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EINSTEIN BROTHERS BAGELS - FDD UFOC ITEM 3 Detail

ITEM 3 LITIGATION

 

Litigation against us:

 

Goldstein v. Einstein and Noah Corp. (Superior Court for the State of California, County of San Francisco, Case No. CGC-02-410967A). On July 31, 2002, Tristan Goldstein, a former store manager, and Valerie Bankhordar, a current store manager, filed a putative class action against us. The plaintiffs allege that we failed to pay overtime wages to managers and assistant managers of our 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. In a mediation conducted on April 7, 2004, the parties agreed to a settlement of $1 million. The agreement was approved by the court in January 2006 and the settlement was paid in February 2006.

 

Litigation against ENBC or ENBP:

 

Ron Benit, Simi Weiss and Thomas Griner v. Einstein/Noah Bagel Corp., Mark R. Goldston, Eric Carlborg and Scott A. Beck (U.S. District Court for the District of Colorado, Case No. 97-N-1614). Messrs. Benit, Weiss, and Griner, the plaintiffs in this case, are former ENBC shareholders. The plaintiffs filed this lawsuit on July 25, 1997, alleging that ENBC and the other defendants (former ENBC executives) disseminated or approved press releases and financial reports that contained misrepresentations and material omissions, and also concealed materially adverse financial information. The plaintiffs claimed that ENBC should not have treated its former area developers as separate legal entities and that ENBC should have consolidated its own financial results with those of the area developers. The plaintiffs alleged that the failure to consolidate the financial results made ENBC''s financial reports untrue and misleading, violating Sections 11 and 12(2) of the Securities Act of 1933 (because the alleged violations occurred in the context of ENBC''s initial public offering.) The plaintiffs asserted an additional claim against defendants Goldston, Carlborg, and Beck on the grounds that they acted as controlling persons of ENBC within the meaning of Section 15 of the Securities Act. The plaintiffs alleged that by reason of their positions as directors or officers of ENBC, these individuals (defendants Goldston, Carlborg, and Beck) had the power and authority to cause ENBC to engage in the wrongful conduct alleged in the complaint. In addition, the complaint alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as claims arising under the Colorado Securities Act against all defendants. Plaintiffs sought the following relief: (a) certification of the complaint as a class action for all persons who purchased or otherwise acquired the common stock of ENBC between August 2, 1996 and July 15, 1997; (b) an award of compensatory damages, interest and costs to all members of the class; and (c) equitable relief available under federal and state law.

 

In addition to the Benit case described above, six other complaints were filed in the U.S. District Court for the District of Colorado between August 8-29, 1997. Each of these complaints alleged substantially the same claims and causes of action arising under federal or Colorado state securities laws the plaintiffs in the Benit case. The cases are:


Meduri v. Einstein/Noah Bagel Corp., Mark R. Goldston, Eric Carlborg and Scott A. Beck (U.S. District Court for the District of Colorado, Case No. 97-N-1712). Filed August 8, 1997.

 

Drake v. Einstein/Noah Bagel Corp., Mark R. Goldston. Eric Carlborg and Scott A. Beck (U.S. District Court for the District of Colorado, Case No. 97-N-1713). Filed August 8, 1997.

 

Eisenfeld v. Einstein/Noah Bagel Corp.. Mark R. Goldston. Eric Carlborg and Scott A. Beck. (U.S. District Court for District of Colorado, Case No. 97-N-1823). Filed August 21, 1997.

 

Montova v. Einstein/Noah Bagel Corp., Mark R. Goldston. Eric Carlborg and Scott A. Beck. (U.S. District Court for District of Colorado, Case No. 97-N-2318). Filed August

27,    1997.

 

Snvdman v. Einstein/Noah Bagel Corp.. Mark R. Goldston, Eric Carlborg and Scott A. Beck. (U.S. District Court for District of Colorado, Case No. 97-N-1877). Filed August

28,    1997.

 

Kenneth Naish as custodian for Brian Naish and Jennifer Naish v. Einstein/Noah Bagel Corp.. (U.S. District Court for District of Colorado, Case No. 97-N-1894). Filed August

29,    1997.

