What is the legal basis for the Restrictive Covenant Agreement in the Punch King Fitness FDD?
Punch_King_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
WHEREAS, in connection with the operation of the Franchise, Covenantor will have access to such confidential and proprietary information; and
WHEREAS, as a condition precedent to granting the Franchise to Franchisee, all shareholders, officers, partners, or members of Franchisee must execute the covenants contained herein;
NOW, THEREFORE, as additional consideration and inducement for granting the Franchise to Franchisee, Covenantor hereby agrees and covenants to Franchisee as follows:
- 1. Confidentiality. Covenantor acknowledges the proprietary and confidential nature of Franchisor's Operating Manual, which Franchisee has received on loan from Franchisor, unique sales and marketing methods, pricing techniques, promotional materials, new product development, financial information, client or referral lists, procedures for the efficient operation of a Punch King Fitness Franchised Business, and any other methods, procedures, processes, techniques, information, knowledge, or know-how concerning Franchisor's franchise system or Franchisee's Franchise, in particular, that may not be commonly known to the public or to Franchisor's or Franchisee's competitors and that Franchisor or Franchisee has identified or may identify as proprietary and confidential information (Trade Secrets). Covenantor shall use such Trade Secrets solely for Franchisee's benefit and shall not, during the term of the Franchise Agreement or at any time thereafter, communicate, divulge, or use any Trade Secrets to or for the benefit of any other person, entity, or organization.
- 2. Proprietary Marks. Covenantor acknowledges Franchisor's right, title, and interest in and to the service mark Punch King Fitness, Punch King Fitness Systems, Franchisor's stylized design, and certain other proprietary service marks, logos, symbols, and trade names presently used by Franchisor or that Franchisor may hereafter use or provide for use by Franchisee, and the identification, schemes, standards, specifications, operating procedures, and other concepts embodied in Franchisor's franchise system (the
Marks). Covenantor further acknowledges that any use of the Marks outside the scope of the Franchise Agreement without Franchisor's prior written consent would be an infringement of Franchisor's rights in the Marks. Covenantor expressly covenants that he/she shall not, directly or indirectly, commit an act of infringement or contest, or aid in contesting, the validity or ownership of the Marks or take any other action in derogation thereof during the term of the Franchise Agreement or after the expiration or termination thereof pledges that his/her violation of any of the covenants contained in this Agreement would result in irreparable injury to Franchisor and Franchisee, for which no adequate remedy at law may be available, and accordingly consents to the issuance of, and agrees to pay all court costs and reasonable attorney fees incurred by Franchisor or Franchisee in obtaining, an injunction enjoining any conduct by Covenantor prohibited by the terms of this Agreement. This remedy shall be in addition to any and all other remedies that may be available to Franchisor or Franchisee.
- **3.
Non-competition**.
Covenantor covenants that, during the term of the Franchise Agreement and for a continuous and uninterrupted period commencing upon the expiration or termination of the Franchise Agreement (regardless of the cause for termination) and continuing for two (2) years thereafter, directly or indirectly, for him/herself or through, on behalf of, or in conjunction with any person, entity or organization, own, maintain, operate, engage in, or have any interest in, any business offering boxing and kickboxing or any other products or services that have been offered by the Franchised Business, within twenty-five (25) miles of any Punch King Fitness Franchised Business.
This restriction shall not apply to the beneficial ownership by Covenantor of less than five percent (5%) of the outstanding equity securities of any corporation whose securities are registered under the Securities and Exchange Act of 1934.
In the event of the violation of this provision following expiration, termination, or assignment of the Franchise Agreement, the period of time Covenantor shall be required to abide by the breached obligation shall be extended to a period of two (2) years after Covenantor is no longer in breach of such obligation.
Source: Item 22 — CONTRACTS (FDD pages 56–215)
What This Means (2024 FDD)
According to the 2024 Punch King Fitness Franchise Disclosure Document, the Restrictive Covenant Agreement is based on several considerations. These include protecting Punch King Fitness's confidential information, proprietary marks, and the franchise system itself. The agreement is designed to prevent franchisees from using the franchisor's trade secrets and operational knowledge to unfairly compete, both during the term of the franchise agreement and for a period after its termination. The agreement acknowledges that the shareholders, officers, partners, or members of the franchisee must adhere to the covenants outlined in the agreement as a condition for granting the franchise.
The Restrictive Covenant Agreement includes clauses addressing confidentiality, proprietary marks, and non-competition. The confidentiality clause ensures that franchisees protect Punch King Fitness's trade secrets, such as the operating manual, sales and marketing methods, and financial information. The proprietary marks clause protects Punch King Fitness's trademarks, logos, and brand identity. The non-competition clause restricts franchisees from operating a similar business within a specified distance of any Punch King Fitness franchise for a set period after the franchise agreement ends.
The agreement explicitly states that violating these covenants would cause irreparable injury to Punch King Fitness and its franchisees, potentially leading to legal action. Punch King Fitness is entitled to injunctive relief, covering court costs and attorney fees, to prevent any prohibited conduct. This remedy is in addition to any other legal options available to Punch King Fitness. The non-competition clause specifies that for two years after the termination of the Franchise Agreement, the franchisee cannot engage in any business offering boxing and kickboxing or any other products or services offered by Punch King Fitness within 25 miles of any Punch King Fitness Franchised Business.
There is an exception to the non-competition clause, allowing a franchisee to hold less than 5% of the equity securities of a publicly traded corporation. If a franchisee violates the non-competition provision after the agreement expires or is terminated, the period of restriction will be extended to two years after the franchisee ceases the violation. These measures are in place to protect the Punch King Fitness brand and maintain the integrity of the franchise system.