Document:

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 Brands” means 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

 

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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 IP” means 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

 

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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,

 

4

 

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

 

5

 

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

 

6

 

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
    

 

7

 

	
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          Taxes.  Licensee 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          Ownership.  Licensee 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 Sue.  Licensee, 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 Laws.  Licensee 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          Audits.  Upon 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 Information.  Each 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       Indemnity.  Licensee 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 Owed.  If 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        Defaults.  Licensor 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 Law.  This 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        Arbitration.  If 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.

 

36

 

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,

 

38

 

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

 

39

 

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     Construction.  A 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.
    
	
 
    	
 
    
	
 
    	
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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:
    	
 
    
	
 
    	
 
    
	
YUM! RESTAURANTS ASIA   PTE. LTD.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Name:
    	
 
    
	
Title:
    	
 
    
	
 
    	
 
    
	
Address:
    	
 
    
	
Yum! Restaurants Asia   Pte. Ltd.
    	
 
    
	
99 Bukit Timah Road,   #06-09
    	
 
    
	
Singapore 229835
    	
 
    
	
 
    	
 
    
	
YUM RESTAURANTS   CONSULTING (SHANGHAI) COMPANY LIMITED
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Name:
    	
 
    
	
Title:
    	
 
    
	
 
    	
 
    
	
Address:
    	
 
    
	
Yum Restaurants   Consulting (Shanghai) Company Limited
    	
 
    
	
16/F Two Grand Gateway,   3 Hongqiao Road
    	
 
    
	
Shanghai, the People’s   Republic of ChinaExhibit 10.2

 

TAX MATTERS AGREEMENT

 

BY AND AMONG

 

YUM! BRANDS, INC.,

 

YUM CHINA HOLDINGS, INC.

 

AND

 

YUM RESTAURANTS CONSULTING (SHANGHAI) COMPANY LIMITED

 

DATED AS OF OCTOBER 31, 2016

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
ARTICLE I
    	
DEFINITIONS
    	
2
    
	
 
    	
 
    	
 
    
	
ARTICLE II
    	
TAX LIABILITIES AND TAX   BENEFITS
    	
8
    
	
 
    	
 
    	
 
    
	
Section 2.1
    	
Responsibility for   Taxes
    	
8
    
	
Section 2.2
    	
Allocation of Taxes
    	
9
    
	
Section 2.3
    	
Special Rules
    	
10
    
	
 
    	
 
    	
 
    
	
ARTICLE III
    	
PREPARATION AND FILING   OF TAX RETURNS
    	
12
    
	
 
    	
 
    	
 
    
	
Section 3.1
    	
Tax Returns
    	
12
    
	
Section 3.2
    	
Special   Rules Relating to the Preparation of Tax Returns
    	
13
    
	
Section 3.3
    	
Financial Accounting   Reports
    	
14
    
	
 
    	
 
    	
 
    
	
ARTICLE IV
    	
TAX PAYMENTS
    	
14
    
	
 
    	
 
    	
 
    
	
Section 4.1
    	
Payment of Taxes to Tax   Authorities
    	
14
    
	
Section 4.2
    	
Indemnification   Payments
    	
15
    
	
Section 4.3
    	
Initial Determinations   and Subsequent Adjustments
    	
15
    
	
Section 4.4
    	
Interest on Late   Payments
    	
16
    
	
Section 4.5
    	
Payments by or to Other   Group Members
    	
16
    
	
Section 4.6
    	
Procedural Matters
    	
16
    
	
Section 4.7
    	
Tax Consequences of   Payments
    	
16
    
	
Section 4.8
    	
No Duplication
    	
17
    
	
 
    	
 
    	
 
    
	
ARTICLE V
    	
TAX CONTESTS
    	
17
    
	
 
    	
 
    	
 
    
	
Section 5.1
    	
Notices
    	
17
    
	
Section 5.2
    	
Control of Tax Contests
    	
18
    
	
 
    	
 
    	
 
    
	
ARTICLE VI
    	
ASSISTANCE AND   COOPERATION
    	
19
    
	
 
    	
 
    	
 
    
	
Section 6.1
    	
Cooperation and   Exchange of Information
    	
19
    
	
Section 6.2
    	
Reliance on Exchanged   Information
    	
20
    
	
Section 6.3
    	
Private Letter Rulings   and Supplemental Tax Opinions
    	
20
    
	
Section 6.4
    	
Withholding and   Reporting
    	
20
    
	
Section 6.5
    	
Retention of Tax   Records
    	
21
    
	
 
    	
 
    	
 
    
	
ARTICLE VII
    	
RESTRICTION ON CERTAIN   ACTIONS OF THE GROUPS
    	
21
    
	
 
    	
 
    	
 
    
	
Section 7.1
    	
General Restrictions
    	
21
    
	
Section 7.2
    	
Restricted Actions   Relating to Tax Materials
    	
21
    
	
Section 7.3
    	
Certain SpinCo Actions   Following the Distribution
    	
21
    
	
Section 7.4
    	
Year of Distribution   Restrictions
    	
22
    
	
Section 7.5
    	
Little Sheep
    	
23
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII
    	
MISCELLANEOUS
    	
23
    
	
 
    	
 
    	
 
    
	
Section 8.1
    	
Entire Agreement
    	
23
    
	
Section 8.2
    	
Governing Law
    	
23
    
	
Section 8.3
    	
Termination
    	
23
    
					

 

i

 

	
 
    	
TABLE OF   CONTENTS
    	
 
    
	
 
    	
(continued)
    	
 
    
	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
Section 8.4
    	
Notices
    	
23
    
	
Section 8.5
    	
Counterparts
    	
23
    
	
Section 8.6
    	
Binding Effect;   Assignability
    	
24
    
	
Section 8.7
    	
No Third Party   Beneficiaries
    	
24
    
	
Section 8.8
    	
Severability
    	
24
    
	
Section 8.9
    	
Waivers of Default;   Remedies Cumulative
    	
24
    
	
Section 8.10
    	
Amendments
    	
24
    
	
Section 8.11
    	
Authority
    	
24
    
	
Section 8.12
    	
Specific Performance
    	
24
    
	
Section 8.13
    	
Mutual Drafting
    	
25
    
	
Section 8.14
    	
Performance
    	
25
    
	
Section 8.15
    	
Limitations of   Liability
    	
25
    
	
Section 8.16
    	
Predecessors or   Successors
    	
25
    
	
Section 8.17
    	
Expenses
    	
25
    
	
Section 8.18
    	
Change in Law
    	
25
    
	
Section 8.19
    	
Disputes
    	
25
    
	
Section 8.20
    	
Employment Tax Overlap
    	
26
    
	
Section 8.21
    	
Incorporation
    	
26
    
				

 

ii

 

TAX MATTERS AGREEMENT

 

This TAX MATTERS AGREEMENT (this “Agreement”), dated as of October 31, 2016, is by and among Yum! Brands, Inc., a North Carolina corporation (“YUM”), Yum China Holdings, Inc., a Delaware corporation (“SpinCo”), and Yum Restaurants Consulting (Shanghai) Company Limited, a company organized under the Laws of the People’s Republic of China (“YCCL”).

 

RECITALS

 

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

 

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

 

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

 

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

 

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 and, for purposes of China Capital Gains Tax, the Distribution is intended to qualify as a non-taxable transaction; and

 

WHEREAS, the Parties desire to provide for and agree upon the allocation between the Parties of Taxes and Tax Benefits arising prior to, as a result of, and subsequent to the Separation and the Distribution, and to provide for and agree upon other matters relating to Taxes.

 

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, and capitalized terms used herein and not otherwise defined in this Article I shall have the respective meanings assigned to them in the Separation and Distribution Agreement.

 

“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.

 

“After-Tax Basis” shall mean, with respect to any liability indemnified in this Agreement, the actual amount of any payment to be made with respect to such liability, after increasing such payment by the cost of any Tax Detriment actually incurred by the recipient in respect of such payment, and reducing such payment by the value (as a reduction in Taxes payable for the Tax Year of such payment or as an increase in, or creation of, the amount of any Tax refunds for the Tax Year of such payment or any prior Tax Year) of any Tax Benefit actually realized by the recipient in respect of the payment of the indemnified liability, in each case such that the recipient is in the same after-tax position as it would have been in had no such Tax Detriment or Tax Benefit applied, which Tax Detriments and Tax Benefits shall be treated as actually incurred or actually realized, as the case may be, based on a with-and-without Tax calculation and assuming that all other Tax Items are taken into account prior to taking into account any such Tax Detriment or Tax Benefit.

 

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

 

“Ancillary Agreements” shall have the meaning set forth in the Separation and Distribution Agreement, but excluding this Agreement.

 

“Business” shall mean the YUM Business or the SpinCo Business, as the context requires.

 

“China Capital Gains Tax” shall mean any Tax arising from SAT Bulletin 7.

 

“China Tax Opinion” shall mean, with respect to a specified action, an opinion (or opinions) from a Tax Advisor (or Tax Advisors), at a “should” level of comfort, substantially to the effect that (subject to the assumptions, qualifications and limitations set forth therein) such

 

2

 

action should not result in the Distribution or an Internal Distribution being subject to China Capital Gains Tax.

 

“China Taxable Property” shall mean property of an “establishment or place” situated in the PRC, real estate situated in the PRC, equity interests in PRC resident enterprises and any other property directly held by a non-resident enterprise the transfer of which results in enterprise income tax liability for the non-resident enterprise in accordance with the provisions of the Enterprise Income Tax Law of the PRC.

 

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

 

“Controlling Party” shall mean the Party that has primary responsibility, control and discretion in handling, settling or conducting a Tax Contest pursuant to Section 5.2.

 

“Covered Separation Taxes” shall mean any Tax resulting from (i) any fact that constitutes a breach by any member of the SpinCo Group of any of the representations provided by any member of the SpinCo Group in the Tax Materials, (ii) any breach by any member of the SpinCo Group of any covenant of the SpinCo Parties under this Agreement (including Article VII) or (iii) any Section 355(e) Event.

 

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

 

“Due Date” shall have the meaning set forth in Section 4.4.

 

“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.

 

“Intermediate Entities” shall mean those entities listed in Schedule D.

 

“Internal Distributions” shall mean the transactions described in Schedule B.

 

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

 

“Joint Return” shall mean any Tax Return that includes Tax Items attributable to both the YUM Business and the SpinCo Business; provided, that (x) Tax Items described in Section 2.2(d)(ii) shall be ignored for purposes of this determination and (y) any (i) U.S. income Tax Return that includes a member of the YUM Group and (ii) Specified Company Return shall not be a Joint Return.  For the avoidance of doubt, no Tax Return of a YUM Intermediate Entity shall be a Joint Return solely as a result of YUM’s responsibility for YUM Intermediate Entity Taxes pursuant to Section 2.1(a)(v).