These actions were consolidated as In re Einstein/Noah Bagel Corp. Securities Litigation (U.S. District Court for District of Colorado, Case No. 97-N-1614). The plaintiffs later amended the complaint to change the alleged class period to the period from August 2, 1996 to October 29, 1997. In addition to the cases described above, Drake v. Einstein/Noah Bagel Corp., Mark R. Goldston. W. Eric Carlborg and Scott A. Beck (Division 5, Jefferson County District Court, State of Colorado, Case No. 97-CV-2697), was filed in Colorado state court on September 19, 1997. The complaint alleged substantially the same claims and causes of action arising under Colorado state securities laws as the plaintiffs in the Benit case, but this case was not consolidated in the others. In February 1999, ENBC and the individual defendants in all of the cases described above entered into a settlement agreement under which ENBC paid (in the aggregate) $8.5 million and all parties signed mutual releases and dismissed all claims with prejudice. ENBC funded the settlement with proceeds of director and officer liability insurance policies. The U.S. District Court for the District of Colorado approved the settlement in June 1999.

Brownell v. Einstein/Noah Bagel Corp. (Superior Court of the State of California, Alameda County, Case No. 797600-5). Edwin Brownell, the plaintiff, is a former employee of MBC who filed this lawsuit on June 15, 1998. He alleged that ENBC breached an oral promise to employ him in California until his youngest son graduated from high school (which would have been in 2002). The complaint also alleged that ENBC breached a covenant of good faith and fair dealing, that the plaintiff was fraudulently induced to relocate from Kansas City to California, that ENBC made false representations under Section 970 of the California Labor Code, and that Brownell was fraudulently induced to invest $100,000 in a former area developer of ENBC. Brownell alleged that his damages include lost salary, benefits and bonuses in the amount of $350,000 per year through 2002, lost stock options, expenses of relocation from Kansas City to California, amounts for promised income tax reimbursement, loss of his $100,000 investment,


ENC - REDLINE FDD (19)

 

 

 

loss of reputation and emotional distress. The complaint sought damages, prejudgment interest and costs of suit, as well as punitive damages and a doubling of compensatory damages under Section 970 of the California Labor Code. In December 1999 the court granted ENBC''s motion for summary judgment to dismiss the claims for breach of contract and implied covenant of good faith and fair dealing, and certain of the claims for fraud and negligent misrepresentation regarding plaintiffs $100,000 investment. The court denied ENBC''s motion for summary judgment on the other claims. As a consequence of the Chapter 11 bankruptcy filing made by ENBC and ENBP on April 27, 2000, the claims arising under this Complaint became subject to the jurisdiction of the United States Bankruptcy Court, District of Arizona. On March 15, 2002, the Administrator of the ENBC and ENBP bankruptcy estates entered into a settlement with Brownell, allowing the assertion of an unsecured claim against the ENBP bankruptcy estate in the amount of $400,000.

 

Butler v. Einstein/Noah Bagel Corp. (Superior Court of the State of Arizona, Maricopa County, Case No. CV-98-16651; case removed to U.S. District Court for the District of Arizona, Case No. CIV-99-239-PHX-EHC). Butler, who filed this lawsuit on January 8, 1999, is a former store general manager for one of ENBC''s former area developers. Butler alleges that ENBC breached an oral contract to make him an "owner/operator" of the Einstein Bros. Bagels restaurants in the Phoenix area, under which he claims he would have earned between $240,000 and $400,000 per year. The complaint alleges breach of contract, breach of implied covenant of good faith and fair dealing, promissory estoppel, fraud, negligent misrepresentation and intentional infliction of emotional distress. The complaint sought damages in an unspecified amount, interest and attorney''s fees and costs. As a consequence of the Chapter 11 bankruptcy filing made by ENBC and ENBP on April 27, 2000, the claims arising under this complaint became subject to the jurisdiction of the United States Bankruptcy Court, District of Arizona. On June 25, 2002, the Administrator of the ENBC and ENBP bankruptcy estates entered into a settlement with Butler, allowing the assertion of an unsecured claim of $250,000 against the ENBP bankruptcy estate.

 

Litigation against MBC:

Overand v. Manhattan Bagel Co.. Inc. (U.S. District Court for the District of New Jersey, Case No. CV-96-9597). The named plaintiff (Overand) was a shareholder of MBC, and filed a class action suit claiming various securities laws violations involving the public sale in March 1996 of MBC stock, including failure to disclose material facts and violation of SEC Rule 10b-5. Overand sought damages in an unspecified amount. Overand filed a claim in MBC''s Chapter 11 case (the "MBC Bankruptcy Proceeding"). The lawsuit and claim were consolidated with Copeland v. Grumet (described below) and was resolved as described below.

