Einstein Bros 2005 Annual Report Download - page 10

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We are from time to time the subject of complaints or litigation from our consumers alleging illness, injury or other food quality, health or
operational concerns. Adverse publicity resulting from these allegations may materially adversely affect us, regardless of whether the allegations
are valid or whether we are liable. In addition, employee claims against us based on, among other things, discrimination, harassment or wrongful
termination may divert financial and management resources that would otherwise be used to benefit our future performance. We have been subject
to claims from time to time, and although these claims have not historically had a material impact on our operations, a significant increase in the
number of these claims or the number that are successful could materially adversely affect our business, prospects, financial condition, operating
results or cash flows.
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A regional or global health pandemic could severely affect our business.
A health pandemic is a disease that spreads rapidly and widely by infection and affects many individuals in an area or population at the same
time. If a regional or global health pandemic were to occur, depending upon its duration and severity, our business could be severely affected. We
have positioned ourselves as a “neighborhood atmosphere” between home and work where people can gather together for human connection and
high quality food. Customers might avoid public gathering places in the event of a health pandemic, and local, regional or national governments
might limit or ban public gathering places to halt or delay the spread of disease. A regional or global pandemic might also adversely impact our
business by disrupting or delaying production and delivery of products and materials in our supply chain and causing staff shortages in our
restaurants. The impact of a health pandemic might be disproportionately greater on us than on other companies that depend less on the gathering
of people in a neighborhood atmosphere.
We rely in part on our franchisees and licensees.
We rely in part on our franchisees and licensees and the manner in which they operate their locations to develop and promote our business.
Although we have developed criteria to evaluate and screen prospective candidates, the candidates may not have the business acumen or financial
resources necessary to operate successful locations in their respective areas. In addition, franchisees and licensees are subject to business risks
similar to what we face such as competition, consumer acceptance, fluctuations in the cost, availability and quality of raw ingredients, and
increasing labor costs. The failure of franchisees and licensees to operate successfully could have a material adverse effect on us, our reputation,
our ability to collect royalties, our brands and our ability to attract prospective candidates. As we move into offering franchises for our Einstein
Bros. Bagel brand, our reliance on our franchisees is expected to increase in proportion to growth of the franchisee base.
We face risks associated with government regulation.
Each of our locations is subject to licensing and regulation by the health, sanitation, safety, labor, building and fire agencies of the respective
states and municipalities in which it is located. A failure to comply with one or more regulations could result in the imposition of sanctions,
including the closing of facilities for an indeterminate period of time, or third-party litigation, any of which could have a material adverse effect on
us and our results of operations.
In addition, our franchising operations are subject to regulation by the Federal Trade Commission. Our franchisees and we must also comply
with state franchising laws and a wide range of other state and local rules and regulations applicable to our business. The failure to comply with
federal, state and local rules and regulations would have an adverse effect on our franchisees and us.
Under various federal, state and local laws, an owner or operator of real estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances on or in such property. Such liability may be imposed without regard to whether the owner or operator knew of, or
was responsible for, the presence of such hazardous or toxic substances. Although we are not aware of any environmental conditions that require
remediation by us under federal, state or local law at our properties, we have not conducted a comprehensive environmental review of our
properties or operations. We may not have identified all of the potential environmental liabilities at our properties, and any such liabilities that are
identified in the future may have a material adverse effect on our financial condition.
We may not be able to protect our trademarks, service marks and other proprietary rights.
We believe that our trademarks, service marks and other proprietary rights are important to our success and our competitive position.
Accordingly, we devote substantial resources to the establishment
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and protection of our trademarks, service marks and proprietary rights. However, the actions we take may be inadequate to prevent imitation of our
products and concepts by others or to prevent others from claiming violations of their trademarks and proprietary rights by us. In addition, others