Einstein Bros 2002 Annual Report Download - page 13

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
On April 7, 2003, General Electric Capital Corp. filed an action in the Supreme Court for the State of New York, County of New York, against
us and our franchisee, captioned General Electric Capital Corp. v. New World Coffee/Manhattan Bagels, Inc. et al. In its complaint, plaintiff
asserts that it entered into certain equipment lease agreements with us on April 18, 2001 and with the franchisee on February 26, 2001, upon which
we subsequently defaulted. As a result of those alleged defaults, plaintiff purports to state claims against us and our franchise for breach of
contract, conversion, unjust enrichment, foreclosure of security interest, and replevin, and demands damages from us, jointly and severally, in the
total specified amount of $118,555.49, plus late charges, taxes, interest, costs and attorneys' fees. We have not yet answered or otherwise responded
to plaintiff's complaint.
On December 28, 2001, Robert Higgs, one of our franchisees, filed a complaint against us and our officers and agents in New Jersey (Superior
Court of New Jersey, Case No. OCN-L-2153-99) alleging breach of contract, breach of fiduciary duties and tortuous interference with contract and
business opportunities. The complaint was subsequently withdrawn by the franchisee without prejudice. In February 2002, the franchisee filed a
new complaint against us and our officers and agents alleging breach of contract, breach of fiduciary duties, tortuous interference with contract and
business opportunities, and violations of New Jersey's franchise law. The franchisee seeks damages in an unspecified amount, punitive damages,
costs and attorneys' fees. We moved to dismiss all of the claims in the new complaint. The court dismissed the breach of fiduciary duty claims and
one of the breach of contract claims. Discovery requests have been served by us.
Given the early stage of these matters, we cannot predict their outcome, and we cannot assure you that we will not be subject to regulatory
sanctions, civil penalties and/or claims for monetary damages and other relief that may have a material adverse effect on our business, prospects
and financial condition.
Special Situations Fund, L.P., Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund, L.P. (collectively, "Special
Situations"), holders of our Series F preferred stock, had notified us that they believe that material misrepresentations were made to them in
June 2001 in connection with their purchase of our stock. Special Situations filed a complaint in the United States District Court for the Southern
District of New York regarding this claim. Special Situations alleged various contractual and tort claims against us, as well as Ramin Kamfar, the
former Chairman of the Board of Directors, Jerold Novack, the former Chief Financial Officer, and Greenlight Capital, another holder of our
Series F preferred stock. Special Situations sought, among other relief, damages in the amount of at least $5,166,000 and the equitable remedy of
rescission of its purchase of stock. Prior to responding to Special Situations' complaint, we and Special Situations entered into a settlement
agreement and release on April 29, 2003, pursuant to which we agreed to settle Special Situations' claims against us and our present and former
officers, directors, agents and other representatives and Special Situations agreed to release those entities and individuals, in exchange for our
payment to Special Situations of $176,000. A Notice of Voluntary Withdrawal was filed by Special Situations with the United States District Court
for the Southern District of New York on May 5, 2003.
On February 28, 2003, our former insurance broker of record filed suit in the Superior Court of the State of California, County of Orange,
against us and our subsidiaries, alleging wrongful termination of our brokerage contract with plaintiff, Pension & Benefit Insurance Services, Inc.
("PBIS"), which deprived PBIS of brokerage commissions. PBIS's complaint asserts claims for breach of contract, reasonable value of services,
intentional interference with prospective advantage and negligent interference with prospective advantage. Plaintiff seeks $500,000 in
consequential damages and $20 million in punitive damages. Prior to responding to PBIS's complaint, we entered into a settlement agreement with
PBIS on April 2, 2003. As consideration for PBIS's agreement to settle and dismiss this matter, we agreed to list PBIS as our insurance broker of
record until at least the end of 2003. A Request for Dismissal of the suit was filed by PBIS with the Superior Court of the State of California,
County of Orange on April 9, 2003.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 6, 2002, at our annual stockholders' meeting, our stockholders (i) approved the proposal to amend our certificate of
incorporation by modifying the Certificate of Designation, Preferences and Rights of Series F Preferred Stock (33,460,566 shares were voted in
favor, 0 shares were voted against and 0 shares abstained from the vote), (ii) approved the proposal to increase from 750,000 to 6,500,000 the
number of shares with respect to which options and other awards may be granted under our 1994 Stock Plan (33,460,566 shares were voted in
favor, 0 shares were voted against and 0 shares abstained from the vote) and (iii) ratified the appointment of Grant Thornton LLP as our
independent auditors for the fiscal year ending December 31, 2002 (33,460,566 shares were voted in favor, 0 shares were voted against and 0
abstained).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS