Kona Ice’s Initial Franchise Fee, Royalty Fee + 30 Other Fees

Detailed Information on Kona Ice’s Initial Franchise Fee, Royalty Fee + 30 Other Fees (Items 5 and 6, 2021 FDD)

1.  Initial Franchise Fee:  $15,000

• You must pay Kona Ice an initial franchise fee (“Initial Franchise Fee”) of $15,000 when you sign the Franchise Agreement. The Initial Franchise Fee is payment for all of Kona Ice’s pre-opening assistance that it provides to allow you to open your Kona Ice Business and also offsets some of its franchisee recruitment expenses.

• Each Franchise Agreement will grant you the right to operate one Kona Entertainment Vehicle (KEV) and Additional Equipment in the Protected Territory. If you desire to operate more than one KEV, you will be required to purchase an additional Kona Ice Franchise for each KEV (unless you purchase a KEV Express Truck as Additional Equipment which you may operate in your Protected Territory).

• The Initial Franchise Fee is due in full at the time you sign the Franchise Agreement(s), and is deemed fully earned by Kona Ice once paid and is not refundable.

2.  Additional Franchise Reservation Fee:  $10,000 per territory

• Franchisees may also reserve an additional franchise and territory (“Reserved Franchise”) subject to availability and Kona Ice’s approval by paying a reservation fee of $10,000 per territory (“Reservation Fee”) when you sign the “Additional Franchise Reservation Agreement.”

• You will be able to reserve a territory for up to 12 months. Kona Ice will also give you a right of first refusal for an additional 12 months if you do not purchase the Reserved Franchise within the 12-month period.

• The Reservation Fee will be applied to the Initial Franchise Fee if you execute a new Franchise Agreement for an additional Kona Ice Franchise.

• The Reservation Fee is uniform and nonrefundable even if you do not open an additional Kona Ice Franchise.

3.  Kona Entertainment Vehicle:  $124,500

• You will be required to purchase one KEV from Kona Ice. You will be required to pay the then-current KEV price at the time you take delivery. As of the Issuance Date of the Franchise Disclosure Document, the current KEV price is for $124,500.

• You will pay a nonrefundable $5,000 deposit when you sign the Franchise Agreement and the remaining balance when you take delivery of your KEV (currently $119,500).

• You will be required to pay for any optional customization or additional features that you request that are not standard on the KEV.

• KEV payments are nonrefundable even if you do not open a Kona Ice Franchise.

• The KEV will come equipped with an ice shaving machine, two cold plate freezers, Kona Ice’s proprietary music system, and Kona Ice’s proprietary patented FlavorWave Self-Service System. This station allows the customers to choose and apply their own flavorings to the shaved ice product.

• Franchisees are required to operate at least one KEV and may operate multiple KEVs in their Protected Territory.

• If a franchisee purchases multiple Franchises, franchisees may purchase KEV Express Trucks instead of KEVs for the additional Franchises (currently $100,750 per KEV Express Truck).

4.  KEV Compliance Fee:  $0 to $5,000

• You may be required to pay a fee in the event that Kona Ice or its affiliate needs to modify any part of the KEV from Kona Ice’s standard specifications in order to meet with relevant state or local health department requirements in your Protected Territory. If required, these modifications usually cost between $0 and $5,000. These payments are nonrefundable.

5.  Initial Inventory:  $5,500

• Kona Ice requires all franchisees to purchase an initial supply of cups and flavorings, a graphics package, and a Kona Ice welcome box that includes branded t-shirt uniforms from Kona Ice before you begin operation of your Kona Ice Business. The cost of the initial inventory is $5,500 and is to be paid prior to the start of your Kona Ice Business and is nonrefundable.

6.  Optional Inventory:  $500

• You may, but are not required to, purchase Kona Ice branded merchandise from Kona Ice such as stuffed penguins, beach balls, shirts, and hats for approximately $500, depending on the quantity you purchase. These payments are nonrefundable.

7.  Insurance:  $1,500

• You may, but are not required to, purchase your required insurance through Kona Ice’s affiliate, Kona Insurance. You will be required to obtain your insurance prior to picking up your KEV.

• Your insurance will be approximately $1,500 for three months of coverage, but may depend on various factors, including your location and whether you have had prior issues or claims from previous operations.

• These initial amounts owed may be paid up to three weeks following issuance, depending on state law. If you have had prior issues or claims from previous operations, your rates may be significantly higher. These payments are nonrefundable.

