What Franchise Agreement section defines 'Transfer' for Chatime?

According to Chatime's 2025 Franchise Disclosure Document, the definition of 'Transfer' by a franchisee is detailed in the Franchise Agreement (FA) under sections 1.1(16) and 13. It is referred to as a 'Disposal,' which encompasses a wide array of transactions including voluntary, involuntary, direct, or indirect sales, assignments, pledges, bequests, trades, or transfers. For business entities, 'Disposal' includes transactions affecting ownership interests that result in someone other than the registered holder acquiring legal or equitable interests. This can include acquiring rights to receive dividends, pre-emption rights, control over voting rights, or any legal or equitable rights that place a person in the same position as if they had acquired a legal or equitable interest in the ownership. The definition in the Master Development Agreement (MDA) under section 1.1(24) is the same as the definition in the Franchise Agreement.

This comprehensive definition is important for prospective Chatime franchisees because it clarifies the scope of activities that constitute a transfer of ownership. It ensures that any action that effectively changes control or ownership, whether directly or indirectly, is subject to the franchisor's approval and transfer conditions. This protects Chatime's interests by maintaining control over who becomes a franchisee and ensuring that new franchisees meet their standards.

The broad scope of 'Disposal' means franchisees must seek approval from Chatime for various transactions, not just outright sales. This includes actions like creating trusts, granting options, or encumbering the ownership interest. Franchisees need to be aware of these restrictions to avoid inadvertently violating the Franchise Agreement and facing potential penalties or termination. Understanding these provisions is crucial for planning any future business or personal financial transactions that might affect the ownership of the franchise.

Chatime's right of first refusal, as mentioned in MDA sections 11.4 and 13.4, further reinforces their control over transfers. Franchisees must first offer to sell their ownership interest to Chatime on the same terms offered by a third party before proceeding with a sale to someone else. This provision allows Chatime to maintain control over its brand and network by ensuring they have the opportunity to acquire existing franchises before they are sold to potentially unsuitable new owners. Additionally, Section 13.7 outlines the procedure in the event of death or disability of a franchisee, requiring the interest to be transferred to an approved third party within one year, or risk termination of the agreement.