Is owning less than 5% of a publicly traded company that is a Competitive Business considered a 'Prohibited Activity' under the Kidokinetics System Protection Agreement?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
- "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.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics' 2024 Franchise Disclosure Document, owning a small stake in a competitor does not violate the System Protection Agreement. Specifically, the definition of 'Prohibited Activities' excludes owning a minimal amount of stock in a publicly traded company.
'Prohibited Activities' are defined to include owning, operating, or having any interest in a Competitive Business. However, there is a notable exception: owning an interest of five percent (5%) or less in a publicly-traded company that is a Competitive Business is permitted. This means that a franchisee or their manager/officer can invest in a competitor, as long as their ownership stake remains below this threshold.
This exception acknowledges that small, passive investments in publicly traded companies are unlikely to pose a significant competitive threat to Kidokinetics. It allows franchisees and their managers/officers to diversify their investments without automatically violating the non-compete provisions of the System Protection Agreement. However, it's crucial to remain below the 5% threshold to avoid being in violation and potentially facing legal consequences under the agreement.