Key Items to Watch out for in the ACE SUSHI FRANCHISE CORPORATION 2020 FDD
Certain states require that the following risk(s) be highlighted: 1. Out-of-State Dispute Resolution. The franchise agreement requires you to resolve disputes with the franchisor by mediation, arbitration and/or litigation only in California. Out-of-state mediation, arbitration, or litigation may force you to accept a less favorable settlement for disputes. It may also cost more to mediate, arbitrate, or litigate with the franchisor in California than in your own state. 2. Ace Sushi Bars will be located in grocery stores, supermarkets and other locations (“Stores”) owned and operated by third-party operators who have entered into agreements with AMG to provide the sushi products for sale at the stores. You will have no control over the stores’ operating hours, operations, customer traffic, advertising or other aspects of the stores’ operations; however, these factors will impact the franchised business. 3. The owners of the stores may terminate their agreement with AMG at any time, and generally on only 30 – 60 days’ notice. Termination of that agreement may result in the expiration of the term of your franchise agreement. 4. The possible success of your Ace Sushi Bar may be dependent upon the location or area you choose as well as other factors. These factors, along with your own business ability in operating your ace sushi bar(s) and your financial and other recourses are components that most likely to determine your potential success. 5. In 2019, 220 franchise locations were closed because the franchisee left the system. In addition, 5 franchise locations were terminated because the franchisee’s sushi supply agreement with the venue owner expired. This franchise could be a higher risk investment than a franchise in a system with a lower turnover rate. 6. The franchisor’s most recent audited financial statements reflect that the franchisor may not have the financial resources to provide services or support to you. 7. There may be other risks concerning this franchise.
Certain states may require other risks to be highlighted. Check the “State Specific Addenda” (if any) to see whether your state requires other risks to be highlighted.
Item 5: Initial Fees
Initial Training Fee To become eligible to purchase an Ace Sushi Bar franchise under our Single Unit Program (and you are not signing your Franchise Agreement pursuant to an Area Development Agreement), you must pay us $1,500 – $5,500 for our initial training program (the “Initial Training Program”) as an initial training fee (the “Initial Training Fee”) when you sign our Initial Training Agreement. The Initial Training Fee is payable in full when you sign the Initial Training Agreement, is fully earned when paid and is not refundable. If you would like us to train additional trainees for you, the Initial Training Fee for each additional trainee is $2,500 under our Single Unit Program and is payable in full when you sign the Initial Training Agreement, is fully earned when paid and is not refundable. If you are signing an Area Development Agreement or a Franchise Agreement pursuant to an Area Development Agreement, you are not required to pay the Initial Training Fee. We will provide the Initial Training Program to you at no additional cost if you sign an Area Development Agreement. We will provide the training program to two individuals if you sign an Area Development Agreement for 5 or 10 ACE sushi Bars and four individuals if you sign an Area Development Agreement for 40 or more Ace Sushi Bars. After you successfully complete the Initial Training Program, you must train all of your employees and chefs.
Initial Franchise Fee Single Unit Program If you successfully complete our Initial Training Program, in our judgment, you will be eligible to sign our Franchise Agreement and must then pay us an Initial Franchise Fee (the “Initial Franchise Fee”) for your Main Sushi Bar. Your Initial Franchise Fee for your Main Sushi Bar is calculated under the schedule included below; however, all Ace Sushi franchisees may not pay the same Initial Franchise Fee for their Main Sushi Bar. We will determine the amount of your Initial Franchise Fee before you sign your Franchise Agreement and will calculate your Initial Franchise Fee based upon the average household income of the population within a 3 mile radius of your Main Sushi Bar (your “Market Area”) as follows: We use the currently available average household income statistics from the most recent U.S. Census in calculating your Initial Franchise Fee, but we may use a substitute or successor source of average household income information if necessary. We will not refund any portion of your Initial Franchise Fee if the average household income in your Market Area declines nor will we charge any additional fees if the average household income in your Market Area increases after you sign your Franchise Agreement. The Initial Franchise Fee for your Main Sushi Bar is either payable in full when you sign the Franchise Agreement, or if you prefer and we agree, in 2 – 12 equal monthly payments in the manner we require after you sign the Franchise Agreement. The Initial Franchise Fee is fully earned when paid and is not refundable. If you have signed an Area Development Agreement, the Initial Franchise Fee for the Franchise Agreements you sign pursuant to the Area Development Agreement will be as provided in your Area Development Agreement.
