Can Cinch I.T. require me to obtain covenants from certain individuals associated with my Cinch I.T. franchise?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
You acknowledge that Your violation of the terms of this Section 11 would result in irreparable injury to Us for which no adequate remedy at law may be available, and You accordingly consent to the issuance of an injunction by any court of competent jurisdiction or arbitrator having jurisdiction over the Agreement prohibiting any conduct by You in violation of the terms of this Section 11.
- 11.8 At Our request, You shall require and obtain execution of covenants similar to those set forth in this Section 11 (including covenants applicable upon the termination of a person's relationship with You) from any or all of the following persons: (a) all directors and managers of each CINCH I.T. Franchised Business; (b) all officers, directors and holders of a beneficial interest of five percent (5%) or more of the securities of Multi-Unit Developer and of any corporation directly or indirectly controlling Multi-Unit Developer if You are a corporation; and (c) the members or general partners and any limited partners (including any corporation, and the officers, directors and holders of a beneficial interest of five percent (5%) or more of the securities of any corporation which controls, directly or indirectly, any general or limited partner) if You are a limited liability company or partnership. All covenants required by this Section 11 shall be in forms satisfactory to Us, including, without limitation, specific identification of Us as a third (3rd) party beneficiary of these covenants with the independent right to enforce them. Failure by You to obtain execution of a covenant required by this Section 11 shall constitute a material default under Section 7 hereunder.
**12.
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to Cinch I.T.'s 2024 Franchise Disclosure Document, Cinch I.T. has the right to request that franchisees obtain covenants from certain individuals associated with the Cinch I.T. franchise. These covenants are similar to those set forth in Section 11 of the franchise agreement, which likely pertain to non-compete, non-solicitation, or confidentiality obligations.
Specifically, Cinch I.T. may require these covenants from (a) all directors and managers of each Cinch I.T. Franchised Business; (b) all officers, directors, and holders of a beneficial interest of five percent (5%) or more of the securities of the Multi-Unit Developer and of any corporation directly or indirectly controlling the Multi-Unit Developer if the franchisee is a corporation; and (c) the members or general partners and any limited partners (including any corporation, and the officers, directors and holders of a beneficial interest of five percent (5%) or more of the securities of any corporation which controls, directly or indirectly, any general or limited partner) if the franchisee is a limited liability company or partnership.
The FDD states that failure to obtain execution of a required covenant constitutes a material default under Section 7 of the agreement. All covenants must be in forms satisfactory to Cinch I.T., including specific identification of Cinch I.T. as a third-party beneficiary with the independent right to enforce them. Cinch I.T. also has the right to reduce the scope of any covenant without the franchisee's consent, effective immediately upon written notice.
This requirement ensures that individuals with significant influence or access to confidential information are bound by obligations that protect Cinch I.T.'s interests. Prospective franchisees should be aware of this obligation and factor in the administrative burden of obtaining these covenants from the relevant individuals. They should also review Section 11 of the franchise agreement to fully understand the scope of the covenants and the implications of non-compliance.