Document:

Exhibit 10.3

 

EMPLOYEE MATTERS AGREEMENT

 

BY AND BETWEEN

 

YUM! BRANDS, INC.

 

AND

 

YUM CHINA HOLDINGS, INC.

 

 DATED AS OF           , 2016

 

 

EMPLOYEE MATTERS AGREEMENT

 

This EMPLOYEE MATTERS AGREEMENT (this “Agreement”), dated as of [·], 2016, is by and between Yum! Brands, Inc., a North Carolina corporation (“YUM”), and Yum China Holdings, Inc., a Delaware corporation (“SpinCo”).

 

RECITALS

 

WHEREAS, the board of directors of YUM (the “YUM Board”) has determined that it is in the best interests of YUM and its shareholders to create a new publicly traded company that shall operate the SpinCo Business;

 

WHEREAS, in furtherance of the foregoing, the YUM Board has determined that it is appropriate and desirable to separate the SpinCo Business from the YUM Business (the “Separation”) and, following the Separation, make a distribution, on a pro rata basis and in accordance with a distribution ratio to be determined by the YUM Board, to the shareholders of YUM of all the outstanding SpinCo Shares owned by YUM (the “Distribution”);

 

WHEREAS, YUM and SpinCo are entering into the Separation and Distribution Agreement (the “Separation and Distribution Agreement”), dated as of the date hereof, in order to carry out, effect and consummate the Separation and the Distribution and set forth the principal arrangements between them regarding the terms of the Separation and the Distribution; and

 

WHEREAS, the Parties desire to provide for and agree upon the allocation between the Parties of the principal employment, compensation, equity plan, and other benefit plan arrangements of each of the Parties and their respective affiliates arising prior to, as a result of, and subsequent to the Separation and the Distribution, and to provide for and agree upon other matters relating to such matters.

 

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01.         Defined Terms.  For the purpose of this Agreement, the following terms shall have the following meanings, and capitalized terms used herein and not otherwise defined in this Article I shall have the respective meanings assigned to them in the Separation and Distribution Agreement.

 

 

(a)                   “Action” has the meaning set forth in the Separation and Distribution Agreement.

 

(b)                   “Adjusted YUM Award” means an Adjusted YUM Option, Adjusted YUM SAR, Adjusted YUM RSU Award, or Adjusted YUM PSU Award.

 

(c)                   “Adjusted YUM Option” means a stock option granted pursuant to a YUM Equity Plan to purchase one or more YUM Shares as adjusted in accordance with Section 6.01.

 

(d)                   “Adjusted YUM Option Value” means the Pre-Distribution Stock Value minus the exercise price of the YUM Option immediately prior to the Distribution Date.

 

(a)                   “Adjusted YUM RSU Award” means a restricted stock unit award granted pursuant to a YUM Equity Plan as adjusted in accordance with Section 6.01.

 

(b)                   “Adjusted YUM PSU Award” means a performance share unit award granted pursuant to a YUM Equity Plan as adjusted in accordance with Section 6.01.

 

(c)                   “Adjusted YUM SAR” means a stock appreciation rights award granted pursuant to a YUM Equity Plan as adjusted in accordance with Section 6.01.

 

(d)                   “Adjusted YUM SAR Value” means the Pre-Distribution Stock Value minus the exercise price of the YUM SAR immediately prior to the Distribution Date.

 

(e)                   “Affiliate” has the meaning set forth in the Separation and Distribution Agreement.  It is expressly agreed that, prior to, at and after the Effective Time, for purposes of this Agreement, (a) no member of the SpinCo Group will be deemed to be an Affiliate of any member of the YUM Group, and (b) no member of the YUM Group will be deemed to be an Affiliate of any member of the SpinCo Group.

 

(f)                    “Agreement” has the meaning set forth in the Preamble.

 

(g)                   “Ancillary Agreements” has the meaning set forth in the Separation and Distribution Agreement.

 

(h)                   “Approvals or Notifications” has the meaning set forth in the Separation and Distribution Agreement.

 

(i)                    “Benefit Plan” means any (i) “employee benefit plan,” as defined in ERISA Section 3(3) (whether or not such plan is subject to ERISA); and (ii) employment, compensation, severance, salary continuation, bonus, thirteenth month, incentive, retirement, thrift, superannuation, savings, pension, workers’ compensation, termination benefit (including termination notice requirements), termination indemnity, other indemnification, supplemental unemployment benefit, redundancy pay, profit sharing, deferred compensation, stock ownership, stock purchase, stock option, stock appreciation right, restricted stock, “phantom” stock, performance share, restricted stock unit, other stock-based incentive, change in control, paid time off, perquisite, fringe benefit, vacation, disability, life, or other insurance, death benefit, hospitalization, medical, or other compensatory or benefit plan, program, fund, agreement,

 

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arrangement, or policy of any kind (whether written or oral, qualified or nonqualified, funded or unfunded, foreign or domestic, currently effective or terminated), and any trust, escrow or similar agreement related thereto, whether or not funded, excluding any plan, program, fund, agreement, arrangement, or policy (other than for workers’ compensation liabilities) that is mandated by and maintained solely pursuant to applicable Law.

 

(j)                    “COBRA” means coverage required by Section 4980B of the Code or ERISA Section 601 et. seq.

 

(k)                   “Code” means the U.S. Internal Revenue Code of 1986, as amended.

 

(l)                    “Distribution” has the meaning set forth in the Recitals.

 

(m)                  “Distribution Date” has the meaning set forth in the Separation and Distribution Agreement.

 

(n)                   “Distribution Ratio” means the number of SpinCo Shares distributed in the Distribution in respect of one YUM Share.

 

(o)                   “Effective Time” has the meaning set forth in the Separation and Distribution Agreement.

 

(p)                   “EIDP Special Conversion Employee” means any Person who is a participant in the YUM EIDP as of the Distribution Date and who was living or working in Australia at any time at which such participant made a deferral under the YUM EIDP.

 

(q)                   “Employee” means, as applicable, an employee on the payroll of YUM or any other member of the YUM Group or SpinCo or any other member of the SpinCo Group, including any employee absent from work on account of vacation, jury duty, funeral leave, personal leave, sickness, short-term disability, long-term disability or workers’ compensation leave (in each case, unless treated as a separated employee for employment purposes), military leave, family leave, pay continuation leave, or other approved leave of absence or for whom an obligation to recall, rehire or otherwise return to employment exists under a contractual obligation or Law.  A Former Employee is not considered an “Employee” for purposes of this Agreement.

 

(r)                    “Employee Recoupment Asset” means an employer’s right to repayment from an employee or former employee in respect of a tax equalization payment, sign-on bonus payment, relocation expense payment, tuition payment, reimbursement, loan, or other similar item, including any agreement related thereto.

 

(s)                    “Employment Agreement” means an employment contract between a member of the YUM Group or the SpinCo Group, as applicable, and an Employee.

 

(t)                    “ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as amended.

 

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(u)                   “First Post-Distribution Trading Day” means, with respect to YUM Shares,  the first day on or following the Distribution Date on which “regular-way” trading in YUM Shares is reported on the NYSE and, with respect to SpinCo Shares, the first day on or following the Distribution Date on which “regular way” trading in SpinCo Shares is reported on the NYSE.

 

(v)                   “Former Employee” means any individual whose employment with YUM and all of its Subsidiaries (including SpinCo and any other member of the SpinCo Group) terminated on or prior to the Distribution Date and for whom no obligation to recall, rehire or otherwise return to employment exists under a contractual obligation or applicable Law.

 

(w)                  “Governmental Authority” has the meaning set forth in the Separation and Distribution Agreement.

 

(x)                   “Group” has the meaning set forth in the Separation and Distribution Agreement.

 

(y)                   “Health and Welfare Plan” means any Benefit Plan established or maintained to provide Employees or Former Employees or their beneficiaries, through the purchase of insurance or otherwise, medical, dental, prescription, vision, short-term disability, long-term disability, death benefits, life insurance, accidental death and dismemberment insurance, business travel accident insurance, employee assistance program, group legal services, wellness, cafeteria (including premium payment, health care flexible spending account, and dependent care flexible spending account components), travel reimbursement, transportation, vacation benefits, apprenticeship or other training programs, day care centers, or prepaid legal services benefits, including any “employee welfare benefit plan” (as defined in ERISA Section 3(1)), whether or not subject to ERISA, that is not a severance plan.

 

(z)                   “Incurred Claim” means a Liability related to services or benefits provided under a Benefit Plan, which will be deemed to be incurred:  (i) with respect to medical, dental, vision, and prescription drug benefits, upon the rendering of services giving rise to such Liability; (ii) with respect to death benefits, life insurance, accidental death and dismemberment insurance, and business travel accident insurance, upon the occurrence of the event giving rise to such Liability; (iii) with respect to disability benefits, upon the date of disability, as determined by the applicable disability benefit insurance carrier or claim administrator; (iv) with respect to a period of continuous hospitalization, upon the date of admission to the hospital; and (v) with respect to tuition reimbursement or adoption assistance, upon completion of the requirements for such reimbursement or assistance, whichever is applicable.

 

(aa)                 “Indemnifying Party” means a Party required to indemnify any Person hereunder.

 

(bb)                 “Indemnitee” means a Party entitled to indemnification hereunder.

 

(cc)                 “Intrinsic Value of the Pre-Distribution YUM Option” shall mean the product of (i) the number of YUM Shares subject to the corresponding YUM Option immediately prior to the Distribution Date, multiplied by (ii) the Adjusted YUM Option Value, rounded to the nearest cent.

 

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(dd)                 “Intrinsic Value of the Pre-Distribution YUM RSU Award” shall mean the product of (i) the number of YUM Shares (including those attributable to dividend equivalent units) subject to the corresponding YUM RSU immediately prior to the Distribution Date, multiplied by (ii) the Pre-Distribution Stock Value.

 

(ee)                 “Intrinsic Value of the Pre-Distribution YUM SAR” shall mean the product of (i) the number of YUM Shares subject to the corresponding YUM SAR immediately prior to the Distribution Date, multiplied by (ii) the Adjusted YUM SAR Value, rounded to the nearest cent.

 

(ff)                  “Law” has the meaning set forth in the Separation and Distribution Agreement.

 

(gg)                 “Liabilities” has the meaning set forth in the Separation and Distribution Agreement.

 

(hh)                 “Notice” means any written notice, request, demand or other communication specifically referencing this Agreement and given in accordance with Section 7.08.

 

(ii)                   “NYSE” means the New York Stock Exchange.

 

(jj)                   “Party” or “Parties” means a party or the parties to this Agreement.

 

(kk)                 “Person” has the meaning set forth in the Separation and Distribution Agreement.

 

(ll)                   “Pre-Distribution Stock Value” means the volume weighted average per share price of one YUM Share, trading “regular-way,” as reported on the NYSE on the day immediately prior to the Distribution Date (or if such day is not an NYSE trading day, on the next preceding NYSE trading day).

 

(mm)              “Pre-Spin Price Ratio” means the quotient of (i) the exercise price of the YUM Option or YUM SAR, as applicable, immediately prior to the Distribution Date, divided by (ii) the Pre-Distribution Stock Value, rounded to the nearest fourth decimal place.

 

(nn)                 “Prime Rate” has the meaning set forth in the Separation and Distribution Agreement.

 

(oo)                 “Restaurant Deferred Compensation Plan” means the Tricon Restaurant Deferred Compensation Plan, as effective October 7, 1997, as amended.

 

(pp)                 “Retained Employee” means any Employee other than a SpinCo Employee.

 

(qq)                 “Securities Act” means the U.S. Securities Act of 1933, as amended.

 

(rr)                   “Separation” has the meaning set forth in the Recitals.

 

(ss)                  “Separation and Distribution Agreement” has the meaning set forth in the Recitals.

 

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(tt)                   “Special Conversion Employee” means any Person who holds any outstanding YUM Award(s) as of the Distribution Date and who meets one or more of the following:

 

(i)            the Person is a Chinese National who is working in China on the Distribution Date;

 

(ii)           the Person is living or working in Thailand on the Distribution Date;

 

(iii)          the Person was living or working in Australia or the Netherlands when any outstanding YUM Award held by the Person as of the Distribution Date vested, in whole or in part; and/or

 

(iv)          the Person is a SpinCo Employee or a SpinCo Former Employee that received a grant of YUM RSUs in January 2016; provided, however, that this clause shall apply solely with respect to the grant of the YUM RSUs to such Person in January 2016.

 

(uu)                 “SpinCo” has the meaning set forth in the Preamble.

 

(vv)                 “SpinCo Award” means a SpinCo Option, SpinCo SAR or SpinCo RSU Award, as applicable, issued pursuant to Section 6.01.

 

(ww)               “SpinCo Benefit Plan” means each Benefit Plan sponsored by, maintained by, or contributed to by any member of the SpinCo Group and that covers only SpinCo Employees and/or SpinCo Former Employees.

 

(xx)                 “SpinCo Business” has the meaning set forth in the Separation and Distribution Agreement.

 

(yy)                 “SpinCo Change of Control” has the meaning set forth in Section 6.01(b).

 

(zz)                 “SpinCo Employee” means any Employee who is (i) employed by any member of the SpinCo Group immediately prior to the Distribution Date and who continues in employment with the SpinCo Group from and after the Distribution Date, or (ii) hired by any member of the SpinCo Group on or after the Distribution Date.

 

(aaa)              “SpinCo Equity Plan” means the Yum China Holdings, Inc. Long Term Incentive Plan.

 

(bbb)              “SpinCo Former Employee” means a Former Employee who was primarily employed or engaged in the SpinCo Business immediately prior to such individual’s termination of employment.

 

(ccc)               “SpinCo Group” has the meaning set forth in the Separation and Distribution Agreement.

 

(ddd)              “SpinCo Health and Welfare Plan” means a SpinCo Benefit Plan that is a Health and Welfare Plan.

 

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(eee)               “SpinCo Leadership Retirement Plan” means the Yum China Holdings, Inc. Leadership Retirement Plan.

 

(fff)                “SpinCo Option” means a stock option issued under a SpinCo Equity Plan to purchase one or more SpinCo Shares in accordance with Section 6.01.

 

(ggg)               “SpinCo Percentage” means the quotient of (i) the SpinCo Post-Distribution Stock Value, divided by (ii) the Total Post-Distribution Stock Value, rounded to the nearest cent.

 

(hhh)              “SpinCo Post-Distribution Stock Value” means the volume weighted average per share price of one SpinCo Share, trading “regular-way,” as reported on the NYSE on the First Post-Distribution Trading Day.

 

(iii)                  “SpinCo Retirement Plan” means any SpinCo Benefit Plan that is a retirement or pension plan.

 

(jjj)                 “SpinCo RSU Award” means a restricted stock unit award issued by SpinCo in accordance with Section 6.01.

 

(kkk)              “SpinCo SAR” means a stock appreciation rights award issued by SpinCo in accordance with Section 6.01.

 

(lll)                  “SpinCo Shares” has the meaning set forth in the Separation and Distribution Agreement.

 

(mmm)          “Subsidiary” has the meaning set forth in the Separation and Distribution Agreement.

 

(nnn)              “Tax” has the meaning set forth in the Tax Matters Agreement.

 

(ooo)              “Tax Authority” has the meaning set forth in the Tax Matters Agreement.

 

(ppp)              “Tax Matters Agreement” means the Tax Matters Agreement entered into between the Parties in connection with the Distribution.

 

(qqq)              “Third Party” has the meaning set forth in the Separation and Distribution Agreement.

 

(rrr)                 “Third Party Claim” has the meaning set forth in Section 7.09(a).

 

(sss)                “Total Post-Distribution Stock Value” means the sum of (i) the YUM Post-Distribution Stock Value plus (ii) the SpinCo Post-Distribution Stock Value.

 

(ttt)                 “YUM” has the meaning set forth in the first paragraph of this Agreement.

 

(uuu)              “YUM 1997 LTIP” means the Yum 1997 Long Term Incentive Plan, as effective October 7, 1997.

 

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(vvv)              “YUM 1999 LTIP” means the YUM! Brands, Inc. 1999 Long Term Incentive Plan, as effective May 20, 1999, as amended.

 

(www)            “YUM 401(k) Plan” means the YUM! Brands 401(k) Plan, as effective January 1, 2013, as amended October 21, 2015.

 

(xxx)              “YUM Award” means a YUM Option, YUM SAR, YUM RSU Award or YUM PSU Award, as applicable, which are subject to adjustment in accordance with Section 6.01 and/or with respect to which corresponding SpinCo Awards will be issued pursuant to Section 6.01.

 

(yyy)              “YUM Benefit Plan” means a Benefit Plan sponsored by, maintained by, or contributed to by any member of the YUM Group, other than a SpinCo Benefit Plan.

 

(zzz)               “YUM Board” has the meaning set forth in the Recitals.

 

(aaaa)            “YUM Change of Control” has the meaning set forth in Section 6.01(b).

 

(bbbb)            “YUM Compensation Committee” means the Management Planning and Development Committee of the YUM Board.

 

(cccc)             “YUM Director Deferred Compensation Plan” means, collectively, the YUM Director Deferred Compensation 409A Plan and the YUM Director Deferred Compensation Pre-409A Plan.

 

(dddd)            “YUM Director Deferred Compensation 409A Plan” means the YUM! Brands Director Deferred Compensation Plan, as effective January 1, 2005, and as amended through November 14, 2008.

 

(eeee)             “YUM Director Deferred Compensation Pre-409A Plan” the Yum (f/k/a Tricon) Director Deferred Compensation Plan, as effective October 7, 1997.

