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Exhibits
EXHIBIT 1 Demised Premises tea:. F.P.L, Pmt • • ' a ELECTRICAL RUQH - UNIT 4 \ A ell NI w / 4- N `;, J \ Q \' \ \C\ \`: \ \��\\ \. \�� /z\ \ " A> - \ \ \" \1a U NIT 3 .rte \ \,: � ��:; to r m' 2 z W 2 41 :`: _, z - w 1 :'`_: \ \ \\ \ \ \ : \z �\`. \ \ \ \ \ \ \�\ \ \ \� v Y e z s- • " UNIT 1 \ � • • _:& � ,.. ice\ \C \\ t \ \ \ \ \ \ \ /� COMMON •_a.• .. • !1 I ELEMENTS i i . -•- •, . ,., gi �� SIAM'S i • BifM 'WAN + + _ _ AREA UNIT 1= 1,326.78 S/F AREA UNIT 2= 1,802.89 S!F o AREA UNIT 3= 1,290.59 S/F ' f. SCALE Far AREA UNIT 4= 1,268.87 S/F ' • SJRVEYDR'S NOTE DETAILS OF INTERIORS WALLS WERE BASED N ORRINAL DRAYNNGS AND BEST INFORMATION MINN FROM FIELD .SURVEY First Floor Plan • Prepared by 1701 MERIDIAN BUILDING CONDOMINIUM • 3 77 Igli. mil Page 4 o : ea . 447/2007 fd5 679 -T� �� Exhibit "B" • 22 EXHIBIT 6.2 • Lease Guaranty `Lease is herein defined to be that certain Lease Agreement dated September 15, 2010, and entered into by Massage Partners, Inc., as Tenant, and the City of Miami Beach, as Landlord with respect to certain Demised Premises located at 1701 Meridian Avenue, Unit 2 (a /k/a 767 17 Street), Miami Beach, Florida, 33139. In order to induce the Landlord to enter into the Lease, and for the Ten Dollars ($10.00) in hand paid and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, the undersigned, hereby irrevocably guarantees prompt payment when and as due of all rents and other monetary obligations, and the performance of all other obligations, required to be paid or performed by the Tenant pursuant to the Lease for the entire Term and all extensions and renewals thereof and agrees to pay and perform as a primary obliger all liabilities, obligations and duties of Tenant pursuant to the Lease, including, without limitation, payment of Rent. The undersigned expressly agrees that the validity and enforceability of this Guaranty and the obligations and liability of the Guarantor hereunder shall in no way be terminated, affected or impaired by reason of any modification, indulgence, compromise, settlement, variation of terms, renewal ore extension of the Lease and the undersigned hereby consents to any such modification, renewal and extension and shall not be affected by any termination of the Lease. Action or suit may be brought against the undersigned and reduced to final judgment with or without first concurrently proceeding against the Tenant under the Lease. This Guaranty creates, joint and several, liability to all the undersigned for payment and performance as herein before stated, and the undersigned hereby waives and renounces any and all exemption rights under or by virtue of the Laws • of any state or the United States and further waives all notice, demand, protest, presentment, notice of demand, notice of default, diligence, protest, presentment and nonpayment. Any notices or communications to the Tenant under the Lease shall be deemed to constitute notice or communication to the undersigned individually. Landlord and Tenant, without notice to or consent by the undersigned, may at any time and from time to time, enter into modifications, extensions, amendments or other covenants respecting the Lease and the undersigned shall not be released thereby, but shall continue to be fully liable for the payment and performance of all liabilities, obligations, and duties of Tenant pursuant to the Lease as so modified, extended • or amended. The force and effect of this Guaranty shall not be affected by the execution of other guaranties securing the same obligations, liabilities and duties. This Guaranty shall be cumulative of any such guaranties and the liability of all the guarantors of the Lease shall be joint and several. The Landlord in its sole discretion shall be entitled to release, compromise or settle the obligations, liabilities, and duties of any one or more of such guarantors and such action shall not affect the right of Landlord, to enforce the Lease against the Tenant and any other guarantors. If any party executing the Guarantee is a corporation or partnership, then the undersigned officer or partner hereby represents and warrants that the Board of Directors of such corporation or the partners of such partnership, have authorized the execution on its behalf and acknowledge the benefit and consideration to the undersigned. The undersigned agree to pay reasonable attorney's fees, plus expenses incurred by Landlord in the enforcement of any right of Landlord hereunder or in the defense of any action against Landlord hereunder. • This instrument shall inure to the benefit of the Landlord under the Lease, its successors and assigns, and shall bind the undersigned, and heirs, successors and assigns. If more than one party has executed this Guaranty, then the liability of all such parties who have signed below shall be joint and several. This Guaranty is made and entered into this 15 day of September, 2010. • Attest: MASSAGE PARTNERS, INC. /.Clrr /4Vro`J - Vie fos4et Jon Krutchik, President f erlie/14a, a el Muskat, Vice President 23 EXHIBIT 6.2 Personal Guaranty In consideration of the Lease Agreement dated the 15 day of September, 2010, by and between City of Miami Beach (hereinafter referred to as "Landlord ") and Massage Partners, Inc. (hereinafter referred to as "Tenant "), for the premises located at 1701 Meridian Avenue, Unit 2, a /k /a 767 17 Street, comprised of approximately 1,802.89 square feet, Miami Beach, Florida (the "Lease Agreement "), and the sum of Ten Dollars ($10.00) and other good and valuable consideration, Jon Krutchik (hereinafter referred to as "Guarantor ") during the first three hundred sixty -four (364) days of the term of the Lease Agreement, does hereby personally guaranty the full, complete, faithful and timely performance of each and every of the obligations, covenants, guaranties and agreements which Tenant is required to do or perform or cause to be done or performed from and after the execution of the Lease Agreement, including, but not limited to, the prompt payment of all rent, additional rent, and other sums required to be paid pursuant to the Lease Agreement. If any default shall occur, Guarantor promises and agrees to pay to the Landlord, its successors and assigns, such sums of money as would be sufficient to pay any deficiency, and to fully satisfy the terms and conditions of the Lease Agreement, without requiring any notice of non - payment or proof of the demand being made, or prior action by Landlord against Tenant. In the enforcement of its rights hereunder, Landlord may proceed against the Guarantor as if the Guarantor was named theTenant under the Lease Agreement. Landlord shall also have the right to proceed against Tenant without first proceeding against the'Guarantor, and shall have the right to proceed against Guarantor without proceeding against Tenant or any other guarantors, and Landlord shall, and does, have the right to release Tenant, Guarantor, or any other guarantors from any and all liability under the Lease Agreement or under this Guaranty, and the same shall not in any way prejudice the rights of Landlord against the Tenant or any guarantors not so released. No defense which Tenant or Guarantor may have with respect to this Guaranty or the Lease Agreement (including, but not limited to, any defense based upon or arising from any insolvency or bankruptcy or otherwise) shall operate as a defense with respect to any other guarantor, all such other guarantors remaining fully liable to Landlord with the rights of Landlord as to such guarantors not being prejudiced thereby. Furthermore, no act of forbearance on the part of Landlord or grant of an extension of time by Landlord to Tenant shall operate,as a defense to the Guarantor or release Guarantor from any obligations or liabilities under this Guaranty, nor shall any waiver by Landlord of any of the obligations of Tenant under the Lease in any manner by Tenant and Landlord operate to release the Guarantor from any obligation or liability under this Guaranty, the Guarantor being bound by, and deemed to consent to, any such waiver, modification or amendment. Guarantor shall be deemed to have notice of any matter or thing as to which Tenant has notice, and any notice given to Tenant, as.provided for in the Lease Agreement, shall be deemed notice to the Guarantor, though the Guarantor recognizes and agrees that Guarantor is not entitled to, and waives, any notice of any matter or thing as to which Tenant is not entitled to notice under the Lease Agreement. In the event it becomes necessary to enforce this Guaranty through an attorney, with or without litigation, the Guarantor hereunder agrees to pay Landlord such expenses as Landlord may.incur including, but not limited to, all legal expenses, attorney's fees, and costs to enforce the terms of this Guaranty. All rights and remedies of Landlord against Guarantor, as in this Guaranty contained, shall be cumulative and not alternative. The rights of Landlord under this Guaranty are in addition to, and not in lieu of, Landlord's rights under the Lease Agreement in the event of a default by Tenant. THE PARTIES KNOWINGLY AND BEING FULLY ADVISED, HEREBY WAIVE TRIAL BY JURY IN ANY PROCEEDING BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE DEMISED PREMISES, AND /OR ANY CLAIM FOR 24 • INJURY OR DAMAGE. IN WITNESS WHEREOF, Guarantor and Tenant have executed this Guaranty (Tenant executing this Guaranty to evidence its consent to the terms and provisions hereof) the day and year first above written. Attest: MASSAGE PARTNERS, INC. a Florida corporation chael Mu kat, Vice President / Tenant Jon Krutchik, Presi. t / Tenant W7 Print name: 7Jj/ k2 M US / •T )7)7//e,, nrt ed Jon Krutchik, Guarantor Print name: a ✓0�1 „Cit Print name: V``e - - 9 \ '■" • • -- • 25 EXHIBIT 6:2 Personal Guaranty In consideration of the Lease Agreement dated the 15 day of September, 2010, by and between City of Miami Beach (hereinafter referred to as "Landlord ") and Massage Partners, Inc. (hereinafter referred to as "Tenant "), for the premises located at 1701 Meridian Avenue, Unit 2, a /k /a 767 17 Street, comprised of approximately 1,802.89 square feet, Miami Beach, Florida (the "Lease Agreement "), and the sum of Ten Dollars ($10.00) and. other good and valuable consideration, Michael Muskat (hereinafter referred to as "Guarantor ") during the first three hundred sixty-four (364) days of the term of the Lease Agreement, does hereby personally guaranty the full, complete, faithful and timely performance of each and every of the obligations, covenants, guaranties and agreements which Tenant is required to do or perform or cause to be done or performed from and after the execution of the Lease Agreement, including, but not limited to, the prompt payment of all rent, additional rent, and other sums required to be paid pursuant to the Lease Agreement. " If any default shall occur, Guarantor promises and agrees to pay to the Landlord, its successors and assigns, such sums of money as would be sufficient to pay any deficiency, and to fully satisfy the terms and conditions of the Lease Agreement, without requiring any notice of non - payment or proof of the demand being made, or prior action by Landlord against Tenant. In the enforcement of its rights hereunder, Landlord may proceed against the Guarantor as if the Guarantor was named the Tenant under the Lease Agreement. Landlord shall also have the right to proceed against Tenant without first proceeding against the Guarantor, and shall have the right to proceed against Guarantor without proceeding against Tenant or any other guarantors, and Landlord shall, and does, have the right to release Tenant, Guarantor, or any other guarantors from any and all liability under the Lease Agreement or under this Guaranty, and the same shall not in any way prejudice the rights of Landlord against the Tenant or any guarantors not so released. No defense which Tenant or Guarantor may have with respect to this Guaranty or the Lease Agreement (including, but not limited to, any defense based upon or arising from any insolvency or bankruptcy or otherwise) shall operate as a defense with respect to any other guarantor, all such other guarantors remaining fully liable to Landlord with the rights of Landlord as to such guarantors not being prejudiced thereby. Furthermore, no act of forbearance on the part of Landlord or grant of an extension of time by Landlord to Tenant shall operate as a defense to the Guarantor or release Guarantor from any obligations or liabilities under this Guaranty, nor shall any waiver by Landlord of any of the obligations of Tenant under the Lease in any manner by Tenant and Landlord operate to release the Guarantor from any obligation or liability under this Guaranty, the Guarantor being bound by, and deemed to consent to, any such waiver, modification or amendment. Guarantor shall be deemed to have notice of any matter or thing as to which Tenant has notice, and any notice given to Tenant, as provided for in the Lease Agreement, shall be deemed notice to the Guarantor, though the Guarantor recognizes and agrees that Guarantor is not entitled to, and waives, any notice of any matter or thing as to which Tenant is not entitled to notice under the Lease Agreement. In the event it becomes necessary to enforce this Guaranty through an attorney, with or without litigation, the Guarantor hereunder agrees to pay Landlord such expenses as Landlord may incur including, but not limited to, all legal expenses, attorney's fees, and costs to enforce the terms of this Guaranty. All rights and remedies of Landlord against Guarantor, as in this Guaranty contained, shall be cumulative and not alternative. The rights of Landlord under this Guaranty are in addition to, and not in lieu of, Landlord's rights under the Lease Agreement in the event of a default by Tenant. THE PARTIES KNOWINGLY AND BEING FULLY ADVISED, HEREBY WAIVE TRIAL BY JURY IN ANY PROCEEDING BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE DEMISED PREMISES, AND /OR ANY CLAIM FOR 26 INJURY OR DAMAGE. IN WITNESS WHEREOF, Guarantor and Tenant have executed this Guaranty (Tenant executing this Guaranty to evidence its consent to the terms and provisions hereof) the day and year first above written. Attest: MASSAGE PARTNERS, INC. a Florida corporation L3/1. heo 4417 Vik (44 Jon Krutchik, President / Tenant Mich el Muska , Vice'President / Tenant ?(_/7%f- Print name: r `); / / ML,Ls4 I COCIVI e55 l C Y ichael uskat, Guarantor Print name: 2 Q YOB /i \ Cti vvt . Print name: ' c v l vwe 27 • EXHIBIT 7.1 Franchise Agreement • • • MASSAGE ENVY FRANCHISING, LLC • FRANCHISEE AGREEMENT • • • • Jon Krutchik FRANCHISEE • • June 2, 2010 DATE OF AGREEMENT • • • • TBD — South Beach — Miami Region #1 ADDRESS OF CLINIC • MASSAGE ENVY FDD 2010 P/-0C329198289v8 April 16, 2010 • 28 TABLE OF CONTENTS 1. PREAMBLES, ACKNOWLEDGEMENTS AND GRANT OF FRANCHISE 1 A. PREAMBLES 1 B. GRANT OF FRANCHISE. 1 C. TERRITORIAL RIGHTS 2 D. RIGHTS MAINTAINED BY US. 3 2. SITE SELECTION, LEASE OF SITE AND DEVELOPMENT AND OPENING OF CLINIC 3 A. SITE SELECTION. 3 B. LEASE OF SITE 4 C. DEVELOPMENT OF THE CLINIC 4 • D. FIXTURES, EQUIPMENT, STOREFRONT AND SIGNS. 4 E. PRODUCTS 5 F. COMPUTER SYSTEM 5 G. OPENING. 6 H. GRAND OPENING MARKETING PROGRAM. 6 3. FEES 6 • A. INITIAL FRANCHISE FEE 6 B. ROYALTY. 7 C. MINIMUM PERFORMANCE REQUIREMENTS 7 D. INTEREST ON LATE PAYMENTS; DISHONORED CHECKS. 7 E. APPLICATION OF PAYMENTS AND RIGHT OF SET-OFF. 8 F. SUCCESSOR FEE 8 . _ 4. TRAINING AND ASSISTANCE. 8 A. TRAINING. 8 B. ON-SITE ASSISTANCE 9 C. GENERAL GUIDANCE 9 D. OPERATIONS MANUAL. 9 E. DELEGATION OF PERFORMANCE. 10 5: .MARKS 10 A. OWNERSHIP AND GOODWILL OF MARKS 10 B. LIMITATIONS ON YOUR USE OF MARKS 10 C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS. 10 D. DISCONTINUANCE OF USE OF MARKS. 11 E. INDEMNIFICATION FOR USE OF MARKS 11 MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 29 6. CONFIDENTIAL INFORMATION. 11 7. EXCLUSIVE RELATIONSHIP. 13 8. CLINIC OPERATION AND SYSTEM STANDARDS ... 13 - . A. CLINIC ADMINISTRATOR. 13 B. CONDITION AND APPEARANCE OF CLINIC. 14 C. SERVICES AND PRODUCTS YOUR CLINIC OFFERS 14 - D. APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS. 15 E. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES. 15 F. INSURANCE 16 G. MAXIMUM AND MINIMUM PRICES. - 17 H. NATIONAL MEMBERSHIP ACCOUNTS. 17 I. RECIPROCITY. 17 J. COMPLIANCE WITH SYSTEM STANDARDS. 18 9. MARKETING. 19 A. BY YOU. 19 B. MARKETING FUND 19 C. ADVERTISING COOPERATIVES 21 D. WEBSITES. 21 10_ RECORDS, REPORTS AND FINANCIAL STATEMENTS. 22 11. INSPECTIONS AND AUDITS. 23 A. OUR RIGHT TO INSPECT THE CLINIC. 23 B. OUR RIGHT TO AUDIT. 23 12. TRANSFER 24 A. DELEGATION TO REGIONAL DEVELOPER 24 B. TRANSFER BY US. 24 C. TRANSFER BY YOU. 24 D. CONDITIONS FOR APPROVAL OF TRANSFER 25 E. ASSIGNMENT TO ENTITY PRINCIPALLY CONTROLLED BY YOU. 26 F. DEATH OR DISABILITY. 27 G. EFFECT OF CONSENT TO TRANSFER 28 H. OUR RIGHT OF FIRST REFUSAL. 28 13. EXPIRATION OF THIS AGREEMENT. 29 A. YOUR RIGHT TO ACQUIRE A SUCCESSOR FRANCHISE ' 29 B. GRANT OF A SUCCESSOR FRANCHISE 29 C. AGREEMENTS/RELEASES 30 14. TERMINATION OF AGREEMENT. 30 MASSAGE ENVY FDD 2010 P1-0(329198289v8 Ap1116, 2010 u 30 ' t 15. OUR AND YOUR RIGHTS AND OBLIGATIONS UPON TERMINATION OR EXPIRATION OF THIS AGREEMENT. 32 A. PAYMENT OF AMOUNTS OWED. 32 B. DE- IDENTIFICATION. 32 C. CONFIDENTIAL INFORMATION AND CUSTOMER INFORMATION 33 D. COVENANT NOT TO COMPETE. 33 - - - E. OUR RIGHT TO PURCHASE CLINIC. 34 F. CONTINUING OBLIGATIONS 35 16. RELATIONSHIP OF THE PARTIES/I NEMNIFICATION 35 A. INDEPENDENT CONTRACTORS. 35 B. NO LIABILITY FOR ACTS OF OTHER PARTY. 35 C. TAXES 36 D. INDEMNIFICATION 36 17. ENFORCEMENT. 36 A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS. 36 B. WAIVER OF OBLIGATIONS 37 C. COSTS AND ATTORNEYS' FEES 37 D. YOU MAY NOT WITHHOLD PAYMENTS DUE TO US 38 - - - E. RIGHTS OF PARTIES ARE CUMULATIVE. 38 F. ARBITRATION. 38 G. GOVERNING LAW 39 H. CONSENT TO JURISDICTION 39 I. WAIVER OF PUNITIVE DAMAGES AND JURY TRIAL 39 J.INJUNCTIVE RELIEF 40 .K. BINDING EFFECT. 40 L. LIMITATIONS OF CLAIMS 40 M. CONSTRUCTION 40 N. INTERIM TERM 41 O. FORCE MAJEURE 41 18. NOTICES AND PAYMENTS 42 _ 19. ' ACKNOWLEDGMENTS. - 42 EXHIBITS A. Territory, Site, Term B. ACH Authorization Form MASSAGE ENVY FDD 2010 - - PHX329198289v8 Apdt 16, 2010 111 . 31 { MASSAGE ENVY FRANCHISE AGREEMENT THIS FRANCHISE AGREEMENT (the "Agreement") is made and entered into as of this 2 day of June, 2010 (the "Effective Date "), by and between MASSAGE ENVY FRANCHISING, LLC, a Delaware Limited liability company, with its principal business address at 14350 North 87 Street, Suite 200, Scottsdale, Arizona 85260 ( "we," "us" or "our "), and Joa Krutchik, a married man, whose principal business address is 5780 Stone Creek Way, Southwest Ranches, FL 33330 ( "you" or "your "). 1. PREAMBLES, ACKNOWLEDGEMENTS AND GRANT OF FRANCHISE. A. PREAMBLES. (1) We and our affiliates have designed and developed valuable and proprietary formats and systems for the development and operation of personal health clinics that offer massage therapy and hot stone therapy under the name "Massage Envy" as well as clinics that offer both massage therapy and customized facial services under the name "Massage Envy Spa" (both collectively referred to in this Agreement as • "Massage Envy Clinics "). (2) We have developed and use, promote and license certain trademarks, service marks and other commercial symbols in operating Massage Envy Clinics, including "Massage Envy ®" and "Massage Envy Spa ®" and we may create, use and license other trademarks, service marks and commercial symbols for use in operating Massage Envy Clinics (collectively, the "Marks "). ' (3) We offer franchisees who meet our minimum standards for character, skill, aptitude, attitude, English language proficiency (to ensure you can effectively communicate with your staff; your customers and us) business ability and financial . capacity) the right to own and operate a Massage Envy Clinic offering the products and services we authorize (and only the products and services we authorize) and using our business system, business formats, methods, procedures, signs, designs, layouts, standards, specifications, retail products and Marks, all of which we may improve, further develop and otherwise modify from time to time (collectively, the "Franchise System "). (4) You have applied for a franchise to own and operate a Massage Envy Clinic, and we have approved your application relying on all of your representations, - warranties and acknowledgments contained in the application and this Agreement. If you choose to operate a Massage Envy Spa clinic, you will execute both this Agreement and a Spa Addendum. B. GRANT OF FRANCHISE. Grant of Franchise. You have applied for a franchise to own and operate a Massage Envy Clinic within a geographic area mutually agreed upon by the parties (the "Territory "). The approximate size and shape of the Territory will be an area that complies with our current general Territory profile criteria for minimum population, number of qualified households, age range and therapist availability as well as the specific market variables of your MASSAGE ENVY FDD 2010 PHX329198289v8Aprn 16, 2010 1 32 • - I • Site, such as population density, market and development trends, traffic flow and natural and man -made boundaries. Unless the geographic area comprising the Territory is . identified on Exhibit A attached to this Agreement at the time you sign this Agreement, the Territory shall be determined after you sign this Agreement, but prior to our approval of your proposed Site (as defined below). Once agreed upon, Exhibit A shall be modified to identify the exact geographic area comprising the Territory. The actual Territory description will consist of street map landmarks and compass directions. Subject to the terms of this Agreement, we grant you a franchise (the "Franchise") to operate a Massage Envy Clinic (the "CLINIC ") at a location we approve within the Territory (the "Site "), and to use the Franchise System in its operation, for a term beginning on the execution date of your real estate lease for the CLINIC and expiring ten (10) years from that date (the "Initial Term "), unless sooner terminated. You may not relocate the CLINIC to a different site without our prior written approval which shall not be unreasonably withheld provided that you comply with our then- current clinic location standards. C. TERRITORIAL RIGHTS. • So long as you are in compliance with the terms and conditions of this Agreement, and except as expressly provided herein, neither we nor any affiliates we may have - - from time to time will establish, or grant rights to other persons to establish, another Massage Envy Clinic the physical premises of which are located within the Territory. Notwithstanding the foregoing, if we determine, based on changes in circumstances which include, but are not limited to, changes in the population, demographics, usage of .massage services, drive times, or other market or economic conditions in the geographic • area that includes all or part of the Territory, that the Territory could support an additional Massage Envy Clinic, then we will offer you a thirty (30) day first right of refusal to purchase . - and operate the additional Massage Envy Clinic. The right of first refusal may not be exercised, and we may establish or grant rights to another person to establish a Massage Envy Clinic within your Territory if any one of the following conditions is satisfied: • (1) You are not then in compliance with any material term of this Agreement and cannot cure the non - compliance within thirty (30) days of written notice; (2) We determine, in our sole discretion, that you do not meet our then current standards for new franchisees of Massage Envy Clinics; (3) We determine, in our sole discretion, that you lack the financial resources to develop and operate an additional Massage Envy Clinic; (4) You fail to sign a franchise agreement (containing our then - current terms and conditions) for the additional Massage Envy Clinic within thirty (30) days of the date we deliver a franchise agreement for signature; or (5) You notify us that you do not wish to develop and operate an additional Massage Envy Clinic within your Territory. MASSAGE ENVY FDD 2010 PKK329198289v8 April 16, 2010 2 33 D. RIGHTS MAINTAINED BY US. We (and any affiliates that we might have from time to time) shall at all times have the right to engage in any activities we deem appropriate that are not expressly prohibited by this Agreement, whenever and wherever we desire, including, but not Limited to: (1) establishing and operating Massage Envy Clinics, and granting rights to other persons to establish and operate Massage Envy Clinics, on any terms and conditions we deem appropriate and at any locations other than within the Territory; (2) providing, and granting rights to other persons to provide goods and services similar to and/or competitive with those provided at Massage Envy Clinics to customers located within the Territory (identified by other than those Marks licensed by this Agreement) through any distribution channel other than a Massage Envy Clinic located within the Territory (including, but not limited to, sales of products via mail order, gift cards, catalogs, toll free telephone numbers and electronic means including the Internet); (3) acquiring the assets or ownership interests of one or more businesses providing products and services similar to those provided at Massage Envy Clinics, and franchising, licensing or creating similar arrangements with respect to these businesses once acquired, wherever these businesses (or the franchisees or licensees of these businesses) are located or operating (including within the Territory); and (4) being acquired (regardless of the form of transaction) by a business • providing products and services similar to those provided at Massage Envy Clinics, or by another business, even if such business operates, franchises and/or licenses competitive businesses within the Territory. With respect to the acquisitions referenced in number 3 and number 4 above, you acknowledge and agree that the competitive businesses that are acquired (or that are operated by • a company that acquires us) may be converted into Massage Envy Clinics that operate under the Marks, regardless of their location, including competitive businesses that are located within your Territory on the date of the acquisition. 