UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

October 31, 2016

Commission file number 1-13163
________________________
YUM! BRANDS, INC.
(Exact name of registrant as specified in its charter)

North Carolina
 
13-3951308
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
1441 Gardiner Lane, Louisville, Kentucky
 
40213
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant’s telephone number, including area code:  (502) 874-8300
 
 
 
Former name or former address, if changed since last report:   N/A

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))








Item 1.01 Entry Into a Material Definitive Agreement

On October 31, 2016, Yum! Brands, Inc. (“YUM”) distributed all of the outstanding shares of common stock of Yum China Holdings, Inc. (“Yum China”) to YUM shareholders (the “Distribution”). In connection with the Distribution, YUM (or a subsidiary of YUM) entered into several agreements with Yum China (or a subsidiary of Yum China) that govern the relationship of the parties following the Distribution, including the following:

Separation and Distribution Agreement
Master License Agreement
Tax Matters Agreement

Summaries of the material terms of these agreements can be found in the section entitled “Certain Relationships and Related Person Transactions” in the Information Statement filed as Exhibit 99.1 to Yum China’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2016 which summary is incorporated herein by reference. The descriptions of those agreements are qualified in their entirety by reference to the complete terms and conditions of those agreements, which are attached hereto as Exhibits 2.1, 10.1 and 10.2, respectively.

Item 2.01 Completion of Acquisition or Disposition of Assets

On October 31, 2016, YUM completed the Distribution. Yum China was formed to hold YUM’s China business and, as a result of the Distribution, Yum China is now an independent public company trading under the symbol “YUMC” on the New York Stock Exchange. The Distribution was made to YUM shareholders of record as of the close of business on October 19, 2016 (the “Record Date”). Each YUM shareholder of record on the Record Date received one share of Yum China common stock for each share of YUM common stock held on the Record Date. In the aggregate, 363,758,219 shares of Yum China common stock were distributed to YUM’s shareholders in the Distribution.

On November 1, 2016, YUM issued a press release announcing the completion of the Distribution. A copy of the press release is attached hereto as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits

(b) Pro forma financial information. The unaudited pro forma consolidated financial statements of YUM giving effect to the Distribution, and the related notes thereto, are attached hereto as Exhibit 99.2. 

(d) Exhibits.  The following exhibits are provided as part of this Current Report on Form 8-K:
 
Exhibit No.
 
Exhibit
 
 
 
2.1*
 
Separation and Distribution Agreement, dated as of October 31, 2016, by and among Yum! Brands, Inc, Yum Restaurants Consulting (Shanghai) Company Limited and Yum China Holdings, Inc.
 
 
 
10.1
 
Master License Agreement, dated as of October 31, 2016, by and between Yum! Restaurants Asia Pte. Ltd. and Yum Restaurants Consulting (Shanghai) Company Limited.
 
 
 
10.2
 
Tax Matters Agreement, dated as of October 31, 2016, by and among Yum! Brands, Inc., Yum China Holdings, Inc. and Yum Restaurants Consulting (Shanghai) Company Limited.
 
 
 
99.1
 
Press Release of Yum! Brands, Inc., dated November 1, 2016.
 
 
 
99.2
 
Yum! Brands, Inc. Unaudited Pro Forma Consolidated Financial Statements.

*Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules and/or exhibits will be furnished to the Securities and Exchange Commission upon request.







SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
 
YUM! BRANDS, INC.
 
 
 
 
(Registrant)
 



Date:
November 3, 2016
 
/s/ David E. Russell
 
 
 
 
Vice President, Finance and
Corporate Controller
 
 
 
 
(Principal Accounting Officer)
 



Exhibit  2.1

 

SEPARATION AND DISTRIBUTION AGREEMENT

 

BY AND BETWEEN

 

YUM! BRANDS, INC.,

 

YUM RESTAURANTS CONSULTING (SHANGHAI) COMPANY LIMITED

 

AND

 

YUM CHINA HOLDINGS, INC.

 

DATED AS OF OCTOBER 31, 2016

 



 

TABLE OF CONTENTS

 

 

 

Page

ARTICLE I DEFINITIONS

2

 

 

ARTICLE II THE SEPARATION

13

 

 

2.1

Transfer of Assets and Assumption of Liabilities

13

2.2

SpinCo Assets; YUM Assets

15

2.3

SpinCo Liabilities; YUM Liabilities

17

2.4

Approvals and Notifications

19

2.5

Novation of Liabilities

22

2.6

Release of Guarantees

23

2.7

Termination of Agreements

24

2.8

Treatment of Shared Contracts

25

2.9

Bank Accounts; Cash Balances

26

2.10

Ancillary Agreements

27

2.11

Disclaimer of Representations and Warranties

27

2.12

Financial Information Certifications

28

2.13

Transition Committee

28

 

 

 

ARTICLE III THE DISTRIBUTION

29

 

 

3.1

Sole and Absolute Discretion; Cooperation

29

3.2

Actions Prior to the Distribution

29

3.3

Conditions to the Distribution

30

3.4

The Distribution

32

 

 

 

ARTICLE IV MUTUAL RELEASES, INDEMNIFICATION AND LITIGATION

33

 

 

4.1

Release of Pre-Distribution Claims

33

4.2

Indemnification by the SpinCo Parties

35

4.3

Indemnification by YUM

36

4.4

Indemnification Obligations Net of Insurance Proceeds and Other Amounts

37

4.5

Procedures for Indemnification of Third-Party Claims

38

4.6

Additional Matters

40

4.7

Right of Contribution

41

4.8

Covenant Not to Sue

41

4.9

Remedies Cumulative

42

4.10

Survival of Indemnities

42

4.11

Coordination with Ancillary Agreements

42

4.12

Management of Certain Actions

42

4.13

Settlement of Actions

44

 

 

 

ARTICLE V CERTAIN OTHER MATTERS

44

 

 

5.1

Insurance Matters

44

5.2

Late Payments

46

5.3

Treatment of Payments for Tax Purposes

47

5.4

Non-Solicitation

47

 

i



 

5.5

Inducement

47

5.6

Post-Effective Time Conduct

47

 

 

 

ARTICLE VI EXCHANGE OF INFORMATION; CONFIDENTIALITY

48

 

 

6.1

Agreement for Exchange of Information

48

6.2

Ownership of Information

49

6.3

Compensation for Providing Information

49

6.4

Record Retention

49

6.5

Limitations of Liability

49

6.6

Other Agreements Providing for Exchange of Information

49

6.7

Production of Witnesses; Records; Cooperation

50

6.8

Privileged Matters

51

6.9

Confidentiality

53

6.10

Protective Arrangements

54

 

 

 

ARTICLE VII DISPUTE RESOLUTION

55

 

 

7.1

Good-Faith Negotiation

55

7.2

Mandatory Mediation

55

7.3

Confidential Arbitration

56

7.4

Confidentiality

57

7.5

Conduct and Tolling During Dispute Resolution Process

58

7.6

Limitations Period

58

7.7

Enforcement Costs

58

7.8

Litigation and Unilateral Commencement of Arbitration

58

 

 

 

ARTICLE VIII FURTHER ASSURANCES AND ADDITIONAL COVENANTS

58

 

 

8.1

Further Assurances

58

 

 

 

ARTICLE IX TERMINATION

59

 

 

9.1

Termination

59

9.2

Effect of Termination

59

 

 

 

ARTICLE X MISCELLANEOUS

59

 

 

10.1

Counterparts; Entire Agreement; Corporate Power; Facsimile Signatures

59

10.2

Governing Law

60

10.3

Binding Effect; Assignability

60

10.4

No Third-Party Beneficiaries

60

10.5

Notices

61

10.6

Severability

62

10.7

Force Majeure

62

10.8

No Set-Off

62

10.9

Expenses

63

10.10

Headings

63

10.11

Survival of Covenants

63

10.12

Waivers of Default; Remedies Cumulative

63

10.13

Specific Performance

63

10.14

Amendments

63

 

ii



 

10.15

Interpretation

63

10.16

Limitations of Liability

64

10.17

Performance

64

10.18

Mutual Drafting

64

 

iii



 

SCHEDULES

 

Schedule 1.1

 

SpinCo Discontinued or Divested Businesses

Schedule 1.2

 

SpinCo Contracts

Schedule 1.3(a)

 

SpinCo Registrable IP

Schedule 1.3(c)

 

SpinCo Other IP

Schedule 1.4(a)

 

SpinCo Real Property (Owned)

Schedule 1.4(b)

 

SpinCo Real Property Leases

Schedule 1.5

 

SpinCo Software

Schedule 1.6

 

SpinCo Technology

Schedule 1.7

 

YUM Software

Schedule 1.8

 

YUM Technology

Schedule 1.9

 

Transferred Entities

Schedule 1.10

 

SpinCo Specified Actions

Schedule 1.11

 

YUM Specified Actions

Schedule 2.1(a)

 

Plan of Reorganization

Schedule 2.2(a)(xi)

 

SpinCo Assets

Schedule 2.2(b)(iii)

 

YUM Intellectual Property

Schedule 2.2(b)(vi)

 

YUM Assets (Other)

Schedule 2.3(a)(vi)

 

SpinCo Liabilities (Other)

Schedule 2.3(b)(iv)

 

YUM Liabilities (Other)

Schedule 2.5(a)

 

Novation of SpinCo Liabilities

Schedule 2.7(b)(ii)

 

Intercompany Agreements

Schedule 4.3(f)

 

Specified YUM Information

Schedule 4.12(c)

 

Mixed Actions

Schedule 10.9

 

Allocation of Certain Costs and Expenses

 

EXHIBITS

 

Exhibit A

 

Form of Amended and Restated Certificate of Incorporation of Yum China Holdings, Inc.

 

 

 

Exhibit B

 

Form of Amended and Restated Bylaws of Yum China Holdings, Inc.

 

iv



 

SEPARATION AND DISTRIBUTION AGREEMENT

 

This SEPARATION AND DISTRIBUTION AGREEMENT (this “Agreement”), dated as of October 31, 2016, is by and among Yum! Brands, Inc., a North Carolina corporation (“YUM”), Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a company organized under the Laws of the People’s Republic of China, and Yum China Holdings, Inc., a Delaware corporation (“SpinCo”, and, together with YCCL, the “SpinCo Parties”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I.

 

R E C I T A L S

 

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 holders of YUM Shares on the Record Date of all the outstanding SpinCo Shares owned by YUM (the “Distribution”);

 

WHEREAS, SpinCo has been incorporated solely for these purposes and has not engaged in activities except in preparation for the Separation and the Distribution;

 

WHEREAS, YCCL is an indirect wholly-owned subsidiary of SpinCo and the principal management company for the SpinCo Business;

 

WHEREAS, for U.S. federal income tax purposes, the Distribution is intended to qualify as a transaction that is generally tax-free under Sections 355 and 361 of the Code to YUM, its shareholders (except with respect to cash received in lieu of fractional shares) and SpinCo;

 

WHEREAS, SpinCo and YUM have prepared, and SpinCo has filed with the SEC, the Form 10, which includes the Information Statement, and which sets forth disclosure concerning SpinCo, the Separation and the Distribution;

 

WHEREAS, each of YUM and the SpinCo Parties has determined that it is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation and the Distribution and certain other agreements that will govern certain matters relating to the Separation and the Distribution and the relationship of YUM, SpinCo and the members of their respective Groups following the Distribution; and

 

WHEREAS, the Parties acknowledge that this Agreement and the Ancillary Agreements represent the integrated agreement of YUM and the SpinCo Parties relating to the Separation and Distribution, are being entered into together, and would not have been entered into independently.

 



 

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

 

For the purpose of this Agreement, the following terms shall have the following meanings:

 

Action” shall mean any demand, action, claim, counterclaim, dispute, suit, countersuit, arbitration, hearing, inquiry, subpoena, proceeding, examination or investigation of any nature (whether criminal, civil, legislative, administrative, regulatory, prosecutorial, appellate or otherwise) by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal.

 

Affiliate” shall mean, when used with respect to a specified Person, a Person that, directly or indirectly, through one (1) or more intermediaries, controls, is controlled by or is under common control with such specified Person.  For the purpose of this definition, “control” (including with correlative meanings, “controlled by” and “under common control with”), when used with respect to any specified Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by Contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment, undertaking or otherwise.  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 shall be deemed to be an Affiliate of any member of the YUM Group, and (b) no member of the YUM Group shall be deemed to be an Affiliate of any member of the SpinCo Group.

 

Agent” shall mean the trust company or bank duly appointed to act as distribution agent, transfer agent and registrar for the SpinCo Shares in connection with the Distribution.

 

Agreement” shall have the meaning set forth in the Preamble.

 

Ancillary Agreements” shall mean all agreements (other than this Agreement) entered into by the Parties or members of their respective Groups (but as to which no Third Party is a party) in connection with the Separation, the Distribution or the other transactions contemplated by this Agreement, including the Master License Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Transition Services Agreement, the Name License Agreement, the Guaranty and the Transfer Documents.

 

Approvals or Notifications” shall mean any consents, waivers, approvals, permits or authorizations to be obtained from, notices, registrations or reports to be submitted to, or other filings to be made with, any Third Party, including any Governmental Authority.

 

Arbitration Request” shall have the meaning set forth in Section 7.3(a).

 

2



 

Assets” shall mean, with respect to any Person, the assets, properties, claims and rights (including goodwill) of such Person, wherever located (including in the possession of vendors or other Third Parties or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of such Person, including rights and benefits pursuant to any Contract, license, permit, indenture, note, bond, mortgage, agreement, concession, franchise, instrument, undertaking, commitment, understanding or other arrangement.

 

Certification” shall have the meaning set forth in Section 2.12.

 

Code” shall mean the Internal Revenue Code of 1986, as amended.

 

China” shall mean the People’s Republic of China, excluding Hong Kong, Macau and Taiwan.

 

China Division” shall mean YUM’s (and its Subsidiaries’) businesses and operations in China.

 

Contract” shall mean any agreement, understanding, contract, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment or undertaking (whether written or oral and whether express or implied) that is legally binding.

 

CPR” shall have the meaning set forth in Section 7.2.

 

Delayed SpinCo Asset” shall have the meaning set forth in Section 2.4(c).

 

Delayed SpinCo Liability” shall have the meaning set forth in Section 2.4(c).

 

Delayed YUM Asset” shall have the meaning set forth in Section 2.4(h).

 

Delayed YUM Liability” shall have the meaning set forth in Section 2.4(h).

 

Disclosure Document” shall mean any registration statement (including the Form 10) filed with the SEC by or on behalf of YUM, SpinCo or any other member of their respective Groups, and any information statement (including the Information Statement), prospectus, offering memorandum, offering circular, periodic report or similar disclosure document, whether or not filed with the SEC or any other Governmental Authority, in each case which describes the Separation or the Distribution or the SpinCo Group or primarily relates to the transactions contemplated hereby.

 

Dispute” shall have the meaning set forth in Section 7.1.

 

Distribution” shall have the meaning set forth in the Recitals.

 

Distribution Date” shall mean the date of the consummation of the Distribution, which shall be determined by the YUM Board in its sole and absolute discretion.

 

3



 

Effective Time” shall mean 11:59 p.m., New York City time, on the Distribution Date.

 

Employee Matters Agreement” shall mean the Employee Matters Agreement to be entered into by and between YUM and SpinCo in connection with the Separation, the Distribution and the other transactions contemplated by this Agreement.

 

Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

 

Force Majeure” shall mean, with respect to a Party, an event beyond the reasonable control of such Party (or any Person acting on its behalf), which event (a) does not arise or result from the fault or negligence of such Party (or any Person acting on its behalf) and (b) by its nature would not reasonably have been foreseen by such Party (or such Person), or, if it would reasonably have been foreseen, was unavoidable, and includes acts of God, acts of civil or military authority, embargoes, epidemics, pandemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any significant and prolonged failure in electrical or air conditioning equipment.  Notwithstanding the foregoing, (1) the receipt by a Party of an unsolicited takeover offer or other acquisition proposal and such Party’s response thereto and (2) any change after the date of this Agreement in any Law applicable to YUM, SpinCo, or any member of their respective Groups, in either case even if unforeseen or unavoidable, shall not be deemed an event of Force Majeure.

 

Form 10” shall mean the registration statement on Form 10 filed by SpinCo with the SEC to effect the registration of SpinCo Shares pursuant to Section 12(b) of the Exchange Act in connection with the Distribution, as such registration statement may be amended or supplemented from time to time prior to the Distribution.

 

Governmental Approvals” shall mean any Approvals or Notifications to be made to, or obtained from, any Governmental Authority.

 

Governmental Authority” shall mean any nation or government, any state, municipality or other political subdivision thereof, and any entity, body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether federal, state, provincial, local, domestic, foreign, supranational or multinational, exercising executive, legislative, judicial, regulatory, administrative or other similar functions of, or pertaining to, a government and any executive official thereof.

 

Group” shall mean either the SpinCo Group or the YUM Group, as the context requires.  Reference to a Party’s respective Group means (a) the YUM Group, in the case of YUM and (b) the SpinCo Group, in the case of either SpinCo Party.

 

Guaranty” shall mean the guaranty given by SpinCo in respect of the obligations of YCCL under the Master License Agreement.

 

Indemnifying Party” shall have the meaning set forth in Section 4.4(a).

 

4



 

Indemnitee” shall have the meaning set forth in Section 4.4(a).

 

Indemnity Payment” shall have the meaning set forth in Section 4.4(a).

 

Information” shall mean information, whether in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, Contracts, instruments, surveys, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data; provided that “Information” shall not include Intellectual Property, Software or Technology.

 

Information Statement” shall mean the information statement to be made available to the holders of YUM Shares in connection with the Distribution, as such information statement may be amended or supplemented from time to time prior to the Distribution.

 

Initial Notice” shall have the meaning set forth in Section 7.1.

 

Insurance Proceeds” shall mean those monies:

 

(a)           received by an insured from an insurance carrier; or

 

(b)           paid by an insurance carrier on behalf of the insured;

 

in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred in the collection thereof; provided, that, with respect to a captive insurance arrangement, Insurance Proceeds shall only include amounts received by the captive insurer in respect of any reinsurance arrangement.

 

Intellectual Property” shall mean all of the following whether arising under the Laws of the United States or of any foreign or multinational jurisdiction:  (a) patents, patent applications (including patents issued thereon) and statutory invention registrations, including reissues, divisions, continuations, continuations in part, substitutions, renewals, extensions and reexaminations of any of the foregoing, and all rights in any of the foregoing provided by international treaties or conventions, (b) trademarks, service marks, trade names, service names, trade dress, logos and other source or business identifiers, including all goodwill associated with any of the foregoing, and any and all common law rights in and to any of the foregoing, registrations and applications for registration of any of the foregoing, all rights in and to any of the foregoing provided by international treaties or conventions, and all reissues, extensions and renewals of any of the foregoing, (c) Internet domain names, accounts with Facebook, LinkedIn, Twitter and similar social media platforms, registrations and related rights, (d) copyrightable works, copyrights, moral rights, mask work rights, database rights and design rights, in each case, other than Software, whether or not registered, and all registrations and applications for registration of any of the foregoing, and all rights in and to any of the foregoing provided by international treaties or conventions, (e) confidential and proprietary information, including trade secrets, invention disclosures, processes and know-how, in each case, other than Software, (f)

 

5



 

intellectual property rights arising from or in respect of any Technology and (g) any other intellectual property rights, in each case, other than Software.

 

IRS” shall mean the U.S. Internal Revenue Service.

 

Law” shall mean any national, supranational, federal, state, provincial, local or similar law (including common law), statute, code, order, ordinance, rule, regulation, treaty (including any income tax treaty), license, permit, authorization, approval, consent, decree, injunction, binding judicial or administrative interpretation or other requirement, in each case, enacted, promulgated, issued or entered by a Governmental Authority.

 

Liabilities” shall mean all debts, guarantees, assurances, commitments, liabilities, responsibilities, Losses, remediation, deficiencies, damages, fines, penalties, settlements, sanctions, costs, expenses, interest and obligations of any nature or kind, whether fixed, absolute or contingent, matured or unmatured, accrued or not accrued, asserted or unasserted, liquidated or unliquidated, foreseen or unforeseen, known or unknown, reserved or unreserved, or determined or determinable, including those arising under any Law, claim (including any Third-Party Claim), demand, Action, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority or arbitration tribunal, and those arising under any Contract, or any fines, damages or equitable relief that is imposed, in each case, including all costs and expenses relating thereto.

 

Linked” shall have the meaning set forth in Section 2.9(a).

 

Losses” shall mean actual losses (including any diminution in value), costs, damages, penalties and expenses (including legal and accounting fees and expenses and costs of investigation and litigation), whether or not involving a Third-Party Claim.

 

Master License Agreement” shall mean the Master License Agreement to be entered into by and between YCCL and Yum! Restaurants Asia Pte. Ltd. in connection with the Separation, the Distribution and the other transactions contemplated by this Agreement.

 

Mediation Request” shall have the meaning set forth in Section 7.2.

 

Mixed Actionsshall have the meaning set forth in Section 4.12(c).

 

MLA IPshall mean all Intellectual Property, Software and Technology at any time licensed to YCCL by Yum! Restaurants Asia Pte. Ltd. pursuant to the Master License Agreement.

 

Name License Agreement” shall mean the Name License Agreement to be entered into by and between YUM and SpinCo in connection with the Separation, the Distribution and the other transactions contemplated by this Agreement.

 

NYSE” shall mean the New York Stock Exchange.

 

Other IP” shall mean all Intellectual Property, other than Registrable IP, that is owned by YUM, SpinCo or any other member of their respective Groups as of the Effective Time.

 

6



 

Party” or “Parties” shall mean a party or the parties to this Agreement.

 

Permits” shall mean permits, approvals, authorizations, consents, licenses or certificates issued by any Governmental Authority.

 

Person” shall mean an individual, a general or limited partnership, a company, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority.

 

Plan of Reorganization” shall have the meaning set forth in Section 2.1(a).

 

Prime Rate” shall mean the rate that Bloomberg displays as “Prime Rate by Country United States” at http://www.bloomberg.com/quote/PRIME:IND or on a Bloomberg terminal at PRIMBB Index or, in the absence of Bloomberg displaying such rate, such other rate as YUM may reasonably determine as the equivalent rate.

 

Privileged Information” shall mean any information, in written, oral, electronic or other tangible or intangible forms, including any communications by or to attorneys (including attorney-client privileged communications), memoranda and other materials protected by the work product doctrine, as to which a Party or any other member of its Group would be entitled to assert or have asserted a privilege or other protection, including the attorney-client and work product privileges.

 

Prohibited Jurisdiction” shall have the meaning set forth in Section 3.4(d).

 

Protected Party” shall have the meaning set forth in Section 5.4.

 

Real Property” shall mean land, and any and all buildings, structures, improvements and fixtures located thereon, together with all easements, rights and interests arising out of the ownership thereof.

 

Real Property Leases” shall mean all leases to Real Property.

 

Record Date” shall mean the close of business on the date to be determined by the YUM Board as the record date for determining holders of YUM Shares entitled to receive SpinCo Shares pursuant to the Distribution.

 

Record Holders” shall mean the holders of record of YUM Shares as of the Record Date.

 

Registrable IP” shall mean all patents, statutory invention registrations, registered trademarks, registered service marks, registered Internet domain names and copyright registrations, and all applications for any of the foregoing.

 

Representatives” shall mean, with respect to any Person, any of such Person’s directors, officers, employees, agents, consultants, advisors, accountants, attorneys or other representatives.

 

7



 

SEC” shall mean the U.S. Securities and Exchange Commission.

 

Security Interest” shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever.

 

Separation” shall have the meaning set forth in the Recitals.

 

Shared Contract” shall have the meaning set forth in Section 2.8(a).

 

Software” shall mean any and all (a) computer programs, including any and all software implementation of algorithms, models and methodologies, whether in source code, object code, human readable form or other form, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow charts and other work products used to design, plan, organize and develop any of the foregoing, (d) screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons and (e) documentation, including user manuals and other training documentation, relating to any of the foregoing.

 

Soliciting Party” shall have the meaning set forth in Section 5.4.

 

SpinCo” shall have the meaning set forth in the Preamble.

 

SpinCo Accounts” shall have the meaning set forth in Section 2.9(a).

 

SpinCo Assets” shall have the meaning set forth in Section 2.2(a).

 

SpinCo Balance Sheet” shall mean the pro forma consolidated balance sheet of the SpinCo Business, including any notes and subledgers thereto, as of May 31, 2016, as presented in the Information Statement made available to the Record Holders.

 

SpinCo Business” shall mean (a) the businesses, operations and activities of or relating to the China Division conducted at any time prior to the Effective Time by YUM, SpinCo or any of their respective current or former Subsidiaries, (b) the businesses, operations and activities of any member of the SpinCo Group conducted at or after the Effective Time, and (c) any terminated, divested or discontinued businesses, operations and activities that, at the time of termination, divestiture or discontinuation, primarily related to the business, operations or activities described in clause (a) or (b) as then conducted, including those set forth on Schedule 1.1.

 

SpinCo Bylaws” shall mean the Amended and Restated Bylaws of SpinCo, substantially in the form of Exhibit B.

 

SpinCo Certificate of Incorporation” shall mean the Amended and Restated Certificate of Incorporation of SpinCo, substantially in the form of Exhibit A.

 

SpinCo Contracts” shall mean the following Contracts to which YUM, SpinCo or any other member of their respective Groups is a party or by which it or any other member of its

 

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Group or any of their respective Assets is bound, whether or not in writing; provided that SpinCo Contracts shall not include any Contract that is contemplated to be retained by YUM or any member of the YUM Group from and after the Effective Time pursuant to any provision of this Agreement or any Ancillary Agreement:

 

(a)                                 any vendor Contracts (other than SpinCo Licenses) with a Third Party pursuant to which such Third Party provides information technology services, human resources services or financial services to YUM, SpinCo or any other member of their respective Groups primarily used or primarily held for use in the SpinCo Business as of the Effective Time;

 

(b)                                 other than any vendor Contracts addressed in clause (a) above, (i) any customer, distribution, supply or vendor Contract entered into prior to the Effective Time exclusively related to the SpinCo Business and (ii) with respect to any customer, distribution, supply or vendor Contract entered into prior to the Effective Time that relates to the SpinCo Business but is not exclusively related to the SpinCo Business, that portion of any such customer, distribution, supply or vendor Contract that exclusively relates to the SpinCo Business;

 

(c)                                  any SpinCo License entered into prior to the Effective Time exclusively related to the SpinCo Business and, with respect to any SpinCo License entered into prior to the Effective Time that relates to the SpinCo Business but is not exclusively related to the SpinCo Business, that portion of any such SpinCo License that exclusively relates to the SpinCo Business;

 

(d)                                 any Contract containing any guarantee, indemnity, representation, covenant, warranty or other Liability of YUM, SpinCo or any other member of their respective Groups to the extent relating to any other SpinCo Contract, any SpinCo Liability or the SpinCo Business;

 

(e)                                  any employment, change of control, retention, consulting, indemnification, termination, severance or other similar agreements with any SpinCo Group employee or individual consultants of the SpinCo Group that are in effect as of the Effective Time;

 

(f)                                   any Contract that is otherwise contemplated pursuant to this Agreement or any of the Ancillary Agreements to be assigned to, or be a Contract in the name of, SpinCo or another member of the SpinCo Group;

 

(g)                                  any interest rate, currency, commodity or other swap, collar, cap or other hedging or similar Contracts entered into in the name of, or expressly on behalf of, any division, business unit or member of the SpinCo Group;

 

(h)                                 any Contract entered into in the name of, or expressly on behalf of, any division, business unit or member of the SpinCo Group;

 

(i)                                     any other Contract exclusively related to the SpinCo Business or the SpinCo Assets; and

 

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(j)                                    any Contracts or settlements set forth on Schedule 1.2, including the right to recover any amounts under such Contracts or settlements.

 

SpinCo Designees” shall mean any and all entities (including corporations, companies, general or limited partnerships, trusts, joint ventures, unincorporated organizations, limited liability entities or other entities) designated by SpinCo that will be members of the SpinCo Group as of immediately prior to the Effective Time.

 

SpinCo Group” shall mean (a) prior to the Effective Time, SpinCo, YCCL, and each Person that will be a Subsidiary of SpinCo as of immediately after the Effective Time, including the Transferred Entities, even if, prior to the Effective Time, such Person is not a Subsidiary of SpinCo; and (b) at and after the Effective Time, SpinCo, YCCL, and each Person that is a Subsidiary of SpinCo.

 

SpinCo Indemnitees” shall have the meaning set forth in Section 4.3.

 

SpinCo Intellectual Property” shall mean (a) the Registrable IP set forth on Schedule 1.3(a), (b) all Other IP owned by YUM, SpinCo or another member of their respective Groups as of the Effective Time exclusively used or exclusively held for use in the SpinCo Business, but excluding any MLA IP and (c) any Other IP set forth on Schedule 1.3(c)(1).

 

SpinCo IP/IT” shall have the meaning set forth in Section 2.2(a)(vi).

 

SpinCo Liabilities” shall have the meaning set forth in Section 2.3(a).

 

SpinCo License” shall mean any Contract pursuant to which a Third Party grants SpinCo or another member of the SpinCo Group a license or other right to use Intellectual Property, Software or Technology.

 

SpinCo Parties” shall have the meaning set forth in the preamble.

 

SpinCo Permits” shall mean all Permits owned or licensed by YUM, SpinCo or another member of their respective Groups primarily used or primarily held for use in the SpinCo Business as of the Effective Time.

 

SpinCo Real Property” shall mean (a) all of the Real Property owned by SpinCo or another member of the SpinCo Group as of the Effective Time listed or described on Schedule 1.4(a), and (b) all the Real Property Leases related to the SpinCo Business or to which SpinCo or another member of the SpinCo Group is a party as of the Effective Time, except as set forth on Schedule 1.4(b).

 

SpinCo Shares” shall mean the shares of common stock of SpinCo, $0.01 par value per share.

 

SpinCo Software” shall mean all Software owned by YUM, SpinCo or another member of their respective Groups exclusively used or exclusively held for use in the SpinCo Business as of the Effective Time, including Software set forth on Schedule 1.5, but excluding any MLA IP and Software set forth on Schedule 1.7.

 

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SpinCo Specified Actions” shall mean those Actions set forth in Schedule 1.10.

 

SpinCo Technology” shall mean all Technology owned by YUM, SpinCo or any other member of their respective Groups exclusively used or exclusively held for use in the SpinCo Business as of the Effective Time, including Technology set forth on Schedule 1.6, but excluding any MLA IP and Technology set forth on Schedule 1.8.

 

Stub Period” shall have the meaning set forth in Section 2.12.

 

Subsidiary” shall mean, with respect to any Person, any company, corporation, limited liability company, joint venture, partnership or other entity of which such Person (a) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (i) the total combined voting power of all classes of voting securities, (ii) the total combined equity interests or (iii) the capital or profit interests, in the case of a partnership, or (b) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body. For purposes of this Agreement, with respect to SpinCo , “Subsidiary”  shall also include Hangzhou KFC Co., Ltd., Suzhou KFC Co., Ltd. and Wuxi KFC Co., Ltd.

 

Tangible Information” shall mean Information that is contained in written, electronic or other tangible forms.

 

Tax” shall have the meaning set forth in the Tax Matters Agreement.

 

Tax Matters Agreement” shall mean the Tax Matters Agreement to be entered into by and between YUM and the SpinCo Parties in connection with the Separation, the Distribution and the other transactions contemplated by this Agreement.

 

Tax Return” shall have the meaning set forth in the Tax Matters Agreement.

 

Technology” shall mean all technology, designs, formulae, recipes, algorithms, procedures, methods, discoveries, processes, techniques, ideas, know-how, research and development, technical data, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship in any media, confidential, proprietary or nonpublic information, and other similar materials, and all recordings, graphs, drawings, reports, analyses and other writings, and other tangible embodiments of the foregoing in any form whether or not listed herein, in each case, other than Software.

 

Third Party” shall mean any Person other than the Parties or any other members of the Yum Group or the SpinCo Group.

 

Third-Party Claim” shall have the meaning set forth in Section 4.5(a).

 

Transfer Documents” shall have the meaning set forth in Section 2.1(b).

 

Transferred Entities” shall mean the entities set forth on Schedule 1.9.

 

Transition Committee” shall have the meaning set forth in Section 2.13.

 

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Transition Services Agreement” shall mean the Transition Services Agreement to be entered into by and between YUM and SpinCo in connection with the Separation, the Distribution and the other transactions contemplated by this Agreement.

 

Unreleased SpinCo Liability” shall have the meaning set forth in Section 2.5(a)(ii).

 

Unreleased YUM Liability” shall have the meaning set forth in Section 2.5(b)(ii).

 

YCCL” shall have the meaning set forth in the Preamble.

 

YUM” shall have the meaning set forth in the Preamble.

 

YUM Accounts” shall have the meaning set forth in Section 2.9(a).

 

YUM Assets” shall have the meaning set forth in Section 2.2(b).

 

YUM Board” shall have the meaning set forth in the Recitals.

 

YUM Business” shall mean all businesses, operations and activities (whether or not such businesses, operations or activities are or have been terminated, divested or discontinued) conducted at any time prior to the Effective Time by YUM, SpinCo or any other member of their respective Groups, other than the SpinCo Business.

 

YUM Group” shall mean YUM and each Person that is a Subsidiary of YUM (other than SpinCo and any other member of the SpinCo Group).

 

YUM Indemnitees” shall have the meaning set forth in Section 4.2.

 

YUM Liabilities” shall have the meaning set forth in Section 2.3(b).

 

YUM Name and YUM Marks” shall mean the names, marks, trade dress, logos, monograms, domain names and other source or business identifiers of YUM, SpinCo or any other member of their respective Groups using or containing “Yum!,” “Yum,” “Kentucky Fried Chicken,” “KFC,” “Pizza Hut,” or “Taco Bell” either alone or in combination with other words or elements, and all names, marks, trade dress, logos, monograms, domain names and other source or business identifiers confusingly similar to or embodying any of the foregoing either alone or in combination with other words or elements, together with the goodwill associated with any of the foregoing.

 

YUM Shares” shall mean the common shares of YUM, no par value per share.

 

YUM Software” shall mean all Software, other than SpinCo Software, owned by YUM, SpinCo or any other member of their respective Groups as of immediately prior to the Effective Time, including the Software set forth on Schedule 1.7.

 

YUM Specified Actions” shall mean those Actions set forth in Schedule 1.11.

 

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YUM Technology” shall mean all Technology, other than SpinCo Technology, owned by YUM, SpinCo or any other member of their respective Groups as of immediately prior to the Effective Time, including the Technology set forth on Schedule 1.8.

 

ARTICLE II
THE SEPARATION

 

2.1                               Transfer of Assets and Assumption of Liabilities.

 

(a)                                 At or prior to the Effective Time, but in any case, prior to the Distribution, in accordance with the plan and structure set forth on Schedule 2.1(a) (the “Plan of Reorganization”):

 

(i)                                     Transfer and Assignment of SpinCo Assets.  YUM shall, and shall cause the other applicable members of the YUM Group to, contribute, assign, transfer, convey and deliver to SpinCo, or the applicable SpinCo Designees, and SpinCo or such SpinCo Designees shall accept from YUM and the applicable members of the YUM Group, all of YUM’s and such YUM Group member’s respective direct or indirect right, title and interest in and to all of the SpinCo Assets (it being understood that if any SpinCo Asset shall be held by a Transferred Entity or a wholly owned Subsidiary of a Transferred Entity, such SpinCo Asset may be assigned, transferred, conveyed and delivered to SpinCo as a result of the transfer of all of the equity interests in such Transferred Entity from YUM or the other applicable members of the YUM Group to SpinCo or the applicable SpinCo Designee);

 

(ii)                                  Acceptance and Assumption of SpinCo Liabilities.  The SpinCo Parties and the applicable SpinCo Designees shall accept, assume and agree faithfully to perform, discharge and fulfill all the SpinCo Liabilities in accordance with their respective terms (it being understood that if any SpinCo Liability is a liability of a Transferred Entity or a wholly owned Subsidiary of a Transferred Entity, such SpinCo Liability may be assumed by the SpinCo Parties as a result of the transfer of all of the equity interests in such Transferred Entity from YUM or the other applicable members of the YUM Group to SpinCo or the applicable SpinCo Designee; provided that the SpinCo Parties shall cause such Transferred Entity and such SpinCo Designee to perform, discharge and fulfill all such SpinCo Liabilities).  The SpinCo Parties and such SpinCo Designees shall be responsible for all SpinCo Liabilities, regardless of when or where such SpinCo Liabilities arose or arise, whether the facts on which they are based occurred prior to or subsequent to the Effective Time, where or against whom such SpinCo Liabilities are asserted or determined (including any SpinCo Liabilities arising out of claims made by YUM’s or SpinCo’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the YUM Group or the SpinCo Group) or whether asserted or determined prior to or subsequent to the Effective Time, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the YUM Group or the SpinCo Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates;

 

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(iii)                               Transfer and Assignment of YUM Assets.  YUM and the SpinCo Parties shall cause SpinCo and the other applicable members of the SpinCo Group to contribute, assign, transfer, convey and deliver to YUM or certain members of the YUM Group designated by YUM, and YUM or such other members of the YUM Group shall accept from SpinCo and the applicable members of the SpinCo Group, all of SpinCo’s and such SpinCo Group members’ respective direct or indirect right, title and interest in and to all YUM Assets; and

 

(iv)                              Acceptance and Assumption of YUM Liabilities.  YUM and the other applicable members of the YUM Group designated by YUM shall accept, assume and agree faithfully to perform, discharge and fulfill all the YUM Liabilities held by SpinCo or any SpinCo Designee and YUM and the other applicable members of the YUM Group shall be responsible for all YUM Liabilities in accordance with their respective terms, regardless of when or where such YUM Liabilities arose or arise, whether the facts on which they are based occurred prior to or subsequent to the Effective Time, where or against whom such YUM Liabilities are asserted or determined (including any YUM Liabilities arising out of claims made by YUM’s or SpinCo’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the YUM Group or the SpinCo Group) or whether asserted or determined prior to or subsequent to the Effective Time, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the YUM Group or the SpinCo Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates.

 

(b)                                 Transfer Documents.  In furtherance of the contribution, assignment, transfer, conveyance and delivery of the Assets and the acceptance and assumption of the Liabilities in accordance with Section 2.1(a), (i) each of YUM, on the one hand, and the SpinCo Parties, on the other hand, shall execute and deliver, and shall cause the applicable other members of its Group to execute and deliver, to the other, such bills of sale, quitclaim deeds, stock powers, certificates of title, assignments of Contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of such Party’s and the applicable members of its Group’s right, title and interest in and to such Assets to the other and the applicable other members of its Group in accordance with Section 2.1(a), and (ii) each of YUM, on the one hand, and the SpinCo Parties, on the other hand, shall execute and deliver, and shall cause the applicable other members of its Group to execute and deliver, to the other, such assumptions of Contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Liabilities by such Party or the applicable members of its Group in accordance with Section 2.1(a).  All of the foregoing documents contemplated by this Section 2.1(b) shall be referred to collectively herein as the “Transfer Documents.”

 

(c)                                  Misallocations.  If at any time or from time to time (whether prior to, at or after the Effective Time), one Party (or any other member of such Party’s Group) shall receive or otherwise possess any Asset that is allocated to another unaffiliated Party (or any other member of such other Party’s Group) pursuant to this Agreement or any Ancillary Agreement, such Party shall promptly transfer, or cause to be transferred, such Asset to the Party so entitled thereto (or to such member of such Party’s Group), and such Party (or other member of such Party’s Group)

 

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shall accept such Asset.  Prior to any such transfer, the Person receiving or possessing such Asset shall hold such Asset in trust for such other Person.  In the event that, at any time or from time to time (whether prior to, at or after the Effective Time), one Party hereto (or any other member of such Party’s Group) shall receive or otherwise be obligated for any Liability that is allocated to another unaffiliated Party (or the other applicable member of such Party’s Group) pursuant to this Agreement or any Ancillary Agreement, such Party shall promptly transfer, or cause to be transferred, such Liability to the Party (or to such member of such Party’s Group) responsible therefor, and the Party (or other member of such Party’s Group) responsible therefor shall accept, assume and agree to faithfully perform such Liability.

