$133

Business Description

The first restaurant using the Zaxby's® system was opened in March 1990 by Zachary W. McLeroy and Tony D. Townley in Statesboro, Georgia via our affiliate, Zax LLC (which converted from Zax, Inc. on December 30, 2015), and was originally named "Zax." Now there are 757 (as of December 31, 2018) licensed locations operating in Alabama, Arkansas, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Utah and Virginia, and still more are under development. We are a Georgia limited liability company converted on December 30, 2015 from Zaxby's Franchising, Inc., a Georgia corporation. Zaxby's Franchising, Inc. was formed on September 8, 1994. Our principal business address is 1040 Founder's Boulevard, Suite 100, Athens, Georgia 30606. We began offering franchises soon after our incorporation. We do not operate Zaxby's® restaurants (“Restaurants”). We conduct no other business activities. We do business only as Zaxby's Franchising and Zaxby's, and do not intend to do business under any other name. Our agents for service of process are listed in Exhibit E to this Disclosure Document. Zaxby's Operating Company L.P. ("ZOC"), our parent company, was converted from Zaxby’s Operating Company, LLC on December 22, 2016. Zaxby’s Operating Company, LLC was formed on November 6, 2015 in the State of Georgia. ZOC is also the parent of our affiliates Zax and ZREH (as defined below). ZOC shares our principal business address in Athens, Georgia.

Prior Experience

We offer and grant qualified candidates the right to develop and operate Restaurants using our uniform and proprietary operating system and identified by the Zaxby's® trade name and service mark, and other trade names, service marks, trademarks, logos and commercial symbols that we may designate from time to time.

Business Offered

We franchise Restaurants featuring fresh, hot, prepared-to-order real chicken in a clean, friendly and inviting environment, which includes dining in, carrying out, calling in, and driving through options. You will develop and operate one or more Restaurants with the right to use our marks and our system, including operational guidelines, opening guidelines, our specifications for Restaurant design and proprietary menu items and ingredients, our initial and ongoing training programs, accounting services and marketing and promotional assistance. Our standards, guidelines, and specifications are outlined in our confidential manual (the “Manual”) and otherwise in writing from time to time. You will own the underlying assets of the business; those assets will be operated by you, as our licensee, under a license from us. You will enter into a license agreement that lays out your rights and obligations in the operation of each Restaurant (the “License Agreement”). A copy of our current License Agreement is attached as Exhibit A. Each License Agreement will be between you and us, and each of your owners will guarantee your obligations to us. If you commit to develop more than one Restaurant, you will enter into a multi-restaurant development agreement (the “Development Agreement”). A copy of our current Development Agreement is attached as Exhibit B. You must agree to develop at least two Restaurants in order to sign a Development Agreement. The Development Agreement will set a timetable for the development of the Restaurants within a defined geographic area. On or before 180 days prior to the date on which each Restaurant is to be opened pursuant to such timetable, you must enter into our then-current License Agreement and such ancillary agreements as we may require related to the development and operation of such Restaurant, except that the franchise fee for each Restaurant shall remain the same as the fee in effect as of the date the Development Agreement was signed. Each Development Agreement will be between you and us, and each of your owners will guarantee your obligations to us.

Initial Fees

The initial franchise fee is currently $35,000. Except as provided below, you will remit to us the entire initial franchise fee upon the execution of the License Agreement for the Restaurant. If you are unable, after what we deem to be a commercially reasonable effort, to locate a site for the Restaurant that we confirm meets our minimum standards and specifications, we will refund to you one-half of the initial franchise fee paid to us, provided that you and your owners enter into a mutual termination of the License Agreement, in a form acceptable to us, and release us from all claims. The other one-half of the initial franchise fee is nonrefundable and will be retained by us. (This refund is not available for Restaurants developed in accordance with a Development Agreement.) We have and may continue to waive the initial franchise fee for the benefit of entities owned by our shareholders. We may decrease the initial franchise fee periodically for new Restaurants in certain markets that we have particularly targeted for growth. Otherwise, the initial franchise fee is uniform for all licensees. In our 2018 fiscal year, the initial franchise fees we collected were uniformly $35,000. If you are a multi-restaurant developer, you have committed to develop more than one Restaurant and are granted a non-exclusive development area for this purpose. You must agree to develop at least two Restaurants in order to sign a Development Agreement. Upon signing the Development Agreement, you will remit to us 50% of the aggregate initial franchise fees to be paid for all Restaurants to be opened under the Development Agreement. You will remit the remaining 50% of the initial franchise fee for each Restaurant upon us confirming your site by execution of the License Agreement for that Restaurant (which must occur on or before 180 days prior to the opening date specified in the development schedule). For example, if you agree to develop 5 Restaurants, you will remit to us $87,500 upon execution of the Development Agreement (50% of $175,000). You will then remit the remainder of each initial franchise fee, or $17,500 (50% of $35,000), upon execution of each License Agreement for each Restaurant. In addition to the initial franchise fees payable under the License Agreement and Development Agreement, you will remit between $5,200 and $10,000 to us at least five days prior to the opening of your Restaurant for your initial marketing plan (the “Initial Marketing Contribution”) and such funds will be utilized as provided in Item 11. If you require more than two on-site inspections during the construction of your Restaurant, you must pay us a construction and pre-opening operational inspection fee equal to our actual costs and expenses, which shall be no less than $500 per additional inspection. If more than four of your managers attend initial training, you must pay us $1,500 per additional attendee for manager training. Except as provided above, no other fee or payment is payable to us prior to the opening of the business and all fees are nonrefundable, are remitted to us, and are deemed earned upon receipt.

