Can the non-compete restrictions for individuals associated with a Hyper Kidz franchisee be waived, and if so, how?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
us that all obligations of the transferee under or pursuant to any promissory notes, agreements or security interests reserved by you and/or your transferring Principal (s) in the assets of the Hyper Kidz Business shall be subordinate to the obligations of the transferee to pay Royalty Fees, Brand Development
Fees, Technology Fees, and other amounts due to us and our Affiliates, and otherwise to comply with this Agreement or the franchise agreement executed by the transferee;
- (h) if this Agreement is being transferred, you and your Principals must execute a non-competition agreement in favor of us and the transferee. If a Principal is transferring his/her interest, such Principal must execute a non-competition agreement in favor of us and the transferee. In either case, the non-competition agreement shall provide that neither you, your Principal(s) nor your transferring Principal(s) (whichever is applicable) nor any member of their immediate families shall directly or indirectly for a period of two (2) years commencing on the effective date of such transfer:
- (1) have any interest as a disclosed or beneficial owner in any Competitive Business located or operating within fifteen (15) miles of your Hyper Kidz Business or any other Hyper Kidz Business in the System; or
- (2) perform services as a director, officer, manager, employee, consultant, representative, agent, or otherwise for any Competitive Business located or operating within fifteen (15) miles of your Hyper Kidz Business or any other Hyper Kidz Business in the System.
- (i) the proposed transferee must furnish the information and references we require of potential franchisees and must present himself/herself at his/her own expense for a personal interview at our office;
- (j) the lessor or sublessor of the Hyper Kidz Business must consent in writing to the assignment of your lease to the proposed transferee;
- (k) if the proposed transferee is acquiring a portion of the interest in the legal entity that is you, then the proposed transferee must execute our form of guaranty;
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, non-competition agreements are typically required upon the transfer of a franchise. Specifically, both the franchisee and their principals must execute a non-competition agreement in favor of Hyper Kidz and the new transferee. This agreement restricts them, as well as their immediate family members, from having any ownership interest in or performing services for a Competitive Business within 15 miles of any Hyper Kidz location for two years.
However, there are exceptions to this non-compete requirement. Clauses (h) and (i) of Section 16.3.2, which likely contain the standard non-compete obligations, do not apply to transfers made by gift, bequest, or inheritance. Additionally, the restriction on ownership in a Competitive Business does not apply to owning less than 5% of a class of securities listed on a stock exchange or traded over-the-counter.
Furthermore, the non-compete restrictions do not prevent a franchisee, their principals, or their immediate family from having an ownership interest in or providing services to another Hyper Kidz franchise. This means that while they cannot be involved with a competing business, they are free to invest in or work for other Hyper Kidz locations. These exceptions provide some flexibility for franchisees and their families while still protecting Hyper Kidz's interests by limiting involvement in direct competitors.