Acquisitions

2014 Acquisitions

During the year ended December 28, 2014, the Company acquired an aggregate of 123 restaurants from other franchisees, which we refer to as the "2014 acquired restaurants", in the following transactions:



Closing Date	Number of Restaurants	Purchase Price			Market Location
April 30, 2014	4	$	681		Fort Wayne, Indiana
June 30, 2014	4	3,819		(1)	Pittsburgh, Pennsylvania
July 22, 2014	21	8,609			Rochester, New York and Southern Tier of Western New York
October 8, 2014	30	20,330		(1)	Wilmington and Greenville, North Carolina
November 4, 2014	64	18,761		(2)	Nashville, Tennessee; Indiana and Illinois
	123	$	52,200


(1)	The acquisitions on June 30, 2014 and October 8, 2014 included the purchase of one and twelve fee-owned properties, respectively. Ten of these fee-owned properties were sold in sale-leaseback transactions during the fourth quarter of 2014 for net proceeds of $12,961.


(2)	In connection with the acquisition on November 4, 2014, the Company entered into an agreement with BKC to remodel 46 of the restaurants acquired over a five-year period beginning in 2014.

The Company allocated the aggregate purchase price to the net tangible and intangible assets acquired in the acquisitions at their estimated fair values. The following table summarizes the final allocation of the aggregate purchase price for the five 2014 acquisitions:



Inventory	$	1,267
Land and buildings	15,955
Restaurant equipment	5,818
Restaurant equipment - subject to capital lease	1,381
Leasehold improvements	1,804
Franchise fees	3,064
Franchise rights	17,098
Favorable leases	2,096
Deferred income taxes	1,526
Other assets	65
Goodwill	9,631
Capital lease obligation for restaurant equipment	(1,458		)
Unfavorable leases	(5,912		)
Other liabilities	(135		)
Net assets acquired	$	52,200

The Company engaged a third party valuation specialist to assist with the valuation of certain leasehold improvements, franchise rights and favorable and unfavorable leases. The Company estimated that the 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 acquisitions. The fair value determination of franchise agreements for certain restaurants was based on the amounts paid for such agreements if the terms were at market rates. The fair values of acquired land and buildings were determined using both the cost approach and market approach. The fair value of the favorable and unfavorable leases acquired, as well as the fair value of land, buildings and leasehold improvements acquired, were measured using significant inputs observable in the open market. As such, the Company categorizes these as Level 2 inputs under ASC 820. The fair value of acquired franchise rights was primarily determined using the income approach.

Goodwill recorded in connection with these acquisitions was attributable to the workforce of the acquired restaurants and synergies expected to arise from cost savings opportunities. A portion of the goodwill recorded is expected to be deductible for tax purposes. Deferred income tax assets relative to the 2014 acquired restaurants are due to the book and tax bases difference of net favorable and unfavorable leases.

The weighted average amortization period of the amortizable intangible assets acquired in 2014 is as follows:



Favorable leases	13.4
Unfavorable leases	15.0
Franchise rights	30.4

The results of operations for the restaurants acquired are included from the closing date of the respective acquisition. The 2014 acquired restaurants contributed restaurant sales of $34.0 million in 2014. It is impracticable to disclose net earnings for the post-acquisition period for the 2014 acquired 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 year ended December 28, 2014, approximately $1.9 million of transaction and integration costs related to the 2014 acquisitions were recorded in general and administrative expense.

The pro forma impact on the results of operations for the 2014 acquisitions is included below. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the acquisitions 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 proforma operating results:



	Year Ended
	December 28, 2014			December 29, 2013
Restaurant sales	$	793,521		$	800,264
Net loss from continuing operations	$	(31,364	)	$	(9,964	)
Basic and diluted loss per share	$	(1.02	)	$	(0.43	)

This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies or cost savings or any transaction and integration costs related to the 2014 acquired restaurants.

2012 Acquisition

On May 30, 2012, the Company acquired 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, as amended, (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 ("Preferred Stock") and a cash purchase price of $16.8 million. The value of the 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 14 —Stockholder's Equity for further information.

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 weighted average amortization period assigned to the amortizable intangible assets acquired in 2012 was as follows:



Favorable leases	14.7
Unfavorable leases	14.3
Franchise rights	33.5

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 year ended December 30, 2012, approximately $1.2 million of acquisition and integration costs related to the 2012 acquisition was recorded in general and administrative expense.

The pro forma impact on the results of operations for the 2012 acquisition is included below. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the 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 proforma operating results:



	Year Ended
	December 30, 2012
Restaurant sales	$	665,032
Net loss from continuing operations	$	(24,935	)
Basic and diluted net loss per share from continuing operations	$	(1.10	)

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 acquisition and integration costs we incurred related to the 2012 acquisition.