What covenants must a Chicken Guy franchisee require and obtain from guarantors of their obligations?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
e breaches Sections 21.C.(2)(c), 21.C.(3) or 21.C.(5) ("Covenants Against Competition") during the 1-year period following the expiration or earlier termination of this Agreement, for each restaurant business that violates those Sections, Franchisee shall pay to Chicken Guy: (1) a fee equal to Chicken Guy's then-current Initial Franchise Fee for franchised Chicken Guy! Restaurants; and (2) 8% of the gross sales of that restaurant business until the expiration of the 1-year period following the expiration or earlier termination of this Agreement. Franchisee acknowledges that a precise
calculation of the full extent of Chicken Guy's damages under these circumstances is difficult to determine and the method of calculation of such damages as set forth in this Section 21.D. is reasonable. Franchisee's payment to Chicken Guy under this Section shall be in addition to any attorney's fees and other costs and expenses to which Chicken Guy is entitled pursuant to Sections 7.I. or 31.E. Franchisee acknowledges that breach of the Covenants Against Competition by Franchisee shall cause irreparable harm to Chicken Guy in addition to monetary damages and nothing in this Section 21.D. shall preclude Chicken Guy from obtaining appropriate injunctive relief to enforce the Covenants Against Competition and specific performance to enforce this Section 21.D.
- E. Modification. Chicken Guy shall have the right, in its sole discretion, to reduce the scope of any covenant in this Section 21 effective immediately upon Franchisee's receipt of written notice, and Franchisee agrees that it shall comply forthwith with any covenant as so modified, which shall be fully enforceable notwithstanding the provisions of Section 29.
- F. Execution of Covenants by Third Parties. At Chicken Guy's request, Franchisee shall require and obtain the execution of covenants similar to those set forth in this Section 21 (including covenants applicable upon the termination of an individual's relationship with Franchisee) from all guarantors of Franchisee's obligations. Every covenant required by this Section 21.F. shall be in a form satisfactory to Chicken Guy, including, without limitation, specific identification of Chicken Guy as a third party beneficiary of such covenants with the independent right to enforce them. Failure by Franchisee to obtain execution of a covenant required by this Section 21.F. shall constitute a material breach of this Agreement.
- G. Applicability. The restrictions contained in this Section 21 shall apply to Franchisee and all guarantors of Franchisee's obligations.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2025 FDD)
According to Chicken Guy's 2025 Franchise Disclosure Document, franchisees must ensure that all guarantors of their obligations execute covenants similar to those outlined in Section 21 of the franchise agreement. These covenants must be in a form that Chicken Guy finds satisfactory, explicitly identifying Chicken Guy as a third-party beneficiary with the independent right to enforce them. Failure to obtain these covenants from guarantors constitutes a material breach of the franchise agreement. These restrictions apply to guarantors for one year after they cease to be the Operating Principal, an officer, stockholder, director, member of the Continuity Group, or a 10% Owner. However, these restrictions do not apply to ownership of less than 5% of the equity securities of any publicly held corporation by the franchisee or any guarantor.
Furthermore, the franchisee, all individuals who executed the agreement, and all guarantors must execute a general release and a covenant not to sue Chicken Guy and its affiliates. This release covers all claims against Chicken Guy and its affiliates, including their officers, directors, shareholders, agents, and employees, arising from federal, state, and local laws, the franchise agreement, and the operation of the franchised restaurant.
These requirements ensure that Chicken Guy has recourse against not only the franchisee but also any individuals or entities guaranteeing the franchisee's obligations. This protects Chicken Guy's interests and ensures compliance with the franchise agreement. Prospective franchisees should carefully review Section 21 of the franchise agreement and consult with legal counsel to fully understand the scope of these covenants and their obligations to Chicken Guy.