Highlights of Smashburger’s 2012 Franchise Disclosure Document – Part 2

Other Fees Under the Franchise Agreement

Royalty: 5% of Gross Sales. At the end of each calendar quarter, if the total of the Gross Sales for the quarter was greater than $300,000, there is an additional payment due equal to the difference between 6% of the total quarterly Gross Sales and the amount of royalty actually paid.

Gross Sales, under the Franchise Agreement, is defined as all revenue derived from operating the restaurant, but (1) excludes sales, use, or service taxes and (2) documented refunds, credits, and discounts to customers and employees. Gift certificate, gift card, or similar program payments are included when the gift certificate, gift card, other instrument, or applicable credit is redeemed. Gross Sales also includes all insurance proceeds received for loss of business due to a casualty or similar event.

Marketing Fund: 1% to 4% of Gross Sales

Local Advertising Cooperative: up to 3% of Gross Sales

Average Annual Sales of Franchised and Corporate-Owned Smashburger Restaurants

As of January 1, 2012 (the end of Smashburger’s fiscal year), there were 142 Smashburger restaurants in operation, 87 of which had been in operation for the entire 2011 fiscal year (excluding transfers). Of the 87 locations, 41 were owned and operated by Smashburger’s affiliates, and 46 were owned and operated by unaffiliated franchisees.

The following are certain financial performance information for the 87 Smashburger restaurants that were operating for the full 2011 fiscal year.

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