Milberg Weiss Files Class Action Suit Against Schlotzsky's Inc. and Its Officers and Directors Alleging Misrepresentations, False Financial Statements and Insider Trading

Business Wire, August 26, 1998

SAN DIEGO--(BUSINESS WIRE)--Aug. 26, 1998--Milberg Weiss today announced that a class action has been commenced in the United States District Court for the Western District of Texas on behalf of purchasers of Schlotzsky's, Inc. ("Schlotzsky's") (NASDAQ:BUNZ) common stock during the period April 29, 1997 to April 5, 1998 (the "Class Period").

If you are a member of the Class described above, you must no later than 60 days from today move the Court to serve as lead plaintiff of the Class, if you so choose. In order to serve as lead plaintiff, however, you must meet certain legal requirements. If you wish to discuss this action or have any questions concerning this notice or your rights or interests, please contact plaintiff's counsel, William Lerach, Alan Schulman or Darren Robbins of Milberg Weiss at 800/449-4900 or via e-mail at wsl@mwbhl.com or Steven E. Cauley at 501/312-8500.

The complaint charges Schlotzsky's and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Plaintiff alleges that defendants knowingly caused the Company to improperly recognize revenue during the Class Period from the sale of Turnkey Program stores to third party investors by improperly recording the full gain-on-sale during the period in which the transaction occurred and by failing to properly reserve for guarantee commitments the Company had incurred in connection with those sales. In addition, the Company materially understated periodic expenses by improperly deferring certain expenses. For the fiscal year ended December 31, 1997, the Company materially overstated reported revenues of $4,538,000 from the sale of its Turnkey Program sites. Plaintiff alleges that the defendants inflated Schlotzsky's stock price to as high as $23.75 per share in order to profit from their wrongdoing by selling $13.9 million of their own Schlotzsky's shares and allowing Schlotzsky's to sell $26 million of Schlotzsky's stock.

On April 6, 1998, Schlotzsky's shocked the securities markets by announcing that it would be revising results for the fiscal year ended December 31, 1997. The Company had previously announced fiscal 1997 earnings per share of $0.82 on February 27, 1998, which would now be materially reduced to $0.71 per share, due to accounting improprieties. Upon this announcement, Schlotzsky's common stock collapsed from $20.50 to $15.00, a one day plunge of 27% on huge volume of 1.8 million shares, 34 times Schlotzsky's average daily trading volume.

Plaintiff seeks to recover damages on behalf of all purchasers of Schlotzsky's common stock during the Class Period (the "Class"). The plaintiff is represented by several law firms, including Milberg Weiss Bershad Hynes & Lerach LLP, who have expertise in prosecuting investor class actions and extensive experience in actions involving financial fraud.

Milberg Weiss has been actively engaged in commercial litigation, emphasizing securities and antitrust class actions, for more than 30 years. The firm has offices in New York, San Diego, San Francisco and Los Angeles and is active in major litigation pending in federal and state courts throughout the United States. The firm's reputation for excellence has been recognized on repeated occasions by courts which have appointed the firm to major positions in complex multi-district or consolidated litigations. Milberg Weiss has taken a lead role in numerous important actions on behalf of defrauded investors, and has been responsible for a number of outstanding recoveries which, in the aggregate, total approximately $2 billion. Visit the firm's website at http://www.milberg.com.

CONTACT: Milberg Weiss Bershad Hynes & Lerach LLP

William Lerach, 800/449-4900

wsl@mwbhl.com