What does 'full compensation' include if an Exit Franchisee's bankruptcy precludes termination?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
For purposes of this paragraph, full compensation shall include full payment of any losses suffered by Subfranchisor due to Franchisee's actions or inaction, and adequate assurances or prompt and full compensation shall include, at a minimum, immediate presentation to Subfranchisor by Franchisee of an irrevocable letter of credit in an amount sufficient for full compensation of Subfranchisor (as defined above), issued to the account of Franchisee by a commercial bank, payable to Subfranchisor, at sight, within thirty (30) days from the date thereof, upon presentation of any affidavit signed by Subfranchisor stating that Subfranchisor is entitled to payment pursuant to this Agreement.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, 'full compensation' in the context of a franchisee's bankruptcy includes full payment for any losses the subfranchisor incurs due to the franchisee's actions or inaction. To ensure adequate assurance of prompt and full compensation, the franchisee must immediately provide the subfranchisor with an irrevocable letter of credit.
The letter of credit must be sufficient to cover the subfranchisor's full compensation, as defined in the agreement. It must be issued by a commercial bank in the franchisee's name and be payable to the subfranchisor upon presentation of an affidavit. This affidavit must state that the subfranchisor is entitled to payment under the franchise agreement. The letter of credit must be payable at sight within thirty days of the affidavit's date.
This requirement protects the subfranchisor from financial losses resulting from a franchisee's bankruptcy. By demanding an immediate letter of credit, Exit aims to secure the subfranchisor's financial interests and ensure they are compensated for any damages or losses incurred. This mechanism provides a swift and guaranteed method of payment, bypassing the often lengthy and uncertain bankruptcy proceedings.