 

(ffff)               “YUM EICP” means the YUM! Brands, Inc. Executive Incentive Compensation Plan, as effective May 20, 2004, and as Amended through the Second Amendment, as effective May 21, 2009.

 

(gggg)             “YUM EIDP” means, collectively, the YUM EIDP Pre-409A Program and the YUM EIDP 409A Program.

 

(hhhh)            “YUM EIDP Pre-409A Program” means the YUM! Brands Executive Income Deferral Program, as effective October 7, 1997, and as amended through May 16, 2002.

 

(iiii)                 “YUM EIDP 409A Program” means the YUM! Brands Executive Income Deferral Program, as effective January 1, 2005, and as amended through June 30, 2009.

 

(jjjj)                “YUM Equity Plan” means, collectively, the YUM 1997 LTIP, the YUM 1999 LTIP, the YUM GM Stock Plan, the YUM SharePower Plan, the YUM Performance Share Plan, and any incentive compensation program or arrangement that governs the terms of equity-

 

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based incentive awards assumed by the YUM Group in connection with a corporate transaction and that is maintained by the YUM Group immediately prior to the Distribution Date (excluding the SpinCo Equity Plan and any other plan maintained solely by SpinCo or any other member of the SpinCo Group), and any sub-plans established under those programs.

 

(kkkk)            “YUM Former Employee” means a Former Employee who is not a SpinCo Former Employee.

 

(llll)                 “YUM GM Stock Plan” means the YUM! Brands, Inc. Restaurant General Manager Stock Plan, as effective April 1, 1999, and as amended through June 23, 2003.

 

(mmmm)       “YUM Group” has the meaning set forth in the Separation and Distribution Agreement.

 

(nnnn)            “YUM Health and Welfare Plan” means a Health and Welfare Plan sponsored by, maintained by, or contributed to by any member of the YUM Group.

 

(oooo)            “YUM Leadership Retirement Plan” means the YUM! Brands Leadership Retirement Plan, as effective January 1, 2005, as amended through December 2009, and as otherwise amended.

 

(pppp)            “YUM Non-U.S. Retirement Plan” means any Benefit Plan that is a pension or retirement plan (other than a severance plan) that is maintained by any member of the YUM Group for the benefit of Employees employed outside the U.S., other than a SpinCo Benefit Plan.

 

(qqqq)            “YUM Option” means a stock option to purchase one or more YUM Shares granted under a YUM Equity Plan and outstanding immediately prior to the Distribution Date.

 

(rrrr)                “YUM Pension Equalization Plans” means, collectively, the YUM! Brands Pension Equalization Plan, as effective January 2005, and as Amended through December 31, 2010, and the YUM! Brands, Inc. Pension Equalization Plan, as effective January 2005, and as Amended through December 30, 2008, and as Amended effective January 1, 2012 and January 1, 2013, respectively.

 

(ssss)               “YUM Percentage” means the quotient of (i) the YUM Post-Distribution Stock Value, divided by (ii) the Total Post-Distribution Stock Value, rounded to the nearest fourth decimal place.

 

(tttt)                “YUM Performance Share Plan” means the YUM! Brands, Inc. Performance Shares Plan, as amended and restated January 1, 2013.

 

(uuuu)            “YUM Post-Distribution Stock Value” means the volume weighted average per share price of one YUM Share, trading “regular-way,” as reported on the NYSE on the First Post-Distribution Trading Date.

 

(vvvv)            “YUM PSU Award” means a performance stock unit award granted pursuant to a YUM Equity Plan and outstanding immediately prior to the Distribution Date.

 

(wwww)         “YUM RSU Award” means a restricted stock unit award granted pursuant to a YUM Equity Plan and outstanding immediately prior to the Distribution Date.

 

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(xxxx)            “YUM Retirement Plan” means the YUM! Brands Retirement Plan, a defined benefit plan.

 

(yyyy)            “YUM SAR” means a stock appreciation right award granted pursuant to a YUM Equity Plan and outstanding immediately prior to the Distribution Date.

 

(zzzz)             “YUM SharePower Plan” means the YUM SharePower Plan, as effective October 7, 1997, and as amended through June 23, 2003.

 

(aaaaa)          “YUM Shares” has the meaning set forth in the Separation and Distribution Agreement.

 

ARTICLE II

 

GENERAL PRINCIPLES

 

Section 2.01.         Allocation of Liabilities.

 

(a)           SpinCo Liabilities.  Effective as of the Effective Time (but in any case prior to the Distribution), and except as expressly provided in this Agreement, SpinCo hereby assumes (or retains) or will cause any other member of the SpinCo Group to assume (or retain) and agrees to (or to cause another member of the SpinCo Group to) pay, perform, fulfill, and discharge, all Liabilities (i) to the extent relating to, arising out of, or resulting from the employment (or termination of employment) of any SpinCo Employee or any SpinCo Former Employee, whether such Liabilities relate to or arise out of periods on, prior to or after the Distribution Date or (ii) which are expressly assumed or retained by the SpinCo Group pursuant to this Agreement.

 

(b)           YUM Liabilities.  Effective as of the Effective Time (but in any case prior to the Distribution), and except as expressly provided in this Agreement, YUM hereby assumes (or retains) or will cause any other member of the YUM Group to assume (or retain) and agrees to (or to cause another member of the YUM Group to) pay, perform, fulfill, and discharge, all Liabilities (i) to the extent relating to, arising out of, or resulting from the employment (or termination of employment) of any Retained Employee or any YUM Former Employee, whether such Liabilities relate to or arise out of periods on, prior to or after the Distribution Date or (ii) which are expressly assumed or retained by the YUM Group pursuant to this Agreement.

 

(c)           Intended Effect; Other Liabilities.  The intended effect of this Agreement, except to the extent expressly provided herein, is that (i) the SpinCo Group (or a member thereof) will assume or retain all Liabilities to or related to SpinCo Employees and SpinCo Former Employees and all Liabilities under or with respect to any SpinCo Benefit Plan or any Employment Agreement with any SpinCo Employee, and (ii) the YUM Group (or a member thereof) will assume and retain all Liabilities to or related to Employees and Former Employees other than SpinCo Employees and SpinCo Former Employees and all Liabilities under the YUM Benefit Plans (including those with respect to SpinCo Employees and SpinCo Former Employees) and any Employment Agreement with any Retained Employee.  To the extent that this Agreement does not address particular Liabilities and the Parties later determine that such Liabilities should be allocated in connection with the Separation, the Parties will agree in good faith on the allocation, taking into account the handling of comparable Liabilities under this Agreement.

 

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Section 2.02.         Employment with SpinCo.

 

(a)           Retention of Employees.  From and after the Effective Time, the Parties intend for SpinCo Employees to remain employed by the SpinCo Group on a basis consistent with Section 2.02(b).  The Parties will cooperate in good faith to identify clearly the SpinCo Employees.  SpinCo will be responsible for, and will indemnify the YUM Group from and against, any Liabilities incurred (including any severance payments made):  (i) in connection with the termination of a SpinCo Employee on or after the Distribution Date, (ii) arising from or in connection with a failure or refusal by any SpinCo Employee to continue in employment from and after the Distribution Date, and (iii) any other Liabilities retained or assumed by SpinCo (or any other member of the SpinCo Group) under this Agreement.

 

(b)           Compensation and Benefits.  Except as expressly provided in this Agreement, the SpinCo Group will provide to each SpinCo Employee as of the Distribution Date (i) base salary at the same rate as provided to that SpinCo Employee immediately prior to the Distribution Date, (ii) cash incentive compensation opportunities that are substantially similar to those offered to such SpinCo Employee immediately prior to the Distribution Date, and (iii) benefits under SpinCo Benefit Plans other than those specified in clause (ii) that are determined in the sole discretion of SpinCo (or the applicable member of the SpinCo Group) or otherwise as required by applicable Law, including the SpinCo Equity Plan and the SpinCo Leadership Retirement Plan.  Nothing in the preceding sentence will prevent the SpinCo Group from modifying the compensation and benefits of a SpinCo Employee after the Distribution Date.

 

Section 2.03.         Establishment of SpinCo Plans.  From and after the Distribution Date, SpinCo will (or will cause another member of the SpinCo Group to) adopt or continue in effect the SpinCo Benefit Plans (and related trusts, if applicable, as determined by the Parties) that were in effect prior to the Distribution Date and such other SpinCo Benefit Plans as determined in the discretion of the SpinCo Group (or any member thereof), subject to the terms and conditions of Section 2.02(b). Notwithstanding the foregoing or any other provision of this Agreement, SpinCo will adopt the SpinCo Equity Plan and the SpinCo Leadership Retirement Plan prior to the Distribution Date and shall cause the SpinCo Leadership Retirement Plan to reflect the assumption of Liabilities described in Section 3.07 hereof.

 

Section 2.04.         Transfers by Mutual Agreement.  The Parties recognize that, prior to and/or for a period of twelve (12) months from the Distribution Date, they may determine it to be in their mutual best interests to transfer an individual classified (or who would otherwise be classified) as a Retained Employee to the SpinCo Group or to transfer an individual classified (or who would otherwise be classified) as a SpinCo Employee to the YUM Group.  With the express written consent of each Party, such individual’s employment will be terminated by the YUM Group or the SpinCo Group, as applicable, and such Employee will be immediately hired by the other Party (such terminations and hires are referred to in this Section 2.04 as “transfers”).  Retained Employees (or a person who would otherwise be classified as a Retained Employee, in any case with such status being determined as of the date of transfer) who are subsequently transferred to the SpinCo Group pursuant to this Section 2.04 will be treated as Retained Employees for all purposes hereof during their time as Employees of the YUM Group until their actual transfer to the SpinCo Group, upon and following which the Parties will use commercially reasonable efforts to provide that they are treated as SpinCo Employees for all purposes hereof.  SpinCo Employees (or a person who would otherwise be classified as a SpinCo Employee, with

 

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such status being determined as of the date of transfer) who are subsequently transferred to the YUM Group pursuant to this Section 2.04 will be treated as SpinCo Employees for all purposes hereof during their time as Employees of the SpinCo Group until their actual transfer to the YUM Group, upon and following which the Parties will use commercially reasonable efforts to provide that they are treated as Retained Employees for all purposes hereof.

 

ARTICLE III

 

YUM U.S. QUALIFIED AND NON-QUALIFIED RETIREMENT AND DEFERRED COMPENSATION PLANS

 

Section 3.01.         YUM Retirement Plan.  From and after the Distribution Date, the YUM Retirement Plan will continue to be responsible for all Liabilities thereunder and no assets or Liabilities of the YUM Retirement Plan will be transferred to any SpinCo Benefit Plan and the SpinCo Group will not assume any Liabilities under or with respect to the YUM Retirement Plan.  Without limiting the generality of the foregoing, SpinCo Employees will cease to be active participants in the YUM Retirement Plan effective as of the Distribution Date and no SpinCo Employee will accrue any benefits under the YUM Retirement Plan for periods after the Distribution Date.  All SpinCo Employees will be fully vested in their accrued benefits under the YUM Retirement Plan effective as of the Distribution Date.

 

Section 3.02.         401(k) Plan.  From and after the Distribution Date, the YUM 401(k) Plan will continue to be responsible for all Liabilities thereunder and no assets or Liabilities of the YUM 401(k) Plan will be transferred to any SpinCo Benefit Plan and SpinCo will not assume any Liabilities under or with respect to the YUM 401(k) Plan.  Without limiting the generality of the foregoing, SpinCo Employees will cease to be active participants in the YUM 401(k) Plan effective as of the Distribution Date and no SpinCo Employee will accrue any benefits under the YUM 401(k) Plan for periods after the Distribution Date. All SpinCo Employees will be fully vested in their benefits under the YUM 401(k) Plan effective as of the Distribution Date.

 

Section 3.03.         YUM Pension Equalization Plans.  From and after the Distribution Date, the YUM Group will continue to be responsible for all Liabilities under and with respect to the YUM Pension Equalization Plans and SpinCo will not assume any Liabilities under or with respect to the YUM Pension Equalization Plans.  Without limiting the generality of the foregoing, SpinCo Employees will cease to be active participants in the YUM Pension Equalization Plans effective as of the Distribution Date and no SpinCo Employee will accrue any benefits under the YUM Pension Equalization Plans for periods after the Distribution Date.  All SpinCo Employees will be fully vested in their accrued benefits under the YUM Pension Equalization Plans effective as of the Distribution Date.  Except to the extent provided by the terms of the applicable YUM Pension Equalization Plan, no SpinCo Employee will be entitled to a distribution from any of the YUM Pension Equalization Plans effective as of the Distribution Date solely as a result of the Distribution.

 

Section 3.04.         YUM EIDP.  From and after the Distribution Date, the YUM Group will continue to be responsible for all Liabilities under and with respect to the YUM EIDP and SpinCo will not assume any Liabilities under or with respect to the YUM EIDP.  Without limiting the generality of the foregoing, SpinCo Employees will cease to be active participants in

 

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the YUM EIDP effective as of the Distribution Date and no SpinCo Employee will accrue any benefits under the YUM EIDP for periods after the Distribution Date except in accordance with the express terms and conditions of the YUM EIDP.  Except to the extent provided by the terms of the YUM EIDP, no SpinCo Employee will be entitled to a distribution from the YUM EIDP effective as of the Distribution Date solely as a result of the Distribution.

 

Section 3.05.         YUM EICP.  From and after the Distribution Date, the YUM Group will continue to be responsible for all Liabilities under and with respect to the YUM EICP and SpinCo will not assume any Liabilities under or with respect to the YUM EICP.  Without limiting the generality of the foregoing, SpinCo Employees will cease to be active participants in the YUM EICP effective as of the Distribution Date and no SpinCo Employee will accrue any benefits under the YUM EICP for periods after the Distribution Date except in accordance with the express terms and conditions of the YUM EICP.  Except to the extent provided by the terms of the YUM EICP, no SpinCo Employee will be entitled to a distribution from the YUM EICP effective as of the Distribution Date solely as a result of the Distribution.

 

Section 3.06.         YUM Director Deferred Compensation Plan.  From and after the Distribution Date, the YUM Group will continue to be responsible for all Liabilities under and with respect to the YUM Director Deferred Compensation Plan and SpinCo will not assume any Liabilities under or with respect to the YUM Director Deferred Compensation Plan.  Except to the extent provided by the terms of the YUM Director Deferred Compensation Plan, no participant will be entitled to a distribution from the YUM Director Deferred Compensation Plan effective as of the Distribution Date solely as a result of the Distribution.

 

Section 3.07.         YUM Leadership Retirement Plan. From and after the Distribution Date, the YUM Group will be responsible for all Liabilities under and with respect to the YUM Leadership Retirement Plan except those attributable to any SpinCo Employee or SpinCo Former Employee. SpinCo will assume all Liabilities under or with respect to the YUM Leadership Retirement Plan attributable to each SpinCo Employee and SpinCo Former Employee. SpinCo Employees and SpinCo Former Employees will cease to be participants in the YUM Leadership Retirement Plan effective as of the Distribution Date and no SpinCo Employee or SpinCo Former Employee will accrue any benefits under the YUM Leadership Retirement Plan for periods after the Distribution Date. From and after the Distribution Date, no member of the YUM Group will have any Liabilities under or with respect to Yum Leadership Retirement Plan to or with respect to SpinCo Employees or SpinCo Former Employees.

 

ARTICLE IV

 

YUM NON-U.S. RETIREMENT PLANS AND SPINCO RETIREMENT PLANS

 

Section 4.01.         YUM Non-U.S. Retirement Plans.  From and after the Distribution Date, each member of the YUM Group will continue to be responsible for all Liabilities under and with respect to any YUM Non-U.S. Retirement Plan to the extent that it was responsible for such Liabilities immediately prior to the Distribution Date, no assets or Liabilities of any such YUM Non-U.S. Retirement Plan will be transferred to SpinCo or any SpinCo Benefit Plan, and the SpinCo Group will not assume any Liabilities under or with respect to any such YUM Non-U.S. Retirement Plan for which the YUM Group was responsible immediately prior to the Distribution Date.  Without limiting the generality of the foregoing, SpinCo Employees will cease to be active participants in the YUM Non-U.S. Retirement Plans effective as of the Distribution Date and no SpinCo Employee will accrue any benefits under any YUM Non-U.S. Retirement Plan for periods after the Distribution Date.

 

Section 4.02.         SpinCo Retirement Plans.  From and after the Distribution Date, each member of the SpinCo Group will continue to be responsible for all Liabilities under and with respect to any SpinCo Retirement Plan, no assets or Liabilities of any SpinCo Retirement Plan will be transferred to any YUM Benefit Plan or any member of the YUM Group and no member of the YUM Group will assume or otherwise have any Liabilities under or with respect to any SpinCo Retirement Plan.  Without limiting the generality of the foregoing, Retained Employees will cease to be active participants in any SpinCo Retirement Plan effective as of the Distribution

 

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Date and no Retained Employee will accrue any benefits under any SpinCo Retirement Plan for periods after the Distribution Date except in accordance with the express terms and conditions of and applicable SpinCo Retirement Plan.  All Retained Employees are currently, and will remain, fully vested in their accrued benefits under the YUM Retirement Plan from and after the Distribution Date.

 

ARTICLE V

 

WELFARE AND FRINGE BENEFIT PLANS

 

Section 5.01.         Health and Welfare Plans.

 

(a)           Allocation of Liabilities; Generally.

