According to the Company’s Form 10-Q for the quarterly period ended June 30, 2002, on April 2, 2002, the Court granted final approval of the Stipulation of Settlement and Plan of Allocation of Settlement Proceeds, which was funded by the Company's insurer and which settled all claims with prejudice, and entered a Final Judgment and Order of Dismissal with Prejudice.
As reported in an earlier SEC filing, the Company's Form 10-K for the fiscal year ended December 31, 2001, the Company filed a motion to dismiss for failure to state a claim, which was granted, with prejudice, by the District Court on August 5, 1999. On appeal, the Fifth Circuit reversed the District Court's denial of leave to amend and remanded the case on January 9, 2001 to allow Plaintiffs leave to file an amended complaint in March of 2001. The amended complaint sought relief under the 1933 Act claims only. Without conceding the facts that formed the basis of Plaintiffs' claims, the Company entered into a stipulation of settlement on January 26, 2002, settling all claims, with prejudice, for the sum of $2 million, the entirety of which will be paid by the Company's insurer. On February 19, 2002 the District Court entered its preliminary approval and set the matter for final settlement hearing on April 2, 2002, at which time the Court will determine whether the proposed settlement is fair to the settlement class and should be approved by the Court.
The original complaint alleges that, at all times during the Class Period, the price of Schlotzsky's common stock was artificially inflated because Schlotzsky's was reporting false and overstated net income. When Schlotzsky's reported that it would restate and thereby reduce the amount of net income it had reported, the price of Schlotzsky's common stock collapsed in price to $15.00 per share. However, before the restatement and before Schlotzsky's collapsed in price, Schlotzsky's and several of its officers, directors and insiders sold over 2.3 million shares for over $42.3 million, thereby reaping a benefit from their false statements.
The lawsuit has been filed on behalf of all purchasers of Schlotzsky's common stock during the class period, including all purchasers in the September 24, 1997 secondary offering.