Under what conditions is an individual associated with a Hyper Kidz franchisee prohibited from owning or operating a business similar to a Hyper Kidz franchise?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
19.4 Covenant Not to Compete
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- 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, a franchisee and their principals face restrictions on involvement with competitive businesses under specific conditions following termination or expiration of the franchise agreement.
Specifically, if the Hyper Kidz franchise agreement is terminated by Hyper Kidz or expires without renewal, the franchisee and their principals are restricted for two years. This two-year period starts from the termination or expiration date, or the date the franchisee ceases operation, whichever is later. During this time, they cannot have 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 radius as a director, officer, manager, employee, consultant, representative, or agent.
However, there are exceptions to these restrictions. The ownership restriction does not apply to owning less than 5% of a class of securities listed on a stock exchange or traded over-the-counter. Additionally, these restrictions do not prevent the franchisee, their principals, or their immediate family from having an ownership interest in another Hyper Kidz franchise or providing services to a Hyper Kidz Business.