What is the required action for a Chem Dry franchisee to grant a security interest to the Lender in the Equipment?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
ill consent to the financing of the Equipment purchase by Lender and Franchisee's grant of a security interest in the Equipment subject to and conditioned upon Lender's undertakings as set forth in this Lender Addendum.
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.
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to the 2024 Chem Dry Franchise Disclosure Document, a franchisee may grant a security interest to a lender in the equipment, including proceeds, additions, replacements, and accessories, provided the lender pays Chem Dry all amounts due and owing under the Sales Agreement. This payment must occur at or before the time the security interest is attached to the equipment. Chem Dry will supply payoff amounts and instructions to the lender upon request.
Upon receiving the payoff amount from the lender or franchisee, Chem Dry will subordinate its security interest in the equipment to the lender's security interest. This subordination remains effective for the duration of the Franchise Agreement term. The lender is obligated to notify Chem Dry when the financing has been repaid and its security interest released, with notification required within 15 days after such an event.
The lender's security interest is subject to the transfer restrictions outlined in Section 5 of the Sales Agreement. The lender acknowledges that their rights and remedies regarding the equipment are limited by these restrictions and covenants not to act inconsistently with them. The lender may marshal and assemble the equipment for sale, provided they notify Chem Dry and adhere to Section 5, 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 first offering it for sale, Chem Dry will purchase the equipment as specified in Section 5.
This arrangement protects Chem Dry's interests by ensuring that any financing of equipment by a franchisee does not compromise Chem Dry's control over its proprietary equipment and the standards of its franchise system. It also provides a mechanism for the lender to recover their investment in case of franchisee default, while still prioritizing the integrity of the Chem Dry franchise network.