Jamba Juice 2007 Annual Report Download - page 71

Table of Contents
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Acquisition of Franchisee
Pursuant to an Asset Purchase Agreement dated December 13, 2006, between the Company’s wholly owned subsidiary, Jamba Juice Company and
Heartland Juice Company (“Heartland”), on December 13, 2006, the Company acquired seven stores in the Minneapolis, MN, geographic region from
Heartland (the “Heartland Acquisition”). Heartland had been an area developer of the Company, whose rights to develop additional stores expired on
December 31, 2005. On August 4, 2004, the Company entered into an Amended and Restated Management Agreement with Heartland, amending a
Management Agreement initially entered into in September 24, 2002. Under this Management Agreement, the Company managed and operated the stores owned
by Heartland and did so using Company employees.
Under the terms of a Master Restructuring Agreement dated September 2002, the Company had the right to purchase the stores owned by Heartland
commencing in January 2007. In anticipation of this right, the Company and Heartland agreed to the purchase and sale transaction. Total consideration paid
was $2.6 million in cash less a holdback of $198,750.
Pursuant to the Amended and Restated Multi-Unit License, the Company agreed, among other things, to restructure the continuing royalty rate payable
by Heartland to a discounted rate below the 5% continuing royalty rate received by the Company from other franchisees. In accordance with EITF Issue
No. 04-1,  , any preexisting business relationship between parties to a
business combination must be evaluated and accounted for separately. Accordingly, $337,000 of the purchase price paid has been recognized as a settlement
loss of the franchise agreement, which has been recorded as other expense in the Company’s statement of operations.
The acquisition was accounted for using the purchase method and resulted in goodwill of $389,000
The purchase price allocation (in thousands) for Heartland was as follows (in thousands):
Fixed assets $1,587
Other current assets 96
Favorable leases 201
Unfavorable leases (65)
Goodwill 389
Total assets acquired and liabilities assumed 2,208
Settlement loss recorded as other expense 337
Write-off of deferred fees 95
Total consideration $ 2,640
The operating results of stores acquired are included in the consolidated statements of operations from the date of acquisition.
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The Company’s wholly owned subsidiary, Jamba Juice Company, has entered into multi-unit license agreements with area developers to develop stores
in certain geographic regions. Under typical multi-unit license agreements, the area developer generally pays 1/2 of the initial nonrefundable fee multiplied by
each store to be developed as a nonrefundable development fee upon execution of the multi-unit license agreement. Each time a store is opened under the multi-
unit license agreement, the Company credits the franchisee 1/2 of the initial fee
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