What is the impact on a Cicis franchisee's 'Good Standing' if their affiliate is in default of an agreement with another affiliate of Smile LLC?

s a Cicis Restaurant by you, your affiliate, or a third party unaffiliated with you and was permanently closed or has been temporarily closed for an extensive period. The franchise agreement that previously governed the owner's operation of the Restaurant has been terminated. You and we have entered into the Franchise Agreement to govern your ownership and operation of the previously closed Restaurant from and after the Effective Date.

• 1. Reopening of the Restaurant. You agree that you will, at your expense, take the actions described on Attachment A hereto to remodel and refresh the Restaurant (the "Refresh Obligations") prior to reopening the Restaurant, and you will complete the Refresh Obligations and reopen the Restaurant for regular business in accordance with the Franchise Agreement by no later than the Reopening Deadline shown on Attachment A.
• 1. Reduction of Initial Franchise Fee. Provided you and your affiliates remain in good standing, we agree that the Initial Franchise Fee due under the Franchise Agreement shall be reduced to $5,000. We reserve the right to revoke the foregoing reduction at any time you cease to be in good standing, in which case, you will pay us the balance of the full Initial Franchise Fee which, absent the foregoing reduction, is required under the Franchise Agreement. "Good Standing" means that you and your affiliates, as applicable, are in compliance with all material obligations under the Franchise Agreement and all other agreements between us and you or them. You agree that we will have sole discretion to determine whether particular obligations are "material" for purposes of determining good standing, and our decision will be final.
• 1. Modification of Royalty Fees. Notwithstanding anything in the Franchise Agreement to the contrary, you and we agree as follows:

Provided you and your affiliates are in good standing, for Net Sales generated through the 1st anniversary of the Effective Date of this Agreement, the Royalty Fee will be calculated at 3% of those Net Sales; and for Net Sales generated from the day following the 1st anniversary of the Effective Date of this Agreement through the 2nd anniversary of the Effective Date of this Agreement, the Royalty Fee will be calculated at 4% of those Net Sales. If, at any time prior to the 2nd anniversary of the Effective Date of this Agreement, you cease to be in good standing, the foregoing Royalty Fee reductions will automatically, and without any further notice, be null and void, and the Royalty Fee will thereafter be calculated as described in the Franchise Agreement without regard to this paragraph.

1. Right to Close Restaurant. You and we agree that you will have a one-time right to permanently close the Restaurant if, for the period beginning on the date the Restaurant reopens for regular business and ending on the day that is 1.5 years after that date (the "Assessment Period"), the Restaurant's EBITDA (earnings before interest, taxes, depreciation and amortization), considering only those expenses that are normal restaurant-level operating expenses, is a negative number. To exercise the right to close, you must provide us, no sooner than the end of the Assessment Period and no later than 30 days after the end of the Assessment Period, (a) a profit and loss statement for the Assessment Period, which may be internally prepared in accordance with generally accepted accounting principles, showing the negative EBITDA, and (b) written notice of your intention to close and the date on which you intend to do so.

Source: Item 23 — RECEIPTS (FDD pages 65–263)