 

3

 

“Joint Taxes” shall mean any Taxes shown on a Joint Return or otherwise attributable to both the YUM Business and the SpinCo Business; provided, that (x) all U.S. income Taxes and U.S. income Tax Items (including U.S. credits for foreign Taxes paid) attributable to the Pre-Spin Period (based on an interim closing of the books as of and including the day of the Distribution Date) shall be deemed solely attributable to the YUM Business, except to the extent allocable to SpinCo pursuant to Section 3.1(c), and (y) any Taxes shown on a Specified Company Return shall be deemed solely attributable to the SpinCo Business.

 

“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.

 

“Non-Controlling Party” shall mean the Party that does not have primary responsibility, control and discretion in handling, settling or conducting a Tax Contest pursuant to Section 5.2.

 

“Non-Preparer” shall mean the Party not responsible for the preparation and filing of a Joint Return or a Separate Return, as applicable, pursuant to Section 3.1.

 

“Parties” shall mean YUM and the SpinCo Parties.

 

“Party” shall mean YUM, on the one hand, or the SpinCo Parties, on the other hand, as the context requires.

 

“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.

 

“Post-Spin Period” shall mean any Tax Year (or portion thereof) beginning after the Distribution Date.

 

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

 

“Pre-Spin Period” shall mean any Tax Year (or portion thereof) ending on or before the Distribution Date.

 

“Preparer” shall mean the Party responsible for the preparation and filing of a Joint Return or a Separate Return, as applicable, pursuant to Section 3.1.

 

“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.

 

4

 

“Regarded Internal Distributions” shall mean the transactions described in Schedule C.

 

“Related Separation Transactions” shall mean the transactions described in Schedule 2.1(a) of the Separation and Distribution Agreement.

 

“Requesting Party” shall have the meaning set forth in Section 6.3.

 

“SAT Bulletin 7” shall mean the Tax notice issued by the PRC State Administration of Taxation titled the State Administration of Taxation’s Bulletin on Several Issues of Enterprise Income Tax on Income Arising from Indirect Transfers of Property by Non-resident Enterprises (关于非居民企业间接转让财产企业所得税若干问题的公告) (State Administration of Taxation Bulletin [2015] No. 7 (国家税务总局公告2015年第7号)), as may be amended or supplemented from time to time and including any similar or replacement Law or regulation on the Tax treatment of offshore indirect transfers of any China Taxable Property including any applicable Laws in the PRC against the avoidance of PRC Tax.

 

“Section 355(e) Event” shall mean, with respect to SpinCo or a member of the SpinCo Group, any event involving the stock of SpinCo or an Affiliate of SpinCo or assets of any member of the SpinCo Group that causes the Distribution or a Regarded Internal Distribution to be a taxable event to any member of the YUM Group as the result of the application of Section 355(e) of the Code.

 

“Separate Return” shall mean any Tax Return that is not a Joint Return. For purposes of this Agreement, (i) a Separate Return of a member of the YUM Group includes any U.S. income Tax Return that includes a member of the YUM Group and (ii) a Separate Return of a member of the SpinCo Group includes any Specified Company Return.

 

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

 

“Separation and Distribution Agreement” shall have the meaning set forth in the Recitals.

 

“Specified Company Return” shall mean any Tax Return filed or required to be filed by a Person listed on Schedule A.

 

“Specified Tax Returns” shall mean (x) any Tax Return relating to any Pre-Spin Period (including, for the avoidance of doubt, any Tax Return with respect to YUM Intermediate Entity Taxes), (y) any Tax Return relating to any payment made pursuant to the Master License Agreement and (z) any Tax Return relating solely to the YUM Business.

 

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

 

“SpinCo Group” shall mean (a) with respect to any Pre-Spin Period, 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) with respect to any Post-Spin Period, SpinCo, YCCL and each Person that is a Subsidiary of SpinCo.

 

5

 

“SpinCo Market Capitalization” shall mean the product of (i) the volume-weighted average trading price per share of shares of SpinCo common stock for the thirty (30) consecutive trading days beginning on and following the first (1st) trading day following the Distribution Date, as quoted by Bloomberg Financial Services through its “Volume at Price” function, rounded to the nearest whole cent, multiplied by (ii) the arithmetic average of the number of shares of SpinCo common stock outstanding, on a fully-diluted basis, on each of such thirty (30) trading days, rounded to two (2) decimal points.

 

“SpinCo Parties” shall mean SpinCo and YCCL.

 

“SpinCo Party Liability Percentage” shall mean the result, expressed as a percentage and rounded to two (2) decimal places, of (i) one hundred percent (100%) minus (ii) the YUM Liability Percentage.

 

“SpinCo Party Taxes” shall have the meaning set forth in Section 2.2(b).

 

“Subsidiary” shall mean, with respect to any Person, any corporation, company, 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 (x) the total combined voting power of all classes of voting securities, (y) the total combined equity interests or (z) 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.

 

“Supplemental Tax Opinion” shall mean, with respect to a specified action, an opinion (or opinions) (other than the Tax Opinions) from a Tax Advisor (or Tax Advisors), at a “will” level of comfort, substantially to the effect that (subject to the assumptions, qualifications and limitations set forth therein) (i) such action will not preclude the Distribution from qualifying for U.S. federal income Tax purposes as a tax-free transaction 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 and (ii) such action will not increase the amount of any Tax imposed on the Distribution or any of the Related Separation Transactions.

 

“Tax” or “Taxes” shall mean any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, escheat, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other similar tax (including any fee, assessment or other charge in the nature of or in lieu of any tax) imposed by any Governmental Authority and any interest, penalties, additions to tax or additional amounts in respect of the foregoing.

 

“Tax Advisor” shall mean (i) with respect to the Tax Opinions, Mayer Brown LLP and PricewaterhouseCoopers LLP or (ii) with respect to a Supplemental Tax Opinion or a China Tax Opinion, a law firm or accounting firm, nationally recognized in the applicable jurisdiction, mutually agreed by the Parties.

 

6

 

“Tax Authority” shall mean, with respect to any Tax, the Governmental Authority that imposes such Tax, and the Governmental Authority (if any) charged with the assessment, determination or collection of such Tax for such Governmental Authority.

 

“Tax Benefit” shall mean any credit, deduction or other attribute (e.g., net operating loss or net capital loss) that may have the effect of decreasing any Tax.

 

“Tax Contest” shall mean an audit, review, examination or any other administrative or judicial proceeding with the purpose or effect of redetermining or recovering Taxes of any member of either Group (including any administrative or judicial review of any claim for refund).

 

“Tax Detriment” shall mean any income, gain or other attribute that may have the effect of increasing any Tax.

 

“Tax Item” shall mean any Tax Benefit or Tax Detriment.

 

“Tax Law” shall mean the Law of any Governmental Authority, and any controlling judicial or administrative interpretations of such Law, relating to any Tax.

 

“Tax Materials” shall mean (i) the representation letters delivered to any Tax Advisor in connection with the delivery of any Tax Opinion or Supplemental Tax Opinion and (ii) any other materials delivered or deliverable by YUM, either of the SpinCo Parties or any other Person in connection with any Tax Opinion or Supplemental Tax Opinion.

 

“Tax Opinion” shall mean any opinion to be delivered by any Tax Advisor to YUM in connection with the Distribution or the Related Separation Transactions, including (i) opinions from Mayer Brown LLP and PricewaterhouseCoopers LLP substantially to the effect that (subject to the assumptions, qualifications and limitations set forth therein) the Distribution will qualify for U.S. federal income tax purposes generally as a tax-free transaction 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 or (ii) one or more opinions of one or more of YUM’s tax advisors regarding certain other tax matters relating to the Distribution and the Related Separation Transactions.

 

“Tax Return” shall mean any report of Taxes due (including estimated Taxes), any claims for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration or document required to be filed (by paper, electronically or otherwise) under any applicable Tax Law, including any attachments, exhibits or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing.

 

“Tax Year” shall mean, with respect to any Tax, the year, or other period, if applicable, for which the Tax is reported as provided under applicable Tax Law.

 

“Treasury Regulations” shall mean the regulations promulgated from time to time under the Code as in effect for the relevant Tax Year.

 

7

 

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

 

“YCCL Monthly Withholding Reports” shall mean any reports required to be filed by YCCL on a monthly basis with the applicable PRC Tax Authority with respect to withholding of PRC income Taxes on payments made pursuant to the Master License Agreement.

 

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

 

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

 

“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 Intermediate Entity Taxes” shall mean all Taxes of the Intermediate Entities allocable to any Pre-Spin Period, but excluding any Taxes resulting from the Distribution or any of the Related Separation Transactions.

 

“YUM Liability Percentage” shall mean the quotient, expressed as a percentage and rounded to two (2) decimal points, of (i) the YUM Market Capitalization, divided by (ii) the sum of the YUM Market Capitalization plus the SpinCo Market Capitalization.

 

“YUM Market Capitalization” shall mean the product of (i) the volume-weighted average trading price per share of shares of YUM common stock for the thirty (30) consecutive trading days beginning on and following the first (1st) trading day following the Distribution Date, as quoted by Bloomberg Financial Services through its “Volume at Price” function, rounded to the nearest whole cent, multiplied by (ii) the arithmetic average of the number of shares of YUM common stock outstanding, on a fully-diluted basis, on each of such thirty (30) trading days, rounded to two (2) decimal points.

 

“YUM Taxes” shall have the meaning set forth in Section 2.2(a).

 

ARTICLE II

 

TAX LIABILITIES AND TAX BENEFITS

 

Section 2.1                                    Responsibility for Taxes.

 

(a)                                 For any Tax Year (or portion thereof), YUM shall be liable for and indemnify the SpinCo Group on an After-Tax Basis, against the following Taxes (and any reasonable attorneys’ fees and other costs incurred in connection therewith), in each case excluding any Covered Separation Taxes:

 

(i)                                     Taxes imposed on a member of the YUM Group or the SpinCo Group resulting from the Distribution or any of the Related Separation Transactions, except for any China Capital Gain Tax (which is covered in Section 2.1(a)(iv));

 

8

 

(ii)                                  Taxes shown on a Separate Return of a member of the YUM Group or relating solely to the YUM Business (in each case, other than Taxes resulting from the Distribution or any of the Related Separation Transactions);

 

(iii)                               Taxes that are Joint Taxes allocable to YUM as determined under Section 2.2 (other than Taxes resulting from the Distribution or any of the Related Separation Transactions);

 

(iv)                              the YUM Liability Percentage of any Taxes resulting from the imposition of China Capital Gains Tax with respect to the Distribution or the Internal Distributions; and

 

(v)                                 YUM Intermediate Entity Taxes.