 

(d)                                 Waiver of Bulk-Sale and Bulk-Transfer Laws.  The SpinCo Parties hereby waive compliance by each and every member of the YUM Group with the requirements and provisions of any “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the SpinCo Assets to any member of the SpinCo Group.  YUM hereby waives compliance by each and every member of the SpinCo Group with the requirements and provisions of any “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the YUM Assets to any member of the YUM Group.

 

2.2                               SpinCo Assets; YUM Assets.

 

(a)                                 SpinCo Assets.  For purposes of this Agreement, “SpinCo Assets” shall mean (without duplication):

 

(i)                                     all issued and outstanding capital stock or other equity interests of the Transferred Entities that are owned by YUM, SpinCo or any other member of their respective Groups as of the Effective Time;

 

(ii)                                  all Assets of any Party or any of the other members of such Party’s Group included or reflected as assets of the SpinCo Group on the SpinCo Balance Sheet, subject to any dispositions of such Assets subsequent to the date of the SpinCo Balance Sheet; provided that the amounts set forth on the SpinCo Balance Sheet with respect to any Assets shall not be treated as minimum amounts or limitations on the amount of such Assets that are included in the definition of SpinCo Assets pursuant to this subclause (ii);

 

(iii)                               all Assets (including cash and cash equivalents) of YUM, SpinCo or any other member of their respective Groups as of the Effective Time that are of a nature or type that would have resulted in such Assets being included or reflected as Assets of SpinCo or any of the other members of the SpinCo Group on a pro forma consolidated balance sheet of the SpinCo Group or any notes or subledgers thereto as of the Effective Time (were such balance sheet, notes and subledgers to be prepared on a basis consistent with the determination of the Assets included on the SpinCo Balance Sheet), it being understood that (A) the SpinCo Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Assets that are included in the definition of SpinCo Assets pursuant to this subclause (iii); and (B) the amounts set forth on the SpinCo Balance Sheet with respect to any Assets shall not be treated as minimum amounts or limitations on

 

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the amount of such Assets that are included in the definition of SpinCo Assets pursuant to this subclause (iii);

 

(iv)                              all Assets of YUM, SpinCo or other member of their respective Groups as of the Effective Time that are expressly provided by this Agreement or any Ancillary Agreement as Assets to be transferred to or owned by SpinCo or any other member of the SpinCo Group;

 

(v)                                 all SpinCo Contracts as of the Effective Time and all rights, interests or claims of YUM, SpinCo or any other member of their respective Groups thereunder as of the Effective Time;

 

(vi)                              all SpinCo Intellectual Property, SpinCo Software and SpinCo Technology as of the Effective Time and all rights, interests or claims of YUM, SpinCo or any other member of their respective Groups thereunder or thereto as of the Effective Time (collectively, the “SpinCo IP/IT”);

 

(vii)                           all SpinCo Permits as of the Effective Time and all rights, interests or claims of YUM, SpinCo or any other member of their respective Groups thereunder as of the Effective Time;

 

(viii)                        all SpinCo Real Property as of the Effective Time;

 

(ix)                              to the extent not already identified in subclauses (i) through (viii) of this Section 2.2(a), all Assets of any Party or any other member of their respective Groups as of the Effective Time that are primarily related to the SpinCo Business;

 

(x)                                 subject to applicable Law and the provisions of the applicable Ancillary Agreements, to the extent not already identified in subclauses (i) through (ix) of this Section 2.2(a), all rights, interests and claims of any Party or any other member of their respective Groups as of the Effective Time with respect to Information that is exclusively related to the SpinCo Assets, the SpinCo Liabilities, the SpinCo Business or the Transferred Entities, and a non-exclusive right to use all Information that is related to, but not exclusively related to, the SpinCo Assets, the SpinCo Liabilities, the SpinCo Business or the Transferred Entities; and

 

(xi)                              any and all Assets set forth on Schedule 2.2(a)(xi).

 

Notwithstanding the foregoing, the SpinCo Assets shall not in any event include any Asset referred to in subclauses (i) through (vi) of Section 2.2(b).

 

(b)                                 YUM Assets.  For the purposes of this Agreement, “YUM Assets” shall mean all Assets of YUM, SpinCo or any other member of their respective Groups as of the Effective Time, other than the SpinCo Assets, it being understood that the YUM Assets shall include (without duplication):

 

(i)                                     all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (including, for the avoidance of doubt, the Schedules hereto or

 

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thereto) as Assets to be retained or owned by YUM or any other member of the YUM Group;

 

(ii)                                  all Contracts of YUM, SpinCo or any other member of their respective Groups as of the Effective Time (other than the SpinCo Contracts);

 

(iii)                               all MLA IP and all other Intellectual Property, Software and Technology owned by YUM, SpinCo or any other member of their respective Groups as of the Effective Time (other than SpinCo IP/IT), including the YUM Name and YUM Marks and the Intellectual Property set forth on Schedule 2.2(b)(iii);

 

(iv)                              all Permits of YUM, SpinCo or any other member of their respective Groups as of the Effective Time (other than the SpinCo Permits);

 

(v)                                 all Real Property of YUM, SpinCo or any other member of their respective Groups as of the Effective Time (other than the SpinCo Real Property); and

 

(vi)                              any and all Assets set forth on Schedule 2.2(b)(vi).

 

2.3                               SpinCo Liabilities; YUM Liabilities.

 

(a)                                 SpinCo Liabilities.  For the purposes of this Agreement, “SpinCo Liabilities” shall mean the following Liabilities of YUM, SpinCo or any other member of their respective Groups (without duplication):

 

(i)                                     all Liabilities included or reflected as liabilities or obligations of SpinCo or any other member of the SpinCo Group on the SpinCo Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the SpinCo Balance Sheet; provided that the amounts set forth on the SpinCo Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of SpinCo Liabilities pursuant to this subclause (i);

 

(ii)                                  all Liabilities of YUM, SpinCo or any other member of their respective Groups as of the Effective Time that are of a nature or type that would have resulted in such Liabilities being included or reflected as Liabilities of SpinCo or any other member of the SpinCo Group on a pro forma consolidated balance sheet of the SpinCo Group or any notes or subledgers thereto as of the Effective Time (were such balance sheet, notes and subledgers to be prepared on a basis consistent with the determination of the Liabilities included on the SpinCo Balance Sheet), it being understood that (A) the SpinCo Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Liabilities that are included in the definition of SpinCo Liabilities pursuant to this subclause (ii); and (B) the amounts set forth on the SpinCo Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of SpinCo Liabilities pursuant to this subclause (ii);

 

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(iii)                               all Liabilities relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing before, at, or after the Effective Time (for the avoidance of doubt, whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case, before, at or after the Effective Time), in each case to the extent that such Liabilities relate to, arise out of or result from the SpinCo Business, as conducted at any time before, at or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any Person, whether or not such act or failure to act is or was within such Person’s authority, with respect to the SpinCo Business), or any of the SpinCo Assets;

 

(iv)                              all Liabilities that are expressly provided by this Agreement or any Ancillary Agreement (including, for the avoidance of doubt, the Schedules hereto or thereto) as Liabilities to be assumed by SpinCo or any other member of the SpinCo Group, and all agreements, obligations and Liabilities of any member of the SpinCo Group under this Agreement or any of the Ancillary Agreements;

 

(v)                                 all Liabilities to the extent relating to, arising out of or resulting from, in each case, before, at or after the Effective Time, the SpinCo Contracts, the SpinCo Intellectual Property, the SpinCo Software, the SpinCo Technology, the SpinCo Permits or the SpinCo Real Property;

 

(vi)                              all Liabilities (A) relating to, arising out of or resulting from the SpinCo Specified Actions or (B) set forth on Schedule 2.3(a)(vi); and

 

(vii)                           all Liabilities arising out of claims made by any Third Party (including YUM’s or a SpinCo Party’s respective directors, officers, shareholders, current and former employees and agents) against any member of the YUM Group or the SpinCo Group to the extent relating to, arising out of or resulting from the SpinCo Business or the SpinCo Assets or the other business, operations, activities or Liabilities referred to in subclauses (i) through (vi) above;

 

provided that, notwithstanding the foregoing, the Parties agree that (A) the Liabilities set forth in Section 2.3(b) and any Liabilities of any member of the YUM Group pursuant to the Ancillary Agreements shall not be SpinCo Liabilities but instead shall be YUM Liabilities and (B) the Liabilities of each Party relating to, arising out of or resulting from any Mixed Actions shall be governed by Section 4.12(c).

 

(b)                                 YUM Liabilities.  For the purposes of this Agreement, “YUM Liabilities” shall mean the following Liabilities of YUM, SpinCo or any other member of their respective Groups (without duplication):

 

(i)                                     all Liabilities relating to, arising out of or resulting from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time (for the avoidance of doubt, whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time) of any member of the YUM Group and, prior to the

 

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Effective Time, any member of the SpinCo Group, in each case, to the extent that such Liabilities are not SpinCo Liabilities;

 

(ii)                                  all Liabilities that are expressly provided by this Agreement or any Ancillary Agreement (including, for the avoidance of doubt, the Schedules hereto or thereto) as Liabilities to be assumed or retained by YUM or any other member of the YUM Group, and all agreements, obligations and Liabilities of any member of the YUM Group under this Agreement or any of the Ancillary Agreements;

 

(iii)                               all Liabilities arising out of claims made by any Third Party (including YUM’s or SpinCo’s respective directors, officers, shareholders, current and former employees and agents) against any member of the YUM Group or the SpinCo Group to the extent relating to, arising out of or resulting from the YUM Business or the YUM Assets; and

 

(iv)                              all Liabilities (A) relating to, arising out of or resulting from the YUM Specified Actions or (B) set forth on Schedule 2.3(b)(iv).

 

2.4                               Approvals and Notifications.

 

(a)                                 Approvals and Notifications for SpinCo Assets.  To the extent that the transfer or assignment of any SpinCo Asset, the assumption of any SpinCo Liability, the Separation or the Distribution requires any Approvals or Notifications, the Parties shall use their commercially reasonable efforts to obtain or make such Approvals or Notifications as soon as reasonably 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 the SpinCo Parties, neither YUM nor the SpinCo Parties 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.

 

(b)                                 Delayed SpinCo Transfers.  If and to the extent that the valid, complete and perfected transfer or assignment to the SpinCo Group of any SpinCo Asset or assumption by the SpinCo Group of any SpinCo Liability would be a violation of applicable Law or require any Approvals or Notifications that has not been obtained or made by the Effective Time then, unless the Parties mutually shall otherwise determine, the transfer or assignment to the SpinCo Group of such SpinCo Asset or the assumption by the SpinCo Group of such SpinCo Liability, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approvals or Notifications have been obtained or made.  Notwithstanding the foregoing, any such SpinCo Assets or SpinCo Liabilities shall continue to constitute SpinCo Assets and SpinCo Liabilities, as the case may be, for all other purposes of this Agreement.

 

(c)                                  Treatment of Delayed SpinCo Assets and Delayed SpinCo Liabilities.  If any transfer or assignment of any SpinCo Asset (or a portion thereof) or any assumption of any SpinCo Liability (or a portion thereof) intended to be transferred, assigned or assumed hereunder, as the case may be, is not consummated at or prior to the Effective Time, whether as a result of the provisions of Section 2.4(b) or for any other reason (any such SpinCo Asset (or a portion thereof),

 

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a “Delayed SpinCo Asset” and any such SpinCo Liability (or a portion thereof), a “Delayed SpinCo Liability”), then, insofar as reasonably possible and subject to applicable Law, the member of the YUM Group retaining such Delayed SpinCo Asset or such Delayed SpinCo Liability, as the case may be, shall thereafter hold such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, for the use and benefit (or the performance and obligation, in the case of a Liability) of the member of the SpinCo Group entitled thereto or obligated thereon (at the expense of the member of the SpinCo Group entitled thereto or obligated thereon).  In addition, the member of the YUM Group retaining such Delayed SpinCo Asset or such Delayed SpinCo Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Delayed SpinCo Asset or Delayed SpinCo Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the member of the SpinCo Group to which such Delayed SpinCo Asset is to be transferred or assigned, or which is to assume such Delayed SpinCo Liability, as the case may be, in order to place such member of the SpinCo Group in a substantially similar position as if such Delayed SpinCo Asset or Delayed SpinCo Liability had been transferred, assigned or assumed as contemplated hereby and so that all the benefits and burdens relating to such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, including use, risk of loss, potential for gain, and dominion, control and command over such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, and all costs and expenses related thereto, shall from and after the Effective Time inure to and be the responsibility of the SpinCo Group.

 

(d)                                 Transfer of Delayed SpinCo Assets and Delayed SpinCo Liabilities.  If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Delayed SpinCo Asset or the deferral of assumption of any Delayed SpinCo Liability pursuant to Section 2.4(b), are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Delayed SpinCo Asset or the assumption of any Delayed SpinCo Liability have been removed, the transfer or assignment of the applicable Delayed SpinCo Asset or the assumption of the applicable Delayed SpinCo Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement.

 

(e)                                  Costs for Delayed SpinCo Assets and Delayed SpinCo Liabilities.  Any member of the YUM Group retaining a Delayed SpinCo Asset or Delayed SpinCo Liability due to the deferral of the transfer or assignment of such Delayed SpinCo Asset or the deferral of the assumption of such Delayed SpinCo Liability, as the case may be, shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced (or otherwise made available) by SpinCo or the member of the SpinCo Group entitled to the Delayed SpinCo Asset or obligated with respect to the Delayed SpinCo Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by the SpinCo Parties or the member of the SpinCo Group entitled to such Delayed SpinCo Asset or obligated with respect to such Delayed SpinCo Liability.

 

(f)                                   Approvals and Notifications for YUM Assets.  To the extent that the transfer or assignment of any YUM Asset or the assumption of any YUM Liability requires any Approvals or Notifications, the Parties shall use their commercially reasonable efforts to obtain or make such Approvals or Notifications as soon as reasonably practicable; provided, that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed

 

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between YUM and the SpinCo Parties, neither YUM nor the SpinCo Parties 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.

 

(g)                                  Delayed YUM Transfers.  If and to the extent that the valid, complete and perfected transfer or assignment to the YUM Group of any YUM Asset or assumption by the YUM Group of any YUM Liability would be a violation of applicable Law or require any Approval or Notification that has not been obtained or made by the Effective Time then, unless the Parties mutually shall otherwise determine, the transfer or assignment to the YUM Group of such YUM Asset or the assumption by the YUM Group of such YUM Liability, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approval or Notification has been obtained or made.  Notwithstanding the foregoing, any such YUM Assets or YUM Liabilities shall continue to constitute YUM Assets and YUM Liabilities, as the case may be, for all other purposes of this Agreement.

 

(h)                                 Treatment of Delayed YUM Assets and Delayed YUM Liabilities.  If any transfer or assignment of any YUM Asset (or a portion thereof) or any assumption of any YUM Liability (or a portion thereof) intended to be transferred, assigned or assumed hereunder, as the case may be, is not consummated at or prior to the Effective Time whether as a result of the provisions of Section 2.4(g) or for any other reason (any such YUM Asset (or a portion thereof), a “Delayed YUM Asset” and any such YUM Liability (or a portion thereof), a “Delayed YUM Liability”), then, insofar as reasonably possible and subject to applicable Law, the member of the SpinCo Group retaining such Delayed YUM Asset or such Delayed YUM Liability, as the case may be, shall thereafter hold such Delayed YUM Asset or Delayed YUM Liability, as the case may be, for the use and benefit (or the performance and obligation, in the case of a Liability) of the member of the YUM Group entitled thereto or obligated thereon (at the expense of the member of the YUM Group entitled thereto or obligated thereon).  In addition, the member of the SpinCo Group retaining such Delayed YUM Asset or such Delayed YUM Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Delayed YUM Asset or Delayed YUM Liability in the ordinary course of business in accordance with past practice.  Such member of the SpinCo Group shall also take such other actions as may be reasonably requested by the member of the YUM Group to which such Delayed YUM Asset is to be transferred or assigned, or which is to assume such Delayed YUM Liability, as the case may be, in order to place such member of the YUM Group in a substantially similar position as if such Delayed YUM Asset or Delayed YUM Liability had been transferred, assigned or assumed as contemplated hereby and so that all the benefits and burdens relating to such Delayed YUM Asset or Delayed YUM Liability, as the case may be, including use, risk of loss, potential for gain, and dominion, control and command over such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, and all costs and expenses related thereto, shall from and after the Effective Time inure to and be the responsibility of the YUM Group.

 

(i)                                     Transfer of Delayed YUM Assets and Delayed YUM Liabilities.  If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Delayed YUM Asset or the deferral of assumption of any Delayed YUM Liability pursuant to Section 2.4(g), are obtained or made, and, if and when any other legal

 

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impediments for the transfer or assignment of any Delayed YUM Asset or the assumption of any Delayed YUM Liability have been removed, the transfer or assignment of the applicable Delayed YUM Asset or the assumption of the applicable Delayed YUM Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement.

 

(j)                                    Costs for Delayed YUM Assets and Delayed YUM Liabilities.  Any member of the SpinCo Group retaining a Delayed YUM Asset or Delayed YUM Liability due to the deferral of the transfer or assignment of such Delayed YUM Asset or the deferral of the assumption of such Delayed YUM Liability, as the case may be, shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced (or otherwise made available) by YUM or the member of the YUM Group entitled to the Delayed YUM Asset or obligated with respect to the Delayed YUM Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by YUM or the member of the YUM Group entitled to such Delayed YUM Asset or obligated with respect to such Delayed YUM Liability.

 

2.5                               Novation of Liabilities.

 

(a)                                 Novation of SpinCo Liabilities.

 

(i)                                     Except as set forth in Schedule 2.5(a), each of YUM and the SpinCo Parties, at the request of the other, shall use its commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all SpinCo Liabilities and obtain in writing the unconditional release of each member of the YUM Group that is a party to any related agreement, lease, license or other obligation or Liability, so that, in any such case, the members of the SpinCo Group shall be solely responsible for such SpinCo Liabilities; provided, that, except as otherwise expressly provided in this Agreement or any of the Ancillary Agreements, neither YUM nor the SpinCo Parties shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Third Party from whom any such consent, substitution, approval, amendment or release is requested.

 

(ii)                                  If YUM and the SpinCo Parties are unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release and the applicable member of the YUM Group continues to be bound by such agreement, lease, license or other obligation or Liability (each, an “Unreleased SpinCo Liability”), the SpinCo Parties shall, to the extent not prohibited by Law, as indemnitor, guarantor, agent or subcontractor for such member of the YUM Group, as the case may be, (A) pay, perform and discharge fully all the obligations or other Liabilities of such member of the YUM Group that constitute Unreleased SpinCo Liabilities from and after the Effective Time and (B) use its commercially reasonable efforts to effect such payment, performance or discharge prior to any demand for such payment, performance or discharge is permitted to be made by the obligee thereunder on any member of the YUM Group.  If and when any such consent, substitution, approval, amendment or release shall be obtained or the Unreleased SpinCo Liabilities shall otherwise become assignable or able to be novated,

 

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YUM shall promptly assign, or cause to be assigned, and the SpinCo Parties or the applicable SpinCo Group member shall assume, such Unreleased SpinCo Liabilities without exchange of further consideration.

 

(b)                                 Novation of YUM Liabilities.

 

(i)                                     Each of YUM and the SpinCo Parties, at the request of the other, shall use its commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all YUM Liabilities and obtain in writing the unconditional release of each member of the SpinCo Group that is a party to any related agreement, lease, license or other obligation or Liability, so that, in any such case, the members of the YUM Group shall be solely responsible for such YUM Liabilities; provided, that, except as otherwise expressly provided in this Agreement or any of the Ancillary Agreements, neither YUM nor the SpinCo Parties shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Third Party from whom any such consent, substitution, approval, amendment or release is requested.

 

(ii)                                  If YUM and the SpinCo Parties are unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release and the applicable member of the SpinCo Group continues to be bound by such agreement, lease, license or other obligation or Liability (each, an “Unreleased YUM Liability”), YUM shall, to the extent not prohibited by Law, as indemnitor, guarantor, agent or subcontractor for such member of the SpinCo Group, as the case may be, (A) pay, perform and discharge fully all the obligations or other Liabilities of such member of the SpinCo Group that constitute Unreleased YUM Liabilities from and after the Effective Time and (B) use its commercially reasonable efforts to effect such payment, performance or discharge prior to any demand for such payment, performance or discharge is permitted to be made by the obligee thereunder on any member of the SpinCo Group.  If and when any such consent, substitution, approval, amendment or release shall be obtained or the Unreleased YUM Liabilities shall otherwise become assignable or able to be novated, the SpinCo Parties shall promptly assign, or cause to be assigned, and YUM or the applicable YUM Group member shall assume, such Unreleased YUM Liabilities without exchange of further consideration.

 

2.6                               Release of Guarantees.  In furtherance of, and not in limitation of, the obligations set forth in Section 2.5:

 

(a)                                 At or prior to the Effective Time or as soon as practicable thereafter, each of YUM and the SpinCo Parties shall, at the request of the other and with the reasonable cooperation of such other Party and the applicable member(s) of such Party’s Group, use commercially reasonable efforts to: (i) have any member(s) of the YUM Group removed as guarantor of or obligor for any SpinCo Liability, including the removal of any Security Interest on or in any YUM Asset that may serve as collateral or security for any such SpinCo Liability; and (ii) have any member(s) of the SpinCo Group removed as guarantor of or obligor for any YUM Liability,

 

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including the removal of any Security Interest on or in any SpinCo Asset that may serve as collateral or security for any such YUM Liability.

 

(b)                                 To the extent required to obtain a release from a guarantee of:

 

(i)                                     any member of the YUM Group, the SpinCo Parties shall (or shall cause one (1) or more other members of the SpinCo Group to) execute a guarantee agreement in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, which agreement shall include the removal of any Security Interest on or in any YUM Asset that may serve as collateral or security for any such SpinCo Liability, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (A) with which the SpinCo Parties would be reasonably unable to comply or (B) which the SpinCo Parties would not reasonably be able to avoid breaching; and

 

(ii)                                  any member of the SpinCo Group, YUM shall (or shall cause one (1) or more other members of the Yum Group to) execute a guarantee agreement in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, which agreement shall include the removal of any Security Interest on or in any SpinCo Asset that may serve as collateral or security for any such YUM Liability, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (A) with which YUM would be reasonably unable to comply or (B) which YUM would not reasonably be able to avoid breaching.

 

(c)                                  If YUM and the SpinCo Parties are unable to obtain, or to cause to be obtained, any such required removal or release as set forth in clauses (a) and (b) of this Section 2.6: (i) YUM, the SpinCo Parties, or the other relevant member of the YUM Group or the SpinCo Group, as applicable, that has assumed the Liability with respect to such guarantee shall indemnify, defend and hold harmless the guarantor or obligor against or from any Liability arising from or relating thereto in accordance with the provisions of Article IV and shall, as agent or subcontractor for such guarantor or obligor, pay, perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor thereunder; and (ii) each of YUM and each of the SpinCo Parties, on behalf of itself and the other members of the YUM Group or the SpinCo Group, respectively, agree not to renew or extend the term of, increase any obligations under, or transfer to a third party, any loan, guarantee, lease, Contract or other obligation for which any other Party or a member of its Group is or may be liable unless all obligations of such other Party and the members of such other Party’s Group with respect thereto are thereupon terminated by documentation satisfactory in form and substance to such other Party.

 

2.7                               Termination of Agreements.

 

(a)                                 Except as set forth in Section 2.7(b), in furtherance of the releases and other provisions of Section 4.1, the SpinCo Parties and each other member of the SpinCo Group, on the one hand, and YUM and each other member of the YUM Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments or understandings, whether or not in writing, between or among either of the SpinCo Parties and/or any other member of the SpinCo Group, on the one hand, and YUM and/or any other member of the YUM Group, on the other

 

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hand, effective as of the Effective Time.  No such terminated agreement, arrangement, commitment or understanding (including any provision thereof which purports to survive termination) shall be of any further force or effect after the Effective Time.  Each Party shall, at the reasonable request of any other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.

 

(b)                                 The provisions of Section 2.7(a) shall not apply to any of the following agreements, arrangements, commitments or understandings (or to any of the provisions thereof):  (i) this Agreement and the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by YUM, SpinCo, or any other member of their respective Groups or to be continued from and after the Effective Time); (ii) any agreements, arrangements, commitments or understandings listed or described on Schedule 2.7(b)(ii); (iii) any agreements, arrangements, commitments or understandings to which any Third Party is a party; (iv) any intercompany accounts payable or accounts receivable accrued as of the Effective Time that are reflected in the books and records of the Parties or otherwise documented in writing in accordance with past practices, which shall be settled in the manner contemplated by Section 2.7(c); (v) any agreements, arrangements, commitments or understandings to which any non-wholly owned Subsidiary of YUM or either of the SpinCo Parties, as the case may be, is a party (it being understood that directors’ qualifying shares or similar interests will be disregarded for purposes of determining whether a Subsidiary is wholly owned); and (vi) any Shared Contracts.

 

(c)                                  All of the intercompany accounts receivable and accounts payable between any member of the YUM Group, on the one hand, and any member of the SpinCo Group, on the other hand, outstanding as of the Effective Time and arising out of the Contracts described in Section 2.7(b) or out of the provision, prior to the Effective Time, of the services to be provided following the Effective Time pursuant to any of the Ancillary Agreements shall be paid or settled following the Effective Time in the ordinary course of business or, if otherwise mutually agreed prior to the Effective Time by duly authorized representatives of SpinCo and YUM, cancelled, assigned or assumed by SpinCo or one (1) or more Subsidiaries of SpinCo.  All other intercompany accounts receivable and accounts payable between any member of the YUM Group, on the one hand, and any member of the SpinCo Group, on the other hand, outstanding as of the Effective Time shall be paid, settled or otherwise eliminated by means of cash payments, a dividend, capital contribution, a combination of the foregoing, or otherwise as determined by YUM in its sole and absolute discretion.

 

2.8                               Treatment of Shared Contracts.

 

(a)                                 Subject to applicable Law and without limiting the generality of the obligations set forth in Section 2.1, unless the Parties otherwise agree, or the benefits or obligations of any Contract described in this Section 2.8 are expressly conveyed to the applicable Party pursuant to this Agreement or an Ancillary Agreement, any (i) Contract, a portion of which is a SpinCo Contract, and the remainder of which is a YUM Asset or (ii) Contract entered into prior to the Effective Time that relates to the SpinCo Business but is not exclusively related to the SpinCo Business and with respect to which the portion that relates to the SpinCo Business cannot be divided (any such Contract, a “Shared Contract”), shall be assigned in relevant part to the applicable member(s) of the applicable Group, if so assignable, or appropriately amended prior to,

 

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at or after the Effective Time, so that YUM, SpinCo or the applicable other member of its respective Group shall, as of the Effective Time, be entitled to the rights and benefits, and shall assume the related portion of any Liabilities, inuring to its respective businesses; provided that (A) in no event shall any member of any Group be required to assign (or amend) any Shared Contract in its entirety or to assign a portion of any Shared Contract which is not assignable (or cannot be amended) by its terms (including any terms imposing consents or conditions on an assignment where such consents or conditions have not been obtained or fulfilled), and (B) if any Shared Contract cannot be so partially assigned by its terms or otherwise, or cannot be amended or if assignment or amendment of such Shared Contract would impair the benefit the parties thereto derive from such Shared Contract, then the Parties shall, and shall cause each of the members of their respective Groups to, take such other reasonable and permissible actions (including by providing prompt written notice to each other Party with respect to any relevant claim of Liability or other relevant matters arising in connection with a Shared Contract so as to allow such other Party the ability to exercise any applicable rights under such Shared Contract) to cause a member of the SpinCo Group or the YUM Group, as the case may be, to receive the rights and benefits of that portion of each Shared Contract that relates to the SpinCo Business or the YUM Business, respectively (in each case, to the extent so related), as if such Shared Contract had been assigned to (or amended to admit) a member of the applicable Group pursuant to this Section 2.8, and to bear the burden of the corresponding Liabilities (including any Liabilities that may arise by reason of such arrangement), as if such Liabilities had been assumed by a member of the applicable Group pursuant to this Section 2.8.

 

(b)                                 Each of YUM and the SpinCo Parties shall, and shall cause the other members of its Group to, (i) treat for all Tax purposes the portion of each Shared Contract inuring to its respective businesses as Assets owned by, and/or Liabilities of, as applicable, such Party, or the other members of its Group, as applicable, not later than the Effective Time and (ii) neither report nor take any Tax position (on a Tax Return or otherwise) inconsistent with such treatment (unless required by applicable Law).

 

(c)                                  Nothing in this Section 2.8 shall require any member of any Group to make any non-de minimis payment (except to the extent advanced, assumed or agreed in advance to be reimbursed by any member of the other Group), incur any non-de minimis obligation or grant any non-de minimis concession for the benefit of any member of the other Group in order to effect any transaction contemplated by this Section 2.8.

 

2.9                               Bank Accounts; Cash Balances.

 

(a)                                 Each Party agrees to take, or cause the other members of its Group to take, at the Effective Time (or such earlier time as the Parties may agree), all actions necessary to amend all Contracts governing each bank and brokerage account owned by SpinCo or any other member of the SpinCo Group (collectively, the “SpinCo Accounts”) and all Contracts governing each bank or brokerage account owned by YUM or any other member of the YUM Group (collectively, the “YUM Accounts”) so that each such SpinCo Account and YUM Account, if currently linked (whether by automatic withdrawal, automatic deposit or any other authorization to transfer funds from or to, hereinafter “Linked”) to any YUM Account or SpinCo Account, respectively, is de-Linked from such YUM Account or SpinCo Account, respectively.

 

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(b)                                 With respect to any outstanding checks issued or payments initiated by YUM, SpinCo or any other member of their respective Groups prior to the Effective Time, such outstanding checks and payments shall be honored following the Effective Time by the Person or Group owning the account on which the check is drawn or from which the payment was initiated, respectively.

 

(c)                                  As between YUM and the SpinCo Parties (and the other members of their respective Groups), all payments made and reimbursements received after the Effective Time to or by any Party (or member of its Group) that relate to a business, Asset or Liability of another Party (or other member of its Group), shall be held by such Party in trust for the use and benefit of the Party entitled thereto and, promptly following receipt by such Party of any such payment or reimbursement, YUM or the SpinCo Parties, as applicable, shall pay over, or shall cause the applicable other member of its Group to pay over, to such other Party the amount of such payment or reimbursement without right of set-off.

 

2.10                        Ancillary Agreements.  Effective at or prior to the Effective Time, each of YUM and the SpinCo Parties will, or will cause the applicable other members of their respective Groups to, execute and deliver all Ancillary Agreements to which it is a party.

 

2.11                        Disclaimer of Representations and Warranties.  EACH OF YUM (ON BEHALF OF ITSELF AND EACH OTHER MEMBER OF THE YUM GROUP) AND EACH OF THE SPINCO PARTIES (ON BEHALF OF ITSELF AND EACH OTHER MEMBER OF THE SPINCO GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES OR LIABILITIES TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS OR APPROVALS REQUIRED IN CONNECTION THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF ANY ASSETS OF SUCH PARTY OR ANY OTHER MEMBER OF ITS GROUP, OR ANY OTHER MATTER CONCERNING ANY ASSETS OR LIABILITIES OF SUCH PARTY OR ANY OTHER MEMBER OF ITS GROUP, OR AS TO THE EXISTENCE OR ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM OR OTHER ASSET OR LIABILITY, INCLUDING ANY ACCOUNTS RECEIVABLE OR ACCOUNTS PAYABLE, OF ANY PARTY OR ANY OTHER MEMBER OF ITS GROUP, OR AS TO THE LEGAL SUFFICIENCY OF ANY ASSIGNMENT, DOCUMENT OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF.  EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN “AS IS,” “WHERE IS” BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM OF DEED OR CONVEYANCE) AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (A) ANY CONVEYANCE WILL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (B) ANY

 

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NECESSARY APPROVALS OR NOTIFICATIONS ARE NOT OBTAINED OR MADE OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.

 

2.12                        Financial Information Certifications.  YUM’s disclosure controls and procedures and internal control over financial reporting (as each is contemplated by the Exchange Act) are currently applicable to SpinCo as its Subsidiary.  In order to enable the principal executive officer and principal financial officer of SpinCo to make the certifications required of them under Section 302 of the Sarbanes-Oxley Act of 2002, YUM (i) by the earlier of (A) thirty-five (35) days after the end of the fiscal quarter in which the Distribution occurs and (B) the date upon which SpinCo is required to file with the SEC its first periodic report on Form 10-Q following the effectiveness of the Form 10, shall provide SpinCo with one (1) or more certifications with respect to such disclosure controls and procedures, its internal control over financial reporting and the effectiveness thereof (each, a “Certification”); and (ii) shall, if requested in writing by SpinCo at least ten (10) Business Days prior to the date on which SpinCo is required to file with the SEC its first annual report on Form 10-K, provide SpinCo with one or more Certifications covering the period of time, if any, in the fiscal quarter in which the Distribution occurs that SpinCo was a wholly owned Subsidiary of YUM (such period of time, the “Stub Period”), provided that if requested in writing by YUM at least ten (10) Business Days prior to the date on which YUM is required to file with the SEC its annual report on Form 10-K, SpinCo shall provide YUM with a representation memorandum and/or letter signed by SpinCo’s Controller, CFO and CEO in order to support YUM’s own Certifications with respect to YUM’s business and operations during the Stub Period (such representation memorandum and/or letter to be of a form and substance substantially similar to such representation memorandums and/or letters provided by the China Division to YUM in the past).  Any such Certification(s) provided by YUM to SpinCo under this Section 2.12 shall be provided by YUM (and not by any officer or employee in their individual capacity).

 

2.13                        Transition Committee.  Prior to the Effective Time, the Parties shall establish a transition committee (the “Transition Committee”) that shall consist of an equal number of members from YUM and SpinCo.  The Transition Committee shall be responsible for monitoring and managing all matters related to any of the transactions contemplated by this Agreement or any Ancillary Agreements for the period following the Effective Time.  The Transition Committee shall have the authority to (a) establish one (1) or more subcommittees from time to time as it deems appropriate or as may be described in any Ancillary Agreements, with each such subcommittee comprised of one (1) or more members of the Transition Committee or one (1) or more employees of any Party or any member of their respective Groups, and each such subcommittee having such scope of responsibility as may be determined by the Transition Committee from time to time; (b) delegate to any such committee any of the powers of the Transition Committee; (c) combine, modify the scope of responsibility of, and disband any such subcommittees; and (d) modify or reverse any such delegations.  The Transition Committee shall establish general procedures for managing the responsibilities delegated to it under this Section 2.13, and may modify such procedures from time to time.  All decisions by the Transition Committee or any subcommittee thereof shall be effective only if mutually agreed by YUM and SpinCo.  The Parties shall utilize the procedures set forth in Article VII to resolve any matters as to which the Transition Committee is not able to reach a decision.

 

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ARTICLE III
THE DISTRIBUTION

 

3.1                               Sole and Absolute Discretion; Cooperation.

 

(a)                                 YUM shall, in its sole and absolute discretion, determine the terms of the Distribution, including the form, structure and terms of any transaction(s) and/or offering(s) to effect the Distribution and the timing and conditions to the consummation of the Distribution.  In addition, YUM may, at any time and from time to time until the consummation of the Distribution, modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution.  Nothing shall in any way limit YUM’s right to terminate this Agreement or the Distribution as set forth in Article IX or alter the consequences of any such termination from those specified in Article IX.

 

(b)                                 The SpinCo Parties shall cooperate with YUM to accomplish the Distribution and shall, at YUM’s direction, promptly take any and all actions necessary or desirable to effect the Distribution, including in respect of the registration under the Exchange Act of SpinCo Shares on the Form 10.  YUM shall select any investment bank or manager in connection with the Distribution, as well as any financial printer, solicitation and/or exchange agent and financial, legal, accounting and other advisors for YUM.  The SpinCo Parties and YUM will provide to the Agent any information required in order to complete the Distribution.

 

3.2                               Actions Prior to the Distribution.  Prior to the Effective Time and subject to the terms and conditions set forth herein, the Parties shall take, or cause to be taken, the following actions in connection with the Distribution:

 

(a)                                 Notice to NYSE.  YUM shall, to the extent possible, give NYSE not less than ten (10) days’ advance notice of the Record Date in compliance with Rule 10b-17 under the Exchange Act.

 

(b)                                 SpinCo Certificate of Incorporation and SpinCo Bylaws.  On or prior to the Distribution Date, YUM and SpinCo shall take all necessary actions so that, as of the Effective Time, the SpinCo Certificate of Incorporation and the SpinCo Bylaws shall become the amended and restated certificate of incorporation and amended and restated bylaws of SpinCo, respectively.

 

(c)                                  SpinCo Directors and Officers.  On or prior to the Distribution Date, YUM and SpinCo shall take all necessary actions so that as of the Effective Time:  (i) the directors and executive officers of SpinCo shall be those set forth in the Information Statement made available to the Record Holders prior to the Distribution Date, unless otherwise agreed by the Parties, and (ii) SpinCo shall have such other officers as the board of directors of SpinCo shall appoint.

 

(d)                                 NYSE Listing.  SpinCo shall prepare, file and pursue an application to permit listing of the SpinCo Shares to be distributed in the Distribution on the NYSE, subject to official notice of issuance.

 

(e)                                  Securities Law Matters.  SpinCo shall file any amendments or supplements to the Form 10 as may be necessary or advisable in order to cause the Form 10 to become and remain effective as required by the SEC or federal, state or other applicable securities Laws.  YUM

 

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and SpinCo shall cooperate in preparing, filing with the SEC and causing to become effective registration statements or amendments thereof that are required to reflect the establishment of, or amendments to, any employee benefit and other plans necessary or advisable in connection with the transactions contemplated by this Agreement and the Ancillary Agreements.  YUM and SpinCo will prepare, and SpinCo will, to the extent required under applicable Law, file with the SEC any such documentation and any requisite no-action letters that YUM determines are necessary or desirable to effectuate the Distribution, and YUM and the SpinCo Parties shall each use their respective reasonable best efforts to obtain all necessary approvals from the SEC with respect thereto as soon as practicable.  YUM and the SpinCo Parties shall take all such action as may be necessary or appropriate under the securities or blue sky Laws of the United States (and any comparable Laws under any foreign jurisdiction) in connection with the Distribution.

 

(f)                                   Information Statement.  YUM shall make available the Information Statement to the Record Holders.

 

(g)                                  The Distribution Agent.  YUM shall enter into a distribution agent agreement, or such other agreement as may be necessary, with the Agent or otherwise provide instructions to the Agent regarding the Distribution.

 

(h)                                 Financing Transactions.  In connection with the Separation and prior to the Effective Time, YUM and the SpinCo Parties shall cooperate with respect to and undertake such financing transactions (which may also include the transfer of cash between the YUM Group and the SpinCo Group) as YUM determines to be advisable.

 

(i)                                     Stock-Based Employee Benefit Plans.  YUM and the SpinCo Parties shall take all actions as may be necessary to approve the grants of adjusted equity awards by YUM (in respect of YUM Shares) and SpinCo (in respect of SpinCo Shares) in connection with the Distribution in order to satisfy the requirements of Rule 16b-3 under the Exchange Act.

 

3.3                               Conditions to the Distribution.

 

(a)                                 The consummation of the Distribution will be subject to the satisfaction, or waiver, in whole or in part, by YUM in its sole and absolute discretion, of the following conditions:

 

(i)                                     The transfer of the SpinCo Assets (other than any Delayed SpinCo Asset) and SpinCo Liabilities (other than any Delayed SpinCo Liability) contemplated to be transferred to SpinCo (or another member of the SpinCo Group) on or prior to the Distribution shall have occurred as contemplated by Section 2.1, and the transfer of the YUM Assets (other than any Delayed YUM Asset) and YUM Liabilities (other than any Delayed YUM Liability) contemplated to be transferred to YUM (or another member of the YUM Group) on or prior to the Distribution Date shall have occurred as contemplated by Section 2.1, in each case pursuant to the Plan of Reorganization.

 

(ii)                                  YUM shall have received (A) one (1) or more opinions of its external tax advisors, in each case, satisfactory to the YUM Board, regarding certain tax matters relating to the Distribution and related transactions and (B) an opinion of each of Mayer Brown LLP and PricewaterhouseCoopers LLP, regarding the qualification of the

 

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Distribution as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 361 of the Code.

 

(iii)                               The SEC shall have declared effective the Form 10; no order suspending the effectiveness of the Form 10 shall be in effect; and no proceedings for such purposes shall be pending before or threatened by the SEC.

