What specific restrictions in the Hardees Franchise Agreement's Section 20 are the guarantors personally bound by?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
- **1.
Guarantee To Be Bound by Certain Obligations.** Guarantors hereby personally and unconditionally guarantee to HR and its successors and assigns, for the term of the Agreement and thereafter as provided in the Agreement or at law or in equity, that each will be personally bound by the restrictions contained in Section 20 of the Agreement.
E. Applicability
The restrictions contained in this Section 20 shall apply to Franchisee and all guarantors of Franchisee'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 Operating Principal, a stockholder, 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 20 shall not apply to ownership of less than a 5% legal or beneficial ownership in the outstanding equity securities of any publicly held corporation.
(2) Accordingly, Franchisee covenants and agrees that, except with HR's prior written consent, during the term of this Agreement, and for a continuous period of 2 years following its expiration, Transfer, or termination, Franchisee shall not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with, any person, firm, partnership, corporation, or other entity:
- (a) Divert or attempt to divert any business or customer, or potential business or customer, of any Hardee's Restaurant to any competitor, by direct or indirect inducement or otherwise.
- (b) Own, maintain, operate, engage in, grant a franchise to, advise, help, make loans to, lease property to, sell the property underlying the Franchised Location and related assets to, or have any interest in, either directly or indirectly, any restaurant business: (i) whose sales of Designated Entrée Items (as defined below) during any daypart are reasonably likely to account collectively for 20% or more of the restaurant's sales of all entrée items during that daypart; (ii) that features or promotes any Designated Entrée Item in its advertising; or (iii) that operates in a quick-service format (with or without table service). For purposes of the previous sentence, the term "Designated Entrée Items" means any hamburger sandwich, chicken sandwich, breakfast sandwich and any other entrée item of a type designated by HR as part of the System at any time during the term of this Agreement. During the term of this Agreement, there is no geographical limitation on this restriction. Following the expiration, transfer or termination of this Agreement, this restriction shall apply to any restaurant business located within a 2-mile radius of the Franchised Location and any restaurant business within a 2-mile radius of any then-existing Hardee's Restaurant.
Franchisee acknowledges and agrees that violation of the covenants contained in this Section 20 will result in immediate and irreparable injury to HR for which money damages are not an adequate remedy. Therefore, in addition to being responsible for any damages caused to HR arising from Franchisee's violation of this Section 20, HR shall be entitled to seek the entry of an injunction prohibiting any conduct by Franchisee in violation of this Section 20.
Source: Item 22 — Contracts (FDD page 85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, guarantors are personally bound by the restrictions outlined in Section 20 of the Franchise Agreement. This means that the restrictions placed upon the franchisee also apply to the guarantors, ensuring that they are equally responsible for upholding the terms and conditions related to confidentiality, non-competition, and protection of Hardees's proprietary information. These restrictions for guarantors are applicable for a period of 2 years after the expiration, transfer, or termination of the agreement, or from the date the guarantor ceases to be the Operating Principal, a stockholder, member of the Continuity Group, or a 10% Owner. If the 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 5% of the stock in a publicly held corporation.
The restrictions in Section 20 prevent the franchisee and guarantors from engaging in activities that could harm Hardees's business interests. Specifically, they are prohibited from diverting business or customers to competitors, and from owning, operating, or having an interest in any restaurant business that competes with Hardees. A competing restaurant is defined as one where sales of specific entrée items (like hamburger, chicken, or breakfast sandwiches) are likely to account for 20% or more of the restaurant's sales during any part of the day, or one that promotes these items in its advertising, or operates in a quick-service format. During the term of the agreement, these restrictions have no geographical limitations. After the agreement ends, the restrictions apply within a 2-mile radius of the former Hardees location or any existing Hardees restaurant.
Hardees emphasizes the importance of protecting its trade secrets and confidential information, as well as maintaining a competitive advantage in the quick-service restaurant industry. The Franchise Agreement states that violating Section 20 will cause immediate and irreparable harm to Hardees, for which monetary damages may not be sufficient. Therefore, Hardees has the right to seek an injunction to prevent any conduct that violates these restrictions. This highlights the seriousness with which Hardees views these restrictions and the potential legal consequences for non-compliance by both the franchisee and the guarantors.