Exhibit 10.20
MEMBERSHIP INTEREST PURCHASE
AGREEMENT
between
NUTRISYSTEM, INC.
(a Delaware corporation),
and
ELIZABETH LUDLOW
the sole member of
SLIM AND TONE, LLC
MEMBERSHIP INTEREST PURCHASE
AGREEMENT
INTRODUCTION
This MEMBERSHIP INTEREST PURCHASE
AGREEMENT is dated as of December 2, 2004. The parties are
NUTRISYSTEM, INC., a Delaware corporation (the “Buyer”)
and ELIZABETH LUDLOW, an individual and a resident of the
Commonwealth of Pennsylvania (the “Seller”). Seller is
the sole member and President of SLIM AND TONE, LLC, a Pennsylvania
limited liability company (the “Company”).
BACKGROUND
Seller owns all of the issued and
outstanding membership interests (the “Shares”) of the
Company. The Buyer desires to purchase from the Seller, and the
Seller desires to sell to the Buyer, the Shares on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of
the respective covenants, representations and warranties herein
contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Definitions .
For convenience, certain terms used
in more than one part of this Agreement are listed in alphabetical
order and defined or referred to below (such terms as well as any
other terms defined elsewhere in this Agreement shall be equally
applicable to both the singular and plural forms of the terms
defined).
“Action” is defined in
Section 7.5.
“Affiliates” means, with
respect to a particular party, Persons controlling, controlled by
or under common control with that party, as well as any officers,
directors and majority-owned entities of that party and of its
other Affiliates. For the purposes of the foregoing, ownership,
directly or indirectly, of 20% or more of the voting membership
interest or other equity interest shall be deemed to constitute
control.
“Agreement” means this
Membership Interest Purchase Agreement, including all schedules and
exhibits hereto.
“Assets” means, with
respect to the Company as the context may require, all assets,
properties, business, goodwill and rights of every kind and
description, real and personal, tangible and intangible, wherever
situated and whether or not reflected on the Current Balance
Sheet.
“Balance Sheet Date”
means September 30, 2004.
“Business” means the
existing and prospective business, operations, facilities and other
Assets, financial condition, results of operations, finances,
markets, products, competitive position, raw materials and other
supplies, customers and customer relations and personnel of the
Company.
“Business Day” means any
calendar day which is not a Saturday, Sunday or public holiday
under the laws of the Commonwealth of Pennsylvania.
“Buyer” is defined in
the Introduction.
“Cap” is defined in
Section 7.3(d).
“CERCLA” means the
Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. §§ 9601 et seq.
“Change of Control
Event” means (i) any sale, lease, exchange, or other transfer
of all or substantially all of the assets of the Buyer to any other
Person (in one transaction or a series of related transactions),
(ii) dissolution or liquidation of the Buyer, or (iii) when any
Person, including a “group” as contemplated by Section
13(d)(3) of the Securities Exchange Act of 1934, as amended,
acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding
shares of the Buyer’s voting securities (based upon voting
power).
“Charter Documents”
means an entity’s certificate or articles of incorporation or
formation, certificate defining the rights and preferences of
securities, articles of organization, general or limited
partnership agreement, operating agreement, certificate of limited
partnership, joint venture agreement or similar document governing
the entity.
“Claim Notice” is
defined in Section 7.3(a).
“Claim Response” is
defined in Section 7.3(a).
“Closing” is defined in
Section 3.1.
“Closing Date” is
defined in Section 3.1.
“Code” means the US
Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.
“Company” is defined in
the Introduction.
“Company Intellectual
Property” means all Intellectual Property Rights owned or
licensed by the Company or used by the Company.