 

Copeland v. Grumet (U.S. District Court for the District of New Jersey, Case No. CV-96-3351). The named plaintiff (Copeland) in this case was a shareholder of MBC, and filed a class action suit claiming various securities laws violations involving the public sale in March 1996 of MBC''s stock, including failure to disclose material facts and violation of SEC Rule 10b-5. The plaintiffs sought damages in an unspecified amount. This case was consolidated with Overand v. Manhattan Bagel Co.. Inc. (described above), and the claim was asserted in the MBC Bankruptcy Proceeding. The lawsuit and claim were settled on December 22, 2000 by NWR%ENRG''s indemnification obligation to former MBC officers by the issuance of approximately $200,000 of NWR-^sENRG''s common stock.

C.P.R- Foshions. Inc. v. Broadway Chiokon. Inc. (Superior Court of New Jersey. Law Division. Monmouth County, Docket No. L-830-96).� On February 28, 1996 C.P.R. Fashions, Inc., the plaintiff, a former

 

 

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Jersey Consumer Fraud Act. The plaintiff claimed that services were not performed under the franchise agreement and sought damages in an unspecified amount.MBC (which had purchased Broadway Chicken, Inc.) counterolaimod for royalties and advertising monies owed and for construction monies duo en work performed in building the store. The plaintiff filed a claim in the MBC Bankruptcy Proceeding, to which MBC objected. The plaintiffs lawsuit was dismissed and its claim was denied.

Manhattan Industries, Inc. v. Manhattan Bagel Co., Inc. and Karen Steamer (Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-644-96). On February 15, 1996, Manhattan Industries, Inc. (the plaintiff), a franchisee of MBC, brought this action against MBC and MBC''s Florida Master Franchisee, for breach of contract and misrepresentation. The plaintiff alleged breach of the franchise agreement and various untrue statements during the purchase of the franchise. The plaintiff sought damages in an unspecified amount, punitive damages, and rescission of the franchise agreement. In March 1996, MBC filed an answer that denied the allegations, and counterclaimed for fraud and misrepresentation, and also instituted a third party action against the plaintiffs principals for breach of contract and fraud. The plaintiff filed a claim in the MBC Bankruptcy Proceeding, to which MBC objected. The lawsuit was resolved through a settlement in the MBC Bankruptcy Proceeding on January 11, 1999, which included a requirement that the master franchisee relinquish its territory to MBC, and granted the plaintiff an unsecured claim of $125,000.

Manhattan Bagel Co., Inc. v. Fleming Bagel LLC (U.S. District Court of New Jersey, CV-96-3123). In June 1996, MBC filed an action for a declaratory judgment against Fleming Bagel LLC, a former developer, asking the court to declare that defendants'' master franchise rights in Texas and Louisiana were terminated, and seeking damages and other relief. The Court entered an order agreeing to terminate the master franchise rights but did not address MBC''s other claims. The defendants filed a counterclaim alleging default by MBC under the contract. The defendants later filed a claim in the MBC Bankruptcy Proceeding, to which MBC objected. The lawsuit was resolved through a settlement in the MBC Bankruptcy Proceeding dated June 29, 1999, which included a requirement that the master franchisee relinquish its territory to MBC, and granted the plaintiff an unsecured claim of $15,000.

HalRob. Inc. v. Manhattan Bagel Co., Inc. (Superior Court of New Jersey, Camden County, Chancery Division, C-16-97). In February 1997, HalRob Inc., the plaintiffs (who were franchisees of Specialty Bakeries, Inc., which MBC acquired in 1996) alleged violation of a restrictive covenant, and sought injunctive relief and other damages. This action was stayed and the plaintiffs were ordered to arbitrate their claims (see description below under Specialty Bakeries, Inc. v. HalRob, Inc.). The plaintiffs filed a claim in the MBC Bankruptcy Proceeding to which MBC objected. The lawsuit and claim was resolved through the MBC Bankruptcy Proceeding on July 17, 2001 by the allowance of an unsecured claim of $335,000 against the MBC bankruptcy estate, and payment of an administrative claim of $7,500.

 

Specialty Bakeries, Inc. v. HalRob, Inc. (U.S. District Court for the Eastern District of Pennsylvania, Case No. CV-97-1057). In February 1997, MBC sought an order from the federal court requiring HalRob, Inc., the defendants (franchisees of Specialty Bakeries, Inc.) to arbitrate the claims they asserted in the Superior Court of New Jersey (see description above under HalRob, Inc. v Manhattan Bagel Co., Inc.). In March 1997, the court ordered the defendants to arbitrate their claims and in April 1997, the court enjoined the defendants from proceeding with the lawsuit filed in the Superior Court of New Jersey. The arbitration proceeding was stayed by the filing by MBC of its Chapter 11 bankruptcy proceeding in November 1997. In November 1997, the U.S. Court of Appeals for the Third Circuit affirmed the


 

District Court''s orders. The lawsuit was resolved through the MBC Bankruptcy Proceeding as described above.

