What obligation does the franchisee undertake when granted the right to develop and establish Fat Shack Restaurants?

1. GRANT OF DEVELOPMENT RIGHTS

• 1.1. FSI grants to Franchisee the right to develop and establish FAT SHACK Restaurants using FSI's Marks and Licensed Methods in the geographic area described in the Addendum (the "Protected Area"). Franchisee accepts this grant and undertakes the obligation to develop and operate the FAT SHACK Restaurants in compliance with FSI's standards. Each FAT SHACK Restaurant shall be established and operated pursuant to a separate Franchise Agreement to be entered into between the parties. The term "Franchise Agreement" means the then-current form of Franchise Agreement used by FSI for granting franchises to FAT SHACK Restaurant franchisees, including all ancillary documents FSI may require.
• 3.1. Franchisee will be bound by and strictly follow the schedule for developing the FAT SHACK Restaurants in the Protected Area set forth in the Addendum (the "Development Schedule"). Time is of the essence. By the date set forth under the Development Schedule for each applicable FAT SHACK Restaurant, Franchisee must exercise its development rights by entering into a Franchise Agreement with FSI for that FAT SHACK Restaurant. Further, Franchisee shall itself continuously maintain in operation at least the number of FAT SHACK Restaurants set forth on the Development Schedule.
• 3.2. Franchisee will exercise its right for development of each FAT SHACK Restaurant by giving FSI written notice of its intention to develop such FAT SHACK Restaurant at least 90 days in advance of the deadline set forth in the Development Schedule for executing each Subsequent Franchise Agreement. Subject to FSI's approval, Franchisee must execute the then-current form of Franchise Agreement for the particular FAT SHACK Restaurant and pay the balance of the Initial Franchise Fee, together with all other initial fees and deposits set forth in the applicable Subsequent Franchise Agreement by the deadline set forth in the Development Schedule. FSI will execute a Franchise Agreement with Franchisee only if Franchisee is in compliance with all requirements and obligations of this Development Agreement and all other agreements between the parties, including the individual Franchise Agreements between FSI and Franchisee. Franchisee acknowledges and agrees that FSI will have the right to refuse to offer Franchisee the right to enter into a Subsequent Franchise Agreement if FSI believes, in its discretion, that Franchisee does not have sufficient financial resources or other ability to properly develop and operate the proposed subsequent FAT SHACK Restaurant.

Franchisee has no right to license or subfranchise others to use the Marks or Licensed Methods.

2. DEVELOPMENT FEE AND INITIAL FRANCHISE FEES

• 2.1. Concurrently with the execution of this Development Agreement, Franchisee will pay FSI as consideration for the development rights granted herein, in addition to the initial franchise fee ("Initial Franchise Fee") for the first FAT SHACK Restaurant under the Initial Franchise Agreement, an amount set forth in the Addendum ("Development Fee") equal to $5,000 for each additional FAT SHACK Restaurant to be opened hereunder.
• 2.2. Franchisee will be required to pay a total Initial Franchise Fee of $18,000 for the second and each subsequent FAT SHACK Restaurant to be developed pursuant to this Development Agreement. FSI will credit the $5,000 portion of the Development Fee attributable to each of the second and subsequent FAT SHACK Restaurants to be developed under this Development Agreement to the Initial Franchise Fee due under the Franchise Agreement for such FAT SHACK Restaurant (individually, the "Subsequent Franchise Agreement" or collectively, the "Subsequent Franchise Agreements"). The balance of the Initial Franchise Fee for each of the second and subsequent FAT SHACK Restaurants to be developed will be due at the earlier of (1) the date set forth in Paragraph 4 of the Addendum which is the deadline for signing the Franchise Agreement for that particular FAT SHACK Restaurant; or (2) the date which Franchisee signs a Subsequent Franchise Agreement for the FAT SHACK Restaurant to be developed.
• 2.3. Other than to have applied the portions of the Development Fee to a portion of the Initial Franchise Fee for Subsequent Franchise Agreements, the amounts paid pursuant to this Development Agreement are nonrefundable once paid to FSI.

Source: Item 23 — Receipts (FDD pages 53–223)