franchise Agreement(s) and to the restrictive provisions of the Articles and
By-laws of this corporation".
3. KFC may transact all business between it and FRANCHISEE by
communicating with and accepting communications from, or otherwise conducting
the usual affairs of the franchise relationship with Xxxx and Xxxxx Xxxxx
(hereinafter "Designated Control Person"). The Designated Control Person who
should be responsible for the control and operation of the Kentucky Fried
Chicken Outlet is duly authorized and empowered by the Holders to act on their
behalf as their designated representative and agent with respect to the
Agreement and the franchise relationship.
4. Upon the execution of this Agreement and upon each transfer of an
interest in this franchise, or FRANCHISEE, all Holders, as appear on Schedule A,
hereby personally guarantee, jointly and severally, the full payment of all
monies owing and performance of FRANCHISEE's other obligations to KFC.
5. Upon the execution of this Agreement and upon each transfer of an
interest in this franchise or FRANCHISEE, all Holders as appear on Schedule A,
hereby individually undertake to be bound by all the terms of the Agreement as
if named as Franchisee therein.
WITNESS our signatures this 1st day of January, 1994.
WITNESS:
By /s/ Xxxxxxx Xxxxxxxx Inversiones e Inmobiliaria Kyoto S.A.
----------------------- Individually and as Shareholder or Partner
WITNESS:
By /s/ Xxxxxxx Xxxxxxxx Inversiones y Xxxxxx Quebrada Honda S.A.
----------------------- Individually and as Shareholder or Partner
Shareholders of Inversiones e Inmobiliaria Kyoto S.A.
WITNESS:
By /s/ Xxxxxxx Xxxxxx Xxxxxxx Xxxxxx Xxxxxxx 33%
--------------------- Individually and as Shareholder or Partner
WITNESS:
By /s/ Xxxxxxx Xxxxxxxx Xxxxxxx Xxxxxxxx Xxxxx 67%
----------------------- Individually and as Shareholder or Partner
Shareholders of Inversiones y Xxxxxx Quebrada Honda S.A.
WITNESS:
By /s/ Xxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxxx Xxxxxxx 30%
----------------------- Individually and as Shareholder or Partner
WITNESS:
By /s/ Xxxxxxx Xxxxxxxx Xxxxxxx Xxxxxxxx Xxxxx 70%
----------------------- Individually and as Shareholder or Partner
INTERNATIONAL FRANCHISE AGREEMENT
EXHIBIT A
BASIC OUTLET INFORMATION
6. "Outlet":
The Kentucky Fried Chicken Outlet shall consist of the premises, and all
structures, appurtenances, fixtures, equipment, facilities and entry, exit
parking and other areas now or at any time located on the real property the
dimensions and layout of which have previously been submitted to KFC.
7. Outlet Location and Address:
1. Alameda Xxxxxxxx X'Xxxxxxx 40 Local 3
2. Locales 32 y 24 Centro Comercial Las Palmas, Maipu
3. Vitacura 6309 at 6383
4. Xxxxxxxxx Xxxxx 7459 y 7469 Xxxxx Xxxx 1005
5. Avenida Once de Septiembre 2234, Local 101
The complete and official address and location of the Outlet for identification
and mailing purposes is as follows:
3. Summary of Some Basic Terms and Fees Specifically Detailed in the
Agreement:
3.1 Outlet Term: 10 years Commencement Date: January 1, 1994
3.2 Monthly Franchise Fee: 5% of Revenues.
3.3 Monthly Advertising Participation: 5% of Revenues.
3.4 Franchise Fee (none) to be paid upon execution of the Agreement.
KENTUCKY FRIED CHICKEN
INTERNATIONAL FRANCHISE AGREEMENT
EXHIBIT B
APPROVED PRODUCTS
The Approved Products authorized for sale at the Outlet include the following:
OPTIONALLY AUTHORIZED
REQUIRED PRODUCTS PRODUCTS
----------------- --------
ENTREES:
- Original Recipe Chicken - Hot and Spicy Chicken
- Extra Tasty Crispy Chicken
- Chicken Sandwiches
(to be further identified)
SIDE ITEMS/SNACKABLES:
- Colonel's Coleslaw - Kentucky Nuggets and Sauces
- French Fries - Hot Wings
- Other Sides
(to be further identified)
BREAD:
- Biscuits
DRINKS:
- Pepsi Beverages - Coffee, Tea
- Milk Shakes
DESSERTS: - Pies
- Ice Cream
- Yogurt
REQUIRED PRODUCTS must be offered for sale at the Kentucky Fried Chicken Outlet.
KFC, in its discretion, may designate new Required Products and specifications
therefor or may withdraw products from such status. FRANCHISEE shall have ninety
(90) days from KFC's issuance of a written notice in which to comply with such
requirements.
OPTIONALLY AUTHORIZED PRODUCTS may be offered for sale at the Outlet at the
option of FRANCHISEE, subject to prior submission and specific acceptance by
KFC. KFC may withdraw authorization for Optionally Authorized Products if it
determines such action to be in the best interest of the Kentucky Fried Chicken
System.
