What constitutes a controlling interest in a Pearce Bespoke franchisee's business that triggers the right of first refusal?
Pearce_Bespoke Franchise · 2025 FDDAnswer from 2025 FDD Document
r effective until Franchisor has received the legal documents which its legal counsel deems necessary to properly document such transfer or assignment.
C. Conditions to Other Transfer or Assignment.
Pearce Bespoke Franchisee (and its partners and shareholders, if any) will not transfer (whether voluntary or
involuntary), assign or otherwise dispose of, in one or more transactions, Franchisee's business, all or substantially all of the assets of Franchisee's business, this Agreement or any controlling interest in Franchisee (a "controlling" interest will include a proposed transfer of fifty percent (50%) or more of the Capital Stock of a corporate Franchisee) without Franchisor's prior written consent, except to trusts established for Franchisee's benefit. Franchisor will not unreasonably withhold its consent to a transfer, subject to any or all of the following conditions described below which Franchisor may deem necessary:
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- All of Franchisee's accrued monetary obligations to Franchisor and suppliers will have been satisfied, and Franchisee is not in default under this Agreement;
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- Franchisee executes a written agreement in a form satisfactory to Franchisor, in which Franchisee covenantsto observe all applicable post-term obligations and covenants contained in this Agreement;
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- The transferee-franchisee enters into a written agreement in a form satisfactory to Franchisor assuming and agreeing to discharge all of Franchisee's obligations and covenants under this Agreement for the remainder of its term or, at Franchisor's option, executes Franchisor's then-current standard form of franchise agreement which may not contain any further rights of renewal, but may contain royalty rates and advertising contributions (which may be different than those contained in this Agreement), and an altered Franchised Territory;
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Source: Item 22 — CONTRACTS (FDD page 39)
What This Means (2025 FDD)
According to the 2025 Pearce Bespoke Franchise Disclosure Document, a controlling interest that triggers the franchisor's right of first refusal includes a proposed transfer of fifty percent (50%) or more of the Capital Stock of a corporate Franchisee. This means that if a franchisee who operates as a corporation plans to sell or transfer 50% or more of their company's stock, they must first offer Pearce Bespoke the opportunity to purchase those shares under the same terms offered to the third party.
This provision is designed to give Pearce Bespoke control over who becomes a major shareholder in one of its franchises, ensuring that new controlling parties meet their standards and are aligned with the brand's vision. It helps Pearce Bespoke maintain consistency and quality across its franchise network by preventing unwanted or unqualified individuals from gaining significant influence over a franchise location.
However, there are exceptions to this rule. A shareholder of a Pearce Bespoke franchisee corporation can bequeath, sell, assign, trade, or transfer their Capital Stock to other existing shareholders due to death or permanent disability without first offering it to Pearce Bespoke. The franchisee must provide Pearce Bespoke with written notice of these transactions. Additionally, the shares of Capital Stock can be pledged as security to an institutional lender who has provided financing to or for the Pearce Bespoke Franchise, provided the institutional lender accepts such security interest subject to Pearce Bespoke's reasonable conditions.
It is important to note that all shares of Capital Stock issued by the franchisee's corporation must bear a legend on the reverse side of each stock certificate indicating that the shares are subject to Pearce Bespoke's right of first refusal. This ensures that any potential buyer is aware of this condition before acquiring the stock.