 

(b)                                 For any Tax Year (or portion thereof), the SpinCo Parties shall jointly and severally be liable for and indemnify the YUM Group, on an After-Tax Basis, against the following Taxes (and any reasonable attorneys’ fees and other costs incurred in connection therewith):

 

(i)                                     Taxes shown on a Separate Return of a member of the SpinCo Group or relating solely to the SpinCo Business (in each case, other than YUM Intermediate Entity Taxes and Taxes resulting from the Distribution or any of the Related Separation Transactions);

 

(ii)                                  Taxes that are Joint Taxes allocable to the SpinCo Parties as determined under Section 2.2 (other than YUM Intermediate Entity Taxes and Taxes resulting from the Distribution or any of the Related Separation Transactions);

 

(iii)                               the SpinCo Party Liability Percentage of any Taxes resulting from the imposition of China Capital Gains Tax with respect to the Distribution or the Internal Distributions; and

 

(iv)                              Taxes that are Covered Separation Taxes.

 

Section 2.2                                    Allocation of Taxes.

 

(a)                                 YUM.                            The portion of any Joint Taxes allocable to YUM (“YUM Taxes”) shall be determined by taking into account the following Tax Items on a pro forma stand-alone basis (as determined pursuant to Section 2.3):

 

(i)                                     Tax Detriments (other than Tax Detriments resulting from the Distribution or any of the Related Separation Transactions) arising from the operation or ownership of the YUM Business,

 

(ii)                                  Tax Benefits (other than Tax Benefits resulting from the Distribution or any of the Related Separation Transactions) arising from the operation or ownership of the YUM Business, and

 

9

 

(iii)                               Tax Benefits (other than Tax Benefits resulting from the Distribution or any of the Related Separation Transactions) arising from the operation or ownership of the SpinCo Business, but only to the extent such Tax Benefits are not taken into account in calculating SpinCo Party Taxes under Section 2.2(b)(ii).

 

(b)                                 SpinCo Parties.  The portion of any Joint Taxes allocable to the SpinCo Parties (“SpinCo Party Taxes”) shall be determined by taking into account the following Tax Items on a pro forma stand-alone basis (as determined pursuant to Section 2.3).

 

(i)                                     Tax Detriments (other than Tax Detriments resulting from the Distribution or any of the Related Separation Transactions) arising from the operation or ownership of the SpinCo Business,

 

(ii)                                  Tax Benefits (other than Tax Benefits resulting from the Distribution or any of the Related Separation Transactions) arising from the operation or ownership of the SpinCo Business, and

 

(iii)                               Tax Benefits (other than Tax Benefits resulting from the Distribution or any of the Related Separation Transactions) arising from the operation or ownership of the YUM Business, but only to the extent such Tax Benefits are not taken into account in calculating YUM Taxes under Section 2.2(a)(ii).

 

(c)                                  YUM shall pay SpinCo for any Tax Benefit that is taken into account in calculating the amount of Joint Taxes allocable to YUM pursuant to Section 2.2(a)(iii); provided, however, that payment for any such Tax Benefit arising in a Pre-Spin Period and utilized in a Tax Year beginning before the Distribution Date shall be required only if the creation or use of such Tax Benefit results from a Tax Contest resolved after the Distribution Date. The SpinCo Parties shall pay YUM for any Tax Benefit that is taken into account in calculating Joint Taxes allocable to the SpinCo Parties pursuant to Section 2.2(b)(iii); provided, that payment for any such Tax Benefit arising in a Pre-Spin Period and utilized in a Tax Year beginning before the Distribution Date shall be required only if the creation or use of such Tax Benefit results from a Tax Contest resolved after the Distribution Date.

 

(d)                                 Rules for Determining from which Business a Tax Item Arises:

 

(i)                                     Except to the extent otherwise provided in this Section 2.2, Tax Items shall be deemed to arise from the operation or ownership of the Business to which such items are most closely related.

 

(ii)                                  Income and similar Taxes collected by withholding shall be deemed to arise solely from the Business of the recipient of the applicable payment.

 

(e)                                  YUM shall be entitled to any refund relating to Taxes for which YUM is responsible pursuant to Section 2.1(a). The SpinCo Parties shall be entitled to any refund relating to Taxes for which the SpinCo Parties are responsible pursuant to Section 2.1(b).

 

Section 2.3                                    Special Rules.

 

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(a)                                           Preparation of Pro Forma Calculations.                    YUM shall be responsible for preparing, in its reasonable discretion, all pro forma stand-alone basis computations and allocations provided for in this Article II (including, for the avoidance of doubt, the allocations provided for in Section 2.2(b) and the determinations pursuant to Section 2.2(d)). YUM shall make available to SpinCo, and provide SpinCo with a reasonable opportunity to review, all such pro forma stand-alone basis computations and allocations and shall consider in good faith any comments relating to such computations and allocations that are provided in writing by SpinCo, which comments shall be provided by SpinCo no later than thirty (30) days after such computations and allocations are made available to SpinCo. YUM shall have no obligation to consider any comments that are provided more than thirty (30) days after such computations and allocations are made available to SpinCo.

 

(b)                                 Pro Forma Stand-Alone Basis.  For purposes of computing YUM Taxes and SpinCo Party Taxes on a pro forma stand-alone basis for purposes of Section 2.2, Tax Items shall be taken into account:

 

(i)                                     only to the extent required or allowable under applicable Tax Law, determined as if the applicable Tax Return were filed on a pro forma stand-alone basis,

 

(ii)                                  by using all applicable elections, accounting methods, and conventions used on the Tax Return on which such Tax Items are actually reported,

 

(iii)                               by applying the average Tax rate on such Tax Return; provided, if such Tax Item is within a category of Tax Items that is subject to a different rate of Tax than other categories of Tax Items on such Tax Return, the average Tax rate applicable to such category of Tax Items reported on the Tax Return shall apply with respect to such Tax Item, and

 

(iv)                              by treating Tax Benefits as used in the order specified under applicable Tax Law or, to the extent that such Tax Law does not specify the order of use, used pro rata.

 

(c)                                  Allocation in Straddle Periods.  For purposes of Section 2.2(c) and in determining the amount of any YUM Intermediate Entity Taxes with respect to a Tax Year that begins on or before and ends after the Distribution Date, Tax Items arising during any Tax Year that begins on or before and ends after the Distribution Date shall be treated as arising during the Pre-Spin Period or the Post-Spin Period based on an interim closing of the books as of and including the day of the Distribution Date. Notwithstanding the foregoing, Tax Items attributable to any such Tax Year that are calculated on an annualized basis (including depreciation, amortization and depletion deductions) shall be apportioned between the Pre-Spin Period and the Post-Spin Period on a daily pro rata basis. For the avoidance of doubt, any amount included in the income of SpinCo pursuant to Section 951(a) of the Code for any period ending after the Distribution Date shall be attributable to the Post-Spin Period.

 

(d)                                 Differences between Taxes Shown on Joint Return and Taxes Computed on a Pro Forma Stand-Alone Basis. If, without regard to this Section 2.3(d), the sum

 

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of YUM Taxes and SpinCo Party Taxes relating to a Joint Return is different from the amount of Tax shown on such Joint Return, then the Tax shown on such Joint Return shall be allocated between the Parties in the same proportion as the amount of YUM Taxes or SpinCo Party Taxes, as appropriate, bears to the sum of YUM Taxes and SpinCo Party Taxes calculated with respect to such Joint Return.

 

ARTICLE III

 

PREPARATION AND FILING OF TAX RETURNS

 

Section 3.1                                    Tax Returns.

 

(a)                                 Separate Returns. YUM shall be responsible for preparing and timely filing (or causing to be prepared and filed) each Separate Return that is a Separate Return of a member of the YUM Group. The SpinCo Parties shall be responsible for preparing and timely filing (or causing to be prepared and filed) each Separate Return that is a Separate Return of a member of the SpinCo Group.

 

(b)                                 Joint Returns.

 

(i)                                     YUM shall be responsible for preparing and timely filing (or causing to be prepared and filed) all Joint Returns required to be filed under applicable Tax Law by a member of the YUM Group. The SpinCo Parties shall be responsible for preparing and timely filing (or causing to be prepared and filed) all Joint Returns required to be filed under applicable Tax Law by a member of the SpinCo Group. The Parties shall prepare (or cause to be prepared) Joint Returns with the same general degree of care used in preparing Separate Returns.

 

(ii)                                  The Preparer shall make any Joint Return, or relevant portion thereof, available to the Non-Preparer a reasonable time period before the Joint Return is due, taking into account any extensions that the Preparer files, and shall consider in good faith any comments on such Tax Return that are provided in writing by the Non-Preparer, which comments shall be provided within a reasonable time period after such Tax Return is made available to the Non-Preparer. Furthermore, with respect to any Joint Return, the Preparer shall not take (and shall cause the members of the Preparer’s Group not to take) any position that it knows, or reasonably should know, is inconsistent with the past practice of the YUM Group or the SpinCo Group, except as otherwise required by applicable Law.

 

(iii)                               If a Tax Benefit associated with a Joint Return for which the SpinCo Parties are the Preparer arises in any taxable period beginning after the Distribution Date, to the fullest extent permitted under applicable Tax Law, the relevant member of the SpinCo Group shall waive the carryback of such Tax Benefit to any taxable period beginning on or before the Distribution Date.

 

(c)                                  Pre-Distribution Earnings and Profits.   Notwithstanding anything to the contrary herein, YUM shall, in its sole discretion, determine the amount of, and allocate between YUM and SpinCo (and the members of their respective Groups) in connection with the

 

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Distribution and the Related Separation Transactions, earnings and profits, foreign Taxes paid or accrued and other Tax Items, and such determinations and allocations shall control for all Tax Years, provided, that YUM shall provide SpinCo a reasonable opportunity to review such determinations and allocations, and YUM shall consider in good faith any reasonable written comments with respect to such allocations and determinations submitted by SpinCo. In the event of any redetermination or other adjustment affecting the amounts so determined or allocated, YUM shall, in its sole discretion, update the determinations and allocations made pursuant to this Section 3.1(c), subject to the requirements set forth in the first sentence of this Section 3.1(c).

 

(d)                                 Tax Benefits.  The Parties shall cooperate in good faith to ensure that the benefit of any Tax Benefits associated with any Taxes described in Section 2.2(d)(ii) is received by the Party conducting the Business in which such Tax is deemed to arise.

 

Section 3.2                                    Special Rules Relating to the Preparation of Tax Returns.