“Company Plan” means (x)
any pension plan, 401(k) plan, profit-sharing plan, health or
welfare plan, and any other employee benefit plan (within the
meaning of Section 3(3) of ERISA) that is maintained or sponsored
by the Company or to which the Company contributes or for which the
Company otherwise has or may have any liability, contingent or
otherwise, either directly or as a result of an ERISA Affiliate,
and (y) any other benefit arrangement, obligation, or practice,
whether or not legally enforceable, to provide benefits, other than
salary, as compensation for services rendered, to one or more
present or former employees, directors, agents, or independent
contractors, that is maintained or sponsored by the Company or to
which the Company contributes or for which the Company otherwise
has or may have any liability, contingent or otherwise, either
directly or as a result of an ERISA Affiliate.
“Company Software” means
all Software owned or licensed by the Company or used by the
Company.
“Company Trade Secrets”
means all Trade Secrets owned by the Company or used by the
Company.
“Confidential
Information” means any information of a party, including a
formula, pattern, list, compilation, device, method, technique or
process 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.
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“Contract” means any
written or oral contract, agreement, lease, plan, instrument or
other document, commitment, arrangement, undertaking, practice or
authorization that is or may be binding on any Person or its
property under applicable Law.
“Copyrights” mean all
copyrights in both published and unpublished form and all
registrations and applications for registration for copyrights in
any jurisdiction, and any renewals, modifications and extensions
thereof.
“Court Order” means any
judgment, decree, injunction, order or ruling of any federal,
state, local or foreign court or governmental or regulatory body or
authority that is binding on any Person or its property under
applicable Law.
“Current Balance Sheet”
means the Company’s unaudited balance sheet as of September
30, 2004.
“Damages” is defined in
Section 7.1(a).
“Default” means (i) a
breach, default or violation, (ii) the occurrence of an event that
with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (iii) with
respect to any Contract, the occurrence of an event that with or
without the passage of time or the giving of notice, or both, would
give rise to a right of termination, renegotiation or
acceleration.
“Elizabeth Ludlow Employment
Agreement” means the Employment Agreement between the Buyer
and the Seller, in a form substantially similar to that attached
hereto as Exhibit A .
“Encumbrance” means any
lien, mortgage, easement, security interest, pledge, charge, claim,
community property interest, condition, equitable interest, option,
right of first refusal, restriction on transferability, defect of
title or other restriction of any nature whatsoever, including any
restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
“Environmental Law”
means all Laws and Court Orders as well as any principles under
common law in existence as of the Closing Date relating to
pollution or protection of the environment or occupational health
under which a Person may be held liable for the Release of any
Hazardous Substance into the environment.
“Escrow Agent” means
Sovereign Bank, a federal savings bank duly qualified to carry on
business in Philadelphia, Pennsylvania.
“Escrow Agreement” means
the Escrow Agreement between Buyer, Seller and the Escrow Agent in
a form substantially similar to that attached hereto as
Exhibit B .
“Escrow Funds” is
defined in Section 2.3(e).
“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended, and
all regulations and rules issued thereunder, or any successor
law.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder.
“Financial Statements”
means (a) the audited consolidated balance sheets of the Company
for the two year period ended December 31, 2003 and the related
consolidated statements of operations, changes in Seller’s
equity and cash flows for each of the years then ended together
with the unqualified audit opinion thereon of the Company’s
independent accountants, (b) the unaudited consolidated balance
sheet
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of the Company for the nine months ended
September 30, 2004 and the related statements of operations and
cash flows for the nine months ended September 30, 2003 and 2004,
which has been compiled by the Company’s independent
accountants, and (c) the notes thereto.
“Franchise Agreement”
means all franchise agreements and license agreements for Outlets,
along with any sublease, collateral assignment of lease, security
interest or personal guaranty granted in connection with the
foregoing.
“GAAP” means generally
accepted accounting principles.
“Governmental
Authorization” means any permits, licenses, franchises,
registrations, certificates, variances, exemptions, waivers,
consents, approvals and other authorizations granted or otherwise
made available by or under the authority of any governmental or
regulatory body or authority, including, but not limited to, the US
Federal Trade Commission.
