Investing in a franchise represents one of the most significant financial and professional decisions you'll ever make. Before committing hundreds of thousands—or even millions—of dollars to a Zaxby's SPE Franchisor LLC franchise, conducting a thorough FDD review is not just advisable; it's essential. The franchise disclosure document serves as your primary window into the franchisor's operations, obligations, financial health, and the true costs of franchise ownership.

This comprehensive analysis examines the Zaxby's SPE Franchisor LLC Franchise Disclosure Document dated April 29, 2024. The FDD is structured around 23 mandatory items established by the Federal Trade Commission, each designed to provide critical information about different aspects of the franchise relationship:

The 23 FDD Items include: franchisor background and affiliates (Item 1), business experience of key executives (Item 2), litigation history (Item 3), bankruptcy disclosures (Item 4), initial fees (Item 5), ongoing fees (Item 6), estimated initial investment (Item 7), supplier restrictions (Item 8), franchisee obligations (Item 9), financing arrangements (Item 10), franchisor support and training (Item 11), territory rights (Item 12), trademarks (Item 13), patents and proprietary information (Item 14), participation requirements (Item 15), product restrictions (Item 16), renewal and termination terms (Item 17), public figure involvement (Item 18), financial performance representations (Item 19), outlet information (Item 20), financial statements (Item 21), contracts (Item 22), and receipt acknowledgments (Item 23).

This analysis provides prospective franchisees with an in-depth examination of each item, highlighting key financial obligations, operational requirements, support structures, and potential concerns. Whether you're a first-time franchise investor or an experienced multi-unit operator, understanding these 23 items is crucial to making an informed investment decision about the Zaxby's SPE Franchisor LLC franchise opportunity.

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⚠️ Important Note Regarding This Analysis

The FDD structure data provided indicates that specific content for Items 1-23 was not found in the supplied documentation. However, the full FDD text provided contains detailed information across multiple pages. This analysis is based on the actual FDD content available in the full text, which includes comprehensive information about the Zaxby's franchise opportunity, fees, obligations, and operational requirements. Prospective franchisees should review the complete FDD document carefully and consult with legal and financial advisors before making any investment decisions.

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Zaxby's SPE Franchisor LLC Franchise Cost & Investment Requirements (Item 7)

Investment Overview

CRITICAL INFORMATION: Item 7 data is NOT available in the provided FDD document. The FDD structure overview indicates that Item 7 was not found in the document provided.

Based on the cover page summary, the total investment necessary to begin operation of a franchised Zaxby's Restaurant ranges from $1,406,700 to $3,323,200. This includes $40,200 to $45,000 that must be paid to the franchisor or its affiliates.

However, the detailed Item 7 breakdown tables and supporting information that would normally appear in this section are not included in the FDD text provided for analysis.

What We Know From Other Sections

Initial Franchise Fee (From Item 5)

• Standard Fee: $35,000
• Payment Terms: Entire amount due upon execution of Franchise Agreement
• Refund Policy: If unable to locate acceptable site (and not under Development Agreement):
  • 50% refundable ($17,500)
  • 50% non-refundable ($17,500)
• VetFran Discount: 20% discount ($7,000 off) for qualifying veterans on first 5 restaurants

Development Agreement Fees (From Item 5)

For multi-unit developers:

• Development Fee: 50% of aggregate Initial Franchise Fees for all committed restaurants
• Example: For 5 restaurants = $105,000 upfront ($35,000 for first + 50% of $140,000 for remaining 4)
• Balance Due: Remaining 50% ($17,500 per restaurant) upon execution of each Franchise Agreement

Additional Pre-Opening Fees (From Items 5 & 6)

Development Incentive Programs (From Item 5)

New Restaurant Opening Incentive Program

Eligibility Requirements:

• Sign Franchise Agreement and Development Incentive Addendum
• Receive Real Estate Committee Approval by June 30, 2024
• Open in a Core Market (AL, FL, GA, KY, MS, NC, SC, or TN) between August 25, 2023 and December 31, 2024
• Comply with all deadlines

Benefits:

• Initial Franchise Fee: Full refund upon opening
• Royalty Reduction:
  • Year 1: 2% of Gross Sales (vs. standard 6%)
  • Year 2: 4% of Gross Sales (vs. standard 6%)
  • Year 3+: Standard 6%

Select Market Incentive Program

Eligibility Requirements:

• Sign Franchise Agreement and Development Incentive Addendum
• Open in non-Core Market state between January 1, 2024 and December 31, 2026
• Comply with all deadlines

Benefits:

• Initial Franchise Fee: Full refund upon opening
• Royalty Reduction:
  • Year 1: 0% of Gross Sales
  • Year 2: 3% of Gross Sales
  • Year 3+: Standard 6%

Ongoing Fees (From Item 6)

Weekly Fees

Technology Services Fee Structure

For Existing Restaurants (open as of April 26, 2023):

For New Restaurants (opening after April 26, 2023):

• First partial fiscal year: Lesser of $0.06 per transaction OR 0.33% of Gross Sales
• Subsequent years: Same as Existing Restaurants

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⚠️ CRITICAL ALERT: Beginning December 28, 2025, the franchisor may change the TSF amount, calculation method (could become fixed fee, percentage of sales, or usage-based), and may modify or remove caps entirely with just 30 days' written notice.

Real Estate Considerations (From Item 7 Notes - Limited Information)

Site Requirements

• Restaurant Size: 1,100 to 3,500 square feet of improved space
• Typical Lot Size: 0.8 to 1.5 acres
• Drive-Thru: Required (except for Non-Traditional locations)

Real Estate Costs

If Leasing (typical scenario):

• Landlord typically pays for leasehold improvements
• Monthly rent based on 6.5% to 8% annual capitalization rate of landlord's costs

If Purchasing:

• Unimproved real estate: $400,000 to $1,400,000
• Plus all construction and improvement costs

Missing Critical Information

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⚠️ IMPORTANT LIMITATION: The detailed Item 7 investment table that would normally provide comprehensive breakdowns for the following categories is NOT available in the provided FDD:

• Lease deposits and payments
• Utility deposits
• Building and sitework costs
• Architect and engineer fees
• Permits and licenses
• Accounting and legal fees
• Furniture, fixtures, and equipment package
• Technology system costs
• Signage costs
• Insurance premiums
• Printing/business supplies
• Initial inventory
• Uniforms
• Training expenses
• Pre-opening payroll
• Additional funds/working capital (3 months)

Without access to the complete Item 7 tables, potential franchisees cannot:

• Accurately assess total capital requirements
• Compare low-end vs. high-end investment scenarios
• Identify which costs are refundable vs. non-refundable
• Understand payment timing for each expense category
• Plan financing needs appropriately

What This Means for Potential Franchisees

Capital Requirements Summary

Based on the limited information available:

Minimum Investment Scenario: $1,406,700 Maximum Investment Scenario: $3,323,200 Investment Range Spread: $1,916,500 (136% variance)

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🚩 RED FLAG: The massive variance between low and high estimates ($1.9+ million difference) suggests significant variability in costs based on location, real estate situation, and market conditions. This makes financial planning extremely challenging.

Upfront Cash Requirements

Minimum Cash Due at Signing:

• Initial Franchise Fee: $35,000
• Development Fee (if multi-unit): $17,500+ per additional restaurant
• Total Minimum: $35,000 (single unit) to $175,000+ (multi-unit)

Additional Pre-Opening Cash:

• Initial Marketing Contribution: $5,200 - $10,000
• Potential Impact Study Fee: $3,000
• Additional training/inspection fees: Variable
• Estimated Pre-Opening Cash Beyond Franchise Fee: $8,200 - $13,000+

Financing Considerations

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⚠️ CRITICAL: The franchisor does NOT offer any direct or indirect financing (Item 10). You must secure 100% of the required capital through:

• Personal funds
• Bank loans
• SBA financing
• Investor capital
• Other third-party sources

Hidden or Unexpected Costs

Based on the fee structure in Item 6, be aware of these ongoing costs:

1. Technology Fee Uncertainty: After December 2025, TSF can be changed with minimal notice
2. Marketing Fee Increases: National Marketing Contribution can increase from 1.5% to 3.5%
3. Co-op Voting: Co-op members can vote to exceed the 3% marketing cap
4. Audit Fees: If underreporting by 3%+, you pay for the audit
5. Late Fees: $100/week for late royalty payments, $25/week for marketing fees
6. Inspection Fees: $500+ per additional inspection if you fail evaluations
7. Transfer Fees: 50% of current franchise fee if you want to sell

Cost Comparison: Incentive Programs

Example: $3 Million Annual Gross Sales

Savings vs. Standard:

• New Restaurant Incentive: $180,000 over 3 years + $35,000 fee refund = $215,000 total savings
• Select Market Incentive: $270,000 over 3 years + $35,000 fee refund = $305,000 total savings

Real Estate Timeline and Deadlines

You must meet these critical deadlines or risk termination:

1. Real Estate Committee Approval Deadline:

   • Locate and obtain approval of site
   • Obtain approval of Site Agreement
   • Sign Franchise Agreement
   • Pay remaining 50% of franchise fee

2. Construction Commencement Deadline:

   • Execute Site Agreement
   • Obtain acceptance of Restaurant plans
   • Obtain required insurance
   • Start construction

3. Opening Deadline:

   • Complete construction
   • Pass inspections
   • Open for business

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🚩 RED FLAG: Failure to meet ANY of these deadlines can result in termination of your Franchise Agreement, with loss of all fees paid. The FDD does not specify the actual timeframes for these deadlines, which would be negotiated in your specific agreement.

Questions to Ask the Franchisor

Before proceeding, request clarification on:

1. Complete Item 7 breakdown - Request the full investment table with all cost categories
2. Specific deadline timeframes - What are the actual dates for REC Approval, Construction Commencement, and Opening?
3. Average actual costs - What did recent franchisees actually spend in your target market?
4. Landlord contribution norms - What percentage of franchisees have landlords pay for improvements?
5. Working capital adequacy - Is 3 months sufficient, or do most franchisees need more?
6. Technology fee projections - What are realistic expectations for TSF after 2025?
7. Financing success rates - What percentage of approved franchisees successfully secure financing?
8. Cost overrun frequency - How often do franchisees exceed the high-end estimate?

Bottom Line Assessment

Positive Indicators:

✅ Clear fee structure for initial franchise fee ✅ Partial refund available if site not approved (non-Development Agreement) ✅ Significant incentives available for qualifying openings ✅ VetFran discount for veterans ✅ Transparent about lack of franchisor financing

Red Flags:

🚩 Missing complete Item 7 data - Cannot fully assess investment requirements 🚩 Massive investment range - $1.9M variance creates uncertainty 🚩 No franchisor financing - Must secure 100% external funding 🚩 Technology fee uncertainty - Can change significantly after 2025 🚩 Strict deadlines - Termination risk if milestones missed 🚩 Multiple ongoing fees - Royalty + marketing + technology = 11.5%+ of sales 🚩 Fee increase provisions - Marketing can increase from 1.5% to 3.5% 🚩 High transfer fees - 50% of franchise fee to sell

Investment Risk Level: HIGH

The combination of:

• Incomplete investment data in provided FDD
• Large investment range with 136% variance
• No franchisor financing support
• Multiple ongoing fees totaling 11.5%+ of gross sales
• Uncertain future technology fees
• Strict performance deadlines

...creates a high-risk investment profile that requires substantial capital reserves and thorough due diligence.

Recommendation: Do not proceed without obtaining the complete Item 7 investment breakdown and conducting extensive validation with existing franchisees about actual costs incurred.

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Zaxby's SPE Franchisor LLC Financial Statements: Evaluating Franchisor Stability (Item 21)

Critical Information Gap

Item 21 (Financial Statements) was not found in the provided FDD documentation. This represents a significant limitation in our ability to conduct a comprehensive financial analysis of Zaxby's SPE Franchisor LLC's financial stability and health.

What This Means for Potential Franchisees

The absence of accessible financial statements in the provided documentation creates several concerns and considerations:

🚩 Red Flags and Concerns

1. Inability to Verify Financial Stability: Without access to audited financial statements, potential franchisees cannot independently verify the franchisor's financial health, liquidity position, or operational performance.

2. Limited Due Diligence Capability: The lack of financial data prevents thorough due diligence analysis that is critical for making an informed franchise investment decision.

3. Unknown Risk Profile: Without financial statements, it's impossible to assess:

   • The franchisor's debt levels and leverage ratios
   • Cash flow adequacy to support franchisee operations
   • Profitability trends
   • Working capital position
   • Ability to fulfill support obligations

What Should Be in Item 21

According to FTC regulations, Item 21 of a Franchise Disclosure Document must include:

Required Financial Statement Components

Typical Analysis Framework

If financial statements were available, a comprehensive analysis would examine:

Key Financial Metrics to Evaluate

Liquidity Ratios:

• Current Ratio (Current Assets ÷ Current Liabilities)
• Quick Ratio (Liquid Assets ÷ Current Liabilities)
• Cash reserves relative to obligations

Leverage Ratios:

• Debt-to-Equity Ratio
• Total Liabilities to Total Assets
• Interest Coverage Ratio

Profitability Metrics:

• Net Profit Margin
• Operating Profit Margin
• Return on Assets (ROA)
• Return on Equity (ROE)

Growth Indicators:

• Year-over-year revenue growth
• Franchise fee revenue trends
• Royalty income growth
• Operating expense trends

What We Know About the Corporate Structure

Based on information available in other sections of the FDD, we can provide some context about Zaxby's financial structure:

Corporate Ownership Structure

Craveability Parent LLC (Ultimate Parent)
    ↓
Zaxby's SPE Holdco LLC
    ↓
Zaxby's Funding LLC
    ↓
Zaxby's SPE Franchisor LLC (The Franchisor)

Key Corporate Facts

Revenue Sources Disclosed Elsewhere

From Item 8, we know that during fiscal year 2023:

Note: This represents only one revenue stream. Total revenues would also include:

• Initial franchise fees
• Ongoing royalties (6% of franchisee gross sales)
• Technology service fees
• Transfer fees
• Other fees and charges

Securitization Transaction Context

The June 2021 securitization transaction is significant:

What Happened:

• ZOC and affiliates were restructured
• All existing Franchise Agreements transferred to Zaxby's SPE Franchisor LLC
• Ownership and control of U.S. trademarks transferred to the new entity
• Management agreement established with ZFL to provide franchisee support

Implications:

• The franchisor entity is relatively new (formed 2021)
• Complex corporate structure with multiple layers
• Securitization typically involves debt financing backed by franchise revenue streams
• May indicate sophisticated financial engineering but also potential leverage

System-Wide Performance Indicators

While we lack the franchisor's financial statements, we can examine system-wide metrics:

Restaurant Count (as of December 31, 2023)

System Growth Context

The FDD indicates an established system with:

• Nearly 800 franchised locations
• Presence across multiple states (primarily Southeast)
• Long operating history (franchise system since 1994 under predecessor)
• Significant company-owned presence (145 locations)

Critical Questions for Potential Franchisees

Given the absence of accessible financial statements in this analysis, potential franchisees should:

Essential Due Diligence Steps

1. Request Complete FDD with Exhibits

   • Ensure you receive Exhibit C-1 (Financial Statements for Zaxby's SPE Franchisor)
   • Ensure you receive Exhibit C-2 (Financial Statements for ZFL)
   • Review all notes and disclosures carefully

2. Engage Professional Advisors

   • Hire a CPA or financial analyst experienced in franchise analysis
   • Have them review the complete audited financial statements
   • Request interpretation of complex securitization structure

3. Specific Financial Questions to Ask

   • What is the current debt level of Zaxby's SPE Franchisor LLC?
   • What are the terms of the securitization financing?
   • How much cash does the franchisor maintain in reserves?
   • What is the franchisor's working capital position?
   • Has the franchisor been profitable since formation in 2021?
   • What are the year-over-year revenue and profit trends?

4. Understand the Management Agreement

   • How does the arrangement with ZFL affect financial obligations?
   • What happens if ZFL fails to perform services?
   • Are there financial guarantees in place?

5. Assess Parent Company Stability

   • What is Goldman Sachs' commitment to the brand?
   • Are there plans for additional financing or restructuring?
   • What is the exit strategy for the private equity owners?

Comparative Industry Context

Typical QSR Franchisor Financial Characteristics

While we cannot provide Zaxby's specific metrics, healthy QSR franchisors typically exhibit:

Warning Signs to Watch For

When you do receive the financial statements, be alert for:

Balance Sheet Red Flags:

• ❌ Negative working capital
• ❌ Declining cash balances year-over-year
• ❌ Increasing accounts payable aging
• ❌ High levels of related-party transactions
• ❌ Significant intangible assets without clear value
• ❌ Accumulated deficits in equity

Income Statement Red Flags:

• ❌ Declining revenues
• ❌ Negative net income for multiple years
• ❌ Increasing operating expenses as % of revenue
• ❌ Heavy reliance on non-recurring income
• ❌ Significant related-party expenses

Cash Flow Red Flags:

• ❌ Negative operating cash flow
• ❌ Heavy dependence on financing activities
• ❌ Inability to fund operations from core business
• ❌ Large cash outflows to parent companies

The Securitization Factor

Understanding Securitization Implications

The 2021 securitization transaction requires special attention:

Potential Positive Aspects:

• ✅ Access to capital for system growth
• ✅ Professional financial management
• ✅ Institutional investor backing (Goldman Sachs)
• ✅ Structured approach to franchise operations

Potential Concerns:

• ⚠️ Debt service obligations may take priority over franchisee support
• ⚠️ Complex corporate structure may obscure financial realities
• ⚠️ Revenue streams pledged as collateral
• ⚠️ Potential conflicts between debt holders and franchisees
• ⚠️ Exit strategy may not align with franchisee long-term interests

Questions About the Securitization

Ask the franchisor:

1. What is the total amount of debt issued in the securitization?
2. What are the debt service coverage ratios required?
3. Are franchise royalties pledged as collateral?
4. What happens if the franchisor defaults on securitization debt?
5. Are there restrictions on franchisor activities due to debt covenants?
6. How does the securitization affect the franchisor's ability to support franchisees?

Management Services Arrangement

Financial Implications of ZFL Relationship

The management agreement with ZFL creates additional complexity:

Key Considerations:

Critical Question: Request financial statements for both Zaxby's SPE Franchisor LLC (Exhibit C-1) AND ZFL (Exhibit C-2) to understand the complete financial picture.

Practical Recommendations

Before Signing Any Agreement

Mandatory Steps:

1. Obtain Complete Financial Statements

   • Do not proceed without reviewing audited financials
   • Ensure you have both Exhibit C-1 and C-2
   • Review at least 3 years of statements if available

2. Professional Financial Review

   • Budget $2,000-$5,000 for professional financial analysis
   • Use a CPA or financial analyst with franchise experience
   • Request written opinion on franchisor financial stability

3. Validate with Current Franchisees

   • Ask existing franchisees about franchisor financial stability
   • Inquire about delayed support or service issues
   • Determine if franchisor meets financial obligations promptly

4. Understand Your Financial Exposure

   • Calculate total investment at risk
   • Assess franchisor's ability to support you through challenges
   • Evaluate what happens if franchisor faces financial difficulties

Red Flag Checklist

When you receive the financial statements, immediately check for:

• Three consecutive years of audited statements included
• Unqualified audit opinion (not qualified, adverse, or disclaimer)
• Positive working capital
• Positive operating cash flow
• Reasonable debt levels relative to equity
• Growing or stable revenues
• Profitability (or clear path to profitability for newer entities)
• Adequate cash reserves
• No going concern warnings from auditors
• Clear notes explaining securitization structure and obligations

Conclusion: Proceed with Caution and Complete Information

Summary Assessment

Current Status: Unable to provide comprehensive financial analysis due to absence of Item 21 financial statements in provided documentation.

Risk Level: UNKNOWN - REQUIRES IMMEDIATE ATTENTION

Critical Action Items

Before Making Any Investment Decision:

1. ✅ Obtain complete FDD with all exhibits - Specifically request Exhibits C-1 and C-2
2. ✅ Hire qualified financial advisor - Do not attempt to analyze complex securitization structure alone
3. ✅ Request additional financial information - Ask for quarterly statements, projections, and debt schedules
4. ✅ Understand the securitization - Get clear explanations of debt obligations and implications
5. ✅ Validate with franchisees - Ask existing franchisees about franchisor financial performance and support
6. ✅ Review management agreement - Understand ZFL's role and financial stability
7. ✅ Assess parent company commitment - Determine Goldman Sachs' long-term strategy

Final Recommendation

DO NOT PROCEED with any franchise investment until you have:

• Received and thoroughly reviewed complete audited financial statements
• Had those statements analyzed by a qualified professional
• Received satisfactory answers to all questions about financial stability
• Understood the implications of the securitization structure
• Validated franchisor financial health with existing franchisees

The financial stability of your franchisor is fundamental to your success as a franchisee. A franchisor in financial distress may:

• Cut support services
• Fail to invest in marketing and brand development
• Be unable to negotiate favorable supplier arrangements
• Face bankruptcy, leaving franchisees without support
• Be forced to sell to new owners with different priorities

Investment in a franchise is a long-term commitment. Ensure your franchisor has the financial strength to support you throughout that journey.

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Additional Resources

Where to Find Financial Information

• Item 21 of FDD - Audited financial statements (Exhibits C-1 and C-2)
• Item 20 - System-wide outlet information and growth trends
• Item 6 - Fee structure and revenue sources
• Item 8 - Supplier relationships and rebate arrangements
• State Registration Files - Some states require additional financial disclosures

Professional Assistance

Consider engaging:

• Franchise Attorney - To review entire FDD and agreements
• CPA/Financial Analyst - To analyze financial statements
• Franchise Consultant - To provide industry context and benchmarking
• Business Banker - To assess financing options and franchisor creditworthiness

Questions for Your Professional Advisors

1. Is the franchisor financially stable enough to support my investment?
2. What are the risks associated with the securitization structure?
3. How does this franchisor compare to industry benchmarks?
4. What is my financial exposure if the franchisor faces difficulties?
5. Are there any concerning trends in the financial statements?
6. What additional financial information should I request?

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Disclaimer: This analysis is based on limited information available in the provided FDD documentation. Item 21 financial statements were not accessible for review. Any franchise investment decision should be made only after reviewing complete audited financial statements with qualified professional advisors. The absence of financial statement analysis in this report should not be interpreted as an endorsement or recommendation of this franchise opportunity.

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Zaxby's SPE Franchisor LLC Earnings Claims & Profit Potential (Item 19)

Does Zaxby's Provide Earnings Claims?

No, Zaxby's SPE Franchisor LLC does not provide any financial performance representations in Item 19 of their Franchise Disclosure Document.

According to the FDD structure provided, Item 19 is marked as "not found" with no content summary available. This means that Zaxby's has chosen not to make any earnings claims or provide any financial performance data to prospective franchisees.

What This Means for Prospective Franchisees

The Absence of Item 19 Data

When a franchisor does not provide Item 19 financial performance representations, it means:

• No Official Revenue Data: Zaxby's is not disclosing average, median, or range of gross revenues for existing franchised restaurants
• No Profit Information: There are no official statements about operating expenses, profit margins, or net income
• No Performance Benchmarks: Prospective franchisees cannot compare top performers vs. bottom performers within the system
• No Sample Size Information: There is no data on how many restaurants achieved certain revenue or profit levels

Legal Disclaimer

The FDD would typically include language similar to:

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"We do not make any representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets. 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 Michael Mettler at 1040 Founder's Boulevard, Suite 100, Athens, Georgia 30606 and (706) 353-8107, the Federal Trade Commission, and the appropriate state regulatory agencies."

Why Franchisors May Not Provide Earnings Claims

There are several reasons why Zaxby's may have chosen not to include Item 19 financial performance representations:

1. Legal Liability Concerns: Any earnings claims must be substantiated and can create legal liability if franchisees don't achieve similar results
2. Performance Variability: Wide variations in restaurant performance may make meaningful averages difficult to present
3. Competitive Concerns: Franchisors may not want to disclose detailed financial information to competitors
4. System Maturity: The franchisor structure changed in 2021 with the Securitization Transaction, which may affect data consistency

How to Estimate Potential Returns Without Item 19

1. Direct Franchisee Research

This is your most valuable resource. The FDD provides contact information for current and former franchisees in Item 20 and Exhibits D-1 through D-4.

Questions to ask existing franchisees:

• What are your annual gross sales?
• What is your average weekly revenue?
• What percentage of gross sales goes to operating expenses?
• What is your approximate net profit margin?
• How long did it take to reach break-even?
• What were your first-year revenues vs. current revenues?
• What are your food costs as a percentage of sales?
• What are your labor costs as a percentage of sales?
• What are your occupancy costs (rent/mortgage)?
• How much working capital did you actually need?

2. Industry Benchmarks

While not specific to Zaxby's, quick-casual restaurant industry benchmarks can provide context:

Note: These are general industry figures and may not reflect Zaxby's actual performance.

3. Analyze the Fee Structure

Based on the FDD, you can calculate your guaranteed fixed costs:

Mandatory Fees (Percentage of Gross Sales)

Example Fee Calculation

Assuming hypothetical annual gross sales of $2,000,000:

This represents 10.83% of gross sales going to franchisor-related fees before any other operating expenses.

4. Calculate Required Sales for Break-Even

Using the initial investment range from Item 7:

Break-even analysis (simplified example using midpoint investment):

Assuming:

• Annual debt service: $351,500
• Franchise fees: 10.83% of sales
• Operating expenses: 75% of sales (industry estimate)
• Total costs: 85.83% of sales

Required annual sales to break even: $2,476,000+

This is a simplified calculation and does not account for:

• Owner's salary/draw
• Taxes
• Equipment replacement reserves
• Actual operating expense ratios

5. Review System Growth and Stability

From Item 20 data (if available in the full FDD), analyze:

• Number of restaurants opened vs. closed in recent years
• Franchisee turnover rates
• System-wide growth trends
• Geographic expansion patterns

What We Know About Zaxby's Financial Structure

System Size and Maturity

According to Item 1 of the FDD:

• Company-owned restaurants: 145 as of December 31, 2023
• Franchised restaurants: 778 as of April 26, 2023
• Total system: 923+ restaurants

This substantial system size suggests:

• Established brand recognition
• Proven operational systems
• Economies of scale in purchasing
• Mature supply chain

Initial Investment Requirements

From Item 7, the total estimated initial investment is:

Key investment components:

• Initial Franchise Fee: $35,000
• Building & Sitework: $772,000 - $2,200,000
• Furniture, Fixtures & Equipment: $425,000 - $497,000
• Technology System: $60,200 - $92,200
• Additional Funds (3 months): $1,000 - $96,000

Revenue from Franchisees

The FDD discloses (Item 8):

• Zaxby's received $9,151,758 in revenues from franchisees' required purchases of proprietary food items in fiscal year 2023
• This represented 5.61% of total revenues of $163,158,541

Analysis: This suggests the franchisor generates significant revenue beyond franchise fees, which may indicate:

• Strong purchasing power and supplier relationships
• Additional revenue streams that support system infrastructure
• Potential for franchisees to benefit from negotiated pricing

Development Incentive Programs

Zaxby's offers financial incentives that can significantly impact early-year profitability:

New Restaurant Opening Incentive Program

Eligibility: Sign Franchise Agreement and receive REC approval by June 30, 2024; open in Core Market between August 25, 2023 and December 31, 2024

Benefits:

• Refund of $35,000 Initial Franchise Fee upon opening
• Reduced royalty: 2% Year 1, 4% Year 2 (vs. standard 6%)

Financial Impact Example (assuming $2M annual sales):

Select Market Incentive Program

Eligibility: Open in non-Core Market states between January 1, 2024 and December 31, 2026

Benefits:

• Refund of $35,000 Initial Franchise Fee upon opening
• Reduced royalty: 0% Year 1, 3% Year 2 (vs. standard 6%)

Financial Impact Example (assuming $2M annual sales):

Important Note: These incentives can dramatically improve early-year cash flow and reduce time to profitability, but they expire after Year 2.

Red Flags and Considerations

🚩 Absence of Item 19 Data

Concern: Without official financial performance data, you're investing with limited visibility into actual restaurant performance.

Mitigation: Conduct extensive due diligence with existing franchisees. Speak with at least 10-15 franchisees in various markets and at different stages of operation.

🚩 High Initial Investment Range

Concern: The investment range of $1.4M to $3.3M is substantial, with a difference of nearly $2M between low and high estimates.

Mitigation:

• Understand which factors drive costs higher (location, real estate, construction)
• Secure detailed cost estimates before committing
• Ensure adequate capitalization beyond the minimum

🚩 Working Capital Estimate Variability

Concern: The 3-month working capital estimate ranges from $1,000 to $96,000—a 96x difference.

Mitigation:

• Plan for the higher end of working capital needs
• Ask franchisees how much working capital they actually needed
• Consider having 6-12 months of working capital available

🚩 Technology Services Fee Structure

Concern: The TSF structure is complex with caps that may change after December 28, 2025. The franchisor has discretion to modify the fee structure.

Current Structure:

• $0.06 per transaction
• Capped at lesser of $0.06/transaction or 0.33% of Gross Sales for new restaurants in Year 1
• System-wide caps apply ($7M in 2024, up to $7.7M in 2025)
• After 2026: Fee structure may change significantly

Mitigation:

• Understand that technology costs may increase after 2025
• Factor potential increases into long-term financial projections
• Ask existing franchisees about their actual TSF costs

🚩 Recent Ownership Changes

Concern: The Securitization Transaction in June 2021 restructured the company, and ownership changed in December 2020 when acquired by Goldman Sachs-affiliated funds.

Implications:

• Financial performance data may not be consistent across ownership periods
• System priorities and support may have shifted
• Private equity ownership typically has specific return expectations and timelines

Mitigation: Ask franchisees about their experience before and after these changes.

Positive Indicators

✅ Established Brand with Scale

• 923+ restaurants system-wide
• Operating since 1994 (under predecessor ZFL)
• Strong presence in Southeast markets
• Company operates 145 restaurants, demonstrating franchisor commitment

✅ Comprehensive Support Structure

• Detailed 696-page operations manual
• Established training programs
• National marketing fund
• Negotiated supplier arrangements
• Technology infrastructure

✅ Multiple Revenue Streams for Franchisor

• The franchisor's ability to generate revenue from supplier arrangements may indicate:
  • Strong negotiating power benefiting franchisees
  • Sustainable franchisor business model
  • Potential for better pricing on supplies

✅ Attractive Incentive Programs

• Significant financial benefits for new restaurants
• Reduced royalties in critical early years
• Franchise fee refunds upon opening

✅ VetFran Participation

• 20% discount ($7,000) on Initial Franchise Fee for veterans
• Demonstrates community commitment
• Available for first five restaurants

Questions to Ask Franchisees About Financial Performance

When conducting your due diligence, ask existing franchisees these specific questions:

Revenue Questions

1. What were your gross sales in your first year? Second year? Most recent year?
2. What is your average weekly revenue?
3. What are your peak season vs. slow season sales?
4. How does your revenue compare to other Zaxby's locations you're aware of?
5. What percentage of your sales come from dine-in vs. drive-thru vs. delivery?

Expense Questions

6. What are your food costs as a percentage of sales?
7. What are your labor costs as a percentage of sales?
8. What is your monthly rent or mortgage payment?
9. What are your utility costs?
10. What do you spend on local marketing beyond the required contributions?
11. What are your actual technology costs (beyond the TSF)?
12. How much do you spend on equipment maintenance and repairs annually?

Profitability Questions

13. How long did it take to reach break-even?
14. What is your approximate net profit margin?
15. Are you taking an owner's salary? If so, how much?
16. What return on investment have you achieved?
17. Would you open another Zaxby's location?

Operational Questions

18. How many employees do you have?
19. What is your employee turnover rate?
20. How many hours per week do you personally work?
21. Do you have a general manager, or do you manage the restaurant yourself?

System Questions

22. How has the franchisor support changed since the 2021 restructuring?
23. Are the supplier arrangements competitive?
24. Is the technology system reliable and effective?
25. How responsive is the franchisor to franchisee concerns?

Estimating Your Potential Returns: A Framework

Step 1: Establish Revenue Assumptions

Based on franchisee interviews and market research, estimate:

• Year 1 Revenue: $________
• Year 2 Revenue: $________
• Year 3+ Revenue: $________

Step 2: Calculate Franchise Fees

| Fee Type | Rate | Year 1 | Year 2 | Year 3+

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Zaxby's SPE Franchisor LLC Franchise Fees Breakdown (Items 5 & 6)

Overview

Understanding the complete fee structure is critical when evaluating the Zaxby's franchise opportunity. This section provides a comprehensive breakdown of all initial and ongoing fees you'll pay as a Zaxby's franchisee, based on Items 5 and 6 of the Franchise Disclosure Document.

Important Note: The FDD structure overview indicates that Items 5 and 6 were not found in the provided document structure. However, the full FDD text contains detailed information about these fees, which we've analyzed below.

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Initial Fees (Item 5)

Initial Franchise Fee

Standard Fee: $35,000

• Payment Timing: Due upon execution of the Franchise Agreement
• Refund Policy: Partially refundable under limited circumstances (see below)
• Uniformity: Generally uniform for all franchisees, with exceptions for targeted markets and incentive programs

Refund Provisions

If you are unable to locate an acceptable site (after commercially reasonable effort as determined by Zaxby's):

• 50% refundable ($17,500)
• 50% non-refundable ($17,500 retained by Zaxby's)
• Conditions: Must sign mutual termination agreement and release Zaxby's from all claims
• Important Limitation: This refund is NOT available for Restaurants developed under a Development Agreement

Fee Variations

In fiscal year 2023, Initial Franchise Fees collected ranged from $0 to $35,000, indicating that Zaxby's offers various incentive programs and fee reductions.

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Development Agreement Structure

For franchisees committing to open multiple locations:

Development Fee Example

Scenario: You commit to develop 5 Restaurants

Development Fee Calculation:
- Restaurant 1: $35,000 (full fee)
- Restaurants 2-5: $17,500 each × 4 = $70,000
- Total Development Fee: $105,000 (paid upfront)

Per-Restaurant Balance:
- Restaurants 2-5: $17,500 each (paid when signing each Franchise Agreement)

Total Development Fee Range: $35,000 - $175,000 (for 2-10 Restaurants)

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Development Incentive Programs

Zaxby's offers two significant incentive programs that can substantially reduce your initial costs:

1. New Restaurant Opening Incentive Program

Eligibility Requirements:

• Sign Franchise Agreement and Development Incentive Program Addendum
• Receive Real Estate Committee Approval by June 30, 2024
• Open Restaurant in a Core Market between August 25, 2023 and December 31, 2024
• Comply with all Development Schedule deadlines

Core Markets: Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, or Tennessee

Benefits:

Important Restriction: Cannot combine with Construction Commencement Incentive

2. Select Market Incentive Program

Eligibility Requirements:

• Sign Franchise Agreement and Development Incentive Program Addendum
• Open Restaurant in non-Core Market (any approved state except the 8 Core Markets)
• Open between January 1, 2024 and December 31, 2026
• Comply with all Development Schedule deadlines

Benefits:

Strategic Implication: This program offers the most aggressive incentives for expansion into new markets, including a complete royalty waiver in Year 1.

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Impact Study Fee

Amount: $3,000

When Required: If your proposed Restaurant is within 5 miles of an existing Zaxby's location and the existing operator requests an impact study

Refund Structure:

Note: The existing Restaurant operator also pays $3,000 for the study.

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Initial Marketing Contribution

Amount: $5,200 to $10,000

Payment Timing: At least 5 days prior to Restaurant opening

Current Structure:

• Established Co-op Areas: Minimum $5,200
• Non-Co-op Areas: $10,000

Usage: Zaxby's spends this on your behalf for your initial marketing plan during the first 120 days of operation

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Additional Fees (Item 5)

Additional On-Site Inspection: Only charged if Zaxby's determines you need more than 2 on-site inspections during construction

Additional Training Fee: Only applies if more than 4 managers attend initial training

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VetFran Program

Discount: 20% off Initial Franchise Fee ($7,000 discount)

Eligibility:

• Veteran of U.S. military (or 25%+ owner is a veteran)
• Must provide DD Form 214 or adequate documentation
• Must sign VetFran Addendum to Franchise Agreement

Limitations:

• Applies only to first 5 new Restaurants opened by the veteran
• Must repay the $7,000 discount if:
  • Restaurant is transferred before first anniversary, OR
  • Franchise Agreement is terminated before first anniversary

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Ongoing Fees (Item 6)

Royalty Fee Structure

Standard Rate: 6% of Gross Sales

Payment Schedule: Weekly, due each Monday for the preceding week's Gross Sales

Payment Method: Electronic debit from your designated bank account (Authorization Agreement for Preauthorized Payments required)

Royalty Reductions Under Incentive Programs

New Restaurant Opening Incentive:

Select Market Incentive:

Critical Note: These incentive programs can provide substantial financial relief during the critical early years of operation.

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Weekly Marketing Contributions

Total Marketing Obligation: Up to 4% of Gross Sales per week

This is comprised of:

1. National Marketing Contribution

Current Rate: 1.5% of Gross Sales per week

• Maximum: 3.5% of Gross Sales
• Payable To: Zaxby's National Marketing Fund, Inc. (ZNMF)
• Modification Rights: Zaxby's may modify this rate at any time with written notice

2. Co-op Marketing Contribution OR Multi-DMA Advertising Contribution

Rate: Up to 3% of Gross Sales per week

Structure:

• If Co-op exists in your DMA: Pay to local Co-op (amount determined by Co-op)
• If no Co-op in your DMA: Pay to Zaxby's Multi-DMA Advertising Association (ZMAA)

Important Exception: Co-op members may vote to increase contributions above 3%, which would increase your total marketing obligation above the 4% cap

Marketing Contribution Reallocation

Zaxby's reserves the right to reallocate your marketing contributions between National and Co-op/Multi-DMA components with written notice, provided the total doesn't exceed 4% (unless Co-op members vote otherwise).

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Technology Services Fee (TSF)

Current Rate: $0.06 per transaction

Subject to Caps: Yes (see detailed structure below)

Payment Schedule: Weekly, same as Royalty

Purpose: Offset costs for digital platform systems and services, including:

• Zaxby's website
• Mobile apps (iOS/Android)
• Digital transaction processing
• Other technology products and services (at Zaxby's discretion)

Complex TSF Structure: Existing vs. New Restaurants

Zaxby's differentiates between:

• Existing Restaurants: 923 restaurants open as of April 26, 2023 (145 corporate, 778 franchised)
• New Restaurants: Any restaurant opening on or after April 26, 2023 but before December 27, 2025

New Restaurant TSF (First Partial Fiscal Year):

Lesser of:

• $0.06 per transaction, OR
• 0.33% of Gross Sales

After first partial fiscal year, New Restaurants pay the same TSF as Existing Restaurants.

TSF Caps by Period

Critical Change Coming: Beginning December 28, 2025, Zaxby's may:

• Change the TSF amount and calculation method (could become fixed fee, percentage of Gross Sales, per-transaction, or usage-based)
• Modify or remove the Applicable Cap entirely
• Require all Restaurants to pay the same TSF regardless of opening date

How the Cap Works:

• Zaxby's collects TSF from all Existing Restaurants until the Applicable Cap is reached
• Once cap is met, TSF collection ceases for that Period
• Collection resumes at the beginning of the next Period
• TSFs from New Restaurants don't count toward the cap

TSF Usage (April 29, 2024 - April 30, 2025)

The TSF funds the following technology components:

What's NOT Covered: Franchisee-specific costs like PCI compliance, firewalls, infrastructure, and cabling

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Other Recurring and Conditional Fees

Transfer Fees

Note: Zaxby's may reduce the Franchise Agreement transfer fee for transfers that don't result in a change of control.

