What specific covenants in Paragraphs 9.2 and 9.3 must an Aw franchisee comply with to avoid termination?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
- (g) you (or any of your Owners) fail to comply with the covenants contained in Paragraph 9.2 and 9.3 of this Agreement,
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, failure to comply with the covenants in Paragraphs 9.2 and 9.3 of the franchise agreement can result in termination of the agreement. Paragraph 9.3 outlines the in-term non-competition agreement. This means that during the term of the agreement, the franchisee and their owners are restricted from engaging in any competitive businesses that offer similar products or services to Aw. This restriction applies to owning, maintaining, operating, consulting with, or having any interest in such businesses, whether directly or indirectly. An exception exists for ownership of five percent or less of a publicly traded company.
Additionally, franchisees must not divert customers or business from their Aw restaurant to any other business. They are also prohibited from hiring employees of Aw, its affiliates, or other franchisees. These restrictions are in place to protect Aw's confidential information, encourage the exchange of ideas among franchisees, and ensure the franchisee's exclusive dedication to Aw.
In practical terms, a prospective Aw franchisee needs to be fully aware of these restrictions before signing the agreement. They must avoid any involvement in competitive businesses during the franchise term and ensure their business practices do not harm Aw's interests. Failure to comply with these covenants could lead to the termination of their franchise agreement.