2
KENTUCKY FRIED CHICKEN
INTERNATIONAL FRANCHISE AGREEMENT
EXHIBIT C
TRADEMARK REGISTRATIONS
TRADEMARK REG./APP. NO. REG./APP. DATE
--------- ------------- --------------
Local Agent: Estudio Xxxxxx Alesandri
CHILE Amunategui 277 _________(?)
Xxxxxxxx, Chile
Telephone: 000-00-0-000-0000
Telefax: 011-56-2-726-263
Cable: VALEGUI
Attn: Rsul Toro
-----------------------------------------------------------------------------------------------------------------
REGISTRATION REGISTRATION RENEWAL
XXXX CLASS NUMBER DATE DATE
-----------------------------------------------------------------------------------------------------------------
COL. XXXXXXX' RECIPE
KENTUCKY FRIED CHICKEN 29 220,799 11/25/69 03/30/99
COL. XXXXXXX RECIPE (Commercial 333,857 06/16/78 08/15/98
KENTUCKY FRIED CHICKEN Name) (215,567)
"IT'S FINGER LICKIN GOOD" (Commercial 219,315 01/10/79 01/10/89
Name)
COL. XXXXXXX' RECIPE (Commercial 349,225 07/25/79 11/22/99
KENTUCKY FRIED CHICKEN Name) (222,986)
Design of Xxxxxxx Xxxxxxx' Head (Commercial 349,494 09/12/79 11/30/99
Name) (224,371)
Design of Xxxxxxx Xxxxxxx' Head 29.31 351,152 10/10/79 01/17/00
(224,896)
KENTUCKY FRIED CHICKEN (Commercial 351,826 10/30/79 02/07/00
Name) (225,503)
KENTUCKY FRIED CHICKEN (Commercial 351,826 10/30/79 02/07/00
Name) (225,503)
KENTUCKY FRIED CHICKEN 30 268,432 10/14/82 10/14/92
KENTUCKY FRIED CHICKEN 29 265,195 08/02/82 08/02/92
ES PARA CHUPARSE LOS DEDOS 16 375,275 04/02/92 02/25/01
ES PARA CHUPARSE LOS DEDOS 29 375,276 04/02/92 09/25/01
"IT'S FINGER LICKIN GOOD" 16 3/5/77 04/02/92 09/25/01
EL SABOR DE LOG XXXXX 16 375,273 04/02/97 09/25/01
(Commercial Slogan)
EL SABOR DE LOG XXXXX 29 375,274 04/02/92 09/25/01
(Commercial Slogan)
2
-----------------------------------------------------------------------------------------------------------------
REGISTRATION REGISTRATION RENEWAL
XXXX CLASS NUMBER DATE DATE
-----------------------------------------------------------------------------------------------------------------
KENTUCKY FRIED CHICKEN 42 373,224 08/23/91 08/23/01
IT'S FINGER LICKIN GOOD
*KENTUCKY 42 338,327 01/03/89 01/03/99
XXXXXXX XXXXXXX' RECIPE 42 351,177 01/17/90 01/17/00
Colonel's Mug 42 351,374 01/21/90 01/24/00
KENTUCKY FRIED CHICKEN 42 373,223 08/23/91 08/23/01
PENDING APPLICATIONS
-----------------------------------------------------------------------------------------------------------------
SERIAL DATE
XXXX CLASS NUMBER FILED
-----------------------------------------------------------------------------------------------------------------
KENTUCKY NUGGETS 188,399 09/26/91
CHICKEN XXXXXXX 29.30 196,968 12/30/91
KFC 29.30 210,186 06/04/92
KFC 42 210,187 06/04/92
KFC Logo 29.30 210,188 06/04/92
KFC Logo 42 210,189 06/04/92
ZINGER 29 214,355 07/16/92
ZINGER 30 214,355 07/16/92
Title in name of Kentucky Fried Chicken International Holdings, Inc.
___________________
*Purchased in 1989 from Xxxx V__________ Xxxxxxxx.
3
A N E X O A
-----------
- Kentucky Nuggets
- Colonel's Fillet
- Hot Wings
- Colonel's Burger
KENTUCKY FRIED CHICKEN
INTERNATIONAL FRANCHISE AGREEMENT
SCHEDULE A TO
EXHIBIT D
CERTIFICATE LISTING SHAREHOLDERS OR PARTNERS
I, an authorized officer/partner of FRANCHISEE, hereby certify that the
following information is true and correct and represents all the shareholders or
partners having at least a 10% beneficial ownership interest in this franchise
or in FRANCHISEE:
NAME/ADDRESS INTEREST
Inversiones e Inmobiliaria Kyoto S.A. 65%
Inversiones y Xxxxxx Quebrada Honda S.A. 35%
-------------------- ----
-------------------- ----
-------------------- ----
-------------------- ----
-------------------- ----
-------------------- ----
-------------------- ----
DATED as of the 1st day of January, 1994.
ATTEST/WITNESS:
By /s/ Xxxxxxx Xxxxxxxx
------------------------ --------------------
Authorized Officer
"FRANCHISEE"
(CORPORATE SEAL)
ANNEX WITH SPECIAL CONDITIONS
TO FRANCHISE AGREEMENT BETWEEN KENTUCKY FRIED CHICKEN
INTERNATIONAL HOLDINGS, INC. AND ALIMENTOS MERCED S.A.