2. SITE SELECTION, LEASE OF SITE AND DEVELOPMENT AND OPENING OF CLINIC. A. SITE SELECTION. . - We will assist you in fording you a site for your Clinic by providing assistance and guidance in your selection of a real estate broker, demographic data, site search and approval, municipal code review and lease review and approval. You shall submit to us a complete site report (containing such demographic, commercial, and other information, photographs and video tapes as we may reasonably require) for a site you propose for the CLINIC and which you reasonably believe to conform to certain minimum site selection criteria we establish from time to time. We shall have the right to accept or reject all proposed sites. In accepting or rejecting a proposed site, we will consider such matters as we deem material, including, without limitation, demographic characteristics of the proposed site, traffic patterns, parking, the predominant character of the neighborhood, competition from other businesses MASSAGE ENVY FDD 2010 - PHX329198289v8 April 16, 2010 3 34 _.. • providing similar services within the area, the proximity to other businesses (including other Massage Envy Clinics), the nature of other businesses in proximity to the site, and other, commercial characteristics (including the purchase price or rental obligations and other lease , terms for the proposed site) and the size of premises, appearance, and other physical characteristics of the premises. We shall have thirty (30) days after receipt of the requisite materials to approve or disapprove a proposed site. Our approval of a site will be by delivery of written notice to you. If you do not receive a written notice of approval within thirty (30) days from us, your proposed site is considered disapproved. You acknowledge and agree that our approval of the Site does not constitute a representation or warranty of any kind, express or implied, of the suitability of the Site for a Massage Envy Clinic or any other purpose. Our approval of the Site indicates only that we believe that the Site meets our then acceptable criteria. We are not responsible if the Site fails to meet your or our expectations. B. LEASE OF SITE. You must present to us for our approval any lease for the Site. Any lease for the Site shall, in form satisfactory to us: (1) provide for concurrent, written notice to us of any default under the lease; (2) provide for our right, but not the obligation, to cure any such default (3) provide for our right to assign your interest in the lease to us, at our option, without the - - lessor's consent; (4) provide that we will have the right, but not the obligation, to assume said lease upon termination or expiration of this Agreement without the lessor's consent; (5) provide • that the lease may not be materially modified without our consent and (6) allow us to enter the premises upon termination or expiration of this Agreement to assure compliance with the de- . identification and other provisions of this Agreement. C. DEVELOPMENT OF THE CLINIC. Prior to any construction or renovation of the Site, we shall provide you with copies of our standard specifications for the design and layout of a typical Massage Envy Clinic and required leasehold improvements (the "Design Standards "). You shall, in all respects, comply with the Design Standards unless we shall, in writing, agree to modifications thereof. You shall employ a licensed architect, at your sole cost and expense, to prepare all necessary architectural, engineering and construction drawings and site plans (collectively referred to as the "Construction Documents "). To ensure the consistent design of Massage Envy Clinics, you must use an architect designated or approved by us. You shall obtain all permits required to • construct, remodel, renovate, and/or equip the Site. You shall be solely responsible for ensuring that the construction of the Site complies with all applicable laws including, without limitation, local building codes and the Americans with Disabilities Act. All such Construction Documents, and all modifications and revisions thereto, shall be submitted to us for our prior review and - approval before you commence construction. D. FIXTURES, EQUIPMENT, STOREFRONT AND SIGNS. You agree to use in the operation of the CLINIC the fixtures, furniture, items of equipment, furnishings and signs (collectively, "Operating Assets ") that we have approved for Massage Envy Clinics as meeting our specifications and standards for appearance, function, . design, quality and performance. You further agree to place or display at the CLINIC (interior and exterior) only such signs, emblems, lettering, logos and display materials specified in the Operations Manual (defined in Section 4.0 of this Agreement) or otherwise approved by us in MASSAGE ENVY FDD 2010 PI-DC329198289v8 Apra 16, 2010 4 • • 35 • • writing. If you propose to purchase, lease or otherwise use any Operating Asset which is not then approved by us, you shall first notify us in writing and shall submit to us sufficient specifications, photographs, drawings and/or other information or samples for our determination of whether such Operating Asset complies with our specifications and standards, which determination shall be made and communicated in writing to you within a reasonable time. E. PRODUCTS. • Prior to opening the CLINIC, you shall purchase from our approved supplier an opening inventory of products, materials and supplies which we have approved for use and/or sale at Massage Envy Clinics ( "Products "). F. COMPUTER SYSTEM. You agree to use in operating the CLINIC the computer equipment, operating software and communications equipment (collectively, the "Computer System ") that we specify _ .. - from time to time. You further agree to comply with the policies relating to the Computer System that we specify from time to time. You must obtain the Computer System, software licenses, maintenance and support services and other services related to the Computer System from the suppliers we specify (which may be limited to us or our affiliates). We may periodically modify specifications for and components of the Computer System. These modifications and/or other technological developments or events may require you to purchase, lease and/or license new or modified computer hardware and/or software and to obtain service and support for the Computer System. Although we cannot estimate the future costs of the Computer System, you _ agree to incur the costs of obtaining the computer hardware and software comprising the Computer System (or additions or modifications) and required service or support. We have no obligation to reimburse you for any Computer System costs. Within sixty (60) days after you receive notice from us, you agree to obtain the components of the Computer System that we designate and ensure that your Computer System, as modified, is functioning properly. We may charge you a reasonable fee if we develop or have developed (and, once developed, for supporting, modifying and enhancing) proprietary software that we license to you and for other Computer System maintenance and support services that we or our affiliates provide to you. We may also enter into a license agreement with a third party licensor of software and then sublicense the software to you. If we or our affiliates license proprietary software or sublicense other software to you, or otherwise allow you to use similar technology we develop, maintain or sublicense, you agree to sign any software license agreement or similar document that we or our affiliates prescribe to regulate your use of, and our and your respective rights and responsibilities with respect to, the software. Notwithstanding the fact that you must buy, use and maintain the Computer - System under our standards and specifications, you will have sole and complete responsibility ' for: (1) the acquisition, operation, maintenance and upgrading of the Computer System; (2) the manner in which your Computer System interfaces with our computer system and those of other . third parties; and (3) any and all consequences that may arise if the system is not properly operated, maintained and upgraded. MASSAGE ENVY FDD 2010 PF0C3291982894 Apn1 16, 2010 5 36 G. OPENING. Within the earlier of one hundred eighty (180) days after we approve the Site or two hundred forty (240) days after the Effective Date, you must open the CLINIC for business utilizing the Franchise System; provided, however, you may not open the CLINIC for business or sell memberships in the CLINIC until: (1) We have inspected and approved the CLINIC as developed in accordance with our specifications and standards (as an alternative, or in addition, to our physical inspection of the CLINIC, we may require you to send us video tapes and /or photographs of the CLINIC); (2) Pre - opening training described in Section 4.A of this Agreement has been completed to our satisfaction; (3) You have satisfied all bonding, licensing, and other legal requirements for the lawful operation of your CLINIC and given us satisfactory evidence of compliance; (4) All amounts due to us have been paid; and (5) We have received the required evidence that you have obtained the insurance required by this Agreement. BY VIRTUE OF COMMENCING OPERATIONS OF YOUR CLINIC, YOU ACKNOWLEDGE THAT WE HAVE FULFILLED ALL OF OUR OBLIGATIONS TO YOU - THAT WE ARE REQUIRED TO FULFILL PRIOR TO YOUR COMMENCING OPERATIONS UNDER YOUR MASSAGE ENVY CLINIC BUSINESS. • H. GRAND OPENING MARKETING PROGRAM. - - You must, at your expense, and with our prior written approval, execute a grand opening marketing program for the CLINIC in accordance with the System Standards (as defined below) for grand openings of Massage Envy Clinics in varying market conditions. You agree to spend a minimum of Five Thousand Dollars ($5,000.00) on the grand opening marketing program. You agree to use only the media, materials, methods and formats we develop or approve according to Section 9.0 below. In connection with your obligations under Section 2.A through H above, we will __ . provide to you site location services, lease review and guidance services, program management services for the construction of your facility, and occupancy management services regarding equipment and design standards and guidelines. 3. FEES. A. INITIAL FRANCHISE FEE. You agree to pay us a nonrecurring and nonrefundable initial franchise fee of - " Thirty . Nine Thousand Dollars ($39,000.00). If you are a veteran who qualifies under our VetFran program, you agree to pay us a discounted initial franchise fee in the amount of Thirty Five Thousand Dollars ($35,000.00). This fee is due and is fully earned by us when you sign this Agreement. If you desire to receive a license to establish and operate additional Massage Envy Clinics, we may, in our sole discretion, grant you a license to establish and operate those extra Massage Envy Clinics if you meet the following minimum conditions: (1) you satisfy our then- current qualifications and training requirements; (ii) you execute our then- current form of clinic franchise agreement; and, (iii) you pay to us a fee equivalent to Twenty -Nine Thousand Dollars ($29,000.00). for each additional Massage Envy Clinic. i . MASSAGE ENVY FDD 2010 PHX329198289v8 Apd116, 2010 6 37 B. ROYALTY. You agree to pay us, on the day of each week that we periodically specify (the "Payment Day "), a weekly royalty ( "Royalty ") equal to five percent (5 %) of the CLINIC'S Gross Sales during the previous week. In this Agreement, "Gross Sales" means the total of all revenue and receipts derived from the operation of the CLINIC, including, but not liinited to, all amounts received at or away from the site of the CLINIC, or through or by means of the business the CLINIC conducts, such as fees for massage services, facial services (if applicable), membership fees, fees for optional member services and . charges, gift card sales, and revenue - derived from products sales, whether in cash or by check, credit card, debit card, barter or exchange, or other credit transactions, but excluding only (1) sales taxes collected from customers and paid to the appropriate taxing authority, (2) all customer refunds and credits the CLINIC actually makes, and (3) tips received by massage therapists and aestheticians (if applicable). You must execute and deliver to us an ACH Authorization Form allowing us to electronically debit a banking account that you designate (your "Account ") for (i) all fees • - .. payable to us under this Agreement and (ii) any amounts that you owe to us or any of our affiliates for the purchase of goods or services. Our current form of ACH Authorization Form is attached to this Agreement as Exhibit B. You further agree to sign and deliver to us any other documents that we or your bank may require from time to time to authorize us to debit your Account for such amounts. You must deposit into the Account all Gross Sales generated by your Clinic. We will debit your account for the Royalty on or after the Payment Day, based on Gross Sales for the previous week. You agree to make the funds available for withdrawal by electronic transfer before each due date. If you fail to report the CLINIC'S Gross Sales for any week, we _ .. may debit your account for one hundred twenty percent (120 %) of the Royalty that we debited for the previous week. If the Royalty we debit from your account is less than the Royalty you actually owe us (once we have determined the CLINIC'S_ true and correct Gross Sales for the week), we will debit your account for the balance of the Royalty due on the day we specify. If the Royalty we debit from your account is greater than the Royalty you actually owe us for the week (once we have determined the CLINICS true and correct Gross Sales for the week), we will credit the excess against the amount we otherwise would debit from your account during the following week, without interest. C. MINIMUM PERFORMANCE REOUIREMENTS. You agree that you will conduct your business so as to generate minimum Gross • - Sales of not less than Three Hundred Fifty Thousand Dollars ($350,000.00) during the first twelve (12) months after the CLINIC opens for business. Your failure to generate such level of Gross Sales within the first twelve (12) months of operation shall afford us the right to terminate this Agreement, or, in lieu of such termination, to reduce the size of your Territory or terminate the territorial rights described in Section 1.0 of this Agreement. D. INTEREST ON LATE PAYMENTS; DISHONORED CHECKS. All amounts which you owe us (including Royalty payments), if not paid on the due date, will bear interest at the rate of fifteen percent (15 %) per annum or the highest commercial contract interest rate the law allows, whichever is less. We will calculate the interest. MASSAGE ENVY FDD 2010 PIiX329198289v8Ap11116, 2010 7 __ 38 - . that we charge you on the basis of monthly compounding and the actual number of days elapsed divided by 365. If we institute an automatic debit program for the CLINIC, we may debit your • account automatically for these amounts. You shall pay us a fee of One Hundred Dollars ($100.00) each time a check you write to us is dishonored by your bank. You acknowledge that this Section 3.D does not reflect any agreement by us to accept any payments after they are due or our commitment to extend credit to, or otherwise finance your operation of, the CLINIC. You further acknowledge that your failure to pay all amounts that you owe us when due constitutes grounds for our terminating this Agreement under Section 14 of this Agreement, notwithstanding ' this Section 3.D. E. APPLICATION OF PAYMENTS AND RIGHT OF SET -OFF. Despite any designation you make, we may apply any of your payments to any of your past due indebtedness to us (or our affiliates). We may set -off any amounts you owe us or " " our affiliates against any amounts we or our affiliates might owe you F. SUCCESSOR FEE. You agree to pay us a nonrecurring and nonrefundable Successor Fee of twenty - five percent (25 %) of the then current initial franchise fee. The Successor Fee is due and is fully earned by us when you sign the Successor Agreement. 4. . TRAINING AND ASSISTANCE. A. TRAINING. Before the CLINIC opens, we will provide approximately two (2) weeks of • • training (approximately ten (10) training days) for you on the operation of a Massage Envy Clinic for you and up to three (3) of your management personnel. The initial training program will include approximately one (1) week of classroom training at our corporate headquarters and approximately one (1) week of on -site training at an operating Massage Envy Clinic. Training may also be conducted at other locations we designate. If the CLINIC is located in an area " serviced by a Regional Developer (defined in Subsection 12.A of this Agreement), then the Regional Developer shall provide the on -site training to you. You, your CLINIC Administrator (defined in Section 8.A of this Agreement) and the number of additional management personnel we designate must complete the initial training to our satisfaction and participate in all other activities we require before opening the CLINIC. Although we provide this training at no additional fee, you must pay all travel and living expenses which you and your personnel incur. In the event that you fail to satisfactorily complete and pass the required initial training class, then we reserve the right, in our sole discretion, to require you or your designee approved by us to attend additional training and we will charge you an additional training fee of • Two Hundred Fifty Dollars ($250.00) per day per person. If you are unable to satisfactorily complete and pass that training class, we reserve the right, in our sole discretion, to terminate this • Agreement. If we determine that your CLINIC Administrator or any of your employees has failed to satisfactorily complete the training program, you agree to immediately hire a substitute and promptly arrange for such person to complete the training program to our satisfaction. You - - - shall pay the additional training fee for training programs furnished to individuals who replace a manager of employee who has previously attended the training program. You are responsible for all travel and living expenses. MASSAGE ENVY FDD 2010 PF0C329198289v8 Apr816, 2010 8 39 I I We may require you and/or previously trained and experienced employees at the CLINIC to attend up to seven (7) days of additional or refresher training courses each year and a - - national business convention up to three (3) days per year at the times and locations we designate. We may charge a fee of Two Hundred Fifty Dollars ($250.00) per day per person for these courses, conventions and programs. In the event that you fail to attend the annual convention, we may charge you a penalty of up to $400 per person per day for the duration of the convention or program. You are responsible for all travel and living expenses. B. ON -SITE ASSISTANCE. We will provide, at no additional cost to you, on -site advice, guidance and support for a period of no more than ten (10) days, in connection with the opening and initial operations of the CLINIC; provided, however, that if you are a Regional Developer under a Regional Development Agreement with us, and this Agreement is not for your first Massage Envy Clinic, then you will not receive this on -site assistance. We shall determine, in our sole discretion, the composition of the on -site assistance team. If we determine, in our sole discretion, that additional on -site assistance is necessary or beneficial, we have the right, at our option, to provide such additional on -site assistance. You will be required to pay reasonable fees for any such additional on -site assistance and will also be responsible for the reasonable travel or living expenses incurred by our personnel in providing such additional on -site assistance. C. GENERAL GUIDANCE. • We will advise you from time to time regarding the CLINIC'S operation based on your reports or our inspections. We will provide guidance to you in our operating manual and other technical manuals ("Operations Manual "); in bulletins or other written materials; by electronic media; by telephone consultation; and/or at our office or the CLINIC. If you request - - and we agree to provide additional or special guidance, assistance or training, you must pay our - then applicable charges, including our personnel's per diem charges and any reasonable travel and living expenses. D. OPERATIONS MANUAL. We will loan you, to use in operating the CLINIC during this Agreement's term, one (1) copy of our Operations Manual, which might be or include audiotapes, videotapes, computer disks, compact disks and/or written or intangible materials and which may be available .. to you by various means, including access through the Internet. The Operations Manual contains mandatory and suggested specifications, standards, operating procedures and rules that we periodically prescribe for operating a Massage Envy Clinic ("System Standards ") and information on your other obligations under this Agreement. The Operations Manual is incorporated by reference into this Agreement and is a binding part of this Agreement. We may modify the Operations Manual periodically to reflect changes in System Standards. You agree to keep your copy of the Operations Manual current and in a secure location at the CLINIC. If there is_ a dispute over its contents, our master copy of the Operations Manual controls. You agree that the contents of the Operations Manual are confidential and that you will not disclose the Operations Manual to any person other than CLINIC employees who need to know its contents. You may not at any time copy, duplicate, record or otherwise reproduce any part of the Operations Manual. If your copy of the Operations Manual is lost, destroyed or significantly damaged, you agree to obtain a replacement copy at our then applicable charge. Any personnel MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 9 40 policies or procedures which are made available in the Operations Manual are for your optional use and are not mandatory. You shall determine to what extent, if any, such personnel policies and procedures may be applicable to your operations at the CLINIC in your jurisdiction. You and we recognize that we neither dictate nor control labor and employment matters for you and your employees. E. DELEGATION OF PERFORMANCE. You agree that we have the right to delegate the performance of any portion or all of our obligations under this Agreement to third party designees, whether these designees are our agents or independent contractors with whom we contract to perform these obligations. 5. MARKS. A. OWNERSHIP AND GOODWILL OF MARKS. Your right to use the Marks is derived only from this Agreement and is limited to your operating the CLINIC according to this Agreement and all System Standards we prescribe during its term. Your unauthorized use of the Marks is a breach of this Agreement and infringes our rights in the Marks. You acknowledge and agree that your use of the Marks and any goodwill established by that use are for our exclusive benefit and that this Agreement does not confer any goodwill or other interests in the Marks upon you (other than the right to operate the CLINIC under this Agreement). All provisions of this Agreement relating to the Marks apply to any additional and substitute trademarks and service marks we authorize you to use. B. LIMITATIONS ON YOUR USE OF MARKS. I • You agree to use the Marks as the CLINICS sole identification (subject to the notices of independent ownership we designate). You may not use any Mark (1) as part of any corporate or legal business name; (2) with any prefix, suffix or other modifying words, terms, designs or symbols (other than logos we have licensed to you); (3) in selling any unauthorized services or products; (4) as part of any domain name, electronic address or search engine you maintain on any "website" (defined as an interactive electronic document contained in -a network • of computers linked by communications software, including the Internet, the World Wide Web { and any similar successor technology) without our consent; or (5) in any other manner we have not expressly authorized in writing. You may not use any Mark in advertising the transfer, sale or other disposition of the CLINIC or an ownership interest in you (if a corporation, partnership, limited liability company or another business entity (an "Entity ") holds the Franchise at any time during this Agreements term) without our prior written consent, which we will not unreasonably withhold. You agree to display the Marks prominently as we prescribe at the CLINIC and on forms, advertising, supplies, employee uniforms and other materials we designate. You agree to give the notices of trademark and service mark registrations that we specify and to obtain any fictitious or assumed name registrations required under applicable law. { C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS. You agree to notify us immediately of any apparent infringement of or challenge • to your use of any Mark, or of any person's claim of any rights in any Mark, and not to communicate with any person other than us and our attorneys, and your attorneys, regarding any such infringement, challenge or claim. We may take the action we deem appropriate (including MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 10 .. .. . 