Dunkin' Donuts 2013 Annual Report Download - page 27

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of unclean water supply, food-borne illnesses, and food tampering have in the past severely injured the reputations of
companies in the food processing, grocery, and QSR segments and could in the future affect us as well. Any report linking us or
our franchisees to the use of unclean water, food-borne illnesses, or food tampering could damage our brands' value
immediately, severely hurt sales of beverages and food products, and possibly lead to product liability claims. In addition,
instances of food-borne illnesses or food tampering, even those occurring solely at the restaurants of competitors, could, by
resulting in negative publicity about the foodservice or restaurant industry, adversely affect our sales on a regional or global
basis. A decrease in customer traffic as a result of these health concerns or negative publicity could materially and adversely
affect our brands and our business.
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 28, 2013, less than 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