EX-10.27 FRANCHISE AGREEMENT

 

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                                                                 EXHIBIT 10.27

 

 

 

                               FRANCHISE AGREEMENT

 

THIS FRANCHISE AGREEMENT ("AGREEMENT"), entered into on this 7th day of January,

2005 by and between BACK YARD BURGERS, INC., a Delaware corporation

("Franchisor"), with its principal place of business at 1657 Shelby Oaks Drive,

Suite #105, Memphis, Tennessee 38134 and WILLIAM N. GRIFFITH ("Franchisee[s]"),

whose principal place of business is 2770 Tugboat Lane, #104, Cordova, TN 38016.

 

                               W I T N E S S E T H

 

         WHEREAS, Franchisor has created a method for establishing and operating

quick-service restaurants which are known as Back Yard Burgers(R) restaurants

and has also created a system for the establishment and operation of such

restaurants selling standardized menu items (the "System"), all of which is set

out in the Franchise Administration Manual and the Restaurant Operations Manual

(hereinafter collectively the "Manuals"), which are loaned to the Franchisee for

the duration of this Agreement; and

 

         WHEREAS, Franchisor has, by considerable expenditure, created

substantial goodwill associated with its marks described hereinafter; and

 

         WHEREAS, Franchisee desires to operate a Back Yard Burgers(R)

restaurant (the "Restaurant") in a certain territory hereinafter defined (the

"Territory"); and

 

         WHEREAS, Franchisee desires to use the System and trademarks and/or

trade names "Back Yard Burgers(R)", the logo associated with the name "Back Yard

Burgers(R)" (an outdoor grill with flames emanating therefrom) and other

trademarks now or hereafter owned and used by Franchisor in the operation of

restaurants (hereinafter collectively the "Marks");

 

         NOW, THEREFORE, in consideration of the mutual promises, and covenants

herein contained, the parties hereto agree as follows:

 

1. GRANT OF RIGHT.

 

         (a)      Franchisor grants to Franchisee the right to open and operate

                  a Restaurant in the Territory using the System and the Marks.

 

         (b)      Franchisee agrees to use the System and the Marks in the

                  manner prescribed by Franchisor.

 

         (c)      Franchisee agrees to use the Marks only in accordance with the

                  provisions of this Agreement and the Manuals, and to notify

                  Franchisor of any improper use of the Marks by others of which

                  Franchisee becomes aware. Franchisee shall not use any of the

                  Marks as part of its corporate name, other business name or

                  internet domain name, whether alone or in prefix, suffix, or

                  in combination with other

 

 

 

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                  modifying words, without the prior written permission of

                  Franchisor. Any and all goodwill associated with the Marks,

                  including any goodwill which might be deemed to have arisen

                  through Franchisee's activities, shall inure directly and

                  exclusively to the benefit of Franchisor, and Franchisee shall

                  not at any time acquire any rights in the Marks. Franchisee

                  further agrees that it will not challenge Franchisor's

                  ownership of the Marks, and that it will not register or

                  attempt to register the Marks in its own name or that of any

                  other firm, person or corporation. If requested by Franchisor,

                  Franchisee will assign to Franchisor any domain name

                  registrations which contain one or more of the Marks.

 

         (d)      The license granted by this Agreement does not include the

                  right to operate mobile units, trailers, concessions, and/or

                  catering off the premises of the Restaurant; however, if you

                  obtain our specific prior written permission, you will be

                  allowed to prepare product for off-premise sales. All such

                  off-premise operations by Franchisee shall be subject to and

                  in accordance with the terms and provisions of this Agreement

                  and the Manuals.

 

2.       TERRITORY. Franchisor agrees that, during the term of this Agreement,

         it will not sell or establish any other franchised or company-owned

         Restaurant or any other restaurant which sells hamburgers and/or

         chicken sandwiches in the following territory: A site to be determined

         with a one (1) mile exclusive radius (the "Territory"), except in or in

         conjunction with any military installation, zoo, amusement park, or

         stadium/arena/coliseum. Franchisee expressly acknowledges and agrees

         that Franchisor shall retain the exclusive right to sell within the

         Territory in grocery stores, specialty shops, or other non-restaurant

         retail outlets both food and non-food products (now existing or

         hereafter developed) bearing one or more of the Marks. This Agreement

         applies only to the Territory.

