For Cinnaholic, what constitutes a 'Competitive Business' in terms of its activities?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
For purposes of this Agreement, the term "Competitive Business" means any business operating, or granting franchises or licenses to others to operate, a bakery or other food service business (a) engaged in the retail or wholesale production or sale of baked goods (including, but not limited to, all cinnamon rolls and other baked goods) and (b) that derives more than 50% of its revenue from sales of cinnamon rolls (other than another CINNAHOLIC® Bakery operated by Developer under license from Franchisor). Neither Developer nor the other Bound Parties will be prohibited from owning securities in a Competitive Business if they are listed on a stock exchange or traded on the over-the-counter market and represent 5% or less of the number of shares of that class of securities which are issued and outstanding.
Source: Item 23 — RECEIPT (FDD pages 62–269)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, a 'Competitive Business' is defined as any business that operates or franchises a bakery or other food service. This business must be engaged in the retail or wholesale production or sale of baked goods, including cinnamon rolls and other baked items. Critically, over 50% of the business's revenue must come from cinnamon roll sales to be considered a 'Competitive Business' to Cinnaholic. This definition excludes other Cinnaholic bakeries operated under license from the franchisor.
This definition has significant implications for Cinnaholic franchisees, particularly concerning restrictive covenants. During the term of the franchise agreement, franchisees and related parties are prohibited from having any direct or indirect interest in a Competitive Business, regardless of its location. This restriction also prevents them from working for a Competitive Business as a director, officer, manager, employee, consultant, representative, or agent.
After the franchise agreement expires or is terminated, or following a transfer by the franchisee, these restrictions continue for one year. During this post-term period, franchisees and related parties cannot have an interest in or work for a Competitive Business located within a five-mile radius of any Cinnaholic bakery. However, there is an exception: franchisees are not prohibited from owning securities in a Competitive Business if those securities are listed on a stock exchange or traded over-the-counter, and represent 5% or less of the outstanding shares of that class of securities.
Cinnaholic emphasizes that these covenants are based on the understanding that franchisees will possess knowledge of Cinnaholic's business, operating methods, and confidential information. The disclosure and use of this information would harm Cinnaholic and its franchisees. The FDD also states that Cinnaholic will seek injunctive relief to enforce these covenants, without needing to post a bond or security, if a franchisee breaches the agreement.