Does the Craters & Freighters franchise agreement prevent a franchisee from extending credit to a Competitive Business during the term of the agreement?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
Source: Item 22 — CONTRACTS (FDD pages 49–50)
What This Means (2025 FDD)
According to the 2025 Craters & Freighters Franchise Disclosure Document, the franchise agreement places restrictions on a franchisee's involvement with competitive businesses during the term of the agreement. Specifically, franchisees are prohibited from extending credit to a Competitive Business, which is defined as any business offering similar shipping, packaging, crating, receiving, delivery, storage, transportation, moving, logistics, blanket wrap, or freight forwarding services. This restriction is in place to protect Craters & Freighters's market position and prevent franchisees from supporting competing ventures that could undermine the franchise's success.
This restriction applies to both the franchisee and the franchisee's owners, ensuring that all parties with a vested interest in the Craters & Freighters franchise are committed to avoiding conflicts of interest. The agreement specifies that franchisees and their owners cannot directly or indirectly extend credit to a Competitive Business, whether for themselves or in conjunction with others. This broad language aims to prevent any financial support that could benefit a competitor, regardless of the structure of the arrangement.
There is a limited exception to this restriction, allowing franchisees to own securities in a Competitive Business if those securities are listed on a stock exchange or traded over-the-counter, and if they represent 5% or less of that class of securities. This exception acknowledges that franchisees may have investment portfolios that include minor holdings in publicly traded companies, even if those companies engage in similar services. However, any significant financial involvement or active participation in a Competitive Business is strictly prohibited without the prior written consent of Craters & Freighters.
These in-term restrictive covenants are considered material inducements for Craters & Freighters to enter into the franchise agreement, highlighting their importance in protecting the franchisor's interests. Franchisees and their owners acknowledge that compliance with these terms is essential. Violation of these covenants could lead to legal action and potential termination of the franchise agreement.