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of competing or complementary franchise systems are a viable strategy for
responding to these pressures. Thus, some of the most common reasons that
franchisors consider a merger or acquisition with another franchisor or why
nonfranchise companies consider franchise systems as viable acquisition tar-
gets include:
❒ The desire to add new products or services to its existing lines without
the expense and uncertainty of internal research and development
❒ The desire to expand into a new geographic market or customer base
without the expense of attracting new franchisees into these locations
or developing a new advertising and marketing program
❒ The need to increase size to effectively compete with larger companies
or to eliminate the threat of a smaller competitor
❒ The desire for market efficiencies through the acquisition of suppliers
(backward integration) or existing franchisees or distributors (forward
integration)
❒ The need to strengthen marketing capabilities or improve the quality of
management personnel
There are numerous complex issues involved in the merger or acquisition
of any company, including both legal and business considerations. This is
especially true for franchisors, however, who must address not only the po-
tential issues related to taxes, securities regulation, labor laws, employee
benefits, antitrust, environmental regulation, corporate governance, bank-
ruptcy, and antitrust compliance but who also must understand the nature of
the assets of the franchise system being acquired and the unique relationship
between the franchisor and its franchisees. Franchisors that are considering
their first acquisition must understand that the transaction is a process, not
an event. The management of the process, the quality of the franchisor’s team
of advisors, and a clear understanding of the franchisor’s transactional objec-
tives will all go a long way toward ensuring that the completed deal is ulti-

transactional costs for the right types of transactions, which lend them-
selves to leveraged finance.
4. Reduced valuations have also created opportunities for consolidation;
many venture capitalists and private equity funds are very motivated
and willing to sell the ‘‘dogs’’ and perceived underperforming compa-
nies at a fraction of what they paid, and failed roll-ups are starting to
liquidate some of their holdings.
5. Deals are closing within a slower time frame—the rush to get deals done
quickly has subsided except in special circumstances and the due dili-
gence periods have become extended and issues more complex, ranging
from increased litigation, more challenging intellectual property issues,
underwater stock option plans, etc.—especially in a post–Sarbanes-
Oxley environment.
6. Professional advisors must be extra careful in drafting the Representa-
tions and Warranties in the Acquisition Agreement to address the new
due diligence challenges and demands brought on in the new age of
scrutiny—as well as the scope and terms of indemnification and other
covenants to protect the buyer against surprises.
7. Tax breaks to facilitate mergers and acquisitions may be in the works as
part of the overall economic stimulus packages currently being consid-
ered by Congress and the White House and—the regulatory and antitrust
approval process should also be a bit more relaxed as we strive toward
economic recovery.
8. Cross-border deals have slowed down as more global companies are fo-
cused on shoring things up in their own backyard and are reluctant to
travel; it seems as though the desires to live in a global village and build
global companies have been put on hold for awhile, as overseas compa-
nies refine their U.S. penetration and capital investment strategies.
9. The elimination of pooling by FASB has not completely killed mergers
and acquisitions activity (as feared), but the new rules do require a game

tional activity? Will everyone decide to focus on his or her own backyard?
Or are those just the growing pains of globalization as we move toward a
truly interdependent world?
4. What does postclosing synergy really mean anymore? What went wrong?
Why have so many deals failed to achieve postclosing integration and
economics of scale objectives? Will shareholders trust their leaders and
recommended deals?
5. Are your advisory teams prepared to deal with the fact that intellectual
property and intangible assets (e.g., brands, relationships, know-how,
databases, patents, teams, etc.) make up the lion’s share of the assets or
value being purchased? Does the team have the skills and experience to
recognize these assets, make sure they have been properly protected, and
identify their full potential on a postclosing basis?
Analysis of One or More Target Companies
The acquiring company must begin the acquisition or merger process with a
plan identifying the specific objectives to be accomplished by the transaction
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SPECIAL ISSUES IN MERGERS AND ACQUISITIONS
and the criteria to be applied in analyzing a potential target company operat-
ing within the targeted industry. Once acquisition objectives have been iden-
tified, the next logical step is to narrow the field of candidates. Some of the
qualities that a viable acquisition target might possess include:
❒ Operates in an industry that demonstrates growth potential.
❒ Has taken steps necessary to protect any proprietary aspects of its prod-
ucts and services.
❒ Has developed a well-defined and established market position.
❒ Possesses ‘‘strong’’ franchise agreements with its franchisees with mini-
mal amendments or ‘‘special exceptions.’’
❒ Has good relationships with its franchisees and strong customer satis-

