Court Approves Sale of Schlotzsky's to Bobby Cox Companies

Texas-Based Company Brings Experience as Franchisee and Restaurant Operator

Schlotzsky's, Inc. announced that it has reached an agreement to sell substantially all of its assets to Bobby Cox Companies for $28.5 million. The sale was approved this afternoon by Judge Leif Clark of the United States Bankruptcy Court for the Western District of Texas, San Antonio Division. The sale has a targeted closing date of December 31, and Bobby Cox Companies will operate the Schlotzsky's franchise system as a privately owned company.

The new management group includes successful industry veterans Bobby D. Cox and Ronny Jordan of Fort Worth, Texas and Robert C. Barnes of Odessa, Texas. Bobby Cox Companies brings with it more than 40 years experience in the restaurant industry, as well as a unique position as both a franchisee of Blockbuster Video stores and a restaurant operator, allowing it to understand the complexities of the business from all sides.

Cox will serve as Chairman of the new management group, with Barnes as President and Jordan as the organization's Chief Financial Officer. "We are all very excited about this great opportunity for Schlotzsky's to stabilize and grow as a leader in the fast casual restaurant industry," states Cox. With the majority of the Schlotzsky's restaurants being owned by franchisees, the group's primary goal is to help them improve their profitability and add additional units in designated territories. "Having been on both the franchisee and the franchisor side of numerous businesses over the years, I truly understand that the parent company only prospers when the franchise community is strong and successful. We will do everything in our power to help franchisees reach their growth goals by supporting them with an organization that will meet their needs and then some," adds Cox.

Several potential investors participated in the auction process that took place yesterday in Dallas, driving the price of the sale up nearly 15% over the reserve price of $25 million that was set by the Company. Sam Coats, the current Schlotzsky's President and CEO, will remain with the Company for as long as necessary to help ensure a seamless transition for franchisees, employees and customers.

"Four months ago, we made the difficult yet necessary decision to seek Chapter 11 protection for Schlotzsky's. At that time, we committed to pursuing the highest value for the Company employing the most efficient means possible. It took the dedication of everyone involved with the Company to achieve such great results under such an aggressive timeline," said Coats. "We could not have asked for Schlotzsky's to have been placed in more capable hands, and we are confident that the Company will once again be poised for growth and positioned to capitalize on its great brand and superior products."

Cox, who began his restaurant career in 1961 by owning and operating a small snack bar in Odessa, Texas, has built many successful businesses including Taco Villa, Rosa's Café & Tortilla Factory, and Texas Burger. He also has been a franchisee of Dairy Queen and Peter Piper Pizza, and currently is a franchisee of Dippin' Dots. He also operates 36 franchised Blockbuster Video stores in 14 markets throughout the Southwest in addition to his restaurant holdings.

Barnes, who in conjunction with Cox helped build both the Taco Villa and Rosa's Café concepts, currently owns and operates Rockin' Q Smokehouse barbeque restaurants, in addition to numerous real estate development and construction companies. Both Barnes and Cox are inductees to the Texas Restaurant Association's Hall of Fame, and Barnes also served as president of that organization.

Jordan currently serves as Executive Vice President of the Bobby Cox Companies, having joined the organization 14 years ago. A graduate in Accounting of Texas Tech University, Jordan received an Executive MBA in Finance from Stanford University. He was the managing partner in the San Antonio office for Main Hurdman and an audit partner with KPMG/Peat Marwick after the two firms merged.

Based on the total outstanding liabilities and creditor's claims of Schlotzsky's, it is uncertain if any proceeds from the sale will be available for distribution to Schlotzsky's unsecured creditors and none will be available for shareholders.

Schlotzsky's Inc., founded in Austin, Texas, in 1971, through its wholly owned subsidiaries, is a franchisor and operator of restaurants in the fast casual sector. As of August 3, 2004, there were 511 Schlotzsky's® restaurants open and operating in 36 states, the District of Columbia and six foreign countries.

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Date Listed: 2004-12-09

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Industry: Restaurants
Category: Development
Schlotzskys
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