Following termination of the Aplus Development Agreement due to default, what is the geographic scope of the non-competition covenant?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
| Provision | Section in Development Agreement | Summary | |
|---|---|---|---|
| developer which is a business entity may be offered for sale through the public offering of securities. Shares may be offered by private offering with our prior written consent. | |||
| l. | Franchisor approval of transfer by Developer | Section 8.4 | Transfers require our prior written consent, which may be withheld for any reason, in our sole subjective judgment. However, transfers that do not result in a change of control may, subject to certain conditions described in the development agreement, be completed without our prior written consent. |
| m. | Conditions for franchisor approval of transfer | Section 8.4 | You may not transfer any franchise agreement signed under the development agreement, except with our written consent and a simultaneous assignment of the development agreement and all of the franchise agreements signed under the development agreement to the same assignee. You must pay the applicable transfer fee and sign a general release. |
| n. | Franchisor's right of first refusal to acquire Developer's business | Not Applicable | Not applicable |
| o. | Franchisor's option to purchase Developer's business | Not applicable | Not applicable |
| p. | Death or disability of Developer | Section 8.9 | Same requirements as for a transfer in "m" above. If your interest is not transferred within six months following your (or an Owner's) death or legal incapacity, your development agreement may be terminated. |
| q. | Non-competition covenants during the term of the Agreement | Not applicable | Not applicable |
| r. | Non-competition covenants after the Agreement is terminated or expires | Section 10.2 | In the event you or an affiliate is in default of the Development Agreement which has led to premature termination of the Development Agreement, you and any owner are prohibited from owning an interest in, investing in, managing, operating, or performing services, consulting with, or be employed by or for any competitive business located in the development area or located within 25 miles of any APLUS Store in existence at under development at the time of such termination, for two years after termination of the Development Agreement. Any competitive business owned by you or an affiliate |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 53–64)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, if the Development Agreement is terminated prematurely due to a default by the developer or its affiliate, a non-competition covenant applies. This covenant restricts the developer and any owner from engaging in any competitive business.
The geographic scope of this restriction includes the development area granted to the developer under the agreement. Additionally, the restriction extends to a radius of 25 miles around any Aplus store that exists or is under development at the time of the Development Agreement's termination.
This non-compete lasts for two years following the termination date of the Development Agreement. However, this restriction does not apply to any competitive business already owned by the developer or an affiliate at the time of the Development Agreement's termination.