 

(iv)                              The Information Statement shall have been made available to the Record Holders.

 

(v)                                 The actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities Laws or blue sky Laws and the rules and regulations thereunder shall have been taken or made, and, where applicable, shall have become effective or been accepted.

 

(vi)                              Any Approvals or Notifications of any Governmental Authorities required for the consummation of the Separation and Distribution shall have been obtained.

 

(vii)                           No order, injunction or decree issued by any Governmental Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation, the Distribution or any of the transactions related thereto shall be in effect.

 

(viii)                        The SpinCo Shares to be distributed to the YUM shareholders in the Distribution shall have been accepted for listing on the NYSE, subject to official notice of issuance.

 

(ix)                              Each of the Ancillary Agreements shall have been duly executed and delivered by the applicable parties thereto.

 

(x)                                 An independent valuation firm shall have delivered one (1) or more opinions to the YUM Board confirming the solvency and financial viability of each of YUM and SpinCo immediately after the consummation of the Distribution, and such opinions shall be acceptable to YUM in form and substance in YUM’s sole discretion, and such opinions shall not have been withdrawn, rescinded or modified in any respect.

 

(xi)                              No other event or development shall have occurred or shall exist that, in the judgment of the YUM Board, in its sole discretion, makes it inadvisable to effect the Separation, the Distribution or the other transactions contemplated hereby.

 

(b)                                 The foregoing conditions are for the sole benefit of YUM and shall not give rise to or create any duty on the part of YUM or the YUM Board to waive or not waive any such condition or in any way limit YUM’s right to terminate this Agreement as set forth in Article IX or alter the consequences of any such termination from those specified in Article IX.  Any determination made by the YUM Board prior to the Distribution concerning the satisfaction or waiver of any or all of the conditions set forth in Section 3.3(a) shall be conclusive and binding on the Parties.

 

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3.4                               The Distribution.

 

(a)                                 Subject to Section 3.3, at or prior to the Effective Time, SpinCo will deliver to the Agent, for the benefit of the Record Holders, book-entry transfer authorizations for such number of the outstanding SpinCo Shares as is necessary to effect the Distribution, and shall cause the transfer agent for the YUM Shares to instruct the Agent to distribute at the Effective Time the appropriate number of SpinCo Shares to each such holder or designated transferee or transferees of such holder by way of direct registration in book-entry form.  SpinCo will not issue paper stock certificates in respect of the SpinCo Shares.  The Distribution shall be effective at the Effective Time.

 

(b)                                 Subject to Sections 3.3 and 3.4(c), each Record Holder will be entitled to receive in the Distribution a number of whole SpinCo Shares to be determined by resolution of the YUM Board, for every one (1) YUM Share held by such Record Holder on the Record Date, rounded down to the nearest whole number.

 

(c)                                  No fractional shares will be distributed or credited to book-entry accounts in connection with the Distribution, and any such fractional share interests to which a Record Holder would otherwise be entitled shall not entitle such Record Holder to vote or to any other rights as a shareholder of SpinCo.  In lieu of any such fractional shares, each Record Holder who, but for the provisions of this Section 3.4(c), would be entitled to receive a fractional share interest of a SpinCo Share pursuant to the Distribution, shall be paid cash, without any interest thereon, as hereinafter provided.  As soon as practicable after the Effective Time, YUM shall direct the Agent to determine the number of whole and fractional SpinCo Shares allocable to each Record Holder, to aggregate all such fractional shares into whole shares, and to sell the whole shares obtained thereby in the open market at the then-prevailing prices on behalf of each Record Holder who otherwise would be entitled to receive fractional share interests (with the Agent, in its sole and absolute discretion, determining when, how and through which broker-dealer and at what price to make such sales), and to cause to be distributed to each such Record Holder, in lieu of any fractional share, such Record Holder’s or owner’s ratable share of the total proceeds of such sale, after deducting any Taxes required to be withheld and applicable transfer Taxes, and after deducting the costs and expenses of such sale and distribution, including brokers’ fees and commissions.  None of YUM, SpinCo or the Agent will be required to guarantee any minimum sale price for the fractional SpinCo Shares sold in accordance with this Section 3.4(c).  Neither YUM nor SpinCo will be required to pay any interest on the proceeds from the sale of fractional shares.  Neither the Agent nor the broker-dealers through which the aggregated fractional shares are sold shall be Affiliates of YUM or the SpinCo Parties.  Solely for purposes of computing fractional share interests pursuant to this Section 3.4(c) and Section 3.4(d), the beneficial owner of YUM Shares held of record in the name of a nominee in any nominee account shall be treated as the Record Holder with respect to such shares.

 

(d)                                 Notwithstanding anything herein to the contrary, if the distribution of SpinCo Shares pursuant to the Distribution is not permitted under the applicable Law of any jurisdiction (each such jurisdiction, a “Prohibited Jurisdiction”), each Record Holder in such Prohibited Jurisdiction who, but for such applicable Law, would have received a SpinCo Share pursuant to the Distribution, shall receive a distribution of cash, without any interest thereon, in lieu of such SpinCo Share to the extent permitted by the applicable Law of such Prohibited

 

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Jurisdiction.  The procedures set forth in Section 3.4(c) with respect to fractional shares shall apply to the distribution of SpinCo Shares to Record Holders in Prohibited Jurisdictions, mutatis mutandis, with each reference to a “fractional share” in such sentences being deemed a reference to a SpinCo Share that, but for this Section 3.4(d) and for applicable Law, would have been distributed pursuant to the Distribution to a Record Holder in a Prohibited Jurisdiction.

 

(e)                                  Any SpinCo Shares or cash in lieu of SpinCo Shares (or fractions thereof) that remain unclaimed by any Record Holder one hundred and eighty (180) days after the Distribution Date shall be delivered to SpinCo, and SpinCo shall hold such SpinCo Shares for the account of such Record Holder, and the Parties agree that all obligations to provide such SpinCo Shares and cash, if any, in lieu of SpinCo Shares (or fractions thereof) shall be obligations of the SpinCo Parties, subject in each case to applicable escheat or other abandoned property Laws, and YUM shall have no Liability with respect thereto.

 

(f)                                   Until the SpinCo Shares are duly transferred in accordance with this Section 3.4 and applicable Law and subject to Section 3.4(d), from and after the Effective Time, the SpinCo Parties will regard the Persons entitled to receive such SpinCo Shares as record holders of SpinCo Shares in accordance with the terms of the Distribution without requiring any action on the part of such Persons.  The SpinCo Parties agree that, subject to any transfers of such shares, from and after the Effective Time (i) each such holder will be entitled to receive all dividends payable on, and exercise voting rights and all other rights and privileges with respect to, the SpinCo Shares then held by such holder, and (ii) each such holder will be entitled, without any action on the part of such holder, to receive evidence of ownership of the SpinCo Shares then held by such holder.

 

ARTICLE IV
MUTUAL RELEASES, INDEMNIFICATION AND LITIGATION

 

4.1                               Release of Pre-Distribution Claims.

 

(a)                                 SpinCo Parties Release of YUM Group.  Except as provided in Sections 4.1(c) and 4.3, effective as of the Effective Time, each of the SpinCo Parties does hereby, for itself and each other member of the SpinCo Group, and their respective successors and assigns, and, to the extent permitted by Law, all Persons who at any time prior to the Effective Time have been shareholders, directors, officers, agents or employees of any member of the SpinCo Group (in each case, in their respective capacities as such), remise, release and forever discharge (i) YUM and the other members of the YUM Group, and their respective successors and assigns, (ii) all Persons who at any time prior to the Effective Time have been shareholders, directors, officers, agents or employees of any member of the YUM Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns and (iii) all Persons who at any time prior to the Effective Time are or have been shareholders, directors, officers, agents or employees of a Transferred Entity and who are not, as of immediately following the Effective Time, directors, officers or employees of either of the SpinCo Parties or another member of the SpinCo Group, in each case from:  (A) all SpinCo Liabilities, (B) all Liabilities arising from or in connection with the transactions and all other activities to implement the Separation and the Distribution and (C) all Liabilities arising from or in connection with actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time

 

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(whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), in each case to the extent relating to, arising out of or resulting from the SpinCo Business, the SpinCo Assets or the SpinCo Liabilities.

 

(b)                                 YUM Release of SpinCo Group.  Except as provided in Sections 4.1(c) and 4.2, effective as of the Effective Time, YUM does hereby, for itself and each other member of the YUM Group and their respective successors and assigns, and, to the extent permitted by Law, all Persons who at any time prior to the Effective Time have been shareholders, directors, officers, agents or employees of any member of the YUM Group (in each case, in their respective capacities as such), remise, release and forever discharge each SpinCo Party and the other members of the SpinCo Group, and their respective successors and assigns, from (A) all YUM Liabilities, (B) all Liabilities arising from or in connection with the transactions and all other activities to implement the Separation and the Distribution and (C) all Liabilities arising from or in connection with actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), in each case to the extent relating to, arising out of or resulting from the YUM Business, the YUM Assets or the YUM Liabilities.

 

(c)                                  Obligations Not Affected.  Nothing contained in Section 4.1(a) or 4.1(b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in Section 2.7(b) or the applicable Schedule to Section 2.7(b) as not to terminate as of the Effective Time, in each case in accordance with its terms.  Nothing contained in Section 4.1(a) or 4.1(b) shall release any Person from:

 

(i)                                     any Liability provided in or resulting from any agreement among any members of the YUM Group or the SpinCo Group that is specified in Section 2.7(b) or the applicable Schedule to Section 2.7(b) as not to terminate as of the Effective Time, or any other Liability specified in Section 2.7(b) as not to terminate as of the Effective Time;

 

(ii)                                  any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group under, this Agreement or any Ancillary Agreement;

 

(iii)                               any Liability for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by a member of one Group from a member of the other Group prior to the Effective Time;

 

(iv)                              any Liability provided in or resulting from any Contract or understanding that is entered into after the Effective Time between any Party (and/or a member of such Party’s Group), on the one hand, and any other Party (and/or a member of such other Party’s Group), on the other hand;

 

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(v)                                 any Liability that the Parties may have with respect to indemnification or contribution or other obligation pursuant to this Agreement, any Ancillary Agreement or otherwise for claims brought against the Parties or members of their Groups by Third Parties, which Liability shall be governed by the provisions of this Article IV and Article V and, if applicable, the appropriate provisions of the Ancillary Agreements; or

 

(vi)                              any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 4.1.

 

In addition, nothing contained in Section 4.1(a) shall release any member of the YUM Group from honoring its existing obligations to indemnify any director, officer or employee of SpinCo who was a director, officer or employee of any member of the YUM Group at or prior to the Effective Time, to the extent such director, officer or employee becomes a named defendant in any Action with respect to which such director, officer or employee was entitled to such indemnification pursuant to such existing obligations, it being understood that, if the underlying obligation giving rise to such Action is a SpinCo Liability, the SpinCo Parties shall indemnify YUM for such Liability (including YUM’s costs to indemnify the director, officer or employee) in accordance with the provisions set forth in this Article IV.

 

(d)                                 No Claims.  The SpinCo Parties shall not make, and shall not permit any other member of the SpinCo Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against YUM or any other member of the YUM Group, or any other Person released pursuant to Section 4.1(a), with respect to any Liabilities released pursuant to Section 4.1(a).  YUM shall not make, and shall not permit any other member of the YUM Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against either SpinCo Party or any other member of the SpinCo Group, or any other Person released pursuant to Section 4.1(b), with respect to any Liabilities released pursuant to Section 4.1(b).

 

(e)                                  Execution of Further Releases.  At any time at or after the Effective Time, at the request of YUM or SpinCo, each other Party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions of this Section 4.1.

 

4.2                               Indemnification by the SpinCo Parties.  Except as otherwise specifically set forth in this Agreement or in any Ancillary Agreement, to the fullest extent permitted by Law, the SpinCo Parties shall, and shall cause the other members of the SpinCo Group to, indemnify, defend and hold harmless YUM, each other member of the YUM Group and each of their respective past, present and future directors, officers, employees and agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “YUM Indemnitees”), from and against any and all Liabilities of the YUM Indemnitees relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):

 

(a)                                 any SpinCo Liability;

 

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(b)                                 any failure of a SpinCo Party, any other member of the SpinCo Group or any other Person to pay, perform or otherwise promptly discharge any SpinCo Liabilities in accordance with their terms, whether prior to, at or after the Effective Time;

 

(c)                                  the SpinCo Specified Actions;

 

(d)                                 any breach by a SpinCo Party or any other member of the SpinCo Group of this Agreement or any of the Ancillary Agreements;

 

(e)                                  except to the extent it relates to a YUM Liability, any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement, arrangement, commitment or understanding for the benefit of any member of the SpinCo Group by any member of the YUM Group that survives following the Distribution; and

 

(f)                                   any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in the Form 10, the Information Statement (as amended or supplemented if SpinCo shall have furnished any amendments or supplements thereto) or any other Disclosure Document, other than the matters described in clause (f) of Section 4.3.

 

4.3                               Indemnification by YUM.  Except as otherwise specifically set forth in this Agreement or in any Ancillary Agreement, to the fullest extent permitted by Law, YUM shall, and shall cause the other members of the YUM Group to, indemnify, defend and hold harmless each SpinCo Party, each other member of the SpinCo Group and each of their respective past, present and future directors, officers, employees or agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “SpinCo Indemnitees”), from and against any and all Liabilities of the SpinCo Indemnitees relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):

 

(a)                                 any YUM Liability;

 

(b)                                 any failure of YUM, any other member of the YUM Group or any other Person to pay, perform or otherwise promptly discharge any YUM Liabilities in accordance with their terms, whether prior to, at or after the Effective Time;

 

(c)                                  the YUM Specified Actions;

 

(d)                                 any breach by YUM or any other member of the YUM Group of this Agreement or any of the Ancillary Agreements;

 

(e)                                  except to the extent it relates to a SpinCo Liability, any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement, arrangement, commitment or understanding for the benefit of any member of the YUM Group by any member of the SpinCo Group that survives following the Distribution; and

 

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(f)                                   any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to statements made explicitly in YUM’s name in the Form 10, the Information Statement (as amended or supplemented if SpinCo shall have furnished any amendments or supplements thereto) or any other Disclosure Document; it being agreed that the statements set forth on Schedule 4.3(f) shall be the only statements made explicitly in YUM’s name in the Form 10, the Information Statement or any other Disclosure Document, and all other information contained in the Form 10, the Information Statement or any other Disclosure Document shall be deemed to be information supplied by SpinCo.

 

4.4                               Indemnification Obligations Net of Insurance Proceeds and Other Amounts.

 

(a)                                 The Parties intend that any Liability subject to indemnification, contribution or reimbursement pursuant to this Article IV or Article V will be net of Insurance Proceeds or other amounts actually recovered (net of any out-of-pocket costs or expenses incurred in the collection thereof) from any Person by or on behalf of the Indemnitee in respect of any indemnifiable Liability.  Accordingly, the amount which any Party (an “Indemnifying Party”) is required to pay to any Person entitled to indemnification or contribution hereunder (an “Indemnitee”) will be reduced by any Insurance Proceeds or other amounts actually recovered (net of any out-of-pocket costs or expenses incurred in the collection thereof) from any Person by or on behalf of the Indemnitee in respect of the related Liability.  If an Indemnitee receives a payment (an “Indemnity Payment”) under this Agreement from an Indemnifying Party in respect of any Liability and subsequently receives Insurance Proceeds or any other amounts in respect of such Liability, then within ten (10) calendar days of receipt of such Insurance Proceeds or other amounts, the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds or such other amounts (net of any out-of-pocket costs or expenses incurred in the collection thereof) had been received, realized or recovered before the Indemnity Payment was made.

 

(b)                                 The Parties agree that an insurer that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of any provision contained in this Agreement or any Ancillary Agreement, have any subrogation rights with respect thereto, it being understood that no insurer or any other Third Party shall be entitled to a “windfall” (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the liability allocation, indemnification and contribution provisions hereof.  Accordingly, any provision herein that could have the result of giving any insurer or other Third Party such a “windfall” shall be suspended or amended to the extent necessary to not provide such “windfall.”  Each Party shall, and shall cause the members of its Group to, use commercially reasonable efforts to seek or collect or recover any Insurance Proceeds that may be collectible or recoverable with respect to the Liabilities for which indemnification or contribution may be available under this Article IV; provided that the Indemnitee’s inability to collect or recover any such Insurance Proceeds shall not limit the Indemnifying Party’s obligations under this Agreement.

 

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4.5                               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 Section 4.2 or 4.3, or any other Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give such 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 4.5(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 4.5(a).

 

(b)                                 Control of Defense.  An Indemnifying Party may elect to defend (and seek to settle or compromise, subject to Section 4.5(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 4.5(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 4.5(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

 

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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 4.5(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 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 4.5(c) shall not apply to such fees and expenses.  Notwithstanding the foregoing, but subject to Sections 6.7 and 6.8, 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.  No Party may settle or compromise any Third-Party Claim for which any Party is seeking to be indemnified hereunder without the prior written consent of such 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 any 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 each 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 any other Party with a written notice containing a proposal to settle or compromise a Third-Party Claim for which any 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.

 

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4.6                               Additional Matters.

 

(a)                                 Timing of Payments.  Indemnification or contribution payments in respect of any Liabilities for which an Indemnitee is entitled to indemnification or contribution under this Article IV shall be paid reasonably promptly (but in any event within thirty (30) days of the final determination of the amount that the Indemnitee is entitled to indemnification or contribution under this Article IV) by the Indemnifying Party to the Indemnitee as such Liabilities are incurred upon demand by the Indemnitee, including reasonably satisfactory documentation setting forth the basis for the amount of such indemnification or contribution payment, including documentation with respect to calculations made and consideration of any Insurance Proceeds that actually reduce the amount of such Liabilities.  The indemnity and contribution provisions contained in this Article IV shall remain operative and in full force and effect, regardless of (i) any investigation made at any time by or on behalf of any Indemnitee and (ii) the knowledge at any time by the Indemnitee of Liabilities for which it might be entitled to indemnification hereunder.

 

(b)                                 Notice of Direct Claims.  Any claim for indemnification or contribution under this Agreement or any Ancillary Agreement that does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the applicable Indemnifying Party; provided that the failure by an Indemnitee to so assert any such claim shall not prejudice the ability of the Indemnitee to do so at a later time except to the extent (if any) that the Indemnifying Party is actually prejudiced thereby.  Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto.  If such Indemnifying Party does not respond within such thirty (30)-day period, such specified claim shall be conclusively deemed a Liability of the Indemnifying Party under this Section 4.6(b) or, in the case of any written notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of the claim (or such portion thereof) becomes finally determined.  If such Indemnifying Party does not respond within such thirty (30)-day period or rejects such claim in whole or in part, such Indemnitee shall, subject to the provisions of Article VII, be free to pursue such remedies as may be available to such party as contemplated by this Agreement and the Ancillary Agreements, as applicable, without prejudice to its continuing rights to pursue indemnification or contribution hereunder.

 

(c)                                  Pursuit of Claims Against Third Parties.  If (i) a Party incurs any Liability arising out of this Agreement or any Ancillary Agreement; (ii) an adequate legal or equitable remedy is not available for any reason against each other Party to satisfy the Liability incurred by the incurring Party; and (iii) a legal or equitable remedy may be available to any other Party against a Third Party for such Liability, then such other Party shall use its commercially reasonable efforts to cooperate with the incurring Party, at the incurring Party’s expense, to permit the incurring Party to obtain the benefits of such legal or equitable remedy against the Third Party.

 

(d)                                 Subrogation.  In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim or against any other Person.  Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable

 

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manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.

 

(e)                                  Substitution.  In the event of an Action for which a Party is entitled to indemnification hereunder in which the Indemnifying Party is not a named defendant, if either the Indemnitee or Indemnifying Party shall so request, the Parties shall endeavor to substitute the Indemnifying Party for the named defendant.  If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in Section 4.5 and this Section 4.6, and, subject to the other provisions of this Article IV, the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys’ fees, experts’ fees and all other external expenses), the costs of any judgment or settlement and the cost of any interest or penalties relating to any judgment or settlement.

 

4.7                               Right of Contribution.

 

(a)                                 Contribution.  If any right of indemnification contained in Section 4.2 or Section 4.3 is held unenforceable or is unavailable for any reason, or is insufficient to hold harmless an Indemnitee in respect of any Liability for which such Indemnitee is entitled to indemnification hereunder, then the Indemnifying Party shall contribute to the amounts paid or payable by the Indemnitees as a result of such Liability (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the other members of its Group, on the one hand, and the Indemnitees entitled to contribution, on the other hand, as well as any other relevant equitable considerations.

 

(b)                                 Allocation of Relative Fault.  Solely for purposes of determining relative fault pursuant to this Section 4.7:  (i) any fault associated with the business conducted with the Delayed SpinCo Assets or Delayed SpinCo Liabilities (except for the gross negligence or intentional misconduct of a member of the YUM Group) or with the ownership, operation or activities of the SpinCo Business prior to the Effective Time shall be deemed to be the fault of  SpinCo, YCCL and the other members of the SpinCo Group, and no such fault shall be deemed to be the fault of YUM or any other member of the YUM Group; and (ii) any fault associated with the business conducted with Delayed YUM Assets or Delayed YUM Liabilities (except for the gross negligence or intentional misconduct of a member of the SpinCo Group) or with the ownership, operation or activities of the YUM Business prior to the Effective Time shall be deemed to be the fault of YUM and the other members of the YUM Group, and no such fault shall be deemed to be the fault of SpinCo, YCCL or any other member of the SpinCo Group.

 

4.8                               Covenant Not to Sue.  Each Party hereby covenants and agrees that none of it, the other members of such Party’s Group or any Person claiming through it or any of them shall bring suit or otherwise assert any claim against any Indemnitee, or assert a defense against any claim asserted by any Indemnitee, before any court, arbitrator, mediator or administrative agency anywhere in the world, alleging that:  (a) the assumption of any SpinCo Liabilities by SpinCo, YCCL or any other member of the SpinCo Group on the terms and conditions set forth in this Agreement and the Ancillary Agreements is void or unenforceable for any reason; (b) the retention of any YUM Liabilities by YUM or a member of the YUM Group on the terms and conditions set

 

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forth in this Agreement and the Ancillary Agreements is void or unenforceable for any reason; or (c) the provisions of this Article IV are void or unenforceable for any reason.

 

4.9                               Remedies Cumulative.  The remedies provided in this Article IV shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.

 

4.10                        Survival of Indemnities.  The rights and obligations of each of YUM and the SpinCo Parties and the respective Indemnitees under this Article IV shall survive (a) the sale or other transfer by any Party or any member of its respective Group of any assets or businesses or the assignment by it of any liabilities; or (b) any merger, consolidation, business combination, sale of all or substantially all of its Assets, restructuring, recapitalization, reorganization or similar transaction involving a Party or any of the other members of such Party’s Group.

 

4.11                        Coordination with Ancillary Agreements.

 

(a)                                 The provisions of Sections 4.2 through 4.10 and Sections 4.12 through 4.13 shall not apply with respect to Taxes or Tax matters (including the control of Tax related proceedings), which shall be governed exclusively by the Tax Matters Agreement.  In the case of any conflict between this Agreement and the Tax Matters Agreement in relation to any matters addressed by the Tax Matters Agreement, the Tax Matters Agreement shall prevail.

 

(b)                                 The provisions of Sections 4.2 through 4.10 shall not apply (except as expressly set forth in the applicable Ancillary Agreement) with respect to the representations, warranties, covenants and agreements set forth in the Master License Agreement, the Guaranty or the Transition Services Agreement, which shall be governed by the Master License Agreement, the Guaranty and the Transition Services Agreement, respectively.  In the case of any conflict between this Agreement and the Master License Agreement in relation to any matters addressed by the Master License Agreement, the Master License Agreement shall prevail.  In the case of any conflict between this Agreement and the Guaranty in relation to any matters addressed by the Guaranty, the Guaranty shall prevail.  In the case of any conflict between this Agreement and the Transition Services Agreement in relation to any matters addressed by the Transition Services Agreement, the Transition Services Agreement shall prevail.

 

4.12                        Management of Certain Actions.  This Section 4.12 shall govern the direction of certain pending and future Actions in which members of the SpinCo Group or the YUM Group are named as parties, but shall not alter the allocation of Liabilities set forth in Article II or the rights and obligations under Section 4.5 unless expressly set forth in this Section 4.12.

 

(a)                                 Management of SpinCo Specified Actions.  From and after the Effective Time, the SpinCo Group shall direct the defense or prosecution of any (i) SpinCo Specified Actions and (ii) any other Actions that constitute only SpinCo Liabilities or SpinCo Assets.  If an Action that constitutes solely a SpinCo Liability or a SpinCo Asset is commenced after the Effective Time naming a member of the YUM Group as a party thereto, then the SpinCo Parties shall use their respective commercially reasonable efforts to cause such member of the YUM Group to be removed as a party to such Action.  No Party shall add any other Party (or any other

 

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member of its Group) to any Action pending as of the Effective Time without the prior written consent of such other Party.

 

(b)                                 Management of YUM Specified Actions.  From and after the Effective Time, the YUM Group shall direct the defense or prosecution of any (i) YUM Specified Actions and (ii) any other Actions that constitute only YUM Liabilities or YUM Assets.  If an Action that constitutes solely a YUM Liability or a YUM Asset is commenced after the Effective Time naming a member of the SpinCo Group as a party thereto, then YUM shall use its commercially reasonable efforts to cause such member of the SpinCo Group to be removed as a party to such Action.  No Party shall add any other Party (or any other Member of its Group) to any Action pending as of the Effective Time without the prior written consent of such other Party.

 

(c)                                  Management of Mixed Actions.  From and after the Effective Time, the Parties shall jointly manage (whether as co-defendants or co-plaintiffs) any (i) Actions set forth on Schedule 4.12(c) (except as otherwise set forth therein) and (ii) any other Action that constitutes both a SpinCo Liability and a YUM Liability (clauses (i) and (ii), the “Mixed Actions”).  The Parties shall reasonably cooperate and consult with each other, and to the extent necessary or advisable, maintain a joint defense in a manner that would preserve for YUM, SpinCo and their respective Affiliates any attorney-client privilege, joint defense or other privilege with respect to Mixed Actions.  Notwithstanding anything to the contrary herein, the Parties may jointly retain counsel (in which case the cost of counsel shall be shared equally by YUM, on the one hand, and the SpinCo Parties, on the other hand) or retain separate counsel (in which case each Party will bear the cost of its separate counsel) with respect to any Mixed Action; provided that YUM, on the one hand, and the SpinCo Parties, on the other hand, shall share equally discovery and other joint litigation costs.  In any Mixed Action, each of YUM and the SpinCo Parties may pursue separate defenses, claims, counterclaims or settlements to those claims relating to the YUM Business or the SpinCo Business, respectively; provided that each Party shall in good faith make all reasonable efforts to avoid adverse effects on any other Party.  Notwithstanding anything to the contrary herein, (i) if a judgment is obtained with respect to a Mixed Action, the Parties shall endeavor in good faith to allocate the Liabilities in respect of such judgment between them based on the YUM Business and the SpinCo Business, and otherwise shall share equally such Liabilities; and (ii) if a recovery is obtained with respect to a Mixed Action, the Parties shall endeavor in good faith to allocate the Assets in respect of such recovery between them based on their respective injuries, and otherwise shall share equally such Assets.  A Party (or another member of its Group) that is not named as a defendant in a Mixed Action may elect to become a Party to such Mixed Action, and the Party (or other member of its Group) named in such Mixed Action shall reasonably cooperate to have such first Party (or other member of its Group) named in such Mixed Action.

 

(d)                                 Delegation of Rights of Recovery.  To the maximum extent permitted by applicable Law, the rights to recovery of each member of a Party’s Group in respect of any past, present or future Action are hereby delegated to such Party.  It is the intent of the Parties that the foregoing delegation shall satisfy any Law requiring such delegation to be effected pursuant to a power of attorney or similar instrument.  Each of the Parties and each of the other members of its Group shall execute such further instruments or documents as may be necessary to effect such delegation.

 

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4.13                        Settlement of Actions.  No Party managing an Action pursuant to Section 4.12 shall settle or compromise such Action without the prior written consent of a Party (not to be unreasonably withheld, conditioned or delayed) if such settlement or compromise would result in any remedy or relief being imposed upon any member of such other Party’s Group (or any of such Group’s respective past, present or future directors, officers or employees).

 

ARTICLE V
CERTAIN OTHER MATTERS

 

5.1                               Insurance Matters.

 

(a)                                 YUM and the SpinCo Parties agree to cooperate in good faith to provide for an orderly transition of insurance coverage from the date hereof through the Effective Time.  In no event shall YUM, any other member of the YUM Group or any YUM Indemnitee have Liability or obligation whatsoever to any member of the SpinCo Group if any insurance policy or other Contract or policy of insurance shall be terminated or otherwise cease to be in effect for any reason, shall be unavailable or inadequate to cover any Liability of any member of the SpinCo Group for any reason whatsoever or shall not be renewed or extended beyond the current expiration date.

 

(b)                                 From and after the Effective Time, with respect to any Liabilities incurred by any member of the SpinCo Group prior to the Effective Time, YUM will provide SpinCo with access to, and SpinCo may, upon ten (10) days’ prior written notice to YUM, make claims under, YUM’s third-party insurance policies that may provide coverage for acts occurring prior to the Effective Time, if renewed, and YUM’s historical policies of insurance, but solely to the extent that such policies provided coverage for members of the SpinCo Group prior to the Effective Time; provided that such access to, and the right to make claims under, such insurance policies, shall be subject to the terms and conditions of such insurance policies, including any limits on coverage or scope, any deductibles and other fees and expenses, and shall be subject to the following additional conditions:

 

(i)                                     The SpinCo Parties shall report any claim to YUM, as promptly as practicable, and in any event in sufficient time so that such claim may be made in accordance with YUM’s claim reporting procedures in effect immediately prior to the Effective Time (or in accordance with any modifications to such procedures after the Effective Time communicated by YUM to the SpinCo Parties in writing);

 

(ii)                                  The SpinCo Parties and the other members of the SpinCo Group shall indemnify, hold harmless and reimburse YUM and the other members of the YUM Group for any deductibles, self-insured retention, fees and expenses incurred by YUM or any members of the YUM Group to the extent resulting from any access to, or any claims made by the SpinCo Parties or any other members of the SpinCo Group under, any insurance provided pursuant to this Section 5.1(b), including any indemnity payments, settlements, judgments, legal fees and allocated claims expenses and claim handling fees, whether such claims are made by the SpinCo Parties, their employees or Third Parties; and

 

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(iii)                               The SpinCo Parties shall exclusively bear (and neither YUM nor any other members of the YUM Group shall have any obligation to repay or reimburse the SpinCo Parties or any other member of the SpinCo Group for) and shall be liable for all uninsured, uncovered, unavailable or uncollectible amounts of all such claims made by the SpinCo Parties or any other member of the SpinCo Group under the policies as provided for in this Section 5.1(b).  If an insurance policy aggregate is exhausted, or believed likely to be exhausted, due to noticed claims, the SpinCo Group, on the one hand, and the YUM Group, on the other hand, shall be responsible for their pro rata portion of the reinstatement premium, if any, based upon the losses of such Group submitted to YUM’s insurance carrier(s) (including any submissions prior to the Effective Time).  To the extent that the YUM Group or the SpinCo Group is allocated more than its pro rata portion of such premium due to the timing of losses submitted to YUM’s insurance carrier(s), each other Party shall promptly pay the first Party an amount so that each Group has been properly allocated its pro rata portion of the reinstatement premium.  Subject to the following sentence, YUM may elect not to reinstate the policy aggregate.  In the event that YUM elects not to reinstate the policy aggregate, it shall provide prompt written notice to SpinCo, and SpinCo may direct YUM in writing to, and YUM shall, in such case, reinstate the policy aggregate; provided that the SpinCo Parties shall be responsible for all reinstatement premiums and other costs associated with such reinstatement.

 

If any member of the YUM Group incurs any Liabilities prior to or in respect of the period prior to the Effective Time for which such member of the YUM Group is entitled to coverage under third-party insurance policies of any member of the SpinCo Group, the same process pursuant to this Section 5.1(b) shall apply, substituting “YUM” for “SpinCo” or “the SpinCo Parties,” as applicable, and “the SpinCo Parties” for “YUM.”

 

(c)                                  Except as provided in Section 5.1(b), from and after the Effective Time, neither the SpinCo Parties nor any other member of the SpinCo Group shall have any rights to or under any of the insurance policies of YUM or any other member of the YUM Group.  At the Effective Time, the SpinCo Parties shall have in effect all insurance programs required to comply with the contractual obligations of the SpinCo Parties and the other members of the SpinCo Group and such other insurance policies required by applicable Law or as reasonably necessary or appropriate for companies operating a business similar to the SpinCo Business.

 

(d)                                 Neither the SpinCo Parties nor any other member of the SpinCo Group, in connection with making a claim under any insurance policy of YUM or any other member of the YUM Group pursuant to this Section 5.1, shall take any action that would be reasonably likely to (i) have an adverse impact on the then-current relationship between YUM or any other member of the YUM Group, on the one hand, and the applicable insurance company, on the other hand; (ii) result in the applicable insurance company terminating or reducing coverage, or increasing the amount of any premium owed by YUM or any other member of the YUM Group under the applicable insurance policy; or (iii) otherwise compromise, jeopardize or interfere with the rights of YUM or any other member of the YUM Group under the applicable insurance policy.

 

(e)                                  All payments and reimbursements by the SpinCo Parties pursuant to this Section 5.1 will be made within thirty (30) days after the SpinCo Parties’ receipt of an invoice therefor from YUM.  If YUM or any other member of the YUM Group incurs costs to enforce the

 

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SpinCo Parties’ obligations herein, the SpinCo Parties agrees to indemnify and hold harmless YUM and the other members of the YUM Group for such enforcement costs, including reasonable attorneys’ fees.  YUM shall retain the exclusive right to control the YUM Group’s insurance policies and programs, including the right to erode, exhaust, settle, release, commute, buyback or otherwise resolve disputes with respect to any of its insurance policies and programs and to amend, modify or waive any rights under any such insurance policies and programs, notwithstanding whether any such policies or programs apply to any SpinCo Liabilities and/or claims the SpinCo Parties or any other member of the SpinCo Group has made or could make in the future, and no member of the SpinCo Group shall erode, exhaust, settle, release, commute, buyback or otherwise resolve disputes with insurers of any member of the YUM Group with respect to any of their respective insurance policies and programs, or amend, modify or waive any rights under any such insurance policies and programs.  The SpinCo Parties shall and shall cause the other members of the SpinCo Group to cooperate with YUM and share such information as is reasonably necessary in order to permit YUM to manage and conduct the YUM Group’s insurance matters as it deems appropriate.  Neither YUM nor any of the other members of the YUM Group shall have any obligation to secure extended reporting for any claims under any Liability policies of YUM or any other member of the YUM Group for any acts or omissions by any member of the SpinCo Group incurred prior to the Effective Time.

 

(f)                                   YUM shall, and shall cause the other members of the YUM Group to, (i) use commercially reasonable efforts, at SpinCo’s reasonable request (and provided that the SpinCo Parties comply with the requirements of Section 5.1(b)), to assist SpinCo in making claims under the YUM Group insurance policies described in Section 5.1(b), (ii) notify SpinCo within thirty (30) days of any election by YUM to control any claim under a YUM Group insurance policy or program to the extent such claim relates to a SpinCo Asset and/or SpinCo Liability, (iii) promptly (and in any event within thirty (30) days after YUM’s receipt thereof) pay over to SpinCo or the applicable member of the SpinCo Group any Insurance Proceeds that are received by YUM or any member of the YUM Group in respect of such claims, and (iv) endeavor to notify SpinCo of any changes to the structure or limit of subsequent renewals relating to directors and officers insurance programs.

 

(g)                                  This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a Contract of insurance and shall not be construed to waive any right or remedy of any member of the YUM Group in respect of any insurance policy or any other Contract or policy of insurance.

 

(h)                                 Each of the SpinCo Parties does hereby, for itself and each other member of the SpinCo Group, agree that no member of the YUM Group shall have any Liability whatsoever as a result of the insurance policies and practices of YUM and the other members of the YUM Group as in effect at any time, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise.

 

5.2                               Late Payments.  Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement or any Ancillary Agreement (and any amounts billed or otherwise invoiced or

 

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demanded and properly payable that are not paid within thirty (30) days of such bill, invoice or other demand) shall accrue interest 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.

 

5.3                               Treatment of Payments for Tax Purposes.  For all tax purposes, the Parties agree to treat (i) any payment required by this Agreement (other than payments with respect to interest accruing after the Effective Time) as either a contribution by YUM to SpinCo or a distribution by SpinCo to YUM, as the case may be, occurring immediately prior to the Effective Time or as a payment of an assumed or retained Liability; and (ii) any payment of interest as taxable or deductible, as the case may be, to the Party entitled under this Agreement to receive such payment or required under this Agreement to make such payment, in either case except as otherwise required by applicable Law. In the event that any such payment is made by a member of the YUM Group or the SpinCo Group (other than YUM or SpinCo) or is received by a member of the YUM Group or the SpinCo Group (other than YUM or SpinCo), then for all Tax purposes the Parties shall treat such payment as being made and received by YUM or SpinCo, as the case may be, with corresponding distributions or contributions deemed to occur between YUM and the applicable members of the YUM Group or SpinCo and the applicable members of the SpinCo Group, as the case may be.

 

5.4                               Non-Solicitation.  Each Party, agrees that, for a period of twelve (12) months from the Distribution Date, such Party (a “Soliciting Party”) shall not, and shall cause the other members of its Group not to, solicit for employment any person who is employed by any member of any other Party’s Group (a “Protected Party”) at the level of seniority of director or higher without the Protected Party’s express written consent; provided, that this Section 5.4 shall not prohibit:  (i) generalized solicitations that are not directed to employees of the Protected Party; (ii) the solicitation of a person whose employment was terminated by the Protected Party prior to any such solicitation; or (iii) the solicitation of a person who has terminated his or her employment with the Protected Party without any prior solicitation by the Soliciting Party.

 

5.5                               Inducement.  The SpinCo Parties acknowledge and agree that YUM’s willingness to cause, effect and consummate the Separation and the Distribution has been conditioned upon and induced by the SpinCo Parties’ covenants and agreements in this Agreement and the Ancillary Agreements, including the SpinCo Parties’ assumption of the SpinCo Liabilities pursuant to the Separation and the provisions of this Agreement and the SpinCo Parties’ covenants and agreements contained in Article IV.

 

5.6                               Post-Effective Time Conduct.  The Parties acknowledge that, after the Effective Time, YUM (and the other members of the YUM Group) shall be independent of SpinCo (and the other members of the SpinCo Group), and SpinCo (and the other members of the SpinCo Group) shall be independent of YUM (and the other members of the YUM Group), in each case with responsibility for its own respective actions and inactions and its own respective Liabilities relating to, arising out of or resulting from the conduct of its business, operations and activities following the Effective Time, except as may otherwise be provided in this Agreement or any

 

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Ancillary Agreement, and each Party shall and shall cause the other members of its Group to (except as otherwise provided in Article IV) use commercially reasonable efforts to prevent such Liabilities from being inappropriately borne by any other Party (or the other members of its Group).

 

ARTICLE VI
EXCHANGE OF INFORMATION; CONFIDENTIALITY

 

6.1                               Agreement for Exchange of Information.

 

(a)                                 Subject to Section 6.9, any other applicable confidentiality obligations, any Ancillary Agreement or any other agreement between the Parties or other members of their respective Groups, each of YUM and each of the SpinCo Parties, on behalf of itself and each other member of its respective Group, agrees to use commercially reasonable efforts to provide or make available, or cause to be provided or made available, to each other Party and the other members of such other Party’s Group, at any time before, on or after the Effective Time, as soon as reasonably practicable after written request therefor, any information (or a copy thereof) in the possession or under the control of such Party or any other member of such Party’s Group to the requesting Party or other member of such Party’s Group to the extent that (i) such information relates to the SpinCo Business, or any SpinCo Asset or SpinCo Liability, if a SpinCo Party or any other member of the SpinCo Group is the requesting Party, or to the YUM Business, or any YUM Asset or YUM Liability, if YUM or any other member of the YUM Group is the requesting Party; (ii) such information is required by the requesting Party to comply with its obligations under this Agreement or any Ancillary Agreement; or (iii) such information is required by the requesting Party or any other member of such Party’s Group to comply with any obligation imposed by any Governmental Authority; provided, however, that, if the Party to whom the request has been made determines that any such provision of information could be detrimental to the Party providing the information or any other member of such Party’s Group, violate any Law or agreement, or waive any privilege available under applicable Law, including any attorney-client privilege, then the Parties shall use commercially reasonable efforts to permit compliance with such obligations to the extent and in a manner that avoids any such harm or consequence.  The Party providing information pursuant to this Section 6.1 shall only be obligated to provide such information in the form, condition and format in which it then exists, and in no event shall such Party be required to perform any improvement, modification, conversion, updating or reformatting of any such information, and nothing in this Section 6.1 shall expand the obligations of a Party under Section 6.4.