Satellite Store Program You must pay us an Initial Franchise Fee for each Satellite Store. Your Initial Franchise Fee is calculated under the schedule included below; however, all Ace Sushi franchisees may not pay the same Initial Franchise Fee for their Satellite Stores. Your Initial Franchise Fee for each Satellite Store will equal 20% of your Initial Franchise Fee for your Main Sushi Bar: The Initial Franchise Fee for each Satellite Store is payable in full when you sign the Satellite Store Addendum, which may be at the same time you sign your Franchise Agreement or at a later date as Satellite Stores are assigned to you, and is fully earned when paid and is not refundable. If you have signed an Area Development Agreement, the Initial Franchise Fee for each Satellite Store will be as provided in your Area Development Agreement.
Area Development Program If you enter into an Area Development Agreement you will pay us a development fee that includes the Base Development Fee (defined below) plus the Initial Franchise Fee for each Ace Sushi Bar that you are required to develop, excluding the Initial Franchise Fees that are waived, as described below. If you enter into an Area Development Agreement to develop 5 Ace Sushi Bars, we will waive the Initial Franchise Fee for the first Main Sushi Bar you develop. You will pay us a development fee of $59,500, which includes the $49,500 Base Development Fee, and $2,500 for the remaining four (4) Ace Sushi Bars you are required to develop. We will credit $2,500 toward the Initial Franchise Fee you must pay to us when you sign each Franchise Agreement after the first Franchise Agreement. If you enter into an Area Development Agreement to develop 10 Ace Sushi Bars, we will waive the Initial Franchise Fee for the first Main Sushi Bar you develop. You will pay us a development fee of $112,000, which includes the $89,500 Base Development Fee, and $2,500 for the remaining nine (9) Ace Sushi Bars you are required to develop. We will credit $2,500 toward the Initial Franchise Fee you must pay to us when you sign each Franchise Agreement after the first Franchise Agreement. If you enter into an Area Development Agreement to develop 40 or more Ace Sushi Bars (no fewer than 30 of which shall be Main Sushi Bars), we will waive the Initial Franchise Fee for the first five Main Sushi Bars you develop. You will pay us a development fee of $300,000 plus the Initial Franchise Fees for the Ace Sushi Bars you are required to develop (excluding the fees for the first 5 Main Sushi Bars). We will credit the prepaid Initial Franchise Fees toward the Initial Franchise Fee you must pay to us when you sign each Franchise Agreement after the first Franchise Agreement (not to exceed $1,250 for a Main Sushi Bar and $500 for a Satellite Store). If you sign an Area Development Agreement to develop 5 or 10 Ace Sushi Bars the Initial Franchise Fee for a Main Sushi Bar will be $2,500 and the Initial Franchisee Fee for a Satellite Store will be $1,250. The Initial Franchise Fee for your first Main Sushi Bar. If you sign an Area Development Agreement and Addendum to Area Development Agreement to develop 40 or more Ace Sushi Bars the Initial Franchise Fee for a Main Sushi Bar will be $1,250 and the Initial Franchisee Fee for a Satellite Store will be $500. You will pay the development fee in one lump sum when you sign the Area Development Agreement, and Addendum to Area Development Fee, if applicable. The Development Fee is fully earned by us upon receipt and is nonrefundable.
