What specific restrictions in the Carls franchise agreement's Section 12 are the guarantors personally bound by?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
The restrictions contained in this Section 12 shall apply to Developer and all guarantors of Developer's obligations. With respect to each guarantor, these restrictions shall apply until 2 years after the earlier of: (i) the expiration, transfer or termination of this Agreement; or (ii) the date the guarantor ceases to be the Development Principal, an officer, stockholder, director, member of the Continuity Group or a 10% Owner (or, if a guarantor is the spouse of a person holding one or more of these positions, the date the person ceases to hold the applicable positions). The restrictions contained in this Section 12 shall not apply to ownership of less than a 5% legal or beneficial ownership in the outstanding equity securities of any publicly held corporation. The existence of any claim Developer or any guarantor of Developer's obligations may have against CJR or its affiliates, whether or not arising from this Agreement, shall not constitute a defense to the enforcement by CJR of the covenants in this Section 12.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to the 2024 Carls FDD, Section 12 restrictions apply to both the developer and any guarantors of the developer's obligations. These restrictions remain in effect for each guarantor until two years after the earlier of the agreement's expiration, transfer, or termination, or the date the guarantor ceases to hold specific positions such as Development Principal, officer, stockholder, director, member of the Continuity Group, or a 10% Owner. If the guarantor is a spouse of someone holding these positions, the restrictions apply until that person no longer holds the position.
Specifically, these restrictions prevent the developer and guarantors from engaging in activities that could harm the Carls Jr. system. This includes diverting business or customers to competitors, or having an interest in competing restaurant businesses. The restrictions apply during the development term and for two years after the agreement ends.
Carls also has the right to seek an injunction to prevent any conduct that violates Section 12, as they consider such violations as causing immediate and irreparable harm for which monetary damages may not be sufficient. The restrictions do not apply to ownership of less than 5% of the equity securities of any publicly held corporation.