Does the non-compete clause prevent Aw franchisees from owning securities traded on a stock exchange representing 5% or less of that class of securities?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
9.3 In-Term Non-competition Agreement. You agree that we would be unable to protect the Confidential Information against unauthorized use or disclosure and would be unable to encourage a free exchange of ideas and information among Papa Ray's Pizza franchisees if franchisees and owners of franchisee were permitted to hold interests in any competitive businesses, as described below. You also acknowledge that we have granted this Franchise Agreement to you in part in consideration of, and in reliance on, your agreement to deal exclusively with us. Therefore, during the term of this Agreement, neither you, nor any Owner, may, either directly or indirectly, for yourself or through, on behalf of, or in conjunction with, any person or legal entity, own, maintain, operate, engage in, consult with or have any interest in (as disclosed or beneficial owner) any business which offers products or services which are the same as, or similar to, those offered by a Papa Ray's Pizza Restaurant, or any entity which is granting franchises or licenses for any business which offers products or services which are the same as, or similar to, those offered by a Papa Ray's Pizza Restaurant. (The ownership of five percent (5%) or less of a publicly traded company will not be deemed to be prohibited by this paragraph). Further, during the term of this Agreement, you will not (1) divert customers or business from your Papa Ray's Pizza Restaurant to any other business or (2) hire any employees of ours, our affiliates or any other franchisees.
Source: Item 22 — CONTRACTS (FDD pages 39–40)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, the in-term non-competition agreement does not prohibit franchisees or their owners from owning 5% or less of a publicly traded company. Specifically, the FDD states that franchisees and owners cannot have an interest in any business offering similar products or services to Aw, or any entity granting franchises or licenses for similar businesses. However, an exception is made for ownership of 5% or less of a publicly traded company.
This means that a prospective Aw franchisee can invest in a competitor's stock, as long as their ownership stake remains at or below 5% of the company's total stock. This provision allows franchisees to diversify their investments without violating the non-compete agreement.
It is important for potential franchisees to understand this exception, as violating the non-competition agreement could have serious consequences. Aw states that it would be unable to protect Confidential Information and encourage a free exchange of ideas among franchisees if franchisees and owners were permitted to hold interests in any competitive businesses. Therefore, Aw grants the Franchise Agreement in consideration of, and in reliance on, the agreement to deal exclusively with them.