Does the non-competition clause in the Azal Coffee Franchise Agreement prevent a franchisee from being a manager of 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.
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 within the Franchise Agreement explicitly restricts a franchisee from engaging in any activity that competes with Azal Coffee during the term of the agreement. This includes involvement as a manager in 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 restriction extends not only to the franchisee but also to their shareholders, officers, directors, partners, members, managers, owners, investors, Family Members, and affiliates. The franchisee and these related parties are prohibited from being involved in a Competing Business in any capacity, including as a manager, employee, consultant, or agent. The only exception is the ownership of no more than one percent (1%) of a publicly traded entity involved in a Competing Business.
After the termination, expiration, or non-renewal of the Franchise Agreement, these restrictions continue for a period of three (3) years within specific Geographic Areas. These areas include the Franchise Location and the 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 at the time the franchisee ceases to operate the Competing Business. Azal Coffee retains the right to reduce the scope of these restrictions at any time with immediate effect upon notice to the franchisee.