 

(i)            Except as otherwise provided in this Agreement, from and after the Distribution Date, (A) the YUM Group and the YUM Health and Welfare Plans, as applicable, will continue to be responsible for all Liabilities under and with respect to the YUM Health and Welfare Plans (including all Incurred Claims, regardless of when the Incurred Claim arose or was incurred), (B) the YUM Group and the YUM Health and Welfare Plans, as applicable, will retain all assets relating to or associated with the YUM Health and Welfare Plans and Incurred Claims (including Medicare reimbursements, insurance payments and reimbursements, pharmaceutical rebates, and similar items), and (C) no assets or Liabilities of the YUM Health and Welfare Plans will be transferred to any SpinCo Benefit Plan and the SpinCo Group will not assume any Liabilities under or with respect to the YUM Health and Welfare Plans.  Without limiting the generality of the foregoing, SpinCo Employees will cease to be active participants in the YUM Health and Welfare Plans effective as of the Distribution Date and no SpinCo Employee will be entitled to any benefits under the YUM Health and Welfare Plans for periods on or after the Distribution Date except as required by applicable Law.

 

(ii)           Except as otherwise provided in this Agreement, from and after the Distribution Date, (A) the SpinCo Group and the SpinCo Health and Welfare Plans, as applicable, will continue to be responsible for all Liabilities under and with respect to the SpinCo Health and Welfare Plans (including all Incurred Claims, regardless of when the Incurred Claim arose or was incurred), (B) the SpinCo Group and the SpinCo Health and Welfare Plans, as applicable, will retain all assets relating to or associated with the SpinCo Health and Welfare Plans and Incurred Claims (including Medicare reimbursements, insurance payments and reimbursements, pharmaceutical rebates, and similar items), and (C) no assets or Liabilities of the SpinCo Health and Welfare Plans will be transferred to any YUM Benefit Plan and the YUM Group will not assume any Liabilities under or with respect to the SpinCo Health and Welfare Plans.  Without limiting the generality of the foregoing, YUM Employees will cease to be active participants in the SpinCo Health and Welfare Plans effective as of the Distribution Date and no YUM Employee will be entitled to any benefits under the SpinCo Health and Welfare Plans for periods on or after the Distribution Date except as required by applicable Law.

 

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(b)           COBRA.  Without limiting the generality of Section 5.01(a), the YUM Group will continue to be responsible for compliance with the health care continuation requirements of COBRA, and the corresponding provisions of the YUM Health and Welfare Plans with respect to any (i) Retained Employees and any Former Employees (and their covered dependents) who incur a qualifying event under COBRA on, prior to, or following the Distribution Date, and (ii) any SpinCo Employees (and their covered dependents) who incur a qualifying event under COBRA on or prior to the Distribution Date.

 

Section 5.02.         Vacation, Holidays and Leaves of Absence.  Effective as of the Distribution Date, SpinCo will (or will cause any other member of the SpinCo Group to) retain (or assume) all Liabilities of the YUM Group with respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for each SpinCo Employee and each SpinCo Former Employee.  YUM will (or will cause any other member of the YUM Group to) retain all Liabilities with respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for all Retained Employees and YUM Former Employees.

 

Section 5.03.         Severance and Unemployment Compensation.  Effective as of the Distribution Date, SpinCo will (or will cause another member of the SpinCo Group to) retain (or assume) all Liabilities to, or relating to, SpinCo Employees and SpinCo Former Employees in respect of severance and unemployment compensation.  The YUM Group will be responsible for any and all Liabilities to, or relating to, Retained Employees and YUM Former Employees in respect of severance and unemployment compensation.

 

Section 5.04.         Workers’ Compensation.  With respect to claims for workers’ compensation in the United States, (a) the SpinCo Group will be responsible for claims in respect of SpinCo Employees and SpinCo Former Employees, whether occurring or related to events occurring prior to, on or following the Distribution Date, and (b) the YUM Group will be responsible for all claims in respect of Retained Employees and YUM Former Employees, whether occurring or related to events occurring prior to, on or following the Distribution Date.

 

ARTICLE VI

 

EQUITY AND INCENTIVE PROGRAMS

 

Section 6.01.         Equity Plans.

 

(a)           The Parties will use commercially reasonable efforts to take all actions necessary or appropriate so that each outstanding YUM Option, YUM SAR, YUM RSU Award, and YUM PSU Award granted under a YUM Equity Plan will be adjusted as set forth in this Section 6.01.

 

(i)            YUM Options.  As determined by the YUM Compensation Committee pursuant to its authority under the applicable YUM Equity Plan, each YUM Option, regardless of by whom held, whether vested or unvested, will be converted effective as of the Distribution Date as described in this Section 6.01(a)(i).

 

(A)          Each YUM Option held by a Special Conversion Employee will be converted effective as of the Distribution Date into either an Adjusted YUM Option (for Retained Employees and YUM Former Employees) or a SpinCo

 

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Option (for SpinCo Employees and SpinCo Former Employees).  Except as otherwise provided in this Section 6.01, each Adjusted YUM Option and each SpinCo Option will be subject to the same terms and conditions (including with respect to vesting and termination) after the conversion as applied to such YUM Option immediately prior to the conversion; provided, however, that:

 

(1)           the per share exercise price of each Adjusted YUM Option subject to this Section 6.01(a)(i)(A) will be equal to the product of (I) the YUM Post-Distribution Stock Value, multiplied by (II) the Pre-Spin Price Ratio, rounded up to the nearest cent;

 

(2)           the number of YUM Shares subject to each Adjusted YUM Option subject to this Section 6.01(a)(i)(A) will be equal to the quotient of (I) the Intrinsic Value of the Pre-Distribution YUM Option; divided by (II) the difference between (A) the YUM Post-Distribution Stock Value and (B) the exercise price calculated pursuant to Section 6.01(a)(i)(A)(1), rounded down to the nearest whole share;

 

(3)           the per share exercise price of each SpinCo Option subject to this Section 6.01(a)(i)(A) will be equal to the product of (I) the SpinCo Post-Distribution Stock Value, multiplied by (II) the Pre-Spin Price Ratio, rounded up to the nearest cent;

 

(4)           the number of SpinCo Shares subject to each SpinCo Option subject to this Section 6.01(a)(i)(A) will be equal to the quotient of (I) the Intrinsic Value of the Pre-Distribution YUM Option; divided by (II) the difference between (A) the SpinCo Post-Distribution Stock Value and (B) the exercise price calculated pursuant to Section 6.01(a)(i)(A)(3), rounded down to the nearest whole share;

 

provided, however, that the exercise price, the number of YUM Shares and the number of SpinCo Shares subject to such awards, and the terms and conditions of exercise of such awards will be determined (x) in a manner that is consistent with Code Section 409A and, (y) in the case of any YUM Option to which Code Section 421 applies by reason of its qualification under Code Section 422 immediately prior to the Distribution Date, in a manner consistent with the requirements of Code Section 424(a).

 

(5)           Except where prohibited by local law, if the sum of the differences between (I) the Intrinsic Value of the Pre-Distribution YUM Option, minus (II) the Intrinsic Value of the Post-Distribution Adjusted YUM Option for all Adjusted YUM Options subject to this Section 6.01(a)(i)(A) held by the same holder is $20.00 or more, then the holder of such Adjusted YUM Options will receive payment in respect of each such Adjusted YUM Option in an amount equal to such difference, calculated separately for each such Adjusted YUM Option.

 

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(6)           Except where prohibited by local law, if the sum of the differences between (I) the Intrinsic Value of the Pre-Distribution YUM Option, minus (II) the Intrinsic Value of the Post-Distribution SpinCo Option for all SpinCo Options subject to this Section 6.01(a)(i)(A) held by the same holder is $20.00 or more, then the holder of such SpinCo Options will receive payment in respect of each such SpinCo Option in an amount equal to such difference, calculated separately for each such SpinCo Option.

 

(7)           For purposes of this Section 6.01(a)(i)(A) only, the following terms shall have the following meanings:

 

(I)            “Intrinsic Value of the Post-Distribution Adjusted YUM Option” shall mean, rounded to the nearest cent, the product of (A) the number of YUM Shares subject to Adjusted YUM Options issued pursuant to Section 6.01(a)(i)(A)(2), multiplied by (B) the difference between (x) the YUM Post-Distribution Stock Value minus (y) the per share exercise price calculated pursuant to Section 6.01(a)(i)(A)(1); and

 

(II)          “Intrinsic Value of the Post-Distribution SpinCo Option” shall mean, rounded to the nearest cent, the product of (A) the number of SpinCo Shares subject to SpinCo Options issued pursuant to Section 6.01(a)(i)(A)(4), multiplied by (B) the difference between (x) the SpinCo Post-Distribution Stock Value minus (y) the per share exercise price calculated pursuant to Section 6.01(a)(i)(A)(3).

 

(B)          Each YUM Option other than those described in Section 6.01(a)(i)(A) will be converted effective as of the Distribution Date into both an Adjusted YUM Option and a SpinCo Option.  Except as otherwise provided in this Section 6.01, each Adjusted YUM Option and each SpinCo Option will be subject to the same terms and conditions (including with respect to vesting and termination) after the conversion as applied to such YUM Option immediately prior to the conversion; provided, however, that:

 

(1)           the per share exercise price of each Adjusted YUM Option subject to this Section 6.01(a)(i)(B), will be equal to the product of (I) the YUM Post-Distribution Stock Value, multiplied by (II) the Pre-Spin Price Ratio, rounded up to the nearest cent;

 

(2)           the number of YUM Shares subject to each Adjusted YUM Option subject to this Section 6.01(a)(i)(B), rounded down to the nearest whole share, will be equal to the quotient of (I) the product of (A) the Intrinsic Value of the Pre-Distribution YUM Option, multiplied by (B) the YUM Percentage, divided by (II) the difference between (A) the YUM

 

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Post-Distribution Stock Value, minus (B) the per share exercise price calculated pursuant to Section 6.01(a)(i)(B)(1);

 

(3)           the per share exercise price of each SpinCo Option issued pursuant to this Section 6.01(a)(i)(B) will be equal to the product of (I) the SpinCo Post-Distribution Stock Value, multiplied by (II) the Pre-Spin Price Ratio, rounded up to the nearest cent; and

 

(4)           the number of SpinCo Shares subject to each SpinCo Option issued pursuant to this Section 6.01(a)(i)(B), rounded down to the nearest whole share, will be equal to the quotient of (I) the product of (A) the Intrinsic Value of the Pre-Distribution YUM Option, multiplied by (B) the SpinCo Percentage, divided by (II) the difference between (A) the SpinCo Post-Distribution Stock Value, minus (B) the per share exercise price calculated pursuant to Section 6.01(a)(i)(B)(3);

 

provided, however, that the exercise price, the number of YUM Shares and the number of SpinCo Shares subject to such awards, and the terms and conditions of exercise of such awards will be determined (x) in a manner that is consistent with Code Section 409A, and (y) in the case of any YUM Option to which Code Section 421 applies by reason of its qualification under Code Section 422 immediately prior to the Distribution Date, in a manner consistent with the requirements of Code Section 424(a).

 

(5)           Except where prohibited by local law, if the sum of the differences between (I) the Intrinsic Value of the Pre-Distribution YUM Option and (II) the Intrinsic Value of the Post-Distribution Option for all YUM Options subject to this Section 6.01(a)(i)(B) held by the same holder is $20.00 or more, then the holder of such YUM Options will receive payment in respect of each such YUM Option in an amount equal to such difference, calculated separately for each such YUM Option.

 

(6)           For purposes of this Section 6.01(a)(i)(B) only, the following terms shall have the following meanings:

 

(I)            “Intrinsic Value of the Post-Distribution Adjusted YUM Option” shall mean, rounded to the nearest cent, the product of (A) the number of YUM Shares subject to Adjusted YUM Options issued pursuant to Section 6.01(a)(i)(B)(2), multiplied by (B) the difference between (x) the YUM Post-Distribution Stock Value, minus (y) the per share exercise price calculated pursuant to Section 6.01(a)(i)(B)(1).

 

(II)          “Intrinsic Value of the Post-Distribution SpinCo Option” shall mean, rounded to the nearest cent, the product of (A) the number of SpinCo Shares subject to SpinCo Options issued pursuant to Section 6.01(a)(i)(B)(4), multiplied by (B) the difference between (x) the SpinCo Post-Distribution Stock Value,

 

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minus (y) the per share exercise price calculated pursuant to Section 6.01(a)(i)(B)(3).

 

(III)        “Intrinsic Value of the Post-Distribution Option” shall mean, rounded to the nearest cent, the sum of (A) the Intrinsic Value of the Post-Distribution Adjusted YUM Option plus (B) the Intrinsic Value of the Post-Distribution SpinCo Option.

 

(ii)           YUM SARS.  As determined by the YUM Compensation Committee pursuant to its authority under the applicable YUM Equity Plan, each YUM SAR, regardless of by whom held, whether vested or unvested, will be converted effective as of the Distribution Date as described in this Section 6.01(a)(ii).

 

(A)          Each YUM SAR held by a Special Conversion Employee will be converted effective as of the Distribution Date into either an Adjusted YUM SAR (for Retained Employees and YUM Former Employees) or a SpinCo SAR (for SpinCo Employees and SpinCo Former Employees).  Except as otherwise provided in this Section 6.01, each Adjusted YUM SAR and each SpinCo SAR will be subject to the same terms and conditions (including with respect to vesting and termination) after the conversion as applied to such YUM SAR immediately prior to the conversion; provided, however, that:

 

(1)           the per share exercise price of each Adjusted YUM SAR subject to this Section 6.01(a)(ii)(A) will be equal to the product of (I) the YUM Post-Distribution Stock Value, multiplied by (II) the Pre-Spin Price Ratio, rounded up to the nearest cent;

 

(2)           the number of YUM Shares subject to each Adjusted YUM SAR subject to this Section 6.01(a)(ii)(A) will be equal to the quotient of (I) the Intrinsic Value of the Pre-Distribution YUM SAR; divided by (II) the difference between (A) the YUM Post-Distribution Stock Value and (B) the exercise price calculated pursuant to Section 6.01(a)(ii)(A)(1), rounded down to the nearest whole share;

 

(3)           the per share exercise price of each SpinCo SAR subject to this Section 6.01(a)(ii)(A) will be equal to the product of (I) the SpinCo Post-Distribution Stock Value, multiplied by (II) the Pre-Spin Price Ratio, rounded up to the nearest cent;

 

(4)           the number of SpinCo Shares subject to each SpinCo SAR subject to this Section 6.01(a)(ii)(A) will be equal to the quotient of (I) the Intrinsic Value of the Pre-Distribution YUM SAR; divided by (II) the difference between (A) the SpinCo Post-Distribution Stock Value and (B) the exercise price calculated pursuant to Section 6.01(a)(ii)(A)(3), rounded down to the nearest whole share;

 

provided, however, that the exercise price, the number of YUM Shares and the number of SpinCo Shares subject to such awards, and the terms and conditions of exercise of such awards

 

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will be determined (x) in a manner that is consistent with Code Section 409A, and (y) in the case of any YUM SAR to which Code Section 421 applies by reason of its qualification under Code Section 422 immediately prior to the Distribution Date, in a manner consistent with the requirements of Code Section 424(a).

 

(5)                                 Except where prohibited by local law, if the sum of the differences between (I) the Intrinsic Value of the Pre-Distribution YUM SAR, minus (II) the Intrinsic Value of the Post-Distribution Adjusted YUM SAR for all Adjusted YUM SARs subject to this Section 6.01(a)(ii)(A) held by the same holder is $20.00 or more, then the holder of such Adjusted YUM SARs will receive payment in respect of each such Adjusted YUM SAR in an amount equal to such difference, calculated separately for each such Adjusted YUM SAR.

 

(6)                                 Except where prohibited by local law, if the sum of the differences between (I) the Intrinsic Value of the Pre-Distribution YUM SAR, minus (II) the Intrinsic Value of the Post-Distribution SpinCo SAR for all SpinCo SARs subject to this Section 6.01(a)(ii)(A) held by the same holder is $20.00 or more, then the holder of such SpinCo SARs will receive payment in respect of each such SpinCo SAR in an amount equal to such difference, calculated separately for each such SpinCo SAR.

 

(7)                                 For purposes of this Section 6.01(a)(ii)(A) only, the following terms shall have the following meanings:

 

(I)                                   “Intrinsic Value of the Post-Distribution Adjusted YUM SAR” shall mean, rounded to the nearest cent, the product of (A) the number of YUM Shares subject to Adjusted YUM SARs issued pursuant to Section 6.01(a)(ii)(A)(2), multiplied by (B) the difference between (x) the YUM Post-Distribution Stock Value, minus (y) the per share exercise price calculated pursuant to Section 6.01(a)(ii)(A)(1); and

 

(II)                              “Intrinsic Value of the Post-Distribution SpinCo SAR” shall mean, rounded to the nearest cent, the product of (A) the number of SpinCo Shares subject to SpinCo SARs issued pursuant to Section 6.01(a)(ii)(A)(4), multiplied by (B) the difference between (x) the SpinCo Post-Distribution Stock Value, minus (y) the per share exercise price calculated pursuant to Section 6.01(a)(ii)(A)(3).

