Under what conditions do the restrictions in Section 20 not apply to ownership of equity securities in a publicly held corporation for a Carls franchise?

According to Carls's 2024 Franchise Disclosure Document, the restrictions outlined in Section 20 do not apply to the ownership of equity securities in a publicly held corporation if the ownership is less than 5%. This means that a franchisee or guarantor can own less than 5% of the outstanding equity securities of a publicly held corporation without being subject to the restrictions in Section 20.

This exception provides some flexibility for franchisees and guarantors to invest in publicly traded companies without triggering the restrictive covenants related to competitive activities or business interests. However, it is important to note that this exception is specifically limited to ownership of less than 5% of the equity securities. Any ownership stake of 5% or more would be subject to the restrictions outlined in Section 20.

This clause protects Carls from franchisees gaining significant influence or control in competing businesses while still allowing minor investments in the stock market. Franchisees should carefully consider the implications of Section 20 and this exception when making investment decisions, as exceeding the 5% threshold could trigger the restrictive covenants and potentially lead to enforcement actions by Carls.