After termination or expiration of the Cinnaholic Franchise Agreement, what is the franchisee prohibited from doing regarding operating a similar business?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
rm of this Agreement (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 Franchisee contained herein, Franchisee 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 Franchisee, 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, 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 Franchisee under license from Franchisor). Neither Franchisee 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 20.1 are based on the reason and understanding that Franchisee 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. Franchisee further understands and acknowledges the difficulty of ascertaining monetary damages and the irreparable harm that would result from breach of these covenants.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to the 2025 Cinnaholic Franchise Disclosure Document, after the termination or expiration of the Franchise Agreement, the franchisee is subject to certain restrictions regarding competitive business activities. For one year following the termination or expiration date, the franchisee and other bound parties are prohibited from having a direct or indirect interest in a Competitive Business or performing services for one. This restriction applies to businesses located or operating within a five-mile radius of any Cinnaholic Bakery. A Competitive Business is defined as any business operating a bakery or food service that derives more than 50% of its revenue from cinnamon rolls. This definition excludes other Cinnaholic Bakeries operated under a franchise agreement with Cinnaholic.
These non-compete covenants recognize that franchisees gain knowledge of Cinnaholic's business operations and confidential information, which, if disclosed or used improperly, could harm Cinnaholic and its franchisees. The agreement acknowledges the difficulty of calculating monetary damages from a breach of these covenants and recognizes the potential for irreparable harm. Cinnaholic is entitled to injunctive relief to enforce these covenants, without needing to post a bond or security.
If any part of the non-compete restriction is deemed unreasonable in terms of time or distance, a court may reduce the duration or geographic scope to what is considered reasonable. This ensures the enforceability of the clause while protecting the franchisee from overly broad restrictions. These measures are designed to protect Cinnaholic's business interests and proprietary information while allowing former franchisees to pursue other business ventures outside the defined competitive scope and timeframe.