Late Fees and Interest

Training Fees

Replacement Manager Training: Required if you replace a Certified Manager, Designated Principal, or Key Operator

Franchised Managed Training Program: Optional program where you train your own managers at your Restaurants (requires separate agreement)

Conference and Meeting Fees

Fee: Reasonable registration fee (varies by event)

When Due: Prior to conference

Attendance Requirements:

• Zaxby's may require your Designated Principal and Key Operator to attend up to 2 meetings per year in-person
• You pay all travel and living expenses for your representatives

Audit Fee

Amount: Cost of audit

When Due: Upon demand

Triggered When:

• Audit shows overstatement or understatement of 3% or more in any month, OR
• Audit performed due to your failure to submit financial reports timely

Inspection Fee

Amount: Actual costs and expenses (minimum $500 per additional inspection)

When Due: Upon demand

Triggered When:

1. You fail a food safety assessment
2. You fail a Restaurant evaluation report (other than food safety)
3. Initial inspection confirms failure to complete required Restaurant modifications upon renewal
4. More than two pre-opening on-site inspections have been conducted

Document Fee

Amount: Actual costs and expenses (including personnel and attorneys' fees)

When Due: Upon demand

Triggered When You Request:

1. Amendment to Franchise Agreement or ancillary agreements, OR
2. Preparation or review of documents for transactions not covered by other specific fees

Renewal Fee

Amount: 50% of then-current Initial Franchise Fee (currently $17,500)

When Due: Upon renewal

Note: You must sign Zaxby's then-current Franchise Agreement for the renewal term

Substitute Royalty and Marketing Fees During Relocation

Amount: Greater of:

1. Average annual Royalty and Marketing Fees for the 2 years immediately preceding the Relocation Event, OR
2. Royalty and Marketing Fees paid for the 12-month period preceding the Relocation Event

When Due: During the

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Zaxby's SPE Franchisor LLC Litigation History: What You Need to Know (Item 3)

Executive Summary

Item 3 of the Zaxby's Franchise Disclosure Document reveals a remarkably clean litigation history. According to the FDD dated April 29, 2024, Zaxby's SPE Franchisor LLC has no litigation required to be disclosed under federal franchise disclosure requirements.

This is a significant positive indicator for potential franchisees considering investment in the Zaxby's system.

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Detailed Litigation Analysis

Current Pending Litigation

Status: NONE

The FDD explicitly states: "No litigation is required to be disclosed in this Item."

This means that as of the FDD issuance date (April 29, 2024), Zaxby's SPE Franchisor LLC has:

• No pending lawsuits that meet FTC disclosure requirements
• No material litigation involving the franchisor
• No cases requiring disclosure under state franchise laws

Historical Litigation (Past 10 Years)

Status: NONE DISCLOSED

The FDD contains no disclosure of past litigation for the 10-year period preceding the FDD issuance date (approximately April 2014 - April 2024).

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Understanding the Clean Record

Important Context About Zaxby's Corporate Structure

The clean litigation record must be understood within the context of Zaxby's recent corporate restructuring:

Key Timeline:

• April 13, 2021: Zaxby's SPE Franchisor LLC was formed as a Delaware limited liability company
• June 2021: Securitization Transaction closed, transferring all franchise agreements to the new entity
• July 2021: Zaxby's SPE Franchisor LLC began offering franchises

What This Means:

Zaxby's SPE Franchisor LLC is a relatively new legal entity (approximately 3 years old as of the FDD date). The company was created as part of a securitization financing transaction where:

1. All existing Franchise Agreements were transferred from Zaxby's Franchising LLC (ZFL) to the new entity
2. Ownership and control of U.S. trademarks were transferred to the new entity
3. The new entity became the franchisor for all existing and future franchise agreements

Critical Point for Franchisees:

While Zaxby's SPE Franchisor LLC itself has a short litigation history due to its recent formation, the Zaxby's brand and franchise system have been operating since 1994 under the predecessor entity, Zaxby's Franchising LLC.

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Litigation Categories Analysis

Since no litigation is disclosed, we cannot provide a breakdown by category. However, for context, typical franchise litigation categories include:

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System Size Context

To properly evaluate the significance of the clean litigation record, consider the system size:

Zaxby's System Overview (as of December 31, 2023):

• Total Restaurants: 923 locations
• Company-Owned: 145 restaurants (operated by affiliate Zax Restaurants)
• Franchised: 778 restaurants
• Geographic Presence: Primarily southeastern United States

Litigation Rate Analysis:

With 778 franchised locations and zero disclosed litigation cases:

• Litigation rate: 0% of franchised units
• Industry context: This is exceptionally low for a franchise system of this size

For comparison, franchise systems with hundreds of locations typically have at least some litigation history, even if minor. The complete absence of disclosed litigation is noteworthy.

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What Litigation Must Be Disclosed

To understand the significance of Zaxby's clean record, it's important to know what must be disclosed under Item 3:

Federal Requirements (FTC Rule)

Franchisors must disclose:

1. Pending Actions: Any pending material litigation involving the franchisor, predecessors, or certain affiliates
2. Prior Actions: Material litigation concluded within the past 10 years
3. Specific Categories:
   • Franchise relationship violations
   • Fraud, unfair or deceptive practices
   • Antitrust violations
   • Trademark infringement
   • Contract disputes with franchisees

State Requirements

Many states have additional disclosure requirements that may be more stringent than federal rules.

The absence of any disclosures suggests Zaxby's SPE Franchisor LLC has avoided all material litigation in these categories.

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Red Flags vs. Positive Indicators

✅ Positive Indicators

1. Clean Legal Record: No disclosed litigation demonstrates effective franchise relationship management
2. System Maturity: Despite operating 778 franchised locations, no material disputes have arisen
3. Compliance Focus: Absence of regulatory litigation suggests strong compliance practices
4. Franchisee Relations: No franchisee dispute litigation indicates generally positive franchisor-franchisee relationships

⚠️ Considerations and Caveats

While the clean litigation record is positive, potential franchisees should consider:

1. Limited History of Current Entity: Zaxby's SPE Franchisor LLC has only existed since 2021, providing a relatively short track record

2. Predecessor Entity Not Disclosed: The FDD does not disclose litigation history for Zaxby's Franchising LLC (ZFL), which operated the franchise system from 1994 to 2021

3. Disclosure Thresholds: Not all litigation must be disclosed—only "material" cases meeting specific criteria

4. Recent Formation: The 3-year operational history may not be sufficient to identify long-term patterns

5. Corporate Restructuring: The securitization transaction may have been structured to separate certain liabilities

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Comparison to Industry Standards

How Does Zaxby's Compare?

Assessment: Zaxby's disclosed litigation record is better than industry average for a system of its size.

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What This Means for Potential Franchisees

Practical Implications

1. Lower Legal Risk Perception

The absence of disclosed litigation suggests:

• Effective dispute resolution mechanisms
• Clear franchise agreements and expectations
• Strong operational support reducing conflicts
• Proactive compliance management

2. Franchise Relationship Quality

Zero franchisee dispute litigation may indicate:

• Fair treatment of franchisees
• Reasonable enforcement of franchise agreements
• Effective communication channels
• Satisfactory support and training

3. Regulatory Compliance

No regulatory litigation suggests:

• Strong compliance programs
• Adherence to franchise disclosure laws
• Proper business practices
• Effective legal oversight

4. Brand Reputation Protection

Absence of litigation helps maintain:

• Positive brand image
• Consumer confidence
• Franchisee recruitment
• Lender and investor confidence

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Due Diligence Recommendations

Despite the clean litigation record, potential franchisees should:

1. Investigate Predecessor Entity

• Research litigation history of Zaxby's Franchising LLC (the predecessor)
• Search court records in states where Zaxby's operates
• Review news articles and industry publications for disputes

2. Speak with Current Franchisees

Ask existing franchisees about:

• Dispute resolution experiences
• Fairness of franchisor enforcement
• Quality of franchisor support
• Any unresolved conflicts or tensions

3. Review Item 20 Carefully

Examine:

• Franchisee turnover rates
• Number of terminations and non-renewals
• Transfers and closures
• These may indicate disputes that didn't result in litigation

4. Consult with Franchise Attorney

Have an experienced franchise attorney:

• Review the entire FDD
• Assess the significance of the corporate restructuring
• Evaluate franchise agreement terms
• Identify potential areas of concern

5. Search Public Records

Conduct independent searches:

• Federal court PACER system
• State court databases
• Better Business Bureau complaints
• Online franchisee forums and reviews

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Questions to Ask Zaxby's Representatives

When discussing the litigation history with Zaxby's, consider asking:

1. About the Predecessor Entity:

   • "What was the litigation history of Zaxby's Franchising LLC before the 2021 restructuring?"
   • "Were any litigation matters transferred or assumed as part of the securitization transaction?"

2. About Dispute Resolution:

   • "How many franchisee disputes have been resolved through arbitration or mediation?"
   • "What is your typical process for resolving franchisee concerns?"

3. About System Changes:

   • "Have there been any significant policy changes that resulted from franchisee feedback or concerns?"
   • "How do you handle franchisee complaints about system requirements?"

4. About Terminations:

   • "How many franchise agreements have been terminated in the past 5 years?"
   • "What are the most common reasons for termination?"

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Bankruptcy History (Item 4)

The FDD also states: "No bankruptcy information is required to be disclosed in this Item."

This means:

• Neither Zaxby's SPE Franchisor LLC nor its key personnel have bankruptcy history requiring disclosure
• No material bankruptcies in the past 10 years
• Additional positive indicator of financial stability

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Conclusion: What the Clean Record Really Means

Overall Assessment: POSITIVE WITH CAVEATS

Strengths:

• ✅ Zero disclosed litigation is exceptional for a 778-unit franchise system
• ✅ Indicates effective franchise relationship management
• ✅ Suggests strong compliance and operational practices
• ✅ No bankruptcy history adds to financial stability picture

Considerations:

• ⚠️ Limited 3-year history of current legal entity
• ⚠️ Predecessor entity's litigation history not disclosed in FDD
• ⚠️ Corporate restructuring may have separated certain liabilities
• ⚠️ Independent due diligence still essential

Final Recommendation

The clean litigation record in Item 3 is a significant positive factor in evaluating the Zaxby's franchise opportunity. However, it should not be the sole basis for your investment decision.

Action Items for Prospective Franchisees:

1. ✓ Acknowledge the positive litigation record as a strength
2. ✓ Conduct independent research on predecessor entity
3. ✓ Speak extensively with current and former franchisees (see Item 20)
4. ✓ Review franchisee turnover data carefully
5. ✓ Engage experienced franchise legal counsel
6. ✓ Evaluate all 23 items of the FDD comprehensively
7. ✓ Consider the litigation record alongside financial performance (Item 19), fees (Items 5-6), and obligations (Item 9)

The absence of disclosed litigation is encouraging, but thorough due diligence remains essential for any franchise investment of this magnitude ($1.4M - $3.3M initial investment).

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Additional Resources

For further research on Zaxby's litigation history:

• Federal Courts: Search PACER (Public Access to Court Electronic Records) at pacer.gov
• State Courts: Check court databases in Georgia (headquarters state) and other operating states
• Franchise Registry: Review state franchise registration documents where available
• Industry Publications: Search Franchise Times, Restaurant Business, Nation's Restaurant News
• Better Business Bureau: Check BBB.org for complaint history
• Franchise Disclosure Database: Some states maintain searchable FDD databases

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Document Reference: This analysis is based on Item 3 (Litigation) and Item 4 (Bankruptcy) of the Zaxby's SPE Franchisor LLC Franchise Disclosure Document dated April 29, 2024.

Note: This analysis is for informational purposes only and does not constitute legal advice. Prospective franchisees should consult with qualified legal and financial advisors before making any franchise investment decision.

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Zaxby's SPE Franchisor LLC Bankruptcy History & Management Background (Item 4)

Executive Summary

Item 4 Status: No Bankruptcy Disclosures Required

According to the Franchise Disclosure Document dated April 29, 2024, Zaxby's SPE Franchisor LLC reports no bankruptcy history for either the franchisor entity or any of its key management personnel. This represents a positive indicator of financial stability and management integrity for prospective franchisees.

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Bankruptcy History Analysis

Franchisor Bankruptcy Status

Zaxby's SPE Franchisor LLC:

• Formation Date: April 13, 2021
• Bankruptcy History: None disclosed
• Status: Clean record since formation

The FDD explicitly states in Item 4:

💡

"No bankruptcy information is required to be disclosed in this Item."

This clear statement indicates that neither the franchisor nor any of its predecessors, parents, or affiliates have experienced bankruptcy proceedings that would require disclosure under FTC regulations.

Corporate Structure Context

Understanding the corporate structure is essential when evaluating bankruptcy risk:

Key Ownership Structure:

• Ultimate parent: Craveability Parent LLC
• Owned by: Investment funds managed by affiliates of The Goldman Sachs Group Inc. (publicly traded)
• Acquisition date: December 28, 2020 (restructuring transaction)

Management Personnel Bankruptcy History

The FDD provides detailed backgrounds for 15 key executives in Item 2. None of these individuals have any disclosed bankruptcy history:

Executive Leadership Team

Bernard Acoca - Chief Executive Officer

• Current Role: CEO since January 2022
• Previous Experience: President/CEO of El Pollo Loco Inc. (March 2018 - November 2021)
• Bankruptcy History: None disclosed
• Assessment: Extensive restaurant industry experience with publicly traded companies

Donny Lau - Chief Financial Officer

• Current Role: CFO since July 2023
• Previous Experience: Multiple VP roles at Dollar General Corporation (2017-2023)
• Bankruptcy History: None disclosed
• Assessment: Strong financial management background with major retail corporation

Robert Colvin - VP of Accounting and Controller

• Current Role: Since April 2021 (formation)
• Previous Experience: VP Corporate Controller of ZFL since December 2015
• Bankruptcy History: None disclosed
• Assessment: Long tenure with Zaxby's system (8+ years)

Additional Key Management

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Management Team Experience & Credentials

Leadership Stability Assessment

Positive Indicators:

✅ Recent Management Refresh (2022-2023): The majority of C-suite executives joined within the past 2-3 years, bringing fresh expertise from major brands:

• Inspire Brands (Arby's Division)
• Papa John's International
• Procter & Gamble
• Dollar General Corporation
• Starbucks Coffee Company
• Planet Fitness

✅ Industry Experience: Management team demonstrates extensive quick-service and fast-casual restaurant experience

✅ Corporate Governance: Professional management structure with clear roles and responsibilities

✅ Financial Backing: Goldman Sachs ownership provides substantial financial resources and oversight

Areas of Note:

⚠️ High Management Turnover: Significant executive team changes in 2022-2023 could indicate:

• Strategic repositioning under new ownership
• Normal transition following private equity acquisition
• Potential cultural or operational shifts

⚠️ Limited Long-Term Zaxby's Experience: Most executives have less than 3 years with the brand (exceptions: Robert Colvin, Michelle Morgan, Lauren Heavern, Cheryl Wood)

Management Experience by Functional Area

Operations & Development

• Sharlene Smith (COO): Papa John's VP Operations Excellence background
• Michael R. Mettler (Chief Development Officer): OTF Franchisor Chief Development Officer
• Cheryl Wood: 8+ years with Zaxby's in market planning and franchise development

Financial Management

• Donny Lau (CFO): Dollar General strategy and finance leadership
• Robert Colvin (Controller): 8+ years with Zaxby's financial operations

Marketing & Technology

• Patrick M. Schwing: Inspire Brands (Arby's) and Procter & Gamble marketing leadership
• Michael R. Nettles: Papa John's digital and technology experience

Supply Chain & Real Estate

• Carl Mount: Starbucks Senior VP Supply Chain Operations
• Mary Meyer: McDonald's USA Field Real Estate Lead (17 years)

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Securitization Transaction Context

June 2021 Restructuring

The FDD describes a significant corporate restructuring that occurred in June 2021:

Key Transaction Elements:

1. Securitization financing transaction closed
2. Transfer of franchising rights from ZFL to Zaxby's SPE Franchisor LLC
3. Intellectual property transfer including all U.S. trademarks
4. Management agreement established for ongoing support services

Bankruptcy Risk Assessment:

✅ Positive Aspects:

• Securitization typically indicates access to capital markets
• Goldman Sachs backing provides financial stability
• Clean bankruptcy record post-restructuring
• Professional corporate structure established

⚠️ Considerations:

• Complex corporate structure with multiple entities
• Management services provided by affiliate (ZFL) under contract
• Relatively new entity (formed 2021) with limited operating history as franchisor

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Financial Stability Indicators

Revenue Performance (Fiscal Year 2023)

Based on Item 5 disclosures:

Analysis:

• Strong total revenue base exceeding $163 million
• Diversified revenue streams beyond food sales
• Indicates substantial franchise system scale

System Size (As of December 31, 2023)

• Company-Operated Restaurants: 145 (operated by affiliate Zax Restaurants)
• Franchised Restaurants: 778 (as of April 26, 2023 reference date)
• Total System: 900+ restaurants

Financial Stability Assessment:

✅ Strong Indicators:

• Large, established restaurant system
• Significant revenue base
• Professional corporate backing
• No disclosed financial distress

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Litigation History (Item 3)

The FDD states:

💡

"No litigation is required to be disclosed in this Item."

Significance:

• No material litigation involving bankruptcy-related claims
• No pending or concluded litigation requiring disclosure
• Clean legal record as of disclosure date (April 29, 2024)

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Risk Assessment for Franchisees

Overall Bankruptcy Risk: LOW ✅

Supporting Factors:

1. Clean Bankruptcy Record

   • No franchisor bankruptcy history
   • No management bankruptcy history
   • No disclosed financial distress

2. Strong Financial Backing

   • Goldman Sachs investment fund ownership
   • Access to institutional capital
   • Professional financial management

3. Established Brand

   • 30-year operating history (system founded 1994)
   • 900+ restaurant system
   • Strong revenue base ($163+ million)

4. Professional Management

   • Experienced executive team
   • Industry veterans from major brands
   • Clear organizational structure

Potential Concerns for Franchisees

⚠️ Management Continuity

• Issue: Significant executive turnover in 2022-2023
• Impact: Potential for operational or strategic changes
• Mitigation: New executives bring strong credentials from major brands

⚠️ Corporate Structure Complexity

• Issue: Multiple entities involved in franchise support
• Impact: Management services provided by affiliate (ZFL) under contract
• Mitigation: Franchisor remains legally responsible for all obligations
• FDD Statement: "However, as franchisor, we will be responsible and accountable to you to make sure that all support and services we promise to perform under the Franchise Agreement and Development Agreement (if applicable) you sign with us are performed in compliance with the applicable agreement, regardless of who provides the support or services on our behalf."

⚠️ Limited Operating History as Current Entity

• Issue: Zaxby's SPE Franchisor LLC formed in 2021 (only 3 years old)
• Impact: Limited track record as franchisor entity
• Mitigation: Predecessor (ZFL) has operated since 1994; brand continuity maintained

⚠️ Private Equity Ownership

• Issue: PE firms typically have 5-7 year investment horizons
• Impact: Potential for future ownership changes or exit strategies
• Mitigation: Goldman Sachs is a reputable, well-capitalized investor

---

Comparative Industry Context

Bankruptcy Risk Factors - Industry Comparison

Assessment: Zaxby's compares favorably to industry standards for bankruptcy risk indicators.

---

Management Background Deep Dive

CEO Leadership Profile

Bernard Acoca - Chief Executive Officer

Credentials:

• Current CEO of Zaxby's (January 2022 - Present)
• Board Member, Planet Fitness Franchising (January 2021 - Present)
• Former President/CEO, El Pollo Loco Inc. (March 2018 - November 2021)

Significance:

• Public company CEO experience (El Pollo Loco is publicly traded)
• Multi-brand franchise experience
• Board-level governance experience
• No bankruptcy or financial distress history disclosed

Assessment: Strong leadership credentials with relevant QSR/fast-casual experience

CFO Financial Oversight

Donny Lau - Chief Financial Officer

Credentials:

• CFO of Zaxby's (July 2023 - Present)
• Dollar General Corporation (March 2017 - July 2023):
  • SVP, Finance & Chief Strategy Officer
  • SVP, Chief Strategy Officer
  • VP, Investor Relations & Corporate Strategy
  • VP, Strategy & Corporate Development

Significance:

• Major public company financial management experience
• Strategy and corporate development expertise
• Investor relations background
• No bankruptcy or financial distress history disclosed

Assessment: Highly qualified financial leadership with Fortune 500 experience

Operations Leadership

Sharlene Smith - Chief Operating Officer

Credentials:

• COO of Zaxby's (April 2022 - Present)
• VP Operations Excellence, Papa John's International (October 2020 - April 2022)
• President, Adjust You LLC (July 2016 - October 2020)

Significance:

• Major QSR brand operational experience
• Operations excellence focus
• Entrepreneurial background
• No bankruptcy or financial distress history disclosed

---

Impact on Current Operations & Stability

Operational Continuity

Positive Indicators:

✅ Seamless Transition: Despite 2021 restructuring, franchise operations continued without disruption

✅ Management Agreement: ZFL continues to provide operational support under contract, maintaining institutional knowledge

✅ System Growth: Franchise system continues to expand (Development Incentive Programs offered)

✅ Financial Performance: Strong revenue base indicates healthy ongoing operations

Franchise Support Structure

Current Support Model:

• Franchisor: Zaxby's SPE Franchisor LLC (legal entity)
• Operations Support: ZFL (under management agreement)
• Accountability: Franchisor remains legally responsible for all obligations

FDD Disclosure:

💡

"However, as franchisor, we will be responsible and accountable to you to make sure that all support and services we promise to perform under the Franchise Agreement and Development Agreement (if applicable) you sign with us are performed in compliance with the applicable agreement, regardless of who provides the support or services on our behalf."

Assessment: Clear accountability structure protects franchisee interests despite complex corporate arrangement

---

Red Flags & Concerns

⚠️ Identified Concerns

1. Recent Entity Formation (2021)

   • Concern: Limited operating history as current franchisor entity
   • Context: Brand has 30-year history; restructuring was financial engineering, not operational distress
   • Severity: Low to Moderate

2. Management Team Turnover (2022-2023)

   • Concern: Majority of C-suite executives joined within past 2-3 years
   • Context: Normal following private equity acquisition; new team brings strong credentials
   • Severity: Low to Moderate

3. Complex Corporate Structure

   • Concern: Multiple entities involved; support services provided by affiliate
   • Context: Common in securitization structures; franchisor retains legal responsibility
   • Severity: Low

4. Private Equity Ownership

   • Concern: PE firms typically have finite investment horizons
   • Context: Goldman Sachs is reputable; no indication of near-term exit
   • Severity: Low

✅ Positive Indicators

1. Clean Bankruptcy Record

   • No franchisor or management bankruptcy history
   • No disclosed financial distress

2. Strong Financial Backing

   • Goldman Sachs ownership
   • $163+ million revenue base
   • 900+ restaurant system

3. Experienced Management

   • Executives from major brands (Papa John's, Starbucks, Inspire Brands, Dollar General)
   • Relevant industry experience
   • Professional credentials

4. Established Brand

   • 30-year operating history
   • Large franchise system
   • Continued expansion

---

Practical Implications for Prospective Franchisees

Due Diligence Recommendations

✓ Recommended Actions:

1. Verify Financial Stability

   • Review Item 21 financial statements carefully
   • Assess liquidity and debt levels
   • Understand securitization structure impact

2. Assess Management Continuity

   • Monitor executive team stability
   • Understand reporting relationships
   • Evaluate support

---

Zaxby's SPE Franchisor LLC Franchise Agreement Terms & Conditions (Item 17 - Part 1)

Critical Notice: FDD Item 17 Not Available

IMPORTANT: The FDD document provided does not contain Item 17 (Renewal, Termination, Transfer, and Dispute Resolution), which is the primary source for detailed contract terms and conditions. The document structure indicates that Item 17 exists (referenced on page 5 in the Table of Contents at page 49), but the actual content was not included in the materials provided.

Based on the available information from other sections of the FDD, we can provide the following partial analysis of contract terms:

---

⚠️ What We Know (From Available FDD Sections)

Initial Contract Length

Information Not Available in Provided FDD

The initial franchise term is not specified in the portions of the FDD provided. This critical information would typically be found in Item 17, which was not included in the materials.

Renewal Options

Partial Information Available:

From Item 6 (Other Fees):

• Renewal Fee: 50% of the then-current Initial Franchise Fee (currently $17,500 based on current $35,000 Initial Franchise Fee)
• When Due: Upon renewal
• Requirement: You must enter into the franchisor's "then-current Franchise Agreement"

From Item 9 (Franchisee's Obligations):

• Renewal is addressed in Franchise Agreement Sections 2.2 and 3.1(d)
• Also referenced in Items 6, 11, and 17

Critical Concerns:

• ⚠️ "Then-Current" Agreement Risk: You must sign whatever franchise agreement is in use at renewal time, which may have materially different terms than your original agreement
• ⚠️ No Term Length Specified: Without Item 17, we cannot determine how many renewal terms are available or their duration

---

Renovation/Upgrade Requirements at Renewal

Partial Information Available:

From Item 6 (Other Fees):

From Item 9 (Franchisee's Obligations):

• Maintenance, appearance and remodeling requirements are addressed in Franchise Agreement Sections 2.2(a)(iv) and 5.6 and Appendix C

What This Means:

• You will be required to make modifications/renovations at renewal
• If you fail initial inspection after attempting these modifications, you'll pay at least $500 per re-inspection
• Specific renovation requirements are not detailed in the available portions of the FDD

---

Transfer and Resale Restrictions

Transfer Fees

Transfer Requirements

From Item 9 (Franchisee's Obligations):

• Transfer provisions are in Franchise Agreement Sections 1.5(b), 3.1(e), and 12
• Transfer provisions for Development Agreement are in Section 7
• Also covered in Items 6 and 17

Key Restrictions Identified:

1. Franchisor Approval Required: All transfers require prior written approval
2. Fee Payment: Transfer fees must be paid before transfer is completed
3. Variable Fee Structure: The franchisor may reduce the transfer fee for certain types of transfers

---

VetFran Program Special Provision

Important Transfer Restriction for Veterans:

If you received the 20% veteran's discount ($7,000 off Initial Franchise Fee):

• Clawback Provision: If you transfer the Restaurant OR if the Franchise Agreement is terminated within the first year of operation, you must pay back the $7,000 discount
• Applies to: First five Restaurants opened by a veteran
• Documentation Required: DD Form 214 or equivalent proof of honorable discharge

---

Non-Compete Clauses

During the Term

From Item 9 (Franchisee's Obligations):

• Non-competition covenants are addressed in Franchise Agreement Sections 15, 24.4(e), 24.5, and Appendix D
• Also in Development Agreement Section 8 and Appendix C

Post-Termination

From Item 9 (Franchisee's Obligations):

• Post-termination obligations are in Franchise Agreement Sections 6.6 and 14
• Also in Development Agreement Section 8

⚠️ Critical Warning from FDD Cover Page:

💡

"When your franchise ends. The franchise agreement may prohibit you from operating a similar business after your franchise ends even if you still have obligations to your landlord or other creditors."

What We Cannot Determine Without Item 17:

• Geographic scope of non-compete
• Duration of post-term non-compete
• Specific activities prohibited
• Whether non-compete applies to owners/managers individually

---

Termination Provisions

Grounds for Termination by Franchisor

Specific Termination Events Identified in Available FDD:

1. Development Agreement Termination

From Item 5:

• Failure to Meet Development Schedule: If you fail to meet any deadline (Real Estate Committee Approval Deadline, Construction Commencement Deadline, or Opening Deadline) and fail to operate the required number of Restaurants per the Development Schedule
• Consequence: You lose all rights to develop the Development Area and forfeit initial fees paid for any Restaurants without signed Franchise Agreements
• Note: Existing open Restaurants are not terminated solely due to Development Agreement termination

2. Franchise Agreement Termination - Timeline Failures

From Item 11:

• Failure to Meet Opening Deadline: "Failure to comply with the Real Estate Committee Approval Deadline, Construction Commencement Deadline or Opening Deadline in your Franchise Agreement is cause for termination"

3. Other Termination Grounds

From Item 9 (Franchisee's Obligations):

• Additional termination provisions are in Franchise Agreement Sections 1.5(b), 3.1(e), and 12
• Complete details would be in Item 17 (not provided)

---

Grounds for Termination by Franchisee

Information Not Available in Provided FDD

The available portions of the FDD do not specify under what circumstances, if any, you may terminate the Franchise Agreement. This information would typically be found in Item 17.

---

Fee Escalation Clauses

Fees That Can Increase

Technology Services Fee - Critical Escalation Provision

Current Structure (Through December 27, 2025):

🚨 MAJOR RED FLAG - Post-2025 Changes:

Beginning December 28, 2025 (the "2026 Period"), the franchisor may:

1. Change the amount of the TSF with only 30 days' written notice
2. Change the calculation method to:
   • A fixed fee
   • A percentage of Gross Sales
   • A fee per transaction
   • A fee based on usage
3. Modify or completely remove the annual cap
4. Require all Restaurants (regardless of opening date) to pay the same fee structure

What This Means:

• After December 27, 2025, there is no limit on how much the TSF could increase
• The franchisor could switch from a per-transaction fee to a percentage of Gross Sales (potentially much higher)
• The current $7,000,000-$7,700,000 system-wide cap could be eliminated entirely
• You have no protection against TSF increases after this date

Renewal Fee Escalation

• Current: 50% of then-current Initial Franchise Fee
• Risk: If the Initial Franchise Fee increases over time, your renewal fee increases proportionally
• Current Calculation: $35,000 × 50% = $17,500
• Future Risk: If Initial Franchise Fee rises to $50,000, renewal fee would be $25,000

---

What Happens When the Contract Ends?

Post-Termination Obligations

From Item 9 (Franchisee's Obligations):

• Post-termination obligations are addressed in Franchise Agreement Sections 6.6 and 14
• Also in Development Agreement Section 8

Specific Requirements Identified:

1. Cease Use of Marks and System

From Item 9:

• You must immediately stop using all Zaxby's trademarks, service marks, and proprietary information
• You must stop operating under the Zaxby's System

2. Non-Competition Restriction

⚠️ Critical Warning from FDD:

💡

"The franchise agreement may prohibit you from operating a similar business after your franchise ends even if you still have obligations to your landlord or other creditors."

Practical Impact:

• You may be stuck paying rent on a location you cannot use for a competing restaurant business
• You may have equipment loans or other obligations that continue after termination
• The non-compete could prevent you from earning income in the restaurant industry

3. Additional Post-Term Obligations

From Item 9:

• Non-competition covenants continue after termination (Sections 15, 24.4(e), 24.5, and Appendix D)
• Specific duration and geographic scope not specified in available FDD sections

---

Key Contract Terms Summary Table

Legend:

• ✓ Favorable = Terms are reasonable and protect franchisee interests
• ⚠️ Moderate = Terms are acceptable but have some concerns
• 🚩 Unfavorable = Terms heavily favor franchisor or create significant risk

---

Restrictive and Unusual Clauses

🚩 1. "Then-Current" Franchise Agreement at Renewal

The Clause:

💡

"You must enter into our then-current standard form of Franchise Agreement" (Item 5)

Why It's Restrictive:

• You have no guarantee that renewal terms will be similar to your original agreement
• The franchisor can change any terms (except the franchise fee) between now and renewal
• You lose all negotiating leverage at renewal
• You may face significantly higher fees, more restrictions, or reduced territorial protection

Comparison to Industry: Many franchisors allow renewal under the same basic terms with only minor updates for legal compliance or system improvements.

---

🚩 2. Unlimited Technology Fee Increases After 2025

The Clause:

💡

"Beginning December 28, 2025... we may, in our sole discretion, after providing you with 30 days' written notice, (a) change the amount and method of calculating the Applicable TSF... or (b) modify or remove the Applicable Cap on TSFs."

Why It's Unusual and Restrictive:

• No cap after 2025: The current $7,000,000-$7,700,000 system-wide cap disappears
• Unlimited increase potential: Could switch from $0.06/transaction to 2% of Gross Sales (or higher)
• Only 30 days' notice: Insufficient time to adjust business model or budget
• No franchisee input: Entirely at franchisor's discretion

Financial Impact Example:

This is highly unusual in franchise agreements and creates significant financial uncertainty.

---

🚩 3. Co-op Can Vote to Exceed Marketing Fee Cap

The Clause:

💡

"Notwithstanding the foregoing, if the members of your Co-op vote to increase the Co-op Marketing Contribution above the 3% cap, then your weekly marketing contribution may exceed 4% of Gross Sales."

Why It's Restrictive:

• The stated 4% marketing cap is not actually a cap
• Other franchisees can vote to increase your fees
• You could be outvoted by franchisees in different market conditions
• No maximum limit specified

Potential Impact:

• If Co-op votes for 5% contribution: Total marketing = 6.5% (1.5% national + 5% co-op)
• Combined with 6% royalty = 12.5% of gross sales in fees before any operating expenses

---

🚩 4. Post-Termination Non-Compete with Ongoing Lease Obligations

The Clause:

💡

"The franchise agreement may prohibit you from operating a similar business after your franchise ends even if you still have obligations to your landlord

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Dispute Resolution: Zaxby's SPE Franchisor LLC Franchise Legal Rights (Item 17 - Part 2)

Overview of Dispute Resolution Framework

CRITICAL NOTICE: The FDD provided does not contain the complete Item 17 text. The document appears to be truncated, with Item 17 beginning on page 49 but the actual content not included in the provided pages. This analysis is therefore incomplete and based only on limited references found elsewhere in the document.

⚠️ Major Limitation

The complete dispute resolution provisions from Item 17 are NOT available in the provided FDD pages. What follows is based on:

• References in the "Special Risks to Consider" section (page 4)
• References in Item 9 (Franchisee's Obligations table)
• General franchise agreement structure references

Available Information on Dispute Resolution

1. Out-of-State Dispute Resolution Requirement

According to the "Special Risks to Consider About This Franchise" section on page 4:

💡

"Out-of-State Dispute Resolution. The franchise agreement and development agreement require you to resolve disputes with the franchisor by arbitration and/or litigation only in Georgia. Out-of-state arbitration or litigation may force you to accept a less favorable settlement for disputes. It may also cost more to arbitrate or litigate with the franchisor in Georgia than in your own state."

Key Implications:

• Mandatory Georgia venue for all disputes
• Both arbitration AND/OR litigation are mentioned (specific requirements unclear)
• Significant cost implications for out-of-state franchisees
• Potential settlement pressure due to travel and expense burdens

2. Document References

From Item 9 (Franchisee's Obligations), Section x indicates:

These sections contain the complete dispute resolution provisions, but the actual text is not included in the provided FDD pages.

3. Franchisor's Principal Address

All legal proceedings would likely be centered near:

• Zaxby's SPE Franchisor LLC
• 1040 Founder's Boulevard, Suite 100
• Athens, Georgia 30606

Typical Dispute Resolution Components (Cannot Be Confirmed)

Without access to the complete Item 17 text, the following components are typically found in franchise dispute resolution provisions but cannot be confirmed for Zaxby's:

Mediation (Status: Unknown)

• Whether mediation is required before arbitration/litigation
• Time limits for mediation
• Cost allocation
• Selection of mediator

Arbitration (Partially Confirmed)

• Confirmed: Some form of arbitration is mentioned
• Unknown: Whether arbitration is mandatory or optional
• Unknown: Arbitration rules (AAA, JAMS, etc.)
• Unknown: Number of arbitrators
• Unknown: Cost allocation provisions
• Unknown: Discovery limitations
• Unknown: Appeal rights

Litigation (Partially Confirmed)

• Confirmed: Georgia is the required jurisdiction
• Unknown: Specific court (state or federal)
• Unknown: County within Georgia
• Unknown: Jury trial waiver provisions
• Unknown: Preliminary injunction provisions

Choice of Law (Status: Unknown)

• Which state's laws govern the agreement
• Federal law applicability
• Exceptions to choice of law

Class Action Waiver (Status: Unknown)

• Whether class actions are prohibited
• Collective action provisions
• Representative action limitations

Legal Fee Provisions (Partially Confirmed)

From Item 6, there is an "Indemnification / Attorneys' Fees and Costs / Damages" provision:

Key Points:

• Franchisee must reimburse franchisor for enforcement costs
• Includes "reasonable attorneys' fees"
• No reciprocal provision mentioned for franchisee's recovery
• Applies to both third-party claims and agreement enforcement

🚩 Red Flags and Concerns

Critical Issues Identified

1. ⚠️ INCOMPLETE DISCLOSURE

   • The most significant issue is that Item 17 content is not provided
   • Franchisees cannot make informed decisions without complete dispute resolution terms
   • This represents a potential disclosure deficiency

2. 🚩 Out-of-State Venue Requirement

   • Major disadvantage for non-Georgia franchisees
   • Significantly increases dispute costs
   • Creates practical barriers to pursuing claims
   • May pressure franchisees into unfavorable settlements

3. 🚩 Dual Arbitration/Litigation Language

   • Unclear whether disputes go to arbitration OR litigation
   • Franchisor may have choice of forum (common but disadvantageous)
   • Lack of clarity creates uncertainty

4. 🚩 One-Sided Fee Provisions

   • Franchisee must pay franchisor's attorneys' fees
   • No mention of reciprocal fee-shifting if franchisee prevails
   • Creates financial disincentive to pursue valid claims

5. ❓ Unknown Class Action Status

   • Cannot determine if class actions are waived
   • Critical for franchisees considering collective action

6. ❓ Unknown Mediation Requirements

   • Cannot determine if less expensive mediation is required first
   • May affect dispute resolution timeline and costs

Practical Implications for Franchisees

Financial Impact

Estimated Additional Costs for Out-of-State Franchisees:

Strategic Considerations

Before Signing:

1. ✓ DEMAND COMPLETE ITEM 17

   • Do not sign without reviewing full dispute resolution provisions
   • Request the complete FDD with all pages
   • Have attorney review Section 24 of Franchise Agreement

2. ✓ Assess Geographic Impact

   • Calculate realistic costs of Georgia dispute resolution
   • Consider whether this makes small claims impractical
   • Evaluate if this affects your negotiating position

3. ✓ Negotiate if Possible

   • Request home state venue (unlikely to be granted)
   • Request reciprocal attorney fee provisions
   • Request mediation requirement before arbitration/litigation
   • Request cost-sharing for dispute resolution

4. ✓ Budget for Disputes

   • Include potential dispute costs in financial planning
   • Consider dispute resolution insurance if available
   • Maintain separate legal reserve fund

5. ✓ Document Everything

   • Maintain meticulous records of all franchisor interactions
   • Document compliance with all agreement terms
   • Preserve all communications in writing

Dispute Resolution Process (Hypothetical Framework)

Without the actual Item 17 text, a typical franchise dispute resolution process might look like this:

┌─────────────────────────────────────────────────────────────┐
│                    DISPUTE ARISES                            │
└────────────────────┬────────────────────────────────────────┘
                     │
                     ▼
┌─────────────────────────────────────────────────────────────┐
│  Step 1: INFORMAL NEGOTIATION (Unknown if required)          │
│  • Direct communication between parties                       │
│  • Timeline: Unknown                                          │
│  • Cost: Minimal                                              │
└────────────────────┬────────────────────────────────────────┘
                     │
                     ▼
┌─────────────────────────────────────────────────────────────┐
│  Step 2: MEDIATION (Unknown if required)                     │
│  • Neutral third-party mediator                              │
│  • Non-binding process                                        │
│  • Location: Likely Georgia                                   │
│  • Timeline: Unknown                                          │
│  • Cost: $5,000 - $15,000+ (split or allocated unknown)      │
└────────────────────┬────────────────────────────────────────┘
                     │
                     ▼
┌─────────────────────────────────────────────────────────────┐
│  Step 3: ARBITRATION or LITIGATION (Details Unknown)         │
│  • Venue: GEORGIA (confirmed)                                │
│  • Binding decision                                           │
│  • Timeline: 12-24+ months                                    │
│  • Cost: $50,000 - $250,000+                                 │
│  • Franchisee may pay franchisor's fees if loses             │
└────────────────────┬────────────────────────────────────────┘
                     │
                     ▼
┌─────────────────────────────────────────────────────────────┐
│  Step 4: APPEAL (If litigation; unknown if available)        │
│  • Georgia appellate courts                                   │
│  • Limited grounds for appeal if arbitration                  │
│  • Timeline: 12-18+ additional months                         │
│  • Cost: $25,000 - $100,000+                                 │
└─────────────────────────────────────────────────────────────┘

⚠️ IMPORTANT: This flowchart is hypothetical and cannot be confirmed without the actual Item 17 text.

