Where in the Red Wagon Club franchise agreement can I find details about the post-term covenant not to compete?
Red_Wagon_Club Franchise · 2024 FDDAnswer from 2024 FDD Document
18.E. POST-TERM COVENANT NOT TO COMPETE.
Upon expiration or termination of this Agreement for any reason, neither Franchisee, its affiliates, nor any owner nor any member of the immediate family of Franchisee or any owner, shall directly or indirectly for a period of twenty-four (24) months commencing on the effective date of such termination or expiration, or the date on which Franchisee ceases to operate Franchisee's RWC Business, whichever is later:
- (1) have any interest as a disclosed or beneficial owner in any Competitive Business located or operating:
- (a) at the Office, or
- (b) within the Territory, or
- (c) within a twenty-five (25) mile radius of the protected territory of any other Business in operation or under development on the effective date of termination or expiration of this Agreement;
- (2) perform services as a director, officer, manager, employee, consultant, lessor, representative, agent, or otherwise for any Competitive Business located or operating:
- (a) at the Office, or
- (b) within the Territory, or
- (c) within a twenty-five (25) mile radius of the protected territory of any other Business in operation or under development on the effective date of termination or expiration of this Agreement; or
- (3) divert or attempt to divert any business or any customers of any Businesses to any Competitive Business.
The restrictions of Subparagraph (1) of this Section 18.E. will 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 and quoted on a national inter-dealer quotation system that represent less than three percent (3%) of the number of shares of that class of securities issued and outstanding.
Source: Item 22 — CONTRACTS (FDD page 47)
What This Means (2024 FDD)
According to the 2024 Red Wagon Club Franchise Disclosure Document, details regarding the post-term covenant not to compete can be found in Section 18.E of the franchise agreement. This section outlines the restrictions placed on the franchisee, their affiliates, owners, and immediate family members after the franchise agreement expires or is terminated.
Specifically, for a period of 24 months after the agreement's termination or expiration, the franchisee is restricted from having any ownership interest in a Competitive Business, performing services for a Competitive Business, or diverting business from existing Red Wagon Club locations. These restrictions apply to businesses located at the original franchise office, within the territory of the franchise, or within a 25-mile radius of any other Red Wagon Club business in operation or under development.
There is an exception to the ownership restriction, allowing ownership of less than 3% of shares in a publicly traded company. This post-term covenant not to compete ensures that franchisees do not use the knowledge and experience gained during their time with Red Wagon Club to directly compete with the franchise system after their agreement ends.