For Hardees, what are the vesting conditions for the performance vesting Class B Units?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
Time vesting Class B Units vest in four equal annual installments from the date of grant. Performance vesting Class B Units provide for vesting or conversion to a time vesting schedule upon achievement of certain financial or investment targets. Time vesting Class C Units vest in various installments as specified in the individual grant agreements, but in all instances have vesting periods no longer than five years from the date of grant. There are no unvested time vesting and performance vesting Class B Units as of January 31, 2025 and 2024.
As a result of a previous amendment to the Limited Partnership Agreement, all performance vesting Class B Units that had not vested or converted to a time vesting schedule prior to December 24, 2017, became fully vested and non-forfeitable Class B Units, subject to certain restrictions (the "Restricted Class B Performance Units"). The Restricted Class B Performance Units are only entitled to realize a profit sharing interest in the Partnership to the extent that certain future performance and/or market conditions are met. These conditions require the value generated or calculated as a result of a substantial initial public offering, change in control or cumulative cash distributions, each as defined in the Limited Partnership Agreement, to result in the achievement of a specified return to the Partnership.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, performance vesting Class B Units vest or convert to a time vesting schedule upon achieving certain financial or investment targets. However, as of January 31, 2025, there were no unvested time vesting and performance vesting Class B Units. An earlier amendment to the Limited Partnership Agreement resulted in all performance vesting Class B Units that had not vested or converted to a time vesting schedule before December 24, 2017, becoming fully vested and non-forfeitable Class B Units, subject to certain restrictions, referred to as "Restricted Class B Performance Units".
These Restricted Class B Performance Units can only realize a profit-sharing interest in the Partnership if specific future performance and/or market conditions are satisfied. These conditions are tied to the value generated or calculated from a substantial initial public offering, a change in control, or cumulative cash distributions, each as defined in the Limited Partnership Agreement, which must result in achieving a specified return to the Partnership.
In practical terms, this means that while some Class B Units may have initially been subject to performance-based vesting, those conditions have largely been replaced by the requirement to meet overall Partnership performance targets related to significant financial events like an IPO or a change in control. For a prospective franchisee, understanding the specifics of these performance targets within the Limited Partnership Agreement would be crucial to assessing the potential value of holding such units. Since the vesting of Class B units is dependent on the overall financial performance and structure of the Partnership, rather than individual franchisee performance, it is important to understand the broader financial strategy and goals of the Hardees organization.