 

(B)                               Each YUM SAR other than those described in Section 6.01(a)(ii)(A) will be converted effective as of the Distribution Date into both an Adjusted YUM SAR and a SpinCo SAR.  Except as otherwise provided in this Section 6.01, each Adjusted YUM SAR and each SpinCo SAR will be subject to the same terms and conditions (including with respect to vesting and termination)

 

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after the conversion as applied to such YUM SAR immediately prior to the conversion; provided, however, that:

 

(1)                                 the per share exercise price of each Adjusted YUM SAR subject to this Section 6.01(a)(ii)(B) will be equal to the product of (I) the YUM Post-Distribution Stock Value, multiplied by (II) the Pre-Spin Price Ratio, rounded up to the nearest cent;

 

(2)                                 the number of YUM Shares subject to each Adjusted YUM SAR subject to this Section 6.01(a)(ii)(B), rounded down  to the nearest whole share, will be equal to the quotient of (I) the product of (A) the Intrinsic Value of the Pre-Distribution YUM SAR, multiplied by (B) the YUM Percentage, divided by (II) the difference between (A) the YUM Post-Distribution Stock Value, minus (B) the per share exercise price calculated pursuant to Section 6.01(a)(ii)(B)(1);

 

(3)                                 the per share exercise price of each SpinCo SAR issued pursuant to this Section 6.01(a)(ii)(B) will be equal to the product of (I) the SpinCo Post-Distribution Stock Value, multiplied by (II) the Pre-Spin Price Ratio, rounded up to the nearest cent; and

 

(4)                                 the number of SpinCo Shares subject to each SpinCo SAR issued pursuant to this Section 6.01(a)(ii)(B), rounded down to the nearest whole share, will be equal to the quotient of (I) the product of (A) the Intrinsic Value of the Pre-Distribution YUM SAR, multiplied by (B) the SpinCo Percentage, divided by (II) the difference between (A) the SpinCo Post-Distribution Stock Value, minus (B) the per share exercise price calculated pursuant to Section 6.01(a)(ii)(B)(3);

 

provided, however, that the exercise price, the number of YUM Shares and the number of SpinCo Shares subject to such awards, and the terms and conditions of exercise of such awards will be determined (x) in a manner that is consistent with Code Section 409A, and (y) in the case of any YUM SAR to which Code Section 421 applies by reason of its qualification under Code Section 422 immediately prior to the Distribution Date, in a manner consistent with the requirements of Code Section 424(a).

 

(5)                                 Except where prohibited by local law, if the sum of the differences between (I) the Intrinsic Value of the Pre-Distribution YUM SAR and (II) the Intrinsic Value of the Post-Distribution SAR for all YUM SARs subject to this Section 6.01(a)(ii)(B) held by the same holder is $20.00 or more, then the holder of such YUM SARs will receive payment in respect of each such YUM SAR in an amount equal to such difference, calculated separately for each such YUM SAR.

 

(6)                                 For purposes of this Section 6.01(a)(ii)(B) only, the following terms shall have the following meanings:

 

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(I)                                   “Intrinsic Value of the Post-Distribution Adjusted YUM SAR” shall mean, rounded to the nearest cent, the product of (A) the number of YUM Shares subject to Adjusted YUM SARs issued pursuant to Section 6.01(a)(ii)(B)(2), multiplied by (B) the difference between (x) the YUM Post-Distribution Stock Value, minus (y) the per share exercise price calculated pursuant to Section 6.01(a)(ii)(B)(1).

 

(II)                              “Intrinsic Value of the Post-Distribution SpinCo SAR” shall mean, rounded to the nearest cent, the product of (A) the number of SpinCo Shares subject to SpinCo SARs issued pursuant to Section 6.01(a)(ii)(B)(4), multiplied by (B) the difference between (x) the SpinCo Post-Distribution Stock Value, minus (y) the per share exercise price calculated pursuant to Section 6.01(a)(ii)(B)(3).

 

(III)                         “Intrinsic Value of the Post-Distribution SAR” shall mean, rounded to the nearest cent, the sum of (A) the Intrinsic Value of the Post-Distribution Adjusted YUM SAR plus (B) the Intrinsic Value of the Post-Distribution SpinCo SAR.

 

(iii)                               YUM RSU Awards.  As determined by the YUM Compensation Committee pursuant to its authority under the applicable YUM Equity Plan, each YUM RSU Award, regardless of by whom held, whether vested or unvested, will be converted effective as of the Distribution Date as described in this Section 6.01(a)(iii).

 

(A)                               Except as otherwise provided in the Employment Agreement or offer letter of a holder of a YUM RSU Award, each YUM RSU Award held by a Special Conversion Employee will be converted effective as of the Distribution Date into either an Adjusted YUM RSU Award (for Retained Employees and YUM Former Employees) or a SpinCo RSU Award (for SpinCo Employees and SpinCo Former Employees).  Except as otherwise provided in this Section 6.01, each Adjusted YUM RSU Award and each SpinCo RSU Award be subject to the same terms and conditions (including with respect to vesting, settlement and termination) after the conversion as applied to such YUM RSU Award immediately prior to the conversion; provided, however, that:

 

(1)                                 the number of YUM Shares (including those attributable to dividend equivalent units) subject to each Adjusted YUM RSU Award subject to this Section 6.01(a)(iii)(A) will be equal to the quotient of (I) the product of (a) the number of YUM Shares (including those attributable to dividend equivalent units) subject to the corresponding YUM RSU Award immediately prior to the Distribution Date, multiplied by (b) the Pre-Distribution Stock Value, rounded to the nearest cent; divided by (II) the YUM Post-Distribution Stock Value, rounded down to the nearest whole number;

 

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(2)                                 the number of SpinCo Shares subject to each SpinCo RSU Award (including those attributable to dividend equivalent units) subject to this Section 6.01(a)(iii)(A) will be equal to the quotient of (I) the product of (a) the number of YUM Shares (including those attributable to dividend equivalent units) subject to the corresponding YUM RSU Award immediately prior to the Distribution Date, multiplied by (b) the Pre-Distribution Stock Value, rounded to the nearest cent; divided by (II) the SpinCo Post-Distribution Stock Value, rounded down to the nearest whole number.

 

(3)                                 Except where prohibited by local law, if the sum of the differences between (I) the Intrinsic Value of the Pre-Distribution YUM RSU Award, minus (II) the Intrinsic Value of the Post-Distribution SpinCo RSU Award for all SpinCo RSUs subject to this Section 6.01(a)(iii)(A) held by the same holder is $20.00 or more, then the holder of such SpinCo RSUs will receive payment in respect of each such SpinCo RSU in an amount equal to such difference, calculated separately for each such SpinCo RSU.

 

(4)                                 For purposes of this Section 6.01(a)(iii)(A) only, the following terms shall have the following meanings:

 

(I)                                   “Intrinsic Value of the Post-Distribution Adjusted YUM RSU” shall mean, rounded to the nearest cent, the product of (A) the number of YUM Shares subject to Adjusted YUM RSUs issued pursuant to Section 6.01(a)(iii)(A)(1), multiplied by (B) the YUM Post-Distribution Stock Value; and

 

(II)                              “Intrinsic Value of the Post-Distribution SpinCo RSU” shall mean, rounded to the nearest cent, the product of (A) the number of SpinCo Shares subject to SpinCo RSUs issued pursuant to Section 6.01(a)(iii)(A)(2), multiplied by (B) the SpinCo Post-Distribution Stock Value.

 

(B)                               Except as otherwise provided in the Employment Agreement or offer letter of a holder of a YUM RSU Award, effective as of the Distribution Date, each holder of an outstanding YUM RSU Award other than those described in Section 6.01(a)(iii)(A) will receive an Adjusted YUM RSU Award and a SpinCo RSU Award.  Except as otherwise provided in this Section 6.01, each Adjusted YUM RSU Award and each SpinCo RSU Award will be subject to the same terms and conditions (including with respect to vesting, settlement and termination) after the conversion as applied to such YUM RSU Award immediately prior to the conversion; provided, however, that:

 

(1)                                 the number of YUM Shares (including those attributable to dividend equivalent units) subject to each Adjusted YUM RSU Award subject to this Section 6.01(a)(iii)(B) will be equal to the product of (I) the

 

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number of YUM Shares (including those attributable to dividend equivalent units) subject to the corresponding YUM RSU Award immediately prior to the Distribution Date, multiplied by (II) the Distribution Ratio, rounded down to the nearest whole number;

 

(2)                                 the number of SpinCo Shares (including those attributable to dividend equivalent units) subject to each SpinCo RSU Award subject to this Section 6.01(a)(iii)(B) will be equal to the quotient of (I) the number of YUM Shares (including those attributable to dividend equivalent units) subject to the corresponding YUM RSU Award immediately prior to the Distribution Date, divided by (II) the Distribution Ratio, rounded down to the nearest whole number.

 

(3)                                 Except where prohibited by local law, if the sum of the differences between (I) the Intrinsic Value of the Pre-Distribution YUM RSU Award, minus (II) the Intrinsic Value of the Post-Distribution RSU for all YUM RSUs subject to this Section 6.01(a)(iii)(A) held by the same holder is $20.00 or more, then the holder of such YUM RSUs will receive payment in respect of each such YUM RSU in an amount equal to such difference, calculated separately for each such YUM RSU.

 

(4)                                 For purposes of this Section 6.01(a)(iii)(B) only, the following terms shall have the following meanings:

 

(I)                                   “Intrinsic Value of the Post-Distribution Adjusted YUM RSU” shall mean, rounded to the nearest cent, the product of (A) the number of YUM Shares subject to Adjusted YUM RSU issued pursuant to Section 6.01(a)(iii)(B)(1), multiplied by (B) the YUM Post-Distribution Stock Value.

 

(II)                              “Intrinsic Value of the Post-Distribution SpinCo RSU” shall mean, rounded to the nearest cent, the product of (A) the number of SpinCo Shares subject to SpinCo RSU issued pursuant to Section 6.01(a)(iii)(B)(2), multiplied by (B) the SpinCo Post-Distribution Stock Value.

 

(III)                         “Intrinsic Value of the Post-Distribution RSU” shall mean, rounded to the nearest cent, the sum of (A) the Intrinsic Value of the Post-Distribution Adjusted YUM RSU plus (B) the Intrinsic Value of the Post-Distribution SpinCo RSU.

 

(iv)                              YUM PSU Awards.  Each YUM PSU Award outstanding on the Distribution Date will be converted effective as of the Distribution Date into an Adjusted YUM PSU Award. Except as otherwise provided in this Section 6.01, each Adjusted YUM PSU Award will be subject to the same terms and conditions (including with respect to vesting, settlement and termination) after the conversion as applied to the

 

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corresponding YUM PSU Award immediately prior to the conversion; provided, however, that:

 

(A)                               the number of YUM Shares subject to each Adjusted YUM PSU Award subject to this Section 6.01(a)(iv) will be equal to the quotient of (I) the product of (a) the number of YUM Shares subject to the corresponding YUM PSU Award immediately prior to the Distribution Date, multiplied by (b) the Pre-Distribution Stock Value, rounded to the nearest cent; divided by (II) the YUM Post-Distribution Stock Value, rounded to four decimal places; and

 

(B)                               the performance criteria and performance targets under each Adjusted YUM PSU Award subject to this Section 6.01(a)(iv) will be equitably adjusted prior to the Distribution as determined appropriate or required in the sole discretion of the YUM Compensation Committee.

 

(b)                                 Miscellaneous Award Terms.  After the Distribution Date, Adjusted YUM Awards, regardless of by whom held, will be settled by YUM, and SpinCo Awards, regardless of by whom held, will be settled by SpinCo.  Except as otherwise provided in this Agreement, with respect to grants described in this Section 6.01, (i) no SpinCo Employee will be treated as having incurred a termination of employment with respect to any YUM Award solely by reason of the transfer of employment, (ii) employment with the YUM Group will be treated as employment with SpinCo with respect to SpinCo Awards held by Retained Employees, and (iii) employment with the SpinCo Group will be treated as employment with YUM with respect to Adjusted YUM Awards held by SpinCo Employees.  In addition, none of the Separation, the Distribution, or any employment transfer described in Section 2.04 will constitute a termination of employment for any Employee for purposes of any Adjusted YUM Award or any SpinCo Award.  Following the Distribution Date, for any award adjusted under this Section 6.01, any reference to a “change in control,” “change of control” or similar definition in an award agreement, Employment Agreement or YUM Equity Plan applicable to such award (A) with respect to Adjusted YUM Awards, will be deemed to refer to a “change in control,” “change of control” or similar definition as set forth in the applicable award agreement, Employment Agreement or YUM Equity Plan (a “YUM Change of Control”), and (B) with respect to SpinCo Awards, will be deemed to refer to a “Change in Control” as defined in the SpinCo Equity Plan (a “SpinCo Change of Control”).  Without limiting the foregoing, with respect to provisions related to vesting of awards (including lapse of performance conditions, if applicable), a YUM Change of Control will be treated as a SpinCo Change of Control for purposes of SpinCo Awards held by Retained Employees and YUM Former Employees, and a SpinCo Change of Control will be treated as a YUM Change of Control for purposes of Adjusted YUM Awards held by SpinCo Employees and SpinCo Former Employees.

 

(c)                                  Tax Reporting and Withholding.  Following the Distribution Date, it is expected that: (i) YUM will be responsible for all income, payroll and other tax remittance and reporting related to income of Retained Employees, YUM Former Employees, and individuals who are or were YUM non-employee directors in respect of Adjusted YUM Awards and SpinCo Awards; and (ii) SpinCo will be responsible for all income, payroll and other tax remittance and reporting related to income of SpinCo Employees and SpinCo Former Employees in respect of Adjusted YUM Awards and SpinCo Awards.  YUM or SpinCo, as applicable, will facilitate performance

 

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by the other Party of its obligations hereunder by promptly remitting amounts or shares withheld in conjunction with a transfer of shares or cash, either (as mutually agreed by the Parties) directly to the applicable taxing authority or to the other Party for remittance to such taxing authority.  The Parties will cooperate and communicate with each other and with third-party providers to effectuate withholding and remittance of taxes, as well as required tax reporting, in a timely, efficient and appropriate manner.

 

(d)                                 Registration and Other Regulatory Requirements.  Prior to the Distribution Date (and in any case before the date of issuance of any SpinCo Shares pursuant to the SpinCo Equity Plan), SpinCo agrees to file a Form S-8 registration statement (or an S-1 or S-3 if a Form S-8 Registration Statement is not then available for any such awards to be granted in accordance with the terms of this Agreement) with respect to, and to cause to be registered pursuant to the Securities Act, the SpinCo Shares authorized for issuance under the SpinCo Equity Plan, as required pursuant to the Securities Act.  The Parties will take such additional actions as are deemed necessary or advisable to effectuate the foregoing provisions of this Section 6.01, including compliance with securities Laws and other legal requirements associated with equity compensation awards in affected non-U.S. jurisdictions.  YUM agrees to facilitate the adoption and approval of the SpinCo Equity Plan consistent with the requirements of Treasury Regulations Section 1.162-27(f)(4)(iii).

 

(e)                                  YUM Equity-Based Awards in Certain Non-U.S.  Jurisdictions.  Notwithstanding the foregoing provisions of this Section 6.01, the Parties may mutually agree, in their sole discretion, not to adjust certain outstanding YUM equity-based awards pursuant to the foregoing provisions of this Section 6.01 where those actions would create or trigger adverse legal, accounting or tax consequences for YUM, SpinCo and/or the affected non-U.S. award holders.  In such circumstances, YUM and/or SpinCo may take any action necessary or advisable to prevent any such adverse legal, accounting or tax consequences, including agreeing that the outstanding YUM equity-based awards of the affected non-U.S. award holders will terminate in accordance with the terms of the YUM Equity Plans and the underlying award agreements, in which case SpinCo or YUM, as applicable, will equitably compensate the affected non-U.S. award holders in an alternate manner determined by SpinCo or YUM, as applicable, in its sole discretion, or apply an alternate adjustment method.  Where and to the extent required by applicable Law or tax considerations outside the United States, the adjustments described in this Section 6.01 will be deemed to have been effectuated immediately prior to the Distribution Date.

 

(f)                                   Limitations on Value After Conversion of Awards.  Notwithstanding any other provision of this Agreement to the contrary, in the case of any YUM Option or YUM SAR, all conversions and adjustments pursuant to this Section 6.01 will be made in accordance with Code Sections 409A and 424.  Without limiting the generality of the preceding sentence, in no event shall the excess of the aggregate fair market value of the YUM Shares and/or SpinCo Shares subject to any Adjusted YUM Option or Adjusted YUM SAR and a corresponding SpinCo Option or SpinCo SAR, as applicable, plus the value of any cash payment to be made pursuant to the individual pursuant to Sections 6.01(a)(i)(A)(5), 6.01(a)(i)(A)(6), 6.01(a)(i)(B)(5), 6.01(a)(ii)(A)(5), 6.01(a)(ii)(A)(6) or 6.01(a)(ii)(B)(5) exceed the fair market value of the number of YUM Shares subject to the corresponding YUM Option or YUM SAR immediately prior to the Distribution Date.  In addition, following the conversion or adjustment, the ratio of the exercise price to the fair market value of the YUM Shares or SpinCo Shares, as applicable,

 

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subject to the Adjusted YUM Option, Adjusted YUM SAR and corresponding SpinCo Option or SpinCo SAR, as applicable, shall not exceed the ratio of the exercise price to the fair market value of the shares subject to the YUM Option or YUM SAR, as applicable, immediately before the Distribution Date.  For purposes of this Section 6.01(f), the fair market value of YUM Shares or SpinCo Shares, as of any date, will be equal to the volume weighted average per share price of one YUM Share or SpinCo Share, as applicable, trading “regular-way,” as reported on the NYSE on the applicable date (or if such day is not a NYSE trading day, on the next preceding NYSE trading day) or, for periods on or after the Distribution Date, on the First Post-Distribution Trading Day.

 

Section 6.02.                          Bonus and Incentive Plans.