41 no action) and control exclusively any litigation, U.S. Patent and Trademark Office proceeding or other administrative proceeding arising from any infringement, challenge or claim or otherwise concerning any Mark. You agree to sign any documents and take any actions that, in the opinion of our attorneys, are necessary or advisable to protect and maintain our interests in any litigation or Patent and Trademark Office or other proceeding or otherwise to protect and maintain our interests in the Marks. D. DISCONTINUANCE OF USE OF MARKS. If we believe at any time that it is advisable for us and/or you to modify or discontinue using any Mark and/or use one or more additional or substitute trademarks or service marks, you agree to comply with our directions within a reasonable time after receiving notice. We need not reimburse you for your expenses in complying with these directions (such as costs you incur in changing the CLINIC'S signs or replacing supplies), for any loss of revenue due to any modified or discontinued Mark, or for your expenses of promoting a modified or substitute - - trademark or service mark. E. INDEMNIFICATION FOR USE OF MARKS. We agree to reimburse you for all damages and expenses you incur in any trademark infringement proceeding disputing your authorized use of any Mark under this Agreement if you have timely notified us of the proceeding, have complied with this Agreement, and comply with our directions in responding to the proceeding. At our option, we may defend and control the defense of any proceeding relating to any Mark. 6. CONFIDENTIAL INFORMATION. We possess (and will continue to develop and acquire) certain confidential information relating to the development and operation of Massage Envy Clinics (the - "Confidential Information "), which includes (without limitation): (1) site selection criteria; (2) methods, formats, specifications, standards, systems, procedures, sales and marketing techniques, knowledge and experience used in developing and operating Massage Envy Clinics; - - - (3). marketing research and promotional, marketing and advertising programs for Massage Envy Clinics; (4) knowledge of specifications for and suppliers of, and methods of ordering, certain Operating Assets and Products that Massage Envy Clinics use; (5) knowledge of the operating results and financial performance of Massage Envy Clinics other than the CLINIC; (6) customer communication and retention programs, along with data used or generated in connection with those programs; (7) graphic designs and related intellectual property; MASSAGE ENVY FDD'2010 P1-0(329198289v8 Apra 16, 2010 11 42 (8) information generated by, or used or developed in, the CLINIC'S operation, including customer names, addresses, telephone numbers and related information and any other information contained from time to time in the CLINIC'S Computer System; and (9) any other information designated as confidential or proprietary by us. You acknowledge and agree that by entering into this Agreement and/or acquiring the CLINIC you will not acquire any interest in Confidential Information, other than the right to use certain Confidential Information in operating the CLINIC during this Agreement's term and according to the System Standards and this Agreement's other terms and conditions, and that your use of any Confidential Information in any other business would constitute an unfair method of competition with us and our franchisees. You further acknowledge and agree that the Confidential Information is proprietary, includes our trade secrets, and is disclosed to you only on the condition that you agree, and you do agree, that you: (a) will not use any Confidential Information in any other business or capacity; (b) will keep the Confidential Information absolutely confidential , during and after this Agreement's term; (c) will not make unauthorized copies of any Confidential Information disclosed via electronic medium or in written or other tangible form; • (d) will adopt and implement all reasonable procedures that we • periodically prescribe to prevent unauthorized use or disclosure of Confidential Information, including, without limitation, restricting its disclosure to CLINIC personnel and others needing to know such Confidential Information to operate the CLINIC, and • using confidentiality and non-disclosure agreements with those having access to Confidential Information. We have the right to regulate the form of agreement that you use and to be a third party beneficiary of that agreement with independent enforcement rights; and (e) will not sell, trade or otherwise profit in any way from the Confidential Information, except using methods approved by us. All ideas, concepts, techniques or materials relating to a Massage Envy Clinic, whether or not protectable intellectual property and whether created by or for you or your employees, must be promptly disclosed to us and will be deemed to be our sole and exclusive property, part of the Franchise System, and works made-for-hire for us. To the extent any item does not qualify as a "work made-for-hire" for us, by this paragraph you assign ownership of that - item, and all related rights to that item, to us and agree to sign whatever assignment or other documents we request to evidence our ownership or to help us obtain intellectual property rights in the item. "Confidential Information" does not include information, knowledge or know-how which is or becomes generally known in the massage and personal health industry or which you knew from previous business experience before we provided it to you (directly or indirectly) or before you began training or operating the CLINIC. If we include any matter in MASSAGE ENVY FDD 2010 PI Apte 16, 2010 12 43 Confidential Information, anyone who claims that it is not Confidential Information must prove that the exclusion in this paragraph is fulfilled. 7. EXCLUSIVE RELATIONSHIP. You acknowledge that we have granted you the Franchise in consideration of and reliance upon your agreement to deal exclusively with us in the massage and personal health industry. You therefore agree that, during this Agreement's Term, neither you nor any of your shareholders or partners (if you are doing business as a corporation or partnership) nor any member of your immediate family will: (a) have any direct or indirect, controlling or non - controlling interest as an owner - whether of record, beneficial or otherwise - in a Competitive Business (defined below), wherever located or operating; (b) perform services as a director, officer, manager, employee, consultant, representative or agent, or in any other capacity, for a Competitive Business, • wherever located or operating; _ .. (c) directly or indirectly loan any money or other thing of value to, or guarantee any other person's loan to, any Competitive Business or any owner, director, officer, manager, employee or agent of any Competitive Business, wherever located or operating; (d) employ or seek to employ any person who is, or within six (6) months of such employment or solicitation was, an employee of us, our affiliates or our or their franchisees or licensees, or otherwise directly or indirectly induce that person to leave such employment, without obtaining our or the employer's prior written permission; or (e) divert or attempt to divert any actual or potential business or customer of the CLINIC to a Competitive Business. The term "Competitive Business" means (i) any business that derives more than I . Fifty Thousand Dollars ($50,000.00) of revenue per year from any combination of the sale of massage, massage- related services, facial services, skincare services and/or skincare- related products or (ii) any business which grants franchises or licenses to others to operate such a business, other than a Massage Envy Clinic operated under a franchise agreement with us. 8. CLINIC OPERATION AND SYSTEM STANDARDS. A. CLINIC ADMINISTRATOR Concurrently with the execution of this Agreement, you shall designate a general manager (the "CLINIC Administrator") of your business as described in this Agreement. The CLNIC Administrator may be you (if you are not an Entity). The CLINIC Administrator will exert full -time efforts to fulfill your obligations under this Agreement and will not engage in any other business or other activity, directly or indirectly, that requires any significant management responsibility or time commitments, or that may otherwise conflict with your obligations under this Agreement. If the relationship of the CLINIC Administrator to you terminates or materially MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 13 44 changes, you agree to promptly designate a replacement. The CLINIC Administrator must successfully complete our initial training program before the CLINIC opens for business. Any replacement CLINIC Administrator must also complete our initial training program. You shall pay the charges that we establish for training programs furnished to any individual who replaces a previously trained CLINIC Administrator. B. CONDITION AND APPEARANCE OF CLINIC. • You agree that you will not use the CLINIC or any part of the Site for any — - purpose other than operating a Massage Envy Clinic in compliance with this Agreement, and that you will place or display at the Site (interior and exterior) only those signs, emblems, designs, artwork, lettering, logos and display and advertising materials that we from time to time approve .. during this Agreement's term. You further agree to maintain the condition and appearance of your CLINIC and the Site in accordance with our System Standards and consistent with the image of a Massage Envy Clinic as a professionally operated business offering high quality services and products and observing the highest standards of professionalism, cleanliness and courteous service. In that connection you agree to take, without limitation, the following actions during this Agreement's term at your expense: (1) thorough cleaning, repainting and redecorating of the interior and exterior of the Site at intervals that we may prescribe; (2) interior and exterior repair of the Site as needed; and (3) repair or replacement, at our direction, of damaged, worn -out or obsolete equipment at intervals that we may prescribe (or, if we do not prescribe` an interval for replacing any equipment, as that equipment needs to be repaired or replaced). In addition to your obligations described above, we may periodically require you to substantially alter the CLINICS and the Site's appearance, layout and/or design, and/or, __. replace a material portion of your equipment, in order to meet our then current requirements for new Massage Envy Clinics. You acknowledge that this obligation could result in your making extensive structural changes to, and significantly remodeling and renovating, the CLINIC, and you agree to incur any capital expenditures required in order to comply with this obligation and our requirements. We will not require you to make a fundamental and material change to your CLINIC design within the first three (3) years of its operation. Within sixty (60) days after receiving written notice from us, you must have plans prepared according to the standards and specifications we prescribe and, if we require, using architects and contractors we designate or approve, and you must submit those plans to us for our approval. You must complete all work . according to the plans we approve within the time period that we specify. However, nothing in this paragraph in any way limits your obligation to comply with all mandatory System Standards we specify. C. SERVICES AND PRODUCTS YOUR CLINIC °EVERS. You agree that: (1) your CLINIC will offer all services and products that we periodically specify; (2) you will not offer, sell, give away or otherwise provide at the CLINIC, the Site or any other location any services or products we have not authorized; (3) you shall not sell any products at wholesale or through any channel of distribution other than retail sales at the CLINIC (including, without limitation, sales of products via mail order, catalogs, toll free telephone numbers and electronic means including the Internet); (4) you shall not perform massage services at any location other than at the CLINIC; and (5) you will discontinue selling and offering for sale any services or products that we at any time disapprove in writing. MASSAGE ENVY FOD 2010 ... i. PHX329198289v8 April 16, 2010 14 45 D. APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS: We reserve the right to periodically designate . and approve standards, specifications, suppliers and/or distributors of the Operating Assets, Products - and support services we periodically authorize for use at the CLINIC. During this Agreement's term you must acquire all. Operating Assets and Products for the CLINIC only according to our standards and specifications and, if we require, only from suppliers or distributors that we designate or approve (which may include or be limited to us and/or our affiliates). You acknowledge and agree that we and/or our affiliates may derive revenue based on your purchases and leases (including, without limitation, from charging you for products and services we or our affiliates provide to you and from promotional allowances, volume discounts and other payments made to us by suppliers that we designate or approve for some or all of our franchisees). • If you want to use any Operating Assets, Products or support services that we have not yet evaluated or purchase any item from a supplier or distributor that we have not yet approved (for items that we require you to purchase from designated or approved suppliers or distributors), you first must submit sufficient information, specifications and samples for us to determine whether the item complies with our standards and specifications or the supplier or distributor meets our criteria. We may condition our approval of a supplier or distributor on requirements relating to product quality, prices, consistency, warranty, reliability, financial capability, labor relations, customer relations, frequency of delivery, concentration of purchases, standards of service (including prompt attention to complaints) or other criteria. We have the right to inspect the proposed supplier's or distributor's facilities and to require the proposed supplier or distributor to deliver product samples or items, at our option, either directly to us or to any independent, certified laboratory which we designate for testing. Either you or the proposed supplier or distributor must pay us a fee (not to exceed the reasonable cost of the inspection and the actual cost of the test) to make the evaluation. We reserve the right periodically to re- inspect the facilities and products of any approved supplier or distributor and to revoke our approval if the supplier or distributor does not continue to meet our criteria. E. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES. It is your sole and absolute obligation to research all applicable federal, state and local laws and regulations governing the operation of your CLINIC and to ensure that such operation does not violate any federal, state or local law or regulation. You must secure and maintain in force throughout this Agreements term all required licenses, permits and certificates relating to the CLINIC'S operation and operate the CLINIC in full compliance with . all applicable laws, ordinances and regulations. All massage therapists providing services at the CLINIC must also maintain all required licenses at all times. The CLINIC must, in all dealings with its customers, suppliers, us and the public, adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct. You agree to refrain from any business or advertising practice which might injure our business or the goodwill associated with the Marks or other Massage Envy Clinics. You must notify us in writing within five (5) days of: (1) the commencement of any action, suit or proceeding relating to the CLINIC; (2) the issuance of any • order, writ, injunction, award or decree of any court, agency or other governmental instrumentality which might adversely affect your operation or financial condition or that of the CLINIC (including, without limitation, the revocation or threatened revocation of any license, MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 15 46 permit or certification applicable to the CLINIC); and (3) any notice of violation of any law, ordinance or regulation relating to the CLINIC. F. INSURANCE.. At your sole cost and expense, you must procure and maintain in full force and effect at all times during the Initial Term and the Successor Term, if applicable, insurance policies in the minimum amounts required below, and shall provide us with proof of coverage on demand. _ . Insurance Policies. You shall maintain the following insurance policies issued by carriers approved by us: Comprehensive general liability insurance and umbrella insurance against claims for bodily and personal injury, death and property damage caused by or occurring in conjunction with the operation of your CLINIC, containing minimum liability protection of One Million Dollars ($1,000,000.00) combined single limit per occurrence, and Two Million Dollars ($2,000,000.00) in the aggregate (unless greater amounts are required by your landlord, local governmental authority, etc.), with a maximum deductible of One Thousand Dollars ($1,000.00) per claim. Worker's compensation insurance and employer's liability insurance as required by law; Automobile liability and property damage insurance covering all loss, liability, claim or expense of any kind whatsoever resulting from the use, operation, or maintenance of any automobiles or motor vehicles, owned, leased, or used by you, or your officers, directors, employees, partners or agents, in the conduct of your CLINIC, containing minimum liability protection of Five Hundred Thousand Dollars ($500,000.00) per claim. Professional liability insurance coverage liability due to errors or omissions in the performance. of Services under this Agreement, with limits not less than One Million Dollars ($1,000,000.00) per claim and Three Million Dollars .($3,000,000.00) annual aggregate. This must include sexual abuse coverage of One Hundred Thousand Dollars ($100,000.00) per occurrence with a Three Hundred Thousand Dollars ($300,000.00) aggregate coverage. Any other insurance that we specify in the Manual or otherwise require from time to time. Carriers. All insurance policies shall be issued by insurance carriers rated A -VIII or better by Alfred M. Best & Company, Inc. (or similar criteria as we periodically specify). All carriers must be licensed and admitted in the state(s) where you operate your CLINIC. Waiver of Subrogation; Notification by Carrier. All insurance policies required in this Section shall name us (and our members, officers, directors, and employees) as additional insureds, contain a waiver by the insurance carrier(s) of all subrogation rights against us, and shall provide that we receive thirty (30) days prior written notice of termination, expiration, cancellation or modification of any such policy. Should any of your insurance companies fail to. give us notice as required in this Section, then the policy of that company may be disapproved by MASSAGE ENVY MD 2010 POC329198289v8 April 16. 2010 16 • • 47 us. In that event, you will be required to immediately find additional coverage satisfactory to us with an alternative carrier. Modification of Coverage by Us. Upon ten (10) days notice to you, we may increase the minimum protection requirement as of the renewal date of any policy, and require different or additional types of insurance at any time; including excess liability (umbrella) insurance, to reflect inflation,: identification of special risks, changes in law or standards or liability, higher damage awards or other relevant changes in circumstances. Certificate of Insurance; Coverage by Us. You shall furnish to us annually a copy of the certificate of insurance or other evidence of the renewal or extension of each . such insurance policy. If you at any time fail or refuse to maintain in effect any insurance coverage required by us, or to furnish satisfactory evidence thereof, we, at our option and in addition to our other rights and remedies in this Agreement, may, but need not, obtain such insurance coverage on behalf of you, and you shall promptly execute any applications- or other forms or _. - - • ,instruments required to obtain any such insurance and pay to us, on demand, any costs and premiums incurred by us and we may, at our option, debit your account for the amount of such costs or premiums. Your failure to provide insurance coverage as indicated will be considered a material event of default of this Agreement. Your obligation to obtain and maintain the insurance described in this Section shall not be limited in any way by reason of any insurance. maintained • by us, nor shall your performance of such obligations relieve you of any indemnification obligations contained in this Agreement. G. MAXIMUM AND MINIMUM PRICES. To the extent permitted by applicable law, we may periodically establish maximum and/or minimum prices for services and products that the CLINIC offers; including, without limitation, prices for promotions in which all or certain Massage Envy Clinics participate. If we establish such prices for any product or service, you agree not to exceed or reduce that price, but will charge the price for the product or service that we establish. H. NATIONAL MEMBERSHIP ACCOUNTS. We have the exclusive right, but not the obligation, to negotiate agreements with National Membership Accounts (defined below) for the provision of goods and services by all Massage Envy Clinics. If we agree to terms with any National Membership Account, you must provide products and services to all valid members of the National Membership Account on those terms. If those terms include maximum prices, you may charge any prices you wish to the National Membership Account's members up to and including the maximum prices. If any National Membership Accounts contacts you regarding goods or services to be provided by you - and/or other Massage Envy Clinics, you must forward all relevant information regarding the National Membership Account to us. In this Agreement, a "National Membership Account" is any entity that would reasonably require the services of two (2) or more Massage Envy Clinics to - - _. serve the persons such entity represents (for example, a Large employer, an employer with multiple offices, or a health plan): , L RECIPROCITY. During the Term, upon proof of a valid and current Massage Envy Clinic, membership, you must allow any member of another Massage Envy Clinic to receive massage MASSAGE ENVY FDD 2010 - PHX329198289v8Apd118, 2010 17 • 48 -. services at the CLINIC at or below the reciprocity rates we specify from time to time in the Operations Manual. Members of the CLINIC will have shnilar reciprocal rights with all other Massage Envy Clinics. J. COMPLIANCE WITH SYSTEM STANDARDS: You acknowledge that compliance with the entirety of the System Standards is essential for the success of the CLINIC. In addition, you acknowledge and agree that operating and maintaining the CLINIC according to System Standards are essential to preserve the goodwill of the Marks and all Massage Envy Clinics. Therefore, you agree at all times to operate and maintain the CLINIC according to each and every System Standard, as we periodically modify and supplement them. Except as otherwise specifically described in Section 4.D. of this Agreement; System Standards may regulate any aspect of the CLINIC'S operation and maintenance, including but not limited to any one or more of the following: (1) sales, marketing, advertising and promotional programs and materials and media used in these programs; (2) staffing levels for the CLINIC, dress, appearance and uniforms for your massage therapists and employees (although you have sole responsibility and authority for your employees' terms and conditions of employment); (3) minimum licensing, certifications, educational background, credentials and skill levels of massage therapists performing services at the CLINIC; (4) specification of required and authorized products and services; (5) use and display of the Marks; (6) days and hours of operation; (7) customer service standards and policies; (8) issuing and honoring gift cards, gift cards and similar items and participating in other promotions. You agree not to issue any gift cards, gift cards or similar items except in accordance with our procedures relating to gift cards; (9) participation in market research and testing and product and service;_ ' development programs; (10) . accepting credit and debit cards, other payment systems and check verification services; (11) bookkeeping, accounting, data processing and record keeping systems and forms; formats, content and frequency of reports to us of sales, revenue, and financial reports and condition; and giving us copies of tax returns and other operating and "financial information conceming the Franchise; (12) the terms and format of membership agreements; and MASSAGE ENVY FDD 2010 PPOC329198289v8 Apd116, 2010 18 49 (13) any other aspects of operating and maintaining the CLINIC that we determine to be useful to preserve or enhance the efficient operation, image or goodwill of the Marks and Massage Envy Clinics. You agree that all mandatory System Standards we prescribe in the Operations Manual, or otherwise communicate to you in writing or another form, are part of this Agreement. All references to this Agreement include all mandatory System Standards as periodically modified. Subject to your rights under Section 8.B of this Agreement relating to substantial alterations to the CLINIC'S appearance, layout and/or design and/or replacement of a material portion of your Operating Assets, you acknowledge that our periodic modification of our System Standards (including, without limitation, changes to the Computer System's components), which may accommodate regional and /or local variations, may obligate you to invest additional capital in the CLINIC and incur higher operating costs, and you agree to comply with those obligations within the time period we specify. 