During the term of the Azal Coffee Franchise Agreement, can a franchisee's affiliate be involved in a Competing Business?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
You and your shareholders, officers, directors, partners, members, managers, owners and investors, Family Members, and affiliates, must not, during the term of this Agreement and for a period of three (3) years after termination, expiration, or non-renewal of this Agreement, directly or indirectly: (a) divert or attempt to divert any business or customer of the Franchise Business or any other Store to any Competing Business by direct or indirect inducements or otherwise; (b) sponsor, appoint or encourage or influence or promote friends, relatives or associates to operate a Competing Business; or (c) employ any person or furnish of permit access to our Confidential Information to any person who is engaged or has arranged to become engaged in any activity in competition with Azal Coffees, including involvement, either as an owner (except no more than one percent (1%) of the publicly traded securities of an entity), member, manager, partner, director, officer, employee, consultant, lender, representative or agent, or in any other capacity, of 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.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, both the franchisee and their affiliates face restrictions regarding involvement in competing businesses during the term of the Franchise Agreement and for three years after its termination, expiration, or non-renewal. An affiliate is defined as individuals with specific relationships to the franchisee, including shareholders, officers, directors, members, managers, partners, owners, investors, and Family Members. Family Members include spouses, children, grandchildren, stepchildren, parents, siblings, spouse's parents, and spouse's siblings.
The restrictions prevent the franchisee and their affiliates from diverting business from Azal Coffee to a Competing Business, sponsoring or encouraging others to operate a Competing Business, or employing or providing confidential information to anyone involved 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 for dine-in, carry-out, catering, or delivery.
These restrictions extend to involvement in a Competing Business in any capacity, including as an owner, member, manager, partner, director, officer, employee, consultant, lender, representative, or agent. The only exception is owning no more than one percent (1%) of the publicly traded securities of an entity involved in a Competing Business. The geographic scope of these restrictions includes the Franchise Location and the area within twenty-five (25) miles of the Franchise Location, as well as the 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.
If a franchisee or their affiliates violate these restrictions after the Franchise Agreement ends, the prohibition period will be extended until three years after they cease all activities that violate the agreement. This comprehensive restriction aims to protect Azal Coffee's market position and confidential information by preventing franchisees and their affiliates from engaging in competitive activities during and after the franchise term.