Papa Johns 2014 Annual Report Download - page 20

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North America Development and Franchise Agreements. We enter into development agreements with our
franchisees in North America for the opening of a specified number of restaurants within a defined period
of time and specified geographic area. Under our standard domestic development agreement, the
franchisee is required to pay, at the time of signing the agreement, a non-refundable fee of $25,000 for the
first restaurant and $5,000 for any additional restaurants. The non-refundable fee is credited against the
standard $25,000 franchise fee payable to us upon signing the franchise agreement for a specific location.
The franchise agreement is generally executed once a franchisee secures a location. Our current standard
franchise agreement requires the franchisee to pay a royalty fee of 5% of sales, and the majority of our
existing franchised restaurants also have a 5% royalty rate in effect.
Substantially all existing franchise agreements have an initial 10-year term with a 10-year renewal option.
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 our ability as a franchisor, to terminate or refuse to renew a franchise.
We provide assistance to Papa John’s franchisees in selecting sites, developing restaurants and evaluating
the physical specifications for typical restaurants. We provide layout and design services and
recommendations for subcontractors, signage installers and telephone systems to Papa John’s franchisees.
Our franchisees can purchase complete new store equipment packages through an approved third-party
supplier. In addition, we sell replacement smallwares and related items to our franchisees. Each
franchisee is responsible for selecting the location for its restaurants but must obtain our approval of
restaurant design and location based on accessibility and visibility of the site and targeted demographic
factors, including population density, income, age and traffic.
Domestic Franchise Development Incentives. Over the past few years, we have offered various
development incentive programs for domestic franchisees to accelerate unit openings. Such incentives
included the following for 2014 traditional openings: (1) waiver of the standard one-time $25,000
franchise fee if the unit opens on time in accordance with the agreed-upon development schedule, or a
reduced fee of $5,000 if the unit opens late; (2) the waiver of some or all of the 5% royalty fee for a
period of time; (3) a credit for a portion of the purchase of certain equipment; and (4) a credit to be
applied toward a future food purchase, under certain circumstances. We believe the development
incentive programs have accelerated unit openings and expect they will continue to do so in 2015.
Domestic Franchise Support Initiatives. From time to time, we offer discretionary support initiatives to
our domestic franchisees, including:
 Performance-based incentives;
 FOCUS installation incentive program;
 Targeted royalty relief and local marketing support to assist certain identified franchisees or
markets;
 Restaurant opening incentives; and
 Reduced-cost direct mail campaigns from Preferred Marketing Solutions (“Preferred,” our wholly
owned print and promotions subsidiary).
In 2015, we plan to offer some or all of these domestic franchise support initiatives.
International Development and Franchise Agreements. We opened our first franchised restaurant outside
the United States in 1998. We define “international” as all markets outside the United States and Canada.
In international markets, we have 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 sub