What are the consequences if a Craters & Freighters franchisee fails to comply with in-term restrictive covenants?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
interests and business relationships, including, but not limited to, Franchisor's relationship with approved suppliers, customers, and franchisees.
Franchisee and Franchisee's owner(s) further acknowledge that these covenants and agreements relating to non-competition and non-solicitation are material inducements for Franchisor to enter into this Agreement, and that it is essential that Franchisee and Franchisee's owner(s) comply with the terms set forth herein.
- 15.2 In-Term Restrictive Covenants. During the term of this Agreement, Franchisee and Franchisee's owner(s) may not, directly or indirectly, for themselves or through, on behalf of, or in conjunction with any other person, partnership, or corporation:
- 15.2.1 Perform any services for, consult for, engage in, acquire, lend money to, extend credit to, have any interest in, or be employed as an officer, director, executive, or principal of any business that offers shipping, packaging, crating, receiving and delivery, storage, transportation, moving, logistics, blanket wrap, or freight forwarding services, or products or services similar to the Franchised Business ("Competitive Business") without the prior written consent of Franchisor. Notwithstanding the foregoing, Franchisee will not be prohibited from owning securities in a Competitive Business if such securities are listed on a stock exchange or traded on the over-the-counter market and represent five percent (5%) or less of that class of securities.
- 15.2.2 Divert, attempt to divert, or solicit business or customers of the Franchised Business, any Craters & Freighters Franchised Business, or any Craters & Freighters company-owned or Affiliate-owned business, to any Competitive Business by direct or indirect inducement or otherwise.
- 15.3 Post-Term Restrictive Covenants. For a period of two (2) years after the expiration, transfer, or termination of this Agreement, Franchisee and its owner(s) may not, directly or indirectly, for themselves or through, on behalf of, or in conjunction with any other person, partnership, or corporation:
- 15.3.1 Perform any services for, consult for, engage in, acquire, lend money to, extend credit to, have any interest in, or be employed as an officer, director, executive, or principal of any Competitive Business at or within the following areas: (i) at the Premises of the Franchised Business; (ii) within the Territory granted to Franchisee under this Agreement; or (iii) within a radius of ten (10) miles of (a) the Premises of the Franchised Business, or (b) the premises of any other Craters & Freighters Franchised Business or any Craters & Freighters company-owned or Affiliate-owned outlet then-existing as of the date of the expiration, transfer, or termination of this Agreement.
- 15.3.2 Divert, attempt to divert, or solicit business or customers of the Franchised Business, any Craters & Freighters Franchised Business, or any Craters & Freighters company-owned or Affiliate-owned business, to any Competitive Business by direct or indirect inducement or otherwise.
- 15.3.3 Attempt to endorse, or enter into any business competing in whole or in part with Franchisor in granting franchisors or licenses, or establishing joint ventures, for Competitive Businesses.
- 15.4 Reasonableness of Restrictions. Franchisee and Franchisee's owner(s) acknowledge and confirm that the length of the term and geographical restrictions contained in Section 15.3 are fair and reasonable and not the result of overreaching, duress, or coercion of any kind.
Source: Item 22 — CONTRACTS (FDD pages 49–50)
What This Means (2025 FDD)
The 2025 Craters & Freighters Franchise Disclosure Document emphasizes the importance of adhering to in-term restrictive covenants, noting they are material inducements for the franchisor to enter into the agreement. These covenants prevent a franchisee and their owners from engaging in activities that directly or indirectly compete with the Craters & Freighters business during the term of the agreement. Specifically, franchisees cannot perform services for, consult for, invest in, or be employed by any business offering similar shipping, packaging, crating, or logistics services without prior written consent from Craters & Freighters. However, franchisees are permitted to own up to 5% of the securities of a publicly traded competitor. Franchisees also cannot divert or solicit business from any Craters & Freighters location to a competing business.
After the franchise agreement expires, is transferred, or is terminated, the franchisee and their owners are subject to post-term restrictive covenants for two years. During this period, they cannot engage in a competitive business within the territory granted to them, at the premises of the franchised business, or within a 10-mile radius of the franchised business or any other Craters & Freighters location.
If Craters & Freighters initiates legal proceedings to enforce these agreements and prevails, the restricted person (franchisee) must reimburse Craters & Freighters for all enforcement costs and expenses, including attorney's fees. The franchisee acknowledges that the restrictions are fair and reasonable and agrees to comply with any lesser restriction deemed enforceable by a court if the original restrictions are deemed unenforceable.