Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies

NOTE 9 COMMITMENTS AND CONTINGENCIES

On June 12, 2008, a claim was filed against the Company and certain of its affiliates in the Ontario Superior Court of Justice (the “Court”) by two of its franchisees, Fairview Donut Inc. and Brule Foods Ltd., alleging, generally, that the Company’s Always Fresh baking system and expansion of lunch offerings have led to lower franchisee profitability. The claim, which sought class action certification on behalf of Canadian restaurant owners, asserted damages of approximately $1.95 billion. Those damages were claimed based on breach of contract, breach of the duty of good faith and fair dealing, negligent misrepresentations, unjust enrichment and price maintenance. The plaintiffs filed a motion for certification of the putative class in May 2009, and the Company filed its responding materials as well as a motion for summary judgment in November 2009. The 2 motions were heard in August and October 2011. On February 24, 2012, the Court granted the Company’s motion for summary judgment and dismissed the plaintiffs’ claims in their entirety. The Court also found that certain aspects of the test for certification of the action as a class proceeding had been met, but all of the underlying claims were nonetheless dismissed as part of the aforementioned summary judgment decision.

While the Court found in favour of the Company on all claims, the plaintiffs appealed from the summary judgment decision with respect to some of the claims for breach of contract and with respect to the claim for breach of the duty of good faith. The appeal was heard in December 2012 at which time the Court of Appeal for Ontario dismissed all claims in their entirety. The plaintiffs have filed an application to seek leave to appeal to the Supreme Court of Canada. If leave is granted and the appeal determined adversely to the Company, the matter could ultimately proceed to trial. The Company continues to believe that it would have good and tenable defenses if leave to appeal were granted, the plaintiffs were successful in the appeal, and the matters were to proceed to trial. However, if the matters were determined adversely to the Company at trial and that determination was upheld after all avenues of appeal were exhausted, it is possible that the claims could have a material adverse impact on the Company’s financial position or liquidity.

In addition, the Company and its subsidiaries are parties to various legal actions and complaints arising in the ordinary course of business. As of the date hereof, the Company believes that the ultimate resolution of such matters will not materially affect the Company’s financial conditions and earnings.