The WesterN SizzliN Corporation History

Address:

317 Kimball Avenue Northeast
Roanoke, Virginia 24016
U.S.A.

Telephone: (540) 345-3195
Toll Free: 800-24-
Fax: (540) 345-0831

Public Company
Incorporated: 1992 as Austins Steaks & Saloon, Inc.
Employees: 450
Sales: $28.5 million (2002)
Stock Exchanges: Over the Counter
Ticker Symbol: WSZZV
NAIC: 722110 Full-Service Restaurants

Company Perspectives:

Our primary goal has always been to exceed our guest's expectations for both quality and service. Our restaurants strive to provide a relaxing, enjoyable dining experience in a friendly, family oriented atmosphere.

Key Dates:

1962:: The first WesterN SizzliN restaurant opens in Augusta, Georgia.
1966:: WesterN SizzliN begins to franchise.
1988:: WesterN SizzliN founder Nick Pascarella dies, and the company is sold.
1989:: Austins Steaks & Saloon opens its first restaurant in Nebraska.
1993:: Franchisee group buys WesterN SizzliN following its bankruptcy.
1999:: WesterN SizzliN and Austins Steaks merge.
2003:: The corporate name changes from Austins Steaks & Saloon to WesterN SizzliN Corporation. three consecutive years of losses: $568,000 in 1996, $1.6 million in 1996, and $1.5 million in 1997. By 1999, Austins' management concluded that it needed to combine with a larger operation in order to survive, leading to the merger with WesterN SizzliN.

Foti stayed on as CEO of the combined company, which received a major financial boost in June 2000 when it reached a temporary agreement with Scottsdale, Arizona-based Franchise Finance Corporation of America to operate 97 Quincy's Family Steakhouse restaurants after Quincy's owner, Atlanta-based Buckley Acquisition Corporation, was unable to meet its credit obligations. Ultimately, the arrangement became a lease agreement. Quincy's was founded in Spartanburg, South Carolina, in the early 1970s. A major Hardee's franchisee, Spartan Food Systems, acquired the nine-unit chain in 1977. Spartan was acquired two years later by TransWorld Corporation, which built Quincy's into a chain of more than 200 restaurants. Business peaked in 1990 when Quincy's generated revenues of $282 million from 212 restaurants. Serial changes in ownership took its toll, however, and by 1998 Quincy's had dipped below 100 units in size. Austin Steaks soon discovered that the damage done to the Quincy's brand was severe, and in March 2001 management decided to close some 50 Quincy's and convert another 43 into WesterN SizzliN grill-buffet restaurants, leaving only three Quincy's operating in markets where a WesterN SizzliN was already located.

The sale of 43 Quincy's to franchisees provided much needed relief to Austins Steaks, which was able to post a profit of $226,000 in 2001 after losing more than $1.4 million the year before. This development notwithstanding, the company was clearly experiencing financial difficulties. In November 2001, management announced that it was "actively looking at other ways to enhance shareholder value," including a merger and even sale of the company. Then, in July 2002, Austins Steaks hired investment banking firm J.H. Chapman Group as a financial adviser. Four shareholders, controlling about a quarter of the company and dissatisfied with the state of Austins Steaks, took steps to oust Foti and most of the board of directors through a proxy war. Over the next few months, the dissidents and board haggled in the press and SEC filings, maneuvered in the board room, and filed lawsuits and countersuits. Finally, in September 2002, the two sides met to attempt to strike a deal. The company offered to buy out the dissidents for $2.2 million, and Foti and chairman J. Carson Quarles offered not to stand for re-election at the next shareholder's meeting. However, both offers were rejected. In the end, Foti agreed to leave the board immediately but would remain as CEO until the June 2003 annual meeting. Quarles agreed to give up the chairmanship but stayed on as a director. Foti left much sooner, however, departing the company in December 2002, at which time he stated to the press, "I did not voluntarily resign." His only association with the company was now as a franchisee. The proxy war as well as the closing of ten stores had an adverse impact on the balance sheet in 2002, as the company reported a $1.1 million loss for the year.

Following Foti's departure, Austin Steaks immediately launched a search for a new CEO. In July 2003, the board settled on James Verney, who had 28 years of experience in the food industry. He came to Austins from North Carolina-based Claremont Restaurant Group, where he served as president and CEO of 85 restaurants operating under three brands: Sagebrush Steakhouses, Western Steer, and Prime Sirloin. A plan to revitalize the business was already in place, calling for the closure of underperforming restaurants and a focus on the core units that were prospering. Upon accepting the top post at Austins, Verney announced, "My first objective is to listen to existing franchisees to learn how we can provide better support. Then, we'll assist our existing operators to open new units, and later we'll invite others to join our family." Several weeks later the company announced positive results for the quarter ending June 30, 2003, prompting hopes that the corner had been turned. In October 2003, in recognition of the prominent position of the WesterN SizzliN chain at Austins Steaks, the company changed its name to WesterN SizzliN Corporation.