9. MARKETING. • A. BY YOU. _ . s You agree to spend a total of at least four percent (4 %) of the CLINICS annual Gross Sales on advertising, marketing and promotional programs for the CLINIC (the "Marketing Spending Requirement "). We will credit your Marketing Fund contributions and • Cooperative contributions (described below), amounts spent for telephone directory advertising, and any other amounts you spend to advertise, market or promote your CLINIC. You must spend the amount by which the Marketing Spending Requirement exceeds the total of your Marketing Fund and Cooperative contributions on other marketing programs. We may review your books and records from time to time and/or require you to submit reports periodically to determine your advertising, marketing and promotion expenses. You agree to list and advertise the CLINIC in each classified telephone directory covering the Site (in the business classifications we prescribe from time to time) and, if we - require, to use our standard form of classified telephone directory advertisement. If there are other Massage Envy Clinics located within the distribution area of one or more of those directories, and we require, you agree to participate in a collective advertisement with those other Massage Envy Clinics and pay your share of that collective advertisement. You may credit the cost of telephone directory advertising toward your minimum Marketing Spending Requirement. You agree that your advertising, promotion and marketing will be completely clear, factual and not misleading and conform to the highest standards of ethical advertising and marketing and the advertising and marketing policies that we prescribe from time to time. Before you use them, you must send us for approval samples of all advertising, promotional and marketing materials which we have not prepared or previously approved during the last twelve (12) months_ If we do not disapprove the materials within five (5) days of our receipt of them, they shall be deemed approved. You may not use any advertising, promotional or marketing • - - materials that we have disapproved. B. MARKETING FUND. Recognizing the value of advertising and marketing to the goodwill and public image of Massage Envy Clinics, we have established a marketing fund (the "Marketing Fund ") MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 19 • 50 for the advertising, marketing and public relations programs and materials we deem appropriate. You agree to contribute to the Marketing Fund the amounts that we periodically prescribe, not to exceed one percent (1 %) of the CLINIC'S Gross Sales, payable in the same manner as the Royalty (or in such other manner as we periodically prescribe). Massage Envy Clinics that we or our affiliates own will contribute to the Marketing Fund on the same basis as our franchisees. We will designate all programs that the Marketing Fund finances, with sole control over the creative concepts, materials and endorsements used and their geographic, market and media placement and allocation. The Marketing Fund may pay for preparing and producing video, audio and written materials and electronic media; administering regional and multi- regional marketing and advertising programs, including, without limitation, purchasing trade journal, direct mail, radio and other media advertising and using advertising, promotion and marketing agencies and other advisors to provide assistance; and supporting public relations, market research and other advertising, promotion and marketing activities. The Marketing Fund periodically will give you samples of advertising, marketing and promotional formats and materials at no cost and will sell you multiple copies of these materials at its direct cost of producing them, plus any related shipping, handling and storage charges. We will account for the Marketing Fund separately from our other funds and not use the Marketing Fund for any of our general operating expenses, except to compensate the reasonable salaries, administrative costs, travel expenses and overhead we incur in administering the Marketing Fund and its programs, including, without limitation, conducting market research, preparing advertising, promotion and marketing materials, and collecting and accounting for Marketing Fund contributions. The Marketing Fund will not be our asset. The Marketing Fund is not a trust, and we do not owe you fiduciary obligations because of our maintaining, directing or - administering the Marketing Fund or any other reason. The Marketing Fund may spend in any fiscal year more or less than the total Marketing Fund contributions in that year, borrow from us or others (paying reasonable interest) to cover deficits, or invest any surplus for future use. We will use all interest earned on Marketing Fund contributions to pay costs before using the Marketing Fund's other assets. We will prepare an annual, unaudited statement of Marketing Fund collections and expenses and give you the statement upon written request. We may incorporate the Marketing Fund or operate it through a separate entity whenever we deem appropriate. The successor entity will have all of the rights and duties specified in this Subsection. We intend the Marketing Fund to maximize recognition of the Marks and patronage of Massage Envy Clinics. Although we will try to use the Marketing Fund to develop advertising and marketing materials and programs, and to place advertising and marketing, that will benefit all Massage Envy Clinics, we need not ensure that Marketing Fund expenditures in or affecting any geographic area are proportionate or equivalent to the Marketing Fund contributions by Massage Envy Clinics operating in that geographic area or that any Massage . Envy Clinic benefits directly or in proportion to its Marketing Fund contribution from the development or placement of advertising and marketing materials. We have the right, but no obligation, to use collection agents and institute legal proceedings to collect Marketing Fund contributions at the Marketing Fund's expense. We also may forgive, waive, settle and compromise all claims by or against the Marketing Fund. Except as expressly provided in this Subsection, we assume no direct or indirect liability or obligation to you for collecting amounts due to, maintaining, directing or administering the Marketing Fund. MASSAGE ENVY FDD 2010 Ph0C329198289v8 April 16, 2010 20 51 • We may at any time defer or reduce the Marketing Fund contributions of .a. Massage Envy Clinic franchisee (and can later reinstate the Marketing Fund contributions at any time) and, upon thirty (30) days' prior written notice to you, reduce or suspend Marketing Fund contributions and operations for one or more periods of any length and terminate (and, if terminated, reinstate) the Marketing Fund. If we terminate the Marketing Fund, we will distribute all unspent monies to our franchisees, and to us and our affiliates, in proportion to their, and our, respective Marketing Fund contributions during the preceding twelve (12) month period. C. ADVERTISING COOPERATIVES. You agree that we may designate a geographic area in which two (2) or more Massage Envy Clinics are located as a region in order to establish an advertising cooperative (a "Cooperative"). The Cooperative's members in any area will include all of the Massage Envy. Clinics operating in that area (including us or our affiliates, if applicable). Each Cooperative will be organized and governed in a form and manner, and begin operating on a date, that we . . determine in advance. We may change, dissolve, or merge Cooperatives. Each Cooperative's purpose is, with our approval, to administer advertising programs and develop advertising, marketing and promotional materials for the area that the Cooperative covers. If, as of the time you sign this Agreement, we have established a Cooperative for the geographic area in which the CLINIC is located, or if we establish a Cooperative in that area during this Agreement's tenn, you agree to sign the documents we require to become a member of the. Cooperative. and to. participate in the Cooperative as those documents require. In addition to your Marketing Fund contribution in Subsection B above, you agree - to contribute to the Cooperative the amounts determined by the Cooperative, subject to our approval and the Marketing Spending •Requirement. All material decisions of the Cooperative, including contribution levels, will require the affirmative vote of fifty -one percent (51 %) of all Massage Envy Clinics operating within the Cooperative's area (including, if applicable, those operated by us and our affiliates), with each Massage Envy Clinic receiving one (1) vote. • You agree to submit to us and the Cooperative any reports that we or it requires. The Cooperative will operate solely to collect and spend Cooperative contributions for the - purposes described above. The Cooperative and its members may not use any advertising, marketing or promotional plans or materials without our prior written consent. D. WEBSITES. . . You specifically acknowledge and agree that any Website (as defined below) shall be deemed "advertising" under this Agreement, and will be subject to (among other things) our approval under Section 9.0 of this Agreement. As used in this Agreement, the term "Website" means an interactive electronic document, contained in a network of computers linked by communications software that refers to the CLINIC, Massage Envy Clinics or the Marks. The term Website includes, but is not limited to, Internet and World Wide Web home pages. In connection with any Website, you agree to the following: - .• . (1) You shall not establish a separate Website without our prior written. _ consent. We shall have the right, but not the obligation, to designate one or more web page(s) to describe you and/or the CLINIC, such web page(s) to be located within our Website; and MASSAGE ENVY FDD 2010 PHX329198289v8 A0116, 2010 - • 21 • 52 - (2) If we approve, in writing, a separate Website for you, then each of the following provisions shall apply: (a) You shall not establish or use the Website without our prior written approval. (b) Before establishing the Website, you shall submit to us, for our prior written approval, a sample of the proposed Website domain name, format, visible • content (including, but not limited to, proposed screen shots), and non-visible content (including, but not limited to, meta tags) in the form and manner we may reasonably • require; and you shall not use or modify such Website without our prior written approval as to such proposed use or modification. (c) In addition to any other applicable requirements, you shall comply with our standards and specifications for Websites as we prescribe from time to time in the Operations Manual or otherwise in writing. (d) If we require, you shall establish such hyperlinks to our Website and others as we may request in writing. (e) We may revoke our approval at any time, in writing, and require that you discontinue use of a separate Website. 10. RECORDS, REPORTS AND FINANCIAL STATEMENTS. You agree to establish and maintain at your own expense a bookkeeping, accounting and recordkeeping system conforming to the requirements and formats we prescribe from time to time, including by completing our standard Chart of Accounts in the manner we specify. We may require you to use a Computer System to maintain certain sales and expense . • data and other Mfonnation, in such formats as we periodically prescribe, and to transmit that data and information to us on a schedule we periodically prescribe. You also must maintain the Computer System in order to allow us unlimited independent access to, and the ability to download, all infonnation in your Computer System at any time. In addition to our ability to access and download information in your Computer System, you agree to give us and your Regional Developer in the manner and format that we periodically prescribe: (a) on or before the Payment Day, a report on the CLINIC'S Gross Sales during the previous week; (b) within five (5) days after the end of each month, the operating • statements, financial statements, statistical reports and other information we request regarding you and the CLINIC covering that month; _ (c) by February 28 of each year, the operating statements, financial statements, statistical reports and other information we request regarding you and the • CLINIC for the previous calendar year; and (d) within ten (10) days after our request, exact copies of federal and state income and other tax returns and any other forms, records, books and other • information we periodically require relating to the CLINIC or the Franchise • . MASSAGE ENVY FDD 2010 • PFOC329198289v8 Aprt716, 2010 • 22 53 • You agree to verify and sign each report and financial statement in the manner we prescribe. We may disclose data derived from these reports, although we will not (without your consent) disclose your identity in connection with that data in any materials that we circulate publicly. If you ever receive formal notice from us of your failure to comply with your reporting or payment obligations under this Agreement, we may require you to have audited financial statements prepared annually during the remainder of the tens of this Agreement. 11. INSPECTIONS AND AUDITS. A. OUR RIGHT TO INSPECT THE CLINIC. To determine whether you and the CLINIC are complying with this Agreement and all System Standards, we and our designated agents and representatives may at all times and without prior notice to you: (1) inspect the CLINIC; (2) observe, photograph, and videotape the CLINIC'S operation (including so called "mystery shopping ") for consecutive or intermittent periods we deem necessary; (3) remove samples of any Products; (4) interview the CLINIC'S personnel and customers; and (5) inspect and copy any books, records and documents relating to the CLINIC'S operation. You agree to cooperate with us fully. If we exercise any of these rights, we will use our best efforts not to interfere unreasonably with the CLINIC'S operation. You agree to present to your customers the evaluation forms that we periodically prescribe and to participate and/or request your customers to participate in any surveys performed by or for us. B. OUR RIGHT TO AUDIT. We may at any time during your business hours, and without prior notice to you, examine the CLINIC'S business, bookkeeping and accounting records, sales and income tax records and returns, and other records. You agree to cooperate fully with our representatives and independent accountants in any inspection or audit. If any inspection or audit discloses an understatement of the CLINIC'S Gross Sales, you must pay us, within fifteen (15) days after receiving the inspection or audit report, the Royalty and the Marketing Fund and Cooperative contributions due on the amount of the understatement, plus interest (in the amount described in Section 3.D above) from the date originally due until the date of payment. Further, if an inspection or audit is necessary due to your failure to furnish reports, supporting records or other information as required, or to furnish these items on a timely basis, or if our examination reveals a Royalty or Marketing Fund contribution understatement exceeding two percent (2 %) of the amount that you actually reported to us for the period examined, you agree to reimburse us for the cost of our examination, including, without limitation, the charges of attorneys and _ _ . independent accountants and the travel expenses, room and board, and compensation of. our. . . employees. These remedies are in addition to our other remedies and rights under this Agreement and applicable law. - MASSAGE ENVY FDD 2010 PHX329198289v8 April 18, 2010 23 54 12. TRANSFER. A. DELEGATION TO REGIONAL DEVELOPER. _ You acknowledge that we may delegate some or all of our obligations under this Agreement relating to sales, training, site assistance, and supervisory services to any person identified as a "Regional Developer" in the Franchise Disclosure Document that was provided to you. You agree in advance to any such delegation and assignment by us of any portion or all of our obligations and rights under this Agreement. You also acknowledge that you are not a third party beneficiary of any Regional Development Agreement or other agreement between us and • any- Regional Developer. B. TRANSFER BY US. We may change our ownership or form and/or assign this Agreement and any other agreement without restriction. This Agreement and any other agreement will inure to the benefit of any transferee or other legal successor to our interest in it. C. TRANSFER BY YOU. You understand and acknowledge that . the rights and duties this Agreement creates are personal to you and that we have granted you the Franchise in reliance upon our perceptions of your character, skill, aptitude, attitude, English language proficiency, business ability and financial capacity. Accordingly, neither: (i) this Agreement (or any interest in this Agreement); (ii) your or any Entity's interest in the CLINIC or its assets (or any right to receive all or a portion of the CLINIC'S profits or losses or any capital appreciation relating to the • CLINIC); nor (iii) any ownership interest in any Entity holding the Franchise may be transferred without our prior written approval. A transfer of your (or the Entity's) interest in the CLINIC or its assets may be made only with a transfer of this Agreement. Any transfer without our approval is a breach of this Agreement and has no effect. In this Agreement, the term "transfer" includes any voluntary, involuntary, direct or indirect assignment, sale, gift or other disposition and includes the following events: - (1) transfer of record or beneficial ownership of capital stock (if the Entity holding the Franchise is a corporation), a partnership or membership interest (if the Entity holding the Franchise is a partnership or limited liability company), or any other ownership interest or right to receive all or a portion of your profits or losses; (2) a merger, consolidation or exchange of shares or other ownership interests, or issuance of additional ownership interests or securities representing or potentially representing shares or other ownership interests, or a redemption of shares or other ownership interests; (3) any sale or exchange of voting interests or securities convertible to voting interests, or an agreement granting the right to exercise or control the exercise of the voting rights of any owner or to control your operations or affairs; (4) transfer of an interest in you, this Agreement, or the CLINIC or its assets (or any right to receive all or a portion of your or the CLINIC'S profits or losses or any MASSAGE ENVY fDD 2010 PF:02919828904M 16, 2010 24 55 capital appreciation relating to the CLINIC) in a divorce, insolvency or entity dissolution , proceeding, or otherwise by operation of law; (5) if you or an owner of the Entity bolding the Franchise dies, transfer of an interest in the Entity, this Agreement, or the CLINIC or its assets (or any right to receive all or a portion of your or the CLINIC'S profits or losses or any capital appreciation relating to the CLINIC) by will, declaration of or transfer in trust, or under the laws of intestate succession; or (6) pledge of this Agreement (to someone other than us) or of an ownership . - interest in the Entity holding the Franchise as security, foreclosure upon the CLINIC, or your transfer, surrender or loss of the CLINIC'S possession, control or management. D. CONDITIONS FOR APPROVAL OF TRANSFER. If you and your owner(s) are in full compliance with this Agreement, we shall not unreasonably withhold our approval of a sale, provided that the proposed buyer(s) are, in our opinion, individuals of good moral character who have sufficient business experience, English language proficiency, aptitude and financial resources to own and operate the Clinic and otherwise meet our then applicable standards for franchisees, and further provided that the following conditions are met prior to, or concurrently with, the effective date of the sale: (1) all your obligations incurred in connection with this Agreement have been discharged or assumed by the buyer(s); and (2) you shall have paid such Royalty Fees, Marketing Fund Fees and Cooperative contributions, and amounts owed for purchases by you from us which are then due and unpaid; and (3) the buyer(s) shall have completed the training program required of new franchisees; and (4) the buyer(s) shall have proven to us its or their financial viability to undertake and perform the requirements of this Agreement; and (5) the lessor shall have consented to your assignment of the lease to the buyer(s), or the buyer(s) shall have secured substitute premises for the CLINIC which are approved by us; and . (6) the buyer(s) and its or their owner shall have executed an assignment agreement and personal guaranty and agreed to be bound by the existing franchise - - agreement and such ancillary agreements that accompanied the grant the grant of the franchise for transferred Clinic (or execute new ancillary agreements at our option); and (7) you or the buyer(s) shall have paid a training and assignment fee to us in the amount equal to two- thirds (2/3's) of our then current initial franchise fee for new Massage Envy Clinics to defray expenses incurred by us in connection with the transfer, including, without limitation, legal and accounting fees, credit and other investigation charges and evaluation of buyer(s) and the terms of the transfer; and MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 25 56 (8) the buyer(s) shall have replaced or refurbished fixtures, signs, equipment, furniture and furnishings, and otherwise modified the CLINIC'S methods and operations in compliance with specifications and standards then applicable to new franchises for Massage Envy Clinics; and (9) you and the owner(s) shall have executed a general release, in a form satisfactory to us, of any and all claims against us and our members, managers, officers, directors, employees and agents; and (10) we shall have approved the material terms and conditions of such transfer, including, without limitation, that the price and terms of payment are not so burdensome as to adversely affect the future operations of the CLINIC by the buyer(s) in compliance with our then standard franchise agreement and ancillary agreements; and (11) you and the owner(s) shall reaffirm a covenant not to compete in favor of us and the buyer(s), all as contained within this Agreement; and (12) you and the owner(s) shall have entered into an agreement with us to subordinate the buyer(s)' obligations to you or your owner(s) to those obligations owed to us; and (13) we have not exercised our right of first refusal under this Agreement. If the proposed transfer is to or among immediate family members (defined as parent, spouse or child), or to an entity described in Subsection (E) below, then Subsection (7) above will not apply, although you must reimburse us for the costs we incur in the transfer. We may review all information regarding the CLINIC that you give the transferee and give the transferee copies of any reports that you have given us or we have made regarding the CLINIC. E. ASSIGNMENT TO ENTITY PRINCIPALLY CONTROLLED BY YOU: The franchise and its assets and liabilities may be assigned to a newly - formed corporation or other legal entity that conducts no business other than the operation of the franchise and in which you and any of your principals own and control in the aggregate not less than sixty -seven percent (67 %) of the equity and voting power of all outstanding capital stock or ownership interest, provided as follows: (1) that the proposed transferee complies with the provisions of this • - Agreement; and (2) that you are empowered to act for said corporation or other legal entity; and (3) that you shall submit to us documentation that we may reasonably request to effectuate the transfer, including the approving and acknowledging execution of this Agreement; and (4) that you shall submit to us a true and complete list of the shareholders, members or partners, showing number of shares or interests owned, and a list of the MASSAGE ENVY FOD 2010 . PI-0029198289v8 Apr816, 2010 26 57 • officers and directors if a corporation, or managers if a limited liability company, or managing partners if a partnership. We shall be promptly notified of any changes in said lists; and (5) that all certificates of shares or interests issued by transferee at any time shall have endorsed thereon an appropriate legend to conform with state law, referring to this Agreement by date and name of parties hereto, and stating "Transfer of This Certificate is Limited by the Terms and Condition of a Franchise Agreement Dated June 2, 2010;" and (6) that a copy of this Agreement shall be given to every shareholder, member or partner of the legal entity, all of whom shall execute an Assignment Agreement in the form prepared by us to effect this assignment and who along with their respective - spouses, shall also execute the Guaranty and Assumption of Obligations; and (7) that a copy of the organizational documents and any corporate resolutions, and a Certificate of Good Standing will be furnished to us at our reasonable request, and prompt notification in writing of any amendments thereto will be provided to us; and (8) That the number of shares or interests issued or outstanding in the transferee will not be increased or decreased without prior written notice to us, which notice will in its temrs guarantee compliance with this Agreement. In addition, new shareholders, members or partners must agree to be bound by this entire Agreement. Shareholders, members or partners may make a separate agreement among them .providing for purchase by the survivors among them of the shares of any shareholders or interests of any members or partners upon death, or other agreements affecting ownership or voting rights, so long as voting control and a majority representation of the board of directors or members or partners remains with those individuals who initially applied for and were approved as franchisees under this Agreement. Shareholders, members or partners must notify us in writing of any such agreement which affects control of the transferee.. F. DEATH OR DISABILITY. (1) Transfer Upon Your Death or Disability. Upon your death or disability, your executor, administrator, conservator, guardian or other personal representative must transfer your interest in this Agreement, the Lease, the CLINIC and its assets, or your ownership interest in the Entity holding the Franchise, to a third party. That transfer (including, without limitation, transfer by bequest or inheritance) must occur, subject to our rights under Subsection (2) below, within a reasonable time, not to exceed nine (9) months from the date of death or disability, and is subject to all of the terms and conditions m Section 12.D.