Baskin Robbins 2011 Annual Report Download - page 37

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 31, 2011, 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.
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