Schlotzsky’s Inc today announced that it has obtained commitments for two real estate mortgage-secured bank financings totaling $10.0 million, which will enable the company to retire its remaining $7.3 million debt under its bank group credit facility.

The new financing consists of approximately $7.7 million committed by State Bank and $2.3 million committed by Regions Bank.

Upon the expected closure of these mortgage transactions in July and August, Schlotzsky’s Inc. will complete the process of retiring the $40 million credit facility entered into in December 1999 with a bank group led by Wells Fargo and secured primarily by certain Schlotzsky’s intellectual property, franchise contracts and other assets.

“The repayment of the last portion of the $40 million facility is a significant milestone for our company,” said John C. Wooley, president and CEO. ” As planned, the funds made available enabled us to take significant steps to grow our business and increase our profitability. The orderly completion of this process clears the way for us to proceed with the next phase of purchasing development territory rights.”

The $40 million credit facility financed the purchase of development rights in Schlotzsky’s home market of Austin, Texas, as well as the reacquisition of area developer rights in portions of 18 other states. After it acquired rights to most of the Austin market in 1999, Schlotzsky’s worked aggressively to develop the market, said Wooley.

Austin market sales increased from $13.4 million in 1998 to $24.8 million in 2001. Average weekly sales for the Austin market increased from $15,609 per restaurant in 1998 to $22,314 in 2001. For company-owned restaurants in the Austin market, average weekly sales in 2001 sales were $31,751, demonstrating the sales potential of the Schlotzsky’s Deli concept.

Since 1998, Schlotzsky’s has reduced developer service cost as a percentage of royalty revenue from 38.3% in 1998 to 21.8% in 2001 by using the $40 million credit facility to reacquire various area developer rights.

Schlotzsky’s Inc. also announced that it has made arrangements to close the purchase of its largest area developer territory on Aug. 30, 2002. The company plans to complete the transaction through payments totaling $1 million and seller financing of approximately $23.3 million, with a maturity date of June 2005. The territories include major markets in Texas, including Houston, Dallas and San Antonio, as well as portions of Colorado, Missouri, Mississippi, Arkansas, Louisiana, Tennessee, Utah, Wyoming, Idaho and Montana.

“This will be an important transaction because we will gain control over most of our home market in Texas, and other key markets and further reduce our area developer service costs,” said Wooley.

Wooley also said that his company is working to develop other credit facilities that would replace the seller financing on this transaction with longer-term financing as well as fund the growth of company-owned restaurants.