Does the non-compete agreement for Azal Coffee extend to shareholders of the franchisee?
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, the non-compete agreement does extend to the franchisee's shareholders. Specifically, the agreement applies not only to the franchisee but also to their shareholders, officers, directors, members, managers, partners, owners, investors, family members, and affiliates. This means that all these parties are restricted from engaging in any competing business during the term of the Franchise Agreement and for a period of three years after its termination, expiration, or non-renewal.
The restrictions include not diverting business or customers to a competing business, sponsoring or encouraging others to operate a competing business, and employing or providing confidential information to anyone involved in a competing business. The definition of a "Competing Business" includes any business that competes with Azal Coffee Stores by selling similar products such as coffee beverages, baked goods, or coffee accessories.
There is an exception for shareholders who own no more than one percent of the publicly traded securities of an entity involved in a competing business. The geographic scope of the non-compete includes the Franchise Location and the area within twenty-five miles of the Franchise Location, as well as the areas within twenty-five miles of any other Azal Coffee Store existing or in development at the time the franchisee ceases to operate the Competing Business. If any of these parties violate the non-compete provisions, the restriction period will be extended until three years after they cease all violating activities.