Is a breach of Section 2.05 considered a material breach of the Noodles & Company franchise agreement?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
Furthermore, any debt instrument must provide to us the following protections, and any others that we from time to time require, (i) Franchisor shall be provided notice of any default of any such debt instrument simultaneous with notice being provided to you and Owners; (ii) Franchisor shall have a right of first refusal to purchase any restaurant to be sold, disposed of, or otherwise transferred by the lender of such debt instrument; (iii) Franchisor shall have the right, but not the obligation, to cure your and Owner's default under such debt instruments; and (iv) Franchisor shall have the right to operate the restaurant(s) that is the subject of the debt instrument upon your or Owner's default of such instrument. In the event you default on your debt and we elect to pursue any of the foregoing protections available to us, your right to cure such default shall expire as of the date we pursue any such protections notwithstanding any longer cure period set forth elsewhere in any agreement between you and us. Additionally you shall
be liable for the full amount we pay to cure your default plus interest at 18% per annum, or the highest rate allowable by law, and all costs we incur, including legal fees and appraisal fees relating to the evaluation of and exercise of any such protections. Breach of this Section 2.05 is a material breach of this Agreement.
Source: Item 23 — RECEIPT (FDD pages 99–350)
What This Means (2025 FDD)
According to the 2025 Noodles & Company Franchise Disclosure Document, a breach of Section 2.05 is considered a material breach of the agreement. Section 2.05 outlines specific restrictions on debt that franchisees can incur in connection with developing their Noodles & Company restaurants.
Specifically, Section 2.05 addresses how franchisees and their owners obtain funding for development fees, franchise fees, and other costs. It states that franchisees and owners must not borrow funds or incur debt for these payments, unless explicitly permitted within this section. Franchisees can incur debt if owners contribute equity equal to at least 25% of the restaurant's total development cost, which includes leasehold improvements, furniture, fixtures, and equipment. After the first anniversary of the restaurant's opening, total outstanding indebtedness cannot exceed 4.0 times the earnings before interest, taxes, depreciation, and amortization (EBITDA), minus any distributions to owners for that fiscal year. The debt should also have an initial amortization schedule of no more than 10 years from inception.
Furthermore, any debt instrument must provide Noodles & Company with certain protections, including notice of default, a right of first refusal to purchase the restaurant if the lender sells it, the right to cure the franchisee's default, and the right to operate the restaurant upon default. If Noodles & Company elects to pursue these protections, the franchisee's right to cure the default expires. The franchisee is also liable for the full amount Noodles & Company pays to cure the default, plus interest at 18% per annum or the highest rate allowable by law, and all associated costs, including legal and appraisal fees. Given these stipulations, franchisees must be diligent in adhering to these financial restrictions to avoid being in material breach of their franchise agreement.