Comparison: Dispute Resolution Burden

Cost Comparison by Franchisee Location

Impact on Claim Viability

Your Legal Rights as a Franchisee

Rights You Likely Have (Common in Franchise Agreements)

⚠️ Cannot be confirmed without complete Item 17

1. Right to Legal Representation

   • You can hire an attorney at any stage
   • Attorney can be from any state (though Georgia license may be required for litigation)

2. Right to Present Your Case

   • Right to present evidence and witnesses
   • Right to cross-examine franchisor's witnesses
   • Right to discovery (extent unknown)

3. Right to Enforce the Agreement

   • Can bring claims for franchisor's breach
   • Can seek damages for franchisor's violations
   • Subject to dispute resolution procedures

Rights You Likely Do NOT Have

⚠️ Cannot be confirmed without complete Item 17

1. Right to Sue in Your Home State

   • Confirmed: Must go to Georgia
   • Cannot choose more convenient venue

2. Right to Jury Trial

   • Unknown if waived
   • Common in franchise agreements

3. Right to Class Action

   • Unknown if waived
   • Increasingly common in franchise agreements

4. Right to Recover Attorneys' Fees

   • Appears one-sided in franchisor's favor
   • May not recover fees even if you win

5. Right to Avoid Arbitration

   • Unknown if arbitration is mandatory
   • May have no choice of forum

State-Specific Considerations

State Law Protections

Some states have franchise relationship laws that may override certain dispute resolution provisions:

From Exhibit G Reference: The FDD mentions "STATE-SPECIFIC ADDENDA TO THE FRANCHISE DISCLOSURE DOCUMENT" (page 6), which may contain state-specific modifications to dispute resolution provisions.

⚠️ CRITICAL: Review Exhibit G for your specific state before signing.

Timeline Considerations

Estimated Dispute Resolution Timeline

⚠️ These are industry estimates; actual Zaxby's timelines unknown

Time Limits to Assert Claims

⚠️ Cannot be confirmed without complete Item 17

Typical provisions might include:

• Statute of limitations (varies by claim type)
• Contractual limitations periods (often shorter than statutory)
• Notice requirements before filing claims
• Time limits for post-termination claims

Important Considerations for Franchisees

Before Signing the Franchise Agreement

Essential Actions:

1. 📋 OBTAIN COMPLETE FDD

   • CRITICAL: Do not proceed without complete Item 17
   • Verify you have all pages (this FDD appears incomplete)
   • Request any missing exhibits or addenda

2. ⚖️ CONSULT WITH ATTORNEY

   • Hire a franchise attorney (not a general business attorney)
   • Preferably one licensed in Georgia or familiar with Georgia law
   • Have them review Section 24 of Franchise Agreement
   • Have them review Section 9 of Development Agreement

3. 💰 CALCULATE TRUE COSTS

   • Add dispute resolution costs to your investment analysis
   • Consider geographic disadvantage in financial projections
   • Assess whether small claims are economically viable

4. 🗣️ TALK TO CURRENT FRANCHISEES

   • Ask about dispute resolution experiences

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Zaxby's SPE Franchisor LLC Franchisee Success Rate & Turnover (Item 20 - Part 1)

Data Availability Notice

Critical Information Gap: The FDD provided does not contain the actual data from Item 20 (Outlets and Franchisee Information). While Item 20 is listed in the table of contents on page 5 as appearing on page 57, the actual content of Item 20 was not included in the FDD text provided for analysis.

The FDD structure overview indicates:

"20": {
  "found": false,
  "content_summary": ""
}

This means we cannot provide the specific outlet and turnover data that would normally appear in this section.

What Should Be Disclosed in Item 20

According to FTC regulations, Item 20 of a Franchise Disclosure Document must include:

Required Disclosures

1. Total number of franchised outlets as of the end of each of the last 3 fiscal years
2. Total number of company-owned outlets as of the end of each of the last 3 fiscal years
3. Number of franchised outlets that opened during each of the last 3 fiscal years
4. Number of franchised outlets that closed during each of the last 3 fiscal years
5. Number of franchised outlets that were reacquired by the franchisor during each of the last 3 fiscal years
6. Number of franchised outlets that ceased operations for other reasons during each of the last 3 fiscal years
7. Number of franchised outlets that were transferred to new ownership during each of the last 3 fiscal years
8. State-by-state breakdown of outlet information
9. Projected openings for the next fiscal year

Information Available from Other Sections

While Item 20 data is not provided, we can extract some relevant information from other sections of the FDD:

Company-Owned Operations

From Item 1 (page 7):

• Zaxby's Company Restaurants LLC operated 145 Restaurants as of December 31, 2023
• This represents the company-owned portion of the system

Franchise System History

From Item 1 (pages 1-2):

Franchisor Background:

• Zaxby's SPE Franchisor LLC was organized on April 13, 2021
• Began offering franchises in July 2021
• Has never operated any Restaurants directly
• Is the successor to Zaxby's Franchising LLC (ZFL), which offered franchises from 1994 until June 2021

Securitization Transaction (June 2021):

• All existing Franchise Agreements were transferred to Zaxby's SPE Franchisor LLC
• The current franchisor took over all franchise relationships at that time
• This represents a significant corporate restructuring that affects how historical data should be interpreted

Development Incentive Programs

From Item 5 (pages 14-15), the franchisor is actively promoting new unit development through two incentive programs:

New Restaurant Opening Incentive Program

• Target Markets: Core Markets (Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee)
• Deadline: Sites must receive Real Estate Committee Approval by June 30, 2024
• Opening Window: August 25, 2023 to December 31, 2024
• Incentives:
  • Full refund of $35,000 Initial Franchise Fee upon opening
  • Reduced royalty: 2% Year 1, 4% Year 2 (vs. standard 6%)

Select Market Incentive Program

• Target Markets: All states except the Core Markets listed above
• Opening Window: January 1, 2024 to December 31, 2026
• Incentives:
  • Full refund of $35,000 Initial Franchise Fee upon opening
  • Reduced royalty: 0% Year 1, 3% Year 2 (vs. standard 6%)

Analysis: These aggressive incentive programs suggest the franchisor is prioritizing expansion, particularly in non-core markets. The willingness to forgo royalties entirely in Year 1 for select markets indicates a strategic push for geographic diversification.

What We Know About System Size

Minimum System Size Calculation

From Item 6 (page 16), the Technology Service Fee structure provides insight into system size:

As of April 26, 2023:

• 778 franchised Restaurants were open and operating (classified as "Existing Restaurants")
• 145 corporate Restaurants were open and operating (classified as "Existing Restaurants")
• Total system size: 923 Restaurants

This represents a snapshot from approximately one year before the FDD issuance date of April 29, 2024.

System Composition

Key Observation: Zaxby's operates a predominantly franchised system, with franchisees operating more than 4 out of every 5 restaurants.

Critical Data Gaps

Without access to the actual Item 20 tables, we cannot provide:

Missing Critical Metrics

1. Year-over-year growth rates for fiscal years 2021, 2022, and 2023
2. Number of new franchise openings by year
3. Number of franchise closures by year
4. Number of franchise terminations by year
5. Number of franchise transfers by year
6. Number of reacquisitions by the franchisor
7. Turnover rate calculations
8. State-by-state distribution of outlets
9. Franchisee retention statistics
10. Names and contact information of current and former franchisees

What These Numbers Would Reveal

The missing Item 20 data is crucial for assessing:

Franchisee Success Indicators

• Closure rate: High closure rates may indicate operational challenges or poor unit economics
• Transfer rate: Excessive transfers could signal franchisee dissatisfaction
• Termination rate: High terminations suggest compliance issues or franchisor-franchisee conflicts
• Net growth: The difference between openings and closures reveals true system health

Red Flags to Watch For

• Negative net growth (more closures than openings)
• High closure rates (typically concerning if >5% annually)
• Excessive transfers (may indicate franchisees trying to exit)
• Geographic concentration of failures (suggests market-specific problems)
• Recent acceleration in closures (could indicate emerging systemic issues)

Exhibits Referenced in Item 20

The FDD table of contents (page 6) lists the following exhibits related to Item 20:

Franchisee Contact Lists

• Exhibit D-1: Roster of Franchisees
• Exhibit D-2: Roster of Developers
• Exhibit D-3: Franchisees Who Have Left the System
• Exhibit D-4: Franchisees with Unopened Outlets

These exhibits were not included in the FDD materials provided for analysis.

Importance of These Exhibits

These rosters are among the most valuable resources in the FDD because they allow prospective franchisees to:

1. Contact current franchisees to ask about their experiences
2. Identify franchisees who have left and potentially learn why
3. Assess geographic distribution of successful franchisees
4. Identify multi-unit operators who have expanded (a positive indicator)
5. Spot patterns in franchisee success or failure

Contextual Information About Zaxby's System

Brand History and Maturity

From Item 1:

• ZFL (predecessor) began franchising in 1994 - nearly 30 years of franchise history
• This is a mature franchise system with established operations
• The 2021 securitization transaction represents a financial restructuring, not a new brand

Implication: A 30-year franchise history should provide substantial data on franchisee success rates, making the absence of Item 20 data particularly notable.

Recent Leadership Changes

From Item 2 (pages 5-7), significant executive turnover occurred in 2022-2023:

New Leadership Appointments:

• CEO: Bernard Acoca (January 2022)
• CFO: Donny Lau (July 2023)
• Chief Marketing Officer: Patrick Schwing (June 2022)
• Chief Digital Officer: Michael Nettles (May 2022)
• Chief Operating Officer: Sharlene Smith (April 2022)
• Chief Development Officer: Michael Mettler (May 2022)
• Chief Supply Chain Officer: Carl Mount (January 2023)
• Chief People Officer: Michelle Morgan (May 2022)
• Chief Legal Officer: Brenda Beerman Trickey (June 2023)

Analysis: Nearly the entire C-suite was replaced in 2022-2023. While this could signal positive change and fresh strategic direction, it also represents significant organizational disruption during a period that would be covered by Item 20 reporting.

Development Agreement Structure

From Item 5 (pages 8-9):

Multi-Unit Development Requirements:

• Minimum 2 Restaurants required for Development Agreement
• Must meet strict Development Schedule with three key deadlines:
  1. Real Estate Committee Approval Deadline
  2. Construction Commencement Deadline
  3. Opening Deadline

Consequences of Missing Deadlines:

• Termination of Development Agreement
• Loss of all development rights in the Development Area
• Forfeiture of initial fees for unsigned Franchise Agreements
• Existing open restaurants remain unaffected

Implication: The strict development schedule requirements could contribute to Development Agreement terminations, which should be disclosed in Item 20.

Financial Performance Context

Revenue from Franchisees

From Item 8 (page 23):

Fiscal Year 2023:

• Total revenues: $163,158,541
• Revenues from franchisee purchases: $9,151,758 (5.61% of total)
• Source: Vendor program management fees on proprietary food items

Analysis: The franchisor derives the majority of its revenue from royalties and fees (not included in the above figure), not from product sales. This is typical for a franchise system and suggests the franchisor's success is tied to franchisee sales volume.

Initial Franchise Fee Variations

From Item 5 (page 8):

2023 Fiscal Year Initial Franchise Fees:

• Range: $0 to $35,000
• Standard fee: $35,000

Question: Why did some franchisees pay $0? Possible explanations:

• Transfers where fees were waived
• Special promotional programs
• Conversions from other agreements
• Corrections or adjustments

This variation should be explained in Item 20 context.

Operational Requirements That May Affect Turnover

Significant Ongoing Obligations

From Item 6 (pages 10-14):

Weekly Financial Obligations

*Based on estimated annual Gross Sales of $3,000,000 to $5,000,000

Analysis: These are substantial ongoing obligations. Restaurants with lower sales volumes may struggle to maintain profitability while meeting these requirements, potentially contributing to closures or transfers.

Remodeling and Compliance Costs

From Item 6 (page 14):

Renewal Requirements:

• Must complete Restaurant modifications required by franchisor
• Reinspection fee of minimum $500 if modifications are not completed
• Must sign then-current Franchise Agreement (terms may be less favorable)

Implication: Franchisees approaching renewal must invest in remodeling, which could cause some to exit the system rather than reinvest.

Training and Staffing Requirements

From Item 11 (page 27) and Item 15 (page 47):

Key Personnel Requirements:

• Designated Principal: Must own at least 25% of franchise entity
• Key Operator: Must have day-to-day operational control
• Certified Managers: Must complete training program

Replacement Training Costs:

• $2,500 per manager for replacement training
• Required when Certified Managers leave

Analysis: High manager turnover could create significant training costs, affecting profitability and potentially contributing to franchise failures.

What Prospective Franchisees Should Request

Given the absence of Item 20 data in the materials provided, prospective franchisees should:

Essential Due Diligence Steps

1. Request Complete Item 20 Tables

   • Verify you receive all tables showing 3-year history
   • Ensure state-by-state breakdown is included
   • Confirm projected openings are disclosed

2. Obtain All Exhibit D Rosters

   • Current franchisees (Exhibit D-1)
   • Developers (Exhibit D-2)
   • Former franchisees (Exhibit D-3)
   • Franchisees with unopened outlets (Exhibit D-4)

3. Calculate Key Metrics

   • Closure rate: (Closures ÷ Total outlets at start of year) × 100
   • Turnover rate: (Closures + Transfers + Terminations ÷ Total outlets) × 100
   • Net growth rate: (Openings - Closures) ÷ Total outlets at start of year
   • Retention rate: 100% - Turnover rate

4. Contact Multiple Franchisees

   • Speak with at least 10-15 current franchisees
   • Contact 5-10 former franchisees if possible
   • Ask specific questions about profitability, support, and challenges
   • Inquire about franchisees who have closed or transferred

5. Analyze Geographic Patterns

   • Identify states with high closure rates
   • Look for markets with strong growth
   • Assess competition in your target market
   • Evaluate company-owned vs. franchised performance by region

Critical Questions to Ask

Questions for Current Franchisees

• How long have you been operating?
• Have you opened additional locations? Why or why not?
• Do you know franchisees who have closed? What happened?
• Would you buy another Zaxby's franchise today?
• What percentage of franchisees in your area are profitable?
• How has the 2021 securitization affected your relationship with the franchisor?

Questions for Former Franchisees

• Why did you leave the system?
• Was your restaurant profitable?
• What challenges did you face?
• How was your relationship with the franchisor?
• Would you recommend this franchise to others?
• What would you do differently?

Questions for the Franchisor

• What is the 3-year closure rate?
• What is the average tenure of franchisees?
• What percentage of franchisees renew their agreements?
• How many franchisees operate multiple locations?
• What are the primary reasons franchisees fail?
• How has the system performed since the 2021 securitization?
• Why are you offering such aggressive development incentives?

Industry Benchmarks for Comparison

While we lack Zaxby's specific data, here are typical benchmarks for quick-service restaurant franchises:

Healthy Franchise System Indicators

---

Zaxby's SPE Franchisor LLC Franchise Locations: Current & Former Franchisee List (Item 20 - Part 2)

Overview: The Critical Importance of Franchisee Validation

Note: The FDD provided does not contain the actual Item 20 content or Exhibits D-1 through D-4, which would include the complete franchisee contact lists. However, based on the FDD structure and standard franchise disclosure requirements, this section provides comprehensive guidance on how to conduct franchisee validation once you receive the complete Item 20 information.

According to the FDD structure, Zaxby's is required to provide the following lists in Exhibits D-1 through D-4:

• Exhibit D-1: Roster of Franchisees (current franchisees with contact information)
• Exhibit D-2: Roster of Developers (franchisees with Development Agreements)
• Exhibit D-3: Franchisees Who Have Left the System
• Exhibit D-4: Franchisees with Unopened Outlets

The FDD indicates that as of December 31, 2023, there were 145 company-operated restaurants and the system has been operating since 1994, suggesting a substantial franchisee base.

How to Access the Current Franchisee Contact List

Location in the FDD

The current franchisee contact list will be found in:

1. Exhibit D-1 (Roster of Franchisees) - Contains names, addresses, and phone numbers of all current franchisees
2. Exhibit D-2 (Roster of Developers) - Lists franchisees with multi-unit Development Agreements
3. Item 20 - Provides summary tables of outlet information

Information Typically Included

Each franchisee listing should include:

• Franchisee name (individual or entity)
• Business address
• City, state, and ZIP code
• Telephone number
• Number of restaurants operated
• Opening dates of restaurants
• Geographic market/territory

Your Rights Under FTC Regulations

According to FTC franchise regulations:

• You have the absolute right to contact any franchisee listed in the FDD
• The franchisor cannot prohibit you from contacting franchisees
• The franchisor cannot require franchisees to provide only positive information
• You should receive this list at least 14 days before signing any agreement

🚩 Red Flag: Limited or Restricted Access

Warning signs to watch for:

• Franchisor discourages franchisee contact
• Provides only a "preferred" list of franchisees to contact
• Suggests you only speak with specific franchisees
• Delays providing the complete FDD with Exhibit D attachments
• Franchisee contact information is incomplete or outdated

Recommended Number of Franchisees to Contact

Minimum Contact Strategy

We recommend contacting 10-15 current franchisees minimum, with the following distribution:

Strategic Selection Criteria

Prioritize contacting franchisees who:

1. Operate in similar markets to your target location

   • Similar demographics
   • Comparable market size
   • Similar competitive environment

2. Have similar backgrounds to yours

   • First-time franchisees (if you are one)
   • Career changers
   • Multi-unit operators (if that's your plan)

3. Opened during different time periods

   • Provides perspective on system evolution
   • Reveals changes in support quality
   • Shows impact of fee increases

4. Operate different restaurant formats

   • Traditional locations vs. non-traditional
   • Drive-thru vs. dine-in focused
   • Different prototype designs

5. Are listed in Exhibit D-2 (Developers)

   • If you're considering a Development Agreement
   • Understand multi-unit economics
   • Learn about development support and challenges

Geographic Diversity

Contact franchisees across different regions:

• Core Markets: Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee (3-5 contacts)
• Expansion Markets: Non-core states (2-3 contacts)
• Your Target Market: Same DMA or adjacent markets (3-4 contacts)

Key Questions to Ask Current Franchisees

Category 1: Financial Performance & Profitability (Critical)

1. What were your actual total investment costs to open?

   • How did this compare to the FDD estimates ($1,406,700 to $3,323,200)?
   • What unexpected costs did you encounter?
   • How much working capital did you actually need?

2. What is your annual gross revenue?

   • First year, second year, third year progression?
   • How does it compare to Item 19 representations (if provided)?
   • What is your average weekly sales?

3. What is your actual net profit margin?

   • After all expenses, including your salary?
   • How long until you achieved profitability?
   • What is your cash-on-cash return?

4. What are your actual ongoing costs as a percentage of sales?

   • Food costs: ____%
   • Labor costs: ____%
   • Occupancy costs: ____%
   • Royalties (6%): Confirm this percentage
   • Marketing fees (up to 4%): Actual amount paid?
   • Technology Service Fee: Actual monthly cost?

5. How accurate was the FDD's estimated initial investment?

   • Which line items were significantly higher or lower?
   • Were there any costs not disclosed in Item 7?

Category 2: Franchisor Support & Relationship

6. How would you rate the quality of initial training?

   • Was it adequate to prepare you to operate?
   • What was missing or could be improved?
   • How helpful was the on-site opening support?

7. How responsive is the franchisor to your questions and concerns?

   • Do you have a dedicated franchise business consultant?
   • How quickly do they respond to issues?
   • Do you feel supported or micromanaged?

8. How would you rate the ongoing operational support?

   • Field visits: Frequency and quality?
   • Technology support: Adequate?
   • Supply chain management: Any issues?

9. How effective is the marketing support?

   • National Marketing Fund: Good ROI?
   • Co-op or Multi-DMA programs: Effective?
   • Digital marketing and app: Driving sales?

10. Has the franchisor made significant changes to the system?

    • Menu changes: Positive or negative impact?
    • Technology requirements: Costly upgrades?
    • Operating procedures: Reasonable or burdensome?

Category 3: Operations & Day-to-Day Management

11. How many hours per week do you personally work?

    • Are you owner-operator or absentee?
    • Can the business run without you?
    • What is your quality of life?

12. What are your biggest operational challenges?

    • Labor: Recruiting, retention, wages?
    • Food costs: Volatility, supplier issues?
    • Competition: Who are your main competitors?

13. How difficult is it to maintain brand standards?

    • Are the standards reasonable and achievable?
    • How often are you inspected?
    • What happens if you fail an inspection?

14. What is your experience with the required technology systems?

    • POS system: Reliable and user-friendly?
    • Online ordering and mobile app: Functioning well?
    • Technology Service Fee: Worth the cost?

15. How is the supply chain and vendor relationships?

    • Required suppliers: Competitive pricing?
    • Product quality: Consistent?
    • Any supply disruptions or issues?

Category 4: Growth & Future Outlook

16. Would you open another Zaxby's location?

    • Why or why not?
    • If yes, what would you do differently?
    • What would make you hesitate?

17. If you could start over, would you still buy this franchise?

    • What do you wish you had known before signing?
    • What would you do differently?

18. How do you view the future of the Zaxby's brand?

    • Growing stronger or facing challenges?
    • Competitive positioning: Improving or declining?
    • Menu relevance: Keeping up with trends?

Category 5: Candid Assessment

19. What do you wish someone had told you before you signed?

    • What surprised you most (positive or negative)?
    • What is the hardest part of owning this franchise?

20. On a scale of 1-10, how satisfied are you with your decision to become a Zaxby's franchisee?

    • What would make it a 10?
    • What prevents it from being higher?

🎯 Critical Follow-Up Questions

If they express any concerns, probe deeper:

• "Can you give me a specific example?"
• "How has the franchisor responded to this issue?"
• "Is this an isolated incident or ongoing problem?"
• "How has this impacted your profitability?"

Questions for Former Franchisees Who Exited Voluntarily

Note: Former franchisees are listed in Exhibit D-3. These conversations are often the most revealing.

Category 1: Reasons for Exit

1. Why did you decide to leave the Zaxby's system?

   • Was it financial performance?
   • Relationship with franchisor?
   • Personal reasons?
   • Better opportunity elsewhere?

2. Was the business profitable when you sold/closed?

   • If not, for how long was it unprofitable?
   • What were the primary factors affecting profitability?
   • Did profitability decline over time?

3. Did you achieve the financial goals you had when you started?

   • What was your total return on investment?
   • How long did it take to break even?
   • Did you make money when you sold?

Category 2: Franchisor Relationship

4. How was your relationship with Zaxby's corporate?

   • Did you feel supported throughout your tenure?
   • Were there any conflicts or disputes?
   • How did they handle problems when they arose?

5. Were there any changes to the franchise system that negatively impacted you?

   • Fee increases?
   • New requirements or mandates?
   • Changes to territory or competition?

Category 3: Operational Realities

6. What were the biggest challenges you faced as a franchisee?

   • Were these challenges disclosed before you signed?
   • Could they have been anticipated?
   • How did they impact your decision to exit?

7. How accurate was the FDD in representing the business opportunity?

   • Investment costs: Accurate?
   • Ongoing expenses: As expected?
   • Support level: As promised?

Category 4: Exit Process

8. How was the exit process?
   • Did the franchisor cooperate or create obstacles?
   • Were there any unexpected fees or penalties?
   • How long did it take to complete the exit?

Category 5: Retrospective Assessment

9. Looking back, what would you have done differently?

   • Would you have chosen a different franchise?
   • What red flags did you miss?

10. Would you recommend this franchise to someone considering it today?

    • Under what circumstances would you recommend it?
    • What type of person would succeed vs. struggle?

Questions for Terminated Franchisees

Note: Franchisees terminated by the franchisor are also listed in Exhibit D-3, typically with notation of termination.

Approach with Caution

Terminated franchisees may be subject to confidentiality agreements or ongoing litigation. However, they can provide critical insights into:

• Franchisor's enforcement practices
• Reasonableness of brand standards
• Support during difficulties
• Fairness of termination process

Key Questions (5-7)

1. What were the stated reasons for your termination?

   • Do you believe these reasons were legitimate?
   • Were you given opportunities to cure deficiencies?
   • How much notice were you given?

2. Did you receive adequate support before termination?

   • Did the franchisor try to help you succeed?
   • Were you offered remedial training or assistance?
   • Was termination a last resort or quick decision?

3. Were the brand standards and requirements reasonable?

   • Could they realistically be met?
   • Were other franchisees held to the same standards?
   • Were standards clearly communicated?

4. What was your financial situation at termination?

   • Were you profitable or struggling?
   • What were the primary financial challenges?
   • Did termination cause financial hardship?

5. How was the termination process handled?

   • Was it professional and fair?
   • Were there any disputes over post-termination obligations?
   • Did you face any legal action?

6. What do you wish you had known before signing?

   • Were there warning signs you missed?
   • What would you tell someone considering this franchise?

7. Would the business have been viable with better support or different circumstances?

   • What could have changed the outcome?
   • Was the business model sound?

⚠️ Important Considerations

• Terminated franchisees may be bitter or biased
• Verify their account with other sources
• Look for patterns across multiple terminated franchisees
• Consider whether termination was justified
• Assess franchisor's willingness to work with struggling franchisees

Franchisee Interview Guide Template

Pre-Call Preparation

Before contacting franchisees, prepare:

1. Create a standardized form to record responses consistently
2. Schedule calls in advance (respect their time)
3. Prepare your introduction explaining your interest
4. Have the FDD available for reference during the call
5. Plan for 30-45 minutes per conversation

Interview Template Structure

# ZAXBY'S FRANCHISEE VALIDATION CALL

**Date:** _______________
**Franchisee Name:** _____________________________
**Location(s):** _____________________________
**Years in System:** _____
**Number of Units:** _____
**Call Duration:** _____ minutes

## INTRODUCTION SCRIPT

"Hello, my name is [YOUR NAME], and I'm seriously considering investing in a Zaxby's franchise. 
The FDD lists you as a current franchisee, and I was hoping you'd be willing to share your 
experience with me. I have about 30-45 minutes of questions. Is now a good time, or would 
you prefer to schedule a call?"

## SECTION 1: BACKGROUND (5 minutes)

1. How long have you been a Zaxby's franchisee?
   Response: _______________________________________________

2. How many locations do you operate?
   Response: _______________________________________________

3. What was your background before becoming a franchisee?
   Response: _______________________________________________

4. Why did you choose Zaxby's?
   Response: _______________________________________________

## SECTION 2: FINANCIAL PERFORMANCE (15 minutes)

5. What was your total investment to open? $_______________
   - How did this compare to FDD estimates?
   Response: _______________________________________________

6. What is your annual gross revenue per location?
   Year 1: $_______________ Year 2: $_______________ Year 3: $_______________
   
7. What is your net profit margin? _____%
   - After all expenses including your compensation
   
8. How long until you achieved profitability? _____ months

9. Actual ongoing costs as % of sales:
   - Food costs: _____%
   - Labor costs: _____%
   - Occupancy: _____%
   - Royalties: _____%
   - Marketing: _____%
   - Technology

---

# Zaxby's SPE Franchisor LLC Franchise Territory Analysis (Item 12)

## ⚠️ Critical Notice: Limited Territory Information Available

**The FDD provided does not contain Item 12 (Territory) content.** According to the FDD structure overview, Item 12 was not found in the document provided. However, based on references to territory provisions scattered throughout other sections of the FDD, we can provide the following analysis based on available information.

## Available Territory Information from Other FDD Sections

### Protected Area Designation

Based on references in Item 11 and the Franchise Agreement structure:

**Territory Grant Process:**
- You receive a "Protected Area" only after site approval
- The specific Protected Area is designated on the **Location and Protected Area Schedule**
- The Protected Area is determined and inserted into your Franchise Agreement only after:
  - You locate a suitable site
  - The Real Estate Committee (REC) approves your site
  - You execute the Site Agreement

**Key Limitation:**
> "Our confirmation of a site is not a warranty or representation of any kind as to the potential success or profitability of a Restaurant at the Site. It is solely your responsibility to select a suitable site for the Restaurant." (Item 11)

### Site Selection Criteria

The FDD indicates that site evaluation considers:

| **Site Selection Factor** | **Consideration** |
|---------------------------|-------------------|
| Population | Minimum thresholds (not specified) |
| Traffic Count | Vehicle traffic patterns |
| Foot Traffic | Pedestrian activity |
| Accessibility | Ease of customer access |
| Visibility | Street visibility and signage |
| Demographics | Target customer demographics |
| Activity Generators | Nearby businesses/attractions |
| Employment | Local employment centers |
| Housing Generators | Residential development |
| Competition | Existing competitive restaurants |

**Important Note:** Specific minimum requirements for these factors are **not disclosed** in the available FDD sections.

### Restaurant Size and Location Requirements

**Physical Requirements:**

| **Specification** | **Requirement** |
|-------------------|-----------------|
| **Improved Space** | 1,100 to 3,500 square feet |
| **Typical Lot Size** | 0.8 to 1.5 acres |
| **Drive-Thru** | Required (except Non-Traditional locations) |
| **Location Type** | Freestanding building preferred |

### Impact Study Fee and Proximity to Existing Restaurants

**🚩 RED FLAG: Potential for Nearby Competition**

If you want to develop a Restaurant **within 5 miles of an existing Zaxby's restaurant**, the following process applies:

**Impact Study Process:**

1. **Notification:** Zaxby's notifies the existing restaurant operator (franchisee or corporate)
2. **Study Request:** If the existing operator requests an impact study and pays $3,000, you must also pay $3,000
3. **Refund Structure:**
   - **Less than 10% impact** → Full $3,000 refund to you
   - **10% to 15% impact** → 50% refund ($1,500) to you
   - **More than 15% impact** → No refund

**Critical Implications:**
- This policy suggests **no absolute territorial protection**
- Zaxby's can approve locations within 5 miles of existing restaurants
- You could face competition from other Zaxby's franchisees or corporate stores
- The impact study does not prevent the new location—it only determines refund eligibility

### Franchisor Rights to Compete

Based on the Impact Study Fee provision and general franchise structure:

**⚠️ WARNING: Limited Territorial Protection**

The FDD does **not explicitly state** that Zaxby's cannot:
- Open company-owned restaurants near your location
- Grant franchises to other franchisees near your location
- Operate through alternative channels in your area

**What This Means:**
- Your "Protected Area" may have **limited actual protection**
- Zaxby's appears to retain rights to develop nearby locations
- The 5-mile impact study provision suggests overlapping territories are possible

### Alternative Distribution Channels

**Digital and Delivery Operations:**

The FDD indicates that Zaxby's controls digital ordering channels:

> "We are...the only approved supplier and/or facilitator of digitally acquired orders via Zaxbys.com or the official Zaxby's mobile ordering apps available on the Apple App Store and the Google Play Store." (Item 8)

**Channel Rights:**

| **Channel** | **Your Rights** | **Franchisor Rights** |
|-------------|-----------------|----------------------|
| **Dine-In** | Exclusive at your location | None at your location |
| **Drive-Thru** | Exclusive at your location | None at your location |
| **Carry-Out** | Exclusive at your location | None at your location |
| **Delivery** | Can offer from your location | Controls digital platform |
| **Online Ordering** | Orders fulfilled by your location | Controls all digital ordering |
| **Mobile App** | Orders fulfilled by your location | Owns and controls apps |
| **Catering** | Can offer (with approval) | Not specified |

**🚩 CONCERN: Digital Channel Control**

- Zaxby's controls **all digital ordering platforms**
- You fulfill orders but don't control the customer relationship
- Zaxby's could potentially redirect digital orders to other locations
- No information provided about commission or fees for digital orders

### Territory Performance Requirements

**Development Agreement Obligations:**

If you sign a Development Agreement for multiple restaurants:

**Development Schedule Deadlines:**

| **Deadline Type** | **Requirement** | **Consequence of Missing** |
|-------------------|-----------------|---------------------------|
| **Real Estate Committee Approval** | Site approval, Site Agreement approval, sign Franchise Agreement, pay 50% of Initial Franchise Fee | Development Agreement termination possible |
| **Construction Commencement** | Execute Site Agreement, obtain plan acceptance, obtain insurance, start construction | Development Agreement termination possible |
| **Opening Deadline** | Open restaurant and have required number operating | Development Agreement termination possible |

**Critical Penalty:**
> "If the Development Agreement is terminated, you will lose all of your rights to develop the Development Area and the initial fees paid for any Restaurants for which Franchise Agreements have not been signed." (Item 1)

### Relocation Rights

**Substitute Fees During Relocation:**

If you relocate your Restaurant (defined as a "Relocation Event" in Item 6):

**Financial Obligation During Closure:**

You must pay the **greater of**:
1. Average annual Royalty and Marketing Fees for the two years before relocation, OR
2. Royalty and Marketing Fees for the 12 months before relocation

**Calculation Method:**
- If open less than 12 months: Based on average monthly fees × 12
- Paid during the period the Restaurant is not open

**⚠️ SIGNIFICANT FINANCIAL RISK:**
- You continue paying fees even when not generating revenue
- Could amount to tens of thousands of dollars during relocation
- No revenue offset or reduction provided

## Development Agreement Territory Structure

### Development Area Rights

**Multi-Unit Development:**

If you sign a Development Agreement:

| **Aspect** | **Details** |
|------------|-------------|
| **Minimum Commitment** | Must develop at least 2 Restaurants |
| **Development Area** | Mutually agreed upon geographic area |
| **Development Schedule** | Specific deadlines for each Restaurant |
| **Development Fee** | 50% of aggregate Initial Franchise Fees upfront |
| **Remaining Fee** | 50% of each Initial Franchise Fee upon signing each Franchise Agreement |

**Example Development Fee Structure:**

| **Number of Restaurants** | **Development Fee (Upfront)** | **Per-Restaurant Balance** | **Total Investment** |
|---------------------------|-------------------------------|---------------------------|---------------------|
| 2 Restaurants | $52,500 | $17,500 each | $87,500 |
| 5 Restaurants | $105,000 | $17,500 each | $175,000 |
| 10 Restaurants | $192,500 | $17,500 each | $350,000 |

### Affiliated Entity Development

**Multi-Entity Structure Allowed:**

You may form separate entities to own individual Restaurants if:

1. **Ownership Requirements:**
   - You own at least 51% of corporate voting securities
   - You own at least 51% of LLC membership interests
   - You own all general partnership interests

2. **Business Restrictions:**
   - Affiliated Entity conducts no other business
   - Must meet current franchisee criteria

3. **Guarantee Requirements:**
   - You and all your Owners sign personal guaranty
   - Full liability for Franchise Agreement obligations

4. **Character Requirements:**
   - All owners must possess "good moral character"
   - Subject to Zaxby's sole discretion

## Red Flags and Concerns

### 🚩 Major Concerns About Territory Protection

| **Issue** | **Risk Level** | **Details** |
|-----------|----------------|-------------|
| **No Explicit Exclusivity** | **HIGH** | FDD does not clearly state you have exclusive rights in Protected Area |
| **5-Mile Impact Policy** | **HIGH** | Suggests Zaxby's can approve locations within 5 miles of your Restaurant |
| **No Radius Specified** | **HIGH** | Protected Area size not disclosed in available FDD sections |
| **No Population Minimums** | **MEDIUM** | Specific demographic requirements not disclosed |
| **Digital Channel Control** | **MEDIUM** | Zaxby's controls all online ordering; potential for order redirection |
| **Relocation Fees** | **HIGH** | Must pay fees during closure with no revenue |
| **Company Store Rights** | **HIGH** | No clear restriction on corporate-owned locations near you |

### Specific Territorial Risks

**1. Cannibalization Risk**
- Impact study allows up to 15% sales impact without preventing new location
- No compensation if nearby location reduces your sales
- Both franchised and corporate locations can be approved nearby

**2. Development Pressure**
- Strict deadlines with significant financial penalties
- Lose all development rights and fees if you miss deadlines
- No force majeure provisions mentioned

**3. Limited Control**
- Zaxby's controls digital ordering platform
- No information about delivery radius
- Catering territory not specified

**4. Unclear Boundaries**
- Protected Area defined only after site approval
- No standard territory size disclosed
- Criteria for Protected Area size not provided

## Comparison to Industry Standards

### How Zaxby's Territory Provisions Compare

| **Territory Aspect** | **Zaxby's** | **Industry Standard** | **Assessment** |
|---------------------|-------------|----------------------|----------------|
| **Defined Territory Size** | Not disclosed | Usually specified (radius or population) | **Below Standard** |
| **Exclusive Rights** | Unclear | Typically exclusive for brick-and-mortar | **Below Standard** |
| **Population Requirements** | Not disclosed | Usually 25,000-75,000 | **Below Standard** |
| **Radius Protection** | Not disclosed | Typically 2-5 mile radius | **Below Standard** |
| **Digital Rights** | Franchisor controlled | Varies widely | **Below Standard** |
| **Encroachment Policy** | Impact study only | Usually prohibited or compensated | **Below Standard** |
| **Company Store Restrictions** | Not disclosed | Often restricted | **Below Standard** |

## Practical Implications for Potential Franchisees

### What You Need to Know

**Before Signing:**

1. **Demand Specific Territory Information**
   - Request exact Protected Area dimensions
   - Ask for map showing your territory boundaries
   - Get written confirmation of exclusivity rights

2. **Understand Competition Risks**
   - Ask how many Zaxby's locations exist within 5 miles of your proposed site
   - Request data on planned corporate and franchise development in your area
   - Understand Zaxby's expansion plans for your market

3. **Evaluate Digital Impact**
   - Determine what percentage of sales come from digital orders
   - Understand how digital orders are allocated to restaurants
   - Ask about fees or commissions on digital orders

4. **Assess Development Feasibility**
   - Ensure you can meet all deadlines before signing Development Agreement
   - Have backup sites identified
   - Understand local permitting timelines

### Questions to Ask Zaxby's

**Critical Territory Questions:**

1. **What is the exact size of my Protected Area?**
   - Radius in miles?
   - Square miles?
   - Population count?

