What constitutes a material breach of the Azal Coffee franchise agreement by the franchisee, its owners, or affiliates?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
- c) The Franchisee Parties and their shareholders, officers, directors, members, managers, partners, owners, and investors, Family Members, and affiliates, must not, during the term of the Franchise Agreement and for a period of three (3) years after termination, expiration, non-renewal, or any other end of the Franchise Agreement, for any reason whatsoever, directly or indirectly: (a) divert or attempt to divert any business or customer of the Franchise Business or any other Store to any Competing Business by direct or indirect inducements or otherwise; (b) sponsor, appoint, or encourage or influence or promote friends, relatives, or associates to operate a Competing Business; or (c) employ any person or furnish or permit access to the Information to any person who is engaged or has arranged to become engaged in any activity in competition with Azal Coffee Stores, including involvement, either as an owner (except no more than one percent (1%) of the publicly traded securities of an entity), partner, director, officer, member, manager, employee, consultant, lender, representative, or agent, or in any other capacity, of any business that is involved, in whole or in part, in a Competing Business or in any business
or entity that franchises, licenses, or otherwise grants to others the right to operate a Competing Business.
d) The Franchisee Parties acknowledge and agree that if any of the Franchisee Parties should violate the provisions of this Section 4 with respect to the operation of a Competing Business following expiration, termination, or any other end of the Franchise Agreement, then the period for which the prohibition stated therein shall be extended until three (3) years following the date such Franchisee Parties ceases all activities that are in violation of this Section 4.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, a material breach of the franchise agreement can occur if the franchisee, their owners, or affiliates engage in competitive activities during the franchise term and for three years after the agreement's termination. This includes actions such as diverting business from the Azal Coffee franchise or other stores to a competing business, sponsoring or encouraging others to operate a competing business, or employing individuals involved in businesses that compete with Azal Coffee. The restriction applies to owners, investors, family members and affiliates.
Specifically, the franchisee and related parties are prohibited from involvement with a "Competing Business," whether as an owner (with a minor exception of holding no more than 1% of publicly traded securities), partner, director, officer, member, manager, employee, consultant, lender, representative, or agent. This restriction also extends to any entity that franchises or licenses others to operate a competing business.
If a franchisee violates these non-compete provisions after the termination of the franchise agreement, the restriction period will be extended until three years after the cessation of the prohibited activities. This clause aims to protect Azal Coffee's market position and proprietary information by preventing franchisees from leveraging their knowledge and resources gained during the franchise term to compete against the brand after the agreement ends.