Is there an exception to the Dermani Medspa covenant not to compete for equity ownership in a competitive business?
Dermani_Medspa Franchise · 2025 FDDAnswer from 2025 FDD Document
t-Termination Rights**. Upon termination or expiration of this Agreement, you will have no right to establish or operate a Franchised Business or manage any dermani MEDSPA® for which a Franchise Agreement has not been executed by us at the time of termination.
- 8.6. Cross-Defaults. No default under this Area Development Agreement shall constitute a default under any Franchise Agreement between the parties hereto.
9. COVENANTS AND RESTRICTIONS ON COMPETITION
- 9.1. During the Term. You acknowledge that this Agreement will give you access to valuable and Confidential Information regarding the System, including our business development strategy and the sales, promotional, managing, and marketing methods of dermani MEDSPA®. You agree that during the term of this Agreement, you will not, without our prior written consent, either directly or indirectly through any other person or entity:
- 9.1.1. develop, build, own, maintain, operate, manage, engage in, franchise, or license, or have any direct or indirect controlling or non-controlling interest as an owner – whether of record, beneficially, or otherwise – in a Competitive Business, wherever located or operating (except that an equity ownership of less than five percent (5%) of a Competitive Business whose stock o
Source: Item 23 — RECEIPTS (FDD pages 66–311)
What This Means (2025 FDD)
According to the 2025 Dermani Medspa Franchise Disclosure Document, there is an exception to the covenant not to compete regarding equity ownership in a competitive business. Specifically, the agreement states that owning less than 5% of a Competitive Business's stock does not violate the non-compete agreement if the company is publicly traded on a recognized United States stock exchange.
This exception applies both during the term of the franchise agreement and after termination, expiration, or transfer of the agreement. This means a franchisee can invest in a competitor without violating the agreement, provided the investment meets the specified conditions.
This clause provides Dermani Medspa franchisees with some flexibility to diversify their investments without being in breach of contract. However, it is important to note that this exception is limited to publicly traded companies and ownership of less than 5%. Any larger investment or involvement with a privately held competitor could still be considered a breach of the agreement.