2. **What exclusive rights do I have in my Protected Area?**
   - Can you open company stores in my area?
   - Can you grant franchises to others in my area?
   - What about delivery and catering?

3. **How many Zaxby's locations are within 5 miles of my proposed site?**
   - How many are franchised?
   - How many are company-owned?
   - Are any new locations planned?

4. **How do digital orders work?**
   - How are delivery orders allocated?
   - What fees do I pay on digital orders?
   - Can customers in my area order from other locations?

5. **What happens if a nearby location impacts my sales?**
   - Is there any compensation?
   - Can I object to new nearby locations?
   - What recourse do I have?

6. **What are realistic timelines for development?**
   - Average time for site approval?
   - Typical construction timeline?
   - Permitting challenges in my market?

### Financial Impact Analysis

**Potential Territory-Related Costs:**

| **Scenario** | **Potential Cost** | **Likelihood** |
|--------------|-------------------|----------------|
| **Impact Study Fee** | $3,000 (possibly non-refundable) | Medium-High if developing in established market |
| **Lost Development Rights** | $17,500+ per undeveloped Restaurant | Medium if aggressive development schedule |
| **Relocation Fees** | $50,000-$150,000+ (estimated annual fees) | Low but catastrophic if occurs |
| **Sales Cannibalization** | 10-15% of annual revenue | Medium-High in competitive markets |

### Success Factors Related to Territory

**What Increases Your Chances of Success:**

✅ **Positive Factors:**
- First mover in new market (less competition)
- Strong site selection (high traffic, good visibility)
- Realistic development timeline
- Understanding of local market dynamics
- Financial cushion for delays

❌ **Risk Factors:**
- Multiple Zaxby's within 5 miles
- Aggressive development schedule
- Unfamiliar market
- Limited site options
- Tight financial constraints

## Missing Critical Information

### What the FDD Should Disclose But Doesn't

**Territory Information Not Provided:**

1. ❌ Specific Protected Area size (radius, square miles, or population)
2. ❌ Clear statement of territorial exclusivity
3. ❌ Minimum population or demographic requirements
4. ❌ Franchisor's rights to open competing locations
5. ❌ Restrictions on company-owned stores
6. ❌ Delivery radius or territory
7. ❌ Catering territory boundaries
8. ❌ Digital order allocation methodology
9. ❌ Encroachment compensation policies
10. ❌ Territory performance requirements beyond development schedule

**⚠️ RECOMMENDATION:**

**Do not sign any agreement until you receive and understand:**
- Complete Item 12 disclosure
- Written confirmation of your exact Protected Area
- Clear explanation of your exclusive rights
- Zaxby's rights to compete in your area
- Digital order allocation policies

## Conclusion: Territory Analysis Summary

### Overall Assessment: **HIGH RISK - INSUFFICIENT INFORMATION**

**Critical Deficiencies:**

The absence of Item 12 content in the provided FDD represents a **major red flag**. Territory provisions are among the most important aspects of any franchise agreement, and the lack of clear disclosure makes it impossible to fully evaluate this opportunity.

**What We Know:**
- ✅ You receive a "Protected Area" (size undefined)
- ✅ Site must meet specific criteria
- ✅ Development deadlines are strict
- ✅ Impact studies required for locations within 5 miles

**What We Don't Know:**
- ❌ Actual size of Protected Area
- ❌ Whether protection is truly exclusive
- ❌ Franchisor's rights to compete
- ❌ Digital territory boundaries
- ❌ Encroachment policies
- ❌ Performance requirements

### Final Recommendations

**Before Proceeding:**

1. **Obtain Complete FDD** - Ensure you receive Item 12 disclosure
2. **Consult Franchise Attorney** - Have attorney review territory provisions
3. **Talk to Existing Franchisees** - Ask about territorial issues (see Item 20)

---

# Zaxby's SPE Franchisor LLC Franchisor Support & Obligations (Item 11 - Part 1)

## Overview

**CRITICAL NOTICE**: The FDD provided does not contain Item 11 content. The document structure shows that Item 11 was not found (marked as "found": false with no content summary). This analysis is based on scattered references to support obligations found throughout other sections of the FDD, primarily Items 5, 6, 7, and 9.

**Data Limitation**: Without access to the complete Item 11 section, this analysis cannot provide the comprehensive detail typically expected for franchisor support obligations. The following represents what can be determined from available FDD sections.

---

## Pre-Opening Support

Based on available information from the FDD, Zaxby's provides the following pre-opening support:

### Site Selection and Real Estate Support

| Support Element | Details | Status | Notes |
|----------------|---------|--------|-------|
| **Site Review Process** | Real Estate Committee (REC) review | Required | Committee comprised of executives and employees |
| **Site Selection Criteria** | Population, traffic count, foot traffic, accessibility, visibility, demographics, activity generators, employment, housing generators, competition | Provided | Minimum criteria considered |
| **Site Visit** | Optional on-site evaluation | Discretionary | Franchisor may choose to visit |
| **Protected Area Designation** | Designated upon site acceptance | Guaranteed | Specific location inserted in Location and Protected Area Schedule |
| **Impact Study** | Third-party analysis if within 5 miles of existing restaurant | Conditional | $3,000 fee required from franchisee if requested by existing operator |
| **Site Confirmation Timeline** | Must be obtained by Real Estate Committee Approval Deadline | Required | Specific deadline in Franchise Agreement |

**Key Findings**:
- ✅ **Positive**: Structured REC review process with defined criteria
- ⚠️ **Concern**: Site visit is discretionary, not mandatory
- ⚠️ **Concern**: No guarantee of site success - "Our confirmation of a site is not a warranty or representation of any kind as to the potential success or profitability"
- 🚩 **Red Flag**: Franchisee bears full responsibility for site selection despite paying franchise fee

### Lease Negotiation Support

| Support Type | Level of Involvement | Franchisee Responsibility |
|-------------|---------------------|--------------------------|
| **Lease Review** | Review for required provisions only | Must obtain franchisor written consent before signing |
| **Lease Rider** | Provides current form | Must provide fully executed copy |
| **Negotiation Assistance** | Not specified in available documents | Appears to be franchisee responsibility |
| **Landlord Relations** | Not specified | Franchisee handles directly |

**Analysis**:
- ⚠️ **Limited Support**: Franchisor reviews lease but does not appear to actively negotiate
- **Franchisee Burden**: Must handle lease negotiations independently
- **Control Mechanism**: Franchisor maintains approval rights over final lease terms

### Construction and Design Services

#### Design and Planning Support

| Service | Provided By | Details | Franchisee Cost |
|---------|------------|---------|----------------|
| **Prototype Plans** | Franchisor | Informational guidelines only | Included in franchise fee |
| **Standard Specifications** | Franchisor | Exterior/interior design, fixtures, furnishings, signs, Trade Dress, equipment | Included in franchise fee |
| **Plan Review** | Franchisor/REC | Review and acceptance of architectural drawings | Included in franchise fee |
| **Plan Modifications** | Franchisee's architect | Required if franchisor requests changes | Franchisee expense ($45,000-$75,000) |
| **Architect Approval** | Franchisor | Must approve franchisee's selected architect | No direct fee |
| **Contractor Approval** | Franchisor | Must approve general contractor | No direct fee |
| **Engineer Approval** | Franchisor | Must approve civil engineer | No direct fee |

**Important Limitations**:
- 🚩 **Critical Disclaimer**: "These plans and guidelines are for informational purposes only and are not to be relied upon by you in the construction and/or buildout of a Restaurant"
- 🚩 **Limited Liability**: "Our review of your Plans is limited to ensuring your compliance with our design requirements and System Standards and will not assess the structural integrity of the design or compliance with applicable laws"
- **Franchisee Risk**: Full responsibility for structural integrity and legal compliance

#### Construction Oversight

| Inspection Type | Frequency | Cost to Franchisee | Purpose |
|----------------|-----------|-------------------|---------|
| **Standard Pre-Opening Inspections** | Up to 2 inspections | Included in franchise fee | Verify compliance with plans and standards |
| **Additional Inspections** | As needed | $500+ per inspection (actual costs) | If more than 2 required |
| **Certificate of Occupancy Verification** | Once | Included | Required before opening authorization |
| **Final Opening Authorization** | Once | Included | Confirms all pre-opening obligations met |

**Key Points**:
- ✅ **Positive**: Two inspections included in franchise fee
- ⚠️ **Cost Risk**: Additional inspections at franchisee expense if franchisor determines more needed
- **No Liability**: Franchisor "not liable for delays or losses caused by our failure to approve the opening"

### Equipment Ordering and Technology Systems

#### Equipment Package

| Category | Estimated Cost | Source | Specifications |
|----------|---------------|--------|----------------|
| **Furniture, Fixtures & Equipment** | $425,000 - $497,000 | Approved vendors | Booths, tables, chairs, digital menu boards, POS products, décor, refrigeration, cooking equipment, shelving, sinks, smallwares, drive-thru timer |
| **Technology System** | $60,200 - $92,200 | Designated/approved suppliers | Hardware, POS system, drive-thru equipment, digital menu boards, ordering kiosks, software, network connections |
| **Signage** | $23,000 - $134,000 | Approved vendors | Open channel neon letters, pole signs (higher cost for interstate signage) |

**Support Provided**:
- Written specifications for equipment and inventory
- Lists of approved/required items
- Designated or approved suppliers

**Support NOT Provided**:
- ❌ Franchisor does not provide, deliver, or install equipment
- ❌ No equipment financing assistance
- ❌ No equipment negotiation on franchisee's behalf

#### Technology System Requirements

**Initial Technology Investment**: $60,200 - $92,200

**Components Include**:
- Point-of-sale (POS) system hardware and software
- Drive-thru equipment
- Digital menu boards
- Ordering kiosks
- Network connections
- Software maintenance contract (initial annual payment)
- Help desk service
- Reporting services
- Credit card middleware
- Firewall management
- Drive-thru timer
- Online ordering system

**Ongoing Technology Service Fee (TSF)**:
- **Current Rate**: $0.06 per transaction (subject to caps)
- **Can Change**: Beginning December 28, 2025, franchisor may change amount and calculation method
- **Purpose**: Offset costs for digital platform systems and services

🚩 **Red Flag**: Significant ongoing technology costs with potential for increases after 2025

### Initial Training Programme

#### Training Requirements

| Trainee Category | Number Required | Training Fee | Location | Duration |
|-----------------|----------------|--------------|----------|----------|
| **Designated Principal OR Key Operator** | 1 person | Included in franchise fee | Not specified in available documents | Not specified |
| **Managers (if DP/KO serves as Certified Manager)** | 3 managers | Included for 4 people total | Not specified | Not specified |
| **Managers (if DP/KO does NOT serve as Certified Manager)** | 4 managers | Included for 4 people total | Not specified | Not specified |
| **Additional Managers** | Optional | $2,500 per person | Not specified | Not specified |

**Training Expenses** (Franchisee Responsibility):
- **Estimated Cost**: $10,000 - $25,000
- **Covers**: Transportation, meals, accommodations for 4 attendees
- **Not Included**: Wages for trainees during training period

#### Training Content

**Information Available**: The FDD references that training is provided but does not include the detailed training curriculum in the available sections. Item 11 (which would contain this information) was not found in the provided document.

**Manual Access**:
- **Format**: Electronic access via franchisor portal
- **Size**: 696 pages in 3 sections
  - Administrative (ADMIN) Operations
  - Front of House (FOH) Operations
  - Back of House (BOH) Operations
- **Confidentiality**: Manual remains franchisor property
- **Pre-Signing Review**: ❌ NOT available before signing Franchise Agreement

🚩 **Red Flag**: Cannot review 696-page operations manual before committing to franchise

#### Training for Replacement Personnel

| Scenario | Fee | Timing |
|----------|-----|--------|
| **Replacement Certified Manager** | $2,500 per person | Before training begins |
| **Replacement Designated Principal** | $2,500 per person | Before training begins |
| **Replacement Key Operator** | $2,500 per person | Before training begins |

**Additional Training Support**:
- On-site additional or remedial training available
- **Cost**: Actual travel and living expenses of franchisor employees/agents
- **Trigger**: At franchisor's discretion or if needed

### Grand Opening Support

#### Initial Marketing Contribution

| Element | Amount | Due Date | Usage |
|---------|--------|----------|-------|
| **Initial Marketing Contribution** | $5,200 - $10,000 | At least 5 days prior to opening | Spent by franchisor on franchisee's behalf |
| **Determination** | Franchisor discretion | N/A | Based on whether Co-op exists in area |
| **With Established Co-op** | Minimum $5,200 | N/A | For initial marketing plan |
| **Without Established Co-op** | $10,000 | N/A | For initial marketing plan |
| **Spending Period** | Prior to or during first 120 days | N/A | Based on submitted invoices |

**Grand Opening Process**:
1. Franchisee develops initial marketing plan
2. Franchisor reviews and approves plan
3. Franchisee pays Initial Marketing Contribution
4. Franchisor administers expenditures on franchisee's behalf
5. Spending occurs based on franchisee-submitted invoices

**Support Provided**:
- Review and approval of initial marketing plan
- Administration of marketing expenditures
- Coordination with local market conditions

**Support NOT Provided**:
- ❌ No indication of grand opening event coordination
- ❌ No mention of on-site grand opening assistance
- ❌ No corporate marketing team presence specified

---

## Ongoing Support

### Field Representative Visits

**⚠️ CRITICAL DATA GAP**: The provided FDD sections do not specify:
- Frequency of field representative visits
- Number of field representatives
- Territories covered per representative
- Specific evaluation criteria
- Response time for franchisee requests

**What IS Specified**:
- Franchisor will conduct "periodic" evaluations "as we deem advisable"
- Evaluations assess compliance with System Standards and Franchise Agreement
- No guaranteed minimum frequency

🚩 **Red Flag**: No commitment to regular field support visits - entirely at franchisor's discretion

### Inspection and Evaluation System

| Inspection Type | Frequency | Purpose | Franchisee Cost |
|----------------|-----------|---------|----------------|
| **Periodic Evaluations** | "As we deem advisable" | Compliance with System Standards | Included (unless reinspection required) |
| **Reinspection After Failed Food Safety Assessment** | As needed | Verify corrections | $500+ per inspection |
| **Reinspection After Failed Restaurant Evaluation** | As needed | Verify corrections | $500+ per inspection |
| **Renewal Modification Verification** | Upon renewal | Confirm required modifications completed | $500+ if initial inspection shows non-compliance |

⚠️ **Concern**: Vague inspection frequency leaves franchisees uncertain about support level

### Marketing Support and Materials

#### National Marketing Fund (ZNMF)

| Element | Details | Current Rate | Maximum Rate |
|---------|---------|--------------|--------------|
| **Contribution** | Percentage of Gross Sales | 1.5% weekly | 3.5% weekly |
| **Administrator** | Zaxby's National Marketing Fund, Inc. (ZNMF) | Affiliate non-profit | May change to franchisor or other entity |
| **Modification Rights** | Franchisor may change at any time | With written notice | Subject to 4% total marketing cap |
| **Fiduciary Status** | Franchisor NOT deemed fiduciary | N/A | No fiduciary duty to franchisees |

**Marketing Fund Usage** (from available information):
- National advertising campaigns
- Marketing materials development
- Brand development
- Public relations
- Digital marketing initiatives
- Market research
- Administrative costs

⚠️ **Concern**: Franchisor explicitly states it is NOT a fiduciary regarding marketing funds

#### Local Marketing: Co-ops and Multi-DMA Advertising

| Structure | Contribution | Administrator | Franchisee Control |
|-----------|--------------|---------------|-------------------|
| **Co-op Marketing (if Co-op exists in DMA)** | Up to 3% of Gross Sales weekly | Local Co-op | Co-op members vote; can vote to exceed 3% |
| **Multi-DMA Advertising (if no Co-op)** | Up to 3% of Gross Sales weekly | ZMAA or franchisor designee | Determined by franchisor/ZMAA |
| **Reallocation Rights** | Franchisor may reallocate between National and Local | With written notice | Limited franchisee input |

**Total Marketing Obligation**:
- **Standard Cap**: 4% of Gross Sales weekly (National + Local)
- **Exception**: Can exceed 4% if Co-op members vote to increase Co-op contribution above 3%

#### Marketing Materials and Approval

**Franchisor Provides**:
- Review and approval of promotional and marketing programs
- Review and approval of marketing plans
- Review and approval of marketing materials
- Must be consistent with franchisor marketing strategies and Manual requirements

**Franchisee Responsibilities**:
- Develop local marketing programs (subject to approval)
- Submit all materials for approval before use
- Comply with approved marketing strategies
- Fund local marketing initiatives

**Approval Process**:
- Submit materials to franchisor
- Franchisor reviews for brand consistency
- Approval/denial at franchisor discretion
- No specified turnaround time mentioned

### Technology and Systems Provided

#### Digital Platforms

**Franchisor-Controlled Digital Ordering**:
- Zaxbys.com (official website)
- Official Zaxby's mobile ordering apps (iOS/Android)
- Direct integration with in-restaurant POS
- Order fulfillment systems

🔒 **Exclusive Control**: Franchisor is "the only approved supplier and/or facilitator of digitally acquired orders" through official channels

#### Technology Service Fee (TSF) Structure

**For New Restaurants** (opened on or after April 26, 2023):

| Period | Fee Structure | Cap | Notes |
|--------|---------------|-----|-------|
| **First Partial Fiscal Year** | Lesser of $0.06/transaction OR 0.33% of Gross Sales | Yes | Matches franchisor fiscal year |
| **After First Year** | Same as Existing Restaurants | Yes | Follows Existing Restaurant schedule |

**For Existing Restaurants** (open as of April 26, 2023):

| Period | Fee | System-Wide Cap | Notes |
|--------|-----|-----------------|-------|
| **2024 Period** (12/31/23 - 12/28/24) | $0.06/transaction | $7,000,000 | Collection stops when cap reached |
| **2025 Period** (12/29/24 - 12/27/25) | $0.06/transaction | Up to $7,700,000 | To be determined by franchisor |
| **2026+ Period** (12/28/25 onward) | To be determined | To be determined | Franchisor may change amount, method, and cap |

🚩 **Major Red Flag**: Beginning December

---

# Zaxby's SPE Franchisor LLC Franchisee Responsibilities & Requirements (Item 9)

## Overview

**CRITICAL NOTICE**: The FDD provided does not contain the actual content of Item 9 (Franchisee's Obligations). The document structure shows that Item 9 exists but is marked as "not found" in the content summary. However, the FDD does include a comprehensive obligations table in the Item 9 section that cross-references other sections of the Franchise Agreement and Development Agreement.

This analysis is based on the obligations table provided in Item 9 and related information found throughout other Items in the FDD, particularly Items 5, 6, 7, 8, and 11.

---

## Comprehensive Franchisee Obligations Matrix

The following table outlines all franchisee obligations as specified in the Franchise Agreement (FA) and Development Agreement (DA):

| Obligation Category | Relevant FA/DA Sections | Related FDD Items | Compliance Timeline |
|---------------------|------------------------|-------------------|---------------------|
| **Site Selection & Acquisition** | FA: Sections 4.1, 4.2, 4.5, Appendix A & C<br />DA: Section 3.1 | Items 5, 11 | Before Real Estate Committee Approval Deadline |
| **Pre-Opening Purchases/Leases** | FA: Sections 4.3, 4.4(c), 5.2(c), 5.3, 5.7, 11<br />DA: Not applicable | Items 5, 6, 7, 8, 11 | Before Construction Commencement Deadline |
| **Site Development & Pre-Opening** | FA: Sections 4.1, 4.2, 4.3, 4.4<br />DA: Section 3.1 | Items 7, 11 | Before Opening Deadline |
| **Initial & Ongoing Training** | FA: Sections 5.2, 5.4(b), 9.6(c), 12.2(b)(ix)<br />DA: Not applicable | Item 11 | Before opening and ongoing |
| **Restaurant Opening** | FA: Section 4.4<br />DA: Section 3.2 | Item 11 | By Opening Deadline |
| **Fee Payments** | FA: Sections 3, 4.5<br />DA: Section 2 | Items 5, 6, 11 | Various (weekly, upon demand, etc.) |
| **Standards & Policies Compliance** | FA: Sections 4.4(c), 5.1, 5.3, 5.5(c), 5.6(c), 5.7, 7<br />DA: Section 3.1 | Item 11, Exhibit F | Ongoing |
| **Trademark & Proprietary Information** | FA: Sections 5.1, 5.5(a), 6, 8, Appendix B, C, D<br />DA: Sections 1, 9, Appendix C | Items 13, 14 | Ongoing |
| **Product/Service Restrictions** | FA: Sections 5.3, 5.5(d)<br />DA: Not applicable | Item 16 | Ongoing |
| **Warranty & Customer Service** | FA: Sections 5.5(b), 7.2<br />DA: Not applicable | Not Applicable | Ongoing |
| **Territory & Sales Quotas** | FA: Sections 1.4, 1.5, Appendix A<br />DA: Section 4, Appendix A | Item 12 | Per Development Schedule |
| **Ongoing Purchases** | FA: Section 5.3<br />DA: Not applicable | Items 7, 8, 11 | Ongoing |
| **Maintenance & Remodeling** | FA: Sections 2.2(a)(iv), 5.6, Appendix C<br />DA: Not applicable | Items 7, 8 | Ongoing/periodic |
| **Insurance Requirements** | FA: Section 11 | Items 7, 8 | Before opening and ongoing |
| **Advertising Obligations** | FA: Sections 3.1(c), 6.1(b), 10<br />DA: Not applicable | Items 6, 7, 11 | Weekly and ongoing |
| **Indemnification** | FA: Sections 11.3, 16, Appendix D<br />DA: Sections 9, 10, Appendix C | Item 6 | As needed |
| **Participation/Management/Staffing** | FA: Sections 1.5, 5.4<br />DA: Not applicable | Item 15 | Ongoing |
| **Records & Reports** | FA: Sections 4.3, 7.4, 8.5(b), 9, Appendix D<br />DA: Not applicable | Item 6 | Weekly and ongoing |
| **Inspections & Audits** | FA: Sections 4.3, 4.4, 9.5, 9.6<br />DA: Not applicable | Item 6 | As conducted by franchisor |
| **Transfer Requirements** | FA: Sections 1.5(b), 3.1(e), 12<br />DA: Section 7 | Items 6, 17 | Before any transfer |
| **Renewal Requirements** | FA: Sections 2.2, 3.1(d)<br />DA: Not applicable | Items 6, 11, 17 | Before renewal |
| **Post-Termination Obligations** | FA: Sections 6.6, 14<br />DA: Section 8 | Item 17 | Upon termination |
| **Non-Competition Covenants** | FA: Sections 15, 24.4(e), 24.5, Appendix D<br />DA: Section 8, Appendix C | Item 17 | During and after term |
| **Dispute Resolution** | FA: Section 24<br />DA: Section 9 | Item 17 | As disputes arise |

---

## Day-to-Day Operational Requirements

### Pre-Opening Phase

#### 1. **Site Selection and Acquisition** (12-15 months before opening)

**Critical Deadlines:**
- **Real Estate Committee Approval Deadline**: Must locate site, obtain franchisor approval, and sign Franchise Agreement
- **Construction Commencement Deadline**: Must execute Site Agreement, obtain plan acceptance, secure insurance, and start construction
- **Opening Deadline**: Must open and operate the Restaurant

**Site Requirements:**
- Restaurant size: **1,100 to 3,500 square feet** of improved space
- Typical lot size: **0.8 to 1.5 acres**
- **Drive-thru capability required** (except for Non-Traditional locations)
- Must meet minimum site selection criteria including:
  - Population density
  - Traffic count
  - Foot traffic
  - Accessibility and visibility
  - Demographics
  - Activity generators
  - Employment levels
  - Housing generators
  - Competition analysis

**Site Approval Process:**
1. Submit site acquisition package with required information
2. Provide executed letter of intent, contingent contract, option, or other commitment
3. Allow franchisor site visit (at franchisor's discretion)
4. Provide any additional information requested
5. Await Real Estate Committee (REC) review and approval
6. Obtain written confirmation of site acceptance

**⚠️ RED FLAG**: Franchisor's site confirmation "is not a warranty or representation of any kind as to the potential success or profitability of a Restaurant at the Site." You bear full responsibility for site selection success.

#### 2. **Site Agreement Requirements**

**Lease Requirements:**
- Must obtain franchisor's written consent before signing any Site Agreement
- Must provide fully executed **Lease Rider** (franchisor's standard form)
- Lease must contain provisions reasonably required by franchisor
- Landlord typically requires monthly rent based on **6.5% to 8% annual capitalization rate**

**Purchase Option:**
- Unimproved real estate typically costs: **$400,000 to $1,400,000**
- If purchasing, still must obtain franchisor approval of acquisition terms

**Impact Study Requirement:**
- If developing within **5 miles of existing Zaxby's restaurant**, may trigger Impact Study
- If existing operator requests study, you must pay **$3,000 Impact Study Fee**
- Refund structure:
  - **100% refund** if impact predicted at less than 10%
  - **50% refund** if impact predicted at 10-15%
  - **No refund** if impact predicted at more than 15%

#### 3. **Design and Construction Requirements**

**Professional Requirements:**
- Must use **franchisor-approved architect** for construction plans
- Must use **franchisor-approved civil engineer** for site engineering
- Must use **franchisor-approved general contractor** for construction supervision
- Must use **franchisor-approved project managers**

**Plan Approval Process:**
1. Engage designers, architects, and engineers to adapt franchisor's standard plans
2. Develop architectural drawings and specifications showing:
   - All leasehold improvements
   - Interior designs
   - Elevations
3. Submit Plans for franchisor's written acceptance
4. Make any modifications required by franchisor
5. If local authorities require revisions, must resubmit for franchisor re-acceptance
6. **Cannot begin construction until Plans are accepted**

**⚠️ IMPORTANT**: Franchisor's review is "limited to ensuring your compliance with our design requirements and System Standards and will not assess the structural integrity of the design or compliance with applicable laws." You remain responsible for structural and legal compliance.

**Construction Costs:**
- **Building & Sitework**: $772,000 to $2,200,000
  - Low end: Converting existing freestanding building
  - High end: New ground-up construction with sitework
- **Architect & Engineer**: $45,000 to $75,000
- **Permits and Licenses**: $2,000 to $24,000
- **Furniture, Fixtures & Equipment**: $425,000 to $497,000
- **Signage**: $23,000 to $134,000 (substantially more for interstate-type signage)

#### 4. **Pre-Opening Inspections**

**Inspection Requirements:**
- Franchisor conducts **up to 2 pre-opening on-site inspections** at no additional charge
- Additional inspections: **$500 minimum per inspection** (actual costs and expenses)
- Must pass inspection before receiving authorization to open

**Opening Authorization Requirements:**
Before franchisor will authorize opening, you must:
1. Obtain certificate of occupancy
2. Strictly comply with approved Plans and construction standards
3. Obtain and install all required inventory, fixtures, furnishings, and equipment
4. Strictly comply with all pre-opening obligations in Franchise Agreement and Manual
5. Complete all training requirements

**⚠️ CRITICAL**: "We are not liable for delays or losses caused by our failure to approve the opening of the Restaurant or any delays related to our completion of a follow-up pre-opening inspection."

---

## Staffing Requirements

### Management Structure

#### **Designated Principal** (Required)

**Qualifications:**
- Must be an Owner with **at least 25% ownership interest** in franchisee Entity
- Must have **authority over all business decisions** related to Restaurant
- Must have **power to bind franchisee** in all dealings with franchisor
- Must be approved by franchisor

**Responsibilities:**
- Overall business decision-making authority
- Binding the franchisee in franchisor dealings
- May also serve as Key Operator if qualified

**⚠️ IMPORTANT**: Cannot designate new Designated Principal without franchisor approval.

#### **Key Operator** (Required)

**Qualifications:**
- Must be approved by franchisor
- Individual with **control over day-to-day activities** of Restaurant(s)
- Must have control over:
  - Operations
  - Standards of operation
  - Financial performance
- For multi-unit operators: Controls Restaurants operating in same geographic area

**Dual Role Option:**
- Designated Principal may serve as Key Operator if:
  - Meets Key Operator requirements
  - Obtains franchisor approval

**⚠️ IMPORTANT**: Cannot designate new Key Operator without franchisor approval.

#### **Certified Managers** (Minimum Required)

**Initial Training Requirements:**
Must have **4 Certified Managers** trained before opening:
- **Option 1**: Designated Principal OR Key Operator + 3 managers
- **Option 2**: 4 managers (if Designated Principal/Key Operator won't serve as Certified Manager)

**Training Costs:**
- First 4 managers: Included in franchise fee
- **Additional managers**: $2,500 per person
- **Replacement manager training**: $2,500 per person (current fee)

### Minimum Employee Requirements

**⚠️ DATA NOT AVAILABLE**: The FDD does not specify minimum number of employees required for day-to-day operations beyond the management requirements listed above.

**Estimated Pre-Opening Payroll**: $10,000 to $37,000 for:
- Pre-opening training
- Initial employee meetings
- Cleaning and preparation
- Stocking and organizing
- Decorating
- Last-minute details

---

## Owner Participation Requirements

### On-Site vs. Absentee Ownership

**Management Participation Required:**
- Franchise Agreement Sections 1.5 and 5.4 govern participation requirements
- Must designate Designated Principal with 25% minimum ownership
- Must designate Key Operator with day-to-day operational control

**⚠️ DATA LIMITATION**: The FDD does not explicitly state whether:
- Designated Principal must be on-site full-time
- Key Operator must be on-site full-time
- Absentee ownership is permitted
- Minimum hours of owner presence are required

**Practical Implication**: The requirement for a Key Operator with "control over day-to-day activities" suggests significant on-site presence is expected, but specific hour requirements are not disclosed in the available FDD sections.

---

## Hours of Operation

**⚠️ DATA NOT AVAILABLE**: The FDD does not specify:
- Required hours of operation
- Minimum days per week Restaurant must be open
- Holiday operation requirements
- Seasonal hour variations

**Likely Source**: These requirements are probably specified in the **Manual** (696 pages across 3 sections), which franchisees cannot review before signing the Franchise Agreement.

---

## Quality Control and Compliance Standards

### System Standards Compliance

**Governing Documents:**
- **Manual**: 696 pages in 3 sections:
  - Administrative (ADMIN) Operations
  - Front of House (FOH) Operations
  - Back of House (BOH) Operations
- Written specifications from franchisor
- Periodic updates and amendments

**Manual Characteristics:**
- Confidential and remains franchisor's property
- **Cannot be reviewed before signing Franchise Agreement**
- Franchisor may make changes "at any time, so long as such changes benefit us and our current and future franchisees or will otherwise improve the System"
- Must comply with revised standards within **30 days after transmission of updates**

**⚠️ SIGNIFICANT CONCERN**: You must commit to following a 696-page operations manual that you cannot review before signing the franchise agreement, and the franchisor can change it at any time with only 30 days' notice for compliance.

### Product and Service Standards

#### **Menu Requirements**

**Mandatory Offerings:**
- Chicken fingers
- Buffalo wings
- Salads
- Sandwiches
- Promotional features
- Complementary items
- Array of unique Zaxby's-brand sauces

**Restrictions:**
- May offer **only products and services approved in writing** by franchisor
- Must offer **all products designated as mandatory** by franchisor
- May sell products only in **varieties, forms, and combinations approved** by franchisor
- Must maintain **sufficient inventory** to meet prescribed standards or reasonably anticipated demand

**Menu Changes:**
- Franchisor may change specifications periodically
- Franchisor may designate products as optional or mandatory
- Must discontinue any products for which approval is revoked

#### **Supplier Restrictions**

**Mandatory Designated Suppliers:**
Currently must purchase **only from designated or approved suppliers**:
- **All inventory items** (100% restricted)
- **All ingredients** (100% restricted)
- **All packaging** (100% restricted)

**Specification-Based Purchases:**
Must purchase per specifications from approved suppliers:
- Equipment
- Supplies
- Signage
- Uniforms
- Smallwares

---

# Zaxby's SPE Franchisor LLC Franchise Training Programme (Item 11 - Part 2)

## Overview

**IMPORTANT NOTICE**: The FDD provided does not contain Item 11 content. The document structure indicates that Item 11 exists (pages 26-41 according to the Table of Contents), but the actual text of Item 11 was not included in the materials provided for analysis.

Based on the available information from other sections of the FDD, I can provide the following limited analysis of training-related provisions:

## What We Know From Available Documentation

### Training Requirements (From Item 9 Cross-References)

According to the Franchisee's Obligations table in Item 9, training obligations are covered in:
- Franchise Agreement Sections: 5.2, 5.4(b), 9.6(c), and 12.2(b)(ix)
- Development Agreement: Not applicable

### Pre-Opening Training Commitments

From the "Before you open a Restaurant" section, we know:

**Required Training Participants:**
- Your Designated Principal OR your Key Operator, PLUS
- Three of your managers OR
- Four of your managers (if your Designated Principal or Key Operator will not serve as a Certified Manager)

**Training Completion Requirement:**
- Initial training must be successfully completed before opening
- Franchise Agreement Section 5.2 governs this requirement

### Training-Related Fees (From Item 6)

| Fee Type | Amount | When Due | Notes |
|----------|--------|----------|-------|
| **Additional Training Fee** | $2,500 per additional attendee | Before training begins | Applies if more than 4 managers attend initial training |
| **Initial Training for Replacement Managers** | $2,500 per person (current rate) | Before training begins | Required when replacing a Certified Manager, Designated Principal, or Key Operator |
| **On-Site Additional or Remedial Training** | Actual travel and living expenses | Upon demand | Payable if additional training or consulting services provided at your Restaurant |
| **Franchised Managed Training Program Fee** | $500 to $1,500 per Restaurant annually | Upon demand | Only if permitted to train your own managers and you sign a Franchisee Managed Training Program Agreement |

### Training Expenses (From Item 7)

**Estimated Training Costs: $10,000 to $25,000**

This estimate includes:
- Transportation for four attendees
- Meals during training
- Accommodations
- Similar expenses associated with attendance at required portions of initial training

**Payment Method:** As arranged, paid as incurred to hotels, airlines, etc.

### Ongoing Training and Support

From the "During the operation of the Restaurant" section:

1. **Updated Information**
   - Franchisor provides information on new developments, techniques, and improvements
   - Related to the System and Restaurant operations
   - Provided when and if improvements are made

2. **Periodic Training Programs**
   - Franchisor coordinates and conducts periodic training
   - Conducted as deemed necessary by franchisor
   - Franchise Agreement Section 5.2 governs

3. **Franchisee Meetings**
   - Franchisor coordinates meetings of all franchisees
   - Governed by Franchise Agreement Section 5.2

### Conference Requirements (From Item 6)

| Fee Type | Amount | When Due | Purpose |
|----------|--------|----------|---------|
| **Conference Fee** | Reasonable registration fee (varies by event) | Prior to conference | Required for meetings/conferences that franchisor specifies attendance for |

**Attendance Requirements:**
- Designated Principal and Key Operator may be required to attend up to two meetings per year in-person
- Meetings may require travel
- You are responsible for travel and living expenses of your representatives

### Key Personnel Definitions

**Designated Principal:**
- Must be an Owner with at least 25% ownership interest
- Must have authority over all business decisions related to Restaurant
- Must have power to bind franchisee in all dealings with franchisor
- Requires franchisor approval
- Cannot be changed without franchisor approval
- May also serve as Key Operator if qualified

**Key Operator:**
- Must have control over day-to-day activities and operations
- Controls operations of Restaurants in same geographic area
- Includes control over standards of operation and financial performance
- Requires franchisor approval
- Cannot be changed without franchisor approval
- May be the same person as Designated Principal

**Certified Manager:**
- Manager who has completed franchisor's training program
- Required for Restaurant operations
- Replacement requires additional training fee

### Training Location

**Information Not Available in Provided FDD Sections**

The specific training location is not mentioned in the available portions of the FDD. However:
- The franchisor's principal business address is: 1040 Founder's Boulevard, Suite 100, Athens, Georgia 30606
- Training likely occurs at or near this location, but this cannot be confirmed without Item 11 content

### Manual Access and Training Materials

**Operations Manual:**
- Currently consists of **696 pages** in 3 sections:
  1. Administrative (ADMIN) Operations
  2. Front of House (FOH) Operations
  3. Back of House (BOH) Operations
- Accessed through franchisor's portal
- Confidential and remains franchisor's property
- Subject to updates and changes
- Must comply with revised standards within 30 days of updates
- Table of contents attached as Exhibit F (not provided in materials)

**Pre-Signing Review:**
- Manual contents are NOT available for review prior to signing Franchise Agreement or Development Agreement
- This is to protect confidentiality

## What Is Missing (Item 11 Content Not Provided)

Without access to the actual Item 11 content, the following critical information cannot be provided:

### Initial Training Programme Details
- ❌ Specific duration of training (hours/days/weeks)
- ❌ Exact training location(s)
- ❌ Detailed curriculum and subjects covered
- ❌ Training schedule and timeline
- ❌ Instructional methods (classroom, on-the-job, etc.)
- ❌ Instructor qualifications and experience

### Training Curriculum
- ❌ Specific topics and modules
- ❌ Hours allocated to each subject
- ❌ Required vs. optional training components
- ❌ Hands-on vs. classroom instruction breakdown

### Cost Allocation
- ❌ Which training costs are covered by franchisor
- ❌ Which costs are franchisee's responsibility
- ❌ Detailed breakdown of included vs. excluded expenses

### Training Delivery Methods
- ❌ Online training availability and requirements
- ❌ In-person training components
- ❌ Self-study materials
- ❌ Video or e-learning modules

### Certification and Assessment
- ❌ Testing requirements
- ❌ Passing scores or standards
- ❌ Certification process
- ❌ Consequences of failing training
- ❌ Retesting policies and fees

### Ongoing Training
- ❌ Frequency of refresher training
- ❌ Mandatory vs. optional ongoing training
- ❌ New product/service training
- ❌ Technology updates training
- ❌ Management development programs

### Employee Training
- ❌ Crew member training requirements
- ❌ Shift leader training
- ❌ Assistant manager training
- ❌ Training materials provided for employee training
- ❌ Train-the-trainer programs

## Analysis Based on Available Information

### Positive Indicators

✅ **Comprehensive Manual**
- 696 pages across three operational areas suggests thorough documentation
- Separate sections for administrative, front of house, and back of house operations indicate detailed coverage

✅ **Multiple Trainees Allowed**
- Up to 4 managers can attend initial training without additional fees
- Allows for backup trained personnel

✅ **Ongoing Support**
- Periodic training programs available
- Updates on new developments and techniques
- Regular franchisee meetings for knowledge sharing

✅ **Flexibility in Leadership**
- Designated Principal can also serve as Key Operator if qualified
- Allows owner-operators to fulfill multiple roles

### Concerns and Red Flags

⚠️ **No Pre-Signing Manual Review**
- Cannot review 696-page manual before signing agreement
- Must commit to system without seeing detailed operational requirements
- Significant blind spot for prospective franchisees

⚠️ **Replacement Training Costs**
- $2,500 per person for replacement manager training
- Could become expensive with high manager turnover
- No information on how often retraining is required

⚠️ **Limited Initial Training Details**
- Cannot assess training quality without Item 11 content
- No information on training duration
- Unknown whether training is adequate for restaurant operation

⚠️ **Mandatory Conference Attendance**
- Required to attend up to 2 in-person meetings annually
- Must pay conference fees plus travel expenses
- Could represent significant ongoing costs

⚠️ **Remedial Training Costs**
- Must pay actual travel and living expenses for on-site remedial training
- No cap on these expenses
- Could be triggered by franchisor's subjective determination

⚠️ **30-Day Compliance Window**
- Only 30 days to implement Manual updates
- Could require significant operational or capital changes
- No apparent appeal process for unreasonable changes

### Financial Implications

**Initial Training Investment:**
- Base training: Included in franchise fee
- Travel/accommodation for 4 people: $10,000 - $25,000
- Additional trainees: $2,500 each
- **Total Initial Training Costs: $10,000 - $25,000+**

**Ongoing Training Costs (Annual Estimates):**
- Replacement manager training: $2,500 per manager
- Conference fees: Variable (2 conferences per year)
- Conference travel: Variable (for Designated Principal and Key Operator)
- Remedial training: Variable (if required)
- **Estimated Annual: $5,000 - $15,000+** (depending on turnover and conference locations)

### Practical Considerations for Prospective Franchisees

#### Before Signing

1. **Request Training Schedule**
   - Ask for typical training duration and schedule
   - Understand time commitment required
   - Plan for absence from other business activities

2. **Clarify Training Location**
   - Confirm where training occurs
   - Calculate actual travel costs for your location
   - Consider proximity to Athens, Georgia

3. **Understand Certification Requirements**
   - Ask about testing and assessment
   - Determine pass/fail criteria
   - Understand retesting policies

4. **Plan for Manager Turnover**
   - Budget for replacement training at $2,500 per manager
   - Consider industry turnover rates (typically 70-100% annually in QSR)
   - Factor into ongoing operational costs

#### During Training

1. **Maximize Initial Training**
   - Send full complement of 4 managers if possible
   - Take detailed notes and photos (if permitted)
   - Build relationships with other franchisees
   - Ask questions about real-world challenges

2. **Document Everything**
   - Keep copies of all training materials
   - Create your own training guides for future staff
   - Note any gaps in training coverage

#### After Opening

1. **Implement Training Systems**
   - Develop internal training program for crew members
   - Consider Franchised Managed Training Program ($500-$1,500/year)
   - Create training documentation for common positions

2. **Budget for Ongoing Training**
   - Set aside funds for conference attendance
   - Plan for replacement manager training
   - Budget for potential remedial training

3. **Stay Current**
   - Review Manual updates promptly
   - Implement changes within 30-day window
   - Attend optional training when available

## Comparison to Industry Standards

### Training Duration
**Cannot assess without Item 11 content**, but typical QSR franchise training includes:
- 4-6 weeks of initial training (industry standard)
- Mix of classroom and hands-on training
- Both corporate location and franchisee location training

### Training Costs
**Zaxby's approach:**
- Training included in franchise fee
- Franchisee pays travel/accommodation ($10,000-$25,000)
- Replacement training: $2,500 per person

**Industry comparison:**
- Similar to most QSR franchises
- Some brands charge separate training fees
- Travel costs are typically franchisee responsibility

### Manual Size
**Zaxby's: 696 pages**
- Larger than many QSR brands (typically 300-500 pages)
- Suggests comprehensive operational guidance
- Could also indicate complexity of operations

## Questions to Ask the Franchisor

Since Item 11 content is not available, prospective franchisees should ask:

### About Initial Training

1. What is the exact duration of initial training (in days/weeks)?
2. Where does training take place?
3. What is the daily schedule during training?
4. What topics are covered and for how many hours each?
5. What is the pass rate for initial training?
6. What happens if someone fails training?
7. Is there a retesting fee?
8. How much hands-on training is included?
9. What are the instructors' qualifications?
10. Can I speak with recent training graduates?

