Are mergers, stock redemptions, or consolidations of a Black Bear Diner developer considered Transfers?
Black_Bear_Diner Franchise · 2025 FDDAnswer from 2025 FDD Document
Accordingly, except as otherwise may be permitted herein, neither Developer nor any of Developer's Principals shall directly or indirectly sell, assign, transfer, convey, give away, pledge, mortgage, or otherwise encumber any direct or indirect interest in this Agreement or in all or substantially all of Developer's assets, voluntarily or involuntarily, in whole or in part, by operation of law or otherwise (a "Transfer"), without Franchisor's prior written consent, which consent may be withheld for any reason whatsoever in Franchisor's sole subjective judgment.
- 7.2.3 If Developer is a business entity, each of the following shall be deemed to be a Transfer of this Agreement: (i) the sale, assignment, transfer, conveyance, gift, pledge, mortgage, or other encumbrance of 10% or more in the aggregate, whether in one or more transactions, of the assets, capital stock, membership interests or voting power of Developer, by operation of law or otherwise; (ii) the issuance of any securities by Developer which itself or in combination with any other transaction(s) results in the Principals existing as of the Effective Date, owning 75% or less of the outstanding shares, membership interests or voting power of Developer as constituted as of the date hereof; (iii) if Developer is a partnership, the withdrawal, death or legal incapacity of a general partner or limited
Source: Item 23 — RECEIPT (FDD pages 56–243)
What This Means (2025 FDD)
According to Black Bear Diner's 2025 Franchise Disclosure Document, certain business entity actions are considered transfers of the Development Agreement. Specifically, the sale, assignment, transfer, conveyance, gift, pledge, mortgage, or other encumbrance of 10% or more of the assets, capital stock, membership interests, or voting power of the Developer, whether in one or more transactions, is considered a transfer. This also applies to the issuance of securities by the Developer that results in the Principals owning 75% or less of the outstanding shares, membership interests, or voting power of the Developer compared to the Effective Date. If the Developer is a partnership, the withdrawal, death, or legal incapacity of a general partner or limited partner is also considered a transfer.
These stipulations mean that if a Black Bear Diner developer undergoes a merger, stock redemption, consolidation, or any similar transaction that results in a change of ownership or control as defined above, it would be classified as a transfer of the Development Agreement. This is significant because, according to the FDD, any transfer requires the prior written consent of Black Bear Diner, which may be withheld for any reason whatsoever in Black Bear Diner's sole subjective judgment.
This requirement gives Black Bear Diner significant control over who is involved in developing their franchises. A prospective franchisee should be aware that any changes in their business structure or ownership could trigger the transfer clause and require franchisor approval. This could potentially delay or even prevent certain business transactions if Black Bear Diner does not grant consent. It is important for developers to carefully consider these restrictions and discuss any planned changes with Black Bear Diner in advance to avoid potential issues.
Many franchise agreements contain transfer restrictions to ensure that the brand is represented by qualified and approved individuals. The specific percentage thresholds and conditions that trigger a transfer can vary from franchise to franchise. Therefore, it is crucial for prospective franchisees to thoroughly review the transfer provisions in the FDD and franchise agreement to understand the limitations and obligations involved.