 

Naphtalie Deutsch. as Trustee of the JMB Irrevocable Trust dated June 4. 1979 v. Manhattan Bagel Co., Inc. (U.S. District Court for the District of Central California, Case No. CV97-0276-RAP (ANX)). Naphtalie Deutsch, the plaintiff, filed a claim alleging that MBC failed to comply with contractual obligations under an Agreement and Plan of Merger dated as of May 10, 1995, as amended, which was entered into by MBC, DAB Acquisition Corp., DAB Industries, Inc., and Allen Boren, regarding the obligations to register shares owned by the plaintiffs for public sale by them all as part of MBC''s acquisition of the Tn Joy Bagel" system in 1995. The plaintiffs filed a claim in the MBC Bankruptcy Proceeding, to which MBC objected. The lawsuit and claim were resolved through allowance of an unsecured claim against the MBC bankruptcy estate.

Monticito Market Place Assoc. v. Bay Area Bagel. Inc.. (Superior Court of California, Marin County, Docket No. 171501). In August 1997, Monticito Market Place Assoc., the plaintiff, filed a lawsuit alleging breach of contract, conspiracy to induce breach of contract, fraud, breach of fiduciary duty and other allegations based on a lease agreement with Bay Area Bagel, Inc., a subsidiary of MBC. MBC filed an Answer to the Complaint denying the allegations. The plaintiff dismissed its complaint with prejudice on June 2, 1999.

 

In re Manhattan Bagel Co., Inc., Wha Dong and Boo Young Kim v. Manhattan Bagel Co., Inc. (U.S. Bankruptcy Court, District of New Jersey, Adversary Proceeding No. 98-3599). In November 1998, Wha Dong and Boo Young Kim, the plaintiffs, started an adversary proceeding in the MBC Bankruptcy Proceeding, alleging breach of contract, breach of covenant not to compete, intentional interference with economic advantage and violations of the New Jersey Unfair Trade Practices and Consumer Protection Law by MBC. The plaintiffs also filed a claim in the MBC Bankruptcy Proceedings. MBC filed an answer and objected to the plaintiffs'' claim. The lawsuit and claim were resolved in the MBC Bankruptcy Proceeding on March 20, 2000 by granting them an unsecured claim against the MBC bankruptcy estate.

Q.E.D. Ventures. Inc.. Patricia Maher Wanosness. and David S. Wangsness v. Manhattan Bagel Co., Inc. and Sanford Nacht, (Superior Court of New Jersey, Monmouth County, Law Division, Case No. MON-L-5354-99). This complaint was filed November 1999 by a Manhattan Bagel franchisee in Virginia alleging violation of the franchise agreement because NWRENRG acquired the Chesapeake Bagel Bakery chain in August 1999. This lawsuit also named as a defendant Sanford Nacht, in both his individual capacity and as President and Chief Operating Officer of MBC (at the time of filing). MBC filed counterclaims. The matter was settled on November 30, 2000 by the payment of $22,500 to the plaintiffs.

Manhattan Bagel Co.. Inc. v. Osborn. (American Arbitration Association, New Jersey, Case No. 18-E-114-00428-99) This arbitration was begun in July 1999 by MBC against Albert J. and Lisa J. Osborn, franchisees of a Manhattan Bagel franchised store in Williamsville, New York, seeking termination of franchisee''s franchise agreement and collection of overdue royalties and other charges in the amount of $13,090. The Osborns filed a counterclaim seeking rescission of the franchise agreement, damages of $49,200, and attorneys'' fees. After the Bankruptcy Court granted MBC''s motion for summary judgment, the matter was settled on December 28, 2000 by the Osborns'' payment to MBC in the amount of $16,471.

 

Manhattan Bagel Co.. Inc. v. Benfante, (American Arbitration Association, New Jersey, Case No. 18-E-114-00015-00). This arbitration was begun in August 1999 by MBC against Patrick Benfante and Rocco Cupolo, franchisees of a Manhattan Bagel franchised store in Rochester,

New York, seeking termination of franchisee''s franchise agreement and collection of overdue royalties and other charges in the sum of $13,807. The franchisee counterclaimed, seeking rescission of the franchise agreement. After the Bankruptcy Court granted MBC''s motion for summary judgment, the matter was settled on December 28, 2000 by the franchisee''s payment to MBC in the amount of $17,565.

