item 7 notes

The table listed on the startup costs page applies to the total initial investment when you own or lease your land and building, and purchase or lease your signs, equipment and improvements, using personal and/or borrowed funds.

Notes:

  1. See Item 5 for additional details regarding the Initial Franchise Fee, including how it is determined for a Resale Unit. The low amount applies only to existing franchisees purchasing an additional unit.
  2. You must pay HHI a training fee for initial training, which is currently $4,990. Additionally, you will be responsible for all expenses relating to you and your personnel attending training, such as travel, room, board and wages.
  3. If you do not own a location for your Unit, you must purchase or lease a space. Typical New Development Units using our current format range in size from 2,750 to 3,100 square feet. Free standing restaurants will require from 0.75 to 1.5 acres of land for the Restaurant and adequate parking facilities. The figures in the chart are estimates to lease the location for the first three months of operation. You will need to lease the space in advance of your opening; however, you may attempt to negotiate an abatement from the landlord for periods before your opening date. Rents may vary beyond this range , based on factors such as market conditions in the relevant area, the type and nature of improvements needed to the premises, the size of the Unit, the terms of the lease, and the desirability of the location. Due to variations in the market conditions for commercial property from region to region, we are unable to provide an estimate of the cost of purchasing real estate for the Franchise. If you decide to purchase the land, the cost and outlay needed to do so will be considerably higher.
  4. You will need to construct improvements of, or “build out,” the premises at which you will operate the Unit. The figures in the chart are for the build out of either a newly constructed building or improvements to an existing premises. These improvements may include, for example, wiring, flooring, sheetrock, plumbing, paint, HVAC, lighting, and décor items which must be constructed according to HHI’s specifications. Costs are likely to vary depending upon various factors, including: the size, location, configuration, installation costs, and overall condition of an existing premises, general contractor rates and the availability and cost of labor and materials; and the work that the lessor will do as a result of the lease negotiations. Costs may be much higher if you already have or wish to establish your Franchise in an area where special requirements of any kind (e.g., historical, architectural, or preservation requirements) will apply. You may negotiate for a tenant improvement allowance from the landlord covering a portion of the costs of constructing the leasehold improvements. If you are able to obtain from the property owner or lessor a leasehold allowance, or a lease payment abatement, those allowances or benefits should reduce your overall out-of-pocket costs to acquire, build out, and lease space but such allowance is not included in our estimates. These situations are site-specific and HHI cannot determine exact costs; a franchisee should evaluate those potential costs for any specific site that might be considered.This estimate does not include the costs for site preparation and site improvements. Site preparation costs include improvements to the land necessary for Unit construction and operation as well as adjacent parking areas. These costs may vary greatly depending on the condition of the land, environmental factors and whether or not you will buy or lease the site.
  5. You are responsible for paying any applicable state and local sales and other taxes, in addition to the actual cost of the equipment package.
  1. The low figure is for a standard sign package. The high figure assumes that you will need a standard sign package for the building and a high-rise road sign (including, where applicable, a standard highway sign). Specific circumstances may cause costs to be different.
  2. Once HHI has accepted a location for your New Development Unit and before beginning your site design, you will travel to HHI’s support center for a one day meeting to review the New Restaurant Opening Guide and complete initial project timelines and checklists with HHI’s construction and design department and operations team. HHI does not charge a fee for this day, but you will be responsible for any travel or related costs that you incur, which are estimated between $0 and $750 (for flight and hotel) depending on travel distance to HHI’s support center.
  3. HHI has implemented a point-of-sale system (the “POS System”) that you must purchase before opening your Franchise according to HHI’s specifications and criteria. HHI is not currently a supplier of the POS System, but HHI may choose to become a supplier in the future (but is not required to do so). The estimated initial investment includes the estimated cost of purchasing all elements of the POS System, as currently configured, which requires the use of three POS terminals. You will incur certain costs and expenses to purchase revised or upgraded components or services, or replacement systems, when specified by HHI.
  4. There are ongoing fees for hardware and software maintenance and a “help desk.” Based on the current system, HHI estimates that the monthly fees for software maintenance service and a “help desk” will cost approximately $245 – $275 for a POS System. This expense covers monthly services for assistance in operating and maintaining the POS System. HHI is not currently a provider of “help desk” and maintenance services, but HHI may choose to become a supplier in the future (but is not required to do so). HHI is in the process of beta testing a new labor and food cost control system for its POS system. This software is a web based subscription service and HHI intends to roll out this new software to all Units in 2018 to 2019. All Units will be required to implement this new software tool and, although it is difficult to estimate the exact cost of subscription to franchisees, HHI anticipates that it will cost you approximately $100 to $200 per month, per Unit, which includes the second level of support.
  5. The use of broadband communications requires security features and services (such as antivirus, antispam, firewall, and intrusion detection). Costs for these services and timing of payments will be as you determine with service providers, however, HHI estimates approximately $1,200 – $2,000 per year. HHI may choose to become a supplier of some security services and features. You must also be PCI compliant. “PCI” means the Payment Card Industry Data Security Standards, which are a set of requirements designed to ensure that all companies that process, store, or transmit credit card information maintain a secure environment. The PCI Data Security Standards are administered and managed by the Payment Card Industry Security Standards Council (www.pcisecuritystandards.org), an independent body that was created by the major payment card brands (Visa, MasterCard, American Express, Discover and JCB); however, the PCI council is not responsible for enforcing compliance. PCI compliance costs will accrue during the term of your franchise, as arranged with service providers. HHI estimates that costs for PCI compliance should not exceed $3,500 annually.
  6. Includes business license fees, cash register money, first month’s insurance deposit and tax escrow deposit, and utility deposits. This does not include a security deposit that you will pay to HHI (see Item 5 and note 12 below for details).
  7. You must also pay to HHI a security deposit. The amount may vary taking into account your credit history, and HHI may adjust the required amount from time to time. This deposit is