### About Ongoing Training

1. How often is refresher training required?
2. Is ongoing training mandatory or optional?
3. What ongoing training is available?
4. Are there online training options?
5. How are new menu items/procedures trained?
6. What support is available after opening?
7. How quickly do you respond to training questions?

### About Employee Training

1. What training materials are provided for crew members?
2. Is there a train-the-trainer program?
3. What is the Franchised Managed Training Program?
4. How do other franchisees handle employee training?
5. Are there position-specific training guides?

### About Costs

1. What exactly is included in the $10,000-$25,000 estimate?
2. What is the typical conference registration fee?
3. Where are conferences typically held?
4. How often is remedial training required?
5. What triggers a remedial training requirement?
6. Are there any other training-related fees not disclosed?

## Red Flags Summary

### Critical Concerns

🚩 **Missing Item 11 Content**
- Cannot fully evaluate training program
- Major gap in due diligence
- Should request complete Item 11 before proceeding

🚩 **No Manual Preview**
- 696 pages of operational requirements
- Cannot review before signing
- Significant operational blind spot

🚩 **Undefined Training Duration**
- Cannot plan time commitment
- Cannot assess training adequacy
- Could be inadequate for complex operations

🚩 **Replacement Training Costs**
- $2,500 per manager adds up quickly
- High turnover industry
- Could cost $10,000+ annually with typical turnover

### Moderate Concerns

⚠️ **Conference Requirements**
- Mandatory attendance (up to 2 per year)
- Variable costs
- Time away from business

⚠️ **30-Day Update Compliance**
- Short window for implementation
- Could require significant changes
- No apparent appeal process

⚠️ **Remedial Training Discretion**
- Franchisor determines need
- No cost cap
- Could be used as enforcement tool

## Recommendations for Prospective Franchisees

### Essential Actions

1. **Obtain Complete Item 11**
   - Request full Item 11 content before proceeding
   - Review training curriculum in detail
   - Assess training adequacy for your experience level

2. **Talk to Current Franchisees**
   - Ask about training quality and duration
   - Inquire about ongoing training needs
   - Understand real-world training costs
   - Get feedback on Manual usability

3. **Visit Training Location**
   - If possible, observe training in progress
   - Meet training staff
   - Assess training facilities

4. **Calculate True Training Costs**
   - Add travel costs for your specific location
   - Factor in opportunity cost of time
   - Budget for ongoing training needs
   - Include conference attendance costs

5. **Assess Your Experience**
   - Determine if your restaurant experience is sufficient
   - Consider if training will adequately prepare you
   - Evaluate if you need additional outside training

### Budget Planning

**Initial Training Budget:**

Franchise Fee (includes training): $35,000 Travel/Accommodation (4 people): $10,000-$25,000 Additional Attendees (if any): $2,500 each Lost Opportunity Cost: Variable ──────────────────────────────────────────── TOTAL INITIAL TRAINING: $45,000-$60,000+

**Annual Ongoing Training Budget:**

Conference Fees (2 per year): $1,000-$3,000 Conference Travel (

---

Zaxby's SPE Franchisor LLC Vendor Requirements & Supply Chain (Item 8)

Overview

Critical Finding: Item 8 of the Zaxby's FDD was not found in the provided documentation. However, based on the FDD structure and references throughout other sections, we can provide analysis based on the information available in related sections that discuss supplier requirements, purchasing restrictions, and supply chain obligations.

⚠️ Documentation Limitation Notice

The complete Item 8 section is not available in the provided FDD documentation. This analysis is based on supplier and purchasing information referenced in other sections of the FDD, particularly Items 6, 7, and 11. Prospective franchisees should request and carefully review the complete Item 8 section before making any franchise investment decision.

Supplier Control Framework

Based on available information, Zaxby's maintains significant control over franchisee purchasing decisions through multiple mechanisms:

Required Purchasing Categories

Franchisees must purchase from designated or approved suppliers for:

Purchasing Restrictions Summary

Approximately 75% of your initial and ongoing operating purchases must be from designated sources, approved sources, or in accordance with Zaxby's specifications.

Can You Choose Your Own Suppliers?

Short Answer: Very Limited Ability

Detailed Breakdown:

❌ NO Choice - Mandatory Designated Suppliers

• All inventory items (food products)
• All ingredients
• All packaging materials
• Technology system hardware and software
• Digital ordering platforms (Zaxbys.com and mobile apps)

⚠️ Limited Choice - Approval Required

• Equipment (must meet specifications)
• Signage (must meet specifications)
• Uniforms (must meet specifications)
• Smallwares
• Interior décor
• Advertising and marketing materials
• Architectural services
• Civil engineering services
• General contracting services

✓ Moderate Choice - Specifications Only

• Insurance (must meet coverage requirements)
• Some professional services

Supplier Approval Process

Steps to Propose a New Supplier

1. Submit Written Request with detailed information
2. Provide Product Samples (if applicable)
3. Allow Facility Inspection by Zaxby's representatives
4. Pay Evaluation Fees (your responsibility)
5. Await Decision (30 days maximum)
6. Accept Conditions if approved

Approval Costs

Important: You pay these fees whether or not the supplier is ultimately approved.

Approval Timeline

• Maximum Response Time: 30 days after submitting all requested information
• Deemed Disapproval: If no response within 30 days = automatic rejection
• Revocation Rights: Zaxby's can revoke approval at any time after reinspection

Disposal Requirements After Revocation

If a supplier's approval is revoked:

• Immediate: Stop purchasing from supplier
• Products: May sell existing inventory for up to 30 days (can be shortened)
• Services: Must immediately discontinue
• Disposal: Must follow Zaxby's disposal instructions

Franchisor-Owned Supply Companies

Direct Affiliate Involvement

Based on available information:

Key Finding: Limited Direct Supply

Positive Indicator: Unlike some franchise systems, Zaxby's and its affiliates are not approved suppliers for most products or services used in restaurants, with the notable exception of:

• Digital ordering platforms
• Potential real estate leasing
• Gift card program services

This suggests less potential for conflicts of interest in most purchasing decisions.

Rebates, Commissions, and Financial Interests

Revenue Received by Franchisor from Suppliers

Proprietary Food Items

Significant Financial Interest Disclosed:

Analysis: This represents a substantial revenue stream for the franchisor, creating a financial incentive to maintain designated supplier relationships.

Vendor Program Management Fees

Additional fees collected (not included in the $9.15M above):

Beverage Supplier Contributions

Conditions: Based on minimum volume purchases and continued designation as primary suppliers.

Use of Supplier Payments

Conference Fund (ZCF) - $1,369,872 in 2023

Stated Use:

• Semi-annual franchisee conferences
• Franchisee meetings
• Related conference expenses

Transparency Level: Moderate - amount disclosed, but detailed expenditure breakdown not provided

Marketing Fund (ZNMF) - Coca-Cola Contributions

Stated Use:

• Marketing activities benefiting the system
• Maximizing Coca-Cola product sales

Transparency Level: Low - contribution amounts not disclosed

Financial Interest Summary Table

Pricing Transparency and Controls

Limited Pricing Information

Red Flag: The FDD does not provide:

• Specific pricing for required products
• Price comparison data vs. open market
• Historical pricing trends
• Price increase limitations
• Competitive pricing benchmarks

Negotiated Purchase Arrangements

Positive Indicator:

• Zaxby's states it "negotiates purchase arrangements with manufacturers and suppliers (including pricing terms) for our franchisees' benefit"
• Suggests potential for volume purchasing power
• However, no specific pricing data or savings quantification provided

Pricing Control Mechanisms

Quality Specifications

Specification Framework

Zaxby's maintains control through:

1. Written Specifications published in the Manual
2. Brand Requirements for specific products
3. Model/Type Designations for equipment
4. System Standards for all operational elements

Specification Categories

Important: Franchisees must comply with revised standards within 30 days of notification.

Quality Assurance Mechanisms

• Periodic Inspections: Franchisor can reinspect approved suppliers
• Product Testing: Franchisor can retest approved products
• Service Reevaluation: Franchisor can reevaluate service providers
• Approval Revocation: Franchisor can revoke approval at any time

Impact on Profit Margins

Cost of Goods Sold (COGS) Impact

Estimated Impact on COGS:

Financial Burden Analysis

Direct Costs to Franchisee

1. Supplier Approval Fees

   • Inspection costs (actual expenses)
   • Testing costs (actual expenses)
   • Personnel and travel costs
   • No guarantee of approval

2. Rebate/Commission Pass-Through

   • $0.0025 per piece or $0.02-$3.75 per case on food items
   • 1-5% on furniture and roofing
   • Built into purchase prices

3. Limited Negotiation Power

   • Cannot negotiate directly with suppliers
   • Cannot seek competitive bids
   • Cannot leverage individual purchasing power

Indirect Costs

1. Opportunity Costs

   • Potentially higher prices than open market
   • Cannot take advantage of local supplier relationships
   • Cannot respond quickly to market price changes

2. Inventory Risk

   • Must dispose of inventory if supplier approval revoked
   • 30-day maximum sell-through period
   • Potential waste and loss

COGS Comparison Framework

Without specific pricing data, we can estimate relative impact:

Note: These are estimates based on industry norms, as specific Zaxby's pricing data is not disclosed in the FDD.

Required vs. Recommended Suppliers

Supplier Requirement Matrix

Key Definitions

• REQUIRED - Designated: Must purchase from specific supplier(s) named by franchisor
• REQUIRED - Approved: Must purchase from pre-approved supplier list or obtain approval
• REQUIRED - Specifications: Must meet franchisor specifications, any compliant supplier acceptable
• OPTIONAL: Franchisee choice, subject to franchisor approval of terms

Technology System Requirements

Mandatory Technology Purchases

Based on Item 7 estimates, technology requirements include:

---

Zaxby's SPE Franchisor LLC Franchise Brand Strength & Market Position

Overview

Important Disclosure Limitation: The FDD provided does not contain detailed information about brand recognition metrics, market positioning data, competitive analysis, social media presence, customer satisfaction indicators, industry awards, or media coverage. The analysis below is based solely on the operational and structural information available in the FDD.

Available Brand Information from FDD

Corporate Structure and Ownership

Zaxby's operates under a complex corporate structure that provides both stability and potential concerns:

Ownership Hierarchy:

• Ultimate Parent: Craveability Parent LLC (Delaware LLC)
• Owned by: Investment funds managed by affiliates of the Merchant Banking business of The Goldman Sachs Group Inc. (publicly traded)
• Operational Entity: Zaxby's SPE Franchisor LLC (formed April 13, 2021)
• Predecessor: Zaxby's Franchising LLC (ZFL) - offered franchises from 1994 to June 2021

Key Corporate Event: In June 2021, Zaxby's underwent a securitization financing transaction that restructured the company. All existing franchise agreements were transferred to the new entity (Zaxby's SPE Franchisor LLC), which became the franchisor of all existing and future agreements.

System Size and Market Presence

Based on the FDD references:

Geographic Footprint:

• Core Markets: Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee
• Expansion Markets: The brand is actively seeking development in states outside the core market area
• Development Incentives: Offering 0% royalties (Year 1) and 3% royalties (Year 2) for restaurants opened in non-core markets between January 1, 2024 and December 31, 2026

Brand Positioning

Market Segment

Based on the FDD description, Zaxby's positions itself as:

• Quick Casual Dining: Upscale menu positioning within the fast-casual segment
• Specialty Focus: Chicken fingers, buffalo wings, salads, and sandwiches
• Signature Differentiation: Array of unique Zaxby's-brand sauces
• Service Model: Dine-in, carry-out, drive-thru, and delivery options (including phone orders, online orders, and mobile app)

Brand Mission and Values

• Mission: "Consistently Create Encore Experiences that Enrich Lives One Person at a Time"
• Quality Focus: Fresh, hot, prepared-to-order food
• Environment: Clean, friendly, and inviting dine-in environment

Competitive Landscape

The FDD acknowledges:

💡

"The restaurant industry is highly competitive. Each Restaurant will compete with other national and local quick casual dining restaurants that provide similar services to the public, including dine-in, drive-thru, carryout and delivery options, and that are located within the vicinity of the Restaurant."

Competitive Advantages Identified:

1. High-quality food
2. Friendly, efficient service
3. Focus on creating "encore experiences" resulting in satisfied, loyal, and frequent customers
4. Multi-channel ordering capabilities (in-store, drive-thru, online, mobile app)

Competitive Challenges:

• Operates in a highly competitive segment with numerous national and local competitors
• No specific competitive advantages or market share data provided in the FDD
• Limited information on brand differentiation beyond product quality and service

Financial Strength Indicators

Revenue from Franchisees (Fiscal Year 2023)

Analysis: The franchisor generated over $163 million in total revenues in 2023, indicating a substantial operation. However, the FDD does not provide a complete breakdown of revenue sources.

Vendor Program Management

Vendor Contributions (2023):

• Zaxby's Conference Fund (ZCF) received $1,369,872 in vendor program management fees
• These fees are used for semi-annual conferences with franchisees, manufacturers, and suppliers
• Additional contributions from The Coca-Cola Company and Keurig Dr Pepper Inc. to the National Marketing Fund

Vendor Fee Structure:

• Proprietary and non-proprietary food items: $0.0025 per piece or $0.02 to $3.75 per case
• Furniture and roofing materials: 1% to 5% of purchases

Marketing and Advertising Infrastructure

National Marketing Fund

Current Contribution Rate: 1.5% of Gross Sales per week (may be modified up to 3.5%)

Fund Management:

• Administered by Zaxby's National Marketing Fund, Inc. (ZNMF), a Georgia non-profit corporation
• Separate from franchisor operations
• Receives contributions from franchisees and designated suppliers

Marketing Fund Usage (as stated in FDD):

• National and regional advertising campaigns
• Public relations activities
• Market research
• Development and maintenance of digital platforms
• Website and mobile app development
• Social media presence
• Marketing materials and promotional programs
• Administrative costs (not to exceed 15% of annual contributions)

Local Marketing Structure

Co-op Marketing Contribution: Up to 3% of Gross Sales per week

• Determined by local Co-op members
• Members may vote to increase above 3% cap
• If no Co-op exists in the DMA, contributions go to Zaxby's Multi-DMA Advertising Association (ZMAA)

Multi-DMA Advertising Contribution: Up to 3% of Gross Sales per week

• For franchisees not included in a specific geographic Co-op
• Administered by ZMAA

Total Marketing Obligation: Up to 4% of Gross Sales per week (can exceed if Co-op members vote to increase)

Initial Marketing Support

Initial Marketing Contribution: $5,200 to $10,000 (due 5 days before opening)

• Spent on behalf of franchisee according to initial marketing plan
• Covers first 120 days of operation
• $5,200 minimum in established Co-op areas
• $10,000 in areas without established Co-op

Technology and Digital Presence

Digital Ordering Infrastructure

Proprietary Digital Channels:

• Zaxbys.com (official website)
• Official Zaxby's mobile ordering apps (iOS and Android)
• Direct integration with in-restaurant POS systems
• Exclusive Control: Zaxby's is the only approved supplier/facilitator of digitally acquired orders

Technology Service Fee (TSF):

• Current Rate: $0.06 per transaction (subject to caps)
• Purpose: Offset costs for digital platform systems and services
• Covered Services: Website, mobile apps, digital transaction processing

TSF Structure for Different Restaurant Categories:

Technology Investments Covered by TSF (April 29, 2024 - April 30, 2025):

• Digital platform maintenance and provisioning
• Privacy compliance management software
• Enterprise management components (CrunchTime)
• POS quality assurance and testing
• Enterprise-wide configuration management
• Release management and governance
• Enterprise communication tools
• Store and operational reporting
• Cyber security (brand and enterprise-level)
• Third-party vendor governance
• Digital menu board content management

Required Technology System Investment

Initial Technology System Cost: $60,200 to $92,200

Components Include:

• Hardware and POS system
• Drive-thru equipment
• Digital menu boards
• Ordering kiosks
• Software and network connections
• Annual software maintenance contract
• Help desk service
• Reporting services
• Credit card middleware
• Firewall management
• Online ordering integration

Training and Support Infrastructure

Initial Training Program

Training Requirements:

• Attendees: Designated Principal or Key Operator PLUS 3-4 managers
• Location: Athens, Georgia (or other locations we designate)
• Cost: Included for 4 attendees; $2,500 per additional attendee
• Franchisee Responsibility: Travel, lodging, meals, and wages for attendees

Estimated Training Expenses: $10,000 to $25,000 (for transportation, meals, accommodations)

Training Program Structure:

Note: The FDD does not include the detailed training table required by Item 11, which should specify hours and subjects covered.

Ongoing Support

Operational Support:

• Periodic updates on new developments, techniques, and improvements
• Updated Manual revisions
• Periodic training programs (as deemed necessary by franchisor)
• Regular evaluations of restaurant operations
• System-wide franchisee meetings

Support Limitations:

• No dedicated field support representative mentioned
• No specified frequency of operational visits
• Support provided by ZFL on behalf of Zaxby's SPE Franchisor LLC under management agreement

Pre-Opening Support

Site Selection:

• Review of site information by Real Estate Committee (REC)
• Site evaluation based on minimum criteria (population, traffic count, demographics, etc.)
• Important: Site confirmation is NOT a warranty or representation of potential success

Construction Support:

• Prototype plans or guidelines (informational only)
• Review and acceptance of architectural drawings
• Up to 2 on-site inspections included
• Additional inspections: $500+ per inspection

Pre-Opening Checklist Review:

• Certificate of occupancy verification
• Compliance with construction standards
• Installation of required inventory, fixtures, and equipment
• Completion of all training requirements

SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

Competitive Comparison

Note: The FDD does not provide specific competitive comparison data. The following analysis is based on general industry knowledge and the limited information available in the FDD.

Estimated Competitive Position

Key Competitors (Not Listed in FDD)

Based on the chicken-focused quick-casual positioning

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Zaxby's SPE Franchisor LLC Franchise Growth Trends & System Health

Overview of System Growth

Based on the available FDD documentation, comprehensive historical growth data spanning 5-10 years is not provided in the sections reviewed. The FDD structure overview indicates that Item 20 (Outlets and Franchisee Information) was found but content details were not included in the provided materials. This Item typically contains the critical historical data needed for a complete growth analysis.

However, we can extract and analyze the following information from the available documentation:

Current System Snapshot (as of December 31, 2023)

Company-Owned vs. Franchised Ratio

• Franchised Units: 84.3% of total system
• Company-Owned Units: 15.7% of total system

This ratio indicates a franchise-heavy system, which is typical for mature quick-service restaurant brands and suggests:

• ✅ Strong franchisee confidence in the brand
• ✅ Established operational systems suitable for franchising
• ✅ Lower capital requirements for corporate expansion
• ⚠️ Potential for less direct operational control compared to company-heavy systems

Organizational Structure & Recent Changes

Securitization Transaction (June 2021)

A significant corporate restructuring occurred in June 2021 that fundamentally changed the franchise system:

Key Changes:

• New Franchisor Entity: Zaxby's SPE Franchisor LLC was formed (April 13, 2021) and became the official franchisor
• Predecessor: Zaxby's Franchising LLC (ZFL) offered franchises from 1994 until June 2021
• Asset Transfer: All existing Franchise Agreements, Development Agreements, and U.S. trademarks transferred to the new entity
• Management Structure: ZFL continues to provide support services under a management agreement

What This Means:

• The brand has 30 years of franchising history (1994-2024) under predecessor entities
• The current franchisor entity is relatively new (3 years) but operates an established system
• ⚠️ Red Flag: Limited financial history for the current franchisor entity may make long-term performance assessment challenging

Ultimate Parent Company

• Parent: Craveability Parent LLC (Delaware LLC)
• Ownership: Investment funds managed by affiliates of Goldman Sachs' Merchant Banking business
• Acquisition Date: December 28, 2020 (restructuring transaction)

Implications:

• Private equity ownership typically focuses on growth and eventual exit
• May indicate aggressive expansion plans
• Potential for additional corporate restructuring in the future

Current Expansion Strategy & Development Programs

Geographic Focus

The FDD identifies Core Markets and expansion territories:

Core Markets (8 states):

• Alabama
• Florida
• Georgia
• Kentucky
• Mississippi
• North Carolina
• South Carolina
• Tennessee

Expansion Markets:

• Any state approved for development outside the Core Markets

Active Development Incentive Programs (2024-2026)

Zaxby's is offering significant financial incentives to drive expansion:

1. New Restaurant Opening Incentive Program

Eligibility Requirements:

• Sign Franchise Agreement and receive REC approval by June 30, 2024
• Open new Restaurant in Core Market between August 25, 2023 and December 31, 2024
• Full compliance with Development Schedule and all deadlines

Incentives Offered:

Analysis:

• ✅ Extremely aggressive incentive suggesting strong push for Core Market density
• ✅ Significant first-year savings (potentially $50,000-$80,000+ depending on sales volume)
• ⚠️ Limited time window (expires December 31, 2024) indicates urgency

2. Select Market Incentive Program

Eligibility Requirements:

• Open Restaurant in non-Core Market state (approved by Zaxby's)
• Opening window: January 1, 2024 through December 31, 2026
• Full compliance with Development Schedule and all deadlines

Incentives Offered:

Analysis:

• ✅ Exceptionally aggressive incentive for new market penetration
• ✅ Zero royalties in Year 1 is highly unusual and indicates strong expansion priority
• ✅ Longer time window (through 2026) suggests sustained expansion focus
• ⚠️ New markets may lack brand recognition and established supply chains
• ⚠️ Higher risk for franchisees entering unproven markets

Development Agreement Structure

For multi-unit developers:

Minimum Requirements:

• Must commit to develop at least 2 Restaurants
• Must follow strict Development Schedule with three critical deadlines:
  1. Real Estate Committee Approval Deadline
  2. Construction Commencement Deadline
  3. Opening Deadline

Financial Structure:

Example: 5-Restaurant Development Agreement

Consequences of Failure:

• ⚠️ Critical: If you fail to meet any deadline, Zaxby's can terminate the Development Agreement
• ⚠️ You lose all rights to develop the Development Area
• ⚠️ Initial fees paid for unsigned Franchise Agreements are forfeited
• ✅ Franchise Agreements for opened Restaurants remain valid

International vs. Domestic Growth

Current Status: The FDD provides no indication of international expansion.

Evidence:

• All references are to U.S. states only
• Core Markets are exclusively U.S. southeastern states
• Expansion markets limited to "any state approved for development"
• No mention of international franchising in any section

Conclusion: Zaxby's appears to be pursuing a domestic-only growth strategy focused on:

1. Densifying Core Markets (southeastern U.S.)
2. Expanding into new U.S. states
3. No current international presence or plans disclosed

Market Saturation Analysis

Geographic Concentration

Based on the Core Market definition and 30-year operating history:

High Saturation Likely:

• 8 Core Market states with 30 years of development
• 923 total units concentrated primarily in southeastern U.S.
• New Restaurant Opening Incentive suggests need to stimulate Core Market growth

Expansion Opportunity:

• Select Market Incentive Program indicates significant whitespace in non-Core states
• Aggressive incentives (0% royalty Year 1) suggest low current penetration outside Core Markets

Competitive Positioning

Direct Competitors (mentioned in FDD):

• Other national quick casual dining restaurants
• Local quick casual dining restaurants
• Restaurants offering similar services (dine-in, drive-thru, carryout, delivery)

Market Position:

• Established 30-year brand with 923 locations
• Specialized menu (chicken fingers, buffalo wings)
• Quick casual segment positioning

Saturation Indicators:

Impact Study Process

When developing within 5 miles of an existing Restaurant:

Process:

1. Zaxby's notifies existing Restaurant operator
2. If existing operator requests, both parties pay $3,000 Impact Study Fee
3. Third-party impact study conducted

Fee Refund Structure:

Analysis:

• ⚠️ Indicates potential cannibalization concerns in dense markets
• ✅ Transparent process protects existing franchisees
• ⚠️ $3,000 fee is non-refundable if high impact predicted
• ⚠️ May slow expansion in saturated markets

Pipeline & Future Development

Franchisee Pipeline Indicators

While specific numbers are not provided in the available FDD sections, several indicators suggest active development:

Positive Indicators:

1. Two Active Incentive Programs running through 2024-2026
2. VetFran Program offering 20% discount ($7,000) on Initial Franchise Fee for veterans
3. Structured Development Agreement process for multi-unit developers
4. Dedicated Development Team:
   • Chief Development Officer (Michael R. Mettler, since May 2022)
   • VP of Franchise Sales (Bert J. Lane, since January 2023)
   • Senior Director of Franchise Development (Cheryl Wood, since February 2023)
   • Director of Real Estate (Mary Meyer, since June 2023)

Recent Leadership Additions:

• Multiple development-focused executives hired in 2022-2023
• Suggests organizational preparation for growth phase

Development Timeline

Typical Timeline: 12-15 months from Franchise Agreement signing to opening

Critical Milestones:

Factors Affecting Timeline:

• Site confirmation timing
• Lease negotiations
• Governmental approvals
• Construction completion
• Training completion

System Health Indicators

Positive Health Indicators

✅ Large Established System: 923 total units demonstrates proven concept

✅ High Franchise Ratio: 84.3% franchised suggests strong franchisee confidence

✅ 30-Year Operating History: Long track record under predecessor entities

✅ Aggressive Growth Incentives: Significant investment in expansion programs

✅ Strong Corporate Support: Dedicated development team and infrastructure

✅ Private Equity Backing: Goldman Sachs affiliation provides capital access

✅ Structured Development Process: Clear milestones and support systems

✅ Technology Investment: Significant TSF program for digital infrastructure

Concerns & Red Flags

⚠️ Limited Historical Data: FDD does not provide year-over-year unit counts for 5-10 years

⚠️ New Franchisor Entity: Only 3 years of financial history for current franchisor

⚠️ Aggressive Incentives May Indicate Slowing Growth: 0% royalty offers suggest difficulty attracting franchisees at standard terms

⚠️ Cannibalization Concerns: Impact Study requirement indicates density challenges

⚠️ No International Presence: Limited to U.S. market only

⚠️ Private Equity Ownership: Potential for future restructuring or sale

⚠️ Strict Development Deadlines: Forfeiture of fees if milestones missed

⚠️ Market Concentration Risk: Heavy dependence on southeastern U.S. markets

Growth Projections & Future Outlook

Short-Term Outlook (2024-2026)

Based on incentive program structure:

Expected Focus Areas:

1. Core Market Densification (through December 31, 2024)

   • Target: Infill locations in 8 southeastern states
   • Incentive: 2% royalty Year 1, 4% Year 2

2. New Market Expansion (through December 31, 2026)

   • Target: Entry into new U.S. states
   • Incentive: 0% royalty Year 1, 3% Year 2

Projected Development Pace:

• Without specific unit count data, precise projections are not possible
• Incentive program structure suggests moderate to aggressive expansion goals
• Two-year incentive windows indicate sustained development focus

Long-Term Strategic Direction

Evidence from FDD:

1. Technology Investment: Significant TSF program ($7M+ annually) indicates digital transformation focus

2. Leadership Restructuring: New C-suite executives (2022-2023) suggest strategic repositioning

3. Securitization Structure: Financial engineering indicates preparation for growth capital deployment

4. Geographic Expansion: Select Market program indicates national footprint ambitions

Likely Strategic Goals:

• Expand from regional to national brand
• Increase unit count to 1,200-1,500+ locations
• Enhance digital/delivery capabilities
• Prepare for potential exit event (IPO or sale)

Is the System Growing Healthily or Plateauing?

Assessment Summary

Overall Health Rating: Moderate Growth with Strategic Repositioning

Evidence of Growth:

• ✅ Active incentive programs through 2026
• ✅ Recent executive hires in development roles
• ✅ Structured multi-unit development program
• ✅ Significant technology infrastructure investment
• ✅ Geographic expansion beyond Core Markets

Evidence of Challenges:

• ⚠️ Extremely aggressive incentives suggest difficulty attracting franchisees
• ⚠️ No historical growth data provided for transparency
• ⚠️ Impact Study requirement indicates saturation in some markets
• ⚠️ Limited to domestic market only
• ⚠️ Recent corporate restructuring may indicate operational challenges

Conclusion

The Zaxby's franchise system appears to be in a strategic transition phase rather than experiencing pure organic growth or clear plateauing. The system shows characteristics of:

1. Mature Core Markets: Established presence in southeastern U.S. with potential saturation
2. Expansion Phase: Aggressive push into new geographic markets
3. Corporate Repositioning: Recent ownership changes and leadership additions
4. Technology Modernization: Significant investment in digital infrastructure

For Prospective Franchisees:

Best Opportunities:

• ✅ New market development (non-Core states) with 0% Year 1 royalty
• ✅ Multi-unit development for experienced operators
• ✅ **

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Zaxby's SPE Franchisor LLC Franchise Trademark & Intellectual Property (Item 13)

Overview

⚠️ CRITICAL NOTICE: Item 13 (Trademarks) was not found in the provided FDD document. This represents a significant gap in the disclosure documentation, as trademark information is a fundamental component of franchise evaluation.

What Should Be Disclosed in Item 13

Item 13 of a Franchise Disclosure Document typically contains critical information about:

• Principal trademarks registered with the U.S. Patent and Trademark Office (USPTO)
• Registration status and registration numbers
• Trademark ownership details
• Pending trademark applications
• Agreements affecting trademark rights
• Limitations on trademark use
• Trademark disputes or challenges
• State trademark registrations
• Franchisor's obligations to protect trademarks

Information Available from Other Sections

While Item 13 is not included in the provided FDD, we can extract some trademark-related information from other sections:

Primary Marks Mentioned

From Item 1, the following trademarks are identified:

Trademark Ownership Structure

Current Ownership:

• As part of the Securitization Transaction that closed in June 2021, ownership and control of all U.S. trademarks and certain intellectual property relating to Restaurant operations were transferred to Zaxby's SPE Franchisor LLC (the franchisor)
• This transfer occurred when the company restructured under a securitization financing arrangement

Historical Context:

• Prior to June 2021, trademarks were owned by Zaxby's Franchising LLC (ZFL)
• ZFL offered Zaxby's franchises from 1994 until the Securitization Transaction
• ZFL is the franchisor's predecessor

Marks Definition (From Franchise Agreement References)

The FDD defines "Marks" as:

• The marks "Zaxby's®" and "Zaxby's Real Chicken (& Design)®"
• Certain other trademarks, service marks, trade names, signs, insignia, emblems, slogans, logos, commercial symbols, associated designs, artwork, and logos
• The franchisor may designate additional marks for franchisee use periodically

Trade Dress

The system includes distinctive Trade Dress, which encompasses:

• Restaurant designs
• Layouts
• Identification schemes

🚩 Red Flags and Concerns

Critical Missing Information

The absence of Item 13 in the provided FDD creates several significant concerns:

1. No USPTO Registration Details

   • Cannot verify actual trademark registration status
   • No registration numbers provided
   • No registration dates available
   • Cannot confirm trademark strength or validity

2. No Disclosure of Trademark Limitations

   • Unknown if there are geographic limitations
   • No information about prior rights or conflicting marks
   • Cannot assess trademark infringement risks

3. No Litigation History

   • Cannot determine if trademarks have been challenged
   • No disclosure of opposition proceedings
   • Unknown if there are ongoing trademark disputes

4. No Incontestability Status

   • Cannot confirm if marks have achieved incontestable status
   • Incontestable marks provide stronger legal protection

5. No Agreement Disclosures

   • Unknown if there are licensing agreements affecting trademark rights
   • Cannot determine if there are consent agreements with other trademark owners

Potential Implications

Your Rights to Use the Brand (From Other Sections)

Based on information from other Items in the FDD:

Granted Rights

• Non-exclusive license to use the Marks in connection with operating your Restaurant
• Right to use Marks only at the approved Location
• Right to use Marks for delivery and catering services (as described in Item 12)
• Must use Marks in accordance with System Standards

Restrictions on Use

Franchisee Obligations Regarding Marks

From various sections of the FDD, franchisees must:

1. Use marks exactly as specified by the franchisor
2. Not contest the validity or ownership of the Marks
3. Notify franchisor immediately of any infringement or challenge to the Marks
4. Discontinue use of any mark if directed by the franchisor
5. Execute documents required to maintain or protect trademark rights
6. Comply with quality standards to protect trademark reputation

What Happens If Trademarks Are Challenged

While specific Item 13 disclosures are not available, typical franchise agreements (and referenced in Item 9) include:

Franchisor's Obligations

Expected responsibilities (standard in franchise systems):

• Defend trademark rights against infringement
• Maintain trademark registrations
• Police unauthorized use of marks
• Take action against infringers

Franchisee's Obligations

From the obligations table in Item 9:

• Notify franchisor of any trademark challenges or infringement
• Cooperate in any trademark defense or enforcement actions
• Execute documents as required for trademark protection
• Discontinue use of marks if required due to legal challenges

Potential Scenarios

Franchisor's Obligation to Protect IP

Stated Commitments

From Item 11 (Franchisor's Assistance):

• Franchisor will provide updates to Manual and System Standards
• Franchisor maintains control over brand standards
• Franchisor has right to modify marks and designate new marks

Implied Obligations

Standard franchise law implies franchisor must:

• Maintain trademark registrations
• Defend against infringement
• Police unauthorized use
• Maintain quality control over mark usage

⚠️ Concern: No Specific Guarantees

The absence of Item 13 means:

• No specific commitment to defend trademarks is disclosed
• No statement about maintaining registrations
• No disclosure of enforcement history
• Unknown resources dedicated to trademark protection

Risk Assessment for Franchisees

High-Risk Factors

1. Missing Item 13 Disclosure

   • Risk Level: 🔴 Critical
   • Impact: Cannot properly evaluate trademark strength
   • Recommendation: Request complete Item 13 disclosure before proceeding

2. Recent Ownership Transfer (2021)

   • Risk Level: 🟡 Moderate
   • Impact: Trademark assignments may not be fully recorded
   • Recommendation: Verify all trademark transfers are properly recorded with USPTO

3. New Mark Introduction

   • Risk Level: 🟡 Moderate
   • Impact: "Zaxbys℠" (service mark) planned for use - not yet registered
   • Recommendation: Confirm registration status before investing

4. Securitization Structure

   • Risk Level: 🟡 Moderate
   • Impact: Complex corporate structure may affect trademark control
   • Recommendation: Understand how securitization affects IP rights

Medium-Risk Factors

1. Franchisor's Discretion to Change Marks

   • Risk Level: 🟡 Moderate
   • Impact: May require rebranding at franchisee expense
   • Recommendation: Clarify who pays for mark changes

2. No Disclosed Trademark Disputes

   • Risk Level: 🟢 Low (if accurate)
   • Impact: Suggests clean trademark history
   • Note: Item 3 states no litigation required to be disclosed

Positive Indicators

Practical Implications for Potential Franchisees

Before Signing

Essential Due Diligence Steps:

1. Request Complete Item 13

   • Obtain full trademark disclosure
   • Review all USPTO registration certificates
   • Verify registration status independently

2. Conduct Independent Trademark Search

   • Search USPTO database for Zaxby's marks
   • Look for conflicting marks or pending oppositions
   • Check for geographic limitations

3. Verify Ownership

   • Confirm Zaxby's SPE Franchisor LLC is recorded owner
   • Review assignment documents from 2021 transfer
   • Ensure no liens or encumbrances on marks

4. Review Franchise Agreement Carefully

   • Understand your rights and limitations
   • Clarify who pays for rebranding if required
   • Confirm franchisor's defense obligations

5. Consult with Franchise Attorney

   • Have attorney review trademark provisions
   • Assess strength of trademark protection
   • Evaluate risks specific to your situation

Questions to Ask the Franchisor

Critical Questions:

1. Why is Item 13 not included in this FDD?

   • Request explanation for omission
   • Obtain complete Item 13 disclosure

2. What are the USPTO registration numbers for all marks?

   • Verify registration status
   • Check registration dates and renewal dates

3. Have any trademarks been challenged or opposed?

   • Even if not required to be disclosed, ask directly
   • Understand any historical issues

4. What is the status of the "Zaxbys℠" mark?

   • When will it be registered?
   • Will franchisees need to rebrand?

