Dunkin' Donuts 2012 Annual Report Download - page 27

-17-
We may not be able to enforce payment of fees under certain of our franchise arrangements.
In certain limited instances, a franchisee may be operating a restaurant pursuant to an unwritten franchise arrangement. Such
circumstances may arise where a franchisee arrangement has expired and new or renewal agreements have yet to be executed
or where the franchisee has developed and opened a restaurant but has failed to memorialize the franchisor-franchisee
relationship in an executed agreement as of the opening date of such restaurant. In certain other limited instances, we may
allow a franchisee in good standing to operate domestically pursuant to franchise arrangements which have expired in their
normal course and have not yet been renewed. As of December 29, 2012, approximately 1% of our stores were operating
without a written agreement. There is a risk that either category of these franchise arrangements may not be enforceable under
federal, state and local laws and regulations prior to correction or if left uncorrected. In these instances, the franchise
arrangements may be enforceable on the basis of custom and assent of performance. If the franchisee, however, were to neglect
to remit royalty payments in a timely fashion, we may be unable to enforce the payment of such fees which, in turn, may
materially and adversely affect our business and operating results. While we generally require franchise arrangements in
foreign jurisdictions to be entered into pursuant to written franchise arrangements, subject to certain exceptions, some expired
contracts, letters of intent or oral agreements in existence may not be enforceable under local laws, which could impair our
ability to collect royalty income, which in turn may materially and adversely impact our business and operating results.
Our business activities subject us to litigation risk that could affect us adversely by subjecting us to significant money
damages and other remedies or by increasing our litigation expense.
In the ordinary course of business, we are the subject of complaints or litigation from franchisees, usually related to alleged
breaches of contract or wrongful termination under the franchise arrangements. In addition, we are, from time to time, the
subject of complaints or litigation from customers alleging illness, injury or other food-quality, health or operational concerns
and from suppliers alleging breach of contract. We may also be subject to employee claims based on, among other things,
discrimination, harassment or wrongful termination. Finally, litigation against a franchisee or its affiliates by third parties,
whether in the ordinary course of business or otherwise, may include claims against us by virtue of our relationship with the
defendant-franchisee. In addition to decreasing the ability of a defendant-franchisee to make royalty payments and diverting
our management resources, adverse publicity resulting from such allegations may materially and adversely affect us and our
brands, regardless of whether such allegations are valid or whether we are liable. Our international operations may be subject to
additional risks related to litigation, including difficulties in enforcement of contractual obligations governed by foreign law
due to differing interpretations of rights and obligations, compliance with multiple and potentially conflicting laws, new and
potentially untested laws and judicial systems and reduced or diminished protection of intellectual property. A substantial
unsatisfied judgment against us or one of our subsidiaries could result in bankruptcy, which would materially and adversely
affect our business and operating results.
Our business is subject to various laws and regulations and changes in such laws and regulations, and/or failure to comply
with existing or future laws and regulations, could adversely affect us.
We are subject to state franchise registration requirements, the rules and regulations of the Federal Trade Commission (the
“FTC”), various state laws regulating the offer and sale of franchises in the U.S. through the provision of franchise disclosure
documents containing certain mandatory disclosures and certain rules and requirements regulating franchising arrangements in
foreign countries. Although we believe that the Franchisors' Franchise Disclosure Documents, together with any applicable
state-specific versions or supplements, and franchising procedures that we use comply in all material respects with both the
FTC guidelines and all applicable state laws regulating franchising in those states in which we offer new franchise
arrangements, noncompliance could reduce anticipated royalty income, which in turn may materially and adversely affect our
business and operating results.
Our franchisees are subject to various existing U.S. federal, state, local and foreign laws affecting the operation of the
restaurants including various health, sanitation, fire and safety standards. Franchisees may in the future become subject to
regulation (or further regulation) seeking to tax or regulate high-fat foods, to limit the serving size of beverages containing
sugar, to ban the use of certain packaging materials (including polystyrene used in the iconic Dunkin' Donuts cup) or requiring
the display of detailed nutrition information. Each of these regulations would be costly to comply with and/or could result in
reduced demand for our products.
In connection with the continued operation or remodeling of certain restaurants, the franchisees may be required to expend
funds to meet U.S. federal, state and local and foreign regulations. Difficulties in obtaining, or the failure to obtain, required
licenses or approvals could delay or prevent the opening of a new restaurant in a particular area or cause an existing restaurant
to cease operations. All of these situations would decrease sales of an affected restaurant and reduce royalty payments to us
with respect to such restaurant.