Acquisition

On May 30, 2012, the Company completed the acquisition of 278 restaurants from BKC for a purchase price consisting of (i) a 28.9% equity ownership interest in the Company, (ii) $3.8 million for cash on hand and inventory at the acquired BKC restaurants and (iii) $9.4 million of franchise fees and $3.6 million for BKC’s assignment of its right of first refusal ("ROFR") on franchisee restaurant transfers in 20 states pursuant to an operating agreement dated May 30, 2012 (the "operating agreement") with BKC entered into at closing. The ROFR is payable in quarterly payments over five years. The Company also entered into new franchise agreements pursuant to the purchase and operating agreements and entered into new leases with BKC for all of the restaurants acquired in 2012, including leases for 81 restaurants owned in fee by BKC and subleases for 197 restaurants under terms substantially the same as BKC’s underlying leases for those properties. Pursuant to the operating agreement, the Company also agreed to remodel 455 Burger King restaurants to BKC’s 20/20 restaurant image.

The aggregate purchase price was $74.5 million consisting of equity consideration of $57.7 million from the issuance of 100 shares of Series A Convertible Preferred Stock and a cash purchase price of $16.8 million. The value of the Series A Convertible Preferred Stock ("Preferred Stock") was based on 9.4 million shares of common stock, the number of common shares the Preferred Stock would be convertible into at the stock price of $6.13 per share on the closing date of the 2012 acquisition. See Note 16—Preferred Stock for further information.

Under the acquisition method of accounting, the aggregate purchase price was allocated to the net tangible and intangible assets based upon their fair values on the acquisition date. The Company engaged a third party valuation specialist to assist with the valuation of franchise rights, leasehold improvements and favorable and unfavorable leases. The Company estimated that BKC's carrying value of restaurant equipment, subject to certain adjustments, and restaurant equipment subject to capital leases was equivalent to fair value of this equipment at the date of the 2012 acquisition. The fair value determination of franchising fees for certain restaurants was based on the amounts paid for such fees as the terms were at market rates.

The following table summarizes the final allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed:



Cash	$	417
Inventory	3,336
Leasehold improvements	7,640
Restaurant equipment	20,955
Restaurant equipment - subject to capital lease	10,751
Franchise fees	8,597
Franchise rights	30,700
Favorable leases	3,470
Deferred tax assets	2,465
Goodwill	6,712
Capital lease obligation for equipment	(10,779		)
Other liabilities	(174		)
Unfavorable leases	(9,553		)
Net assets acquired	$	74,537

The excess of the purchase price over the aggregate fair value of net assets acquired of $6.7 million was recognized as goodwill, a portion of which is expected to be deductible for tax purposes. Deferred tax assets relative to the 2012 acquisition are due to the book and tax bases difference of net favorable and unfavorable leases.

The fair value of the favorable and unfavorable leases acquired, as well as the fair value of the leasehold improvements and restaurant equipment acquired, were measured using significant inputs not observable in the open market. As such, the Company categorizes these as Level 2 inputs under ASC 820.

The results of operations of the acquired BKC restaurants are included in the Company's consolidated statements of operations from May 31, 2012, the day following the closing of the 2012 acquisition. The acquired BKC restaurants contributed revenues of $174.3 million for the period May 31, 2012 through December 30, 2012. It is impracticable to disclose net earnings for the post-acquisition period for these acquired BKC restaurants as net earnings of these restaurants were not tracked on a collective basis due to the integration of administrative functions, including field supervision. During the years ended December 30, 2012 and January 1, 2012, approximately $1.2 million and $0.4 million, respectively, of transaction costs related to the 2012 acquisition were recorded in general and administrative expense.

The pro forma impact on the results of operations is included in the below table for the annual period prior to the date of the closing of the 2012 acquisition on May 30, 2012 in which the acquisition was not previously consolidated. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the 2012 acquisition been consummated at the beginning of the periods presented, nor are they necessarily indicative of any future consolidated operating results.

The following table summarizes the Company's unaudited pro forma operating results (in thousands):



	Year Ended
	December 30, 2012			January 1, 2012
Restaurant sales	$	665,032		$	642,398
Net loss from continuing operations	$	(24,935	)	$	(14,509	)
Net loss per share from continuing operations, basic and diluted	$	(1.10	)	$	(0.67	)

This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies or cost savings that may be associated with the 2012 acquisition or any integration costs we may incur related to the 2012 acquisition.