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FINANCIAL STRATEGIES
that is soliciting offers to be acquired. Such an acquisition candidate may
offer an excellent opportunity for the acquisitor, although the target’s opera-
tions and financial condition should be closely inspected for any liability or
potential pitfall that may be hidden behind the good intentions of the sellers.
(See Figure 16-1 for a breakdown of the acquisition process.)
The inspection of a potential target will be necessary regardless of who
approaches whom (often referred to as the due diligence review). Prelimi-
nary due diligence may be undertaken before any offer is made, and more
thorough due diligence will certainly need to be completed by the acquisi-
tor’s in-house and outside business and legal advisors before completing the
deal.
The Due Diligence Review
Before conducting a thorough due diligence review of an acquisition candi-
date, the franchisor may want to conduct a preliminary analysis. In most
cases, the principals of each of the companies will meet to discuss the possi-
ble transaction. The key areas of inquiry at this stage are the financial per-
formance to date and projected performance of the target, the strength of the
target’s management team, the target’s intellectual property, the condition of
the target’s franchise system, including an understanding of the terms of the
target’s existing franchise and area development agreements, any potential
liabilities of the target that may be transferred to the franchisor as a successor
company, and the identification of any legal or business impediments to the
transaction, such as regulatory restrictions or adverse tax consequences. In
addition to a direct response from the target’s management, information may
be obtained from outside sources, such as trade associations, customers and
suppliers of the target, industry publications, franchise regulatory agencies,
Figure 16-1. The franchisor’s acquisition process.

forward?
The following is an illustrative list of some of the questions that the
acquisitor and its legal and accounting representatives will be trying to an-
swer as they begin to draft the acquisition agreements that will memorialize
the deal:
❒ What approvals will be needed to effectuate the transaction (e.g., director
and stockholder approval, governmental consents, lenders’ and lessors’
consents, etc.)?
❒ Are there any antitrust problems raised by the transaction? Will filing be
necessary under the premerger notification provisions of the Hart-Scott-
Rodino Act?
❒ Are there any federal or state securities registration or reporting laws to
comply with?
❒ What are the potential tax consequences to the buyer, seller, and their
respective stockholders as a result of the transaction?
❒ What are the potential postclosing risks and obligations of the buyer? To
what extent should the seller be held liable for such potential liability?
What steps, if any, can be taken to reduce these potential risks or liabili-
ties? What will it cost to implement these steps?
❒ Are there any impediments to the transfer of key tangible and intangible
assets of the target company, such as real estate or intellectual or other
property?
❒ Are there any issues relating to environmental and hazardous waste laws,
such as the Comprehensive Environmental Response Compensation and
Liability Act (the Superfund law)?
❒ What are the obligations and responsibilities of buyer and seller under
applicable federal and state labor and employment laws (e.g., will the
buyer be subject to successor liability under federal labor laws and as a
result be obligated to recognize the presence of organized labor and there-
fore be obligated to negotiate existing collective bargaining agreements?)?