5. Who pays for rebranding if marks change?

   • Clarify financial responsibility
   • Understand potential costs

6. How does the securitization affect trademark rights?

   • Understand corporate structure implications
   • Confirm no restrictions on mark usage

7. What is your trademark enforcement policy?

   • How do you protect against infringement?
   • What resources are dedicated to enforcement?

8. Are there any geographic limitations on trademark rights?

   • Confirm nationwide protection
   • Understand any restricted areas

Financial Considerations

Potential Trademark-Related Costs:

Ongoing Obligations

As a franchisee, you must:

• ✅ Use marks exactly as specified
• ✅ Maintain quality standards to protect brand
• ✅ Report any infringement or challenges immediately
• ✅ Participate in rebranding if required
• ✅ Execute trademark-related documents when requested
• ✅ Pay for signage updates and marketing materials
• ✅ Comply with all Manual specifications for mark usage

Comparison to Industry Standards

Typical Franchise Trademark Disclosures

Standard Item 13 Should Include:

Red Flag: Below Industry Standard

The absence of Item 13 represents a significant deviation from industry standards and FTC requirements. All FDDs should include complete Item 13 disclosures.

Recommendations

For Prospective Franchisees

🔴 CRITICAL ACTIONS:

1. Do Not Proceed Without Item 13

   • Request complete trademark disclosure immediately
   • This is required information under FTC rules
   • Do not sign any agreements until received and reviewed

2. Conduct Independent Verification

   • Search USPTO database yourself
   • Hire trademark attorney for professional search
   • Verify all claims independently

3. Assess Your Risk Tolerance

   • Understand potential rebranding costs
   • Consider impact of trademark challenges
   • Evaluate franchisor's commitment to brand protection

🟡 IMPORTANT CONSIDERATIONS:

4. Evaluate Brand Strength

   • 30-year operating history is positive
   • Large system size suggests strong brand
   • But verify trademark protection is solid

5. Understand Financial Exposure

   • Initial signage: $23,000 - $134,000
   • Potential rebranding could double this cost
   • Ongoing marketing: up to 4% of sales

6. Review Competitive Position

   • Strong brand in quick-casual chicken segment
   • But trademark protection is foundation of brand value
   • Weak trademarks could affect competitive position

For the Franchisor

The franchisor should:

1. Provide complete Item 13 disclosure to all prospective franchisees
2. Ensure all trademark registrations are current and properly maintained
3. Clearly communicate trademark protection policies
4. Disclose any limitations or challenges to trademark rights
5. Specify who bears costs of rebranding if required

Conclusion

Summary of Findings

Strengths:

• ✅ Long operating history (since 1994)
• ✅ Large, established system (923 locations)
• ✅ Primary marks appear to be registered (® symbol used)
• ✅ Clear ownership structure post-2021 transfer
• ✅ No disclosed litigation (Item 3)

Concerns:

• ❌ Critical: Item 13 not included in provided FDD
• ❌ Cannot verify trademark registration details
• ❌ Unknown limitations or challenges to marks
• ❌ No disclosure of franchisor

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Zaxby's SPE Franchisor LLC Franchise Advertising Requirements (Item 11 - Part 3)

Overview of Marketing Investment

Zaxby's franchisees face a comprehensive marketing obligation structure that can reach up to 4% of Gross Sales weekly, divided between national and local marketing efforts. Understanding these requirements is critical for prospective franchisees, as marketing fees represent a significant ongoing expense that directly impacts profitability.

National Marketing Fund Contribution

Current Requirements

• Rate: Currently 1.5% of Gross Sales per week
• Maximum: Can be increased up to 3.5% of Gross Sales per week at franchisor's discretion
• Payment Schedule: Due weekly on each Monday for the preceding week's Gross Sales
• Administrator: Zaxby's National Marketing Fund, Inc. (ZNMF), a Georgia non-profit corporation and affiliate of the franchisor

Fund Governance and Control

Critical Point: The Marketing Fund is controlled entirely by the franchisor, not franchisees. Key governance details include:

• ZNMF (an affiliate of Zaxby's SPE Franchisor) manages the fund
• The franchisor reserves the right to take over management or delegate to another entity
• The franchisor explicitly states it is NOT a fiduciary with respect to National Marketing Contributions
• Franchisees have no voting rights or control over fund expenditures
• The franchisor can modify the contribution rate unilaterally (within the 3.5% cap)

Permitted Uses of Marketing Fund

The FDD indicates the Marketing Fund may be used for various purposes, but the document provided does not include the complete list of permitted uses. Based on the partial information available:

• National advertising campaigns
• Marketing materials development
• Digital marketing initiatives
• Brand development activities
• Administrative costs associated with fund management

⚠️ Red Flag: The FDD excerpt provided does not include complete transparency regarding:

• Specific percentage of funds spent on production vs. placement
• Administrative overhead percentages
• Whether company-owned restaurants contribute at the same rate
• Detailed financial statements for the Marketing Fund

Local Marketing Requirements

Co-op Marketing Contribution OR Multi-DMA Advertising Contribution

Franchisees must contribute to either a local Co-op or the Multi-DMA fund, depending on their market:

Co-op Structure

If a Co-op exists in your DMA (Designated Market Area):

• You must contribute to that Co-op
• The Co-op determines the contribution amount (up to 3%)
• Important: Co-op members can vote to increase contributions above the 3% cap
• If Co-op members vote to exceed 3%, your total weekly marketing contribution can exceed the 4% overall cap

If no Co-op exists in your DMA:

• You must contribute to ZMAA
• ZMAA or the franchisor determines the contribution amount
• ZMAA is an affiliate of the franchisor (Georgia non-profit corporation)

Franchisor's Right to Reallocate

Critical Provision: The franchisor can modify and reallocate your weekly marketing contribution between the National Marketing Fund and either the Co-op or Multi-DMA fund with written notice, subject to the 4% cap (unless Co-op members vote to exceed).

Initial Marketing Contribution

Pre-Opening Marketing Investment

Key Details

• Amount varies by market:
  • Restaurants in areas with established Co-ops: Minimum $5,200
  • Restaurants in areas without established Co-ops: $10,000
• Franchisor administers: Zaxby's spends this money on your behalf
• Timing: Spent according to your approved initial marketing plan during the first 120 days of operation
• Reimbursement basis: Based on invoices you submit for payment
• Non-refundable: This fee is not refundable

Local Advertising Requirements

Minimum Local Spend

The FDD excerpt provided does not specify a minimum local advertising spend requirement beyond the Co-op/Multi-DMA contributions. This information may be contained in sections of Item 11 not included in the provided excerpt.

Approval Requirements

According to Section 10.4 of the Franchise Agreement:

• The franchisor must review and approve all promotional and marketing programs, plans, and materials
• Approval is contingent on consistency with franchisor's marketing strategies
• Materials must meet requirements specified in the Manual

Marketing Materials and Campaigns

Required vs. Optional Campaigns

The FDD does not provide specific details in the excerpt provided regarding:

• Which marketing campaigns are mandatory vs. optional
• Costs for required marketing materials
• Frequency of required promotional activities

Approved Materials

• All marketing materials must use approved artwork
• Materials must meet specifications in the Manual
• Must be purchased from approved vendors (for printed materials)

Marketing Support Provided by Franchisor

Training and Guidance

The franchisor provides:

1. Initial Marketing Plan Review: Reviews and approves your initial marketing plan before opening
2. Initial Marketing Administration: Administers expenditures of the approved initial marketing plan on your behalf
3. ZMAA Administration: Administers expenditures of ZMAA in accordance with approved marketing programs
4. Marketing Fund Administration: Manages the National Marketing Fund
5. Ongoing Updates: Provides information on new developments and improvements related to marketing

Conferences and Meetings

• The franchisor coordinates meetings of all franchisees
• You may be required to pay reasonable registration fees for conferences
• Your Designated Principal and Key Operator may be required to attend up to two meetings per year in-person
• You are responsible for travel and living expenses

Digital Marketing Obligations

Technology Services Fee (TSF)

While not strictly a marketing fee, the Technology Services Fee supports digital marketing infrastructure:

Digital Platform Control

Critical Provision:

• Zaxby's is the only approved supplier and/or facilitator of digitally acquired orders via Zaxbys.com or official Zaxby's mobile apps
• Digital orders must be approved by and, in most cases, fulfilled by Zaxby's digital properties
• Orders integrate directly with your in-restaurant POS system

Social Media and Website

The FDD excerpt does not provide specific details regarding:

• Social media requirements or restrictions
• Local website permissions
• Digital marketing guidelines

This information may be contained in the Manual or other sections of Item 11 not provided.

Co-op Advertising Opportunities

Co-op Participation

If a Co-op exists in your market:

• You must participate and contribute
• Co-op members have voting rights on contribution amounts
• Co-ops can vote to increase contributions above the 3% cap
• Co-ops determine how funds are spent within their market

ZMAA for Non-Co-op Markets

If no Co-op exists:

• ZMAA serves as the marketing vehicle
• Less franchisee control compared to Co-ops
• ZMAA is controlled by the franchisor's affiliate

Complete Marketing Cost Summary

Weekly Ongoing Marketing Fees

One-Time Marketing Fees

Annual Marketing Investment Example

Hypothetical Restaurant with $1,500,000 in Annual Gross Sales:

Note: This does not include the Initial Marketing Contribution or any additional local marketing you may choose to conduct.

Transparency of Ad Fund Spending

Financial Reporting

⚠️ Significant Concern: The FDD excerpt provided does not include:

• Annual financial statements for the Marketing Fund
• Breakdown of how Marketing Fund money is spent
• Percentage spent on production vs. media placement
• Administrative costs as a percentage of total contributions
• Whether unspent funds carry over year to year

What We Know

• The Marketing Fund is administered by ZNMF, a non-profit corporation
• The franchisor explicitly disclaims fiduciary duty regarding contributions
• The franchisor can modify fund usage at its discretion
• Franchisees have no voting control over fund expenditures

What's Missing

The FDD should include (but the excerpt does not provide):

• Audited financial statements for the Marketing Fund
• Detailed breakdown of expenditures by category
• Comparison of contributions from franchised vs. company-owned units
• Reserve balances and carryover policies

Value Analysis for Marketing Fees

Potential Benefits

1. National Brand Building: Pooled contributions enable larger-scale advertising campaigns
2. Professional Marketing: Access to professional marketing services and materials
3. Digital Infrastructure: Shared investment in website and mobile app technology
4. Economies of Scale: Group purchasing power for media buys and production

Concerns and Red Flags

🚩 Lack of Fiduciary Duty

The franchisor explicitly states it is not a fiduciary with respect to Marketing Fund contributions. This means:

• No legal obligation to act in franchisees' best interests
• Franchisor can prioritize brand-building over immediate ROI
• Limited recourse if funds are not spent effectively

🚩 Unilateral Control

• Franchisor can increase National Marketing Contribution from 1.5% to 3.5% without franchisee approval
• Franchisor can reallocate between national and local contributions
• No franchisee voting rights on Marketing Fund expenditures

🚩 Incomplete Financial Transparency

The FDD excerpt does not include:

• Detailed Marketing Fund financial statements
• Administrative overhead percentages
• Production vs. placement spending ratios

🚩 Potential for Exceeding 4% Cap

If your Co-op members vote to increase contributions above 3%, your total marketing obligation can exceed 4% of Gross Sales.

🚩 Company-Owned Restaurant Contributions Unclear

The FDD does not clearly state whether the 145 company-owned restaurants contribute to the Marketing Fund at the same rate as franchisees.

Competitive Context

A 4% total marketing contribution is relatively standard in the quick-service restaurant industry, though some franchises require more and others less. The structure at Zaxby's is notable for:

• High franchisor control with limited franchisee input
• Potential for increases up to 3.5% for national contributions
• Variable local contributions depending on Co-op decisions

Practical Implications for Prospective Franchisees

Questions to Ask Current Franchisees

1. Marketing Fund Effectiveness:

   • Do you feel the national marketing provides good value?
   • Have you seen measurable results from national campaigns?
   • How often does the franchisor increase the National Marketing Contribution?

2. Local Marketing:

   • Are you in a Co-op or ZMAA market?
   • If in a Co-op, what is your actual contribution rate?
   • Has your Co-op voted to exceed the 3% cap?
   • Do you have input into local marketing decisions?

3. Total Marketing Spend:

   • What is your total marketing spend as a percentage of sales (including required contributions and any additional local marketing)?
   • Do you need to spend beyond the required contributions to drive traffic?

4. Digital Marketing:

   • How effective are the Zaxby's website and mobile apps at driving sales?
   • What percentage of your sales come through digital channels?
   • Do you have any control over local digital marketing?

Financial Planning Considerations

1. Budget for Maximum Rates: Plan for the possibility that:

   • National Marketing Contribution could increase to 3.5%
   • Local contributions could reach or exceed 3%
   • Total marketing could exceed 4% of Gross Sales

2. Initial Investment: Include the $5,200-$10,000 Initial Marketing Contribution in your startup capital requirements

3. Cash Flow Impact: Marketing fees are due weekly, impacting weekly cash flow

4. Additional Marketing: Determine if you'll need to spend beyond required contributions to achieve your sales goals

Due Diligence Recommendations

1. Request Marketing Fund Financials: Ask for the most recent audited financial statements for the Marketing Fund (should be in Item 11 of the complete FDD)

2. Review Marketing Materials: Ask to see examples of recent national and local marketing campaigns

3. Understand Co-op Structure: If your territory has a Co-op, understand its governance and current contribution rate

4. Evaluate Digital Presence: Research Zaxby's digital marketing effectiveness, website functionality, and mobile app reviews

5. Compare to Competitors: Evaluate whether Zaxby's marketing support and requirements are competitive with other franchise opportunities

6. Get Written Clarification: Request written clarification on any marketing requirements not clearly stated in the FDD

Summary: Marketing Requirements at a Glance

Key Takeaways

✅ Positives:

• Pooled marketing resources enable larger campaigns
• Professional marketing support and materials provided
• Digital infrastructure included (website, mobile apps)
• Local Co-ops may provide franchisee input (in some markets)

⚠️ Concerns:

• Franchisor has complete control over Marketing Fund with no fiduciary duty
• Contribution rates can be increased unilaterally (within caps)
• Limited transparency in the FDD excerpt regarding fund spending
• Total marketing obligation can exceed 4% if Co-op votes to increase
• No clear statement on company-owned restaurant contribution rates

Bottom Line: Zaxby's marketing fee structure is franchisor-controlled with limited franchisee input. While the 4% total is industry-standard, prospective franchisees should carefully evaluate the value received for these contributions by speaking with current franchisees and reviewing Marketing Fund financial statements. The lack of fiduciary duty and unilateral control over fund usage represent potential concerns that warrant thorough due diligence.

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Understanding Your Zaxby's SPE Franchisor LLC Franchise Agreement: All Contracts (Item 22)

Overview

CRITICAL NOTICE: The FDD provided does not contain the actual Item 22 content. According to the FDD structure overview, Item 22 was "not found" in the document provided. This represents a significant gap in the disclosure documentation.

What Item 22 Should Contain

Item 22 of a Franchise Disclosure Document is required by federal law to list all contracts and agreements that franchisees must sign. This is one of the most important sections of any FDD because it identifies every legal commitment you'll be making.

Available Contract Information from Other FDD Items

While Item 22 content is missing, we can identify the following agreements referenced throughout the FDD:

Primary Franchise Agreements

Financial and Operational Agreements

Guaranty and Release Documents

Optional/Conditional Agreements

State-Specific Addenda

Personal Liability Implications

⚠️ Critical Warning: Extensive Personal Guarantees Required

Based on references throughout the FDD, you should expect:

1. Personal Guaranty Requirements

All owners of the franchisee entity must sign personal guarantees, which means:

• Full Personal Liability: Your personal assets (home, savings, investments) are at risk
• Joint and Several Liability: Each owner is liable for 100% of all obligations, not just their ownership percentage
• Unlimited Duration: Liability continues even after you sell or transfer the franchise (for pre-existing obligations)
• Broad Scope: Covers all franchise agreement obligations, not just monetary debts

2. Spousal Guarantees

In community property states, spouses may be required to sign guarantees:

• Puts marital assets at risk
• Required even if spouse has no involvement in the business
• May affect credit and financial standing of non-participating spouse

3. What You're Guaranteeing

Based on the FDD, personal guarantees likely cover:

• Royalty payments (6% of gross sales weekly)
• Marketing contributions (up to 4% of gross sales weekly)
• Technology Service Fees (currently $0.06 per transaction)
• Lease obligations (if you default, franchisor may require you to continue paying)
• Construction and development costs
• Legal fees and damages if franchisor must enforce the agreement
• Post-termination obligations (non-compete, de-identification costs)

Estimated Annual Exposure: For a restaurant generating $2 million in annual sales:

• Royalties: $120,000
• Marketing fees: $80,000
• Technology fees: ~$10,000-$20,000
• Plus lease, operating costs, and potential damages

Key Legal Commitments You're Making

1. Operational Control

You're agreeing to:

• Operate exactly according to the Manual (696 pages, subject to change)
• Use only approved suppliers and products
• Follow all pricing, marketing, and operational directives
• Maintain required hours of operation
• Implement all system changes (at your expense)

2. Financial Obligations

3. Restrictive Covenants

You're agreeing to:

During the Franchise Term:

• Not operate or have any interest in any competing business
• Not divert any business opportunity from your Zaxby's
• Not use the system or marks for any other purpose

After Termination (typically 2 years):

• Non-compete restrictions in your Protected Area and within specified radius
• Cannot operate similar restaurant business
• Cannot solicit Zaxby's employees or customers
• Cannot use confidential information

4. Intellectual Property Restrictions

You're acknowledging:

• You have no ownership rights in Zaxby's trademarks
• All improvements you develop belong to Zaxby's
• You must immediately stop using marks upon termination
• You must modify or discontinue use of marks if franchisor changes them

5. Dispute Resolution Requirements

Based on Item 17 references:

Arbitration Requirements:

• Most disputes must be arbitrated in Georgia
• You waive right to jury trial
• You waive right to class actions
• You pay your own attorneys' fees unless you prevail

Litigation Venue:

• Any litigation must occur in Georgia
• Georgia law applies (except for state-specific addenda)
• You consent to personal jurisdiction in Georgia

6. Termination and Default Provisions

The franchisor can terminate immediately for:

• Failure to pay fees when due
• Repeated violations of the agreement
• Abandonment of the restaurant
• Conviction of certain crimes
• Unauthorized transfer
• Loss of lease or right to occupy premises

Consequences of Termination:

• Immediate cessation of operations
• De-identification of the restaurant (at your expense)
• Payment of all amounts owed
• Non-compete obligations activate
• Potential damages and lost future royalties

Development Agreement Specific Commitments

If you sign a Development Agreement, you're committing to:

Development Schedule Obligations

Critical Risk: If you miss any deadline, you lose:

• All development rights for remaining restaurants
• All development fees paid ($17,500 per unopened restaurant)
• Your Protected Area rights

However, Franchise Agreements for already-opened restaurants remain in effect.

Multi-Unit Exposure

Financial Commitment Example (5-restaurant development):

Personal Guarantee Covers: All of the above, plus ongoing royalties and fees for all units.

Ancillary Agreements and Documents

Technology and Systems

Based on Item 11, you'll likely sign:

• Software license agreements for POS systems
• Technology service agreements
• Data sharing and privacy agreements
• Third-party vendor agreements (credit card processing, online ordering, etc.)

Insurance and Indemnification

You must:

• Maintain specified insurance coverage (commercial general liability, property, workers' comp, umbrella, employment practices)
• Name franchisor as additional insured
• Provide certificates of insurance
• Sign indemnification agreements protecting franchisor from claims

Confidentiality and Non-Disclosure

You're bound by:

• Confidentiality obligations regarding the Manual
• Non-disclosure of proprietary information
• Trade secret protection agreements
• Restrictions on use of customer data

🚩 Red Flags and Concerns

1. Missing Item 22 Content

MAJOR CONCERN: The absence of Item 22 in the provided FDD is highly unusual and problematic:

• Federal law requires franchisors to provide a complete list of all contracts
• You cannot make an informed decision without knowing all agreements you'll sign
• This may indicate an incomplete or non-compliant FDD

Action Required: Before proceeding, you MUST obtain a complete FDD with Item 22 included.

2. Broad Personal Guarantees

• All owners personally liable for all obligations
• No limitation on liability amount
• Extends beyond franchise term for pre-existing obligations

3. Unilateral Change Rights

Throughout the FDD, the franchisor reserves rights to:

• Modify the Manual (696 pages of requirements)
• Change required suppliers and products
• Increase marketing contributions (within caps)
• Modify Technology Service Fee (after December 2025)
• Change System Standards

You must comply within 30 days, at your expense.

4. Georgia Jurisdiction Requirement

• All disputes resolved in Georgia
• Expensive and inconvenient for out-of-state franchisees
• Georgia law applies (which may be less favorable than your state's laws)

5. Strict Development Schedule

For multi-unit developers:

• Three separate deadlines for each restaurant
• Missing any deadline = loss of all development rights
• No refund of development fees for unopened units

6. Renewal Not Guaranteed

• Must sign "then-current" form of franchise agreement
• Terms may be materially different and less favorable
• Must pay 50% of then-current franchise fee
• Must sign general release waiving all claims
• Must meet all current System Standards (may require expensive upgrades)

7. Transfer Restrictions

• Franchisor approval required for any transfer
• 50% of then-current franchise fee (currently $17,500)
• New owner must meet all current qualifications
• You remain liable if new owner defaults (unless released)

Importance of Attorney Review

Why Legal Review is Essential

Given the complexity and long-term implications of these agreements, attorney review is not optional—it's critical:

1. Complexity of Obligations

• Multiple interconnected agreements
• 696-page Manual incorporated by reference
• State-specific modifications
• Technical legal language

2. Long-Term Commitment

• 10-year initial term
• Potential 20-year commitment with renewals
• Personal liability extends beyond term
• Non-compete restrictions continue after termination

3. Financial Exposure

• Personal guarantees for potentially millions in obligations
• No cap on personal liability
• Liability for future changes to system requirements

4. Limited Negotiation

• Most terms are non-negotiable
• Understanding what you cannot change is crucial
• Identifying any negotiable terms requires expertise

What Your Attorney Should Review

Your franchise attorney should specifically examine:

Contract Terms

• All agreements listed in Item 22 (once provided)
• Personal guaranty language and scope
• Termination and default provisions
• Renewal requirements and conditions
• Transfer restrictions and fees

Financial Obligations

• All fee structures and calculation methods
• Rights to increase fees
• Refund provisions (or lack thereof)
• Audit rights and costs

Operational Requirements

• Manual provisions incorporated by reference
• Rights to change system standards
• Required purchases and approved suppliers
• Technology requirements and costs

Dispute Resolution

• Arbitration requirements
• Venue and jurisdiction provisions
• Waiver of jury trial and class actions
• Attorneys' fees provisions

Post-Termination

• Non-compete scope and duration
• De-identification requirements and costs
• Continuing obligations
• Survival provisions

State-Specific Issues

• State addenda applicability
• Conflicts with state franchise laws
• Community property implications
• State-specific protections

Choosing the Right Attorney

Critical: You need a franchise attorney, not a general business attorney.

Qualifications to look for:

• Member of American Bar Association Forum on Franchising
• Significant experience reviewing franchise agreements
• Familiarity with restaurant franchises
• Knowledge of franchise laws in your state
• Experience with multi-unit development agreements (if applicable)

Questions to ask potential attorneys:

• How many franchise agreements have you reviewed?
• Have you reviewed Zaxby's agreements before?
• What percentage of your practice is franchise law?
• Can you explain the key risks in this agreement?
• What is your fee structure for FDD review?

Expected Costs:

• FDD and franchise agreement review: $2,500 - $7,500
• Development agreement review: Additional $1,500 - $3,000
• Negotiation assistance: $200 - $500 per hour
• State-specific addenda review: $500 - $1,500

This is money well spent considering you're making a potential $1.4 million - $3.3 million investment per restaurant with unlimited personal liability.

Practical Implications for Potential Franchisees

Before Signing Anything

1. Obtain Complete FDD: Ensure you receive Item 22 and all referenced exhibits
2. Request All Agreements: Ask for copies of all agreements you'll be required to sign
3. Review with Attorney: Have franchise attorney review everything before signing
4. Understand Personal Liability: Discuss with attorney and financial advisor
5. Assess Financial Capacity: Ensure you can meet all obligations, not just initial investment

Questions to Ask Franchisor

Before signing, get clear answers to:

1. About Contracts:

   • Can I see all agreements I'll be required to sign?
   • Are any terms negotiable?
   • What happens if I cannot meet a deadline?
   • Can personal guarantees be limited?

2. About Changes:

   • How often does the Manual change?
   • What system changes have been required in the past 3 years?
   • What were the costs of recent system upgrades?
   • How much notice is given for required changes?

3. About Termination:

   • What are the most common reasons for termination?
   • How many franchisees have been terminated in the past 3 years?
   • What are typical de-identification costs?
   • Can I sell if I want to exit?

4. **About

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Zaxby's SPE Franchisor LLC Franchise: Red Flags & Warning Signs Checklist

Important Disclosure Limitation

CRITICAL NOTE: The FDD document provided contains only the cover pages, table of contents, and Items 1-11 (partial). Items 12-23, which contain crucial information about litigation history, bankruptcy, financial performance, outlet data, financial statements, and other critical disclosure items, are NOT included in this document.

This significantly limits our ability to conduct a complete red flags analysis. The following assessment is based solely on the available information from Items 1-11.

Red Flags & Warning Signs Analysis

Comprehensive Red Flags Checklist

Detailed Red Flag Analysis

🚩 HIGH SEVERITY RED FLAGS

1. Securitization Structure & Complex Ownership (HIGH CONCERN)

Issue: The franchise system underwent a securitization transaction in June 2021, creating a complex corporate structure where:

• Zaxby's SPE Franchisor LLC (formed April 2021) is the new franchisor
• All franchise agreements were transferred to this new entity
• Goldman Sachs private equity funds are the ultimate owners
• Management services are provided by ZFL under a management agreement

Why This Matters:

• Securitization structures prioritize debt service over franchisee support
• Your franchise agreement is with an entity formed in 2021, not the original Zaxby's company
• In financial distress, debt holders' interests may supersede franchisee interests
• Complex ownership can make accountability unclear

Risk Level: HIGH - Securitization structures have historically led to reduced franchisee support and increased fees

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2. Mandatory Single-Source Supplier Requirements (HIGH CONCERN)

Issue:

• Must purchase ALL inventory items, ingredients, and packaging from designated/approved suppliers only
• Approximately 75% of all purchases must be from designated/approved sources
• Franchisor received $9,151,758 (5.61% of total revenue) from vendor programs in 2023
• Supplier approval process is costly and can be denied without clear criteria

Specific Concerns:

From Item 8:
"Currently, we require you to purchase all inventory items, ingredients, 
and packaging solely from suppliers that we have designated or approved."

"You agree to pay us a charge not to exceed the reasonable cost of the 
inspection and our actual cost of testing the proposed product...whether 
or not the item, service, supplier, or service provider is approved."

Why This Matters:

• No ability to shop for better prices or quality
• Franchisor has financial incentive to maintain expensive suppliers
• You pay for supplier approval attempts that may be denied
• Supplier approval can be revoked at any time, forcing inventory disposal

Risk Level: HIGH - Severely limits operational flexibility and cost control

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3. Technology Service Fee (TSF) Without Long-Term Cap (HIGH CONCERN)

Issue: Starting December 28, 2025, the franchisor can:

• Change the TSF amount without limit
• Modify the calculation method (could become percentage of sales)
• Remove or modify the cap entirely
• Only requires 30 days' written notice

Current Structure (Through 2025):

• 2024: $0.06/transaction, capped at $7M system-wide
• 2025: $0.06/transaction, cap up to $7.7M
• 2026+: NO LIMITS - can be changed to any amount or calculation method

From the FDD:

"Beginning in the 2026 Period, we may, in our sole discretion, after providing 
you with 30 days' written notice, (a) change the amount and method of calculating 
the Applicable TSF (which may be a fixed fee, a percentage of Gross Sales, a fee 
per sales transaction, or a fee based on usage) or (b) modify or remove the 
Applicable Cap on TSFs."

Why This Matters:

• Could become a significant ongoing expense with no cap
• Could be changed to percentage of sales (potentially unlimited)
• Only 30 days' notice required for changes
• No franchisee input or approval required

Risk Level: HIGH - Uncapped fee that can be unilaterally increased

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4. Unilateral Right to Change System Standards (HIGH CONCERN)

Issue: Franchisor can modify the Manual and System Standards at any time, requiring compliance within 30 days:

From Item 11:
"We may make changes to the Manual at any time, so long as such changes 
benefit us and our current and future franchisees or will otherwise improve 
the System. You must comply with our revised standards and specifications 
within 30 days after we transmit the updates."

Why This Matters:

• Could require expensive equipment upgrades
• Could mandate new products or services
• Could change operational procedures requiring retraining
• "Benefit" is determined solely by franchisor
• 30-day compliance window may be insufficient for major changes

Risk Level: HIGH - Could force significant unbudgeted capital expenditures

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⚠️ MEDIUM SEVERITY RED FLAGS

5. Out-of-State Dispute Resolution (MEDIUM CONCERN)

Issue: All disputes must be resolved in Georgia through arbitration or litigation

From Cover Page:

"The franchise agreement and development agreement require you to resolve 
disputes with the franchisor by arbitration and/or litigation only in Georgia. 
Out-of-state arbitration or litigation may force you to accept a less favorable 
settlement for disputes. It may also cost more to arbitrate or litigate with 
the franchisor in Georgia than in your own state."

Why This Matters:

• Increases cost of dispute resolution for out-of-state franchisees
• Creates home-court advantage for franchisor
• May discourage franchisees from pursuing legitimate claims
• Travel and attorney costs in Georgia may be prohibitive

Risk Level: MEDIUM - Significant disadvantage but standard in many franchise agreements

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6. Recent Management Turnover (MEDIUM CONCERN)

Issue: Significant executive changes in 2022-2023:

• CEO: Bernard Acoca (since January 2022)
• CFO: Donny Lau (since July 2023)
• CMO: Patrick Schwing (since June 2022)
• COO: Sharlene Smith (since April 2022)
• CDO: Michael Mettler (since May 2022)
• Chief Supply Chain Officer: Carl Mount (since January 2023)
• Chief People Officer: Michelle Morgan (since May 2022)
• Chief Legal Officer: Brenda Trickey (since June 2023)

Why This Matters:

• Nearly entire C-suite is new since 2022
• May indicate instability or strategic uncertainty
• New leadership may change direction or priorities
• Learning curve may affect franchisee support quality

Risk Level: MEDIUM - Common after ownership changes but worth monitoring

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7. Vendor Program Revenue (MEDIUM CONCERN)

Issue: Franchisor received $9,151,758 from vendor programs in 2023 (5.61% of total revenue)

Additional Vendor Fees:

• $0.0025 per piece or $0.02 to $3.75 per case for food items
• 1% to 5% of purchases for furniture and roofing
• Contributions from Coca-Cola and Keurig Dr Pepper

Why This Matters:

• Creates financial incentive to maintain expensive suppliers
• Franchisees indirectly pay these fees through higher product costs
• May not receive full benefit of volume purchasing power
• Lack of transparency in how fees affect pricing

Risk Level: MEDIUM - Common in franchising but represents potential cost inflation

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8. Limited Pre-FDD Manual Review (MEDIUM CONCERN)

Issue: Cannot review the 696-page Manual before signing the Franchise Agreement

From Item 11:

"To protect the confidentiality of the Manual, we will not give you the 
opportunity to review the contents of the Manual prior to your execution 
of a Franchise Agreement or Development Agreement."

Why This Matters:

• Cannot fully understand operational requirements before committing
• Manual contains detailed specifications and standards
• Changes to Manual are binding within 30 days
• 696 pages of requirements you cannot review in advance

Risk Level: MEDIUM - Standard practice but limits informed decision-making

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9. Site Selection Risk (MEDIUM CONCERN)

Issue: Complex site approval process with multiple deadlines and potential for loss of investment:

Deadlines:

• Real Estate Committee Approval Deadline
• Construction Commencement Deadline
• Opening Deadline

Refund Policy:

• If site not approved and no Development Agreement: 50% refund of franchise fee
• If site not approved under Development Agreement: NO refund
• Failure to meet deadlines: Termination and loss of all fees

Why This Matters:

• Could lose 50-100% of franchise fee if site not approved
• REC approval criteria not fully disclosed
• "Commercially reasonable effort" is subjective
• Tight deadlines may force poor site selection

Risk Level: MEDIUM - Significant financial risk during site selection phase

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10. Impact Study Fee Structure (MEDIUM CONCERN)

Issue: If opening within 5 miles of existing restaurant:

• Must pay $3,000 Impact Study Fee
• Refund depends on impact prediction:
  • <10% impact: Full refund
  • 10-15% impact: 50% refund

  • 💡

    15% impact: No refund

Why This Matters:

• Additional $3,000 cost for many locations
• May indicate territory protection issues
• Could signal market saturation concerns
• Existing franchisee can trigger study requirement

Risk Level: MEDIUM - Adds cost and complexity to site selection

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✓ LOW SEVERITY RED FLAGS

11. Private Equity Ownership (LOW-MEDIUM CONCERN)

Issue: Ultimate parent owned by Goldman Sachs investment funds

Why This Matters:

• PE firms typically have 5-7 year investment horizons
• Focus may be on maximizing exit value vs. long-term franchisee success
• May lead to aggressive fee increases or cost-cutting
• However, Goldman Sachs is a sophisticated investor with reputation to protect

Risk Level: LOW-MEDIUM - Common in restaurant franchising; quality of management matters more

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12. New Franchisor Entity (LOW CONCERN)

Issue: Zaxby's SPE Franchisor LLC formed in April 2021

Mitigating Factors:

• Zaxby's brand has operated since 1990
• 923 total locations as of December 2023
• Predecessor (ZFL) offered franchises since 1994
• Management services provided by experienced ZFL team

Risk Level: LOW - More of a structural issue than operational concern

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POSITIVE INDICATORS

Despite the red flags identified, there are

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Zaxby's SPE Franchisor LLC Franchise: Green Flags & Positive Indicators

Overview

IMPORTANT NOTICE: The FDD provided for Zaxby's SPE Franchisor LLC contains no actual content in any of the 23 required Items. All sections show "found: false" with empty content summaries. This means we cannot verify any positive indicators, green flags, or concerning elements from the actual disclosure document.

The analysis below is based solely on the limited information available in the cover pages and preliminary sections of the FDD. A complete evaluation would require access to the full, populated FDD with all Items 1-23 completed.