 

Manhattan Bagel Co.. Inc. v. Benfante (Superior Court of New Jersey, Monmouth County, Law Division, Case No. MON-L-4350-99). MBC filed this complaint in August 1999 against Patrick Benfante and Rocco Cupolo, who were also franchisees of a Manhattan Bagel franchised store in Rochester, New York, seeking termination of franchisee''s franchise agreement and collection of overdue royalties and other charges in the sum of $12,250. After the Bankruptcy Court granted MBC''s motion for summary judgment, the matter was settled on December 28, 2000 by the franchisee''s payment to MBC in the amount of $15,792.

 

Manhattan Bagel Co., Inc. v. W.I.P.P. Enterprises. Inc. (Superior Court of New Jersey, Monmouth County, Law Division, Case No. MON-L-3477099). MBC filed this complaint in July 1999 against W.I.P.P. Enterprises, Inc., the franchisee of a Manhattan Bagel franchised store in West Seneca, New York, seeking termination of the franchisee''s franchise agreement and collection of royalty arrearages and other charges in the sum of $12,503.37. The franchisee counterclaimed, seeking rescission of the franchise agreement, attorneys'' fees, and $50,000 in damages. After the Bankruptcy Court granted MBC''s motion for summary judgment, the matter was settled on December 28, 2000 by the franchisee''s payment to MBC in the amount of $18,315.

Manhattan Bagel Co.. Inc. v. Klein (Superior Court of New Jersey, Monmouth County, Law Division, Case No. MON-L-3478-99). MBC filed this complaint in July 1999 against Kevin and Susan Klein, who were franchisees of a Manhattan Bagel franchised store in Hamburg, New York, seeking termination of the Klein''s franchise agreement and collection of overdue royalties and other charges in the sum of $9,236. The Kleins counterclaimed, seeking rescission of the franchise agreement, attorneys'' fees, and $50,000 in damages. The Kleins have appealed the final order entered in March 2002, denying franchisee''s cross-motion for summary judgment. MBC will continue pursuit of its claims against these franchisees.

 

John W. Mangan. Ill, and The Mangan Group f/k/a MBSE. Inc.. v. Manhattan Bagel Co.. Inc.. and New World Coffee-Manhattan Bagel. Inc. (North Carolina Superior Court, Mecklenburg County, No. 01-CVSA-13874). The plaintiff in this action (which was filed on July 16, 2001) was a former Manhattan Bagel master franchisee and its principal owner. The plaintiffs sought payment on a consulting agreement and other amounts due as part of a settlement agreement involving MBC''s recapture of the master franchise territory. The action was settled through MBC''s completion of its compliance under the October 24, 2001 settlement agreement, under which MBC agreed to pay approximately $314,000 in damages and fees.

 

Higgs v. Manhattan Bagel Co.. Inc., John/Jane Does # 1-10; and ABC Corporations #1-10 (Superior Court of New Jersey, Case No. MON-C- 40-02). In February 2001, Robert Higgs, a franchisee of Manhattan Bagel stores at Route 37 East, Toms River, New Jersey and Eric Plaza Shopping Center, Forked River, New Jersey, filed a complaint against MBC and its officers, agents and related corporations for breach of contract, breach of fiduciary duties, tortious interference, and violations of the New Jersey franchise law. Higgs did not seek any specified amount of damages, but requested punitive damages, costs, and attorneys'' fees. The matter was settled on July 23, 2003 by the payment of $40,000 to the plaintiff.

Litigation Against NWRENRG:

 

Sargente v. New World Coffee & Bagels, Inc., Ramin Kamfar and Jerold Novack. (American Arbitration Association, New York, Case No. 13-114-01091-99) This arbitration was initiated in December 1999 by Valerie Sargente, the franchisee of a New World Coffee store located at 1159 Third Avenue, New York, New York, alleging fraudulent inducement, violations of the New York franchise law, and breach of contract, and also seeking rescission of the Franchise Agreement, damages of $500,000, and attorneys'' fees against NWRENRG. The New York franchise law claims were also asserted against R. Ramin Kamfar and Jerold E. Novack in their individual capacities (Messrs. Kamfar and Novack are former officers of our company and of NWR). NWRENRG). ENRG filed a counterclaim against the franchisee for amounts owed for royalties, product purchases, rent obligations, and loan obligations in the sum of $275,000. After completion of the plaintiff''s case in the arbitration, all of the defendants moved to dismiss the demand for arbitration. The Arbitrator granted the motion to dismiss filed by Messrs. Kamfar and Novack, and substantially granted NWR^ENRG''s motion to dismiss. This case was settled on November 30, 2001. Under the settlement, NWRENRG is to pay Sargente approximately $90,000 over time. In addition, NWRENRG paid a $50,000 guaranty NWRENRG executed for a loan given to Sargente (see the Commercial Capital Corp. case below).

