Are certain provisions of the Area Development Agreement applicable to the owners of the Developer for Buona?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
t by or to any trustee in bankruptcy, shall be a material default of this Agreement. You have represented and hereby represent to us that you are entering into this Agreement with the intention of complying with its terms and conditions through the term of this Agreement and not for the purpose of resale of the developmental rights hereunder.
9. POST-TERMINATION COVENANTS
- 9.1 Unless otherwise specified, the term "Developer" as used in this Section 9 shall include each and every Owner of Developer.
- 9.2 Developer specifically acknowledges that, pursuant to this Agreement, Developer will have access to the Confidential Information. Accordingly, Developer covenants that Developer and its Owners shall not, for a period of two (2) years after the expiration or termination of this Agreement, regardless of the cause of termination, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person, persons, or entity:
- (a) own, maintain, operate, engage in, consult with or have any interest in (as disclosed or beneficial owner) any Competitive Business or any entity which is franchises, licenses or develops Competitive Businesses within the Development Area, or within a ten (10) mile radius of any existing Buona Restaurant, except under a validly existing Franchise Agreement with Franchisor. You acknowledge and agree that, after the date of this Agreement, other Buona Restaurants may open, thereby expanding the geographical area in which you will not be able to compete with us. For purposes of this Section 9, a "Competitive Business" is defined as any retail establishment that derives more than ten percent (10%) of its gross sales from Italian beef and Italian sausage products and other Italian specialties.
- (b) directly or indirectly divert or attempt to divert any former business or customer of a Buona Restaurant to any competitive business; and
- (c) employ or seek to employ any person employed by us or our affiliate or by any other Buona Restaurant franchisee, or otherwise directly or indirectly induce or seek to induce such person to leave his or her employment, subject to applicable law;
The ownership of two percent (2%) or less of a publicly traded Franchisor will not be deemed to be prohibited by this paragraph.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, certain provisions of the Area Development Agreement (ADA) do apply to the owners of the Developer. Specifically, the term "Developer" in the section regarding post-termination covenants includes each and every Owner of Developer, unless otherwise specified. This means that the restrictions and obligations outlined in that section extend to the individual owners as well as the development entity itself.
One of the key post-termination covenants is that for two years after the agreement expires or terminates, the Developer and its Owners cannot directly or indirectly engage in any Competitive Business within the Development Area or within a 10-mile radius of any existing Buona Restaurant. A Competitive Business is defined as any retail establishment deriving more than 10% of its gross sales from Italian beef, Italian sausage products, and other Italian specialties. Additionally, they are prohibited from diverting business from a Buona Restaurant or employing/soliciting Buona's employees.
Furthermore, the owners of the Developer must execute a Guaranty and Assumption of Obligations, making them personally responsible for the obligations under the Area Development Agreement. They also affirm the accuracy of the information provided to Buona and acknowledge the business risks involved. This ensures that Buona can enforce the agreement against the owners personally, not just the development entity. However, the ownership of 2% or less of a publicly traded Franchisor will not be deemed to be prohibited by this paragraph.