 

(a)                                 SpinCo Tax Returns.  With respect to any Tax Return for which the SpinCo Parties are the Preparer, during the seven (7) year period following the Distribution Date, the SpinCo Parties shall not take (and shall cause the members of the SpinCo Group not to take), except as otherwise required by applicable Law, any position that (i) could adversely affect any member of the YUM Group, or (ii) is inconsistent with the past practice of the YUM Group or the SpinCo Group. Furthermore, with respect to any Specified Tax Return for which the SpinCo Parties are the Preparer, the SpinCo Parties shall make such Specified Tax Return, or relevant portion thereof, available to YUM a reasonable time period before such Specified Tax Return is due, taking into account any extensions that the SpinCo Parties (or any SpinCo Group member) file, and shall incorporate all reasonable comments as are provided in writing by YUM. The SpinCo Parties shall not file any such Specified Tax Return without YUM’s prior written consent, not to be unreasonably withheld, conditioned or delayed (it being understood that YUM shall provide such consent if YUM determines in its reasonable discretion that the applicable Tax Return, or position taken thereon, does not have any direct or indirect relevance to YUM). Notwithstanding the foregoing, the SpinCo Parties shall not be required to make available to YUM any YCCL Monthly Withholding Reports prior to filing and shall be permitted to file such YCCL Monthly Withholding Reports without YUM’s prior written consent. The SpinCo Parties shall deliver to YUM copies of any such YCCL Monthly Withholding Reports within fifteen (15) days after filing with the applicable Tax Authority.

 

(b)                                 YUM Tax Returns.  YUM shall not take (and shall cause the members of the YUM Group not to take) any position with respect to the treatment of payments under the Master License Agreement that would adversely affect any member of the SpinCo Group, except as otherwise required by applicable Law.

 

(c)                                  Reimbursement for Costs Incurred by Preparer. The Non-Preparer of a given Tax Return may request that the Preparer amend such Tax Return for the benefit of the Non-Preparer. If the Preparer agrees, in its sole discretion, to amend such Tax Return, the Preparer shall be entitled to reimbursement from the Non-Preparer for any reasonable third-party costs that are attributable to the Non-Preparer’s request, to the extent those costs exceed $50,000. Notwithstanding the foregoing, if the Non-Preparer’s request to amend is a result of Preparer’s failure to prepare such Tax Return in compliance with Sections 3.2(a) and 3.2(b), the Preparer

 

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shall use commercially reasonable efforts to amend such Tax Return and the Preparer shall not be entitled to reimbursement from the Non-Preparer for any costs that are attributable to the Non-Preparer’s request.

 

(d)                                 Allocation of Tax Items Between Joint Return and Related Separate Return. If Tax Items are allocated between a Joint Return and any related Separate Return, then the Preparer of such Separate Return shall (and shall cause the members of its Group to) file the related Separate Return in a manner that is consistent with the reporting of such Tax Items on the Joint Return.

 

(e)                                  SAT Bulletin 7. YUM and the SpinCo Parties shall each file, or cause the applicable members of the YUM Group or the SpinCo Group, respectively, to file, any Tax Returns (for the avoidance of doubt, including any Tax reporting filings) that are mandatorily required by SAT Bulletin 7 to be filed by such Person with respect to the Distribution and the Internal Distributions. YUM and the SpinCo Parties shall consult with their respective tax advisors and cooperate as reasonably necessary to ensure compliance with any applicable reporting requirements pursuant to SAT Bulletin 7, provided, however, that the SpinCo Parties shall not (and shall cause each member of the SpinCo Group not to) file any Tax Return (including any Tax reporting filing) or otherwise communicate with any Tax Authority with respect to the application of SAT Bulletin 7 to the Distribution or the Internal Distributions without YUM’s prior written consent, or as otherwise mandatorily required by applicable Law.

 

(f)                                   Information Returns. Any information return (such as IRS Form 5471) with respect to a member of the SpinCo Group that is required to be included in the U.S. federal income Tax Returns of both SpinCo and YUM for the Tax Year in which the Distribution occurs shall be prepared by YUM.  YUM shall make any such information return available to SpinCo a reasonable time period before such information return is due, taking into account any available extensions, and shall consider in good faith any comments that are timely provided in writing by SpinCo.

 

Section 3.3                                    Financial Accounting Reports. With respect to Tax Items that are reflected on YUM’s financial accounting books, during the seven (7) year period following the Distribution Date, SpinCo shall not prepare its financial accounting books in a manner that is inconsistent with YUM’s reporting of such Tax Items.

 

ARTICLE IV

 

TAX PAYMENTS

 

Section 4.1                                    Payment of Taxes to Tax Authorities. YUM shall be responsible for remitting (or causing to be remitted) to the proper Tax Authority all Taxes shown (including Taxes for which the SpinCo Parties are wholly or partially liable pursuant to Section 2.1 or Section 2.2) on any Tax Return for which YUM is the Preparer, and the SpinCo Parties shall be responsible for remitting (or causing to be remitted) to the proper Tax Authority all Taxes shown (including Taxes for which YUM is wholly or partially liable pursuant to Section 2.1 or Section 2.2) on any Tax Return for which the SpinCo Parties are the Preparer.

 

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Section 4.2                                    Indemnification Payments.

 

(a)                                 Tax Payments Made by the SpinCo Group. If any member of the SpinCo Group remits a payment to a Tax Authority for Taxes for which YUM is wholly or partially liable under this Agreement, YUM shall remit to SpinCo the amount for which it is liable within thirty (30) days after receiving written notification requesting such amount.

 

(b)                                 Tax Payments Made by the YUM Group. If any member of the YUM Group remits a payment to a Tax Authority for Taxes for which the SpinCo Parties are wholly or partially liable under this Agreement, the SpinCo Parties shall remit to YUM the amount for which they are liable within thirty (30) days after receiving written notification requesting such amount.

 

(c)                                  Payments for Tax Benefits.

 

(i)                                     If a member of the YUM Group uses a Tax Benefit for which SpinCo is entitled to reimbursement pursuant to Section 2.2(c), YUM shall pay to SpinCo, within thirty (30) days following the use of such Tax Benefit, an amount equal to the deemed value of such Tax Benefit, as determined in Section 4.2(c)(iv).

 

(ii)                                  If a member of the SpinCo Group uses a Tax Benefit for which YUM is entitled to reimbursement pursuant to Section 2.2(c), the SpinCo Parties shall pay to YUM, within thirty (30) days following the use of such Tax Benefit, an amount equal to the deemed value of such Tax Benefit, as determined in Section 4.2(c)(iv).

 

(iii)                               For purposes of this Agreement, a Tax Benefit will be considered used (A) in the case of a Tax Benefit that generates a Tax refund, at the time such Tax refund is received and (B) in all other cases, at the time the Tax Return is filed with respect to such Tax Benefit or, if no Tax Return is filed, at the time the Tax would have been due in the absence of such Tax Benefit.

 

(iv)                              The deemed value of any such Tax Benefit will be (A) in the case of a Tax credit, the amount of such credit or (B) in the case of a Tax deduction, an amount equal to the product of (1) the amount of such deduction and (2) the highest statutory rate applicable under Section 11 of the Code or other applicable rate under state, local or foreign Law, as appropriate.

 

Section 4.3                                    Initial Determinations and Subsequent Adjustments. The initial determination of the amount of any payment that one Party is required to make to another under this Agreement shall be made on the basis of the Tax Return as filed, or, if the Tax to which the payment relates is not reported in a Tax Return, on the basis of the amount of Tax initially paid to the Tax Authority. The amounts paid under this Agreement will be redetermined, and additional payments relating to such redetermination will be made, as appropriate, if as a result of an audit by a Tax Authority, an amended Tax Return, an actual or deemed payment under Section 4.2 in excess of the amounts owed thereunder, or for any other reason (i) additional Taxes to which such redetermination relates are subsequently paid, (ii) a refund of such Taxes is received, (iii) the Group to which a Tax Item is allocated changes or (iv) the amount or character

 

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of any Tax Item is adjusted or redetermined. Each payment required by the immediately preceding sentence (A) as a result of a payment of additional Taxes will be due thirty (30) days after the date on which the additional Taxes were paid, (B) as a result of the receipt of a refund will be due thirty (30) days after the refund was received, (C) as a result of a change in the allocation of a Tax Item will be due thirty (30) days after the date on which the final action resulting in such change is taken by a Tax Authority or either Party or any member of its Group or (D) as a result of an adjustment or redetermination of the amount or character of a Tax Item will be due thirty (30) days after the date on which the final action resulting in such adjustment or redetermination is taken by a Tax Authority or either Party or any member of its Group. If a payment is made as a result of an audit by a Tax Authority which does not conclude the matter, further adjusting payments will be made, as appropriate, to reflect the outcome of subsequent administrative or judicial proceedings.

 

Section 4.4                                    Interest on Late Payments. Payments pursuant to this Agreement that are not made by the date prescribed in this Agreement or, if no such date is prescribed, within thirty (30) days after written demand for payment is made (the “Due Date”) shall accrue interest for the period from and including the date immediately following the Due Date through and including the date of payment at a rate per annum equal to the Prime Rate plus three percent (3%). Such rate shall be redetermined at the beginning of each calendar quarter following such Due Date. Such interest will be payable at the same time as the payment to which it relates and shall be calculated on the basis of a year of three hundred sixty-five (365) days and the actual number of days for which due.

 

Section 4.5                                    Payments by or to Other Group Members. When appropriate under the circumstances to reflect the underlying liability for a Tax or entitlement to a Tax refund or Tax Benefit, a payment which is required to be made by or to YUM or the SpinCo Parties may be made by or to another member of the YUM Group or the SpinCo Group, as appropriate, but nothing in this Section 4.5 shall relieve YUM or the SpinCo Parties of their respective obligations under this Agreement.

 

Section 4.6                                    Procedural Matters. Any written notice for indemnification delivered to the indemnifying Party in accordance with Section 8.4 shall state the amount due and owing together with a schedule calculating in reasonable detail such amount (and shall include any relevant Tax records, statement, bill or invoice related to such Taxes, costs, expenses or other amounts due and owing). All payments required to be made by one Party to the other Party pursuant to this Article IV shall be made in U.S. Dollars by electronic, same day wire transfer. Payments shall be deemed made when received. If the indemnifying Party fails to make a payment to the indemnified Party within the time period set forth in this Article IV, the indemnifying Party shall pay to the indemnified Party, in addition to interest that accrues pursuant to Section 4.4, any reasonable costs or expenses incurred by the indemnified Party to secure such payment or to satisfy the indemnifying Party’s obligation to make the indemnification payment.

 

Section 4.7                                    Tax Consequences of Payments. Except as otherwise required by applicable Law, for all Tax purposes, the Parties agree to treat: (a) any payment required by this Agreement (other than payments with respect to interest accruing from the date an applicable payment is required to be made pursuant to this Agreement) as either a contribution by YUM to

 

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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 (b) 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 the event that, pursuant to Section 4.5 or otherwise pursuant to this Agreement 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. If any payment under this Agreement causes, directly or indirectly, an increase in the Taxes owed by the recipient (or any of the members of its Group) under one or more applicable Tax Laws through withholding or otherwise, the payor’s payment obligation under this Agreement shall be grossed up to take into account any additional Taxes that may be owed by the recipient (or any of the members of its Group) as a result of such payment. For the avoidance of doubt, the preceding sentence shall not be applied to result in any duplication of a payment where, in accordance with another provision herein, a payment under this Agreement is calculated on an After-Tax Basis. The Parties shall cooperate in good faith to calculate any such gross up and After-Tax Basis amount, to minimize the amount of any Taxes imposed with respect to the receipt of any payment under this Agreement and to maximize the amount of any Tax Benefits to the recipient of any such indemnity payment with respect to the underlying liability. In the event that a Tax Authority asserts that the treatment by YUM, SpinCo or a member of their respective Groups of a payment pursuant to this Agreement should be other than as required pursuant to this Section 4.7, YUM or SpinCo, as appropriate, shall promptly provide written notice to the other Party and use its commercially reasonable efforts to contest such assertion.

