If Kidokinetics purchases the franchisee's assets, what condition must those assets be in?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
- 17.2.1. Franchisor has the option, but not the obligation, to be exercised within thirty (30) days after termination or expiration of this Agreement, to purchase from Franchisee any or all of the equipment (including any point-of-sale system or computer systems), vehicles, signs, fixtures, advertising materials and supplies of Franchisee related to the operation of the Kidokinetics Business, at Franchisee's cost or fair market value, whichever is less. Franchisor will purchase Franchisee's assets free and clear of any liens, charges, encumbrances or security interests and Franchisor will assume no liabilities whatsoever, unless otherwise agreed to in writing by the parties. If the parties cannot agree on the fair market value within thirty (30) days of Franchisor's exercise of its option, fair market value will be determined by two (2) appraisers, with each party selecting one (1) appraiser, and the average of their determinations will be binding. In the event of such appraisal, each party will bear its own legal and other costs and split the appraisal fees equally. If Franchisor elects to exercise its option to purchase, it will have the right to set off (i) all fees for any such independent appraiser due from Franchisee, (ii) all amounts due from Franchisee to Franchisor or any of its affiliates and (iii) any costs incurred in connection with any escrow arrangement (including reasonable legal fees), against any payment and will pay the remaining amount in cash. Closing of the purchase will take place no later than thirty (30) days after determination of the fair market value.
- 17.2.2. With respect to the options described in Sections 17.2.1, Franchisee must deliver to Franchisor in a form satisfactory to Franchisor, such warranties, deeds, releases of lien, bills of sale, assignments and such other documents and instruments that Franchisor deems necessary in order to perfect Franchisor's title and possession in and to the properties being purchased or assigned and to meet the requirements of all tax and government authorities. If, at the time of closing, Franchisee has not obtained all of these certificates and other documents, Franchisor may, in its sole discretion, place the purchase price in escrow pending issuance of any required certificates or documents.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to the 2024 Kidokinetics Franchise Disclosure Document, if Kidokinetics exercises its option to purchase a franchisee's assets, the franchisee must transfer those assets free and clear of any liens, charges, encumbrances, or security interests. This means the franchisee must ensure that no third party has a claim against the assets being sold, such as outstanding loans or debts secured by the equipment or other items. Kidokinetics will not assume any liabilities unless otherwise agreed to in writing.
In practical terms, a franchisee looking to sell their assets back to Kidokinetics needs to resolve any outstanding financial obligations tied to those assets before the sale can proceed. This might involve paying off loans, settling debts, or otherwise clearing any encumbrances. Failure to do so could delay or complicate the sale, as Kidokinetics requires a clean title to the assets.
The FDD also specifies that the franchisee must deliver warranties, deeds, releases of lien, bills of sale, assignments, and other documents necessary for Kidokinetics to perfect its title and possession of the purchased assets. This underscores the importance of maintaining accurate records and complying with all legal requirements related to asset ownership and transfer. If the franchisee fails to provide these documents, Kidokinetics may place the purchase price in escrow until the required paperwork is obtained.