Following termination of a Bonchon franchise agreement, what article outlines the post-termination covenants not to compete?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
Strictly comply with the post-termination/post-expiration covenants not to compete set forth in Article 12 of this Agreement (including those restricting your ability to sell, assign, lease or otherwise grant possessory rights to your Restaurant and/or Restaurant Location to a party intending to conduct a Competitive Business thereat).
12.02 Covenant Not to Compete
You agree that (i) at any geographic location whatsoever during the Initial Term and any Successor Term of this Agreement, and (ii) within twenty miles of your Restaurant Location or within twenty miles of the Restaurant Location of any other franchised or company-owned Bonchon Business (regardless of how established or operated) for a period two years immediately following the later of (a) the termination, expiration or assignment (as defined in Section 14.02 below) of this Agreement or any Successor Agreement for any reason or (b) the date on which all persons restricted by this Section 12.02 begin to comply with this Section 12.02, you will not directly or indirectly engage in, aid, assist, serve or participate in any other business or activity which offers or sells (or grants franchises or licenses to third parties to operate businesses that offer or sell) Korean fried chicken or that serve chicken as a primary menu item (a "Competitive Business"). For the purposes of this Section, a business that serves chicken as a primary menu item is defined as a business that derives 25% or more of its gross revenues from selling chicken;.
You are prohibited from directly or indirectly engaging in any Competitive Business as a proprietor, partner, investor, shareholder, member, director, manager, officer, employee, principal, agent, advisor, consultant, lessor, sublessor or any similar capacity. In addition, you agree not to divert any business that should be handled by the franchised Business to any other person or entity. It is the intention of these provisions to preclude not only direct competition but also all forms of indirect competition, such as consultation for Competitive Businesses, service as an independent contractor for Competitive Businesses, or any assistance or transmission of information of any kind which would be of any material assistance to a competitor. Nothing in this Agreement will prevent you from owning for investment purposes only up to an aggregate of 5% of the capital stock of any Competitive Business you do not control, so long as the Competitive Business is a publicly held corporation whose stock is listed and traded on a national or regional stock exchange.
Source: Item 23 — RECEIPTS (FDD pages 92–536)
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, Article 12 of the franchise agreement outlines the post-termination covenants not to compete. Specifically, Item 23, number 9, states that franchisees must strictly comply with these covenants as detailed in Article 12. This includes restrictions on selling, assigning, leasing, or granting possessory rights to the restaurant or its location to any party intending to operate a competitive business there.
Article 12, as quoted in Item 23, Section 12.02, specifies that during the Initial Term and any Successor Term of the agreement, and for two years after termination, expiration, or assignment, franchisees are prohibited from engaging in or assisting any business that offers or sells Korean fried chicken or serves chicken as a primary menu item within a certain radius. This radius extends to twenty miles of the franchisee's restaurant location or any other Bonchon location, whether franchised or company-owned. The definition of a business serving chicken as a primary menu item is one that derives 25% or more of its gross revenues from selling chicken.
This non-compete clause prevents franchisees from participating in a competitive business as a proprietor, partner, investor (with exceptions for minor, passive investments in publicly held corporations), shareholder, member, director, manager, officer, employee, principal, agent, advisor, consultant, lessor, or sublessor. The intention is to prevent both direct and indirect competition, including consultation or information sharing that could aid a competitor. This ensures that former franchisees do not leverage their knowledge and experience gained from the Bonchon system to unfairly compete against the brand after the franchise agreement ends.