Under what circumstances is a Covenantor permitted to own securities of a Person traded on a national securities exchange without violating the non-compete agreement with Belocal?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
provided, however, that nothing herein shall prohibit Covenantor from owning, solely as an investment, securities of any Person traded on any national securities exchange if neither Franchisee nor any Covenantor controls, or is a member of a group which controls, such Person and does not, directly or indirectly, own 5% or more of any class of securities of such Person.
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, a Covenantor is permitted to own securities of a Person traded on a national securities exchange under specific conditions without violating the non-compete agreement. This exception applies if the securities are held solely as an investment.
Specifically, the Covenantor, either individually or as part of a group, must not control the Person whose securities are owned. Furthermore, the Covenantor cannot directly or indirectly own 5% or more of any class of securities of that Person.
This provision allows Covenantors to make passive investments in publicly traded companies, even if those companies might be considered competitive businesses, without breaching their non-compete obligations to Belocal. However, any ownership stake that exceeds the 5% threshold or involves control of the other entity would be a violation of the non-compete agreement.