What sections of the Extreme Art Studio Franchise Agreement relate to restrictive covenants?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
15.4 COVENANT NOT TO COMPETE.
- 15.4.1 Upon termination or expiration of this Franchise Agreement, you and your owners agree that, for two years beginning on the effective date of termination or expiration, or the date on which all persons restricted by this Section 15.4 begin to comply with this Section 15.4, whichever is later, neither you nor any of your owners (or their immediate family members) will have any direct or indirect interest as an owner (whether of record, beneficially or otherwise), investor, partner, director, officer, employee, consultant, representative or agent in any Competitive Business located or operating:
- (a) within a 25-mile radius of each Extreme Art Studio Business that you operate under this Franchise Agreement; and
- (b) within a 25-mile radius of any other Extreme Art Studio Business that is either open or under development as of the date of termination or expiration of this Franchise Agreement.
- 15.4.2 These restrictions also apply after transfers, as provided in Section 12.3.2(m) above. If any person restricted by this Section 15.4 refuses voluntarily to comply with these obligations, the two-year period for that person will commence with the entry of a court order 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 15.4 will not deprive you of your personal goodwill or ability to earn a living.
- 15.4.3 If a court of competent jurisdiction determines that the two-year post-term restrictive period set forth above is too long to be enforceable, then the post-term restrictive period above shall be for a period of one year from the termination, expiration or transfer of this Franchise Agreement.
Source: Item 22 — CONTRACTS (FDD page 49)
What This Means (2024 FDD)
According to Extreme Art Studio's 2024 Franchise Disclosure Document, Section 15.4 of the Franchise Agreement outlines the covenant not to compete. This section specifies that upon termination or expiration of the agreement, the franchisee and their owners are restricted from having any direct or indirect interest in a Competitive Business within a 25-mile radius of any Extreme Art Studio Business they operate or any other Extreme Art Studio Business that is open or under development. This restriction lasts for two years, beginning from the termination or expiration date, or the date when compliance begins, whichever is later. These restrictions also apply after transfers, as detailed in Section 12.3.2(m). If compliance is not voluntary, the two-year period starts upon a court order enforcing the provision.
The Franchise Agreement clarifies that the skills and abilities of the franchisee and their owners are general in nature, and they have other opportunities to use these skills. Therefore, enforcing the non-compete covenants will not deprive them of their personal goodwill or ability to earn a living. However, if a court finds the two-year post-term restrictive period too long, it will be reduced to one year from the termination, expiration, or transfer date.
Additionally, the document defines key terms related to restrictive covenants. "Prohibited Activities" include owning, operating, or having an interest in a Competitive Business (excluding a 5% or less interest in a publicly-traded company) or diverting business from Extreme Art Studio. The "Restricted Period" is generally two years after ceasing to be a manager or officer of the Franchisee's Extreme Art Studio Business, but it may be reduced to one year by a court. The "Restricted Territory" is a 25-mile radius around any Extreme Art Studio Business operated by the franchisee or any other Extreme Art Studio Business that is open or under development, potentially reduced to a 13-mile radius by a court.