Einstein Bros 2002 Annual Report Download - page 84

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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 advantages. Plaintiff
seeks $500,000 in consequential damages and $20 million in punitive damages. Prior to responding to PBIS's complaint, the Company entered into
a settlement agreement with PBIS on April 2, 2003. As consideration for PBIS's agreement to settle and dismiss this matter, the Company agreed
to list PBIS as its 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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Fixed Fee Distribution Agreement
Through December of 2002, the Company maintained a fixed fee distribution agreement with a national distribution company ("distributor")
whereby the distributor supplied substantially all products for resale in the Company's company-operated restaurant locations. In addition, the
Company maintained a separate fixed fee distribution agreement with the distributor for delivery of certain proprietary products to its franchised
locations. Effective February 20, 2002, the Company entered into Mutual Termination Agreements with the distributor which provided for the
termination of each of the fixed fee distribution agreements effective August 2, 2002. Pursuant to the restated agreement, the distributor was
required to provide distribution services to all locations through August 2, 2002, which date was extended until December 2002. As a part of the
agreement, the Company was required to pay the distributor $12,000,000, representing a portion of the unamortized $5,000,000 investment made
by the distributor at the inception of the original agreement and a reduced amount of outstanding trade payables and other previously accrued
charges. The Company recorded a reduction to general and administrative expense of $2,750,000 in 2002 as the carrying amount of the associated
liabilities exceeded the payments made under this agreement by such amount.
As of November 2002, the Company had replaced the national distributor with six regional custom distributors to its Company-operated and
franchised locations.
Investment Banking Agreement
In October of 2002, the Company engaged CIBC World Markets Corp. as its financial advisor in connection with its review of strategic
alternatives to rationalize its capital structure.
17. Related Party Transactions
Leonard Tannenbaum, a director, is a limited partner and 10% owner in BET, one of the Company's principal stockholders. On August 11,
2000, BET purchased approximately 8,108 shares of Series D preferred stock for a sum of $7,500,000. In a related transaction on August 18, 2000,
Brookwood, one of the Company's principal stockholders, purchased approximately 8,108 shares of the Company's Series D preferred stock for a
sum of $7,500,000 (collectively, the Series D Financing). Each of BET and Brookwood received a warrant to purchase 1,196,909 shares of
Common Stock at a price of $0.01 per share. In connection with the Series D Financing, MYFM Capital LLC, of which Mr. Tannenbaum is the
Managing Director, received a fee of $252,650 and a warrant to purchase 70,000 shares of Common Stock at its closing price of $1.938 per share
on August 18, 2000. In addition, Mr. Tannenbaum was designated by BET as a director to serve for the period specified in the Stockholders
Agreement dated January 18, 2001, as amended (the "Stockholders Agreement"), among the Company and the holders of its Series F preferred
stock.
Eve Trkla, a director of the Company, is the Chief Financial Officer and principal of Brookwood Financial Partners, L.P., an affiliate of
Brookwood. Ms. Trkla was designated by Brookwood as a director to serve for the period specified in the Stockholders Agreement.
As of January 18, 2001, the Company consummated a sale of 20,000 shares of its authorized but unissued Series F preferred stock to Halpern
Denny, one of the Company's principal stockholders, in exchange for the sum of $20 million. At such time, the Company entered into a Series F
Preferred Stock and Warrant Purchase Agreement with Halpern Denny. Pursuant to the Series F Preferred Stock and Warrant Agreement, Halpern
Denny was paid a transaction fee of $500,000. William Nimmo, a director, is a partner in Halpern Denny and Co., an affiliate of Halpern Denny.
Mr. Nimmo was designated by Halpern Denny as a director of the Company. In connection with the Series F Preferred
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Stock and Warrant Purchase Agreement, the Company issued Halpern Denny a warrant to purchase 8,484,112 shares of Common Stock at an
exercise price of $0.01 per share.