After the Azal Coffee Franchise Agreement ends, can a franchisee own more than 1% of a publicly traded competitor?
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
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, a franchisee is restricted from involvement with a competing business during the term of the Franchise Agreement and for three years after its termination, expiration, or non-renewal. This restriction extends to the franchisee, their shareholders, officers, directors, members, managers, partners, owners, investors, family members, and affiliates.
The franchisee and related parties are prohibited from diverting business or customers to a competing business, sponsoring or promoting the operation of a competing business, or employing individuals involved in activities that compete with Azal Coffee. This includes involvement as an owner, partner, director, officer, member, manager, employee, consultant, lender, representative, or agent of a competing business. However, there is an exception: the franchisee can own no more than one percent of the publicly traded securities of an entity involved in a competing business.
In practical terms, this means that after the Franchise Agreement ends, a former Azal Coffee franchisee can invest in a publicly traded competitor, but their ownership stake must not exceed 1%. This restriction is in place for three years following the end of the agreement. If a franchisee violates these restrictions by engaging in activities that compete with Azal Coffee, the non-compete period will be extended until three years after they cease the violating activities. This clause aims to protect Azal Coffee's business interests and prevent former franchisees from using their knowledge and resources to directly compete with the franchise system.