 

Section 4.8                                    No Duplication. Notwithstanding anything to the contrary herein, nothing in this Agreement shall require a Party (or a member of such Party’s Group) to make any payment attributable to any indemnification for Taxes or payment of Taxes hereunder, or for any Tax Benefit, for which payment has previously been made by such Party (or a member of such Party’s Group) hereunder.

 

ARTICLE V

 

TAX CONTESTS

 

Section 5.1                                    Notices. Each Party shall promptly, and in all events within fifteen (15) days, provide written notice to the other Party of any pending or threatened Tax Contest of which it becomes aware relating to (i) Taxes for which it may be indemnified, or Tax Benefits for which it may be reimbursed, by the other Party hereunder, (ii) the qualification of the Distribution as a tax-free transaction 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, (iii) application of China Capital Gains Tax to the Distribution or the Internal Distributions, (iv) any change in the Tax treatment of the Distribution or any of the Related Separation Transactions or (v) in the case of notice to be provided by the SpinCo Parties, any Specified Tax Return. Such notice shall contain factual information (to the extent known by the notifying Party or its agents

 

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or representatives) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Tax Authority in respect of any such matters. If (i) an indemnified Party has knowledge of an asserted Tax liability with respect to a matter for which it is to be indemnified hereunder, (ii) such Party fails to give the indemnifying Party prompt notice of such asserted Tax liability and (iii) the indemnifying Party has the right, pursuant to Section 5.2, to control (or to elect to control) the Tax Contest relating to such Tax liability, then (A) if the indemnifying Party is precluded from contesting the asserted Tax liability as a result of the failure to give prompt notice, the indemnifying Party shall have no obligation to indemnify the indemnified Party for any Taxes arising out of such asserted Tax liability and (B) if the indemnifying Party is not precluded from contesting the asserted Tax liability, but such failure to give prompt notice results in a monetary detriment to the indemnifying Party, then any amount which the indemnifying Party is otherwise required to pay the indemnified Party pursuant to this Agreement shall be reduced by the amount of such detriment.

 

Section 5.2                                    Control of Tax Contests.

 

(a)                                 General Rule. Except as otherwise provided in this Section 5.2, the Preparer of any Tax Return shall be the Controlling Party with respect to any Tax Contest involving a Tax reported on such Tax Return.

 

(b)                                 Certain Tax Contests. The Non-Preparer shall be the Controlling Party with respect to that portion of any Tax Contest involving a Tax or Tax Benefit reported on a Joint Return where the Non-Preparer is liable for such Tax or entitled to reimbursement for such Tax Benefit under this Agreement and such Tax or Tax Benefit is separable from all other Taxes or Tax Benefits reported on such Joint Return. Notwithstanding anything herein to the contrary, YUM shall have the right, in its sole discretion, to elect to be the Controlling Party with respect to any Tax Contest relating to (i) the Distribution or any of the Related Separation Transactions and (ii) unless YUM determines in its reasonable discretion that the Tax Contest does not have any direct or indirect relevance to YUM, any Tax Return described in clauses (x) or (z) of the definition of Specified Tax Returns.

 

(c)                                  Non-Controlling Party Participation Rights. With respect to any Tax Contest involving (w) a Tax for which the Non-Controlling Party may be liable or have an indemnification obligation under this Agreement, (x) a Tax Benefit for which the Non-Controlling Party may be entitled to reimbursement under this Agreement, (y) any Tax Return relating to any payment made pursuant to the Master License Agreement or (z) where the Non-Controlling Party is YUM, the Distribution, any of the Related Separation Transactions, or a Tax Return described in clauses (x) or (z) of the definition of Specified Tax Returns, (i) the Non-Controlling Party shall, at its own cost and expense, be entitled to participate in such Tax Contest or to propose joint counsel to represent both Parties with respect to the applicable Tax Contest, which proposal the Controlling Party shall consider in good faith, (ii) the Controlling Party shall keep the Non-Controlling Party reasonably informed and consult in good faith with the Non-Controlling Party and its Tax advisors with respect to any issue relating to such Tax Contest, (iii) the Controlling Party shall provide the Non-Controlling Party with copies of all correspondence, notices and other written materials received from any Tax Authority and shall otherwise keep the Non-Controlling Party and its Tax advisors advised of significant developments in the Tax

 

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Contest and of significant communications involving representatives of the Tax Authority, and shall provide the Non-Controlling Party with such other information relating to the Tax Contest as is reasonably requested by the Non-Controlling Party, (iv) the Non-Controlling Party may request that the Controlling Party take a position in respect of such Tax Contest, and the Controlling Party shall do so provided that (A) there exists substantial authority for such position (within the meaning of the accuracy-related penalty provisions of Section 6662 of the Code), (B) the adoption of such position would not reasonably be expected to increase any Taxes for which the Controlling Party is liable or decrease any Tax Benefit for which it is entitled to reimbursement during any foreseeable Tax Year (unless the Non-Controlling Party agrees to indemnify and hold harmless the Controlling Party from such increase in Taxes or reduction in Tax Benefits), and (C) the Non-Controlling Party agrees to reimburse the Controlling Party for any reasonable third-party costs that are attributable to the Non-Controlling Party’s request, to the extent those costs exceed $50,000, (v) the Controlling Party shall provide the Non-Controlling Party with a copy of any written submission to be sent to a Taxing Authority at least twenty (20) days prior to the submission thereof (provided, that in the event that such Taxing Authority requires a submission within twenty (20) days, the copy to the Non-Controlling Party shall be provided by the Controlling Party as soon as reasonably practicable after receiving communication of such requirement from such Taxing Authority) and shall give good faith consideration to any comments or suggested revisions that the Non-Controlling Party or its Tax advisors may have with respect thereto, and (vi) there will be no settlement, resolution or closing or other agreement with respect thereto without the prior consent of the Non-Controlling Party, which consent shall not be unreasonably withheld, conditioned or delayed.

 

(d)                                 Assistance with respect to Tax Contests. At the request of the Controlling Party, the Non-Controlling Party shall take (and shall cause its Subsidiaries to take) any action (e.g., executing a limited power of attorney) that is reasonably necessary in order for the Controlling Party’s Group to handle, settle or conduct the Tax Contest. Each Party shall assist the other Party in taking (or causing to be taken) any remedial actions that are necessary or desirable to minimize the effects of any adjustment made by a Tax Authority. The Controlling Party shall reimburse the Non-Controlling Party for any reasonable out-of-pocket costs actually incurred in complying with this Section 5.2(d). The Controlling Party shall have no obligation to indemnify the Non-Controlling Party for any additional Taxes resulting from the Tax Contest, if the Non-Controlling Party fails to provide assistance in accordance with this Section 5.2(d), to the extent such additional Taxes are directly attributable to the Non-Controlling Party’s failure to provide such assistance.

 

ARTICLE VI

 

ASSISTANCE AND COOPERATION

 

Section 6.1                                    Cooperation and Exchange of Information. Each Party shall provide to the other, as soon as practicable, such information and data as the other Party may reasonably request, such as customary internal Tax and accounting work papers, information and procedures, in connection with (A) enabling the other Party to complete and timely file all Tax Returns that may be required to be filed with respect to the activities of the Party (or any members of its Group), (B) determining a liability for Tax or a right to a Tax Benefit (or the amount of any of the foregoing), (C) conducting or participating in a Tax Contest or (D)

 

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satisfying any accounting or Tax requirements. The Parties will discuss in good faith any change in Tax Law that might reasonably be expected to affect any position taken on any Tax Return or in any Tax Contest that is subject to this Agreement.  Each Party shall devote the personnel and resources necessary in order to carry out this Section 6.1 and shall make its employees available on a mutually convenient basis to provide explanations of any documents or information provided hereunder. Each Party shall carry out its responsibilities under this Section 6.1 charging to the other only the reasonable out-of-pocket costs actually incurred. Any information obtained under this Section 6.1 shall be kept in strict confidence, with at least the same degree of care and confidentiality that applies to YUM’s confidential and proprietary information pursuant to policies in effect as of the Effective Time, except as otherwise may be necessary in connection with the filing of Tax Returns. Further, the provisions of Section 6.9 of the Separation and Distribution Agreement shall govern the confidentiality, disclosure and use of all confidential and proprietary information relating to Taxes.

 

Section 6.2                                    Reliance on Exchanged Information. If a member of the SpinCo Group supplies Tax records, documents or other information to a member of the YUM Group, or a member of the YUM Group supplies Tax records, documents or other information to a member of the SpinCo Group, and an officer of the receiving Group member intends to sign a statement or other document under penalties of perjury in reliance upon the accuracy of such Tax records, documents or other information, then a duly authorized officer of the Group member supplying such Tax records, documents or other information shall certify, to such officer’s knowledge and belief, the accuracy and completeness of the Tax records, documents or other information so supplied. For the avoidance of doubt, the limitations of liability set forth in Section 6.5 of the Separation and Distribution Agreement shall apply to any such certification.

 

Section 6.3                                    Private Letter Rulings and Supplemental Tax Opinions. Each of the Parties agrees that at the reasonable request of the other Party (the “Requesting Party”), such Party shall cooperate and use reasonable efforts to (and shall cause its Subsidiaries to cooperate and use reasonable efforts to) assist the Requesting Party in obtaining, as expeditiously as reasonably practicable, a private letter ruling from the IRS with respect to the Distribution or to a Related Separation Transaction or a Supplemental Tax Opinion from a Tax Advisor. Within thirty (30) days after receiving an invoice from the other Party therefor, the Requesting Party shall reimburse such Party for all reasonable costs and expenses incurred by such Party and the members of its Group in connection with assisting the Requesting Party in obtaining any such private letter ruling or Supplemental Tax Opinion. Notwithstanding the foregoing, no Party shall be required to file any IRS letter ruling submission unless the other Party represents to the filing Party that (i) it has reviewed the IRS letter ruling submission and (ii) all information and representations, if any, relating to any member of the other Party’s Group contained in the IRS letter ruling submissions are true, correct and complete in all material respects.

 

Section 6.4                                    Withholding and Reporting. With respect to stock of YUM or SpinCo delivered to any Person, YUM and the SpinCo Parties shall cooperate (and shall cause the members of their respective Groups to cooperate) so as to permit YUM to discharge any applicable Tax withholding and Tax reporting obligations, including the appointment of SpinCo or one or more of its Subsidiaries as the withholding and reporting agent if YUM or one or more of its Subsidiaries is not otherwise required or permitted to withhold and report under applicable Tax Law.

