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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 ye
