Mill Road Capital to Acquire Rubio's Restaurants & Rubio's Restaurants Reports First Quarter 2010 Results

Rubio's Restaurants, Inc. (NASDAQ: RUBO), a leader in the growing Fast Casual segment of the restaurant industry with its premium Fresh Mexican Grill concept, and Mill Road Capital, L.P., a Connecticut-based private investment firm, announced today a definitive merger agreement under which an entity controlled by Mill Road Capital will acquire all the outstanding shares of Rubio's Restaurants in a cash merger transaction. Pursuant to the terms of the definitive merger agreement, the outstanding shares of common stock of Rubio's Restaurants will be acquired for $8.70 per share. The aggregate transaction value is approximately $91 million.

The Special Committee of the Board of Directors of Rubio's has unanimously recommended this transaction and the transaction has been unanimously approved by Rubio's board of directors. The merger is subject to customary closing conditions, including the approval of Rubio's stockholders and regulatory approvals, and is expected to close during the third quarter of 2010. Ralph Rubio, Dan Pittard and Rosewood Capital, who collectively own approximately 24% of the outstanding shares of Rubio's, have each entered into voting agreements in which they have committed to vote in favor of the proposed merger transaction. In addition, Mill Road Capital, L.P. currently owns approximately 4.9% of the outstanding shares.

Loren Pannier, Chairman of the Special Committee of Rubio's Board of Directors, said, "After careful consideration of a full range of strategic alternatives, we are pleased to have reached this agreement with Mill Road Capital, which creates substantial value for our stockholders. This transaction represents a premium of 14% over the closing share price of Rubio's common stock on May 7, 2010 of $7.66, a premium of approximately 17% over the closing price of $7.41 on October 29, 2009, the last trading day before we announced that we were exploring strategic alternatives, and a premium of approximately 45% over the closing price of $6.00 on October 14, 2009, the last trading day prior to the announcement of an unsolicited indication of interest by Alex Meruelo, his affiliates and Levine Leichtman Capital Partners IV, L.P. to acquire Rubio's."

Daniel Pittard, President and CEO of Rubio's, said, "Mill Road Capital's desire to add Rubio's to its portfolio underscores our strategy within Fast Casual, which continues to be the fastest growing segment of the restaurant industry. Mill Road brings an extensive knowledge of the Fast Casual segment. I am confident that this combination will create opportunities for our employees and positions us well for the future."

Scott Scharfman, Managing Director of Mill Road Capital added, "Rubio's is a long-established institution in its core western markets with a consistent track record of providing delicious Baja-inspired food to its large base of loyal customers. As a long term shareholder, Mill Road Capital is delighted to have the opportunity to increase its investment in the great institution that Ralph Rubio created 27 years ago and to work with Dan Pittard and his talented team in executing their strategic plan and building an even greater Rubio's."

Cowen and Company and DLA Piper LLP (US) served as advisors to Rubio's in this transaction. Foley Hoag LLP served as advisor to Mill Road Capital in this transaction.

Financial Results for the First Quarter of 2010

Rubio's also reported financial results for the first quarter ended March 28, 2010.

First Quarter 2010 Financial Highlights

Revenues in the first quarter of 2010 totaled $46.7 million, an increase of 1% from $46.3 million reported in the same year-ago quarter.

Net income was $367,000 or $0.04 per basic and diluted share in the first quarter of 2010 versus net income of $245,000 or $0.02 per basic and diluted share in the same year-ago quarter. The first quarter of 2010 included non-recurring expenses associated with the ongoing evaluation of strategic alternatives of $170,000 or a tax-effected $(0.01) per share. Net income before non-recurring expenses associated with the ongoing evaluation of strategic alternatives was $485,000 or $0.05 per diluted share in the first quarter of 2010.

Adjusted EBITDA (a non-GAAP measure as defined below) was $3.3 million or $0.32 per diluted share in the first quarter of 2010, versus $3.2 million or $0.32 per diluted share in the same year-ago period. Excluding the aforementioned $170,000 in non-recurring expenses, adjusted EBITDA was $3.5 million or $0.34 per diluted share, up 7% from the same year-ago period.

Cash and cash equivalents at March 28, 2010 totaled $8.3 million, down 13% from $9.5 million at the end of 2009.

First Quarter 2010 Operating Highlights

Comparable store sales (stores operating for more than 15 months) decreased 1.8% in the first quarter of 2010 versus a comparable store sales increase of 1.9% in the same quarter last year. In the first quarter of 2010, the impact of decreased transaction volume more than offset an increase in the average check per customer.

Average unit volume was slightly less than $1.0 million, which was virtually unchanged from the same year-ago quarter.

Restaurant operating margin (a non-GAAP measure as defined below) was 16.6%, as compared to 15.7% in the same year-ago quarter.

In the first quarter of 2010, as a percentage of restaurant sales, cost of sales decreased by 150 basis points, restaurant labor cost increased by 60 basis points, and restaurant occupancy and other costs rose by 10 basis points versus the same quarter last year. The decrease in cost of sales was due to lower ingredient costs, as well as tighter food cost management. The increase in restaurant labor was primarily attributable to increased workers' compensation cost as the company experienced an increase in major claims which made it necessary to increase claim reserves. The increase in restaurant occupancy and other costs was primarily due to higher rent and common area maintenance charges, which was partially offset by lower unit operating expenses, including repairs and service contracts.

General and administrative expenses for the first quarter of 2010 were $4.6 million, as compared to $4.1 million in the same year-ago quarter. As a percentage of sales, general and administrative expenses increased to 9.8% from 8.9% for the same period last year. The quarter-over-quarter increase was due to increased incentive compensation resulting from the record adjusted EBITDA performance, and legal and professional fees associated with the ongoing process of evaluating strategic alternatives. As a percentage of sales, general and administrative expenses before non-recurring expenses mentioned above were 9.5% for the first quarter of 2010.

Rubio's opened three restaurants in the first quarter of 2010, as compared to four in the same period a year-ago. Pre-opening expenses were $94,000, a decrease of 45% from $171,000 in the same quarter last year.