What standards must a proposed Hyper Kidz transferee meet to be approved?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
ity convertible to voting Ownership Interests of you or any agreement granting the right to exercise or control the exercise of the voting rights of any holder of an Ownership Interest; or
- (d) transfer in a divorce, insolvency, corporate or partnership dissolution proceeding, or in the event of the death of you or one of your Principals, by will, declaration of or transfer in trust, or under the laws of intestate succession or otherwise by operation of law.
16.3 Conditions for Approval of Transfer
- 16.3.1 We will not unreasonably withhold our approval of a transfer of an interest in this Agreement, you, the Franchise, the Hyper Kidz Business, or any of the Hyper Kidz Business's assets that meets all the applicable requirements of this Section. All of the following conditions must be met prior to or concurrently with the effective date of the transfer:
- (a) you and your Principals shall be in full compliance with this Agreement;
- (b) the proposed transferee and its Principals must be individuals of good moral character and otherwise meet our then-applicable standards for Hyper Kidz Business franchisees, and if the proposed transferee, its owners or Affiliates have any other franchise agreements or development agreements with us, they are in full compliance with any such agreements and comply with clause (f) of Section 16.3.2;
- (c) a transfer of ownership in the Hyper Kidz Business or the assets of the Hyper Kidz Business, other than inventory in the ordinary course of business, may only be made in
conjunction with a transfer of this Agreement. If the transfer is of an Owner's interest in you then the transferee's name and relevant information shall be added as Attachment 7 hereto and the transferee shall then be bound by all provisions applicable to Principals;
- (d) you and your Principals or the transferring Principal(s) and the transferee (if it is then a franchisee of ours) must execute a general release in form satisfactory to us of any and all claims against us, our Affiliates and our respective shareholders, officers, directors, employees and agents; and
- (e) you have complied with the provisions of Section 16.7 below relating to our right of first refusal.
- 16.3.2 In addition to the above, if the transfer is of this Agreement, a Principal's interest in you, or is one of a series of transfers which, in the aggregate, constitute the transfer of this Agreement, all of the following conditions must be met prior to or concurrently with the effective date of the transfer:
- (a) the transferee must have sufficient business experience, aptitude and financial resources to operate the Hyper Kidz Business and perform the obligations of the transferor under this Agreement, and neither the transferee nor its Principals may be engaged in or intend to engage in a Competitive Business;
- (b) you and the transferee (if it is then a franchisee of ours) must pay such Royalty Fees, Brand Development Fees, amounts owed for purchases by you (or such transferee) from us and our Affiliates, and all other amounts owed to us or our Affiliates which are then due and unpaid;
- (c) the transferee and its personnel who will have access to the Confidential Information must have signed the Confidentiality and Non-Competition Agreement and have completed our training program to our satisfaction;
- (d) the transferee and its Principals, at our option, must agree in a manner satisfactory to us to be bound by all terms and conditions of this Agreement for the remainder of its term or execute our then-current form of franchise agreement and such ancillary documents, including guarantees, as are then customarily used by us in the grant of franchises for Hyper Kidz Businesses, modified as necessary to provide for the same Royalty Fees required hereunder and a term equal to the remaining term of this Agreement;
- (e) you or the transferee must have paid us a transfer fee of Fifteen Thousand Dollars ($15,000) to cover our reasonable costs in effecting the transfer and in providing initial assistance to transferee;
- (f) we must approve the material terms and conditions of such transfer including, without limitation, that the price and terms of payment are not so burdensome as to adversely affect our rights and interests under this Agreement, and you must furnish to us a copy of the executed contract of assignment;
- (g) if you and/or your transferring Principal(s) finances any part of the sale price of the transferred interest, you and/or your transferring Principal(s) must agree in a manner satisfactory to 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;
- (l) the transferee, at its expense, must upgrade the Hyper Kidz Business to conform to the then-current standards and specifications for new franchises; and
- (m) the transfer must be made in compliance with all applicable laws.
- 16.3.3 Clauses (h) and (i) of Section 16.3.2 shall not apply to transfers by gift, bequest, or inheritance.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, several conditions must be met for a transfer to be approved. Hyper Kidz will not unreasonably withhold approval of a transfer if all requirements are met. The transferor must be in full compliance with the existing agreement. The proposed transferee and their principals must be of good moral character and meet Hyper Kidz's standards for franchisees. If the transferee or its affiliates have other agreements with Hyper Kidz, those must also be in full compliance. The transfer must include a transfer of the franchise agreement itself, not just the business assets. Both the transferor and transferee may need to execute a general release of claims against Hyper Kidz. Hyper Kidz also retains the right of first refusal.
In addition to the above, the transferee must have sufficient business experience, aptitude, and financial resources to operate the Hyper Kidz Business. The transferee cannot be involved in a competitive business. Both the transferor and transferee must pay any outstanding fees, including Royalty Fees and Brand Development Fees. The transferee and its personnel must sign a Confidentiality and Non-Competition Agreement and complete Hyper Kidz's training program. The transferee must also agree to be bound by the existing franchise agreement or execute Hyper Kidz's current form of franchise agreement.
A transfer fee of $15,000 is required to cover Hyper Kidz's costs. Hyper Kidz must approve the terms of the transfer, ensuring they do not negatively impact Hyper Kidz's interests. If the transferor finances any part of the sale, those obligations must be subordinate to the transferee's obligations to pay Royalty Fees and Brand Development Fees to Hyper Kidz. The transferee must provide required information and references and attend a personal interview at their own expense. The Hyper Kidz Business lessor must consent to the lease assignment. If the transferee acquires partial interest in the franchise, they must execute a guaranty. The transferee must upgrade the Hyper Kidz Business to current standards and comply with all applicable laws.
However, some of these requirements are waived for transfers by gift, bequest, or inheritance. Specifically, the non-competition agreement and personal interview requirements are not applicable in those cases. These stipulations are typical in franchise agreements to ensure that any new owner is qualified and committed to upholding the brand's standards, while also protecting the franchisor's interests and investments.