 

3. COVENANTS OF FRANCHISOR

 

         (a)      Franchisor will provide, without charge and at a training

                  facility designated by Franchisor, Franchisee and/or employees

                  designated by Franchisee with an approximate eight-week

                  training session which will include classroom as well as

                  "on-the-job" training. Franchisee shall be responsible for its

                  travel and room and board expenses incurred in connection with

                  training and the cost of uniforms. Franchisee or Franchisee's

                  representative must successfully complete training, and three

                  of its restaurant managers must be certified by Franchisor

                  prior to commencement of operations by Franchisee.

 

         (b)      Franchisor shall furnish Franchisee with copies of the Manuals

                  which set forth the standard operating policies and procedures

                  of Franchisor.

 

         (c)      Franchisor will provide site guidance to Franchisee by

                  delivering suggested dimensions and design plans for the

                  Restaurant. Franchisors acceptance of the site does not

                  guarantee the success of the location.

 

 

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                  Franchisor will provide Franchisee with prototypical

                  construction documents indicating the site and construction

                  work required. Determination that these documents are in

                  compliance with any local statutes, ordinances, codes, or

                  regulations is the responsibility of Franchisee. Franchisor

                  shall provide consultation regarding preparation of actual

                  construction documents at no additional charge. Franchisor

                  will assist Franchisee and Franchisee's consultants in the

                  selection of a general contractor by providing guidelines and

                  suggested stipulations to be included in agreements between

                  Franchisee and its general contractor. Franchisor will

                  periodically review the progress of the Restaurant

                  development. The actual day-to-day supervision of the

                  Restaurant development shall be the responsibility of

                  Franchisee.

 

         (d)      Franchisor will perform lease or purchase agreement review and

                  will provide guidance in negotiations of such agreements.

                  However, it is strongly recommended that Franchisee have such

                  documents examined by legal counsel or other competent advisor

                  prior to their execution. Franchisor disavows any

                  responsibility for the legality or contents of such agreement

                  or any of those documents referenced in paragraph 3(c) hereof.

 

         (e)      Franchisor will furnish Franchisee with lists of equipment,

                  supplies, and other items which are to be utilized in the

                  operation of the Restaurant. Franchisor will also assist in

                  locating sources of supply for all such items. Currently,

                  Franchisee is required to purchase three items from

                  Franchisor, namely, Miz Grazi's Hot Sauce(TM), Back Yard

                  Burgers(R) Lemon Butter Spice Packs, and Back Yard Burgers(R)

                  Blackened Seasoning. Formulas for these items are "trade

                  secrets" of Franchisor (or its suppliers) and any substitution

                  therefore would substantially alter the recognized taste and

                  presentation of products in which these items are used.

                  Additional proprietary items may be introduced in the future

                  which Franchisee will be required to purchase from Franchisor

                  or its designated suppliers. Franchisee is further required to

                  use certain brands of products in the preparation of products

                  for sale. Franchisor believes that, because of national

                  contract pricing, those required brands will be competitively

                  and reasonably priced. Franchisee is not required to purchase

                  any other items from Franchisor or its designated suppliers.

                  In any event, all items utilized in the Restaurant must meet

                  the quality standards of Franchisor. Franchisor will permit

                  Franchisee to obtain equipment, fixtures, supplies, and other

                  services from sources of Franchisee's choice provided that the

                  chosen suppliers meet the Franchisor's quality, service,

                  safety and health standards, and have the capacity to supply

                  Franchisee's requirements. Additionally, any such supplier

                  must demonstrate sound financial condition and business

                  reputation, and must supply to a sufficient number of

                  franchisees of Franchisor to enable Franchisor economically to

                  monitor compliance with Franchisor's standards,

                  specifications, and requirements.

