Who is the Lees Famous Recipe agreement binding upon, besides the franchisee and franchisor?
Lees_Famous_Recipe Franchise · 2025 FDDAnswer from 2025 FDD Document
- B.
Post-Term Covenant Not to Compete.
You and each Principal Owner will not, for a period of two (2) years after this Agreement expires or is terminated, directly or as an employee, agent, consultant, partner, officer, director or shareholder of any other person, firm, entity, partnership or corporation: (1) divert or attempt to divert any business or customers of the Restaurant(s) to any Competing Business or perform any act that would damage the goodwill associated with the Marks or the System; (2) own, operate, lease, franchise, conduct, engage in, be connected with, have any interest in, or assist any person or entity engaged in any Competing Business that is located (i) in the Development Area, (ii) within a five (5) mile radius of the Development Area, or (iii) within a five (5) mile radius of any other then-existing Lee's Famous Recipe Restaurant; provided, however, that this Section 12(B) will not apply to: (i) other Lee's Famous Recipe Restaurants that you operate under any effective Lee's Famous Recipe franchise agreements; or (ii) the ownership of securities listed on a stock exchange or traded on the over-the-counter market that represent one percent (1%) or less of that class of securities.
Source: Item 23 — RECEIPTS (FDD pages 70–287)
What This Means (2025 FDD)
Based on the 2025 FDD, the Lees Famous Recipe agreement extends its binding nature beyond just the franchisee and franchisor to include 'each Principal Owner' regarding the post-term covenant not to compete. This means that the restrictions placed on the franchisee after the agreement expires or is terminated also apply to those individuals deemed as Principal Owners.
According to the FDD, Principal Owners are restricted from engaging in any Competing Business within the Development Area, within a five-mile radius of the Development Area, or within a five-mile radius of any other then-existing Lees Famous Recipe Restaurant for two years after the agreement ends. This restriction applies whether the Principal Owner acts directly or indirectly as an employee, agent, consultant, partner, officer, director, or shareholder of another entity. However, this covenant does not apply to other Lees Famous Recipe Restaurants operated under effective franchise agreements or the ownership of securities representing one percent or less of a publicly traded company.
This clause is significant because it ensures that key individuals associated with the franchisee are also committed to not competing with Lees Famous Recipe after the franchise agreement concludes, protecting the brand's market position and goodwill. Prospective franchisees should carefully consider who qualifies as a Principal Owner and ensure they understand the implications of this post-term covenant for those individuals.