DATED JANUARY 1, 1993
--------------------------------------------------------------------------------
Kentucky Fried Chicken International Holdings, Inc. ("KFC") and
Alimentos Merced S.A. ("Franchisee") have executed with even date a Franchise
Agreement ("Agreement") relative to KFC's franchise operations in Chile. KFC and
Franchisee agree that the terms and conditions of the Agreement shall control
except as amended herein. All capitalized terms herein shall have the same
meaning as those contained in the Agreement.
1. KFC will award Franchisee the franchise rights to operate and
develop KFC restaurants at distinct addresses in specific markets in Chile in
accordance with a detailed development agreement, a draft of which has been
included in Addendum 1 which will be finalized within the next 30 days.
Franchisee will have the right of first refusal to develop Chile, beyond the
specific restaurants identified in the development agreement as detailed in
Annex 1.
2. Each restaurant that Franchisee acquires from Smart Investments S.A.
or for any other KFC restaurant will have a term of 10(10) years with a
conditional option to renew for another 10 (ten) year term, however, after the
first 10 (ten) years, Franchisee will pay a renewal fee of US$3,000 (Three
Thousand Dollars) per restaurant that is operating.
All restaurants currently operating under the name of Chicken Inn will
be incorporated into KFC franchise system and will pay a renewal fee of US$3,000
(Three Thousand Dollars) at the end of the first 10 (ten) year period.
All restaurants subject to the franchise system will pay a monthly
royalty fee of five percent (5%) on gross sales excluding IVA.
There will be no initial franchise fee for the 9 (nine) existing
Chicken Inn restaurants, nor for the future restaurants numbered 10, 11, 12, 13,
14 and 15 as long as said restaurants are opened no later than June 30, 1995,
except in the case of Xxxxxxxxxx in a future mall (contracts already signed)
which will be extended until December 31,1995. Any restaurants opened after June
30, 1995 would be at the standard initial fee, which is currently Twenty-Five
Thousand Dollars (US$25,000).
With regard to the restaurants that Franchisee currently operates under
the name Chicken Inn, the parties agree that Franchisee will transform such
restaurants to KFC, as soon as possible, but no later than 18 (eighteen) months
as of this date, provided that (a) KFC will endeavor to modify its chicken on
the bode specifications relating to bird color (cold scald), weight, cut and any
other specifications with the objective of achieving a raw material cost similar
to that of Chicken Inn and still maintaining the quality of the product, as
determined by KFC, within 90 days as of this date; and (b) that KFC and
Franchisee will invest up to US$1,000,000 (one million dollars) in the
proportion of 75% and 25% respectively to convert and equip the 9 (nine) Chicken
Inn restaurants in accordance with the recommendations as set forth by KFC.
2
If KFC is not able to modify the specifications of the chicken on the
bone pursuant to (a) above within such 90 day period, Franchisee's obligation to
convert such 9 Chicken Inn restaurants to KFC shall be extended by an amount
equal to the delay beyond the 90 days.
In the event KFC and Franchisee determine that the conversion costs
exceed US$1,000,000, such excess shall be paid by both parties in the same
proportions indicated in (b) above.
The parties further agree to utilize KFC's current nugget
specifications with the Original Recipe breading and the Chicken Inn's sandwich
(hamburger) xxxxxx specifications with the Original Recipe breading.
Upon completion of each renovation for conversion of Chicken Inn
restaurants, Franchisee shall pay a monthly royalty fee of 5% (five percent) of
gross sales excluding IVA, as long as they are operating as traditional
restaurants.
The exact transformation date shall be mutually agreed.
The initial fee in accordance with the agreement for all new
restaurants other than the 15 (fifteen) noted above shall be determined
considering the type of outlet in accordance to the terms described in Annex 2.
3. The parties agree to negotiate within the following 90 days a joint
venture. If a joint venture agreement is reached, the operating losses of the 5
(five) restaurants taken over from Smart Investments S.A. and the investments
made by Franchisee in the conversion will be considered as part of its
contribution.
3
4. The owners of Franchisee will be allowed to sell up to 49% of their
interest in Franchisee, subject to the conditions mentioned below.
If the owners of Franchisee have a prospective buyer for part of their
shares of Franchisee, they must communicate such circumstance in writing to KFC
with the identification and background of the prospective buyer. KFC shall have
a period of 20 (Twenty) days to consent to the sale. The consent may only be
denied based if the prospective buyer is insolvent, commercially inadequate
(that is who registers protests of checks or drafts), morally unacceptable (that
its, amongst others, that has been convicted of criminal or civil wrongdoings)
or has interests in companies or entities that directly compete with KFC in the
sale of chickens or other fast food companies, such as to McDonalds or Burger
King. The prospective buyer may be an individual or company, provided that in
the case of a company it is not publicly traded.
If, after the first 2 (two) years as of this date, the owners of
Franchisee have not sold up to 49% of their shares of Franchisee, KFC shall have
the right of first refusal to purchase any shares such owners wish to sell, at a
price equal to other purchase offers they may receive. For these purposes
Franchisee's owners shall notify KFC in writing of any such offers identifying
the prospective buyers and their detailed offers, and KFC shall have a period of
30 (thirty) days to exercise its right to match such offer and a period of 60
(sixty) days to consummate the purchase.
