Under what circumstances is the non-compete clause triggered for a Hyper Kidz franchisee?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
ansferring 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. The restrictions of Section 16.3.2(h)(1) shall not be applicable to the ownership of shares of a class of securities listed on a stock exchange or traded on the over-the-counter market that represent less than five percent (5%) of the number of shares of that class of securities issued and outstanding.
- 16.3.4 The rights of you and your Principals to transfer interests in this Agreement, the Franchise, you, the Hyper Kidz Business or the assets of the Hyper Kidz Business may be exercised only by you or your Principals and shall not be exercisable by a receiver, executor, trustee, liquidator or other person acting in a comparable capacity with respect to the assets or ownership of you.
16.4 Transfer to a Wholly Owned Corporate Entity
If you are in full compliance with this Agreement, then we shall not unreasonably withhold our approval of a one (1) time transfer, in the case of a proposed assignment or transfer of this Agreement, of the Franchise and the Hyper Kidz Business from one or more individuals to a corporation or comparable legal entity which conducts no business other than the Hyper Kidz Business, which is actually managed by you, in which such individual(s) maintain management control, and such individual(s) shall own and control the same percentage of the equity and voting power of all issued and outstanding Ownership Interests of
accuracy of this information. Any action you take upon the information you find on this website (FranChimp.com), is strictly at your own risk. We will not be liable for any losses and/or damages in connection with the use of our website.
such entity.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, there are two primary scenarios that trigger a non-compete agreement for franchisees and their principals: upon the transfer of the franchise agreement and upon termination or expiration of the franchise agreement.
Upon transferring the franchise, both the franchisee and their principals must execute a non-competition agreement benefiting Hyper Kidz and the new transferee. This agreement prevents them (and their immediate family members) from having any ownership interest in, or performing services for, a competitive business within a 15-mile radius of any Hyper Kidz location for two years following the transfer date.
The non-compete is also triggered if Hyper Kidz terminates the Franchise Agreement or if the agreement expires without renewal. In these cases, for two years after termination or expiration (or the date the franchisee ceases operation, if later), the franchisee and their principals are prohibited from owning or working for a competitive business within a 15-mile radius of any Hyper Kidz location. However, owning less than 5% of a publicly traded company's stock is an exception to this restriction. Furthermore, these restrictions do not prevent a franchisee from owning or operating another Hyper Kidz franchise.