Papa Johns 2001 Annual Report Download - page 13

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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 ten 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, permits 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. Beginning in 2001, we
changed the definition of international markets to be all markets outside the contiguous United States. 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 (except for Hawaii and Alaska in which the terms
are the same as domestic restaurants), 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.
Our current standard international master franchise and development agreements provide for payment to
us of a royalty fee of 5% of sales (including sales by subfranchised restaurants), with no provision for
increase. The remaining terms applicable to the operation of individual restaurants are substantially
equivalent to the terms of our standard domestic franchise agreement.
We franchise restaurants in the United Kingdom under Perfect Pizza franchise agreements, which were in
effect at the time of our acquisition in 1999. These franchise agreements differ from our standard
international franchise agreements in many respects, although with few material differences. A principal
difference is the term of the agreement, which is five years. The franchisee fee is £10,000 (approximately
$14,500 at an exchange rate of $1.45 as of December 30, 2001), and the royalty rate of 5% is the same as
in our standard international agreements. The Perfect Pizza system has been developed principally
through franchising of individual restaurants to single location franchisees. Thus, the system has no
equivalent to our development agreements or master franchise agreements.
We have entered into a limited number of development and franchise agreements for non-traditional
restaurant units. These agreements generally cover venues or areas not originally targeted for
development and have terms differing from the standard agreement. These agreements have not had a
significant impact on our revenues or earnings.
Franchise Restaurant Development. We provide assistance to Papa John’s franchisees in selecting sites,
developing restaurants and evaluating the physical specifications for typical restaurants. 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,