that must be truly understood by the buyer’s due diligence team. Make sure there is a capability fit.
• Poor communication and misunderstandings. The communications should be open and clear between
the teams of the buyer and the seller. The process must be well orchestrated.
• Lack of planning and focus in the preparation of the due diligence questionnaires and in the interviews
with the seller’s team. The focus must be on asking the right questions, not just a lot of questions.
Sellers will resent wasteful ‘‘fishing expeditions’’ when the buyer’s team is unfocused. There should be
a clear fit between the questions asked and the compelling strategic rationale that underlies the
transaction.
• Inadequate time devoted to tax and financial matters. The buyer’s (and seller’s) CFO and CPA must
play an integral part in the due diligence process in order to gather data on past financial performance
and tax reporting, unusual financial events, or disturbing trends or inefficiencies.
• The buyer must insist that its team will be treated like welcome guests, not enemies from the IRS!
Many times the buyer’s counsel is sent to a dark room in the corner of the building to inspect docu-
ments without coffee, windows, or phones. It will enhance and expedite the transaction if the seller
provides reasonable accommodations and support for the buyer’s due diligence team.
• Failure to closely examine the intangible factors that drive a deal’s success. Many deals fail because
of a lack of a shared vision or conflicting corporate cultures. The franchisor’s due diligence must
include a process for measuring the likelihood that the two cultures and systems will ultimately fit on
a post-closing basis.
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SPECIAL ISSUES IN MERGERS AND ACQUISITIONS
5. Are the target’s products and services competitive in terms of price,
quality, style, and marketability?
6. Does the target franchisor manufacture its own products? What propor-
tions are purchased from outside sellers?
7. What is the target’s past and current financial condition? What about
future projections? Are they realistic?
8. What is the target franchisor’s sales history? Has there been a steady
flow of franchise sales and royalty payments?

in the purchase price of the target franchisor.
On one hand, the franchisee is typically neither a shareholder, creditor,
investor, officer, or director of the franchisor and would technically be gov-
erned only by the terms of franchise agreements, which usually gives broad
latitude to the franchisor to assign rights or modify the franchise system. Yet
to ignore the fact that the franchisee is clearly an interested and affected
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FINANCIAL STRATEGIES
party in any change in the franchisor’s organizational structure or system is
unrealistic and could result in very costly litigation that might even out-
weigh any anticipated benefits to the proposed merger or acquisition. See
Figure 16-3 for a list of legitimate concerns that a franchisee might have re-
garding a merger or acquisition.
Figure 16-3. Legitimate concerns of the franchisee network in a merger
or acquisition.
Clearly, the franchisee will have some legitimate questions and concerns when it first learns of the
proposed transaction. The savvy franchisor will anticipate these concerns and integrate the proposed
solutions into its acquisition plan and communications with the franchisees and/or the franchisee association:
1. What are the acquiring franchisor’s plans for the acquired system? Consolidation and conver-
sion? At whose cost? Liquidation? Growth?
2. What is the reputation and management philosophy of the acquiring franchisor? What are its
attitudes toward field support and ongoing training?
3. Will the acquiring franchisor be sensitive to the rights and concerns of the franchisees? Or will
the franchisees adopt a ‘‘we’d rather fight than switch’’ mentality toward the new buyer in
anticipation of hostile negotiations?
4. What is the financial strength of the acquiring franchisor? Will the acquiring franchisor open up
new opportunities for the franchisees, such as access to new product lines, financing programs
for growth and expansion, produce purchasing, and cooperative advertising programs?
5. If the target franchisor owns real property that is leased to franchisees, will the terms and

❒ Will existing franchisees of each system be forced to add the products and
services of the other? Will this present tying or full-line forcing problems?
❒ Does the acquiring franchisor have sufficient support staff to adequately
service the new franchisees, or will the acquiring company’s existing fran-
chisees be ignored in order to develop and market the new acquisitions?
What rights do the existing franchisees have to challenge this lack of at-
tention?
❒ Will a new, third type of system combining the products and services of
the acquiring and acquired franchisors be offered to prospective fran-
chisees of the surviving entity?
❒ Will existing franchisees of either system be eligible to convert to this new
system?
❒ Can the acquiring franchisor legitimately enforce an in-term covenant
against competition when the franchisor itself has acquired and is operat-
ing what is arguably a competitive system?
❒ Do the franchisees of either franchisor have a Franchisee Association or
Franchisee Advisory Council? Must these groups be consulted? What
duty does the franchisor have to involve these groups in merger planning?
What about regional and multiple franchisees holding development
rights?
❒ Does either franchisor have company-owned outlets in its distribution
system? What will be the status of these outlets after the merger or acquisi-
tion?
❒ To what extent will royalty payments, renewal fees, costs of inventory,
performance quotas, and advertising contributions be affected by the con-
templated merger or acquisition? On what grounds could franchisees
challenge these changes as unreasonable, breaches of contract, or viola-
tions of antitrust laws? How and when will these changes be phased into
the system? Will the franchisees be given a chance to opt in or opt out
(mandatory vs. optional changes)?

