Papa Johns 2003 Annual Report Download - page 10

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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. We define international
markets to be all markets outside the contiguous United States in which 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; therefore, a country could be
divided into multiple markets. 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 initial
fees 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 standard 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 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 franchise fee is £18,500 (approximately
$33,000 at an exchange rate of $1.77 as of December 28, 2003), 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 historically
had no equivalent to our development agreements or master franchise agreements. Recently, PJUK
entered into multiple-unit development agreements for territories in Northwest London and in Scotland.
We have entered into a limited number of development and franchise agreements for non-traditional
restaurant units and continue to analyze opportunities to expand these types of 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,
including population, density, income, age and traffic. Our domestic franchisees may purchase complete
new store equipment packages through an approved third party supplier under a commission arrangement
with the Company. Internationally, our franchisees buy their equipment from approved third party
suppliers.