Other Initial Payments For a Main Sushi Bar, you must also pay us the amounts listed below, which may range from $8,209 to $26,608, for the items listed below before you begin business at the Main Sushi Bar: a. Interior Signage. You must pay us $200 – $400 for interior signage. b. Insurance. You must pay $400 – $4,100 annually to the insurance broker or us for the costs to obtain liability insurance and worker’s compensation insurance for your Main Sushi Bar that AMG must maintain under the Sushi Supply Agreements with the Venue Owners. If you service any Satellite Stores, you must obtain, before the opening of the Sushi Bar, and maintain in full force and effect at all times during the term of your Franchise Agreement, at your expense, automobile liability insurance of at least $500,000. This estimate covers annual insurance premium for required coverages. c. Initial Food Inventory. You must pay us or other suppliers $3,000 – $6,000 to stock your Main Sushi Bar with Proprietary Products necessary for 1 – 2 weeks after the opening of your Main Sushi Bar. If you participate in the Hot Food Program, you must pay us or other suppliers approximately $350 in addition to stock your Main Sushi Bar with an initial inventory of Hot Food Products. d. Initial Small Wares, Supplies, Uniforms and Other Food Items. You must pay us or other suppliers $300 – $400 for cooking and food preparation utensils, pots, knives, menu holders, labels and uniforms. If you participate in the Hot Food Program, you must pay us or other suppliers approximately $50 for additional cooking and food prep supplies. e. NSF Approved Camcarrier. You must pay us $400 for an NSF approved Camcarrier. f. Refrigerated Display Case and Refrigerated Table. In some cases, the Venue Owner may require us to provide a refrigerated display case and refrigerated table for the Main Sushi Bar. If the Venue Owner requires us to do so, you must pay us $99 – $298 per month for a refrigerated display case and refrigerated table which will be deducted as an Expense before the payment of Commissions to you, including any Hot Food Commissions if applicable, and the payment of our compensation. g. Label Machine and Label Templates. You will lease the label machine from us for 24 months and must pay us a one-time payment of $500, $135 per month for leasing the label machine, $10.00 per month as a maintenance fee for the label machine and $300 – $1,600 for label templates which will be deducted as an Expense before the payment of Commissions to you, including any Hot Food Commissions if applicable, and the payment of our compensation. h. Security Deposit. Depending upon the strength of your financial condition, we may require you to pay us a security deposit of $2,500 – $10,000 when you sign your Franchise Agreement or during the term of your Franchise Agreement (the “Security Deposit”), in our discretion, to secure your payment of any expenses, including reasonable attorneys’ fees, that we incur if you fail to comply with the terms of your Franchise Agreement and to ensure continuation of business operations at the Main Sushi Bar following a termination of your Franchise Agreement. We may determine the amount of the Security Deposit based on where you will operate the Ace Sushi Bar. For example, we may require you to pay a higher Security Deposit if you will be operating the Ace Sushi Bar from a large supermarket or you may pay the minimum Security Deposit if you are operating the Ace Sushi Bar from a small grocery store. We may retain all or part of the Security Deposit to recover all or a portion of the actual expenses we incur. Licensees were not required to pay us a Security Deposit. i. Grand Opening Fee: For the Single Unit Program, you must pay us a $500 grand opening fee before or within 30 days of opening your Sushi Bar for certain grand opening support and advertising. If you are signing your first Franchise Agreement pursuant to an Area Development Agreement, you must a grand opening fee equal to $2,500 prior to opening your first Sushi Bar.
Different Initial Fees We reserve the right to negotiate different Initial Training Fees and Initial Franchise Fees in our discretion.
Item 8: Restrictions on Sources of Products and Services
To insure that the highest degree of quality and service is maintained, you must operate your Ace Sushi Bar in strict conformity with our methods, standards and specifications. You must purchase all Proprietary Products, equipment and supplies used or sold at your Main Sushi Bar and Satellite Stores solely from us, AMG or our approved suppliers and distributors.
Proprietary Products, Equipment and Supplies You must purchase the Proprietary Products from us or AMG. The Proprietary Products include all food products (including Hot Food Products) other than produce, a refrigerated display case and refrigerated table, a label machine and label template, interior signage and utensils, pots, knives, menu holders, labels and uniforms and an NSF approved Camcarrier. If you are participating in the Area Development Program, you may purchase the NSF approved Camcarrier from us or another vendor provided that the NSF Camcarrier satisfies our standards. In addition, you must buy produce, liability insurance and worker’s compensation insurance and all printed paper and paper products bearing the Proprietary Marks either from us or from a distributor or manufacturer we authorize or approve in accordance with our specifications. To protect our trade secrets and maintain quality control, AMG and its distributors are the sole suppliers of our Proprietary Products, the refrigerated display case and refrigerated table, the label machine and label template, the interior signage, the utensils, pots, knives, menu holders, labels, and uniforms. We do not provide any material benefits to you (for example, renewal or granting of additional franchises) based upon your use of approved suppliers.
Computer Hardware and Software You must purchase computer hardware and software according to our specifications. See Item 11.