Available Information Analysis

Based on the limited preliminary pages available, we can identify the following:

1. Financial Green Flags

Brand Maturity & Scale

• Established System: ZFL (predecessor) has been offering franchises since 1994 (30 years of franchising experience)
• Significant Unit Count: As of December 31, 2023:
  • 145 company-operated restaurants
  • 778 franchised restaurants (as of April 26, 2023)
  • Total system: 923+ locations
• Geographic Presence: Operating in multiple states with concentration in Core Markets (Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee)

Corporate Financial Backing

• Strong Ownership: Owned by investment funds managed by affiliates of Goldman Sachs Merchant Banking
• Sophisticated Structure: Securitization transaction completed in June 2021, indicating institutional-grade financial engineering
• Multiple Revenue Streams:
  • Franchise fees
  • Royalties (6% of Gross Sales)
  • Marketing contributions
  • Technology Service Fees
  • Vendor program management fees ($9,151,758 in FY2023)

Transparent Fee Structure

✅ Clearly Disclosed Fees:

• Initial Franchise Fee: $35,000 (uniform for all franchisees)
• Royalty: 6% of Gross Sales (with incentive programs available)
• Marketing Contributions: Up to 4% of Gross Sales
• Technology Service Fee: $0.06 per transaction (with caps)

2. Operational Green Flags

Comprehensive Training Program

Based on preliminary information:

• Initial Training Provided: For Designated Principal or Key Operator plus 3-4 managers
• Ongoing Training: Periodic training programs coordinated by franchisor
• Replacement Training Available: $2,500 per person for manager replacements
• Training Location: Support Center in Atlanta, Georgia

Support Infrastructure

• Dedicated Support Team: Multiple C-level executives with relevant industry experience
• Manual System: 696-page operations manual in 3 sections (Administrative, Front of House, Back of House)
• Field Support: Periodic evaluations and inspections
• Technology Platform: Integrated POS, online ordering, mobile apps

Site Selection Assistance

• Real Estate Committee (REC): Reviews and approves all sites
• Site Criteria Evaluation: Population, traffic count, demographics, competition analysis
• Lease Review: Franchisor reviews and must approve all Site Agreements
• Architectural Support: Prototype plans and specifications provided

Vendor Relationships

• Negotiated Purchasing Programs: Franchisor negotiates arrangements for franchisee benefit
• Approved Supplier Network: Designated suppliers for inventory, equipment, services
• Quality Control: Specifications and standards for all products and services

3. Market Position Green Flags

Industry Segment

• Growing Category: Quick casual dining segment (positioned between fast food and casual dining)
• Differentiated Menu: Specialization in chicken fingers, buffalo wings, salads, sandwiches
• Multiple Revenue Channels: Dine-in, drive-thru, carry-out, delivery, online ordering, mobile app

Brand Recognition

• Registered Trademarks: "Zaxby's®" and "Zaxby's Real Chicken (& Design)®"
• 30-Year Operating History: Brand established since 1994
• Regional Strength: Strong presence in Southeastern United States

Competitive Advantages

• Proprietary Products: Unique Zaxby's-brand sauces
• Trade Dress Protection: Distinctive restaurant designs and layouts
• Digital Integration: Website, mobile apps, online ordering platform
• Mission-Driven: "Consistently Create Encore Experiences that Enrich Lives One Person at a Time"

4. Franchisee-Friendly Policies

Development Incentives

✅ New Restaurant Opening Incentive Program:

• Refund of Initial Franchise Fee upon opening
• Reduced royalty: 2% Year 1, 4% Year 2 (vs. standard 6%)
• Available for Core Market openings through December 31, 2024

✅ Select Market Incentive Program:

• Refund of Initial Franchise Fee upon opening
• Reduced royalty: 0% Year 1, 3% Year 2 (vs. standard 6%)
• Available for non-Core Market states through December 31, 2026

✅ VetFran Program:

• 20% discount ($7,000) off Initial Franchise Fee for military veterans
• Available for first five restaurants opened by veteran

Reasonable Fee Structure

• Partial Refund Available: 50% of Initial Franchise Fee refunded if acceptable site cannot be located (for single-unit franchisees)
• Transparent Technology Fees: TSF capped at $7,000,000 (2024) and $7,700,000 (2025) across all Existing Restaurants
• No Hidden Fees: All fees clearly disclosed in Item 6

Flexible Development Options

• Single-Unit Option: No obligation to open multiple locations
• Multi-Unit Development: Available for qualified franchisees (minimum 2 restaurants)
• Affiliated Entity Structure: Permitted with 51% ownership requirement

5. Legal & Compliance Green Flags

Litigation & Bankruptcy

Based on preliminary pages:

• Item 3 (Litigation): States "No litigation is required to be disclosed"
• Item 4 (Bankruptcy): States "No bankruptcy information is required to be disclosed"

Note: Full details would be in the complete FDD Items 3 and 4

Transparent Disclosure

• FTC Compliance: Document follows FTC Franchise Rule format
• State Registrations: Agents for service of process listed for required states
• Clear Risk Disclosures: Out-of-state dispute resolution highlighted as special risk

Experienced Leadership Team

Key executives with relevant backgrounds:

• Bernard Acoca, CEO: Previously CEO of El Pollo Loco (2018-2021)
• Patrick Schwing, CMO: Former CMO at Inspire Brands - Arby's Division
• Michael Mettler, CDO: Former CDO at OTF Franchisor, LLC
• Carl Mount, Chief Supply Chain Officer: Former SVP Supply Chain at Starbucks

Green Flags Checklist

Legend:

• ✅ Yes = Confirmed present and positive
• ❌ No = Confirmed absent or negative
• ⚠️ Unknown = Cannot verify from available information
• ⚠️ Partial = Partially present or with conditions

Detailed Positive Indicator Analysis

Financial Strength Indicators

1. System Size & Maturity

Positive Indicators:

• 923+ Total Locations: Demonstrates proven concept and scalability
• 145 Company Units: Franchisor has "skin in the game" and understands operational challenges
• 778 Franchised Units: Large franchisee base suggests satisfaction and profitability
• 30-Year Track Record: Survived multiple economic cycles since 1994

Significance: Large, mature systems typically offer:

• Proven business model
• Established supply chains
• Brand recognition
• Operational best practices
• Financial stability

2. Institutional Ownership

Positive Indicators:

• Goldman Sachs Backing: Investment funds managed by Goldman Sachs Merchant Banking provide:
  • Deep financial resources
  • Professional management oversight
  • Long-term strategic planning
  • Access to capital markets

Significance: Institutional ownership often brings:

• Financial stability
• Professional governance
• Growth capital availability
• Reduced risk of franchisor bankruptcy

3. Securitization Structure

Positive Indicators:

• June 2021 Securitization: Indicates:
  • Predictable cash flows
  • Institutional confidence in brand
  • Access to low-cost capital
  • Financial sophistication

Significance: Securitized franchise systems typically demonstrate:

• Stable royalty streams
• Strong unit economics
• Institutional validation
• Financial transparency

4. Revenue Diversification

Positive Indicators:

• Franchise fees
• Royalties (6% of Gross Sales)
• Marketing contributions (up to 4%)
• Technology Service Fees ($0.06/transaction)
• Vendor program management fees ($9.15M in 2023)
• Real estate income (through ZPL affiliate)

Significance: Multiple revenue streams provide:

• Financial stability
• Reduced dependence on franchise sales
• Alignment with franchisee success
• Resources for system support

Operational Excellence Indicators

1. Comprehensive Training Infrastructure

Positive Indicators:

• 696-Page Operations Manual: Extensive documentation indicates:

  • Mature operating systems
  • Detailed procedures
  • Quality control standards
  • Continuous improvement

• Multi-Person Training: Initial training for 4 people included:

  • Designated Principal or Key Operator
  • 3-4 managers
  • Ensures operational depth

• Ongoing Training: Periodic programs demonstrate:

  • Commitment to franchisee success
  • System evolution
  • Best practice sharing

Significance: Strong training programs correlate with:

• Higher franchisee success rates
• Better operational consistency
• Reduced failure rates
• Improved customer satisfaction

2. Site Selection Support

Positive Indicators:

• Real Estate Committee (REC): Formal approval process ensures:

  • Professional site evaluation
  • Risk mitigation
  • Consistency across system

• Defined Criteria: Population, traffic, demographics, competition analysis

• Lease Review: Franchisor approval of Site Agreements protects franchisees

Significance: Professional site selection reduces:

• Location-related failures
• Cannibalization risks
• Franchisee losses from poor sites

3. Technology Integration

Positive Indicators:

• Integrated POS System: Modern point-of-sale technology
• Digital Ordering: Website and mobile apps (iOS/Android)
• Delivery Integration: Multiple revenue channels
• Digital Menu Boards: Modern customer experience
• Drive-Thru Technology: Timer systems and equipment

Significance: Technology investment demonstrates:

• Commitment to competitiveness
• Adaptation to consumer preferences
• Operational efficiency
• Future-proofing the system

4. Marketing Infrastructure

Positive Indicators:

• National Marketing Fund (ZNMF): Centralized marketing provides:

  • Professional campaigns
  • Brand consistency
  • Economies of scale
  • National reach

• Local Co-op Structure: Balances national and local marketing

• Initial Marketing Support: $5,200-$10,000 initial marketing contribution administered by franchisor

Significance: Strong marketing support provides:

• Brand building
• Customer acquisition
• Competitive advantage
• Franchisee sales growth

Market Position Indicators

1. Industry Segment Strength

Positive Indicators:

• Quick Casual Positioning: Fastest-growing restaurant segment
• Chicken Focus: Growing protein category
• Premium Positioning: Higher margins than fast food
• Differentiated Menu: Proprietary sauces and unique offerings

Significance: Strong category positioning provides:

• Growth tailwinds
• Premium pricing power
• Competitive differentiation
• Consumer preference alignment

2. Geographic Expansion Opportunity

Positive Indicators:

• Core Market Strength: 8 Southeastern states with density
• Select Market Incentives: Aggressive expansion into new states with 0% royalty Year 1
• Proven Portability: Expanding beyond original markets

Significance: Geographic expansion indicates:

• Concept portability
• Growth potential
• Market opportunity
• Franchisee opportunity

3. Multiple Revenue Channels

Positive Indicators:

• Dine-in
• Drive-thru
• Carry-out
• Delivery
• Online ordering
• Mobile app ordering
• Catering (referenced

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Zaxby's SPE Franchisor LLC vs. Competitors: Franchise Comparison

Important Disclosure Limitation

CRITICAL NOTE: The Zaxby's FDD provided for this analysis does not contain complete information in Items 1-23. All item content summaries show "found": false, meaning we cannot access specific financial data, investment ranges, or other key metrics typically disclosed in these sections. Therefore, this competitive comparison is significantly limited and relies on general industry knowledge rather than specific FDD data.

The following analysis should be considered preliminary and incomplete. Prospective franchisees should:

• Request and thoroughly review the complete, current FDD
• Obtain FDDs from all competitors being considered
• Consult with franchise attorneys and financial advisors
• Speak directly with current and former franchisees

Identified Competitors

Based on Zaxby's positioning as a quick casual dining restaurant specializing in chicken fingers, buffalo wings, salads, and sandwiches, the primary competitors include:

1. Raising Cane's Chicken Fingers - Direct competitor focusing exclusively on chicken fingers
2. Wingstop - Specialized wing restaurant with similar quick casual format
3. Popeyes Louisiana Kitchen - Quick service chicken restaurant with broader menu
4. Chick-fil-A - Premium chicken-focused quick service restaurant
5. Buffalo Wild Wings GO - Quick casual wing concept (smaller format of BWW)

Side-by-Side Comparison Table

Investment and Fee Comparison

Note: Competitor data is based on industry estimates and publicly available information as of 2024. Actual terms may vary and should be verified through each franchisor's current FDD.

Key Investment Components Comparison

Detailed Qualitative Comparison

1. Brand Strength Analysis

Zaxby's Strengths:

• Regional Dominance: Strong presence in Southeastern U.S. with 923 total locations (145 company-owned, 778 franchised as of December 31, 2023)
• Growth Trajectory: Expanding from core markets (AL, FL, GA, KY, MS, NC, SC, TN) into new territories
• Menu Differentiation: Proprietary Zaxby's-brand sauces and "Encore Experience" brand promise
• Ownership Backing: Supported by Goldman Sachs investment funds (through Craveability Parent LLC)
• Established System: Operating since 1994 (under predecessor ZFL)

Zaxby's Weaknesses:

• Geographic Concentration: Primarily Southeastern brand with limited national recognition
• Brand Recognition: Less nationally recognized compared to Chick-fil-A or Popeyes
• Competitive Pressure: Facing intense competition from both established and emerging chicken concepts

Competitor Brand Comparison:

Raising Cane's:

• Extremely strong brand loyalty with cult following
• Rapid national expansion
• Simplified menu (focused exclusively on chicken fingers)
• Generally company-owned model limits franchise opportunities

Chick-fil-A:

• Strongest brand reputation in category
• Highest average unit volumes in industry
• Unique operator model (not traditional franchising)
• Closed Sundays policy differentiates brand

Wingstop:

• Strong national presence with over 1,900 locations
• Focused wing concept with delivery/takeout emphasis
• Publicly traded company (NASDAQ: WING)
• Lower initial investment than Zaxby's

Popeyes:

• International brand recognition (part of Restaurant Brands International)
• Over 3,400 locations globally
• Strong Louisiana heritage and flavor profile
• More affordable franchise fee structure

2. Support Quality Assessment

Zaxby's Support Structure:

Strengths:

• Comprehensive 696-page operations manual (3 sections: Admin, FOH, BOH)
• Dedicated Real Estate Committee (REC) for site selection
• Initial training for Designated Principal/Key Operator plus 3-4 managers
• Ongoing field evaluations and support
• Technology platform support (digital ordering, mobile apps)
• Vendor program management and negotiated purchasing arrangements

Unique Aspects:

• Securitization structure: Support services provided by ZFL under management agreement
• Designated Principal requirement (minimum 25% ownership, business decision authority)
• Key Operator requirement for day-to-day operational control
• Franchisee Managed Training Program option ($500-$1,500 annually)

Potential Concerns:

• Complex corporate structure post-securitization (June 2021)
• Support services provided by affiliate (ZFL) rather than franchisor directly
• Limited disclosure of training duration specifics
• Contract length not disclosed in available FDD sections

Competitor Support Comparison:

Raising Cane's:

• Extremely selective with franchise partners
• Intensive hands-on support (company-owned model emphasis)
• Strong operational systems and training

Chick-fil-A:

• Industry-leading support and training
• Company retains ownership of real estate and equipment
• Operator selection is highly competitive
• Continuous operational support and mentorship

Wingstop:

• Established franchise support infrastructure
• Technology-forward approach (digital ordering emphasis)
• Multi-unit operator focus
• Regular training and operational updates

Popeyes:

• Large franchise system with established support
• Part of RBI's shared services platform
• International expansion support
• Remodeling and refresh programs

3. Growth Trajectory Analysis

Zaxby's Growth Indicators:

Positive Signals:

• Development Incentive Programs: Aggressive incentives for new restaurant openings
  • New Restaurant Opening Incentive: Refunded franchise fee + reduced royalties (2% Year 1, 4% Year 2) for Core Market openings by December 31, 2024
  • Select Market Incentive: Refunded franchise fee + reduced royalties (0% Year 1, 3% Year 2) for non-Core Market openings through December 31, 2026
• Multi-Unit Development: Development Agreement structure for qualified franchisees (minimum 2 restaurants)
• VetFran Participation: 20% franchise fee discount ($7,000) for veterans (first 5 locations)
• Geographic Expansion: Actively seeking franchisees outside core Southeastern markets

Growth Metrics (as of December 31, 2023):

• Total Outlets: 923 (145 company-owned, 778 franchised)
• System-wide presence across multiple states
• Expansion into non-Core Markets incentivized

Challenges:

• High initial investment ($1.4M - $3.3M) may limit franchisee pool
• Competitive saturation in core Southeastern markets
• Need to establish brand recognition in new markets

Competitor Growth Comparison:

Raising Cane's:

• Explosive growth (500+ locations and expanding rapidly)
• Primarily company-owned expansion strategy
• Strong unit economics driving growth
• National expansion underway

Wingstop:

• Consistent growth trajectory (1,900+ locations)
• Strong franchisee base
• International expansion
• Digital sales driving growth

Popeyes:

• Mature system with 3,400+ locations
• International presence in 30+ countries
• Refranchising and remodeling initiatives
• Chicken sandwich success driving renewed growth

Chick-fil-A:

• Steady, controlled growth (3,000+ locations)
• Highly selective operator selection
• Strongest average unit volumes in category
• Limited by Sunday closure policy

4. Franchisee Satisfaction

IMPORTANT: The available FDD sections do not include Item 20 (Outlets and Franchisee Information) details that would typically provide:

• Franchisee turnover rates
• Franchise terminations and non-renewals
• Franchisee litigation history
• Contact information for current and former franchisees

Available Information:

From Item 20 summary (limited data):

• 778 franchised restaurants as of December 31, 2023
• 145 company-owned restaurants
• System has been operating since 1994 (under predecessor)

Red Flags to Investigate:

• Complex corporate structure post-securitization may affect franchisee relationships
• Multiple fee structures (royalties, marketing, technology service fees) require careful analysis
• Technology Service Fee structure is complex with caps and variable rates
• Lack of disclosed contract length raises questions

Positive Indicators:

• Long-standing system (30 years of operation)
• Large franchisee base (778 units) suggests satisfaction
• Development incentive programs indicate franchisor investment in franchisee success
• Vendor program management may provide cost savings

Due Diligence Required: Prospective franchisees should:

1. Contact multiple current franchisees (obtain list from Exhibit D)
2. Contact former franchisees who left system (Exhibit D-3)
3. Inquire about actual profitability (Item 19 not available in provided FDD)
4. Understand reasons for any franchise terminations
5. Assess franchisee advisory council effectiveness

Zaxby's Competitive Position

Market Position Summary

Zaxby's occupies a strong regional position in the quick casual chicken segment with opportunities for national expansion. The brand sits between premium concepts (Chick-fil-A) and traditional QSR (Popeyes) in terms of positioning and investment level.

Competitive Positioning Matrix

Strategic Positioning

Zaxby's differentiates through:

1. Menu Variety: Broader menu than single-product competitors (Raising Cane's, Wingstop)
2. Proprietary Sauces: Unique Zaxby's-brand sauce offerings create differentiation
3. Dine-In Experience: Full quick casual experience vs. takeout-focused concepts
4. Regional Heritage: Strong Southeastern roots and brand loyalty
5. Multi-Channel Sales: Dine-in, drive-thru, carryout, delivery, and digital ordering

Competitive Vulnerabilities:

1. Investment Level: Higher initial investment may limit franchisee pool
2. Geographic Concentration: Heavy reliance on Southeastern markets
3. Brand Awareness: Limited recognition outside core markets
4. Fee Structure Complexity: Multiple fees (royalty, marketing, technology) require careful analysis
5. Corporate Structure: Post-securitization structure adds complexity

Unique Advantages of Zaxby's Franchise

Financial Advantages

1. Development Incentive Programs

   • New Restaurant Opening Incentive:

     • Refunded $35,000 franchise fee upon opening
     • Reduced royalties: 2% (Year 1), 4% (Year 2) vs. standard 6%
     • Potential savings: $35,000 + reduced royalties on first two years of sales

   • Select Market Incentive:

     • Refunded $35,000 franchise fee
     • Reduced royalties: 0% (Year 1), 3% (Year 2)
     • Even greater savings for expansion markets

2. VetFran Program

   • 20% discount on franchise fee ($7,000 savings)
   • Available for first 5 locations
   • Demonstrates commitment to veteran franchisees

3. Vendor Program Management

   • Negotiated purchasing arrangements
   • Potential cost savings on food and supplies
   • Volume discounts through system-wide purchasing

Operational Advantages

1. Comprehensive Training

   • 696-page operations manual
   • Training for multiple managers (4 minimum)
   • Ongoing training and support programs
   • Optional Franchisee Managed Training Program

2. Technology Platform

   • Integrated POS system
   • Digital ordering (website and mobile apps)
   • Drive-thru technology
   • Delivery integration
   • Technology Service Fee caps provide cost predictability (through 2025)

3. Real Estate Support

   • Dedicated Real Estate Committee (REC)
   • Site selection assistance
   • Lease review and approval
   • Impact study process for proximity to existing locations

4. Multi-Unit Development

   • Development Agreement structure for growth-oriented franchisees
   • Phased franchise fee payment (50% upfront, 50% per location)
   • Defined development schedules and territories

Brand Advantages

1. Established System

   • 30 years of operation (since 1994)
   • 923 total locations
   • Proven business model

2. Menu Differentiation

   • Proprietary Zaxby's-brand sauces
   • Broader menu than single-product competitors
   • Flexibility for promotional features

3. Customer Experience Focus

   • "Encore Experience" brand

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Your Zaxby's SPE Franchisor LLC Franchise Due Diligence Checklist

Investing in a Zaxby's franchise represents a significant financial commitment of $1,406,700 to $3,323,200. This comprehensive due diligence checklist will guide you through the systematic evaluation process to make an informed decision about this franchise opportunity.

Understanding the Due Diligence Timeline

Important Note: According to federal law, you must receive the Franchise Disclosure Document (FDD) at least 14 calendar days before signing any binding agreement or making any payment to Zaxby's SPE Franchisor LLC or its affiliates.

The complete due diligence process typically takes 90-120 days from initial inquiry to final decision. However, this timeline can vary based on your circumstances, financing arrangements, and the complexity of your evaluation.

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Phase 1: Initial Research and Self-Assessment (Weeks 1-2)

Week 1: Personal and Financial Assessment

Actions to Complete:

• Conduct honest self-assessment of franchise readiness

  • Evaluate your management experience and restaurant industry knowledge
  • Assess your willingness to follow a proven system vs. entrepreneurial independence
  • Consider your tolerance for hands-on operational involvement
  • Review your family's support for this commitment

• Perform preliminary financial review

  • Calculate your total liquid capital available
  • Review your credit score and credit history
  • Assess your net worth (Zaxby's typically requires substantial net worth)
  • Determine how much you can invest without financing
  • Identify potential financing sources if needed

• Review the complete FDD thoroughly

  • Read all 23 Items carefully
  • Note questions and concerns for follow-up
  • Pay special attention to Items 3 (Litigation), 4 (Bankruptcy), 7 (Initial Investment), 19 (Financial Performance), and 20 (Outlet Information)
  • Review all exhibits, especially the Franchise Agreement (Exhibit A)

• Research the Zaxby's brand and competitive landscape

  • Visit multiple Zaxby's locations as a customer
  • Observe operations, customer service, food quality, and cleanliness
  • Visit competing quick-casual chicken restaurants in your target market
  • Research online reviews and social media sentiment
  • Analyze local market demographics and competition

Resources Needed:

• FDD (provided by Zaxby's)
• Personal financial statements
• Credit report
• Notebook for observations and questions

Estimated Time: 15-20 hours

Cost: $0-$50 (credit report fees)

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Week 2: Initial Market and Location Research

Actions to Complete:

• Identify potential markets for your Restaurant

  • Review Zaxby's current geographic footprint (Item 20)
  • Note that Core Markets include: Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee
  • Consider Select Market Incentive Program for non-Core Markets (0% royalty Year 1, 3% Year 2)
  • Research population density, demographics, and traffic patterns in target areas

• Conduct preliminary site research

  • Understand site requirements: 1,100-3,500 sq ft improved space, 0.8-1.5 acre lot
  • Drive-thru capability is required (except for Non-Traditional locations)
  • Identify 3-5 potential locations that meet basic criteria
  • Note proximity to existing Zaxby's locations (Impact Study may be required within 5 miles)

• Review territorial rights and restrictions

  • Understand that you receive a Protected Area (defined in Item 12)
  • Note that Zaxby's retains rights to operate through alternative channels
  • Review restrictions on your ability to operate outside your Protected Area

• Analyze the franchise structure

  • Understand the difference between single-unit and multi-unit Development Agreements
  • Review Development Incentive Programs (New Restaurant Opening Incentive and Select Market Incentive)
  • Consider whether multi-unit development is appropriate for your situation

Resources Needed:

• Demographic research tools (Census data, ESRI, etc.)
• Local real estate listings
• Google Maps/satellite imagery
• Item 20 outlet data from FDD

Estimated Time: 10-15 hours

Cost: $0-$200 (demographic research tools if purchased)

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Phase 2: Professional Advisory Team Assembly (Weeks 3-4)

Week 3: Engage Professional Advisors

Actions to Complete:

• Hire a franchise attorney

  • Critical: Select an attorney experienced in franchise law, not general business law
  • Verify they have reviewed multiple FDDs and franchise agreements
  • Ensure they are NOT affiliated with Zaxby's or the franchisor
  • Request references from other franchise clients
  • Discuss fee structure (typically $2,500-$5,000 for FDD review and consultation)

• Engage a franchise-specialized accountant/CPA

  • Find a CPA with franchise industry experience
  • Ensure they can analyze Item 19 Financial Performance Representations
  • Verify they can create detailed financial projections
  • Discuss fee structure (typically $1,500-$3,500 for analysis)

• Consider hiring a franchise consultant (optional)

  • Independent consultants can provide objective analysis
  • They may have insider knowledge of the Zaxby's system
  • Verify they are not receiving compensation from Zaxby's
  • Fee structure varies ($2,000-$10,000+)

Key Questions for Your Franchise Attorney:

1. What are the most concerning provisions in the Franchise Agreement?
2. How does the termination clause compare to industry standards?
3. Are there any unusual restrictions or obligations?
4. What are my rights if disputes arise?
5. How favorable are the renewal terms?
6. What happens if I want to sell the franchise?
7. Are there any provisions that could be negotiated?
8. What are the post-termination restrictions?

Key Questions for Your Franchise Accountant:

1. Based on Item 19 data, what are realistic revenue expectations?
2. What is the break-even point for a Zaxby's Restaurant?
3. How long until I can expect positive cash flow?
4. What are the tax implications of this investment?
5. How does the 6% royalty and up to 4% marketing fee impact profitability?
6. What financing options are most appropriate?
7. What are the ongoing working capital requirements?
8. How do the financial projections compare to other franchise opportunities?

Resources Needed:

• Referrals from franchise associations (IFA, AAFD)
• State bar association franchise attorney listings
• CPA society referrals
• FDD for professional review

Estimated Time: 8-12 hours (research and meetings)

Cost: $4,000-$15,000+ (professional fees)

⚠️ Red Flag Alert: Do NOT skip professional advisory services to save money. The cost of poor advice or no advice can be catastrophic. Budget $5,000-$15,000 minimum for quality professional guidance.

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Week 4: Document Review with Advisors

Actions to Complete:

• Schedule detailed FDD review meeting with attorney

  • Allocate 2-3 hours for comprehensive discussion
  • Review all 23 Items with particular focus on:
    • Item 3: Litigation (currently none required to be disclosed)
    • Item 4: Bankruptcy (currently none)
    • Item 5: Initial Fees ($35,000 Initial Franchise Fee)
    • Item 6: Other Fees (6% royalty, up to 4% marketing)
    • Item 7: Initial Investment ($1,406,700-$3,323,200)
    • Item 17: Renewal, Termination, Transfer, and Dispute Resolution
  • Discuss Franchise Agreement (Exhibit A) clause by clause
  • Review Development Agreement if considering multi-unit development

• Schedule financial analysis meeting with accountant

  • Review Item 19 Financial Performance Representations in detail
  • Analyze Item 7 Initial Investment estimates
  • Create customized financial projections for your specific situation
  • Develop break-even analysis
  • Model various scenarios (best case, expected case, worst case)

• Document all concerns and questions

  • Create a master list of questions for Zaxby's
  • Prioritize questions by importance
  • Identify potential deal-breakers

Resources Needed:

• FDD and all exhibits
• Notes from professional advisors
• Financial modeling software or spreadsheets

Estimated Time: 10-15 hours

Cost: Included in professional fees from Week 3

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Phase 3: Franchisee Validation and Investigation (Weeks 5-7)

Week 5-6: Franchisee Validation Calls

Critical Importance: Speaking with current and former franchisees is arguably the most valuable part of your due diligence. These conversations provide real-world insights that no document can offer.

Actions to Complete:

• Review franchisee contact lists in FDD

  • Exhibit D-1: Roster of Franchisees (current franchisees)
  • Exhibit D-3: Franchisees Who Have Left the System
  • Exhibit D-4: Franchisees with Unopened Outlets

• Develop a structured interview questionnaire

  • Prepare 20-30 questions covering all aspects of franchise ownership
  • Include both quantitative and qualitative questions
  • Plan for 30-45 minute conversations

• Contact current franchisees (minimum 10-15 calls)

  • Target mix:
    • New franchisees (opened within last 2 years): 3-4 calls
    • Established franchisees (3-10 years): 4-6 calls
    • Veteran franchisees (10+ years): 2-3 calls
    • Multi-unit franchisees: 2-3 calls
  • Geographic diversity:
    • Core Markets (AL, FL, GA, KY, MS, NC, SC, TN): 7-10 calls
    • Non-Core Markets: 3-5 calls (if available)
  • Performance diversity:
    • High-performing locations: 5-7 calls
    • Average-performing locations: 3-5 calls
    • Struggling locations: 2-3 calls (if they'll speak with you)

• Contact former franchisees (minimum 5-7 calls)

  • These conversations are critical for understanding why franchisees leave
  • Former franchisees often provide the most candid feedback
  • Understand reasons for exit: voluntary sale, termination, business failure, etc.

• Document all conversations thoroughly

  • Take detailed notes during or immediately after each call
  • Record key metrics, concerns, and recommendations
  • Note patterns and recurring themes

Essential Questions for Current Franchisees:

Financial Performance:

1. What were your actual total revenues in your first year? Second year? Most recent year?
2. How do your revenues compare to the Item 19 figures? (Note: Item 19 data not provided in the FDD excerpt)
3. What is your actual food cost percentage?
4. What is your actual labor cost percentage?
5. What are your total occupancy costs (rent, CAM, property taxes, insurance)?
6. What is your actual net profit margin?
7. How long did it take to reach break-even?
8. How long did it take to achieve positive cash flow?
9. What was your actual initial investment compared to the FDD estimate?
10. Have you needed additional capital beyond the initial investment? How much?

Operational Support: 11. How would you rate Zaxby's operational support (1-10 scale)? 12. How responsive is the franchise support team to your questions and concerns? 13. How useful is the initial training program? 14. How valuable is the ongoing training and support? 15. How effective is the Manual in guiding operations? 16. Do you feel adequately supported in marketing and advertising? 17. How helpful is the Technology System and POS support?

Relationship with Franchisor: 18. How would you describe your relationship with Zaxby's corporate? 19. Do you feel your concerns are heard and addressed? 20. How fair and reasonable are the System Standards? 21. Have you experienced any conflicts with the franchisor? How were they resolved? 22. Do you feel the royalty and marketing fees provide good value? 23. How transparent is the Marketing Fund spending?

Supply Chain and Vendors: 24. Are you satisfied with the designated suppliers? 25. Are product costs competitive? 26. Have you experienced supply chain disruptions? 27. Do you feel you have adequate input on supplier selection?

Site Selection and Development: 28. How helpful was Zaxby's in the site selection process? 29. Did your actual development costs align with FDD estimates? 30. Were there unexpected costs or delays during construction? 31. How accurate were the traffic and revenue projections for your site?

Day-to-Day Operations: 32. How many hours per week do you personally work in the business? 33. How difficult is it to recruit and retain quality staff? 34. What are your biggest operational challenges? 35. What aspects of the business are most time-consuming? 36. How seasonal is the business in your market?

Competition and Market Position: 37. Who are your primary competitors? 38. How does Zaxby's compete effectively in your market? 39. How has competition changed since you opened? 40. Do you feel Zaxby's brand is strong in your market?

Overall Satisfaction: 41. On a scale of 1-10, how satisfied are you with your Zaxby's franchise? 42. Would you buy this franchise again knowing what you know now? 43. Would you recommend this franchise to a friend or family member? 44. If you could change one thing about the franchise system, what would it be? 45. What advice would you give to a prospective franchisee?

Essential Questions for Former Franchisees:

1. Why did you leave the Zaxby's system?
2. Was your exit voluntary or involuntary?
3. If you sold, did you receive a fair price for your business?
4. What were the primary challenges you faced as a franchisee?
5. How did your financial performance compare to expectations?
6. What would you have done differently?
7. How was your relationship with corporate?
8. Would you consider another franchise opportunity? Why or why not?
9. What should prospective franchisees know that isn't in the FDD?
10. Any regrets or lessons learned?

Resources Needed:

• Exhibit D contact lists
• Structured questionnaire
• Note-taking system (digital or paper)
• Spreadsheet to track responses

Estimated Time: 20-30 hours (15-22 calls at 45-60 minutes each, plus prep and documentation)

Cost: $0 (your time only)

⚠️ Critical Success Factor: Do NOT skip franchisee validation calls. This is where you'll learn the truth about franchise ownership. If franchisees are consistently negative or evasive, that's a major red flag.

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Week 7: Analyze Franchisee Feedback

Actions to Complete:

• Compile and analyze all franchisee feedback

  • Create a spreadsheet summarizing key metrics from all calls
  • Calculate average responses to quantitative questions
  • Identify common themes in qualitative responses
  • Note any significant outliers or contradictions

• Compare franchisee feedback to FDD representations

  • Do actual revenues align with Item 19 data? (if available)
  • Do actual costs align with Item 7 estimates?
  • Are franchisees' experiences consistent with franchisor promises?

• Identify red flags and concerns

  • Consistent complaints about specific issues
  • Significant gaps between expectations and reality
  • High franchisee turnover in specific markets
  • Patterns of franchisor-franchisee conflict

• Prepare questions for Zaxby's based on franchisee feedback

  • Address any concerns or discrepancies
  • Seek clarification on common complaints
  • Request franchisor's perspective on identified issues

Analysis Framework:

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Questions to Ask Zaxby's SPE Franchisor LLC Franchise Development Team

When evaluating a Zaxby's franchise opportunity, asking the right questions can help you make an informed decision about this significant investment. Below are comprehensive questions organized by category, with context for each question and follow-up inquiries to ensure you get complete information.

Financial Questions (Critical Investment Understanding)

1. What is the complete breakdown of the $1,406,700 to $3,323,200 initial investment?

Context: The FDD provides a range, but your specific situation may differ significantly based on location, real estate costs, and whether you're building new or converting an existing space.

Follow-up questions:

• Can you provide examples of recent franchisees' actual costs in my target market?
• What percentage of franchisees fall into the low, middle, and high end of this range?
• Are there any costs not included in this estimate that I should anticipate?

Why this matters: The difference between the low and high estimates is nearly $2 million—understanding where your investment will likely fall is crucial for financial planning.

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2. How does the 6% Royalty fee compare to competitors, and what exactly does it cover?

Context: The standard royalty is 6% of Gross Sales, though Development Incentive Programs may reduce this temporarily.

Follow-up questions:

• What services and support are included in the 6% royalty?
• How does this compare to other quick-casual chicken concepts?
• Are there any circumstances where the royalty might increase?
• If I qualify for the Development Incentive Program (2% first year, 4% second year), what happens if I don't meet performance targets?

Why this matters: Royalties are your largest ongoing expense and directly impact profitability. The FDD shows incentive programs, but you need to understand the long-term commitment.

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3. What are the realistic revenue expectations for a Zaxby's Restaurant in my target market? ⚠️ CRITICAL QUESTION

Context: The FDD does not include Item 19 financial performance representations, meaning Zaxby's has chosen not to disclose average sales, revenues, or profitability data.

Follow-up questions:

• Why doesn't Zaxby's provide financial performance representations in Item 19?
• Can you connect me with franchisees in similar markets to discuss their financial performance?
• What are the typical sales volumes for new restaurants in the first year, second year, and at maturity?
• What percentage of franchisees are profitable, and what is the typical timeline to profitability?

Why this matters: This is a major red flag. Without Item 19 data, you're investing $1.4-$3.3 million without official guidance on potential returns. You must do extensive independent research.

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4. What are the complete marketing costs beyond the stated percentages?

Context: Weekly marketing contributions can total up to 4% of Gross Sales (1.5% National Marketing + up to 3% Co-op/Multi-DMA), but Co-op members can vote to increase contributions above 3%.

Follow-up questions:

• What is the typical total marketing spend as a percentage of sales in my target market?
• Have any Co-ops voted to increase contributions above the 3% cap? If so, by how much?
• What is the $5,200-$10,000 Initial Marketing Contribution used for specifically?
• Are there additional local marketing expenses I should budget for beyond these required contributions?

Why this matters: Marketing costs could exceed 4% of sales if your Co-op votes to increase contributions, significantly impacting your bottom line.

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5. What is the Technology Services Fee (TSF) structure, and how might it change?

Context: Currently $0.06 per transaction with caps, but the FDD states that beginning December 28, 2025, Zaxby's may "change the amount and method of calculating the Applicable TSF" and "modify or remove the Applicable Cap."

Follow-up questions:

• What is the projected TSF for 2026 and beyond?
• What is the maximum TSF you anticipate charging?
• How many transactions does a typical restaurant process monthly?
• What happens if technology costs exceed the current cap structure?
• Will the TSF ever be converted to a percentage of sales rather than per-transaction?

Why this matters: This is a significant variable cost with uncertain future increases. The ability to change "the amount and method" after December 2025 creates financial uncertainty.

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6. What financing options are available, and what are typical approval rates?

Context: The FDD explicitly states "We do not offer financing, directly or indirectly, for any part of the initial investment."

Follow-up questions:

• Do you have relationships with preferred lenders who understand the Zaxby's model?
• What percentage of approved franchisees successfully secure financing?
• What credit score and net worth do lenders typically require?
• Are SBA loans commonly used for Zaxby's franchises?
• What down payment percentage do most franchisees provide?

Why this matters: With no franchisor financing, you need to secure $1.4-$3.3 million independently. Understanding realistic financing requirements prevents wasted time and application fees.

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7. What are the actual costs of the required Technology System, and how often must it be upgraded?

Context: Initial Technology System costs range from $60,200 to $92,200, but ongoing upgrade requirements aren't clearly specified.

Follow-up questions:

• What is the expected lifespan of the POS system and other technology components?
• How often are major technology upgrades required?
• What were the costs of the last major technology upgrade for existing franchisees?
• Are there upcoming technology initiatives that will require additional investment?
• What is the annual cost for software maintenance, licensing, and support?

Why this matters: Technology costs can be substantial and recurring. Understanding the upgrade cycle helps with long-term financial planning.

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8. What are the real estate costs in my target market, and what lease terms are typical?

Context: The FDD estimates $10,000-$19,000 for lease deposits and first payment, but actual costs vary significantly by market. Building and sitework ranges from $772,000 to $2,200,000.

Follow-up questions:

• What are typical lease rates per square foot in my target area?
• Do most franchisees lease or purchase their real estate?
• What lease terms does Zaxby's typically require (length, renewal options)?
• If I purchase real estate, what is the typical cost in my market ($400,000-$1,400,000 range)?
• Will the landlord typically cover leasehold improvements, or will I need to fund them?
• What are typical CAM (Common Area Maintenance) charges?

Why this matters: Real estate is often the largest variable in your initial investment. The $772,000-$2,200,000 range for building and sitework assumes landlord-funded improvements—if not, your costs increase dramatically.

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9. What are the hidden or unexpected costs that franchisees commonly encounter?

Context: The FDD includes a $1,000-$96,000 "Additional Funds - 3 months" estimate, which is an extremely wide range.

Follow-up questions:

• What do most franchisees actually spend on working capital in the first three months?
• What unexpected costs have recent franchisees encountered?
• How long does it typically take to reach break-even cash flow?
• What are the costs if I need additional on-site inspections beyond the two included?
• What are typical utility costs for a Zaxby's Restaurant?
• What are realistic labor costs as a percentage of sales?

Why this matters: The $95,000 spread in the working capital estimate suggests significant uncertainty. Understanding actual costs prevents cash flow crises.

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10. What is the Transfer Fee structure, and are there any circumstances where it might be reduced?

Context: Transfer fee is 50% of the then-current Initial Franchise Fee (currently $17,500), but the FDD notes "We may reduce the Transfer Fee for transfers that do not result in a change of control."

Follow-up questions:

• Under what circumstances would you reduce the transfer fee?
• What constitutes a "change of control" versus a transfer that doesn't change control?
• If I bring in a partner who takes a minority stake, is that considered a transfer?
• What is the approval process for transfers, and how long does it typically take?
• What percentage of transfer requests are approved?

Why this matters: Exit strategy is crucial. Understanding transfer costs and approval likelihood affects your long-term planning and potential return on investment.

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Support Questions (Training and Ongoing Assistance)

11. What does the initial training program cover, and how does it prepare me to operate successfully?

Context: Initial training is provided for your Designated Principal or Key Operator and three managers (or four managers if the Designated Principal/Key Operator won't serve as a Certified Manager). The FDD doesn't provide details on training duration or content.

Follow-up questions:

• How many hours/days is the initial training program?
• Where is training conducted, and what are typical travel costs?
• What topics are covered (operations, marketing, financial management, HR, etc.)?
• What is the pass/fail rate for initial training?
• What happens if someone fails training?
• Is there hands-on training in an operating restaurant?
• How much of the training focuses on financial management and profitability?

Why this matters: Training quality directly impacts your ability to operate successfully. The $10,000-$25,000 training expense estimate suggests significant travel, but you need to know if the training adequately prepares you.

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12. What ongoing support will I receive after opening? ⚠️ CRITICAL QUESTION

Context: The FDD states that ZFL provides support "on our behalf under a management agreement," but specific ongoing support details are limited.

Follow-up questions:

• Will I have a dedicated franchise business consultant or support person?
• How often will someone from Zaxby's visit my restaurant?
• What support is available for marketing, operations, and financial management?
• Is there a franchisee hotline or support system for urgent issues?
• What are typical response times for support requests?
• Are there additional costs for ongoing support beyond the 6% royalty?

Why this matters: Ongoing support quality varies dramatically among franchisors. Understanding what's included in your 6% royalty is essential.

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13. What additional training is available, and what does it cost?

Context: Replacement manager training costs $2,500 per person. Additional training, remedial training, or consulting services cost "actual travel and living expenses."

Follow-up questions:

• How often do franchisees typically need replacement manager training?
• What ongoing training programs are available?
• Are there annual conferences or meetings? What are the costs?
• What is the Franchised Managed Training Program ($500-$1,500 annually), and should I participate?
• What circumstances typically trigger remedial training requirements?
• Can I send managers to training at other franchisees' locations?

Why this matters: Training costs can add up quickly, especially with employee turnover. Understanding available programs and costs helps with budgeting.

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14. How does the Manual get updated, and how will I stay informed of changes?

Context: The Manual is 696 pages across 3 sections. Zaxby's can make changes "at any time, so long as such changes benefit us and our current and future franchisees." You must comply with revisions within 30 days.

Follow-up questions:

• How frequently is the Manual updated?
• How are updates communicated to franchisees?
• What happens if I disagree with a Manual change that requires significant investment?
• Can you provide examples of recent Manual changes and associated costs?
• Is there a franchisee advisory council that provides input on Manual changes?
• What recourse do I have if a Manual change significantly impacts my profitability?

Why this matters: Manual changes can require operational modifications or capital investments. Understanding the change process and your rights is crucial.

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15. What technology support is provided, and what are the ongoing costs?

Context: The Technology Services Fee covers "various technology products and services," but specific support details aren't provided.

Follow-up questions:

• Is there 24/7 technical support for POS and other systems?
• What is the typical response time for technical issues?
• Are software updates included in the TSF, or are they additional costs?
• What happens if my POS system goes down during business hours?
• Do you provide cybersecurity support and monitoring?
• What is included in the "software maintenance contract, help desk service, and reporting services"?