work the probe out with the franchisees. Finally, in one other example, two
publicly traded franchise companies signed a letter of intent to move forward
with a combination that would be paid for in stock of the acquisitor. Negoti-
ating the basic terms of the transaction took a substantial amount of time and
effort by both companies and their representatives. Finally, after agreement
in principal was reached, the companies discovered serious securities law
impediments and after further expense and effort on everyone’s part, they
simply could not satisfy the regulators at the Securities and Exchange Com-
mission. The deal was scrapped.
Thus, the difficult legal and strategic issues that are triggered in a merger
or acquisition by and among franchisors can either be resolved, and litigation
avoided, with careful pretransaction planning and investigation by the ac-
quiring and acquired franchisors, or can cause the deal to fail. Among the
critical steps toward a successful transaction, communication with the fran-
chisees of both systems is of paramount importance.
Preparing the M&A Documentation
Once the due diligence has been completed, valuations and appraisals con-
ducted, and the terms and price initially negotiated and financing arranged,
the acquisition team must work carefully with legal counsel to structure and
begin the preparation of the definitive legal documentation that will memori-
alize the transaction. The drafting and negotiation of these documents will
usually focus on the past history of the seller, the present condition of the
business, and a description of the rules of the game for the future. They also
describe the nature and scope of the seller’s representations and warranties,
the terms of the seller’s indemnification of the buyer, the conditions prece-
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SPECIAL ISSUES IN MERGERS AND ACQUISITIONS
dent to closing of the transaction, the responsibilities of the parties during
the time period between execution of the purchase agreement and actual

• How/When Paid nants Not to Compete) • Indemnification
• Deferred Consideration/ • Third-Party and Regulatory • Holdbacks and Baskets
Security Approvals • If Seller is Taking Buyer’s
• Earn-Outs and Contingent • Schedules (Exceptions/ Stock or Notes, then R&W’s
Payments Substantiation) Are a 2-Way Street
• Other Ongoing Financial • Opinions • Collars
Relationships between • Dispute Resolution • R&W Insurance
Buyer & Seller • Methods for Dealing with
• Employment/Consultant Surprises
Agreements
• Post-Closing Adjustments
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FINANCIAL STRATEGIES
before or after the closing, result in a material loss or liability to or against
the buyer,’’ leaving some wiggle room for insignificant or nonmaterial
claims. The battleground will be the indemnification provisions and any ex-
ceptions, carve-outs, or baskets that are created to dilute these provisions.
The weapons will be the buzzwords referenced below.
Scope of the Assets
The typical buyer will want to specify a virtual laundry list of categories of
assets to be purchased, but the classic seller will want to modify the list by
using words like ‘‘exclusively’’ or ‘‘primarily.’’ The seller may want to ex-
clude all or most of the cash-on-hand from the schedule of assets to be trans-
ferred. In some cases, the seller may want to license some of the technology
rights in lieu of an outright sale or, at the very least, obtain a license back of
what has been sold.
Security for the Seller’s Takeback Note
When the seller is taking back a note from the buyer for all or part of the
consideration, the issue of security for the note is always a problem. Natu-

tract or enhance or even shift liability by and among the buyer and seller.
Depending on which side of the fence you are on, look out for words or
phrases like the following as tools for negotiation and as phrases:
Materially
To the best of our knowledge
Could possibly
Without any independent investigation
Except for . . .
Subject to . . .
Reasonably believes . . .
Ordinary course of business
To which we are aware . . .
Would not have a material adverse affect on . . .
Primarily relating to . . .
Substantially all . . .
Might (instead of ‘‘would’’)
Exclusively
Other than claims that may be less than $
,
Have received no written notice of . . .
Have used our best efforts (or commercially reasonable efforts) to . . .
Even merely ‘‘endeavor to . . .’’
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C
HAPTER
17
Managing the Transfer and Renewal
Process
One critical but often overlooked area of franchising management is the ad-