Our Revenue From Sales and Leases to You We will derive revenue from your purchase of Proprietary Products, equipment and supplies from us and AMG or our approved suppliers and distributors. AMG’s total revenues were $42,201,269 during the fiscal year ending December 31, 2019. AMG’s total revenues from the sale of Proprietary Products, equipment and supplies to Ace Sushi franchisees during this period were $6,284,190 or 14.9% of its total revenues. Of this amount, AMG received $5,165,104 in revenue as a result of franchisee’s transactions with approved suppliers other than us or AMG. We did not receive any revenue from the sale of Proprietary Products, equipment or supplies to Ace Sushi franchisees during the fiscal year ending December 31, 2019. The sources of this information are our financial books and records and the financial books and records of AMG. We estimate that your expenditure for required purchases of Proprietary Products, equipment and supplies will represent 60% of your total initial investment in establishing the business and 22% in operating the business on an ongoing basis.
Site Selection/Improvements We select all sites for Main Sushi Bars and Satellite Stores before you sign your Franchise Agreement, except if you have signed your Franchise Agreement pursuant to an Area Development Agreement, we will evaluate sites that you propose. We enter into oral or written Sushi Supply Agreements with Venue Owners under terms we negotiate, which may vary from site to site. You are not permitted to enter into Sushi Supply Agreements, except with our prior written consent, which may be granted or withheld in our sole discretion. The Venue Owners generally improve the area selected for your Main Sushi Bar and generally provide display and merchandising cases, storage areas for dry and frozen supplies, refrigerated storage space and a working area with tables and cutting boards at their expense. In some cases, you may be required to provide your own tables and cutting boards at your expense. If you have signed an Area Development Agreement, when you have located a proposed site for construction of an ACE Sushi Bar, you must submit to us such demographic and other information regarding the proposed site and neighboring areas as we require (“Site Review Request”). We may seek additional information from you and you must respond promptly. If we do not deliver written notice to you that we accept your proposed site within 15 days of receipt of the Site Review Request, or within 10 days after receipt of such additional requested information, whichever is later, the site shall be deemed rejected. If we accept the proposed site we will notify you of our acceptance. You may only contact or communicate with prospective Host Venues (or operator of Host Venues) with our prior written consent, which may be granted or withheld in our sole discretion. You must fully and promptly inform us of any and all opportunities to enter into a Sushi Supply Agreement with a Host Venue or operator of a Host Venue. You must cooperate with us and our affiliate in connection with the negotiation and entry of the Sushi Supply Agreement. Your Ace Sushi Bar must be constructed, equipped and improved in compliance with our current design criteria. If you develop any new concept, process or improvement in the System (an “Improvement”), you must promptly notify us and provide us with all necessary related information, without compensation. Any such Improvement will become our sole property and we will be the sole owner of all related intellectual property rights. You must assign any rights you may have or acquire in the Improvements to us, including the right to modify the Improvement, and you waive and/or release all rights of restraint and moral rights to the Improvement. You must assist us in obtaining and enforcing the intellectual property rights to any such Improvement in any and all countries and you further agree to sign and provide us with all necessary documentation for obtaining and enforcing such rights. You must irrevocably designate and appoint us as your agent and attorney-in-fact to sign and file any documentation and to do all other lawful acts to further the prosecution and issuance of intellectual property rights related to any such Improvement. You may also be required to grant us a worldwide, perpetual, non-exclusive, fully-paid license to use and sublicense the use of the Improvement to the extent such use or sublicense would, directly or indirectly infringe your rights to the Improvement.
Occupation of Premises You will occupy your Main Sushi Bar in accordance with the terms of our Sushi Supply Agreements with the Venue Owners. The term of our Sushi Supply Agreements with the Venue Owners generally range from 90 days to 24 months and options to extend the initial term, if granted, range from 30 days to 36 months. The Venue Owners and AMG generally retain the right to terminate the Sushi Supply Agreements on 30 to 60 days’ notice.
Recommended Suppliers We have compiled a list of approved suppliers and distributors, which may include us and our affiliates, who provide products which comply with our specifications, which is available to you and approved suppliers upon reasonable request. If you desire to purchase products from other than our approved suppliers and distributors, you must submit a written request to us for approval of the proposed supplier, together with any evidence of conformity with our standards and specifications as we may reasonably require, or request the supplier itself to do so. We may inspect and evaluate the supplier’s facilities and products before we approve or disapprove your proposed supplier, and you must pay all of our reasonable costs and expenses incurred in doing so. You may not use a supplier before we approve the supplier in writing. A supplier must demonstrate to our reasonable satisfaction that it can supply an item meeting our standards and specifications for the item, that it is in good financial standing in the business community and that its products and services are reliable. We will provide you with our specifications and standards and our criteria for approval of suppliers and will approve or disapprove a proposed supplier in 60 – 90 days. We will notify you if and when we no longer approve a previously approved supplier. A supplier must continually adhere to our standards and specifications to maintain its approval. Harlan H. Chin owns AMG. With this exception, none of our officers owns an interest in any of our approved suppliers.
