How is 'Book Value' defined for the purpose of Big Apple Bagels purchasing the franchisee's assets?
Big_Apple_Bagels Franchise · 2025 FDDAnswer from 2025 FDD Document
The fees and costs of the neutral appraiser shall be shared equally by Franchisor and Franchisee. "Book Value" shall mean the net book value of the Purchased Assets, as disclosed by the balance sheet of the last monthly statement of the BAGELS Store required to have been submitted to Franchisor pursuant to Paragraph 11.b. hereof prior to such termination or expiration, provided, however, that: (1) each depreciable asset shall be valued as if it had been depreciated on a "straight-line" basis from the date of its acquisition over its Useful Life (defined below) without provision for salvage value; and (2) Franchisor may exclude from the Purchased Assets
any inventory, equipment, fixtures, furniture, signs, POS Systems, fax machines, computers, or leasehold improvements of the BAGELS Store that have not been acquired in compliance with this Agreement. No value shall be attributed to goodwill of the BAGELS Store, the assignment of lease (or sublease) for the premises of the BAGELS Store, or the assignment of any lease for any other tangible assets used in connection with the BAGELS Store, and Franchisor shall not be required to pay any separate consideration for any such assignment or sublease.
iii. For purposes of this Paragraph 17.f., "Useful Life" shall be as follows:
Furniture, fixtures, signs: 7 years
Equipment (including electronic equipment): 5 years
Leasehold improvements: 10 years
Source: Item 22 — CONTRACTS (FDD pages 86–87)
What This Means (2025 FDD)
According to Big Apple Bagels' 2025 Franchise Disclosure Document, "Book Value" is a key term in determining the purchase price should Big Apple Bagels exercise its option to buy back a franchise. Specifically, Book Value refers to the net book value of the Purchased Assets, as shown on the BAGELS Store's last monthly balance sheet submitted to Big Apple Bagels before termination or expiration of the franchise agreement.
However, the calculation of Book Value isn't a simple read from the balance sheet. The FDD stipulates that depreciable assets must be valued as if they were depreciated on a "straight-line" basis from the date of acquisition over their Useful Life, without considering any salvage value. The Useful Life is defined as 7 years for furniture, fixtures, and signs; 5 years for equipment (including electronic equipment); and 10 years for leasehold improvements. Furthermore, Big Apple Bagels has the right to exclude any inventory, equipment, fixtures, furniture, signs, POS Systems, fax machines, computers, or leasehold improvements not acquired in compliance with the franchise agreement.
Importantly, no value is attributed to the goodwill of the BAGELS Store, the assignment of the lease, or the assignment of any lease for other tangible assets. Big Apple Bagels is not required to pay any separate consideration for these assignments or subleases. If the franchisee hasn't provided a balance sheet, Big Apple Bagels can estimate Book Value based on the franchisee's initial cost, depreciated on a straight-line basis. If proof of the initial cost is lacking, Big Apple Bagels will assign a cost based on its best information for similar items at the time the franchise opened. This definition ensures a standardized valuation method when Big Apple Bagels considers purchasing a franchise location's assets.