During the Restraint Period, is a Chatime Developer Party prohibited from being concerned or interested in any Restrained Business?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
(56) Restrained Business means a business which is the same as or substantially similar to the Chatime Stores, or engaged, concerned or interested in or carrying on any retailing or supplying of products or services the same as or substantially similar to the Products offered by Chatime Stores.
(58) Restraint Period means a continuous uninterrupted period of two (2) years commencing on and from the expiration or termination date of this Agreement.
7.3 Restraint Applies to Conduct in Any Capacity
The agreement by Developer Parties in clause 7.2 applies to any of them, the Interested Parties, and those acting:
- (1) In partnership or association with another person;
- (2) As principal, agent, representative, director, officer, employee, or financier;
- (3) As member, shareholder, debenture holder, note holder, or holder of any other security;
- (4) As trustee of or as a consultant or adviser to any person; or
- (5) In any other capacity.
7.7 Acceptable Conduct
Nothing in this clause prevents Developer or Guarantor from:
- (1) Owning less than 5%, by value, of securities in a listed corporation;
- (2) Engaging or being concerned or interested in Developer's Operation in accordance with this Agreement; or
(3) Engaging or being concerned or interested in any business or activity pursuant to which Franchisor has given its prior written consent.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, a Developer Party is generally prohibited from being concerned or interested in any Restrained Business during the Restraint Period. The FDD defines a "Restrained Business" as one that is the same as or substantially similar to Chatime stores, or involved in retailing or supplying similar products or services. The "Restraint Period" is defined as two years following the expiration or termination of the Development Agreement.
This restriction applies to the Developer Party in various capacities, including acting alone or with others, as a principal, agent, director, officer, employee, financier, member, shareholder, trustee, consultant, or in any other role. This broad definition ensures that the Developer cannot circumvent the non-compete agreement through different business structures or roles.
However, there are exceptions. The Developer Party can own less than 5% of securities in a listed corporation, engage in the Developer's Operation as per the Development Agreement, or participate in any business or activity that Chatime has given prior written consent to. These exceptions provide some flexibility for the Developer to pursue other business interests without violating the non-compete clause. It is important for a prospective Chatime developer to understand these restrictions and exceptions, as violating the non-compete clause could result in the Developer having to compensate Chatime for any profits or benefits derived from the breach.