8.  Royalty:  $3,000 for years one and two, $3,500 for years three through six, $4,000 for years seven through ten

• Due Date:  3 equal installments due June 30, July 31, and August 31 of each year or 6 equal installments due May 31, June 30, July 31, August 31, September 30, and October 31. Payable beginning the first calendar year in which you take delivery of the KEV.

• If you are renewing your Franchise Agreement, you are required to pay Kona Ice’s then-current successor franchise royalty payments. If you are purchasing an existing Franchise, the date for determining royalty payments will be determined from the date the initial Franchise Agreement was signed.

9.  Additional Equipment Royalty:  varies based on the type of Additional Equipment (currently $600 to $2,000 per year)

• Due Date:  Same as royalty.

• You may purchase any Additional Equipment for use in your Protected Territory. You are not required to purchase any Additional Equipment during the term of the Franchise Agreement.

10.  Territory Infringement Fee:  $1,000 plus invoice amount for first violation; $5,000 plus invoice amount for second and subsequent violations

• Due Date:  As incurred.

• Payable to Kona Ice if you infringe on another Kona Ice franchisee’s Protected Territory by receiving payment for goods and/or services provided and/or rendered within the other franchisee’s Protected Territory without that franchisee’s and/or Kona Ice’s permission. Kona Ice may direct the funds at its option.

11.  Initial Territory Adjustment Fee:  $1,000 to $2,500

• Due Date:  As incurred.

• Kona Ice may, subject to availability and its approval, allow you to adjust your Protected Territory during your first 90 days of operation of your Kona Ice Business. You will be required to pay an “Initial Territory Adjustment Fee.” This fee will be $1,000 during the first 30 days of operation and $2,500 beginning on the 31st day. No revisions will be granted after 90 days of the delivery of the KEV.

12.  Territory Relocation Fee:  $2,500

• Due Date:  As incurred.

• This “Territory Relocation Fee” is payable to Kona Ice if it approves the relocation of your Protected Territory.

13.  Brand Fund Contribution:  currently $500 per year

• Due Date:  Annually on or before June 30.

• Kona Ice has established a system-wide “Brand Fund.” The Brand Fund contribution amount can be raised annually by up to 10%, and/or increased for marketing projects upon approval of the “Brand Advisory Board.”

14.  Additional Training:  then-current fee (currently approximately $0)

• Due Date:  As incurred.

• Kona Ice may charge you for training newly-hired personnel, refresher training courses, advanced training courses, and additional or special assistance or training you may need or request. The fee amount will depend on the training required and experience level of the trainer.

15.  Kona Email Address Fee:  $60 per email address per year

• Due Date:  Annually on or before October 1.

• Payable to Kona Ice for each email address it establishes for you. Each franchisee entity is required to have at least one Kona email address. If you purchase multiple Franchises, you will be required to have a separate email address for each Franchise.

16.  Technology Fee:  the then-current fee (currently $10 to $159.99 per month)

• Due Date:  Due on the 15th day of each month.

• During the initial term of your Franchise Agreement, the technology fee is $10 per month as long as you operate a single KEV or KEV Express Truck during the first year. Beginning the earlier of: (i) your second year of operations, (ii) when you operate multiple KEVs (or KEV Express Trucks) or add Additional Equipment; or (iii) under a successor Franchise Agreement, you will pay Kona Ice’s then-current Technology Fee.

17.  Insurance:  reimbursement of Kona Ice’s costs, plus a 20% administration charge

• Due Date:  On demand.

• If you fail to obtain insurance, Kona Ice may obtain insurance for you, and you must reimburse Kona Ice for the cost of insurance obtained (currently $500 per month) plus 20% of the premium for an administrative cost of obtaining the insurance.

18.  Customer Satisfaction Reimbursement:  varies under circumstances

• Due Date:  As incurred.

• Kona Ice may, in its sole discretion, remedy any issues with customers of your Kona Ice Business, including full reimbursement of any fees paid to you. You are required to reimburse Kona Ice for any such costs.

19.  Misappropriated Brand Manual Fee:  will vary under the circumstances

• Due Date:  On demand.

• Kona Ice’s “Brand Manual” contains valuable intellectual property and trade secrets. Each franchisee will get one copy of the Brand Manual. If you lose, give away, make unauthorized copies, fail to return, or otherwise misappropriate all or some of the Brand Manual, you will be required to pay Kona Ice liquidated damages to offset the damages that it will incur as a result of this misappropriation.

20.  Non-Compliance Fee:  $1,000 for the first violation; $5,000 if violation is not corrected within 30 days; $5,000 for the second violation

• Due Date:  As incurred.