 

(b)                                 Without limiting the generality of the foregoing, until the end of the SpinCo fiscal year during which the Distribution Date occurs (and for a reasonable period of time afterwards as required for each Party to prepare consolidated financial statements or complete a financial statement audit for the fiscal year during which the Distribution Date occurs), each Party shall use its commercially reasonable efforts to cooperate with each other Party’s information requests to enable (i) each other Party to meet its timetable for dissemination of its earnings releases, financial statements and management’s assessment of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting in accordance with Items 307 and 308, respectively, of Regulation S-K promulgated under the Exchange Act; and (ii) each other Party’s accountants to timely complete their review of the quarterly financial statements and

 

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audit of the annual financial statements, including, to the extent applicable to such Party, its auditor’s audit of its internal control over financial reporting and management’s assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the SEC’s and Public Company Accounting Oversight Board’s rules and auditing standards thereunder and any other applicable Laws.

 

6.2                               Ownership of Information.  The provision of any information pursuant to Section 6.1 or 6.7 shall not affect the ownership of such information (which shall be determined solely in accordance with the terms of this Agreement and the Ancillary Agreements), or constitute a grant of rights in or to any such information.

 

6.3                               Compensation for Providing Information.  Subject to any Ancillary Agreement or any other agreement between the Parties or other members of their respective Groups, the Party requesting information agrees to reimburse each other Party for the reasonable costs, if any, of creating, gathering, copying, transporting and otherwise complying with the request with respect to such information (including any reasonable costs and expenses incurred in any review of information for purposes of protecting the Privileged Information of the providing Party or any other member of such Party’s Group or in connection with the restoration of backup media for purposes of providing the requested information).  Except as may be otherwise specifically provided elsewhere in this Agreement, any Ancillary Agreement or any other agreement between the Parties or other members of their respective Groups, such costs shall be computed in accordance with the providing Party’s standard methodology and procedures as may be provided to each other Party from time to time.

 

6.4                               Record Retention.  To facilitate the possible exchange of information pursuant to this Article VI and other provisions of this Agreement after the Effective Time, each of the Parties agrees to use (and to cause the other members of its respective Group to use) commercially reasonable efforts, which shall be no less rigorous than those used for retention of such Party’s own information, to retain all information in their respective possession or control on the Effective Time in accordance with the policies of YUM as in effect on the Effective Time or such other policies as may be adopted by YUM after the Effective Time (provided, that, in the case of SpinCo or YCCL, that YUM notifies SpinCo of any such change); provided, that in the case of any information relating to Taxes, such retention period shall be extended to the expiration of the applicable statute of limitations (giving effect to any extensions thereof).  Notwithstanding the foregoing, Section 6.5 of the Tax Matters Agreement will govern the retention of Tax related records.

 

6.5                               Limitations of Liability.  No Party shall have any Liability to any other Party in the event that any information exchanged or provided pursuant to this Agreement is found to be inaccurate in the absence of gross negligence, bad faith or willful misconduct by the Party providing such information.  No Party shall have any Liability to any other Party if any information is destroyed after commercially reasonable efforts by such Party to comply with the provisions of Section 6.4.

 

6.6                               Other Agreements Providing for Exchange of Information.

 

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(a)                                 The rights and obligations granted under this Article VI are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange, retention, use or confidential treatment of information set forth in any Ancillary Agreement or any other agreement between the Parties or other members of their respective Groups.

 

(b)                                 If a Party (or any other member of its respective Group) receives, pursuant to a request for information in accordance with this Article VI, Tangible Information that is not relevant to its request, such Party shall, at the request of the providing Party, (i) return it to the providing Party or, at the providing Party’s request, destroy such Tangible Information; and (ii) deliver to the providing Party written confirmation that such Tangible Information was returned or destroyed, as the case may be, which confirmation shall be signed by an authorized representative of the requesting Party.

 

6.7                               Production of Witnesses; Records; Cooperation.

 

(a)                                 After the Effective Time, except in the case of an adversarial Action or Dispute between YUM and SpinCo, or any other members of their respective Groups, each Party shall use its commercially reasonable efforts to make available to each other Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its Group’s control or which its Group otherwise has the ability to make available without undue burden, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the requesting Party (or member of such Party’s Group) may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder.  The requesting Party shall bear all costs and expenses in connection therewith.

 

(b)                                 If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third-Party Claim, each other Party shall make available to such Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its Group’s control or which its Group otherwise has the ability to make available without undue burden, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise,  and shall otherwise cooperate in such defense, settlement or compromise.

 

(c)                                  Without limiting the foregoing, except in the case of an adversarial Action or Dispute between YUM and SpinCo or any other members of their respective Groups, the Parties shall cooperate and consult to the extent reasonably necessary with respect to any Actions.

 

(d)                                 Without limiting any provision of this Section 6.7 and subject to the terms of the Master License Agreement, each of the Parties agrees to cooperate, and to cause each other member of its respective Group to cooperate, with each other in the defense of any infringement or similar claim with respect to any Intellectual Property and shall not claim to acknowledge, or

 

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permit any other member of its respective Group to claim to acknowledge, the validity or infringing use of any Intellectual Property of a Third Party in a manner that would hamper or undermine the defense of such infringement or similar claim.

 

(e)                                  The obligation of the Parties to provide witnesses pursuant to this Section 6.7 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses directors, officers, employees, other personnel and agents without regard to whether such person could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 6.7(a)).

 

6.8                               Privileged Matters.

 

(a)                                 The Parties recognize that legal and other professional services that have been and will be provided prior to the Effective Time have been and will be rendered for the collective benefit of each of the members of the YUM Group and the SpinCo Group, and that each of the members of the YUM Group and the SpinCo Group should be deemed to be the client with respect to such services for the purposes of asserting all privileges which may be asserted under applicable Law in connection therewith.  The Parties recognize that legal and other professional services will be provided following the Effective Time, which services will be rendered solely for the benefit of the YUM Group or the SpinCo Group, as the case may be.

 

(b)                                 The Parties agree as follows:

 

(i)                                     YUM shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the YUM Business and not to the SpinCo Business, whether or not the Privileged Information is in the possession or under the control of any member of the YUM Group or any member of the SpinCo Group.  YUM shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to any YUM Specified Actions or to any YUM Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged Information is in the possession or under the control of any member of the YUM Group or any member of the SpinCo Group; and

 

(ii)                                  SpinCo shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the SpinCo Business and not to the YUM Business, whether or not the Privileged Information is in the possession or under the control of any member of the SpinCo Group or any member of the YUM Group.  SpinCo shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to any SpinCo Specified Actions or to any SpinCo Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged Information is in the possession or under the control of any member of the SpinCo Group or any member of the YUM Group.

 

(iii)                               If the Parties do not agree as to whether certain information is Privileged Information, then such information shall be treated as Privileged Information,

 

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and the Party that believes that such information is Privileged Information shall be entitled to control the assertion or waiver of all privileges and immunities in connection with any such information until such time as it is finally judicially determined that such information is not Privileged Information, unless the Parties otherwise agree.  The Parties shall use the procedures set forth in Article VII to resolve any Disputes as to whether any information relates solely to the YUM Business, solely to the SpinCo Business, or to both the YUM Business and the SpinCo Business.

 

(c)                                  Subject to the remaining provisions of this Section 6.8, the Parties agree that they shall have a shared privilege or immunity with respect to all privileges and immunities not allocated pursuant to Section 6.8(b) and all privileges and immunities relating to any Actions or other matters that involve both YUM and SpinCo (or one (1) or more members of their respective Groups) and in respect of which both YUM and SpinCo have Liabilities under this Agreement, and that no such shared privilege or immunity may be waived by any Party (or another member of its Group) without the written consent of each other Party.

 

(d)                                 If any Dispute arises between the Parties or any other members of their respective Groups regarding whether a privilege or immunity should be waived to protect or advance the interests of any Party and/or any other member of their respective Groups, each Party agrees that it shall (i) negotiate with each other Party in good faith; (ii) endeavor to minimize any prejudice to the rights of any other Party (and the other members of the Group); and (iii) not unreasonably withhold consent to any request for waiver by any other Party.  Further, each Party specifically agrees that it shall not withhold its consent to the waiver of a privilege or immunity for any purpose except in good faith to protect its own legitimate interests.

 

(e)                                  Subject to Section 6.9, in the event of any adversarial Action or Dispute between YUM and SpinCo, or any other members of their respective Groups, any Party may waive a privilege in which any other Party or member of such other Party’s Group has a shared privilege, without obtaining consent pursuant to Section 6.8(c); provided that such waiver of a shared privilege shall be effective only as to the use of information with respect to the Action or Dispute between the Parties and/or the applicable members of their respective Groups, and shall not operate as a waiver of the shared privilege with respect to any Third Party.

 

(f)                                   Upon receipt by any Party, or by any other member of its respective Group, of any subpoena, discovery or other request that may reasonably be expected to result in the production or disclosure of Privileged Information subject to a shared privilege or immunity or as to which another Party has the sole right hereunder to assert a privilege or immunity, or if any Party obtains knowledge that any of its, or any other member of its respective Group’s, current or former directors, officers, agents or employees have received any subpoena, discovery or other requests that may reasonably be expected to result in the production or disclosure of such Privileged Information, such Party shall promptly notify each other Party of the existence of the request (which notice shall be delivered to such other Party no later than five (5) business days following the receipt of any such subpoena, discovery or other request) and shall provide each other Party a reasonable opportunity to review the Privileged Information and to assert any rights it or they may have under this Section 6.8 or otherwise, to prevent the production or disclosure of such Privileged Information.

 

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(g)                                  Any furnishing of, or access or transfer of, any information pursuant to this Agreement is made in reliance on the agreements of YUM and the SpinCo Parties set forth in this Section 6.8 and in Section 6.9 to maintain the confidentiality of Privileged Information and to assert and maintain all applicable privileges and immunities.  The Parties agree that their respective rights to any access to information, witnesses and other Persons, the furnishing of notices and documents and other cooperative efforts between the Parties contemplated by this Agreement, and the transfer of Privileged Information between the Parties and members of their respective Groups pursuant to this Agreement, shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement or otherwise.

 

(h)                                 The Parties acknowledge that members of the YUM Group and members of the SpinCo Group may have or develop interests adverse to each other following the Effective Time.  Each Party hereby waives (i) any and all current and future objections to any outside counsel that represented YUM or any of its Affiliates prior to the Effective Time from continuing to represent or in the future representing their respective clients or any Party (or any members of such Party’s Group) in any matter, including matters in which members of the YUM Group and members of the SpinCo Group are adverse and Disputes relating to this Agreement or any Ancillary Agreement and (ii) all current and future rights to seek disqualification, whether based on the possession or disclosure of confidential information or otherwise, of any such outside counsel from any representation of their respective clients or any Party (or any members of such Party’s Group) in any matter, including matters in which members of the YUM Group and members of the SpinCo Group are adverse and Disputes relating to this Agreement or any Ancillary Agreement.

 

(i)                                     In connection with any matter contemplated by Section 6.7 or this Section 6.8, the Parties agree to, and to cause the other members of their respective Groups to, use commercially reasonable efforts to maintain their respective separate and joint privileges and immunities, including by executing joint defense and/or common interest agreements where necessary or useful for this purpose.

 

6.9                               Confidentiality.

 

(a)                                 Confidentiality.  Subject to Section 6.10, any Ancillary Agreement and any other agreement between the Parties or other members of their respective Groups, from and after the Effective Time until the five (5)-year anniversary of the Effective Time, each of YUM and each of the SpinCo Parties shall, and shall cause each other member of its respective Group to, and shall cause its and their respective Representatives to, hold in strict confidence, with at least the same degree of care that applies to YUM’s confidential and proprietary information pursuant to policies in effect as of the Effective Time, all confidential and proprietary information concerning each other Party or any other member of such other Party’s respective Group or their respective businesses that is either in its possession (including confidential and proprietary information in its possession prior to the date hereof) or furnished by any such other Party or any other member of such Party’s Group or its or their respective Representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and not use any such confidential and proprietary information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such confidential and proprietary information has been (i) in the public domain or generally available to the public, other than as a result of a

 

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disclosure by such Party or any other member of such Party’s Group or any of their respective Representatives in violation of this Agreement, any Ancillary Agreement or any other agreement between the Parties or other members of their respective Groups, (ii) later lawfully acquired from other sources by such Party (or any other member of such Party’s Group) which sources are not themselves bound by a confidentiality obligation or other contractual, legal or fiduciary obligation of confidentiality to any other Party (or any other member of such Party’s Group) with respect to such confidential and proprietary information,  (iii) independently developed or generated without reference to or use of any proprietary or confidential information of any other Party or any other member of such Party’s Group, or (iv) determined by YUM, in its reasonable discretion, to be information required to be disclosed pursuant to federal, state or other applicable securities Laws or the rules of any applicable securities exchange, including in YUM’s periodic filings made under the Exchange Act.  If any confidential and proprietary information of one Party or any other member of such Party’s Group is disclosed to any other Party or any member of such other Party’s Group in connection with providing services to such first Party or any other member of such first Party’s Group under this Agreement or any Ancillary Agreement, then such disclosed confidential and proprietary information shall be used only as required to perform such services.

 

(b)                                 No Release; Return or Destruction.  Each Party agrees not to release or disclose, or permit to be released or disclosed, any information addressed in Section 6.9(a) to any other Person, except its Representatives who need to know such information in their capacities as such (who shall be advised of their obligations hereunder with respect to such information), and except in compliance with Section 6.10.

 

(c)                                  Third-Party Information; Privacy or Data Protection Laws.  Each Party acknowledges that it and members of such Party’s Group may presently have and, following the Effective Time, may gain access to or possession of confidential or proprietary information of, or personal information relating to, Third Parties (i) that was received under privacy policies and/or confidentiality or non-disclosure agreements entered into between such Third Parties, on the one hand, and any other Party or members of such other Party’s Group, on the other hand, prior to the Effective Time; or (ii) that, as between the Parties, was originally collected by any other Party or members of such other Party’s Group and that may be subject to and protected by privacy policies, as well as privacy, data protection or other applicable Laws.  Subject to any Ancillary Agreement and any other agreement between the Parties or other members of their respective Groups, each Party agrees that it shall hold, protect and use, and shall cause the members of its respective Group and its respective Representatives to hold, protect and use, in strict confidence the confidential and proprietary information of, or personal information relating to, Third Parties in accordance with privacy policies and privacy, data protection or other applicable Laws and the terms of any agreements that were either entered into before the Effective Time or affirmative commitments or representations that were made before the Effective Time by, between or among any other Party or members of any other Party’s Group, on the one hand, and such Third Parties, on the other hand.

 

6.10                        Protective Arrangements.  In the event that a Party or any other member of such Party’s Group either determines on the advice of its counsel that it is required to disclose any information pursuant to applicable Law or receives any request or demand under lawful process or from any Governmental Authority to disclose or provide information of any other Party (or any other member of any other Party’s Group) that is subject to the confidentiality provisions hereof, such Party shall notify each other Party (to the extent legally permitted) as promptly as practicable

 

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under the circumstances prior to disclosing or providing such information and shall cooperate, at such other Party’s cost and expense, in seeking any appropriate protective order reasonably requested by any other Party.  In the event that such other Party fails to receive such appropriate protective order in a timely manner and the Party (or other member of such Party’s Group) so required or receiving the request or demand reasonably determines that its failure to disclose or provide such information will actually prejudice the Party (or member of such Party’s Group) so required or receiving the request or demand (or other member of such Party’s Group), then the Party (or member of such Party’s Group) so required or that received such request or demand (or other member of such Party’s Group) may thereafter disclose or provide information to the extent required by such Law (as so advised by its counsel) or by lawful process or such Governmental Authority, and the disclosing Party (or other member of such Party’s Group) shall promptly provide each other Party with a copy of the information so disclosed, in the same form and format so disclosed, together with a list of all Persons to whom such information was disclosed, in each case to the extent legally permitted.

 

ARTICLE VII
DISPUTE RESOLUTION

 

7.1                               Good-Faith Negotiation.  Subject to Section 7.8, any Party seeking resolution of any dispute, controversy or claim arising out of or relating to this Agreement or any Ancillary Agreement (other than the Master License Agreement or the Guaranty) (a “Dispute”) shall provide written notice thereof to each other Party (an “Initial Notice”).  For a period of thirty (30) days following the delivery of the Initial Notice, the Parties shall attempt in good faith to negotiate a resolution of the Dispute.  The negotiations shall be conducted by the appropriate executives of each Party who have authority to resolve the Dispute.  All such negotiations shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.  If the Parties are unable for any reason to resolve a Dispute within thirty (30) days after the delivery of the Initial Notice (which period may be extended by written agreement of the Parties) or if a Party reasonably concludes that each other Party is not willing to negotiate as contemplated by this Section 7.1, the Dispute shall be submitted to mediation in accordance with Section 7.2.

 

7.2                               Mandatory Mediation.  Any Dispute not resolved pursuant to Section 7.1 shall, at the written request of any Party (a “Mediation Request”), be submitted to mandatory mediation in accordance with the then current International Institute for Conflict Prevention and Resolution (“CPR”) Mediation Procedure, except as modified herein.  The mediation shall be held in English in Dallas, Texas, U.S.A. or such other place as the Parties may mutually agree in writing.  YUM and SpinCo shall have twenty (20) days from receipt by a Party of a Mediation Request to agree on a mediator.  If no mediator has been agreed upon by YUM and SpinCo within twenty (20) days of receipt by a Party of a Mediation Request, then YUM or SpinCo may request (on written notice to each other Party) that CPR appoint a mediator in accordance with the CPR Mediation Procedure.  The costs and expenses of any such mediation, including compensation and expenses of the mediator, shall be borne by YUM and SpinCo, except for any Party’s own legal costs (which are separately addressed in Section 7.7).  All mediation pursuant to this Section 7.2 shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.  If the Dispute has not been resolved within sixty (60) days of the appointment of a mediator, or within ninety (90) days after receipt by a Party of a Mediation

 

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Request (whichever occurs sooner), or within such longer period as the Parties may agree to in writing, then the Dispute shall be submitted to binding confidential arbitration in accordance with Section 7.3.

 

7.3                               Confidential Arbitration.

 

(a)                                 In the event that a Dispute has not been resolved within sixty (60) days of the appointment of a mediator in accordance with Section 7.2, or within ninety (90) days after receipt by a Party of a Mediation Request (whichever occurs sooner), or within such longer period as the Parties may agree to in writing, then such Dispute shall, at the written request of YUM or SpinCo (the “Arbitration Request”) be submitted to be finally resolved by binding confidential arbitration pursuant to the then current CPR Rules for Administered Arbitration (the “Administered Rules”), except as modified herein.  The details of the arbitration shall be as set forth in this Section 7.3.

 

(b)                                 Unless otherwise agreed by the Parties in writing, any Dispute to be decided pursuant to this Section 7.3 will be decided (i) before a sole arbitrator if the amount in dispute, inclusive of all claims and counterclaims, totals less than $5 million; or (ii) by a panel of three (3) arbitrators if the amount in dispute, inclusive of all claims and counterclaims, totals $5 million or more or involves a request for non-monetary relief.

 

(c)                                  The panel of three (3) arbitrators will be chosen as follows:  (i) within fifteen (15) days from the date of the receipt of the Arbitration Request, YUM and SpinCo will name an arbitrator; and (ii) the two (2) Party-appointed arbitrators will thereafter, within thirty (30) days from the date on which the second of the two (2) arbitrators was named, name a third, independent arbitrator who will act as chairperson of the arbitral tribunal.  In the event that YUM or SpinCo fails to name an arbitrator within fifteen (15) days from the date of receipt of the Arbitration Request, then, upon written application by YUM or SpinCo, that arbitrator shall be appointed pursuant to the Administered Rules.  In the event that the two (2) Party-appointed arbitrators fail to appoint the third within the time frame specified above or in the event that YUM or SpinCo fails to name an arbitrator within fifteen (15) days from the date of receipt of the Arbitration Request, then the third, independent arbitrator will be appointed pursuant to the Administered Rules.  If the arbitration will be before a sole independent arbitrator, then the sole independent arbitrator will be appointed by agreement of YUM and SpinCo within fifteen (15) days of the date of receipt of the Arbitration Request.  If the Parties cannot agree to a sole independent arbitrator during such fifteen (15) day period, then upon written application by YUM or SpinCo, the sole independent arbitrator will be appointed pursuant to the Administered Rules.

 

(d)                                 The arbitration shall be conducted in English.  Any document that a Party seeks to use that is not in English shall be provided along with an English translation.

 

(e)                                  The place of arbitration shall be Dallas, Texas, U.S.A.

 

(f)                                   The arbitrator or arbitrators shall establish procedures under which each Party will be entitled to conduct discovery.

 

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(g)                                  The arbitrator or arbitrators shall award to the substantially prevailing Party (as determined by arbitrator or arbitrators) the costs and expenses of the proceeding, including reasonable attorneys’ and experts’ fees.

 

(h)                                 The arbitrator or arbitrators will issue a reasoned award.

 

(i)                                     The arbitrator or arbitrators will have the right to award, on an interim basis, or include in the final award, any relief which the arbitrator or arbitrators deems proper in the circumstances, including money damages (with interest on unpaid amounts from the due date) and injunctive relief (including specific performance and other equitable relief); provided that the arbitrator or arbitrators will not award any relief not specifically requested by a Party and, in any event, will not award any relief not permitted by this Agreement or the applicable Ancillary Agreement.

 

(j)                                    Notwithstanding anything herein to the contrary, the Parties agree that the award rendered by the arbitrator or arbitrators (the “Original Award”) may be appealed under the CPR Arbitration Appeal Procedure (“Appeal Procedure”).  Appeals must be initiated within thirty (30) days of receipt of an Original Award, in accordance with the Appeal Procedure, by filing a written notice with CPR.  The Original Award shall not be considered final until after the expiration of the time for filing the notice of appeal pursuant to the Appeal Procedure.  Unless otherwise agreed by the Parties, the appeal shall be conducted at the place of the original arbitration.

 

(k)                                 Any Original Award rendered by the arbitrator or arbitrators that is not timely appealed in accordance with the foregoing provisions or that is not modified by the appeal tribunal, and any award as modified or established by the appeal tribunal, shall be final and judgment may be entered thereon in any court having jurisdiction thereof.

 

(l)                                     Subject to Section 7.3(g), the costs and expenses of any such arbitration, including compensation and expenses of the arbitrator or arbitrators, shall be borne by YUM and SpinCo equally, except for each Party’s own legal costs (which are separately addressed in Section 7.7).

 

7.4                               Confidentiality.  No oral or documentary representations made by the Parties during any negotiation, mediation or arbitration conducted pursuant to this Article VII shall be admissible for any purpose in any subsequent proceedings.  YUM shall not, and shall cause the other members of its respective Group not to, and the SpinCo Parties shall not, and shall cause the other members of the SpinCo Group not to, disclose any information provided or documents produced by a member of the other Group in any negotiation, mediation or arbitration conducted pursuant to this Article VII or any information about the existence, contents or results of any such negotiation, mediation or arbitration without the prior written consent of YUM (in the case of disclosure by a member of the SpinCo Group) or the SpinCo Parties (in the case of disclosure by a member of the YUM Group), except in the course of a judicial or regulatory proceeding or as may be required by Law or the rules of any applicable securities exchange or requested by a Governmental Authority.  Before it or another member of its respective Group makes any disclosure permitted by the preceding sentence, each of YUM and SpinCo shall, to the extent

 

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reasonably practicable, give each other Party reasonable written notice of the intended disclosure and afford each other Party a reasonable opportunity to protect its interests.

 

7.5                               Conduct and Tolling During Dispute Resolution Process.  Unless otherwise agreed in writing, the Parties shall, and shall cause the members of their respective Group to, continue to honor all commitments and obligations under this Agreement and each Ancillary Agreement to the extent required thereby during the course of dispute resolution pursuant to the provisions of this Article VII, unless such commitments or obligations are the specific subject of the Dispute at issue.  The initiation of mediation or arbitration pursuant to this Article VII will toll the applicable statute of limitations for the duration of any such proceedings.

 

7.6                               Limitations Period.  Any claim arising out of or relating to this Agreement or any Ancillary Agreement (other than the Master License Agreement or the Guaranty) shall be governed by the statute of limitations under the governing law set forth in Section 10.2.

 

7.7                               Enforcement Costs.  Except as otherwise provided in this Article VII, each Party shall bear its own legal costs (including attorneys’ and experts’ fees, and all other expenses) incurred in enforcing this Agreement or in otherwise pursuing, or defending against, a claim, demand, action or proceeding under or in connection with this Agreement.

 

7.8                               Litigation and Unilateral Commencement of Arbitration.  Notwithstanding the foregoing provisions of this Article VII, (a) a Party may seek preliminary provisional or injunctive judicial relief from a court with respect to a Dispute without first complying with the procedures set forth in Section 7.1, Section 7.2 and Section 7.3 if such action is reasonably necessary to avoid irreparable damage and (b) a Party may initiate arbitration before the expiration of the periods specified in Section 7.2 and Section 7.3 if such Party has submitted a Mediation Request and the other Parties have failed, within the applicable periods set forth in Section 7.2 and Section 7.3, to agree upon a date for the first mediation session to take place within twenty (20) days after the appointment of the mediator.

 

ARTICLE VIII
FURTHER ASSURANCES AND ADDITIONAL COVENANTS

 

8.1                               Further Assurances.

 

(a)                                 In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties shall use its reasonable best efforts, prior to, at and after the Effective Time, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.

 

(b)                                 Without limiting the foregoing, prior to, at and after the Effective Time, each Party shall cooperate with each other Party, and without any further consideration, but at the expense of the requesting Party, to execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all Approvals or Notifications of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or

 

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other instrument (including any consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by any other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the transfers of the SpinCo Assets and the YUM Assets and the assignment and assumption of the SpinCo Liabilities and the YUM Liabilities and the other transactions contemplated hereby and thereby.  Without limiting the foregoing, each Party will, at the reasonable request, cost and expense of any other Party, take such other actions as may be reasonably necessary to vest in such other Party good and marketable title to the Assets transferred or allocated to such Party under this Agreement or any of the Ancillary Agreements, free and clear of any Security Interest, if and to the extent it is practicable to do so.

 

(c)                                  At or prior to the Effective Time, YUM and the SpinCo Parties, in their respective capacities as direct and indirect shareholders of other members of their Groups, shall each approve or ratify any actions that are reasonably necessary or desirable to be taken by YUM, the SpinCo Parties or any of the other members of their respective Groups, as the case may be, to effectuate the transactions contemplated by this Agreement and the Ancillary Agreements.

 

(d)                                 Nothing in this Article VIII shall limit or affect the provisions of Section 3.1(a) or Article IX.

 

ARTICLE IX
TERMINATION

 

9.1                               Termination.  Notwithstanding any provision to the contrary, this Agreement and all Ancillary Agreements may be terminated and the Distribution may be amended, modified or abandoned at any time prior to the Effective Time by YUM, in its sole and absolute discretion, without the approval or consent of any other Person, including either of the SpinCo Parties.  After the Effective Time, this Agreement may not be terminated except by an agreement in writing signed by a duly authorized officer of each of the Parties.

 

9.2                               Effect of Termination.  In the event of any termination of this Agreement prior to the Effective Time, this Agreement and all Ancillary Agreements shall become void and no Party (nor any of its Affiliates, directors, officers or employees) shall have any Liability or obligation to any other Party (or any of its Affiliates) by reason of this Agreement.

 

ARTICLE X
MISCELLANEOUS

 

10.1                        Counterparts; Entire Agreement; Corporate Power; Facsimile Signatures.

 

(a)                                 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 each other Party.

 

(b)                                 This Agreement and the 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

 

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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)                                  YUM represents and warrants to the SpinCo Parties, and each of the SpinCo Parties represents and warrants to YUM, 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 in accordance with the terms hereof.

 

(d)                                 Each Party acknowledges that it and each other Party, and the other members of their respective Groups, may be executing this Agreement and certain of the Ancillary Agreements by facsimile, stamp or mechanical signature, and agrees that delivery of an executed counterpart of a signature page to this Agreement or any Ancillary Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by email in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement or any Ancillary Agreement.  Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by email in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of any Party at any time, it will as promptly as reasonably practicable cause this Agreement and any Ancillary Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.

 

10.2                        Governing Law.  This Agreement and, unless expressly provided therein, each Ancillary Agreement (and any claims or disputes arising out of or related hereto or thereto or to the transactions contemplated hereby and thereby or to the inducement of any party to enter herein and therein, 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.

 

10.3                        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 no 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 each other Party.

 

10.4                        No Third-Party Beneficiaries.  Except for the indemnification rights under this Agreement of any YUM Indemnitee or SpinCo Indemnitee in their respective capacities as such, (a) the provisions of this Agreement are solely for the benefit of the Parties, respectively, and

 

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do not and are not intended to confer upon any Person except the Parties any rights or remedies hereunder, and (b) 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.

 

10.5                        Notices.  All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given to the other Parties in accordance with this Section 10.5):

 

If to YUM, to:

 

Yum! Brands, Inc.
1441 Gardiner Lane
Louisville, Kentucky 40213
Attention:
                                         Scott A. Catlett, Vice President & Deputy General Counsel
Facsimile:                                         (502) 874-7637

 

with copies (which shall not constitute notice) to:

 

Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention:
                                         Benjamin M. Roth
Facsimile:                                         (212) 403-2000

 

and

 

Mayer Brown LLP

 

71 South Wacker Drive
Chicago, Illinois 60606
Attention:
                                         Frederick B. Thomas

Jodi A. Simala

Facsimile:                                         (312) 706-8436

 

If to SpinCo or YCCL, to:

 

Yum China Holdings, Inc.

 

16/F Two Grand Gateway

3 Hongqiao Road

Shanghai 200030

The People’s Republic of China

Attention:                                         Shella Ng, Chief Legal Officer
Facsimile:                                         +86-21-2407-7898

 

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with copies (which shall not constitute notice) to:

 

Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention:
                                         Benjamin M. Roth
Facsimile:                                         (212) 403-2000

 

and

 

Mayer Brown LLP
71 South Wacker Drive
Chicago, Illinois 60606
Attention:
                                         Frederick B. Thomas

Jodi A. Simala

Facsimile:                                         (312) 706-8436

 

A Party may, by notice to each other Party, change the address to which such notices are to be given.

 

10.6                        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 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.

 

10.7                        Force Majeure.  No Party shall be deemed in default of this Agreement for any delay or failure to fulfill any obligation (other than a payment obligation) hereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure.  In the event of any such excused delay, the time for performance of such obligations (other than a payment obligation) shall be extended for a period equal to the time lost by reason of the delay.  A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (a) provide written notice to each other Party of the nature and extent of any such Force Majeure condition and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement as soon as reasonably practicable.

 

10.8                        No Set-Off.  Except as expressly set forth in any Ancillary Agreement or as otherwise mutually agreed to in writing by the Parties, no Party and no 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 any Ancillary Agreement; or (b) any other amounts claimed to be owed to another Party or any other member of its Group arising out of this Agreement or any Ancillary Agreement.

 

62



 

10.9                        Expenses.  Except as otherwise expressly set forth in this Agreement or any Ancillary Agreement, or as otherwise agreed to in writing by the Parties, all out-of-pocket fees, costs and expenses incurred prior to the Effective Time in connection with the preparation, execution, delivery and implementation of this Agreement and any Ancillary Agreement, the Separation, the Form 10, the Information Statement, the Plan of Reorganization and the Distribution and the consummation of the transactions contemplated hereby and thereby will be borne by the Party or the applicable member of such Party’s Group incurring such fees, costs or expenses.  The Parties agree that certain specified costs and expenses shall be allocated between the Parties as set forth on Schedule 10.9.

 

10.10                 Headings.  The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

10.11                 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.

 

10.12                 Waivers of Default; Remedies Cumulative.  Waiver by a Party of any default by another 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 another 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.

 

10.13                 Specific Performance.  Subject to the provisions of Article VII, 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 who is, or is to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its 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.

 

10.14                 Amendments.  No provisions of this Agreement may be waived, amended, supplemented or modified, 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.

 

10.15                 Interpretation.  In this Agreement, (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein,” and “herewith” and words of

 

63



 

similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto) and not to any particular provision of this Agreement; (c) Article, Section, Schedule and Exhibit references are to the Articles, Sections, Schedules and Exhibits to this Agreement unless otherwise specified; (d) unless otherwise stated, all references to any agreement (including this Agreement and each Ancillary Agreement) shall be deemed to include the exhibits, schedules and annexes to such agreement; (e) references to “$” shall mean U.S. dollar; (f) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified; (g) the word “or” shall not be exclusive; (h) unless otherwise specified in a particular case, the word “days” refers to calendar days; (i) references to “written” or “in writing” include in electronic form; (j) references to “business day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by law to close in the United States, or Dallas, Texas, or Shanghai, China as the context requires; (k) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (l) unless expressly stated to the contrary in this Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to October 31, 2016.

 

10.16                 Limitations of Liability.  Notwithstanding anything in this Agreement to the contrary, neither the SpinCo Parties 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).

 

10.17                 Performance.  All obligations of the SpinCo Parties under this Agreement are joint and several obligations of SpinCo and YCCL. YUM shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the YUM Group.  The SpinCo Parties shall cause to be performed, and hereby guarantee the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the SpinCo Group.

 

10.18                 Mutual Drafting.  This Agreement and the Ancillary Agreements 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.

 

[Remainder of page intentionally left blank]

 

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

 

 

YUM! BRANDS, INC.

 

 

 

 

 

 

 

By:

/s/ Greg Creed

 

 

Name:

Greg Creed

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

YUM CHINA HOLDINGS, INC.

 

 

 

 

 

 

 

By:

/s/ Micky Pant

 

 

Name:

Micky Pant

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

YUM RESTAURANTS CONSULTING
(SHANGHAI) COMPANY LIMITED

 

 

 

 

 

 

 

By:

/s/ Mark Chu

 

 

Name:

Mark Chu

 

 

Title:

Legal Representative

 

[Signature Page to Separation and Distribution Agreement]

 


Exhibit 10.1

 

MASTER LICENSE AGREEMENT

 

Dated October 31, 2016

 

Between

 

YUM! RESTAURANTS ASIA PTE. LTD.

 

And

 

YUM RESTAURANTS CONSULTING (SHANGHAI) COMPANY LIMITED

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

1.

DEFINED TERMS

2

2.

GRANT OF LICENSE AND UNDERTAKING TO DEVELOP

8

3.

FEES, PAYMENTS AND REQUIRED EXPENDITURES

11

4.

OWNERSHIP, USE, PROTECTION AND SUBSTITUTION OF IP

13

5.

QUALITY ASSURANCE AND BRAND STANDARDS

19

6.

SUBLICENSES

22

7.

LEGAL COMPLIANCE

24

8.

RECORDKEEPING AND REPORTING

25

9.

CONFIDENTIALITY

26

10.

NON-COMPETITION

26

11.

INDEMNIFICATION AND INSURANCE

27

12.

ASSIGNMENT

28

13.

TERM AND RENEWAL

29

14.

BREACH

29

15.

ADDITIONAL REMEDIES

33

16.

POST-TERM OBLIGATIONS

34

17.

DISPUTE RESOLUTION

35

18.

REPRESENTATIONS AND WARRANTIES

37

19.

GENERAL PROVISIONS

38

 

EXHIBITS

 

Exhibit A

Brands and Brand Owners

Exhibit A-1

Taco Bell Brand Development Initiative

Exhibit B

Categories and Sources of Brand Standards

Exhibit C

Cross Licensed IP

Exhibit D

Licensor Purchase Right Procedures

Exhibit E

Guaranty

 

i



 

MASTER LICENSE AGREEMENT

 

THIS MASTER LICENSE AGREEMENT (this “Agreement”) is made and entered into this 31st day of October, 2016 (the “Effective Date”) by and between Yum! Restaurants Asia Pte. Ltd., a private limited company organized and existing under the laws of Singapore, having its offices at 99 Bukit Timah Road, #06-00, Singapore 229835 as “master licensee” (for purposes of this Agreement, “Licensor”), and Yum Restaurants Consulting (Shanghai) Company Limited, a company organized under the laws of the People’s Republic of China, having its offices at 16/F Two Grand Gateway, 3 Hongqiao Road, Shanghai, the People’s Republic of China as “master sublicensee” (for purposes of this Agreement, “Licensee”).  Licensor and Licensee are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties”.

 

RECITALS

 

A.            Prior to the Effective Date, the business division of Yum! Brands, Inc. (“Yum”), known as Yum! Restaurants China (“YumChina”), has been primarily responsible for the conduct of the Brand Restaurant Businesses within the People’s Republic of China (the “PRC”), and YumChina, by virtue of its status as a business division of Yum and the various International Franchise Agreements entered into from time to time, has been entitled to use certain trademarks and other IP of Yum and its Subsidiaries in connection with such business activities.

 

B.            Prior to or on the Effective Date, the businesses and assets of, and the Subsidiaries of Yum included in, YumChina will be contributed, assigned, transferred, conveyed and delivered to Yum China Holdings, Inc., a Delaware corporation (“SpinCo”) and on or about the Effective Date, Yum will distribute to its stockholders the shares of SpinCo owned by Yum, making SpinCo a separate public company, independent from Yum.

 

C.            In connection with such contribution, assignment, transfer, conveyance, delivery and distribution, the Parties desire to enter into a license of and to certain trademarks and other IP of Yum and its remaining Subsidiaries, as further described in this Agreement, in order for SpinCo and its Subsidiaries to continue the operation of the Brand Restaurant Businesses in the Territory.

 

D.            Licensor is a wholly-owned indirect Subsidiary of Yum and has the right to license the trademarks and other IP of Yum and its Subsidiaries necessary for SpinCo and its Subsidiaries to continue to operate the Brand Restaurant Businesses in the Territory; Licensee is a wholly-owned indirect Subsidiary of SpinCo and the entity through which SpinCo intends to continue to operate the Brand Restaurant Businesses in the Territory from and after the Effective Date.

 

E.            SpinCo shall guarantee the obligations of Licensee under this Agreement by executing the form of Guaranty set forth in Exhibit E.

 

F.            The Parties desire that the scope of the license granted pursuant to this Agreement will include trademarks and other IP of Yum and its Subsidiaries used by YumChina in the conduct of the Brand Restaurant Businesses prior to the Effective Date, and will also include, as expressly set out in this Agreement, certain additional trademarks and other IP of Yum and its Subsidiaries that may come into existence after the Effective Date and during the Term.

 

In consideration of the foregoing and the mutual covenants and consideration set forth herein, the receipt and sufficiency of which are hereby acknowledged, Licensor and Licensee agree as follows:

 



 

1.            DEFINED TERMS As used in this Agreement, the following terms have the meanings set forth below. Additional terms used in this Agreement are defined as they appear in the body of this Agreement and are referenced in the chart at the end of this Section.

 

Additional Brandsmeans any brand, other than the Brands, that Licensor may, in the future, develop, own or control and for which there exists a branded Restaurant System.

 

Affiliate” means, with respect to any named person or entity, any other person or entity controlling, controlled by, or under common control with the named person or entity.  As used in this Agreement, unless expressly noted otherwise, each applicable Affiliate of Licensor after giving effect to the separation of YumChina from Yum shall be deemed as included in the definition of Licensor for each provision where Licensor is granting rights pursuant to the terms and conditions hereof or where Licensor is acknowledged or agreed to be the owner of IP.

