Hot Stuff Buyout

Allied Capital helps management purchase, recapitalize foodservice company

SIOUX FALLS, S.D. -- As Hot Stuff Foods stepped out on its own for the first time as a management-owned company, it did so with the promise that it would put its franchisees first. We're focused on continuing to innovatebe the market-maker in the industryand build dynamic growth first and foremost for our franchisees, who we think are the best in the industry, said CEO and chairman Des Hague during conference call yesterday. And the offset of that will be growth for the company.

The Sioux Falls, S.D.-based company announced yesterday a management buyout [image-nocss] of the company from Kohlberg & Co. The transaction supports the company's growth into key market channels, most notably the 138,000-location convenience store channel, Hague said.

Under the new agreement, Allied Capital Corp. committed $164 million in the management-led recapitalization. Hot Stuff management re-invested a significant portion of its equity ownership in the transaction.

"We are pleased to partner with the management of Hot Stuff Foods in the recapitalization of their business," said Justin Maccarone, managing director of Allied Capital. "Hot Stuff Foods has delivered consistent growth as a market maker in its industry. The company's stable business model and managements' focus on continued growth in its markets makes this investment a great fit for Allied Capital's long term capital."

Hot Stuff management will continue to execute the day-to-day operations and strategically position the company for long-term sustainable growth. "We now have in place the right team, the right structure and the right financial resources, through Allied Capital, to achieve our growth objectives," Hague said in a press release.

Led by Hague, the rest of the management team includes industry veterans who have helped Hot Stuff Foods leverage its success in creating quality grab-and-go foods for busy consumers. It was under this management team that the company was just recently named one of the top 50 quick-serve restaurant franchises in the country by QSR magazine and was the first c-store concept ever to crack that list.

Hot Stuff Foods franchises or licenses its branded food concepts in more than 1,600 locations throughout the United States, Canada, Europe and Asia. It offers a number of individual and bundled brands in various categories including Hot Stuff Pizza, Hot Stuff Food On the Go, Hot Stuff Food Xpress, Smash Hit Subs, Summit Subs, C-Street Bakery, Mean Gene's Burgers, Mean Gene's Pizza, Stone Willy's Pizza, Moose Bros. Pizza, Eddie Pepper's, Asian Creations, Chix Chicken, Nap Hendrix's Southern Grill and Caffe Origins Coffee.

Allied Capital is a leading business development company with total assets of more than $3 billion. Allied Capital invests in the entrepreneurial economy by providing private debt and equity capital to middle market companies seeking a long-term financial partner and access to managerial resources often unavailable to smaller companies. Since its IPO in 1960, Allied Capital has provided financing to thousands of middle market companies, it said. The firm's private finance portfolio includes investments in more than 100 companies that generate aggregate revenues of more than $10 billion and employ more than 90,000 people.

The Argus Leader provided the following Hot Stuff Foods timeline:

1982: Pizza Patrol begins as a division of The Schwan Food Co. 1986: First Hot Stuff location opens. 1991: Company moves to its current location, a 12.5-acre parcel on West Maple Street in north Sioux Falls. 1994: Orion Food Systems incorporated as wholly owned subsidiary of Schwans and opens its 1,000th location. February 2002: Orion Food Systems is acquired by Kohlberg & Co. for approximately $100 million. May 2003: Des Hague is named president and CEO. September 2004: Hot Stuff Express concept introduced. January 2005: Orion changes its name to Hot Stuff Foods. July 2005: Hot Stuff introduces Market Select Sandwiches. November 2005: Palm Pizza introduced. January 2006: Hot Stuff begins its first national advertising campaign on ESPN Radio. Feb. 7, 2006: Hot Stuff announces a management-led buyout that includes a $164 million investment from Allied Capital Corp.