Within the minimum of 51% that the present owners of Franchisee may not
sell, this percentage may be transferred to direct family or persons legally
associated with the company.
4
Notwithstanding the foregoing, any sale of shares may not mean that the
present owners, their direct family or legally associated persons lose control
or the majority voting rights in the management of Franchisee.
Additionally Franchisee's shares may not be sold in public offerings or
in the stock market.
5. Franchisee agrees to obtain a verbal quote from his current soft
drink supplier of Chicken Inn on their pricing and incentive structure, which he
will then present verbally to Pepsi-Cola's local bottler. Such terms and
conditions will be consigned in writing by Pepsi-Cola and sent to Franchisee for
his confirmation signature. Pepsi-Cola's local bottler shall have the
responsibility of presenting their proposal to Franchisee in a meeting to be
held no later than 15 (fifteen) days after Franchisee's confirmation signature.
In the event that Pepsi-Cola's local bottler is able to meet or exceed the
conditions of the other soft drink supplier as confirmed by Franchisee,
Franchisee will convert to Pepsi-Cola for all restaurants under the KFC
Franchise Agreement and the Chicken Inn restaurants upon conversion to KFC or
earlier at the option of Franchisee, otherwise Franchisee will continue with his
current Chicken Inn soft drink supplier. Notwithstanding the above, upon
approval from Pepsi-Cola's local bottler, the foregoing procedure may be changed
for a competitive bidding process.
6. Franchisee agrees to a competitive bidding process for the
advertising agency to include the KFC agency of record (Young & Rubican) and
others at the choice of Franchisee. This bidding process will require each
agency to prepare and submit for review a detailed proposal of the marketing
plan for 1994 with details regarding media,
5
print, etc. as well as support and cost structure. Following review of these
bids with KFC management, Franchisee will award the advertising business to the
company offering the best overall proposal.
7. Franchisee will have the right to sell all KFC approved products and
develop all currently approved facility types, except for those related to the
sale of frozen chicken products.
8. KFC agrees to provide Franchisee operative training at the request
of Franchisee or upon mutual agreement; or KFC will provide training of
individuals to be specified by Franchisee in KFC's training facilities in Sao
Paulo, Brazil. In the event that the training takes place outside of Chile, all
associated out of pocket costs are for the account of Franchisee whereas KFC
will assume responsibility for all training costs. The cost of transportation
and all associated out of pocket expenses of KFC personnel sent to Chile will be
the responsibility of KFC.
9. KFC agrees to work together with Franchisee and designated
manufacturers in reducing the cost of equipment and machinery and other
materials related to the construction, equipment and machinery of new facilities
in an effort to eliminate to the extent possible the need for imported products
instead of those locally produced in the least possible time.
10. Franchisee agrees not to invest or participate in any chicken or
mexican fast food concepts directly competitive to Pepsico's restaurant
businesses at any time in the future.
6
11. KFC may assign all its rights and obligations under the Agreement
to PepsiCo Inc. affiliates in Chile or abroad by means of a simple written
notice to Franchisee. If the assignment is made to a Chilean company, payment of
all fees will be made in pesos at the exchange rate indicated in No. 6 of
Chapter I of Title I of the Compendium of Foreign Exchange Regulations of Banco
Central de Chile, except for fees based on percentages of sales which will be
made directly in pesos without any exchange conversion. Additionally, such local
payments will not be subject to any withholding taxes, but they will be subject
to VAT tax. Any payments made to non-Chilean companies will be free and clear of
any of Franchisee's taxes, notwithstanding that taxes that must be withheld by
Franchisee on account of KFC shall be deducted from the gross payments and paid
to the local authorities with the obligation of Franchisee of providing KFC with
the corresponding tax receipts.
12. Section 5.2 of the Agreement shall not be applicable to existing
lease agreements of Franchisee, notwithstanding that upon the renewal of such
lease agreements Franchisee shall make its best efforts to obtain from lessors
the conditions mentioned therein.
13. Franchisee shall have a 5 (five) day grace period to make any
payments under the Agreement, notwithstanding that any payments made past the
grace period will accrue interest as of the maximum original payment date under
the Agreement.
14. Franchisee is hereby authorized to constitute pledges on equipment,
installations or machinery in favor of lenders to guarantee loans in the
ordinary course
7
of the KFC operations with respect to assets it purchased from Smart Investments
S.A. as well as the other assets it may already have encumbered.
15. The minimum for general liability insurance is reduced to
US$250,000 per person and per occurrence and property damage is reduced to the
replacement value of the property. Kentucky Fried Chicken International
Holdings, Inc.
By: /s/ Xxxx X. Mesato Dated: 1/4/94
----------------------
Alimentos Merced S.A.
By: /s/ Xxxxxxx Xxxxxxxx Dated: 1/4/94
------------------------
8
Annex I
"Tentative Draft"
Development Agreement:
Development Period: January 1, 1994 - December 31, 1997
The following schedules pertain to additional restaurants in addition to the
existing 5 KFC restaurants and the 9 Chicken Inn restaurants and the specific
cities for development:
OUTLET NUMBER OUTLET OPENING DATE
------------- -------------------
1 1994
2 1994
3 1995
4 1995
5 1995
6 1996
7 1996
8 1997
9 1997
10 1997
This annex may be subject to future amendments.