(1) through (5) of this Agreement. A failure to transfer such interest within this time period is a breach of this Agreement. The term "disability" means a mental or physical . . • disability, impairment or condition that is reasonably expected to prevent or actually does . prevent you from supervising the CLINIC'S management and operation for ninety (90) or more consecutive days. • (2) Operation Upon Your Death or Disability. MASSAGE ENVY FDn 2010 PHX329198289v8Apr916,.2010 27 58 • I If upon your death or disability, a trained manager who we approve is not - I managing the CLINIC'S day -to -day operations, then your executor, administrator, conservator, guardian or other personal representative must within a reasonable time, not to exceed thirty (30) days from the date of death or disability, appoint a CLINIC Administrator we approve to operate the CLINIC. The CLINIC Administrator must at your estate's expense satisfactorily complete the training that we designate within the time period we specify. G. EFFECT OF CONSENT TO TRANSFER: Our consent to any transfer is not a representation of the fairness of the terms of any contract between you and the transferee, a guarantee of the CLINIC'S or transferee's prospects of success, or a waiver of any claims we have against you or of our right to demand the transferee's full compliance with this Agreement's terms or conditions. H. OUR RIGHT OF FIRST REFUSAL. If you at any time determine to sell or transfer for consideration an interest in this Agreement and the CLINIC or a controlling ownership interest in the Entity holding the Franchise, you agree to obtain from a responsible and fully disclosed buyer, and send us, a true and complete copy of a bona fide, executed written offer relating exclusively to an interest in you or this Agreement and the CLINIC. The offer must include details of the payment terms of the proposed sale and the sources and terns of any financing for the proposed purchase price. To be a valid, bona fide offer, the proposed purchase price must be in a fixed dollar amount and without any contingent payments of purchase price (such as earn -out payments). We may by delivering written notice to you within fifteen (15) days after we receive both an exact copy of the offer and all other information we request, elect to purchase the interest for the price and on the terms and conditions contained in the offer, provided that: (1) we may substitute cash for any form of payment proposed in the offer; (2) our credit will be deemed _ .. equal to the credit of any proposed buyer; (3) the closing will be not less than thirty . (30) days after notifying you of our election to purchase or, if later, the closing date proposed in the offer; and (4) we must receive, and you agree to make, all customary representations and warranties �i given by the seller of the assets of a business or ownership interests in a legal entity, as applicable, including, without limitation, representations and warranties regarding ownership and condition of and title to, assets and (if applicable) ownership interests and validity of contracts and the liabilities, contingent or otherwise, relating to the assets or ownership interests being purchased. If we exercise our right of first refusal, you agree that, for eighteen (18) months beginning on the closing date, you and members of your immediate family will be bound by the non- competition covenant contained in Section 15.D below. If we do not exercise our right of fast refusal, you may complete the sale to the proposed buyer on the original offer's terms, subject to our approval of the transfer as provided in Subsections C and D above. If you do not complete the sale to the proposed buyer within sixty (60) days after we notify you that we do not intend to exercise our right of first refusal, or if there is a material change in the terms of the sale (which you must tell us promptly), we will have an additional right of first refusal during the thirty (30) day period following either the expiration of the sixty (60) day period or our receipt of notice of the material change(s) in the sale's terms, either on the terms originally offered or the modified terms, at our option. • MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 - 28 - j 59 13. EXPIRATION OF THIS AGREEMENT. A. YOURRIGHT TO ACQUIRE A SUCCESSOR FRANCHISE. Upon expiration of the Initial Term, if you (and each of your Owners) have substantially complied with this Agreement during the term of this Agreement, are then in compliance with this Agreement, and: (a) you maintain possession of and agree to remodel and/or expand the Facility, add or replace improvements, equipment, fixtures, furnishings, and signs, and otherwise modify the Facility as we require to bring it into compliance with specifications and standards then applicable for new Facilities; or (b) if you are unable to maintain possession of the Site, or if in our judgment the Facility should be relocated, you: (i) secure a substitute Site we approve; (ii) develop the substitute Site in compliance with specifications and standards then applicable for new Facilities; and (iii) continue to operate the Facility at the original Site until operations are transferred to the substitute Site; (c) if you pay us a successor fee equal to twenty-five percent (25 %) of the then current franchise fee (the "Successor Fee ") and execute our then current form of • - Successor Agreement. The Successor Agreement shall supersede in all respects this Agreement, and may differ from the terms of this Agreement, including, without limitation, the requirement of a higher percentage royalty fee and/or advertising contributions; and (d) if, prior to the date that you give us notice, we have not indicated to you our intent to withdraw from the market serviced by you under this Agreement and cease the offer and sale of Massage Envy Clinics in such market; then, subject to the terms and conditions in this Section, you will have the right to acquire another Franchise (the "Successor Franchise ") to operate the Facility on the terms and conditions of the Franchise Agreement we are then using in granting Successor Franchises, any and all of the terms of which may differ materially from those contained in this Agreement (including fees and the boundaries of your Territory). If you are not granted a Successor Franchise under Subsection (d) above, you shall retain the right to operate your CLINIC as an independent business provided that you agree to comply with Sections 15A, 15.B, 15.0 and 15.F of this Agreement B. GRANT OF A SUCCESSOR FRANCHISE. You agree to give us notice of your election to acquire a Successor Franchise at least twelve (12) months prior to the expiration of the Term. We may require you to provide _.. certain financial information relating to the Facility's operation along with (and after delivering) your notice. We will advise you within ninety (90) days after we receive your notice of any deficiencies which must be corrected by you before we will grant you a Successor Franchise or the reason why we will not grant you a Successor Franchise. MASSAGE ENVY FM 2010 - P1 Apr1116, 2010 29 i I - 60 C. AGREEMENTS /RELEASES. If you satisfy all of the other conditions to the grant of a Successor Franchise, you and your Owners must, at least six (6) months prior to the expiration of the Term, execute and return to us the form of Franchise Agreement and any ancillary agreements we are then using in connection with the grant of Successor Franchises (modified as permitted in Section 13.A above). As a further condition to the grant of a Successor Franchise, you and each Owner must also execute and deliver to as (together with delivery of the signed Franchise Agreement) general releases, in form satisfactory to us, of any and all claims against us, our Affiliates, and our and our Affiliates' respective subsidiaries, shareholders, officers, directors, employees, agents, successors, and assigns. Subject to the terms and conditions contained herein, you shall be ( entitled to a total of one (1) Successor Franchise which shall have a term of ten (10) years. 14. TERMINATION OF AGREEMENT. We may terminate this Agreement, effective upon delivery of written notice of termination to you, if (a) you fail to comply with any mandatory System Standard and do not correct the failure within thirty (30) days after we deliver written notice of the failure to you. (b) you have made or make a material misrepresentation or omission in acquiring the Franchise or operating the CLINIC; (c) you knowingly breach Section 8.C(2) of the Agreement; (d) you do not satisfactorily complete initial training; (e) you abandon or fail actively to operate the CLINIC for three (3) or more consecutive calendar days, unless you close the CLINIC for a purpose we approve; (f) you surrender or transfer control of the CLINIC'S operation without our prior written consent; (g) you are convicted by a trial court of, or plead no contest to, a felony; (h) you fail to maintain the insurance we require from time to time and do not cure such failure within ten (10) days of the expiration of your insurance policy(ies); (i) you interfere with our right to inspect the CLINIC or observe its operation, as provided in Section.11 of this Agreement; (j) you engage in any dishonest, unethical or illegal conduct or any other conduct which, in our opinion, adversely affects the CLINIC'S reputation, the reputation of other Massage Envy Clinics or the goodwill associated with the Marks; MASSAGE ENVY FDD 2010 PHX329198269v6Apn1 16, 2010 30 61 (k) you make an unauthorized transfer of (1) an ownership interest in the Entity holding the Franchise, (2) this Agreement, (3) your (or the Entity's) interest in the CLINIC or its assets, or (4) the right to receive all or any part of your or the CLINIC'S profits or losses or any capital appreciation relating to the CLINIC; (1) the lease for the Site is terminated for any reason or you otherwise lose possession of the Site and you do not find another site approved by us and sign a lease which meets our standards within ninety (90) days of such termination; (m) any license or permit necessary for the CLINIC'S proper operation is suspended, revoked or not renewed; - (n) you knowingly make any unauthorized use or disclosure of any part of the Operations Manual or any other Confidential Information; (o) you violate any health, safety, or sanitation law, ordinance or regulation, or operate the CLINIC in an unsafe manner, and do not begin to cure the violation immediately, and correct the violation within seventy-two (72) hours, after you ! receive notice; (p) you fail to pay when due any federal, state or local income, service, sales or other taxes due on the CLINIC'S operation, or repeatedly fail to make or - delay making payments to your suppliers or lenders, unless you are in good faith contesting your liability for these taxes or payments; (q) you understate the CLINIC'S Gross Sales three (3) times or more during this Agreement's term or by more than five percent (5 %) on any one occasion; (r) you (a) fail on three (3) or more separate occasions within any twenty four (24) consecutive month period to submit when due reports or other data, information or supporting records, pay when due any amounts due to us (or our affiliates), or otherwise comply with this Agreement, whether or not you correct any of these failures after we deliver written notice to you; or (b) fail on two (2) or more separate occasions within any twelve (12) consecutive month period to comply with the same obligation under this Agreement, whether or not you correct either of the failures after we deliver written notice to you; (s) you make an assignment for the benefit off creditors or admit in writing your insolvency or inability to pay your debts generally as they become due; you consent to the appointment of a receiver, trustee or liquidator of all or the substantial part of your property; the CLINIC is attached, seized, subjected to a writ or distress warrant, or levied upon, unless the attachment, seizure, writ, warrant or levy is vacated within thirty (30) days; or any order appointing a receiver, trustee or liquidator of you or the CLINIC is not vacated within thirty (30) days following the order's entry; (t) you fail to pay us (or our affiliates) any amounts due and do not correct the failure within ten (10) days after we deliver written notice of that failure to you; or MASSAGE ENVY FDD 2010 PHX329198289v8 Apd116, 2010 31 62 I - (u) you fail to comply with any other provision of this Agreement and do not correct the failure within thirty (30) days after we deliver written notice of the failure to you. In the event that we are entitled to terminate this Agreement in accordance with this Section 14, we may, but need not, assume the CLINIC'S management. All funds from the CLINIC'S operation while we assume its management will be kept in a separate account, and all of the CLINIC'S expenses will be charged to this account. We may charge you, in addition to the Royalty and Marketing Fund contributions due under this Agreement) a reasonable . management fee we specify, up to eight percent (8 %) of the CLINIC'S Gross Sales, plus our . . direct out -of- pocket costs and expenses, if we assume the CLINIC'S management under this Section. We have a duty to utilize only reasonable efforts and will not be liable to you for any debts, losses or obligations the CLINIC incurs, or to any of your creditors for any products or services the CLINIC purchases, while we manage it. 15.. OUR AND YOUR RIGHTS AND OBLIGATIONS UPON TERMINATION. OR EXPIRATION OF THIS AGREEMENT. A. PAYMENT OF AMOUNTS OWED. You agree to pay within fifteen (15) days after this Agreement expires or is terminated, or on any later date that we determine the amounts due to us, the Royalties, Marketing Fund and Cooperative contributions, interest and all other amounts owed to us, our affiliates or our or their franchisees which then are unpaid. B. DE- IDENTIFICATION. When this Agreement expires or is terminated for any reason_ (1) you shall not directly or indirectly at any time thereafter or in any manner (except in connection with other Massage Envy Clinics you own and operate): (a) identify yourself or any business as a current or former Massage Envy Clinic or as one of - - -" - -. our franchisees; (b) use any Mark, any colorable imitation of a Mark, any trademark, service mark or commercial symbol that is confusingly similar to any Mark, or other indicia of a Massage Envy Clinic in any manner or for any purpose; or (c) use for any purpose any trade name, trademark, service mark or other commercial symbol that indicates or suggests a connection or association with us; (2) you agree to take the action required to cancel all fictitious or assumed name or equivalent registrations relating to your use of any Mark; (3) you agree to deliver to us within thirty (30) days all advertising, marketing and promotional materials, forms, and other materials containing any Mark or otherwise identifying or relating to a Massage Envy Clinic that we request and allow us, without liability to you or third parties, to remove these items from the CLINIC; (4) if applicable, notify all search engines of the termination or expiration of your right to use all domain names, Websites and other search engines associated directly or indirectly with the CLINIC and authorize those search engines to transfer to us or our ' -- - - designee all rights to the domain names, Websites and search engines relating to the MASSAGE ENVY FDD 2010 - - PHX329198289v8Apn716, 2010 - 32 • 63 Marks or your CLINIC. We have the absolute tight and interest in and to all domain names, Websites and search engines associated with the Marks or the CLINIC, and you hereby authorize us to direct all applicable parties to transfer your domain names,. Websites and search engines to us or our designee if this Agreement expires or is, terminated for any reason whatsoever. All parties may accept this Agreement as conclusive of our right to such domain names, Websites and search engines and this Agreement will constitute the authority from you for all parties to transfer all such domain names, Websites and search engines to us; (5) you agree to notify the telephone company and all telephone directory publishers of the termination or expiration of your right to use any telephone, telecopy or other numbers and telephone directory listings associated with any Mark, authorize the transfer of these numbers and directory listings to us or at our direction, and/or instruct" the telephone company to forward all calls made to your numbers to numbers we specify. If you fail to do so, we may take whatever action and sign whatever documents we deem" appropriate on your behalf to effect these events; and (6) you agree to give us, within thirty (30) days after the expiration or termination of this Agreement, evidence satisfactory to us of your compliance with these obligations. C. CONFIDENTIAL INFORMATION AND CUSTOMER INFORMATION. You agree that, when this Agreement expires or is terminated, you will immediately cease using any of our Confidential Information in any business or otherwise and return to us all copies of the Operations Manual and any other confidential materials that we have loaned you. You further acknowledge and agree that we are the exclusive owner of all _ _ customer accounts and information. Upon the expiration, termination or transfer of your franchise, you must transfer all customer agreements, accounts and related information to us or to the person that we specify. D. COVENANT NOT TO COMPETE. Upon our termination of this Agreement according to its terms and conditions, your termination of this Agreement without cause or the expiration of this. Agreement, you agree that, for eighteen (18) months beginning on the effective date of termination or expiration or the date on which all persons restricted by this Subsection begin to comply with this Subsection, whichever is later, no member, shareholder or partner (if you are doing business as a corporation or partnership) and neither you nor any member of your immediate family will have any direct or indirect interest (e.g., through a spouse) as a disclosed or beneficial owner, investor, partner, director, officer, employee, consultant, representative or agent, or in any other capacity, in any Competitive Business (as defined in Section 7 above) operating at the Site or within twenty-five (25) miles of any other Massage Envy Clinic in operation or under construction on the later of the effective date of the termination or expiration or the date on which all persons restricted by I . this Subsection begin to comply with this Subsection. i These restrictions also apply after transfers, as provided in Section 12.0 above. You expressly acknowledge that you possess skills and abilities of a general nature and have MASSAGE ENVY FDD 2010 PHX329198289v8 Apd116, 2010 33 64 • - other opportunities for exploiting these skills. Consequently, our enforcing the covenants -made - in this Subsection will not deprive you of your personal goodwill or ability to earn a living. Notwithstanding anything to the contrary contained in this Section, in the event that a court of competent jurisdiction determines that the eighteen (18) month non - compete period is unenforceable, such non- compete period shall mean the Initial Term and. the Successor Term, and for a period of twelve (12) months after the termination, expiration or transfer of this Agreement for any reason; provided, however, that in the event that a court of competent jurisdiction determines that the twelve (12) month non - compete period is unenforceable such non- compete period shall mean the Initial Term and the Successor Term, and for a period of six (6) months after the termination, expiration or transfer of this Agreement for any reason. E. OUR RIGHT TO PURCITASE CLINIC. (1) Exercise of Option. . Upon our termination of this Agreement according to its terms and conditions, • `" your termination of this Agreement without cause, or the expiration of this Agreement, we have the option, exercisable by giving you written notice within thirty (30) days after the date of termination or expiration, to purchase your (or the Entity's) interest in the CLINIC and those Operating Assets and Products that we designate. We have the unrestricted right to assign this option to purchase. .. (2) Purchase Price. • • The purchase price for the interest in CLINIC and any Operating Assets and Products we choose to acquire will be their fair market value, provided that these items will not include any value for the Franchise or any rights granted by this Agreement or the Lease, goodwill attributable to the Marks, our brand image, and other intellectual property or - participation in the network of Massage Envy Clinics. For purposes of determining the fair market value of all equipment (including the Computer System) used in operating the CLINIC, the equipment's useful life shall be determined to be no more than three (3) years. (3) Appraisal. If we and you cannot agree on fair market value, fair market value will be . determined by three (3) independent appraisers, each of whom in doing so will be bound by the - criteria specified in subparagraph (2). We will appoint one appraiser, you will appoint one ' appraiser, and these two appraisers will appoint the third appraiser. You and we agree to select our respective appraisers within fifteen (15) days after we deliver our notice of exercise to you (if you and we have not agreed on fair market value before then), and the two appraisers so chosen are obligated to appoint the third appraiser within fifteen (15) days after the last of them is _. - appointed. You and we will bear the costs of our own appraisers and share equally the fees and - expenses of the third appraiser. Within thirty (30) days after we deliver our notice of exercise to you each party shall submit its respective calculation of fair market value to the appraisers in such detail as the appraisers request and according to the criteria specified in subparagraph (2). Within fifteen (15) days after receiving both calculations, the appraisers shall determine, by a majority vote, and notify you and us which of the calculations is the most correct. The appraisers must choose either your or our calculation, and may not develop their own fair market value calculation. The appraisers' choice shall be the purchase price. _. MASSAGE ENVY FDD 2010 1.11X329198289v6Apd116,2010 0 34. 