Related Parties

12 Months Ended

Jan. 03, 2021

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 January 3, 2021 is convertible into approximately 15.2% of the outstanding shares of the Company's common stock after giving effect to the conversion of the Series B Convertible Preferred Stock. See Note 12—Stockholder's Equity for further information. Pursuant to the terms of the Series B Convertible Preferred Stock, the BKC Stockholders are entitled to elect two representatives on the Company's Board of Directors.

The Company operates its Burger King® restaurants under franchise agreements with BKC and its Popeyes® restaurants under franchise agreements with Popeyes Louisiana Kitchen, Inc. ("PLK"), a subsidiary of RBI. These franchise agreements generally provide for an initial term of twenty years and currently have an initial franchise fee of $50,000. With BKC's and PLK's respective approval, the Company can elect to extend franchise agreements for additional 20 year terms, provided that the restaurant meets the current restaurant 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 Burger King sales and Popeyes a weekly royalty at a rate of 5.0% of Popeyes sales. Royalty expense was $67.2 million, $62.0 million, and $50.5 million for the years ended January 3, 2021, December 29, 2019 and December 30, 2018, respectively.

The Company is also generally required to contribute 4% of restaurant sales from the Company's restaurants to the advertising funds utilized by BKC and PLK for their advertising, promotional programs and public relations activities, and amounts for additional local advertising in markets that approve such advertising. Advertising expense associated with these expenditures was $59.3 million, $56.7 million and $47.0 million for the years ended January 3, 2021, December 29, 2019 and December 30, 2018, respectively.

As of January 3, 2021, December 29, 2019, and December 30, 2018, the Company leased 232, 248 and 244 of its restaurant locations from BKC, respectively. As of January 3, 2021, the terms and conditions of the leases with BKC are identical to those between BKC and their third-party lessor for 101 of the restaurants. Aggregate rent under these BKC leases for the years ended January 3, 2021, December 29, 2019 and December 30, 2018 was $25.9 million, $27.4 million, and $27.2 million, respectively. The Company does not believe that such lease terms have been significantly affected by the fact that the Company and BKC are deemed to be related parties.

As of January 3, 2021 and December 29, 2019, the Company owed BKC $14.7 million and $11.5 million respectively, related to the payment of advertising, royalties, rent and real estate taxes, which is normally remitted on a monthly basis. These costs are included in accounts payable, other current liabilities, prepaid rent and accrued real estate taxes on the accompanying consolidated balance sheets.

The Company and BKC entered into an Area Development and Remodeling Agreement ("Area Development Agreement") commencing on April 30, 2019 and ending on September 30, 2024, which superseded the Operating Agreement dated as of May 30, 2012, as amended, between Carrols LLC and BKC. Pursuant to the Area Development Agreement, BKC assigned its right of first refusal under its franchise agreements with its franchisees to purchase all of the assets of a Burger King restaurant on the same terms proposed between such franchisee and a third party purchaser (the “ADA ROFR”), in 16 states and a limited number of counties in four additional states, and granted franchise pre-approval to acquire Burger King restaurants until the date that Carrols LLC has acquired more than an aggregate of an additional 500 Burger King restaurants excluding those restaurants the Company acquired in the Cambridge Merger. Carrols LLC agreed to pay BKC $3.0 million for the ADA ROFR in four equal installment payments over the course of one year. The ADA was amended and restated on January 4, 2021 (see Note 18) and an impairment charge was recorded during the year ended January 3, 2021 for the remaining value of the ADA ROFR (see Note 5).

The Company assumed Cambridge's development agreement for Popeyes®, which includes a right of first refusal for acquisitions in two southern states, as well as a development commitment to open, build and operate approximately 80 new Popeyes® restaurants over six years. The continued assignment of this Popeyes® right of

first refusal is subject to suspension at Popeyes® discretion in the event of non-compliance by the Company with certain terms set forth in this development agreement.

The Company received $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 in 2019 (see Note 9).