 

20

 

Section 6.5                                    Retention of Tax Records. YUM and each of the SpinCo Parties  each shall preserve (and shall cause the members of their respective Groups to preserve) all Tax records, documents or other similar information that are in their possession (or in the possession of the members of their respective Groups), and that could affect the liability of any member of the other Group for Taxes, for as long as the contents thereof may become material in the administration of any matter under applicable Tax Law, but in any event until the later of (i) the expiration of any applicable statutes of limitation, as extended, and (ii) seven (7) years after the Distribution Date.

 

ARTICLE VII

 

RESTRICTION ON CERTAIN ACTIONS OF THE GROUPS

 

Section 7.1                                    General Restrictions. Following the Effective Time, YUM and each of the SpinCo Parties each shall not (and shall cause the members of their respective Groups not to) take any action that, or fail to take any action the failure of which to take, would be inconsistent with (i) the qualification of the Distribution as a tax-free transaction described in Sections 355 and 361 of the Code to YUM, its shareholders (except with respect to cash received in lieu of fractional shares), and SpinCo, (ii) the treatment of the Distribution as not subject to China Capital Gains Tax or (iii) the tax-free treatment of the Distribution, the Internal Distributions or the Regarded Internal Distributions.

 

Section 7.2                                    Restricted Actions Relating to Tax Materials. Without limiting the other provisions of this Article VII, following the Effective Time, YUM and each of the SpinCo Parties each shall not (and shall cause the members of their respective Groups not to) take any action that, or fail to take any action the failure of which to take, would be reasonably likely to be inconsistent with, or cause any Person to be in breach of, any representation or covenant, or any material statement, made by YUM or either of the SpinCo Parties (or any member of their respective Groups), as applicable, in the Tax Materials.

 

Section 7.3                                    Certain SpinCo Actions Following the Distribution.

 

(a)                                 General Rule. Except as provided in Section 7.3(b), and without limiting the other provisions of this Article VII, during the two-year period beginning on the Distribution Date, SpinCo shall not take or enter into a binding agreement to take (and the SpinCo Parties shall cause the members of the SpinCo Group not to take or enter into a binding agreement to take) any of the following actions:

 

(i)                                     the facilitation or allowance of the SpinCo Group to cease being engaged in the SpinCo Business as an active trade or business (within the meaning of Section 355(b) of the Code);

 

(ii)                                  the liquidation or partial liquidation of SpinCo;

 

(iii)                               the sale of fifty percent (50%) or more of the assets that constitute the SpinCo Business to any Person, other than an entity that is and will be wholly-owned, directly or indirectly, by SpinCo;

 

21

 

(iv)                              the transfer of any assets in a transaction described in subparagraphs (A), (C), (D), (F), or (G) of Section 368(a)(1) of the Code to another entity, other than an entity that is and will be wholly-owned, directly or indirectly, by SpinCo;

 

(v)                                 the transfer of fifty percent (50%) or more of the assets that constitute the SpinCo Business in a transaction described in Section 351 or Section 721 of the Code, other than a transfer to an entity that is and will be wholly-owned, directly or indirectly, by SpinCo;

 

(vi)                              the issuance of its stock (or any instrument that is convertible or exchangeable into any such stock), other than an issuance to which Treasury Regulations §§ 1.355-7(d)(8) or (9) applies;

 

(vii)                           the facilitation or permitting of, or other participation in, any acquisition (or deemed acquisition) of its stock that, together with any related transaction, would result in one or more Persons acquiring (or being deemed to acquire after applying the rules of Sections 355(e)(4)(C) and 355(e)(3)(B) of the Code) forty percent (40%) or more (by vote or value) of the outstanding stock of SpinCo; or

 

(viii)                        the redemption or other repurchase of its stock other than pursuant to open market stock repurchase programs meeting the requirements of Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696, as in effect prior to its amendment by Rev. Proc. 2003-48, 2003-2 C.B. 86.

 

(b)                                 Opinion of Counsel with Respect to Restricted Actions. SpinCo may take (or cause its Subsidiaries to take) (i) one or more of the actions listed in Sections 7.3(a)(i) through 7.3(a)(vi) if, and only if, SpinCo provides to YUM in advance a Supplemental Tax Opinion that is in form and substance satisfactory to YUM, in its sole discretion or (ii) an action listed in Sections 7.3(a)(vii) and 7.3(a)(viii) if, and only if, SpinCo provides to YUM in advance both (A) a Supplemental Tax Opinion and (B) a China Tax Opinion, each in form and substance satisfactory to YUM, in its sole discretion. Any such Supplemental Tax Opinion or China Tax Opinion must be delivered to YUM for its review and comment at least twenty (20) days prior to SpinCo (or any of its Subsidiaries) taking or entering into a binding agreement to take the applicable action, and SpinCo shall not (and the SpinCo Parties shall cause each member of the SpinCo Group not to) take or enter into a binding agreement to take the applicable action without YUM’s prior written confirmation that the Supplemental Tax Opinion (and China Tax Opinion, if applicable) is in form and substance satisfactory to YUM, in its sole discretion.

 

Section 7.4                                    Year of Distribution Restrictions. During the period that begins on the Distribution Date and ends on the latest of (A) the end of the Tax Year of YUM in which the Distribution occurs, (B) the end of the Tax Year of the applicable SpinCo Group member in which the Distribution occurs or (C) December 31 of the calendar year in which the Distribution occurs, (i) the SpinCo Parties shall not take (and shall cause each member of the SpinCo Group not to take) any action outside the ordinary course of business (including, for the avoidance of doubt, sales of significant assets or non-payment of accrued intercompany liabilities) and (ii) the

 

22

 

SpinCo Parties shall cause Yum! Franchise China Trust and Yum! Franchise China Trust II not to make any distributions.

 

Section 7.5                                    Little Sheep. During the one-year period beginning on the Distribution Date, the SpinCo Parties shall not take (and shall cause each member of the SpinCo Group not to take) any action (including the making of any election) that could reasonably be expected to result in Little Sheep Group Limited being classified for U.S. federal income tax purposes other than as a partnership.

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1                                    Entire Agreement. This Agreement, together with the Separation and Distribution 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 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.

 

Section 8.2                                    Governing Law. This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of laws principles of the State of Delaware including all matters of validity, construction, effect, enforceability, performance and remedies.

 

Section 8.3                                    Termination. Notwithstanding any provision to the contrary, this Agreement may be terminated 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 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. In the event of any termination of this Agreement prior to the Effective Time, this Agreement shall become void and neither Party (nor any of its Affiliates, directors, officers, or employees) shall have any Liability or obligation to the other Party (or any of its Affiliates) by reason of this Agreement.

 

Section 8.4                                    Notices. Unless expressly provided herein, all notices, requests, claims, demands or other communications under this Agreement shall be delivered in accordance with the requirements for the provision of notice set forth in Section 10.5 of the Separation and Distribution Agreement.

 

Section 8.5                                    Counterparts. This Agreement may be executed in one (1) or more counterparts, all of which shall be considered one (1) and the same agreement, and shall become effective when one (1) or more counterparts have been signed by each of the Parties and delivered to the other Party. The provisions of Section 10.1(d) of the Separation and Distribution Agreement shall, for the avoidance of doubt, apply to the execution of this Agreement.

 

23

 

Section 8.6                                    Binding Effect; Assignability.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, that neither Party may assign any of its rights or assign or delegate any of its obligations under this Agreement without the express prior written consent of the other Party.

 

Section 8.7                                    No Third Party Beneficiaries.  The provisions of this Agreement are solely for the benefit of the Parties and do not and are not intended to confer upon any Person except the Parties any rights or remedies hereunder, and there are no Third Party beneficiaries of this Agreement and this Agreement shall not provide any Third Party with any remedy, claim, Liability, reimbursement or other right in excess of those existing without reference to this Agreement.

 

Section 8.8                                    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.

 

Section 8.9                                    Waivers of Default;  Remedies Cumulative. Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party.  No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

Section 8.10                             Amendments. No provisions of this Agreement may be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

 

Section 8.11                             Authority. YUM represents on behalf of itself, SpinCo represents on behalf of itself, and YCCL represents on behalf of itself, as follows:

 

(a)                                 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

 

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

 

Section 8.12                             Specific Performance.  Subject to the provisions of Article VII of the Separation and Distribution Agreement, in the event of any actual or threatened default in, or

 

24

 

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

 

Section 8.13                             Mutual Drafting.  This Agreement shall be deemed to be the joint work product of the Parties, and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.

 

Section 8.14                             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 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 to be performed by any member of the SpinCo Group.

 

Section 8.15                             Limitations of Liability.  Notwithstanding anything in this Agreement or the Separation and Distribution 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).

 

Section 8.16                             Predecessors or Successors.  Any reference to YUM, the SpinCo Parties, a Person or a Subsidiary in this Agreement shall include any predecessors or successors (e.g., by merger or other reorganization, liquidation or conversion) of YUM, the SpinCo Parties, such Person or such Subsidiary, respectively.

 

Section 8.17                             Expenses.  Except as otherwise expressly provided for herein, or as otherwise agreed to in writing by the Parties, each Party and its Subsidiaries shall bear its own expenses incurred in connection with the preparation of Tax Returns and other matters related to Taxes under the provisions of this Agreement for which they are liable.

 

Section 8.18                             Change in Law.  Any reference to a provision of the Code or any other Tax Law shall include a reference to any applicable successor provision or Law.

 

Section 8.19                             Disputes.  The procedures for discussion, negotiation, mediation and arbitration set forth in Article VII of the Separation and Distribution Agreement shall apply to all disputes, controversies or claims (whether sounding in contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection with, this Agreement.

 

25

 

Section 8.20                             Employment Tax Overlap.  In the event of any conflict between this Agreement and the Employee Matters Agreement with respect to taxes associated with employees of either Group, the Employee Matters Agreement shall govern.

 

Section 8.21                             Incorporation.  Sections 10.8 (No Set-Off), 10.10 (Headings) and 10.15 (Interpretation) of the Separation and Distribution Agreement are hereby incorporated in this Agreement as if fully set forth herein.

 

[Signatures set forth on following page]

 

26

 

IN WITNESS WHEREOF, the Parties have caused this 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
    

 

27

 

SCHEDULE A

 

	
Entity Name
    	
 
    	
Country in which 
   Organized
    
	
Atto Primo (Shanghai) Co., Ltd.
    	
 
    	
China
    
	
Bai Sheng Restaurants China Holdings Limited
    	
 
    	
Hong Kong
    
	
Bai Sheng Restaurants (Hong Kong) Limited
    	
 
    	
Hong Kong
    
	
Baotou Little Sheep Jingchen Catering Co., Ltd.
    	
