Under what conditions is the Hyper Kidz franchisee's covenant not to compete triggered?
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, the franchisee's covenant not to compete is triggered upon specific conditions related to the termination or expiration of the franchise agreement. Specifically, the covenant is activated if Hyper Kidz terminates the agreement according to its terms, or if the agreement expires without a renewal being granted. This means that if the franchisee's agreement ends—either because Hyper Kidz ended it for cause or because the term ran out and was not extended—the non-compete clause comes into effect.
The non-compete clause restricts the franchisee and their principals from engaging in any competitive business within a 15-mile radius of the Hyper Kidz Business or any other Hyper Kidz Business. This restriction applies for a period of two years, starting from the effective date of termination or expiration, or the date the franchisee ceases to operate the Hyper Kidz Business, whichever is later. The restrictions prevent the franchisee and their principals from having an ownership interest in a competitive business or performing services for one as a director, officer, manager, employee, consultant, representative, or agent.
However, there are exceptions to these restrictions. The ownership of shares in a publicly traded company representing less than 5% of the outstanding shares is permitted. Additionally, the restrictions do not prevent the franchisee or their family from having an ownership interest in another Hyper Kidz franchise or providing services to another Hyper Kidz Business. This ensures that franchisees are not unduly restricted from participating within the Hyper Kidz franchise system or from minor investments in publicly traded companies, but it does prevent them from directly competing with Hyper Kidz using knowledge gained during their franchise term.