What is the purpose of the 'Development Agreement' between the seller and purchaser for Potbelly Sandwich Works?

According to Potbelly Sandwich Works' 2025 Franchise Disclosure Document, the Development Agreement between the seller and purchaser outlines the purchaser's non-exclusive right to develop a specific number of Potbelly Sandwich Works restaurants within a mutually agreed-upon geographic area during a defined period. The agreement's terms and substance must be reasonably acceptable to Potbelly Sandwich Works.

Specifically, the Development Agreement grants the purchaser the right to develop Potbelly Shops within a designated Development Area, as detailed in Exhibits A and B. Potbelly Sandwich Works commits to granting the developer at least the cumulative number of franchises outlined in Exhibit B, provided the developer complies with the Development Agreement and all other agreements with Potbelly Sandwich Works, including franchise agreements. This ensures the developer has the opportunity to expand within their territory.

However, Potbelly Sandwich Works retains certain rights within the Development Area. They can operate or grant others the right to operate Potbelly Shops in Non-Traditional Venues like hospitals, airports, or college campuses. They can also purchase restaurants that are part of another franchise system, even if those restaurants are converted to operate under the Potbelly Sandwich Works brand. These exceptions allow Potbelly Sandwich Works to pursue opportunities that may not directly compete with the developer's planned locations.

This type of agreement is common in franchising, as it allows franchisors to expand their brand while giving developers exclusive or semi-exclusive rights to a specific territory. Prospective franchisees should carefully review the Development Agreement, including the Development Area, the development schedule, and any exceptions to exclusivity, to understand their rights and obligations.