65 (4) Closing. We (or our assignee) will pay the purchase price at the closing, which will take place not later than thirty (30) days after the purchase price is determined, although we (or our assignee) may decide after the purchase price is determined not to exercise our purchase option. We may set off against the purchase price, and reduce the purchase price by, any and all amounts you owe us or our affiliates. At the closing, you agree to deliver instruments transferring to us (or our assignee): (a) good and merchantable title to the assets purchased, free and clear of all liens and encumbrances (other than liens and security interests acceptable to us), with all sales and transfer taxes paid by you; and (b) all of the CLINIC'S licenses and permits which may be assigned or transferred. If you cannot deliver clear title to all of the purchased assets, or if there are other unresolved issues, we and you will close the sale through an escrow. You further agree- to execute general releases, in a form satisfactory to us, of any and all claims against us and our affiliates and our and their respective shareholders, officers, directors, employees, agents, representatives, successors and assigns. If we exercise our rights under this Subsection E, you agree that, for eighteen (18) months beginning on the closing date, you and members of your immediate family will be bound by the non - competition covenant contained in Subsection 15.D above. F. CONTINUING OBLIGATIONS. All of our and your obligations hereunder which expressly or by their nature survive this Agreement's expiration or termination will continue in full force and effect . subsequent to and notwithstanding its expiration or termination and until these obligations are satisfied in full or by their nature expire. 16. RELATIONSHIP OF THE PARTIES/INDENINIFICATION. A. INDEPENDENT CONTRACTORS. You and we understand and agree that this Agreement does not create a fiduciary relationship between you and us. You have no authority, express or implied, to act as agent of us or any of our affiliates for any purpose. You are, and shall remain, an iridependent contractor responsible for all obligations and liabilities of the CLINIC and its business, and for all claims or demands based on injury, illness or death of any person or persons, directly or indirectly, resulting from the operation of the CLINIC. Further, we and you are not and do not intend to be partners, associates, or joint employers in any way, and we shall not be construed to be jointly liable for any of your acts or omissions under any circumstances. We have no relationship with your employees and you have no relationship with our employees. You agree to identify yourself . conspicuously in all dealings with customers, suppliers, public officials, CLINIC personnel and others as the CLINIC'S operator under a franchise we have granted and to place notices of independent ownership on the forms, business cards, stationery, advertising and other materials we require from time to time. B. NO LIABILITY FOR ACTS OF OTHER PARTY. We and you agree not to make any express or implied agreements, warranties, guarantees or representations, or incur any debt, in the name or on behalf of the other or MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 35 66 represent that our respective relationship is other than franchisor and franchisee. We will not be obligated for any damages to any person or property directly or indirectly arising out of the CLINIC'S operation or the business you conduct under this Agreement. - L C. TAXES. We will have no liability for any sales, use, service, occupation, excise, gross receipts, income, property or other taxes, whether levied upon you or the CLINIC, due to the business you conduct (except any taxes we are required by law to collect from you for purchases from us and our income taxes). You are responsible for paying these taxes. D. INDEMNIFICATION. To the fullest extent permitted by law, you agree to indemnify, defend and hold harmless us, our affiliates, and our and their respective shareholders, directors, officers, employees, agents, representatives, successors and assigns (the "Indemnified Parties ") from and against, and to reimburse any one or more of the Indemnified Parties for, any and all claims, obligations and damages directly or indirectly arising out of: (1) the CLINIC'S operation, (2) the business you conduct under this Agreement, (3) your breach of this Agreement, or (4) noncompliance or alleged noncompliance with any law, ordinance, rule or regulation concerning the CLINIC'S construction, design or operation, including, without limitation, the Americans with Disabilities Act and other laws regarding public accommodations for persons with g g P P disabilities. For purposes of this indemnification, "claims" include all obligations, damages (actual, consequential, punitive or otherwise) and costs that any Indemnified Party reasonably incurs in defending any claim against it, including, without limitation, reasonable accountants', arbitrators', attorneys' and expert witness fees, costs of investigation and proof of facts, court - costs, travel and living expenses and other expenses of litigation, arbitration or alternative dispute resolution, regardless of whether litigation, arbitration or alternative dispute resolution is • commenced. Each Indemnified Party may defend and control the defense of any claim against it which is subject to this indemnification at your expense, and you may not settle any claim or take any other remedial, corrective or other actions relating to any claim without our consent. This indemnity will continue in full force and effect subsequent to and notwithstanding this Agreement's expiration or termination. An Indemnified Party need not seek recovery from an insurer or other third party, or otherwise mitigate its losses and expenses, in order to maintain and recover fully a claim against you. You agree that a failure to pursue a recovery or mitigate a loss will not reduce or alter the amounts that an Indemnified Party may recover from you. 17. ENFORCEMENT. A. SEVERABILITY AND SUBSTITUTION VALID PROVISIONS. Except as expressly provided to the contrary in this Agreement, each Section, paragraph, term and provision of this Agreement is severable, and if for any reason, any part is held to be invalid or contrary to or in conflict with any applicable present or future law or regulation in a final, unappealable ruling issued by any court, agency or tribunal with competent jurisdiction, that ruling will not impair the operation of, or otherwise affect, any other portions of this Agreement, which will continue to have full force and effect and bind the parties. If any covenant which restricts competitive activity is deemed unenforceable by virtue of its scope in " MASSAGE ENVY FDD 2010 _.. PHX329198289v8Apn716, 2010 36 67 • terms of area, business activity prohibited, and/or length of time, but would be enforceable if modified, you and we agree that the covenant will be enforced to the fullest extent permissible under the laws and public policies applied in the jurisdiction whose law determines the covenant's validity. If any applicable and binding law or rule of any jurisdiction requires more notice than this Agreement requires of this Agreement's termination or of our refusal to enter into a successor franchise agreement, or if, under any applicable and binding law or rule of any _. jurisdiction, any provision of this Agreement or any System; Standard is invalid, unenforceable or unlawful, the notice and/or other action required by the law or rule will be substituted for the comparable provisions of this Agreement, and we may modify the invalid or unenforceable provision or System Standard to the extent required to be valid and enforceable or delete the unlawful provision in its entirety. You agree to be bound by any promise or covenant imposing the maximum duty the law permits which is subsumed within any provision of this Agreement, as though it were separately articulated in and made a part of this Agreement. B. WAIVER OF OBLIGATIONS. We and you may by written instrument unilaterally waive or reduce any obligation of or restriction upon the other under this Agreement, effective upon delivery of written notice to the other or another effective date stated in the notice of waiver. But, no interpretation, change, termination or waiver of any of this Agreement's provisions hereof shall be binding upon us unless in writing and signed by one of our officers or our Franchising Director, and which is specifically identified as an amendment to this Agreement. No modification, waiver, termination, rescission, discharge or cancellation of this Franchise shall affect the right of any party hereto to enforce any claim or right hereunder, whether or not liquidated, which occurred prior to the date of such modification, waiver, tennination,;rescission, discharge or cancellation. Any waiver we grant will be without prejudice to any other rights we have will be subject to our continuing review, and may be revoked at any time and for any reason, effective upon delivery to you of ten (10) days' prior written notice. • • • We and you will not be deemed to waive or impair any right, power or option this Agreement reserves (including, without limitation, our right to demand exact compliance with every term, condition and covenant or to declare any breach to be a default and to terminate this Agreement before its term expires) because of any custom or practice at variance with this Agreement's terms; our or your failure, refusal or neglect to exercise any right under this Agreement or to insist upon the other's compliance with this Agreement, including, without limitation, any System Standard; our waiver of or failure to exercise any right, power or option, whether of the same, similar or different nature, with other Massage. Envy Clinics; the existence of franchise agreements for other Massage Envy Clinics which contain provisions different from those contained in this Agreement; or our acceptance of any payments due from you after any breach of this Agreement No special or restrictive legend or endorsement on any check or similar item given to us will be a waiver, compromise, settlement or accord and satisfaction. We are authorized to remove any legend or endorsement, and they shall have no effect. C. COSTS AND ATTORNEYS' FEES. If we incur expenses due to your failure to pay when due amounts owed to us, to submit when due any reports, information, or supporting records, or otherwise to comply with - - this Agreement, you agree, whether or not we initiate a legal proceeding, to reimburse us for any MASSAGE ENVY FDD 2010 - PHX329198289v8 Apd118, 2010 37 68 costs and expenses which we incur, including, without limitation, reasonable accounting, attorneys', arbitrators' and related fees. D. YOU MAY NOT WITIIHOLD PAYMENTS DUE TO US. You agree that you will not withhold payment of any amounts owed to us on the - grounds of our alleged nonperformance of any of our obligations under this Agreement. E. RIGHTS OF PARTIES ARE CUMULATIVE. Our and your rights under this Agreement are cumulative, and our or your exercise or enforcement of any right or remedy under this Agreement will not preclude our or your exercise or enforcement of any other right or remedy under this Agreement which we or you are entitled by law to enforce. F. ARBITRATION. We and you agree that, except for controversies, disputes, or claims related to or based on your use of the Marks or the enforcement of non - competition provisions, and except for any issues pertaining to your lease for the premises of the CLINIC, with respect to which we and you may seek judicial remedies, all controversies, disputes, or claims between us and our affiliates, and our and our affiliates' respective shareholders, officers, directors, agents, and/or employees, and you (and/or your owners, guarantors, affiliates, and/or employees) arising out of or related to: (1) this Agreement or any other agreement between you and us; (2) our relationship with you; (3) the validity of this Agreement or any other agreement between you and us; or (4) any System Standard relating to the CLINIC'S establishment or operation; must be submitted for binding arbitration to the Phoenix, Arizona office of the American Arbitration Association. The arbitration proceedings will be conducted in Phoenix, _ Arizona by one arbitrator and, except as this Subsection otherwise provides, according to the then current commercial arbitration rules of the American Arbitration Association: All matters relating to arbitration will be governed by the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.). The arbitrator will have the right to award or include in the arbitrator's award any relief which the arbitrator deems proper in the circumstances, including without limitation, money damages (with interest on unpaid amounts from due date), specific performance, injunctive relief, and attorneys' fees and costs in accordance with Section 17.0 of this Agreement. Judgment upon the arbitrator's award may be entered in any court of competent jurisdiction. We and you agree that, in any arbitration proceeding, each must submit or file any claim which would constitute a compulsory counterclaim (as defined by the Federal Rules of Civil Procedure) within the same proceeding as the claim to which it relates. Any claim which is not submitted or filed as required is forever barred. The arbitrator may not consider any settlement discussions or offers that might have been made by either you or us. MASSAGE ENVY FDD2010 - PHX329198289v8 April 16, 2010 38 • 69 We and you agree that arbitration will be conducted on an individual, not a class -wide, basis and that we (and/or our affiliates and our respective shareholders, officers, directors, agents, and/or employees) and you (and/or your owners, guarantors, affiliates, and/or employees) shall be the only parties to any arbitration proceeding described in this Section and that no such arbitration proceedings may be consolidated with any other arbitration proceeding, nor shall any other person be joined as a party to such arbitration proceeding. Despite our and your agreement to arbitrate, we and you each have the right in a proper case to seek temporary restraining orders and temporary or preliminary injunctive relief from a court of competent jurisdiction as described in Subsection J below; but we and you must contemporaneously submit our dispute for arbitration on the merits as provided in this Subsection. The provisions of this Subsection are intended to benefit and bind certain third party non - signatories and will continue in full force and effect subsequent to and notwithstanding this Agreement s expiration or termination. Unless prohibited by applicable law, any dispute must be brought by filing a written demand for arbitration within two (2) years following the conduct, act or other event or occurrence first giving rise to the claim; otherwise, the right to any remedy shall be deemed forever waived and lost. G. GOVERNING LAW. All matters relating to arbitration will be governed by the Federal Arbitration Act (9 U.S.C. §§ 1 et see.). Except to the extent governed by the Federal Arbitration Act, the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C. sections 1051 et seq.), or other federal law, this Agreement, the Franchise, and all claims arising from the relationship between us and you will be govemed by the laws of the State of Arizona, without regard to its conflict of laws rules, except that any Arizona law regulating the sale of franchises or governing the relationship of a franchisor and its franchisee will not apply unless its jurisdictional requirements are met independently without reference to this Section 17.G. 13. CONSENT TO JURISDICTION. • Subject to Section 17.F above and the provisions below, you and your owners agree that all actions arising under this Agreement or otherwise as a result of the relationship between you and us must be commenced in Phoenix, Arizona, and you (and each Owner) irrevocably submit to the jurisdiction of the state and federal courts of general jurisdiction in the County of Maricopa in the State of Arizona. Nonetheless, you and your Owners agree that we _ may enforce this Agreement and any arbitration orders and awards in the courts of the state or states in which you are domiciled or the clinic is located. I. WAIVER OF PUNITIVE DAMAGES AND JURY TRIAL. . Except for your obligation to indemnify us under Section 16.D above and except where authorized by federal statute, we and you and your respective Owners waive to the fullest extent permitted by law any right to or claim for any punitive or exemplary damages against the other and agree that, in the event of a dispute between us and you, the party making a claim will be limited to equitable relief and to recovery of any actual damages it sustains. MASSAGE ENVY FDD 2010 PHX329198299v8 April 18, 2010 39 • 70 We and you irrevocably waive trial by jury in any action, proceeding, or counterclaim, whether at law or in equity, brought by either of us. J. INJUNCTIVE RELIEF. Nothing in this Agreement bars our right to obtain preliminary orders of specific performance of the provisions of this Agreement and temporary or preliminary injunctive relief against threatened conduct that will cause us, the Marks, or the Franchise System loss or damage, under customary equity rules, including applicable rules for obtaining restraining orders and preliminary injunctions (subject to our obligation to arbitrate the underlying claims if required under Section 17.F above). You agree that we may obtain such injunctive relief in addition to such further or other relief as may be available at law or in equity. You agree that we will not be -- - required to post a bond to obtain injunctive relief and that your only remedy if an injunction. is " entered against you will be the dissolution of that injunction, if warranted, upon due hearing (all claims for damages by injunction being expressly waived hereby). K. BINDING EFFECT. This Agreement is binding upon as and you and our and your respective executors, administrators, heirs, beneficiaries, permitted assigns and successors in interest. Subject to our rights to modify the Operations Manual and the System Standards under Sections 4.D and 8J of this Agreement, this Agreement may not be modified except by a written agreement signed by both you and us. L. LIMITATIONS OF CLAIMS. Except for claims arising from your non - payment or underpayment of amounts you owe us, any and all claims arising out of or relating to this Agreement or our relationship with you will be barred unless a judicial or arbitration proceeding is commenced within two (2) years from the date on which the party asserting the claim knew or should have known of the facts giving rise to the claims. M. CONSTRUCTION. The preambles and exhibits are a part of this Agreement which, together with the Operations Manual, the Lease and any riders or addenda signed at the same time as this Agreement, constitutes our and your entire agreement and supercedes all prior and contemporaneous oral or written agreements and understandings between us and you. There are, no other oral or written understandings or agreements between us and you, relating to the subject matter of this Agreement. Except as provided in Section 17.D of this Agreement, nothing in this Agreement is intended nor deemed to confer any rights or remedies upon any person or legal entity not a party to this Agreement. Nothing in this Agreement or in any related agreement is intended to disclaim the representations we made in the franchise disclosure document Except where this Agreement expressly obligates us reasonably to approve or not unreasonably to withhold our approval of any of your actions or requests, we have the absolute right to refuse any request you make or to withhold our approval of any of your proposed, initiated or completed actions that require our approval. MASSAGE ENVY FDD2010 PHX329198289v8 April 16, 2010 40 • • 71 - i The headings of the sections and paragraphs are for convenience only and do not define, limit or construe the contents of these sections or paragraphs. References in this Agreement to we "us" and our, with respect to all of our rights and all of your obligations to us under this Agreement, include any of our affiliates with whom you deal in connection with the CLINIC. The term "affiliate" means any person or entity directly or indirectly owned or controlled by, under common control with, or owning or controlling us. "Control' means the power to direct or cause the direction of management and policies. If two or more persons are at any time the owners of the Franchise and the CLINIC, whether as partners or joint venturers, all of those persons must sign this Agreement and their obligations and liabilities to us will be joint and several. References to "you" mean each of those persons. If you are an Entity; "you" includes that Entity and each of the Entity's owners. "Owner" means any person holding a direct or indirect ownership interest (whether of record, beneficially, or otherwise) or voting rights in the Entity (or a transferee of this Agreement and the CLINIC or any interest in the Entity), including, without limitation, any person who has — a direct or indirect interest in the Entity (or a transferee), this Agreement, the Franchise, or the CLINIC and any person who has any other legal or equitable interest, or the power to vest in himself or herself any legal or equitable interest, in their revenue, profits, rights, or assets. References to a "controlling interest" in the Entity mean the percent of the Entity's voting shares or other voting rights that results from dividing one hundred percent (100 %) of the ownership interests by the number of the Entity's owners that would exist either immediately before or after the time the determination is made. "Person" means any natural person, corporation, limited liability company, general or limited partnership, unincorporated _. - - association, cooperative or other legal or functional entity. The term "CLINIC" includes all of the assets of the Massage Envy Clinic you operate under this Agreement, including its revenue and income. This Agreement may be executed in multiple copies, each of which will be deemed an original. N. INTERIM TERM. If you do not execute a Successor Agreement after the expiration of the Initial Term, and you continue to accept the benefits of this Agreement after the expiration of the Initial Term, then at our option, this Agreement may be treated either as: (i) expired as of the date of the expiration with you then operating without a franchise to do so and in violation of our right; or (ii) continued on a month-to -month basis (the "Interim Term') until either party provides the other party with written notice of such party's intention to terminate the Interim Tenn. In the latter case, all of your obligations shall remain in full force and effect during the Interim Term as if this. Agreement had not expired, and all obligations and restrictions imposed on you upon expiration of this Agreement shall be deemed to take effect upon termination of the Interim Term. r • O. FORCE MAJEURE (a) Subject to sub- clause (b) below, neither party to this Agreement shall be in breach of this Agreement or responsible for damages caused by delay or ... _.. MASSAGE ENVY FDD 2010 PM(329198289v8 April 16, 2010 41 _.. _ .. _ 72 I i failure to perform in full or in part its obligations under this. Agreement, provided that there is due diligence in attempted performance under the circumstances and that such delay or failure is due to one of the following events of force majeure: fire, earthquake, unusually severe weather, strikes, government sanctioned embargo, flood; act of God, war, terrorism, act (or delay in acting) of any public authority or sovereign government, civil disorder, delay or destruction caused by public carrier, curtailment of transportation facilities or any other circumstance substantially beyond the control of the party to be . charged, and which cannot be reasonably forecast or prevented. (b) Each party agrees to notify the other promptly upon discovery of an event of force majeure, as described above, which may cause a failure or delay in performance under this Agreement. 