Does the Cinnaholic non-competition agreement during the term apply to all locations for a Competitive Business?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
14.1. Covenants Not to Compete.
(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.
(iii) General. 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. The parties acknowledge that the covenants contained in Section 14.1 are based on the reason and understanding that Developer and the Bound Parties will possess knowledge of Franchisor's business and operating methods and confidential information, disclosure and use of which would prejudice the interest of Franchisor and its franchisees. Developer further understands and acknowledges the difficulty of ascertaining monetary damages and the irreparable harm that would result from breach of these covenants. If any part of this restriction is found to be unreasonable in time or distance, such time or distance may be reduced by appropriate order of the court to that deemed reasonable. Franchisor shall, as a matter of course, receive injunctive relief to enforce such covenants in addition to any other relief to which it may be entitled at law or in equity. Franchisor shall receive such injunctive relief without the necessity of posting bond or other security, such bond or other security being hereby waived.
Source: Item 23 — RECEIPT (FDD pages 62–269)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, the non-competition agreement during the term of the agreement applies to all locations for a Competitive Business. During the term of the agreement, the franchisee, their spouse, and if the franchisee is not an individual, its shareholders, members, partners, and managers, and their spouses, cannot have any direct or indirect interest as a disclosed or beneficial owner in a Competitive Business, regardless of location. They also cannot perform services as a director, officer, manager, employee, consultant, representative, agent, or otherwise for a Competitive Business, regardless of location.
A Competitive Business is defined as any business operating, or granting franchises or licenses to others to operate, a bakery or other food service business engaged in the retail or wholesale production or sale of baked goods, including cinnamon rolls and other baked goods, 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.
This means that during the term of the agreement, a Cinnaholic franchisee and related parties are significantly restricted from involvement with any competing cinnamon roll or baked goods business, irrespective of where that business is located. This restriction is in place to protect Cinnaholic's business and operating methods and confidential information. The FDD states that Cinnaholic would face prejudice if this information was disclosed or used.
After the agreement ends, the non-compete changes. For one year after the agreement ends, the franchisee and related parties cannot have any direct or indirect interest in a Competitive Business or perform services for a Competitive Business within a five-mile radius of any Cinnaholic Bakery.