After termination or expiration of the Hyper Kidz agreement, what is the duration of the non-compete period?
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 the 2024 Hyper Kidz Franchise Disclosure Document, if the Franchise Agreement is terminated by Hyper Kidz or expires without renewal, the franchisee and their principals are subject to a non-compete agreement for two years. This period begins on the effective date of termination or expiration, or the date the franchisee ceases to operate the Hyper Kidz Business, whichever is later.
During this two-year period, the franchisee and their principals are restricted from having any ownership interest in a Competitive Business within a 15-mile radius of the former Hyper Kidz location or any other Hyper Kidz Business. They are also prohibited from working for a Competitive Business in the same geographic area as a director, officer, manager, employee, consultant, representative, or agent.
However, there are exceptions to these restrictions. The ownership of shares of a publicly traded company representing less than 5% of the outstanding shares is permitted. Additionally, the non-compete does not prevent a former franchisee from having an ownership interest in another Hyper Kidz franchise or providing services to a Hyper Kidz Business. This non-compete agreement is fairly standard in the franchise industry to protect the brand and prevent franchisees from using the franchisor's confidential information and business model to compete against the system after leaving.