Papa Johns 2005 Annual Report Download - page 10

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Hours of Operations. Our domestic restaurants are open seven days a week, typically from 11:00 a.m. to
12:30 a.m. Monday through Thursday, 11:00 a.m. to 1:30 a.m. on Friday and Saturday and 12:00 noon to
11:30 p.m. on Sunday.
Franchise Program
General. We continue to attract franchisees with significant restaurant and retail experience. We consider
our franchisees to be a vital part of our system’s continued growth and believe our relationship with our
franchisees is good. As of December 25, 2005, there were 2,422 franchised Papa John’s restaurants
operating in 49 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and 22 countries,
and 112 franchised Perfect Pizza restaurants operating in the United Kingdom. As of December 25, 2005,
we have development agreements with our franchisees for approximately 271 additional domestic
franchised restaurants committed to open through 2012 and agreements for 848 additional international
franchised restaurants to open through 2016. 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.
During 2005, 190 (101 domestic and 89 international) franchised Papa John’s restaurants were opened,
and six Perfect Pizza franchised restaurants were opened. Our franchisees have converted 62 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 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. Substantially all existing franchise agreements
permit 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” 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. 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