What specific post-termination obligations must Red Wagon Club franchisees satisfy?
Red_Wagon_Club Franchise · 2024 FDDAnswer from 2024 FDD Document
18.D. CONTINUING OBLIGATIONS.
All of Franchisor's and Franchisee's (and Franchisee's owner(s)') obligations which expressly or by their nature survive this Agreement's expiration or termination will continue in full force and effect
subsequent to and notwithstanding its expiration or termination and until they are satisfied in full or by their nature expire.
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, franchisees face several obligations upon termination or expiration of their franchise agreement. These obligations are designed to protect Red Wagon Club's brand and competitive position.
Specifically, for a period of 24 months after the termination or expiration date (or the date the franchisee ceases operations, if later), the franchisee, their affiliates, owners, and immediate family members are restricted from engaging in any Competitive Business. This includes owning an interest in, or performing services for, a Competitive Business located at the original franchise office, within the franchise's territory, or within a 25-mile radius of any other Red Wagon Club business in operation or under development. This restriction does not apply to ownership of less than 3% of shares in publicly traded companies.
Additionally, franchisees are prohibited from diverting or attempting to divert any business or customers of any Red Wagon Club businesses to any Competitive Business. The franchise agreement also stipulates that all obligations that expressly or by their nature survive the agreement's expiration or termination will remain in effect until fully satisfied or expired. Franchisees also agree to not disparage the Red Wagon Club brand. These post-termination covenants are typical in franchising to protect the brand and prevent unfair competition from former franchisees.