Under what condition does the Noodles & Company franchise agreement state that restrictions on competitive activities do not apply to the ownership of shares of a class of securities?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
Restrictions in this Agreement on competitive activities do not apply to: (a) the ownership or operation of other Noodles & Company restaurants we or our Affiliates licenses; (b) the ownership of shares of a class of securities that are listed on a public stock exchange or traded on the over-the-counter market and that represent less than 5% of that class of securities; or (c) any restaurant concept whose per person average check during the preceding 12 months was more than 50% higher or lower than Noodles & Company per person average check for the same period.
Source: Item 23 — RECEIPT (FDD pages 99–350)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, there are specific conditions under which restrictions on competitive activities do not apply to the ownership of shares. The franchise agreement states that if a franchisee owns shares of a class of securities that are listed on a public stock exchange or traded on the over-the-counter market, and those shares represent less than 5% of that class of securities, then the restrictions on competitive activities do not apply.
This provision provides some flexibility for franchisees to invest in publicly traded companies, even if those companies might be considered competitive businesses. However, it is important to note the 5% threshold. If a franchisee's ownership exceeds this limit, the competitive restrictions could apply, potentially creating a conflict of interest or a breach of the franchise agreement.
This clause is fairly standard in franchise agreements, as it allows franchisees to maintain diversified investment portfolios without automatically violating non-compete clauses. Prospective Noodles & Company franchisees should carefully consider this provision in light of their existing investment holdings and future investment plans to ensure compliance with the franchise agreement.