 
    	
China
    
	
Baotou Little Sheep Mutton Co., Ltd.
    	
 
    	
China
    
	
Baotou Little Sheep Shenhua Catering Company Limited
    	
 
    	
China
    
	
Baotou Yangwang Farming Company Limited
    	
 
    	
China
    
	
Beijing KFC Co., Ltd.
    	
 
    	
China
    
	
Beijing Pizza Hut Co., Ltd.
    	
 
    	
China
    
	
Beijing Yizhuang Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Beijing Zhichun Road Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Changsha Fuwang Catering Management Co., Ltd.
    	
 
    	
China
    
	
Changsha KFC Co., Ltd.
    	
 
    	
China
    
	
ChangSha Little Sheep Catering Administration   Co., Ltd.
    	
 
    	
China
    
	
Changsha Yongao Catering Company Ltd.
    	
 
    	
China
    
	
China XiaoFeiYang Catering Chain Co., Ltd.
    	
 
    	
British Virgin Islands
    
	
Chongqing KFC Co., Ltd.
    	
 
    	
China
    
	
Dalian KFC Co., Ltd.
    	
 
    	
China
    
	
Dezhou Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Dongguan Humen Little Sheep Catering Company Limited
    	
 
    	
China
    
	
Dongguan KFC Co., Ltd.
    	
 
    	
China
    
	
East Dawning (Shanghai) Co., Ltd.
    	
 
    	
China
    
	
Foshan Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Foshan Mengjie Catering Company Limited
    	
 
    	
China
    
	
Fuzhou Cangshan Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Fuzhou Fuxing Little Sheep Catering Company Limited
    	
 
    	
China
    
	
Fuzhou Gulou Hualin Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Fuzhou Gulou Little Sheep Catering Company Limited
    	
 
    	
China
    
	
Fuzhou Taijiang Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Gansu Hongfu Little Sheep Catering Management   Company Limited
    	
 
    	
China
    
	
Gansu Hongxi Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Gansu Hongxiang Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
GanSu Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Guangzhou Little Sheep Corporation Consulting   Management Co., Ltd.
    	
 
    	
China
    
	
Guangzhou Little Sheep Trading Company Limited
    	
 
    	
China
    
	
Guangzhou Xingwang Catering Co., Ltd. (f.k.a   Guangzhou Hajie Catering Co., Ltd.)
    	
 
    	
China
    
	
Guangzhou Yingfeng Yijing Catering Co., Ltd.
    	
 
    	
China
    
	
Guangzhou Yuansheng Catering Co., Ltd.
    	
 
    	
China
    

 

 

	
Entity Name
    	
 
    	
Country in which 
   Organized
    
	
Hangzhou KFC Co., Ltd.
    	
 
    	
China
    
	
Hangzhou YongAo Catering Co. Ltd.
    	
 
    	
China
    
	
Hohhot Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
HuanSheng Advertising (Shanghai) Company Limited
    	
 
    	
China
    
	
Huansheng Consulting (Wuhan) Co., Ltd.
    	
 
    	
China
    
	
HuanSheng eCommerce (Shanghai) Co. Ltd.
    	
 
    	
China
    
	
Huan Sheng Information Technology (Shanghai) Limited
    	
 
    	
China
    
	
Huizhou Yanfu Catering Management Co., Ltd.
    	
 
    	
China
    
	
Hulun Buir Little Sheep Xiqi Mutton Co., Ltd.
    	
 
    	
China
    
	
Inner Mongolia Little Sheep Catering Chain Company   Limited
    	
 
    	
China
    
	
Inner Mongolia Little Sheep Food Company Limited   (f.k.a Bayannur Little Sheep Meat Company Limited)
    	
 
    	
China
    
	
Inner Mongolia Little Sheep Meat Company Limited
    	
 
    	
China
    
	
Inner Mongolia Little Sheep Seasoning Company Limited
    	
 
    	
China
    
	
Jiangmen Pengjiang Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Jiaozuo Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Jinan Zhaofei Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Jinjiang Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Kentucky Fried Chicken Global B.V.
    	
 
    	
Netherlands
    
	
Kunming KFC Co., Ltd.
    	
 
    	
China
    
	
Lanzhou KFC Co., Ltd.
    	
 
    	
China
    
	
Little Sheep Catering Company Limited, Yongding   Road, Beijing City
    	
 
    	
China
    
	
Little Sheep Group Limited
    	
 
    	
Cayman Islands
    
	
Little Sheep Hong Kong Company Limited
    	
 
    	
Hong Kong
    
	
Little Sheep Hong Kong Holdings Company Limited
    	
 
    	
Hong Kong
    
	
Little Sheep Macau - Restaurant Chain of Stores   Limited
    	
 
    	
Macau
    
	
Little Sheep MongKok Company Limited
    	
 
    	
Hong Kong
    
	
Little Sheep Tsim Sha Tsui Company Limited
    	
 
    	
Hong Kong
    
	
Little Sheep Tsuen Wan Company Limited
    	
 
    	
Hong Kong
    
	
Little Sheep Yuen Long Co., Ltd.
    	
 
    	
Hong Kong
    
	
Nanchang KFC Co., Ltd.
    	
 
    	
China
    
	
Nanchang Taoyuan Little Sheep Catering Management   Co, Ltd.
    	
 
    	
China
    
	
Nanjing KFC Co., Ltd.
    	
 
    	
China
    
	
Nanjing Lucheng Little Sheep Catering Business   Management Company Limited
    	
 
    	
China
    
	
Nanjing Mengle Little Sheep Catering Company Limited
    	
 
    	
China
    
	
Nanjing MengYuan Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
NanJing XingMeng Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Nanning KFC Co., Ltd.
    	
 
    	
China
    
	
Nanning Little Sheep Catering Chain Company Limited
    	
 
    	
China
    
	
Nanning Ruyun Catering Co., Ltd.
    	
 
    	
China
    

 

 

	
Entity Name
    	
 
    	
Country in which 
   Organized
    
	
NingBo JiangDong ShuGuang Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Ningbo Little Sheep Catering Company Limited
    	
 
    	
China
    
	
Qingdao KFC Co., Ltd.
    	
 
    	
China
    
	
Shandong Little Sheep Hotel Management Company   Limited
    	
 
    	
China
    
	
Shanghai Changning Little Sheep Catering Company   Limited
    	
 
    	
China
    
	
Shanghai ChengShan Little Sheep Catering   Co, Ltd.
    	
 
    	
China
    
	
Shanghai Fengnan Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Shanghai Gumei Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Shanghai Huijin Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Shanghai Jingan Little Sheep Catering Management   Company Limited
    	
 
    	
China
    
	
Shanghai KFC Co., Ltd.
    	
 
    	
China
    
	
Shanghai Little Sheep Catering Company Limited
    	
 
    	
China
    
	
Shanghai Lujiabang Little Sheep Catering Company   Limited
    	
 
    	
China
    
	
Shanghai Luyuan Little Sheep Catering Company   Limited (fka Shanghai Chuangbao Shuangcheng Little Sheep Catering Company   Limited)
    	
 
    	
China
    
	
Shanghai Pengpu Little Sheep Catering Company   Limited
    	
 
    	
China
    
	
Shanghai Pizza Hut Co., Ltd.
    	
 
    	
China
    
	
Shanghai Putuo Little Sheep Catering Company Limited
    	
 
    	
China
    
	
Shanghai Qibao Little Sheep Catering Company Limited
    	
 
    	
China
    
	
Shanghai Qingpu Little Sheep Catering Management   Company Limited
    	
 
    	
China
    
	
ShangHai WangYuan Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Shanghai Yangpu Little Sheep Catering Company   Limited
    	
 
    	
China
    
	
Shanghai Zhenhua Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Shantou KFC Co., Ltd.
    	
 
    	
China
    
	
ShenYang MengXing Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Shenyang Minsheng Little Sheep Catering Company   Limited
    	
 
    	
China
    
	
Shenyang Wangda Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Shenyang Xiangjiang Little Sheep Catering Company   Limited
    	
 
    	
China
    
	
ShenYang YongAo Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Shenzhen Little Sheep Catering Chain Company Limited
    	
 
    	
China
    
	
Shenzhen Little Sheep Enterprise Company Limited
    	
 
    	
China
    
	
Shenzhen Tianjiao Catering Co., Ltd.
    	
 
    	
China
    
	
Shenzhen Xintu Catering Co., Ltd.
    	
 
    	
China
    
	
Shenzheng Huacai Catering Co., Ltd.
    	
 
    	
China
    
	
ShiShi Little Sheep Catering Co, Ltd.
    	
 
    	
China
    
	
Sunrise Investments Co., Ltd.
    	
 
    	
British Virgin Islands
    
	
Suzhou KFC Co., Ltd.
    	
 
    	
China
    
	
Taiyuan KFC Co., Ltd.
    	
 
    	
China
    
	
Tangshan Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Tianjin KFC Co., Ltd.
    	
 
    	
China
    
	
Wandle Investments Limited
    	
 
    	
Hong Kong
    

 

 

	
Entity Name
    	
 
    	
Country in which 
   Organized
    
	
Wuhan Mengwang Catering Co., Ltd.
    	
 
    	
China
    
	
WuHan MengXiang Little Sheep Catering Co. Ltd.
    	
 
    	
China
    
	
WuHan YongAo Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Wuxi KFC Co., Ltd.
    	
 
    	
China
    
	
Xiamen KFC Co., Ltd.
    	
 
    	
China
    
	
Xiamen Lianqian Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Xiamen Shixin Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Xian Hepingmen Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Xian Hezong Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Xilinhot Xihua Farming Development Company Limited
    	
 
    	
China
    
	
XiNing Little Sheep Catering Co., Ltd.
    	
 
    	
China
    
	
Xinjiang KFC Co., Ltd.
    	
 
    	
China
    
	
Xinxiang Hongqi Heping Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
YIF US LLC
    	
 
    	
U.S. (DE)
    
	
Yinchuan Little Sheep Catering Company Limited
    	
 
    	
China
    
	
YRI Hong Kong I Limited
    	
 
    	
Hong Kong
    
	
YRI Hong Kong II Limited
    	
 
    	
Hong Kong
    
	
YRI Hong Kong IV Limited
    	
 
    	
Hong Kong
    
	
Yum! (Shanghai) Food Co., Ltd.
    	
 
    	
China
    
	
Yum! Asia Holdings Pte. Ltd.
    	
 
    	
Singapore
    
	
Yum China E-Commerce Limited
    	
 
    	
Hong Kong
    
	
Yum! China Finance S.à r.l.
    	
 
    	
Luxembourg
    
	
Yum! Franchise China IV S.à r.l.
    	
 
    	
Luxembourg
    
	
Yum! Franchise China Trust
    	
 
    	
China
    
	
Yum! Franchise China Trust I S.à r.l.
    	
 
    	
Luxembourg
    
	
Yum! Franchise China Trust II
    	
 
    	
China
    
	
Yum! Franchise China Trust III
    	
 
    	
China
    
	
Yum! Franchise China Trust III S.à r.l.
    	