Purchasing Cooperatives and Arrangements There are no franchisee purchasing or distribution cooperatives. However, you may take advantage of any bulk pricing discounts or rebates offered to AMG by our suppliers and distributors for your purchase of Proprietary Products, equipment and supplies. We may also negotiate volume buying arrangements with suppliers for the benefit of franchisees. Any rebates that may be provided by suppliers will be provided to you based upon your pro rata share of purchases.
Standards, Specifications and Procedures Every aspect of the operation of your Ace Sushi Bar is subject to our standards and specifications. You must comply with all mandatory specifications for the appearance, function, cleanliness and operation of your Main Sushi Bar and your Satellite Stores. We formulate and modify our methods, standards and specifications in writing through supplements to our Confidential Operations Manual and other written communications. Maintenance and repair of your Ace Sushi Bar are solely your responsibilities. You must, at your expense, maintain your Main Sushi Bar and your Satellite Store premises in a clean, orderly condition and in excellent repair. You must make all additions, alterations, repairs, and replacements that may be required for that purpose, including replacing obsolete or deteriorated fixtures, equipment and signs as we may reasonably require. The Venue Owners will generally maintain and repair the display and merchandising cases for your Proprietary Products at your Satellite Stores. You must make all alterations, additions, or modifications to your Ace Sushi Bar as we may reasonably require to accommodate changes made by us to the System, including changes to menu items or marketing positioning. You will have 30 days to make any required changes to your Ace Sushi Bar.
Compliance with Governmental Regulations and Payment of Taxes You must meet and maintain the highest health standards at your Ace Sushi Bar and must obtain all permits, certificates, or licenses necessary for the operation of your Ace Sushi Bar. You must comply, at your expense, with all local, state and federal health codes, regulations, ordinances, rules and orders for the proper methods of food handling and all health, safety and weights and measure codes. If any products you sell from your Main Sushi Bar or the Satellite Stores are adulterated or contaminated, or if you fail to maintain your Main Sushi Bar in compliance with all applicable laws and regulations, you must immediately cease operations, search out and destroy any adulterated or contaminated products, eliminate their source and remedy all unsanitary conditions present at your Main Sushi Bar. You cannot resume operation of your Ace Sushi Bar until (i) our analysis of the products sold from your Main Sushi Bar and/or the Satellite Stores and our inspection of your Main Sushi Bar demonstrate compliance with all applicable laws and regulations; and (ii) all applicable governmental authorities approve the resumption of operations at the Main Sushi Bar. You must promptly pay all taxes levied or assessed against the Main Sushi Bar, including unemployment taxes, employment taxes, sales taxes, use taxes, withholding taxes, excise taxes, personal property taxes, intangible property taxes, gross receipt taxes, and any similar taxes. You must indemnify us for the full amount of all taxes and for any liability (including penalties, interest and expenses) arising from the payment of taxes, whether or not correctly or legally assessed. You must provide us with written proof that all of your taxes have been, and are being paid within 10 days after our demand.
Insurance If you do not maintain the required insurance coverage, we may obtain the insurance for you and charge you for its cost as well as our costs to obtain it. We will derive income from purchasing insurance for you.
Item 10: Financing
We do not offer direct or indirect financing. Neither we nor any affiliate guarantee any note, lease, or obligation of yours in connection with the purchase or establishment of your Ace Sushi Bar.