Financing

We do not offer direct or indirect financing, nor do we guarantee your lease or other obligations.

Franchisee Revenue and Profit

Factual Basis and Material Assumptions You should consider the following factual basis and material assumptions in reviewing this Item 19: 1. As of December 31, 2018, we had 898 open and operating licensed Restaurants. Of these 898 Restaurants, 757 of these Restaurants were owned and operated by third-party licensees that are not owned or controlled by our principal shareholders or our affiliates (the “Licensee-Owned Restaurants”). The data utilized in Item 19 are based solely on the operating results of the 722 Licensee-Owned Restaurants that were open and operating during the entire 52-week period ending on December 30, 2018 (the “Measured Restaurants”). We did not include in the analysis (i) 141 Restaurants that were owned or controlled by our principal shareholders or our affiliates and (ii) 35 Licensee-Owned Restaurants that were not open and operating for such entire 52-week period. During the 52-week period ending on December 30, 2018, two Restaurants that temporarily closed for a portion of the period and six Restaurants that permanently closed were excluded from the Measured Restaurants. No Restaurant permanently closed during its first 12 months of operation. All of the Measured Restaurants are free-standing Restaurants that offer substantially the same products and services as are currently utilized in all of the licensed Restaurants. If you have specific questions regarding any Restaurant you may contact any of the licensees listed in Exhibit D-1. 2. For purposes of this Item 19, the term “Gross Revenue” means all revenues received by a Restaurant as payment for all sales generated through the Restaurant, whether such payment is in cash, by exchange or for credit (and, if for credit, regardless of collection), including revenues received from the operation of vending machines or other mechanical devices, less any revenues taxes collected and transmitted to appropriate taxing authorities. 3. For purposes of this Item 19, the term “EBITDA” shall mean Gross Revenue less cost of goods sold, labor costs (excepting officer salaries), and all other operating expenses (excepting interest, taxes, depreciation and amortization). 4. This Item 19 was prepared utilizing data we received in the periodic sales reports provided to us by our licensees and through daily polling of Point of Sale (POS) data. We have not independently verified any of the data provided to us, but our licensees pay our licensing fees based on such reports. Additionally, we cannot verify that the information we receive from our licensees is prepared uniformly or that our licensees properly allocate costs to a particular category. 5. The cost and expense information in this Item 19 pertains only to the cost of goods sold, labor costs, and other operating expenses experienced by the Measured Restaurants for the period of January 1, 2018 to December 30, 2018. You may experience capitalized or other balance sheet expenditures that are not included in this cost and expense information, such as the cost of additional or replacement equipment, debt payments, and interest expenses. Costs and expenses in the operation of a Restaurant will vary from licensee to licensee and from location to location and will depend on seasonal, local and other factors, like the licensee’s efficiency in the utilization of products, the cost of transportation, and the fluctuation in market prices for food and other products. 6. Labor costs will vary from location to location and will depend on local factors, including (without limitation) local minimum wage laws and local labor market conditions. Also, with respect to labor costs, because you will need a certain number of employees to open and operate a Restaurant regardless of its gross revenues, Restaurants that have lower than average gross revenues probably will experience higher than average labor costs as a percentage of gross revenues. 7. This Item 19 utilizes data for the 52-week period beginning on January 1, 2018 and ending on December 30, 2018. The financial performance representation is an historical representation about the franchise system’s Restaurants. Financial Performance Representations Table 1 below contains an analysis of gross revenues and certain operating costs and expenses (cost of goods sold, labor costs and other operating expenses) of the Measured Restaurants for the 52-week period ending December 30, 2018. Table 1 is not a profit and loss statement. In Table 1 below, the Restaurants were divided into four categories based on the amount of gross revenues which are classified as: Top Quartile, Second Quartile, Third Quartile and Bottom Quartile. The average gross revenues and average operating costs and expenses for each of the categories was calculated by adding the gross revenues or certain operating costs and expenses, as applicable, of all Measured Restaurants within each quartile and dividing by the total number of Measured Restaurants within such quartile. The average gross revenues and costs and expenses in each quartile were then compared to the average gross revenues in such quartile and expressed as a percentage. Labor costs in Table 1 do not include officer’s salaries and benefits for any Measured Restaurant that captures or recognizes that expense. Additional Information Regarding Item 19: Some Restaurants have sold or earned this amount. Your individual results may differ. There is no assurance that you’ll sell or earn as much. Revenues, costs, and profits for a Restaurant can vary considerably due to a variety of factors, such as the length of time the Restaurant has been open; the Restaurant’s location and the demographics of the population around the Restaurant; competition from other restaurants in the market; traffic flow, accessibility and visibility; economic conditions in the Restaurant’s market; advertising and promotional activities; the business abilities and efforts of the management of the Restaurant; changes in eating habits and preferences; local, regional, and national economic conditions; and other factors. In addition, the acquisition of sites is highly competitive with other restaurant chains and retail businesses for suitable sites for the development of a Restaurant. You are urged to make your own independent investigation and evaluation of the potential performance of your Restaurant and to consult with appropriate financial, business and legal advisors in connection with the information provided. Written substantiation for the financial performance representation will be made available to the prospective licensee upon reasonable request. Other than the preceding financial performance representation, ZFL does not make any financial performance representations. We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, we may provide you with the actual records of that outlet. If you receive any other financial performance information or projections of your future income, you should report it to the franchisor's management by contacting Amy C. Pritchett, 1040 Founder’s Boulevard, Suite 100, Athens, Georgia 30606, (706) 353- 8107, the Federal Trade Commission, and the appropriate state regulatory agencies.