 

Annual Strategic Plan” means Licensee’s annual plan for the Brands in the Territory during the upcoming calendar year.  Topics for the Annual Strategic Plan should include:  (i) material changes to existing Brand Standards or Brand Products; (ii) an overview of proposed advertising and marketing programs for each Brand; (iii) development plans for new Restaurants; (iv) an overview of third party sublicensing for the Brands; (v) any recommendations or proposals from Licensee regarding New Business Opportunities and/or Additional Brands, subject to Section 2.4 (and in each case, the terms upon which it may, in Licensor’s sole discretion, be licensed to Licensee); and (vi) Licensee’s progress with respect to the Taco Bell Brand Development Initiative..

 

Anti-Terrorism Laws” means Executive Order 13224 issued by the President of the U.S., the Terrorism Sanctions Regulations (Title 31, Part 595 of the U.S. Code of Federal Regulations), the Foreign Terrorist Organizations Sanctions Regulations (Title 31, Part 597 of the U.S. Code of Federal Regulations), the Cuban Assets Control Regulations (Title 31, Part 515 of the U.S. Code of Federal Regulations), the USA PATRIOT Act, and all other present and future laws, policies, lists and any other requirements of any Governmental Authority (including the United States Department of Treasury Office of Foreign Assets Control and any government agency outside the U.S.) addressing or in any way relating to terrorist acts and/or acts of war.

 

Benchmark Year” means each calendar year immediately preceding the corresponding Measurement Period. To illustrate, the first Benchmark Year is January 1, 2016 through December 31, 2016 (corresponding to the first Measurement Period of January 1, 2017 through December 31, 2021) and the second Benchmark Year is January 1, 2017 through December 31, 2017 (corresponding to the second Measurement Period of January 1, 2018 through December 31, 2022).

 

Brand” means individually each, and “Brands” means collectively all, of the branded Restaurant Systems identified in Exhibit A, and which are primarily known by their respective brand and business names (“Brand Names”) currently known separately as “KFC” (or “Kentucky Fried Chicken”), “Pizza Hut” including its icon, “the Red Roof”, and “Taco Bell” including its icon, “the Bell” (including the Mandarin language equivalents and derivatives thereof).

 

Brand Business IP” means the IP, other than the Core Brand IP, used in connection with the conduct of the Brand Restaurant Businesses.

 

Brand Owners” means the entities that own the Brands as set forth in Exhibit A.

 

Brand Restaurant Businesses” means the full range of business activities performed in the licensing and/or operation of businesses conducted through Restaurants, including all the related

 

2



 

development, promotional, and support activities.  “Brand Restaurant Business” means any of the Brand Restaurant Businesses relating to a Brand.

 

Brand Standards” means the standards, specifications and requirements for the commercial use of the Brand System IP in the conduct of the Brand Restaurant Businesses and in the development and operation of the Restaurants under the Brands (including Brand Trademark usage, maintenance and registration standards; food safety and other quality assurance processes; governance protocols; and Restaurant design, inspection and maintenance processes) as established by Licensor, all subject to updating and amendment, from time to time, as specified in Section 5.3.  Exhibit B includes a list of categories of Brand Standards and the source of each.

 

Brand System IPmeans the collection of IP of Yum and its Subsidiaries used in connection with the conduct of the Brand Restaurant Businesses, comprised of the Core Brand IP, together with that portion of the Brand Business IP existing as of the Effective Date.

 

Business Days” means all days that are not weekends or national holidays under the laws of the country in which the Party obligated to make the referenced payment, give the referenced notice, exercise the referenced right, or perform the referenced obligation resides.

 

Change of Control” of Licensee or SpinCo means the occurrence of one or more of the following events:

 

(1)           Licensee ceases to be a wholly-owned direct or indirect subsidiary of SpinCo;

 

(2)           any direct or indirect, voluntary or involuntary, sale, lease, assignment, conveyance, gift, pledge, mortgage, encumbrance or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Licensee or SpinCo, determined together with its Subsidiaries on a consolidated basis, or a material portion of such assets related to any of the Brands, to any person or entity that is a Competitor or to any group of related persons or entities (as the term group is interpreted for purposes of Section 13(d) of the United States Securities Exchange Act of 1934, as amended (a “Group”)) where any member of such Group is a Competitor;

 

(3)           the consummation of any plan of merger, consolidation, share exchange, tender offer or combination (any such transaction, a “Business Combination”) directly or indirectly involving Licensee or SpinCo and any Competitor;

 

(4)           any person, entity or Group, alone or together with its Affiliates, is the beneficial owner, directly or indirectly, of capital stock or other securities of SpinCo representing twenty percent (20%) or more of SpinCo’s then outstanding common stock or twenty percent (20%) or more of SpinCo’s then outstanding capital stock or other securities having general voting rights and such person or entity, or any member of such Group, is a Competitor; or

 

(5)           any person, entity or Group, alone or together with its Affiliates, has the power, directly or indirectly, to direct the business, management, operations or policies of Licensee or SpinCo, whether through the ownership of voting securities, by contract or otherwise, and such person or entity, or any member of such Group, is a Competitor.

 

Competing Business” means (a) any business that offers for sale as a principal food product for consumption by consumers any food product (including pizza, pasta, ready-to-eat chicken and Mexican-style food) that is substantially similar to any of the Brand Products and any business that grants franchises, licenses or similar arrangements to others to operate such a business (as used in this definition, a product is a “principal food product” if the sale of such product generates more than twenty percent (20%) of all product revenues of the business either in the Territory or in the world) and (b) the following

 

3



 

businesses:  McDonald’s, Domino’s Pizza, Papa John’s Pizza, Chick-fil-A, Dicos, Little Caesars Pizza, Burger King, Chipotle, Subway, Olive Garden Italian Kitchen, and Popeye’s Louisiana Kitchen.  Licensor may reasonably update the list of Competing Businesses in (b) to reflect changes in Competing Businesses, but not more than once each calendar year during the Term, and provided, that no update which adds a new Competing Business shall be deemed to prohibit an interest in such Competing Business that pre-dates such update.

 

Competitor” means a person or entity that is directly or indirectly Engaged in a Competing Business or is an Affiliate of a person or entity that is directly or indirectly Engaged in a Competing Business. In this context “Engaged” or “Engages” means to engage in, maintain, operate, assist, be occupied or associated with, have any financial or beneficial interest in, or otherwise participate in a specified business or activity, whether as an owner, stockholder, member, partner, lender, director, manager, officer or employee, licensor, advisor or consultant, or otherwise.

 

Confidential Information” means trade secrets, know-how, and other proprietary knowledge or confidential information of a Party and its Affiliates, including (i) with respect to Licensor and its Affiliates, the Brand System IP and all confidential knowledge and information concerning the Restaurant Systems operating under the Brands or necessary or useful to the development or operation of Restaurants, including technology, designs, concepts, ideas, information, formulas, recipes, studies, plans, reports, analyses, compilations, strategies, programs, data, methods, techniques or processes regarding each Brand’s services, products, methods of doing business, markets, customer data, profits, sales, or other financial information that derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and (ii) with respect to Licensee and its Affiliates, all confidential information related to its operation of the Brand Restaurant Businesses (other than information constituting Confidential Information of Licensor). Confidential Information does not include information which: (i) the non-disclosing Party can demonstrate became known to the Party by proper means before the disclosure thereof by the disclosing Party or its Affiliates, (ii) at or after the time of such disclosure, had become or later becomes a part of the public domain other than in breach of this Agreement or any Sublicense, or (iii) the non-disclosing Party receives through proper publication or communication from an independent third party having the right to disclose the same.

 

Core Brand IP” means the following IP of Yum and its Subsidiaries, including, for periods prior to the Effective Date, Subsidiaries of Yum which subsequently become Subsidiaries of SpinCo: (i) the “Brand Trademarks”, which are comprised of the Brand Names, and versions thereof, incorporating all or a portion of a Brand Name, together with all trademarks, service marks, trade names, domain names, logos, commercial symbols and all other source indicators and other similar rights, whether registered or unregistered, authorized by Licensor now and in the future for use in connection with the conduct of the Brand Restaurant Businesses; (ii) the “Brand Marketing Materials”, which are comprised of all the advertising, marketing, promotional and public relations materials in every medium, used directly or indirectly to promote the Brand Restaurant Businesses; (iii) the “Brand Products”, which are comprised of all products (and associated know-how, including recipes, cooking methods and restaurant equipment modifications or customizations developed or commissioned for the production of products) and services authorized for sale or promotion at Restaurants; and (iv) the “Brand Restaurant Designs”, which are comprised of the prototypical architectural plans, designs, layouts, design concepts, drawings and specifications for Restaurants. Core Brand IP includes Future Core IP.

 

Customer Data” means (i) any information or data  identifying, describing, concerning or generated by prospective, actual or past customers, website visitors or other social media contacts of any of the Brand Restaurant Businesses operating in the Territory, including all other customer information in any database, regardless of the source thereof, and (ii) any information or data related to any of the foregoing (including customer lists, reports, forms, methodologies, segmentations and statistical data,

 

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whether individually or in the aggregate). For the purpose of this Agreement, Customer Data shall include only information or data that has been collected, generated, or used by a Brand Restaurant Business.  The term “Customer Data” shall not include any customer information or data, including general market or customer insight research, that is generated, collected, or used by the Licensee for purposes other than as described in the preceding sentence, above.

 

Future Brand Business IP” means Brand Business IP, other than the Brand System IP, that is developed or acquired by Licensee or any of its Affiliates or any of the Sublicensees after the Effective Date for use in the conduct of the Brand Restaurant Businesses and that is an extension, derivative or new version of existing Brand System IP or is useable in the commercialization of the Core Brand IP.

 

Future Core IP” means additional IP of the types described in clauses (i) through (iv) in the definition of Core Brand IP for use in the conduct of the Brand Restaurant Businesses that is modified, developed or acquired after the Effective Date.

 

Good Standing” means that Licensee is in full compliance with all of its obligations under Applicable Laws, this Agreement, and each other agreement between Licensee and Licensor or any of its Affiliates (including all payment obligations), that each of Licensee’s Affiliates is in full compliance with all of its obligations under Applicable Laws, each Sublicense and each agreement between such Affiliate and Licensor or any of its Affiliates, and that all such obligations have been satisfied on a timely basis.

 

Governmental Authority” means any national, federal, provincial, state, county, municipal or local governmental and quasi-governmental agency, commission or authority, including any taxing authority.

 

IP” means all trademarks, service marks, trade dress, look and feel rights, copyrights, database rights, patents, trade secrets, domain names, know-how, show-how and proprietary information and Confidential Information, tangible and intangible, including all legally cognizable versions of any such intellectual property such as derivative works, colorable imitations, extensions, modifications, improvements, derivations, adaptations, localizations, translations, transliterations, or compilations of any kind.

 

Lists” means the lists prepared by the U.S. government identifying those persons with whom U.S. parties are prohibited from doing business, including, and as they may change from time to time: (i) the Specially Designated Nationals List (http://www.treas.gov/offices/enforcement/ofac/sdn/sdnlist.txt); (ii) Executive Order 13324 (http://www.treasury.gov/offices/enforcement/ofac/programs/ terror/terror.pdf); (iii) Executive Order 13382 (http://www.state.gov/t/isn/c22080.htm); and (iv) Executive Order 12938 (http://www.state.gov/t/isn/c15233.htm).

 

Measurement Period” means each rolling five (5) calendar year period throughout the Term, beginning January 1, 2017. To illustrate, the first Measurement Period is January 1, 2017 through December 31, 2021 and the second Measurement Period is January 1, 2018 through December 31, 2022.

 

Prime Rate” shall mean the rate that Bloomberg displays as “Prime Rate by Country United States” at http://www.bloomberg.com/quote/PRIME:IND or on a Bloomberg terminal at PRIMBB Index or, in the absence of Bloomberg displaying such rate, such other rate as Licensor may reasonably determine as the equivalent rate.

 

Restaurant” means each of the retail restaurant facilities that is primarily identified by a Brand Name and/or uses Brand System IP and that conducts the offer and sale of authorized products and services through dine-in, carry-out, catering, delivery, kiosk, on-line methods of distribution, centralized

 

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kitchens/commissaries, and such other methods of distribution as the Parties may mutually agree, including the offer of premiums, and all other related promotional activities (but does not include the sale of any products for resale).

 

Restaurant System” means the collection of procedures, policies, standards, specifications and other distinguishing elements, created or acquired in connection with the development and operation of a restaurant concept, but expressly excluding any test concept.

 

Sublicense” means any agreement between Licensee and any Affiliate or third party (including any development agreement, trademark license contract or franchise agreement), granting such Affiliate or third party the right to operate one or more Restaurants under the applicable Brand in the Territory, including the Existing Sublicenses and the Future Sublicenses.  Each Sublicense must be Brand-specific.

 

Sublicensee” means any Affiliate of Licensee or any third party that is or becomes a party to an Existing Sublicense or a Future Sublicense.

 

Sublicensee Change of Control” means, as to any Sublicensee, the occurrence of one or more of the following events:

 

(1)          any direct or indirect, voluntary or involuntary, sale, lease, assignment, conveyance, gift, pledge, mortgage, encumbrance or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of such Sublicensee, determined together with its Subsidiaries on a consolidated basis, or a material portion of such assets related to any of the Brands, to any person or entity that is a Competitor or to any Group where any member of such Group is a Competitor;

 

(2)          the consummation of any Business Combination directly or indirectly involving such Sublicensee and any Competitor;

 

(3)          any person, entity or Group, alone or together with its Affiliates, is the beneficial owner, directly or indirectly, of capital stock or other securities of such Sublicensee representing twenty percent (20%) or more of such Sublicensee’s then outstanding common stock (or other equity ownership interests) or twenty percent (20%) or more of such Sublicensee’s then outstanding capital stock or other securities having general voting rights and such person or entity, or any member of such Group, is a Competitor; or

 

(4)          any person, entity or Group, alone or together with its Affiliates, has the power, directly or indirectly, to direct the business, management, operations or policies of such Sublicensee, whether through the ownership of voting securities, by contract or otherwise, and such person or entity, or any member of such Group, is a Competitor.

 

Subsidiary” means with respect to any entity, any corporation, limited liability company, joint venture, partnership or other entity, of which such first entity (a) beneficially owns, either directly or indirectly, more than 50% of (i) the total combined voting power of all classes of voting securities, (ii) the total combined equity interests, or (iii) the capital or profit interests, or (b) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body.

 

Taco Bell Brand Development Initiative” means the specific development initiative for the Taco Bell Brand in the Territory set forth in Exhibit A-1, as such exhibit may be supplemented over time by agreement of the Parties in connection with the Annual Strategic Consultation, taking into consideration

 

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new Taco Bell Restaurant development in comparable markets, projected Taco Bell Brand growth, the market environment and demand for the Taco Bell Brand in the Territory, and current Taco Bell performance in the Territory.

 

Tax Matters Agreement” means the Tax Matters Agreement to be entered into by and between Yum and SpinCo in connection with the separation of YumChina from Yum and the distribution to Yum’s stockholders of the shares of SpinCo owned by Yum.

 

Taxes” means all taxes (including value added taxes), levies, imposts, duties, charges or fees, in each case in the nature of a tax and imposed by any Governmental Authority, whether collected by withholding or otherwise, and any interest, additions to tax or penalties applicable thereto.

 

Territory” means the PRC, as geographically constituted on the Effective Date, excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan.

 

Term” means, collectively, the “Initial Term” and any “Renewal Term” as described in Sections 13.1 and 13.2.

 

Transfer” means to sell, assign, convey, give away, pledge, mortgage, grant a security interest in or lien against, license, or otherwise transfer or encumber, or any sale, assignment, conveyance, gift, pledge, mortgage, grant of security interest, lien, license, or other transfer or encumbrance.

 

The following terms are defined in the referenced Section, paragraph, or Recital of this Agreement:

 

Defined Term

 

Section

Administered Rules

 

17.3

Advertising Assessment

 

3.2

Agreement

 

Preamble

Annual Strategic Consultation

 

5.4

Appeal Procedure

 

17.3.7

Applicable Laws

 

7.1

Arbitration Request

 

17.3

Assigned Payments

 

6.1.2

Bank

 

14.1.6.B

Clearance Activities

 

4.3.1

CPR

 

17.2.2

Cross Licensed IP

 

4.1.1

Effective Date

 

Preamble

Enforcement Activities

 

4.3.1

Existing Sublicenses

 

6.1

Future Sublicenses

 

6.2

Governmental Approvals

 

6.3.5

Grace Period

 

3.4.1

Gross Revenue

 

3.1

Indemnitees

 

11.1

Initial Term

 

13.1

Late Payment

 

14.1.6.B

Letter of Credit

 

14.1.6.B

Licensee

 

Preamble

 

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Licensee Releasing Parties

 

4.1.2.B

Licensor

 

Preamble

Licensor Purchase Right

 

15.4.5

Licensor Released Parties

 

4.1.2.B

New Business Opportunity

 

2.4

Non-Restated Sublicense

 

6.1

Original Award

 

17.3.7

Party(ies)

 

Preamble

Payment Default

 

14.1.6.A

Payment Dispute Notice

 

14.1.6.C

PRC

 

Recital A

Registration Activities

 

4.3.1

Renewal Term

 

13.2

Restated Sublicense

 

6.1

ROFR Agreement

 

2.4.1

ROFR Notice

 

2.4.1

SGM Breach

 

2.1.3.A

SGM Calculation Statement

 

2.1.3.A

SGM Report

 

2.1.3.A

Sales Growth Metric

 

2.1.3

Secured Amount

 

14.1.6.B

SpinCo

 

Recital B

Transaction Tax

 

3.5.3

Underpayment

 

14.1.6.B

Yum

 

Recital A

YumChina

 

Recital A

 

2.            GRANT OF LICENSE AND UNDERTAKING TO DEVELOP

 

2.1          Grant of IP Licenses.  Licensor hereby grants Licensee the exclusive right and license, and Licensee hereby assumes the obligation, to use the Brand System IP to operate Brand Restaurant Businesses in the Territory, inclusive of the right to sublicense the Brand System IP needed in order to operate the Restaurants to Sublicensees under Sublicenses for the sole purpose of operating Restaurants in the Territory, provided that, except for Licensee’s right to operate a limited number of Restaurants for test purposes in compliance with the terms of the form Sublicense as if Licensee were the Sublicensee and Licensor were the Sublicensor under such Sublicense, (i) Restaurants may be operated only by Sublicensees under Sublicenses; and (ii) only those Affiliates of Licensee that are Sublicensees have the right to use the Brand System IP and then only in compliance with the applicable Sublicense.

 

2.1.1       The license granted hereunder is separable as to each of the Brands, as identified by each separate Brand Name used to identify each of the Brand Restaurant Businesses, and the license for each Brand and the associated Brand System IP may be separately assigned, modified, renewed, terminated and enforced by Licensor, in all cases subject to the terms herein.

 

2.1.2       Licensee shall use its commercially reasonable best efforts to increase the revenues of the Brand Restaurant Businesses during the Term.

 

2.1.3       Without limitation of Section 2.1.2, subject to Sections 2.1.3.A, through 2.1.3.E, Licensee shall cause the average annual Gross Revenue for each Brand Restaurant Business for

 

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each Measurement Period to exceed the Gross Revenue of such Brand Restaurant Business for the applicable Benchmark Year (“Sales Growth Metric”).

 

A.            Within sixty (60) days after the beginning of each calendar year during the Term, Licensee shall calculate the average annual Gross Revenue for the relevant Measurement Period and the Gross Revenue for the relevant Benchmark Year for each Brand Restaurant Business and prepare and deliver to Licensor a written statement setting forth in reasonable detail its determination of the average annual Gross Revenue for the relevant Measurement Period and the Gross Revenue for the relevant Benchmark Year with respect to each Brand Restaurant Business (each, an “SGM Calculation Statement”).  In the event Licensee’s SGM Calculation Statement indicates a Brand Restaurant Business has failed to meet the Sales Growth Metric (an “SGM Breach”), Licensee may include with the SGM Calculation Statement a report setting forth specific factors, if any, beyond its reasonable control as the predominant cause for such SGM Breach (the “SGM Report”).

 

B.            Without limitation of Licensor’s rights under Section 8.3, Licensor and its representatives shall have the right to inspect Licensee’s books and records with respect to each Brand Restaurant Business, upon reasonable prior notice to Licensee and for purposes reasonably related to the verification of the SGM Calculation Statement, the SGM Report, if any, and any additional information relating to the Sales Growth Metric.

 

C.            In the event the SGM Calculation Statement indicates that the Sales Growth Metric has been satisfied and Licensor agrees with the SGM Calculation Statement, Licensor shall provide written notice to Licensee confirming that the Sales Growth Metric has been satisfied for that particular Measurement Period within thirty (30) days after receipt of the SGM Calculation Statement.

 

D.            In the event an SGM Breach has occurred and Licensee has not included an SGM Report with the SGM Calculation Statement, Licensor shall provide written notice to Licensee confirming such SGM Breach within thirty (30) days after receipt of the SGM Calculation Statement.  Failure to submit an SGM Report with the SGM Calculation Statement shall be deemed a waiver of Licensee’s right to submit an SGM Report for the relevant Measurement Period.

 

E.            In the event an SGM Breach has occurred and Licensee has included an SGM Report with the SGM Calculation Statement, Licensor shall consider the SGM Report in good faith, while also taking into account factors within Licensee’s control, such as Licensee’s use of free cash and the amount of capital investments for Brand development, judged on both an historical and competitive basis.  If Licensor, in its reasonable discretion, determines that the SGM Breach was predominantly caused by factors beyond Licensee’s reasonable control, Licensor shall waive the SGM Breach with respect to the relevant Brand Restaurant Business and shall provide written notice to Licensee so indicating within thirty (30) days after receipt of the SGM Calculation Statement.  If Licensor, in its reasonable discretion, determines that the SGM Breach was not predominantly caused by factors beyond Licensee’s reasonable control, Licensor shall provide written notice to Licensee confirming that an SGM Breach has occurred within thirty (30) days after receipt of the SGM Calculation Statement.

 

In the event of two (2) consecutive SGM Breaches for a Brand Restaurant Business, Licensor shall be entitled to exercise its rights under Section 15.4.4.

 

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2.2          Territorial Protections.  During the Term and provided that Licensee and its Affiliates remain in Good Standing (including in compliance with Sections 2.1.2 and 2.1.3), Licensor shall not establish or operate, or grant any other person or entity the right to establish or operate, a Brand Restaurant Business in the Territory or any rights to use the Brand System IP in Restaurants in the Territory.

 

2.3          Licensor’s Reserved Rights.  Licensee acknowledges and agrees that this Agreement grants Licensee only the right to operate the Brand Restaurant Businesses in the Territory during the Term. Licensor and its Affiliates have and retain all rights not granted to Licensee under this Agreement and may, without notice to Licensee: (a) establish and operate, or grant any person or entity the right to establish and operate, Brand Restaurant Businesses, and use the Brand System IP, outside the Territory or after the Term, and (b) engage in any business in the Territory provided the conduct of the business is not in conflict with the provisions of Section 2.2 and Section 2.4.

 

2.4          Licensee’s Rights of First Refusal.  Notwithstanding Section 2.3, if during the Term, (i) Licensor proposes to engage, directly or indirectly, in any business in the Territory unrelated to the Brand Restaurant Businesses but utilizing all or any part of the Core Brand IP (a “New Business Opportunity”), or (ii) Licensor develops or acquires an Additional Brand, then Licensor shall offer Licensee a right of first refusal in accordance with this Section 2.4.

 

2.4.1       Within a reasonable period of time following the occurrence of an event described in Section 2.4.(i) or (ii) (regardless of whether Licensor proposes to act on a unilateral voluntary basis or in response to an approach or offer from a third party) and subject to the conditions in Section 2.4.2, Licensor shall notify Licensee in writing of the New Business Opportunity or the Additional Brand (the “ROFR Notice”). The ROFR Notice will offer Licensee the first opportunity, on an exclusive basis, to negotiate rights to the New Business Opportunity or the Additional Brand in the Territory. Licensee shall accept or reject the offer to negotiate in writing within thirty (30) days following the date of the ROFR Notice. Licensee’s failure to accept or reject the offer in writing within the stated time period shall be deemed to be a rejection of the offer. If Licensee accepts the offer to negotiate rights to the New Business Opportunity or the Additional Brand in the Territory, Licensor and Licensee will negotiate the applicable business terms on an exclusive basis for a period of ninety (90) days following the date of Licensee’s written acceptance notice, any such terms to be evidenced by a separate agreement between the Parties or their designees (a “ROFR Agreement”). If the Parties have not entered into a ROFR Agreement for the New Business Opportunity or Additional Brand within the ninety (90) day exclusivity period, then, unless the Parties mutually agree in writing to extend the exclusive negotiation period before the expiration of such exclusivity period, Licensee’s rights with respect to the New Business Opportunity or Additional Brand in the Territory shall terminate and Licensor shall have the right directly, or indirectly through its Affiliates or third parties, to operate the New Business Opportunity or Additional Brand in the Territory, without any further obligation to Licensee.

 

2.4.2       Licensee’s right of first refusal shall be applicable: (i) only during such time that Licensee and its Affiliates are in Good Standing; (ii) on terms and conditions no less favorable to Licensee than those then offered by Licensor to other third parties, excluding, however (but, nonetheless, fully disclosing to Licensee on a timely basis for its overall appraisal) any one time “development incentives,” such as for market entry, new units, test concepts or other forms of growth initiatives which may be offered, from time to time, for limited periods less than the full term of the applicable franchise or license grant; and (iii) with respect to any Additional Brand, only after the business of the Additional Brand is deemed by Licensor, using its reasonable

 

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judgment, to be tested and fully operational.  In the event Licensee believes Licensor has failed to provide the ROFR Notice in a timely manner, Licensee’s sole remedy shall be to provide written notice to Licensor of such alleged failure.  For the convenience of the Parties, the Parties will endeavor to discuss any applicable right of first refusal primarily during the Annual Strategic Consultation.

 

3.            FEES, PAYMENTS AND REQUIRED EXPENDITURES

 

3.1          Royalty.  In consideration for the license granted under Section 2.1, Licensee shall pay to Licensor a continuing royalty fee in an amount equal to three percent (3%) of the Gross Revenue of any kind derived from the operation of the Restaurants in the Territory. For purposes of this Agreement, the term “Gross Revenue” shall mean the total of all cash or other payments (including the fair value of an exchange and all payments by check, credit, or charge account, regardless of whether the checks, credits, or charge accounts are ultimately paid) paid or payable at the Restaurant level for the sale or use of any products, goods, or services that are sold at or from any Restaurant in the Territory, excluding value added taxes and governmental surcharges imposed with respect to such sales by Governmental Authorities, and then only if the amount of such value added taxes or governmental surcharges is taken into account in the selling price and is actually paid to the appropriate Governmental Authority (for this purpose, treating value added taxes validly offset against input credits as actually paid to the appropriate Governmental Authority).  Royalty fee payments are due on the fifteenth (15th) day of the month with respect to Gross Revenue during the preceding month and, unless otherwise agreed by Licensor, are payable by Licensee to Licensor regardless of collection or non-collection by Licensee from the Sublicensees.

 

3.2          Required Advertising Expenditures. Annually, during the Term, Licensee shall collect and spend all Advertising Assessments to market, advertise and promote each of the Brands in the Territory in accordance with the Advertising and Marketing Standards set out in the Brand Standards; provided, that up to one percent (1%) of the Gross Revenue may be spent for Restaurant asset upgrades, menu board upgrades, directional signage, premiums, and limited-time offer discount promotion subsidies lasting for twelve (12) weeks or less.  Licensee may allocate the Advertising Assessment between national and local store marketing and advertising initiatives and activities in its reasonable discretion.  For purposes of this Agreement, “Advertising Assessment” means a minimum advertising fee or contribution under each Sublicense in an amount equal to four percent (4%) of Gross Revenue (including the one percent (1%) of Gross Revenue that may be spent for Restaurant asset upgrades, menu board upgrades, directional signage, premiums, and limited-time offer discount promotion subsidies lasting for twelve (12) weeks or less).  The Parties acknowledge and agree that the nature of advertising is evolving and will continue to evolve during the Term.  Therefore, upon request by either Party, the other Party will consider in good faith prospective adjustments to the Advertising Assessment, taking into consideration Brand sales, competitor marketing spend rates and trends, and marketing effectiveness (e.g., the availability of other channels or platforms of marketing promotion, such as social media and digital advertising, that may provide for reduced cost and equal or greater consumer reach and conversion) and the resulting impact on sales growth.

 

3.3          Other Payments.  In addition to the royalty fees described in Section 3.1, Licensee shall pay to Licensor and to Licensor’s Affiliates and to all third party suppliers promptly when due all other fees, charges and reimbursable amounts payable under this Agreement or other agreements between Licensee and Licensor, Licensor’s Affiliates, or such third party suppliers.  Such payments shall be made at such times and in such manner as may be specified in this Agreement or such other agreements and, in the absence of any specified time and manner of payment, as invoiced.

 

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3.4          Payment Terms; Currency.  All payments made by Licensee to Licensor under this Agreement shall be sent by electronic wire transfer of immediately available funds to the account designated by Licensor in writing from time to time.

 

3.4.1       Any payment not actually received within five (5) days after the date on which such payment was due (“Grace Period”) shall accrue interest at a rate per annum equal to the Prime Rate plus three percent (3%) or the maximum rate permitted by Applicable Laws, whichever is less, from the end of the Grace Period until paid.  Such interest charges are in addition to any other remedies available to Licensor.  Additionally, during the first year of the Term, the Grace Period shall be extended to ten (10) days.

 

3.4.2       Licensee shall not be entitled to withhold payments due to Licensor or its Affiliates on grounds of alleged nonperformance by Licensor or its Affiliates, nor shall Licensee be entitled to set off any amounts that may be owed by Licensor or any of its Affiliates to Licensee or any of its Affiliates against amounts owed by Licensee or any of its Affiliates to Licensor or any of its Affiliates under this Agreement. Notwithstanding any designation Licensee might make, Licensor has sole discretion to apply any of Licensee’s payments to any of Licensee’s past due indebtedness to Licensor or its Affiliates.  Licensor has the right to set off any amounts Licensee owes to Licensor or any of Licensor’s Affiliates against any amounts Licensor or any of its Affiliates may owe to Licensee or any of Licensee’s Affiliates.

 

3.4.3      All amounts payable to Licensor under this Agreement shall be paid in Chinese Yuan Renminbi (RMB).

 

3.4.4      If any Governmental Authority with jurisdiction over any of the Brand Restaurant Businesses or the Parties imposes restrictions on the transfer of funds or currencies to places outside the Territory and such restrictions result in Licensor not receiving payments in accordance with this Agreement in a timely fashion, Licensee shall cooperate with Licensor and use commercially reasonable efforts to effect such payments in a timely fashion by the transfer of funds in alternate currencies as Licensor may designate and/or the funding of such payments from sources outside the Territory, to the extent legally permissible.  If, after thirty (30) days, such efforts fail to result in full payment to Licensor, then Licensor shall have the right at any time thereafter to the extent legally permissible to direct the deposit of any or all payments (including accumulated amounts) required hereunder into such accounts in the Territory as Licensor may designate.  Nothing herein shall relieve Licensee from the obligation to pay to Licensor the amounts due hereunder.

 

3.5          TaxesLicensee shall promptly pay when due all Taxes levied or assessed against Licensee by any Governmental Authority.

 

3.5.1       Any and all payments by Licensee to Licensor pursuant to this Agreement shall be made without deduction or withholding for any Taxes, except as required by Applicable Laws.  If Applicable Laws require Taxes to be withheld or deducted from any payment to Licensor pursuant to this Agreement, Licensee shall withhold or deduct and pay to the applicable Governmental Authority the amount required to be withheld or deducted and shall promptly deliver to Licensor, at least annually or as otherwise reasonably requested by Licensor, receipts and tax forms issued by the applicable Governmental Authority showing that all Taxes were properly withheld or deducted and remitted in compliance with Applicable Laws.  Without limiting the foregoing, Licensee shall cooperate with Licensor in any manner Licensor reasonably requires to facilitate Licensor in its efforts to obtain applicable tax credits based on such

 

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withholdings or deductions, or to obtain any reduction in the amount of such withholding or deduction.

 

3.5.2       Except as otherwise provided in the Tax Matters Agreement, in the event of any bona fide dispute between Licensee or any of its Affiliates and any Governmental Authority as to liability for Taxes assessed, Licensee or such Affiliate may contest the validity or the amount of the Tax in accordance with procedures of the Governmental Authority or Applicable Laws; provided, however, that, to the extent within the control of Licensee, in no event shall Licensee or such Affiliate permit a tax sale or seizure by levy of execution or similar writ or warrant, or attachment by a creditor, to occur against the premises of any Restaurant, any improvements thereon, or any assets of Licensee or such Affiliate that are part of the Brand Restaurant Businesses or contain the Brand Trademarks.

 

3.5.3      Licensee bears sole and exclusive responsibility for the reporting, withholding and payment of all Taxes imposed upon it by any jurisdiction, including the responsibility to report to the applicable Governmental Authorities any payment made to Licensor to the extent required by Applicable Laws.  The Parties acknowledge that Licensee may be responsible now or in the future to collect and remit sales tax, use tax, excise tax, withholding income tax, value added tax, franchise fee tax, governmental surcharges, stamp tax or consumer tax (“Transaction Tax”) with respect to payments made by Licensee to Licensor pursuant to Section 3.1.  Any such Transaction Taxes shall be borne by Licensor and such amounts shall not be added to any amounts payable by Licensee pursuant to Section 3.1.

 

3.5.4      If Licensee receives any refund or credit in respect of any Taxes withheld or deducted from, or any Transaction Tax paid by Licensor in respect of, any payment made to Licensor pursuant to this Agreement, Licensee shall promptly pay to Licensor an amount equal to the amount of such refund or credit, net of all out-of-pocket expenses (including Taxes) of Licensee with respect to the receipt of such refund or credit.  For purposes of this Section 3.5.4, Licensee’s ordinary course application of a value added tax credit against value added tax withheld from any payment made to Licensor pursuant this Agreement shall not be treated as a credit received by Licensee, provided, however, that any credit against value added tax obtained by Licensee as a result of a redetermination of the amount of value added tax due with respect to any such payment to Licensor shall be treated as a credit received by Licensee and payable to Licensor pursuant to this Section 3.5.4.

 

4.            OWNERSHIP, USE, PROTECTION AND SUBSTITUTION OF IP

 

4.1          OwnershipLicensee represents and warrants to Licensor that, prior to the Effective Date, Licensee and YumChina have provided to Licensor and Yum all agreements and other documents relating to any and all Brand System IP licensed, used, or owned (or purported to be owned) by YumChina, SpinCo or any of their Affiliates, including Licensee.  Licensor hereby represents that the scope of the license for the Brand System IP is expressly designed to include the IP of Yum and its Subsidiaries used to operate the Brand Restaurant Businesses in the Territory prior to the Effective Date, primarily under the direct management of and supervision of YumChina.  To the extent any ambiguity exists in this Agreement concerning the scope of the license grant to the Brand System IP, this representation shall assist the Parties in determining the proper interpretation.  As between Licensor and its Affiliates (as determined upon or after consummation of the separation of YumChina from Yum), on the one hand, and Licensee and its Affiliates and the Sublicensees (as determined upon or after consummation of the separation of YumChina from Yum), on the other hand, Licensee agrees (for itself and on behalf of its Affiliates and the Sublicensees) that the Brand System IP is, and shall remain, the sole property of Licensor.  Licensor and Licensee (for itself and on behalf of its Affiliates and the

 

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Sublicensees) further agree that any modification, development or acquisition of the IP of Yum and its Subsidiaries occurring prior to the Effective Date by or for Licensee or any of its Affiliates or any of the Sublicensees, whether by itself or in conjunction with Licensor or third parties, shall be deemed to have been commissioned by and for the benefit of Licensor, and Licensee has done or shall do at Licensor’s request, all acts (including execution and delivery to Licensor of any and all such documentation) required in order to evidence, secure or perfect the vesting in Licensor of all rights, title and interest in and to such IP or any other Brand System IP or to otherwise give full effect to this Section 4.1 and shall cause its Affiliates and the Sublicensees and, to the extent commercially reasonable, its contractors and other third parties, to do so.  The Parties hereby acknowledge and agree to the existence and sufficiency of consideration for the foregoing commissioning arrangements; such consideration including the right of YumChina to use certain IP of Yum and its Subsidiaries in connection with YumChina’s business activities prior to the Effective Date. Nothing contained in this Agreement is, or shall be construed as, an assignment of any of the Brand System IP to Licensee or any other person or entity or as a grant to Licensee or any other person or entity of any right, title, or interest in or to any of the Brand System IP except for the express license granted to Licensee to use the Brand System IP under Section 2.1. Except for such license, Licensee acquires no right, title or interest in any of the Brand System IP or any associated past, present or future goodwill, all of which will inure solely to the benefit of Licensor and the Brand Owners.

 

4.1.1       Licensee represents and warrants to Licensor that, prior to the Effective Date, YumChina has not licensed or authorized the use of any of the Brand System IP by any person or entity other than Sublicensees under the Existing Sublicenses, and has only issued cross licensing rights for some of the Brand System IP to certain businesses of YumChina as set forth in Exhibit C (the “Cross Licensed IP”).  During the Term, Licensee shall not provide any further cross licensing rights and shall cause the cross licensing rights to the current Cross Licensed IP to terminate within three (3) years after the Effective Date at Licensee’s sole cost and expense and shall provide Licensor evidence of such termination(s) satisfactory to Licensor.

 

4.1.2       Other than as set forth in this Section 4.1, Licensee acknowledges and agrees that, to the extent permitted by Applicable Laws, the Brand System IP is being licensed “as-is” and without any further representations or warranties by Licensor or any of its Affiliates, including regarding the status, strength, validity, or enforceability of any of the Brand System IP in the Territory (including the status, strength, validity, or enforceability of any registrations or applications to register the Brand Trademarks or any other Brand System IP in the Territory).  Licensee further acknowledges and agrees that:

 

A.            Licensee shall not make any demand, assert any claim, or file any action against Licensor or any of its Affiliates (and that neither Licensor nor any of its Affiliates has any obligation to indemnify Licensee or any of its Affiliates or the Sublicensees for liability or damages) arising out of or in connection with the use by Licensee or any Sublicensee of the Brand System IP in the Territory, including demands, claims or actions (or liability or damages) based on the actual or threatened cancellations of Brand System IP registrations or refusals to register any of the Brand System IP by any Governmental Authority and any third party demands or claims related to the Brand System IP.

 

B.            As of the Effective Date, Licensee, for itself and on behalf of all other persons and entities acting on its behalf or claiming under it (collectively, the “Licensee Releasing Parties”), hereby irrevocably and unconditionally releases, acquits and forever discharges Licensor, its Affiliates and their respective owners, predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, parents and Subsidiaries, past and present, and all persons acting by, through, under or in concert with

 

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them or any of them (collectively “Licensor Released Parties”), from all actions, causes of action, suits, debts, liens, obligations, promises, liabilities, claims, rights, demands, damages, controversies, losses, costs, and expenses (including attorneys’ fees and costs actually incurred), known or unknown, suspected or unsuspected, fixed or contingent, which they now have, own, hold, claim to have, claim to own, or claim to hold, or at any time heretofore had, owned, held, claimed to have, claimed to own, or claimed to hold against each or any of the Licensor Released Parties arising out of or related to the Brand System IP or any use thereof.

 

C.            Without limiting the foregoing acknowledgements, agreements and release, Licensee agrees that the maximum possible remedy to which Licensee and its Affiliates and the Sublicensees may be entitled as a result of (i) any loss or impairment of the Brand System IP (including the Brand Trademarks) in the Territory or (ii) any breach by Licensor of any express or implied warranties related to the Brand System IP, including any technology/technical secrets, patents, or software, is for Licensor to authorize a replacement for the affected Brand System IP, and Licensee expressly acknowledges and agrees that Licensee’s obligations under this Agreement, including its obligation to pay the royalty fees and other amounts due under this Agreement, shall not be relieved, limited, or otherwise modified as a result of any loss or change in the status or value of any of the Brand System IP in the Territory, including losses or changes attributable to actions by Governmental Authorities or third party claims. Licensor also has the right to replace any Brand System IP (including any Brand Trademark) that, in Licensor’s belief, is or may be subject to a claim or determination that Licensor has no right to license such Brand System IP under this Agreement, or that such Brand System IP is or may be cancelled or its use by Licensee prohibited in the Territory, or that such Brand System IP is or may be subject to any ownership or rights challenge or any infringement allegation or action.  Without limiting or altering the provisions set forth above, Licensee may request a review, during the Annual Strategic Consultation, of recent, material adverse changes in the Brand System IP where Licensee believes other types of remedies are more suitable, which suggestions Licensor shall consider and decide, in its sole discretion.

