Under what circumstances do the restrictions in Section 12 of the Carls agreement not apply to ownership of equity securities?

According to Carls's 2024 Franchise Disclosure Document, the restrictions outlined in Section 12 of the development agreement do not apply if a developer or guarantor owns less than 5% of the legal or beneficial ownership in the outstanding equity securities of any publicly held corporation. This exemption is designed to prevent franchisees from having to divest themselves of minor stock holdings in large, publicly traded companies.

This provision offers a practical benefit to potential Carls developers and their guarantors, allowing them to maintain small investment positions in publicly traded companies without violating the non-compete obligations of the franchise agreement. It acknowledges that a small ownership stake is unlikely to create a conflict of interest or provide undue influence over competitive business activities.

However, it is important to note that this exception is specifically limited to ownership in publicly held corporations. Any ownership in privately held restaurant businesses or other ventures that compete with the Carls system would still be subject to the restrictions in Section 12, regardless of the percentage owned. Developers and guarantors should carefully review their investment portfolios to ensure compliance with these restrictions.