Are there any exceptions to the non-compete agreement for Afuri Ramen Dumpling franchisees operating pre-existing businesses?
Afuri_Ramen_Dumpling Franchise · 2024 FDDAnswer from 2024 FDD Document
- 1.3 The Pre-Existing Business(es) will continue to be operated separately and independently from the Afuri franchise.
- 1.4 Any and all existing franchise agreements, stockholder agreements, membership agreements, partnership agreements, option agreements, or any other agreements or third-party rights relating to the Pre-Existing Business, do not contain any covenants, terms and conditions which do now, or may in the future, prohibit the execution of the Franchise Agreement and the participation of any of the owners, managers or employees of the Franchisee in the Afuri franchise.
- 1.5 Other than the consents of Franchisee and Franchisor, there is no other third-party consent required for the acquisition of the Afuri franchise to be legally binding and effective.
- 1.6 There are no existing restrictive covenants, other than those which the Pre-Existing Business has waived, binding on Franchisee or any of its partners, owners, agents, representatives or employees that would be breached by the acquisition and operation of the obligations of Franchisee to Franchisor in the Franchise Agreement and related agreements.
- 1 Afuri Franchise Agreement: Exhibit 4 2. Exceptions to In-Term and Post-Term Non-Competition Covenants. Franchisee (or its owners or affiliated entities) may continue to operate the Pre-Existing Business(es) [Alternative #1: only
at the locations indicated above][ Alternative #2: including any new or additional locations under the same brand name(s) and offering the same goods and services as the Pre-Existing Business(es)] notwithstanding the in-term and post-term non-competition covenants in the Franchise Agreement (in Sections 5.7.2 and 6.7 of the Franchise Agreement, respectively). However, the confidentiality and nondisclosure covenants of the Franchise Agreement are not affected by this Addendum and remain in full force and effect.
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- No Other Exception. Except as expressly permitted by Section 2 above (if applicable), Franchisee will not establish any new or additional businesses or participate in any other activities that would violate the Franchise Agreement's in-term or post-term non-competition covenants referenced above.
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- Indemnification. Franchisee shall indemnify, defend and hold harmless Franchisor and its affiliates against all losses, costs, proceedings, judgments, liabilities, expenses, court costs, and reasonable fees of attorneys and other professionals arising out of or related to: (1) any breach of the representations and warranties set out in this Addendum; (2) the operation of any Pre-Existing Business; or (3) any willful or negligent act or omission of Franchisee or Franchisee's owners, directors, officers, employees or agents (or those of any Pre-Existing Business). This indemnity includes but is not limited to any act or omission that contributes to any economic damage, bodily injury, sickness, disease or death. This indemnity shall survive termination of the Franchise Agreement. This indemnity is intended to be in addition to, and does not reduce the scope of, the indemnification provisions in the Franchise Agreement.
Source: Item 23 — Receipts (FDD pages 50–189)
What This Means (2024 FDD)
According to Afuri Ramen Dumpling's 2024 Franchise Disclosure Document, there are exceptions to the in-term and post-term non-competition covenants if a franchisee operates pre-existing businesses. These exceptions are detailed in the Pre-Existing Business Addendum (Exhibit 4) to the Franchise Agreement. This addendum allows franchisees to continue operating their pre-existing businesses, notwithstanding the standard non-compete clauses found in Sections 5.7.2 and 6.7 of the Franchise Agreement.
However, this exception comes with specific conditions. The pre-existing business must continue to be operated separately and independently from the Afuri Ramen Dumpling franchise. Additionally, any existing agreements related to the pre-existing business must not conflict with the franchisee's ability to fulfill the Franchise Agreement. The confidentiality and nondisclosure covenants within the Franchise Agreement remain in full effect, even with the Pre-Existing Business Addendum.
Afuri Ramen Dumpling also stipulates that franchisees cannot establish new businesses or participate in activities that would violate the standard non-competition agreements, except as explicitly permitted in the Pre-Existing Business Addendum. The franchisee is required to indemnify Afuri Ramen Dumpling against any losses, costs, or liabilities arising from breaches of representations and warranties within the addendum, the operation of the pre-existing business, or any negligent acts by the franchisee or their business.
The Pre-Existing Business Addendum provides two alternative options regarding the scope of the exception: Alternative #1 allows the franchisee to operate pre-existing businesses only at the locations indicated in the addendum, while Alternative #2 allows operation at existing locations and any new or additional locations under the same brand name(s) and offering the same goods and services. This flexibility could be beneficial for franchisees who already have established businesses and wish to expand without violating the franchise agreement.