Baskin Robbins 2013 Annual Report Download - page 29

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sales of the restaurant could be adversely affected.
Franchisee Insurance. The franchise arrangements require each franchisee to maintain certain insurance types and levels.
Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at
prohibitively expensive rates) with respect to many other risks. Moreover, any loss incurred could exceed policy limits and
policy payments made to franchisees may not be made on a timely basis. Any such loss or delay in payment could have a
material and adverse effect on a franchisee's ability to satisfy its obligations under its franchise arrangement, including its
ability to make royalty payments.
Some of Our Franchisees are Operating Entities. Franchisees may be natural persons or legal entities. Our franchisees that are
operating companies (as opposed to limited purpose entities) are subject to business, credit, financial, and other risks, which
may be unrelated to the operations of the restaurants. These unrelated risks could materially and adversely affect a franchisee
that is an operating company and its ability to make its royalty payments in full or on a timely basis, which in turn may
materially and adversely affect our business and operating results.
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 executive officers and key