• This fee is assessed if you receive notice that you are failing to follow Kona Ice’s system standards, failing to use the required cups and flavorings, failing to comply with the provisions of the Franchise Agreement, or failing to follow the provisions of Kona Ice’s Brand Manual.

• This fee is in addition to any and all remedies that Kona Ice has available under the Franchise Agreement.

• If you commit three or more violations in a single year, your Franchise Agreement may be terminated.

21.  Payment Service Fees:  up to 3% of total charge

• Due Date:  As incurred.

• If payment is made to Kona Ice or its affiliates by credit card for any fee required, Kona Ice may include a service fee of up to 3% of the total charge.

22.  Late Fees:  $25 per day, plus the lesser of the daily equivalent of 12% per year simple interest or the highest rate allowed by law

• Due Date:  On demand.

• Payable if any payment due to Kona Ice or its affiliate is not made by the due date. Interest accrues from the original due date until payment is received in full.

23.  Returned Check or Insufficient Funds Fee:  $100

• Due Date:  As incurred.

• Payable if any check or electronic funds transfer payment is not successful due to insufficient funds, stop payment, or any similar event.

24.  Indemnification:  varies under circumstances

• Due Date:  As incurred.

• You must indemnify and reimburse Kona Ice for any expenses or losses that it or its representatives incur related in any way to your Kona Ice Business or Franchise.

25.  Professional Fees and Expenses:  will vary under circumstances

• Due Date:  As incurred.

• You must reimburse Kona Ice for any legal or accounting fees that it incurs as a result of any breach or termination of your Franchise Agreement. You must reimburse Kona Ice if it is required to incur any expenses in enforcing its rights against you under the Franchise Agreement. You will also be required to pay any professional fees that Kona Ice incurs for certain transfers.

26.  Renewal Franchise Fee:  $7,500

• Due Date:  At the time you sign the successor Franchise Agreement.

• Payable if you qualify to renew your Franchise Agreement and choose to enter into a successor Franchise Agreement.

27.  Transfer Fee:  $5,000 to $7,500

• Due Date:  $1,000 nonrefundable deposit at time of transfer application submittal and the remaining balance of fee at time of approved transfer.

• This fee is payable in connection with the transfer of your Kona Ice Business, your KEV, a transfer of ownership of your legal entity, or the Franchise Agreement. If you transfer to an existing Kona Ice franchisee, the transfer fee is $5,000. Otherwise, it is $7,500.

• If you are transferring the Franchise Agreement to an entity that you control, family, or adding minority equity owners, you will not be required to pay a transfer fee, but you must pay Kona Ice’s actual costs, including legal fees.

28.  Ancillary Transfer Fee:  $500

• Due Date:  At time of approved transfer.

• Payable in connection with the transfer of your Additional Equipment. You will be required to pay off any loans on the Additional Equipment prior to transfer.

29.  KEV Remodel or KEV Upgrades:  will vary under circumstances (the average in 2020 was $17,361.70)

• Due Date:  Upon execution of successor Franchise Agreement, upon a KEV rewrap, or upon a transfer of an existing KEV (and KEV Express Truck and Additional Equipment, if any) that has not completed the required remodels.

• You are required to keep your KEV (and KEV Express Truck and Additional Equipment, if any) in compliance with current standards which includes a rewrap when required (at least every seven years of operation).

30.  Mystery Shopper Fee:  $1,000 per occurrence

• Due Date:  On demand.

• Kona Ice may require you to conduct a self-shop by sending photos of your KEV. If the results of the self-shop shop are unsatisfactory or you do not participate, Kona Ice may send a mystery shopper or similar third party to conduct a mystery shop.

• If the results of the mystery shop are unsatisfactory, Kona Ice will conduct a mystery shop of your Kona Ice Franchise and you must pay Kona Ice a fee of $1,000 to cover its travel and expenses and you will be subject to non-compliance fees.

31.  Lead Procurement Fee:  $15,000 or the third-party broker fee

• Due Date:  As incurred.

• Payable only in connection with the transfer to a purchaser that was referred to you through one of Kona Ice’s leads or through a third-party broker that Kona Ice has a contract with. This fee is in addition to the Transfer Fee.

32.  Audit:  cost of audit and any related accounting and legal expenses and related travel and administrative expenses (Kona Ice estimates this cost to be between $1,000 and $10,000)

• Due Date:  On demand.

• You will be required to pay these costs if an audit reveals that you have failed to submit required reports or other information that Kona Ice requires.