333
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FINANCIAL STRATEGIES
The Regulatory Aspects of Transfer and Renewal
As both a matter of good business practice and as the result of a string of
recent cases, franchisors should assume that they will be subject to the tests
of ‘‘good faith and fair dealing’’ when making a decision regarding the re-
newal of a given franchise relationship and/or in connection with the ap-
proval or rejection of a request to transfer the ownership of the franchished
business. It just makes good business sense to act reasonably and to have a
justifiable reason to refuse to review an existing franchise relationship or the
approval of a proposed transfer. Cases such as Vylene Enterprises v. Naugles
have long stood for the principle that franchisors are obligated to negotiate
renewal or transfer terms in good faith or if unreasonable terms are imposed
as a condition to renewal or transfer, though courts have varied significantly
in their interpretation and enforcement of this principle.
In addition to the legal and business principles articulated above, at
least 16 states and two other U.S. jurisdictions regulate the renewal of fran-
chise relationships. These include Arkansas, California, Connecticut, Dela-
ware, Hawaii, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi,
Missouri, Nebraska, New Jersey, Washington, Wisconsin, Puerto Rico, and
the Virgin Islands. In addition, many states have adopted statutes that regu-
late renewals of petroleum and automobile dealerships, heavy equipment
dealerships, alcoholic beverage distributorships, and other specific indus-
tries. The federal Petroleum Marketing Practices Act (PMPA) also regulates
the renewal of the franchise relationships that it covers.
These statutes generally impose certain conditions or procedural re-
quirements on franchisors that do not wish to renew a franchise agreement,
including that a franchisor have ‘‘good cause’’ for nonrenewal, that it give

WITNESSETH:
WHEREAS, on
, Franchisor and Franchisee entered into a written Fran-
chise Agreement by the terms of which Franchisee was granted a license to operate a
business in connection with the Franchisor’s System and Proprietary Marks (the ‘‘Franchise’’) at the
following location: ; and
WHEREAS, pursuant to Section
of that Franchise Agreement, Franchisee desires to renew
the Franchise for an additional ten (10) year period and Franchisor desires to allow said renewal.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and conditions contained
herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the
parties agree as follows:
1. Renewal of Franchise Agreement. Pursuant to Section
of the Franchise Agreement,
Franchisee hereby renews the Franchise for an additional period of ten (10) years.
2. Execution of Current Franchise Agreement. Concurrently with the execution hereof, Franchisee
shall execute Franchisor’s current form of Franchise Agreement which agreement supersedes in all
respects that Franchise Agreement executed by and between Franchisor and Franchisee on
and any other prior agreements, representations, negotiations, or understandings between the parties.
3. Renewal Fee. Concurrently with the execution hereof, Franchisee shall pay to Franchisor the
sum of $
representing the renewal fee as provided in Section of the Franchise Agree-
ment.
4. Release of Franchisor. Franchisee, individually and on behalf of Franchisee’s heirs, legal repre-
sentatives, successors, and assigns, hereby forever releases and discharges Franchisor, its subsidiaries
and affiliates, their respective officers, directors, agents, and employees from any and all claims, de-
mands, controversies, actions, causes of action, obligations, liabilities, costs, expenses, attorney’s fees,
and damages of whatsoever character, nature, and kind, in law or in equity, claimed or alleged and which
may be based upon or connected with the Franchise, the Franchise Agreement or any other agreement
between the parties and executed prior to the date hereof, including but not limited to any and all claims

