Are the rights of Potbelly Sandwich Works cumulative under the SDAA?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
2.03 Development Rights. During the Term, and provided you and your Affiliates are in compliance with this SDAA and all other agreements with us or any of our Affiliates (including franchise agreements signed pursuant to this SDAA), then we will:
(a) grant to you, in accordance with Section 3, at least that cumulative number of franchises for Potbelly Shops set forth in Exhibit B, all of which are to be located within the geographical area described in Exhibit A (the "Development Area" or "Area"); and
(b) neither operate (directly or through an Affiliate), nor grant any third party the right to operate, any Potbelly Shop located within the Development Area, except for:
(1) Potbelly Shops you will develop pursuant to this SDAA for which you or your Affiliate will sign future franchise agreements for each such location;
(2) Potbelly Shops already open (or under commitment to open) as of the Effective Date;
(3) Potbelly Shops or other restaurants using any part or all of the Branded System and/or Marks at "Non-Traditional Venues" within the Development Area, such as hospitals or medical centers, airports, public or private schools, universities or college campuses, airport terminals, train or bus stations, convention centers, exhibition halls, amusement parks, fairgrounds, sports arenas, military bases, state or national parks, hotels, lodges, country clubs, social clubs, resorts, casinos, theaters, food trucks, or any other similar site or venue that generates customer flow that is independent from the general customer traffic flow of the surrounding area (collectively, "Non-Traditional Venues");
(4) restaurants that we purchase (or as to which we purchase the rights as franchisor) that are part of another franchise system or chain, regardless of whether such restaurants are converted to operate using any of the Marks and/or any or all of the Branded System or whether such restaurants operate under other trademarks, service marks or trade dress and/or use other operating systems; or
Source: Item 23 — RECEIPTS (FDD pages 79–355)
What This Means (2025 FDD)
According to Potbelly Sandwich Works' 2025 Franchise Disclosure Document, the rights granted to a franchisee under the SDAA (Shop Development Area Agreement) are cumulative, meaning the franchisee is entitled to at least the number of franchises specified in Exhibit B of the agreement, provided they comply with the SDAA and other agreements with Potbelly Sandwich Works.
Specifically, Section 2.03(a) states that Potbelly Sandwich Works will grant the franchisee at least the cumulative number of franchises for Potbelly Sandwich Works shops as outlined in Exhibit B, within the geographical area defined in Exhibit A, referred to as the "Development Area". This indicates that as the franchisee fulfills their development obligations, their right to open new Potbelly Sandwich Works locations within the Development Area accumulates according to the schedule.
However, Potbelly Sandwich Works retains certain rights within the Development Area. They can operate or franchise Potbelly Sandwich Works shops at Non-Traditional Venues such as airports, hospitals, and universities. They can also operate restaurants acquired from other franchise systems, even if those restaurants use similar branding or operating systems. Potbelly Sandwich Works also reserves the right to operate restaurants that may acquire them.
It is important to note that the franchisee's rights under the SDAA are subject to strict compliance with the development obligations outlined in the Development Schedule. Failure to meet these obligations can result in termination of the SDAA without any opportunity to cure the breach, as stated in Section 2.06. This highlights the importance of adhering to the timelines and requirements set forth in Exhibit B to maintain the cumulative development rights granted under the SDAA.