Surf City Squeeze Franchise

Financing Details

Surf City Squeeze generally does not offer direct or indirect financing. However, the franchisor, Kahala Franchising, L.L.C., or its affiliates may, in their sole discretion, provide two specific types of financing assistance. Firstly, they may agree to guarantee a franchisee's lease for the restaurant site. If they do, the franchisee would pay a non-refundable lease guarantee fee of 10% of the total rental obligations, up to a maximum of $10,000. Secondly, if a franchisee purchases a corporate-owned Surf City Squeeze restaurant directly from one of the franchisor's affiliates, that affiliate may finance up to 100% of the purchase price. The purchase price could include the initial franchise fee, transferable equipment, leasehold, and inventory. The interest rate on such financing would range from 0% to 12%, depending on the franchisee's creditworthiness, the financed amount, and the upfront payment. Repayment periods for these loans typically range from 12 to 60 months in equal monthly installments. A first-position lien on all equipment would be required as security, and individual franchisees (and their spouses) or principals of entity franchisees (and their spouses) would need to personally guarantee the debt. Default on these financing arrangements could lead to accelerated payment obligations, an increased interest rate of 18%, and termination of the franchise.

Litigation Summary

Surf City Squeeze, through its franchisor and affiliates, has been involved in several legal matters, totaling 21 cases disclosed in Item 3. These cases include both concluded arbitrations and litigations. Historically, cases involved claims such as violations of franchise investment protection acts, misrepresentation of financial performance, breach of contract, unjust enrichment, and trademark infringement. For example, a case against a predecessor, The Extreme Pita Franchising USA, Inc., was filed in 2015 for alleged violations of the Washington Franchise Investment Protection Act and misrepresentation, settling for $20,000 in 2016. Kahala Franchising, L.L.C. was involved in a breach of contract and fraud case with a former area representative, Koho, Inc., which settled in 2017. Another case from 2014 involved a Texas franchisee alleging violations of the Texas Business Opportunities Act and breach of contract, which settled in 2015. Famous Dave's of America, Inc., an affiliate, faced a case in 2016 regarding Minnesota Franchise Act violations, which settled the same year, and another in 2015 for Lanham Act violations and breach of contract that settled in 2018. Papa Murphy's International, L.L.C., another affiliate, was involved in two consolidated actions commenced in 2014 by franchisees alleging misrepresentations about financial performance, which were dismissed in 2020 through various settlements. State administrative actions against predecessors, such as SweetFrog and Maui Wowi Franchising, Inc., also occurred for registration and disclosure violations, which were resolved through consent orders. Most recently, during the fiscal year December 1, 2023, through November 30, 2024, Kahala Franchising, L.L.C. filed two lawsuits against franchisees for breach of contract and forcible entry and detainer.

Renewal Conditions

To renew their Surf City Squeeze franchise agreement, franchisees must meet several conditions. They need to provide the franchisor with notice of their intent to renew at least 120 days before the current term expires. At the time of renewal, franchisees must not be in default of their agreement or any other agreements with the franchisor or its affiliates, and all financial obligations must be current. They should not have received more than three notices of default or breach during the term, or more than two notices in the five years immediately preceding the proposed renewal date. Franchisees must also either retain possession of their existing approved location or secure a new suitable location that meets the franchisor's current site requirements. Additionally, they are required to sign a general release provided by the franchisor and execute all new agreements and documents typically used for renewing franchisees. This new agreement may have different terms, including potentially higher royalty and advertising fees. Franchisees must also agree to complete any necessary remodeling or refurbishments and upgrade their point-of-sale (POS) system to meet current brand standards. A renewal franchise fee, equivalent to 50% of the then-current initial franchise fee (without discounts), is also required.

Staffing Notes

Surf City Squeeze requires franchisees to employ at least one full-time, on-premises supervisor (a "Manager") for each restaurant. This Manager must meet the franchisor's criteria as a qualified restaurant operator and must have successfully completed the training program. The Manager is expected to devote their entire time during normal business hours to the management, operation, and development of the Surf City Squeeze business, including maintaining confidentiality and adhering to operating standards. A Manager capable of reading and understanding written materials and communicating in English with employees and customers must be present during each shift for safe and efficient operations. All personnel are required to maintain high standards of sanitation, cleanliness, and demeanor, and must wear franchisor-approved uniforms. Employees with customer service duties must also have sufficient literacy and fluency in English (or the primary language of the market) to effectively serve the public.