 

(a)                                 Generally.  The SpinCo Group will be responsible for all annual bonus payments and other cash incentive payments to SpinCo Employees in respect of any plan year, the payment date for which occurs on or after the applicable SpinCo Employee’s Distribution Date.

 

(b)                                 YUM EIDP.  Effective as of the Distribution Date, the YUM EIDP will be amended to provide for (i) a SpinCo common stock account with respect to the YUM EIDP Pre-409A Program and (ii) a Phantom SpinCo common stock fund with respect to the YUM EIDP 409A Program.  Effective as of the Distribution Date:

 

(i)                                     For each YUM Common Stock Account (as such term is used under the YUM EIDP Pre-409A Program) held by an EIDP Special Conversion Employee under the YUM EIDP Pre-409A Program, such YUM Common Stock Account  will be converted effective as of the Distribution Date into an Adjusted YUM Common Stock Account.  The Adjusted YUM Common Stock Account will be credited with that number of phantom YUM Shares equal to the quotient of (A) the product of (1) the number of phantom YUM Shares credited to the YUM Common Stock Account under the YUM EIDP Pre-409A Program immediately prior to the Distribution Date, multiplied by (2) the Pre-Distribution Stock Value; divided by (B) the YUM Post-Distribution Stock Value, rounded to four decimal places.

 

(ii)                                  For each YUM Common Stock Account under the YUM EIDP Pre-409A Program other than those described in Section 6.02(b)(i), such YUM Common Stock Account  will be converted effective as of the Distribution Date into an Adjusted YUM Common Stock Account and a SpinCo Common Stock Account.  The Adjusted YUM Common Stock Account will be credited with that number of phantom YUM Shares equal to the product of (A) the number of phantom YUM Shares credited to the YUM Common Stock Account under the YUM EIDP Pre-409A Program immediately prior to the Distribution Date, multiplied by (B) the Distribution Ratio, rounded to four decimal places.  The SpinCo Common Stock Account will be credited with that number of phantom SpinCo Shares equal to the quotient of (A) the number of phantom YUM Shares credited to the YUM Common Stock Account under the YUM EIDP Pre-409A Program immediately prior to the Distribution Date, divided by (B) the Distribution Ratio, rounded to four decimal places.

 

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(iii)                               For each Phantom Yum! Brands Common Stock Fund (as such term is used under the YUM EIDP 409A Program) held by an EIDP Special Conversion Employee under the YUM EIDP 409A Program, such Phantom Yum! Brands Common Stock Fund will be converted effective as of the Distribution Date into an Adjusted Phantom YUM Common Stock Fund.  The Adjusted Phantom YUM Common Stock Fund will be credited with that number of phantom YUM Shares equal to the quotient of (A) the product of (1) the number of phantom YUM Shares credited to the Phantom Yum! Brands Common Stock Fund under the YUM EIDP 409A Program immediately prior to the Distribution Date, multiplied by (2) the Pre-Distribution Stock Value; divided by (B) the YUM Post-Distribution Stock Value, rounded to four decimal places.

 

(iv)                              For each Phantom Yum! Brands Common Stock Fund under the YUM EIDP 409A Program other than those described in Section 6.02(b)(iii), such Phantom Yum! Brands Common Stock Fund will be converted effective as of the Distribution Date into an Adjusted Phantom YUM Common Stock Fund and a Phantom SpinCo Common Stock Fund.  The Adjusted Phantom YUM Common Stock Fund will be credited with that number of phantom YUM Shares equal to the product of (A) the number of phantom YUM Shares credited to the Phantom Yum! Brands Common Stock Fund under the YUM EIDP 409A Program immediately prior to the Distribution Date, multiplied by (B) the Distribution Ratio, rounded to four decimal places.  The Phantom SpinCo Common Stock Fund will be credited with that number of phantom SpinCo Shares equal to the quotient of (A) the number of phantom YUM Shares credited to the Phantom Yum! Brands Common Stock Fund under the YUM EIDP 409A Program immediately prior to the Distribution Date, divided by (B) the Distribution Ratio, rounded to four decimal places.

 

Except as otherwise provided under the YUM EIDP, any amounts credited to the SpinCo Common Stock Account and the Phantom SpinCo Common Stock Fund will be settled in cash (and not in SpinCo Shares).

 

(c)                                  Restaurant Deferred Compensation Plan.  Effective as of the Distribution Date, the Restaurant Deferred Compensation Plan will be amended to provide for a Phantom SpinCo Common Stock Account.  Effective as of the Distribution Date for each Account (as such term is used under the Restaurant Deferred Compensation Plan) under the Restaurant Deferred Compensation Plan, any portion of such Account deemed invested in YUM Shares will be converted effective as of the Distribution Date into an Adjusted YUM Common Stock Account and a SpinCo Common Stock Account.  The Adjusted YUM Common Stock Account will be credited with that number of phantom YUM Shares equal to the product of (A) the number of phantom YUM Shares credited to the Account under the Restaurant Deferred Compensation Plan immediately prior to the Distribution Date, multiplied by (B) the Distribution Ratio, rounded to four decimal places.  The SpinCo Common Stock Account will be credited with that number of phantom SpinCo Shares equal to the quotient of (A) the number of phantom YUM Shares credited to the Account under the Restaurant Deferred Compensation Plan immediately prior to the Distribution Date, divided by (B) the Distribution Ratio, rounded to four decimal places.

 

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(d)                                 YUM Director Deferred Compensation Plan.  Effective as of the Distribution Date, the YUM Director Deferred Compensation Plan will be amended to provide for a Phantom SpinCo Common Stock Account.  Effective as of the Distribution Date:

 

(i)                                     For each participant Account (as such term is used under the YUM Director Deferred Compensation Pre-409A Plan) under the YUM Director Deferred Compensation Pre-409A Plan, such participant Account will be converted effective as of the Distribution Date into an Adjusted Phantom YUM Common Stock Account and a Phantom SpinCo Common Stock Account.  The Adjusted Phantom YUM Common Stock Account will be credited with that number of phantom YUM Shares equal to the product of (A) number of phantom YUM Shares credited to participant Account under the YUM Director Deferred Compensation Pre-409A Plan immediately prior to the Distribution Date, multiplied by (B) the Distribution Ratio, rounded to four decimal places.  The Phantom SpinCo Common Stock Account will be credited with that number of phantom SpinCo Shares equal to the quotient of (A) number of phantom YUM Shares credited to the participant Account under the YUM Director Deferred Compensation Pre-409A Plan immediately prior to the Distribution Date, divided by (B) the Distribution Ratio, rounded to four decimal places.

 

(ii)                                  For each phantom Yum! Brands Common Stock Fund (as such term is used under the YUM Director Deferred Compensation 409A Plan) under the YUM Director Deferred Compensation 409A Plan, such phantom Yum! Brands Common Stock Fund will be converted effective as of the Distribution Date into an Adjusted Phantom YUM Common Stock Account and a Phantom SpinCo Common Stock Account.  The Adjusted Phantom YUM Common Stock Account will be credited with that number of phantom YUM Shares equal to the product of (A) number of phantom YUM Shares credited to the phantom Yum! Brands Common Stock Fund under the YUM Director Deferred Compensation 409A Plan immediately prior to the Distribution Date, multiplied by (B) the Distribution Ratio, rounded to four decimal places.  The Phantom SpinCo Common Stock Account will be credited with that number of phantom SpinCo Shares equal to the quotient of (A) number of phantom YUM Shares credited to the phantom Yum! Brands Common Stock Fund under the YUM Director Deferred Compensation 409A Plan immediately prior to the Distribution Date, divided by (B) the Distribution Ratio, rounded to four decimal places.

 

Except as otherwise provided under the YUM Director Deferred Compensation Plan, any amounts credited to the Phantom SpinCo Common Stock Account will be settled in cash (and not in SpinCo Shares).

 

ARTICLE VII

 

MISCELLANEOUS

 

Section 7.01.                          Transfer of Records.  YUM will transfer to SpinCo any and all employment records and information (including any Form 1-9, Form W-2 or other Internal Revenue Service forms, personnel files, performance reviews and other employment related information) with respect to SpinCo Employees and other records reasonably required by SpinCo

 

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to enable SpinCo properly to carry out its obligations under this Agreement.  Such transfer of records generally will occur as soon as administratively practicable on or after the Distribution Date.  Each Party will permit the other Party reasonable access to Employee records to the extent reasonably necessary for such accessing Party to carry out its obligations hereunder. Any transfer required hereunder will be required only to the extent required or permitted by applicable local Law.

 

Section 7.02.                          Cooperation.  Each Party will upon reasonable request provide the other Party and the other Party’s respective Affiliates, agents and vendors all information reasonably necessary to the other Party’s performance of its obligations hereunder.  The Parties agree to use commercially reasonable efforts and to cooperate with each other to carry out their obligations hereunder and to effectuate the terms of this Agreement.  Without limiting the generality of the foregoing, no later than January 15, 2017, (a) YUM shall provide to SpinCo all information relating to the performance of the YUM Group following the Distribution that is necessary for SpinCo to calculate any performance bonuses (including any leadership bonuses) payable to any SpinCo Employee or SpinCo Former Employee for the 2016 calendar year and (b) SpinCo shall provide to YUM all information relating to the performance of the SpinCo Group following the Distribution that is necessary for YUM to calculate any performance bonuses (including any leadership bonuses) payable to any YUM Employee or YUM Former Employee for the 2016 calendar year.

 

Section 7.03.                          Tax Benefits.  If any member of the YUM Group remits a payment to a Tax Authority for Taxes for any SpinCo Employee or a SpinCo Former Employee, SpinCo shall remit to YUM the amount for which it is liable within thirty (30) days after receiving written notification requesting such amount.  If any member of the SpinCo Group remits a payment to a Tax Authority for Taxes for any Retained Employee or any YUM Former Employee, YUM shall remit to SpinCo the amount for which it is liable within thirty (30) days after receiving written notification requesting such amount.  Effective as of the Distribution Date, the YUM Group will be entitled to all Employee Recoupment Assets in respect of all Employees and Former Employees to the extent that the Employee Recoupment Asset relates to a payment made prior to the Distribution Date and shall be entitled to all Employee Recoupment Assets in respect of all Employees and Former Employees regardless of when (or by whom) the payment to which the Employee Recoupment Asset was made.  The SpinCo Group will be entitled all Employee Recoupment Assets in respect of SpinCo Employees and SpinCo Former Employees to the extent that the Employee Recoupment Asset relates to a payment made by the SpinCo Group after the Distribution Date.  Without limiting the generality of the foregoing, the SpinCo Group shall assume all liabilities and obligations for tax equalization payments payable to the individuals set forth on Schedule 7.03 and, to the extent necessary, the YUM Group shall be entitled to reimbursement from the SpinCo group with respect to any tax equalization payments made after the Distribution Date to any individual listed in Schedule 7.03.

 

Section 7.04.                          Compliance.  The agreements and covenants of the Parties hereunder will at all times be subject to the requirements and limitations of applicable Law (including local Laws, rules and customs relating to the treatment of benefit plans) and collective bargaining agreements.  Where an agreement or covenant of a Party hereunder cannot be effected in compliance with applicable Law or an applicable collective bargaining agreement, the Parties agree to negotiate in good faith to modify such agreement or covenant to the least extent possible

 

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in keeping with the original agreement or covenant in order to comply with applicable Law or such applicable collective bargaining agreement.  Each provision of this Agreement is subject to and qualified by this Section 7.04, whether or not such provision expressly states that it is subject to or limited by applicable Law or by applicable collective bargaining agreements.  Each reference to the Code, ERISA, or the Securities Act or any other Law will be deemed to include the rules, regulations, and guidance issued thereunder.

 

Section 7.05.                          Preservation of Rights.  Unless expressly provided otherwise in this Agreement, nothing herein will be construed as a limitation on the right of the YUM Group or the SpinCo Group to (a) amend or terminate any Benefit Plan or (b) terminate the employment of any Employee.

 

Section 7.06.                          Not a Change in Control.  The Parties acknowledge and agree that the Separation, Distribution and other transactions contemplated by the Separation and Distribution Agreement and this Agreement do not constitute a “change in control” or a “change of control” for purposes of any Benefit Plan, any Employment Agreement or any other agreement or arrangement.

 

Section 7.07.                          Reimbursements; Interest on Late Payments.  The Parties acknowledge and agree that the YUM Group, on one hand, and the SpinCo Group, on the other hand, may incur costs and expenses (including payment of compensation) which are the responsibility of the other Party as set forth in this Agreement.  Accordingly, the Parties agree to reimburse each other for Liabilities and obligations for which such Party is responsible, and will provide such reimbursement reasonably promptly and in accordance with the terms of any agreement between the Parties or their Affiliates addressing such matters.  Payments pursuant to this Agreement that are not made by the date prescribed in this Agreement or, if no such date is prescribed, within thirty (30) days after written demand for payment is made, shall accrue interest for the period from and including the date immediately following the due date therefor through and including the date of payment at a rate per annum equal to the Prime Rate plus three percent (3%). Such rate shall be redetermined at the beginning of each calendar quarter following such due date. Such interest will be payable at the same time as the payment to which it relates and shall be calculated on the basis of a year of three hundred sixty-five (365) days and the actual number of days for which due.

 

Section 7.08.                          Notices.  Unless expressly provided herein, all notices, requests, claims, demands or other communications under this Agreement shall be delivered in accordance with the requirements for the provision of notice set forth in Section 10.5 of the Separation and Distribution Agreement.

 

Section 7.09.                          Procedures for Indemnification of Third-Party Claims.

 

(a)                                 Notice of Claims.  If, at or following the Effective Time, an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the YUM Group or the SpinCo Group of any claim or of the commencement by any such Person of any Action (collectively, a “Third-Party Claim”) with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to or any Section of this Agreement, such Indemnitee shall give such

 

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Indemnifying Party written notice thereof as soon as practicable, but in any event no later than fourteen (14) days after becoming aware of such Third-Party Claim.  Any such notice shall describe the Third-Party Claim in reasonable detail, including the facts and circumstances giving rise to such claim for indemnification, and include copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third-Party Claim.  Notwithstanding the foregoing, the failure of an Indemnitee to provide notice in accordance with this Section 7.09(a) shall not relieve an Indemnifying Party of its indemnification obligations under this Agreement, except to the extent (if any) to which the Indemnifying Party is actually prejudiced by the Indemnitee’s failure to provide notice in accordance with this Section 7.09(a).

 

(b)                                 Control of Defense.  An Indemnifying Party may elect to defend (and seek to settle or compromise, subject to Section 7.09(e)), at its own expense and with its own counsel, any Third-Party Claim; provided that, prior to the Indemnifying Party assuming and controlling defense of such Third-Party Claim, it shall first confirm to the Indemnitee in writing that, assuming the facts presented to the Indemnifying Party by the Indemnitee being true, the Indemnifying Party shall indemnify the Indemnitee for any Liabilities to the extent resulting from, or arising out of, such Third-Party Claim.  Notwithstanding the foregoing, if the Indemnifying Party assumes such defense and, in the course of defending such Third-Party Claim, (i) the Indemnifying Party discovers that the facts presented at the time the Indemnifying Party acknowledged its indemnification obligation in respect of such Third-Party Claim were not true in all material respects and (ii) such untruth provides a reasonable basis for asserting that the Indemnifying Party does not have an indemnification obligation in respect of such Third-Party Claim, then (A) the Indemnifying Party shall not be bound by such acknowledgment, (B) the Indemnifying Party shall promptly thereafter provide the Indemnitee written notice of its assertion that it does not have an indemnification obligation in respect of such Third-Party Claim and (C) the Indemnitee shall have the right to assume the defense of such Third-Party Claim.  Within thirty (30) days after the receipt of a notice from an Indemnitee in accordance with Section 7.09(a) (or sooner, if the nature of the Third-Party Claim so requires), the Indemnifying Party shall provide written notice to the Indemnitee indicating whether the Indemnifying Party shall assume responsibility for defending the Third-Party Claim.  If an Indemnifying Party elects not to assume responsibility for defending any Third-Party Claim or fails to notify an Indemnitee of its election within thirty (30) days after receipt of the notice from an Indemnitee as provided in Section 7.09(a), then the Indemnitee that is the subject of such Third-Party Claim shall be entitled to continue to conduct and control the defense of such Third-Party Claim.

 

(c)                                  Allocation of Defense Costs.  If an Indemnifying Party has elected to assume the defense of a Third-Party Claim, then such Indemnifying Party shall be solely liable for all fees and expenses incurred by it in connection with the defense of such Third-Party Claim and shall not be entitled to seek any indemnification or reimbursement from the Indemnitee for any such fees or expenses incurred by the Indemnifying Party during the course of the defense of such Third-Party Claim by such Indemnifying Party, regardless of any subsequent decision by the Indemnifying Party to reject or otherwise abandon its assumption of such defense.  If an Indemnifying Party elects not to assume responsibility for defending any Third-Party Claim or fails to notify an Indemnitee of its election within thirty (30) days after receipt of a notice from an Indemnitee as provided in Section 7.09(a), and the Indemnitee conducts and controls the defense of such Third-Party Claim and the Indemnifying Party has an indemnification obligation with respect to such Third-Party Claim, then the Indemnifying Party shall be liable for all

 

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reasonable fees and expenses incurred by the Indemnitee in connection with the defense of such Third-Party Claim.

