Papa Johns 2004 Annual Report Download - page 9

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and 70 international) franchised Papa John’s restaurants were opened, and two Perfect Pizza franchised
restaurants were opened. Our franchisees have converted 61 Perfect Pizza restaurants to Papa John’s
restaurants since 2000.
Approval. Franchisees are approved on the basis of the applicant’s business background, restaurant
operating experience and financial resources. We seek franchisees to enter into development agreements
for single or multiple restaurants. We require the franchisee to either complete our training program or to
hire a full-time operator who completes the training and 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 $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. 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.
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. From time to time, development
agreements will be negotiated at other than standard terms for fees and royalties.
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