 

4.1.3       This Agreement expressly contemplates that Licensee (or any of its Affiliates and any of the Sublicensees) may, subsequent to the Effective Date and during the Term and in accordance with the terms hereof and the Brand Standards, develop or acquire Future Core IP and Future Brand Business IP.

 

A.            Licensor shall solely own all Future Core IP (and, for the avoidance of doubt, Licensor and Licensee (for itself and on behalf of its Affiliates and the Sublicensees) agree that any modification, development or acquisition of Future Core IP by or for Licensee or any of its Affiliates or any of the Sublicensees, whether by itself or in conjunction with Licensor or third parties, shall be deemed to be commissioned by and for the benefit of Licensor, subject, however, to the right of use by Licensee during the Term for the purposes and in the manner provided in this Agreement). Licensee shall inform Licensor in writing of any such modification, development or acquisition of Future Core IP.  Licensee shall assign, transfer, and convey, and hereby assigns, transfers, and conveys, to Licensor all rights, title, and interest of Licensee in or to any Future Core IP modified, developed or acquired by or for Licensee and otherwise waives and/or releases all rights of restraint and moral rights therein and thereto, without compensation, recognizing that any Future Core IP modified, developed or acquired by or for Licensee shall simultaneously and by operation of law be included in the Brand System IP licensed

 

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hereunder.  Licensee shall also cause its Affiliates and the Sublicensees and, to the extent commercially reasonable and consistent with the Brand Standards, cause its contractors and other third parties, to assign, transfer, and convey all such rights, title, and interest in and to Future Core IP that may be modified, developed or acquired by or for those parties to Licensor (or its designated Affiliate).  Licensee shall do all acts and execute and deliver to Licensor any and all such documentation required in order to evidence, secure or perfect the vesting in Licensor of all rights, title and interest in and to the Future Core IP or to otherwise give full effect to this Section 4.1.3 and shall cause its Affiliates and the Sublicensees and, to the extent commercially reasonable, its contractors and other third parties, to do so.  If and to the extent any such assignment is determined to be invalid or unenforceable, Licensee hereby grants (and shall cause its Affiliates and the Sublicensees and, to the extent commercially reasonable and consistent with the Brand Standards, its contractors and other third parties to grant) to Licensor (or its designated Affiliate) an exclusive, worldwide, transferable, assignable, sublicensable, irrevocable, perpetual, non-terminable, royalty-free license in and to such Future Core IP.  Neither Licensee nor any of its Affiliates, employees, contractors, or Sublicensees or any other third parties will be entitled to, or have any right or claim against Licensor or the Brand Owners or their respective Affiliates for, any royalty, fee, charge, compensation, or other payment or value of any kind for or in connection with any of the foregoing assignments, transfers, conveyances, or licenses or Licensor’s or any of its Affiliates’ use, utilization, commercialization, license, transfer, or exercise of any right in any such Future Core IP.

 

B.            Licensee shall solely own all Future Brand Business IP; provided, that in consideration of the rights granted herein and in order to maintain and enhance Brand integrity and avoid Brand divergence, Licensee hereby grants (and shall cause its Affiliates and the Sublicensees and, to the extent commercially reasonable and consistent with the Brand Standards, its contractors and other third parties to grant) to Licensor a non-exclusive, worldwide (other than in the Territory during the Term), transferable, assignable, irrevocable, perpetual, non-terminable, royalty-free right and license to use any such Future Brand Business IP and to sublicense the use of any such Future Brand Business IP to Licensor’s Affiliates and their licensees and franchisees operating under the Brands.  Upon Licensor’s request, Licensee shall reasonably cooperate with Licensor to effectuate this right and license (including executing all documents reasonably required by Licensor).

 

C.            The Parties hereby acknowledge and agree to the existence and sufficiency of consideration for the foregoing commissioning arrangements, assignment, transfer, and conveyance, or license, to Licensor; such consideration including the license to Licensee of the Core Brand IP which may come into existence after the Effective Date and during the Term.

 

4.1.4       The parties acknowledge that Customer Data is derived, developed, accumulated and used directly through and in connection with Licensee’s use of the Brand System IP, and as such, represents an essential element of the goodwill associated with the Brand System IP and the Brand Trademarks necessary to the operation of the Brand Restaurant Businesses.  Accordingly, in consideration of the foregoing and subject to the limitations in this Section, Licensee (for itself and on behalf of its Affiliates) hereby grants Licensor and each of its Affiliates an unencumbered right to access and use, and a perpetual and sublicensable license in and to, the Customer Data.  Licensor’s right to access, use and sublicense the Customer Data may only be exercised: (i) in accordance with Applicable Laws; (ii) following the expiration, non-renewal, termination, or other winding-down of this Agreement or any Brand license granted hereunder; and (iii) in

 

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connection with the continued operation of the Brand (or Brands) from which the Customer Data was obtained and compiled; provided that in the event of any material breach of this Agreement by Licensee, Licensor and its Affiliates may have the right of access, only, to the Customer Data upon written notice to Licensee, whereupon, Licensee shall provide Licensor with access to the Customer Data of the Brand (or Brands) concerned and/or derivatives thereof, according to such protocols as may be reasonably established for such purpose and set forth in Brand Standards.  For the avoidance of doubt, Licensor may not use any Customer Data in connection with any restaurant system other than the Brand (or Brands) concerned.

 

4.2          Use. Licensee shall, and shall cause all of the Sublicensees to, use the Brand System IP only as authorized by this Agreement and in accordance with the Brand Standards. Without limitation of the foregoing, Licensee agrees that, during and after the Term, Licensee shall not, and shall cause all the Sublicensees not to:

 

4.2.1       Engage, directly or indirectly, in any conduct that would dilute, infringe upon, harm, prejudice, bring into disrepute, or interfere with the validity, ownership or enforceability of the rights of Licensor or any of its Affiliates in any of the Brand System IP or the associated goodwill, including any use of the Brand Trademarks in a derogatory, negative, or other inappropriate manner;

 

4.2.2       Contest the rights of Licensor or any of its Affiliates in any of the Brand System IP or the associated goodwill;

 

4.2.3       Take, or omit to take, any action that in any way would reflect adversely on, or injure or threaten to injure or diminish the name, image or reputation of, Licensor or any of its Affiliates, the Brand Names, the Brand Trademarks or other Brand System IP, including any action that may invalidate or jeopardize registration of any of the Brand Trademarks or other Brand System IP; or

 

4.2.4       Take or continue any action which Licensee (or any of the Sublicensees) knows or has reason to know would result in or cause a boycott of any Brand, Brand Product, Licensor, any of the Brand Trademarks, or any product or service bearing or associated with the Brand Trademarks. Notwithstanding the foregoing sentence, in the event any action taken or continued by Licensee or any of the Sublicensees results, or threatens to result, in any such injury, Licensee shall promptly take, and cause all of the Sublicensees to take, all steps necessary to avoid or stop the occurrence of such injury.

 

4.3          Trademarks.

 

4.3.1       Subject to Licensor’s rights and obligations set forth in this Section 4.3 and in Section 4.5, Licensee shall, in accordance with the Trademark Maintenance and Registration Standards set out in the Brand Standards and at Licensee’s expense, conduct the following activities in the Territory with respect to the Brand Trademarks (including those covered by Future Core IP but excluding any Brand Name): (i) select and clear the Brand Trademarks, providing to Licensor or its designee contemporaneous clearance reports and legal opinions in the English language and advising Licensor or its designee when a cleared Brand Trademark may be submitted for registration (collectively, “Clearance Activities”), and (ii) take any and all reasonable actions to police and defend the Brand Trademarks, including issuing any cease and desist demand, filing and prosecuting any administrative action and/or taking legal action, against any infringer or misappropriator, or reasonably suspected infringer or misappropriator, of any of the Brand Trademarks (collectively, “Enforcement Activities”).  Notwithstanding the foregoing,

 

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Licensor shall, in accordance with the Trademark Maintenance and Registration Standards set out in the Brand Standards and at Licensor’s expense, conduct the following activities in the Territory with respect to the Brand Trademarks (including those covered by Future Core IP and including any Brand Trademark containing a Brand Name): (a) review and, after consultation with Licensee, approve or disapprove any Brand Trademark prior to its use, and (b) in the name of Licensor or its designee, apply for, prosecute the application for, register and maintain the registration of, the Brand Trademarks (“Registration Activities”). In addition, Licensor shall, at Licensor’s expense: (x) conduct any and all Clearance Activities with respect to a Brand Trademark that is a Brand Name, (y) join any Enforcement Activities by Licensee under this Section 4.3.1 as necessary under Applicable Laws in the Territory to conduct such Enforcement Activities, and (z) have the right to monitor and participate in (and by written notice to Licensee, assume management or control of) any Clearance Activities and Enforcement Activities conducted by Licensee (or a part thereof, as decided by Licensor in its sole discretion). Licensee shall otherwise not engage in any Clearance Activities, Registration Activities or Enforcement Activities, or assist or be involved in any way with another’s Clearance Activities, Registration Activities or Enforcement Activities, except if and to the extent expressly requested or approved in advance in writing by Licensor to Licensee. To the extent that any trademark license agreements or registered user agreements indicating the right of Licensee or any Sublicensee to use the Brand Trademarks in the Territory, or any confirmation or documentation related thereto, are required to be registered or recorded with any Governmental Authority, Licensee shall promptly file such documentation as provided or approved by Licensor and be responsible for the associated costs.

 

4.3.2       Licensee shall provide Licensor written notice, as set out in the Brand Standards, of any Brand Trademarks constituting Future Core IP (including changes in color or font or the translation of any of the Brand Trademarks into the local language). Licensee expressly agrees that it shall not use, and shall not permit the Sublicensees to use, any Brand Trademark within the category of Future Core IP (including any such Brand Trademark that includes a Brand Name) until it is approved by Licensor according to the procedures set out in the Brand Standards. Licensee further agrees that it shall not, and shall cause its Affiliates and Sublicensees not to, modify any Brand Trademark that includes a Brand Name until such modification is approved by Licensor according to the procedures set out in the Brand Standards. Without limitation of the foregoing, Licensee further expressly acknowledges and agrees that Licensor shall have sole discretion whether or not to approve any newly created or modified Brand Trademark that includes a Brand Name.

 

4.4          Copyrights and Patents. Licensee acknowledges and agrees that, as between Licensee and its Affiliates and the Sublicensees, on the one hand, and Licensor and its Affiliates, on the other hand, Licensor and its Affiliates own all patents, patent applications, copyrights and other intellectual property and industrial property rights in and to all materials including or evidencing any Brand System IP.  Licensee shall use, and shall cause the Sublicensees to use, proper copyright, patent, and other proprietary notices in accordance with Applicable Laws in the Territory in connection with all such materials. The provisions in Section 4.3.1 regarding Enforcement Activities shall apply to all such Brand System IP materials, including the copyrights, patent rights, and other intellectual property and industrial property rights contained therein. To the extent it is customary and advisable, to register the copyrights and/or patent rights contained in the Brand System IP materials, Licensee shall have the right, at its expense and upon advance written notice to Licensor or its designee, to conduct Registration Activities for such copyrights and patents, acknowledging its agreement that such Registration Activities shall reflect, and shall not alter, the ownership rights set forth herein.

 

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4.5          Protection. Without limiting Section 4.3.1, Licensee shall (and shall cause its Affiliates and the Sublicensees to) assist Licensor in the protection and defense of the Brand Trademarks and other Brand System IP, including preventing the use of the Brand Trademarks or other Brand System IP by any unauthorized persons, that in the sole judgment of Licensor may be necessary or desirable under any Applicable Law. Licensee shall promptly notify Licensor of any use or infringement of the Brand Trademarks or other Brand System IP of which Licensee or any of its Affiliates or the Sublicensees become aware or any challenge or claim arising out of the use of any Brand Trademark or other Brand System IP by Licensee or the Sublicensees. Except to the extent Licensee will conduct any Enforcement Activities in accordance with Section 4.3.1, Licensor shall control all Enforcement Activities and any litigation and other proceeding related to any challenge to Licensee’s or any Sublicensee’s use of the Brand Trademarks or other Brand System IP (specifically including all Enforcement Activities with respect to any Brand Name), or the use or ownership of any of the Brand Trademarks or other Brand System IP by Licensor or any of its Affiliates. Except to the extent Licensee controls any Enforcement Activities under Section 4.3.1, Licensor shall have the right to determine whether and what Enforcement Activities will be instituted, prosecuted or settled, the terms of settlement and whether any other action will be taken and may prosecute any claims or suits in its own name or join Licensee as a party thereto.  Licensee shall be responsible for the fees and expenses of any Enforcement Activities by Licensee under Section 4.3.1.  Licensor shall be responsible for the fees and expenses with any Enforcement Activities under this Section 4.5, unless the challenge or claim results from misuse of the Brand Trademarks or other Brand System IP by Licensee or any Sublicensee in violation of this Agreement or any of the Sublicenses, in which case Licensee shall reimburse Licensor and the Brand Owners for their respective fees and expenses (including legal fees and expenses).  Upon Licensor’s request, Licensee shall, and shall cause all of the Sublicensees to, promptly execute any summary or shortened agreement reflecting the licenses and rights under this Agreement, any confirmation of such licenses or rights, and any other document, and provide any other reasonable assistance to implement the provisions of this Agreement or as deemed necessary for compliance with Applicable Laws in the Territory, and to assist Licensor with any Registration Activities and any Enforcement Activities, all without compensation and without any right to any portion of amounts collected by Licensor in connection therewith, save and except that, in the event Licensor collects a monetary award, Licensor shall reimburse Licensee’s costs and expenses incurred in connection with such assistance, pro rata with Licensor’s costs and expenses, from such award. Licensee and its Affiliates and the Sublicensees shall not have any rights against Licensor or any of its Affiliates or for damages or other remedy by reason of the failure to prosecute any alleged infringements or imitations by others of any of the Brand Trademarks or for allegedly unauthorized third party use of any of the Brand System IP.

 

4.6          Substitution. Licensor reserves the right to add to, change or modify the Brand System IP, including the right to substitute different Brand Trademarks at any time. Upon receipt of written notice from Licensor to add, change, modify or substitute any of the Brand System IP (including the Brand Trademarks), Licensee shall implement such changes, using its commercially reasonable best efforts, and shall cause the Sublicensees to do the same.  Licensee shall also have the same opportunity to discuss such changes or modifications with Licensor, as are set forth in the final sentence of Section 4.1.2.C.

 

5.            QUALITY ASSURANCE AND BRAND STANDARDS

 

5.1          Quality and Brand Standards.  Licensee acknowledges the importance to the reputation and goodwill of the Brands of maintaining high standards of quality in connection with the conduct of the Brand Restaurant Businesses and the associated use of Brand System IP.  For that reason, Licensee shall maintain, and shall cause the Sublicensees to maintain: (i) compliance with the Brand Standards, and (ii) a standard of quality that is at least as high as the standard of quality maintained in the Brand Restaurant Businesses up to and upon the Effective Date in the Territory with regard to the goods and services offered and sold under the Brand Trademarks, and in connection with the use of other Brand System IP in

 

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the Brand Restaurant Businesses. Licensee acknowledges that it is aware of this standard of quality and has experience with maintaining this standard of quality for the Brand Restaurant Businesses prior to, and up to, the Effective Date.

 

5.2          Monitoring Compliance with Brand Standards.  From time to time (as further specified in the Brand Standards), Licensor shall have the right, directly or through its designated representatives, to visit, audit and review the Restaurants and the Brand Restaurant Businesses, including with reasonable advance written notice, market offices, shared services centers and logistics centers, as operated by Licensee and the Sublicensees, for compliance with this Agreement and the Brand Standards, including Brand Standards related to IP compliance, books and records, food safety processes and procedures and standards and governance protocols.  To facilitate any such visit, audit or review, Licensee shall, and shall cause the Sublicensees to:

 

5.2.1      Allow Licensor or its representatives, with reasonable advance written notice, to sample representative products and services of the Brand Restaurant Businesses in which the Brand Trademarks and other applicable Brand System IP are utilized;

 

5.2.2      Permit Licensor or its representatives, with reasonable advance written notice, to visit, audit or review, in addition to Restaurants, any training center, test kitchen, and other facilities of the Brand Restaurant Businesses for purposes of compliance with such of the Brand Standards as may apply thereto;

 

5.2.3      Obtain permissions, consistent with Licensee’s own rights, for Licensor or its representatives to conduct quality control audits or reviews of all vendors and suppliers material to the supply chain supporting the Brand Restaurant Businesses; and

 

5.2.4      Provide representative samples of the advertising and marketing materials using Brand Trademarks and any of the other Brand System IP in connection with the promotion of the Brand Restaurant Businesses in the prior twenty-four (24) months.

 

Upon written notice from Licensor, Licensee shall promptly remediate any non-compliance with the Brand Standards, and shall cause the Sublicensees to do the same. Licensee further agrees, in addition to the procedures set out in the Brand Standards, that: (a) if an audit (including a visit or review) results in Licensor’s discovery of substantial non-compliance with any of the Brand Standards, Licensor may, without limitation of any other remedy available to it, conduct a re-audit (including a visit or review) within a reasonable time following the initial audit in order to determine whether the deficiencies have been corrected, and Licensee shall reimburse Licensor for all reasonable costs incurred by Licensor in connection with any such re-audit.

 

5.3          Adaptation of Brand Standards. The Parties recognize and acknowledge the need to periodically update the Brand Standards to maintain the quality and contemporary look and feel of Brand Restaurant Businesses.  Accordingly, Licensor shall review annually the Brand Standards, taking into account its inspections and the monitoring reports, as described in this Agreement.  Following consultation with Licensee, Licensor may publish and implement modifications to the Brand Standards, all of which shall take into account Licensor’s use of the Brand System IP and associated Brand Standards in Brand Restaurant Businesses in regions other than the Territory, including the related costs, resources and standards in the industry.  Following consultation with Licensee, Licensor may also prescribe an implementation schedule for any newly adopted and published Brand Standards, taking into account costs, resources, standards in the industry and conformity with Licensor’s use of the Brand System IP in Brand Restaurant Businesses in regions other than the Territory.  Licensee may also give Licensor written notice of any proposed change to the Brand Standards that Licensee wishes Licensor to

 

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consider in order to adapt the Brand Standards to market conditions in the Territory. Licensor agrees to give good faith consideration to any such request, but Licensor shall have sole discretion whether to approve or disapprove (or approve with modifications) the proposed change. Licensee shall not implement any proposed change to the Brand Standards, and shall cause the Sublicensees not to implement any such change, unless and until Licensor has expressly approved the proposed change in writing.  Unless otherwise agreed in writing by the Parties, Licensee and the Sublicensees shall bear the cost of compliance with existing Brand Standards and implementation of and compliance with any updated Brand Standards, which may include from time-to-time Brand Standards governing Restaurant assets, including requirements with respect to structural modifications and/or replacement of Restaurant furnishings, fixtures, and equipment.

 

5.4          Annual Strategic Consultation. Annually, unless otherwise re-scheduled by agreement of the Parties, between September 1 and October 31, representatives of Licensor and Licensee, together with senior management personnel of Yum and SpinCo, shall meet in person to review the Brand Restaurant Businesses (but not other businesses owned or operated by Licensee or its Affiliates unrelated to Licensor and its Affiliates), including: (i) Licensee’s Annual Strategic Plan for the upcoming calendar year, (ii) any mutually beneficial opportunities to cross license some or all of each Party’s intellectual property not otherwise licensed under this Agreement, and (iii) any other subject that the Parties agree is relevant to their continuing relationship (“Annual Strategic Consultation”).  Within the preceding parameters, Licensor and Licensee will mutually agree when each Annual Strategic Consultation will be held. Unless otherwise agreed by the Parties, the location of the Annual Strategic Consultations will be at Licensee’s headquarters in the Territory.  Each Party will be responsible for any travel and living expenses incurred by its personnel attending such meetings. A reasonable period of time (not less than thirty (30) calendar days) prior to each Annual Strategic Consultation, Licensee shall provide a draft of Licensee’s Annual Strategic Plan for the upcoming year to Licensor so that the representatives of Licensor may adequately prepare for the meeting. Licensor agrees that all such Annual Strategic Plans are a part of Licensee’s Confidential Information and shall be treated as such in accordance with the terms of this Agreement.

 

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6.            SUBLICENSES

 

6.1          Assignment or Restatement of Existing Sublicenses. Prior to the Effective Date, YumChina caused a number of license agreements to be granted to Sublicensees, whether in the form of trademark license agreements, franchise agreements and other similar documents, providing the Sublicensees with the rights to operate Restaurants (or one Restaurant) in the Territory utilizing the Brand System IP (the “Existing Sublicenses”).  Licensor is a party to some or all of the Existing Sublicenses.  Licensee represents and warrants that prior to the Effective Date, (a) Licensee has entered into restated sublicenses, which sublicenses comply with the requirements for Future Sublicenses set forth in Section 6.2 and which shall become effective on the Effective Date (“Restated Sublicenses”), with each of its Affiliates that is a party to an Existing Sublicense for periods prior to the Effective Date (it being understood that references to Existing Sublicenses herein include references to Restated Sublicenses unless the context otherwise requires), and (b) Licensee has used its best efforts to enter into a Restated Sublicense with each third party that is a party to an Existing Sublicense for periods prior to the Effective Date.  For all Existing Sublicenses that are in effect as of the Effective Date and not represented by a Restated Sublicense (a “Non-Restated Sublicense”), Licensor hereby assigns to Licensee all of Licensor’s rights (other than as to amounts owing to Licensor for periods prior to the Effective Date), and Licensee hereby assumes all of Licensor’s obligations, under the Non-Restated Sublicenses (it being understood that references to Existing Sublicenses herein include references to Non-Restated Sublicenses unless the context otherwise requires).  The Parties agree to cooperate (and Licensee shall cause its Affiliates and, to the extent commercially reasonable, all third party Sublicensees to cooperate) in providing any required notice and in executing any documents and taking any other actions that may be necessary or appropriate in connection with such assignment and assumption.

 

6.1.1       All Existing Sublicenses shall be subject to this Agreement and Licensee shall perform the duties and obligations set forth in this Agreement with respect to the Existing Sublicenses.  Following the Effective Date, Licensee shall use its best efforts to enter into a Restated Sublicense with each third party that is a party to a Non-Restated Sublicense.

 

6.1.2       All royalty fees and other amounts payable to Licensor under the Existing Sublicenses which accrue from and after the Effective Date (the “Assigned Payments”) shall be the property of Licensee. Any Assigned Payments which come into Licensor’s possession shall be delivered promptly to Licensee, and Licensor agrees to forward to Licensee all original documentation supplied by any Sublicensees under the Existing Sublicenses relating to any taxes withheld by them from the Assigned Payments.

 

6.1.3       From and after the Effective Date, Licensee shall have the responsibility in the Territory for managing, administering, protecting and enforcing, in accordance with this Agreement, all Sublicenses.

 

6.2          Grant of Future Sublicenses. Licensee shall be entitled to grant additional Sublicenses for the operation of Restaurants in the Territory during the Term (“Future Sublicenses”); provided, that (i) any Future Sublicense must be evidenced by a written license agreement, franchise agreement or development agreement, the form of which must be approved by Licensor as provided in the last three (3) sentences of this Section 6.2; (ii) no Future Sublicense may reduce or otherwise affect Licensee’s obligations under this Agreement; and (iii) each Future Sublicense shall: (a) include representations and agreements to the effect that neither the Sublicensee nor any of its owners are, or will be, associated with a Competing Business during the term of the Sublicense and for a reasonable period of time following the expiration, termination or transfer of the Sublicense or any interest therein; that neither the Sublicensee nor any of its owners are, or will be, in violation of Section 7.1 of this Agreement (applied mutatis mutandis to the Sublicense); and that the Sublicensee and its owners will adhere to confidentiality

 

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provisions consistent with those in Section 9 of this Agreement, (b) include the obligation to pay the Advertising Assessment, (c) name Licensor a third party beneficiary of the Sublicense with an independent right (but without any obligation) to enforce the Sublicense in the event Licensee fails to do so, (d) grant Licensor an option (but without any obligation) to acquire and assume (directly or through a designee) Licensee’s rights and obligations under the Sublicense upon the expiration or termination of this Agreement or any related interest herein (including any related Brand license granted hereunder), (e) be assignable by Licensee without the Sublicensee’s consent, (f) contain provisions requiring that the Sublicensee and the Restaurants adhere to the Brand Standards, (g) include an immediate right of termination by Licensee upon a Sublicensee Change of Control or prohibited Transfer or a violation of any of the representations and agreements described in Section 6.2(iii)(a) and (h) include provisions regarding Licensor’s ownership of IP consistent with the provisions of this Agreement.  Licensee shall submit to Licensor in advance of its use each form of Future Sublicense (together with a complete and accurate English translation thereof) and Licensor shall have the right, in its sole discretion, to approve, in advance, each such form of Future Sublicense.  Licensee shall not enter into any Future Sublicense that differs from such pre-approved form of Future Sublicense.  Licensee acknowledges and agrees that no such approval by Licensor shall constitute an assurance, representation or warranty of any kind, express or implied, that such agreements comply with Applicable Laws.

 

6.3          Licensee’s Obligations with Respect to the Sublicenses. Licensee shall:

 

6.3.1       Recruit, screen and evaluate prospective Sublicensees for compliance with the minimum qualifications for Sublicensees operating under the Brands, as authorized from time to time by Licensor.  At Licensor’s request, Licensee shall prepare and submit to Licensor, in the form and at the times required by Licensor, a written report regarding each prospective Sublicensee deemed to be qualified by Licensee and shall retain, and upon Licensor’s written demand produce for Licensor’s inspection, a copy of each Sublicense and all related documents.

 

6.3.2       Fulfill its obligations under each Sublicense and cause each Sublicensee to operate its Restaurants in compliance with the Sublicense, this Agreement, the Brand Standards and Applicable Laws.

 

6.3.3       Monitor and enforce prompt and strict compliance by the Sublicensees with all duties and obligations under the Sublicenses. Such enforcement includes (i) delivering prompt written notice of default to any Sublicensee that is in material breach of its Sublicense; (ii) taking all commercially reasonable steps to ensure that the Sublicensee remedies the breach within the applicable cure period (if any); (iii) taking all action necessary to terminate the Sublicense of any Sublicensee that does not remedy the breach; and (iv) initiating and prosecuting (at Licensee’s expense) any legal proceedings necessary to achieve full compliance. Licensee’s failure to perform in a diligent or timely manner any material obligation owed to its Sublicensees or to take such action as may, in the reasonable judgment of Licensor, be necessary to ensure material compliance with the Sublicenses will constitute a material breach of this Agreement.

 

6.3.4       In addition to the reporting requirements set forth in the Brand Standards, within fifteen (15) Business Days from the end of each quarter, Licensee shall notify Licensor, in writing, of: (i) the execution of each Sublicense; (ii) the opening of each Restaurant under a Sublicense; and (iii) any Sublicensee or Restaurant that ceases to do business for any reason. Licensee also shall promptly provide Licensor such additional information as Licensor may request regarding the Sublicensees, Sublicenses and Restaurants to enable Licensor to reasonably determine that Restaurant operations are being conducted in accordance with the Sublicense, this Agreement, Brand Standards and Applicable Laws.  The Parties agree to cooperate in good faith

 

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to establish the formats for pro forma documents that set forth the information that will be shared for the purpose of reporting and other disclosures between the Parties.

 

6.3.5      Without limitation of Licensee’s obligations under Section 7, comply with all Applicable Laws relating to the sublicensing of the Brand Trademarks and other Brand System IP, promoting or soliciting the sale of Sublicenses, offering and selling Sublicenses, and terminating or failing to renew any of the Sublicenses; prepare and timely file (if required) any and all documents required to comply with Applicable Laws; and timely obtain at its own cost any and all approvals and/or registrations necessary for the full and proper conduct of the Brand Restaurant Businesses.  At Licensor’s request, Licensee shall provide to Licensor, at Licensee’s expense, copies of all governmental approvals, registrations, or filings required by Applicable Laws (“Governmental Approvals”) and/or other approvals and registrations obtained pursuant to this Section 6.3.5.

 

6.4          Release and Covenant Not to SueLicensee, for itself and on behalf of all other Licensee Releasing Parties, hereby irrevocably and unconditionally releases, acquits and forever discharges the Licensor Released Parties, from all actions, causes of action, suits, debts, liens, obligations, promises, liabilities, claims, rights, demands, damages, controversies, losses, costs, and expenses (including attorneys’ fees and costs actually incurred), known or unknown, suspected or unsuspected, fixed or contingent, which they now have, own, hold, claim to have, claim to own, or claim to hold, or at any time heretofore had, owned, held, claimed to have, claimed to own, or claimed to hold against each or any of the Licensor Released Parties arising out of or related to the Sublicenses or the performance thereof or conduct thereunder prior to the Effective Date, and Licensee’s obligations to administer the Sublicenses under this Agreement.

 

7.            LEGAL COMPLIANCE

 

7.1          Compliance with Applicable LawsLicensee shall comply with all Applicable Laws in connection with the performance of its obligations under this Agreement, including the operation of the Brand Restaurant Businesses.  For purposes of this Agreement, the term “Applicable Laws” shall mean all applicable common law and all applicable statutes, laws, rules, regulations, ordinances, guidelines, standards, policies and procedures established by any Governmental Authority, including those governing the development, construction, operation and/or promotion of the Restaurants and the safety of the food and other products offered and sold at and from the Restaurants, as in effect on the Effective Date and as may be enacted, modified or amended from time to time thereafter.  Licensee shall also require its Sublicensees, through provisions in the Sublicenses and regular monitoring activities, to comply with all Applicable Laws in the development and operation of the Restaurants and accompanying use of the Brand System IP.  Without limitation of the foregoing, Licensee shall, and shall cause its Affiliates to:

 

7.1.1      Comply with all Applicable Laws and any multilateral international conventions against corrupt business practices or money laundering or relating to anti-bribery and anti-corruption, as they may be amended from time to time, including the Foreign Corrupt Practices Act (15 U.S.C. §78dd-2) and any successor statute; and, without limiting the generality of the foregoing, not offer, promise or pay any money, gift or any other thing of value to any person for the purpose of influencing official actions or decisions affecting this Agreement, any Sublicense, any Restaurant, or any of the Brand Restaurant Businesses, while knowing or having reason to know that any portion of this money, gift or thing will, directly or indirectly, be given, offered or promised to:  (a) an employee, officer or other person acting in an official capacity for any government or its instrumentality; or (b) any political party, party official or candidate for political office.

 

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7.1.2      Comply with, and assist Licensor and Licensor’s Affiliates in their efforts to comply with, all Anti-Terrorism Laws.  Licensee certifies, represents, warrants and agrees that: (a) neither Licensee nor any of its Affiliates nor anyone associated with them is included in any of the Lists; (b) Licensee shall not hire or permit any of its Affiliates to hire (or, if already employed, retain) any individual included in any of the Lists; (c) Licensee has no knowledge or information that it, any of its Affiliates, any of their respective management personnel, or anyone associated with any of them has engaged, are engaged or intends to engage in terrorist activities; and (d) neither the property nor interests of Licensee or any of its Affiliates are subject to being “blocked” under any of the Anti-Terrorism Laws.

 

7.1.3      Execute from time to time, as requested by Licensor, all documentation reasonably required by Licensor to evidence compliance with this Section 7.1.

 

7.2          Notice Requirements. Licensee shall notify Licensor in writing of any breach of Section 7.1 promptly upon learning of any such breach.  In addition, Licensee shall immediately notify Licensor in writing following knowledge of the commencement of any action, suit or proceeding or of the issuance of any order, writ, injunction, award or decree of any court or other Governmental Authority, which may, or does, materially and adversely affect the operation or financial condition of any of the Brand Restaurant Businesses or any of the Restaurants.

 

8.            RECORDKEEPING AND REPORTING

 

8.1          Books and Records.  Licensee shall maintain, in a form suitable for prompt audit or review by Licensor, complete and accurate books of account and records regarding the operation of the Brand Restaurant Businesses and shall cause all of the Sublicensees to do the same with respect to all Restaurants operated by them.  Such books and records shall conform to the requirements, and shall be maintained for the period, set forth in the Brand Standards.

 

8.2          Reports.  In addition to any other reports required under this Agreement, Licensee shall submit to Licensor or its representatives, at Licensee’s expense, all reports (including reports of Gross Revenue and information reasonably deemed necessary by Licensor to determine the success of the Brand Restaurant Businesses or Licensee’s marketing efforts, such as total Restaurant development or customer or transaction counts for the Restaurants) and financial information required by the Brand Standards, at the time and in the form and manner set forth in the Brand Standards. Notwithstanding anything to the contrary herein, (a) Licensee acknowledges that Yum’s securities are publicly owned and, accordingly, that Licensor and Yum may disclose the information included in any report or information (or otherwise obtained by Licensor in connection herewith) required by Applicable Law or the rules of any applicable stock exchange and (b) Licensee agrees that Licensor may use any such information for any valid business purpose, subject to the provisions of Article 9 and the foregoing clause (a).

 

8.3          AuditsUpon reasonable notice and during normal business hours, Licensor or its representatives may conduct an audit or review (and may make copies) of the books and records of the Brand Restaurant Businesses and of any Restaurant. Licensee shall cooperate, and shall require the Sublicensees to cooperate, fully with Licensor in any such audit or review, including reasonable sharing of translation costs.  If an audit or review reveals that Licensee has understated Gross Revenue, then Licensee shall pay Licensor any amount due on the understated Gross Revenue, plus interest at the rate set forth in Section 3.4.1 on any overdue amount from the date payment was due until paid in full.  In addition, if an audit or review reveals that Gross Revenue was understated by two percent (2%) or more, then Licensee shall reimburse Licensor for all costs and expenses incurred by Licensor in connection with the audit or review, including a reasonable allocation for any use of Licensor’s internal audit resources.  Licensor’s receipt and acceptance of any financial statement or report furnished and/or any royalties paid

 

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by Licensee shall not preclude Licensor from questioning the correctness thereof at any time.  The remedies in this Section 8.3 shall be in addition to any other remedies available to Licensor under this Agreement or Applicable Laws.

 

9.            CONFIDENTIALITY

 

9.1          Restrictions on Use of Confidential InformationEach Party acknowledges that the unauthorized use, publication or disclosure of the other Party’s Confidential Information may cause incalculable and irreparable injury to the other Party. Accordingly, each Party agrees to use all commercially reasonable efforts to keep the other Party’s Confidential Information confidential and (except as authorized by this Agreement) not to, directly or indirectly, at any time during or after the Term publish, disclose, use or permit the use of (other than as contemplated in this Agreement) the other Party’s Confidential Information, in whole or in part, or otherwise make the other Party’s Confidential Information available to any unauthorized person without the other Party’s prior written consent, which may be granted or withheld by such other Party in its sole and absolute discretion. Disclosure of Confidential Information in response to a valid order by a court or Governmental Authority which seeks to compel the production of Confidential Information, or as otherwise required by Applicable Law or the rules of any internationally recognized stock exchange on which the securities of Yum or SpinCo are traded, shall not be a breach of this Agreement or a waiver of confidentiality for other purposes; provided, that the Party required to make any such disclosure shall provide prompt written notice to the other Party to enable the other Party to seek a protective order or otherwise prevent such disclosure.

 

9.1.1      Each Party shall grant its employees and representatives access to the other Party’s Confidential Information only to the extent such employees and representatives need-to-know the Confidential Information in order to discharge the Party’s obligations or exercise the Party’s rights under this Agreement, and shall, to the extent permitted by Applicable Law, prohibit its employees and representatives from communicating, divulging, or using the other Party’s Confidential Information, except as may be required by Applicable Law or authorized by this Agreement.

 

9.1.2      If a Party has any reason to believe that a violation of its confidentiality obligations set forth herein has occurred, that Party shall promptly notify the other Party and shall cooperate, at its expense, with the other Party in any action or proceeding deemed necessary or reasonably advisable by the other Party to protect itself against infringement or other unlawful use, including the prosecution of any lawsuit.

 

10.          NON-COMPETITION

 

10.1       In-Term Exclusive Relationship. Licensee acknowledges that Licensor has entered into this Agreement in consideration of and in reliance upon Licensee’s agreement to deal exclusively with Licensor during the Term in connection with the offer and sale of the categories of food products represented by the Brands.  Licensee therefore agrees that, without Licensor’s prior written consent, during the Term Licensee shall not, and shall cause its Affiliates not to, directly or indirectly, Engage in any Competing Business located or operating anywhere within (i) the Territory, or (ii) any other country, province, state or other geographic area in which Licensor or any of its Affiliates (a) have used or registered any of the Brand Trademarks (or similar trademarks) or (b) operate or license others to operate under the Brand Trademarks (or similar trademarks).

 

10.2       Post-Term Restriction on Competition. In order to protect the goodwill and other business interests of Licensor and its Affiliates, Licensee also agrees that for a period of twelve (12) months following the expiration, termination or transfer of this Agreement, and for a period of twelve (12)

 

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months following the expiration, termination or transfer by Licensee of any interest herein (including any Brand license granted hereunder), Licensee shall not, and shall cause its Affiliates not to, directly or indirectly, Engage in any Competing Business located or operating anywhere within (i) the Territory, or (ii) within a ten (10) mile radius of any Restaurant operating under any Brand (in the case of expiration, termination or transfer of this Agreement) or the applicable Brand (in the case of expiration, termination or transfer of an interest herein) in existence at the time of such expiration, termination, or transfer.

 

10.3       Ancillary Agreements. Licensee further agrees that:

 

10.3.1    The covenants in Sections 10.1 and 10.2 contain reasonable limitations as to time, geographical area, and scope of activity to be restrained and do not impose a greater restraint than is necessary to protect the goodwill or other business interests of Licensor and its Affiliates.

 

10.3.2    The covenants in Sections 10.1 and 10.2 will be construed as independent of any other covenant or provision of this Agreement and the existence of any claims Licensee may have against Licensor or any of its Affiliates, whether or not arising from this Agreement, will not constitute a defense to the enforcement by Licensor of such covenants.

 

10.3.3    If all or any portion of a covenant in Section 10.1 or Section 10.2 is held unreasonable or unenforceable by a court, arbitrator or agency having valid jurisdiction in an unappealed final decision to which Licensor is a party, (a) Licensee and Licensee’s Affiliates shall be bound by any lesser covenant (including any lesser time period) subsumed within the terms of such covenant that imposes the maximum duty permitted by Applicable Laws, as if the resulting covenant were separately stated in and made a part of this Agreement, and (b) such decision shall not affect the application of the covenants in any jurisdiction to which such decision does not expressly apply. In addition, Licensor has the right, in Licensor’s sole discretion, to reduce the scope of any obligation set forth in Section 10.1 or Section 10.2 without Licensee’s consent, effective immediately upon notice to Licensee and Licensee shall comply, and shall cause Licensee’s Affiliates to comply, with any obligations as so modified.

 

11.          INDEMNIFICATION AND INSURANCE

 

11.1       IndemnityLicensee shall indemnify, defend, and hold harmless Licensor, its Affiliates (including the Brand Owners), their respective officers, directors, owners, employees, agents, successors, and assigns, and each of them, in their corporate and individual capacities (collectively, the Indemnitees”) from any and all losses, expenses, liabilities and damages any of them may suffer or incur, including reasonable attorneys’ fees, as a result of claims, demands, costs, awards or judgments of any kind or nature, by anyone whomever, and regardless of cause or any concurrent or contributing fault or negligence of any Indemnitee, arising out of or otherwise connected with:  (i) any of the Sublicenses; (ii) the ownership, development, construction, maintenance, operation or promotion of Restaurants or the Brand Restaurant Businesses in the Territory; (iii) any act of omission or commission by YumChina, Licensee, any of Licensee’s Affiliates, any of the Sublicensees, or any of their respective officers, directors, employees, or agents before and after the Effective Date, including any act of omission or commission in connection with the ownership, maintenance, administration, protection and enforcement of the Brand System IP or intellectual property of any kind developed by Licensee or any of its Affiliates or any of the Sublicensees in the Territory on behalf of Licensee, Licensor or any of their respective Affiliates (and, for the avoidance of doubt, such act of omission or commission shall include any act of omission or commission relating to Licensee’s obligation to promptly cause its Affiliates and the Sublicensees and, to the extent commercially reasonable, its contractors and other third parties, to do all acts and execute and deliver to Licensor any and all such documentation required in order to evidence, secure or perfect the vesting in Licensor of all rights, title and interest in and to the Brand System IP or

 

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Future Core IP pursuant to Sections 4.1 and 4.1.3); (iv) any demands or claims by third parties with respect to the use, licensing or sublicensing of the Brand System IP in the Territory, whether such demands or claims relate to the use, licensing or sublicensing of such Brand System IP before or after the Effective Date, excluding demands or claims arising out of or connected with Licensor’s acts or omissions pursuant to Sections 4.3.1 and 4.5 with respect to Brand Trademarks that include a Brand Name; and (v) any breach of any representation or warranty by Licensee under this Agreement.  Licensee’s obligation to indemnify and the right of the Indemnitees to indemnification under this Section 11.1 shall survive the assignment, transfer, termination or expiration of this Agreement or any interest herein.

