What constitutes a violation of Article 15 regarding transfer of the Kidokinetics franchise?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
16.2.7. permits a Transfer in violation of the provisions of Article 15 of this Agreement;
15.3.13.
Franchisee must request that Franchisor provide the prospective transferee with Franchisor's current form of franchise disclosure document, and Franchisor will not be liable for any representations not included in the franchise disclosure document;
- 15.4. Transfer Fee.
As a condition to any Transfer, Franchisee shall pay Franchisor a transfer fee equal to $10,000 for the first Kidokinetics business that Franchisee transfers and $5,000 for each subsequent or additional Kidokinetics Business that Franchisee Transfers (the "Transfer Fee").
If Franchisor agrees to extend the transferee's term to ten (10) years under a new franchise agreement, the Transfer Fee will be replaced by the Franchisor's then-current initial franchise fee under the new franchise agreement.
- 15.5.
Entity Formation Documents.
The by-laws of a corporation or operating agreement of a limited liability company of a Franchisee that is an entity must state that: (i) the issuance and assignment of any interest in Franchisee are restricted by this Article 15; (ii) Franchisee may conduct no business except the operation of a Kidokinetics Business pursuant to the terms of this Agreement; (iii) transfers of interests in Franchisee are subject to the terms of this Agreement governing transfers; and (iv) stock or member certificates will contain a legend so indicating.
- 15.2.
Restrictions on Transfers by Franchisee.
Franchisee's rights and duties under this Agreement are personal to Franchisee and/or Franchisee's Principal(s), and Franchisor has made this Agreement in reliance on Franchisor's perceptions of the individual and collective character, skill, aptitude, attitude, business ability, and financial capacity of Franchisee and/or Franchisee's Principals.
Thus, no transfer, as hereafter defined, may be made without Franchisor's prior written approval, which will not be unreasonably withheld.
Franchisor may void any transfer made without such approval.
- 15.3. Transfers by Franchisee.
Franchisee shall not directly or indirectly sell, assign, transfer, give, devise, convey or encumber this Agreement or any right or interest herein or hereunder (a "Transfer"), the Kidokinetics Business or any assets thereof (except in the ordinary course of business) or suffer or permit any such assignment, transfer, or encumbrance to occur by operation of law unless it first obtains the written consent of Franchisor, except as provided in Section 15.6 of this Agreement.
A transfer of any stock in the Franchisee if it is a corporation or a transfer of any ownership rights in Franchisee if it is a partnership, a limited liability company or limited partnership is a Transfer and is prohibited without prior written consent of Franchisor.
If Franchisee has complied fully with this Agreement, Franchisor will not unreasonably withhold its consent of a Transfer that meets the following requirements:
- 15.3.1.
The proposed transferee must be an individual of good moral character or the principals of the transferee must all be of good moral character and otherwise meet Franchisor's then-applicable standards for franchisees;
- 15.3.7.
Franchisor has granted written approval of the material terms and conditions of the Transfer, including, without limitation, that the price and terms of payment will not adversely affect the Kidokinetics Business's operation.
Franchisee shall provide Franchisor all proposed transfer documents for Franchisor's review at least 30 days prior to a closing of the proposed Transfer;
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, a franchisee violates Article 15 of the franchise agreement if they permit a transfer of the franchise in violation of the provisions outlined in Article 15. This means any attempt to sell, assign, transfer, or encumber the agreement, the Kidokinetics business, or its assets without the franchisor's prior written approval is a violation. This restriction extends to transfers of stock in the franchisee's corporation or ownership rights in a partnership or LLC. Kidokinetics retains the right to void any transfer made without their approval.
Kidokinetics outlines specific conditions that must be met for a transfer to be considered for approval. The proposed transferee must meet Kidokinetics's standards for franchisees, including demonstrating good moral character. The franchisor must grant written approval of the transfer's material terms, ensuring the price and payment terms do not negatively impact the business. Franchisees must also address any existing defaults under the agreement and provide all proposed transfer documents for the franchisor's review at least 30 days before the closing.
Additionally, the franchisee must request that Kidokinetics provide the prospective transferee with the current Franchise Disclosure Document. The entity formation documents, such as the by-laws of a corporation or operating agreement of an LLC, must state that the issuance and assignment of any interest in the franchisee are restricted by Article 15. These documents must also state that the franchisee may conduct no business except the operation of a Kidokinetics business and that transfers of interests are subject to the terms governing transfers. Stock or member certificates will contain a legend indicating these restrictions.
As a condition of the transfer, the franchisee must pay Kidokinetics a transfer fee. The transfer fee is $10,000 for the first Kidokinetics business that the franchisee transfers and $5,000 for each subsequent business transferred. However, if Kidokinetics agrees to extend the transferee's term to ten years under a new franchise agreement, the transfer fee will be replaced by the franchisor's then-current initial franchise fee under the new franchise agreement.