Does the non-competition clause in the Azal Coffee Franchise Agreement prevent a franchisee from being a manager of a business that franchises a Competing Business during the term of the agreement?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
4) Non-competition.
- 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 non-competition clause within the Franchise Agreement explicitly restricts a franchisee from being involved with a business that franchises a competing business during the term of the agreement. Specifically, the franchisee, along with their shareholders, officers, directors, partners, members, managers, owners, investors, family members, and affiliates, are prohibited from engaging in any activity that competes with Azal Coffee.
This restriction includes involvement in any capacity, such as an owner (with a limited exception of owning no more than 1% of a publicly traded entity), director, officer, member, manager, employee, consultant, lender, representative, or agent, in a business that is involved in a Competing Business or any entity that franchises, licenses, or grants others 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-competition clause extends not only to direct operation of a competing business but also to any involvement with a business that franchises or licenses competing businesses. This restriction applies during the term of the Franchise Agreement and for a period of three years after the agreement's termination, expiration, or non-renewal, with the geographic scope of the restriction applying within specified Geographic Areas. The Geographic Areas include the Franchise Location and the areas within twenty-five (25) miles of the Franchise Location and any other Azal Coffee Store.