What covenants does a Benihana franchisee remain obligated to after a transfer?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
he Successor Franchisee Agreement, an administrative fee equal to twenty percent (20%) of the Franchise Fee in existence on the date of the expiration of the Franchise Term;
- (g) Franchisee shall execute a general release, in the form BNC requires, of any and all claims in existence against BNC and its affiliates, successors and assigns, and their respective officers, directors,
agents and employees; and
(h) Franchisee shall have satisfied all monetary obligations owed by Franchisee to BNC and its affiliates.
ARTICLE 18. TRADE SECRETS; RESTRICTIVE COVENANTS
- 18.1 Franchisee acknowledges and agrees that it will receive valuable, specialized training, including operations training, in the BENIHANA System, that is beyond the present skills, experience and knowledge of Franchisee and any of Franchisee's principals or employees. Franchisee further acknowledges that Franchisee will receive access to BNC's Confidential Information (as defined in this Agreement), which will provide a competitive advantage to Franchisee. As a condition of training Franchisee, sharing the Confidential Information with Franchisee and granting Franchisee a license to operate the Restaurant under the BENIHANA System and use BNC's intellectual property, BNC requires the covenants set forth in this Article 18 in order to protect BNC's legitimate business interests and the interests of other franchisees in the BENIHANA System.
- 18.2 Franchisee covenants that during the Franchise Term, except as BNC otherwise approves in writing, Franchisee shall devote full time, energy, and best efforts to the management and operation of the Restaurant.
- 18.3 Franchisee shall not, during the Franchise Term or thereafter, communicate, divulge, or use for the benefit of any other person, persons, partnership, association, limited liability company or corporation any confidential information, proprietary information, knowledge, or know-how concerning the Restaurant and the BENIHANA System, including, without limitation, recipes, products, proprietary formulations, technology, operational details, advertising techniques and any and all information, knowledge, know-how and techniques BNC designates as confidential, including the Operations Manual, the BENIHANA Standards and the BENIHANA System, which may be communicated to Franchisee or of which Franchisee may be apprised by virtue of Franchisee's training and/or operation of the Restaurant ("Confidential Information").
- (a) Confidential Information shall not include information which Franchisee can demonstrate came to Franchisee's attention before BNC's disclosure; or which, at or after the time of disclosure by BNC to Franchisee, had become or later becomes a part of the public domain, through publication or communication by others. Franchisee shall divulge the Confidential Information only to such of Franchisee's employees as must have access to it in order to operate the Restaurant.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, a franchisee remains bound by certain covenants even after transferring the franchise agreement. These include the obligation to execute a general release of all claims against Benihana and its affiliates, ensuring no future legal actions arise from the prior franchise relationship. Additionally, the franchisee must satisfy all outstanding monetary obligations owed to Benihana and its affiliates, ensuring all financial matters are settled before the transfer is complete.
Furthermore, the franchisee is subject to the restrictive covenants outlined in Article 18 of the franchise agreement. These covenants primarily concern the protection of Benihana's trade secrets and confidential information. Even after the transfer, the franchisee cannot communicate, divulge, or use any confidential information related to the Benihana system, including recipes, operational details, and advertising techniques, for the benefit of any other person or entity. This ensures that the knowledge and expertise gained during the franchise term are not used to compete against Benihana or its other franchisees.
Specifically, Section 18.4 addresses post-term covenants, which include geographical restrictions. If a franchisee violates these post-term covenants after the transfer, the covenant period of two years will be extended to commence on the date the franchisee complies with the covenant. This provision ensures that Benihana receives the full benefit of the post-term covenant period, uninterrupted by any interference from the former franchisee. These measures collectively protect Benihana's business interests and the integrity of the franchise system, even after a transfer of ownership.