Does the non-competition clause in the Azal Coffee Franchise Agreement prevent a franchisee from being an agent of a Competing Business during the term of the agreement?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
- a) The Franchisee Parties acknowledge that the Information disclosed to the Franchisee Parties and all other aspects of the Company's System are highly valuable assets of the Company, and the Franchisee Parties agree that the Franchisee Parties and their shareholders, officers, directors, partners, members, managers, owners, investors, Family Members and affiliates must not, during the term of the Franchise Agreement, engage in any activity in competition with the Company or its franchisees and licensees, including involvement, whether as an owner (except ownership of no more than one percent (1%) of a publicly traded entity), director, officer, member, manager, employee, consultant, lender, representative or agent, or in any other capacity, or otherwise in any business that is involved, in whole or in part, in a Competing Business (except other Stores operated under franchise agreements entered into with the Company), or in any business or entity that franchises, licenses, or otherwise grants to others the right to operate a Competing Business, unless you have received the Company's prior written approval.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, the Franchise Agreement includes non-competition clauses that restrict the franchisee's activities during the term of the agreement. Specifically, franchisees and related parties are prohibited from engaging in any activity that competes with Azal Coffee or its franchisees and licensees. This includes acting as an agent for a Competing Business.
The agreement defines a "Competing Business" broadly as any business that competes with Azal Coffee Stores, including those selling similar coffee beverages, baked goods, food products, coffee beans, or coffee accessories. The restriction extends not only to the franchisee but also to their shareholders, officers, directors, partners, members, managers, owners, investors, family members, and affiliates.
This non-competition clause means that during the term of the Azal Coffee Franchise Agreement, a franchisee cannot be involved in any capacity, including as an agent, with a business that offers similar products or services to Azal Coffee. The franchisee is permitted to own no more than one percent (1%) of the publicly traded securities of an entity. This restriction is designed to protect Azal Coffee's market position and prevent franchisees from using the franchisor's confidential information or business practices to benefit a competing business. After the franchise agreement ends, these restrictions continue for a period of three years within specified geographic areas.