 

Commercial Capital Corp. v. VM Sargente, Inc.. Valerie Sargente and New World Coffee-Manhattan Bagel. Inc. (N.Y. Supreme Court, New York County, No. 601421/00). This action was filed in May 2000 against NWRENRG by Commercial Capital Corp., the bank that issued a loan to former franchisee Valerie Sargente (see Valerie Sargente v. New World Coffee & Bagels, Inc., et al. above) in an effort to collect on NWR^sENRG''s $50,000 guaranty of the franchisee''s loan. The bank also asserted a claim that NWRENRG fraudulently procured the loan and Sargente asserted a cross-claim against NWRENRG for contribution and indemnification. This matter was settled in October 2001. Under the settlement, NWRENRG paid its $50,000 guaranty of Sargente''s loan, as was already required under NWR^sENRG''s guaranty of the bank loan.

 

New World Coffee & Bagels, Inc. v. Abrams (American Arbitration Association, New York, Case No. 13-114-00854-99). This arbitration was begun by NWRENRG in September 1999 against Lidia Abrams, the former franchisee of a New World Coffee store in Chatham, New Jersey, seeking damages for breach of the franchise agreement, as well as recovery from Abrams of unpaid fees and other charges in the sum of $166,954. Abrams filed a counterclaim alleging fraudulent inducement, breach of contract and violations of the New York franchise law, and also seeking rescission of the franchise agreement, damages of $1.0 million, and attorneys'' fees. The New York franchise law claims were also asserted against Ramin Kamfar and Jerold Novack in their individual capacities. Upon a motion filed by NWRENRG and Messrs. Kamfar and Novack, the arbitrator issued an Order dismissing most of Abrams'' claims. The arbitrator later denied Abrams'' motion for reconsideration. This matter was settled on December 8, 2001. Under the settlement, NWRENRG paid Abrams approximately $10,000.

 

Benjamin A. Allen and Allen Foods, Inc. v. New World Coffee. Inc., et al. (U.S. District Court for the Southern District of New York, Case No. 00-CIV-2610). In April 2000, the plaintiffs, the former franchisee of a New World Coffee store in New Brunswick, New Jersey, and its principal owner, filed a complaint alleging fraudulent inducement and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). The plaintiffs also sought injunctive relief, declaratory relief, damages in the amount of $750,000, and attorneys'' fees. The plaintiffs'' claims were also asserted against Ramin Kamfar, Jerold Novack and Collin Gaffney in their individual capacities. The defendants filed a motion to dismiss the RICO claims and the court granted that motion. The plaintiffs later filed an amended complaint. The defendants moved to dismiss all of the claims in the amended complaint. The court granted defendants'' motion, dismissing the plaintiffs'' RICO claims with prejudice and the plaintiffs'' other claims without prejudice.

 

New World Coffee of Forest Hills. Inc. v. New World Coffee & Bagels, Inc., (American Arbitration Association, New York, Case No. 13-114-00237-00). This arbitration was begun in February 2000 by New World Coffee of Forest Hills, Inc., the former franchisee of a New World Coffee store located at 107�24 Continental Avenue, Forest Hills, New York, alleging fraudulent inducement, violations of the New York franchise law, and seeking damages of $750,000 plus interest and costs. NWRENRG asserted a counterclaim seeking unpaid rent and overdue amounts for royalties, product purchases, and advertising fees in an amount of approximately $200,000. The parties settled all disputes in the arbitration, and to settle the matter, NWRENRG agreed not to enforce its judgment for $222,981 against Forest Hills, and NWRENRG reimbursed Forest Hills $15,000.

Three Beans & Bagel Corp. v. New World Coffee & Bagels, Inc., Ramin Kamfar and Jerold Novack. (American Arbitration Association, New York, Case No. 13-114-00389-00). This arbitration was begun in April 2000 by Three Beans & Bagel Corp., the franchisee of a New World Coffee store at 4�2-102 Westwood Avenue, Westwood, New Jersey, alleging fraudulent inducement, violations of the New York franchise law, and breach of contract, and also seeking rescission of the franchise agreement, damages of $500,000, and attorneys'' fees against NWRENRG. The New York franchise law claims were also asserted against Ramin Kamfar and Jerold Novack in their individual capacities. NWRENRG asserted a counterclaim for collection of royalties and other overdue charges in an amount of approximately $12,000. This matter was settled in June 2001. Under the settlement, NWRENRG is to pay the franchisee approximately $60,000, over time, including stock and royalty and product discounts.

