Comfort Inn 2011 Annual Report Download - page 29

Table of Contents
•reduce or eliminate quarterly dividends.
While we currently maintain an investment grade credit rating by both of the major rating agencies, there can be no assurance we will be able to maintain
this rating. In the event of a downgrade in our credit rating, we would likely incur higher borrowing costs.

Our restated certificate of incorporation, the staggered terms of our board of directors and the Delaware General Corporation Law each contain provisions
that could have the effect of making it more difficult for a party to acquire, and may discourage a party from attempting to acquire, control of our Company
without approval of our board of directors. These provisions together with the concentration of our share ownership could discourage tender offers or other
bids for our common stock at a premium over market price.

The concentration of share ownership by our directors and affiliates allows them to substantially influence the outcome of matters requiring shareholder
approval. As a result, acting together, they may be able to control or substantially influence the outcome of matters requiring approval by our shareholders,
including the elections of directors and approval of significant corporate transactions, such as mergers, acquisitions and equity compensation plans.

The Federal Trade Commission (the “FTC”), various states and certain foreign jurisdictions where we market franchises regulate the sale of franchises.
The FTC requires franchisors to make extensive disclosure to prospective franchisees but does not require registration. A number of states in which our
franchisees operate require registration or disclosure in connection with franchise offers and sales. In addition, several states in which our franchisees operate
have “franchise relationship laws” or “business opportunity laws” that limit the ability of the franchisor to terminate franchise agreements or to withhold
consent to the renewal or transfer of these agreements. While our business has not been materially affected by such regulation, there can be no assurance that
this will continue or that future regulation or legislation will not have such an effect.
The determination of our worldwide provision for income taxes and other tax liabilities requires estimation and significant judgment and there are many
transactions and calculations where the ultimate tax determination is uncertain. Like many other multinational corporations, we are subject to tax in multiple
United States and foreign tax jurisdictions and have structured our operations to reduce our effective tax rate. Our determination of our tax liability is always
subject to audit and review by applicable domestic and foreign tax authorities. Any adverse outcome of any such audit or review could have a negative effect on
our business, operating results and financial condition, and the ultimate tax outcome may differ from the amounts recorded in our financial statements and
may materially affect our financial results in the period or periods for which such determination is made.
In addition, recent economic downturns have reduced tax revenues for United States federal and state governments and as a result proposals to increase
taxes from corporate entities are being considered at various levels of government. Among the options have been a range of proposals included in the tax and
budget policies recommended to the United States Congress by the United States Department of the Treasury to modify the federal tax rules related to the
imposition of United States federal corporate income taxes for companies operating in multiple United States and foreign tax jurisdictions. If such proposals
are enacted into law, this could increase our effective tax rate.

There can be no assurance that the periodic evaluation of our internal controls required by the Sarbanes-Oxley Act will not result in the identification of
significant deficiencies or material weaknesses in our internal controls or that our auditors will be able to attest to the effectiveness of our internal control over
financial reporting. Failure to comply may have consequences on our business including, but not limited to, increased risks of financial statement
misstatements, SEC sanctions and negative capital market reactions.

We cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate outcome of litigation filed by or against us, including,
remedies or damage awards. This litigation may involve, but is not limited to, actions or negligence by franchisees outside of our control. Our franchise
agreements provide that we are not liable for the actions of our franchisees; however, there is no guarantee that we would be insulated from liability in all cases.
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