What happens on the ten-year anniversary of the note for Capriottis Sandwich Shop?
Capriottis_Sandwich_Shop Franchise · 2025 FDDAnswer from 2025 FDD Document
To finance restaurant acquisitions and provide additional working capital, Capriotti's Craig, LLC and Capriotti's Huntridge, LLC entered into financing transactions with Zeus Holdings, LLC. The agreements are in the form of Convertible Promissory Notes that provide for the quarterly period-end, period-end defined as every four weeks from the fiscal year-end, payments of 50% of the borrower's EBITDA until such time as the instrument is fully repaid or redeemed (as more fully described below), or the borrower is liquidated. Beginning in the fifth year after issuance, the lender is also entitled to an additional 25% of the borrower's EBITDA as payment of the outstanding principal until such time as the lender recovers 50% of the original loan proceeds. On the ten-year anniversary of the note, a balloon payment is due in an amount sufficient to pay the outstanding principal down to 50% of the original note proceeds. The remaining 50% of the note proceeds is due on the 15-year anniversary of the note, and the anniversary dates are February 2025 and August 2033. At any time prior to maturity, the loan can be extended for additional one-year terms with the mutual consent of the parties. Also, at any time prior to maturity, 50% of the original note proceeds is convertible into a 50% nonvoting equity interest in the borrower.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Capriottis Sandwich Shop's 2025 Franchise Disclosure Document, on the ten-year anniversary of certain convertible promissory notes, a balloon payment is due. This payment must be sufficient to reduce the outstanding principal balance to 50% of the original note proceeds. This condition applies to financing transactions that Capriotti's Craig, LLC and Capriotti's Huntridge, LLC entered into with Zeus Holdings, LLC.
This arrangement means that a significant portion of the loan becomes due after ten years, requiring the franchisee to have a plan to cover this large payment. It is also important to note that the remaining 50% of the note proceeds is due on the 15-year anniversary of the note. For Capriotti's Craig, LLC, the 15-year anniversary date is February 2025, and for Capriotti's Huntridge, LLC, it is August 2033.
This type of financing structure, involving balloon payments, is not uncommon but introduces a level of risk for the franchisee. They must manage their cash flow and business operations to ensure they can meet this substantial payment when it becomes due. Prospective franchisees should carefully evaluate their financial projections and consider the implications of this balloon payment when assessing the overall financial viability of their Capriottis Sandwich Shop franchise.