payable before you begin construction of your Huddle House Restaurant.

  1. This estimates your initial start-up expenses, including payroll. These figures are estimates and are based on HHI’s experience with respect to franchised and company-owned Huddle House Restaurants. HHI cannot guarantee that you will not have additional start-up expenses. Your costs will vary depending on factors such as: how well you follow HHI’s methods and procedures; your management skill, experience and business acumen; local economic conditions; the local market for your products and services; the prevailing wage rate; competition; and the sales level of your Franchise during the initial period.
  2. The expenditures shown in the table are for one Huddle House Restaurant. If you are a developer, you will experience similar costs for each Huddle House Restaurant under your Market Development Agreement.
  3. If you signed a Market Development Agreement, you must pay HHI a Development Fee that is equal to the total of (i) $35,000 for the first Huddle House Restaurant to be developed under the Development Schedule and (ii) $17,500 for each additional Huddle House Restaurant that you must development under the Development Schedule (as described in Item 5, the Development Fee is separate from the Initial Franchise Fees that will be due for each Unit, and the amount of the Initial Franchise Fee for each unit will be HHI’s then-current fees for new franchises). If you are in compliance with your obligations under the Development Agreement (and other agreements with HHI), when you sign the Franchise Agreement for each Huddle House Restaurant in compliance with the Development Schedule, HHI will credit the portion of the Development Fee that you paid for that Huddle House Restaurant toward the Initial Franchise Fee due for that Franchise Agreement.***

    Except as described in the table, there are no other payments you need to make in order to begin

operating your Franchise. Amounts payable to HHI are not refundable except as specifically described in Item 5. Amounts payable to a third party may be refundable, depending on the contracts, if any, between you and the third party. Except as described in Item 10 of this Disclosure Document, neither HHI nor its affiliates provide financing for any portion of a franchisee’s initial investment.