Einstein Bros 2003 Annual Report Download - page 16

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
On August 7, 2003, we received a subpoena for documents from the Office of the Attorney General of the State of New York ("NYAG"). The
subpoena primarily requests information relating to whether a net worth exemption from franchise registration, which was granted to New World
in April 2000 pursuant to the New York Franchise Act, Article 33 of New York's General Business Law, remains in force. On November 25, 2003,
the NYAG made a supplemental document request. We have completed the initial document production and are responding to the supplemental
request. We are cooperating with the Attorney General's requests under the subpoena, and our discussions with the Attorney General are ongoing.
The NYAG has indicated that it will not process the current franchise offering circular registration until this issue is resolved. Given our current
business plans, we do not anticipate that this will have a material effect on us.
On March 18, 2003, Industrial Way, LLC, owner of premises leased by Manhattan in Eatontown, NJ, filed a lawsuit against us and Manhattan
in the Superior Court of New Jersey, Law Division, Monmouth County. In its amended complaint dated May 5, 2003, the plaintiff alleges causes of
action for wrongful conversion of personal property (consisting of fixtures and equipment), damage to leasehold property, and breach of the lease.
The landlord seeks to recover compensatory damages in an unspecified amount, which damages purportedly include amounts relating to
outstanding rents, acceleration of rent through the balance of the term, interest on outstanding payments due, costs to
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repair physical damage to the premises, expenses incurred in reletting the property, court costs and attorneys' fees. Plaintiff has also raised an
alternative theory of damages based on diminution in value of the building of which the premises are a part. We have answered the amended
complaint and counterclaimed. We have engaged an expert to appraise the landlord's claims.
On June 4, 2003, R. Ramin Kamfar, our former Chairman of the Board and Chief Executive Officer, filed an action in the United States
District Court for the Southern District of New York against us and Anthony D. Wedo, our former Chairman and Chief Executive Officer, alleging
causes of action for breach of contract, defamation, declaratory relief and punitive damages. In this action, Mr. Kamfar alleges that we breached
confidentiality and non-disparagement provisions in his separation agreement with us by disclosing certain financial and other terms contained
therein. We have answered and asserted affirmative defenses, and counterclaims against Mr. Kamfar, including claims for breach of fiduciary duty,
fraud, and breach of contract. Mr. Kamfar answered those counterclaims on October 27, 2003.
On March 31, 2003, Jerold E. Novack, our former Chief Financial Officer, Secretary, and one of our stockholders, filed a complaint in the
United States District Court for the District of New Jersey against us, Anthony D. Wedo, our former Chairman and Chief Executive Officer, and
William J. Nimmo, a former member of our board of directors. The complaint claims breach of plaintiff's employment contract, breach of our
fiduciary duties to plaintiff, defamation, and violation of the New Jersey Conscientious Employee Protection Act, and in addition seeks a
declaration that the termination of plaintiff "for cause" was invalid. We have answered and filed counterclaims against Mr. Novack and filed a
motion to dismiss certain claims. On January 20, 2004, the court granted our motion to dismiss the breach of fiduciary duty claim.
On July 31, 2002, Tristan Goldstein, a former store manager, and Valerie Bankhordar, a current store manager, filed a putative class action
against Einstein and Noah Corp. ("ENC") in the Superior Court for the State of California, County of San Francisco. The plaintiffs allege that ENC
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 wage and hour laws and Business Profession Code Section 17200. After several procedural matters, including
the dismissal of claims against Paul J.B. Murphy, III, our Acting Chairman and Chief Executive Officer, we have answered and discovery is
continuing on the class certification issues.
We have been notified that the Department of Justice intends to sue us, Richard Windisch, and Jerold E. Novack (our former Chief Financial
Officer) on our guarantees of an SBA loan to 723 Food Corp., Mr. Windisch's operating company, a former franchisee. The outstanding balance on
the loan is approximately $162,000.
On April 3, 2002, we were notified by the SEC that the SEC is conducting an investigation into the resignation of our former Chairman, R.
Ramin Kamfar, and the termination for cause of our former Chief Financial Officer, Jerold Novack, and the delay in filing the Form 10-K for 2001.
We have cooperated fully with the investigation as well as with a Department of Justice inquiry relating to these issues. Further, several of the
former and present officers and directors have requested that we advance reasonable legal expenses on their respective behalves to the extent any of
them is or has been requested to provide information to the SEC in connection with its investigation. We have fulfilled our obligations as required
by applicable law and our By-Laws. We have not been contacted by the SEC or the Department of Justice for more than six months in connection
with either of these inquiries.
On February 23, 2000, New World Coffee of Forest Hills, Inc., a franchisee, filed a demand for arbitration with the American Arbitration
Association (American Arbitration Association, New York, New York, Case No. 13-114-237-00) against us alleging fraudulent inducement and
violations of New York General Business Law Article 33. The franchisee seeks damages of $750,000. We dispute the franchisee claims and are
seeking amounts owed under the franchise agreement and monies owed for goods