Under what circumstances can Ella Cafe exercise its call option to purchase membership interests?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
the Company's EBITDA for the twelve months immediately preceding the date to which FRANCHISOR elects to exercise its Call Option then multiplied by three. EBITDA for any monthly or yearly period shall be determined based upon the Company's books on a cash basis for the applicable period. Notwithstanding anything to the contrary, if Call Option is exercised within five years from the Effective Date of this Agreement, the Purchase Price shall not be less than the original investment by the Franchisee minus standard depreciation in accordance with GAAP standards of accounting.
- (b) if FRANCHISOR desires to exercise its Call Option right to purchase all or part of FRANCHISEE or any other Company Member's Membership Interests pursuant to this Section, then FRANCHISOR or his authorized designee shall provide written notice to FRANCHISEE or any other Company Member specifying the amount of Membership Interests being purchased, the method of payment, as well the proposed purchase price based upon the 3.0 multiplier of the Company's trailing 12 month EBITDA ("Call Option Notice"). Upon receipt of the Call Option Notice, FRANCHISEE or any other Company Member shall have 30 days to contest the proposed purchase price. Failure to send written notice contesting the proposed purchase price within 30 days of receipt of the Call Option Notice shall be deemed an irrevocable acceptance of the Call Option purchase price. FRANCHISEE or any other Company Member may, at FRANCHISEE's
or the other Company Member's sole cost and expense, retain an independent certified public accountant to inspect the Company's books and records for the previous 12 months for purposes of confirming the EBITDA valuation for Membership Interests solely for purposes of effectuating the irrevocable Call Option. Such evaluation must be conducted within 45 days of FRANCHISEE or other Company Member's receipt of the Call Option Notice. In the event FRANCHISOR disagrees with FRANCHISEE's or other Company Member's EBITDA valuation, FRANCHISOR may, at its's sole cost and expense, retain an independent certified public accountant to inspect the Company's books and records for the previous 12 months. In the event Franchisor' and FRANCHISEE or other Company Member's valuations differ, the Call Option Purchase price will be the average of the parties' respective independent EBITDA valuations and shall be binding upon each of the Parties.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, Ella Cafe has a call option to purchase all or part of a franchisee's membership interests. If Ella Cafe desires to exercise this option, it must provide written notice to the franchisee specifying the amount of membership interests being purchased, the method of payment, and the proposed purchase price. The purchase price is based on a 3.0 multiplier of the company's trailing 12-month Earnings Before Interest Tax Depreciation and Amortization (EBITDA).
The franchisee then has 30 days to contest the proposed purchase price. Failure to send written notice contesting the purchase price within this 30-day period is deemed an irrevocable acceptance of the call option purchase price. The closing of the call option must occur no later than 90 days after the franchisee receives the call option notice.
However, if the call option is exercised within five years from the effective date of the agreement, the purchase price cannot be less than the franchisee's original investment minus standard depreciation in accordance with GAAP standards of accounting. The franchisee must also represent and warrant that they have full right, title, and interest in the membership interests being purchased, have full power and authority to sell such interests, and that the interests are free and clear of any liens other than those arising from the agreement. Ella Cafe will pay the purchase price by certified or official bank check or by wire transfer of immediately available funds. Each newly admitted member expressly agrees to irrevocably grant Ella Cafe the call option.