 

11.1.1    Licensee shall promptly undertake the defense of any legal action related to any of the matters described in Section 11.1, and shall retain, and notify Licensor not less than forty-eight (48) hours prior to retaining, reputable, competent and experienced counsel to represent the interests of any Indemnitee. Licensor shall have the right to approve any counsel engaged to represent the interests of any Indemnitee but shall not unreasonably withhold or condition that approval.  If Licensee or any of its Affiliates and the Indemnitees (or any one of them) are named as co-defendants, and there is a conflict of interest between them such that they cannot be represented by common counsel, then the Indemnitees may retain separate counsel at Licensee’s expense and Licensee shall promptly reimburse the Indemnitees for all costs and attorneys’ fees incurred upon request and as they are incurred. The Indemnitees also shall have the right to obtain separate counsel at their own expense, and shall have the right to participate in the defense of the action and any discussions regarding compromise or settlement.  No Indemnitee shall be required to seek recovery from any litigant or any other third party to recover its indemnified losses, expenses and other amounts.

 

11.1.2    Licensee shall not settle or compromise any legal action in which Licensor or any other Indemnitee is a defendant without the prior written consent of Licensor, which Licensor may grant or withhold in its sole discretion.

 

11.2       Insurance.  In addition to the obligations set forth in Section 11.1, at all times during the Term, Licensee shall keep in effect the minimum types and amounts of insurance required by the Brand Standards, all of which shall satisfy the requirements set forth in the Brand Standards.  Licensee shall provide Licensor evidence of such coverage at the times and in the manner set forth in the Brand Standards. Licensee acknowledges that the insurance coverage required by the Brand Standards does not necessarily represent all possible insurable risks or amounts of loss that may arise out of Licensee’s operation of the Brand Restaurant Businesses, and it is Licensee’s responsibility to obtain any other or additional insurance in connection with the operation of the Brand Restaurant Businesses as Licensee determines to be appropriate.

 

12.          ASSIGNMENT

 

12.1       By Licensor. Licensor and any of its Affiliates may Transfer to any person or entity, without Licensee’s consent: (i) this Agreement, (ii) all or any part of Licensor’s rights or obligations under this Agreement (including any Brand license granted hereunder), and (iii) with respect to any or all of the Brands, their rights in and to the assets of the Brand(s), including any Brand System IP and/or Brand Business IP; provided, that in all cases Licensee’s rights and obligations as set forth in this Agreement shall remain in full force and effect following any such Transfer and, as necessary, will be evidenced by a separate agreement on the same terms and conditions as are in this Agreement.  Without limiting the foregoing, Licensor and any of its Affiliates may offer their securities privately or publicly; may merge with and acquire, or be acquired by, other persons or entities; and may undertake refinancings, recapitalizations, leveraged buyouts or other economic or financial restructurings. The transferee or

 

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assignee shall be solely responsible for the obligations of Licensor arising after the effective date of any such Transfer and Licensor shall be released from any obligations under this Agreement related to the subject of the Transfer that accrue after such date. Licensee agrees promptly to execute any documents reasonably required in connection with any such Transfer. Licensor shall provide advance written notice to Licensee of any such Transfer, as and when such notice is permitted under any applicable legal and contractual restrictions by which Licensor may be bound and, to the extent reasonably possible and permitted by Applicable Laws and any binding commitments imposed by the proposed acquirer, will consult with Licensee in advance regarding any proposed Transfer of any of the Brands if the acquirer is a Competing Business as to the Brand which is the subject of the Transfer.

 

12.2       By Licensee. Except for Licensee’s right to sublicense the use of the Brand System IP to Sublicensees in accordance with this Agreement, Licensee shall not Transfer any interest in, or rights or obligations under, this Agreement or any Sublicense without Licensor’s prior written consent, nor shall Licensee Transfer to any Competitor any Future Brand Business IP used solely in the development or operation of the Restaurants. Licensor may impose any reasonable condition to the granting of its consent to such a Transfer, and in no event shall Licensor be required to consent to such a Transfer if such conditions are not met. Licensee shall notify Licensor in writing prior to any proposed Transfer of any interest in, or rights or obligations under, this Agreement or any Sublicense and shall provide such information related thereto as Licensor may require. Any such purported Transfer occurring by operation of law or otherwise without Licensor’s prior written consent shall constitute a material breach of this Agreement. Any consent by Licensor to such a Transfer shall be without prejudice to Licensor’s rights against Licensee, or to any right or remedy to which Licensor is entitled by reason of any breach or default that occurred before the Transfer. Without limiting the foregoing, it is expressly agreed that Licensor’s consent to such a Transfer shall not waive (i) any payment or other obligation owed by Licensee to Licensor under this Agreement before the Transfer; or (ii) Licensee’s duty of indemnification and defense as set forth in Section 11.1, whether before or after such Transfer; or (iii) Licensee’s obligation to obtain Licensor’s consent to any subsequent Transfer.

 

13.          TERM AND RENEWAL

 

13.1        Initial Term.  This Agreement and each Brand license granted hereunder will become effective on the Effective Date, and, unless sooner terminated as provided in this Agreement, will expire on the fiftieth (50th) anniversary of the Effective Date (the “Initial Term”).

 

13.2.       Renewal. Following the expiration of the Initial Term and each subsequent Renewal Term and provided that Licensee is then in Good Standing, this Agreement and each Brand license granted hereunder shall automatically be renewed for additional consecutive successive renewal terms of fifty (50) years each (each, a “Renewal Term”), unless Licensee gives written notice of its intent not to renew not less than thirty-six (36) months or more than sixty (60) months before the end of the then-current Term.

 

14.          BREACH

 

14.1        Breach of Agreement. A material breach shall be, as determined by Licensor, in its sole discretion, any failure by Licensee to comply with any term or condition in this Agreement where, due to such failure, there is an actual, likely or imminent and material harm to any of the Brands, the Brand System IP or the financial or other material benefits or rights of Licensor hereunder.  For purposes of clarity, a material breach shall include, though shall not be limited to, any of the events listed in Sections 14.1.1 through 14.1.6.   Upon the occurrence of a material breach by Licensee under this Agreement, Licensor may issue to Licensee a written notice of breach identifying the then-known circumstances giving rise to the breach.  To the extent that Licensor determines in its sole discretion that the applicable

 

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breach is curable (i.e., capable of correction within the time periods set forth in this Agreement or the relevant notice of breach), then Licensor shall provide Licensee an opportunity to cure.  Breaches referred to in Sections 14.1.1 through 14.1.4 are non-curable.  Breaches referred to in Section 14.1.5 may be curable or non-curable as determined by Licensor depending on the circumstances.  The following events shall be deemed a material breach:

 

14.1.1            Dissolution or Liquidation. If either Licensee or SpinCo is dissolved or liquidated.

 

14.1.2            Insolvency and Bankruptcy. To the extent permitted by Applicable Law, if either Licensee or SpinCo becomes insolvent, generally does not pay its debts as they become due, or files a voluntary petition (or consents to an involuntary petition or an involuntary petition is filed and is not dismissed within sixty (60) days) under any bankruptcy, insolvency, or similar law, and Licensee cannot prove that such bankruptcy or insolvency has no material adverse effect on Licensee’s operation of the Brand Restaurant Businesses or Licensor or any of Licensor’s Affiliates or any of the Sublicensees.

 

14.1.3            Unauthorized Assignment. If there is a breach of Section 12.2.

 

14.1.4            Change of Control.  If Licensee or SpinCo permits or undergoes a Change of Control of Licensee or SpinCo.

 

14.1.5            Breaches That May be Curable or Non-Curable.  Licensor may determine in its sole discretion that any breach in Sections 14.1.5.A. though G. is curable or non-curable.

 

A.     Criminal Conviction/Adverse Publicity. If Licensee or any of its Affiliates or any of their respective principal officers is convicted of a felony or other similar crime or offense or engages in a pattern or practice of acts or conduct that, as a result of the attendant adverse publicity, is likely to have or has had a material adverse effect on the Restaurants, any of the Brand Restaurant Businesses, any of the Brand System IP, including any of the Brand Trademarks, or the reputation of any of the Brands, Licensor or any of the Brand Owners;

 

B.   Unauthorized Disclosure of Confidential Information; Violation of Non-Compete. If Licensee or any of its Affiliates, or any officer, director, employee, or agent of Licensee or any of its Affiliates, discloses, or causes or fails to exercise commercially reasonable efforts to prevent the disclosure of, or otherwise uses in an unauthorized manner, any Confidential Information in breach of this Agreement, or if Licensee or any Affiliate of Licensee breaches any covenant against competition set forth in Section 10.1;

 

C.   Failure to Comply with Brand Standards or Enforce the Sublicenses. Without limiting Licensor’s rights under Section 14.1.5.E., if Licensee or any of the Sublicensees fails to comply with any of the Brand Standards or if Licensee fails to enforce any of the Sublicenses and such failure has, or is reasonably expected to have, a material adverse effect on any of the Brand Restaurant Businesses, any of the Brand Trademarks or other Brand System IP, or the reputation of the Brands, Licensor or any of the Brand Owners;

 

D.   Loss of Rights in Brand System IP. If Licensee, directly or through the Sublicensees, takes any action that causes, or fails to take any action and such failure causes, or in either case is reasonably likely to cause, in whole or in part, the loss, or imminent loss, of a Brand Owner’s ownership rights in all or any part of the Brand System IP that is material to the conduct of the Brand Restaurant Businesses or the operation of the Restaurants

 

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(including any Brand Trademark that includes a Brand Name) and which Licensor has not approved in writing;

 

E.    Threat or Danger to Public Health or Safety. If Licensee or any of the Sublicensees fails to adhere to the Brand Standards, Applicable Laws, or other generally accepted public health and safety standards, and such failure causes, or is reasonably likely to cause, in whole or in part, a threat or danger, or imminent threat or danger, to public health or safety, then, in addition to Licensor’s rights as set forth in this Section 14 and without prejudice to the remedies set forth in Section 15, in the event of such breach and upon written notice from Licensor, which Licensor may give Licensee in its sole discretion, Licensee shall, and shall cause the Sublicensees to, immediately close any affected Restaurant(s), and shall not reopen, or permit the Sublicensees to reopen, such Restaurant(s) until the threat or danger is remedied.  The Parties agree that operation of the Restaurants and the Brand Restaurant Businesses without endangering the public health or safety is the sole responsibility of Licensee. Licensor does not assume and shall not have any responsibility or obligation therefor by reserving or exercising the rights granted to Licensor hereunder;

 

F.    Failure to Meet Sales Growth Metric.  If, consistent with Section 2.1.3, two (2) consecutive SGM Breaches occur (in which case, the Parties rights and remedies shall be subject to the terms set forth in Section 2.1.3); and

 

G.   Failure to Meet the Taco Bell Brand Development Initiative. If Licensee fails to comply with the Taco Bell Brand Development Initiative (in which case, Licensor’s remedy shall be limited to that set forth in Exhibit A-1).

 

14.1.6    Financial Breach.

 

A.   Failure to Pay Amounts OwedIf Licensee or any of its Affiliates fails to pay any amounts due under this Agreement to Licensor or any of its Affiliates in whole or in part and when such payment becomes due and payable (“Payment Default”), then Licensor may issue a notice of breach to Licensee with respect to such Payment Default.  Licensee shall have twenty (20) Business Days following notice of breach to cure the failure to pay.

 

B.   Chronic Late Payment or Underpayment.  Without limiting Licensor’s other remedies hereunder for any Payment Default, (a) if Licensee fails to make any payment when required under this Agreement (including any applicable Grace Period) (“Late Payment”) (excluding any Late Payment attributable solely to the application of Chinese foreign exchange controls outside Licensee’s control) on three (3) or more occasions during any twenty-four (24) month period, or (b) if any payment made is less than 90% of the amount due (“Underpayment”) on more than one occasion during any twenty-four (24) month period and Licensee fails to comply with Section 14.1.6.C., Licensor may:

 

(i)           Exercise any of the remedies set forth in Section 15 in its sole discretion, including terminating this Agreement and all rights granted to Licensee hereunder immediately upon notice to Licensee, regardless of whether Licensee cured the relevant Late Payments or Underpayment.  Should Licensor elect to terminate this Agreement as a result of a Payment Default, all amounts payable under this Agreement then owed and outstanding, together with accrued interest thereon, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Licensee; or

 

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(ii)          Upon written notice to Licensee, require Licensee to establish and provide to Licensor an irrevocable standby letter of credit in favor of Licensor and in the form required by Licensor (the “Letter of Credit”) from a financial institution accepted and approved by Licensor in its sole discretion (“Bank”) in the minimum amount of projected fees due and owing for the upcoming twenty-four (24) months (the “Secured Amount”).  Evidence of the establishment of the Letter of Credit must be provided to Licensor within ten (10) days following the date of Licensor’s written notice to Licensee of the requirement to obtain the Letter of Credit.  The term of the Letter of Credit shall be for a period of five (5) years, unless Licensor otherwise agrees in writing to a shorter term, subject to Licensor’s right to require an extension of such term in its reasonable discretion.  Licensor shall be permitted to draw upon the Letter of Credit at any time and from time to time during the Term in the event of a Payment Default lasting ten (10) Business Days after Licensor issues a demand for payment to Licensee and by Licensor submitting to the Bank a dated statement signed by a duly authorized representative or officer of Licensor certifying that Licensee is in default of its payment obligations to Licensor under this Agreement in the amount then-owed as of the date of such statement.  In the event the Letter of Credit is ever drawn upon by Licensor, Licensee shall replenish the amount of such Letter of Credit immediately, so that amount of the Letter of Credit is at all times no less than the Secured Amount.

 

C.   Good Faith Disputes Regarding Amounts Due.  If Licensee, in good faith, disputes any amounts due and payable to Licensor or any of its Affiliates then, on the due date, Licensee shall (i) pay the entire amount owed to Licensor or its Affiliate (without regard to such dispute), and (ii) submit to Licensor a written statement identifying in reasonable detail the basis for the dispute (“Payment Dispute Notice”). If it is finally determined in accordance with this Section 14.1.6.C. and Section 17.3. that Licensee is entitled to all or any portion of the disputed amount, Licensor shall refund such amount within ten (10) Business Days following such final determination. The Parties shall promptly attempt to resolve the dispute and failing resolution within thirty (30) days following the earlier of Licensee’s Payment Dispute Notice or Licensor’s notice of breach, either Party may submit the dispute directly to arbitration pursuant to Section 17.3; provided, that the arbitration shall be limited to a determination of whether the disputed amount is owed, and the arbitration panel shall consist of one (1) accounting professional designated by Licensor, one (1) accounting professional designated by Licensee, and one (1) arbitrator experienced in resolving payment disputes that is appointed by CPR.  If the arbitration panel determines that any or all of the disputed amount is owed to Licensor or any of its Affiliates, then Licensee shall pay the disputed amount determined to be owed, to the extent not previously paid to Licensor (and any past due interest owed thereon) within ten (10) Business Days following the panel’s determination and Licensor shall retain any such disputed amount previously paid to it. If the disputed amount previously paid by Licensee to Licensor exceeds the amount determined by the arbitration panel to be owed to Licensor, such excess shall be repaid by Licensor to Licensee.  If the arbitration panel determines that none of the disputed amount is owed to Licensor or its Affiliates, then Licensee shall not be required to pay the disputed amount and the disputed amount previously paid by Licensee to Licensor shall be repaid by Licensor to Licensee.  If Licensee fails to cure a Payment Default, Licensor may exercise any of the remedies set forth in Section 15.

 

14.2       Licensee’s Right to Request Early Termination of Brand License.  Licensee may request an early termination of the license for a particular Brand if Gross Revenue for that Brand has declined for each year during any five (5) consecutive year period during the Term, and Licensee can demonstrate with evidence satisfactory to Licensor that such decline was proximately caused by Licensor’s willful

 

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failure to maintain that Brand outside of the Territory, which willful failure results in material, irreparable damage to that Brand in the Territory, or was proximately caused by a materially adverse change in the Applicable Laws.  Licensee must make such request for early termination and provide such evidence in writing to Licensor within ninety (90) days following any such five (5) consecutive year period of Gross Sales declines for the affected Brand.  Licensor shall consider this request for early termination in good faith.  Any early termination pursuant this Section 14.2 shall be subject to Licensee’s obligations under Section 16.1.1 through Section 16.1.6.

 

15.          ADDITIONAL REMEDIES

 

15.1        Acknowledgments Regarding Breach, Default, and Remedies Provisions. The Parties acknowledge the importance of the relationship between Licensor and Licensee and the difficulties and complexities associated with unwinding that relationship in the event this Agreement should be terminated. In recognition of the foregoing, the Parties further acknowledge and agree that the provisions related to breaches, defaults and remedies under this Agreement, including Sections 14 and 15, were written in a manner intended to both protect Licensor’s interests in the Brands and the Brand System IP and to preserve the relationship between Licensor and Licensee for the Term, by, among other things, affording Licensor a variety of remedies commensurate with the nature, scope, and severity of a particular breach or default and permitting Licensor to elect alternative remedies to termination in the event of a breach or default by Licensee.  However, the Parties expressly acknowledge and agree that certain breaches and defaults may be so severe that Licensor has no reasonable alternative other than to terminate the entire relationship between the Parties, and that it is the Parties’ express intent that Licensor be afforded such discretion.

 

15.2        DefaultsLicensor shall be entitled to give notice of default to Licensee, which shall give rise to the remedies set forth in this Section 15, upon the occurrence of any of the following: (i) any breach by Licensee listed in Sections 14.1.1 through 14.1.4 (as such events are non-curable by their nature); (ii) Licensee’s failure to cure a material breach within the cure period as set forth in the notice of breach; or (iii) Licensor’s determination, prior to the expiration of the applicable cure period, that there exists reasonable evidence that Licensee does not intend to cure, or is unable to cure, the material breach identified in the notice of breach.  Any notice of breach with respect to a curable breach shall set forth an applicable cure period that is reasonably tailored to the applicable breach, provided that the cure period for any SGM Breach shall be at least one (1) year) and in the event that a notice of breach fails to specify a cure period, then the cure period shall be thirty (30) days unless otherwise set forth in this Agreement (for example, as in Section 14.1.6 pertaining to Payment Defaults).

 

15.3        Brand Specific Enforcement. Notwithstanding anything in this Agreement to the contrary and for the avoidance of doubt, Licensor may exercise the rights set forth in Section 14.1 and the remedies set forth in this Section 15 as to one or more, but fewer than all, of the Brand licenses. This includes, without limitation and for illustration purposes only, the right of Licensor to terminate Licensee’s right to operate a particular Brand Restaurant Business for a single Brand, in which event, Licensee would be permitted and required, following the termination, to continue operating the Brand Restaurant Business(es) for the remaining Brand(s) in accordance with the terms and conditions of this Agreement.  Licensee expressly acknowledges and agrees that Licensee’s obligation to pay the royalty fees and other amounts due for the remaining Brand(s) under this Agreement shall not be relieved, limited, or otherwise modified as a result of the expiration and non-renewal or termination of one or more, but fewer than all, of the Brand licenses.

 

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15.4       Available Remedies. Upon Licensor giving Licensee a notice of default under Section 15.2, Licensor may, in its sole discretion, terminate this Agreement and all rights granted to Licensee hereunder immediately upon notice to Licensee. Licensor may also, in its sole discretion, exercise any one or more of the following additional remedies:

 

15.4.1    Institute any and all proceedings permitted by Applicable Laws or in equity with respect to such default, including actions for injunctive and/or declaratory relief (including specific performance) and/or damages;

 

15.4.2    Suspend or limit Licensee’s rights to develop any Restaurant or grant any Sublicenses as determined by Licensor its sole discretion until the default is cured;

 

15.4.3    Prohibit any Restaurant from opening or operating until the default is cured;

 

15.4.4    Eliminate or modify the exclusivity granted in Section 2.2 and immediately conduct and further develop the Brand Restaurant Businesses in the Territory or license one or more third parties to do so;

 

15.4.5    (i) Purchase from Licensee and its Affiliates (which purchase right shall be transferable) the Brand Restaurant Businesses, or any of them, at fair market value, less any damages to Licensor and its Affiliates resulting from Licensee’s default and (ii) in connection with such purchase, at Licensor’s option and for no additional consideration, require the assignment by Licensee to Licensor (or its designee) of all rights of Licensee under any or all Sublicenses then in effect, in which case Licensor (or its designee) shall assume all obligations of Licensee arising thereunder after such assignment and Licensee shall promptly terminate and enforce the termination of all Sublicenses which Licensor elects not to acquire (collectively, the “Licensor Purchase Right”).  Licensor and Licensee will attempt in good faith to agree on the purchase price under subsection 15.4.5(i) and terms and procedures for the exercise of Licensor’s rights hereunder, but if they are unable to agree within a reasonable period of time (not to exceed sixty (60) days), the purchase price, terms and procedures will be determined in accordance with Exhibit D.  Licensee shall, and shall cause its Affiliates to, effect the transfers and assignments contemplated by this Section 15.4.5 upon such date as Licensor determines, including executing such further documents as may be required; and

 

15.4.6    Submit the matter directly to arbitration in accordance with Section 17.3 for the sole purpose of determining the amount of damages or other relief to which Licensor is entitled as a result of the default.

 

15.5       Remedies Cumulative.  In addition to the remedies set forth in this Agreement, the Parties may pursue whatever other remedies are available at law or in equity, and all remedies provided under this Agreement are cumulative and not exclusive of other remedies, unless otherwise expressly stated.

 

16.          POST-TERM OBLIGATIONS

 

16.1       Obligations Following Expiration or Termination. Licensee shall comply, and shall cause any Sublicensee as to which Licensor (or its designees) does not assume the Sublicense under Section 15.4.5(ii) to comply, with the following provisions upon the expiration and non-renewal or termination of this Agreement or of any Brand license granted hereunder. If one or more (but fewer than all) of the Brand licenses expire without renewal or are terminated, the provisions set forth below will apply only with respect to those Brands as to which licenses have expired or been terminated.

 

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16.1.1    Licensee’s right to use and sublicense the use of the Brand System IP shall end and Licensee shall (and shall cause the Sublicensees as to which Licensor does not exercise its subrogation rights to) immediately cease all use of the Brand System IP, including the Brand Trademarks.

 

16.1.2    Licensee shall promptly pay to Licensor all fees and other amounts due under this Agreement.

 

16.1.3    Licensee shall (and shall cause the Sublicensees as to which Licensor (or its designees) does not assume the Sublicense under 15.4.5(ii) to) cease representing itself as a licensee of Licensor and shall promptly cancel all trade name or other registrations relating to its use of any Brand Trademark, and shall notify all third parties (including Internet domain name authorities and directory publishers) of the termination or expiration of Licensee’s right to use any listing, Internet domain name, uniform resource locator, website name, electronic mail address, and search engine metatags and keywords associated with the Brand(s), and shall authorize the transfer of the same to Licensor or its designee.

 

16.1.4    Licensee, at its sole expense, shall (and shall cause the Sublicensees as to which Licensor does not exercise its subrogation rights to) immediately return to Licensor any and all written materials incorporating Licensor’s Confidential Information or shall dispose of such materials as directed by Licensor.

 

16.1.5    Licensee shall comply with its confidentiality and other obligations under Section 9, its post-term non-competition obligations under Section 10.2 and all other obligations under this Agreement that expressly or by their nature survive expiration or termination.

 

16.1.6    Licensee and its Affiliates shall not be entitled to receive any compensation or payment from Licensor as a result of the termination or expiration of this Agreement, whether for actual, consequential, indirect, special, incidental or other damages, costs or expenses, whether foreseeable or unforeseeable (including loss of profits, investments or goodwill), any right to which Licensee hereby waives and disclaims. Licensee recognizes that any enhancement of the Brand goodwill or customer base will be primarily attributable to the Brand Trademarks and other Brand System IP and that Licensee has no right to compensation for any contribution it may have made to any such enhancement of goodwill or customer base. Notwithstanding the foregoing, nothing herein shall require Licensee to waive or disclaim any claim which it may have that is derived from a prior breach of this Agreement.

 

16.1.7    Licensor may exercise the Licensor Purchase Right.

 

17.          DISPUTE RESOLUTION

 

17.1       Governing LawThis Agreement shall be interpreted and construed under the laws of the United States of America and the State of Texas, U.S.A. (without regard to, and without giving effect to, their conflict of laws rules).

 

17.2       Pre-Arbitration Dispute Resolution.  Subject to Section 14.1.6.C.,

 

17.2.1  Prior to submitting any dispute under this Agreement (with the exception of any disputes concerning breaches which Licensor has determined not to be curable) to mediation, arbitration or any court or other tribunal, a Party shall provide written notice of the dispute to the other Party.  Upon

 

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such notice appropriate executives of Licensee and Licensor who have authority to resolve the dispute will meet either in person or by video conference or similar means and shall discuss and use good faith efforts to resolve the dispute. If the dispute cannot be resolved within thirty (30) days of such notice, then the Parties shall submit the claim for resolution to non-binding mediation in accordance with Section 17.2.2.

 

17.2.2  If the Parties are unable to resolve a dispute under this Agreement in accordance with Section 17.2.1, the Parties agree to submit the dispute (with the exception of any disputes concerning breaches which Licensor has determined not to be curable) to non-binding mediation before bringing such dispute to arbitration in accordance with Section 17.3.  The Parties shall select a mediator within twenty (20) days of the date the dispute is submitted to mediation by either Party.  The mediation shall be conducted in English by a mediator mutually and jointly approved by both Parties, and failing agreement of the Parties within the twenty (20) day period, by a mediator appointed by the International Institute for Conflict Prevention and Resolution (“CPR”) in accordance with its mediation rules. The mediation shall be conducted at a location mutually and jointly selected by both Parties within ten (10) days following the date on which the mediator is appointed, and failing agreement of the Parties within such time period, then the mediation will be held in Dallas, Texas, U.S.A.  The costs and expenses of any such mediation, including compensation and expenses of the mediator (and except for the lawyers’ fees incurred by either Party), shall be borne by both Parties equally.

 

17.3        ArbitrationIf the Parties are unable to resolve a dispute under this Agreement by mediation in accordance with Section 17.2.2, then such dispute and any other controversy or claim arising out of or relating to this Agreement, or the breach hereof, including the determination of the scope or applicability of this agreement to arbitrate, shall, upon written request of either Party (the “Arbitration Request”), be determined by arbitration administered by CPR in accordance with the CPR Rules for Administered Arbitration (“Administered Rules”). Subject to Section 14.1.6.C, details of the arbitration are as follows:

 

17.3.1    There shall be three (3) arbitrators.  The panel of three (3) arbitrators will be chosen as follows:  (i) within fifteen (15) days from the date of the receipt of the Arbitration Request, each Party will name an arbitrator; and (ii) the two (2) Party-appointed arbitrators will thereafter name a third, independent arbitrator who will act as chairperson of the arbitral tribunal.  In the event that either Party fails to name an arbitrator within fifteen (15) days following the date of receipt of the Arbitration Request, then upon written application by either Party, that arbitrator shall be appointed pursuant to the Administered Rules.  In the event that, within thirty (30) days from the date on which the second of the two (2) arbitrators was named, the two (2) Party-appointed arbitrators fail to appoint the third, then the third arbitrator will be appointed pursuant to the Administered Rules.

 

17.3.2    The arbitration shall be conducted in English.  Any document that a Party seeks to use that is not in English shall be provided along with an English translation.

 

17.3.3    The place of arbitration shall be Dallas, Texas, U.S.A.

 

17.3.4    The arbitrators shall establish procedures under which each Party will be entitled to conduct discovery.

 

17.3.5    The arbitrators shall award to the substantially prevailing party (as determined by the arbitrators) the costs and expenses of the proceeding, including reasonable attorneys’ and experts’ fees.

 

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17.3.6    The arbitrators will issue a reasoned award.

 

17.3.7    Notwithstanding any language herein to the contrary, the Parties agree that the award rendered by the arbitrators (the “Original Award”) may be appealed under the CPR Arbitration Appeal Procedure (“Appeal Procedure”).  Appeals must be initiated within thirty (30) days of receipt of an Original Award, in accordance with Rule 2 of the Appeal Procedure, by filing a written notice with CPR.  The Original Award shall not be considered final until after the expiration of the time for filing the notice of appeal pursuant to the Appeal Procedure.  Following the appeal process, either (i) the Original Award, if no changes have been made by the appellate Tribunal, or (ii) the appellate award, if the Original Award has been changed by the appellate tribunal, may be entered in any court having jurisdiction thereof.  Unless otherwise agreed by the parties, the appeal shall be conducted at the place of the original arbitration.

 

17.3.8    Any award rendered by the arbitrators that is not appealed in accordance with the foregoing provisions or that is not modified by the appeal tribunal, and any award as modified or established by the appeal tribunal, shall be final and judgment may be entered thereon in any court having jurisdiction thereof.

 

17.3.9    Each Party retains the right to apply to any court of competent jurisdiction for provisional and/or conservatory relief, including prearbitral attachments or injunctions, and any such request shall not be deemed incompatible with the agreement to arbitrate or a waiver of the right to arbitrate.  In any action or arbitration, the Party who is aggrieved by any actual or threatened breach of this Agreement shall have the right to specific performance and injunctive or other equitable relief, in addition to any and all other rights and remedies, and the Parties agree the monetary damages are inadequate compensation for any loss.

 

17.3.10  The existence and content of the arbitral proceedings and any rulings or award shall be kept confidential by the Parties and members of the arbitral tribunal except (i) to the extent that disclosure may be required of a Party to comply with Applicable Laws or the rules of any applicable stock exchange, protect or pursue a contractual right or perform a contractual obligation, or enforce or challenge an award in bona fide legal proceedings before a court or other judicial authority, (ii) with the consent of all Parties, (iii) where needed for the preparation or presentation of a claim or defense in arbitration, (iv) where such information is already in the public domain other than as a result of a breach of this Section, or (v) by order of the arbitral tribunal upon application of a Party.

 

17.4       Limitations Period.  Any claim arising out of or relating to this Agreement shall be governed by the statute of limitations under the governing law set forth in Section 17.1.

 

17.6       Enforcement Costs.  Each Party shall bear its own legal costs (including attorneys’ and experts’ fees, and all other expenses) incurred in enforcing this Agreement or in otherwise pursuing, or defending against, a claim, demand, action, or proceeding under or in connection with this Agreement

 

18.          REPRESENTATIONS AND WARRANTIES

 

18.1       By Licensor.  Licensor represents, warrants and covenants that:

 

18.1.1    It has the full right, power and authority to enter into this Agreement, to grant the rights granted herein and to perform its obligations hereunder.

 

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18.1.2    Neither its execution of this Agreement nor the performance of its obligations hereunder: (i) violates any provision of Applicable Laws or any judgment, writ, injunction, order, or decree of any court or other Governmental Authority having jurisdiction over it or any of its Affiliates; (ii) results in or constitutes a material breach or material default under any indenture, contract, commitment, or restriction to which it or any of its Affiliates is a party or by which it or any of its Affiliates is bound; or (iii) requires any consent, vote, or approval which has not been given or taken.

 

18.2       By Licensee.  Licensee represents, warrants and covenants that:

 

18.2.1    It has the full right, power and authority to enter into this Agreement and to perform its obligations hereunder.

 

18.2.2    Neither its execution of this Agreement nor the performance of its obligations hereunder: (i) violates any provision of Applicable Laws or any judgment, writ, injunction, order, or decree of any court or other Governmental Authority having jurisdiction over it or any of its Affiliates; (ii) results in or constitutes a material breach or material default under any indenture, contract, commitment, or restriction to which it or any of its Affiliates is a party or by which it or any of its Affiliates is bound; or (iii) requires any consent, vote, or approval which has not been given or taken.

 

19.          GENERAL PROVISIONS

 

19.1       Independent Contractor.  Licensor and Licensee are independent contractors.  Neither Party shall hold itself out as a partner, joint-venturer, affiliate, associate, agent, employee, or legal representative of the other.  Neither Party is authorized (and shall not represent that it has the right) to act for or on behalf of the other, to legally bind the other, or to make any agreement, warranty, covenant, or other representation or create any express or implied obligation on behalf of the other. Without limiting the foregoing, Licensee and the Sublicensees are solely responsible for the hiring, firing, supervision, compensation and training of all employees of the Brand Restaurant Businesses and no employment relationship shall exist between Licensor and any employees of Licensee or any Sublicensee. Licensee and the Sublicensees are solely responsible for collecting and paying when due all applicable employment taxes, workers’ compensation contributions, employment insurance premiums, and all similar taxes and charges arising out of the employment relationship between Licensee or any Sublicensee and its employees.

 

19.2       Severability. If any provision of this Agreement is finally determined by a court of competent jurisdiction or by an arbitration panel authorized to make such a determination under Section 17.3 to be void, invalid or unenforceable for any reason, then that provision shall be reformed to the minimum extent required to render it legal, valid, and enforceable and to preserve the Parties’ original intent and the validity and enforceability of the remaining provisions of this Agreement. Notwithstanding the foregoing, if reformation is not possible, the void, invalid or unenforceable provision shall be deemed to be severable and the remainder of this Agreement shall be and remain valid and in full force and effect; provided, that the terms of this Agreement shall be equitably adjusted so as to compensate the appropriate Party for any consideration lost because of the elimination of any such void, invalid or unenforceable provision.  If any provision of this Agreement is susceptible to two or more constructions, one of which would render the provision enforceable and the other or others of which would render the provision unenforceable, then the provision shall be given the meaning that renders it enforceable.  Notwithstanding the foregoing, if any arbitration panel or court or other Governmental Authority determines that one or more provisions is invalid, illegal or unenforceable, and such determination would, in the reasonable opinion of Licensor, frustrate any of the essential purposes of this Agreement as determined by Licensor,

 

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then Licensor may terminate this Agreement immediately upon notice to Licensee.  Without limiting what Licensor may determine to be an essential purpose of this Agreement, each of the following Sections (and any defined term to the extent used in that Section) is agreed to be an essential purpose of this Agreement:  Sections 2.1 (other than 2.1.1), 2.3, 3.1, 3.2, 3.4, 4.1 through 4.6, 5.1, 5.2, 6.1 through 6.3, 9, 10, 12.2, 14, 15, 16, and 17.

 

19.3       Waiver; Consents and Approvals; Discretion. A Party’s waiver of any particular right or breach or default shall not affect or impair that Party’s later exercise of that right or the remedies relating to a breach or default of the same or a different kind, nor shall any delay, forbearance or omission of either Party to exercise any right arising out of this Agreement or any remedies relating to a breach or default, affect or impair that Party’s rights as to the same or any future exercise of that right or breach or default.  A Party’s acceptance of any payment due to it shall not be deemed a waiver of any preceding breach of this Agreement.  Any consent, approval, authorization or waiver granted under this Agreement will be valid only if in writing and signed by the Party to be charged. Licensor makes no warranties or guaranties and assumes no liability or obligation by providing any waiver, approval, or consent under this Agreement, or by reason of any neglect, delay, or denial of any request therefor. Without limitation of the foregoing, Licensor shall have no liability in connection with or related to the products or services offered or sold at and from any of the Restaurants, even if Licensor required, approved or consented to the product or service. Any provision of this Agreement that grants a Party the right to exercise its discretion shall be construed, unless otherwise conditioned or limited, to mean that Party’s sole and absolute discretion.

 

19.4        Notices and Other Material Communications. Any notice, demand, report or other communication between the Parties with respect to this Agreement or provided for herein must be in writing, in the English language and signed by the Party serving the same and delivered by hand with receipt or by a reputable courier service with tracking capability to the other Party at its address listed on the signature page to this Agreement. Notices will be deemed to have been received if delivered as provided in this Section 19.4. The Party serving the notice shall have the burden of establishing that the notice was received by the other Party, but receipt shall be deemed proven by any third-party carrier’s written verification (including a standard form receipt in paper or electronic form) of its delivery of the notice to the other Party at the address listed on the signature page.  Each Party may change its address by delivering written notice to the other Party identifying the new address.

 

19.5        Amendments. Except as otherwise expressly provided in this Agreement, this Agreement and the Brand licenses granted hereunder may be modified or amended only in writing executed by an authorized representative of each Party.

 

19.6        Binding Effect. The terms of this Agreement shall inure to the benefit of and be binding upon each Party and each Party’s permitted successors and assigns.

 

19.7        Governmental Approvals. If any Governmental Approvals must be obtained to enable the Parties to enter into and perform this Agreement, then Licensee will, at Licensee’s expense and with Licensor’s reasonable assistance (as needed), use its best efforts to obtain any such Governmental Approval, including Government Approvals with respect to the operation of the Brand Restaurant Businesses, payment of amounts required under this Agreement, and the offer and sale of Future Sublicenses.  Neither Party shall apply for any Governmental Approval until the other Party has had an opportunity to review, comment on and consent (not to be unreasonably withheld) to all materials to be filed with any Governmental Authority.  Neither Party shall be obligated to consent to any modification of this Agreement pursuant to or in order to obtain any discretionary Governmental Approval, and the Parties agree that the rights, licenses and privileges granted to Licensee under this Agreement are not meant to be increased or expanded by any Governmental Approval.  If the consequence of any

 

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Governmental Approval is to alter or increase the rights or economic benefits of one Party to the detriment of the other, then the Parties shall cooperate in good faith to amend this Agreement as necessary to restore their respective rights and benefits to the status that existed prior to the implementation of such Governmental Approval.

 

19.8        Entire Agreement. This Agreement and all schedules, exhibits, and information incorporated into this Agreement by reference, collectively constitute the entire agreement between the Parties in respect to the subject matter hereof, and supersede all prior understandings or agreements between them in connection with the subject matter of this Agreement.  There are no representations, arrangements, understandings or agreements, oral or written, between the Parties relating to the subject matter of this Agreement except those fully expressed herein and each Party disclaims any reliance on any such representations, arrangements, understandings, or agreements except those expressed herein, and no officer, employee, representative or agent of either Party has been or is authorized to make any representation, warranty, or promise not contained in this Agreement.

 

19.9        Survival. The limitations and obligations under this Agreement that, expressly or by their terms, extend beyond the transfer, expiration, or termination of this Agreement or any Brand license granted hereunder shall survive that transfer, expiration, or termination, including the obligation to pay all amounts due (including fees and related obligations pursuant to Section 3), and the provisions of Section 9 (confidentiality), Section 10 (non-competition), Section 11.1 (indemnity), Section 14 (breach), Section 15 (additional remedies), Section 16 (post-term obligations), Section 17 (dispute resolution), and Section 19 (general provisions).

 

19.10     ConstructionA reference in this Agreement to “including” (or “include” or like term) will not be construed restrictively but will mean “including (or “include” or like term) without prejudice to the generality of the foregoing” and “including (or “include” or like term) but without limitation”.  The term “shall” is a term of obligation.  References to this Agreement will include any Recitals and Exhibits to it, and references to Sections are (unless otherwise indicated) to the sections of this Agreement.  The headings are for convenience only and will not affect the interpretation of this Agreement. Unless the context otherwise requires or permits, references to the singular number will include references to the plural number and vice versa; references to a “person” will include any company, limited liability partnership, association, partnership, business trust, unincorporated association or other entity; references to a company will include any company, corporation or any body corporate, wherever incorporated; and words denoting any gender will include all genders.

 

19.11     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 (it being agreed that delivery of a manual, stamp or mechanical signature, whether in person, by courier, by facsimile or by e-mail in portable document format, shall be effective).

 

19.12     Sublicensees Not Third Party Beneficiaries.  The provisions of this Agreement do not and are not intended to confer upon any Sublicensee any rights or remedies hereunder.

 

[Signature page follows]

 

40



 

IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Agreement to be effective as of the Effective Date.

