What constitutes a 'Competing Business' according to the Kidokinetics franchise agreement?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
identify a Kidokinetics business, whether now in existence or hereafter created.
- "Prohibited Activities" means any or all of the following: (i) owning, operating, or having any other interest (as an owner, partner, director, officer, employee, manager, consultant, shareholder, creditor, representative, agent, or in any similar capacity) in a Competitive Business (other than owning an interest of five percent (5%) or less in a publicly-traded company that is a Competitive Business); (ii) diverting or attempting to divert any business from us (or one of our affiliates or franchisees); and/or (iii) inducing or attempting to induce any customer of ours (or of one of our affiliates or franchisees) to transfer their business to you or to any other person that is not then a franchisee of ours.
- "Restricted Period" means the 24 months-year period after you cease to be a manager or officer of Franchisee's Kidokinetics business; provided, however, that if a court of competent jurisdiction determines that this period of time is too long to be enforceable, then the "Restricted Period" means the
12 months-year period after you cease to be a manager or officer of Franchisee's Kidokinetics business.
"Restricted Territory" means the geographic area within: (i) a twenty (20) mile radius of the perimeter of (a) the Territory being granted hereunder, or (b) any other Territory licensed by Franchisor as of the date of expiration or termination of this Agreement; provided, however, that if a court of competent jurisdiction determines that the foregoing Restricted Territory is too broad to be enforceable, then the "Restricted Territory" means the geographic area within a 10-mile radius from Franchisee's Kidokinetics business (and including the premises of the approved location of Franchisee).
"System" means our system for the establishment, development, operation, and management of a Kidokinetics business, including Know-how, proprietary programs and products, Manual, and operating system.
- 2. Background. You are a manager or officer of Franchisee. As a result of this relationship, you may gain knowledge of our System.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, a 'Competing Business' is defined within the context of 'Prohibited Activities.' These activities include owning, operating, or having any interest in a competitive business, with a minor exception. Specifically, holding an interest of five percent (5%) or less in a publicly-traded company that is considered a competitive business is permitted. This definition is crucial because it outlines the scope of activities a franchisee must avoid to remain in compliance with the franchise agreement.
In practical terms, this means a Kidokinetics franchisee cannot be actively involved in any business that directly competes with Kidokinetics, whether as an owner, partner, director, officer, employee, manager, consultant, shareholder, creditor, representative, or agent. The restriction is broad, covering nearly any form of association with a competing entity. The only exception is a very small, passive investment in a publicly-traded competitor. This is a fairly standard restriction in franchising, designed to protect the brand and system from franchisees using their knowledge and resources to benefit a rival company.
This definition is further reinforced by the restrictions placed on franchisees and principals after the termination or transfer of the franchise agreement. For a period of 24 months, they are prohibited from participating in a Competing Business within a twenty (20) mile radius of the perimeter of their former territory or any other territory licensed by Kidokinetics. This post-term restriction underscores the importance Kidokinetics places on preventing former franchisees from leveraging their experience and knowledge to compete against the franchise system. Franchisees should carefully consider these limitations before investing, as they could impact future business opportunities.
It is important for prospective franchisees to fully understand these restrictions and how they might affect their future business endeavors. The definition of 'Prohibited Activities' and the restrictions on engaging in a 'Competing Business' are designed to protect Kidokinetics's market position and proprietary information. Franchisees should seek legal counsel to fully understand the implications of these clauses before signing the franchise agreement.