How is 'Control' defined in the context of the 7 Brew franchise agreement?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
- (1) have any direct or indirect, controlling or non-controlling interest as an owner whether of record, beneficial, or otherwise—in a Competitive Business (defined below), wherever located or operating, provided that this restriction will not prohibit ownership of shares of a class of securities publicly-traded on a United States stock exchange and representing less than three percent (3%) of the number of shares of that class of securities issued and outstanding;
- (2) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating;
- (3) directly or indirectly loan any money or other thing of value, or guarantee any other person's loan, to any Competitive Business or any owner, director, officer, manager, or employee of any Competitive Business, wherever located or operating;
- (4) divert or attempt to divert any actual or potential business or customer of the Store to a Competitive Business; or
- (5) solicit other franchisees, or use available lists of franchisees, for any commercial purpose other than purposes directly related to the Store's operation.
The term "Competitive Business," as used in this Agreement, means any (a) business that derives more than twenty-five percent (25%) of its revenue from selling coffee, or (b) business granting franchises or licenses to others to operate the type of business described in clause (a), other than a 7 BREW Store operated under a franchise agreement with us.
The term "Immediate Family" includes the named individual, his or her spouse or domestic partner, and all children of the named individual or his or her spouse or domestic partner. You agree to obtain similar covenants from your officers, directors, and other supervisory personnel, to the extent permitted by applicable Law, to the extent their competitive activities would adversely affect your Store or the 7 BREW brand. We may pre-approve the forms of agreements you use solely to ensure that you adequately protect Confidential Information and the competitiveness of 7 BREW Stores. Under no circumstances will we control the forms or terms of employment agreements you use with Store employees or otherwise be responsible for your labor relations or employment practices.
Source: Item 22 — CONTRACTS (FDD pages 82–83)
What This Means (2025 FDD)
According to the 2025 FDD, the 7 Brew franchise agreement outlines specific restrictions to prevent franchisees and their immediate family from engaging in activities that could be seen as competitive. These restrictions define what constitutes 'control' in the context of competitive businesses.
Specifically, the franchise agreement prohibits franchisees from having a direct or indirect controlling interest in a competitive business, which is defined as any business that derives more than 25% of its revenue from selling coffee or franchises/licenses to do the same. The agreement also restricts franchisees from acting as a director, officer, manager, employee, consultant, representative, or agent for a competitive business. Furthermore, franchisees are barred from providing loans or guarantees to competitive businesses or their personnel and from diverting business or soliciting other franchisees for commercial purposes unrelated to their 7 Brew store.
These stipulations are designed to protect 7 Brew's market position and proprietary information by preventing franchisees from using their knowledge and resources to benefit competing businesses. However, the agreement does allow franchisees to own less than 3% of publicly-traded shares of a competitive business. Franchisees must also ensure their officers, directors, and supervisory personnel adhere to similar covenants to protect the 7 Brew brand. 7 Brew retains the right to pre-approve agreements used to ensure the protection of confidential information and the competitiveness of 7 Brew stores, but will not control employment agreements with store employees.