“Hazardous Substances”
means any hazardous, toxic or radioactive substance, material or
waste which is regulated as of the Closing Date by any state or
local governmental authority or the United States of
America.
“Indemnified Party” is
defined in Section 7.3(a).
“Indemnified Buyer
Party” is defined in Section 7.1.
“Indemnified Seller
Party” is defined in Section 7.2.
“Indemnitor” is defined
in Section 7.3(a).
“Initial Payment” is
defined in Section 2.3(a).
“Intellectual Property
Rights” means Patents, Trademarks, Copyrights, Trade Secrets,
Software and all other tangible or intangible proprietary
information, materials or data.
“IRS” means the US
Internal Revenue Service.
“Knowledge” of a
particular fact or matter means actual knowledge of such fact or
other matter after having completed a reasonable level of inquiry
concerning the existence of such fact or other matter.
“Law” means any statute,
law, ordinance, regulation, order or rule of any federal, state,
local or, foreign governmental or regulatory body or
authority.
“Lease” is defined in
Section 4.13.
“Liability” means any
direct or indirect liability, indebtedness, obligation, expense,
claim, loss, damage, deficiency, guaranty or endorsement of or by
any Person, absolute or contingent, accrued or unaccrued, due or to
become due, liquidated or unliquidated.
“Liquidated Claim
Notice” is defined in Section 7.3(a).
“Litigation” means any
lawsuit, action, arbitration, administrative or other proceeding,
criminal prosecution or governmental investigation or
inquiry.
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“Material Adverse
Effect” means a material adverse effect on the Company or the
Business, Assets, financial condition, results of operations,
prospects, liquidity, products, competitive position, customers and
customer relations of the Company or the Business.
“Ordinary course” or
“ordinary course of business” means the ordinary course
of business that is consistent with past practices.
“Outlet” shall mean one
Slim and Tone fitness center that is the subject of an executed
Franchise Agreement between the Company and a
franchisee.
“Patents” mean all
patents, together with any extensions, reexaminations, reissues,
patents of additions, patent applications, divisions,
continuations, continuations-in-part, improvements and any
subsequent filings in any country of jurisdiction claiming priority
therefrom.
“Person” means any
natural person, corporation, partnership, proprietorship,
association, joint venture, trust or other legal entity.
“Prime Rate” means the
prime lending rate as reported in The Wall Street Journal
from time to time as the base rate on corporate loans.
“Purchase Price” is
defined in Section 2.2.
“Release” means any
release, spill, emission, leaching, leaking, pumping, injection,
deposit, disposal, discharge or dispersal into the indoor or
outdoor environment, or into or out of any property.
“Required Consents” is
defined in Section 4.4.
“Response Period” is
defined in Section 7.3(a).
“Restricted Party” is
defined in Section 6.1.
“Restricted Period” is
defined in Section 6.1.
“Restricted Territory”
is defined in Section 6.1.
“Securities Act” means
the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
“Shares” is defined in
the Introduction.
“Software” means any
computer software, of any nature whatsoever, and all middleware and
firmware, and any and all documentation and object and source code
related thereto.
“Seller” is defined in
the Introduction.
“Taxes” shall mean all
taxes, duties, charges, fees, levies or other assessment imposed by
any taxing authority (including any interest, penalties or
additions attributable to or imposed on or with respect to any such
assessment).
“Tax Returns” means all
reports, returns, statements (including estimated reports, returns
or statements) and other similar filings required to be filed by a
party with respect to any Taxes.
“Threshold Amount” is
defined in Section 7.3(d).
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“Trademarks” mean
trademarks, services marks, trademark and service mark
applications, brand names, certification marks, trade dress,
Internet domain names and Internet domain name applications,
goodwill associated with the foregoing and all registrations in any
jurisdictions of, and all applications in any jurisdiction to
register, the foregoing, including any extension, modification,
renewal of any such registration or application thereof.
