What would you do?

If it was me I would get everything I could out of the store and use coupons and stuff at another subway in another town. Think about it!

I agree with the kids, don't go back unless they fire that employee.  File a police report and charge that person with assault.  You should have done that right away before they had a chance to destroy the security camera tape.

Paying for your clothes and giving you coupons is the least they could, considering that you could sue them if you wanted to.

The worst part is your kids fear.  I would enroll them in some type of self-defense class so they could see that they can take care of themselves and not be afraid of chance encounters with crazy people.  Judo is good for kids to learn and has a strict non-violence philosophy (since you can only defend with judo, not attack), but there are lots of choices out there.

I was rudely treated by a receptionist when I went to a new dentist.  She accused me of being late, when I was fifteen minutes early.  She wouldn't let it go.  She questioned why I would choose to live my town, etc.  I wrote a heartfelt, kind letter to the dentist, praising him and others, then telling him how I was treated.  His head lady in the office called me, apologized, and said they had been discussing her termination, and that this just clinched it.  I told her I didn't want to be the cause of anyone losing her job, and she said, "You're not the cause.  She is."

Well, it seems you handled it as well as possible.  I don't understand why they won't prosecute if you have witnesses.

All that is left now is whether you want to give your kids a lesson in forgiveness, and let the shop owner try to make it up to them.  I don't know how to convince them to go back and give him a chance.  I hold grudges for years, myself, but it is a failing, and they should be taught to get over things and forgive.