 

(d)                                 Right to Monitor and Participate.  An Indemnitee that does not conduct and control the defense of any Third-Party Claim, or an Indemnifying Party that has failed to elect to defend any Third-Party Claim as contemplated hereby, nevertheless shall have the right to employ separate counsel (including local counsel, as necessary) of its own choosing to monitor and participate in (but not control) the defense of any Third-Party Claim for which it is a potential Indemnitee or Indemnifying Party, but the fees and expenses of such counsel shall be at the expense of such Indemnitee or Indemnifying Party, as the case may be, and the provisions of Section 7.09(c) shall not apply to such fees and expenses.  Notwithstanding the foregoing, but subject to Sections 6.7 and 6.8 of the Separation and Distribution Agreement, such Indemnitee or Indemnifying Party shall cooperate with the Party entitled to conduct and control the defense of such Third-Party Claim in such defense and make available to the controlling Party, at the non-controlling Party’s expense, all witnesses, information and materials in such Party’s possession or under such Party’s control relating thereto as are reasonably required by the controlling Party.  In addition to the foregoing, if any Indemnitee shall in good faith determine that such Indemnitee and the Indemnifying Party have actual or potential differing defenses or conflicts of interest between them that make joint representation inappropriate, then the Indemnitee shall have the right to employ separate counsel (including local counsel, as necessary) and to participate in (but not control) the defense, compromise, or settlement thereof, and the Indemnifying Party shall bear the reasonable fees and expenses of such counsel for all Indemnitees.

 

(e)                                  No Settlement.  Neither Party may settle or compromise any Third-Party Claim for which either Party is seeking to be indemnified hereunder without the prior written consent of the other Party, which consent may not be unreasonably withheld, conditioned or delayed, unless such settlement or compromise is solely for monetary damages that are fully payable, and are capable of being paid in full, by the settling or compromising Party, does not involve any admission, finding or determination of wrongdoing or violation of Law by the other Party (or any other member of its Group or any of their respective past, present or future directors, officers or employees) and provides for a full, unconditional and irrevocable release of the other Party (and each other relevant member of its Group and any of its or their relevant past, present, or future directors, officers or employees) from all Liability in connection with the Third-Party Claim.  The Parties hereby agree that if a Party presents the other Party with a written notice containing a proposal to settle or compromise a Third-Party Claim for which either Party is seeking to be indemnified hereunder and the Party receiving such proposal does not respond in any manner to the Party presenting such proposal within thirty (30) days (or within any such shorter time period that may be required by applicable Law or court order) of receipt of such proposal, then the Party receiving such proposal shall be deemed to have consented to the terms of such proposal.

 

Section 7.10.                          Limitation on Enforcement.  This Agreement is an agreement solely between the Parties.  Nothing in this Agreement, whether express or implied, will be construed to:  (a) confer upon any current or former Employee of the YUM Group or the SpinCo Group, or any other person any rights or remedies, including to any right to (i) employment or recall; (ii) continued employment or continued service for any specified period; or (iii) claim any particular compensation, benefit or aggregation of benefits, of any kind or nature; or (b) create, modify, or amend any Benefit Plan.

 

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Section 7.11.                          Disputes.  The procedures for discussion, negotiation, mediation and arbitration set forth in Article VII of the Separation and Distribution Agreement shall apply to all disputes, controversies or claims (whether sounding in contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection with, this Agreement.

 

Section 7.12.                          Schedules.  The Schedules referenced in this Agreement are attached hereto and incorporated herein and form a part of this Agreement.  From time to time, the Parties may add Schedules to this Agreement, which Schedules, if added, will be incorporated herein and will form a part of this Agreement.

 

Section 7.13.                          Third Party Consents.  Without limiting or otherwise modifying the provisions regarding Approvals or Notifications set forth in the Separation and Distribution Agreement, if the obligation of any Party under this Agreement depends upon the Approval or Notification of a Third Party, such as a vendor or insurer, and that Approval or Notification is withheld, the Parties will use commercially reasonable efforts to implement the affected provisions of this Agreement to the fullest extent practicable; provided that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed between YUM and SpinCo, neither YUM nor SpinCo shall be obligated to contribute capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Person in order to obtain or make such Approvals or Notifications.  If any provision of this Agreement cannot be implemented due to the failure of a Third Party to provide a required Approval or Notification, the Parties will negotiate in good faith to implement the provision in a mutually satisfactory manner, taking into account the original purpose of the affected provision.

 

Section 7.14.                          Further Assurances and Consents.  Without limiting or otherwise modifying the provisions of Article VIII of the Separation and Distribution Agreement, in addition to the actions specifically provided for in this Agreement, each of the Parties will use commercially reasonable efforts to (a) execute and deliver such further instruments and documents and take such other actions as the other Party may reasonably request to effectuate the purposes of this Agreement and to carry out the terms hereof, and (b) take, or cause to be taken, all actions and do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Law and agreements or otherwise to consummate and make effective the transactions contemplated by this Agreement, including using commercially reasonable effort to obtain any required consents and approvals and to make any filings and applications necessary or desirable to consummate the transactions contemplated by this Agreement; provided, that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed between YUM and SpinCo, no Party will be obligated to contribute capital or pay any consideration in any form therefor.

 

Section 7.15.                          Effect if Distribution Does Not Occur.  If the Distribution does not occur, then all actions and events that are to be taken under this Agreement, or otherwise in connection with the Distribution, will not be taken or occur, except to the extent specifically provided by YUM.

 

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Section 7.16.                          Counterparts; Entire Agreement; Authority; Facsimile Signatures.

 

(a)                                 Counterparts.  This Agreement may be executed in one (1) or more counterparts, all of which shall be considered one (1) and the same agreement, and shall become effective when one (1) or more counterparts have been signed by each of the Parties and delivered to the other Party.  The provisions of Section 10.1(d) of the Separation and Distribution Agreement shall, for the avoidance of doubt, apply to the execution of this Agreement.

 

(b)                                 Entire Agreement.  This Agreement, together with the Separation and Distribution Agreement and the other Ancillary Agreements, contain the entire agreement between the Parties with respect to the subject matter hereof, and supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein.

 

(c)                                  Authority.  YUM represents on behalf of itself, and SpinCo represents on behalf of itself, as follows:

 

(i)                                     it has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and

 

(ii)                                  this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable against it in accordance with the terms hereof.

 

Section 7.17.                          Governing Law.  This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of laws principles of the State of Delaware including all matters of validity, construction, effect, enforceability, performance and remedies.

 

Section 7.18.                          Binding Effect; Assignability.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, that neither Party may assign any of its rights or assign or delegate any of its obligations under this Agreement without the express prior written consent of the other Party.

 

Section 7.19.                          No Third Party Beneficiaries.  The provisions of this Agreement are solely for the benefit of the Parties and do not and are not intended to confer upon any Person except the Parties any rights or remedies hereunder, and there are no Third Party beneficiaries of this Agreement and this Agreement shall not provide any Third Party with any remedy, claim, Liability, reimbursement or other right in excess of those existing without reference to this Agreement.

 

Section 7.20.                          Severability.  If any provision of this Agreement or the application thereof to any Person or circumstance is determined by an arbitrator or by a court of competent

 

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jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid, void or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby.  Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect, as closely as possible, the original intent of the Parties.

 

Section 7.21.                          No Set Off.  Except as mutually agreed to in writing by the Parties, neither Party nor any other member of such Party’s Group shall have any right of set-off or other similar rights with respect to (a) any amounts payable pursuant to this Agreement or (b) any other amounts claimed to be owed to the other Party or any other member of its Group arising out of this Agreement.

 

Section 7.22.                          Survival of Covenants.  Except as expressly set forth in this Agreement, the covenants and agreements contained in this Agreement, and Liability for the breach of any such obligations contained herein, shall survive the Separation and the Distribution and shall remain in full force and effect.

 

Section 7.23.                          Waivers of Default; Remedies Cumulative.  Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party.  No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

Section 7.24.                          Amendments.  No provisions of this Agreement may be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

 

Section 7.25.                          Specific Performance.  Subject to the provisions of Article VII of the Separation and Distribution Agreement, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its or their rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative.  The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived.  Any requirements for the securing or posting of any bond with such remedy are waived by each of the Parties.

 

Section 7.26.                          Mutual Drafting.  This Agreement shall be deemed to be the joint work product of the Parties, and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.

 

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Section 7.27.                          Predecessors or Successors.  Any reference to YUM, SpinCo, a Person or a Subsidiary in this Agreement shall include any predecessors or successors (e.g., by merger or other reorganization, liquidation or conversion) of YUM, SpinCo, such Person or such Subsidiary, respectively.

 

Section 7.28.                          Change in Law.  Any reference to a provision of the Code or any other Tax Law shall include a reference to any applicable successor provision or Law.

 

Section 7.29.                          Limitations of Liability. Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, neither SpinCo or any other member of the SpinCo Group, on the one hand, nor YUM or any other member of the YUM Group, on the other hand, shall be liable under this Agreement to the other for any indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of the other (other than any such damages awarded to a Third Party with respect to a Third-Party Claim).

 

Section 7.30.                          Performance.  YUM shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement to be performed by any member of the YUM Group. SpinCo shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement to be performed by any member of the SpinCo Group.

 

Section 7.31.                          Incorporation.  Sections 10.10 (Headings) and 10.15 (Interpretation) of the Separation and Distribution Agreement are hereby incorporated in this Agreement as if fully set forth herein.

 

[Signatures set forth on following page]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their authorized representatives.

 

	
YUM! BRANDS, INC.
    	
YUM CHINA   HOLDINGS, INC.
    
	
 
    	
 
    
	
By:
    	
/s/
    	
 
    	
By: 
    	
/s/
    
	
Name:
    	
Name:
    
	
Title:
    	
Title:
    
					

 

38Exhibit 10.7

 

YUM CHINA HOLDINGS, INC. LONG TERM INCENTIVE PLAN

 

SECTION 1

General

 

1.1                               Purpose.  Yum China Holdings, Inc. Long Term Incentive Plan (the “Plan”) has been established by Yum China Holdings, Inc. (the “Company”) to (i) attract and retain persons eligible to participate in the Plan; (ii) motivate Participants, by means of appropriate incentives, to achieve long-range goals; (iii) provide incentive compensation opportunities that are competitive with those of other similar companies; (iv) align the interests of Participants with those of the Company’s shareholders; and (v) to issue awards pursuant to and in accordance with the Employee Matters Agreement and Section 9 hereof.

 

1.2                               Participation.  Subject to the terms and conditions of the Plan, the Committee shall determine and designate, from time to time, from among the Eligible Individuals, those persons who will be granted one or more Awards under the Plan, and thereby become a “Participant” in the Plan.  EMA Awards shall be made in accordance with Section 9 hereof and EMA Participants shall be treated as Participants in the Plan with respect to their EMA Awards and in accordance with the terms of the Plan.

 

1.3                               Operation, Administration, and Definitions. The operation and administration of the Plan shall be vested in the Committee, as described in Section 7. Capitalized terms in the Plan shall be defined as set forth in the Plan (including the definition provisions of Section 10 hereof).

 

SECTION 2

Options and SARS

 

2.1                               Definitions.

 

(a)                                 The grant of an “Option” entitles the Participant to purchase shares of Stock at an Exercise Price and during a specified time established by the Committee. Any Option granted under this Section 2 may be either a non-qualified option (an “NQO”) or an incentive stock option (an “ISO”), as determined in the discretion of the Committee. An “NQO” is an Option that is not intended to be an “incentive stock option” as that term is described in Code Section 422(b). An “ISO” is an Option that is intended to satisfy the requirements applicable to an “incentive stock option” described in Code Section 422(b). An Option will be deemed to be a NQO unless it is specifically designated by the Committee as an ISO and/or to the extent that it does not meet the requirements of an ISO.

 

(b)                                 The grant of a stock appreciation right (an “SAR”) entitles the Participant to receive, in cash or Stock (as determined in accordance with the terms of the Plan), value equal to (or otherwise based on) the excess of: (i) the Fair Market Value of a specified number of shares of Stock at the time of exercise; over (ii) an Exercise Price established by the Committee.

 

 

2.2                               Eligibility.  The Committee shall designate the Participants to whom Options or SARs are to be granted under this Section 2 and shall determine the number of shares of Stock subject to each such Option or SAR and the other terms and conditions thereof, not inconsistent with the Plan.  Without limiting the generality of the foregoing, the Committee may not grant dividends or dividend equivalents (current or deferred) with respect to any Option or SAR granted under the Plan.  ISOs may only be granted to employees of the Company or a Subsidiary.

 

2.3                               Limits on ISOs.  If the Committee grants ISOs, then to the extent that the aggregate fair market value of shares of Stock with respect to which ISOs are exercisable for the first time by any individual during any calendar year (under all plans of the Company and all Subsidiaries) exceeds $100,000, such Options shall be treated as NQOs to the extent required by Code Section 422.  Any Option that is intended to constitute an ISO shall satisfy any other requirements of Code Section 422 and, to the extent such Option does not satisfy such requirements, the Option shall be treated as a NQO.

 

2.4                               Exercise Price.  The “Exercise Price” of each Option or SAR granted under this Section 2 shall be established by the Committee or shall be determined by a method established by the Committee at the time the Option or SAR is granted; provided, however, that the Exercise Price shall not be less than the Fair Market Value of a share of Stock on the date of grant (or, if greater, the par value of a share of Stock on such date).  Notwithstanding the foregoing, Options and SARs granted under the Plan in replacement for awards under plans and arrangements of the Company or a Subsidiary that are assumed in business combinations may provide for Exercise Prices that are less than the Fair Market Value of the Stock at the time of the replacement grants, if the Committee determines that such Exercise Price is appropriate to preserve the economic benefit of the award.

 

2.5                               Exercise/Vesting.  Except as otherwise expressly provided in the Plan, an Option or SAR granted under the Plan shall be exercisable in accordance with the following:

 

(a)                                 The terms and conditions relating to exercise and vesting of an Option or SAR shall be established by the Committee to the extent not inconsistent with the Plan and may include, without limitation, conditions relating to completion of a specified period of service, achievement of performance standards prior to exercise or the achievement of stock ownership guidelines by the Participant.

 

(b)                                 No Option or SAR may be exercised by a Participant prior to the date on which it is exercisable (or vested) or after the ten year anniversary of the date on which the Option or SAR was granted (or such shorter period required by law or the rules of any stock exchange on which the Stock is listed).

 

2.6                               Payment of Option Exercise Price.  The payment of the Exercise Price of an Option granted under this Section 2 shall be subject to the following:

 

(a)                                 Subject to the following provisions of this subsection 2.6, the full Exercise Price for shares of Stock purchased upon the exercise of any Option shall be paid at the time of such exercise (except that, in the case of an exercise arrangement

 

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approved by the Committee and described in paragraph 2.6(c), payment may be made as soon as practicable after the exercise).

 

(b)                                 The Exercise Price shall be payable in cash or by tendering (including by way of a net exercise), by either actual delivery of shares or by attestation, shares of Stock acceptable to the Committee, and valued at Fair Market Value as of the day of exercise, or in any combination thereof, as determined by the Committee; provided, however, that shares of Stock may not be used to pay any portion of the Exercise Price unless the holder thereof has good title, free and clear of all liens and encumbrances.

 

(c)                                  The Committee may permit a Participant to elect to pay the Exercise Price upon the exercise of an Option by irrevocably authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding resulting from such exercise.

 

2.7                               Post-Exercise Limitations.  The Committee, in its discretion, may impose such restrictions on shares of Stock acquired pursuant to the exercise of an Option as it determines to be desirable, including, without limitation, restrictions relating to disposition of the shares and forfeiture restrictions based on service, performance, Stock ownership by the Participant, conformity with the Company’s recoupment or clawback policies and such other factors as the Committee determines to be appropriate.

 

2.8                               Tandem Grants of Options and SARS.  An Option may but need not be in tandem with an SAR, and an SAR may but need not be in tandem with an Option (in either case, regardless of whether the original award was granted under this Plan or another plan or arrangement).  If an Option is in tandem with an SAR, the Exercise Price of both the Option and SAR shall be the same, and the exercise of the corresponding tandem SAR or Option shall cancel the corresponding tandem SAR or Option with respect to such share.  If an SAR is in tandem with an Option but is granted after the grant of the Option, or if an Option is in tandem with an SAR but is granted after the grant of the SAR, the later granted tandem Award shall have the same Exercise Price as the earlier granted Award, but in no event less than the Fair Market Value of a share of Stock at the time of such grant.

 

2.9                               No Repricing.  Except for either adjustments pursuant to subsection 4.2 (relating to the adjustment of shares), or reductions of the Exercise Price approved by the Company’s shareholders, the Exercise Price for any outstanding Option or SAR may not be decreased after the date of grant nor may an outstanding Option or SAR granted under the Plan be surrendered to the Company as consideration for the grant of a replacement Option or SAR with a lower Exercise Price or a Full Value Award.  Except as approved by the Company’s shareholders, in no event shall any Option or SAR granted under the Plan be surrendered to the Company in consideration for a cash payment if, at the time of such surrender, the Exercise Price of the Option or SAR is greater than the then current Fair Market Value of a share of Stock.

 

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SECTION 3

Full Value Awards and Cash Incentive Awards

 

3.1                               Definitions.

 

(a)                                 A “Full Value Award” is a grant of one or more shares of Stock or a right to receive one or more shares of Stock in the future (including restricted stock, restricted stock units, performance shares, and performance units) which is contingent on continuing service, the achievement of performance objectives during a specified period performance, or other restrictions as determined by the Committee.  The grant of Full Value Awards may also be subject to such other conditions, restrictions and contingencies, as determined by the Committee, including provisions relating to dividend or dividend equivalent rights and deferred payment or settlement.  Notwithstanding the foregoing, no dividends or dividend equivalent rights will be paid or settled on Full Value Awards that have not been earned or vested.

