Einstein Bros 2002 Annual Report Download - page 82

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
Employment Agreements
The Company has entered into an employment agreement with one officer of the Company that expires on December 31, 2004. The minimum
base salary and bonus after December 31, 2002 and through the term of this employment agreement totals $1,695,000. In addition, severance
payments of $565,000 may be due under the contract depending on the circumstance of the officer's termination.
401(k) Plan
The Einstein/Noah Bagel Corp. Employee Savings Plan (401(k) plan) was assumed by the Company with the purchase of Einstein on June 19,
2001. All employees of Einstein and Noah Corporation, excluding officers, are eligible to participate in the plan if they meet certain compensation
and eligibility requirements. The 401(k) plan allows participating employees to defer the receipt of a portion of their compensation and contribute
such amount to one or more investment options. For the period from June 19, 2001 through December 31, 2001 the Company matched 40% of the
participants' elective contribution as defined, not to exceed 6% of the employees' annual compensation. The Company has accrued to match 25% of
the participants' elective contribution for the period from January 1, 2002 to December 31, 2002. The Company's contribution expense in 2002 and
2001 was $298,283 and $101,506, respectively. Employer contributions vest at the rate of 100% after three years of service.
Health Insurance Plan
As of December 31, 2002, the Company was self-insured for health costs. The Company has a stop loss policy with an insurance carrier to
minimize its risk. Under this plan, the aggregate stop loss under the policy for the year ended December 31, 2002 was approximately $4.4 million.
The Company's claims expense for the years ended December 31, 2002 and January 1, 2002 was approximately $4,004,000 and $3,673,000,
respectively.
At December 31, 2002, the Company has recorded an estimated liability for claims incurred but not reported based on review of historical
claims activity by the Company and an independent insurance broker.
Legal Proceedings
The Company is subject to claims and legal actions in the ordinary course of business, including claims by franchisees. The Company does not
believe that an adverse outcome in any currently pending or threatened matter, other than described below, would have a material adverse effect on
its business, results of operations or financial condition.
On April 3, 2002, the Company was notified by the Securities and Exchange Commission that the Commission is conducting an investigation
into the resignation of the former Chairman, R. Ramin Kamfar, and the termination for cause of the former Chief Financial Officer, Jerold Novack,
and the delay in filing the Form 10-K for 2001. The Company is cooperating fully with the investigation. The Company is also cooperating fully
with a recent Department of Justice inquiry relating to these issues. Further, several of the former and present officers and directors have requested
that the Company advance reasonable legal expense on their respective behalf to the extent any of them is or has been requested to provide
information to the Commission in connection with its investigation. The Company is fulfilling its obligations as required by applicable law and the
Company's By-Laws.
On July 31 2002, Tristan Goldstein, a former store manager, and Valerie Bankhordar, a current store manager filed a purported class action
complaint against Einstein in the Superior Court for the
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State of California, County of San Francisco. The plaintiffs allege that Noah's failed to pay overtime wages to managers and assistant managers of
its California stores, whom it is alleged were improperly designated as exempt employees in violation of California and Business Profession Code
Section 17200. As a result of subsequent communications regarding the circumstances under which the Company purchased Einstein out of
bankruptcy, the plaintiffs filed a first amended complaint disclaiming back wages for the period prior to June 19, 2001. However, the first amended
complaint added as defendants certain former directors and officers of Einstein. The first amended complaint also added a second cause of action
seeking to invalidate releases obtained from Noah's assistant managers pursuant to the settlement of a Department of Labor investigation. The
Company filed a demurrer to the first amended complaint, which the plaintiffs opposed. Subsequent to the filing of that demurrer, the Company
procured a dismissal without prejudice of the claims brought against Paul Murphy, the only individual defendant the Company employed
subsequent to its acquisition of Einstein. The plaintiffs subsequently stipulated to the severance of the claims against the Company and those
against the remaining individual defendants. The stipulation provides that the plaintiffs will file separate second amended complaints against the
Company and against the remaining individual defendants. As a result, the Company's demurrer will be taken off calendar. The Company will have