Company History:

The WesterN SizzliN Corporation, based in Roanoke, Virginia, operates and franchises several restaurant concepts: Austin Steaks & Saloon, WesterN SizzliN Steak & More, WesterN SizzliN Wood Grill, Great American Steak & Buffet, Quincy Steakhouses, and Market Street Buffet and Baker. The flagship chain is 173-unit WesterN SizzliN Steak & More, known for its signature "Flamekist" steaks.

WesterN SizzliN Chain Founded in 1962

WesterN SizzliN was founded in Augusta, Georgia, in 1962 by Nick Pascarella, a native of Pennsylvania whose choice of a place to start up his business was strictly fortuitous. According to company lore, he was traveling around the country in search of cheap land on which to build a steakhouse, and he stopped in Augusta because of a flat tire. It was the tire store employees who convinced him to locate his restaurant in Augusta. What made Pascarella's steakhouse stand out was his unique way of grilling. According to company literature, "If searing the bottom of the steak made it juicy [Pascarella] reasoned that adding flames to the top would make them twice as good. He was right and the world famous Flamekist steak was born! This unique process locks in the flavor as the steak is seared to a savory perfection." Pascarella would eventually build a second restaurant in Augusta, across the street from the first, which would also house the company's headquarters. In 1966, he began to sell franchises of his WesterN SizzliN concept. Over the next 20 years, the restaurant operation grew to become the second-largest steakhouse chain in the country, with 600 units generating some $500 million in annual revenues. Pascarella was hardly a micromanager and took a hands-off approach that allowed franchisees to operate as they saw fit. There was also very little advertising that emanated from the top of the chain. Nevertheless, WesterN SizzliN was a successful chain until Pascarella's death in March 1988. Restaurants & Institutions magazine named it the top steakhouse chain in America in 1984, 1985, and 1987. Near the end of Pascarella's reign, however, same-store and systemwide sales grew stagnant and a number of units closed. In addition, the chain lagged well behind the competition in sales per unit. While Ryan's Family Steak House averaged $2.3 million per restaurant, Sizzler $1.5 million, and Bonanza $1 million, WesterN SizzliN generated just $800,000. Moreover, a large number of stores, perhaps as many as 100, were doing less than $500,000 in annual sales.

Following Pascarella's death, his wife Nora and son Edward chose to sell WesterN SizzliN. Although the chain was struggling, with the right management team it was, in the opinion of many, capable of becoming a category powerhouse. There was no lack of suitors, and interested buyers included the Marriott Corporation. In the end, it was an investment group head by Pizza Hut co-founder, Frank Carney, who prevailed with a bid of $95 million in a leveraged buyout.

Carney, along with former Pizza Hut executive Michael Stack and five unnamed food-service executives, teamed up to acquire a 49-percent stake, while enlisting La Jolla-based Triton Group Ltd. and its holding company, Intermark Inc., to pick up the balance. Back in 1958, Carney and his brother Dan had scraped together $3,000 to launch the Pizza Hut chain in Kansas City, converting a bar located next to their father's grocery store. They built Pizza Hut into a 4,000-unit chain before selling it to Pepsico in 1977. After leaving Pepsico in 1980, Carney sought a new restaurant concept but had no success with China Rose, a Chinese restaurant; Pasta Ficio, a pasta restaurant; or a restaurant chain called Flakey Jake's.

Carney took over as chairman and Stack became chief executive officer at WesterN SizzliN and promptly moved the company's headquarters from Augusta to more strategically located Dallas. Carney expressed high hopes for the chain, which he hoped to transform into the price-value leader in the family steakhouse segment. His five-year plan was to grow the chain to 1,000 units and increase the per-unit sales volume to $1.1 million. To achieve this lofty goal, Carney and his management team quickly moved on a number of fronts. WesterN SizzliN introduced a new logo, replacing one that had served the chain for 27 years. It also tried to emulate the competition by downplaying steak and broadening its offerings, in particular a new 12-item lunch menu that included chicken, fish, and sandwich plates. At the same time, the chain moved away from the food bar concept, opting instead to focus on salads and soups. WesterN SizzliN also launched its first national television advertising campaign in 1989 and became much more involved with franchisees than the company ever had been under Pascarella. The franchisee agreement was rewritten and a restaurant evaluation program was instituted. According to one franchisee quoted in Nation's Restaurant News, "We've had more corporate visits in one month than we did in several years." Management also got the franchisees involved in the advertising by forming a 12-member board, eight of whom were voted on by the franchisees. Furthermore, WesterN SizzliN developed prototype restaurants and introduced them into new territories. It expanded into Canada, followed in 1990 with a deal to build WesterN SizzliN restaurants in Japan. There was even talk about entering Saudi Arabia.

