CARTRIDGE WORLD UNIT - FDD UFOC ITEM 3 Detail

Ttem~3~. LITIGATION

One CW LLC/ Cartridge World Midwest. LLC, Steven Vollmer. Cartridge World North America LLC: FAM Case #07A1001

______ This arbitration petition originally was filed bv One CW LLC (the "franchisee"), a former*

franchisee of CW Midwest, in September. 2007 with the Chicago office of JAMS and re-filed on October 15, 2007 with Franchise Arbitration and Mediation Services ("FAM"). The petition names as respondents CW Midwest and its President. Steven Vollmer and CWNA. The petition summarily alleges violations of the Illinois Franchise Act, fraud in the inducement of franchise agreement, breach of franchise agreement, conversion and breach of purchase and sale contract. CW Midwest believes these claims are entirely groundless. The background of the matter is as follows. In April 2007. CW Midwest and the franchisee negotiated an asset purchase and sale agreement to transfer the assets of the franchisee''s Cartridge World Store to CW Midwest. Closing of the sale was conditioned on the franchisee arranging for a release of liens from its creditors. However, to accommodate the franchisee, before this condition was fulfilled CW Midwest in good faith paid petitioner''s a deposit of $10.000 for the assets and assumed the lease for the Store. After accepting and cashing the deposit check and voluntarily assigning the lease to CW Midwest, and turning over possession of the store to CW Midwest, the franchisee failed to respond to further communications from CW Midwest about fulfilling the

Cartridge World North America, LLC � Master J=DD�.4/1/08_______________________________ Page 5_________

California

11

-{ Formatted: Font: Arial, 11 pt

Formatted: Line spacing: At least 13 pt

Formatted: Indent: First line: 36 pt, Une spacing: At least 13 pt

Formatted: Line spacing: At least 13 pt

Deleted:� VIcb President-Franchise Operations � Shawn J. Lvnam.

. Shawn J. Lynam joined Cartridge World North America in May 2005 as Vice President, Franchise Operations. From 2001 until joining CWNA, he was Senior Director, Product Development & Management for Mail Boxes Etc. in San Diego, California.

Formatted: Font: Bold

Formatted: Font: Not Bold

Deleted:� Director of Franchise Development � Tim EastonT

It

. Tim Easton became our Director of Franchise Development in June 2005. Mr. Easton is also the Director of Franchise Development for PC, Ink, LLC, the Master Franchisee for Southern California, owned by Mr. Dring and Mr. Yarkin. From September 1995 to June 2005 he was Area Development Manager for Mall Boxes Etc. in San Diego, California .fl 11

Franchise Brokerall

. We employ various franchise brokers to assist us in identifying qualified Master Franchise applicants. These franchise brokers are authorized to refer prospective franchisees to us. A list of these franchise brokers is attached as Exhibit G. H

Formatted: Indent: First line: 36 pt

Formatted: Indent: First line: 0 pt, Line spacing: At least 12 pt

Deleted: UFOC

-f Deleted: 6/1/07

Yvonne Rvzakv.Wildwood Franchising, Inc.. Cartridge World North America LLC, and
Burt Yarkin. Superior Court of California, County of Alameda {Case No. RG05198697). Filed
February 16, 2005. .This complaint was filed by Plaintiff, a Foster City. CA franchisee, against
JWJ''dyyood Franch[s]ng Inc., the master^franchisee for Plaintiff s location, ^nd CWNA and Burt
Yarkin, the president of Wildwood Franchising, Inc. f"Wildwood''\an_d[a former CWNA president,
The complaint .alleged misrepresentations regarding fajlures to deliver .training _and_supp9rt_
services, among others, as well as breach of contract. The^defendantsi each� vigorously denied
the allegations, _Wildwqod ^dyised CWNA that training and a_vanety of support services were
delivered to this franchisee. Further, the defendants asserted that the franchisee''s failure to
follow the mutually agreed upon dispute resolution procedure stated in her franchise agreement
was a material breach of that agreement. Nevertheless, in an effort to avoid a costly, protracted
dispute and an unproductive use of resources, the matter was settled on April 15, 2005. Under
this agreement, Wildwood purchasedthe plaintiffs fcanchised business forj5l 60,000 and the
parties released all claims. The plaintiffs complaint has been dismissed with prejudice.
Wildwood jsubsequently resold and franchised the business to an unrelated franchisee^______________