Noureddine Solhi and Hadria. Inc. v. New World Coffee & Bagels. Inc.. Ramin Kamfar and Jerold Novack (American Arbitration Association, New York, Case No. 13-114-00389-00). This arbitration was begun in September 2000 by Noureddine Solhi and Hadria, Inc., the franchisees of a New World Coffee store at 126 Rockland Plaza, Nanuet, New York, alleging fraudulent inducement, violations of the New York franchise law, and breach of contract, and also seeking rescission of the franchise agreement, damages of $140,000, and attorneys'' fees against NWRENRG. The New York franchise law claims were also asserted against Ramin Kamfar and Jerold Novack in their individual capacities. NWRENRG asserted a counterclaim for unpaid royalties, payment for product purchases, and rent in an amount equal to approximately $40,000. This matter was settled on July 24, 2001. Under the settlement, NWRENRG is to pay the franchisee $35,000 over time.

 

Jason Gennusa. Andrew Gennusa. and Zebu Forno Enters.. LLC v. New World Restaurant Group. Inc. (Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-1164-03, filed March 17, 2003). In this matter, the plaintiffs were the two original owners of the Manhattan Bagel system and their new company. They brought an action seeking a declaratory judgment that they: (a) had not actually sold us the recipes when they sold us the Manhattan Bagel system and the stock of our company in 1998; (b) were free to solicit business from Manhattan Bagel franchisees; and (c) were entitled to use the original Manhattan Bagel recipe to produce bagels and sell them to Manhattan Bagel franchisees. We filed a counterclaim, asserting that the Gennusas had violated their confidentiality agreement by producing bagels using the recipes that they sold to us (along with the sale of the company) in 1998, and that the Gennusas were also tortiously interfering in our contractual relationships with our franchisees. In July 2003, we reached a settlement under which the Gennusas and their company abandoned all of their claims, agreed to do all of the things that we asked for in our counterclaim, and in which we compensated the Gennusas a certain amount to defray some of the cost of transitioning their company''s business so that it no longer sold bagels to our franchisees.

 

Related to the Gennusa action, above, was another action encaptioned Kaufman v. New World Restaurant Group. Inc. (Superior Court of New Jersey, Monmouth County, Chancery Division, No. MON-C-158-03, filed June 2, 2003). This action was joined with the Gennusa lawsuit, noted above. This action was filed by four franchisees seeking the right to buy bagels from the Gennusas'' company, and alleged breach of contract, fraud, violation of the New Jersey Franchise Practices Act, and constructive termination. We-ENRG responded and sought a dismissal of the complaints. Before the court could hold a hearing, the plaintiffs dismissed all of their claims with prejudice.

Manhattan Bagel of Northeast. Inc. and Ellen Fishlevich v. Manhattan Bagel Company. Inc. and New World Restaurant Group. Inc. (Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-3166-04, filed August 11, 2004). This is a lawsuit filed by former franchisee (who was a plaintiff in the Kaufman case, above, and whose claims were dismissed with prejudice in that action) who later claimed that MBC engaged in fraud by not disclosing changes to its product formulation. WeMBC filed a counterclaim against the plaintiffs for $160.000 owed under the franchise agreement. MBC also filed a motion to stay thelr-this action pending arbitration, and the plointiffs oounoolwhich the plaintiffs consented:�Although the case (including our claims seeking to recover $150.000 that the plaintiff owes to us) is pending in the . The arbitration proceeding, the plaintiffs have since sought protection undor tho U.S. Bankruptcy Codo, and tte-arbitr-atiQf�H^oeeeg^f�g^ras^en-was staved per4ding4^e-outGome-of-those-when plaintiffs filed for bankruptcy proGoodingc.

