How does the Potbelly Sandwich Works franchise agreement define 'owner'?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
en confection categories of the foodservice industry. You therefore agree that, during the Term, neither you, any of your direct or indirect owners, nor any of such owners' spouses will:
- (a) have any direct or indirect controlling interest as an owner whether of record, beneficial, or otherwise – in a Competitive Business (defined below), wherever located or operating;
- (b) have any direct or indirect non-controlling interest as an owner whether of record, beneficial, or otherwise – in a Competitive Business, wherever located or operating (except that less than a two percent (2%) equity ownership interest in a Competitive Business whose stock or other forms of ownership interest are publicly traded on a recognized United States stock exchange will not violate this clause);
- (c) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating;
- (d) divert or attempt to divert the Shop's business or customers to a Competitive Business; or
- (e) engage in any other activity that might injure the goodwill of the Marks and Franchise System.
The term "Competitive Business" means (i) any fast-casual restaurant that derives more than twenty percent (20%) of its revenue from the sale of (a) baked, oven-style, conveyor oven-style, or un-baked "sub-style" sandwiches, submarine, hoagie, Italian beef, or hero-type sandwiches, pita sandwiches, flatbread sandwiches, or cheese-steak sandwiches, or (b) smoothies, milkshakes, ice cream, and other frozen confection items, or (ii) any business granting franchises or licenses to others to operate the type of business specified in clause (i) (other than a Potbelly Shop operated under a franchise agreement with us). Competitive Business for purposes of this Agreement shall include, but not be limited to, Blimpie, Corner Bakery Café, Firehouse Subs, Jersey Mike's, Jimmy John's, McAlister's Deli, Panera Bread, Quizno's, Schlotzky's, Subway, Tropical Smoothie Café and Which Wich.
Source: Item 22 — CONTRACTS (FDD page 79)
What This Means (2025 FDD)
According to Potbelly Sandwich Works's 2025 Franchise Disclosure Document, the franchise agreement outlines specific restrictions and obligations pertaining to owners, particularly concerning competitive businesses. The agreement states that franchisees and their direct or indirect owners, including their spouses, are restricted from holding a controlling interest in a Competitive Business. A Competitive Business is defined as any fast-casual restaurant deriving more than 20% of its revenue from specific types of sandwiches or frozen confections, or any business granting franchises to operate such businesses.
The franchise agreement specifies that owners are also restricted from holding a non-controlling interest in a Competitive Business, with a minor exception for ownership of less than 2% equity in a publicly traded company. Furthermore, owners are prohibited from performing services for a Competitive Business in any capacity, including as a director, officer, manager, employee, consultant, representative, or agent. These restrictions are in place during the term of the franchise agreement.
These stipulations are designed to protect Potbelly Sandwich Works's market position and prevent franchisees and their owners from diverting business or injuring the goodwill of the brand. The agreement also emphasizes that each owner must sign a Guaranty and Assumption of Obligations, binding them to the terms of the franchise agreement. This ensures that all owners are personally liable for upholding the agreement's provisions, including those related to competitive activities and confidentiality.