 

 

 

 

 

LICENSOR:

 

Yum! Restaurants Asia Pte. Ltd.

 

 

 

 

By:

/s/ Vinod Mahboobani

 

Name:

Vinod Mahboobani

 

Title:

Director

 

 

 

 

Address:

 

 

Yum! Restaurants Asia Pte. Ltd.

 

99 Bukit Timah Road, #06-00

 

Singapore 229835

 

Attention: Vinod Mahboobani

 

 

 

 

LICENSEE:

 

Yum Restaurants Consulting (Shanghai) Company Limited

 

 

 

 

By:

/s/ Mark Chu

 

Name:

Mark Chu

 

Title:

Legal Representative

 

 

 

 

Address:

 

 

Yum Restaurants Consulting (Shanghai) Company Limited

 

16/F Two Grand Gateway, 3 Hongqiao Road

 

Shanghai, the People’s Republic of China

 

Attention: Mark Chu

 

[Signature Page to Master License Agreement]

 



 

EXHIBIT A

 

BRANDS AND BRAND OWNERS

 

Brand

 

Name and Address of
Brand Owner

 

 

 

KFC

 

Kentucky Fried Chicken International Holdings, Inc.

 

 

 

Pizza Hut
(including Pizza Hut Dine-In and Pizza Hut Home Service)

 

Pizza Hut International, L.L.C.

 

 

 

Taco Bell

 

Taco Bell Corp.

 



 

EXHIBIT A-1

 

TACO BELL BRAND DEVELOPMENT INITIATIVE

 

The Parties acknowledge and agree that the following provisions regarding the Taco Bell Brand are part of the Master License Agreement (the “Agreement”):

 

1.            Notwithstanding anything in the Agreement to the contrary, the license covering the Taco Bell Brand and associated Brand System IP is expressly conditioned on Licensee’s fulfillment of the Taco Bell Brand Development Initiative set forth below:

 

There shall be at least 100 Restaurants open and operating in the Territory under the Taco Bell Brand as of December 31, 2022.

 

2.            If Licensee fails to satisfy the Taco Bell Brand Development Initiative set forth in this Exhibit A-1, Licensor may, at its option upon written notice to Licensee, terminate Licensee’s right to enter into new Taco Bell Sublicenses (including new single unit franchise agreements under any then-existing multi-unit development arrangement) and the territorial protections set forth in Section 2.2 of the Agreement with respect to the Taco Bell Brand.  However, in such event, Licensee would continue to have the right and obligation to support the Taco Bell Sublicenses in effect as of the effective date of the termination, in accordance with the terms of the Agreement and such Sublicenses.  Licensee acknowledges and agrees that any multi-unit development rights for Taco Bell Restaurants granted to a Sublicensee shall be expressly contingent upon Licensee’s possession of development rights for Taco Bell Restaurants under the Agreement at the time the Sublicensee seeks to exercise its rights.

 



 

EXHIBIT B

 

CATEGORIES AND SOURCES OF BRAND STANDARDS

 

This Exhibit B refers to categories and sources of Brand Standards currently published by Licensor and accessible to Licensee. The Brand Standards may be amended by Licensor from time to time in accordance with this Agreement.

 

·                  Trademark Standards (including Trademark Maintenance and Registration Standards) as set forth in the Brand Standards Manual provided to Licensee by Licensor

 

·                  Quality Assurance Standards as set forth in the Brand Standards Manual provided to Licensee by Licensor Advertising and Marketing Standards as set forth in the Brand Standards Manual provided to Licensee by Licensor

 

·                  Asset Standards as set forth in the Brand Standards Manual provided to Licensee by Licensor

 

·                  Governance Standards as set forth in the Brand Standards Manual provided to Licensee by Licensor

 

·                  Reports and Financial Information as set forth in the Brand Standards Manual provided to Licensee by Licensor

 



 

EXHIBIT C

 

CROSS LICENSED IP

 

Trademark

 

Class

 

Registration
No.

 

Registrant

 

Note

九珍

 

32

 

4417760

 

Kentucky Fried Chicken International Holdings, Inc.

 

This mark has been licensed to East Dawning and Little Sheep. It is subject to the three-year remaining use period.

安心

 

30

 

6444522

 

Yum! Restaurants Asia Pte Ltd

 

This mark has been licensed to KFC China. It has just been assigned to East Dawning on July 4, 2016. It is not subject to the three-year remaining use period.

 



 

EXHIBIT D

 

LICENSOR PURCHASE RIGHT PROCEDURES

 

1.            INITIAL AGREEMENTS

 

1.1          No Frustration of Purpose.  From and after the Effective Date and throughout the Term, Licensee shall not, and shall cause each of its Affiliates not to, take any action that, or fail to take any action if such failure, would adversely affect the ability of any such Person to perform such Person’s obligations under this Exhibit D or the consummation of the transactions contemplated by this Exhibit D with respect to all or any of the Assets.

 

2.            DEFINED TERMS; DESIGNEE; INTERPRETATION

 

2.1          Defined Terms.  As used in this Exhibit D, any terms defined herein have the meanings set forth herein and all other capitalized terms are defined as they appear in the body of the Agreement to which this Exhibit D is attached.

 

2.2          Designee.  Licensee acknowledges and agrees that Licensor shall have the right to designate one or more Persons to exercise any or all of Licensor’s rights pursuant to Section 15.4.5 of the Agreement, pursuant to this Exhibit D or otherwise in respect of the Purchase Right, including to purchase any or all of the Selected Assets.  For purposes hereof, “Designee” means the Person or Persons designated by Licensor to exercise any or all of such rights.  If the Designee includes more than one Person, when exercising a right of Licensor under the Agreement or under this Exhibit D, such Persons shall act collectively through a designated representative.

 

2.3          Interpretation.  Where any right, determination or other decision of Licensor (or its Designee) is granted, required, authorized or otherwise permitted under this Exhibit D, Licensor (or its Designee) shall have the right to exercise such right, make such determination or decide such matter in its sole and absolute discretion.  For the avoidance of doubt, no exercise by Licensor (or its Designee) of the Purchase Right with respect to a default (or subsequent abandonment thereof) shall waive or be deemed to waive any further exercise by Licensor of its rights under Section 15.4.5 of the Agreement in respect of any other default by Licensee or any exercise by Licensor of its rights under any other provision of Section 15.4 of the Agreement in respect of the default that resulted in Licensor’s exercise of the Purchase Right.

 

3.            LICENSOR PURCHASE RIGHT

 

3.1          General.  The provisions of this Exhibit D shall apply to establish the purchase price, terms and procedures applicable in the event Licensor (or its Designee) exercises its right to purchase one or more Brand Restaurant Businesses pursuant to Section 15.4.5 of the Agreement (the Brand Restaurant Businesses to be so purchased, the “Selected Brand Restaurant Businesses”) and Licensor (or its Designee) and Licensee are unable to agree upon the purchase price therefor pursuant to Section 15.4.5(i) of the Agreement or the terms and procedures contemplated by Section 15.4.5 of the Agreement on or before the Negotiation End Date.  For purposes hereof, the “Negotiation End Date” means the date that is sixty (60) days after Licensor (or its Designee) gives notice to Licensee of Licensor’s (or its Designee’s) exercise of Licensor’s (or its Designee’s) right to purchase the Selected Brand Restaurant Businesses pursuant to Section 15.4.5 of the Agreement.

 



 

3.2          Purchase Right.  From and after the applicable Negotiation End Date, Licensor (or its Designee) shall have the right (the “Purchase Right”) to purchase, free and clear of any liens (other than immaterial liens incurred in the ordinary course of business), all right, title and interest of Licensee and its Affiliates in, to and under all or any of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether now existing or hereafter acquired, that are used or held for use in connection with, or otherwise related to, the Selected Brand Restaurant Businesses (collectively, the “Assets”).  Licensee acknowledges and agrees that Licensor (or its Designee) may, in connection therewith and under this Exhibit D, purchase all or any of the Assets of the Selected Brand Restaurant Businesses, as determined in accordance with this Exhibit D (the Assets to be so purchased, the “Selected Assets”).

 

4.            STRUCTURE AND PRICE

 

4.1          Due Diligence.  In addition to the continuing rights to audit and review the books and records of the Brand Restaurant Businesses contemplated by Section 8.1 of the Agreement, the Licensor Parties shall have the right to perform reasonable due diligence on each of the Brand Restaurant Businesses.  For purposes hereof, “Licensor Parties” means Licensor and its Affiliates and any of their respective representatives and designees (including any Designee and its representatives).  Licensee shall, and shall cause its Affiliates to, provide information to, and reasonably cooperate with, the Licensor Parties in connection with such due diligence (including by responding to any due diligence requests and promptly including requested information and documents in a data room, in each case as reasonably requested by any Licensor Party).  In furtherance of and without limiting the foregoing, should any Licensor Party at any time request a financial institution to extend credit to it in connection with the exercise of the Purchase Right, and should such financial institution request access to information regarding any of the Brand Restaurant Businesses, then Licensee shall, and shall cause its Affiliates to, grant such financial institution the same access to the books and records of the Brand Restaurant Businesses as is granted to Licensor in Section 8.1 of the Agreement and access to the due diligence information responsive to any Licensor Party’s requests under this Section 4.1 of this Exhibit D.

 

4.2          Structure.  Provided that Licensee has complied with its obligations under Section 4.1 of this Exhibit D, Licensor (or its Designee) shall deliver to Licensee within ninety (90) days after the Negotiation End Date written notice (the “Structure Notice”) of Licensor’s (or its Designee’s) determination of the Selected Assets to be purchased in connection with the exercise of the Purchase Right and the structure for the purchase of the Selected Assets, which may be a purchase of shares or other equity interests of Licensee or any of its Affiliates that owns Selected Assets, a purchase of Selected Assets or a combination thereof (the date of delivery of such notice, the “Structure Determination Date”); provided, in the event that Licensee has breached its obligations under Section 4.1 of this Exhibit D, the Structure Determination Date shall be extended by one day for each day Licensee was in breach of such obligations.  For the avoidance of doubt, Licensor (or its Designee) may exclude Assets (including contracts or employees), as determined in its sole discretion, and no structure shall require (and Licensee shall not be entitled to require) the purchaser of any Selected Assets to assume or be liable for any Excluded Liabilities.  From and after consummation of the purchase of the Selected Assets pursuant to this Exhibit D, Licensee shall indemnify and hold harmless the Licensor Parties from and against all Excluded Liabilities related to the Selected Brand Restaurant Businesses, other than those liabilities (if any) Licensor (or its Designee) agrees to assume in connection with the exercise of the Purchase Right as set forth in the Structure Notice (such liabilities, if any, the “Assumed Liabilities”).  For purposes hereof, “Excluded Liabilities” means any and all liabilities, duties, responsibilities, assessments, costs, expenses, losses, expenditures, charges, fees, penalties, fines, contributions, premiums and obligations of any kind of Licensee or any of its Affiliates, whether known or unknown, asserted or unasserted, liquidated or unliquidated, to the extent relating to or arising during any period of time prior to the closing of the purchase of the Selected Assets.  As set forth in Section 15.4.5 of the Agreement, as part of the exercise

 



 

of the Purchase Right, Licensor (or its Designee) may, for no additional consideration, require the assignment by Licensee to Licensor (or its Designee) of all rights of Licensee under any or all Sublicenses then in effect, in which case Licensor (or its Designee) shall assume all obligations of Licensee under the Sublicenses so assigned (the “Selected Sublicenses”) to the extent arising after such assignment (which shall be included as Assumed Liabilities) and Licensee shall promptly terminate and enforce the termination of all Sublicenses which Licensor (or its Designee) elects not to have assigned to Licensor (or its Designee).

 

4.3          No Obligation to Purchase.  Licensee acknowledges and agrees that nothing in this Exhibit D or the Agreement requires any Licensor Party to purchase any or all of the Assets of any Brand Restaurant Business, and any Licensor Party’s obligations to purchase any or all of such Assets shall be contained in, and subject to execution by such Licensor Party of, a definitive purchase agreement, which any such Licensor Party may decline to do at any time for any reason.

 

4.4          Price Determination.

 

4.4.1      Each of Licensor (or its Designee) and Licensee shall, within twenty (20) days after the Structure Determination Date, designate (and notify the other of the designation of) an investment banking firm of recognized international standing to determine the Fair Market Value of the Selected Assets (the date on which each of Licensor (or its Designee) and Licensee has notified the other of such designation, the “Banking Firm Appointment Date”) and shall instruct such investment banking firms to jointly designate the Designated Valuation Firm within thirty (30) days after the Banking Firm Appointment Date.  For a period of thirty (30) days after the Banking Firm Appointment Date, each investment banking firm shall consult with the other investment banking firm to determine its initial view as to the Fair Market Value of the Selected Assets.  For purposes hereof, “Fair Market Value” means the cash price that an unaffiliated third party would pay to acquire the Selected Assets (after giving effect to the assumption by Licensor (or its Designee) of the Assumed Liabilities) in an arm’s-length transaction as an on-going concern; provided, that such determination shall be made (i) assuming Licensor (or its Designee) would be required to pay to an unaffiliated third party a royalty of 3% of gross revenues in order to continue the operation of the Selected Assets and (ii) on the basis of the structure for the purchase designated by Licensor (or its Designee) in the Structure Notice, and “Designated Valuation Firm” means the investment banking firm jointly designated by the investment banking firms initially appointed pursuant to this Section 4.4 of this Exhibit D (or otherwise designated in accordance herewith) to determine the Fair Market Value, which is neither an Affiliate of Licensee or Licensor (or its Designee) nor has performed any significant work for Licensee or Licensor (or its Designee) or any of their respective Affiliates within the prior two (2) years.  Notwithstanding the foregoing and the other provisions of this Section 4.4 of this Exhibit D, in the event (x) either Licensor (or its Designee) or Licensee fails to notify the other of its selected investment banking firm within the time period specified in this Section 4.4.1 of this Exhibit D, such Person shall have waived its rights to appoint an investment banking firm and the determination of the Fair Market Value shall be made solely by the investment banking firm of the Party which did appoint an investment banking firm within such time period (which banking firm shall, in such case, constitute the Designated Valuation Firm) or (y) the two investment banking firms selected by Licensor (or its Designee) and Licensee do not appoint the Designated Valuation Firm within thirty (30) days after the Banking Firm Appointment Date, the Designated Valuation Firm shall be selected pursuant to the Administered Rules.  Each of Licensee and Licensor (or its Designee) shall execute an engagement letter with the Designated Valuation Firm in customary form reasonably acceptable to Licensee, Licensor (or its Designee) and the Designated Valuation Firm.

 

4.4.2      Within forty-five (45) days after the Banking Firm Appointment Date, each investment banking firm shall determine its final calculation of the Fair Market Value and shall deliver such final calculation to each of Licensor (or its Designee), Licensee and the Designated Valuation Firm.

 



 

Upon receipt of such final calculations, the Designated Valuation Firm shall, within fifteen (15) days, determine its final calculation of the Fair Market Value by selecting either the Fair Market Value as calculated by the investment banking firm selected by Licensor (or its Designee) or the Fair Market Value as calculated by the investment banking firm selected by Licensee.

 

4.4.3      Licensee shall, and shall cause its Affiliates to, provide reasonable access by each of the designated investment banking firms and the Designated Valuation Firm to members of management of Licensee and its Affiliates and to the books and records of the Selected Brand Restaurant Businesses so as to allow such investment banking firms and the Designated Valuation Firm to conduct due diligence examinations in scope and duration as are customary in valuations of this kind.

 

4.4.4      Each of Licensee and Licensor agrees to (and agrees to cause its Affiliates and, with respect to Licensor, its Designee to) cooperate with each of the investment banking firms and the Designated Valuation Firm and to provide to them such information as may reasonably be requested.  Costs of the Designated Valuation Firm provided for in this Section 4.4 of this Exhibit D shall be borne equally by Licensee, on the one hand, and Licensor (or its Designee), on the other hand, with each of Licensee and Licensor (or its Designee) bearing the cost of its own selected investment banking firm.

 

5.            CERTAIN COVENANTS

 

5.1          Purchase Agreement.

 

5.1.1      From and after the Structure Determination Date, Licensee and Licensor (or its Designee) shall each use its commercially reasonable efforts acting in good faith to negotiate and enter into a definitive purchase agreement (the “Purchase Agreement”) and other reasonably necessary or appropriate definitive agreements, including assignment agreements, bills of sale and/or other instruments of conveyance and assignment (collectively, with the Purchase Agreement, the “Definitive Agreements”), with regard to the purchase of the Selected Assets.  For the avoidance of doubt, the Purchase Agreement shall: (a) contain customary representations, warranties, covenants and conditions, including representations and warranties regarding organization and qualification, authority, no conflicts, consents, financial statements, absence of liabilities, absence of certain changes/events, material contracts, title to the Selected Assets, condition of the Selected Assets, real property, inventory, accounts receivable and payable, insurance, legal proceedings, governmental orders, compliance with laws (including employee-related laws and laws relating to corrupt business practices, money laundering, anti-bribery and anti-corruption), permits, environmental matters, tax matters, employee matters and brokers and, if the purchase involves the purchase of shares or other equity interests, title to equity interests, capitalization and subsidiaries; (b) contain customary provisions regarding the indemnification of the Licensor Parties in respect of the Excluded Liabilities as contemplated by Section 4.2 of this Exhibit D and breaches of representations, warranties and covenants; (c) be governed by the law of the State of Texas, U.S.A.; and (d) be consistent with the provisions of this Exhibit D.

 

5.1.2      If Licensee and Licensor (or its Designee) are unable to negotiate and enter into the Purchase Agreement within forty-five (45) days after the Structure Determination Date, then Licensor (or its Designee) may either (x) abandon pursuit of its Purchase Right (it being understood that such abandonment shall not waive or be deemed to waive any further exercise by Licensor of its rights under Section 15.4.5 of the Agreement in respect of any other default by Licensee or any exercise by Licensor of its rights under any other provision of Section 15.4 of the Agreement in respect of the default that resulted in Licensor’s exercise of the Purchase Right so abandoned) or (y) have any outstanding provisions within the Definitive Agreements determined by arbitration administered by CPR in accordance with the Administered Rules as modified by the procedures set forth in this Section 5.1 of this Exhibit D as follows:

 



 

(a)          If Licensor (or its Designee) elects to have the Definitive Agreements determined by arbitration, it shall so notify Licensee.  Within thirty (30) days after the date such notice is given (the date such notice is given, the “Definitive Agreement Arbitration Notice Date”), each of Licensee and Licensor (or its Designee) shall designate (and notify the other of the designation of) an arbitrator and shall instruct such arbitrators to jointly designate the Mutually Designated Arbitrator.  In the event that either Licensee or Licensor fails to notify the other of its selected arbitrator within thirty (30) days after the Definitive Agreement Arbitration Notice Date, then upon written application by either Licensee or Licensor (or its Designee), that arbitrator shall be appointed pursuant to the Administered Rules.  In the event that the two (2) arbitrators selected as provided in this Section 5.1.2(a) of this Exhibit D fail to appoint the Mutually Designated Arbitrator within forty-five (45) days after Definitive Agreement Arbitration Notice Date, then the Mutually Designated Arbitrator will be appointed pursuant to the Administered Rules.  For purposes hereof, “Mutually Designated Arbitrator” means the arbitrator jointly designated by arbitrators initially appointed pursuant to this Section 5.1 of this Exhibit D (or otherwise designated in accordance herewith), which is neither an Affiliate of Licensee or Licensor (or its Designee) nor has performed any significant work for Licensee or Licensor (or its Designee) or any of their respective Affiliates within the prior two (2) years.

 

(b)          Licensee and Licensor (or its Designee) shall each have the right to submit for resolution pursuant hereto all (but not less than all) of the Definitive Agreements and may each provide the Mutually Designated Arbitrator copies of the proposed Purchase Agreement and other Definitive Agreements marked to indicate the provisions that are and are not mutually agreed upon as of such date.  Such right to submit materials to the Mutually Designated Arbitrator must be exercised by Licensee or Licensor (or its Designee), as applicable, no later than twenty (20) days after the date on which it is notified of the identity of the Mutually Designated Arbitrator (the last date after which either Licensee or Licensor (or its Designee) may submit proposed Definitive Agreements being the “Submission Cutoff Date”).  A copy of all materials submitted to the Mutually Designated Arbitrator pursuant to this Section 5.1.2(b) shall be provided by Licensee or Licensor (or its Designee), as applicable, to the other concurrently with submission thereof to the Mutually Designated Arbitrator.

 

(c)          The Mutually Designated Arbitrator shall consider the positions of Licensee and Licensor (or its Designee) in any materials submitted prior to the Submission Cutoff Date and shall, within thirty (30) days after the Submission Cutoff Date, deliver to each of Licensee and Licensor (and its Designee) a Purchase Agreement and other Definitive Agreements to govern the purchase of the Selected Assets and which: (i) effectuate the purchase of the Selected Assets in accordance with the Structure Notice, incorporate the Fair Market Value (as determined in accordance with this Exhibit D), provide for the assumption of the Assumed Liabilities by Licensor (or its Designee) and the retention of the Excluded Liabilities by Licensee and otherwise conform to, and are not inconsistent with, the other mechanisms and principles agreed by the Parties or set forth in this Exhibit D; and (ii) are determined by the Mutually Designated Arbitrator to be otherwise commercially reasonable and to reflect market terms for transactions of a similar nature to the purchase of the Selected Assets.  Subject to the foregoing, in determining the Purchase Agreement and other Definitive Agreements, the Mutually Designated Arbitrator may incorporate provisions and documents recommended by Licensor (or its Designee) or by Licensee or other provisions and documents determined to be appropriate by the Mutually Designated Arbitrator.

 

(d)          The arbitration shall be conducted in English.  Any document that a Party seeks to use that is not in English shall be provided along with an English translation.

 

(e)          The place of arbitration shall be Dallas, Texas, U.S.A.

 



 

(f)           The costs and expenses of any such arbitration, including compensation and expenses of the Mutually Designated Arbitrator (but excluding lawyers’ fees incurred by either Party (or its Designee)), shall be borne by both Licensee and Licensor (or its Designee) equally.

 

(g)          The Purchase Agreement and other Definitive Agreements determined by the Mutually Designated Arbitrator in accordance with this Exhibit D shall be final and binding upon Licensee and Licensor (and its Designee), absent manifest error and subject to Section 4.3 of this Exhibit D; provided, that no determination shall, or shall be deemed to, waive (and each of Licensee and Licensor (and its Designee) shall retain, regardless of any determination by the Mutually Designated Arbitrator) the right to seek any and all remedies in the event of any breach by either Party of its covenants set forth in this Exhibit D; provided further, that after any determination, Licensee and Licensor (or its Designee) may (but shall have no right or obligation to) modify the Purchase Agreement or other Definitive Agreements upon mutual agreement.

 

5.2          Required Consents and Approvals.  During and after the negotiation of the Purchase Agreement, Licensee and Licensor (or its Designee) shall each use its commercially reasonable efforts acting in good faith to obtain such governmental and third party consents as may be required in order to consummate the closing of the purchase of the Selected Assets.  In the event that a relevant governmental authority or third party refuses to grant any necessary consent, Licensee and Licensor (or its Designee) shall consult with each other and negotiate in good faith an arrangement to provide that the objectives set out in this Exhibit D are met to the fullest extent permissible under Applicable Laws.

 

5.3          Interim Operations.  Subject to compliance with Applicable Laws (as advised in writing by outside counsel), from and after the date on which Licensor (or its Designee) gives notice to Licensee of its exercise of the right to purchase the Selected Brand Restaurant Businesses pursuant to Section 15.4.5 of the Agreement, Licensee shall not, and shall cause its Affiliates not to, engage in any practice, take any action or enter into any transaction outside of the ordinary course of business with respect to the Assets, and Licensee shall, and shall cause its Affiliates to, use commercially reasonable efforts to preserve, intact, all of their respective rights with respect to the Assets and the Selected Brand Restaurant Businesses.  In furtherance of the foregoing, and subject to compliance with Applicable Laws (as advised in writing by outside counsel), Licensee shall not, and shall cause its Affiliates not to, except with the prior written consent of Licensor (or its Designee): (a) Transfer any material Assets; (b) enter into any material contract, including any material amendment, modification or termination of any existing material contract, with respect to the Assets, other than in the ordinary course of business consistent with past practice; (c) change any customary methods of operation in any material respect; (d) settle or compromise any material legal proceeding or investigation, or enter into any consent, decree, injunction or similar restraint or form of equitable relief in settlement of any material proceeding or investigation, with respect to the Assets, other than in the ordinary course of business consistent with past practice; or (e) impose or permit to be imposed any lien upon any material Assets, other than in the ordinary course of business consistent with past practice.

 



 

EXHIBIT E

 

GUARANTY

 

Yum China Holdings, Inc., a Delaware corporation (“Guarantor”),  hereby executes this Guaranty (this “Guaranty”), which shall be deemed a part of the Master License Agreement (including, for the avoidance of doubt, the Exhibits thereto, the “Agreement”) between Yum! Restaurants Asia Pte. Ltd., a private limited company organized and existing under the laws of Singapore (“YRAPL”), and Yum Restaurants Consulting (Shanghai) Company Limited, a company organized under the laws of the People’s Republic of China (“YCCL”), for purposes of making the following guaranty in favor, and for the benefit, of YRAPL.

 

Capitalized terms used herein without definition shall have the meaning ascribed thereto in the Agreement.

 

A.            Guaranty

 

Guarantor, intending to be legally bound, hereby absolutely, irrevocably and unconditionally guarantees, as primary obligor and not merely as a surety, to YRAPL the prompt and complete performance of each and all of the obligations of YCCL under the Agreement, including prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, upon demand or otherwise, and at all times thereafter, of any and all of the payment obligations, whether for principal, interest, premiums, fees, indemnities, damages, costs, expenses or otherwise, of YCCL to YRAPL under the Agreement (each such obligation, a “Guarantee Obligation,” and collectively, the “Guarantee Obligations”).  Upon failure by YCCL to perform any Guarantee Obligation, Guarantor shall forthwith without demand perform such obligation in the manner specified herein.   Guarantor hereby agrees that its obligations hereunder shall be an absolute, irrevocable and unconditional guarantee of payment and performance and not merely a guaranty of collection.

 

All payments made of a Guarantee Obligation will be paid free and clear of and without deduction or withholding for or on account of any Tax (as defined in the Tax Matters Agreement), except as may be required by Law. If Guarantor shall be required by Applicable Law to deduct or withhold any Taxes from such payments, then (i) Guarantor shall make such deductions or withholdings as are required by Applicable Law, (ii) Guarantor shall timely pay the full amount deducted or withheld to the applicable Tax Authority (as defined in the Tax Matters Agreement) and provide YRAPL with receipts or other proof of such payment promptly upon receipt, and (iii) if the amount received by YRAPL is less than the amount it would have received had the applicable payment been made by YCCL (after making any deductions or withholdings as YCCL would have been required to make under Applicable Law), Guarantor shall gross up the payment to YRAPL so that the net amount that YRAPL receives is the same as the amount it would have received (after making any deductions or withholdings) had the applicable payment been made by YCCL.

 

Guarantor hereby agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by any renewal, extension, adjustment or modification of any of the Guarantee Obligations, including the time, place or manner of payment or performance thereof, and Guarantor hereby consents to any changes in the terms of any of the Guarantee Obligations as agreed to by YRAPL and YCCL, and to any settlement or adjustment with respect to any of the Guarantee Obligations entered into between YRAPL and YCCL.  Guarantor hereby acknowledges that it will receive substantial benefits from the transactions contemplated by the Agreement, and this Guaranty, including the waivers set forth herein, is knowingly made in contemplation of such benefits.  The Guarantee Obligations shall conclusively be deemed to have been created, contracted or incurred in reliance on this Guaranty.

 



 

No failure or delay on the part of YRAPL in the exercise of any right or remedy with respect to any of the Guarantee Obligations shall operate as a waiver thereof or any obligations of Guarantor hereunder, and no single or partial exercise by YRAPL of any right or remedy with respect to any of the Guarantee Obligations shall preclude any other or further exercise thereof or the exercise of any other right or remedy.  YRAPL shall not have any obligation to proceed at any time or in any manner against, or to exhaust any or all of YRAPL’s rights against, YCCL or any other Person liable for any of the Guarantee Obligations prior to proceeding against Guarantor hereunder.  Without limiting the foregoing, YRAPL shall not be obligated to file any claim relating to the Guarantee Obligations in the event that YCCL becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of YRAPL to so file shall not affect the Guarantee Obligations or the obligations of Guarantor.  Guarantor’s obligations hereunder shall remain in full force and effect until all Guarantee Obligations shall have been performed in full.  If at any time any performance of any Guarantee Obligation is rescinded or must be otherwise restored or returned upon YCCL’s insolvency, bankruptcy or reorganization or otherwise, Guarantor’s obligations hereunder with respect to such performance shall be reinstated as though such performance had been due but not made at such time.

 

Guarantor hereby acknowledges and agrees that its obligations hereunder shall not be released, discharged or affected by (a) any change in corporate existence, structure or ownership of YCCL or any other Person, (b) any insolvency, bankruptcy, reorganization or similar proceeding affecting YCCL or any other Person, (c) the addition, substitution or release of any Person now or hereafter liable with respect to the Guarantee Obligations, (d) any rescission, waiver or amendment of the Agreement, (e) the existence of any claim, set-off or other right that Guarantor may have against any Person, (f) the adequacy of any other means of YRAPL obtaining payment or performance related to any of the Guarantee Obligations, (g) the validity or enforceability of the Agreement, or (h) any other act or omission to act or delay of any kind by YRAPL, YCCL or any other Person or any other circumstance which might, but for the provisions hereof, constitute a legal or equitable discharge of or defense to Guarantor’s obligations hereunder (other than to the extent such act, omission, delay or circumstance gives rise to a defense available to YCCL under the Agreement to performance of the Guarantee Obligations).

 

Guarantor hereby waives any and all rights or defenses which would otherwise require an election of remedies by YRAPL, and further waives promptness, diligence, presentment, demand for payment, default, dishonor and protest, notice of any Guarantee Obligations incurred and all other notices of any kind (other than those expressly required by the Agreement), all defenses that may be available by virtue of any valuation, stay, moratorium or similar Applicable Law now or hereafter in effect, any right to require the marshalling of assets of YCCL or any other Person and all suretyship defenses generally (other than fraud and defenses that are available to YCCL under the Agreement to performance of the Guarantee Obligations).   Guarantor hereby waives and agrees not to exercise any rights that it may have or acquire against YCCL that arise from the existence, payment, performance or enforcement of the Guarantee Obligations (other than any such rights that YCCL has against YRAPL under the Agreement), including any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of YRAPL against YCCL, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including the right to take or receive from YCCL, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until the Guarantee Obligations shall have been performed in full (including, with respect to any payment obligations, all such amounts due having been paid to YRAPL in cash in full).  If any amount shall be paid to Guarantor in violation of the immediately preceding sentence at any time prior to the performance in full of the Guarantee Obligations, such amount shall be received and held in trust for the benefit of YRAPL, shall be segregated from other property and funds of Guarantor and shall forthwith be paid or delivered to YRAPL in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to the Guarantee Obligations.

 



 

Guarantor hereby acknowledges and agrees that this Guaranty is a primary obligation of Guarantor, and that YRAPL shall be entitled to make a demand hereunder, and pursue all of its rights and remedies against Guarantor, whether or not YRAPL has made any demand or pursued any remedies, or during the pendency of any demand made or remedies pursued, against YCCL or any other Person.  Guarantor represents and warrants to YRAPL that (a) Guarantor has the financial capacity to pay and perform the Guarantee Obligations, (b) Guarantor has all requisite power and authority to execute, deliver and perform this Guaranty, (c) the execution, delivery and performance of this Guaranty has been duly authorized by all necessary action by Guarantor, (d) this Guaranty constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, (e) this Guaranty does not contravene any provision of Guarantor’s organizational documents or violate, in any material respect, any Applicable Laws or contractual restriction binding on Guarantor or any of its assets and (f) all consents, approvals, authorizations and permits of, and all filings with and notifications to, any Governmental Authority necessary for the due execution, delivery and performance of this Guaranty by Guarantor have been obtained or made and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any Governmental Authority is required in connection with the execution, delivery or performance of this Guaranty.

 

B.                                   Dispute Resolution

 

(1)     Certain Definitions.  For purposes of this Guaranty, the term “Parties” means YRAPL, YCCL and Guarantor and the term “Party” means any of them.

 

(2)         Governing Law.  This Guaranty shall be interpreted and construed under the laws of the United States of America and the State of Texas, U.S.A. (without regard to, and without giving effect to, their conflict of laws rules).

 

(3)         Pre-Arbitration Dispute Resolution.  Subject to Section 14.1.6.C. of the Agreement,

 

(a)         Prior to submitting any dispute under the Agreement (with the exception of any disputes concerning breaches thereof which YRAPL has determined not to be curable) or this Guaranty to mediation, arbitration or any court or other tribunal, YRAPL or YCCL (in the case of the Agreement) or YRAPL or Guarantor (in the case of this Guaranty) shall provide written notice of the dispute to the other Parties.  Upon such notice appropriate executives of YCCL and YRAPL who have authority to resolve the dispute will meet either in person or by video conference or similar means and shall discuss and use good faith efforts to resolve the dispute. If the dispute cannot be resolved within thirty (30) days of such notice, then the Parties shall submit the claim for resolution to non-binding mediation in accordance with Section B(3)(b).

 

(b)         If the Parties are unable to resolve a dispute under the Agreement or this Guaranty accordance with Section B(3)(a), the Parties agree to submit the dispute (with the exception of any disputes concerning breaches of the Agreement which YRAPL has determined not to be curable) to non-binding mediation before bringing such dispute to arbitration in accordance with Section B(4).  The Parties shall select a mediator within twenty (20) days of the date the dispute is submitted to mediation by a Party.  The mediation shall be conducted in English by a mediator mutually and jointly approved by YRAPL, on the one hand, and YCCL and Guarantor, on the other hand, and failing agreement of the Parties within the twenty (20) day period, by a mediator appointed by

 



 

the International Institute for Conflict Prevention and Resolution (“CPR”) in accordance with its mediation rules. The mediation shall be conducted at a location mutually and jointly selected by YRAPL, on the one hand, and YCCL and Guarantor, on the other hand, within ten (10) days following the date on which the mediator is appointed, and failing agreement of the Parties within such time period, then the mediation will be held in Dallas, Texas, U.S.A.  The costs and expenses of any such mediation, including compensation and expenses of the mediator (and except for the lawyers’ fees incurred by any Party), shall be borne by YRAPL, on the one hand, and YCCL and Guarantor, on the other hand, equally.

 

(4)         Arbitration.  If the Parties are unable to resolve a dispute under the Agreement or this Guaranty by mediation in accordance with Section B(3)(b), then such dispute and any other controversy or claim arising out of or relating to the Agreement or this Guaranty, or the breach hereof, including without limitation the determination of the scope or applicability of this agreement to arbitrate, shall, upon written request of a Party (the “Arbitration Request”), be determined by arbitration administered by CPR in accordance with the CPR Rules for Administered Arbitration (“Administered Rules”). Subject to Section 14.1.6.C of the Agreement, details of the arbitration are as follows:

 

(a)         There shall be three (3) arbitrators.  The panel of three (3) arbitrators will be chosen as follows:  (i) within fifteen (15) days from the date of the receipt of the Arbitration Request, each of YRAPL, on the one hand, and YCCL and Guarantor, on the other hand, will name an arbitrator; and (ii) the two (2) arbitrators so appointed will thereafter name a third, independent arbitrator who will act as chairperson of the arbitral tribunal.  In the event that YRAPL, on the one hand, or YCCL and Guarantor, on the other, fails to name an arbitrator within fifteen (15) days following the date of receipt of the Arbitration Request, then upon written application by a Party, that arbitrator shall be appointed pursuant to the Administered Rules.  In the event that, within thirty (30) days from the date on which the second of the two (2) arbitrators was named, the two (2) appointed arbitrators fail to appoint the third, then the third arbitrator will be appointed pursuant to the Administered Rules.

 

(b)         The arbitration shall be conducted in English.  Any document that a Party seeks to use that is not in English shall be provided along with an English translation.

 

(c)          The place of arbitration shall be Dallas, Texas, U.S.A.

 

(d)         The arbitrators shall establish procedures under which each Party will be entitled to conduct discovery.

 

(e)          The arbitrators shall award to the substantially prevailing Party (as determined by the arbitrators) the costs and expenses of the proceeding, including reasonable attorneys’ and experts’ fees.

 

(f)           The arbitrators will issue a reasoned award.

 

(g)          Notwithstanding any language herein to the contrary, the Parties agree that the award rendered by the arbitrators (the “Original Award”) may be appealed under the CPR Arbitration Appeal Procedure (“Appeal Procedure”).  Appeals must be initiated within thirty (30) days of receipt of an Original Award, in accordance with Rule 2 of the Appeal Procedure, by filing a written notice with CPR.  The Original Award shall not be considered final until after the expiration of the time for filing the notice of appeal pursuant to the Appeal Procedure.  Following the appeal process, either (i) the

 



 

Original Award, if no changes have been made by the appellate Tribunal, or (ii) the appellate award, if the Original Award has been changed by the appellate tribunal, may be entered in any court having jurisdiction thereof.  Unless otherwise agreed by the Parties, the appeal shall be conducted at the place of the original arbitration.

 

(h)         Any award rendered by the arbitrators that is not appealed in accordance with the foregoing provisions or that is not modified by the appeal tribunal, and any award as modified or established by the appeal tribunal, shall be final and judgment may be entered thereon in any court having jurisdiction thereof.

 

(i)             Each Party retains the right to apply to any court of competent jurisdiction for provisional and/or conservatory relief, including prearbitral attachments or injunctions, and any such request shall not be deemed incompatible with the agreement to arbitrate or a waiver of the right to arbitrate.

 

(j)            The existence and content of the arbitral proceedings and any rulings or award shall be kept confidential by the Parties and members of the arbitral tribunal except (i) to the extent that disclosure may be required of a Party to comply with Applicable Laws or the rules of any applicable stock exchange, protect or pursue a contractual right or perform a contractual obligation, or enforce or challenge an award in bona fide legal proceedings before a court or other judicial authority, (ii) with the consent of all Parties, (iii) where needed for the preparation or presentation of a claim or defense in arbitration, (iv) where such information is already in the public domain other than as a result of a breach of this Section, or (v) by order of the arbitral tribunal upon application of a Party.

 

(5)         Limitations Period.  Any claim arising out of or relating to the Agreement or this Guaranty shall be governed by the statute of limitations under the governing law set forth in Section B(2).

 

(6)         Enforcement Costs.  Each Party shall bear its own legal costs (including attorneys’ and experts’ fees, and all other expenses) incurred in enforcing the Agreement or this Guaranty or in otherwise pursuing, or defending against, a claim, demand, action, or proceeding under or in connection with the Agreement or this Guaranty.

 

C.            Miscellaneous

 

If any term or other provision of this Guaranty is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms, provisions and conditions of this Guaranty shall nevertheless remain in full force and effect.  No Party hereto shall assert, and each Party shall cause its respective Affiliates not to assert, that this Guaranty or any part hereof is invalid, illegal or unenforceable.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Guaranty so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by Applicable Law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

 

This Guaranty, together with the Agreement, constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof.  No amendment, modification or waiver of any provision hereof shall be enforceable unless approved by each Party in writing.

 



 

The provisions of this Guaranty 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 Guaranty and this Guaranty shall not provide any third Person with any remedy, claim, liability, reimbursement or other right in excess of those existing without reference to this Guaranty.

 

This Guaranty shall remain in full force and effect and shall be binding on Guarantor, and its successors and assigns, until all the Guarantee Obligations have been performed in full.

 

Section 19.10 (Construction) of the Agreement is hereby incorporated in this Guaranty as if fully set forth herein.  This Guaranty 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 Parties (it being agreed that delivery of a manual, stamp or mechanical signature, whether in person, by courier, by facsimile or by email in portable document format, shall be effective).

 

[Signatures to Follow]

 



 

IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed and delivered as of the date first written above by its officer thereunto duly authorized.

 

 

YUM CHINA HOLDINGS, INC.

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

Address:

 

Yum China Holdings, Inc.

 

16/F Two Grand Gateway, 3 Hongqiao Road

 

Shanghai, the People’s Republic of China

 



 

Accepted and agreed to by: