Who defines what constitutes a 'Competitive Business' in relation to the Fat Shack franchise agreement?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
The term "Competitive Business" as used in this Agreement shall mean any business operating, or granting franchises or licenses to others to operate a restaurant or other business deriving more than 10 percent of its gross receipts, excluding gross receipts relating to the sale of alcoholic beverages, from the sale of sandwiches, burgers and wings (other than another FAT SHACK Restaurant operated by Franchisee); provided, however, neither Franchisee nor the other Bound Parties shall be prohibited from owning securities in a Competitive Business if such securities are listed on a stock exchange or traded on the over-the-counter market and represent 2 percent or less of that class of securities issued and outstanding.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to the 2025 Fat Shack Franchise Disclosure Document, the term "Competitive Business" is specifically defined within the franchise agreement itself. This definition is crucial because it outlines the types of businesses that a franchisee or their associates cannot be involved with during the term of the agreement and for a certain period after termination, as detailed in the restrictive covenants.
The Fat Shack franchise agreement states that a "Competitive Business" is any business that operates or grants franchises or licenses to others to operate a restaurant or other business. This business must derive more than 10 percent of its gross receipts (excluding alcohol sales) from the sale of sandwiches, burgers, and wings. However, this definition excludes other Fat Shack Restaurants operated by the company. This definition is important for franchisees to understand, as it dictates what types of business activities they must avoid to remain in compliance with the franchise agreement.
It's important to note that the agreement does allow franchisees and related parties to own securities in a Competitive Business under certain limited conditions. Specifically, they can own securities if those securities are listed on a stock exchange or traded over-the-counter, and if their ownership represents 2 percent or less of the outstanding securities of that class. This exception provides a small degree of flexibility for franchisees to invest in publicly traded companies that might technically be considered competitors, without violating the non-compete terms of the agreement.