What actions are prohibited under the Cream franchise agreement's covenant not to compete?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
er the Premises and remove any signs or other materials containing any Marks from your Shop. You must reimburse us for all costs and expenses we incur in correcting any such deficiencies. You hereby appoint us as your true and lawful attorney-in-fact to take such actions and execute such documents on your behalf as may be required to effect the foregoing purposes.
C. COVENANT NOT TO COMPETE.
For two years beginning on the date of termination or expiration of this Agreement, you and your owners agree not to (and to use each of your best efforts to cause each of your respective current and former spouses, immediate family members, owners, officers, directors, employees, representatives, affiliates, successors, and assigns not to): (1) have any direct or indirect interest as an
owner (whether of record, beneficially, or otherwise) in a Competitive Business; (2) lease or sublease the Premises to a Competitive Business; and/or (3) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, in each case, if such Competitive Business is located or operating:
- (i) at the Premises or within a 5-mile radius of the Premises, or
- (ii) within a 5-mile radius of any other Jeni's Ice Creams Scoop Shop.
If any person restricted by this Section 15.C fails to comply with these obligations as of the date of termination or expiration, the two-year restricted period for that person will commence on the date the person begins to comply with this Section 15.C, which may be the date a court order is entered enforcing this provision. You and your owners expressly acknowledge that you possess skills and abilities of a general nature and have other opportunities for exploiting these skills. Consequently, our enforcing the covenants made in this Section 15.C will not deprive you of your personal goodwill or ability to earn a living. The restrictions in this Section 15.C will also apply after any transfer, to the transferor and its owners, for a period of two years beginning on the effective date of the transfer, with the force and effect as though this Agreement had been terminated for such parties as of such date.
D. OUR RIGHT TO PURCHASE YOUR SHOP.
We have the option to purchase any or all of the assets of your Shop, including your Premises (if you or one of your owners or affiliates owns the Premises) upon termination or expiration of this Agreement. We have the unrestricted right to assign this option to purchase. We may exercise this option by giving you written notice within 30 days after the date of such termination or expiration. The purchase price for your Shop will be the net realizable value of the tangible assets in accordance with the liquidation basis of accounting (not the value of your Shop as a going concern). If you dispute our calculation of the purchase price, the purchase price will be determined by one independent accredited appraiser designated by us who will calculate the purchase price applying the criteria specified above. We agree to select the appraiser within 15 days after we receive the financial and other information necessary to calculate the purchase price (if you, and we have not agreed on the purchase price before then). You and we will share equally the appraiser's fees and expenses. The appraiser must complete its calculation within 30 days after its appointment. We may set off against the purchase price, and reduce the purchase price by, any and all amounts you or your owners owe us or our affiliates.
Closing of the purchase will take place, as described below, on a date we select which is within 90 days after determination of the purchase price in accordance with this Section 15.D, although we or our designee may decide after the purchase price is determined not to purchase your Shop and/or the Premises.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, both during the term of the agreement and for a period of two years after the agreement's termination or expiration, franchisees and their owners are restricted from certain competitive actions. Specifically, they cannot have a direct or indirect ownership interest in a Competitive Business, defined as any business where ice cream or similar products constitute more than 10% of total gross revenue, with a minor exception for publicly traded companies where ownership is less than 5%.
Additionally, franchisees are prohibited from acting as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business. During the term of the agreement, these restrictions apply regardless of the Competitive Business's location. After termination or expiration, these restrictions are limited to a specific geographic area: either at the original franchise location (the Premises) or within a 5-mile radius of the Premises, or within a 5-mile radius of any other Cream Scoop Shop.
Furthermore, franchisees are barred from diverting or attempting to divert any actual or potential business or customers from any Cream Scoop Shop to a Competitive Business during the term of the agreement. These covenants also extend to the franchisee's current and former spouses, immediate family members, owners, officers, directors, employees, representatives, affiliates, successors, and assigns, obligating the franchisee to use their best efforts to ensure these parties also comply with the non-compete provisions. If any restricted person fails to comply, the two-year restricted period starts when they begin to comply, potentially after a court order enforces the provision.