As to CWNA''s predecessor:

Cartridge"World Ptv Ltd''fACN 086 234 B26WforrnerivXu^lTan" Ptv Ltd (ACN 008 291 914) and John Henry Nominees Ptv Ltd (ACN 007975 902) v. Latull Ptv Ltd (ACN 008 030 000). Christopher John Biggs and Norma Geraldine Bioos. Action No. 1480 of 2001, District Court of South Australia. Adelaide. South Australia (Sept. 27, 2001). CW PTY filed suit against a Cartridge World Franchisee in Norwood, South Australia, for non-payment of royalties owed. The franchisee filed a counterclaim against the plaintiff, also naming as defendants Messrs. Wheeler and Stokes and John Henry Nominees Pty Ltd. The franchisee alleged that it had an oral agreement with CW PTY to pay a reduced royalty fee. The franchisee asserted in its counterclaim that misrepresentations and breaches of warranty were committed by various defendants and sought, an order voiding the Business Purchase Agreement under which the franchisee acquired the franchised business, an accounting of an advertising fund, and an award of damages in an unspecified amount for breach of contract and warranty and violations of various Australian statutes, including the Trade Practices Act, the Fair Trading Act, the Franchising Code of Conduct, the Land and Business Act and the Misrepresentations Act. In June, 2003 the parties entered into a settlement agreement, which involved: (i) a mutual discontinuance (termination) of the parties'' respective claims; (ii) the parties agreeing to bear their own costs of and incidental to the action; and (iii) the parties releasing and discharging each other in relation to the claims made without requiring any payment to be made by one to the other in respect of those claims. Additionally, the Franchisee consented to the formal termination of the Franchise Agreement, and the discharge of any future rights that it might otherwise have had under the Franchise Agreement. Cartridge World Pty Ltd agreed to buy, and the former Franchisee agreed to sell, the business, plant, equipment

Cartridge World North America, LLC � Master -FOP.�,4/1 /0B______________________________ Page 6_________

California

Holden Hill Unit Trust v. Australian Cartridge Company Pty Ltd (ACN 008 291 914) and Cartridge World Ptv Ltd

(ACN 086 234 8261 and John Henry Nominees Ptv Ltd f ACN 007975 9021. Action No. 99 of 2002. District Court

of South Australia. Adelaide, South Australia (Jan. 23.2002). A complaint was filed against Cartridge World Pty Ltd and the other named defendants by the trustee of a Cartridge World franchisee previously operating in Holden Hill, South Australia. The plaintiff alleged that the defendants committed various misrepresentations and misused the advertising fund. The complaint sought various forms of relief, including a declaration that the franchisee validly terminated the franchise agreement and was not bound by the covenants against competition, an accounting of an advertising fund, and an award of damages in excess of $115,000 for breach of contract and violations of various Australian statutes. Including the Trade Practices Act and the Fair Trading Act. The defendants filed a counterclaim, alleging various breaches of the franchise agreement, including $4,000 for non-payment of royalties and ad fees, and seel¹

Deleted: in connection with franchisee''s purchase of the Norwood store operations and in the awq _ _ rs]

Deleted: UFOC

. -{Deleted: 6/1/07

and stock of the former Franchisee''s previously franchised business upon terms negotiated by the parties.

Neither we nor any person listed in Item 2 of the .FDD nor any of our: _p_^ar^e_ⁿ_^ts_-,
predecessors or franchising affiliates is subject to any currently effective order _tor decree \
resulting from a pending or concluded action brought by a public agency and relating to the~\
franchise or to a federal, state or Canadian franchise, securities, antitrust, trade regulation, or
trade practice law,______________________________________________________________________