After termination or expiration of the Hyper Kidz agreement, what is the geographic radius within which a franchisee is prohibited from having an interest in a Competitive Business?
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 restricted from involvement in a Competitive Business for two years. This restriction applies within a 15-mile radius of the former Hyper Kidz Business location or any other Hyper Kidz Business. This includes having any ownership interest or performing services for a competing business within that radius.
The non-compete clause prevents former franchisees from leveraging Hyper Kidz's confidential information, trade secrets, and established customer base to unfairly compete against the franchisor or other franchisees in the system. The term 'principals' refers to individuals with a significant ownership or management role in the franchisee's business entity, extending the non-compete obligation beyond just the franchisee themselves.
There is an exception to the ownership restriction: holding less than 5% of shares in a publicly traded company is permitted. This exception acknowledges that minor investments in large, publicly held companies are unlikely to pose a competitive threat to Hyper Kidz. The agreement also clarifies that these restrictions do not prevent a former franchisee from owning or working for another Hyper Kidz franchise.
This non-compete agreement is a standard practice in franchising to protect the brand and other franchisees. Prospective Hyper Kidz franchisees should carefully consider the implications of this restriction, especially if they plan to remain in the same geographic area after leaving the Hyper Kidz system. They should also seek legal counsel to fully understand the terms and enforceability of the non-compete agreement in their specific jurisdiction.