9
CITY OUTLET NUMBERS
---- --------------
Santiago 5
Vina del Mar 1
Valparaiso 1
Xxxxxxxxxx 1
La Serena 1
Rancagua 1
This annex may be subject to future amendments.
10
Annex 2
TRADITIONAL RESTAURANTS
Traditional Units typically involve the following permanent facility types:
- Freestanding Buildings:
- With or without drive-thru
- With or without seating
- With or without delivery
- In-Line Units:
- Restaurants
- Take-out
- With or without delivery
- 2-1 or all-in-one units where KFC is investing in and operating the unit.
- Malls or food courts
NON-TRADITIONAL RESTAURANTS
Non-traditional Restaurants generally encompass all other facility types and
locations and typically involve relocatable structures such as kiosks, carts,
mobile units, and merchandisers. Typical locations for non-traditional units
would be:
- Airports, Schools, Universities
- Office or factory canteen/cafeterias, Hospitals,
Prisons
- Retail outlets (e.g., supermarkets, convenience stores,
gas stations)
2
AMENDMENT TO THE KENTUCKY FRIED CHICKEN
INTERNATIONAL FRANCHISE AGREEMENT
This Agreement entered into this 15th day of April 1996, by and among
Kentucky Fried Chicken International Holdings, Inc., a Delaware corporation with
offices at 0000 Xxxxx Xxxxxx Xxxxxx ("KFCIH"), Kentucky Foods Chile S.A.
(formerly known as Alimentos Merced S.A.), a Chilean corporation with its
principal place of business at Xxxxx Xxxxxxxxx 000.0X xxxx, Xxxxxxxx, Xxxxx
("Kentucky"), Xxxxxxx Xxxxx Xxxxxxxx Xxxxx, a Chilean citizen, married,
businessman, holder of identification card number 6,370,999-9 and Xxxxxxx
Xxxxxxxx Xxxxxxxx Xxxxx, a Chilean citizen, married businessman, holder of
identification card number 7,040,129-0 ("Xxxxxxxx").
W I T N E S S E T H:
WHEREAS, KFCIH and Kentucky entered into a Kentucky Fried Chicken
International Franchise Agreement ("Agreement") on January 1, 1994, by means of
which KFCIH granted Kentucky the rights to use the trademarks of KFC and to KFC
products in accordance with said Agreement;
WHEREAS, in the Agreement the parties agreed, among other things, that
in order for Kentucky to convert the nine (9) stores at that time existing in
Chile, under the trademark Chicken Inn, KFCIH would pay 75% (seventy-five
percent) of the cost of the equipment and conversion of the nine (9) mentioned
stores to KFC restaurants and Kentucky would pay the remaining 25% (twenty-five
percent);
WHEREAS, up to this date only seven (7) of the Nine (9) Chicken Inn
stores indicated in the Agreement have been converted, remaining to be converted
are the stores located at calle Estado nO 129 and calle Xxxxxxx nO 178, both
located in the City Santiago;
WHEREAS, with the objective to clarify in a definitive manner the
amount that shall be paid to Kentucky to take into effect the conversion and to
equip the two (2) remaining Chicken Inn stores;
The parties do hereby agree as follows:
ARTICLE I
A. KFCIH agrees to pay to Kentucky the equivalent sum of Four Hundred
Ninety-Five Thousand United States Dollars (US$495,000) in Chilean pesos
("Payment") by April 15, 1996 to assist Kentucky in the conversion of the
Xxxxxxx and Xxxxxx sites into KFC restaurants. KFCIH shall have a ten (10) day
grace period to make the
payment. Thereafter, KFCIH will be charged interest at an annual rate of seven
(7%) percent until the Payment is made.
B. In consideration of the Payment Kentucky agrees to immediately upon
receipt of the Payment proceed with the conversion of the Xxxxxxx and Xxxxxx
sites into KFC restaurants. The conversion of the Xxxxxxx site must be completed
by July 30, 1996 and the conversion of the Estada site by October 30, 1996.
Notwithstanding the above Kentucky will have a grace period to complete the
conversion equal to the number of days KFCIH delays in making the payment due
April 15, 1996. In no event shall the grace period be more than ten (10) days.
C. KFCIH further agrees to the following:
1. to waive the initial fee of Ten Thousand United States
Dollars (US$10,000) for the Puerto Monte restaurant unit;
2. to waive the initial fee of Twenty-Five Thousand United
States Dollars (US$25,000) for the Galeria restaurant unit or substitute
restaurant unit approved by KFCIH provided the unit is opened in calendar year
1996;
3. to waive the initial fees of Twenty Five Thousand United
States Dollars (US$25,000) per unit for two additional restaurant units not
contemplated in items C(1) and (2) provided Kentucky completes the conversion of
the Xxxxxxx and Xxxxxx sites on time, and the two additional units are open
before December 31, 1997.
ARTICLE II
A. Kentucky agrees to build the Xxxxxxx and Estado KFC restaurant units
according to the KFC Standards, as defined in the Agreement entered into between
KFCIH and Kentucky on January 1, 1994.
B. Kentucky and its partners further agree not to invest or participate
in any chicken or Mexican fast food concepts competitive to PepsiCo's restaurant
businesses at any time in the future, while the Agreement dated January 1, 1994
is in full force and effect and any non-compete covenants which survive the
expiration of termination of the January 1, 1994 Agreement.
