11. Master Franchise Agreement
In November 2004, the Company entered into a Master Franchise Agreement with a franchisee. The agreement provides the
franchisee the right to develop, subfranchise or operate 250 Caribou Coffee coffeehouses in 12 Middle Eastern countries. In June of 2011, the Master Franchise Agreement was amended to expand the rights of the franchisee to develop 350 Caribou Coffee
coffeehouses and to extend the expiration date. The agreement, as amended, expires in December 2021.
In connection with the
agreement, the franchisee paid the Company a nonrefundable deposit aggregating $3.3 million. In addition to the deposit, the franchisee is obligated to pay the Company $20 thousand per franchised/subfranchised coffeehouse (initial franchise
fee) opened for the first 100 Caribou Coffee Coffeehouses and $15 thousand for each additional franchised/subfranchised coffeehouse opened (after the first 100). The agreement provides for $5 thousand of the initial deposit received by the Company
to be applied against the initial franchise fee as discussed herein. Monthly royalty payments ranging from 3%-5% of gross sales are also due to the Company.
As of September 30, 2012 and January 1, 2012, the Company included $1.7 million of the deposit in long term liabilities as deferred revenue and $0.2 million and $0.3 million, respectively in
current liabilities as deferred revenue on its balance sheet. The initial deposit will be amortized into income on a pro rata basis along with the initial franchise fee payments received in connection with the execution of the franchise or
subfranchise agreements at the time of the coffeehouse opening. The current portion of deferred revenue represents the franchise fees for the coffeehouses estimated to be opened during the subsequent twelve months per the development schedule in the
Master Franchise Agreement. At September 30, 2012, there were 102 coffeehouses operating under this Agreement.