After termination or expiration of the Carls Jr. Development Agreement, must the Developer continue to abide by the covenants in Section 12?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
Upon termination or expiration of this Agreement:
- D. Developer and all persons and entities subject to the covenants contained in Section 12 shall continue to abide by those covenants and shall not, directly or indirectly, take any action that violates those covenants.
E. Applicability
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.
At CJR's request, unless otherwise prohibited by law, Developer will obtain covenants similar in substance to those set forth in this Section 12 from any of its stockholders, managers, directors, members, officers, or restaurant managers and from family members of guarantors.
F. Injunctive Relief
Developer acknowledges and agrees that violation of the covenants contained in this Section 12 will result in immediate and irreparable injury to CJR for which money damages are not an adequate remedy. Therefore, in addition to being responsible for any damages caused to CJR arising from Developer's violation of this Section 12, CJR shall be entitled to seek the entry of an injunction prohibiting any conduct by Developer in violation of this Section 12.
Source: Item 23 — RECEIPTS (FDD pages 76–364)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, after the termination or expiration of the Development Agreement, the Developer and all persons and entities subject to the covenants contained in Section 12 must continue to abide by those covenants. They are prohibited from taking any action that violates those covenants.
Section 12 includes restrictions that apply to the Developer and all guarantors of the Developer's obligations. These restrictions remain in effect for each guarantor until 2 years after the earlier of the expiration, transfer, or termination of the Development Agreement, or the date the guarantor ceases to be the Development Principal, an officer, stockholder, director, member of the Continuity Group, or a 10% Owner. If a guarantor is the spouse of someone holding one of these positions, the restrictions apply until that person no longer holds the position. These restrictions do not apply to ownership of less than a 5% legal or beneficial ownership in the outstanding equity securities of any publicly held corporation.
Carls Jr. can request that the Developer obtain covenants similar to those in Section 12 from its stockholders, managers, directors, members, officers, restaurant managers, and family members of guarantors, unless prohibited by law. Violation of the covenants in Section 12 will cause immediate and irreparable injury to Carls Jr., and money damages may not be adequate. Carls Jr. is entitled to seek an injunction prohibiting any conduct by the Developer that violates Section 12, in addition to being responsible for any damages caused to Carls Jr.