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Transactions with Related Parties (Notes)
3 Months Ended
Mar. 31, 2019
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
Transactions with Related Parties
In connection with an acquisition of restaurants from BKC in 2012, the Company issued to BKC 100 shares of Series A Convertible Preferred Stock, which was exchanged for 100 shares of newly issued Series B Convertible Preferred Stock in 2018, and as of March 31, 2019 is convertible into approximately 17.5% of the outstanding shares of the Company's common stock after giving effect to the conversion of the Series B Preferred Stock. Pursuant to the terms of the Series B Convertible Preferred Stock, BKC also has two representatives on the Company's board of directors.
Each of the Company's 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 $12.4 million and $11.6 million in the three months ended March 31, 2019 and April 1, 2018, respectively.
The Company is also generally required to contribute 4% of restaurant sales from its restaurants to an advertising fund utilized by BKC for its advertising, promotional programs and public relations activities, and additional amounts for additional local advertising in markets that approve such advertising. Advertising expense associated with these expenditures was $11.5 million and $10.9 million in the three months ended March 31, 2019 and April 1, 2018, respectively.
As of March 31, 2019, the Company leased 241 of its restaurant locations from BKC and 116 of these locations are subleased by BKC from a third-party lessor. Aggregate rent under these BKC leases was $6.8 million for each of the three months ended March 31, 2019 and April 1, 2018, respectively. The Company believes the related party lease terms have not been significantly affected by the fact that the Company and BKC are deemed to be related parties.
As of March 31, 2019, the Company owed BKC $10.2 million related to the payment of advertising, royalties and rent, which is remitted on a monthly basis. In addition, BKC owed the Company $1.9 million related to a settlement with BKC for their approval of new restaurant development by other franchisees which unfavorably impacted the Company's restaurants which was recorded as other income and included in trade and other receivables in the unaudited condensed consolidated financial statements at March 31, 2019.