Why this matters: Technology failures can shut down your restaurant. Understanding support availability and response times is critical.

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16. What supply chain support and vendor relationships does Zaxby's provide?

Context: Zaxby's negotiates purchase arrangements with manufacturers and suppliers, and you must purchase from designated or approved suppliers for most items.

Follow-up questions:

• How many approved suppliers are there for each product category?
• What happens if an approved supplier has quality issues or delivery problems?
• How competitive are the negotiated prices compared to open market pricing?
• Can I request approval of alternative suppliers if I find better pricing or quality?
• What is the typical timeline for supplier approval?
• Are there any supply chain disruptions I should be aware of?

Why this matters: Restricted supplier lists can limit your ability to control costs. Understanding the supplier approval process and pricing competitiveness is important.

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17. What marketing support is provided beyond the required contributions?

Context: You'll contribute 1.5% to the National Marketing Fund and up to 3% to Co-op/Multi-DMA advertising, plus a $5,200-$10,000 Initial Marketing Contribution.

Follow-up questions:

• What marketing materials and campaigns are provided by the National Marketing Fund?
• How is the National Marketing Fund spent (national advertising, digital marketing, PR, etc.)?
• What local marketing support does the Co-op provide?
• Will I receive marketing templates, social media content, and promotional materials?
• How much additional local marketing should I budget for beyond required contributions?
• Can I see examples of recent national and local marketing campaigns?
• What is the ROI on marketing spend based on franchisee feedback?

Why this matters: Marketing effectiveness directly impacts sales. Understanding what you get for your 1.5%-4%+ marketing contributions is essential.

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18. What happens if I need help with underperforming sales or operations?

Context: The FDD mentions "remedial training or consulting services" at your expense but doesn't detail proactive support for struggling franchisees.

Follow-up questions:

• What support is available if my restaurant underperforms?
• Are there turnaround specialists or consultants available?
• What are the costs for this type of support?
• What is the success rate for underperforming restaurants that receive additional support?
• At what point would Zaxby's consider terminating my franchise for underperformance?
• Are there case studies of franchisees who turned around struggling locations?

Why this matters: Not all restaurants succeed immediately. Understanding available support for struggling locations could save your investment.

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Territory Questions (Market Protection and Growth)

19. What exactly is my Protected Area, and what protection does it provide? ⚠️ CRITICAL QUESTION

Context: The FDD states that a Protected Area will be designated but doesn't provide specific details about size or protection level in the excerpts provided.

Follow-up questions:

• How is the Protected Area defined (radius, ZIP codes, specific boundaries)?
• What is the typical size of a Protected Area?
• Can Zaxby's or other franchisees open restaurants in my Protected Area?
• Can Zaxby's sell products through other channels (grocery stores, delivery apps, etc.) in my Protected Area?
• Does the Protected Area protect me from company-owned restaurants?
• Can the Protected Area be reduced or modified?
• What happens if Zaxby's violates my Protected Area rights?

Why this matters: Territory protection directly impacts your revenue potential. Weak territory protection means you could face competition from other Zaxby's locations.

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20. What is the Impact Study process if I want to open near an existing restaurant?

Context: If you want to develop within five miles of an existing restaurant, an impact study may be required. You'll pay a $3,000 Impact Study Fee, which may be partially or fully refunded depending on the predicted impact.

Follow-up questions:

• How often do impact studies predict more than 15% impact (resulting in no refund)?
• What happens if the impact study shows significant negative impact—can I still proceed?
• Who conducts the impact studies, and what is their methodology?
• Can I review the impact study before making a final site decision

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Finding a Zaxby's SPE Franchisor LLC Franchise Attorney & Accountant

Why You Need Franchise-Specific Professionals

Investing in a Zaxby's franchise represents a significant financial commitment—with total initial investments ranging from $1,406,700 to $3,323,200—making professional guidance essential. The complexity of franchise agreements, coupled with the ongoing obligations and restrictions inherent in the franchise model, requires specialized expertise that general business professionals may not possess.

The Critical Difference: Franchise Specialists vs. General Practitioners

General Business Lawyer vs. Franchise Attorney:

A general business lawyer may be competent in contract law, real estate transactions, and business formation, but franchise law is a specialized discipline with unique considerations:

Why This Matters for Zaxby's:

The Zaxby's Franchise Agreement contains numerous provisions that require franchise-specific expertise to properly evaluate:

• Complex fee structures including Royalty (6% of Gross Sales), National Marketing Contribution (currently 1.5%), Co-op Marketing Contribution (up to 3%), and Technology Services Fee ($0.06 per transaction with caps)
• Securitization transaction implications where the franchisor was restructured in 2021, with management services provided by affiliates
• Development incentive programs with specific refund and reduced royalty provisions
• Territorial restrictions and impact study requirements for locations within 5 miles of existing restaurants
• Post-termination non-compete obligations that could significantly restrict your future business activities

The Franchise Accountant Advantage

Similarly, franchise accounting differs substantially from general business accounting. A franchise-specific accountant understands:

• Franchise-specific financial modeling including royalty and marketing fee calculations
• Multi-unit economics if you're considering a Development Agreement
• Franchise tax implications including treatment of franchise fees, ongoing royalties, and potential tax benefits
• Industry benchmarking to evaluate Item 19 financial performance representations
• Cash flow management unique to franchise operations with weekly fee obligations

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Finding a Qualified Franchise Attorney

Where to Search

Professional Organizations and Directories:

1. American Bar Association (ABA) Forum on Franchising

   • Website: www.americanbar.org/groups/franchising
   • Maintains a directory of attorneys who specialize in franchise law
   • Members typically have significant franchise experience

2. International Franchise Association (IFA)

   • Website: www.franchise.org
   • Supplier member directory includes franchise attorneys
   • Look for attorneys with "Legal" designation

3. State Bar Associations

   • Most state bars have searchable directories
   • Filter for "franchise law" or "business law with franchise experience"
   • Check for board certifications in franchise law (available in some states)

4. Martindale-Hubbell

   • Website: www.martindale.com
   • Attorney rating service with specialization filters
   • Look for AV-rated attorneys with franchise law focus

5. Franchise Law Firms

   • Several national and regional firms specialize exclusively in franchise law
   • Examples include firms that regularly publish franchise law updates and articles

Referral Sources:

• Other franchisees (though be cautious about using the franchisor's recommended attorneys)
• Your business accountant or financial advisor
• Local business development centers
• SCORE mentors with franchise experience

What to Look For

Essential Qualifications:

• Minimum 5 years of franchise law experience (preferably 10+ years)
• Experience reviewing FDDs for franchisees (not just representing franchisors)
• Familiarity with restaurant franchises and quick-service/fast-casual concepts
• Knowledge of franchise laws in your state (particularly if you're in a registration state)
• Active membership in franchise law organizations
• Track record of representing franchisee clients (ask for references)

Red Flags to Avoid:

• Attorneys who primarily or exclusively represent franchisors
• Lawyers who claim franchise review is "simple" or "routine"
• Professionals who promise they can negotiate major changes to the FDD
• Attorneys unfamiliar with the FTC Franchise Rule
• Lawyers who don't ask detailed questions about your financial situation and goals

Questions to Ask Potential Franchise Attorneys

During Initial Consultation:

1. Experience Questions:

   • How many years have you practiced franchise law?
   • What percentage of your practice is devoted to franchise law?
   • How many FDDs do you review annually?
   • Have you reviewed Zaxby's or similar restaurant franchise agreements before?
   • Do you represent franchisees, franchisors, or both? (What's the ratio?)
   • Have you handled franchise disputes, terminations, or litigation?

2. Process Questions:

   • What is your review process for an FDD and franchise agreement?
   • How long does a typical review take?
   • Will you personally handle my matter, or will it be delegated to associates?
   • How do you communicate findings and recommendations?
   • Do you provide a written opinion or summary?

3. Specific to Zaxby's:

   • Are you familiar with the securitization structure used by Zaxby's?
   • Can you explain the implications of the management agreement with ZFL?
   • What concerns do you typically see in restaurant franchise agreements?
   • How do you evaluate territorial protection provisions?

4. Cost Questions:

   • What is your fee structure? (Hourly rate vs. flat fee)
   • What is the estimated total cost for FDD review and franchise agreement analysis?
   • What additional costs might arise?
   • Do you charge for initial consultation?
   • What is your retainer requirement?

5. Value-Add Questions:

   • Can you help me understand the financial projections?
   • Will you coordinate with my accountant?
   • Can you assist with lease review and negotiation?
   • Do you provide ongoing support after franchise purchase?
   • Can you help if disputes arise with the franchisor?

Key Terms Attorneys Should Review in the Zaxby's FDD

Your franchise attorney should conduct a comprehensive review of all 23 Items in the FDD, but should pay particular attention to:

Critical Sections for Detailed Analysis:

1. Item 1 - Corporate Structure

   • Securitization transaction implications
   • Management agreement with ZFL
   • Affiliate relationships and responsibilities
   • Ultimate parent ownership (Goldman Sachs investment funds)

2. Item 5 - Initial Fees

   • Initial Franchise Fee: $35,000 (50% refundable under limited circumstances)
   • Development Fee structure for multi-unit agreements
   • Impact Study Fee: $3,000 (with partial refund provisions)
   • VetFran Program discount terms and clawback provisions

3. Item 6 - Other Fees

   • Royalty: 6% of Gross Sales (reduced under Development Incentive Programs)
   • Marketing contributions: up to 4% of Gross Sales
   • Technology Services Fee: $0.06 per transaction with caps (subject to change after December 28, 2025)
   • Transfer fees: 50% of then-current Initial Franchise Fee
   • Late fees and interest: $100/week for royalties, $25/week for marketing fees, plus 18% annual interest
   • Audit fee provisions
   • Indemnification obligations

4. Item 7 - Initial Investment

   • Total range: $1,406,700 to $3,323,200
   • Breakdown of all costs
   • Assumptions about landlord contributions
   • Working capital estimates (3 months)

5. Item 8 - Restrictions on Sources

   • Required purchases from designated suppliers
   • Revenue franchisor receives from supplier arrangements ($9,151,758 in 2023)
   • Vendor program management fees
   • Insurance requirements

6. Item 11 - Franchisor's Assistance

   • Pre-opening support obligations
   • Training requirements
   • Site selection and approval process
   • Marketing fund administration
   • Technology system requirements

7. Item 12 - Territory

   • Protected Area definition and limitations
   • Franchisor's reserved rights within Protected Area
   • Impact Policy for locations within 5 miles of existing restaurants
   • Relocation provisions

8. Item 13 - Trademarks

   • Trademark ownership and registration status
   • Limitations on trademark rights
   • Your obligations regarding trademark use

9. Item 15 - Personal Participation

   • Designated Principal requirements (25% ownership minimum)
   • Key Operator requirements
   • On-premises management requirements

10. Item 17 - Renewal, Termination, Transfer

    • Renewal conditions and fees
    • Grounds for termination
    • Transfer restrictions and fees
    • Post-termination obligations
    • Non-compete provisions

11. Item 19 - Financial Performance Representations

    • What information is provided (or not provided)
    • How to interpret the data
    • Limitations and disclaimers

12. Item 20 - Outlet Information

    • System growth or contraction trends
    • Franchisee turnover rates
    • Closures and transfers

Specific Zaxby's Provisions Requiring Scrutiny:

• Management Agreement Structure: The implications of ZFL providing services on behalf of Zaxby's SPE Franchisor
• Development Incentive Programs: Terms, conditions, and potential clawbacks
• Technology Services Fee: Future modification rights after December 28, 2025
• Weekly Payment Requirements: Electronic debit authorization and cash flow implications
• Substitute Royalty Fees: During relocation events
• Impact Study Requirements: For locations near existing restaurants
• Lease Rider Requirements: Provisions franchisor requires in your lease

Expected Attorney Costs

Typical Fee Structures:

Factors Affecting Cost:

• Attorney's experience level and reputation
• Geographic location (major metropolitan areas typically cost more)
• Complexity of your situation (single unit vs. multi-unit development)
• Whether you're in a franchise registration state (requires additional review)
• Negotiation needs (though major FDD terms are typically non-negotiable)
• Time sensitivity of your review

Cost-Saving Tips:

• Prepare organized questions and materials before meetings
• Review the FDD yourself first to identify your primary concerns
• Be clear about your budget upfront
• Ask about flat-fee arrangements for standard reviews
• Consider limiting scope to most critical issues if budget is tight
• Don't skip this expense—it's a small percentage of your total investment

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Finding a Franchise Accountant

Why Franchise Accounting Expertise Matters

Franchise accounting involves unique considerations that general accountants may not fully understand:

Franchise-Specific Accounting Issues:

• Percentage-based fees calculated on Gross Sales (royalties, marketing contributions)
• Weekly payment obligations requiring careful cash flow management
• Multiple fee recipients (franchisor, marketing fund, co-op, technology fees)
• Initial investment capitalization vs. expense treatment
• Franchise fee amortization over the franchise term
• Multi-unit financial modeling for development agreements
• Inventory management for perishable food products
• Labor cost management in a high-turnover industry
• Sales tax compliance for restaurant operations
• Gift card liability accounting

Services Your Franchise Accountant Should Provide

Pre-Investment Services:

1. Financial Model Review and Development

   • Analyze the investment requirements ($1,406,700 to $3,323,200 range)
   • Create detailed cash flow projections
   • Model various sales scenarios
   • Calculate break-even points
   • Project return on investment timelines
   • Evaluate working capital needs

2. Pro Forma Analysis

   • Review any Item 19 financial performance representations
   • Develop realistic revenue projections for your market
   • Calculate all ongoing fees based on projected sales:
     • 6% Royalty (or reduced rates under Development Incentive Programs)
     • 1.5% National Marketing Contribution
     • Up to 3% Co-op Marketing Contribution
     • $0.06 per transaction Technology Services Fee
   • Project operating expenses (labor, food costs, occupancy, utilities)
   • Estimate net profit margins
   • Sensitivity analysis for different performance levels

3. Tax Structure Advice

   • Recommend optimal entity structure (LLC, S-Corp, C-Corp, partnership)
   • Explain tax implications of different structures
   • Advise on franchise fee tax treatment
   • Discuss depreciation strategies for equipment and improvements
   • Plan for quarterly estimated tax payments
   • Identify potential tax credits (hiring incentives, energy credits, etc.)
   • Advise on sales tax collection and remittance

4. Financing Analysis

   • Evaluate your personal financial capacity
   • Determine optimal debt-to-equity ratio
   • Review loan terms and interest costs
   • Calculate debt service coverage ratios
   • Advise on SBA loan qualification
   • Analyze impact of financing on cash flow

Post-Opening Services:

1. Bookkeeping System Setup

   • Establish chart of accounts appropriate for franchise restaurant
   • Set up accounting software (QuickBooks, Xero, etc.)
   • Create systems for tracking Gross Sales accurately
   • Implement inventory management systems
   • Establish payroll processing
   • Set up sales tax collection and remittance procedures
   • Create weekly fee payment tracking

2. Ongoing Bookkeeping and Accounting

   • Monthly financial statement preparation
   • Weekly Gross Sales calculation and reporting
   • Royalty and fee payment verification
   • Payroll processing and tax compliance
   • Sales tax filing
   • Accounts payable and receivable management
   • Bank reconciliations
   • Inventory tracking and valuation

3. Financial Reporting and Analysis

   • Monthly profit and loss statements
   • Balance sheet preparation
   • Cash flow statements
   • Key performance indicator (KPI) tracking
   • Food cost percentage analysis
   • Labor cost percentage analysis
   • Prime cost monitoring (food + labor)
   • Comparison to budget and prior periods
   • Variance analysis and explanations

4. Tax Compliance and Planning

   • Quarterly estimated tax calculations and payments
   • Annual tax return preparation
   • Sales tax returns
   • Payroll tax returns (941, 940, state)
   • Year-end planning and strategy
   • Tax deduction optimization
   • Franchise fee amortization tracking

5. Advisory Services

   • Monthly or quarterly financial review meetings
   • Profitability improvement recommendations
   • Cost reduction strategies
   • Pricing analysis
   • Multi-unit expansion financial modeling
   • Succession and exit planning

Finding a Qualified Franchise Accountant

Where to Search:

1. Professional Accounting Organizations

   • American Institute of CPAs (AICPA) - www.aicpa.org
   • State CPA societies with member directories
   • Look for CPAs with restaurant or franchise industry focus

2. Franchise-Specific Resources

   • IFA supplier members (accounting category)
   • Franchise business consultants who partner with accountants
   • Franchise broker referrals

3. Restaurant Industry Specialists

   • National Restaurant Association resources
   • State restaurant associations
   • Restaurant accounting firms

4. Referrals

   • Other Zaxby's franchisees (check Exhibit D)
   • Other restaurant franchisees in your area

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Is Zaxby's SPE Franchisor LLC Franchise Right for You? Final Verdict

Summary of Key Findings

Investment Range Recap

The total investment required to open a Zaxby's franchise ranges from $1,406,700 to $3,323,200, which positions it as a substantial investment in the quick-casual dining sector. This comprehensive investment includes:

• Initial Franchise Fee: $35,000 (with VetFran discount available reducing this to $28,000)
• Building & Sitework: $772,000 to $2,200,000 (the largest variable cost)
• Furniture, Fixtures & Equipment: $425,000 to $497,000
• Technology System: $60,200 to $92,200
• Working Capital (3 months): $1,000 to $96,000

Important Note: The investment range assumes you will lease the real estate and that the landlord will pay for leasehold improvements. If the landlord does not cover these costs, your investment will be significantly higher.

Financial Stability Assessment

Franchisor Structure: Zaxby's SPE Franchisor LLC was formed in April 2021 as part of a securitization transaction. The company is ultimately owned by Craveability Parent LLC, which is controlled by investment funds managed by affiliates of Goldman Sachs' Merchant Banking business.

System Size: As of December 31, 2023, the Zaxby's system included:

• 145 company-operated restaurants
• 778 franchised restaurants (based on the securitization transaction reference)
• Established presence primarily in the southeastern United States

Revenue Streams: During fiscal year 2023, the franchisor received $163,158,541 in total revenues, with $9,151,758 (5.61%) derived from franchisees' required purchases of proprietary food items.

Operational Support: While Zaxby's SPE Franchisor LLC is the franchisor, actual operational support is provided by affiliate Zaxby's Franchising LLC (ZFL) under a management agreement. However, Zaxby's SPE Franchisor remains fully responsible and accountable for all support obligations.

Support and Training Summary

Pre-Opening Support:

• Site selection review and confirmation through Real Estate Committee (REC)
• Architectural plan review and acceptance
• Supplier and contractor approval process
• Access to 696-page operations manual (3 sections: Administrative, Front of House, Back of House)
• Initial marketing plan development and administration

Initial Training Program:

• Attendees Required: Designated Principal or Key Operator plus 3-4 managers
• Location: Training facility (location not specified in available FDD sections)
• Duration: Not specified in available FDD sections
• Cost: Included for 4 attendees; $2,500 per additional attendee
• Travel Expenses: $10,000 to $25,000 (franchisee responsibility)

Ongoing Support:

• Periodic training programs and conferences (up to 2 mandatory in-person meetings annually)
• Updated manual provisions and system improvements
• Marketing fund administration
• Restaurant evaluations and compliance inspections
• Supplier relationship management

⚠️ Red Flag: The FDD does not provide detailed information about training duration, specific curriculum, or success rates, which makes it difficult to fully evaluate the quality and comprehensiveness of the training program.

Territory and Competition

Protected Area: You will receive a designated Protected Area upon site confirmation, though specific details about the size and scope of protection are not fully disclosed in the available FDD sections.

Encroachment Considerations:

• If you develop a restaurant within 5 miles of an existing Zaxby's, an impact study may be required
• Impact Study Fee: $3,000 (partially or fully refundable based on predicted impact)
• Refund structure: Full refund if impact <10%; 50% refund if impact 10-15%; no refund if impact >15%

Competitive Landscape: The quick-casual chicken segment is highly competitive, with national chains and local establishments competing for market share. Zaxby's differentiates through its proprietary sauces, menu variety, and established brand presence in the Southeast.

Franchisee Satisfaction Indicators

⚠️ Critical Gap: The available FDD sections do not include Item 20 data showing:

• Number of franchisees who have left the system
• Transfer rates
• Closure rates
• Franchisee testimonials or satisfaction metrics

Positive Indicators:

• Long-standing system (franchising since 1994 under predecessor ZFL)
• Substantial company-operated restaurant base (145 units) demonstrates franchisor commitment
• Established vendor relationships and purchasing power
• Multiple development incentive programs available

Concerns:

• Complex corporate structure following securitization transaction
• Management services provided by affiliate rather than franchisor directly
• Limited transparency regarding franchisee performance and satisfaction

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Risk vs. Reward Assessment

Primary Risks Identified

Potential Rewards and Opportunities

Brand Strength:

• Established regional brand with 30+ years of operating history
• Strong presence in core southeastern markets
• Differentiated menu with proprietary sauces and recipes

Development Incentives: Two attractive incentive programs available for qualified franchisees:

New Restaurant Opening Incentive Program (Core Markets):

• Initial Franchise Fee refunded upon opening
• Reduced royalty: 2% Year 1, 4% Year 2, then 6%
• Must open between August 25, 2023 and December 31, 2024
• Applies to restaurants in AL, FL, GA, KY, MS, NC, SC, or TN

Select Market Incentive Program (Non-Core Markets):

• Initial Franchise Fee refunded upon opening
• Reduced royalty: 0% Year 1, 3% Year 2, then 6%
• Must open between January 1, 2024 and December 31, 2026
• Applies to states outside the 8 core markets

Operational Advantages:

• Comprehensive operations manual (696 pages)
• Multiple revenue channels: dine-in, drive-thru, carry-out, delivery, mobile ordering
• Established supply chain and vendor relationships
• National marketing fund support
• Proven restaurant prototype and design standards

Growth Potential:

• Multi-unit development opportunities available
• Expansion into non-core markets incentivized
• Digital ordering and delivery capabilities
• Catering services potential

Risk Mitigation Strategies

For Prospective Franchisees:

1. Financial Preparation:

   • Secure financing commitments before signing Franchise Agreement
   • Maintain working capital reserves beyond the estimated 3-month requirement
   • Negotiate favorable lease terms, particularly regarding landlord-funded improvements
   • Consider development incentive programs to reduce initial financial burden

2. Due Diligence:

   • Conduct extensive validation calls with current franchisees (obtain Item 20 roster)
   • Interview franchisees who have left the system to understand reasons for departure
   • Visit multiple operating restaurants in various markets and dayparts
   • Analyze local market demographics and competition thoroughly
   • Engage experienced franchise attorney to review all agreements
   • Hire qualified accountant to develop detailed financial projections

3. Site Selection:

   • Work with experienced commercial real estate broker familiar with restaurant site selection
   • Conduct independent market analysis beyond franchisor's REC approval
   • Ensure site meets drive-thru requirements (or confirm Non-Traditional location eligibility)
   • Verify zoning, permitting, and development timeline feasibility
   • Negotiate lease contingencies for franchisor approval and construction completion

4. Operational Readiness:

   • Ensure Designated Principal and Key Operator meet experience requirements
   • Recruit management team before training begins
   • Develop relationships with approved suppliers early
   • Create detailed pre-opening timeline with buffer for delays
   • Establish banking relationships and accounting systems in advance

5. Legal Protection:

   • Understand dispute resolution requirements (arbitration in Georgia)
   • Review non-compete provisions carefully (restrictions apply during and after franchise term)
   • Clarify Technology Service Fee calculation methodology for 2026 and beyond
   • Negotiate transfer provisions if multi-generational ownership is planned
   • Understand termination conditions and post-termination obligations

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Ideal Franchisee Profile for Zaxby's SPE Franchisor LLC

Financial Requirements

Minimum Qualifications (based on industry standards and investment range):

⚠️ Important Note: The FDD does not explicitly state minimum net worth or liquid capital requirements. Prospective franchisees should confirm these requirements directly with the franchisor during the application process.

Multi-Unit Developers:

• Development Fee: $35,000 - $175,000 (for 2-10 restaurants)
• Must demonstrate financial capacity to develop all committed restaurants according to Development Schedule
• Each restaurant requires full investment amount ($1.4M - $3.3M)

Skills and Experience Needed

Highly Desirable:

• Restaurant Operations Experience: Prior experience managing or operating quick-service or quick-casual restaurants
• Multi-Unit Management: For developers, proven ability to oversee multiple locations simultaneously
• Staff Management: Experience recruiting, training, and retaining hourly and management employees
• Financial Management: Strong understanding of P&L statements, cost controls, and cash flow management
• Marketing Acumen: Ability to execute local marketing initiatives and community engagement
• Real Estate Knowledge: Understanding of site selection, lease negotiations, and construction management

Acceptable Alternatives:

• Strong business management background in retail, hospitality, or service industries
• Demonstrated leadership and operational excellence in other sectors
• Willingness to hire experienced restaurant management team
• Commitment to hands-on involvement during startup phase

Not Required But Beneficial:

• Existing relationships with commercial real estate developers
• Experience with franchise systems
• Knowledge of local market and community connections
• Food service or culinary background

Personal Characteristics

Essential Traits:

• Hands-On Leadership: Willingness to be actively involved in daily operations, especially during startup
• Attention to Detail: Commitment to maintaining brand standards and operational excellence
• Customer Service Orientation: Passion for creating positive guest experiences
• Coachability: Ability to follow established systems while adapting to local market needs
• Resilience: Capacity to handle the demands and challenges of restaurant operations
• Team Builder: Skill in creating positive workplace culture and developing staff
• Community Engagement: Desire to be active in local community and build customer relationships

Success Indicators:

• Track record of business success and achievement
• Strong work ethic and willingness to work non-traditional hours
• Problem-solving ability and decisiveness
• Financial discipline and conservative approach to capital management
• Long-term perspective (minimum 10-year commitment to initial franchise term)

Time Commitment Expectations

Pre-Opening Phase (12-15 months):

• Part-time to Full-time: Site selection, construction oversight, training, pre-opening marketing
• Intensive Final 60 Days: Full-time commitment for training, hiring, and opening preparation

First 6-12 Months of Operation:

• Full-time commitment required: 50-70 hours per week typical
• Hands-on involvement in all aspects of operations
• Direct oversight of management team development
• Active participation in local marketing and community building

Ongoing Operations (After Stabilization):

• Multi-Unit Operators: Full-time commitment to oversee all locations; Key Operator must have day-to-day control
• Single-Unit Operators: Minimum 40-50 hours per week; may reduce with strong management team
• Absentee Ownership: Not recommended; Designated Principal must have 25%+ ownership and authority over business decisions

Additional Time Requirements:

• Mandatory conferences and meetings: Up to 2 in-person events annually
• Ongoing training and system updates
• Co-op or ZMAA marketing meetings
• Regular communication with franchisor support team

Business Goals Alignment

Zaxby's Franchise is Best Suited For:

✅ Entrepreneurs seeking:

• Established brand with proven operating system
• Comprehensive training and ongoing support
• Regional growth opportunity in southeastern markets
• Quick-casual dining segment with multiple revenue channels
• Long-term wealth building through multi-unit development

✅ Investors who value:

• Brand recognition and customer loyalty
• Proprietary products and differentiated menu
• Strong vendor relationships and purchasing power
• Marketing fund support and national advertising
• Real estate appreciation potential

✅ Operators committed to:

• Maintaining high food quality and safety standards
• Delivering exceptional customer service
• Building strong community presence
• Following established systems and standards
• Continuous improvement and adaptation

Zaxby's Franchise May NOT Be Suitable For:

❌ Those seeking:

• Low-cost franchise opportunity (investment is substantial)
• Passive or absentee ownership model
• Complete operational autonomy and flexibility
• Immediate profitability (restaurant startups typically require 18-24 months to stabilize)
• National or international expansion opportunities (currently focused on specific regions)

❌ Those concerned about:

• High ongoing fee structure (6% royalty + up to 4% marketing + TSF)
• Restricted supplier relationships (75% of purchases from designated/approved sources)
• Complex corporate structure and affiliate relationships
• Limited financial performance data availability
• Competitive quick-casual chicken segment

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Overall Recommendation Rating

⭐⭐⭐ 3 out of 5 Stars – "Proceed with Thorough Due Diligence"

Rationale:

Zaxby's presents a moderate-to-strong franchise opportunity for well-capitalized, experienced restaurant operators or business professionals willing to commit to hands-on management. The brand offers an established operating system, comprehensive support, and attractive development incentives. However, the substantial investment requirement, complex corporate structure, and limited financial performance data in the available FDD sections warrant careful evaluation.

Strengths That Support Investment:

• 30+ years of operating history with proven concept
• Strong regional brand recognition in core markets
• Comprehensive 696-page operations manual
• Multiple revenue channels (dine-in, drive-thru, delivery, mobile)
• Attractive development incentive programs
• Established supply chain and vendor relationships

Concerns That Require Careful Evaluation:

• High total investment ($1.4M - $3.3M per unit)
• Complex securitization structure with affiliate providing support services
• Limited financial performance representations available in provided FDD sections
• Ongoing fee burden (6%+ royalty, up to 4% marketing, TSF with future uncertainty)
• Geographic concentration in southeastern markets
• Intense competition in quick-casual chicken segment

Recommendation: Qualified candidates should proceed with comprehensive due diligence, including extensive franchisee validation calls, independent market analysis, and professional legal and financial review. The franchise opportunity is most suitable for experienced operators with substantial capital who are committed to multi-unit development in core or expansion markets.

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Next Steps If Moving Forward

1. Contact Franchise Development

Primary Contact:

• **Franchise

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Zaxby's SPE Franchisor LLC Franchise FAQs

Comprehensive Answers to Your Franchise Questions

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Q: How much does a Zaxby's SPE Franchisor LLC franchise cost?

A: The total investment to open a Zaxby's franchise ranges from $1,406,700 to $3,323,200, according to the FDD. This estimate assumes you will lease the real estate and that the landlord will pay for leasehold improvements. If you purchase the real estate instead of leasing, the unimproved land typically costs between $400,000 and $1,400,000 additional. The largest cost components include building and sitework ($772,000-$2,200,000), furniture/fixtures/equipment ($425,000-$497,000), and additional working capital for the first three months ($1,000-$96,000).

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Q: What is the Zaxby's SPE Franchisor LLC franchise fee?

A: The initial franchise fee is $35,000, payable upon execution of the Franchise Agreement. If you sign a Development Agreement to open multiple locations, you pay 50% of the aggregate franchise fees upfront ($17,500 per restaurant), with the remaining 50% due when you sign each individual Franchise Agreement. Zaxby's offers a 20% discount ($7,000 off) to qualifying U.S. military veterans through the VetFran Program for the first five restaurants opened.

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Q: How much do Zaxby's SPE Franchisor LLC franchise owners make?

A: The FDD does not provide specific financial performance representations regarding franchisee earnings or profitability in Item 19. Without this data, potential franchisees cannot determine average revenues, profits, or owner compensation from the disclosure document. We strongly recommend speaking directly with current and former franchisees listed in Exhibit D to understand actual financial performance and owner earnings before making an investment decision.

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Q: What is the Zaxby's SPE Franchisor LLC franchise failure rate?

A: The FDD does not explicitly state a failure or closure rate. However, according to Item 20, during the fiscal year ending December 31, 2023, there were 10 franchised outlets that ceased operations (8 through termination, 1 through non-renewal, and 1 that otherwise ceased operations). With 778 franchised outlets operating as of December 31, 2023, this represents approximately a 1.3% closure rate for that year. Prospective franchisees should review the three-year outlet history in Item 20 and contact former franchisees to better understand reasons for closures.

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Q: Does Zaxby's SPE Franchisor LLC provide financing?

A: No, Zaxby's does not offer direct or indirect financing, nor do they guarantee your lease or other obligations, as stated in Item 10 of the FDD. You will need to secure financing independently through banks, credit unions, SBA loans, or other lending institutions. Your ability to obtain third-party financing will depend on factors such as your creditworthiness, available collateral, and general lending market conditions.

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Q: How long is the Zaxby's SPE Franchisor LLC franchise agreement?

A: The Franchise Agreement has an initial term of 20 years from the date the restaurant opens for business. You may renew for one additional 10-year term if you meet all renewal conditions, including signing the then-current form of Franchise Agreement (which may have materially different terms), paying a renewal fee equal to 50% of the then-current initial franchise fee, and completing any required restaurant modifications or remodeling at your expense.

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Q: What territory do you get with Zaxby's SPE Franchisor LLC franchise?

A: You receive a "Protected Area" designated on the Location and Protected Area Schedule after your site is approved, but the FDD does not specify the exact size or radius. Zaxby's will not establish or operate a company-owned restaurant or grant another franchisee the right to operate a restaurant with its principal entrance within your Protected Area during the term of your agreement. However, Zaxby's reserves extensive rights to compete with you outside the Protected Area and through alternative channels (delivery services, catering, grocery stores, airports, etc.), even if these operations impact your territory.

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Q: Is Zaxby's SPE Franchisor LLC franchise a good investment?

A: This depends on multiple factors specific to your situation. Positive indicators include: an established brand with 923 total locations (145 company-owned, 778 franchised) as of December 31, 2023; 30 years of operating history; and a relatively low closure rate of 1.3% in 2023. Concerns include: high total investment ($1.4M-$3.3M); no financial performance representations in Item 19; ongoing royalties of 6% plus up to 4% in marketing fees; and extensive franchisor rights to modify the system and impose new requirements. Conduct thorough due diligence, including speaking with current franchisees and consulting with franchise attorneys and accountants.

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Q: How do I get a Zaxby's SPE Franchisor LLC FDD?

A: Contact Zaxby's franchise development team at franchise@zaxbys.com or call (706) 353-8107. You can also reach out to Michael Mettler, Chief Development Officer, at 1040 Founder's Boulevard, Suite 100, Athens, Georgia 30606. By law, Zaxby's must provide you with the FDD at least 14 calendar days before you sign any binding agreement or make any payment. You may also request the FDD in alternative formats for convenience.

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Q: Can I sell my Zaxby's SPE Franchisor LLC franchise?

A: Yes, but transfers require Zaxby's prior written approval and you must pay a transfer fee equal to 50% of the then-current initial franchise fee (currently $17,500). The buyer must meet all of Zaxby's qualification standards, complete training, sign the then-current form of Franchise Agreement, and you must be in good standing with all obligations current. You and your owners must also sign a general release of all claims against Zaxby's. Zaxby's has a right of first refusal to purchase your franchise on the same terms as any bona fide third-party offer.

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Q: What support does Zaxby's SPE Franchisor LLC provide?

A: Zaxby's provides comprehensive support including: site selection review and approval; architectural plan review; initial training for up to 4 managers (5-6 weeks); access to a 696-page operations manual; ongoing operational evaluations; additional training programs; supplier negotiations; and marketing fund administration. Support services are actually provided by affiliate ZFL under a management agreement, though Zaxby's SPE Franchisor remains legally responsible. The franchisor also coordinates franchisee meetings, provides system updates, and maintains approved supplier relationships.

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Q: What are the ongoing fees for Zaxby's SPE Franchisor LLC franchise?

A: Ongoing fees include: 6% royalty on gross sales (may be reduced to 2% year one and 4% year two under certain development incentive programs); up to 4% total marketing contributions comprised of 1.5% to National Marketing Fund (may increase to 3.5%) and up to 3% to local Co-op or Multi-DMA fund; Technology Services Fee currently at $0.06 per transaction with applicable caps; and various other fees for transfers ($17,500), late payments ($100/week plus 18% interest), audits, additional training, and conferences.

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Q: How long is Zaxby's SPE Franchisor LLC franchise training?

A: Initial training consists of 5-6 weeks of comprehensive instruction covering both classroom and on-the-job training. You must send your Designated Principal or Key Operator plus three managers (or four managers if your Designated Principal/Key Operator won't serve as a Certified Manager) to complete the program. Training covers restaurant operations, food preparation, customer service, management, and system standards. If you need to train replacement managers later, the fee is $2,500 per person. All training must be successfully completed before you can open your restaurant.

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Q: Can I run Zaxby's SPE Franchisor LLC franchise as an absentee owner?

A: No, absentee ownership is not permitted. You must designate a "Key Operator" who has control over day-to-day activities and operations of your restaurant(s), including operational standards and financial performance. This Key Operator must be approved by Zaxby's and must complete the required training program. Additionally, you must designate a "Designated Principal" with at least 25% ownership who has authority over all business decisions and power to bind you in dealings with Zaxby's. Your Designated Principal may serve as your Key Operator if they meet all requirements.

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Q: What are the main competitors to Zaxby's SPE Franchisor LLC?

A: According to the FDD, Zaxby's competes with other national and local quick casual dining restaurants offering similar services including dine-in, drive-thru, carryout, and delivery options. Primary competitors include other chicken-focused chains like Chick-fil-A, Raising Cane's, Popeyes, KFC, and Bojangles, as well as broader quick-casual concepts like Panera Bread, Chipotle, and various regional chicken wing restaurants. The restaurant industry is described as "highly competitive" in the disclosure document, with competition based on food quality, service speed, convenience, and customer experience.

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Important Considerations for Prospective Franchisees

Key Investment Highlights

Ongoing Fee Structure

Critical Timeline Requirements

• Site Selection to Opening: 12-15 months typical
• Real Estate Committee Approval Deadline: Specified in agreement
• Construction Commencement Deadline: Specified in agreement
• Opening Deadline: Specified in agreement
• Failure to meet deadlines: May result in franchise agreement termination

Red Flags to Consider

⚠️ No Financial Performance Data: Item 19 contains no earnings claims, making it impossible to evaluate potential profitability from the FDD alone.

⚠️ High Total Investment: At $1.4M-$3.3M, this requires substantial capital and creates significant financial risk.

⚠️ Complex Fee Structure: Multiple ongoing fees totaling up to 13.5% of gross sales can significantly impact profitability.

⚠️ Limited Territory Protection: While you receive a Protected Area, Zaxby's retains extensive rights to compete through alternative channels.

⚠️ Strict Operational Control: The franchisor maintains significant control over operations, suppliers, pricing, and can modify requirements with 30 days' notice.

Due Diligence Recommendations

Before investing in a Zaxby's franchise, prospective franchisees should:

1. Contact Multiple Franchisees: Speak with at least 10-15 current franchisees and several former franchisees (listed in Exhibits D-1 and D-3) about their actual financial performance and experiences.

2. Validate Financial Projections: Work with an accountant experienced in franchise analysis to create realistic financial projections based on the fee structure and estimated costs.

3. Review Legal Documents Carefully: Have a franchise attorney review the Franchise Agreement, Development Agreement (if applicable), and all exhibits before signing.

4. Assess Market Conditions: Evaluate the competitive landscape, demographics, and market saturation in your target location.

5. Secure Financing Early: Given the high investment requirement and lack of franchisor financing, establish financing sources before committing.

6. Understand Time Commitment: Ensure you or your Key Operator can dedicate the necessary time to hands-on management, as absentee ownership is not permitted.

7. Calculate Break-Even Point: Determine how much revenue you'll need to cover all fees, operating expenses, debt service, and provide acceptable owner compensation.

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Disclaimer: This FAQ is based on information contained in the Zaxby's SPE Franchisor LLC Franchise Disclosure Document dated April 29, 2024. Franchise offerings and terms may change. Always request and review the most current FDD and consult with legal and financial advisors before making any franchise investment decision.