“Trade Secrets” mean all
know-know, trade secrets, customer lists, personnel information,
sales and profit figures, distribution and sales methods, supplier
lists, technology rights and licenses, specifications and other
technical information, data, blue prints, process technology,
processes, plans, formulae, rights in research and development,
franchises, drawings (including engineering and auto-cad drawings),
innovations, inventions, discoveries, ideas, databases and all
other proprietary information.
“Transaction Documents”
means this Agreement and any other certificate, instrument,
agreement or document required to be delivered pursuant to the
terms hereof.
“Transactions” means the
sale of the Shares by the Seller to Buyer and the purchase of the
Shares by the Buyer from the Seller as described herein and the
other transactions contemplated by the Transaction
Documents.
“Unliquidated Claim” is
defined in Section 7.3(a).
“US” means the United
States of America.
2. Sale and Purchase of the
Shares; Purchase Price .
2.1 Sale and Purchase of the
Shares . Subject to the terms and conditions of this Agreement
and on the basis of and in reliance upon the representations,
warranties, covenants and agreements set forth herein, at the
Closing the Seller shall sell to the Buyer and the Buyer shall
purchase from the Seller all of the Shares.
2.2 Purchase Price . The
purchase price for the Shares (the “Purchase Price”),
which shall be paid in accordance with Section 2.3, shall be an
amount equal to $1,900,000.
2.3 Payment of Purchase Price
. The Purchase Price shall be payable to the Seller as
follows:
(a) At the Closing, Buyer shall
deliver to the Seller a payment in the amount of $1,000,000 in cash
(the “Initial Payment”) by wire transfer of immediately
available funds to accounts designated by the Seller in writing to
Buyer at least two days prior to the Closing Date.
(b) On or before December 31, 2005,
Buyer shall deliver to the Seller a payment in the amount of
$150,000 in cash (the “2005 Payment”) by wire transfer
of immediately available funds to accounts designated by the Seller
in writing to Buyer at least two days prior to the 2005
Payment.
(c) On or before December 31, 2006,
Buyer shall deliver to the Seller a payment in the amount of
$150,000 in cash (the “2006 Payment”) by wire transfer
of immediately available funds to accounts designated by the Seller
in writing to Buyer at least two days prior to the 2006
Payment.
(d) On or before December 31, 2007,
Buyer shall deliver to the Seller a payment in the amount of
$150,000 in cash (the “2007 Payment”) by wire transfer
of immediately available funds to accounts designated by the Seller
in writing to Buyer at least two days prior to the 2007
Payment.
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(e) At the Closing, Buyer shall
deliver an aggregate amount of $450,000 to the Escrow Agent (the
“Escrow Funds”) to be held in escrow and distributed by
the Escrow Agent in accordance with the Escrow
Agreement.
(f) Upon a Change of Control Event,
the parties agree that any outstanding amounts owed to Seller from
the 2005 Payment, the 2006 Payment and the 2007 Payment shall be
delivered to the Escrow Agent to be deposited with the Escrow
Funds. Buyer and Seller agree to jointly instruct the Escrow Agent
to accept such funds and to add, as determined by the date of each
Payment, the appropriate amount to the corresponding scheduled
disbursement as provided by Section 4 of the Escrow
Agreement.
3. Closing .
3.1 Location; Date . The
closing for the Transactions (the “Closing”) shall be
held at the offices of Morgan Lewis & Bockius LLP in
Philadelphia on December 2, 2004 or at such other date and place as
may be mutually agreed by the parties (the “Closing
Date”).
