Does the non-competition clause in the Azal Coffee Franchise Agreement prevent a franchisee from being a lender to a business that franchises 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.
b) In the event that the Franchise Agreement between Franchisee and the Company terminates, expires without renewal, or ends for any other reason, the Franchisee Parties and their shareholders, officers, directors, members, managers, partners, owners, investors, Family Members, and affiliates, must not, for a period of three (3) years commencing on the later of the effective date of termination, expiration, non-renewal, or any other end of the Franchise Agreement, directly or indirectly, 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), partner, director, officer, member, manager, employee, consultant, lender, representative, or agent, or in any other capacity in 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; provided that, the restrictions in this Section will only apply within the Geographic Areas.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, the non-competition clause extends to preventing franchisees from acting as a lender to a business that franchises a competing business, both during the term of the agreement and for a period of three years after the agreement's termination. This restriction applies to the franchisee, their shareholders, officers, directors, members, managers, partners, owners, investors, family members, and affiliates.
Specifically, the franchisee is prohibited from being involved in any capacity, including as a lender, in a business that franchises, licenses, or otherwise grants the right to operate a competing business. A "Competing Business" is defined as any business that competes with Azal Coffee Stores or is similar, including those selling similar coffee beverages, baked goods, food products, coffee beans, or coffee accessories.
This non-compete provision is broad, covering various forms of involvement in competing businesses, and extends beyond direct ownership or operation. The geographic scope of the post-term restriction includes the Franchise Location and areas within twenty-five (25) miles of the Franchise Location, as well as areas within twenty-five (25) miles of any other Azal Coffee Store existing or in development when the franchisee ceases to operate the Competing Business. This means a franchisee needs to be cautious about any financial or business relationships with entities that could be considered competitors, even after their franchise agreement ends.