Is a Kidokinetics franchisee allowed to assign or transfer the Franchise Agreement without the Franchisor's consent?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
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- 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;
- 15.3.2. The transferee must have sufficient business experience, aptitude and financial resources to operate the Kidokinetics Business and to comply with this Agreement;
- 15.3.3. The transferee and its or their Manager have agreed to complete Franchisor's Initial Management Training Program to Franchisor's satisfaction;
- 15.3.4. Franchisee has paid all amounts owed to Franchisor and third-party creditors;
- 15.3.5. The transferee has executed Franchisor's then-standard form of Franchise Agreement, which may have terms and conditions materially different from this Agreement, except that the transferee will not be required to pay an Initial Franchise Fee;
- 15.3.6. Franchisee and the transferee and each of Franchisee's and the transferee's Principals shall have executed a general release of all claims known or unknown under seal, in a form satisfactory to Franchisor, of any and all claims against Franchisor and Franchisor's officers, directors, shareholders, members and employees in their corporate and individual capacities, including, without limitation, claims arising out of or concerning under the Franchise Agreement and federal, state and local laws, rules and ordinances (to the fullest extent permitted by law). Franchisee will agree to subordinate any claims Franchisee may have against the transferee to Franchisor, and indemnify Franchisor for any acts, whether negligent or intentional, committed by Franchisee during the sales negotiations between Franchisee and transferee.
- 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. However, Franchisor's approval of a Transfer is not in any way a representation or warranty of the transferee's success or the soundness of transferee's decision to purchase the Franchise on such terms and conditions. Franchisee shall provide Franchisor all proposed transfer documents for Franchisor's review at least 30 days prior to a closing of the proposed Transfer;
- 15.3.8. If Franchisee or any Principal finances any part of the sale price of the Transfer, Franchisee or its Principal have agreed that all obligations of the transferee under any notes, agreements or security interests to Franchisee or its Principal will be subordinate to the transferee's obligations to Franchisor and subject to all limitations of Section 15.8 below;
- 15.3.9.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics' 2024 Franchise Disclosure Document, a franchisee's rights and duties under the Franchise Agreement are personal to them, and Kidokinetics has made the agreement based on their assessment of the franchisee's character, skills, business ability, and financial capacity. Therefore, a franchisee cannot directly or indirectly sell, assign, transfer, or encumber the agreement, the Kidokinetics business, or its assets without prior written consent from Kidokinetics. Kidokinetics retains the right to void any transfer made without their approval. This restriction also applies to the transfer of stock in the franchisee's corporation or ownership rights in a partnership or limited liability company.
Kidokinetics will not unreasonably withhold consent to a transfer if the franchisee has fully complied with the agreement and the proposed transferee meets certain requirements. The transferee must be an individual of good moral character, or if the transferee is a business entity, its principals must meet this standard and otherwise meet Kidokinetics' then-applicable standards for franchisees.
As a condition of the transfer, the franchisee must pay Kidokinetics a transfer fee of $10,000 for the first Kidokinetics business transferred 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 Kidokinetics' then-current initial franchise fee under the new agreement. Before a transfer, the franchisee must request that Kidokinetics provide the prospective transferee with the current Franchise Disclosure Document, and Kidokinetics is not liable for any representations not included in that document. Kidokinetics' approval of the transfer does not waive any claims they may have against the transferring party. Kidokinetics also has the right to disclose revenue reports and other financial information about the franchisee's Kidokinetics business to any prospective transferee.
Kidokinetics also has a right of first refusal. If a franchisee decides to sell or transfer an interest in the agreement, the assets of the franchised business, or the franchised business itself, they must obtain a bona fide, executed written offer from a responsible buyer and send a copy to Kidokinetics. The offer must include payment terms and financing details, and the proposed buyer must submit an earnest money deposit of at least five percent of the offering price.