Can the Hyper Kidz Development Rights be sold or transferred, and if so, under what conditions?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
- 7.2 The Development Rights granted hereunder are personal to you and cannot be sold, assigned, transferred or encumbered, in whole or in part, except as stated in Section 11 hereof.
- 11.1 This Agreement is personal to you and you shall neither sell, assign, transfer nor encumber this Agreement, the Development Rights, or any other interest hereunder, nor suffer or permit any such assignment, transfer or encumbrance to occur directly, indirectly or contingently by agreement or by operation of law without our prior written consent. You understand that this Agreement may not be pledged, mortgaged, hypothecated, given as security for an obligation or in any manner encumbered. The assignment or transfer of any interest, except in accordance with this Section shall constitute a material breach of this Agreement.
- 11.2 You have represented to us that you are entering into this Agreement with the intention of complying with its terms and conditions and not for the purpose of resale of the Development Rights hereunder.
Therefore, you agree that any attempt to assign this Agreement prior to the time that at least twenty-five percent (25%) of the Hyper Kidz Businesses to be constructed hereunder are opened or under construction shall be deemed to be an event of default.
- 11.3 Except as provided in Section 11.2, if you receive from an unaffiliated third party and desires to accept a bona fide written offer to purchase your business, Development Rights and interests, we shall have the option, exercisable within thirty (30) days after receipt of written notice setting forth the name and address of the prospective purchaser, the price and terms of such offer, and a copy of such offer and the other information stated in this Section 11.3, to purchase such business, Development Rights and interests, including your right to develop sites within the Development Area, on the same terms and conditions as offered by said third party.
In order that we may have information sufficient to enable us to determine whether to exercise this option, we may require you to deliver to us certified financial statements as of the end of your most recent fiscal year and such other information about your business and operations as we may request.
If we decline, or do not accept the offer in writing within thirty (30) days, you may, within thirty (30) days from the expiration of the option period, sell, assign and transfer your business, Development Rights and interest to said third party, provided we have consented to such transfer as required by this Section 11.
Any material change in the terms of the offer prior to closing of the sale to such third party shall constitute a new offer, subject to the same rights of first refusal by us or our nominee, as in the case of an initial offer.
Our failure to exercise the option afforded by this Section 11.3 shall not constitute a waiver of any other provision of this Agreement, including all of the requirements of this Section with respect to the proposed transfer.
- 11.5.5 Transferee executes or, in appropriate circumstances, causes all necessary parties to execute, our standard form of Multi-Unit Development Agreement, Franchise Agreements for all Hyper Kidz Businesses open or under construction hereunder, and such other then-current ancillary agreements being required by us of new multi-unit developers on the date of transfer.
- 11.5.6 You execute a general release, in a form satisfactory to us, of any and all claims against us, our officers, directors, employees and principal stockholders of any and all claims and causes of action that you may have against us or any subsidiary or affiliated corporations in any way relating to this Agreement or the performance or non-performance thereof by us specifically excluding those representations made by Franchisor in the Franchise Disclosure Document given to the transferee.
- 11.5.7 You pay to us a transfer fee equal to Fifteen Thousand Dollars ($15,000) to cover our reasonable costs in effecting the transfer and in providing initial assistance to transferee.
- 11.6 The grant of rights under this Agreement is personal to Developer, and on the death or permanent disability of Developer, the executor, administrator, conservator, or other personal representative of Developer shall be required to transfer Developer's interest in this Agreement within six (6) months from the date of death or permanent disability to a third party approved by Franchisor. Failure to transfer in accordance with the forgoing will constitute a material default and all that is granted by this Agreement will terminate. A transfer under this Section 11.6, including without limitation, transfer by devise or inheritance, is subject to the conditions for Transfers in this Article 11 and unless transferred by gift, devise, or inheritance, subject to the terms of Section 11 above. For purposes of this Agreement, the term "permanent disability" means a mental or physical disability, impairment or condition that is reasonably expected to prevent or actually does prevent such person from providing continuous and material supervision of the operation of Developer's Hyper Kidz outlet(s) and remaining development schedule during the six (6)-month period from its onset.
Source: Item 23 — RECEIPTS (FDD pages 52–205)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, the Development Rights are personal to the developer and generally cannot be sold, assigned, transferred, or encumbered without prior written consent from Hyper Kidz. Any attempt to do so without consent constitutes a material breach of the agreement. Specifically, an attempt to transfer the agreement before at least 25% of the Hyper Kidz businesses to be constructed are open or under construction is considered an event of default.
However, there are conditions under which a transfer may be permitted. If the developer receives a bona fide written offer from an unaffiliated third party to purchase the business, Development Rights, and interests, Hyper Kidz has a right of first refusal. Hyper Kidz has 30 days to exercise this option and purchase the rights on the same terms as the third party's offer. If Hyper Kidz declines or does not respond within 30 days, the developer may sell to the third party, provided Hyper Kidz has consented to the transfer. Any material change in the offer terms constitutes a new offer, subject to the same right of first refusal.
In the event of the developer's death or permanent disability, their representative is required to transfer the Development Rights within six months to a Hyper Kidz-approved third party. Failure to do so constitutes a material default, leading to termination of the agreement. Any transfer, including by inheritance, is subject to the conditions outlined in the transfer section of the agreement. Furthermore, Hyper Kidz requires a transfer fee of $15,000 to cover costs associated with the transfer and assistance to the transferee. The transferee must also execute Hyper Kidz's standard agreements and the transferor must release all claims against Hyper Kidz, excluding representations made in the Franchise Disclosure Document.