C. Kentucky hereby grants to KFCIH and KFCIH hereby grants to Kentucky
full general and irrevocable release with respect to the conversion of the first
seven Chicken Inn stores and Kentucky acknowledges that no further money is due
by KFCIH to the conversion of the mentioned stores. Any further expenses related
to the conversion of such stores will be borne exclusively by Kentucky.
2
D. This Amendment expresses fully the understanding among the parties
hereto and may be modified only in writing signed all parties hereto.
E. This Amendment after being duly executed and ratified by the parties
hereto will become part of the Kentucky Fried Chicken International Franchise
Agreement entered into between KFCIH and MERCED on January 1, 1994 and
supersedes any and all other oral or written agreements between the parties
hereto with respect to the conversions of the Chicken Inn stores.
Having so agreed, the parties execute this instrument in two (2)
counterparts, all of equal purport and for a sole effect, before the two (2)
undersigned witnesses.
KENTUCKY FRIED CHICKEN
INTERNATIONAL HOLDINGS, INC.
By: /s/ Xxxxxxx Xxxxxxx
-----------------------
KENTUCKY FOODS CHILE, S.A.
By:____________________________
/s/ Xxxxxxx Xxxxxxxx
-------------------------------
XXXXXXX XXXXX XXXXXXXX XXXXX
/s/ Xxxxxxx Xxxxxxxx
-------------------------------
XXXXXXX XXXXXXXX XXXXXXXX XXXXX
Witnesses:
_________________________________
_________________________________
3
AMENDMENT TO THE KENTUCKY FRIED CHICKEN
INTERNATIONAL FRANCHISE AGREEMENT
This Agreement entered into this 23rd day of April 1996, by and among
Kentucky Fried Chicken International Holdings, Inc., a Delaware corporation with
offices at 0000 Xxxxx Xxxxxx Xxxxxx ("KFCIH"), Kentucky Foods Chile S.A.
(formerly known as Alimentos Merced S.A.), a Chilean corporation with its
principal place of business at Xxxxx Xxxxxxxxx 000.0X xxxx, Xxxxxxxx, Xxxxx
("Kentucky"), Xxxxxxx Xxxxx Xxxxxxxx Xxxxx, a Chilean citizen, married,
businessman, holder of identification card number 6,370,999-9 and Xxxxxxx
Xxxxxxxx Xxxxxxxx Xxxxx, a Chilean citizen, married businessman, holder of
identification card number 7,040,129-0 ("Xxxxxxxx").
W I T N E S S E T H:
WHEREAS, KFCIH and Kentucky entered into an Amendment to Kentucky Fried
Chicken International Franchise Agreement ("Agreement") on April 15, 1996, by
means of which KFCIH granted Kentucky agreed to terms for the conversion and to
equip Kentucky's two remaining Chicken Inn Stores to KFC restaurants;
WHEREAS, KFCIH and Kentucky desire to amend the April 15, 1996
agreement;
The parties do hereby agree as follows:
A. The parties agree that Article 1(A) will be amended to read as
follows:
"KFCIH agrees to pay to Kentucky the equivalent sum of Five Hundred
Eighty Two Thousand Three Hundred Fifty United States Dollars
(US$582,350) ("Payment") by April 26, 1996 to assist Kentucky in the
conversion of the Xxxxxxx and Xxxxxx sites into KFC restaurants. KFCIH
shall have a ten (10) day grace period to make the payment. Thereafter,
KFCIH will be charged interest at an annual rate of seven (7%) percent
until the Payment is made."
B. The remainder of the April 15, 1996 Amendment shall remain unchanged
and is incorporated herein by reference.
Having so agreed, the parties execute this instrument in two (2)
counterparts, all of equal purport and for a sole effect, before the two (2)
undersigned witnesses.
KENTUCKY FRIED CHICKEN
INTERNATIONAL HOLDINGS, INC.
By:________________________________
KENTUCKY FOODS CHILE, S.A.
By: /S/ XXXX XXXXXXXX
------------------------------
/S/ XXXXXXX XXXXXXXX
----------------------------------
XXXXXXX XXXXX XXXXXXXX XXXXX
/S/ XXXXXXX XXXXXXXX
----------------------------------
XXXXXXX XXXXXXXX XXXXXXXX XXXXX
Witnesses:
_________________________________
_________________________________
2
TRICON
Restaurant International
Xx. Xxxxxxx Xxxxxxxx
KFC Chile
Santiago, Chile
October 10, 1997
Dear Xxxxxxx,
This letter recaps the agreements reached between Kentucky Fried Chicken
International Holdings, Inc. ("KFCIH") or Tricon Global Restaurants ("Tricon")
and Kentucky Foods Chile ("KFC") on key discussion points in our September 16
meeting and subsequent phone conversations. These terms supersede any previous
agreements and form the basis for our relationship subsequent to the proposed
initial public offering ("IPO") of KFC via the Uniservice Chile Corporation
entity in the U.S. In the event the IPO or another equivalent recapitalization
of KFC does not occur by April 30, 1998, the terms herein shall be of no effect.
To signify your agreement with these terms, please initial each page and sign
the last page before a witness.
