Einstein Bros 2004 Annual Report Download - page 28

http://www.sec.gov/Archives/edgar/data/949373/000104746905006202/a2153240z10-k.htm[9/11/2014 10:13:29 AM]
material adverse effect on us, our ability to collect royalties, our reputation, our brands and our ability to attract prospective franchisees.
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
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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 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 may assert rights in our trademarks, service marks and other proprietary rights.
We have a majority stockholder.
Greenlight Capital, L.L.C. and its affiliates beneficially own approximately 97 percent of our common stock. As a result, Greenlight has
sufficient voting power, without the vote of any other stockholders, to determine what matters will be submitted for approval by our stockholders,
to approve actions by written consent without the approval of any other stockholders, to elect all of our board of directors, and to determine whether
a change in control of our company occurs. Greenlight's interests on matters submitted to stockholders may be different from those of other
stockholders. Greenlight is not involved in our day-to-day operations, but Greenlight has voted its shares to elect our current board of directors.
The chairman of our board of directors is a current employee of Greenlight.
Our common stock is not currently listed on any stock exchange or Nasdaq. As a result, we are not subject to corporate governance rules
adopted by the New York Stock Exchange, American Stock Exchange and Nasdaq requiring a majority of directors to be independent and
requiring compensation and nominating committees that are composed solely of independent directors. However, we are subject to rules requiring
that the audit committee consist entirely of independent directors. Under the rules of these stock exchanges and Nasdaq, if a single stockholder
holds more that 50% of the voting power of a listed company, that company is considered a controlled company, and except for the rules relating to
independence of the audit committee, is exempt from the above-mentioned independence rules. Since Greenlight beneficially owns approximately
97 percent of our common stock, we may take advantage of the controlled company exemption if our common stock becomes listed on an
exchange or Nasdaq in the future. As a result, our stockholders currently do not have, and may never have, the protections that these rules are
intended to provide.
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Future sales of shares of our common stock by our stockholders could cause our stock price to fall.
If a substantial number of shares of our common stock are sold in the public market, the market price of our common stock could fall. The
perception among investors that these sales will occur could also produce this effect. Our majority stockholder Greenlight beneficially owns