 

(b)                                 A “Cash Incentive Award” is the grant of a right to receive a payment of cash (or in the discretion of the Committee, shares of Stock having value equivalent to the cash otherwise payable) that is contingent on achievement of performance objectives over a specified period established by the Committee.  The grant of Cash Incentive Awards may also be subject to such other conditions, restrictions and contingencies, as determined by the Committee, including provisions relating to deferred payment.

 

3.2                               Restrictions on Full Value Awards.  Each Full Value Award shall be subject to the following:

 

(a)                                 Any Full Value Award shall be subject to such conditions, restrictions and contingencies as the Committee shall determine.

 

(b)                                 Except for Full Value Awards that are granted (i) in lieu of other compensation, (ii) as a form of payment of earned performance awards or other incentive compensation, (iii) to new hires, or (iv) as retention awards outside the United States, if the right to become vested in a Full Value Award granted to an employee is conditioned on the completion of a specified period of service with the Company and the Subsidiaries, without achievement of performance targets or other performance objectives (whether or not related to Performance Measures) being required as a condition of vesting, then the required period of service for full vesting of the Full Value Award shall be not less than three years (provided that the required period for full vesting shall, instead, not be less than two years in the case of annual incentive deferrals payable in restricted shares), subject to pro rated vesting over the applicable minimum service period and to acceleration of vesting, to the extent permitted by the Committee, in the event of the Participant’s death, disability, retirement, change in control or involuntary termination).  Awards to Directors are not subject to this paragraph 3.2(b).

 

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3.3                               Performance-Based Compensation. The Committee may designate a Full Value Award or Cash Incentive Award granted to any Participant as “Performance-Based Compensation” within the meaning of Code Section 162(m) and regulations thereunder. To the extent required by Code Section 162(m), any Full Value Award so designated shall be conditioned on the achievement of one or more performance targets determined by the Committee and the following additional requirements shall apply:

 

(a)                                 The performance targets established for the performance period established by the Committee shall be objective (as that term is described in regulations under Code Section 162(m)) and shall be established in writing by the Committee not later than ninety (90) days after the beginning of the performance period (but in no event after 25% of the performance period has elapsed), and while the outcome as to the performance targets is substantially uncertain.  The performance targets established by the Committee may be with respect to corporate performance, operating group or sub-group performance, unit or division performance, individual company performance, other group or individual performance, or any combination thereof, and shall be based on one or more of the Performance Measures.

 

(b)                                 A Participant otherwise entitled to receive a Full Value Award or Cash Incentive Award for any performance period shall not receive a settlement or payment of the Award until the Committee has determined that the applicable performance target(s) have been attained.  To the extent that the Committee exercises discretion in making the determination required by this paragraph 3.3(b), such exercise of discretion may not result in an increase in the amount of the payment.

 

(c)                                  If a Participant’s employment terminates because of death or disability, or if a change in control occurs prior to the Participant’s termination date, the Participant’s Full Value Award or Cash Incentive Award may, to the extent provided by the Committee, become vested without regard to whether the Full Value Award or Cash Incentive Award would be Performance-Based Compensation.

 

Nothing in this subsection 3.3 shall preclude the Committee from granting Full Value Awards or Cash Incentive Awards under the Plan or the Committee, the Company or any Subsidiary from granting Cash Incentive Awards outside the Plan that are not intended to constitute Performance-Based Compensation; provided, however, that, at the time of grant of Full Value Awards or Cash Incentive Awards by the Committee, the Committee shall designate whether such Awards are intended to constitute Performance-Based Compensation.  To the extent that the provisions of this subsection 3.3 reflect the requirements applicable to Performance-Based Compensation, such provisions shall not apply to the portion of the Award, if any, that is not intended to constitute Performance-Based Compensation.

 

SECTION 4

Stock Reserved and Limitations

 

4.1                               Shares Reserved and Other Amounts Subject to the Plan/Limitations.  The shares of Stock for which Awards may be granted under the Plan shall be subject to the following:

 

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(a)                                 The shares of Stock with respect to which Awards may be made under the Plan shall be shares currently authorized but unissued or currently held or subsequently acquired by the Company as treasury shares (to the extent permitted by law), including shares purchased in the open market or in private transactions.

 

(b)                                 Subject to the following provisions of this subsection 4.1 and the provisions of subsection 4.2, the maximum number of shares of Stock that may be delivered to Participants and their beneficiaries under the Plan shall be equal to 45,000,000.  For purposes of applying the limitations of this paragraph 4.1(b), each share of Stock delivered pursuant to Section 3 (relating to Full Value Awards) shall be counted as covering two shares of Stock, and shall reduce the number of shares of Stock available for delivery under this paragraph 4.1(b) by two shares except, however, in the case of restricted shares or restricted units delivered pursuant to the settlement of EMA Awards, each share of Stock shall be counted as covering one share of Stock and shall reduce the number of shares of Stock available for delivery by one share.

 

(c)                                  Substitute Awards shall not reduce the number of shares of Stock that may be issued under the Plan or that may be covered by Awards granted to any one Participant during any period pursuant to paragraph 4.1(h).

 

(d)                                 Except as expressly provided by the terms of this Plan, the issue by the Company of stock of any class, or securities convertible into shares of stock of any class, for cash or property or for labor or services, either upon direct sale, upon the exercise of rights or warrants to subscribe therefor or upon conversion of stock or obligations of the Company convertible into such stock or other securities, shall not affect, and no adjustment by reason thereof, shall be made with respect to Awards then outstanding hereunder.

 

(e)                                  To the extent provided by the Committee, any Award may be settled in cash rather than Stock. To the extent any shares of Stock covered by an Award are not delivered to a Participant or beneficiary because the Award is forfeited or canceled, or the shares of Stock are not delivered because the Award is settled in cash or used to satisfy the applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.

 

(f)                                   If the Exercise Price of any stock option granted under the Plan is satisfied by tendering shares of Stock to the Company (by either actual delivery or by attestation, including net exercise), only the number of shares of Stock issued net of the shares of Stock tendered shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.

 

(g)                                  Subject to the terms and conditions of the Plan, the maximum number of shares of Stock that may be delivered to Participants and their beneficiaries with respect to ISOs under the Plan shall be 45,000,000; provided, however, that to the extent

 

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that shares not delivered must be counted against this limit as a condition of satisfying the rules applicable to ISOs, such rules shall apply to the limit on ISOs granted under the Plan.

 

(h)                                 Subject to subsection 4.2, the following additional maximums are imposed under the Plan:

 

(i)                                     The maximum number of shares that may be covered by Awards granted to any one individual pursuant to Section 2 (relating to Options and SARs) shall be 9,000,000 shares during any five calendar-year period. If an Option is in tandem with an SAR, such that the exercise of the Option or SAR with respect to a share of Stock cancels the tandem SAR or Option right, respectively, with respect to such share, the tandem Option and SAR rights with respect to each share of Stock shall be counted as covering one share of Stock for purposes of applying the limitations of this subparagraph (i).

 

(ii)                                  For Full Value Awards that are intended to be Performance-Based Compensation, no more than 3,000,000 shares of Stock may be subject to such Awards granted to any one individual during any five-calendar-year period (regardless of when such shares are deliverable). Notwithstanding the foregoing, in the case of any Full Value Award that is a performance unit award that is intended to be Performance-Based Compensation, no more than $10,000,000 may be subject to any such Awards granted to any one individual during any one-calendar-year period (regardless of when such amounts are deliverable).  For purposes of this subparagraph (ii), a “performance unit award” means a Full Value Award that is the grant of a right to receive a designated dollar value amount of Stock which is contingent on the achievement of performance or other objectives during a specified period.

 

(iii)                               For Cash Incentive Awards that are intended to be Performance-Based Compensation, the maximum amount payable to any Participant with respect to any twelve (12) month performance period shall equal $10,000,000 (pro rated for performance periods that are greater or lesser than twelve (12) months)

 

(iv)                              In the case of any Award to a Director, in no event shall the dollar value of the Award granted to any Director for any calendar year (determined as of the date of grant) exceed $1,500,000.

 

If an Award is denominated in Stock but an equivalent amount of cash is delivered in lieu of delivery of shares of Stock, the limits of this paragraph 4.1(h) shall be applied based on the methodology used by the Committee to convert the number of shares of Stock into cash.  If the Awards are denominated in cash but an equivalent amount of stock is delivered in lieu of delivery of cash, the limits of this paragraph 4.1(h) shall be applied based on the methodology used by the Committee to convert the amount of cash into

 

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shares of Stock.  If delivery of Stock or cash is deferred until after the Stock or cash has been earned, any adjustment in the amount delivered to reflect actual or deemed investment experience after the date the Stock or cash is earned shall be disregarded.

 

4.2                               Adjustments to Shares of Stock and Stock Awards.  If any change in corporate capitalization, such as a stock split, reverse stock split, or stock dividend; or any corporate transaction such as a reorganization, reclassification, merger or consolidation or separation, including a spin-off, or sale or other disposition by the Company of all or a portion of its assets, any other change in the Company’s corporate structure, or any distribution to shareholders (other than a cash dividend that is not an extraordinary cash dividend) results in the outstanding shares of Stock, or any securities exchanged therefor or received in their place, being exchanged for a different number or class of shares or other securities of the Company, or for shares of stock or other securities of any other corporation (or new, different or additional shares or other securities of the Company or of any other corporation being received by the holders of outstanding shares of Stock), or a material change in the market value of the outstanding shares of Stock as a result of the change, transaction or distribution, then equitable adjustments shall be made by the Committee, as it determines are necessary and appropriate, in:

 

(a)                                 the number and type of Shares (or other property) with respect to which Awards may be granted;

 

(b)                                 the number and type of Shares (or other property) subject to outstanding Awards;

 

(c)                                  the grant or Exercise Price with respect to outstanding Awards;

 

(d)                                 the limitations set forth in subsection 4.1 (including the limitations set forth in paragraph 4.1(h)); and

 

(e)                                  the terms, conditions or restrictions of outstanding Awards and/or Award Agreements;

 

provided, however, that all such adjustments made in respect of each ISO shall be accomplished so that such Option shall continue to be an ISO.  However, in no event shall this subsection 4.2 be construed to permit a modification (including a replacement) of an Option or SAR if such modification either: (i) would result in accelerated recognition of income or imposition of additional tax under Code Section 409A; or (ii) would cause the Option or SAR subject to the modification (or cause a replacement Option or SAR) to be subject to Code Section 409A, provided that the restriction of this subparagraph (ii) shall not apply to any Option or SAR that, at the time it is granted or otherwise, is designated as being deferred compensation subject to Code Section 409A.

 

SECTION 5

Change in Control

 

Subject to the provisions of subsection 4.2 (relating to the adjustment of shares), and except as otherwise provided in the Plan or the Award Agreement reflecting the applicable Award, if a Change in Control occurs prior to the date on which an Award is vested and prior to the Participant’s separation from service and if the Participant’s employment is involuntarily

 

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terminated by the Company (other than for cause) on or within two years following the Change in Control, then:

 

(a)                                 All outstanding Options (regardless of whether in tandem with SARs) shall become fully exercisable.

 

(b)                                 All outstanding SARs (regardless of whether in tandem with Options) shall become fully exercisable.

 

(c)                                  All Full Value Awards (including any Award payable in Stock which is granted in conjunction with a Company deferral program) shall become fully vested and the Committee shall determine the extent to which performance conditions are met in accordance with the terms of the Plan and the applicable Award Agreement.

 

Notwithstanding anything in this Plan or any Award agreement to the contrary, to the extent any provision of this Plan or an Award agreement would cause a payment of deferred compensation that is subject to Code Section 409A to be made upon the occurrence of a Change in Control, then such payment shall not be made unless such Change in Control also constitutes a “change in ownership”, “change in effective control” or “change in ownership of a substantial portion of the Company’s assets” within the meaning of Code Section 409A.

 

SECTION 6

Miscellaneous

 

6.1                               Effective Date; Duration.  This Plan shall be effective as of the Distribution Date provided that it is approved by the Board as of such date (which date shall be referred to herein as the “Effective Date”). The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any Awards under it are outstanding; provided, however, that no new Awards shall be made under the Plan on or after the tenth anniversary of the Effective Date.

 

6.2                               General Restrictions.  Distribution of shares of Stock or other amounts under the Plan shall be subject to the following:

 

(a)                                 Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any shares of Stock under the Plan or make any other distribution of benefits under the Plan unless such delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act of 1933), and the applicable requirements of any securities exchange or similar entity.

 

(b)                                 In the case of a Participant who is subject to Section 16(a) and 16(b) of the Exchange Act, the Committee may, at any time, add such conditions and limitations to any Award to such Participant, or any feature of any such Award, as the Committee, in its sole discretion, deems necessary or desirable to comply with Section 16(a) or 16(b) and the rules and regulations thereunder or to obtain any exemption therefrom.

 

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(c)                                  To the extent that the Plan provides for issuance of stock certificates to reflect the issuance of shares of Stock, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.

 

6.3                               Tax Withholding.  All distributions under the Plan are subject to withholding of all applicable taxes, and the Committee may condition the delivery of any shares or other benefits under the Plan on satisfaction of the applicable withholding obligations. The Committee, in its discretion, and subject to such requirements as the Committee may impose prior to the occurrence of such withholding, may permit such withholding obligations to be satisfied through cash payment by the Participant, through the surrender of shares of Stock which the Participant already owns, or through the surrender of shares of Stock to which the Participant is otherwise entitled under the Plan; provided, however, previously-owned Stock that has been held by the Participant or Stock to which the Participant is entitled under the Plan may only be used to satisfy the minimum tax withholding required by applicable law (or other rates that will not have a negative accounting impact).

 

6.4                               Grant and Use of Awards.  Subject to subsection 4.1, in the discretion of the Committee, a Participant may be granted any Award permitted under the provisions of the Plan, and more than one Award may be granted to a Participant. Awards may be granted as alternatives to or replacement of awards granted or outstanding under the Plan, or any other plan or arrangement of the Company or a Subsidiary (including a plan or arrangement of a business or entity, all or a portion of which is acquired by the Company or a Subsidiary). Subject to the overall limitation on the number of shares of Stock that may be delivered under the Plan, the Committee may use available shares of Stock as the form of payment for compensation, grants or rights earned or due under any other compensation plans or arrangements of the Company or a Subsidiary, including the plans and arrangements of the Company or a Subsidiary assumed in business combinations.

 

6.5                               Settlement and Payments.  Awards may be settled through cash payments, the delivery of shares of Stock, the granting of replacement Awards, or combination thereof as the Committee shall determine. Any Award settlement, including payment deferrals, may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The Committee may permit or require the deferral of any Award payment (other than Option or SAR other than to the extent permitted by Code Section 409A), subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest, or dividend equivalents, including converting such credits into deferred Stock equivalents. Each Subsidiary shall be liable for payment of cash due under the Plan with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a Subsidiary for cash payments shall be resolved by the Committee.

 

6.6                               Transferability.  Awards under the Plan are not transferable except as designated by the Participant by shall or by the laws of descent and distribution or, if provided by the Committee, pursuant to a qualified domestic relations order (within the meaning of the Code and applicable rules thereunder).  To the extent that Participant who receives an Award under the Plan has the right to exercise such Award, the Award may be exercised during the lifetime of the

 

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Participant only by the Participant.  Notwithstanding the foregoing provisions of this subsection 6.6, if provided by the Committee, Awards may be transferred to or for the benefit of the Participant’s family (including, without limitation, to a trust or partnership for the benefit of a Participant’s family), subject to such procedures as the Committee may establish.  In no event shall an ISO be transferable to the extent that such transferability would violate the requirements applicable to such option under Code Section 422.

 

6.7                               Form and Time of Elections.  Unless otherwise specified herein, each election required or permitted to be made by any Participant or other person entitled to benefits under the Plan, and any permitted modification, or revocation thereof, shall be in writing filed with the Committee at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the Plan, as the Committee shall require.

 

6.8                               Agreement with Company.  An Award under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the Committee shall, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected in such form of written document as is determined by the Committee. A copy of such document shall be provided to the Participant, and the Committee may, but need not require that the Participant sign a copy of such document. Such document is referred to in the Plan as an “Award Agreement” regardless of whether any Participant signature is required.

 

6.9                               Notices.  Any notice or document required to be filed with the Committee under the Plan shall be properly filed if delivered or mailed by registered mail, postage prepaid, to the Committee, in care of the Company or the Subsidiary, as applicable, at its principal executive offices.  The Committee may, by advance written notice to affected persons, revise such notice procedure from time to time.  Any notice required under the Plan (other than a notice of election) may be waived by the person entitled to notice.

 

6.10                        Action by Company or Subsidiary.  Any action required or permitted to be taken by the Company or any Subsidiary shall be by resolution of its board of directors, or by action of one or more non-employee members of the board (including a committee of the board) who are duly authorized to act for the board, or (except to the extent prohibited by applicable law or applicable rules of any stock exchange) by a duly authorized officer of such company, or by any employee of the Company or a Subsidiary who is delegated by the board of directors authority to take such action.

 

6.11                        Gender and Number.  Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.

 

6.12                        Limitation of Implied Rights.

 

(a)                                 Neither a Participant nor any other person shall, by reason of participation in the Plan, acquire any right in or title to any assets, funds or property of the Company or any of the Subsidiaries whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any of the Subsidiaries, in its sole discretion, may set aside in anticipation of a liability under the Plan. A

 

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Participant shall have only a contractual right to the Stock or amounts, if any, payable under the Plan, unsecured by any assets of the Company or any of the Subsidiaries, and nothing contained in the Plan shall constitute a guarantee that the assets of the Company or any of the Subsidiaries shall be sufficient to pay any benefits to any person.

