Transactions with Related Party

9 Months Ended

Sep. 28, 2014

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

Transactions with Related Parties

In 2012 the Company issued to BKC 100 shares of Series A Convertible Preferred Stock which is convertible into 9,414,580 shares, or 28.9% of the outstanding shares of common stock calculated on the date of the closing of the 2012 acquisition on a fully diluted basis. As a result of the 2012 acquisition, BKC has two representatives on the Company's board of directors.

Each of our Burger King restaurants operates under a separate franchise agreement with BKC. These franchise agreements generally provide for an initial term of twenty years and currently have an initial franchise fee of fifty thousand dollars. Any franchise agreement, including renewals, can be extended at the Company's discretion for an additional 20 year term, with BKC's approval, provided that, among other things, the restaurant meets the current Burger King image standard and the Company is not in default under terms of the franchise agreement.

In addition to the initial franchise fee, the Company generally pays BKC a monthly royalty at a rate of 4.5% of sales. Royalty expense was $7.6 million and $7.1 million in the three months ended September 28, 2014 and September 29, 2013, respectively, and $21.0 million and $20.7 million in the nine months endedSeptember 28, 2014 and September 29, 2013, respectively.

The Company is also generally required to contribute 4% of restaurant sales from our Burger King restaurants to an advertising fund utilized by BKC for its advertising, promotional programs and public relations activities, and additional amounts for participation in local advertising campaigns in markets that approve such additional spending. Advertising expense related to BKC was $6.8 million and $7.3 million in the three months ended September 28, 2014 and September 29, 2013, respectively and $20.3 million and $22.0 million in the nine months endedSeptember 28, 2014 and September 29, 2013, respectively.

As of September 28, 2014, the Company leased 290 of its restaurant locations from BKC and for 188 of these locations the terms and conditions of the lease with BKC are identical to those between BKC and the third-party lessor. Aggregate rent under all BKC leases for the three months ended September 28, 2014 and September 29, 2013 was $6.7 million and $6.6 million, respectively, and $19.6 million and $20.0 million in the nine months endedSeptember 28, 2014 and September 29, 2013, respectively. The Company believes the lease terms for all of its leases with BKC are commercially reasonable and are on an arms-length basis.

As of September 28, 2014, the Company owed BKC $1.9 million associated with the assignment of its right of first refusal in 2012 and $3.7 million related to the monthly payment of advertising, royalties and rent.