What event triggered the payment of unit appreciation rights for Stretch Zone, as mentioned in Note J?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
s to Financial Statements December 31, 2024 and 2023
NOTE A - NATURE OF BUSINESS AND LIQUIDITY
The accompanying financial statements include the accounts of Stretch Zone Franchising, LLC (the "Company"), a wholly owned subsidiary of Stretch Zone Holdings, LLC (the "Former Parent"). The Company was organized on November 15, 2015, in the state of Florida. The Company's only business is to offer and sell franchises under the Stretch Zone name and to provide support to its health clubs across the United States. Effective March 31, 2023, the Company was sold by Stretch Zone Holdings, LLC to SZ PEP Holdco, LLC, the Acquiror (the "Parent").
On March 31, 2023, the beneficial owners of the Parent entered into a securities purchase agreement with a third party effectively selling approximately an 80% interest in the Company to the third party, with those beneficial owners retaining the approximately 20% rollover interest. This transaction resulted in a change in control of the Company, which triggered the payment of the unit appreciation rights (see Note J).
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Basis of presentation:
The Company's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP").
[2] Liquidity:
For the year ended December 31, 2024, the Company incurred a net loss of approximately $2,679,000, used approximately $854,000 of cash in operations and at December 31, 2024 had a working capital deficit of approximately $1,106,000. Based on the Company's business plan, the Company believes its existing resources and cash flows projected to be generated from operations can satisfy its working capital requirements and obligations for at least the next 12 months from the date of issuance. However, if performance expectations fall short or expenses exceed expectations, the Company may need to reduce expenses or raise additional capital or financing to continue operations. Failure to do so would have a material adverse impact on its financial condition. There can be no assurance that any contemplated additional capital or financing will be available on acceptable terms, if at all.
[3] Use of estimates:
The preparation of financial statements in conformity with U.S.
Source: Item 3 — Franchisee/Debtor's Warranties. (FDD pages 263–364)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, the payment of unit appreciation rights was triggered by a change in control of the company. Specifically, on March 31, 2023, the beneficial owners of Stretch Zone's Parent company entered into a securities purchase agreement with a third party, effectively selling approximately an 80% interest in the company. The beneficial owners retained approximately a 20% rollover interest. This transaction constituted a change in control, which then triggered the payment of the unit appreciation rights as detailed in Note J of the financial statements.
Note J further clarifies that on December 28, 2021, Stretch Zone adopted a unit appreciation rights plan. This plan entitled participants to receive cash payments based on a defined vesting schedule, but only upon a change in control. The amount of the payment was determined by the fair value appreciation of these rights from the issue date to the conversion date. These rights would expire upon termination of continuous service.
At the time of the change in control on March 31, 2023, Stretch Zone recognized an additional liability and related expense of $12,199,919 for unvested units that vested as a result of the transaction. This liability was settled using proceeds from the acquisition by the Parent company. This means that the change in ownership not only triggered the payment of already vested rights but also accelerated the vesting of unvested rights, resulting in a significant expense for Stretch Zone at that time.