000528 Sizzler Forms Partnership With Oscar's Restaurants

Sizzler International Inc. announced that it has entered into an agreement to acquire an 82% stake in San Diego-based Oscar's, a highly successful and rapidly growing restaurant company.

Upon closing, Sizzler will pay $16 million in cash and issue warrants to purchase up to 1,250,000 shares of Sizzler common stock at $4.00 per share. In addition, Sizzler has agreed to pay an earnout, which may amount to as much as $3.1 million or more if certain targets are achieved.

Completion of the acquisition is expected to occur by September 2000 subject to government approvals and other conditions. The acquisition is expected to be accretive in its second year.

“A proven, broadly appealing and profitable restaurant company, Oscar's is a great extension of the Sizzler family. Our strategic partnership with Oscar's should enable us to substantially benefit from its proven concept and outstanding growth outlook,” said Charles Boppell, President and CEO of Sizzler International. “We believe that, with Sizzler's backing, Oscar's should grow rapidly due to its proven casual dining concept and superior food quality,” continued Boppell.

John Sarkisian, Chief Executive Officer of Oscar's Restaurants, commented that, “Our alignment with the Sizzler team should provide us with the market presence and restaurant expertise to help create a solid foundation for us to build our brand and continue our expansion. As reflected by our strong historical performance, we believe Oscar's will continue to be embraced in the new markets we are currently targeting. Sizzler's large and multinational operation, including stores that are within close proximity to our current stores, should also provide us with substantial operating synergies and cost savings,” concluded Sarkisian.

Unique and Successful Concept

Founded in 1991, Oscar's currently owns and operates eight restaurants, seven of which are located in Southern California and one in Phoenix. A typical restaurant seats approximately 250 people in 5,200 square feet. Oscar's business consists of approximately 50% dine-in; 40% take-out; and 10% catering. The restaurant's unique concept and architectural design have enabled it to rapidly grow its higher-margin take-out business, which typically increases over time as restaurants establish their presence in new markets.

“Oscar's stands out from the industry because of its overwhelming success in rapidly growing its off-premise business. This segment of the restaurant business is highly profitable because it enables restaurants to expand beyond the physical constraints of their building. However, success in this segment depends on a solid foundation of high- quality food and superior customer service, which Oscar's has been delivering since 1991,” said Boppell.

Oscar's restaurants offer a full menu consisting of award-winning gourmet pizzas, baby back ribs, lemon or barbecue chicken, breadsticks, salads, oven baked wedged potatoes and more. All of Oscar's items are made from scratch in each respective location. These particular types of food items appeal to both an extremely broad audience as well as the higher-margin take-out consumer who looks for high-quality take-out food that is easily eaten in diverse settings outside the restaurant location.

Food critics around the nation have savored Oscar's food, service and atmosphere. Nation's Restaurant News, Chain Leader, The San Diego Union Tribune, North County Times, Encinitas Sun and The Ahwatukee Foothills News are examples of periodicals that have expressed favorable reviews for Oscar's.

In addition, Oscar's was voted Best Pizza by San Diego station KFMB Channel 8's Unknown Eater for three years running. The city of Temecula has awarded Oscar's Best Pizza as well. Recently, Oscar's of Arizona was bestowed Best of the Best for friendliest service by The Ahwatukee Foothills News.

Outstanding Financial Performance

Oscar's generated over $22 million in net revenues during 1999, a 37% increase over the previous year. The company achieved restaurant EBITDA of $3.6 million for this period, largely as a result of continued expansion of the lucrative off-premise business and the full-year effect of the two units opened in 1998. The increase in EBITDA was also fueled by same store-sales growth of 12% over the prior year.

For the most recent quarter ended March 31, 2000, Oscar's reported same-store sales growth of 15% over the comparable period last year.

Oscar's unit economics are impressive. For a mature store, annual net sales average $3.8 million, with an average EBITDA margin of roughly 20% and pre-tax margin of approximately 16%. This is achieved by managing food costs to under 31% and labor to roughly 26%.

As part of the agreement, Sizzler will provide up to $9.5 million in financing to support Oscar's expansion plans. On average it costs $1.3 million to open a new location. Based on the unit economics of mature stores, it is anticipated that new units will generate a cash return on investment of approximately 40% and total return of nearly 25%, once a store is established in its market. Four new locations are in development, with two stores expected to open in calendar 2000.

Current Management to Continue to Lead Oscar's

Oscar's management team is headed by John and his sister Tammy Sarkisian, who helped found the company and manage its day-to-day business for the past nine years. Co-founders Oscar and Pat Sarkisian will continue their current involvement with the company. Management's compensation, which will be directly tied to their financial performance, will be paid largely in stock options and bonuses.

Sizzler On Track With Growth Plan

“The acquisition of Oscar's is a key part of Sizzler's previously announced four-pronged approach towards accelerated growth, which consists of acquiring a new concept, growing the domestic Sizzler restaurants, further expanding in Australia and improving its stores in the Asian region. With the Oscar's acquisition under way, we believe we are now on track on all four fronts of our growth strategy and look forward to accelerated growth in the coming months and years,” concluded Boppell.

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