VOTING CONTROL
You will retain voting control of KFC. The structure of this control following
the IPO will be pursuant to shares of voting common stock with super voting
rights. Tricon must approve the specifics of this structure. Such approval will
not be unreasonably withheld and will be reviewed and decided upon within 72
hours of receiving a written plan of this structure.
DESIGNATED OPERATOR
Tricon must approve KFC's "designated operator", a position defined as that
individual with day-to-day general management responsibilities. As of today that
position is filled by you.
ECONOMIC INTEREST
You will retain a minimum of 30% ownership of the KFC business (either through
direct ownership of KFC or through Uniservice Chile, whichever is applicable).
In order to allow you access to some capital, we agreed that, following the IPO,
you may sell a certain limited portion of your shares without TriCon's prior
approval. This limited portion is defined as the lesser of 10% of the
outstanding shares or that amount which brings your ownership in the company
down to 30%. That is, you may sell up to 10% of the outstanding shares as long
as you retain a minimum of 30% of ownership. Further, the proceeds from such a
sale may not be used to start up a new company.
Any sale that conveys the voting control of KFC or Uniservice Chile to a new
owner must be accompanied by the sale of your entire stake in the company.
Similarly, any sale that would bring your equity in the company below 30% must
be a sale of your entire stake in the company and must include
the voting control. Tricon will have a right of first refusal on such a sale and
will have 60 days form the receipt of a valid offer to exercise this right. If
Tricon decides not to exercise its right of first refusal, it retains the right
to approval the new buyer.
In computing the percentage ownership in the foregoing, no consideration is
given to the exercise of warrants issued as a part of the IPO. In the event
these warrants are exercised, your ownership percentage minimum and the amount
of shares you may sell without Tricon approval will decrease proportionally.
However, you agree to make best efforts to retain your ownership at 30%.
EFFECTIVE DATE
Date that the Development Agreement is executed. Agreement will be executed
within 10 days following the date when KFC's royalties and initial fee payments
are current per the existing franchise contract.
DEVELOPMENT SCHEDULE
Develop schedule will be for 34 stores a total of 60. The term will be seven
years with the development pace being:
By end of Year 1 4 net new restaurants 30 total restaurants
By end of Year 2 5 net new restaurants 35 total restaurants
By end of Year 3 5 net new restaurants 40 total restaurants
By end of Year 4 5 net new restaurants 45 total restaurants
By end of Year 5 5 net new restaurants 50 total restaurants
By end of Year 6 5 net new restaurants 55 total restaurants
By end of Year 7 5 net new restaurants 60 total restaurants
KFC will have a right of first refusal on development as long as it is current
with its development schedule.
FEES
Royalty rate will be 5% for stores #27, 28, 29 and 30 and 6% for all stores
beyond store #30. Initial fees will be $35,000 per unit except for stores #27,
28, 29 and 30 which will carry no iniitial fees. Development right fees of
$10,000 per unit (or $340,000) will paid in equal installments of $56,667 over
six years beginning on the first anniversary of the Effective Date and then
continuing on the following five anniversaries of that date.
Non-traditional stores, defined as relocatable structures such as kiosks, carts,
mobile units and merchandisers and typically located in airports, schools,
universities, offices, hospitals and retail outlets, will have initial fees of
$17,500 and a royalty rate of 6%. Non-traditional stores will not count against
the development schedule obligations.
Royalty rate for all stores will decrease to and be held for 10 years at 5%
years following the opening of the 60th restaurant if the 60th store is opened
within the development schedule and if there are no defaults against the
Development Agreement or any Outlet Agreement from the Effective Date of the
Development Agreement until the day of the opening of the 60th store. Following
the 10 year term of 5% royalties, royalties for all stores will convert to then
current royalty rates.
RECIPIENT/CURRENCY
The recipient of KFC's fees will be KFCIH in the U.S. or any other such entity
and location as Tricon directs. Fees and royalties will be payable in U.S.
Dollars.
OUTLET AGREEMENT
The then current standard International Agreement will be executed for all
stores in the development agreement. Outlet Agreements will include a primary
term of 10 years plus one 10 year renewal term. No fee will be applied for the
renewal term.
NON-COMPETE
With the exception of your stake in Domino's, KFC and its shareholders will not
hold any ownership or management interests in any chicken, pizza or Mexican
restaurant business. Your will be given 18 months from the Effective Date to
divest your interests in Domino's.
Accepted and agreed to:
/s/ Xxxxx X. Xxxxxxxx
--------------------------------------------------------------------------------
For Kentucky Fried Chicken International Holdings, Inc. Date
For Tricon Global Restaurants, Inc.
