What exception exists regarding ownership of publicly-traded securities in relation to the 7 Brew covenant not to compete?

According to 7 Brew's 2025 Franchise Disclosure Document, the covenant not to compete includes an exception regarding the ownership of publicly-traded securities. Specifically, the restriction against having a direct or indirect interest in a competitive business does not prohibit owning shares of a class of securities publicly-traded on a United States stock exchange. However, this exception applies only if the shares represent less than three percent (3%) of the total number of outstanding shares of that class of securities.

This exception allows a 7 Brew franchisee to invest in publicly-traded companies that might be considered competitive businesses, provided that the investment remains below the specified threshold. This is a fairly standard provision in franchise agreements, as it allows franchisees to diversify their investments without necessarily violating the non-compete agreement. The 3% threshold is designed to prevent a franchisee from having a significant ownership stake that could influence the competitive business's operations or strategies.

For a prospective 7 Brew franchisee, this means they can hold a small amount of stock in publicly-traded coffee companies or other businesses that might be considered competitive to 7 Brew without violating the franchise agreement. However, it is crucial to monitor these holdings to ensure they remain below the 3% limit. Exceeding this limit could be considered a breach of the franchise agreement and could potentially lead to legal consequences.

It is important for franchisees to understand the definition of "Competitive Business" as outlined in the franchise agreement to determine which companies might fall under this restriction. In the case of 7 Brew, a Competitive Business is defined as any business that derives more than 25% of its revenue from selling coffee, or any business granting franchises or licenses to others to operate that type of business, excluding other 7 Brew franchises.