What restrictive covenants must a Fat Shack franchisee abide by after termination, as outlined in Article 21?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
venant Not to Compete
For a period of two years from termination or expiration of this Agreement for any reason, or the date on which Franchisee ceases to conduct business, whichever is later, neither Franchisee nor any Bound Party shall have any direct or indirect interest as a disclosed or beneficial owner, investor, partner, director, officer, employee, consultant, representative or agent or in any other capacity in any Competitive Business located or operating within a 10-mile radius of the former Restaurant Location or within a 10-mile radius of any other franchised or company-owned FAT SHACK Restaurant. If Franchisee or any other Bound Party breaches this section, the two-year period shall start on the date that such person is enjoined from competing or stops competing, whichever is later. Franchisee and the Bound Parties expressly acknowledge that they possess skills and abilities of a general nature and have other opportunities for exploiting such skills. Consequently, enforcement of the covenants made in this section will not deprive them of their personal goodwill or ability to earn a living.
21.3. Additional Remedies for Breach
In addition to any other remedies or damages allowed hereunder, if Franchisee breaches the covenants set forth in Sections 21.1 or 21.2, Franchisee shall pay FSI a fee equal to FSI's then-current Initial Franchise Fee for each Competitive Business opened in violation of the covenants, plus 6 percent of such Business' Gross Sales until expiration of the noncompetition period.
21.4.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, Article 21 outlines post-termination restrictive covenants. For a period of two years following the termination or expiration of the Franchise Agreement, or from the date the franchisee ceases business operations (whichever is later), the franchisee and any Bound Party are restricted from engaging in any capacity with a Competitive Business. Bound Parties include the franchisee, their officers, directors, shareholders, managers, members, partners, and their immediate family members.
A Competitive Business is defined as any business that operates a restaurant or grants franchises for a restaurant where more than 10% of its gross receipts (excluding alcohol sales) are derived from the sale of sandwiches, burgers, and wings. This restriction applies to any Competitive Business located within a 10-mile radius of the former Fat Shack Restaurant location or within a 10-mile radius of any other franchised or company-owned Fat Shack Restaurant.
However, the franchisee or Bound Parties are not prohibited from owning securities in a Competitive Business if those securities are listed on a stock exchange or traded over-the-counter, provided they represent 2% or less of the outstanding securities. Fat Shack emphasizes that these covenants will not deprive the franchisee of their ability to earn a living, as they possess general skills and abilities and have other opportunities for exploiting such skills. If a breach occurs, the two-year period restarts from the date the person is legally stopped from competing or voluntarily ceases competition, whichever occurs later.