What is the geographic radius within which the Hyper Kidz franchisee is prohibited from engaging in a competitive business after termination or expiration?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
- 19.4.1 Upon termination of this Agreement by us in accordance with its terms and conditions, or upon expiration of this Agreement without the grant of a Renewal Franchise, neither you nor any of your Principals shall directly or indirectly, through a member of the immediate family of you or a Principal or otherwise for a period of two (2) years commencing on the effective date of such termination or expiration or the date on which you cease to operate the Hyper Kidz Business, whichever is later:
- (a) have any interest as a disclosed or beneficial owner in any Competitive Business located or operating within a fifteen (15) mile radius of the Hyper Kidz Business or any other Hyper Kidz Business; or
- (b) perform services as a director, officer, manager, employee, consultant, representative, agent or otherwise for any Competitive Business located or operating within a fifteen (15) mile radius of the Hyper Kidz Business or any other Hyper Kidz Business in operation or under construction on the effective date of such termination or expiration; or
- 19.4.2 The restrictions of clause (a) of Section 19.4.1 will 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.
- 19.4.3 The restrictions of Section 19.4.1 shall not be construed to prohibit you, any Principal of yours or any member of your respective immediate families from having a direct or indirect ownership interest in any Hyper Kidz Business Franchise Agreement for the operation of any Hyper Kidz Business, or any entity owning, controlling or operating a Hyper Kidz Business or from providing services to a Hyper Kidz Business.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, a franchisee is restricted from involvement in any competitive business within a 15-mile radius of their Hyper Kidz location or any other Hyper Kidz Business. This restriction applies for two years following the termination or expiration of the franchise agreement. This non-compete clause is triggered either when Hyper Kidz terminates the agreement or when the agreement expires without renewal.
The restriction applies to both direct and indirect interests in a competitive business, meaning the franchisee cannot own, operate, or be employed by a competing business within the specified radius. This also extends to immediate family members or other entities through which the franchisee or a principal might attempt to circumvent the non-compete agreement. The non-compete restrictions begin on the effective date of termination or expiration, or the date the franchisee ceases to operate the Hyper Kidz Business, whichever is later.
However, there are exceptions to this restriction. The franchisee is allowed to own less than 5% of the shares of a publicly traded company, even if that company is a competitor. Additionally, the non-compete clause does not prevent a former franchisee from owning or working for another Hyper Kidz franchise. This allows for continued involvement with the Hyper Kidz brand, even after the initial franchise agreement concludes.