Under the Fat Shack franchise agreement, what constitutes a default by the franchisee that would be considered a default of all agreements between the franchisee and FSI?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
- (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.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to the 2025 Fat Shack Franchise Disclosure Document, a franchisee's default under certain circumstances can trigger a default across all agreements with FSI. Specifically, if a franchisee defaults on any term or condition of the Development Agreement, including failing to execute required Franchise Agreements or maintain the number of Fat Shack restaurants as per the Development Schedule, and fails to cure this default within 30 days of written notice, it constitutes a default of all agreements.
Additionally, if a franchisee is in default under any Franchise Agreement executed under the Development Agreement, or any other agreement between Fat Shack (FSI) or its affiliates and the franchisee or their affiliates, and fails to cure the default within the time specified in those agreements, this also constitutes a default of all agreements. However, if the Development Agreement is terminated solely because the franchisee failed to meet the Development Schedule, this will not automatically trigger a default or termination of existing Franchise Agreements.
In the event of a default leading to termination, Fat Shack has the option to terminate all Franchise Agreements and other agreements with the franchisee. It is important to note that upon termination or expiration of the Development Agreement, the franchisee is not entitled to any refund of fees paid. The franchisee remains obligated to comply with non-disclosure and non-compete covenants, as well as the terms of any franchise agreements that have not been terminated or expired. A prospective franchisee should carefully consider the implications of these cross-default provisions and ensure they can meet the development schedule and other obligations to avoid triggering a default across all agreements.