 

 

 

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         (f)      Prior to commencement of operations of the Restaurant,

                  Franchisor will send a representative to the Restaurant

                  premises to perform a final inspection, including equipment

                  check-out, proper stocking of goods and materials, staffing,

                  sign installation, landscaping, fixtures and the actual

                  building structure, and to conduct an overall review of the

                  plans to begin operations. In the event that all conditions

                  necessary to commence operations have been met, the Franchise

                  Representative will issue a written opening authorization

                  ("Opening Authorization") to the Franchisee which shall

                  certify Franchisor's approval for the Franchisee to open for

                  business. Should any items be noted as deficient or improperly

                  prepared, the Franchisee will be required to correct

                  satisfactorily such items prior to commencing actual

                  operations. In addition, Franchisor will have its New Store

                  Opening Team at the Restaurant to assist Franchisee in hiring,

                  training, opening, and operating the restaurant for at least

                  the first five (5) days of operations.

 

         (g)      Following commencement of operations, a Franchisor

                  representative will make periodic visits to the Restaurant.

                  Periodically, the Franchisor representative will make a

                  written inspection report of the physical condition, and

                  Franchisee's performance of all primary aspects of the

                  Restaurant business. Copies of these reports will be furnished

                  to the Franchisee, or manager designated by the Franchisee.

                  Any deficiencies or any violations of the Agreement or the

                  Manuals noted in the report must be corrected. Failure to make

                  such corrections can result in termination of this Agreement

                  pursuant to Paragraph 7 hereof.

 

4. COVENANTS OF FRANCHISEE.

 

         (a)      Simultaneously with the execution of this Agreement Franchisee

                  shall pay Franchisor a franchise fee of Twenty Five Thousand

                  Dollars ($25,000.00). This fee is non-refundable.

 

         (b)      Franchisee agrees to submit to Franchisor a site selected for

                  the Restaurant as soon as practicable, but in no event more

                  than 120 days following the execution of this Agreement.

                  Franchisee further agrees that commencement of retail

                  operations of the Restaurant shall begin not more than 270

                  days following the execution of this Agreement.

 

                  Franchisee shall provide Franchisor with complete engineering

                  surveys of the selected site prepared by an engineer or

                  surveyor currently licensed in the state in which the site is

                  located. Franchisee may use the above prototypical

                  construction documents to convey the intent of Franchisor to

                  its architects and engineers who shall be currently licensed

                  in the state in which the Restaurant is to be constructed.

                  Franchisee shall have actual construction documents prepared

                  by such duly licensed professionals for use in obtaining

                  competitive bids, securing required permits, constructing the

                  project, ascertaining in consultation with professional

                  consultants the suitability of the soil and subsurface

                  conditions of the site for placement of the construction shown

                  on the prototype construction documents,

 

 

 

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                  and modifying the prototype design as necessary to comply with

                  local statute, ordinances, regulations and codes.

 

         (c)      Franchisee agrees to pay Franchisor a royalty of four percent

                  (4%) of the gross receipts (less sales tax) derived from all

                  sales of goods (whether food or non-food) and services made

                  by, at or from the Restaurant, including, but not limited to,

                  catering and off-premises sales ("Gross Receipts"). Such

                  royalty payments shall be made on a weekly basis (accounting

                  period Sunday through Saturday) and forwarded by mail so as to

                  arrive at Franchisor's headquarters within seven (7) days of

                  each Saturday. Failure to pay royalties as herein called for

                  can result in cancellation of this Agreement as provided

                  below.

 

         (d)      Franchisee agrees to maintain books and records of all

                  operations of the Restaurant and to make such books and

                  records available to Franchisor for inspection. Franchisor

                  reserves the right to have such books and records of the

                  Restaurant audited. Should such audit result in the

                  determination that reports to Franchisor have been understated

                  by an amount exceeding 1%, then the Franchisee shall pay for

                  all audit costs incurred and royalties owing plus interest at

                  the maximum rate allowable by applicable law.

 

         (e)      Franchisee agrees to spend a sum equal to not less than two

                  percent (2%) of gross receipts (less any sales tax) on local

                  promotion and advertising such as radio, television,

                  Duratrans, banners, other point-of-purchase materials,

                  printing of coupons, direct mail, and other collateral

                  materials. Franchisor will furnish suggested promotional

                  programs and advertisements, and Franchisee may prepare its

                  own. All advertisements and promotions must have prior written

                  approval from Franchisor.