 
    	
Luxembourg
    
	
Yum! Franchise China Trust IV
    	
 
    	
China
    
	
Yum! Global Investments I B.V.
    	
 
    	
Netherlands
    
	
Yum! Global Investments II B.V.
    	
 
    	
Netherlands
    
	
Yum! Global Investments III LLC
    	
 
    	
U.S. (DE)
    
	
Yum! Restaurants (Chengdu) Co., Ltd.
    	
 
    	
China
    
	
Yum Restaurants (China) Investment Company Limited
    	
 
    	
China
    
	
Yum! Restaurants (Fuzhou) Co., Ltd.
    	
 
    	
China
    
	
Yum! Restaurants (Guangdong) Co., Ltd.
    	
 
    	
China
    
	
Yum! Restaurants (Shenyang) Co., Ltd.
    	
 
    	
China
    
	
Yum! Restaurants (Shenzhen) Co. Ltd.
    	
 
    	
China
    
	
Yum! Restaurants (Wuhan) Co., Ltd.
    	
 
    	
China
    
	
Yum! Restaurants (Xian) Co., Ltd.
    	
 
    	
China
    
	
Yum Restaurants Consulting (Shanghai) Company   Limited
    	
 
    	
China
    

 

 

	
Entity Name
    	
 
    	
Country in which 
   Organized
    
	
Yum! Restaurants International S.a.r.l.
    	
 
    	
Luxembourg
    
	
Zhengzhou Hezong Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Zhengzhou Hongzhuan Little Sheep Catering   Co., Ltd.
    	
 
    	
China
    
	
Zhengzhou KFC Co., Ltd.
    	
 
    	
China
    
	
Zhongshan Little Sheep Catering Co., Ltd.
    	
 
    	
China
    

 

 

SCHEDULE B

 

Internal Distributions

 

1.              Pizza Hut Inc. (“PHI”), a California corporation, merges with and into Pizza Hut, LLC (“PHLLC”), a Delaware limited liability company (“LLC”) that is treated as a disregarded entity for U.S. federal income tax purposes, with PHLLC surviving the merger.

 

2.              Pizza Hut International, LLC (“PHILLC”), a Delaware LLC that is treated as a disregarded entity for U.S. federal income tax purposes, distributes certain preferred stock (the “KFCH Preferred Stock”) of KFC Holding Co. (“KFCH”), a Delaware corporation, to PHLLC.

 

3.              PHLLC distributes the KFCH Preferred Stock to Pizza Hut Holdings, LLC (“PHHLLC”), a Delaware LLC that is treated as a disregarded entity for U.S. federal income tax purposes.

 

4.              PHHLLC distributes the KFCH Preferred Stock to Yum! Brands, Inc. (“YUM”), a North Carolina corporation.

 

5.              YUM contributes the KFCH Preferred Stock to the capital of KFCH.

 

6.              Kentucky Fried Chicken International Holdings, Inc. (“KFCIH”), a Delaware LLC that is treated as a disregarded entity for U.S. federal income tax purposes, distributes its voting preferred stock in KFC Corporation (“KFCC”), a Delaware corporation, to KFCC.

 

7.              The US branch of Yum! International Finance Company S.à r.l. (“YIFCO”), a Luxembourg S.à r.l. that is treated as a corporation for U.S. federal income tax purposes, allocates its ownership in (i) Yum! Franchise China Trust IV (“CBT IV”), a Chinese Business Trust organized under the laws of China that is treated as a corporation for U.S. federal income tax purposes, and (ii) YIF US LLC (“YIF US”), a Delaware LLC that is treated as a disregarded entity for U.S. federal income tax purposes, to YIFCO.

 

8.              YIFCO transfers its interest in CBT IV, YIF US, and YRI Hong Kong IV Ltd. (“YRI HK IV”), a Hong Kong limited company that is treated as a disregarded entity for U.S. federal income tax purposes, to Yum! China Finance S.à r.l. (“Yum! China Finance”), an “off the shelf” Luxembourg S.à r.l. that is treated as a disregarded entity for U.S. federal income tax purposes, in exchange for two shares and share premium.

 

9.              Yum! China Finance allocates its interest in CBT IV and YIF US to its U.S. branch, Yum! China Finance S.à r.l., LLC.

 

10.       YIFCO distributes all of the outstanding stock of Yum! China Finance and cash to Yum! Restaurants International Management LLC (“YRIM”), as trustee of Yum! Franchise China Trust (“CBT I”), a Chinese Business Trust organized under the laws of China that is treated as a corporation for U.S. federal income tax purposes, through a distribution of interim dividend and profit brought forward.

 

11.       YRIM, as trustee of CBT I and Yum! Franchise China Trust III (“CBT III”), a Chinese Business Trust organized under the laws of China that is treated as a corporation for U.S.

 

 

federal income tax purposes, transfers its legal title in the underlying trust property of CBT I and CBT III to YRI Hong Kong I Ltd. (“YRI HK I”), a Hong Kong limited company that is treated as a disregarded entity for U.S. federal income tax purposes.

 

12.       YRIM contributes all of the stock of YRI HK I to Yum China Holdings, Inc., (“SpinCo”), a Delaware corporation, solely in exchange for SpinCo common shares.

 

13.       YRIM contributes all of the stock of Yum! Restaurants International S.à r.l. (“YRI Sarl”), a Luxembourg S.à r.l. that is treated as a disregarded entity for U.S. federal income tax purposes, and Kentucky Fried Chicken Global B.V. (“KFC Global BV”), a Besloten Vennootschap organized under the laws of the Netherlands that is treated as a disregarded entity for U.S. federal income tax purposes, to SpinCo solely in exchange for SpinCo common shares.

 

14.       YRIM contributes all of the stock of Wandle Investments Limited (“Wandle”), a limited company organized under the laws of Hong Kong that is treated as a disregarded entity for U.S. federal income tax purposes, to SpinCo solely in exchange for SpinCo common shares.

 

15.       YRIM transfers all issued and outstanding stock of SpinCo to Yum! International Participations (“YIP”), a Delaware LLC that is treated as a disregarded entity for U.S. federal income tax purposes, as a repurchase of one YRIM limited liability company membership interest unit, followed by the cancellation of such repurchased membership interest unit.

 

16.       YIP transfers all issued and outstanding stock of SpinCo to Yum! Luxembourg Investments (“YLI”), a Delaware LLC that is treated as a corporation for U.S. federal income tax purposes, as a repurchase of one YIP limited liability company membership interest unit, followed by the cancellation of such repurchased membership interest unit.

 

17.       YLI transfers all issued and outstanding stock of SpinCo to Yum! Restaurants International Holdings, Ltd. (“YRIHL”), a Delaware limited liability company that is treated as a disregarded entity for U.S. federal income tax purposes, as a repurchase of one YLI limited liability company membership interest unit, followed by the cancellation of such repurchased membership interest unit.

 

18.       YRIHL transfers all issued and outstanding stock of SpinCo to KFCIH as a repurchase of one YRIHL limited liability company membership interest unit, followed by the cancellation of such repurchased membership interest unit.

 

19.       KFCIH transfers all issued and outstanding stock of SpinCo to KFCC as a repurchase of one KFCIH limited liability company membership interest unit, followed by the cancellation of such repurchased membership interest unit.

 

20.       KFCC transfers all issued and outstanding stock of SpinCo to KFCH as a repurchase of one share of KFCC common stock, followed by the retiring of such repurchased share.

 

21.       KFCH transfers all issued and outstanding stock of SpinCo to YUM as a repurchase of one share of KFCH common stock, followed by the retiring of such repurchased share.

 

 

SCHEDULE C

 

Regarded Internal Distributions

 

1.              YRI Hong Kong II Ltd. (“YRI HK II”), a Hong Kong limited company that is treated as a disregarded entity for U.S. federal income tax purposes, as trustee of Yum! Franchise China Trust II (“CBT II”), a Chinese Business Trust organized under the laws of China that is treated as a corporation for U.S. federal income tax purposes, distributes all of the issued and outstanding shares of Yum! Asia Holdings S.à r.l. (“Yum! Asia Holdings”), an “off the shelf” Luxembourg S.à r.l. that is treated as a corporation for U.S. federal income tax purposes, pro rata to Yum! Global Investments I B.V. (“YGI I BV”) and Yum! Global Investments II B.V. (“YGI II BV”), each of which is a Besloten Vennootschap organized under the laws of the Netherlands that is treated as a disregarded entity for U.S. federal income tax purposes.

 

2.              YRIM, as trustee of CBT I, distributes all of its stock in Yum! Asia Holdings pro rata to YRI Sarl and Yum! Franchise China Trust I S.à r.l. (“YF China I Sarl”), a Luxembourg S.à r.l. that is treated as a disregarded entity for U.S. federal income tax purposes.

 

3.              YRIM transfers all issued and outstanding stock of SpinCo to YIP as a repurchase of one YRIM limited liability company membership interest unit, followed by the cancellation of such repurchased membership interest unit.

 

4.              YLI transfers all issued and outstanding stock of SpinCo to YRIHL as a repurchase of one YLI limited liability company membership interest unit, followed by the cancellation of such repurchased membership interest unit.

 

5.              KFCC transfers all issued and outstanding stock of SpinCo to KFCH as a repurchase of one share of KFCC common stock, followed by the retiring of such repurchased share.

 

6.              KFCH transfers all issued and outstanding stock of SpinCo to YUM as a repurchase of one share of KFCH common stock, followed by the retiring of such repurchased share.

 

 

SCHEDULE D

 

Intermediate Entities

 

	
Entity Name
    	
 
    	
Country in which 
   Organized
    
	
Kentucky Fried Chicken Global B.V.
    	
 
    	
Netherlands
    
	
YIF US LLC
    	
 
    	
U.S. (DE)
    
	
YRI Hong Kong I Limited
    	
 
    	
Hong Kong
    
	
YRI Hong Kong II Limited
    	
 
    	
Hong Kong
    
	
YRI Hong Kong IV Limited
    	
 
    	
Hong Kong
    
	
Yum! Asia Holdings Pte. Ltd.
    	
 
    	
Singapore
    
	
Yum! China Finance S.à r.l.
    	
 
    	
Luxembourg
    
	
Yum! Franchise China IV S.à r.l.
    	
 
    	
Luxembourg
    
	
Yum! Franchise China Trust I S.à r.l.
    	
 
    	
Luxembourg
    
	
Yum! Franchise China Trust III S.à r.l.
    	
 
    	
Luxembourg
    
	
Yum! Global Investments I B.V.
    	
 
    	
Netherlands
    
	
Yum! Global Investments II B.V.
    	
 
    	
Netherlands
    
	
Yum! Global Investments III LLC
    	
 
    	
U.S. (DE)
    
	
Yum! Restaurants International S.a.r.l.
    	
 
    	
Luxembourg

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