Xxxxx X. Xxxxxxxx
VP, Finance, Americas
Accepted and agreed to:
/s/ Xxxxxxx Xxxxxxxx
--------------------------------------------------------------------------------
Kentucky Foods Chile by Xxxxxxx Xxxxxxxx Date
Witnessed by: Xxxxxxxx Xxxxxxx
/s/ Xxxxxxxx Xxxxxxx
--------------------------------------------------------------------------------
Witness: Date
cc: X. Xxxxx, VP/GM, Franchise Development
X. Xxxx, Finance Director, SOLA Franchising
TRICON
Restaurant International
Xx. Xxxxxxx Xxxxxxxx
KFC Chile
Santiago, Chile
October 20, 1997
Dear Xxxxxxx,
Pursuant to Section 4 of the Annex with Special Conditions to the Franchise
Agreement between Kentucky Fried Chicken International Holdings, Inc. ("KFCIH")
and Alimentos Merced S.A. (predecessor of Kentucky Foods Chile ["KFC"]) executed
on January 4, 1994, Kentucky Fried Chicken International Holdings, Inc.,
approves your proposal to initiate an initial public offering ("IPO") of KFC via
the Uniservice Chile Corporation under the structure outlined in the August 28,
1997 memo from Xxxxxx-Xxxx Securities, Inc. (annexed hereto and incorporated by
reference) as well as the following terms:
PROCEEDS: All proceeds from the IPO will be retained by KFC to pay down
royalties and vendor payables as well as fund store development. This condition
will be included in the SEC registration.
DIVERSIFICATION RESTRICTION: The SEC registration document will clearly state
the KFC and Uniservice Chile intend to restrict their business to the KFC brand
in Chile ant that, subject to compliance with the franchise contracts and prior
approval of Tricon Global Restaurants ("Tricon"), KFC may engage in other
businesses which do not conflict with the KFC brand. Such an approval from
Tricon will be reviewed and decided upon within 60 days from the receipt by
Tricon of formal written notification by KFC.
TRICON REVIEW OF SEC REGISTRATION DOCUMENT AND DISCLAIMER: Tricon will be given
the opportunity to review the SEC registration documents and amend relevant
sections so as to protect Tricon's interest and brands. Any amendments will be
reasonable and will be conveyed to KFC within 3 business days of receipt of each
draft of the SEC registration document. Also, a disclaimer will be included in
these documents to clearly state that KFCI and Tricon have no equity interest in
this business and do not warrant the results of the company.
CAPITAL POLICY: Pending confirmation of acceptance under U.S. securities
regulations, there will be no dividends issued by KFC or Uniservice Chile.
CONFIDENTIALITY: The terms of this approval must remain confidential to the
parties immediately involved - Tricon, the officers of KFC and Xxxxxx-Xxxx.
Information released beyond this group must be approved by Tricon. Any revisions
to the IPO structure from those outlined in the August 28 Xxxxxx-Xxxx memo
and/or the above noted terms must be approved in advance by Tricon.
This approval is conditioned only upon the receipt by KFCIH of $400,000 in
payment toward KFC's royalty debt to KFCIH and an executed Recognition of Debt
note ("ROD") for the balance of its outstanding royalty and initial fees plus
interest by November 10, 1997, at which time this approval is rescinded if the
aforementioned payment and ROD are not received. The due date(s) for ROD will be
the earlier of three (3) days following the receipt of IPO proceeds (full
payment) or April 30, 1998 (25%of principal), August 31, 1998 (25% of principal)
and November 20, 1998 (50% of principal), August 31, 1998 (25% of principal) and
November 20, 1998 (50% of principal plus all interest). The interest rate to be
applied is that noted in the current franchise agreement.
Further, between the execution of this letter and the IPO, KFC will either
resume paying monthly royalties and initial fees or issue ROD notes as these
royalties and fees are due. These notes will carry the same due dates and
interest rate as the first ROD referenced above.
Following the IPO all royalties and initial fees must be paid in accordance with
the franchise contract. KFCIH and KFC agree to jointly develop a mechanism to
guarantee timely payment of these royalties and fees, such as a letter of
credit, an annual prepayment or a security deposit.
To signify acceptance, please sign below and initial the previous page in the
presence of a witness.
Accepted and agreed to:
/s/Xxxxx X. Xxxxxxxx 10/20/97
--------------------------------------------------------------------------------
For Kentucky Fried Chicken International Holdings, Inc. Date
For Tricon Global Restaurants Inc.
Xxxxx X. Xxxxxxxx
VP, Finance, Americas
Accepted and agreed to:
/s/ Xxxxxxx Xxxxxxxx
--------------------------------------------------------------------------------
Kentucky Foods Chile by Xxxxxxx Xxxxxxxx Date
Witness:
Xxxxxx X. Xxxx 10/23/97
--------------------------------------------------------------------------------
Witness by: Date
cc: X. Xxxxx, VP/GM, Franchise Development
X. Xxxx, Finance Director, SOLA Franchising
TRICON
Restaurants International
Xx. Xxxxxxx Xxxxxxxx
KFC Chile
Santiago, Chile
November 19, 1997
Dear Xxxxxxx,
This letter confirms that Kentucky Foods Chile ("KFC") has fulfilled the
conditions of our October 20, 1997 memo regarding Kentucky Fried Chicken
International Holdings, Inc.'s ("KFCIH") approval of the proposed initial public
offering ("IPO") of KFC via the Uniservice Chile Corporation and has KFCIH's
final approval to proceed with the proposed IPO under the terms specified in the
October 20, 1997 memo.
Sincerely,
/S/ XXXXX X. XXXXXXXX
---------------------
Xxxxx X. Xxxxxxxx
VP, Finance
Americas
cc: X. Xxxxx, VP/GM, Franchise Development
X. Xxxx, Finance Director, SOLA Franchising