Item 12: Territory
Franchise Agreement The Franchise Agreement will designate the location of your Main Sushi Bar, and you may conduct business only at the Franchised Location, unless you are granted the right and obligation to operate Satellite Stores, in which case you may only conduct business at your Main Sushi Bar and your Satellite Stores. You will not receive any protected territory nor will you have any exclusive rights to the Franchised Location, the Satellite Stores or the geographic territory in which your Main Sushi Bar and Satellite Stores are located. These franchises are non-exclusive. You may face competition from other Ace Sushi Bars that we or our affiliates franchise or own and that operate at traditional sites outside your territory. Also, you may face competition from other outlets that we franchise or own, or from other channels of distribution or competitive brands we control. There may already be franchised Ace Sushi Bars or Satellite Stores near your Main Sushi Bar, Satellite Stores or trade area which will continue to operate. We may franchise additional Ace Sushi bars with Satellite Stores without consulting you or giving you the first right to open them or deliver Proprietary Products to them. These additional Ace Sushi Bars and their Satellite Stores may compete directly with you. In addition, we and our affiliates retain the right (the “Reserved Rights”): (a) To own and operate, and license others to own and operate, Ace Sushi Bars and Satellite Stores at any location. (b) To own and operate, and license others to own and operate, businesses, including Ace Sushi Bars (with or without Satellite Stores), under other proprietary marks or other systems, whether these businesses are the same or different from Ace Sushi Bars, at any location. (c) To license others to sell or distribute, any Proprietary Products or related services under any proprietary marks, including the Proprietary Marks, at any location. (d) To produce, license, distribute and market Ace Sushi branded food products, clothing, souvenirs, and novelty items through any outlet (regardless of its proximity to your Main Sushi Bar or Satellite Stores) including grocery stores, supermarkets and convenience stores and through any distribution channel, at wholesale or retail, including by means of the World Wide Web section of the Internet, mail order catalogs, direct mail advertising and other distribution methods. (e) To own and operate and grant others the right to own and operate and issue franchises and licenses to others to develop, own and operate other methods and channels of distribution utilizing the Proprietary Marks and the System, including, toll-free “1-800”, “1-888” and “1-877” telephone numbers, domain names, URLs, on-line computer networks and services, the Internet, kiosks, carts, concessions, satellite units, other mobile, remote, limited service or nonpermanent facilities or other retail operations as a part of larger retail venues such as department stores, supermarkets, shopping malls or in public areas such as amusement parks, airports, train stations, public facilities, college and school campuses, arenas, stadiums, hospitals, office buildings, convention centers, airlines (in-flight service) and military bases. (f) To sell Proprietary Products to “National Accounts”. “National Accounts” are multi-state businesses that purchase these products as end-users and not re-sellers. You may not engage in wholesale sales of any kind without our prior consent. “Wholesale sales” includes the sale or distribution of sushi products to a third party for resale, retail sale or other method of distribution. We are not required to pay you if we exercise any of the rights specified above inside your territory. Continuation of your franchise rights do not depend on the achievement of a certain sales volume, market penetration or other contingency, other than your compliance with the terms of your Franchise Agreement. However, if the Host Venue measures your, our or AMG’s performance by economic, sales, performance or other measurements (the “Performance Criteria”), we will give you notice of the Performance Criteria, if available. You must then satisfy the Performance Criteria (or if there are multiple levels of satisfaction of the Performance Criteria, the level of satisfaction we designate). You do not receive the right to acquire additional franchises unless you sign another franchise agreement. You are not permitted to engage in wholesale sales of Proprietary Products of any kind without our prior consent. You are not permitted to engage in catering of any kind, whether directly or indirectly, without our prior consent. You are not permitted to use the System, the Proprietary Products or the Proprietary Marks, the Internet domain name www.acesushi.com, any other Internet domain names, URLs, toll-free telephone numbers, or any confusingly similar imitations of the same, at any location other than the Franchised Location and Satellite Stores. We do not place any restrictions on the customers you may solicit, but you are not permitted to use any other channels of distribution to make sales outside your Franchised Location and/or Satellite Stores.
Area Development Agreement The rights described above regarding what we and our affiliates can do for a single Ace Sushi Bar are generally the same if you sign an Area Development Agreement. We may terminate the Area Development Agreement if you (i) fail to develop Ace Sushi Bars as provided in accordance the development schedule; (ii) breach the terms of the Area Development Agreement; (iii) fail to comply with terms and conditions of any individual Franchise Agreement.