18. NOTICES AND PAYMENTS. All written notices, reports and payments permitted or required to be delivered by the provisions of this Agreement or the Operations Manual will be deemed so delivered: (1) at the time delivered Via computer transmission if the sender has confirmation of a successful transmission and, in the case of the Royalty, Marketing Fund contributions and other amounts due, at the time we actually debit your account (if we institute an automatic debit program for the CLINIC); (2) one (1) business day after transmission by telecopy, facsimile or other electronic system if the sender has confirmation of successful transmission; (3) one (1) business day after being placed in the hands of a commercial courier service for next business day delivery; or (4) three (3) business days after placement in the United States Mail by Registered or Certified Mail, Return Receipt Requested, postage prepaid; and must be addressed to the party to be notified at its most current principal business address of which the notifying party has notice. However, if your check for payment of Royalties, Marketing Fund contributions, or other amounts due is dishonored by your bank, such - payment will not be deemed to be made until your replacement check is cleared by your bank. Any required payinent or report which we do not actually receive during regular business hours - on the date due (or postmarked by postal authorities at least three (3) days before then) will be deemed delinquent. 19. ACKNOWLEDGMENTS. To induce us to sign this Agreement and grant you the Franchise, you acknowledge: (1) That you have independently investigated the Massage Envy Clinic franchise opportunity and recognize that, like any other business, the nature of a Massage Envy Clinic's business may, and probably will, evolve and change over time. (2) That an investment in a Massage Envy Clinic involves business risks. _. _.. : MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 42 _.. _ . ' (3) That your business abilities and efforts are vital to your success. (4). That retaining customers for your CLINIC will require a high level of customer service and strict adherence to the Franchise System and our System Standards and that you are committed to maintaining our System Standards. (5) That except as described in our Franchise Disclosure Document you have not received or relied upon, and we expressly disclaim making, any representation, warranty or guaranty, express or implied, as to the revenues, profits or success of the .. CLINIC or any other Massage Envy Clinic. (6) That any information you have acquired from other Massage Envy Clinic franchisees regarding their sales, profits or cash flows is not information obtained from us, and we make no representation about that information's accuracy. (7) That you have no knowledge of any representations made about the Massage Envy Clinic franchise opportunity by us, our subsidiaries or affiliates or any of their respective officers, directors, shareholders or agents that are contrary to the statements made in our Franchise Disclosure Document or to the terms and conditions of this Agreement. (8) That in all of their dealings with you, our officers, directors, employees and agents act only in a representative, and not in an individual, capacity and that _. -business dealings between you and them as a result of this Agreement are only between you and us. (9) That you have represented to us, to induce our entering into this Agreement, that all statements you have made and all materials you have given us in acquiring the Franchise are accurate and complete and that you have made no misrepresentations or material omissions in obtaining the Franchise. (10) That you have read this Agreement and our Franchise Disclosure Document and understand and accept that the terms and covenants in this Agreement are reasonably necessary for us to maintain our high standards of quality and service, as well - as the uniformity of those standards at each Massage Envy Clinic, and to protect and preserve the goodwill of the Marks. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement effective on the date stated on the first page above. MASSAGE ENVY FRANCHISING, FRANCHISEE(S) LLC, a Del, are limited liability company � By: � 1L G / _ /i By: N Jon Krutchik, a married man Name: Dave Crisalli Title: Chief Operating Officer MASSAGE ENVY FDD 2010 " Ph0C329198289v8 April 18,2 43 74 - I EXHIBIT A TO MASSAGE ENVY FRANCHISING, LLC FRANCHISE AGREEMENT . 1. Exhibit A is added to the Agreement as follows: Territory and Clinic Site. Franchisee's Clinic Site shall be located at TBD -South Beach- Miami Region. The Territory for this Site is described below or as described in the map contained in Attachment 1 which is attached to this Exhibit A and incorporated into this Exhibit A by reference. MASSAGE ENVY FRANCHISING, FRANCHISEE(S) LLC, a Delaware limited liability company By: By: Jon Krutchik, a married man Name: Dave Crisalli Title: Chief Operating Officer I - MASSAGE ENVY FDD 2010 PHX329198289v8 April 16,:2010 44 75 EXHII3IT B • TO MASSAGE ENVY FRANCHISING, LLC FRANCHISE AGREEMENT AUTOMATED CLEARING HOUSE PAYMENT AUTHORIZATION FORM Franchisee Information: JON KRUTCHIK TBD • Franchisee Name Business No. 5780 STONE CREEK WAY 954- 347 -7705 Franchisee Mailing Address (street) Franchisee Phone No. SOUTHWEST RANCHES, FL33330 Franchisee Mailing Address (city, state, zip) Contact Name, Address and Phone number (if different from above) 954 -990 -1980 KRUTCHIK@ME.COM - Franchisee Fax No. Franchisee E -mail Address Bank Account Information: TBD Bank Name • _ - . Bank Mailing Address (street, city, state, zip) ❑Checking ❑Savings Bank Account No. (check one) Bank Routing No. (9 digits) Bank Mailing Address (city, state, zip) Bank Phone No. t Authorization: Franchisee hereby authorizes Massage Envy Franchising, LLC ("Massage Envy") to initiate debit entries to • - -- - - Franchisee's account with the Bank listed above and Franchisee authorizes the Bank to accept and to debit the amount of such. entries to Franchisee's account Each debit shall be made from time to time in an amount sufficient to cover any fees payable to Massage Envy pursuant to any agreement between Massage Envy and Franchisee as well as to cover any purchases of goods or services from Massage Envy or any affiliate of Massage Envy. Franchisee agrees to be bound by the National Automated • Clearing House Association (NACHA) rules in the administration of these debit entries. Debit entries will be initiated only as authorized above. This authorization is to remain in full force and effect until Massage Envy has received written notification from Franchisee of its termination in such time and in such manner as to afford Massage Envy and the Bank a reasonable opportunity to act on it Franchisee shall notify Massage Envy of any changes to any of the information contained in this authorization form at t 30 days before such change becomes effective. Signature Date: 06/17/2010 Name: JON KRUTCHIK Federal Tax ID Number. TBD • NOTE: FRANCHISEE MUST ATTACH A VOIDED CBECK RELATING TO THE BANK ACCOUNT. • MASSAGE ENVY FDD 2010 P11X329198289v8 April 16, 2010 45 76 • GUARANTY AND ASSUMPTION OF OBLIGATIONS NOTE: IF YOU ARE A CORPORATION, EACH OF YOUR SHAREHOLDERS AND THEIR SPOUSES MUST SIGN THE FOLLOWING UNDERTAKING. IF YOU ARE A PARTNERSHIP, EACH OF YOUR GENERAL PARTNERS AND THEIR SPOUSES MUST SIGN THE FOLLOWING UNDERTAKING. IF YOU ARE A LIMI1hll LIABILITY COMPANY, EACH OF YOUR MEMBERS /MANAGERS AND THEIR SPOUSES MUST SIGN THE FOLLOWING UNDERTAKING. The undersigned persons hereby represent to Massage Envy Franchising, LLC that they are all of the shareholders of the Franchisee or the spouses of said shareholders, or all of the general partners of the Franchisee or the spouses of said general partners, or all of the members and managers of the Franchisee or the spouses of said members and managers, as the case may be. In consideration of the grant by Massage Envy Franchising, LLC to, the Franchisee as provided in the Franchise Agreement of even date hereof, each of the undersigned hereby agrees, in consideration of the benefits received and to be received by each of them, jointly and severally, and for themselves, their heirs, legal representatives and assigns that they, and each of them, to be firmly bound by all of the terms, provisions and conditions of the Franchise Agreement, and any other agreements between the Franchisee and Massage Envy Franchising, LLC and/or its affiliates, that they and each of them do hereby unconditionally guarantee the full and timely payment and performance of the Franchisee of each and every obligation of the Franchisee under the Franchise Agreement or other agreements, including without limitation, any indebtedness of the Franchisee arising under or by virtue of the Franchise Agreement and that they and each of them will not permit or cause any change in the percentage of the franchise owned, directly or indirectly, by any person without first obtaining the written consent of Massage Envy Franchising, LLC. The undersigned agree that this Guaranty is directly enforceable against each of them without first resorting to and exhausting remedies against the Franchisee, and any indulgences, forbearances or extensions of time for performance will not in any way release the undersigned from liability hereunder. The undersigned waive any and all notices and legal and equitable defenses to which the guarantor may be entitled, except as otherwise expressly provided in the Franchise Agreement. This is an absolute and continuing guaranty and shall remain in full force and effect during the term of the Franchise Agreement. IN WITNESS WHEREOF, each of the undersigned has affixed his or her . signature on the same day and year as the Franchise Agreement was executed. • GUARANTOR(S) Jon Krutchik and his spouse .. - . Tammy Krutchik MASSAGE ENVY FDD 2010 PHX3291982890 Apdf 16, 2010 46 77 MASSAGE ENVY SPA ,ADDENDUM THIS SPA ADDENDUM (this "Addendum ") is entered into this 2" day of June, 2010 by and between Massage Envy Franchising, LLC, a Delaware limited liability company {"we" or "us "), and Jon Krutchik, a married man ( "you" and, together with Franchisor, the "Parties"). WHEREAS, concurrently with the execution of this Addendum, the Parties are entering - ° into a Massage Envy Franchise Agreement (the "Franchise Agreement"), pursuant to which we will grant you the right and license to open and operate a Massage Envy clinic (the "Clinic ") that . offers professional therapeutic massage services and other related goods and services; and WHEREAS, you have elected to enter into this Addendum to enable you to offer facials and related products and services at your Clinic. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of _ which are hereby acknowledged, the Parties agree as follows: 1. Grant. We hereby grant you the right and obligation to operate your Clinic as a Massage Envy Spa that provides both therapeutic massage services as well as facials and any other products or services that we authorize from time to time for a Massage • Envy Spa. You agree that you may not offer or sell any goods or services at your Clinic that we have not previously approved in writing. Without limiting the generality of the foregoing, you understand that you may not offer or sell waxing, chemical peels, microdennabrasion or siinilar or other services at your Clinic. The grant of rights under this Addendum shall only apply with respect to your Clinic operated pursuant to the Franchise Agreement. 2. Initial Franchise Fee. Notwithstanding Section 3(A) of . the Franchise Agreement, you will be required to pay an initial franchise fee equal to $45,000 if the Clinic is your first Clinic or $35,000 if the Clinic is your second or subsequent Clinic. If you are a veteran who qualifies under our VetFran program, you agree to pay us a discounted initial franchise fee in the amount of Forty Thousand Dollars ($40,000.00) if the Clinic is your first Clinic or Thirty Two Thousand Dollars ($32,000) if the Clinic is your second or subsequent Clinic. • 3. Training. You and your aestheticians must successfully complete any initial and ongoing training that we require from time to time with respect to the operation of a Massage • - Envy Spa. The training may be provided by us, our affiliates, or certain of our designated or approved suppliers. At this time, our supplier, Murad, Inc., provides approximately 14 hours of training related to facials and related products and services at your Clinic. We may change this training program at any time. 4. Spa Equipment and Inventory. You agree to purchase all additional equipment, inventory and supplies that we require for the operation of a Massage Envy Spa. You must purchase these items only from the suppliers that we approve or designate from time to time. 5. Marks. You shall use the mark "Massage Envy Spa ®" as the primary identification of your Clinic. You agree to purchase all signage, marketing materials and other items bearing the Marks that we designate from time to time. All references to Marks in the • MASSAGE ENVY FDD 2010 PHX329198289v8Apr1116, 2010 47 . 78 Franchise Agreement shall be deemed to include a reference to Massage Envy Spa® together with any other marks that we authorize for a Massage Envy. Spa. 6. Construction and Layout. Your Clinic must contain at least two (2) multi- purpose rooms with massage /aesthetic tables and appropriate fixtures and plumbing to support the practice of aesthetic facial treatments in accordance with any applicable laws, rules or regulations. We must approve the build -out and layout of your Clinic to ensure that it complies with our requirements for the operation of a Massage Envy Spa. 7. Aestheticians. You must hire at Least two (2) licensed aestheticians before you open your Clinic. You agree that you will not allow any of your employees or other representatives to provide facials or related services unless: (i) they are licensed aestheticians; and (ii) they have successfully completed any training that we require aestheticians to complete - -from time to time. 8. Standards, Specifications and Procedures. You agree to comply with all standards, specifications and procedures that we prescribe from time to time with respect to the provision of facials and related products and services. We may provide such standards, specifications, and procedures in the Operations Manual or in any other written or electronic form. 9. Compliance with Law. You must ensure that your Clinic, your aestheticians, and your operations comply with all applicable laws, rules and regulations. 10. Insurance. You must ensure that your insurance policies that you are required to obtain pursuant to the Franchise, Agreement cover any liability arising from the performance of all facial and related services and products that you offer at your Clinic. 11. Miscellaneous. (a) . Modification. This Addendum and the Franchise Agreement when executed constitute the entire agreement and understanding between the Parties with respect to the subject matter contained herein and therein. Any and all prior agreements and understandings between the Parties, and relating to the subject matter contained in this Addendum and the Franchise Agreement, whether written or verbal, other than as contained within the executed Addendum and Franchise Agreement, are void and have no force and effect. In order to be binding between the Parties, any subsequent modifications must be in writing signed by the Parties. (b) gffect on Agreement. Except as specifically modified or supplemented by. this .. . Addendum, all terms, conditions, covenants and agreements set forth in the Franchise Agreement shall remain in full force and effect. (c) Inconsistency. In the event of any inconsistency between the executed Franchise Agreement and this Addendum, this Addendum shall prevail (d) Defined Terms. Any capitalized term that is not defined herein shall have the meaning ascribed to such term in the Franchise Agreement. Any reference to "Section" or "Sections" shall refer to the Section or Sections of the Franchise Agreement. MASSAGE ENVY FDD 2010 PFIX329198289v8 April 16, 2010 48 79 (e) Counterparts. This Addendum may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same document. IN WITNESS WHEREOF, the Parties have executed this Addendum on the date first set forth above. MASSAGE ENVY FRANCHISING, FRANCFTISEE(S) LLC, a Delaware limited liability company By . By < Jon Krutchilc, a married man Name: e Crisalli Title:. Chief Operating Officer MASSAGE ENVY FDD 2010 PHX329198289v8 Apn7 16, 2010 49 80 • MILLENNIUM SUBLICENSE AGREEMENT THIS MILLENNIUM SUBLICENSE AGREEMENT ( "Sublicense" or "Agreement ") is made this 2° day of June, 2010 (the "Effective Date") by and between Massage Envy Franchising, L.L.C. ("ME"), a Delaware limited liability company having principal offices at 14350 North 87th Street, Suite 200, Scottsdale, Arizona 85260 and Jon Krutchik, a married • man ( "Franchisee" or "You "), having principal offices at 5780 Stone Creek Way, Southwest Ranches, FL 33330. WHEREAS, ME has entered into a certain License Agreement for Software Distribution and Use with Harms Software, Inc, (the "Main License "), pursuant to which it has acquired a license to distribute and use certain software products for employee management, point-of-sale functions, appointment booking, marketing, inventory control, and the integration and • implementation of various internal business and reporting functions, which software products ( "Millennium 2009 ") are proprietary to and owned by Harms Software, Inc. ( "Harms "); and WHEREAS, the franchise agreement entered into between ME and Franchisee requires that Franchisee use such Millennium 2009 in connection with the operation of its Massage Envy Clinic(s) ( "ME Clinic(s) "); and WHEREAS, each of the parties hereto desires to enter into a sublicense agreement pursuant to which Franchisee shall be permitted to use the Millennium 2009 in accordance with the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the mutual premises and covenants in this Agreement, Harms and Franchisee hereby agree as follows: SECTION 1. LICENSE. A. Provided that you have timely paid to us all fees required under this Agreement, ME hereby grants to Franchisee a non - exclusive, limited, non- transferable license (the "License" or the "Sublicense ") to use the Millennium 2009 distributed to You by ME hereunder, along with associated documentation (the "Documentation "), solely in connection with the operation by you of your ME Clinic and subject to the terms and conditions in this Sublicense Agreement. Millennium 2009 shall also include any updates which ME distributes to Franchisee during the term of this Sublicense Agreement. Franchisee's rights to use the Millennium 2009 are limited to a single approved Clinic location. - - B. ME and Harms specifically retain all right, title and interest in and to all proprietary and intellectual property rights in and to Millennium 2009, including without limitation, trade secrets, copyrights, trademarks, patents, functionality and business methodology embodied therein, and the like. All rights not expressly granted to Franchisee herein are specifically reserved to ME and Harms. SECTION 2. LIIVIITATIONS ON USE. A. You may not rent, lease, sell or otherwise transfer or distribute copies of Millennium 2009 or Documentation to any other person or entity for any reason. MASSAGE ENVY FDD 2010 PHX229198289v8 April 18, 2010 1 81 B. You may not modify or translate Millennium 2009 or the Documentation for any reason. You may not reverse assemble, reverse compile or otherwise attempt to create the source code from Millennium 2009. - C. You may not use the name of Harms Software or its Millennium brand or refer to Harms Software directly or indirectly in any papers, articles, advertisements, sales presentations, news releases or releases to any third party without the prior written ' approval of ME for each such use. D. You may not release the results of any performance or functional evaluation of any portion of Millennium 2009 to any third party without prior and express written approval of ME for each such release. SECTION 3. THIRD PARTY " BENEFICIARY. You understand, acknowledge, and agree with ME that Harms is an intended third party beneficiary of the terms and conditions of this Agreement. SECTION 4. BACKUP AND TRANSFER. A. You may obtain a copy of Millennium 2009 from ME for essential backup purposes, provided the copy is retained at Franchisee's approved location and further provided that no more than five (5) total workstations run Millennium 2009. B. You may not sublicense, assign, delegate, rent, lease, time -share or otherwise transfer this license or any of the related rights or obligations to any person or entity for any reason. Any attempt to make any such sublicense, assignment, delegation or other transfer by you shall be void and of no legal effect and shall automatically be deemed a material breach of this Agreement, which breach shall trigger an automatic termination of this Agreement. C. If ME authorizes a sale of your franchise and transfer of your rights under your Franchise Agreement to a third party (the "Transferee ") you must notify the Transferee that it will be obligated to enter into a new Sublicense. Agreement with • ME, and that a "Re- License Fee" of $250.00 will be required to be paid to ME to secure ME's authorization to use Millennium 2009 and the Documentation and to receive technical support. SECTION 5. FEES AND PAYMENT TERMS. A. Fees. You shall pay ME the Fees described in EXHIBIT A ( "Fees ") in the manner and at such times as are set forth in EXHIBIT A. Any late payment of may, at our option, be treated as a material breach of this Agreement for purposes of SECTION 7 ( "TERM AND TERMINATION "), and shall in all cases be subject to the finance charge described in EXHIBIT A. You shall be responsible for, shall pay when due, and shall indemnify us against, all taxes or similar government payments due in connection with this Agreement except for taxes on our net income. MASSAGE ENVY MD 2010 PWX329198289v8 Apd116, 2010 . 