Sentinel sells Falcon Holdings LLC to its CEO and management



NEW YORK, May 25, 2005 - Sentinel Capital Partners, a private equity firm that invests in promising, smaller middle-market companies, announced today the sale of Falcon Holdings to Falcon CEO Aslam Khan and his management team. With 101 units Falcon is one of the largest franchisees in the worldwide chain of Church's Chicken restaurants.

Khan and Sentinel partnered in 1999 to purchase Falcon from the company's prior lender. At the time Falcon had defaulted on its loan and was generating negative EBITDA. Khan had previously implemented a turnaround in the Church's system and the circumstances at Falcon were familiar to Khan. Sentinel recognized Khan's restaurant operating talent and with Khan outlined a plan to return Falcon to profitability. Immediately Sentinel and Khan recruited new executives to assist with Falcon's turnaround. Sentinel also recruited a prominent industry executive to serve on Falcon's board. Over several years Khan and his team were able to implement operating and financial systems and controls and grow comparable store sales, eventually producing EBITDA margins in excess of 10%. Today Falcon's comparable restaurant sales growth and performance metrics routinely exceed those of the Church's system and Falcon is solidly profitable.

"Falcon's restaurant operations were deteriorating rapidly when we made our initial investment in 1999," said John F. McCormack, co-founder of Sentinel. "We are contrarian investors and understood that with the right management team in place we could help reverse Falcon's declines and create a chain of better-performing QSR restaurants. Aslam now has a successful track record of transforming two Church's franchises and we are pleased to have had the opportunity to work with him and sell him a controlling interest in the business. We look forward to watching Aslam take Falcon to the next level as he works toward his goal of being one of the top restaurant operators in the country."

Financing for the transaction consisted of $27.3 million in sale-leaseback financing from Spirit Finance Corporation, a publicly traded real estate investment trust (NYSE: SFC), and $17.6 million in a senior debt facility provided by Falcon's existing lender, Wells Fargo Commercial Capital. In addition, Khan contributed his equity position in Falcon to the transaction.

"The Falcon sale is an outstanding transaction for Sentinel," said Jim Coady, a principal of Sentinel. "We've enjoyed our relationship with Aslam and his team and are pleased with the success of the deal. Aslam is in good hands with Spirit and Wells Fargo, financing sources that were a pleasure to do business with."

According to Mr. Khan, "The Sentinel team had the insight to invest in Falcon at a time when many other investors thought we could not transform this business into a leader within the Church's chain. I am grateful they had the confidence to support my team as we built Falcon into a healthy and profitable company that now has a bright future."

Franchising is a key investment sector for Sentinel. In addition to restaurants, the firm has successfully partnered with management in other industries, as with its investment in Cottman Transmissions Holdings, a provider of automotive after-market services. Cottman, which Sentinel sold in March of 2004, was an outstanding performer for Sentinel, as highlighted by an increase in franchise locations from approximately 200 to 400 across 43 states and Canada.

Sentinel recently completed raising $319 million of capital for Sentinel Capital Partners III, L.P. The Fund was more than two times oversubscribed and surpassed its original target of $225 million. Over the past 16 months, Sentinel has acquired Spinrite, a leading manufacturer of craft yarn, and Nivel, a leading independent manufacturer and distributor of aftermarket golf car replacement parts and accessories. Realizations over the same period have included Cottman Transmission Systems (to American Capital Strategies for $77.3 million, a return of 3x cost); the sale of Castle Dental Centers (to Bright Now! Dental, a portfolio company of Gryphon Investors, for $56 million, a return of 2.2x cost); and the sale of Floral Plant Growers (to Blue Point Capital, a return of 2x cost). In February 2005, after 12 months of ownership, Sentinel realized a 7.5x gain on its investment in Spinrite when that company successfully completed a Cdn$202.9 million IPO.