Einstein Bros 2003 Annual Report Download - page 72

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
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purchased by the franchisee in the amount of $200,000. An arbitrator has been selected and document exchange is complete. No hearing date has
been scheduled.
On October 28, 2002, Sansim Patel, Inc., a subfranchisee of Manhattan, filed suit against Manhattan, the master franchisee, and others in
Orange County (Orlando, Florida). The plaintiff alleges claims of civil conspiracy and unjust enrichment against Manhattan and seeks rescission of
its franchise agreement with Manhattan. The plaintiff also seeks damages in an unspecified amount. In December 2002, we filed a motion to
dismiss all of the claims asserted against us by the plaintiff, based in part on a general release the plaintiff had previously executed in favor of
Manhattan. That motion remains pending with the Court.
In July 2002, the New Jersey Division of Taxation entered judgment in the amount of $5,744,902, plus costs, against Manhattan Bagel
Construction Company, a wholly owned subsidiary of Manhattan. This judgment represents amounts for corporate income taxes for the period
from 1996 to 2000, and sales and use taxes for the period from 1995 to 1997. At that same time, the Division of Taxation provided Manhattan
Bagel Construction Company with a Notice and Demand for Payment of Tax in the additional amount of $130,200, for corporate income taxes and
sales and use taxes for the period from October 2001 through June 2002. Manhattan Bagel Construction Company ceased operations in or about
early 1997 and has existed since that time only as a non-operating entity with no assets. With regard to taxes imposed for the period prior to early
1997, we believe that those amounts are barred from being asserted against Manhattan because they were not asserted in Manhattan's
November 1997 bankruptcy proceeding.
We cannot predict the outcome of the matters discussed above. There can be no assurance that we will not be subject to regulatory sanctions
or that civil penalties or monetary damage or other relief will not be awarded against us.
16. Related Party Transactions
Several of our stockholders or former stockholders, including BET, Brookwood, Halpern Denny, Greenlight Capital, L.L.C. and certain of their
affiliates (BET, Brookwood, Halpern Denny, and Greenlight, respectively), have also been involved in our financings, refinancings and have
purchased our debt and equity securities. We have summarized below financial transactions involving these investors, including the issuance of the
$160 Million Facility in July 2003 and the Equity Recap (See Note 1 - 2003 Debt Refinancing and Equity Recapitalization) completed in
September 2003.
Leonard Tannenbaum, a director, is the Managing Director of MYFM Capital LLC and a limited partner and 10% owner in BET. His father-
in-law is Bruce Toll, an affiliate of BET. Josh Clark, a director, was until March 2004, employed by Greenlight. Greenlight owns approximately
92% of our fully diluted common stock.
Eve Trkla, a director of our company until August 16, 2003, is the Chief Financial Officer of Brookwood Financial Partners, L.P., a former
affiliate of Brookwood. Ms. Trkla was designated by Brookwood as a director to serve for the period specified in the Stockholders Agreement
(which was terminated as a result of the Equity Recap).
On January 22, 2001, we consummated a sale of 20,000 shares of our authorized but unissued Series F preferred stock to Halpern Denny in
exchange for the sum of $20.0 million. At such time we 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 of the Company until June 6, 2003, is a partner
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in Halpern, Denny and Co., an affiliate of Halpern Denny. Mr. Nimmo was designated by Halpern Denny as a director of our company. In
connection with the Series F Preferred Stock and Warrant Purchase Agreement, we issued Halpern Denny a warrant to purchase 140,925 shares of
our common stock at an exercise price of $0.60 per share.
BET and Brookwood had invested the sum of $15.0 million for substantially the same purpose as that contemplated by the Series F Purchase
Agreement, which investment was made in August 2000, and BET and Brookwood were then holding Series D preferred stock, which had a right
to approve the creation of the Series F preferred stock. Therefore, we considered it appropriate to restructure the investment documents relating to
the August 2000 investment by BET and Brookwood. Accordingly, we, BET and Brookwood entered into an Exchange Agreement on January 22,
2001, whereby we exchanged all of our outstanding Series D preferred stock, including accrued but unpaid dividends (all of which were retired),