Does the non-competition clause in the Azal Coffee Franchise Agreement prevent a franchisee from being a member of 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 the 2024 Azal Coffee Franchise Disclosure Document, the non-competition clause prevents a franchisee from being involved in a business that franchises a competing business during the term of the agreement. Specifically, the franchisee, along with their shareholders, officers, directors, members, managers, partners, owners, investors, family members, and affiliates, are prohibited from engaging in activities that compete with Azal Coffee.
This restriction includes involvement in any business that franchises, licenses, or grants others the right to operate a competing business. Involvement is defined broadly, encompassing roles such as owner (with a limited exception of owning no more than 1% of a publicly traded entity), partner, director, officer, member, manager, employee, consultant, lender, representative, or agent. This means that a franchisee cannot actively participate in or have a significant ownership stake in a competing franchise system during the term of their Azal Coffee franchise agreement.
After the termination, expiration, or non-renewal of the Franchise Agreement, these restrictions continue for a period of three years. During this post-term period, the franchisee is still barred from involvement in a competing business or a business that franchises competing businesses within the defined Geographic Areas. These areas include the Franchise Location and the areas within twenty-five miles of the Franchise Location and any other Azal Coffee Store existing or in development when the franchisee ceases to operate the Competing Business. This extended restriction aims to protect Azal Coffee's market and confidential information even after the franchise relationship ends.