 

(b)                                 The Plan does not constitute a contract of employment or continued service, and selection as a Participant will not give any participating employee or other individual the right to be retained in the employ of the Company or a Subsidiary or the right to continue to provide services to the Company or a Subsidiary, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. Except as otherwise provided in the Plan, no Award under the Plan shall confer upon the holder thereof any rights as a shareholder of the Company prior to the date on which the individual fulfills all conditions for receipt of such rights and shares of Stock are registered in his name.

 

6.13                        Evidence.  Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties.

 

6.14                        Misconduct.  If the Committee determines that a present or former employee has (a) used for profit or disclosed to unauthorized persons, confidential or trade secrets of the Company or any Subsidiary; (b) breached any contract with or violated any fiduciary obligation to the Company or any Subsidiary; or (c) engaged in any conduct which the Committee determines is injurious to the Company or its Subsidiaries, the Committee may cause that employee to forfeit his or her outstanding awards under the Plan, provided, however, that during the pendency of a Potential Change in Control and as of and following the occurrence a Change in Control, no outstanding awards under the Plan shall be subject to forfeiture pursuant to this subsection 6.14.

 

6.15                        Restrictions on Shares and Awards.  The Committee, in its discretion, may impose such restrictions on shares of Stock acquired pursuant to the Plan, whether pursuant to the exercise of an Option or SAR, settlement of a Full Value Award or Cash Incentive Award or otherwise, as it determines to be desirable, including, without limitation, restrictions relating to disposition of the shares and forfeiture restrictions based on service, performance, Stock ownership by the Participant, conformity with the Company’s recoupment, compensation recovery, or clawback policies and such other factors as the Committee determines to be appropriate.  Without limiting the generality of the foregoing, unless otherwise specified by the Committee, any awards under the Plan and any shares of Stock issued pursuant to the Plan shall be subject to the Company’s compensation recovery, clawback, and recoupment policies as in effect from time to time.

 

6.16                        Applicable Law.  The provisions of the Plan shall be construed in accordance with the laws of the State of Delaware, without giving effect to choice of law principles.

 

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6.17                        Foreign Individuals.  Notwithstanding any other provision of the Plan to the contrary, the Committee may grant Awards to eligible persons who are foreign nationals on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan.  In furtherance of such purposes, the Committee may make such modifications, amendments, procedures and subplans as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Company or any of the Subsidiaries operates or has employees.  The foregoing provisions of this subsection 6.17 shall not be applied to increase the share limitations of Section 4 or to otherwise change any provision of the Plan that would otherwise require the approval of the Company’s shareholders.

 

6.18                        Liability for Cash Payments.  Subject to the provisions of this Section 6, each Subsidiary shall be liable for payment of cash due under the Plan with respect to any Participant to the extent that such payment is attributable to the services rendered for that Subsidiary by the Participant.  Any disputes relating to liability of a Subsidiary for cash payments shall be resolved by the Committee.

 

SECTION 7

Committee

 

7.1                               Administration.  The authority to control and manage the operation and administration of the Plan shall be vested in a committee (the “Committee”) in accordance with this Section 7. The Committee shall be selected by the Board, and shall consist solely of two or more non-employee members of the Board. If the Committee does not exist, or for any other reason determined by the Board, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee.  As of the Effective Date, the Committee shall mean the Compensation Committee of the Board.

 

7.2                               Powers of Committee.  The Committee’s administration of the Plan shall be subject to the following:

 

(a)                                 Subject to the provisions of the Plan, the Committee will have the authority and discretion to select from among the Eligible Individuals those persons who shall receive Awards, to determine the time or times of receipt, to determine the types of Awards and the number of shares covered by the Awards, to establish the terms, conditions, performance targets, restrictions, and other provisions of such Awards, and, subject to the restrictions imposed by Section 8 and the provisions of Section 9, to cancel or suspend Awards, reissue or repurchase Awards, and accelerate the exercisability or vesting of any Award.  In making such Award determinations, the Committee may take into account the nature of services rendered by the respective employee, the individual’s present and potential contribution to the Company’s or a Subsidiary’s success and such other factors as the Committee deems relevant.

 

(b)                                 Subject to the provisions of the Plan, the Committee shall have the authority and discretion to determine the extent to which Awards under the Plan shall be

 

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structured to conform to the requirements applicable to Performance-Based Compensation, and to take such action, establish such procedures, and impose such restrictions at the time such Awards are granted as the Committee determines to be necessary or appropriate to conform to such requirements.

 

(c)                                  To the extent that the Committee determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Committee will have the authority and discretion to modify those restrictions as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.

 

(d)                                 The Committee will have the authority and discretion to conclusively interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreement made pursuant to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.

 

(e)                                  Any interpretation of the Plan by the Committee and any decision made by it under the Plan is final and binding on all persons.

 

(f)                                   In controlling and managing the operation and administration of the Plan, the Committee shall take action in a manner that conforms to the articles and by-laws of the Company, and applicable state corporate law.

 

7.3                               Delegation by Committee.  Except to the extent prohibited by applicable law or the applicable rules of a stock exchange on which the Stock is listed, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time.

 

7.4                               Information to be Furnished to Committee.  The Company and the Subsidiaries shall furnish the Committee with such data and information as it determines may be required for it to discharge its duties. The records of the Company and the Subsidiaries as to an individual’s or Participant’s employment (or other provision of services), termination of employment (or cessation of the provision of services), leave of absence, reemployment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan.

 

7.5                               Limitation on Liability and Indemnification of Committee.  No member or authorized delegate of the Committee shall be liable to any person for any action taken or omitted in connection with the administration of the Plan unless attributable to his own fraud or willful misconduct; nor shall the Company or any Subsidiary be liable to any person for any such action unless attributable to fraud or willful misconduct on the part of a director or employee of the Company or Subsidiary.  The Committee, the individual members thereof, and persons acting as the authorized delegates of the Committee under the Plan, shall be indemnified by the

 

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Company against any and all liabilities, losses, costs and expenses (including legal fees and expenses) of whatsoever kind and nature which may be imposed on, incurred by or asserted against the Committee or its members or authorized delegates by reason of the performance of a Committee function if the Committee or its members or authorized delegates did not act dishonestly or in willful violation of the law or regulation under which such liability, loss, cost or expense arises.  This indemnification shall not duplicate but may supplement any coverage available under any applicable insurance.

 

SECTION 8

Amendment and Termination

 

The Board may, at any time, amend or terminate the Plan (and the Committee may amend any Award Agreement); provided, however, that no amendment or termination of the Plan or amendment of any Award Agreement may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the Plan prior to the date such amendment is adopted by the Board or the Committee, as applicable; and provided further that, adjustments pursuant to subsection 4.2 shall not be subject to the foregoing limitations of this Section 8; and provided further that, amendments to the provisions of subsection 2.9 (relating to Option and SAR repricing), amendments expanding the group of Eligible Individuals, or amendments to or increases in the number of shares reserved under the Plan pursuant to paragraphs 4.1(b) (total shares reserved), 4.1(g) (relating to the limitations on ISOs), 4.1(h) (relating to individual limits) will not be effective unless approved by the Company’s shareholders; and provided further that, no other amendment shall be made to the Plan without the approval of the Company’s shareholders if such approval is required by law or the rules of any stock exchange on which the Stock is listed.  It is the intention of the Company that, to the extent that any provisions of this Plan or any Awards granted hereunder are subject to Code Section 409A, the Plan and the Awards comply with the requirements of Code Section 409A and that the Board shall have the authority to amend the Plan as it deems necessary or desirable to conform to Code Section 409A.  Notwithstanding the foregoing, neither the Company nor the Subsidiaries guarantee that Awards under the Plan will comply with Code Section 409A and the Committee is under no obligation to make any changes to any Award to cause such compliance.

 

SECTION 9

EMA Awards

 

9.1                               EMA Awards.  As of the Distribution Date, the Committee shall grant EMA Awards to EMA Participants pursuant to, and in accordance with, the Employee Matters Agreement and this Section 9.  EMA Awards shall be in the form of Options, SARs, and Full Value Awards.  The provisions of this Section 9 shall apply without regard to any other provision of the Plan.

 

9.2                               EMA Awards Generally.  The number of shares of Stock subject to an EMA Award granted to an EMA Participant, and, to the extent applicable, the exercise price of the

 

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EMA Award, shall be determined in accordance with the applicable provision of the Employee Matters Agreement and shall otherwise be subject to the same terms and conditions (including vesting, settlement and termination) as applied to the corresponding YUM Award to which the EMA Award relates and otherwise shall be subject to the terms and conditions of Article VI of the Employee Matters Agreement; provided, however, that any condition related to termination of a Participant’s employment or service with YUM or its affiliates or related to a determination by the committee charged with administration of the YUM Equity Plan shall be based on an otherwise identical condition related to the termination of a Participant’s employment or service with the Company and the Subsidiaries or a determination by the Committee under this Plan, respectively and as applicable.  Without limiting the generality of the foregoing, any distribution of shares of Stock pursuant to the YUM EIDP (or any other deferred compensation plan maintained which provides for the distribution of shares of Stock) in accordance with the terms of the Employee Matters Agreement shall be treated as a Full Value Award under the Plan.

 

9.3                               Interpretation.  This Section 9 is intended to provide for compliance with the Company’s obligations with respect to SpinCo Awards as set forth in the Employee Matters Agreement and shall, to the extent possible, be interpreted in a manner consistent with that intention.  EMA Awards granted under the Plan shall only be subject to the restrictions of the Plan to the extent that such restrictions applied to the corresponding YUM Award immediately prior to the Distribution Date.  In the event of any inconsistency between the Plan and/or an Award Agreement and the Employee Matters Agreement with respect to an EMA Award, the Employee Matters Agreement will govern.

 

SECTION 10

Defined Terms

 

In addition to the other definitions contained herein, the following definitions shall apply:

 

(a)                                 Award.  The term “Award” shall mean any award or benefit granted under the Plan, including, without limitation, the grant of Options, SARs, or Full Value Awards.  An Award shall also include EMA Awards granted under the Plan.

 

(b)                                 Award Agreement.  The term “Award Agreement is defined in subsection 6.8.

 

(c)                                  Board.  The term “Board” shall mean the Board of Directors of the Company.

 

(d)                                 Change in Control.  Except as otherwise provided by the Committee, a “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following subparagraphs shall have occurred:

 

(i)                                     any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (I) of subparagraph (iii) below; or

 

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(ii)                                  the following individuals cease for any reason to constitute a majority of the number of directors then serving; individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company), whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or

 

(iii)                               there is consummated a merger or consolidation of the Company or any direct or indirect Subsidiary with any other corporation, other than (I) a merger or consolidation immediately following which those individuals who immediately prior to the consummation of such merger or consolidation, constituted the Board, constitute a majority of the board of directors of the Company or the surviving or resulting entity or any parent thereof, or (II) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% or more of the combined voting power of the Company’s then outstanding securities.

 

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.  For purposes of this definition, the following terms shall have the meaning specified:

 

(I)                                   “Affiliate” shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act.

 

(II)                              “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13-G.

 

(III)                         “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries; (iii) an underwriter temporarily holding

 

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securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(e)                                  Code.  The term “Code” shall mean the Internal Revenue Code of 1986, as amended. A reference to any Code provision shall include reference to any successor provision of the Code.

 

(f)                                   Committee.  The term “Committee” is defined in subsection 7.1.

 

(g)                                  Director.  For purposes of the Plan, the term “Director” shall mean a member of the Board who is not an officer or employee of the Company or any Subsidiary.

 

(h)                                 Distribution Date.  The term “Distribution Date” has the meaning set forth in the Employee Matters Agreement.

 

(i)                                     Effective Date.  The term “Effective Date” is defined in subsection 6.1.

 

(j)                                    Eligible Individual.  For purposes of the Plan, the term “Eligible Individual” shall mean any officer, director or other employee of the Company or its Subsidiaries, consultants, independent contractors or agents of the Company or a Subsidiary, and persons who are expected to become officers, employees, directors, consultants, independent contractors or agents of the Company or a Subsidiary (but effective no earlier than the date on which such individual begins to provide services to the Company or a Subsidiary), including, in each case, Directors.

 

(k)                                 EMA Award.  The term “EMA Award” is an award described in Section 9 hereof.

 

(l)                                     EMA Participant.  The term “EMA Participant” means an individual who is entitled to a SpinCo Award pursuant to Article VI of the Employee Matters Agreement or who is otherwise entitled to receive a share of Stock pursuant to Article VI of the Employee Matters Agreement.

 

(m)                             Employee Matters Agreement.  The term “Employee Matters Agreement” means the Employee Matters Agreement between YUM and the Company dated October 31, 2016.

 

(n)                                 Exchange Act.  The term “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

(o)                                 Exercise Price.  The term “Exercise Price is defined in subsection 2.4.

 

(p)                                 Fair Market Value.  The “Fair Market Value” of a share of Stock means, as of any date, the value determined in accordance with the following rules:

 

(i)                                     If the Stock is at the time listed or admitted to trading on any stock exchange, then the Fair Market Value shall be the closing price per share

 

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of Stock on such date on the principal exchange on which the Stock is then listed or admitted to trading or, if no such sale is reported on that date, on the last preceding date on which a sale was so reported.

 

(ii)                                  If the Stock is not at the time listed or admitted to trading on a stock exchange, the Fair Market Value shall be the closing average of the closing bid and asked price of a share of Stock on the date in question in the over-the-counter market, as such price is reported in a publication of general circulation selected by the Committee and regularly reporting the market price of Stock in such market.

 

(iii)                               If the Stock is not listed or admitted to trading on any stock exchange or traded in the over-the-counter market, the Fair Market Value shall be as determined by the Committee in good faith.

 

(q)                                 Participant.  The term “Participant” is defined in subsection 1.2.

 

(r)                                    Performance Measures.  In the case of any Award that is intended to constitute Performance-Based Compensation, the term “Performance Measures” shall mean any one or more of the following:   cash flow; earnings; earnings per share; market value added or economic value added; profits; return on assets; return on equity; return on investment; revenues; stock price; total shareholder return; customer satisfaction metrics; or restaurant unit development. Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital, shareholders’ equity and/or shares outstanding, investments or to assets or net assets.

 

(s)                                   Potential Change in Control.  A “Potential Change in Control” shall exist during any period in which the circumstances described in subparagraphs (i), (ii), (iii) or (iv), below, exist (provided, however, that a Potential Change in Control shall cease to exist not later than the occurrence of a Change in Control):

 

(i)                                     the Company or any successor or assign thereof enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; provided that a Potential Change in Control described in this subparagraph (i) shall cease to exist upon the expiration or other termination of all such agreements.

 

(ii)                                  Any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; provided that a Potential Change in Control described in this subparagraph (ii) shall cease to exist upon the withdrawal of such intention, or upon a reasonable determination by the Board that there is no reasonable chance that such actions would be consummated.

 

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(iii)                               Any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company’s then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or any of its Affiliates). However, a Potential Change in Control shall not be deemed to exist by reason of ownership of securities of the Company by any person, to the extent that such securities of the Company are acquired pursuant to a reorganization, recapitalization, spin-off or other similar transactions (including a series of prearranged related transactions) to the extent that immediately after such transaction or transactions, such securities are directly or indirectly owned in substantially the same proportions as the proportions of ownership of the Company’s securities immediately prior to the transaction or transactions.

 

(iv)                              The Board adopts a resolution to the effect that, for purposes of this Plan, a potential change in control exists; provided that a Potential Change in Control described in this subparagraph (iv) shall cease to exist upon a reasonable determination by the Board that the reasons that give rise to the resolution providing for the existence of a Potential Change in Control have expired or no longer exist.

 

(t)                                    SpinCo Award.  The term “SpinCo Award” has the meaning specified in the Employee Matters Agreement.

 

(u)                                 Subsidiaries.  The term “Subsidiary” shall mean any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent voting or profits interest is owned, directly or indirectly, by the Company (or by any entity that is a successor to the Company), and any other business venture designated by the Committee in which the Company (or any entity that is a successor to the Company) has a significant interest, as determined in the discretion of the Committee; provided, however, that except for options and SARs designated as intended to be subject to Code Section 409A, options and SARs shall not be granted to employees or directors of Subsidiaries unless the ownership of the Subsidiary satisfies Treas. Reg. § 1.409A-1(b)(5)(iii).  For purposes of applying the Plan to an ISO, the term “Subsidiary” shall mean a subsidiary determined in accordance with Code Section 424(f).

 

(v)                                 Substitute Award.  The term “Substitute Award” means an Award granted or shares of Stock issued by the Company in assumption of, or in substitution or exchange for, an award previously granted, or the right or obligation to make a future award, in all cases by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines. In no event shall the issuance of Substitute Awards change the terms of such previously granted awards such that the change, if applied to a current Award, would be prohibited under the provisions of subsection 2.9.

 

(w)                               Stock.  The term “Stock” shall mean shares of common stock of the Company.

 

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(x)                                 YUM.  The term “YUM” means Yum! Brands, Inc.

 

(y)                                 YUM Award.  The term “YUM Award” has the meaning specified in the Employee Matters Agreement.

 

(z)                                  YUM EIDP.  The term “YUM EIDP” has the meaning specified in the Employee Matters Agreement.

 

(aa)                          YUM Equity Plan.  The term “YUM Equity Plan” has the meaning specified in the Employee Matters Agreement.

 

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