3.2 Deliveries . At the
Closing and as a condition to Closing:
(a) The Seller shall deliver to
Buyer:
(i) The certificates, if any, and
other instruments evidencing the Shares in negotiable form (free
and clear of all pledges, liens, transfer tax obligations,
Encumbrances, claims and other charges thereon of every kind), duly
endorsed in blank, or with separate membership interest transfer
powers attached thereto and signed in blank;
(ii) All of the Required
Consents;
(iii) An executed copy of each
Transaction Document to which the Seller is a party;
(iv) The Elizabeth Ludlow Employment
Agreement;
(v) The Escrow Agreement;
(vi) Evidence that the Escrow Funds
were delivered to the Escrow Agent;
(vii) The Financial Statements;
and
(viii) Such other documents,
instruments, certificates and agreements as may be reasonably
required by Buyer to consummate and give effect to the transactions
contemplated by this Agreement.
(b) Buyer shall deliver to the
Seller:
(i) The Initial Payment;
(ii) An executed copy of each
Transaction Document to which a Buyer is a party;
(iii) The Escrow
Agreement;
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(iv) The Elizabeth Ludlow Employment
Agreement; and
(v) Such other documents,
instruments, certificates and agreements as may be reasonably
required by the Seller to consummate and give effect to the
transactions contemplated by this Agreement.
4. Representations and Warranties of
Seller . Seller hereby represents and warrants to Buyer as
follows:
4.1 Organization and Standing
.
(a) The Company is a limited
liability company, duly organized and validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania having
full power and authority to carry on the Business as it has been
and is now being conducted and to own, lease and operate the
Assets. The Company is duly qualified to do business and is in good
standing in every jurisdiction in which the Business or the
character of the Assets requires such qualification, all of which
jurisdictions are disclosed in Schedule 4.1(a) .
4.2 Capitalization and
Ownership .
(a) The authorized membership
interests of the Company consist of one membership interest, all of
which is issued and outstanding, and all of which is owned by
Seller. Seller is the record and beneficial holder of the Shares,
free and clear of any Encumbrance. All of the Shares have been duly
authorized and validly issued, are fully paid and nonassessable,
were not issued in violation of the terms of any Contract binding
upon the Company or Seller, and were issued in compliance with all
applicable Charter Documents of the Company and all applicable
federal and state securities or “blue sky” Laws. There
are no outstanding options, warrants, convertible securities,
Contracts or rights of any kind to purchase or otherwise acquire or
receive from the Company any membership interests of, or any
securities convertible into, the Common Membership interest or
other securities of the Company. No membership interests or other
securities of the Company are reserved or authorized for issuance.
Seller is not a party to any voting trust, proxy, Contract or other
agreement or understanding with respect to the voting or transfer
of any capital membership interest of the Company.
(b) The Company owns no equity
security of any Person and has no other ownership or other
investment interest, either of record, beneficially or equitably,
in any Person, except for bank, checking and money market accounts
and other cash equivalent investments.
4.3 Authority and Binding
Effect . Seller has the full power, authority, capacity and
legal right to execute and deliver this Agreement and the other
Transaction Documents, to perform the Transactions to be performed
by her hereunder and thereunder, and has taken all actions
necessary to secure all approvals required in connection therewith.
The execution and delivery of this Agreement and the performance of
the Transactions by her will not constitute a Default under the
Charter Documents of the Company or any Contract binding upon the
Company or Seller. This Agreement constitutes, and the other
Transaction Documents will constitute, the legal, valid and binding
obligation of Seller, enforceable against her in accordance with
their respective terms.
4.4 Validity of the
Transactions . Except for any consents specified in Schedule
4.4 (the “Required Consents”), neither the
execution and delivery of this Agreement by Seller nor the
performance of the Transactions (i) will cause a Default under any
Law or Court Order which is applicable to the Company or Seller,
(ii) require the consent or approval of, or notice to, any party
to, any Contract relating to the Business or the Assets or by which
the Company or Seller is a party or otherwise bound or affected, or
(iii) require the Company or Seller to notify, or obtain any
Governmental Authorization from, any governmental or regulatory
body or authority.
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4.5 Financial Statements; Books
of Account .
(a) The Financial Statements are
complete, were prepared in accordance with GAAP, consistently
applied throughout the periods covered thereby and, subject to any
qualifications set forth in the applicable notes and schedules,
fairly and accurately present the financial position and results of
operations of the Company at the dates and for the periods
covered.
