For Cinnaholic, who is considered a 'Bound Party' and subject to the restrictive covenants?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
- (i) Non-Competition During Term. In addition to and not in limitation of any other restrictions on Developer contained herein, Developer and Developer's spouse, and, if Developer is not an individual, its shareholders, members, partners and managers, as applicable, and their spouses (each, a "Bound Party"), agree that they will not, during the term of this Agreement, directly or indirectly, for and on behalf of itself, himself, herself or any other person or entity, (a) have any direct or indirect interest as a disclosed or beneficial owner in a Competitive Business (as defined below), regardless of location or (b) perform services as a director, officer, manager, employee, consultant, representative, agent, or otherwise for a Competitive Business, regardless of location.
- (ii) Post-Term Non-Competition. In addition to and not in limitation of any other restrictions on Developer contained herein, Developer and the Bound Parties agree that they will not, for one year following the effective date of termination or expiration of this Agreement for any reason, or following the date of a Transfer by Developer, directly or indirectly, for and on behalf of itself, himself, herself or any other person or entity, (a) have any direct or indirect interest as a disclosed or beneficial owner in a Competitive Business or (b) perform services as a director, officer, manager, employee, consultant, representative, agent, or otherwise for a Competitive Business which, in either case, is located or operating within a five mile radius of any CINNAHOLIC® Bakery.
Source: Item 23 — RECEIPT (FDD pages 62–269)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, a 'Bound Party' includes the franchisee (referred to as 'Developer' in the document), the franchisee's spouse, and if the franchisee is not an individual, its shareholders, members, partners, and managers, as well as their spouses. These 'Bound Parties' are subject to certain restrictive covenants, particularly those related to non-competition, both during the term of the agreement and for one year after its termination or transfer. These restrictions aim to protect Cinnaholic's business interests and confidential information.
Specifically, these restrictive covenants prevent Bound Parties from having a direct or indirect interest in a Competitive Business, which is defined as any business operating a bakery or food service that derives more than 50% of its revenue from cinnamon rolls (excluding other Cinnaholic bakeries). They are also prohibited from performing services for a Competitive Business. These restrictions apply during the agreement's term and for one year after termination within a five-mile radius of any Cinnaholic bakery.
Each Bound Party is required to sign and deliver Personal Covenants, agreeing to be personally bound by the provisions related to restrictive covenants. This ensures that these individuals are legally obligated to uphold the non-compete and non-solicitation terms. Cinnaholic requires these covenants as a condition of the franchise agreement, emphasizing their importance in protecting the brand's system, other franchisees, and the franchisor's legitimate interests. The franchisee acknowledges that these restrictions are reasonable and do not cause undue hardship.
Prospective franchisees should carefully consider the implications of these restrictive covenants and ensure that all individuals who qualify as 'Bound Parties' are aware of and willing to comply with these obligations. It is also important to understand the definition of 'Competitive Business' and the geographic scope of the post-term non-competition agreement to avoid potential conflicts of interest.