Addendum to Area Development Agreement Under the Addendum to Area Development Agreement (which amends the Area Development Agreement), we grant you the right to develop and operate a specified number of Ace Sushi Bars at locations in a specified Development Area, subject to our approval. The Development Area may be one or more metropolitan statistical areas, designated marketing areas, cities, counties, states or some other defined area. During the term of the Area Development Agreement, we will not operate or grant a license or franchise to any other person to operate an Ace Sushi Bar the physical location of which is located in your Development Area, except as permitted by our Reserved Rights. You may not relocate your Development Area. Although we have no obligation to do so, we may offer you the right, for no longer than 30 days, to sign a Franchise Agreement to develop an Ace Sushi Bar at a location we select (each an “Offered Venue”) in the Development Area. If you fail to sign a Franchise Agreement for the Offered Venue within the required time period, then (i) the Offered Venue shall automatically and without further action on behalf of either party be excluded from the Development Area; and (ii) we may open and operate, franchise or license a third party to open and operate an Ace Sushi Bar at the Offered Venue.” You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control. We do not grant a right of first refusal or similar rights to acquire additional Ace Sushi Bars, although you may apply for the right to open additional Ace Sushi Bars.
Item 15: Obligation to Participate in the Actual Operation of the Franchise Business
You must actively participate in your Ace Sushi Bar’s operations. If you are participating the Single Unit Program, unless we approve otherwise, only you may be your Ace Sushi Bar’s principal operator. Your Ace Sushi Bar must be managed at all times by you or a full-time management employee who has completed the minimum level of training required of in-store management employees. You are not required to grant an equity interest to any employee. Certain employees who work for you must sign covenants of confidentiality and non-competition upon our demand. See Items 14 and 17 for descriptions of these obligations. If we determine that your credit report is insufficient in any way, we may require, as a condition to granting you a franchise, that a financially qualified guarantor guarantee the performance of your obligations under the Franchise Agreement by signing a Guarantee in the form attached as Attachment C to the Franchise Agreement.
Item 16: RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
The Franchised Location and the display and merchandising cases at your Main Sushi Bar and the Satellite Stores may not be used for any activity other than for the sale of Proprietary Products and other goods we approve. Your Main Sushi Bar must remain open, stocked with Proprietary Products and in normal operation for the minimum hours and days required under the Sushi Supply Agreements with the Venue Owners, but at least from 9:00 A. M. to 6:00 P. M., and must be operated in conformity with the specifications contained in the Confidential Operations Manual or otherwise in writing. If you operate Satellite Stores, you must deliver your sushi products to your Satellite Stores by no later than 10:30 A. M. each day. You must sell only products and services that meet our current standards of quality, that have been expressly approved for sale in writing by us, and that have been prepared in accordance with our methods and techniques for product preparation. You must sell or offer for sale, all items, products, and services required by us in the Confidential Operations Manual or otherwise in writing as being part of the System. You may not deviate from our requirements. We may change the types of authorized products and services, and there are no limits on our right to make changes. We have the exclusive right to develop new products and services to be offered for sale at Ace Sushi Bars. You do not have the right to develop new products or services for sale at your Ace Sushi Bar. You will have sole discretion as to the prices of all services and products you offer and sell to your customers.
We have, and will continue to, automate the operation, ordering and inventory maintenance process for you so that you can focus on food preparation at your Main Sushi Bar rather than administration by developing and implementing an Internet-based management system which permits Ace, AMG and you to communicate effectively and efficiently for the benefit of your Ace Sushi Bar and by developing and implementing a daily, weekly, monthly and annual reporting process that will assist you and us in the operation and oversight of your Ace Sushi Bar and the further development and technological advancement of the System. Consequently, you must comply with all reasonable requirements if we modify the System, including offering and selling different services and products that we specify and obtaining and using computer hardware and software that we designate. We may change the types of authorized goods and services, and there are no limits on our right to make changes. You must also comply with all sampling policies that we may establish and with all sampling policies that the Venue Owner may require. These policies may require you to provide free samples to customers and potential customers. We may introduce new products or reintroduce previously introduced products for Ace Sushi Bars. You must purchase, maintain and display reasonable inventories of all new products for at least 90 days and must continue to purchase, maintain and display reasonable inventories of all new products for the period of time we require.
For a description of your restrictions on some purchases, see Item 8 of this Disclosure Document. You may conduct business only at the Franchised Location, unless you are granted the right and obligation to operate Satellite Stores, in which case you may only conduct business at your Main Sushi Bar and your Satellite Stores. You are not permitted to use any other channels of distribution to make sales outside your territory. You are not granted any rights to solicit or accept orders from outside your Main Sushi Bar and/or your Satellite Stores. (See Item 12) You are not permitted to offer or provide catering services.
To view the full Franchise Disclosure Document, please click here