(b) The books and accounting records
of the Company fairly reflect in all material respects (i) all
transactions relating to the Company and (ii) all items of income
and expense, assets and liabilities and accruals relating to the
Company. The Company has not engaged in any material transaction,
maintained any bank account or used any corporate funds except for
transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the
Company.
4.6 Taxes .
(a) All Tax Returns required to be
filed by the Company or with respect to the Business, its income or
Assets have been timely filed and all such Tax Returns were true,
correct and complete in all material respects.
(b) Except for Taxes not yet due,
all Taxes owed with respect to the Company or with respect to the
Business, its income or Assets have been paid on a timely basis,
whether or not shown on any Tax Return.
(c) The amount of the
Company’s liability for unpaid Taxes as of the Balance Sheet
Date did not exceed the amount of the current liability accruals
for Taxes (excluding reserves for deferred Taxes) shown on the
Current Balance Sheet, and the amount of the Company’s
liability for unpaid Taxes for all periods or portions thereof
ending on or before the Closing Date will not exceed the amount of
the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals are reflected on the books and
records of the Company on the Closing Date.
(d) There are no ongoing
examinations or claims against the Company for Taxes, and no
written notice of any audit, examination or claim for Taxes,
whether pending or threatened, has ever been received.
(e) The Company is not the
beneficiary of any extension of time within which to file any Tax
Return, nor has the Company made any requests for such extensions.
No claim has ever been made by an authority in a jurisdiction where
the Company does not file Tax Returns that it is or may be subject
to taxation by that jurisdiction.
(f) The Company has a taxable year
ended on December 31.
(g) The Company currently utilizes
the cash method of accounting for income Tax purposes and such
method of accounting has not changed since the founding of the
Company. The Company has not agreed to and is not required to make
by reason of a change in accounting method or otherwise, and could
not be required to make by reason of a proposed or threatened
change in accounting method or otherwise, any adjustment under
Section 481(a) of the Code.
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(h) The Company has not received
(and is not subject to) any ruling from any taxing authority and
has not entered into (and is not subject to) any agreement with a
taxing authority.
(i) The Company has withheld and
paid over to the proper taxing authorities all Taxes required to
have been withheld and paid over, and complied with all information
reporting and backup withholding requirements, including
maintenance of required records with respect thereto.
(j) Copies of (i) any Tax
examinations, (ii) extensions of statutory limitations for the
collection or assessment of Taxes and (iii) the Tax Returns of the
Company for the last three fiscal years have been made available to
Buyer.
(k) There are (and as of immediately
following the Closing there will be) no Encumbrances on the Assets
or Shares of the Company relating to or attributable to
Taxes.
(l) The Company is not a party to
any Tax allocation or sharing agreement. The Company does not have
any liability for the Taxes of any person (i) as a transferee or
successor, (ii) by contract, or (iii) otherwise.
(m) The Company will not be required
to include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any (i) installment
sale or open transaction disposition made on or prior to the
Closing Date or (ii) prepaid amount received on or prior to the
Closing Date.
(n) The Company has, at all times
since its inception, properly been treated as a disregarded entity
for federal income tax purposes.
4.7 Undisclosed Liabilities .
Except as set forth on Schedule 4.7 , the Company does not
have any Liabilities except for:
(a) those Liabilities adequately and
specifically set forth or reserved for on the Current Balance Sheet
and not heretofore paid or discharged; and
(b) those Liabilities incurred in
the ordinary course of business since the Balance Sheet Date and
not heretofore paid or discharged.
4.8 No Manufacturing . The
Company does not manufacture and has not manufactured any product
for sale.
