Baskin Robbins 2011 Annual Report Download - page 40

Franchise Arrangement Termination; Nonrenewal. Each franchise arrangement is subject to termination by us as
the franchisor in the event of a default, generally after expiration of applicable cure periods, although under
certain circumstances a franchise arrangement may be terminated by us upon notice without an opportunity to
cure. The default provisions under the franchise arrangements are drafted broadly and include, among other
things, any failure to meet operating standards and actions that may threaten our licensed intellectual property.
In addition, each franchise agreement has an expiration date. Upon the expiration of the franchise arrangement,
we or the franchisee may, or may not, elect to renew the franchise arrangements. If the franchisee arrangement is
renewed, the franchisee will receive a “successor” franchise arrangement for an additional term. Such option,
however, is contingent on the franchisee’s execution of the then-current form of franchise arrangements (which
may include increased royalty payments, advertising fees and other costs), the satisfaction of certain conditions
(including modernization of the restaurant and related operations) and the payment of a renewal fee. If a
franchisee is unable or unwilling to satisfy any of the foregoing conditions, the expiring franchise arrangements
will terminate upon expiration of the term of the franchise arrangements.
Product Liability Exposure. We require franchisees to maintain general liability insurance coverage to protect
against the risk of product liability and other risks and demand strict franchisee compliance with health and
safety regulations. However, franchisees may receive through the supply chain (from central manufacturing
locations (“CMLs”), NDCP or otherwise), or produce defective food or beverage products, which may adversely
impact our brands’ goodwill.
Americans with Disabilities Act. Restaurants located in the U.S. must comply with Title III of the Americans
with Disabilities Act of 1990, as amended (the “ADA”). Although we believe newer restaurants meet the ADA
construction standards and, further, that franchisees have historically been diligent in the remodeling of older
restaurants, a finding of noncompliance with the ADA could result in the imposition of injunctive relief, fines, an
award of damages to private litigants or additional capital expenditures to remedy such noncompliance. Any
imposition of injunctive relief, fines, damage awards or capital expenditures could adversely affect the ability of
a franchisee to make royalty payments, or could generate negative publicity, or otherwise adversely affect us.
Franchisee Litigation. Franchisees are subject to a variety of litigation risks, including, but not limited to,
customer claims, personal-injury claims, environmental claims, employee allegations of improper termination
and discrimination, claims related to violations of the ADA, religious freedom, the Fair Labor Standards Act, the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and intellectual-property claims.
Each of these claims may increase costs and limit the funds available to make royalty payments and reduce the
execution of new franchise arrangements.
Potential Conflicts with Franchisee Organizations. Although we believe our relationship with our franchisees is
open and strong, the nature of the franchisor-franchisee relationship can give rise to conflict. In the U.S., our
approach is collaborative in that we have established district advisory councils, regional advisory councils and a
national brand advisory council for each of the Dunkin’ Donuts brand and the Baskin-Robbins brand. The
councils are comprised of franchisees, brand employees and executives, and they meet to discuss the strengths,
weaknesses, challenges and opportunities facing the brands as well as the rollout of new products and projects.
Internationally, our operations are primarily conducted through joint ventures with local licensees, so our
relationships are conducted directly with our licensees rather than separate advisory committees. No material
disputes exist in the U.S. or internationally at this time.
Failure to retain our existing senior management team or the inability to attract and retain new qualified
personnel could hurt our business and inhibit our ability to operate and grow successfully.
Our success will continue to depend to a significant extent on our executive management team and the ability of
other key management personnel to replace executives who retire or resign. We may not be able to retain our
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