Under what condition are the non-competition covenants for Annex Brands franchisees not applicable regarding ownership of equity securities?

According to Annex Brands' 2025 Franchise Disclosure Document, the non-competition covenants do not apply if a covenantor has less than a five percent beneficial interest in the outstanding equity securities of any publicly held corporation. This means that a franchisee or related party can own a small stake in a publicly traded company that competes with Annex Brands without violating the non-competition agreement.

This exception is relatively common in franchise agreements. It allows franchisees to diversify their investments without being penalized for minor holdings in competing businesses. The rationale is that a small ownership stake typically does not give the individual enough influence to affect the company's operations or gain a competitive advantage.

For a prospective Annex Brands franchisee, this clause provides some flexibility in managing personal investments. However, it's crucial to remain below the 5% threshold to avoid violating the non-competition agreement. Exceeding this limit could potentially lead to legal repercussions, as Annex Brands would likely seek to enforce the non-competition covenants if a larger stake is acquired.