Following termination of a Floyds 99 franchise agreement, what restrictive covenants must the franchisee abide by according to Article 22 of the agreement?
Floyds_99 Franchise · 2025 FDDAnswer from 2025 FDD Document
- 22.2 Post-Termination Covenant Not to Compete.
Upon termination or expiration of this Agreement for any reason, the Franchisee and its officers, directors, shareholders, Principal Managers, members, managers and/or partners agree that, for a period of two years commencing on the effective date of termination or expiration, or the date on which the Franchisee ceases to conduct business, whichever is later, neither Franchisee nor its officers, directors, shareholders, Principal Managers, members, managers and/or partners shall have any direct or indirect interest (through a member of any immediate family of the Franchisee or its owners or otherwise) as a disclosed or beneficial owner, investor, partner, director, officer, manager, employee, consultant, representative or agent or in any other capacity in any Competitive Business, defined in Section 22.1 above, located or operating within a 25 mile radius of the Franchised Location, within 25 miles of the Franchised Location of any other franchised FLOYD'S 99 Shop or, within 25 miles of the premises of any FLOYD'S 99 Shop owned by the Franchisor or affiliate of the Franchisor.
The restrictions of this Section shall not be applicable to the ownership of shares of a class of securities listed on a stock exchange or traded on the over-the-counter market that represent 5% or less of the number of shares of that class of securities issued and outstanding.
The Franchisee and its officers, directors, shareholders, Principal Managers, members, managers and/or partners acknowledge that they possess skills and abilities of a general nature and have other opportunities for exploiting such skills.
Source: Item 22 — CONTRACTS (FDD pages 57–58)
What This Means (2025 FDD)
According to the 2025 Floyds 99 Franchise Disclosure Document, Article 22.2 outlines the post-termination restrictive covenants. For a period of two years after the termination or expiration of the franchise agreement, the franchisee, along with their officers, directors, shareholders, principal managers, members, managers, and partners, cannot have any direct or indirect interest in a Competitive Business. This restriction applies within a 25-mile radius of the former franchised location, any other Floyds 99 shop, or any Floyds 99 shop owned by the franchisor or its affiliates. A Competitive Business is defined as any business operating or franchising a retail hair care business deriving more than 5% of its gross sales from haircuts or hair care products, or a wholesale business deriving more than 5% of its gross sales from hair care product sales.
This non-compete clause prevents former franchisees from leveraging the knowledge and experience gained while operating a Floyds 99 franchise to directly compete with the brand. The 25-mile radius aims to protect existing Floyds 99 locations from competition by a former franchisee who might have an unfair advantage due to their prior association with the brand. The definition of "Competitive Business" is broad, covering both retail and wholesale operations in the hair care industry, ensuring that former franchisees cannot easily circumvent the non-compete agreement by engaging in related business activities.
However, the restriction does not prevent the franchisee from owning securities in a Competitive Business if those securities are listed on a stock exchange or traded over-the-counter, provided that the securities represent 5% or less of the outstanding securities. This exception allows franchisees to invest in publicly traded companies in the hair care industry without violating the non-compete agreement, as long as their ownership stake remains minimal. The agreement acknowledges that franchisees possess general skills and abilities and have other opportunities to use these skills.
Prospective franchisees should carefully consider these post-termination restrictions, as they could significantly limit their business opportunities in the hair care industry for two years after leaving the Floyds 99 system. It is important to evaluate whether these restrictions align with their long-term career goals and business aspirations. Franchisees should also seek legal counsel to fully understand the implications of these covenants and how they might be enforced.