Papa Johns 2000 Annual Report Download - page 14

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franchisees is excellent. As of December 31, 2000, there were 1,971 franchised Papa John’ s restaurants
operating in 49 states, the District of Columbia, and ten international markets, and 202 franchised Perfect
Pizza restaurants operating in the United Kingdom. We have development agreements with our domestic
franchisees for approximately 460 additional franchised restaurants committed to open through 2007 and
agreements for 343 additional international franchised restaurants to open through 2009. There can be no
assurance that all of these restaurants will be opened or that the development schedule set forth in the
development agreements will be achieved. Formal development agreements for franchised Perfect Pizza
restaurants do not exist, although a pipeline of qualified franchisees interested in expansion is maintained.
During the 2000 fiscal year, 314 (271 domestic and 43 international) franchised Papa John’ s restaurants
were opened, and 11 Perfect Pizza franchised restaurants were opened .
Approval. Franchisees are approved on the basis of the applicant’ s business background, restaurant
operating experience and financial resources. We generally seek franchisees who will enter into
development agreements for multiple restaurants. We seek franchisees who have restaurant experience
or, in the case of franchisees who do not have restaurant experience, we require the franchisee to hire a
full-time operator who has either an equity interest or the right to acquire an equity interest in the franchise
operation.
Development and Franchise Agreements. We enter into development agreements with our domestic
franchisees for the opening of a specified number of restaurants within a defined period of time and
specified geographic area. Under our current standard development agreement, the franchisee is required
to pay, at the time of signing the agreement, a non-refundable fee of $5,000 per restaurant covered by the
development agreement. This amount is credited against the standard $20,000 franchise fee payable to us
upon signing the franchise agreement for a specific location. Generally, a franchise agreement is executed
when a franchisee secures a location.
Our current standard domestic franchise agreement provides for a term of 10 years (with one ten-year
renewal option) and payment to us of a royalty fee of 4% of sales. The current agreement, as well as
substantially all existing franchise agreements, permit us to increase the royalty fee up to 5% of sales after
the agreement has been in effect for three years. However, the royalty fee cannot be increased to an
amount greater than the percentage royalty fee then in effect for new franchisees.
We have the right to terminate a franchise agreement for a variety of reasons, including a franchisee’ s
failure to make payments when due or failure to adhere to our policies and standards. Many state
franchise laws limit the ability of a franchisor to terminate or refuse to renew a franchise.
We opened our first franchised restaurant outside the United States in 1998. In international markets, we
enter into either a development agreement or a master franchise agreement with a franchisee for the
opening of a specified number of restaurants within a defined period of time and specified geographic
area. Under a master franchise agreement, the franchisee has the right to subfranchise a portion of the
development to one or more subfranchisees approved by us. Under our current standard international
development agreement, the franchisee is required to pay total fees of $25,000 per restaurant, $5,000 at
the time of signing the agreement, and $20,000 when the restaurant opens or the agreed-upon development
date, whichever comes first. Under our current master franchise agreement, the master franchisee is
required to pay total fees of $25,000 per restaurant owned and operated by the master franchisee, under
the same terms as for the development agreement, and $15,000 for each subfranchised restaurant, $5,000
at the time of signing the agreement and $10,000 when the restaurant opens or the agreed-upon
development date, whichever comes first.