1. At least six months prior to the expiration of the initial term of this Agree-
ment, the Franchisor shall inspect the Franchised Business and give no-
tice of all required modifications to the nature and quality of the products
and services offered at the Franchised Business, the software, advertising,
marketing, and promotional programs necessary to comply with the Fran-
chisor’s then current standards, and, if franchisee elects to renew this
Agreement, shall complete to Franchisor’s satisfaction all such required
modifications, as well as adopt and implement any new methods, pro-
grams, software updates, and modifications and techniques required by
Franchisor’s notice no later than three months prior to expiration of the
initial term of this Agreement.
2. Franchisee shall give Franchisor written notice of such election to renew
not less than three months prior to the end of the initial term of this Agree-
ment.
3. Franchisee shall not be in default of any provision of this Agreement, any
amendment hereof or successor hereto, or any other agreement between
Franchisee and Franchisor, or its subsidiaries, affiliates, and suppliers
and shall have substantially complied with all the terms and conditions
of such agreements during the terms thereof.
4. Franchisee shall have satisfied all monetary obligations owed by Fran-
chisee to Franchisor and its subsidiaries, affiliates, and suppliers and
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MANAGING THE TRANSFER AND RENEWAL PROCESS
shall have timely met those obligations throughout the term of this Agree-
ment.
5. Franchisee shall execute upon renewal Franchisor’s then current form of
Franchise Agreement, which agreement shall supersede in all respects
this Agreement, and the terms of which may differ from the terms of this
Agreement, including, without limitation, by requiring a higher percent-

franchisee (transferor) proposes to sell or transfer its rights under the fran-
chise agreement to a third party (transferee), which must always be subject
to approval by the franchisor. Some of the key issues in the administration
and management of the transfer process include the following:
1. Franchisor’s Rights of First Refusal. Many modern-day franchise agree-
ments provide the franchisor with a right of first refusal to essentially
match the terms offered by a bona fide third party in the event of a sale or
transfer by the franchisee. All of the proper notification, approval, exer-
cise, or waiver procedures set forth in the agreement must be followed.
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FINANCIAL STRATEGIES
2. Data Gathering. Assuming that the franchisor will not be exercising its
rights of first refusal, the franchisor must begin its due diligence on the
proposed transferee. The franchisee and the proposed transferee must be
diligent and timely in meeting all information requests of the franchisor
in the areas of business experience, financial capability, employment, and
educational history, etc. The franchisor should always meet with the pro-
spective transferee for a face-to-face interview.
3. Document Control. The franchisor should be provided with copies of all
correspondence, listings, sales contracts, bulk sales transfer notices, bro-
ker agreements, and any other paperwork related to the transaction to
ensure against any misrepresentations, inaccurate earnings claims, or
false statements about the franchisor being made by the transferor to the
transferee in connection with the proposed transaction. The franchisor
should play the role of document reviewer, not document validator. It
will be tempting for the transferee to contact the franchisor directly to get
its opinions on the fairness of the sales terms, the accuracy of the store’s
financial performance, or the credibility of the transferee’s proposed busi-
ness plan or pro forma financial statements. Franchisors should help to

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MANAGING THE TRANSFER AND RENEWAL PROCESS
must be cured as a condition to approving the transfer should be clearly
explained to the transferee, especially if any of those defaults will be
cured after the consummation of the transfer.
7. Disclosure of the Transferee. Regardless of specific legal requirements,
good franchising practice dictates that the franchisor provide the pro-
posed transferee with a copy of its current disclosure document and
clearly explain any new developments, obligations, or problems that may
affect the proposed transferee’s decision to buy the business and become
part of the franchise system. Proposed transferees who are about to be-
come new franchisees do not want to hear about major changes to the
system, class action lawsuits against the franchisor, or the impending
bankruptcy of the franchisor just after they invested their life savings into
the purchase of the business.
8. Inspection and Audit. The franchisor should always arrange for its field
support staff to visit the site of the proposed transfer in order to conduct
an inspection and audit. This will give the franchisor insight into any
unreported fees owed as well as help determine whether any refurbish-
ment will be required as a condition to the approval of the transfer. This
is also an opportune time for the franchisor to collect all copies of the
operations manual and any other confidential information back from the
transferor.
9. Execution of Documents. There are a wide variety of legal documents that
may be prepared by the franchisor for execution by the transferor and
transferee as a condition to approving the transfer. These documents may
include mutual releases, guaranty agreements, representation and ac-
knowledgment letters (for execution by the transferee, which represents
their capabilities and acknowledges their undertaking of certain responsi-
bilities, etc.), lease agreements, or consent to sale agreement. A sample