WesterN SizzliN Files Chapter 11 in 1992

Carney and his management team enjoyed some success, boosting per-store sales volume above $900,000, but instead of growing to 1,000 units within five years, the WesterN SizzliN chain shrank to 350 within four years. Stiff competition in the segment from such chains as Ryan's Family Steak House and Golden Corral curtailed WesterN SizzliN's growth, forcing many franchisees to change concepts or simply close their doors. Carney's group was also hobbled from the moment it took control, because $95 million was simply to high a price to pay for the chain in light of the royalties collected from franchisees. The corporation that owned the business, WSI Holdings Corp, was so burdened with debt that it and its six subsidiaries had assets of just $5.4 million and liabilities of $51.2 million by November 1992. At that time, WSI filed for Chapter 11 bankruptcy, which required the company to present a reorganization plan to the U.S. Bankruptcy Court. Carney put a positive spin on the move, telling Nation's Restaurant News, "This is our chance to clean up the balance sheet. Our operations are sound, and we feel comfortable with the company. Over the past year we felt we've turned the corner somewhat."

Carney never got another chance to realize his dreams with WesterN SizzliN, which operated under Chapter 11 bankruptcy protection for nearly a year. In October 1993, a group of 28 franchisees led by veteran restaurateur Dave Wachtel bought the chain, now reduced to 320 units, for a modest $10 million. Wachtel's association with restaurants dated back to 1959 when as a teenager he washed dishes and bussed tables for 65 cents an hour at Ray Danner's first Shoney's restaurant. He worked at another Danner restaurant while attending the University of Tennessee-Knoxville but left school to take a management position with Danner in 1968. Wachtel launched the Mr. D's seafood concept, now known as Captain D's, and ultimately succeeded Danner as CEO of Shoney's. However, he soon fell out with the autocratic Danner and left Shoney's in 1982. Wachtel became a WesterN SizzliN franchisee in 1984, operating as many as nine units before selling them back to the chain in 1990. Issued a note for $1.3 million, Wachtel grew concerned that he might never be repaid, prompting him to lead a group of franchisees to buy out WesterN SizzliN.

Like Carney, Wachtel believed that WesterN SizzliN held great potential. He attributed most of Carney's difficulties in growing the chain to the high price his group paid for the business. "There was never anything wrong with the brand name," Wachtel told Nation's Restaurant News. Once in charge of WesterN SizzliN as president and chief executive officer, he moved the headquarters to his native Nashville, created a purchasing program, and developed a centralized marketing plan. As a result, in 1994 the company posted its first operating profit since the chain was sold by Pascarella's heirs. Nevertheless, Wachtel's tenure at the top would prove to brief. He fell out with his board over the direction to take WesterN SizzliN and attempted to acquire the chain, offering about $13 million. His bid was rejected, and in March 1995 the board terminated his management contract and replaced him with Victor Foti, a franchisee operating in Roanoke, Virginia, where the company's headquarters subsequently moved. Wachtel filed a lawsuit against the directors, claiming he had been wrongfully terminated, but the case was dismissed by a judge in February 1997. In the press, he blamed Foti and another board member for his ouster.

Over the next three years, the WesterN SizzliN chain continued to decrease in size and by 1999 it consisted of 21 company-owned units and 230 franchised units. The next major development in the company's history came in March 1999, when it became a publicly traded company in a reverse merger with Lincoln, Nebraska-based Austins Steaks & Saloon Inc. As a result, WesterN SizzliN Corporation was subsumed by Austins Steaks & Saloon, Inc., which now became the corporate home of the WesterN SizzliN restaurant chain. Austins Steaks was an eight-unit casual upscale steakhouse chain launched in Omaha in 1989 with the opening of a single restaurant. Two other Omaha units opened in 1992, followed by a fourth in 1996. Austins Steaks opened a restaurant in Sante Fe, New Mexico, and one in Lincoln, Nebraska, in 1994. Restaurants in Scottsdale, Arizona, and Albuquerque, New Mexico, were established in 1995, the same year that Austins Steaks went public, netting $4 million. The hope was to open another eight to 12 restaurants by the end of 1996. Instead, the company struggled for the next three years, and due to intense competition in the restaurant industry it failed to launch any new units. Austin Steaks posted

The WesterN SizzliN Corporation History

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