What is the dependency for CDI's purchase of Chem Dry equipment from the lender?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
In consideration of the premises, the mutual promises herein set forth, and for other good and valuable consideration that the parties mutually acknowledge, the parties mutually agree and intend to be legally bound as follows:
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- Franchisee may grant a security interest to Lender in the Equipment and the proceeds, additions, replacements and accessories thereto, so long as Lender pays to CDI all amounts due and owing under the Sales Agreement at or before the time the security interest attaches to the Equipment. CDI will on Lender's request supply payoff amounts and instructions to Lender. Upon receipt of the payoff amount from Lender or Franchisee, CDI's security interest in the Equipment shall be subordinated to the security interest of Lender, and shall remain in effect for the duration of the Franchise Agreement term. Lender will notify CDI when Lender's financing has been repaid and its security interest released within 15 days after such event.
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- Lender's security interest shall be subject to, and Lender acknowledges that its rights and remedies with regard to the Equipment are limited to, the transfer restrictions set forth in Section 5 of the Sales Agreement. Lender covenants with CDI that Lender will not exercise any rights or remedies against the collateral that is inconsistent with the restrictions on disposition set forth in Section 5. Lender may, upon notice to CDI, marshal and assemble the Equipment for sale in accordance with Section 5 but shall make no use of the Equipment nor rent, lease, sell, lend or donate the Equipment. If Lender is unable to resell the Equipment to another franchisee of CDI within 60 days after first offering the Equipment for sale, then CDI will purchase the Equipment as provided in Section 5.
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to the 2024 Chem Dry Franchise Disclosure Document, if a Chem Dry franchisee grants a security interest to a lender for equipment, the lender must pay Chem Dry all outstanding amounts due under the Sales Agreement before the security interest is attached to the equipment. Chem Dry will provide payoff amounts and instructions to the lender upon request. Once the payoff amount is received from the lender or franchisee, Chem Dry's security interest in the equipment will be subordinated to the lender's security interest for the duration of the Franchise Agreement term. The lender is also required to notify Chem Dry within 15 days after the financing has been repaid and the security interest has been released.
The lender's security interest is subject to the transfer restrictions outlined in Section 5 of the Sales Agreement. The lender agrees not to take any actions against the collateral that would violate these restrictions. The lender can marshal and assemble the equipment for sale, provided they notify Chem Dry, but they cannot use, rent, lease, sell, lend, or donate the equipment.
If the lender cannot resell the equipment to another Chem Dry franchisee within 60 days of offering it for sale, Chem Dry is obligated to purchase the equipment as specified in Section 5 of the agreement. This arrangement ensures that Chem Dry maintains control over its proprietary equipment and protects its interests in the event of a franchisee's financial difficulties.