(hereinafter the ‘‘Transferor’’); and , whose
principal place of business is (hereinafter the ‘‘Transferee’’).
WITNESSETH:
WHEREAS, on
, Franchisor and Transferor entered into a written Franchise
Agreement by the terms of which Transferor was granted a license to operate a Center in connection
with the Franchisor’s System and Proprietary Marks (hereinafter ‘‘the Franchise’’) at the following
location: ;
WHEREAS, Transferor desires to sell, assign, transfer, and convey all of its right, title, and interest
in and to the Franchise to Transferee and Franchisor is willing to consent to said transfer, upon the terms
and conditions in the said written Franchise Agreement and upon the terms and conditions herein; and
WHEREAS, Franchisor has elected not to exercise its right and option to purchase the Transferor’s
interest on the same terms and conditions offered to the Transferee, as provided by Section
of the Franchise Agreement entered into between the Franchisor and the Transferor.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and conditions contained
herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the
parties agree as follows:
1. Transfer. Subject to the provisions contained herein, Transferor hereby sells, assigns, trans-
fers, and conveys all of its right, title and interest in and to the Franchise to Transferee and Franchisor
consents to said transfer, upon the terms and conditions in the said written Franchise Agreement and
upon the terms and conditions herein.
2. Release of Franchisor. Transferor hereby releases and discharges Franchisor and its officers,
directors, shareholders, and employees in their corporate and individual capacities from any and all
claims, actions, causes of action, or demands of whatsoever kind or nature.
3. Transferee’s Agreement. In lieu of an initial franchise fee customarily paid under the terms of
the Franchise Agreement and upon payment of a transfer franchise fee to Franchisor by Transferee in
the sum of ($
), which sum is equivalent to percent ( %) of the initial fran-
chise fee currently being charged by Franchisor to new franchisees, and concurrently with the execution
hereof, Franchisor shall offer Transferee the standard form of Franchise Agreement now being offered

9. Guaranty by Transferee. Transferee understands and acknowledges that the obligations of the
Transferor under the Franchise Agreement entered into by and between Franchisor and Transferor were
guaranteed by Transferor and Transferee hereby agrees to guaranty the full and complete performance
of all such obligations and agrees to execute a written guaranty in a form satisfactory to Franchisor.
10. Transferor’s Liability. Transferor understands, acknowledges, and agrees it shall remain liable
for all obligations to Franchisor in connection with the Franchise prior to the effective date of the transfer
and shall execute any and all instruments reasonably requested by Franchisor to evidence such liability.
11. Transferor’s Warranties. Transferor warrants and represents that it is not granting any security
interest in the Franchise or in any of its assets.
12. Survivability. Transferor acknowledges, understands, and agrees that those provisions of Sec-
tion
and Section of the Franchise Agreement entered into by and between Transferor and
Franchisor, to the extent applicable, shall survive this Agreement.
13. Transferor’s Obligations. Transferor acknowledges, and agrees that each of its obligations
regarding transfer must be met by the Transferor and are reasonable and necessary.
14. Transferor’s Monetary Obligations. Transferor understands, acknowledges, and agrees that all
of its accrued monetary obligations and any other outstanding obligations due and owing to Franchisor
shall be fully paid and satisfied prior to any transfer referred to herein.
15. Waiver. The failure of any party to enforce at any time any of the provisions hereof shall not
be construed to be a waiver of such provisions or of the right of any party thereafter to enforce any such
provisions.
16. Modifications. No renewal hereof, or modification or waiver of any of the provisions herein
contained, or any future representation, promise, or condition in connection with the subject matter hereof,
shall be effective unless agreed upon by the parties hereto in writing.
(continues)
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FINANCIAL STRATEGIES
Figure 17-2. (Continued).
17. Execution of Documents. The parties agree to execute any and all documents or agreements

5. The transferee shall demonstrate to Franchisor’s satisfaction that the
transferee meets Franchisor’s educational, managerial, and business
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