During the term of the Hyper Kidz Franchise Agreement, are franchisees, their principals, or their immediate family members allowed to have any interest as a disclosed principal in any Competitive Business?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
non-exclusive and worldwide right to use same. We shall have no obligation to make any payment with respect to any such idea, concept, method, technique or product. You agree that you will not use, nor will you allow any other person or entity to use, any such concept, method, technique or product without obtaining our prior written approval.
ARTICLE 9: EXCLUSIVE RELATIONSHIP; NON-COMPETITION
9.1 You acknowledge and agree that we would be unable to protect the Confidential Information against unauthorized use or disclosure and would be unable to encourage a free exchange of ideas and information among Hyper Kidz Businesses if franchisees, their Principals, or members of any of their immediate families were permitted to engage in, hold interests in, or perform services for a Competitive Business. You further acknowledge and agree that the restrictions contained in this Article will not hinder your activities or the activities of your Principals under this Agreement or in general. We have entered into this Agreement with you on the express condition that, with respect to the operation of Competitive Businesses, you and your Principals and members of their respective immediate families will
deal exclusively with us. You therefore agree that during the term of this Agreement neither you nor any of your Principals nor any member of your or their immediate family shall, directly or indirectly:
- (a) have any interest as a disclosed or beneficial Principal in any Competitive Business; or
- (b) perform services as a director, officer, manager, employee, consultant, representative, agent, or otherwise for any Competitive Business;
- 9.2 These restrictions of clause (a) of Section 9.1 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 (a publicly owned company) that represents less than five percent (5%) of the number of shares of that class of securities issued and outstanding.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to the 2024 Hyper Kidz Franchise Disclosure Document, franchisees, their principals, and their immediate family members are generally prohibited from having any interest as a disclosed or beneficial principal in any Competitive Business during the term of the Franchise Agreement. This restriction is in place to protect Hyper Kidz's confidential information and encourage a free exchange of ideas and information among Hyper Kidz Businesses. Hyper Kidz emphasizes that they have entered into the agreement with franchisees on the express condition that they deal exclusively with Hyper Kidz concerning the operation of Competitive Businesses.
However, there are exceptions to this restriction. Franchisees, their principals, or their immediate family members can own less than five percent (5%) of the shares of a publicly owned company that is considered a Competitive Business. Additionally, the restrictions do not prevent franchisees, their principals, or their family members from having an ownership interest in another Hyper Kidz Business franchise or providing services to another Hyper Kidz Business.
In practical terms, this means that while franchisees are prevented from actively engaging in or owning a competing business, they are not entirely restricted from all forms of investment. The allowance for minor investments in publicly traded companies provides some flexibility. The explicit permission to own or operate other Hyper Kidz franchises offers existing franchisees opportunities for expansion within the Hyper Kidz system.