4.9 Trade Receivables . The
trade receivables reflected on the Current Balance Sheet, and all
trade receivables arising since the Balance Sheet Date, represent
valid obligations arising from sales actually made in the ordinary
course of business and are good and collectible in full at the
recorded amounts thereof, net of reserves for doubtful accounts, in
each case, computed in accordance with GAAP and past practices
consistently applied. In the case of the reserve, as of the Closing
Date, it does not represent a greater percentage of the trades
receivable than the reserve reflected on the Current Balance Sheet
represented the trade receivables reflected therein.
4.10 Franchise Matters
.
(a) Disclosure Documents .
The Company’s past and present franchise disclosure documents
and/or franchise offering circulars (collectively
“FOCs”) for any type of franchise the Company offers,
and/or, if applicable, any licenses: (A) materially comply with all
applicable Federal
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Trade Commission (“FTC”) franchise
disclosure regulations, any other applicable foreign or federal
laws and regulations, state franchise and business opportunity
sales laws and regulations, and local laws and regulations; (B)
include and accurately state all material information (including
but not limited to the discussion of litigation matters) set forth
in them; (C) do not omit any required material information; (D)
accurately state the Company’s position that it does not
provide to prospective area or individual franchisees
“earnings claims” information (as that term is defined
in the FTC’s franchise disclosure regulations and the North
American Securities Administrators Association’s current
Uniform Franchise Offering Circular Guidelines); (E) have been
timely revised to reflect any material changes or developments in
the Company’s franchise system, agreements, operations,
financial condition, litigation matters, or other matters requiring
disclosure under any applicable foreign, federal, state, and/or
local law; and (F) include all material documents (including but
not limited to audited financial statements for the Company)
required by any applicable foreign, federal, state, and/or local
law to be provided to prospective franchisees and/or, if
applicable, any licensees.
(b) Franchise and License
Agreements . The Company’s past and present agreements
with its franchisees and licensees: (A) materially comply with
applicable foreign, federal, state, and/or local laws and
regulations; (B) do not include provisions that would prevent or
otherwise impair the Company’s ability to undergo a change in
ownership or control or require the Company to notify any
franchisees and/or licensees of such a change in ownership or
control; (C) do not obligate the Company to buy back or otherwise
acquire the stock, assets, or contractual rights of franchisees,
and/or licensees; (D) do not impose on the Company an obligation to
guarantee the lease obligations, third party financing obligations,
or other material obligations to third parties of the franchisees,
and/or licensees; (E) impose on franchisees, and licensees an
obligation to comply with all applicable federal, state, and local
laws and regulations; and (F) impose on franchisees, and licensees
an obligation to maintain commercially reasonable insurance that
names the Company as an additional insured, requires the insurer to
notify the Company before it terminates any such insurance policy
for nonpayment, and permits the Company to make such payments to
maintain such insurance coverage on behalf of any non-paying
franchisee, or licensee.
(c) Registration and Disclosure
Compliance . All of the franchises, and licenses of the Company
have been sold in material compliance with applicable foreign,
federal, state, and/or local franchise disclosure and registration
requirements, except those set forth on Schedule 4.10(c) .
As a result,
(i) each prospective franchisee,
and, if applicable, licensee was provided with any required FOC at
the earlier of (1) the first personal face-to-face meeting between
the Company and the then prospect for the purposes of discussing
the acquisition of a franchise, or, if applicable, license, (2) at
least ten business days before the execution of any agreement with
the Company or the payment of any funds to the Company by the
prospective franchisee, or, if applicable, licensee, or (3) within
any other minimum time period imposed by law;
(ii) at least five business days
before execution of any agreements with the Company, each
prospective franchisee, and, if applicable, licensee was provided
with a completed execution copy of the Company’s franchise
agreement, or, if applicable, license agreement, respectively,
together with any related documents (e.g., spousal consent form,
phone transfer agreement, software license, security agreement,
equipment lease, national account agreement) with all pertinent
specific information for such prospective franchisee, or, if
applicable, licensee set forth in those agreements and
documents;
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(iii) each FOC provided to a
prospective franchisee, or,
