How is 'Book Value' defined for the purpose of Browns Chicken purchasing a Browns Chicken franchise?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
are not reasonably necessary (in function or quality) to the Store's operation or that Brown has not approved as meeting its standards for BROWN's Stores, and the purchase price will reflect these exclusions.Brown shall have the unrestricted right to assign this option to
purchase and assignment of leases separate and apart from the remainder of this Agreement.
- (2) The purchase price for the Store (except for the signage, the purchase price of which is $100) shall be either, at Brown's option: (a) the Book Value (as defined below) of the Purchased Assets, or (b) the fair market value of the Purchased Assets, as determined by a neutral appraiser. Both Brown and the Franchisee shall select an appraiser, whose sole function would be to select a third, neutral appraiser, who would determine the fair market value of the Purchased Assets. The fees and costs of the neutral appraiser shall be shared equally by Brown 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 Store required to have been submitted to Brown pursuant to Paragraph 12.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) Brown may exclude from the Purchased Assets any inventory, equipment, fixtures, furniture, signs, cash registers, modems, fax machines, computers, or leasehold improvements of the Store that have not been acquired in compliance with this Agreement. No value shall be attributed to goodwill of the Store, the assignment of lease (or sublease) for the premises of the Store, or the assignment of any lease for any other tangible assets used in connection with the Store, and Brown shall not be required to pay any separate consideration for any such assignment or sublease.
- (3) For purposes of this Paragraph 21.G., "Useful Life" shall be as follows:
Furniture, fixtures, signs: 7 years
Equipment (including electronic equipment): 5 years
Leasehold improvements: 10 years
- (4) If Franchisee has not furnished Brown a balance sheet of the last monthly statement of the Store, Brown may estab
Source: Item 22 — Contracts (FDD page 43)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, "Book Value" is a specific method for determining the purchase price of a store's assets if Browns Chicken chooses to buy back a franchise. It is defined as the net book value of the Purchased Assets, based on the last monthly balance sheet the franchisee submitted before termination or expiration of the franchise agreement.
However, the calculation of Book Value isn't a simple reading of the balance sheet. The document specifies 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 FDD specifies the Useful Life for Furniture, fixtures, and signs is 7 years, for Equipment (including electronic equipment) it is 5 years, and for Leasehold improvements it is 10 years. Browns Chicken also has the right to exclude certain assets from the Purchased Assets if they weren't acquired in compliance with the franchise agreement.
Furthermore, the Book Value calculation explicitly excludes any value attributed to the goodwill of the store, the assignment of the lease, or the assignment of any leases for other tangible assets. Browns Chicken is not required to pay separate consideration for these items. If the franchisee hasn't provided a balance sheet, Browns Chicken can estimate the Book Value based on the franchisee's initial cost, depreciated as described above. If there's no proof of the initial cost, Browns Chicken will use its best information for similar items at the time the store opened. This definition provides a structured approach to valuing the assets, but it also gives Browns Chicken some discretion in determining the final purchase price.