Is an Azal Coffee franchisee prohibited from being a lender to a Competing Business during the term of the agreement?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
You and your shareholders, officers, directors, partners, members, managers, owners and investors, Family Members, and affiliates, must not, during the term of this Agreement and for a period of three (3) years after termination, expiration, or non-renewal of this Agreement, 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 of permit access to our Confidential Information to any person who is engaged or has arranged to become engaged in any activity in competition with Azal Coffees, including involvement, either as an owner (except no more than one percent (1%) of the publicly traded securities of an entity), member, manager, partner, director, officer, 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.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, franchisees and related parties are restricted from involvement with competing businesses during the franchise term and for three years after the agreement ends. This restriction includes acting as a lender to a competing business. A "Competing Business" is defined as any business that competes with Azal Coffee Stores, including those selling similar coffee beverages, baked goods, food products, coffee beans, or coffee accessories.
This non-compete clause extends not only to the franchisee but also to their shareholders, officers, directors, members, managers, partners, owners, investors, family members, and affiliates. The restriction covers various forms of involvement, such as being an owner (with a minor exception for owning no more than 1% of publicly traded securities), partner, director, officer, employee, consultant, lender, representative, or agent of a competing business.
The restrictions are in place to protect Azal Coffee's business interests and prevent the diversion of customers or the use of confidential information to benefit a competing business. The definition of "Family Members" is broad, including spouses, children, grandchildren, stepchildren, parents, siblings, spouse's parents, and spouse's siblings, ensuring that the non-compete obligations are comprehensive.
If a franchisee violates these restrictions by operating a competing business after the franchise agreement ends, the prohibition period will be extended until three years after they cease all violating activities. Azal Coffee also retains the right to reduce the scope of these restrictions at any time with immediate effect upon notice to the franchisee.