 

                  In addition, Franchisor shall have the right at any time, and

                  from time to time, to create Co-op Advertising Regions. If and

                  when Franchisor creates a Co-op Advertising Region for the

                  region in which the Franchisee's Restaurant is located,

                  Franchisee shall become a member thereof and participate

                  therein. The size and content of such regions, when and if

                  established by the Franchisor, shall be binding upon

                  Franchisee and all other Back Yard Burgers franchisees

                  similarly situated who are required by the terms of their

                  franchise agreements to so participate. At all meetings of

                  such Co-op Advertising Region each participating Franchisee,

                  and Franchisor, shall be entitled to one (1) vote for each of

                  its Restaurants located within such Co-op Advertising Region.

                  Twenty percent (20%) of the eligible member votes, or

                  Franchisor by itself, may call a meeting of all members of a

                  Co-op Advertising Region. All matters concerning operation of

                  a Co-op Advertising Region shall be decided by majority vote,

                  provided that a quorum is present, and such vote shall bind

                  all members of said region, including Franchisor. For purposes

                  hereof, a quorum shall consist of members entitled to cast at

                  least 50% of the total number of votes in such Co-operative

                  Advertising Region. Upon the approval of at least a majority

                  of the votes represented by all of

 

 

 

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                  the members of the Co-op Advertising Region, the Co-op

                  Advertising Region members may vote to require each member to

                  contribute up to, but not greater than, six percent (6%) and

                  not less than one percent (1%) of the Gross Receipts (less

                  sales tax) of all such member's Restaurants in said Co-op

                  Advertising Region for a regional co-op advertising program or

                  programs. In the event of approval of such additional regional

                  advertising contributions as aforesaid, each franchisee,

                  including Franchisee, and Franchisor, shall contribute to the

                  Co-op Advertising Region in accordance with said vote.

                  Expenditures made by Franchisee pursuant to any Co-op

                  Advertising Region program shall be credited against

                  Franchisee's local advertising requirement described in

                  Paragraph 4(e) above. Notwithstanding any contrary provision

                  hereinabove, Franchisor shall have the right to approve the

                  content of all advertising and promotional materials of the

                  Co-op Advertising Region.

 

                  Franchisor may require all of its Franchisees to participate

                  periodically in certain national marketing promotions.

 

         (f)      Franchisee agrees to contribute to a National Advertising Fund

                  (the "Fund") which shall be administered by Franchisor.

                  Contributions shall be in an amount equal to one percent (1%)

                  of the Gross Receipts. Payments to the Fund shall be made on a

                  weekly basis and submitted along with royalty payments.

                  Franchisor shall apply at least fifty percent (50%) of

                  contributions to the creation of marketing tools, such as

                  advertising copy for use on local radio and television, ad

                  slicks, four-color art, design, and other collateral pieces.

                  As a general rule, Franchisor will not use the Fund for the

                  purchase and placement of media advertising. Franchisee agrees

                  that Franchisor shall be authorized to spend the remaining

                  funds on such items as new product testing and development,

                  market research, improvements in operating methods and

                  techniques, or for other such purposes that Franchisor shall

                  deem to be in the interest of improving operations and

                  earnings of Restaurants. Franchisor shall furnish Franchisee

                  with a yearly report of the status of the Fund which shall

                  disclose contributions made and uses thereof. Franchisor shall

                  make contributions on behalf of its company-owned Restaurants

                  at the same rate as required of Franchisee herein.

 

         (g)      Franchisee shall submit for review a weekly Form 45 and a

                  monthly profit and loss statement to Franchisor together with

                  all other reports as required by the Manuals.

 

         (h)      Franchisee agrees to operate the Restaurant and the off

                  premises operations in accordance with all standards,

                  specifications, methods, techniques, and procedures set forth

                  in the Manuals which may be amended, replaced, and

                  supplemented from time to time by Franchisor.

 

 

 

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         (i)      Franchisee agrees to obtain and maintain in full force during

                  the term of this Agreement or any renewal hereof an insurance

                  policy or policies affording at least the following coverage:

 

         (1)      (A)      Commercial General