2 82 B. Expenses. You shall promptly reimburse us for all reasonable out -of- pocket expenses which are incurred by us in the performance of services hereunder, including but not limited to travel and lodging expenses, long distance telephone calls, and material and supply costs, within thirty (30) days after your receipt of expense statements including appropriate receipts or other evidence of the expense. - i - SECTION 6. OWNERSFIIP. You own only the magnetic or other physical media on which Millennium 2009 and related Documentation are recorded or fixed. All content accessed through Millennium 2009 is the property of the applicable content owner and may be protected by applicable copyright law. This Sublicense gives you no rights whatsoever to such content. SECTION 7. TERM AND TERMINATION. A. The term of this Sublicense is concurrent with the term of your Massage Envy Franchise Agreement unless earlier terminated as provided herein, provided, however, that the term of this Sublicense shall not exceed the term of the Main License, and shall automatically terminate upon the termination or expiration of the Main License. B. This Sublicense (and all of your rights hereunder) automatically terminates if you fail to comply with its material terms and conditions. You agree that, upon such termination, in accordance with ME's direction, you will either destroy (or permanently erase) all copies of Millennium 2009 and Documentation, or return the original Millennium 2009 and Documentation to ME, together with any other material you have received from ME or HARMS Software in connection with Millennium 2009. SECTION 8. MAINTENANCE AND SUPPORT. . A. Level 1 Technical Support Services. During the term of this Sublicense, you will receive Level 1 technical support services from ME, and must look to ME for all _ Level 1 Support. B. Level 2 and above Technical Support. During the term of this Sublicense, you will receive Level 2 and above technical support services from Harms during Harms standard support hours: Monday thru Friday — 9:00 AM -8:00 PM EST (Technical Support Phone Number - 1- 973- 402 -8801) Saturday - 10:00 AM -5:00 PM EST* (Technical Support Phone Number. - 1- 973 -402 -8801) *Saturday support is available via dispatch to the appropriate technicians working that day. Once you reach the technical support mailbox, leave your name, business name, telephone number, and the nature of your call. A Harms technician will return your call promptly. MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 3 83 { Sunday Emergency Support Only After Standard Hours Emergency Support** **The telephone message center for the Technical Support Department will ask if this is an emergency and then prompt the caller to use the paging option in which a Harms technician will be dispatched to return your call. You will be required to leave - information including business name, contact, phone munber, and a credit card number. You are entitled to up to 45 technical support calls with Harms per year and will be charged $25.00 per 15 minute increment for each call in excess of 45 calls per year. (i) Exclusions. Harms' technical support does not include software trainings, non - - software related issues, provision of software upgrades, data recovery, after hours emergency support, and data restoration: If Harms determines that you have a problem with hardware such as a printer or computer, you may be required to .. contact the appropriate manufacturer directly. Warranties for hardware are provided by the hardware manufacturer, and not by Harms. • (ii) Data Backup. Certain locations may be susceptible to power outages and/or fluctuations that can cause a computer to crash or shut down. You are strongly _ recommended to install and maintain battery backups to keep computers from being shutdown improperly. WARNING: Shutting down your computer while Millennium 2009 is in use may damage the databases and potentially cause a loss of data. Harms is not responsible for any such losses of data, nor does Harms assume responsibility or liability for any losses or damages arising, directly, or indirectly, from your improper use or maintenance of the Software or your hardware. On occasion, data may be damaged to the extent that intervention by a Harms programmer is necessary to recover or fix the databases. These types of services are NOT included in. this Sublicense and the fees for such services are subject to the discretion of Harms and ME. SECTION 9. LIMITED WARRANTY. ME warrants the media on which the Millennium 2009 is furnished to be free from defects in materials and workmanship under normal use for 30 days from the date that you obtain the Millennium 2009. EXCEPT FOR THIS LIMITED WARRANTY, MILLENNIUM 2009 AND THE DOCUMENTATION IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND EITHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. SECTION 10. REPRESENTATIONS AND WARRANTIES BY FRANCHISEE. As a condition to the grant of this License to use Millennium 2009, Franchisee hereby represents, warrants and covenants as follows: (i) That it will use Millennium 2009 only in conformance with the terms and conditions of this Sublicense Agreement; (ii) That it will not rent, lease, sublicense, distribute, transfer or copy Millennium 2009 or any component(s) thereof except as explicitly authorized herein; - MASSAGE ENVY FDD 2010 - PHX329198289v8 Aprt7 16,.2010 4 84 - (iii) That it will only use Milleimium 2009 for its own internal business use in connection with the operation of its Massage Envy Clinic and not for the benefit of any other person or entity; and (iv) That it will not adapt, modify or reverse engineer Millennium 2009 in any way, or use it or them to create source code or a derivative work. SECTION 11. LIMITATION OF REMEDIES. Your exclusive remedy in connection with Millennium 2009 and the Documentation is that you are entitled to return any defective media containing Millennium 2009 together with the Documentation to ME. IN NO EVENT WILL ME OR HARMS BE LIABLE FOR ANY INDIRECT DAMAGES OR OTHER RELIEF ARISING OUT OF YOUR USE OR INABILITY TO USE MILLENNIUM 2009 INCLUDING, BY WAY OF ILLUSTRATION AND NOT LIMITATION, LOST PROFITS, LOST BUSINESS OR LOST OPPORTUNITY, LOSS OF USE OR INTERRUPTION OF BUSINESS OR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING LEGAL FEES, ARISING OUT OF SUCH USE OR INABILITY TO USE MILLENNIUM 2009, EVEN IF ME AND HARMS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY. SECTION 12. DISCLAIMER. EXCEPT AS MAY OTHERWISE BE EXPRESSLY - PROVIDED IN THIS AGREEMENT, ME AND HARMS DISCLAIM ALL REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, ARISING OUT OF OR RELATED TO THIS AGREEMENT, MILLENNIUM 2009, OR ANY COMPONENT OF THE FOREGOING, INCLUDING WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, CORRECTNESS, COMPLETENESS, COMPREHENSIVENESS, SUITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE), OR ANY REPRESENTATION THAT THE SOFTWARE WILL MEET FRANCHISEE'S REQUIREMENTS OR THAT FRANCHISEE'S USE THEREOF WILL BE UNINTERRUPTED OR ERROR -FREE, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES. SECTION 13. REMEDIES FOR THIRD PARTY INFRINGEMENT. In the event Millennium 2009 or any portion thereof is held by any court of competent jurisdiction to infringe the rights of a third party or to violate a patent, and its use is enjoined, your sole remedy shall be to be provided with (i) modified Millennium 2009, the functionality of which has not been impaired in any material respect and that is non - infringing or non- violative, or (ii) the right to continue to use the infringing Millennium 2009 for any remaining - unexpired portion of the License Term, or (ii) equally suitable non - infringing software to replace the infringing Millennium 2009. ' SECTION 14. INDEMNIFICATION. Franchisee shall indemnify and hold ME and , Harms harmless from and against any and all losses, liabilities, obligations, damages, penalties, - judgments, suits, costs, expenses or disbursements of any kind (including, without limitation, attorneys' fees and expenses) against, or incurred by, ME or Harms to the extent such claims, damages, liabilities or costs relate to, have arisen in connection with, or result directly or indirectly from the breach by Franchisee of any term or condition of this License. MASSAGE ENVY FDD 2010 - . . P1-0029198289v8 Api1 16, 2010 5 85 SECTION 15. CONFIDENTIALITY. A. Confidential Information. Franchisee acknowledges that it is the policy of ME and Harms to maintain as confidential all information that should reasonably be understood by Franchisee to be confidential or proprietary, including, without limitation, information relating to Millennium 2009 and the Documentation, the business methods, marketing strategies, tools, systems, procedures, products and services, customers, and potential customers of each of ME and Harms (the "Confidential Information "), and Franchisee further acknowledges that such Confidential Information is of great value to the respective party that disclosed it. Confidential Information shall not include information that (i) 'is now or subsequently becomes available to the public through no fault or breach of Franchisee, (ii) Franchisee rightfully possessed prior to disclosure to it, (iii) is - independently developed or acquired by Franchisee without the use of any Confidential Information of the party disclosing it, or (iv) is rightfully obtained by Franchisee from a third party who has the right to disclose the information. B. Nondisclosure of Confidential Information. Franchisee acknowledges that it has acquired and will acquire Confidential Information as a result of and in connection with the performance of its obligations under this Sublicense Agreement and that it is reasonably necessary to protect the goodwill of each of ME and Harms. Accordingly, it agrees not to directly or indirectly (except where authorized herein), disclose or divulge any Confidential Information to any third parties, or to use any Confidential Information for the furtherance of its own business or fmancial interests or those of anyone else. Franchisee further agrees that it will not permit, cause or authorize any third parties to divulge any Confidential Information that Franchisee lawfully disclosed to such third party. C. Compelled Disclosure. In the event any Confidential Information is required to be disclosed by applicable law, subpoena or similar process or pursuant to a request by a government or regulatory agency, then, to the extent legally permitted, Franchisee shall, prior to any such disclosure, promptly notify ME and Harms, of such request for disclosure in order to give the appropriate party the opportunity to object to or seek to limit the scope of such disclosure. Notwithstanding any provision herein to the contrary, Franchisee may disclose any Confidential • Information to any regulatory agency having jurisdiction over it without the prior written approval of ME or Harms to such disclosure. • D. Remedies for Breach of Confidentiality Obligations. Any breach or threatened breach by Franchisee of any confidentiality provision of this Sublicense Agreement may, because of the unique nature of the Confidential Information, cause irreparable harm to the party disclosing the Confidential Information and shall entitle that party, in addition to any other legal remedies, to apply to any court of competent jurisdiction to enjoin such breach or threatened breach. SECTION 16. MISCELLANEOUS PROVISIONS A. Assignment. The rights and obligations under this Agreement may not be assigned by Franchisee and any attempted assignment in violation of this MASSAGE ENVY FDD 2010 PHX329198289v8 Apr!! 16, 2010 6 86 provision shall be null and void and of no force or effect. ME's right to assign its rights, obligations or performance hereunder shall not be restricted in any manner. B. Successors and Assigns. This Agreement and your rights, duties and obligations hereunder are personal to you and may not be assigned, delegated, or otherwise transferred by you, or by operation of law, without our prior written consent, which consent may be withheld in our sole and absolute discretion. Notwithstanding the foregoing, this Agreement may be transferred by you in connection with a permitted transfer of your Massage Envy Franchise Agreement in accordance with the terms governing transfer in such Massage Envy Franchise Agreement. We may charge you a fee for such transfer. We may assign, transfer, delegate or grant all or any part of our rights pursuant to this Agreement to any person or entity upon notice. The parties' rights and obligations shall bind and inure to the benefit of their respective successors, heirs, executors and administrators and permitted assigns. C. Notices. Any notice or other communication under this Agreement shall be in writing and shall be deemed given if delivered (i) personally or mailed by • - registered mail (return receipt requested) at the addresses set forth on the first page hereof, or at such other address as shall be specified by notice given pursuant hereto, (ii) by confirmed facsimile transmission, or (iii) by electronic mail for which a delivery receipt has been generated. D. Severability. The invalidity or unenforceability of any term or provision of this Agreement shall not affect the validity or enforceability of the remaining terms or provisions hereof, which shall remain in full force and effect. E. No waiver. No failure or successive failures on the part of either party to enforce any covenant or agreement contained herein, and no waiver or successive waivers on its or their patt of any condition of this Agreement shall operate as a discharge of such covenant, agreement, or condition, or render the same invalid, or impair the right of either party, its respective successors and permitted assigns, to enforce the same in the event of any subsequent breach or breaches by the other party, its successors or.pennitted assigns. F. Governing Law. The parties agree that the laws of the United. States and the State of Arizona (without giving effect to its conflicts of law principles) govern all matters and actions arising out of or relating to this Agreement, including, without limitation, its validity, interpretation, construction, performance, and enforcement. The parties further agree to the personal jurisdiction by and venue in the state and federal courts with jurisdiction in Maricopa County, Arizona, and waive any objection to such jurisdiction or venue. The prevailing party in any action relating to this Agreement shall be entitled to payment of all costs, expenses, losses, damages and reasonable attorneys' fees incurred in defending or prosecuting any such claim, suit or proceeding. The determination of the "prevailing party" for these purposes shall be made by the court exercising jurisdiction over the matter. G. Entire Agreement. This Sublicense Agreement constitutes the entire agreement • MASSAGE ENVY FDD 2010 - - PHX329198289v8 Apr878, 2010 7 87 I i between the parties hereto with respect to the subject matter hereof and I. supersedes all previous agreements and understandings, whether oral or written, express or implied, with respect to its subject matter. Except as may be expressly authorized herein, this Agreement may not be altered, amended, or modified except by written instrument signed by the duly authorized representatives of both parties. Nothing in this Sublicense Agreement or in any related agreement is intended to disclaim the representations we made in the franchise disclosure document. H. Definition of Franchisee. The defined term "Franchisee" as used in this Sublicense includes Franchisee's officers, directors, managers, members, employees, agents, and representatives. I. Further Assurances. You agree to cooperate with ME, both during and after the Term of this Agreement, in the procurement and maintenance of our rights to intellectual property created hereunder and to execute, when requested, any documents deemed necessary by us to carry out the purposes of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. MASSAGE ENVY FRANCHISING, FRANCHISEE(S) LLC, a Delaware Limited liability company By: By: Jon Krutchik, a married roan Name: Dave Crisalli Title: Chief Operating Officer MASSAGE ENVY FDD 2010 PHX329198289v8Apt1I16, 2010 - 8 88 EXHIBIT A TO MILLENNIUM SUBLICENSE AGREEMENT FEES You agree to pay the following Fees in connection with this Agreement: • A Configuration and Installation Fee of $95.00 for the hardware and software. • A monthly Clinic Resource Fee of $375.00, the amount of which may be adjusted from time to time by MB upon at least 30 days notice. • With respect to any Fee that is at least 30 days past due, a finance charge at the lesser of a periodic rate of 1.5% per month or the maximum amount permitted by applicable law. The amount of any finance charge will be added to the balance past due for purposes of computing additional finance charges. _. • A Fee of $25.00 for each incidence of dishonored debits or instruments of payment for insufficient funds. The Clinic Resource Fee will be electronically debited from your designated bank checking account on the 1st of every month. You hereby authorize ME to debit your bank account for all Clinic Resource Fees incurred by the Clinic. This authorization will remain in effect until revoked. Please provide: Bank routing number: TBD Account Number: TBD Voided Check: FRANCHISEE(S) Jon Krutchik, a married man 1 MASSAGE ENVY FDD 2010 PI 0(329198289v8April 16, 20f0 9 89 -. /14assage cn& Acknowledgement of Required Vendors & Standard Specifications Listed below are the Required Vendors that Massage Envy Franchising, LLC, has selected as part of the Massage _ Envy_ "Franchise System" as referenced in Massage Envy Franchise Agreement, page 1, Item 1.A.(3). These are the only vendors you may use for the specified products and/or services. They have extended to us, as a group, competitive pricing and prompt service to meet our needs. Massage Envy Franchising, LLC Contact: Jessica Owens — National Director of Real Estate Real Estate Department Development Phone: 480- 366 -4132 Fax: 480 - 366 -4232 j Email: lowens massaeeenw .corn Product: 1. Site selection 2. Lease review 3. Municipality concerns 4. Co- tenant matters • Massage Envy Franchising, LLC Contact: Peter Voss —Director of Project Development Project Development Department Phone: 480 -366 -4170 Fax: 480- 366 -4270 Email: pvoss(almassageenvv.com Kari Berry — Project Development Manager Phone: 480 -366 -4172 Fax: 480- 366 -4272 E- mail: .kberry(a tnassageenvy.con4 Product: 1. Clinic Design & Specification Questions' 2. Clinic Space Plan approvals 3. Exterior sign criteria and approval 4. Any construction issues • Universal Background Screening Contact Milan Sebesta Phone: 602- 337 -3083 Fax: 602- 337 -3076 Email msebesta @universalbackground.conn www,universalbackground.com/massageenvy Product: Background Screening • Clayton Kendall Contact Customer Service Promotional Marketing Phone: 1. 888 - 799 -4757 Website: www.claytankendall.com Lead Time: 4 weeks prior to opening Product: 1. Staff Uniforms 2. All Massage Envy printed material: SOAP cards, surveys, business cards, appointment cards, post cards and printed promotional materials. 3. A- Frames & Banners, posters 4. Art Advertising 5. Vehicle, Wraps ($2000 -$2800 - installation extra) MASSAGE ENVY FDD 2090 P1-0C329198289v8 Apn718, 2010 90 • I Price Range: 1 $1,500-$Z000 I j Massage Elements Contact: Cryssy Pierce Phone: 623-435 -3657 _ _ Fax: 623 -580 -7234 Email: cpierce@massageelements.com. Lead Time: 8 weeks prior to opening Product: Therapy Room Furniture (not including chair) Massage Chairs Bolsters Cream, Gel & Lotion Table Warners Fleece Pads Table blankets Face Cradle Covers Muscular System Posters Interior Signage Clinic Artwork Retail Products Veria Products _ Harms Contact: ; Stacey Arellano (Computer Hardware) Phone: 480- 366 -4119 Email: sarellano(lmassaxeenvv.com Lead time: 6 weeks prior to opening Product:. Computer Hardware Packages 1. Workstation(s) • 2. Monitors 3. Receipt Printer 4. Cash Drawer 5. Additional Peripherals Y ;s K I"r�n de i eglids;$.ible•;(likiAt �,A:�lt;. t}{rac�aap,�dN ii 6P p rijR (for recommendations contact Stacey Arellano) • • Network Services Northwest Contact: Stacey Arellano (Antivirus and Spyware Solution) Phone: 480-366-4119 Email: sarellano@n massa:een _ _cow Lead Time: 6 weeks prior to opening Product: 1. Comprehensive Gateway Security Suite ( "CGSS ") • Gateway Antivirus/Spyware • Content Filtering/WebsiteBlocking • Reporting, 24/7 Support, Ext. Warranty24/7 Sonic j. wall Support 2. Client Antivirus /spyware Tie National Accounts Contact: Stacey Arellano (Computer Hardware Installation) Phone: 480- 366-4119 Email: sarellano@massageenvv.com _ Lead Time: 6 weeks prior to opening Product: 1. Network Equipment Necessary for Installation 2. Computer Hardware, Server, Network Installation MASSAGE ENVY FDD.2010 PHX329198289v8 April 16, 2010 91 • • 1 1 3. Sonicwall Installation (new clinics) Voice Solutions Contact Stacey Arellano • (Required for messaging on hold, Phone: 480 - 366 -4119 • • recommended for music) Email: sarella to • {, .s + • e .com Lead Time: 6 weeks prior to opening Product _ Messagr ig on Hold Element Payment Services Contact: Phone: 1- 866 -435 -3636 ext. 1797 Email: piassageenw ©elementps.com • Lead Time: 5 weeks prior to opening • Product: Credit card/check processing _ Price: _ $75 set -up charge ADVO/Valassis Contact: Phone: 866 -576 -0523 Brett Morrow— Franchise Marketing Specialist Email: bamorrow@a valassis.com Jason Gonsalves — Franchise Marketing Specialist Email: iigonsalves @advo.com Lead Time: 4 weeks prior to opening or 4 weeks prior to media . placement Product: 1. Direct Mail or Newspaper delivery options 2. Free Neighborhood Targeting and Data Analysis 3. Live web -based meetings • . 4. Corporate approved national pricing 5. Corporate approved artwork 6. ROI Calculator _ 7. Free local Internet advertising • Floor Essence Inc. Contact: Bart Woodworth Phone: 602 - 369 -0818 Email: ooressenceecox.net Availability: Stock on hand Lead Time: Order 3 weeks prior to installation Product _ Base and Upgrade Carpet options Westwind Products Inc. Contact: Jeff Walker • • Phone: 602- 233 -9191 Email: jeffwkrElvaboo.com Availability: Stock on hand Lead Time: Order 2 weeks prior to installation Product Sconces and pendant lamps These are the only vendors you may use for the specified products and/or services. They have extended to • us competitive pricing and prompt service to meet our needs. The price ranges noted above are approximate ranges based on a 12 -room clinic. You will be responsible for all prepayments and final payments to all Required Vendors. You will be required to use the colors, finishes, and fixtures designated in the Prototype Clinic Specifications ManuaL Any tile or granite upgrades must be approved by Massage Envy Franchising, LLC • prior to ordering. • I hereby sign this acknowledgement stating that I have received the list of Required Vendors and I understand that I will be receiving my Prototype Clinic Specifications Manual in my Franchise Welcome Packet. I agree to comply with the Massage Envy Franchise System as referenced in Massage Envy Franchise Agreement, MASSAGE ENVY FDD 2010 PHX329198289v8 Api818, 2010 • - . 92 • page 1, Item 1.A.(3). This document is subject to change at the discretion of Massage Envy Franchising, LLC. You will be] tified of any changes to this document. 06/17/2010 Jon tchik, a married man Date • • • 1 _ MASSAGE ENVY FDO 2010 PHX329198289v8 Apr916, 2010 93 Massage Envy Franchising, LLC FRANCHISEE DISCLOSURE QUESTIONNAIRE As you know, Massage Envy Franchising, LLC ("we" or "us'), and you are preparing to enter into a Franchise Agreement for the operation of a Massage Envy franchise. The purpose of this Questionnaire is to determine whether any statements or promises were made to you that we have not authorized or that may be untrue, inaccurate or misleading, to be certain that you have been properly represented In this transaction, and to be certain that you understand the limitations on claims you may make by reason of the purchase and operation of your franchise. You cannot sign or date this Questionnaire the same day as the Receipt for the Franchise Disclosure Document but you must sign and date it the same day you sign the Franchise Agreement and pay your franchise fee. Please review each of the following questions carefully and provide honest responses to each question. If you answer "No" to any of the questions below, please explain your answer on the back of this • sheet. Yes X No_ 1. Have you received and personally reviewed the Franchise Agreement and each exhibit or • schedule attached to it? Ycs X No 2. Have you received and personally reviewed the Franchise Disclosure Document we provided? Yes X No__ 3. Did you sign a receipt for the Franchise Disclosure Document indicating the date you received 'I it? Yes X No 4. Do you understand all the information contained In the Franchise Disclosure Document and Franchise Agreement? • YesX No 5. Have you reviewed the Franchise Disclosure Document and Franchise Agreement with a lawyer, • accountant or other professional advisor? ' Yes X No_ 6. Have you discussed the benefits and risks of developing and operating a Massage Envy franchise with an existing Massage Envy franchisee? YesX No 7. Do you understand the risks of developing and operating a M Envy franchise? _ . _.YesX No_ 8. Do you understand the success or failure of your franchise will depend in large part upon your ak llc, abilities and efforts and those of the persons you employ as well as many factors beyond your control such as weather, competition, interest rates, the economy, inflation, labor and supply costs, lease terms and the marketplace? ... Yes X No_ 9. Do you understand all disputes or claims you may have arising out of or relating to the Franchise • Agreement must be arbitrated in Arizona, if not resolved informally or by mediation? Yes X No_ 10. Do you understand that you (and any Manager employed by you) must satisfactorily complete the initial training course before we will allow your franchised business to open or consent to a transfer? Yes X No 11. Do you agree that no employee or other person speaking on our behalf made any statement or promise regarding the costs involved in operating a Massage Envy franchise that is not contained • in the Franchise Disclosure Document or that is contrary to, or different from, the information contained in the Franchise Disclosure Document? Yes X No 12. Do you _ y agree that no employee or other person speaking on our behalf made any statement or promise or agreement, other than those matters addressed in your - Franchise Agreement, concerning advertising, marketing, media support, marketing penetration, training, support • service or assistance that is contrary to, or different from, the information contained in the _ -. Franchise Disclosure Document? . YesX No_ 13. Do you agree that no employee or other person speaking on our behalf made any statement or promise regarding the actual, average or projected profits or earnings, the likelihood of success, the amount of money you may earn, or the total amount of revenue a Massage. Envy franchise will generate, that is not contained in the Franchise Disclosure Document or that is contrary to, or different from, the information contained in the Franchise Disclosure Document? MASSAGE ENVY FDD 2010 PHX329198289v8 April 16, 2010 94 • .. YesX No 14. Do you understand that the Franchise Agreement and exhibits to the Franchise Agreement contain the entire agreement between us and you concerning the franchise for the Massage Envy - facility, meaning any prior oral or written statements not set out in the Franchise Agreement or the exhibits to the Franchise Agreement will not be binding? ' YOU UNDERSTAND THAT YOUR ANSWERS ARE IMPORTANT TO US AND THAT WE WILL RELY ON • THEM. BY SIGNING 11115 QUESTIONNAIRE, YOU ARE REPRESENTING THAT YOU HAVE CONSIDERED EACH QUESTION CAREFULLY AND RESPONDED TRUTHFULLY TO THE ABOVE QUESTIONS. ANY REPRESENTATIONS ABOVE WHICH REQUIRE YOU TO ASSENT TO ANY RELEASE, ESTOPPEL OR WAIVER OP LIABILITY AS A CONDITION OF PURCHASING A FRANCHISE ARE NOT INTENDED TO NOR SHALL - THEY ACT AS A RELEASE, ESTOPPEL OR WAIVER OF ANY LIABILITY INCURRED UNDER THE MARYLAND FRANCHISE REGISTRATION AND DISCLOSURE LAW. • FRANCHISEE(S) • By: ;� Jon Krutehi a m. cried man • Any representations above which require you to assent to any release, estoppel or waiver of liability as a condition of purchasing a franchise are not intended to nor shall they act as a release, estoppel or waiver of any liability incurred under the • Maryland Franchise Registration and disclosure Law. • • EXPLANATION OF ANY NEGATIVE RESPONSES (REFER TO OUESTION NUMBER': • • MASSAGE ENVY FDD 2010 • - PNX329198289v8 April 16, 2010 • 95 • EXHIBIT 8.4 - - . 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