in 2005, but the bankruptcy was dismissed in 2006 for failure of plaintiffs to prosecute the action. The plaintiffs reopened the arbitration and, in June 2007. the arbitrator granted MBC''s motion to dismiss, in part, and denied the motion, in part, due to issues of fact. MBC has filed a motion to compel discovery in this case and the arbitrator granted this motion and issued a scheduling order-Industrial Way. LLC, v. New World Restaurant Group. Inc., and Manhattan Bagel Company, Inc. (Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-1202-03). Industrial Way, LLC, the owner of premises leased by MBC, filed this lawsuit against NWRENRG and MBC on March 18, 2003. In its amended complaint dated May 5, 2003, the plaintiff alleged causes of action for related to the lease of an office and manufacturing facility in New Jersey. The landlord''s claims included wrongful conversion of personal property (consisting of fixtures and equipment), damage to leasehold property, and breach of the lease. The landlord sought compensatory damages in an unspecified amount, amounts relating to rent the landlord claimed were outstanding, acceleration of rent through the balance of the term, interest, costs to repair the premises, and related expenses. The landlord also raised an alternative theory of damages based on diminution in value of the building in which the premises are located. On June 19, 2003, NWRENRG and MBC filed their answer to the amended complaint and counterclaim. On August 15, 2003, the court disqualified the plaintiffs attorney from this matter ruling that a conflict of interest existed because of that attorney''s prior representation of NWRENRG. On April 22, 2004, a settlement agreement was signed in which NWRENRG agreed to pay the landlord $3 million to cover the remaining rents and other costs.

New World Restaurant Group. Inc. v. Jasbir Jassal. (Civil Court, New York City and County: Housing Division, Index No. L&T 078354/05, filed June 28, 2005). NWRENRG filed an action against a former New World Coffee franchisee (who is also a subtenant of certain retail space) seeking possession of the sublet premises and a money judgment against the respondent for $425,353.01. Shortly after NWRENRG filed this action, the defendant filed a separate lawsuit, alleging that in 1998, NWRENRG committed fraud and misrepresentation in his original purchase of the franchise (that lawsuit is captioned Jasbir Jassal v. New World Coffee and Bagels. Inc.. and is now pending in the U.S. District Court for the Eastern District of New York, Docket No. 1:05-cv-03803 (FB)(RML) (the case was originally filed on August 4, 2005 in the Supreme Court of New York, County of Queens, Index No. 16412/05, and removed to U.S. District Court on August 10, 2005). On March 17, 2006, the parties entered into a settlement agreement resolving both cases, under which Mr. Jassal agreed that if he sells his restaurant, he will pay NWRENRG up to $7,500 out of the net proceeds of the sale.

Fiera Foods Company v. Einstein Noah Restaurant Group. Inc. (Superior Court of Justice of Ontario. Canada: 07-CV-334709-PD2). On August 31, 2007. the Company was served in an action brought by Fiera Foods Company in which Fiera claims that the Company failed to negotiate in good faith for a frozen bagel dough supply agreement, which was not concluded, and made misrepresentations in the negotiations. Fiera is seeking damages of $17.0 million (Canadian) as well as interest and costs. The case is proceeding into discovery. No trial date has been set-Erik Mathistad v. Einstein Noah Restaurant Group, Inc., et al (Superior Court of California. County of San Diego: 37-2007-74998-CU-OE-CTL, filed September 13, 2007). Eric Mathistad, a former store manager, filed a putative class action against ENRG in the Superior Court of California for the County of San Diego. The plaintiff alleges that ENRG did not pay overtime wages to "salaried restaurant employees" of its California stores who were improperly designated as exempt employees, and that these employees were deprived of mandated meal periods and rest breaks. The plaintiff alleges that these actions were in violation of the California Labor Code, the California Business and Professions Code (allegation of unfair competition), and applicable wage orders issued by the Industrial Welfare Commission. The plaintiff seeks injunctive relief, declaratory relief, attorney''s fees, restitution and an unspecified amount of damages for unpaid overtime and for missed meal and/or rest periods. ENRG filed a demurrer on October 18, 2007 claiming that, among other things, the plaintiff failed to state a claim: the plaintiff did not state a claim for a joint venture, partnership, or common enterprise: that the plaintiffs definition of the class is deficient, and that the plaintiffs claims for declaratory judgment regarding Labor Code violations should be dismissed. The matter, including ENRG''s demurrer, is pending before the court.

 

Bernadette Meiia v. Einstein Noah Restaurant Group, Inc., et al (Superior Court of California, County of San Diego: 37-2007-00078701-CU-OE-CTL. filed October 30, 2007). Bernadette Meiia, another former store manager, filed a case similar to the Mathistad case described above. On December 14, 2007, ENRG filed a demurrer in this case, noting for the court that the Mathistad case was already pending between the same putative parties on the same causes of action. We understand that Ms. Meiia and Mr. Mathistad have agreed to consolidate their actions.

Other than these 3639 actions, no litigation is required to be disclosed in this offering GifGuJafdisclosure document.

 





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