What is the relationship between the Development Agreement and the Subsequent Franchise Agreements for Fat Shack restaurants?

on of Development Fee paid hereunder.

3. DEVELOPMENT OBLIGATIONS

• 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. The Subsequent

Franchise Agreement for the second and each subsequent FAT SHACK Restaurant will be executed within 10 days after FSI's approval of the particular FAT SHACK Restaurant location. Franchisee's failure to execute any Subsequent Franchise Agreement or its default in any term of any Subsequent Franchise Agreement may, at the option of FSI, be deemed a default under this Development Agreement and shall entitle FSI to terminate this Development Agreement as further provided in Article 4 below.

• 3.3. Franchisee shall not, without the prior written approval of FSI and without signing a Subsequent Franchise Agreement related to the FAT SHACK Restaurant for a particular location, enter into any contract for the purchase or lease of any premises for use as a FAT SHACK Restaurant. FSI will assist Franchisee in the selection and approval of locations for its FAT SHACK Restaurants in accordance with the terms and conditions of the applicable Subsequent Franchise Agreement. Franchisee acknowledges that FSI has no obligation to select or acquire a location on behalf of Franchisee.
• 3.4. Each Subsequent Franchise Agreement to be executed by Franchisee for each FAT SHACK Restaurant to be developed hereunder shall be in the form of Franchise Agreement then generally being offered to franchisees by FSI, which may contain terms subsequently different then the terms of the Initial Franchise Agreement. Notwithstanding the foregoing, FSI agrees that it will not charge an Initial Franchise Fee to Franchisee which is greater than the amounts set forth in Section 2.1. above. Franchisee acknowledges that FSI has the right, however, to charge then current published rates for the required products, royalty percentages, advertising contributions and other fees, products and services offered to Franchisee.
• 3.5. Franchisee acknowledges that FSI shall have the right, in FSI's sole discretion, to waive the initial training program, which is the same as or similar to the training provided under Section 7.1 of the Initial Franchise Agreement, for the second and each subsequent FAT SHACK Restaurant developed under the terms of this Development Agreement. Franchisee may request assistance from FSI in addition to the assistance provided to Franchisee as described in the Initial Franchise Agreement, in connection with site selection, site feasibility studies, lease negotiations and other issues related to development of its Protected Area. If FSI agrees to provide such assistance, in FSI's sole discretion, FSI reserves the right to charge Franchisee for all travel, lodging, living expenses, telephone charges and other identifiable expenses incurred in connection with such assistance, plus a fee based on hourly time spent by any of FSI's employees in connection with such assistance, which fee will be charged in accordance with the then current daily or hourly rates being charged by FSI for assistance.

4. TERM AND TERMINATION

• 4.1. Unless sooner terminated in accordance with this Article 4, this Development Agreement shall commence as of the date of execution hereof and shall end on the earlier of (1) the date the last Subsequent Franchise Agreement is executed to open the maximum number of FAT SHACK Restaurants set forth in the Addendum, or (2) the date of the deadline set forth in the Development Schedule for Franchisee to execute the Franchise Agreement for the last of its FAT SHACK Restaurants to be developed under this Development Agreement. After expiration of the term, or earlier termination of this Development Agreement as provided below, FSI shall have the right to establish, or license any other party to establish FAT SHACK Restaurants anywhere within the Protected Area.
• 4.2. This Development Agreement may be terminated by Franchisee for any reason upon 60 days prior written notice to FSI, provided that Franchisee will not be entitled to a refund of any fees paid hereunder under any circumstances.
• 4.3. Franchisee shall be deemed in default and this Development Agreement may be terminated by FSI, at its option, in the following circumstances:

• (i) Franchisee defaults on any term or condition of this Development Agreement, including without limitation, the failure to execute the required Franchise Agreements or maintain the number of FAT SHACK Restaurants required by the Development Schedule, and fails to cure such default after 30 days written notice to Franchisee; or
• (ii) Franchisee is in default under any of the Franchise Agreements executed in furtherance of this Development Agreement or any other agreement between FSI or any of FSI's affiliates and Franchisee or any of Franchisee's affiliates and fails to cure such default within the time periods specified in such other agreements.
• 4.4. If this Development Agreement is terminated due solely to a failure by Franchisee to meet the Development Schedule, FSI and Franchisee agree that such termination shall not constitute a default or result in a termination of any Franchise Agreements executed between Franchisee and FSI in effect as of the date of termination of this Development Agreement. In that case, those Franchise Agreements shall continue in full force and effect notwithstanding the termination of this Development Agreement. FSI and Franchisee agree that any statements to the contrary in the Franchise Agreements executed by them, including any cross-default and cross-termination provisions, will be inapplicable in the situation of a termination of this Development Agreement based solely on Franchisee's failure to meet the Development Schedule. If this Development Agreement is terminated due to any other default under Section 4.3 above, all Franchise Agreements executed in furtherance of this Development Agreement and all other agreements between FSI and Franchisee or any of Franchisee's affiliates may, at FSI's sole option, be terminated.
• 4.5. In the event of termination or expiration of this Development Agreement for any reason, Franchisee shall not be entitled to any refund of any portion of the fees paid hereunder.

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