In the non-competition covenant, what constitutes a direct or indirect interest in a retail food service business that is prohibited for Browns Chicken franchisees?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee acknowledges and agrees that Brown would be unable to protect the Confidential Information against unauthorized use and disclosure and would be unable to encourage a free exchange of ideas and information among BROWN'S Stores if owners of BROWN'S Stores and members of their immediate families were permitted to hold interests in or perform services for competitive businesses. Brown has entered into this Agreement with Franchisee on the express condition that with respect to the operation of a retail food service business which offers cooked chicken, pasta, or sandwiches. Franchisee (and its owners and members of their respective immediate families) will deal exclusively with Brown. Franchisee therefore agrees that during the term of this Agreement, except for the Store and other BROWN'S Stores operated under franchise agreements with Brown: (1) neither Franchisee, nor any shareholder or partner of Franchisee (in the event Franchisee, is a corporation or partnership), nor any member of the immediate family of Franchisee or any shareholder or partner of Franchisee, shall have any direct or indirect interest as a disclosed or beneficial owner of any retail food service business wherever located, that offers cooked chicken, pasta or sandwiches, or any direct or indirect interest in any entity which is granting franchises or licenses to others to operate retail food service businesses that offer cooked chicken, pasta or sandwiches; and (2) neither Franchisee nor any partner or shareholder of Franchisee shall perform services as a director, officer, manager, employee, consultant, lessor, lender, representative, agent or otherwise for any retail food service business wherever located, that offers cooked chicken, pasta or sandwiches; provided that the restrictions of this Section 15 shall 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 one percent (1%) or less of the number of shares of that class of securities issued and outstanding.
Source: Item 22 — Contracts (FDD page 43)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, the non-competition covenant restricts franchisees and their immediate family members from having certain interests in competitive retail food service businesses. Specifically, during the term of the franchise agreement, franchisees (including their shareholders, partners, and immediate family members) are prohibited from holding any direct or indirect interest as a disclosed or beneficial owner of any retail food service business that offers cooked chicken, pasta, or sandwiches, regardless of its location. This also extends to any entity that grants franchises or licenses to others for operating similar retail food service businesses.
Furthermore, franchisees and their partners or shareholders are barred from performing services in any capacity (director, officer, manager, employee, consultant, lessor, lender, representative, agent, etc.) for any retail food service business offering cooked chicken, pasta, or sandwiches, irrespective of location. This restriction aims to prevent franchisees from using Browns Chicken's confidential information and business strategies to benefit competing businesses during the term of the agreement.
There is a limited exception to this restriction: franchisees can own shares of a publicly traded company that represents one percent (1%) or less of the outstanding shares. This exception allows franchisees to make minor investments in publicly traded companies without violating the non-competition agreement. This clause is designed to protect Browns Chicken's market position and confidential information by preventing franchisees from engaging with competing businesses in a significant way.